KUALA LUMPUR, Dec 23 — The World Bank Group has given a vote of confidence to Malaysia’s banking sector, saying that it is poised for further growth next year, with strong prospects and profitability.

Senior Financial Economist, Financial and Private Sector Development vice president Jose de Luna Martinez, said the World Bank considered Malaysia a success story in terms of financial inclusion and quality of banking regulations and supervision.

He said Malaysia was on path to becoming a high-income nation by 2020 and the financial system will play a key role in achieving this aspiration.

“Malaysia’s banking system has grown rapidly in the past years.

“The economy is expected to grow at a rate of 4.5 to five per cent in 2014, which will provide opportunities for the expansion of banks, both in the domestic and regional marketplaces,” he told Bernama.

He said the World Bank was confident of Bank Negara Malaysia’s (BNM) measures to handle potential risks effectively,” he said. 

Malaysia was ranked number one in the World Bank’s Doing Business publication in terms of the ease of getting credit to small and medium enterprises.

Meanwhile, Moody’s Investors Service, in its latest note, gave a stable outlook on Malaysia’s banking system for next year.

The industry’s operating environment has been rated stable despite concerns about the rising household borrowings, it said, citing banks in the country faced little liquidity pressure as they largely funded their books from deposits.

Profitability will also remain stable for banks as loan growth and fee income will be strong enough to offset margin pressure in the system, the ratings agency said.

Alliance Research, in its note, said the sector’s outlook remained bright going forward, while at the same time reiterating its ‘overweight’ call.

The research house said the underlying fundamentals of the domestic banking sector remained solid and foreign shareholding levels were on lower end of historical range.

It said ongoing merger and acquisition theme to spice up the sector next year and valuations of selective banking stocks were decent at present level.

“We remain optimistic of the banks’ earning prospects next year, supported by stronger 2014 gross domestic product growth, decent loan growth of nine per cent, rising non-interest income and strong asset quality,” it said.

For 2013, the Malaysian banking industry performed well amid volatilities in the global market, especially with mounting worries over the uncertainty of the US Federal Reserve’s quantitative easing tapering of.

Among major developments, BNM had on July 5 introduced three new measures to curb Malaysia’s rising household debt—reducing the maximum tenure for personal loans to 10 years, restricting home loans to no more than 35 years and prohibiting offers for pre-approved personal loans. 

On Nov 15, in conjunction with the release of third quarter economy figures, BNM Governor, Tan Sri Dr Zeti Akhtar Aziz, said the measures taken were working with local households piling on debts at a slower rate.

The central bank announced that the rise of the household debt-to-gross domestic product ratio has eased slightly to 2.5 per cent during the quarter, compared with 3.2 per cent in the preceding period.

Meanwhile, early in the year, Alliance Research said the market has speculated on a potential privatisation of RHB Capital Bhd by its major shareholders.

“Although the news on that front has dissipated, we would not be surprised if there is a re-emergence of merger and acquisition (M&A) newsflows on this banking group, in view of the relative underperformance of its share price and the group’s attractive valuation,” it said.

The ongoing M&A news to excite the banking sector, it said, will be the acquisition of Hwang DBS (M) Bhd by Affin Holdings Bhd, with the deal expected to be finalised in the first quarter 2014. — Bernama