Banks resilient enough to weather storm in 2020 – RAM Rating

KUALA LUMPUR: RAM Rating Services Bhd expects Malaysian banks to be resilient enough to weather escalating headwinds on both the domestic and global fronts which pose greater downside risks to their performance this year.

Its co-head of financial institution ratings, Wong Yin Ching, believed that banks have strong fundamentals and prudent risk management to weather the storm.

In a statement today, the credit rating agency said while it has maintained a stable outlook on the local banking sector this year, banks are facing heightened uncertainties and challenges in the still-evolving economic landscape.

These include loan expansion moderating to 1%-2% from 3.9% last year, asset quality indicators weakening with gross impaired loans (GIL) as well as increasing credit cost ratios.

In the meantime, it sees capital buffers remaining sturdy while funding as well as liquidity stay healthy as well as softer profitability amid slower credit growth, compressed net interest margin (NIM) and heftier credit losses.

“We expect banks to closely monitor their credit exposures amid the present challenging scenario and envisage a pick-up in rescheduling and restructuring (R&R) activities,” RAM’s co-head of financial institution ratings, Sophia Lee, said.

In light of Covid-19 impacts on certain sectors and the collapse of oil prices, fresh risks may emanate from the oil and gas sector as the steep drop in oil prices threatens to derail recovery charted by the industry in the last two years.

Apart from pressures on asset quality, RAM Rating noted that Malaysian banks’ loan growth has been dwindling even before the onset of challenges brought on by Covid-19.

In the event economic conditions worsen drastically, RAM Rating foresee that it could be challenging for the banking system to achieve even 1% loan growth this year.

Looking ahead, the credit rating agency said topline pressure and potentially heavier impairment charges amid the current environment could dent banks’ earnings this year. – March 23, 2020, Bernama

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