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Malaysian banks’ asset quality strong but profits to stay flat in 2024

A sustained currency depreciation may affect import-reliant sectors, an analyst warned.

Malaysian banks’ asset qualities are strong, and stable economic conditions in the country should support credit command, says S&P Global Ratings credit analyst Nikita Anand.

An increase in corporate demand, led by key infrastructure projects, may help push credit growth to 6% in 2024 from 5% in 2023, Anand noted in a report.

Retail credit growth is also likely to stay robust.

"Funding conditions should stabilise as fixed deposit rates appear to have peaked,” Anand said.

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However, Anand sees limited upside profitability for Malaysian banks, and return on assets is expected to remain flat at 1.2% in 2024.

Net interest margins may decline further amidst intense competition in the country’s saturated banking sector, Anand warned.

She added the possibility of a modest deterioration in asset quality coming from restructured loans of low-income households and small businesses.

“Sustained currency depreciation could affect import-reliant sectors such as manufacturing, construction, and agriculture,” she further warned.

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Overall, Malaysian banks’ asset quality should stay stronger than regional peers both in terms of credit losses and nonperforming loans, Anand said, thanks to stable economic conditions.

“Strong labor market conditions and proactive write-off policy should continue to help banks maintain low nonperforming loans ratios. Malaysian banks' stable capitalization also provides an ample loss-absorption buffer,” she said.

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