Bond rally cushions pressure on local banks’ earnings

KUALA LUMPUR: Strong trading income, underpinned by the domestic bond market’s rally, cushioned the impact on Malaysian banks’ earnings in the first nine months (9M) of 2019, RAM Rating Services Bhd said on Dec 4.

The rally, it added, has mitigated pressure on the local banks’ earnings despite tepid loan growth and pressure on net interest margins (NIMs).

“Foreign investors’ hunt for yields amid the prospects of low global interest rates has been fuelling demand for Malaysian bonds. Inflows of foreign funds amounted to RM4.3 bil in 9M 2019 compared to an outflow of RM22.2 bil in the previous corresponding period.

“The yield on 10-year Malaysian government securities declined to 3.3% as at end-September 2019, from 4.1% as at end-December 2018,” said Wong Yin Ching, RAM’s co-head of financial institution ratings, in conjunction with the release of the agency’s Banking Quarterly Roundup for the third quarter of 2019 (Q3 2019).

She said while most banks’ NIM broadened quarter-on-quarter in Q3 2019, the average NIM for the eight anchor banks remained weak at 2.18% in 9M 2019 (9M 2018: 2.25%).

“The easier liquidity arising from the recent cut in the statutory reserve requirement is only expected to have a marginally positive impact on NIMs.

“Loan growth decelerated to a new low of 3.7% in October 2019, as the external environment remains challenging against a more subdued global growth outlook,” added Wong.

The eight anchor banks’ average credit cost ratio had also risen to 31 basis points (9M 2018: 27 basis points) as a result of a few lumpy impairments from the domestic agriculture and manufacturing sectors as well as some overseas exposures. – Bernama

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