RAM Ratings: Banks’ resilient asset quality anchors profit performance

Published on 07 Dec 2023.

Share Tweet Email

The Malaysian banking industry’s asset quality remains robust and resilient. This is seen in the system’s gross impaired loan (GIL) ratio of 1.72% as at end-September 2023, which is unchanged from end-December 2022. In 3Q 2023, lighter provisioning expenses offset slightly weaker treasury and markets-related income while net interest margin (NIM) held steady compared to the preceding quarter. The most recent quarterly results announcements show banks’ profitability to be still sound overall, with the average pre-tax return on assets of eight selected local banks at 1.37% (2Q 2023: 1.39%; 2022: 1.42%).

“In 3Q 2023, the average credit cost ratio of the eight banks improved to an annualised 19 bps q-o-q (2Q 2023: 25 bps; 2022: 29 bps). Although we continue to see some management overlay releases at a few banks, a major portion of these provisions built up during the pandemic was either maintained or reassigned to various loan portfolios. Banks are prudently assessing the macroeconomic landscape before determining the amount of writebacks, if any,” says Wong Yin Ching, RAM’s co-head of Financial Institution Ratings, in conjunction with the publication of the rating agency’s Banking Quarterly Roundup 3Q 2023.

Higher loan instalments and elevated cost pressures may result in an uptick in delinquencies over the coming quarters. These are expected to stem from pockets of borrowers especially those who are highly leveraged or small and medium-size
enterprises in vulnerable business sectors. However, we foresee the deterioration to be manageable, anticipating an industry GIL ratio of below 2% in 2023. The debt servicing ability of individual borrowers continues to be supported by strong labour market conditions – the unemployment rate, at 3.4%, is close to pre-pandemic levels.

Following three consecutive quarters of contraction, margins saw some reprieve in 3Q 2023. The average NIM of the eight banks stayed stable q-o-q at 2.08%. Easing competition for deposits and the 25-bp overnight policy rate hike in May had lifted some pressure off NIMs during the quarter. This could be shortlived as deposit competition will likely pick up again as banks move into the fourth quarter. Newly operational digital banks may also intensify competition. GX Bank Berhad is the first digital bank to come on stream.

The banking system’s loan growth eased to an annualised 4.1% in 9M 2023 following strong expansion of 5.7% last year. For the full year, we expect profit outperformance to be relatively limited as lower provisions would be counterbalanced by narrower NIMs and moderating domestic loan growth. At the after-tax level, however, banks should see some upside from the absence of the one-off Cukai Makmur.

RAM’s Banking Quarterly Roundup 3Q 2023 can be downloaded at www.ram.com.my.

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

Media contact
Sakinah Arifin
(603) 3385 2500


About RAM Rating Services Berhad (RAM Ratings)

Established in 1990, RAM Ratings is a leading credit rating agency registered under the Securities Commission’s Guidelines on Registration of Credit Rating Agencies, 2011. In addition to the provision of credit ratings for corporate bonds and sukuk and their issuers, RAM Ratings also provides research and publications on Islamic finance, fixed income and macro-economic and industry analysis as well as data analytics relating to credit risk, counterparty assessments and other related domains. 


ALL INFORMATION IS PROVIDED “AS IS” WITHOUT WARRANTY OF ANY KIND. Although every reasonable care has been taken to ensure the accuracy, completeness and objectivity of the information contained in this Media Release, RAM Ratings makes no representation or warranty, whether express or implied, as to its accuracy, completeness and objectivity and accept no responsibility or liability relating to any losses or damages howsoever suffered by any person arising from any reliance on the views expressed or information in this Media Release. RAM Ratings assumes no obligation to update any information orstatement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2023 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed 
without prior permission


Publication Date Published Category
Banking Quarterly Roundup - 3Q2023 07-Dec-2023 Banking Quarterly Roundup View PDF