MALAYSIA’S domestic banks reported stronger financial results in the second quarter of 2024 (2Q24), driven by a slight recovery in net interest margins (NIMs) and lower provisions, according to RAM Ratings.
The average pretax return on assets for eight RAM-rated local banking groups increased to 1.41% in 2Q24, up from 1.37% in the previous quarter and 1.39% in 2Q23.
The eight banks covered in RAM’s analysis are Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd, Public Bank Bhd and RHB Bank Bhd.
“Following significant compres- sion in NIMs in 2023 due to delayed repricing of deposits from earlier policy rate hikes and heightened competition, we saw some relief in 1H24,” said its co-head of Financial Institution Ratings, Wong Yin Ching.
“Banks have been actively managing funding costs by reducing reliance on expensive deposits, which has helped boost margins,” she added.
The average NIM for the eight banks improved by two basis points quarter-on-quarter to 2.05% in 2Q24.
The banking system’s loans grew at an annualised rate of 5% in 1H24, in line with RAM’s Ratings full-year projection.
Household loans, which grew by 5.2%, slightly outpaced business loans at 4.8%.
Residential mortgage growth moderated to a healthy 6.7%, while passenger vehicle hire purchase loans surged 9.6%.
Business loan growth, which rebounded in late 2023, remained steady in 1H24, buoyed by Malaysia’s strong economic performance.
“Malaysian banks’ strong asset quality continued to underpin their solid credit fundamentals,” Wong added.
The banking system’s gross impaired loan (GIL) ratio stood at 1.60% at the end of June 2024, down from 1.65% at the end of December 2023.
With unemployment back to the pre-pandemic rate of 3.3%, favourable labour market conditions are expected to cushion any negative effects of subsidy cuts.
RAM Ratings projected the GIL ratio to remain between 1.6% and 1.7% by year-end.
In 2Q24, the annualised credit cost ratio of the eight banks fell to 18 basis points (bps), compared to 22bps in 1Q24 and 23bps in 2023.
GIL coverage, including regulatory reserves, averaged 137%, significantly higher than the 107% recorded at the end of 2019.
RAM Ratings expects the credit cost to remain low at around 20bps for the full year, given the sizeable management overlays maintained by banks. — TMR
- This article first appeared in The Malaysian Reserve weekly print edition
