Malaysian Banks' Deteriorating Profitability May Lead To Capital Pressures: Moody's

SINGAPORE, Dec 7 (Bernama) -- Malaysian banks' deteriorating profitability may lead to capital pressures, according to Moody's Investors Service. In its Moody's Credit Outlook issued Monday, the rating agency said on Nov 30, RHB Bank Bhd (A3/A3 stable, baa3) released its nine-month 2015 earnings results, showing deteriorating profitability. The results were in line with other Malaysian banks' decreased profitability owing to rising credit costs and shrinking net interest margins (NIM), a credit negative that may lead to capital pressures. "We expect Malaysian banks' profitability deterioration to continue into 2016 as the operating environment will remain challenging. "Among our rated domestic Malaysian banking groups, AmBank (M) Bhd (Baa1/Baa1 positive, baa3), CIMB Group Holdings Bhd (Baa1/Baa1 positive), CIMB Bank Bhd (A3/A3 positive, baa2), Hong Leong Bank Bhd (A3/A3 positive, baa1), Malayan Banking Bhd (A3/A3 positive, a3) and Public Bank Bhd (A3/A3 positive, a3) have also recently announced their September 2015 earnings, said Dan Pek, Associate Analyst, Financial Institutions Group, Moody's Investors Service Singapore Pte Ltd. Moody's said the ratings of these banks have positive outlooks because of the positive outlook on the rating of the Government of Malaysia (A3 positive). It said slowing economic growth, low commodity prices and currency volatility in the region have all contributed to rising nonperforming loans (NPLs) and credit costs among Malaysian banks. Moody's said the banking groups' average loan loss provisions as a percentage of pre-provision income grew to 9.37 per cent in the first nine months of 2015 from 5.52 per cent in the same period last year. It said banking groups that have large overseas loan exposures have the highest loan loss provisions as a percentage of pre-provision income, such as CIMB Group at 36.82 per cent and Maybank at 15.00 per cent. Consequently, they also had the largest NPL increases outside of Malaysia during the first nine months of 2015. CIMB Group's foreign NPL ratio grew to 4.61 per cent at September 2015 from 3.71 per cent at end-2014 as Maybank's ratio increased to 1.35 per cent from 1.03 per cent at end-2014. Maybank also had moderate asset deterioration in its China, Indonesia, Vietnam and Philippines loan portfolio while CIMB Group had the largest NPL increases in Indonesia and China. Moody's said rising credit costs have adversely affected banks' profitability and return on assets (ROA) has fallen to a three-year low. It said the seven institutions’ average ROA fell 24 basis points to 1.03 per cent during the first nine months of 2015 from 1.27 per cent during the same period of 2013. --BERNAMA