KUALA LUMPUR: The overall credit profile of Malaysian banks in 2018 will remain stable underpinned by benign asset quality strong capital base, healthy funding and liquidity positions says Standard & Poor’s Global Ratings.

Credit analyst Geeta Chugh however expects credit demand to be muted, at single digit level due to tough operation conditions.

“The Malaysian economy faces a number of headwinds, including higher domestic indebtedness at the corporate and household lever, weak energy sector and tighter domestic spending following the Goods and Services Tax (GST),”she said during a webcast on the Asia-Pacific Credit Outlook 2018 for banking, insurance and corporates.

Geetha projected the overall impaired ratio to rise to 2 to 2.5 per cent.

“But after deterioration and non- performing loans (NPLs), Malaysia is among the best performing banking systems in Asean along with Singapore.”

She also expects Islamic banking to grow at a faster clip than conventional banks next year.

With a market share close to 30 per cent of the banking system, it will continue to rise and take some growth share from conventional banks.

Senior Director Xavier Jean, when asked about the sectors which will improve on the back of improving oil prices, said the mindset of companies in the oil sector is still conservative.

“With a weaker ringgit and the level of oil prices, the recovery of those related companies will be more protracted as they have not resumed spending in an aggressive manner because they are not sure if the prices are sustained.”

A strengthening ringgit will help those companies with high costs quoted in the US dollars.

Malaysia and Indonesia, he added, have been benefitting from the favourable terms of trade especially commodities.

“If the recovery in commodity prices is sustainable for the next 18 to 24 months, we should not see too much credit deterioration for the corporate sector in these two countries.”

One of the concerns of the credit rating agency is the credit trends of state-owned enterprises especially in Indonesia and Malaysia.

Their increasing indebtedness need to be closely monitored, especially in terms of government support, added Jean.

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