KUALA LUMPUR: Malaysian banks' financial performance over the next 12-18 months will be driven by a supportive home market that provides steady growth opportunities against manageable credit risks, according to Fitch Ratings.
"We project Malaysia's gross domestic product (GDP) growth to be sustained at a normalised four to five per cent in 2023-2024 to underpin credit demand.
"A healthy job market is likely to support the asset-quality performance of household-sector loans, which account for nearly 60 per cent of total system lending," it said in a statement.
Fitch said Malaysia's monetary policy tightening has been measured, with domestic inflation under control.
It said this gentle gradient of interest-rate hikes limits the increase in the debt-service burdens of borrowers and mitigates asset-quality risks.
"We believe downside risks to the credit quality of loan portfolios have receded, and banks hold adequate provisions against credit impairments that are likely to be forthcoming.
"Net interest margins have peaked, but the higher level of prevailing interest rates continues to buoy bank revenues," it said.
In addition, Fitch said steady credit costs amid benign asset quality should therefore keep banks' profitability near current levels in the near term.
"Capital ratios are likely to remain steady, with sustained profitability and slower balance-sheet growth offset by an increase in dividend payments," it added.