RAM Ratings expects banks to brace for slower loan growth and further margin compression

Published on 13 Jun 2019.

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Malaysian banks’ most recent quarterly financial results showed softer earnings, weighed down by sluggish loan growth and compounded by narrower net interest margins (NIMs). The protracted trade dispute between the US and China has aggravated the cautious stance of businesses and consumers, with no resolution envisaged in the short term. Given this scenario, RAM Ratings expects some downside risk to its 5% loan growth projection for 2019. The sector’s NIM is also set to narrow further following the 25 bps OPR cut in May 2019. This is elaborated on in the inaugural publication of its Banking Quarterly Roundup – 1Q 2019.

“On a brighter note, banks are facing this difficult operating environment from a position of strength. Their asset quality has stayed robust, with a gross impaired loan (GIL) ratio of just 1.51% as at end-April 2019. The eight anchor banks’ average credit cost ratio remained benign at 25 bps in 1Q 2019, even after excluding a one-off recovery from debt sale by a particular institution. We do not expect the sector’s GIL ratio to exceed 1.60% this year,” highlights Wong Yin Ching, RAM’s co-head of Financial Institution Ratings.

The Malaysian banking system’s y-o-y loan growth came in at a lacklustre 4.5% in April 2019 (2018: 5.6%), marking the fifth consecutive month of the downtrend since November 2018. Loan applications decreased 4.7% on a three-month moving average basis, although loan approvals edged up 1.6%. Credit demand from both households and businesses has waned, with noticeably slower business loan growth. 

The eight anchor banks reported a weaker average pre-tax ROA of 1.35% and ROE of 13.2% in 1Q 2019 (1Q 2018: 1.43% and 14.1%). All but one posted thinner NIMs, reflecting the unrelenting competition for retail and SME deposits as well as the anaemic growth of current and savings accounts. Earnings accretion, although weaker, will continue to lend support to the already healthy capitalisation levels of these banks.

The Banking Quarterly Roundup – 1Q 2019 is available for download at www.ram.com.my.


Analytical contact
Wong Yin Ching, CFA
(603) 3385 2555

Media contact
Padthma Subbiah
(603) 3385 2577


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Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad

Publication Date Published Category
Banking Quarterly Roundup - 1Q2019 13-Jun-2019 Banking Quarterly Roundup View PDF