KUALA LUMPUR: Analysts are turning cautious over Malaysian banks’ outlook over increased uncertainties, with S&P Global Ratings saying the domestic sector is drifting into digital banking era amid its battle on multiple fronts.
S&P said Malaysia's incumbent lenders were facing cyclical and secular pressures that may slowly erode their financial standing if not addressed.
“Malaysia's banks are battling on multiple fronts: trade war, a China-led regional economic slowdown, dampened domestic business sentiment, and continuously soft commodities prices," said S&P Global Ratings analyst Rujun Duan.
"Moreover, the lenders need to contend with the possibility that financial technology may radically disrupt their industry, just as they are shaving costs."
Duan said while such factors did not yet affect its stable outlook ratings on all local banks it rates, S&P believes it was critical to flag the issues.
It expects Malaysian bank loans to grow three to five per cent this year, about half the growth achieved in 2015.
S&P also expects the industry's net interest margin to contract 5.0-10 basis points in the year, following cuts to the policy rate and heated domestic competition for deposits.
Affin Hwang Capital is reviewing its 2019 loan growth target of five per cent amid cautious business and consumer outlook.
It said the banking system’s July loan growth had dipped slightly to 3.9 per cent year-on-year (yoy) in July from June’s 4.2 per cent expansion yoy.
“The month-on-month growth was flat, largely due to higher repayments. Despite that, the RM102.4 billion worth of loan disbursement in July 2019 was above RM93 billion, i.e. the average size of monthly disbursements from 2014-18,” it added.
Affin Hwang said the weak year-to-date loan growth of 1.4 per cent translated into an annualised loan growth of 2.3 per cent.
It kept its neutral stance on the sector, with RHB Bank Bhd and Aeon Credit Service (M) Bhd being its top picks.
MIDF Research, meanwhile, feels that there were still positives for banks such as the low credit cost, which should alleviate any weakness in income.
The escalation of the US-China trade tension had caused concerns on the direction of global growth, the firm said. This in turn would have an impact to local growth and indirectly to the banking sector as businesses grew more cautious.
“However, Malaysia's domestic demand especially private consumption remains robust and this will continue to support loans growth. Hence, we are maintaining our calendar year 2019 loans growth estimate of 4.7 per cent,” MIDF Research said.