KUALA LUMPUR, Sept 4 — Domestic banks reported better performances in the second quarter 2024 (2Q 2024), driven by a mild recovery in net interest margins (NIMs) and lighter provisions, according to RAM Rating Services Bhd (RAM Ratings).

The rating agency said eight RAM-rated local banking groups posted higher pre-tax profits with the average pre-tax return on assets of the eight banks rising to 1.41 per cent in 2Q 2024, up from 1.37 in 1Q 2024 and 1.39 per cent in 2Q 2023.

The eight selected banks are Affin Bank Bhd, Alliance Bank Malaysia Bhd, AMMB Holdings Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, Malayan Banking Bhd, Public Bank Bhd and RHB Bank Bhd.

Co-head of Financial Institution Ratings Wong Yin Ching said the banks have been managing their funding costs actively by shedding expensive deposits to improve margins.

"Consequently, the average NIM of the eight banks saw a modest but encouraging uptick of two basis points (bps) quarter-on-quarter to 2.05 per cent in 2Q 2024,” she said in a statement today.

She said in the first half (1H) 2024, the banking system’s loans grew an annualised 5.0 per cent from 5.3 per cent in 2023 in line with the full-year projection.

Household loans led growth, rising 5.2 per cent, slightly outpacing business loans (4.8 per cent).

Growth in residential mortgages — the key driver of household lending — moderated to a still healthy 6.7 per cent from 7.3 per cent in 2023 while passenger vehicle hire purchase loans continued to expand rapidly, climbing 9.6 per cent.

"Rebound in business loan growth which began in late 2023 was largely sustained through 1H 2024, supported by the strong underlying economy,” she said.

Besides, she said Malaysian banks’ robust asset quality underpins their strong credit fundamentals.

"The system’s gross impaired loan (GIL) ratio was a low 1.60 per cent as at end-June 2024 (end-December 2023: 1.65 per cent).

"Favourable labour market conditions with unemployment back at the pre-pandemic rate of 3.3 per cent should help mitigate the potential adverse effects of subsidy rationalisation. We project the GIL ratio to come in between 1.6 per cent and 1.7 per cent by year-end,” she said.

Wong said in 2Q 2024, the annualised credit cost ratio of the eight banks eased to 18 bps from 22 bps in 1Q 2024 and 23 bps in 2023.

"GIL coverage (including regulatory reserves) which averaged 137 per cent, stayed notably higher than the pre-pandemic level of 107 per cent as at end-2019.

"Given sizeable management overlays retained by banks, we anticipate credit cost to remain benign at circa 20 bps for the full year,” she added. — Bernama