KUALA LUMPUR – Malaysian banks’ earnings are expected to improve this year with a net interest margin (NIM) recovery, but their profits will likely remain pressured by still-lofty – albeit lower – impairment charges, said RAM Rating Services Bhd (RAM Ratings).
“Their earnings should improve in 2021, with an upward bias in NIM trajectory,” said RAM Ratings co-head of financial institution ratings Wong Yin Ching in a note today.
“However, their profit performance will likely remain clouded by the uncertain operating landscape.”
With an estimated 13% of bank loans under targeted repayment assistance, or subject to restructuring and rescheduling, their true underlying asset quality has yet to surface, she said.
“Banks bolstered their loss-absorption buffers in 2020 by proactively setting aside provisions in anticipation of higher delinquencies when the various forbearance measures are eventually lifted.
“The average credit cost ratio of eight selected local banks almost tripled to 84 basis points (bps) from 30 bps year-on-year (y-o-y).”
In addition, banks’ NIMs were severely constricted by the aggregate 125-bps cut in the overnight policy rate last year, compounded by modification charges in the second quarter of 2020, she said.
“After having plunged to a low of 1.83% in Q2 2020, the average NIM of the eight banks rebounded strongly in the subsequent two quarters, underpinned by the absence of sizeable modification losses and the gradual repricing of deposits.
“Nonetheless, their NIM of 2.14% (adjusted for modification expenses) for the full year stayed below the trend average of 2.20% to 2.30% for the last five years.”
Although more robust bond trading income and disciplined cost management provided some respite, she said, the eight banks reported a significantly weaker pre-tax return on assets of 0.92% y-o-y in 2020 from 1.36% a year earlier, and a lower return on equity of 8.7% in 2020 versus 13.2% previously. – Bernama, March 11, 2021
