KUALA LUMPUR: The outlook is bright for the Malaysian banking system this year as it checks off all seven of Moody's Investors Service Inc (Moody's) key indicators.
The indicators that banks are being measured against are overall outlook, operating environment, asset quality, capital, funding liquidity, profitable efficiency and government support.
“Malaysia ranks respectably against other emerging and developing economies of Asia Pacific (APAC) as it checked off all seven of the key indicators with a ‘stable’ rating,” said Moody’s vice president and senior credit officer of financial institutions group Eugene Tarzimanov.
“Malaysian banks have performed well last year and we expect it to continue the momentum this year,” he added.
Tarzimanov, however, expects capital levels to ease slightly this year due to the implementation of the Malaysian Financial Reporting Standard 9 (MFRS 9).
“The impact of MFRS 9 would be more on banks’ balance sheet than profit and loss as all increase in provisions on implementation will be charged off directly to banks’ shareholders’ funds,” he said.
“Competition for customers deposits is likely to rise and push up the banks’ funding costs with the banks showing weaker deposit franchises.”
The growth momentum for Islamic banking is also expected to stay strong this year.
“The share of Islamic financing and deposits has risen to 25-30 per cent of total system loans and deposits from around 15 per cent last year,” said Tarzimanov.
“The business mix of conventional and Islamic banks are also highly similar with both showing significant lending to the household, wholesale and retail trade, real estate and manufacturing sectors.”
He also expect banks cost to income ratio to improve as most banks rely less on brick and mortar business, on the back of increased banking digitisation.