Fitch Solutions Country Risk and Industry Research (Fitch Solutions) has maintained its forecast for credit growth in Malaysia to ease slightly to 4.3 per cent this year from 4.5 per cent in 2022, due to a weaker economic outlook and higher borrowing costs.
Fitch Solutions reckons that “Malaysian banks on aggregate would likely remain on a stable footing despite potential negative spillovers from banking stresses in the United States and Europe, as a result of robust liquidity and capital buffers, as well as a much less restrictive monetary environment.”
“Asset quality has also remained fairly stable despite the phasing out of support measures, and a significant deterioration would not be expected in the months ahead,” it said in a research note.
“Downside risks to the country’s financial stability remained modest with banks remaining well-positioned to support financial intermediation, despite potential negative spillovers from banking stresses in the US and Europe,” it added.
“Importantly, banks have strong capital and liquidity buffers, while asset quality has remained fairly stable despite the expiration of pandemic relief measures.
“The rate-hiking cycle in Malaysia has also been much more gradual and modest than in other parts of the world as inflation has been more subdued, and interest rates were expected to peak soon,” it said.
Fitch Solutions noted that Malaysian banks were also well-capitalised with the aggregate banking system capital ratio coming in at 18.5 per cent in February 2023, compared with an average of 18.3 per cent in 2022.
“This is significantly higher than the regulatory minimum of 10.5 per cent (8.0 per cent total capital ratio and a 2.5 per cent capital conservation buffer), resulting in an excess capital buffer of RM135 billion.
“Common equity tier 1 (CET1) and tier 1 capital ratios also stood at 14.8 per cent and 15.3 per cent, respectively, in February, versus the Basel III requirement of 4.5 per cent and 6.0 per cent,” it said.
Fitch Solutions said the banking system’s strong liquidity coverage and loan-to-deposit ratios would continue to underpin financial stability in the country.
The latest data showed that the liquidity coverage ratio rose to 152.7 per cent in November 2022, from 147.1 per cent in January 2022, which was much higher than the minimum requirement of 100 per cent, implying a higher margin of safety, it said.
“The loan-to-deposit ratio has been relatively stable, staying within the range of 85-90 per cent since 2014, with the latest figure coming in at 86.4 per cent,” it added.
