RAM Ratings: Banks set to close 2024 with stronger earnings on steady growth and NIMs

Published on 04 Dec 2024.

Share Tweet Email

Malaysian banks maintained their upward earnings trajectory in 3Q 2024, with an average pre-tax return on assets (ROA) of 1.45% for eight selected local banks (1Q 2024: 1.37%; 2Q 2024: 1.41%) – the strongest quarterly profit performance of 2024 so far. This was driven by a double-digit q-o-q rise in trading and investment income, along with lighter provisions and steady net interest margins (NIM). Banks with meaningful bancassurance and wealth businesses also saw improved q-o-q earnings from these areas.  

In 3Q 2024, the average NIMs of the eight banks held steady q-o-q at 2.07% in 3Q 2024. Banks have been actively managing their funding costs by reducing expensive deposits, with some using forex swaps to capitalise on funding rate differentials. As we move into 4Q 2024, the seasonal deposit competition is expected to heat up. However, most players have signalled that any squeeze on margins will likely be manageable, with the impact expected to be less severe than in the previous year (4Q 2023: -6bps q-o-q).

The banking system’s loan growth in 9M 2024 reached an annualised 4.5% (2023: 5.3%), largely in line with our full-year projection. Household lending remained the key driver, with credit rising by 5.7%. Both residential mortgages and passenger vehicle financing still posted strong increases of 6.9% and 9.1%, respectively, in 9M 2024 (2023: 7.3% and 9.5%). Business loan growth, however, slowed to 2.7% in 9M 2024 (2023: +4.5%), partly due to the stronger ringgit against USD in 3Q 2024, which impacted the balances of foreign currency working capital loans. 

Malaysian banks’ robust asset quality continues to underpin their strong credit fundamentals. The system’s gross impaired loan (GIL) ratio improved to 1.54% as at end-September 2024 (end-December 2023: 1.65%). Favourable labour market conditions – with the unemployment rate returning to the pre-pandemic level of 3.2% – should help preserve asset quality. We anticipate the GIL ratio to stay stable in the final months, likely outperforming our initial estimate of 1.6%-1.7% by year end.  

In 3Q 2024, the annualised average credit cost ratio of eight selected local banks eased to 16 bps (2Q 2024: 18 bps; 2023: 23 bps). While some banks reported writebacks of these overlays, the amounts were not significant. Banks continue to take a cautious approach given ongoing macroeconomic uncertainties, including the repercussions from the possible US tariff hikes on its imports. The average GIL coverage ratio (including regulatory reserves) of 138% remained notably higher compared to the pre-pandemic level of 107%. We expect the average credit cost ratio to be relatively benign at around 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 3Q 2024 can be downloaded at www.ram.com.my.

 

Analytical contact
Amy Lo
(603) 3385 2509
amy@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. 

Disclaimer

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 accepts 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 or statement contained herein, save for any information required to be disclosed by law.

Published by RAM Rating Services Berhad
© Copyright 2024 by RAM Rating Services Berhad
All rights reserved. This material may not be published, reproduced, broadcast, rewritten or redistributed without prior permission.