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(From left) Moody’s Investors Service vice-president and senior credit officer Christian de Guzman, Moody’s Islamic finance group global head Khalid Ferdous Howladar and Moody’s vice-president and senior analyst Simon Chen at a media roundtable in Kuala Lumpur yesterday. Pic by Nurul Shafina Jemenon
Pic by Ghazali Kori

KUALA LUMPUR: MOODY’S Investors Service continues to rate the outlook for the banking system as “stable” despite the challenging cycle in the industry.

Moody’s vice-president and senior analyst Simon Chen said the “stable” outlook was driven by strong capital levels and stable liquidity profiles of Malaysian banks as they were primarily deposit-funded.

“Our last report was published in May and so far, the view has not changed. We continue to have a ‘stable outlook’ on the Malaysian banking system,” he said at Moody’s media roundtable on Gulf Cooperation Council and Islamic Finance: Volatile Oil Pressures and Islamic Credit Trends, here, yesterday.

Chen said banks in Malaysia
were entering a period of slower growth in the domestic market due to weaker external growth conditions and demands.

These challenges were also weighing on the sentiment of the private sector as this translated into smaller growth opportunities for the banks in terms of loan growth over the next 12 to 18 months, he added.

The household debt in Malaysia was another factor that could pose a challenging operating environment for banks.

“But I think right now, it continues to be a tail-risk event. We think the debt levels are high but what is supporting the debt serviceability of consumers at large is the stable employment conditions that are underpinning the stable household income,” added Chen.

On the outlook of Malaysia’s Islamic finance industry, Moody’s Islamic finance group global head Khalid Ferdous Howladar said the sector would continue to see strong growth as the Employees Provident Fund (EPF) was set to boost the sukuk market.

“When external investors see the pension fund participating, it may encourage them to issue sukuk, knowing that somebody has an explicit allocation. All these help to boost demand, which is always positive for the sukuk sector,” he said.

Earlier this year, EPF allocated RM100 billion for Simpanan Shariah 2017, which is dedicated to syariah-compliant investments.

Howladar also said international sukuk issuance was increasing, with US$360 billion (RM1.5 trillion) remaining outstanding of the almost US$900 billion of sukuk issuance since 2001.

The main drivers of global sukuk market growth were the increase in retail demand for Islamic financial services, stronger policy support from governments of Muslim countries such as Indonesia and Turkey, and increase in Islamic investment liquidity such as Simpanan Shariah 2017, he said.

The international sukuk market is also driven by the global investors becoming more familiar with sukuk instruments as well as the rising standardisation of unsecured sukuk structures.

On the outlook of global crude oil prices, Moody’s vice-president and senior credit officer Christian de Guzman said the average price was expected to hover between US$40 and US$60 per barrel in the medium term.

He said the oversupply of crude oil would persist with production by the Organisation of the Petroleum Exporting Countries outpacing that in the United States.

De Guzman said demand growth for crude oil would be modest and driven by Asia, particularly China and India.

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