Investment Highlights

• BNM provided a briefing yesterday following the release of its publication on 2H2022 Financial Stability Review (FSR).

• The banking system’s capital and liquidity position remained healthy. As at Dec 2022, the total capital ratio of banks rose to 18.8% from 18.4% in June 2022. Meanwhile, liquidity coverage ratio (LCR) of the banking system remained healthy at 154% (June 2022: 148%). Net stable funding ratio (NSFR) of banks at 118%, continued to stay above the minimum regulatory requirement of 100%.

• Towards the end of 2022, business loan growth moderated. Business loans grew by 3.4% YoY in 2H22 vs. 5% YoY in 1H22. The slowdown was driven by the slower pace of loans to the primary agriculture sector amidst elevated CPO prices which reduced the needs for debt funding as well as the slowdown of loans to the mining and quarrying sector. Loans to SMEs were supported by working capital needs due to higher cost pressures.

• Interest coverage ratio (ICR) for the business sector slid to 6x in Dec 2022 vs. 7.9x in June 2022. Meanwhile, operating margin for the sector fell to 6.5% in Dec 2022 (June: 7.6%).

• For the business sector, debt to equity ratio declined to 20.9% in 2H22 vs. 22% in 1H22 with a lower impaired loan ratio of 2.8%.

• Recovery remains uneven across businesses with firms in the construction and manufacturing sectors facing higher operating cost from increase in raw material costs and labour shortages. In contrast, improvements were seen in the sectors (hotels and restaurants) that had earlier lagged the economic recovery as well as the retail trade sector. The overall share of firms-at-risk declined to 25.1% in 4Q22 vs. the peak of 30.4% in 3Q20. Nevertheless, it remained higher than the 5-year average (2015-2019) of 20.4%. Firms-at-risk for the construction sector rose to 38.2% (2015-2019 average: 23.5%) while that for the manufacturing sector climbed to 21.6% (2015-2019 average: 18.1%).

• Share of risky loans to total business loans declined to 13.2% in Dec 2022 from 14.7% in June 2022. Despite businesses being weighed down by higher operating cost, the level of debt servicing ability as measured by the median ICR remained healthy at 3x above the prudent level.

Source: AmInvest Research - 30 Mar 2023