Author Topic: Fitch maintains stable outlook on Malaysian banks  (Read 260 times)

Offline Oly Shyte

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Fitch maintains stable outlook on Malaysian banks
« on: December 12, 2011, 04:44:16 PM »
PETALING JAYA: The outlook for Malaysian banks are expected to remain stable even if a fresh economic slowdown were to emerge from the mounting global uncertainty but rating risks may arise should a downturn be sharp and protracted.

Fitch Ratings said in a media statement that the likelihood of downward rating risks were “fairly low” due to local banks satisfactory loss-absorption qualities and risk management, as well as a prudent regulatory environment.

“While the ongoing sovereign turmoil in Europe is unlikely to materially impact on the local bank's credit profiles, global economic prospects are becoming increasingly weak, posing fresh downside risks to the Malaysian economy and banking system,” it said.

The rating agency believes Bank Negara would closely monitor household debt, which at 76% as at end 2010 in comparison with gross domestic product, remains fairly high leaves banks vulnerable to sharp increases in unemployment and interest rates.

“Precautionary measures may be tightened further to those introduced in 2010 and first-half of 2011 to prevent households from over-extending themselves, particularly in an environment of continued ample liquidity, low interest rates and rising asset prices,” it said.

It said banks' satisfactory risk management also underpins views that domestic loans to individuals would remain of fairly sound quality through credit cycles.

Fitch said he impact of higher credit costs can be absorbed largely through banks' earnings, leaving limited risk of capital erosion with such resilience being observed in the 2008 to 2009 global economic crisis.

It added that domestic banks' capitalisation would remain broadly intact, with an average core Tier 1 capital adequacy ratio (excluding hybrids) of about 9%.

“The core capitalisation of major Malaysian banks - while modest by regional comparison - is satisfactory relative to their risk profiles and steady operating environment,” it said.

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