KUALA LUMPUR, April 8 — Moody’s Investors Service says in a new report that the asset quality of Malaysia’s largest banks has been more resilient to the coronavirus-induced economic disruption than their peers in Indonesia, the Philippines and Thailand — the major Southeast Asian emerging markets.
This resiliency, along with strong capital and liquidity buffers, will enable Malaysian banks to restore profitability faster than their regional peers.
“Despite the economic shock triggered by the pandemic, the asset quality of the largest Malaysian banks has remained sound, thanks to their greater focus on retail loans that are largely secured, well-regulated, and supported by ample financial assets,” said Tengfu Li, a Moody’s analyst.
The largest banks in Malaysia have the smallest share of loans under regulatory relief programmes compared with regional peers, most of which are collateralised mortgages and auto loans, he said.
In contrast, loans covered by regulatory support measures in the other countries are those predominantly exposed to businesses that took a direct cash flow hit and do not provide collaterals that are as liquid.
This stronger asset quality will help Malaysian banks restore profitability faster than their peers, as their relatively lower asset risk will save them the need to keep provisions as high as their peers.
Moreover, the banks’ capital and liquidity buffers — though not as high as those of their peers — are still strong and enough to cover any potential financial stress, he asserted.