Fitch: Malaysian Banks’ Profit Outlook Limited by Loan Write-downs | Money
KUALA LUMPUR, March 29 – Malaysian banks will not see normal profit levels in 2021 despite lower credit costs than other Asia-Pacific countries, Fitch Ratings said.
Fitch Ratings Singapore director Willie Tanoto said the continued withdrawal of debt relief would see non-performing loan (NPL) levels reach 2.6 percent by the end of 2021.
“The improvement in bank profitability should be limited in 2021 as loan impairment charges remain high. We believe that banks’ credit costs in 2021 will approach the 2020 level, as loan loss coverage ratios remain low compared to our projections of the NPL ratio, notwithstanding general provisions set aside in 2020, ”he said. Fitch Ratings said in a report released today.
“Visibility into the quality of banks’ assets continues to be clouded by repayment assistance programs and budget cuts; we estimate that total deferred loans would represent 11% of the portfolios of the big six banks in February 2021. However, clarity should gradually improve as most of these programs are implemented in the coming months “, did he declare.
Tanoto said Malaysian banks need to do more to address loan write-downs.
“However, their loss absorption cushions remain adequate as banks’ capitalization is supported by continued core profitability and moderate balance sheet growth in the near term,” he said.
In the report, it states that the system’s non-performing loan (NPL) ratio gradually increased after the end of the six-month automatic loan repayment moratorium, with 85% of the increase coming from the household sector.
This is expected to increase over the next few months, as Malaysia was still under various levels of lockdown in the first quarter of 2021.
As the unemployment rate and Covid-19 cases have increased since September 2020, Fitch Ratings said economic uncertainty is now higher.
“This has marred visibility into the quality of banks’ assets, prompting most of the big six banks to increase lending provisions in the second half of 2020 compared to the first half. This coverage improved loan loss coverage to 105% of non-performing loans (NPLs) – 80% at the end of 2019 – most of which took the form of general allowances.
“Nonetheless, banks’ collective borrowing costs in 2020 remained the lowest among emerging Asia-Pacific markets. Banks ‘NPL ratios have been removed by the moratorium and we expect the system’s NPL ratio to rise to 2.6% by the end of 2021. This means that large banks’ credit provisions will remain high in 2021 and similar at the 2020 level, ”the report said.
The report says it does not expect a significant improvement in profitability in 2021, despite the economic recovery, as revenue growth is expected to be held back by sluggish loan growth and only a slight increase in the line of credit. .
The increase in non-performing loans after aid programs expire will increase credit write-down charges above the pre-pandemic average, hampering improved profitability in 2021.