RAM Ratings: Domestic banks reported better showing in 2Q 2024

Published on 04 Sep 2024.

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Pre-tax profits were higher in the latest financial results of eight RAM-rated local banking groups, driven by a mild recovery in net interest margins (NIMs) and lighter provisions. The average pre-tax return on assets of the eight banks rose to 1.41% in 2Q 2024, up from 1.37% in 1Q 2024 (2Q 2023: 1.39%).

“Following significant NIM compression in 2023 due to the lagged upward repricing of deposits from earlier policy rate hikes and intensified deposit competition, we saw a respite in 1H 2024,” said Wong Yin Ching, RAM’s Co-head of Financial Institution Ratings. “Banks have been actively managing their funding costs by shedding expensive deposits to improve margins. Consequently, the average NIM of the eight banks saw a modest but encouraging uptick of 2 bps q-o-q to 2.05% in 2Q 2024,” she added. 

In 1H 2024, the banking system’s loans grew an annualised 5.0% (2023: 5.3%), in line with our full-year projection. Household loans led growth, rising 5.2%, slightly outpacing business loans (4.8%). Growth in residential mortgages – the key driver of household lending – moderated to a still healthy 6.7% (2023: 7.3%) while passenger vehicle hire purchase loans continued to expand rapidly, climbing 9.6%. Rebound in business loan growth which began in late 2023 was largely sustained through 1H 2024, supported by the strong underlying economy. 

“Malaysian banks’ robust asset quality underpins their strong credit fundamentals. The system’s gross impaired loan (GIL) ratio was a low 1.60% as at end-June 2024 (end-December 2023: 1.65%)” Wong said. Favourable labour market conditions – with unemployment back at the pre-pandemic rate of 3.3% – should help mitigate the potential adverse effects of subsidy rationalisation. We project the GIL ratio to come in between 1.6% and 1.7% by year end.  

In 2Q 2024, the annualised credit cost ratio of the eight banks eased to 18 bps (1Q 2024: 22 bps; 2023: 23 bps). GIL coverage (including regulatory reserves) which averaged 137%, stayed notably higher than the pre-pandemic level of 107% as at end-2019. Given sizeable management overlays retained by banks, we anticipate credit cost to remain benign at circa 20 bps for the full year.   

The eight selected banks are AFFIN Bank Berhad, Alliance Bank Malaysia Berhad, AMMB Holdings Berhad, CIMB Group Holdings Berhad, Hong Leong Bank Berhad, Malayan Banking Berhad, Public Bank Berhad and RHB Bank Berhad

RAM’s Banking Quarterly Roundup 2Q 2024 can be downloaded at www.ram.com.my.

 

Analytical contact
Wong Yin Ching, CFA
(603) 3385 2555
yinching@ram.com.my

Media contact
Sakinah Arifin 
(603) 3385 2500 
sakinah@ram.com.my

 

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. 

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