Malaysian banks continue to benefit from a supportive home market that provides steady growth opportunities against manageable credit risks that will drive their financial performance in the next 12-18 months, says Fitch Ratings.
The agency projects Malaysia’s GDP growth to be sustained at a normalised 4%-5% in 2023-2024 to underpin credit demand. A healthy job market is likely to support the asset-quality performance of household-sector loans, which account for nearly 60% of total system lending. Malaysia’s monetary policy tightening has been measured, with domestic inflation under control. This gentle gradient of interest-rate hikes limits the increase in the debt-service burdens of borrowers and mitigates asset-quality risks. We believe downside risks to the credit quality of loan portfolios have receded, and banks hold adequate provisions against credit impairments that are likely to be forthcoming.
Net interest margins have peaked, but the higher level of prevailing interest rates continues to buoy bank revenues. Steady credit costs amid benign asset quality should therefore keep banks’ profitability near current levels in the near term. Capital ratios are likely to remain steady, with sustained profitability and slower balance-sheet growth offset by an increase in dividend payments.
