Image credit: The Edge Markets
PETALING JAYA: Uncertainties over the increasing inflationary pressures, cybersecurity threats and competition from digital banking have led most banks in Malaysia to adopt a more cautious stance, while focusing on key areas that will help improve their bottom lines this year.
OCBC Bank (M) Bhd has envisaged that the heightened cybersecurity threats would continue to pose significant concerns to the digital banking operations and innovation.
For that reason, OCBC Bank Malaysia CEO Datuk Ong Eng Bin said significant investments into cybersecurity and data privacy would be required to combat the emerging cyber threat landscape.
To emerge stronger, he told StarBiz that the bank is strengthening its position in three broad ways.
Firstly, OCBC will continue to strengthen its core balance sheet, strong capital and liquidity position in efforts to support stronger lending posture.
“With the improved market conditions, we plan to disburse more business and retail loans in the country targeted at consumers as well as small and medium enterprises (SMEs) in their property purchases and upgrading endeavours.
“This will be for individuals’ purchases and for business expansion,” he added.
Secondly, the bank is solidifying its market-mover position to facilitate corporate customers’ transition towards achieving net-zero carbon emissions and adoption of sustainability-linked financing solutions and sustainable supply-chain financing.
Lastly, Ong said OCBC aims to strengthen its digital platforms as a “challenger bank” by riding on the positive traction gained through the OCBC eBiz Account, which offers a single unified digital channel for SMEs, and by propelling the digital wealth capabilities using mobile as its key differentiator.
Malayan Banking Bhd (Maybank) also said it is cautious in its outlook for the rest of the year, given the significant uncertainties but would remain guided by the forward-looking strategies set out in its M25 Plan.
Group president and CEO Datuk Khairussaleh Ramli was reported as saying that the bank would focus on tapping into growth opportunities across customer segments in key markets while maintaining capital and liquidity strength to facilitate these growth opportunities.
He said this would ensure the bank’s risk management capabilities remain robust, and cost management and productivity efforts continue.
Maybank is also accelerating solution rollout on its digital platforms while increasing it market penetration regionally.
The banking group posted a lower net profit of RM2.04bil in the first quarter ended March 31, 2022 due to the impact of geopolitical tensions and market volatility.
OCBC’s Ong said it would capitalise its strength in the non-retail segment, capturing new inbound or outbound opportunities from China and intra-Assan, support its customers’ overseas investments and expansion efforts by leveraging on the overall group’s network strength.
“On the consumer front, we have made good progress in wealth management sales over the years.
“We will continue to leverage on the strong support from the OCBC Group for further deepening of our wealth management expertise and strengthen our premier and affluent proposition targeting high-net-worth customers,” he noted.
Amid the challenges, RAM Rating Services Bhd co-head of financial institution ratings Wong Yin Ching said considering the high base effect, profit outperformance in 2022 would be relatively limited.
Core earnings before tax are expected to see some improvement this year, underpinned by more moderate impairment charges and further broadening of net interest margins (NIMs), albeit to a lesser degree, she said.
She said bottom lines would, however, be weighed down by Cukai Makmur, the one-off prosperity tax.
Wong said the recent 25-basis-point (bps) overnight policy rate (OPR) hike and prospect for another increase in the second half are expected to lift banks’ NIMs. Margin expansion, however, may be hampered somewhat by potentially keener deposit competition as interest rates rise.
“With most of the relief measures progressively wound down in the second half of the year, defaults will likely trend up in the coming quarters. We may see the sector’s gross impaired loan ratio rise to 2.5% by end-2022, which is deemed manageable in our view.
“Banks had also bolstered their loss absorption buffers since the start of the pandemic by proactively setting aside more provisions through management overlays.
“We have pencilled in a slightly lower credit cost ratio of 40 bps-50 bps for 2022, based on our conservative assumptions, which is still higher than the pre-pandemic five-year average of 31 bps.”
GIL ratio remained low at 1.5% as at end-March 2022. RAM is projecting loan growth to come in at 4.5%-5% in 2022.
MARC Ratings Bhd vice-president in charge of financial institutions portfolio Farhan Darham noted that banks are in a better position to chalk up higher earnings this year.
He said the performance would be supported by the recent hike in OPR by 25 bps and the gradual tapering of sizeable provisioning, brought on by the impact from the pandemic.
Against this background, he said they would need to exercise caution, particularly as the relief assistance granted to borrowers during the pandemic gradually ceases, the asset quality implications of the extended and targeted moratorium become clearer.
“Maintaining asset quality metrics remains a key challenge for the banking industry. We note that the industry’s total capital ratio of 18.2% as at end-first quarter 2022 is healthy, and any sharp spike in non-performing loans could erode this buffer to absorb impairments.”
This impact would vary among banks.
“Another challenge would be extending financing to the SME sector, which had been heavily impacted by pandemic-induced closures and many players in the sector face pressure on debt-servicing capacity,” he said.
Source: https://www.thestar.com.my/business/business-news/2022/05/30/banks-take-cautious-stance-amid-headwinds