KUALA LUMPUR: Malaysian banks' non-performing loan (NPL) ratio will likely rise to 2.5-3.0 per cent by end-2022 from 1.6 per cent as of end-April 2022, S&P Global Ratings primary credit analyst Nikita Anand said.
Anand said credit costs would decline to 40-50 basis points (bps) but stay higher than pre-pandemic levels due to the uneven recovery of loans under the moratorium.
"Given the banks' high provisioning buffers on non-impaired loans, the need for additional provisioning should be lower despite rising NPLs.
"For most large banks, loans that require further repayment assistance have fallen sharply to five to six per cent (from 25-30 per cent earlier) upon expiry of moratorium, which indicates that the majority of customers have started repayments.
"That said, the underlying strength of affected borrowers remains to be seen and the initial recovery of repayments could prove fragile.
"It will take longer for consumers and small and midsize enterprises (SME) to recover.
"The result of the magnitude of the SME stress throughout Covid-19, higher inflation, and already-elevated household indebtedness," she said in a note today.
Meanwhile, Anand said the domestic banking sector's loan growth would rebound to 6.0 per cent in 2022 from 4.5 per cent in 2021, supported by improving macroeconomic conditions.
S&P also forecasts Malaysia's gross domestic product (GDP) growth of 6.1 per cent in 2022 compared with 3.1 per cent in 2021.
"We believe Malaysian banks' solid capital buffers (15.2 per cent common equity Tier-1 ratios as of December 31, 2021) and prudent dividend payouts are key strengths that support a stable credit standing and ratings on the banks," she added.
Anand said there could also be some upside for sector net interest margins (NIMs) since S&P expected that Bank Negara Malaysia to raise interest rates by at least 75bps in 2022.
"Higher credit growth and moderating credit costs will support earnings.
"However, upside to net profits is limited due to a one-off prosperity tax in the 2022 Budget and higher write-offs," she said.