Banking System Continues To Be Strong, Well-positioned To Weather Shocks -- HLIB

Malaysia's banking system is strong, well-positioned to weather shocks and supportive of financial intermediation activities, and continues to be backed by healthy capital and liquidity buffers, said Hong Leong Investment Bank (HLIB).

In a note, HLIB said risks to financial stability such as credit, market, liquidity and contagion were very much contained in the first half of 2024, with household and business segments remaining in good shape.

“Total household debt-to-gross domestic product (GDP) was broadly unchanged at 83.8% from 84.2% last year in line with the healthy economy.

“For businesses, the interest coverage ratio rose to 6.2 times (2023: 5.8 times), the debt-to-equity ratio was flat at 20.5% (2023: 20.5%) and the cash-to-short-term-debt ratio was unchanged at 1.4 times (2023: 1.4 times),” it said.

HLIB said with the price run-up of banking stocks in August and the ringgit performing strongly, foreign investors are sitting on handsome currency and capital gains.

“As such, banks are susceptible to selling pressure. That said, pull-backs are healthy and are opportunities to buy on weakness,” it said.

Meanwhile, MIDF Amanah Investment Bank Bhd research arm MIDF Research said banks' strong funding and liquidity positions remain supportive of intermediation activities.

“Overall business loan impairment ratio remains stable at 2.6% of business loans.

“Looking forward, Bank Negara Malaysia expects business resilience to improve further in the second half of 2024 amid a sustained expansion in economic activity,” it said, adding that loan growth continues to be robust while asset quality remains stable.

HLIB maintained its “neutral” call on the sector with top picks being RHB Bank Bhd, AMMB Holdings Bhd and Alliance Bank Malaysia Bhd.

MIDF Research has a positive call and its preferences are Malayan Banking Bhd and Bank Islam Malaysia Bhd.