Credit Growth, Margins, and Lower Costs: Positive Outlook for Malaysian and Thai Banks

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The banking sectors in Malaysia and Thailand have shown resilience and are poised for growth and stability in the current economic landscape. Both countries have made significant strides in their recovery efforts following the impact of the COVID-19 pandemic. Supported by strong economic fundamentals and proactive measures taken by the authorities and financial institutions, Malaysian and Thai banks are well-positioned to navigate challenges and deliver positive financial performance in the coming years.

Malaysian banks are expected to benefit from several favorable factors that contribute to their positive outlook. S&P Global Ratings projects higher credit growth, improved margins, and lower credit costs for Malaysian banks in 2023. The country’s strong and broad-based economic recovery, driven by various sectors including manufacturing, construction, and services, is set to support borrowers and boost the overall financial performance of the banking sector.

While credit costs are expected to remain relatively stable, caution is advised due to rising interest rates and the potential global economic downturn. Malayan Banking Bhd (Maybank) and CIMB Bank Bhd, which have significant exposure to markets with higher economic risk such as Indonesia and Thailand, may experience slightly higher credit costs compared to their peers.

Malaysia has witnessed a modest increase in non-performing loan (NPL) ratios since the expiration of allotted moratoriums. The majority of this increase comes from small and medium enterprises (SMEs), corporate loans, and unsecured retail loans. However, the level of restructured loans has been gradually declining as borrowers exit repayment assistance programs and resume debt payments. If this trend continues, the sector’s NPL ratio is likely to remain below the forecasted levels.

Credit growth is expected to slow down in 2023, reflecting the full impact of a 100 basis points increase in policy rates in the previous year. Furthermore, S&P Global Ratings anticipates an additional 50 basis points increase in policy rates this year. As a result, banks’ net interest margins may narrow slightly as price competition for fixed deposits heats up. However, the high levels of liquidity seen during the COVID-19 pandemic indicate that the resulting liquidity tightening in Malaysia will be manageable.

The banking sector in Thailand is also expected to experience growth and stability, supported by favorable economic conditions and recovery efforts. The Thai economy has displayed resilience amid the pandemic, and proactive measures taken by the government and financial institutions have helped mitigate its impact.

The Bank of Thailand’s monetary policies and financial stability measures have played a crucial role in supporting liquidity and credit conditions, contributing to the sector’s positive performance. The non-performing loan ratio in Thailand has remained manageable, thanks to effective loan restructuring programs and proactive measures by banks to support affected borrowers.

The gradual recovery of the tourism sector and the rebound in domestic consumption further strengthen the outlook for Thai banks. These factors, combined with the government’s stimulus packages and infrastructure investments, create a conducive environment for sustained growth in the banking sector.

However, risks such as potential economic downturns and rising interest rates warrant caution. Thai banks are advised to closely monitor asset quality, manage credit risks, and adapt to changing market conditions to ensure continued growth and stability.

Both Malaysia and Thailand present favorable prospects for their banking sectors. The strong and broad-based economic recovery in Malaysia, driven by various sectors, sets the stage for higher credit growth, improved margins, and lower credit costs for banks. In Thailand, proactive measures by the government and financial institutions have helped stabilize the sector and pave the way for gradual recovery.

While challenges such as rising interest rates and potential economic downturns persist, the resilience and adaptability of Malaysian and Thai banks position them well to navigate these uncertainties. Their ability to customize assistance, closely monitor asset quality, and manage credit risks will be critical in sustaining growth and contributing to their respective countries’ economic stability. As the recovery continues and the global economic landscape evolves, the banking sectors in Malaysia and Thailand will need to stay vigilant and responsive to emerging risks and opportunities.

In Malaysia, banks should focus on maintaining prudent lending practices and credit risk management to mitigate the potential impact of rising interest rates on borrowers’ repayment capabilities. They should continue supporting SMEs, which are vital for economic growth, through targeted financing programs and advisory services. Embracing digital transformation and expanding digital banking services will also be key to meeting evolving customer expectations and enhancing operational efficiency.

Thai banks should remain cautious of any signs of deteriorating asset quality and closely monitor the performance of borrowers, particularly those in sectors heavily affected by the pandemic, such as tourism and hospitality. Implementing effective loan restructuring programs and maintaining robust risk management frameworks will be crucial in managing potential credit risks. Furthermore, enhancing digital capabilities and investing in technology infrastructure will help Thai banks improve customer experiences and streamline operations.

Collaboration between the banking sectors, regulators, and governments in both Malaysia and Thailand will be essential in fostering a stable and resilient financial system. Regular communication, sharing of best practices, and coordination of policies will enable the timely response to emerging challenges and the effective implementation of measures to support the banking sectors’ growth.

Overall, while uncertainties persist, the banking sectors in Malaysia and Thailand have demonstrated their ability to adapt and rebound. By leveraging their strengths, embracing innovation, and remaining vigilant, Malaysian and Thai banks are well-positioned to contribute to economic recovery and navigate the evolving landscape, ensuring sustainable growth and stability in the years to come.