Published on 06 Mar 2020.
RAM Ratings observes a trend of higher dividend payouts by banks in Malaysia during the latest round of financial results. This is the scenario against the backdrop of a cloudy outlook on loan growth and build-up of excess capital. Banks’ capital positions are envisaged to remain solid after their dividend payments.
“The Malaysian banking sector wrapped up 2019 with a muted 3.9% loan expansion (2018: 5.6%, adjusted) - a multi-year low. Already having had to contend with the US-China trade tensions and anaemic global growth, the global COVID-19 outbreak and domestic political uncertainties are expected to further constrict credit demand. For 2020, loan growth is likely to clock in below that of 2019,” highlights Wong Yin Ching, co-head of Financial Institution Ratings, in conjunction with the publication of RAM’s Banking Quarterly Roundup 4Q 2019.
The domestic banking industry’s common equity tier-1 capital and total capital ratios stood at a relatively high 13.8% and 17.9%, respectively, as at end-December 2019 (end-December 2018: 13.9% and 18.1%). Banks have been building up their capital buffers through the years, in line with Basel III requirements. Bank Negara Malaysia’s recent release of the framework for domestic systemically important banks (D-SIBs) and the inaugural list of D-SIBs has also removed any uncertainty pertaining to additional capital requirements for banks.
“The softer projected loan growth amid the still-strong asset quality of the domestic banking system means lighter capital needs. This will allow banks to distribute some of their excess capital to their shareholders,” explains Wong. The dividend payout ratios of domestic banking groups with financial years ending on 31 December ranged from 29% to 88%, markedly higher than the 19% to 77% in the previous year.
RAM’s Banking Quarterly Roundup 4Q 2019 is available for download at www.ram.com.my.
Wong Yin Ching, CFA
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