Pre-tax profits increased by 14.2 per cent to RM26.2 billion last year. The growth rate was, however, slower than the previous year's 35.1 per cent.
MALAYSIAN banks, including Islamic banks, continued to show improvement in profitability last year, Bank Negara Malaysia's (BNM) latest annual report shows.
Pre-tax profits increased by 14.2 per cent to RM26.2 billion. The growth rate was, however, slower than the previous year's 35.1 per cent.
Return on equity - a measure of how well banks use shareholders' money to generate more money - rose by 17.4 per cent compared with 16.6 per cent in the previous year.
The Islamic banking system recorded pre-tax profits of RM3.1 billion, with average returns on assets and equity of 1.0 and 13.7 per cent, respectively.
This took into account the impact from a large one-off provision by one Islamic bank that undertook a balance sheet strengthening exercise during the year, BNM said.
The strong overall performance was partly attributed to higher interest/financing income (12.2 per cent growth), which more than offset higher funding costs on the expanded deposit base.
The net interest/financing margin, nonetheless, narrowed slightly to 0.57 per cent during the year, compared with 0.62 per cent in 2010, due to strong competition in the house financing and retail lending segments.
Impairment charges (net of recoveries) declined for a second consecutive year, reducing by 35.9 per cent in 2011 due to lower newly-impaired financing and improved bad debt recoveries.
Also contributing to profits were higher fee-based activities (including fees associated with credit facilities, bancassurance and wealth management offerings), net trading and net investment income, which grew by 4.5, 30.1 and 44.3 per cent, respectively.
Profits have also come under some pressure from higher staff costs, which grew by 12 per cent in 2011, higher than the average annual growth of 10.2 per cent in the previous three years.
This came against a backdrop of an intensely competitive talent market in the financial sector, driven by vacancies in specialist, technical and management positions.
As at end-2011, six out of eight Malaysian banking groups had overseas operations in 19 countries, mostly in Asia.
Their total overseas assets increased to RM264.7 billion, accounting for 19 per cent of total assets, while operating income derived from overseas accounted for 30 per cent of total operating income.
Banks continued to report stable and sound funding positions, with more than sufficient ringgit liquidity to meet demand for credit from households and businesses, as well as to weather any unexpected large deposit withdrawals.
Banks' liquidity buffers in excess of the minimum regulatory requirement under BNM's liquidity framework increased to 18.3 per cent and 18.1 per cent of deposits for liquidity needs maturing in less than one week and one month respectively.
As in previous years, the banking system remained a net lender in the domestic interbank market, with excess liquidity of RM153.3 billion placed with BNM as at end-2011.
In December last year, BNM came out with the Financial Sector Blueprint, which is a strategic plan to chart the direction of the country's financial system over the the next 10 years.
Stress tests carried out on the banking and insurance sectors at the system-wide and institutional levels affirmed the resilience of the domestic system to extreme macroeconomic and financial shocks.