KUALA LUMPUR (Dec 5): Malaysian banks are entering 2023 in a position of strength. Higher credit growth, better margins, and lower credit costs have improved pre-tax earnings for the rated banks, according to S&P Global Ratings.
In a statement on Monday (Dec 5), 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 forecast Malaysian banks' credit costs to stay flattish at 30-40 basis points (bps) in 2023, higher than the pre-pandemic average of 15 bps.
Although asset quality risks will remain contained, the banks are likely to still be cautious amid higher interest rates and a global economic downturn, it said.
S&P credit analyst Nikita Anand said 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.
S&P said the Malaysian banks it rates have reported a modest 14 to 15 bps rise in non-performing loan (NPL) ratios since the expiry of moratoriums earlier this year.
It said most of this increase has come from small and midsize enterprises, corporates, and unsecured retail loans.
The agency said residual loans that have been restructured or rescheduled have declined to about 4% by end-October 2022, from 5% to 6% as of end-July.
It said the level of restructured loans is gradually declining, as borrowers exit repayment assistance programmes and resume debt payments.
S&P said if the repayment trend from these borrowers stays strong, the sector's NPL ratio will likely remain below forecast.
Credit growth could slow to 5%
The agency said credit growth could slow to 5% in 2023, from about 6% in 2022.
It said 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, it expects a total rate hike of 50 bps in 2023.
It said the improvement in banks' net interest margins may moderate somewhat, as price competition for fixed deposits intensifies.
S&P said the ensuing liquidity tightening in Malaysia will be broadly manageable, given that liquidity is coming off the high levels seen during the Covid-19 pandemic.
It said the growth of overseas operations 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.
She said 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.
