'Stable outlook for Malaysia's banking'

SINGAPORE: Moody's Investors Service announced today it is maintainig
its stable outlook for the Malaysian banking system for the next 12 to
18 months.

The stable outlook reflected Moody's expectation of a
stable operating environment that would allow banks to maintain their
good asset quality and strong capitalisation levels and funding
profiles.

"At the same time, Moody's is also cautions over the
looming risk posed by the twin trends of household leveraging and house
price appreciation, which could, in less favourable conditions,
undermine asset quality.

"But
this risk is unlikely to materialise within the timing horizon of its
outlook," it said in its most recent Banking System Outlook published
today.

Explaining Moody's view on the favourable operating
conditions, Simon Chen, a Moody's analyst and the report's author,
indicated that he expected post-election continuity, including
maintenance of accommodative government policies that would support
robust gross domestic product (GDP) growth, which Moody's estimated
would be five per cent this year.

He also sees bank loans growing by 10 per cent during the same period.

"The
key policies supporting this scenario feature government disbursements
to implement infrastructure projects already in the pipeline, as well
as accommodative monetary policies -- globally and domestically -- that
will attract private sector investments, employment and consumption",
said Chen.

Moody's report also said that because impaired assets
are at record low levels, any further improvement in this area is
unlikely.

Chen noted, while pockets of the consumer sector may
be taking on too much leverage, the associated credit risks should be
contained for as long as interest rates remain low.

As the
report notes, any upward movement in current low official interest
rates would have a negative effect on various asset classes, such as
export-oriented manufacturers, high loan-to-valuation mortgages, and
highly-leveraged households.

Moody's estimates that these asset classes account for less than 20 per cent of all loans in the banking system.

Yet,
Moody's stress testing analysis indicates that the loss-absorbing
buffers of Moody's-rated banks would allow them to sustain a
considerable deterioration in asset quality, while maintaining core
equity tier 1 ratio above regulatory minimum.

Furthermore, it
addded capitalization levels are highly unlikely to fall below current
levels, as the banks manage their balance sheet growth against the
higher capital requirements specified under Basel III, which will lock
in existing buffers.

On liquidity, the report said Moody's
expects the banking system to maintain robust levels, given that the
banks have managed well their funding profiles, characterised by a
stable average overall loan-to-deposit ratio of 79 per cent, and the
availability of longer-term funding that the banks may obtain from the
debt capital markets.

Moody's rates eight commercial banks in
Malaysia, which, at end-2012, held a combined 82 per cent of total
banking system assets.-- Bernama