KUALA LUMPUR (June 2): RAM Ratings has assigned a “stable” outlook on the Malaysian banking sector, in its first report as part of its new Banking Sector Assessment (BSA) series published today.
“The stable outlook on the Malaysian banking sector reflects its robust capitalisation levels and sturdy loan quality.
“It also recognises Bank Negara Malaysia’s track record of effective banking regulation and country’s potential as an Islamic finance hub,” said RAM Ratings Co-Head of Financial Institution Ratings Sophia Lee in a statement today.
She added that while the country’s ratio on household debt to gross domestic product (GDP) remains elevated, the associated risks are contained.
The BSA series provides guidance on the likely changes to the risk profile of a country’s banking sector over the intermediate term.
It conveys RAM’s outlook on a country’s banking sector, which is classified as “positive”, “stable” or “negative”.
“A stable outlook is employed when the sector’s risk profile is expected to remain unchanged. A positive outlook indicates improving risk conditions while a negative outlook signals a worsening risk profile,” it explained.
“RAM’s first BSA report is on the Malaysian banking industry, on which we have 25 years’ insight and experience,” said RAM Ratings chief executive Foo Su Yin.
According to RAM, the analytical considerations in the BSA include an assessment of the industry’s financial metrics, namely asset quality, capitalisation, funding and liquidity position, as well as profitability indicators.
Qualitatively, it assesses the banking system’s regulatory environment, the risk appetite of market participants, economic conditions and growth prospects.
“The BSA outlook does not directly translate into a rating outlook on an individual credit; the latter remains guided by bank-specific factors.
“To keep abreast of current developments, RAM aims to publish BSA reports on an annual basis,” said RAM, adding that in the months to come it will be releasing BSA reports on other jurisdictions it covers.