According to Bank Negara Malaysia (BNM), the banking system continued to maintain healthy liquidity positions, recording a strong liquidity coverage ratio of 152.5% in September – a position which remained supportive of intermediation activities.

The central bank said sustained deposit growth amid the recovery in economic activities continued to support banks’ lending activities. The aggregate loan-to-fund ratio remained stable at 82.5% in September (August: 82.6%).

OPR, loan growth

BNM’s move to increase the Overnight Policy Rate (OPR) by 25 basis points four times this year, bringing it to 2.75% currently, is also seen as benefitting the banking sector as the net interest margin is anticipated to widen.

Analysts said although the rising OPR may dampen credit demand, it would not derail the loan growth momentum.

In September, system loans grew by a solid 6.4% year-on-year (y-o-y) and 0.6% month-on-month. On an annualised basis, loan growth was 5.8%.

S&P Global Ratings is positive about the outlook for Malaysian banks. It anticipated the system loan growth to stay between 5% to 6% in 2023, saying the country’s economic growth over the next three years as well as solid capitalisation and provisioning buffers will help offset any potential asset quality pressures.

The credit rating agency predicted a gross domestic product (GDP) growth of 6.6% y-o-y in 2022 and an average 4.5% growth over the next three years.

“Economic stability will support the creditworthiness of Malaysian businesses and consumers,” it said.

The agency also expected banks’ earnings to improve due to higher margins and lower credit costs.

Kenanga Research senior equity analyst Clement Chua told Bernama that banks should be delivering better operating profits this year on the back of larger loans portfolios and interest margins, now riding on rising OPR.

Additionally, he said, lower provisioning needs post-Movement Control Order would also provide a breather to bottom lines, with possible write backs from prior years’ bookings to come in progressively.

However, he noted that net earnings would be bogged down by 2022’s one-time prosperity tax which has led to some banks expecting to report flattish or even declining profits.

According to him, monetary tightening will likely put a strain on household loans before suppressing the appetite for business loans in the second half of 2023, when OPR is hoped to stabilise at 3% after one more hike in the first half of 2023.

That said, the higher rates would be supportive of profitability, alleviating some pressure amid heightening competition for cheap deposits, Chua added.

He noted the top three Malaysian banks – Maybank, Public Bank and CIMB Bank – are likely to continue booking loans and deposits growth driven by their leading market shares in both corporate and household segments which are highly unlikely to see a shift to the smaller-sized peers.

“Meanwhile, they will still see industry-wide boons of rising rates as well as lower provisions which can help to support earnings in the coming years.

“We believe risks to the sector would be highly macro in nature such as a global recession and instability in commodity prices given their direct impact to our financial system,” Chua said.

Meanwhile, Juwai IQI global chief economist Shan Saeed said the global economy would continue to experience economic and financial fragilities for the next few years and is expected to recover only by 2026 to 2027.

However, he said the financial industry is expected to remain strong and make gains despite the challenging macro-economic landscape.

“On one hand, western banks are facing lot of challenges as seen by the huge drop in the market capitalisation of Credit Suisse and Citibank leaving many Asian markets. On the other hand, regional banks in Asean are making strides in achieving solid profits and acquisitions are happening in the regional markets,” he shared.

He said many regional banks like Maybank, CIMB and RHB posted solid third-quarter (Q3) 2022 numbers, which reflected their strong performance in terms of market share, profitability and customer base.

“Asean will remain the focus of attention for many banks globally as GDP size will be around US$3.5 trillion to US$4.1 trillion (RM15.4 trillion to RM18.1 trillion) by 2025 and this provides impetus to the banks to facilitate the region with financial credit and advancement to the economy,” he added.

Digital banks

On April 29, BNM unveiled the five winners of the new digital banking licences in Malaysia, namely the Boost-RHB Bank consortium, GXS Bank-Kuok Brothers consortium, Sea Ltd-YTL consortium, AEON consortium, and KAF Investment Bank consortium.

The digital banks are subject to a foundational phase of three to five years, during which their asset size is capped at RM3 billion.

Research houses said they remain positive on the traditional banking sector following the announcement of the five successful applicants of the digital bank licences as the digital banks are not expected to impact its strong growth.

“In their early days, it is doubtful that digital banks would be a meaningful threat. While they may strike with highly competitive deposit products, the limitation in their asset size, which is capped at RM3 billion as mandated by BNM’s foundational phase, will likely impede overly aggressive strategies.

“On the flipside, their priority to target micro lending and underserved communities could keep them away from traditional banks’ key markets of housing and large corporate loans in their first few years,” Kenanga Research’s Chua commented.

New faces

In 2022, Malaysian banks saw several appointments and resignations of their key personnel and top leadership.

These include the resignation of Abdul Farid Alias as group president and CEO of the Maybank group after helming Malaysia’s largest bank for almost nine years. He was succeeded by Khairussaleh Ramli effective May 1.

RHB Banking Group has appointed Mohd Rashid Mohamad as group MD and group CEO effective April 1, succeeding Khairussaleh who left the group on March 25.

Apart from that, the banking sector also saw the appointment of Tengku Ahmad Badli Shah Raja Hussin as Agrobank’s new president and CEO effective Jan 3 this year.

AmBank Group announced the appointment of its new chairman, Md Nor Yusof, on April 29 while United Overseas Bank (M) Bhd announced the appointment of Ng Wei Wei as its first female CEO effective May 1.

Standard Chartered Bank Malaysia made Mak Joon Nien its new MD and CEO effective Aug 18. He is the bank’s first Malaysian CEO.