Moody’s sees Malaysian banks continuing solid performance

KUALA LUMPUR: Moody’s Investors Service says its six rated Malaysian banks showed solid performance in 2017, with additional improvements likely in some areas in 2018.

Moody’s vice president and senior analyst, Simon Chen, said the asset quality and profitability of the six banks generally improved in 2017, while capitalisation and funding remained adequate.

“We expect loan demand to recover further in 2018, strengthening profitability, but also tightening funding conditions.

“As a result, profit growth among banks with weaker deposit franchises could be limited by higher funding costs,” he said in a statement on its report titled, ‘Banks - Malaysia: 2017 Sees Asset Quality Stabilise, Profits Improve’.

The six banks in the report are, Malayan Banking Bhd (A3/A3 stable, a3),CIMB Group Holdings Bhd (Baa1 stable), Public Bank Bhd (A3 stable, a3), RHB Bank Bhd (A3/A3 stable, baa3), Hong Leong Bank Bhd (A3 stable, baa1) and AmBank (M) Bhd (Baa1/Baa1 stable, baa3).

It said asset quality would benefit from stronger macroeconomic conditions in 2018, both domestically and regionally.

“Banks with exposure to the oil and gas sector should see their asset quality stabilise on stronger oil prices,” the credit rating firm said.

The report found most banks posted improved profitability in 2017, driven by steady revenue growth, stable net interest margins and a moderation in credit costs.

“These favourable conditions should continue into 2018, and ongoing digital transformation efforts will support stronger growth in revenue and cost efficiencies.

“Loan growth will also rebound in 2018, supported by higher demand for corporate loans and stable consumer lending and this development, plus stable net interest margins, will support bank profits,” Moody’s said.

It also said overall credit costs would increase slightly from 2017, driven mainly by higher credit charges required under the Malaysian Financial Reporting Standards 9 (MFRS 9) effective Jan 1, 2018.

“While the banks will generally be able to support their balance sheet growth through steady retained earnings in 2018, some have projected the MFRS9 implementation to result in a 20-80 basis point drop of Common Equity Tier 1 ratios.

“Funding profiles remain resilient, as loan to deposit ratios fell slightly for most banks in 2017 because of sluggish loan growth, but likely to rise in 2018, when loan growth recovers,” Moody’s added. — Bernama