PETALING JAYA: The pre-tax profitability of banks is expected to see an improvement this year on bigger net interest margins (NIMs) and lower loan-loss provisions. This is supported by an anticipated increase in interest rates in the later part of the year and quicker loan growth, which will then lend support to an increase in NIMs.

       Moody’s Investors Service noted, however, that banks may continue to take precaution against potential credit losses from loans that are under the repayment assistance programme.

       A result of this would see loan-loss provision declining but remaining higher than pre-pandemic levels, it said.

       “We expect impaired loans to increase in 2022, but only moderately because the economic recovery and continued aid from the government will support borrowers’ repayment capacity. Regulatory measures such as the targeted repayment assistance programme for vulnerable borrowers affected by the pandemic helped banks maintain stable asset quality,” Moody’s said in its report yesterday.

       “The asset-weighted average of the six largest Malaysian banks’ impaired loan ratios decreased modestly to 1.8% as of Sept 30, 2021 from 2% a year earlier, although about 28% of total loans at the banks were under the repayment assistance scheme, some of which can become impaired,” it added.

       Meanwhile, it also noted that an earlier announced one-off prosperity tax will see some impact to sector-wide net profitability of the banks, but its impact will be partially offset by the strong pre-tax earnings growth.

       “We expect bank’s capital ratios to be broadly stable at high levels in 2022 because internal capital generation will keep pace with increases in capital consumption due to faster loan growth. Prudent dividend policies and dividend reinvestment plans will help banks preserve capital to fund an acceleration of credit growth,” Moody’s said.

       It noted that the industry’s common equity tier 1 ratio was at a strong level and stood at 14.6% at the end of last year.

       Moody’s is also expecting industry-wide loan growth to strengthen to 6%-7% in 2022 from 4.5% last year, supported by recovering credit demand from the retail and corporate segments.

       Loan growth will be supported by the country’s real gross domestic product (GDP) growth, which would accelerate to around 6% in 2022 from 3.1% in 2021. It would be driven by increases in domestic consumption amid an improving labour market and export growth, the research house said.

       “The government has set its expansionary budget to RM332bil for this year from the previous year, and this will further support economic recovery,” Moody’s said.

       On another matter, it said that the debt servicing capacity of corporates and households will remain strong and support banks’ asset quality.