RAM’s co-head of Financial Institution Ratings, Wong Yin Ching said while there were lingering headwinds, the rating’s agency anticipates banks to be able to sustain their performance this year.
“Among the key expectations for the sector includes light moderation in loan growth to five per cent, credit cost to inch up from a low base, capital buffers to remain sturdy and ample liquidity, although competition for deposits would still be keen,” she said in a statement today.
She added that the five per cent projected loan growth took into account the forecast for a slight moderation in gross domestic product (GDP) growth and the latest findings of the RAM business confidence index.
“The indices are at their lowest levels since inception two years ago, albeit still above the threshold that indicates positive sentiment.
“Loan applications and approvals, both leading indicators, recorded slower increases of a respective two per cent and five per cent in 2018 compared with the previous year,” Wong said.
Meanwhile, another co-head of RAM’s Financial Institution Ratings, Sophia Lee said the banking system’s gross impaired loan ratio ended 2018 at a low of 1.45 per cent compared with 1.55 per cent in 2017.
“We expect this ratio to keep below 1.6 per cent in 2019, even if there is some deterioration for vulnerable segments, such as commercial real estate, construction and oil and gas (O&G) as well as lower-income households,” she said.
According to Lee, banks had already made the necessary provisions for their O&G exposures, as the downturn began four years ago.
“They have also been exercising caution on commercial real estate as the annual growth of loans for the purchase of non-residential properties skidded from double-digit levels pre-2016 to just 2.0 per cent in 2018,” she said.
She noted that while household debt had declined since 2016, the household debt-to-GDP ratio of 83.8 per cent as at end-June 2018 was still on the high side, relative to the national per capita GDP.
“There are challenges from the lower-income segment such as individuals earning less than RM3,000 per month and among self-employed borrowers,” she said.
However, Lee said the borrowings of the lower-income bracket had declined proportionally to 20 per cent of total household debt as at end-June 2018 compared with 24 per cent at end-December 2014.
“The macroprudential measures introduced in the last few years would help preserve the credit quality of household loans. Furthermore, the national unemployment rate stayed low at 3.3 per cent in December 2018 while interest rates remained accommodative.
“Bank Negara Malaysia could loosen monetary policy if the risks to economic growth become more pronounced,” she said.
She added that despite revenue pressure, the eight anchor banking groups still managed to lift their aggregate pre-tax profit, excluding exceptional or non-recurring items by a commendable six per cent in 2018 due to lower impairment charges and strong cost discipline.
“The banks’ average pre-tax returns on asset (ROA) have remained stable at 1.4 per cent. Looking ahead, continued loan growth and ongoing cost control will mitigate the impact of margin compression and incremental credit costs.
“While technology/digital spending will be stepped up, this will be done at a measured pace. As such, RAM expects banks’ pre-tax ROA to remain largely resilient in 2019, albeit with a mild downward bias,” Lee said. — Bernama
Source: The Malay Mail Online