RAM ratings: Banks expect slower loan growth

A pedestrian walks past a Maybank branch in Jalan Medan Tuanku, Kuala Lumpur January 4, 2018. — Picture by Firdaus Latif
A pedestrian walks past a Maybank branch in Jalan Medan Tuanku, Kuala Lumpur January 4, 2018. — Picture by Firdaus Latif

KUALA LUMPUR, June 13 — The recent quarterly financial results from local banks showed softer earnings, weighed down by sluggish loan growth and compounded by narrower net interest margins (NIM), said RAM Ratings Services Bhd.

RAM’s co-head of Financial Institution Ratings Wong Yin Ching said the protracted trade dispute between the United States and China has aggravated the cautious stance of businesses and consumers, with no resolution to be seen in the short term.

“Given this scenario, RAM Ratings expects some downside risks to its five per cent loan growth projection for 2019. The sector’s NIM is also set to narrow further following the 25 basis point (bps) overnight policy rate (OPR) cut in May 2019,” she said in a statement today.

On a brighter note, banks are facing the difficult operating environment from a position of strength, said Wong.

“Their asset quality has stayed robust, with a gross impaired loan (GIL) ratio of just 1.51 per cent as at end-April 2019.

“The eight anchor banks’ average credit cost ratio remained benign at 25 bps in the first quarter this year (Q1 2019), even after excluding a one-off recovery from debt sale by a particular institution.

“We do not expect the sector’s GIL ratio to exceed 1.60 per cent this year,” she said.

Wong added that the Malaysian banking system’s year-on-year loan growth came in at a lacklustre 4.5 per cent in April 2019, marking the fifth consecutive month of the downtrend since November 2018.

“Loan applications decreased 4.7 per cent on a three-month moving average basis, although loan approvals edged up 1.6 per cent.

“Credit demand from households and businesses has waned, with noticeably slower business loan growth,” she said.

The eight anchor banks reported a weaker average pre-tax return of assets at 1.35 per cent and return on equity at 13.2 per cent in Q1 2019. 

“All but one posted thinner NIMs, reflecting the unrelenting competition for retail and small and medium enterprise (SME) deposits as well as the anaemic growth of current and savings accounts.

“Earnings accretion, although weaker, will continue to lend support to the already healthy capitalisation levels of these banks,” Wong added. — Bernama