S&P: Ratings on 7 Malaysian banks affirmed on sound fundamentals

S&P Global Ratings on Monday affirmed the ratings on seven Malaysian financial institutions with stable outlooks.

The affirmation of A-/Stable/A-2 ratings are for Malayan Banking Bhd, Public Bank Bhd, CIMB Bank Bhd and CIMB Investment Bank Bhd, with BBB+/Stable/A-2 for RHB Bank Bhd, RHB Investment Bank Bhd and AmBank (M) Bhd.

"We affirmed the ratings because we believe Malaysian banks are in a position of strength and have sufficient buffers against downside risks in our base case scenario.

"In our view, although the banks' asset quality is likely to deteriorate slightly and their revenue growth has continued to decelerate, the deterioration should be manageable," the rating agency said in a statement.

S&P said its ratings incorporate normal credit cycle turns, nonperforming loans (NPLs) coming from a low base, and strong loan-loss reserves.

Its base case assumptions incorporate a minor recovery in economic growth of 4.3 percent in 2016 and 4.5 percent in 2017, and an accommodative monetary policy and low unemployment conditions, which will continue to support private sector debt repayment.

S&P said the profitability of the banks has been affected on two fronts.

One of them, credit costs increasing due to weaker asset quality, should weigh on the bottom line, particularly for banks with exposure to emerging markets such as Indonesia, it said.

S&P said the introduction of more stringent liquidity requirements under Basel III has also sparked a wave of deposit campaigns, leading to higher funding costs.

The rating agency said Malaysian banks have adopted a defensive strategy against these headwinds.

"We expect loan growth for the industry to slow to just 3.0-5.0 percent for 2016 from 8.1 percent in 2015, which would offset downward capital pressure from lower retained earnings," it said.

S&P said banks have tightened underwriting standards and decelerated regional expansion, particularly into emerging markets such as Indonesia.

"In our view, Malaysian banks will continue to focus on cost control and asset quality preservation in 2017 to ride out this cyclical downturn," it said. -- Bernama