Malaysian banking sector to continue showing growth in 2018, says Moody’s

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Moody’s Investors Service says its six rated Malaysian banks showed solid performance in 2017, with additional improvements likely in some areas in 2018.

Moody’s Vice President and Senior Analyst, Simon Chen, said the asset quality and profitability of the six banks generally improved in 2017, while capitalisation and funding remained accommodative.

“We expect loan demand to recover further in 2018, strengthening profitability, but also tightening funding conditions.

“As a result, profit growth among banks with weaker deposit franchises could be limited by higher funding costs,” he said in a statement today on its report titled, “Banks — Malaysia: 2017 Sees Asset Quality Stabilise, Profits Improve”.

The six banks in the report are Malayan Banking Bhd (A3/A3 stable, a3), CIMB Group Holdings Bhd (Baa1 stable), Public Bank Bhd (A3 stable, a3), RHB Bank Bhd (A3/A3 stable, baa3), Hong Leong Bank Bhd (A3 stable, baa1) and AmBank (M) Bhd (Baa1/Baa1 stable, baa3).

It said asset quality would benefit from stronger macroeconomic conditions in 2018, both domestically and regionally.

“Banks with exposure to the oil and gas sector should see their asset quality stabilise on higher oil prices,” the credit rating firm said.

The report found most banks posted improved profitability in 2017, driven by steady revenue growth, stable net interest margins and a moderation in credit costs.

“These favourable conditions should continue into 2018, and ongoing digital transformation efforts will support stronger growth in revenue and cost efficiencies.

“Loan growth will also rebound in 2018, supported by higher demand for corporate loans and stable consumer lending and this development, plus stable net interest margins, will support bank profits,” Moody’s said in the report.

“While the banks will generally be able to support their balance sheet growth through steady retained earnings in 2018, some have projected the MFRS9 implementation to result in a 20-80 basis point drop of Common Equity Tier 1 ratios.

“Funding profiles remain resilient, as loan to deposit ratios fell slightly for most banks in 2017 because of sluggish loan growth, but likely to rise in 2018, when loan growth recovers,” Moody’s added.

South East Asian stocks on an upward momentum following strong US data

South-east Asian stock markets rose today, tracking Asian peers, after chances of the US Federal Reserve hiking interest rates four times this year dimmed following data that showed jobs jumped and wage growth slowed in February.

Inflation worries faded on Friday after US data showed nonfarm payrolls jumped by 313,000 jobs last month, but annual growth in average hourly earnings slowed to 2.6 per cent after a spike in January.

The pullback in wages tempered speculation the Federal Reserve would project four rate hikes — or dot plots — at its policy meeting next week, instead of the current three.

Asia-shares ex-Japan climbed 1.1 per cent, their third session of gains.

On Friday, the three major US indexes rose more than 1.5 per cent.

“I think the latest data points are positive for markets. We are starting to see a move back to risky assets like equities,” said Joel Ng, a research analyst at KGI Securities in Singapore.

In South-east Asia, Singapore’s benchmark rose as much as 1.9 per cent, following gains of 0.2 per cent last week.

Conglomerate Jardine Matheson Holdings Ltd rose as much as 3.4 per cent, extending gains after results last week showed profit jumped more than 50 per cent.

“You can see that there is growth in most of its business segments like Jardine Pacific and Jardine Motors,” said Joel Ng of KGI Securities.

Malaysian shares rose about 0.7 per cent, with CIMB Group Holdings Bhd, up 1.4 per cent, contributing the most to the index gains.

The country’s banks will continue to perform well in 2018, a Moody’s report showed today.

The Philippine index rose 1.1 per cent, after ending the previous week about 1 per cent lower.

SM Investments Corp rose 1.5 per cent.

Thai shares climbed for the first session in nine as financials and energy stocks gained. PTT Pcl was 1.9 per cent higher.

Indonesia’s benchmark was up, with financials and consumer discretionary stocks helping the index higher. Bank Central Asia rose 1.3 per cent.

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