KUALA LUMPUR, April 22 (Xinhua) -- S&P Global Ratings said Monday that the asset quality of Malaysian banks is strong, and they are well placed to handle external hurdles.
"Economic conditions are stable in Malaysia, which will support credit demand," S&P Global Ratings credit analyst Nikita Anand said in a statement.
According to the rating agency, an increase in corporate demand, led by key infrastructure projects, may help push Malaysian bank's credit growth to 6 percent in 2024 from 5 percent in 2023.
Further, it said retail credit growth is likely to stay robust. It also said funding conditions should stabilize as fixed deposit rates appear to have peaked.
S&P, however, sees limited upside to profitability for Malaysian banks.
According to the rating agency, the sector's return on assets will remain flat at 1.2 percent in 2024. This is because net interest margins could decline further, especially if competitive pressures intensify in the country's saturated banking sector.
Having said that, S&P still expects the asset quality of Malaysia's banks to stay stronger than that of its regional peers both in terms of credit losses and nonperforming loans.
It said that spillover risks from currency depreciation should be manageable, given the banking sector's limited direct exposure to external debt.
Further, it said the sector's exposure to corporates with unhedged foreign currency exposures forms a small 0.5 percent of total loans.
Meanwhile, S&P anticipated a modest deterioration in asset quality, which could come from restructured loans of low-income households and small businesses. Sustained currency depreciation could affect import-reliant sectors such as manufacturing, construction, and agriculture, it said.
It, however, noted that strong labor market conditions and proactive write-off policy should continue to help banks maintain low nonperforming loans ratios. It said Malaysian banks' stable capitalization also provides an ample loss-absorption buffer. ■
