KUALA LUMPUR: Moody's has lowered Malaysia's profile to "Strong-" from "Strong" to reflect the operating environment for the Malaysian banks in view of the domestic and external challenges.
It has warned that Malaysia's current account surplus during the three quarters of 2015 nearly halved over the same period in 2014 while gross foreign exchange reserves have also run down, providing a thinner buffer against the increased volatility in capital flows.
"The weakening ringgit, coupled with political tensions and the prospects of higher prices, has dampened consumer sentiment, which in turn, will be a factor moderating economic growth in coming years."
Lower commodity prices, increasing global risk aversion and domestic political challenges that added to the worsening sentiment towards Malaysia had contributed to the ringgit's weakness over the past year.
However the agency found that the baseline credit assessments of the rated financial institutions were not affected by its profile change.
The banks are Malayan Banking Bhd, Public Bank Bhd, CIMB Bank Bhd, CIMB Islamic Bank Bhd, CIMB Group Holdings Bhd, RHB Bank Bhd, Hong Leong Bank Bhd, AmBank (M) Bhd, HSBC Bank Malaysia Bhd, Cagamas Bhd, Export-Import Bank of Malaysia Bhd and Standard Chartered Bank Malaysia Bhd.
"Banks in Malaysia operate in a country with a very high degree of economic strength, a high degree of institutional strength and moderate susceptibility to event risk."
Credit growth has been moderating in recent quarters, reflecting in part macro-prudential measures as well as worsening sentiment.
The banks are largely deposit- funded with a low reliance on wholesale funding while the banking system is supported by a moderately competitive landscape.
Domestic political risks have increased over 2015, but have not adversely affected policy reform as the government has demonstrated its commitment to goals for the reduction of the fiscal deficit.
The further softening of oil prices since October 2015 may require further expenditure restraint to meet the deficit target, it added.