Fitch sees Malaysian banks’ operating environment remains favorable

KUALA LUMPUR, Aug. 13 (Xinhua) — Fitch Ratings expects Malaysian banks’ operating environment to remain relatively favorable over the next 12-18 months, with gross domestic product (GDP) forecast to grow at 4.4 percent to 4.5 percent in 2024 and 2025.
The rating agency said in a note on Monday that this should sustain demand for credit from both the household and corporate sectors, supporting banks’ revenue prospects.
The agency also noted that the local policy rate is likely to remain stable in the near term, supporting banks’ loan yields while also limiting impairment risks on their loan portfolios that remain largely retail-focused.
“Household leverage is high in Malaysia at around 84 percent of GDP at end-2023, but risks are likely to remain contained in the near term on the back of healthy job market conditions and a stable real estate market,” it said.
While market-related income benefits from volatility net interest margins (NIMs) have been under pressure since early-2023 amid keen competition for deposits, it noted deposit rates and interbank rates have been steadying in recent months.
It expects banks’ NIMs to gradually recover in the second half as funding competition eases.
Higher loan contribution from the small- and medium-sized enterprise segment should also aid margins over the medium term, it added.
It also said most banks have been able to offset the compression in lending margins through larger trading gains as they capitalize on volatility in the capital and foreign-exchange markets.
“Banks are poised to post high market-related income in 2024 on continued volatility in foreign exchange market and as global interest rates start to decline,” it said. ■