S&P Global Ratings cited higher credit growth, better margins, and lower credit costs improved pre-tax earnings for Malaysian rated banks going into 2023 leading to these banks holding a position of strength.
the rating agency said Malaysia’s strong and broad economic recovery will support borrowers and boost the banking sector’s financial performance in 2023.
S&P forecasts Malaysian banks’ credit costs to stay flattish at 30-40 basis points (bps) in 2023, higher than the pre-pandemic average of 15 bps.
The banks are likely to still be cautious amid higher interest rates and a global economic downturn, although asset quality risks will remain contained, the rating agency stated on a note on Monday (Dec 5).
Credit costs for Malayan Banking Bhd (Maybank) and CIMB Bank Bhd are likely to stay higher than peers’ at 40 to 50 bps, given their sizeable exposure to markets with greater economic risk, such as Indonesia and Thailand, said S&P credit analyst Nikita Anand.
The agency cited Malaysian banks reported a modest 14 to 15 bps rise in non-performing loan (NPL) ratios since the expiry of allotted moratoriums earlier this year.
It said most of this increase has come from small and midsize enterprises, corporate, and unsecured retail loans. Restructured or rescheduled housing loans had declined to about 4% by end-October 2022, from 5% to 6% as of end-July.
S&P said the level of restructured loans is gradually declining, as borrowers exit repayment assistance programmes and resume debt payments adding, if the repayment trend from these borrowers stays strong, the sector’s NPL ratio will likely remain below forecast.
Credit growth could also slow down to 5% in 2023, from about 6% this year, with the full effect of a 100 bps increase in policy rates in 2022 will be more keenly reflected in banks’ lending rates next year. Furthermore, the agency expects a total rate hike of 50 bps in 2023.
The banks’ net interest margins may moderate somewhat, as price competition for fixed deposits intensifies. The resulting liquidity tightening in Malaysia will be broadly manageable, given that liquidity is coming off the high levels seen during the Covid-19 pandemic.
S&P also cited that growth in overseas divisions for large Malaysian banks may slow more acutely.
Anand said those in Singapore, for example, have had a sharp decline in low-cost savings deposits, raising their cost of funds. Malaysian banks are well placed to weather challenges in 2023, adding that the banking sector’s capitalisation and stable retail deposit base remain key credit strengths.
