RAM Ratings continues to see resilient banking sector despite uptick in impaired loans

Published on 04 Sep 2019.

Share Tweet Email

The Malaysian banking system’s asset quality remained sturdy although the gross impaired loan ratio (GIL) edged up to 1.60% as at end-July 2019 from 1.48% as at end-December 2018. The weakness largely stemmed from a couple of lumpy impairments from the agriculture and manufacturing sectors. 

“The rise in impaired loans is idiosyncratic in nature and we do not foresee industry-wide deterioration emerging in these two segments. The GIL ratio at the end of 2019 may slightly exceed our initial expectation of 1.60% but should stay below 1.70%. At this level, the domestic banking industry’s asset quality continues to compare favourably with regional peers,” says Wong Yin Ching, RAM’s co-head of Financial Institution Ratings, in conjunction with the release of its Banking Quarterly Roundup – 2Q 2019.

Recent second quarter financial results also showed that the eight anchor banks’ average credit cost ratio remained modest at 27 bps in 1H 2019, even after excluding a one-off MFRS 9-related adjustment by one institution. In addition, banks have maintained healthy loss absorption buffers with an average GIL coverage ratio of 131% (including regulatory reserves) and a common equity tier-1 capital ratio of 13.9%.

Nonetheless, the profitability indicators of the majority of the eight anchor banks are still under pressure, with an average pre-tax ROA of 1.33% and ROE of 12.9% in 1H 2019 (1H 2018: 1.39% and 13.7%, respectively). Domestic loan growth skidded to 3.9% y-o-y while already-thinning net interest margins (NIMs) were crimped further subsequent to the May 2019 OPR cut. Lower net interest income, however, was moderated by improved investment and trading income in 1H 2019. NIMs may suffer another blow as the probability of an OPR cut later in the year is higher now, given that the worsening trade outlook could heighten downside risks to growth.

Loan applications were sluggish, increasing 0.8% y-o-y (three-month moving average) in July 2019. On a m-o-m basis, there was a 19.5% rebound in loan applications, primarily from households. However, it remains to be seen whether the momentum can be sustained, particularly in view of the external uncertainties weighing on business and consumer sentiment. As such, our 5% loan growth projection for 2019 continues to carry some downside risk.


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

Media contact
Padthma Subbiah
(603) 3385 2577


The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.

Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.

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

Publication Date Published Category
Banking Quarterly Roundup - 2Q2019 04-Sep-2019 Banking Quarterly Roundup View PDF