KUALA LUMPUR: Malaysian banks’ pre-emptive actions have resulted in the average credit cost ratio of eight banks to stay lofty at 81 basis points (bps) in the third quarter of 2020 (Q3 2020), versus 91 bps in Q2 2020.
RAM Ratings’s co-head of Financial Institution Ratings Wong Yin Ching said provisions are expected to remain elevated in the coming quarters as banks gradually build up their impairment allowances to be prudent.
“The eight banks’ gross impaired loan (GIL) coverage (with regulatory reserves) and the industry’s common equity tier-1 capital ratios stood at a robust 114 per cent and 14.6 per cent, respectively, as at end-September 2020.
“We believe that Malaysian banks’ strong loss-absorption buffers will tide them over the COVID-19 crisis,” Wong said in a statement today.
With a large proportion of loans on repayment moratorium, the Malaysian banking industry’s GIL ratio hit a historical low of 1.38 per cent as at end- September 2020, versus 1.53 per cent at the end of December 2019.
Based on the latest available data, about 11 per cent of the eight local banks’ domestic loan portfolios are under TRA or subject to restructuring and rescheduling, said Wong.
“This number may creep up as more borrowers request for financial relief in the coming months.
“The underlying asset quality will only become clearer after the relief measures have expired. In a worst-case scenario, RAM projects that the GIL ratio may peak at between 3.0 per cent to 3.5 per cent in 2021 or 2022,” she added.
While the ratio is unlikely to ease much further, it is envisaged to be upheld by the targeted repayment assistance (TRA) programme, which came into effect after the expiry of the earlier automatic six-month moratorium in September.
The TRA is applicable to individuals and small and medium enterprises (SMEs) borrowers, and takes the form of a further three months’ payment holiday or reduced instalments for at least six months, including automatic approval for B40 individuals and micro SMEs. - BERNAMA
