RAM Ratings has stable outlook on Malaysian banking sector

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KUALA LUMPUR (March 19): The Malaysian banking sector’s fundamentals remained resilient in 2012, despite the ongoing concerns in Europe and the US pertaining to slow economic growth, sovereign debt woes and fiscal issues, according to RAM Ratings.

In a statement March 18, the credit rating agency said parameters such as asset quality, liquidity and funding, profitability and capitalisation, continued to show up favourably on our radar.

“Against this setting, RAM Ratings has reiterated the stable outlook on the Malaysian banking sector,” it said.

On the heels of a 5.6% GDP expansion last year and supported by accommodative monetary conditions, strong domestic demand and increased government spending on infrastructure projects, the Malaysian economy is anticipated to expand 5.3% this year, it said.

RAM Ratings co-head of financial institution ratings Wong Yin Ching said much of the banking system’s soundness was attributable to Bank Negara Malaysia’s (BNM) robust regulatory and supervisory regimes, adding that recently, the Financial Services Bill 2012 and the Islamic Financial Services Bill 2012 had been passed.

“These include the implementation of a capital framework for financial-services groups. We believe that the new legislation is a positive development that will ensure effective and holistic supervision of the banking industry.

“The enhanced supervisory regime will fortify the Malaysian banking system and promote sustainable growth in the long run,” said Wong.

She said the banking sector’s loan growth would be driven by strong private consumption and the financing requirements for the various projects outlined under the government’s 10th Malaysia Plan and the Economic Transformation Programme, although some of this funding will be derived from the debt capital market.

“Coupled with a still-conducive borrowing environment, we expect the banking system’s loan growth to come in at 9%-10% in 2013, close to last year’s 10.4%,” she said.

RAM Ratings said that the Malaysian banking system’s fundamentals have remained healthy.

Wong said the industry’s gross impaired-loan ratio had improved to an all-time low of 2% and it was expected to be kept stable with the credit cost ratio of about 0.3%.

“The segment that we are watching a bit more closely is personal financing, especially for the lower-income group, as this category of borrowers may be more susceptible to income shocks and inflationary pressures.

“In addition, we are monitoring the impact of the newly-implemented minimum wage policy on the manufacturing segment. The export-oriented segment is also more sensitive to external uncertainties,” she said.

Meanwhile, another co-head of financial institution ratings at RAM Ratings, Sophia Lee said that while some banking systems abroad have had to contend with liquidity concerns, the Malaysian system was still flush, with a loan-to-deposit ratio of 77% as at end-January 2013.

“This will allow banks to continue supporting credit expansion. Nonetheless, we note that competition for current- and savings-account deposits has been fierce as banks attempt to shore up their low-cost deposits to improve their funding costs,” she said.

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