KUALA LUMPUR: The Malaysian banking system would be able to withstand the temporary shock following the government change from Barisan Nasional’ (BN)’s 61 years of rule to Pakatan Harapan (PH), Moody’s Investors Service opined.
Moody’s vice-president and senior analyst of financial institutions group Simon Chen said the country's banking system is resilient to market volatility given the banks’ strong capital and liquidity buffers.
He also drew on the fact the banking system have weather through challenging periods such as 1Malaysia Development Bhd (1MDB)’s allegations.
"Capital outflows could lead to deposit outflows and a tightening of liquidity conditions in the banking sector. However, we acknowledge that the system has weathered challenging periods, in particular, during the 1MDB allegations," he said.
"Overall, the Malaysian banking system is resilient to market volatility, given the banks’ strong capital and liquidity buffers," he said in an issued statement.
Chen noted the rating agency is closely following the developments around some campaign promises that could have a negative impact on market sentiment and trigger volatility in the financial markets.
"These dynamics will take time to unfold and a lot will depend on what the new government unveils in the coming weeks and months,” he said in the statement.
“If investor sentiment worsens materially, we will see increasing risks of capital outflows and a further weakening of the ringgit, that could in turn dampen private sector consumption and operating conditions for banks in Malaysia.”
Moody’s had on Thursday said some campaign promises would be 'credit negative' for Malaysia, drawing attention in particular to the eventual cancellation of the goods and services tax (GST) without any measures to offset the loss in revenue.
It noted that this move would increase the economy’s reliance on oil income and narrow the government’s revenue base.
Ousted BN former prime minister Datuk Seri Najib Razak had prior to this said abolishing the six percent GST would add RM416 billion ringgit to the outstanding government's debt.
Najib also said by abolishing GST and returning the fuel subsidies would put pressure on the budget deficit, which Malaysia has steadily brought down to three percent of GDP.
One of the main item on PH's and current Prime Minister Tun Dr Mahathir Mohamad manifesto is to give a mandate to Bank Negara Malaysia to develop a strategy to return the ringgit to its actual potential within three years.
To this end, Mahathir had also said he will be willing to re-introduce a peg on the ringgit to ward off 'currency manipulators' if necessary.
The ringgit is the best-performing currency in emerging Asia this year, strengthening 2.5 percent against the dollar.