KUALA LUMPUR: Malaysian banks have solid fundamentals and will continue to demonstrate resilience in 2022, said RAM Rating Services Bhd (RAM Ratings).

       Co-head of financial institution ratings Wong Yin Ching said notwithstanding lingering asset quality headwinds and the risk of contagion from the Russia-Ukraine war, RAM Ratings has maintained a stable outlook on the Malaysian banking sector.

       She said this in a statement today, in conjunction with the release of the credit rating agency’s latest commentary, Banking Insight: A Break in the Clouds.

       "Our loan growth projection incorporates the expected downtick in loans outstanding when borrowers resume repayments upon the expiry of various relief measures.

       "Risks to growth, however, have tilted to the downside on still-evolving geopolitical tensions stemming from Russia and Ukraine,” she said.

       Wong added that the conflict, depending on its magnitude and duration, could fuel global inflationary pressures, disrupt supply chains and dampen external demand.

       She also said that banks’ exposure to assisted loans has reduced considerably as a big portion of relief under the Perlindungan Rakyat dan Pemulihan Ekonomi (PEMULIH) programme had expired in recent months.

       "Based on data of eight selected local banks, the proportion of domestic loans under relief almost halved to an average of 15 per cent in January and February compared to the last quarter.

       "The unwinding of relief measures will clear the fog on banks’ underlying asset quality. We may see the sector’s gross impaired loan (GIL) ratio rise to 2.5 per cent by end-2022, which is deemed manageable in our view,” she said.

       The profit performance of Malaysian banks rebounded strongly in 2021 on the back of lower provisioning expenses, broader net interest margins (NIMs) and significantly smaller modification charges, she noted.

       "The eight banks’ average pre-tax return on assets was higher by 1.25 per cent (2021: 0.92 per cent).

       "The upside to banks’ earnings is, however, limited this year as NIMs will stay broadly stable, given that funding costs may come under pressure despite the prospect of a rate hike in the second half of 2022 (2H 2022),” Wong said.

       Bottom lines will also be hit by Cukai Makmur (Prosperity Tax), she noted.

       The agency expects the funding and liquidity profiles of banks to stay sound and supportive of new lending.

       RAM Ratings’s Banking Insight: A Break in the Clouds is available at www.ram.com.my. - Bernama