KUALA LUMPUR (Sept 23): Noting that the downside systemic risks for Malaysian banks are on the rise, S&P Global Ratings today affirmed its A- long-term and A-2 short-term issuer credit ratings on CIMB Bank Bhd, Malayan Banking Bhd and Public Bank Bhd.
The rating agency also affirmed its BBB+ long-term and A-2 short-term issuer credit rating on AmBank (M) Bhd and RHB Bank Bhd.
“The outlook on all the five Malaysian banks is negative,” S&P said in a statement.
“In our view, downside systemic risks for Malaysian banks are on the rise. We consider that the economic risk trend for Malaysia has turned negative,” it said.
S&P said Malaysian banks are also facing rising risk in the competitive environment due to negative government intervention.
“We now see a one-in-three possibility that Malaysian banks could underperform our base-case asset quality expectations in the next 12-24 months.
“The protracted lockdown, rampant pandemic waves, repeated moratoriums on loan repayment, and ongoing political uncertainties in Malaysia have increased the downside risk to the recovery of the country's banking system.
“These factors have also reduced the headroom in our ratings on Malaysian banks,” it added.
Meanwhile, the rating agency also forecast the Malaysian banking industry's nonperforming loan (NPL) ratio to reach 3% to 4% and credit costs to stay at 55-60 basis points (bps) annually over 2021 and 2022, before recovering gradually.
It expects the country's gross domestic product (GDP) to grow by 6% in 2022, and the unemployment rate to improve to 4.4%.
According to S&P, Malaysian banks are facing Covid-19 related credit challenges from a position of strength compared with most of their ASEAN peers.
The Malaysian banking sector's NPL ratio and credit costs were at historical lows of 1.5% and 8bps, respectively, prior to 2020, and banks in general have a good earnings buffer to absorb an unexpected rise in credit costs, it noted.
“We also see an increased risk of negative government intervention in the Malaysian banking industry.
“The risk is reflected in the repeated government intervention in relief measures given out by domestic banks such as the recent announcement to waive off fourth-quarter interest for B50 (bottom 50% of individual borrowers by income) customers,” said the rating agency.
Such interventions, it said, could recur given the ongoing political instability, and impede the banking sector's ability to operate commercially.
“Other examples of past government interventions include the two rounds of extensive, six-month automatically approved moratorium programmes for all retail and small and midsize enterprise customers (combined 75% of commercial banking system loans).
“These have hurt banks' profitability even as they battled asset quality stress during the current credit downturn. Those interventions could also encourage some borrowers to be less disciplined in their repayment behaviour,” it added.
Noting that the Malaysian banking industry's profitability was much weaker in 2020, S&P said this is likely to remain under heavy pressure during 2021 due to the interest waiver schemes and still elevated credit costs.
Meanwhile, the agency anticipates that the industry will maintain a healthy level of local currency deposits over the next 12-24 months, underpinned by dominant retail presence and strong consumer confidence, and Malaysia's high savings rate of about 30% of GDP.