On December 7, 2022, banking stocks were considered “safe” investments despite potential economic difficulties, with the banking industry aiming to boost non-interest revenues. According to a statement, “the banking industry can also aim to boost non-interest revenues, as banking remains a safe sector in the face of a potential economic slump.” However, the sector was dealing with increasing deposit competition, declining rates on savings and current accounts, sticky staffing and technology costs, more macroeconomic overlays, and new challenges to asset quality in the coming year. As noted, “tailwinds appear to be fading as the sector deals with increasing deposit competition, declining rates on savings and current accounts, sticky staffing and technology costs, more macroeconomic overlays, and new challenges to asset quality in the coming year.”
banking industry outlook
Hong Leong Investment Bank (HLIB) Research lowered its rating to “neutral” on the Malaysian banking industry, stating “we become less enthusiastic on the banking industry, despite valuations remaining undemanding.” The research firm cited fewer rate increases next year, fierce deposit competition, and a softer macroeconomic outlook as reasons for the downgrade. Additionally, HLIB Research claimed that the sector was becoming less attractive to investors due to these challenges. As stated, “there will be fewer rate increases next year, fierce deposit competition, and a softer macroeconomic outlook.”
loan growth trends
Despite the challenges, loan growth in the month of October 2022 remained constant at 6.5%, supported by increases in both the household and commercial divisions of 6.3% and 5.5%, respectively. HLIB Research noted that “across all household segment sub-segments, there was an increase, in terms of the business segment, working capital financing supported it.” The research firm also stated that “overall, the system loan growth met our 6% to 6.5% full-year 2022 forecasts.” While home mortgages and hire purchase remained the main drivers, they appeared to have moderated a bit from their high. On the other hand, “unsecured loans scored a remarkable 5% month-over-month gain.”
credit card loans and asset quality
Credit card loans made up 1.9% of all system loans, according to MIDF Research. These loans increased significantly year over year by 13.6%, with both local and foreign cardholders’ combined purchases in Malaysia showing significant consecutive month growth. However, the research firm noted that the percentage of all local card purchases continued to lean more heavily toward foreign cardholders. In terms of asset quality, HLIB Research reported that it was resilient in October 2022, with the gross impaired loans ratio holding steady month over month at 1.82%. This suggests that the banking industry was able to maintain its asset quality despite the challenges it faced.
future prospects
The banking industry’s ability to maintain its loan growth and asset quality will be crucial in the coming year. As noted by HLIB Research, the sector will need to navigate fewer rate increases, fierce deposit competition, and a softer macroeconomic outlook. However, the industry’s resilience in the face of challenges and its ability to boost non-interest revenues suggest that it may be able to adapt to the changing economic environment. According to a statement, “the banking industry can also aim to boost non-interest revenues, as banking remains a safe sector in the face of a potential economic slump.” This suggests that the industry may be able to find new ways to generate revenue and maintain its growth despite the challenges it faces. Overall, the banking industry’s prospects will depend on its ability to navigate the changing economic environment and find new ways to generate revenue.
