KUALA LUMPUR: Local banking groups posted higher pre-tax profits in the latest financial results, driven by a mild recovery in net interest margins (NIMs) and lighter provisions, according to RAM Ratings.
There are eight banks rated by RAM, which include Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, Public Bank Bhd, and RHB Bank Bhd.
The rating agency said the average pre-tax return on assets of the eight banks rose to 1.41 per cent in the second quarter of 2024 (Q2 2024), up from 1.37 per cent in Q12024.
"Following significant NIM compression in 2023 due to the lagged upward repricing of deposits from earlier policy rate hikes and intensified deposit competition, we saw a respite in 1H 2024," said RAM's co-head of financial institution ratings, Wong Yin Ching.
Wong noted banks have been actively managing their funding costs by shedding expensive deposits to improve margins.
Consequently, the average NIM of the eight banks saw a modest but encouraging uptick of 2.0 basis points quarter-on-quarter (QoQ) to 2.05 per cent in Q2 2024.
In the first half of 2024 (1H24), the banking system's loans grew an annualised 5.0 per cent, in line with the firm's full-year projection.
Household loans led growth, rising 5.2 per cent, slightly outpacing business loans (4.8 per cent).
Growth in residential mortgages—the key driver of household lending—moderated to a still-healthy 6.7 per cent while passenger vehicle rental purchase loans continued to expand rapidly, climbing 9.6 per cent.
"Malaysian banks' robust asset quality underpins their strong credit fundamentals. The system's gross impaired loan (GIL) ratio was a low 1.60 per cent as of end-June 2024," Wong said.
Favourable labour market conditions—with unemployment back at the pre-pandemic rate of 3.3 per cent – should help mitigate the potential adverse effects of subsidy rationalisation.
The firm projected the GIL ratio to come in between 1.6 per cent and 1.7 per cent by year end.
"Given sizeable management overlays retained by banks, we anticipate credit cost to remain benign at circa 20 bps for the full year."