PETALING JAYA: The banking sector is expected to stay resilient in 2022 amid the challenges of the Covid-19 pandemic.

       Even as impairments begin to surface in the coming year, credit losses will be amply cushioned by healthy earnings accretion, comfortable provisioning buffers and solid capitalisation, says RAM Rating Services Bhd.

       The agency expected most credit ratings in its banking portfolio to remain intact in the next 12 months.

       In line with the anticipated economic recovery, RAM projected industry loan growth to come in at 4% in 2022, up from the 3% projected for 2021 and the 2.5% recorded in August this year.

       “The household sector will anchor growth next year with mortgages as the main driver, similar with what was seen in previous years.

       “This is not surprising. Malaysia has a young demographic, so household formations are high and there is an underlying demand for homes,” said Wong Yin Ching, RAM’s co-head of financial institution ratings during the panel session entitled “Moving to a new normal – What to expect” at the virtual RAM Credit Summit 2021 held last week.

       “On the other hand, we are only projecting a slight pick-up for businesses, as most firms are currently operating below capacity. Even as the economy gradually recovers, we do not see firms rushing to invest or expand just yet,” she added.

       Although most banks would likely extend further relief to borrowers when the nationwide opt-in moratorium expires in the first half of 2022, RAM expected some impairments to start crystallising in the later part of the year.

       As such, it forecast the gross impaired loan ratio to rise 2.3% to 2.5% in 2022 from the current 1.7%. As at end-July 2021, about 30% of total loans were under relief.

       As banks have set aside sizeable forward-looking provisions and management overlays in 2020, RAM expected banks’ average credit cost ratio to ease to 50 basis points (bps) to 60 bps next year, from the expected 60 bps to 70 bps for 2021.

       “While hopeful of an economic rebound in 2022, the banking sector is not out of the woods yet. That said, banks went into the Covid-19 pandemic from a position of strength. We believe the sector will remain on solid footing amid our nation’s protracted recovery,” RAM said.

       Meanwhile, CGS-CIMB Securities, which is reiterating his “overweight” call on the banking sector, forecast banks’ earnings recovery to extend into 2022, in anticipation that the pandemic would continue to ease next year.

       CGS-CIMB expected loan growth to normalise to 4% to 5% by next year in line with economic recovery, adding that it anticipated a growth of 5% to 6% for household loans and 3% to 5% for business loans.

       “We project a loan growth of 2.5% to 3.5% for 2021, as loan growth has been negatively impacted by the movement control orders,” it noted.

       The brokerage expected gross impaired loans to stay elevated at 1.8% to 2.0% by end-December 2022, compared to the projected 2% for end-December 2021.