KUALA LUMPUR: Malaysian banks can ride out tougher conditions this year amid a slowdown in the country’s growth rate and weaker borrowing appetite, said S&P Global Ratings.
Based on its “Malaysian Banks Outlook 2023: Prepared For Tougher Conditions” report, the rating agency said that rising interest rates and higher funding costs would drag on credit demand in Malaysia.
It classified Malaysia’s banking sector in “Group 4” under its Banking Industry Country Risk Assessment (BICRA) with economic and industry risk trends rated as “stable”.
S&P Global primary credit analyst Nikita Anand said in a separate statement that “credit growth could slow to 4-5 per cent, from 6 per cent in 2022.”
The rating agency said Malaysia’s economy is projected to expand by 3.2 per cent in 2023, “a large comedown from the strong post-pandemic recovery of 8.7 per cent in 2022.”
“The global economic slowdown and higher interest rates are key drivers of a slower economy,” it added.
Banks’ net interest margins would likely decline by five to 10 basis points as term deposit rates continue to increase in step with policy rates, according to S&P Global.
Moreover, it reckons “sectorwide return on assets could stay flattish at 1.4 per cent in 2023, as the expected decline in net interest margins would be balanced by normalisation in tax rates.” “Worsening conditions are negative for asset quality.
However, a moderate deterioration should be manageable as corporate and household balance sheets remain robust,” Anand said.
The rating agency said “stable employment conditions and adequate household financial assets are mitigating factors against high household debt.” – BERNAMA
