Malaysia’s biggest banks are well positioned to withstand US tariff headwinds even as provisions may rise, Fitch Ratings said on Wednesday.
“Assuming no further escalation, we do not expect the higher tariff to have an outsized impact on banking-sector performance because of banks’ consistent underwriting practices and adequate loan-loss buffers,” Fitch Ratings analysts Tamma Febrian and Willie Tanoto wrote in a joint report.
Still, the persistent uncertainty due to rapidly evolving trade policies is likely to dampen loan demand and put moderate pressure on asset quality, they cautioned.
After unveiling a set of sweeping tariffs on its major trading partners, including 19% on Malaysia, the US has threatened to slap up to 100% levy on imported semiconductors. The US has said the proposed further tariff is part of its national security investigations.
Bank Negara Malaysia, meanwhile, has pre-emptively cut its overnight policy rate in July to stave off rising external risks from the international trade tensions.
“We believe pressure on net interest margins may re-emerge”, though the impact on banks’ profits is expected to be “broadly manageable due to their active asset-liability management”, Fitch Ratings said, noting that a cut in the reserve requirement in mid-May should also help to offset the pressure.
While asset quality of major Malaysian banks has been stable since last year and management overlays built up have been gradually released, credit impairments are expected to rise moderately over the next 12 to 18 months as some banks rebuild their loan-loss buffers, the rating agency said.
Source: theedgemalaysia