PETALING JAYA: The Malaysian banking sector is expected to stay resilient in 2022 amid the challenges of the Covid-19 pandemic, according to RAM Rating Services Bhd.
Even as impairments begin to surface in the coming year, it said credit losses will be amply cushioned by healthy earnings accretion, comfortable provisioning buffers and solid capitalisation.
“In the next 12 months, most ratings in RAM’s banking portfolio will remain intact,“ it said in a statement today.
RAM projects loan growth to come in at 4% in 2022, in line with the anticipated economic recovery. This is a higher rate than the 3% forecast for 2021 and the 2.5% recorded in August.
RAM co-head of financial institution ratings Wong Yin Ching said the household sector will anchor growth next year with mortgages as the main driver, similar with what was seen in previous years.
She said it is projecting a slight pick-up for businesses as most firms are currently operating below capacity. Even as the economy gradually recovers, firms would not rush to invest or expand just yet.
“Funding and liquidity conditions is envisaged to stay healthy. Banks’ liquidity coverage ratio has generally hovered around 150%, well above the 100% minimum. We believe that Bank Negara Malaysia (BNM) has a strong incentive to ensure ample liquidity in the financial system and the many regulatory flexibilities introduced since the onset of the pandemic is a testament of that,“ said Loh Kit Yoong, RAM senior analyst with financial institution ratings.
Although most banks will likely extend further relief to borrowers who are still viable when the nationwide opt-in moratorium expires in H1’22, RAM expects some impairments to start crystallising in the later part of the year. As such, RAM projects the gross impaired loan ratio to rise to between 2.3% and 2.5% in 2022 from the current 1.7% that has been contained by wide-ranging loan repayment assistance and moratorium. As at end-July 2021, about 30% of total loans were under relief.
“Based on our discussions with some banks, majority of their borrowers under relief stemmed from the middle- and higher-income brackets. We are of the view that a sizeable portion of borrowers had taken the moratorium as a precautionary measure, given that bulk of these relief loans actually have zero arrears,” said Loh.
