KUALA LUMPUR: Moody's Investors Service has maintained a 'stable' outlook for the Malaysian banking system as the operating condition continues to be robust to support the bank's profitability.
The credit rating agency was previously more optimistic that there might be a faster recovery.
“But going towards year end, we are a bit realistic to think that the loan growth's prospect will be quite modest,” Moody's financial institutions group vice president - senior analyst Simon Chen said at Moody's Islamic Finance media briefing, here today.
While positive on the banking system, Moody's has revised downward Malaysia's loan growth between 5.0 per cent and 6.0 per cent from 7.0 per cent to 8.0 per cent previously this year.
The agency said private sector continues adopting 'wait and see' approach to alleviate some policy uncertainties.
Chen said the private sector was waiting for more clarity policies measures that will be included in the upcoming Budget 2019 in November this year.
“Until the new budget is announced, the private sector will most likely to plan its path ahead and that translates the muted loan growth and weaker sentiment,” he said.
Chen believed there would be a faster recovery in loan growth in the country as Moody's currently refining its assessment of the growth's condition prospect.
“There is a need for policy clarity for businesses in Malaysia. Business players are now more cautious about their business growth,” he added.
He said the overall capital and liquidity buffers from the bank would continue to be resilient against any volatility over the next 12- to 18 month.
Moody's has also maintained a ‘stable’ oulook for Asean banks, driven by steady operating environment despite headwinds from mounting trade tension and tightening financing conditions.
Chen believed Islamic banking in the region would remain strong, underpinned by strong population growth and robust banking system fundamentals.
“Regulatory support will also continue to dive industry growth. For Islamic banks in Malaysia, the value-based intermediation framework will drive business growth and credit considerations,” he said.
On the local real estate market, Chen said the price dynamic continues to be fairly healthy given that the series of macro prudential measures by the central bank to tighten household lending to buy properties.
“This has led to greater stability in the property market. House prices have also moderated.
“Overall it's stable but there is pocket of risk - a sign of oversupply, particularly in commercial real estate base where there are strong pipelines of shopping malls and commercial buildings in the next two to three years,” he said.
Chen said the commercial real estate sector remains uncertain on how its capacities will be absorbed by the market.
“If capacities are not well absorbed then prices might not be sustainable,” he said.
Moody's sovereign risk group vice president senior analyst Anushka Shah said the firm has also reaffirmed (A3) rating for Malaysia’s gross domestic product (GDP) growth with a healthy performance in 2018.
However, she the country's GDP growth likely to slow in 2019 and cautioned that high debt remains a key credit constraint, despite fiscal consolidation for eight consecutive years.
Moody's Financial Institutions Group vice president senior analyst Nitish Bhojnagarwala said the growing role of sukuk funding was credit positive, an important pillar of government financing.
“Islamic finance instruments now account for about 40 per cent of outstanding government debt,” he said.
Moody's previously reported that the sukuk issuance by Islamic Institutions in Malaysia to grow between 10 per cent and 13 per cent this year.