This article first appeared in The Edge Financial Daily on September 20, 2018

KUALA LUMPUR: Moody’s Investors Service has revised downwards its forecast for loan growth in Malaysia this year to reflect changes in government policy and the subdued market outlook. It now expects the loan growth to be 5% to 6% compared with the 7% to 8% projected three months ago.

“We are refining our assessment of the growth conditions and we find that the private sector is still taking the wait-and-see approach as they await more guidance on the policy front,” said Simon Chen, the rating agency’s vice-president and senior analyst for financial institutions group.

“We were previously more optimistic that there would be faster recovery [in loan growth],” Chen told a media conference on the outlook of the banking industry. “[But now] we want to be more realistic given that sentiment continues to be dampened.”

He said a key milestone the private sector will be looking at the upcoming Budget 2019 that will help alleviate some policy uncertainties.

Regardless, Chen said the overall Malaysian banking sector outlook remains stable, underpinned by operating conditions which continue to remain robust.

He said while loan growth is expected to be weaker, it is still at a level that is supporting the profitability of banks, adding that the capital and liquidity buffers maintained by banks continue to be resilient against any volatility.

“What’s driving our stable outlook is how we are looking at the credit worthiness for banks in a particular country. The likelihood of any rating changes over the next 12 to 18 months is quite remote, so the ratings are more likely to remain stable,” he said.

Meanwhile, commenting on the US-China trade war, Moody’s vice-president and senior analyst for sovereign risk group Anushka Shah said tensions are expected to be prolonged as more measures are put in place over the next year.

“We did a broad analysis and what we find is that within the region it’s the trans-shipment hub areas such as Hong Kong and Singapore that will probably be more vulnerable and exposed to any trade or tariff imposition.

“Apart from that it’s the electronic supply chain that tends to be more exposed. We find that a lot of APAC economies are exposed with Malaysia being one of them. Electronic export is about 37% of total export in Malaysia so it could be impacted,” she said.