RAM Ratings has reaffirmed the Malaysian banking sector’s stable outlook as the sector wrapped up a difficult 2016 in good shape. The rating agency said Malaysian banks remained resilient and expected the same performance this year.
Financial institution ratings co-head Wong Yin Ching said the economy was poised for a delicate recovery this year with RAM’s gross domestic product forecast at 4.5% this year versus 4.2% in 2016. “We do not foresee a broad-based improvement in economic sentiment. Accordingly, the banking systems loan growth is likely to remain flat at 5%-6% this year,” he said. Wong said notably, the systems asset-quality indicators have held up well with its gross impaired loan (GIL) ratio remaining at a historical low of 1.6% as at end-January 2017. This was despite pressures on certain sectors such as those related to automotives, oil and gas, steel and property development especially smaller, cash-strapped players, he said. However, the GIL ratio could increase to 1.8% if such pressure persists whereby there is little evidence of widespread fragility, said Wong.
Based on its analysis of over 700 listed non-financial companies, RAM said the overall debt-servicing ability of Malaysian corporates had remained healthy despite declining profitability. It added that the credit quality of household loans was expected to remain strong, supported by a benign economic environment and banks generally prudent underwriting standards for this sector.
Residential property mortgages, the mainstay of household loans also continued to display solid asset-quality indicators, said RAM.