Banking sector performance likely to moderate next year

(Published in the Star BizWeek 24th December 2011 issue: Page 12)

KUALA LUMPUR: The performance of the Malaysian banking industry is likely to moderate next year in line with the economy, said RAM Holdings’ group chief economist Dr Yeah Kim Leng.

He said loan growth was expected to ease to 9% next year after expanding at 12%-13% annually in 2010 and this year.

Yeah said deposit growth was projected to ease slightly to 8% in 2012 from about 11.6% rise in 2011.

“Although the banks’ interest margin and non-interest income are expected to come under pressure due to a more challenging economic and business environment, we do not expect any severe erosion of their profitability and asset quality,” he told Bernama yesterday.

However, Yeah said, the strategies outlined for the banking industry in the Financial Sector Blueprint 2011-2020 would provide firmer indications of the sector in the long run and positioned the industry on a stronger footing.

He said Malaysia’s banking and financial services were largely driven by domestic demand and monetary conditions.

However, these drivers were partly influenced by the external economy and the extent to which consumer confidence and investor sentiments were affected by uncertainties in the global economy, Yeah said.

“As demonstrated by its resilience during the recession in 2009 and given its enhanced balanced sheet strength and ample liquidity in the economy, the banking industry is well-placed to weather any global credit crunch, liquidity shock and financial market turbulence that may intensify in 2012,” he said.

Yeah said banks could face major challenges relating to uncertainties in the external environment, especially the increased risk of a double-dip in the eurozone economies and its knock-on effects domestically.

“A more pronounced slowdown in the domestic economy may increase financial distress among highly-indebted companies and households, leading to a rise in loan delinquencies.

“However, we do not expect a full blown global recession in 2012 and the Malaysian economy in general and the banking industry, in particular, are well-placed to ride through the turbulence next year,” he said.

He said among the key factors supporting the local economy and the banking industry were several positive factors buttressing domestic consumption and investment that in turn, underpinned banking activities in the country.

“These include steady employment and income increases, rising private investment, moderately strong commodity prices, high private sector savings and liquidity, increasing number of middle- and upper-income households and growth-accommodative fiscal and monetary policies,” he said. — Bernama.