KUALA LUMPUR, Feb 14 — The outlook for the Malaysian banking sector for 2022 is stable as economic activities are expected to return to pre-pandemic levels, leading to more jobs and higher wages.

The sector will also be supported by a gradual increase in interest rates that will help banks improve net interest margins and profitability, said IHS Markit. 

Its research analyst, Tanisha Bhardwaj said the upbeat trend is in line with the positive regional sentiment across South-east Asia, with banks from Thailand, Singapore and Indonesia poised for steady growth in the new year. 

She noted that banking dividends for all four markets are expected to rise by 9.25 per cent on average in financial year 2022 (FY2022).

"However, there are still uncertainties surrounding the Covid-19 pandemic and prolonged supply chain disruptions, as well as natural disaster risks such as floods,” said Tanisha in a statement today.

With FY2021 year-end dividends to be announced this month, IHS Markit expects the Malaysian banking sector’s aggregate dividends to increase by 26 per cent year-on-year (y-o-y) in FY2021 to US$3.43 billion, after a 27.8 per cent plunge in FY2020 due to Covid-19.

Tanisha said the dividend payouts were forecast to grow 4.6 per cent y-o-y in FY2022, supported by strong liquidity and capital buffers, but noted that there was a mixed picture in terms of dividends in FY2021.

AMMB Holdings has decided to hold dividend payouts until the end-2022 due to cautious capital management, while CIMB Group’s year-end dividend is expected to rise more than threefold from the previous year.

Maybank and Public Bank are also expected to continue to be top dividend contributors.

Meanwhile, CGS-CIMB Research (CGS-CIMB) said the pre-emptive provisions, or management overlay for Covid-19 amounted to a hefty estimated sum of RM6.84 billion at end-September 2021 for all Malaysian banks under its coverage.

The brokerage said management overlay accounted for 35 per cent of the banks’ total gross impaired loan (GIL), with the largest amount of management overlay recorded at RM2.1 billion by Maybank, followed by RM1.3 billion by Public Bank.

CGS-CIMB added that this should provide a strong buffer against any increase in GIL in 2022, adding that the management overlay only accounted for an estimated 2.4 per cent of the total loans under repayment assistance.

"We are not overly concerned about this as we think that only a small percentage of these loans would eventually turn into GIL, premised on the improvements in loan delinquency rate following the reopening of the economy and continuous repayment assistance offered by banks to their borrowers,” it said in a note today. 

The brokerage believed provisions could be written back in 2023 — at the earliest — if the GIL ratio does not spike in 2022.

It estimated that a write-back of every 10 per cent of management overlay would lift its profit forecast for FY2023 for Malaysian banks by around 2.0 per cent.

"The impact would range from 1.5 per cent for Public Bank Bhd (due to its strong net profit base), to 5.4 per cent for Alliance Bank (due to the management overlay ratio of 71.2 per cent over its FY2023 net profit),” added CGS-CIMB. — Bernama