Malaysia Banks Expected To Stay Resilient Despite Difficult Environment: S&P's

By Massita Ahmad SINGAPORE, Feb 23 (Bernama) -- Malaysian banks are unlikely to get much reprieve from the difficult operating conditions this year, said Standard & Poor's Ratings Services (S&P's) on Monday. Slower economic growth exacerbated by weaker demand in China and sliding commodity prices has damped business and consumer sentiments, the rating firm said. However, S&P's believes the banking sector in Malaysia will remain resilient. "Bank ratings will continue to be supported by sound capital levels, and healthy funding and liquidity profiles. "Regulatory measures to contain household debt and property prices have also proven effective in managing economic imbalances and price bubbles," said its credit analyst Ivan Tan. S&P's said loan growth in the Malaysian banking sector could moderate to 6.0 per cent-8.0 per cent this year (five-year average of 10 per cent) amid unfolding external uncertainties about the pace of U.S. Fed rate increase and the economic rebalancing in China. "We forecast a gradual increase in nonperforming loans (NPLs) to 2.0 per cent-2.5 per cent over the next two years, from about 1.6 per cent in the latest Bank Negara Malaysia (Malaysia's Central Bank) report of November 2015. "This deterioration will likely be manageable, considering that NPL is coming from a low base. In addition, loan loss reserves are strong at 97 per cent of impaired loans as of November 2015. "In our view, the credit fundamentals of Malaysia's banks will remain stable over the next 18-24 months. The banking system's adequate capitalisation and liquidity provide a sound footing to withstand downside pressure," Tan said. S&P's is publishing its latest report, titled "Malaysia Banking Outlook 2016: Banks To Remain Resilient Despite Economic Road Bumps," on Monday. --BERNAMA