Loans for Malaysian banking sector
Loans for the banking sector this year are expected to grow 9 to 10 per cent, close to last year's 10.4 per cent, according to RAM Rating Services.
This will be underpinned by strong private consumption, financing for projects under the 10th Malaysia Plan (10MP) and the Economic Transformation Programme (ETP) as well as a still-conducive borrowing environment, according to RAM Rating Services.
The rating agency's co-chief of financial institution ratings Wong Yin Ching said the sector’s loan growth would be driven by these factors, though some of the funding for the 10MP and ETP projects would be derived from the debt-capital market.
As for the quality of the banking system’s loan assets, she said the industry’s gross impaired loans (GILs) had been reducing over the last few years.
The figure had eased to 22.5 billion ringgit (Bt209.6 billion) by the end of January from 27.3 billion ringgit a year earlier, Wong said in conjunction with the release of RAM’s Banking Bulletin 2013. The bulletin is an annual publication on the overview of the banking sector.
Coupled with a larger loan base, she said the industry's GIL ratio had fallen to an all-time low of 2 per cent as at end-Jan 2013 compared with 2.7 per cent a year ago.
The segment that RAM Ratings was watching a bit more closely, according to her, was personal financing, especially for the lower-income group, as this category of borrowers may be more susceptible to income shocks and inflationary pressures.
The rating agency was also monitoring the impact of the newly-implemented minimum wage policy on the manufacturing segment, she said, adding that the export-oriented segment was more sensitive to external uncertainties.
Meanwhile, co-head of financial institution ratings Sophia Lee said on the whole, the asset-quality indicators of Malaysian banks compared well against those of their regional peers, which had also been largely insulated from the global financial crisis.
Looking ahead, Lee said she expected the local banking system's GIL ratio to remain largely stable, with its credit-cost ratio clocking in at about 0.3 per cent this year.
On the liquidity of the sector, Lee said: “While some banking systems abroad have had to contend with liquidity concerns, the Malaysian system is still flush, with a loan-to-deposit ratio of 77 per cent 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 funding costs.”
She added that local banks had been enjoying record profits in recent years, and 2012 was no exception.
“All eight domestic anchor-banking groups notched up stronger pre-tax profits, underpinned by healthy loan growth and lower impairment charges. Nonetheless, pressure on margins amid keen price competition on both loans and deposits is not expected to be alleviated anytime soon.”
On whether banks in the country were ready for the Basel III framework, she said that RAM expected all banks to meet a common-equity tier-1 ratio of 7 per cent at both their consolidated and entity levels before full implementation of the Basel III guidelines in 2019.
Lee said the Malaysian banking system's capitalisation levels, while sound, were slightly lower than those in Singapore and Indonesia. In November last year, Bank Negara released its guidelines on the calculation of regulatory capital under the framework.
Expressing her optimism on the sector, Wong said the Malaysian banking sector's fundamentals remained resilient last year despite concerns in Europe and the United States pertaining to slow economic growth, sovereign debt woes and fiscal issues.
She added that much of the banking system’s soundness was attributable to the central bank’s robust regulatory and supervisory regimes.
Wong commended the passing of the recent Financial Services Bill 2012 and the Islamic Financial Services Bill 2012, saying that the new legislation was a positive development and would ensure effective and holistic supervision of the banking industry.
The enhanced supervisory regime would, at the same time, strengthen the Malaysian banking system and promote sustainable growth in the long run, she said.
With the domestic marketplace becoming increasingly more saturated, local banks have been striving to accelerate their expansion via mergers and acquisitions (M&As) and Indonesia is the key piece in the jigsaw puzzle for many Malaysian banks despite its recently tightened rules on foreign ownership of its local banks.
