KUALA LUMPUR: The outlook for Malaysia’s banking system remains stable this year, supported by a steady economic performance and sound fundamentals, says Moody’s Ratings.
The ratings agency said yesterday that economic growth will be driven by healthy domestic consumption and strong foreign direct investment (FDI).
“We expect key credit metrics for Malaysian banks to be stable this year. Asset quality will be stable because of the strong labour market, although some sectors such as wholesale and retail trade and manufacturing continue to face challenges.
“Profitability has improved, driven by lower credit costs, but will hold steady as we expect margins and credit costs to be maintained at current levels,” the ratings agency said.
It noted that banks remain well capitalised, with expectations that they would optimise capital structures by increasing dividend payouts.
The ratings agency said that funding and liquidity would remain stable, supported by moderation in deposit competition and strong liquidity buffers, in addition to the government’s continued support for banks in times of stress.
Moody’s Ratings also said Malaysia’s real gross domestic product would likely expand by 5% this year, largely keeping pace with the 5.1 % growth last year.
“A stable labour market, largely benign inflation, and fiscal transfers will support consumption, despite some risks from a planned fuel-subsidy reform,” it said.
The ratings agency added that government policies, such as the National Energy Transition Roadmap and the New Industrial Master Plan, would drive private and public investments.
“These policies would also improve FDI flows related to shifting regional supply chains and enhancement of Malaysia’s semiconductor manufacturing and data centre capabilities.
“We expect the implementation of these strategies to support credit growth in the next few years,” it said.
At the same time, it said that risks associated with trade tariffs and geopolitical tensions would be mitigated by Malaysia via expanding market access and diversifying trade partners, including deepening economic cooperation with neighbouring Singapore.
“We also expect Bank Negara to maintain its neutral monetary policy stance at around current levels this year, which will not constrain credit demand,” it added. — Bernama
