Moody’s Investors Service says the outlook for Malaysia’s banking system in the next 12 to 18 months is stable.
“Moody’s expects the Malaysian government’s expansionary policies to support credit growth, despite a slowing economy due to lower demand for exports from the country’s main trading partners; the US, Europe and China,” said Simon Chen, an analyst at the credit ratings agency (CRA).
A report published by Moody’s titled, ‘Banking System Outlook: Malaysia’, is based on the central scenario that Malaysia’s economy will grow at a slower, yet robust pace of 4.0% this year, from 5.1% in 2011.
“Government spending this year will total 26% of gross domestic product [GDP], on commercial and fiscal projects that will attract private sector investment, and provide support to domestic business activities and employment. We expect loans to grow by between 9% and 11%, which is slightly lower than the 14% growth recorded in 2011,” said Chen.
Risk-adjusted profits for Malaysian banks are expected to fall modestly, due to moderating credit growth, lower net interest margins, and rising cost pressures for those banks aiming to boost their offshore operations. However, Moody’s believes the banks will continue to expand regionally because of intense domestic competition, high credit penetration and abundant liquidity.
The CRA is also relatively upbeat on the outlook for Thailand’s banking system, also rated as stable over the next 12 to 18 months.
“The stable outlook is underpinned by our view that reconstruction and inventory replenishment activities will generate the rebound, as firms normalise production and the government implements programmes introduced after last year’s massive floods,” said Karolyn Seet, assistant vice president (AVP) and analyst at Moody’s.
The CRA expects Thailand’s economic growth to rebound to 5.0% this year and 5.6% in 2013, against just 0.1% for 2011. It also predicts annual loan growth of between 5% and 10%, with the infrastructure and manufacturing sectors accounting for the bulk of the new loans, against 15% a year ago.
Moody’s added that Thai banks have the financial flexibility to withstand a substantial deterioration in asset quality, according to the CRA’s stress tests.
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The country is expected to survive the review, which it must do to retain its place in the European Central Bank’s asset purchase programme.
The bank believes that the battered UK currency, recently only just holding above the US$1.20 level, could be trading at US$1.36 by this time next year.