Malaysian banks' loan growth to stay at 5-6% in 2023 on economic stability, says S&P Global

S&P Global Ratings anticipates that the Malaysian banking sector will continue to expand loans at a rate of 5% to 6% in 2023 as a result of the stable economy of the country. Which will sustain the creditworthiness of Malaysian consumers and enterprises.

According to the report, GDP growth will be 6.6% in 2022 and 4.5% on average over the following three years. As per S&P Global’s 2023 bank outlook commentary, which was published on Thursday (Nov. 17), banks can also withstand growing asset quality risks. Since strong capitalization and provisioning buffers may be able to counteract asset quality pressure.

The strong capitalization of Malaysian banks, with provisioning buffers of 1.8% of total loans and common equity Tier 1 ratio of 14.3% as of June 30. Loans to low-income families and small and medium-sized businesses (SMEs) that are battling the Covid-19 outbreak could be under threat. Further suffering is being caused by higher interest rates and inflation.

Despite an increase in NPLs, banks’ substantial provisioning buffers should prevent the need for further provisioning. As banks are likely to maintain caution in the face of global headwinds. It was predicted that credit costs would decrease to 30 to 40 basis points but remain higher than pre-pandemic levels. It did, however, claim that starting in 2023, greater margins, and a moderation of lending costs.

A normalized tax rate would help banks’ earnings get closer to pre-pandemic levels. In contrast to the 1.1% to 1.2% anticipated for 2022, “in our base-case [scenario], we forecast a return on average assets of 1.3% to 1.4%,” it said. In the future, it warned that increasing inflation and interest rates over the coming year could reduce credit demand and raise default risks for some low-income households and SMEs.

Taking a bird’s-eye view of the world’s banking industry, it predicted that 2023 will be harder for the industry. Despite the fact that most bank ratings are stable, S&P Global believes that the sizeable buffers that banks have accumulated over the previous ten years will be put to the test.

In many jurisdictions, net interest margins are expanding as a result of rising interest rates. This improvement, together with continued strong asset quality and solid capitalization, continues to provide a stable outlook for the whole global banking sector. Strong deposit bases supported by surplus savings coming out of the pandemic.