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Malaysian banks' downside risks on the rise, says S&P

KUALA LUMPUR: Downside risks are rising for Malaysian banks, says S&P Global Ratings as the firm affirms its ratings on five banks with negative outlook.

S&P affirmed its "A-" long-term and "A-2" short term issuer credit ratings on CIMB Bank Bhd, Malayan Banking Bhd (Maybank) and Public Bank Bhd.

The rating agency also affirmed its "BBB+" long-term and "A-2" short term issuer credit rating on AmBank (M) Bhd and RHB Bank Bhd.

All the ratings on the five banks come with negative outloook.

"Downside systemic risks for Malaysian banks are on the rise. We consider that the economic risk trend for Malaysia has turned negative. Banks are also facing rising risk in the competitive environment due to negative government intervention.

"We now see a one-in-three possibility that Malaysian banks could underperform our base-case asset quality expectations in the next 12-24 months," S&P said in a statement yesterday.

The firm said the protracted lockdown, rampant pandemic waves, repeated moratoriums on loan repayment and ongoing political uncertainties in Malaysia had increased the downside risk to the recovery of the country's banking system.

The factors had also reduced the headroom in its ratings on Malaysian banks, the firm added.

S&P expects the local banking industry's non-performing loan ratio to reach three to four per cent and credit costs to stay at 55-60 basis points annually over 2021 and 2022, before recovering gradually.

It forecasts Malaysia's gross domestic product to grow by six per cent in 2022, and unemployment rate to improve to 4.4 per cent, although the rate will still be high.

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