SINGAPORE: Fitch Ratings says in a new report that the outlooks of its rated Malaysian banks are expected to remain stable, even if a fresh economic slowdown were to emerge from the mounting global uncertainty.
Downward rating risks could arise should such a downturn, particularly if sharp and protracted, lead to significant capital impairment risks for the local banks.
However, the agency views this likelihood as fairly low, due to their satisfactory loss-absorption qualities and risk management, as well as a prudent regulatory environment.
Fitch believes Bank Negara Malaysia will closely monitor household debt, which - at 76 per cent of end-2010 GDP - remains high and leaves the banking sector vulnerable to sharp increases in unemployment and interest rates.
Precautionary measures may be tightened further to those introduced in 2010-H111 to prevent households from over-extending themselves, particularly in an environment of continued ample liquidity, low interest rates and rising asset prices.
This, together with banks’ satisfactory risk management, underpins Fitch’s view that domestic loans to individuals will remain of fairly sound quality through credit cycles.
While the ongoing sovereign turmoil in Europe is unlikely to materially impact on the Malaysian bank’s credit profiles, global economic prospects are becoming increasingly weak, posing fresh downside risks to the Malaysian economy and banking system.
Fitch believes that the impact of higher credit costs can be absorbed largely through banks’ earnings, leaving limited risk of capital erosion.
Such resilience was also observed in the 2008-2009 global economic crisis and is broadly consistent with the conclusion of the agency’s stress test.
Downward rating risks could arise should such a downturn, particularly if sharp and protracted, lead to significant capital impairment risks for the local banks.
However, the agency views this likelihood as fairly low, due to their satisfactory loss-absorption qualities and risk management, as well as a prudent regulatory environment.
Fitch believes Bank Negara Malaysia will closely monitor household debt, which - at 76 per cent of end-2010 GDP - remains high and leaves the banking sector vulnerable to sharp increases in unemployment and interest rates.
Precautionary measures may be tightened further to those introduced in 2010-H111 to prevent households from over-extending themselves, particularly in an environment of continued ample liquidity, low interest rates and rising asset prices.
This, together with banks’ satisfactory risk management, underpins Fitch’s view that domestic loans to individuals will remain of fairly sound quality through credit cycles.
While the ongoing sovereign turmoil in Europe is unlikely to materially impact on the Malaysian bank’s credit profiles, global economic prospects are becoming increasingly weak, posing fresh downside risks to the Malaysian economy and banking system.
Fitch believes that the impact of higher credit costs can be absorbed largely through banks’ earnings, leaving limited risk of capital erosion.
Such resilience was also observed in the 2008-2009 global economic crisis and is broadly consistent with the conclusion of the agency’s stress test.
