Commercial banks key to protecting COVID-hit Malaysian economy

The sector has enough liquidity to buttress embattled businesses.

Commercial banks can play a vital role in safeguarding the Malaysian economy in the long term, which is currently beleaguered by the COVID-19 pandemic, according to a Malaysian Rating Corporation Berhad (MARC) report.

The Bank Negara Malaysia painted a lukewarm outlook for the economy this year, with growth projected to be in the range of 0.5% and -2.0% due to the pandemic. The central bank expects external and internal demand to weigh down on the economy, with moderate private consumption growth at 4.2%, on the back of job losses and wealth decay but somewhat offset by fiscal support.

BNM has already lowered its statutory reserve requirement (SRR) by a total of 150bp, inundating the banking sector with enough liquidity that is helpful for businesses struggling against a high cash burn rate, the report said.

“We note that the banking sector is in much better shape than it was prior to the 1998 and 2009 recessions. In February 2020, the sector’s total capital ratio stood significantly higher at 18.4% (2008: 12.6%). Asset quality had remained relatively steady last year with the gross impaired loans (GIL) ratio at year-end coming in at 1.5%,” the report added.

Based on the current scenario, however, impaired loans could rise and lending to businesses may come with risks. If businesses do not get the necessary lifelines they need, there could be a more pronounced economic implication, MARC noted, as gross impaired loans could be pushed to even higher levels and will place a heavier economic burden on banks.

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