KUALA LUMPUR (May 11): Moody's Investors Service said its banking team is closely following developments involving Malaysia's 14th general election (GE14) campaign promises that could have a negative impact on market sentiment and trigger volatility in financial markets.

Moody's vice president and senior analyst Simon Chen said in a statement today these dynamics will take time to unfold and a lot will depend on what the new government unveils in the coming weeks and months.

"If investor sentiment worsens materially, we will see increasing risks of capital outflows and a further weakening of the ringgit, that could in turn dampen private sector consumption and operating conditions for banks in Malaysia.

"Capital outflows could also lead to deposit outflows and a tightening of liquidity conditions in the banking sector. However, we acknowledge that the system has weathered challenging periods, in particular, during the 1MDB (1Malaysia Development Bhd) allegations. Overall, the Malaysian banking system is resilient to market volatility, given the banks' strong capital and liquidity buffers," he said.