KUALA LUMPUR, Dec. 4 (Xinhua) -- Malaysian banks will overcome external headwinds to deliver a resilient operating performance in 2024, S&P Global Ratings said in a statement on Monday.
The rating agency said in a note that it believes strong domestic economic conditions will support borrowers and limit slippages into nonpayment.
"Asset quality for Malaysian banks will benefit from the country's stable economic conditions and low unemployment rate," said S&P Global Ratings credit analyst Nikita Anand.
"Banks are writing back provisions on bad loans because the COVID hit wasn't as bad as expected. That will offset strains on margins in other areas -- namely, from likely cuts in policy rates later in 2024," said Anand.
According to S&P, good domestic conditions including higher economic growth, manageable inflation, and low unemployment rate have steadily reduced pandemic-related restructured loans.
It said the nonperforming loans (NPL) in Malaysia could peak at levels lower than its forecast of 2 percent to 2.5 percent in 2024.
It also expects credit costs in the sector to stay low next year, declining closer to the pre-pandemic average of about 15 basis points.
In its opinion, most banks will maintain prudent coverage ratios of 90 percent to 100 percent of NPLs, higher than pre-pandemic levels, for the next three to four quarters at least.
S&P also forecast the sector loan growth could revive to 5 percent to 6 percent in 2024, benefiting from lower inflation and a likely rate cut.
On the downside, it said Malaysian banks are earning less net interest margin (NIM) on their loans.
It opined that another 3 to 5 basis point compression in margins is likely in 2024.
"Higher credit growth and lower credit costs should more than offset margin pressure. The Malaysian banking sector's profitability, as measured by return on assets, could sustain at 1.4 percent over the next year," said Anand. ■