NPLs will be higher but manageable: Fitch

 

Malaysian banks may see non-performing loan (NPL) ratio rising to 5.5 per cent by the end of this year as the economy slows, Fitch Ratings says.

The level is manageable and the agency does not see any major risk to the banks' stable rating outlook, since most of them have a good buffer to absorb potential bad debt and satisfactory capital protection.

"Malaysia's economy and the banks had held up well in 2008. However, 2009 is a different story due to the significantly lower GDP (gross domestic product) growth," Ambreesh Srivastava, a regional banking analyst at Fitch, said in a teleconference on the outlook of Asia ex-Japan banks in 2009 yesterday.

"There'll be a broad-based deterioration in asset quality after several years of improvement, but we don't expect asset quality to blow out in the next 12 months," he said on Malaysian lenders.

Fitch expects the Malaysian economy to slow sharply but still expand at 1.5 per cent this year, from an estimated 5.8 per cent expansion last year.

Consumer loans will likely contribute to the worsening loans quality as the jobless rate rises in the upcoming months, Ambreesh said. Consumer loans make up about half of the total loans in Malaysia. He, however, expects the government's fiscal stimulus measures and interest rate cuts to help prevent more loans from turning bad.

"It is noteworthy that since the Asian financial crisis, associated risks arising from a concentrated loan book have become less of a concern for Malaysian banks," Fitch said yesterday in a report on Asian banks.

Malaysian banks have strengthened significantly after the 1997/1998 financial crisis with better risk management, as well as a high capital ratio and more robust reserve to cover potential bad loans.

NPL ratio at local banks have gradually dropped to 4.3 per cent at the end of November last year, from 5.6 per cent as at December 2007, thanks to good recoveries of old debt, one-off NPL sales and early measures to keep NPLs low.

Higher loan losses are more likely to affect the profits of Malaysian banks instead of their capital, the agency noted.

Still, most Asian banks, including Malaysian len-ders, are expected to make a profit this year despite the tough environment.

The exceptions include Taiwan, where even in a good year, profit margins are thin. South Korean banks could also fall into the red due to sizeable credit losses following their lending boom of recent years.- By Chong Pooi Koon