‘Banks may still be hurt by impairments’

KUALA LUMPUR: Malaysian banks’ earnings slumped last year, dented by sizeable preemptive provisions and thinner net interest margins (NIMs), said RAM Rating Services Bhd (RAM Ratings).

The research firm said while earnings should improve this year with NIM recovery, profits were likely to remain pressured by lofty, albeit lower, impairment charges.

“With an estimated 13 per cent of banks’ loans under targeted repayment assistance or subject to restructuring and rescheduling, their true underlying asset quality has yet to surface.

“Banks bolstered their loss absorption buffers last year by proactively setting aside provisions, in anticipation of higher delinquencies when the various forbearance measures are eventually lifted,” said RAM Ratings co-head of financial institutions ratings Wong Yin Chin in conjunction with the publication of its Banking Quarterly Roundup for the fourth quarter of last year.

He said the average credit cost ratio of eight selected banks had almost tripled to 84 basis points (bps) year-on-year from 30 bps.

Roughly half of the charges comprised management overlays and macroeconomic adjustments.

After having plunged to a low of 1.83 per cent in the second quarter, the average NIM of the eight banks rebounded strongly in the subsequent two quarters.

This was underpinned by the absence of sizeable modification losses and the gradual repricing of deposits.