Posted on 09 Dec 2015
In its Moody’s Credit Outlook issued yesterday, recently announced banks results showed decreased profitability owing to rising credit costs and shrinking net interest margins (NIM), a credit negative that may lead to capital pressures.
Its rated domestic Malaysian banking groups include, AmBank (M) Bhd (Baa1/Baa1 positive, baa3), CIMB Group Holdings Bhd (Baa1/Baa1 positive), CIMB Bank Bhd (A3/A3 positive, baa2), Hong Leong Bank Bhd (A3/A3 positive, baa1), Malayan Banking Bhd (A3/A3 positive, a3) and Public Bank Bhd (A3/A3 positive, a3).
“The ratings of these banks have positive outlooks because of the positive outlook on the rating of the government of Malaysia (A3 positive),” said Dan Pek, Associate Analyst, Financial Institutions Group, Moody’s Investors Service Singapore Pte Ltd.
He said rising credit costs have adversely affected banks’ profitability and return on assets (ROA) has fallen to a three-year low.
The seven institutions’ average ROA fell 24 basis points to 1.03% during the first nine months of 2015 from 1.27% during the same period of 2013.
“Slowing economic growth, low commodity prices and currency volatility in the region have all contributed to rising non-performing loans (NPLs) and credit costs among Malaysian banks.
“The banking groups’ average loan loss provisions percent of pre-provision income grew to 9.37% in the first nine months of 2015 from 5.52% in the same period last year,” he said.
He noted that banking groups that have large overseas loan exposures have the highest loan loss provisions percent of pre-provision income, such as CIMB Group at 36.82% and Maybank at 15.00%.
“Consequently, they also have the largest NPL increases outside of Malaysia during the first nine months of 2015,” he said.
CIMB Group’s foreign NPL grew to 4.61% at Sept 2015 from 3.71% at end of
2014 as Maybank’s ratio increased to 1.35% from 1.03% at end of 2014.
Maybank also had moderate asset deterioration in its China, Indonesia, Vietnam and Philippines loan portfolio while CIMB Group had the largest NPL increases in Indonesia and China.
“Additionally Malaysian banks reported pressured NIMs over the past 12 months because of elevated funding costs from the introduction of the liquidity coverage ratio in 2015, which prompted the banks to attract better-quality but more expensive retail and SME deposits,” he stated.
The average NIM among the rated bank groups fell to 2.23% in September 2015 from 2.41% a year ago.
