Move Expected to Boost Confidence in Banks

(Source: New Straits Times)MALAYSIA'S move to fully guarantee bank deposits is a great confidence booster, although bankers believe the facility will not be utilised as our banking system is solid.

CIMB group chief executive officer Datuk Seri Nazir Razak said the government's action was in response to similar policies in the neighbouring countries, because the health of our financial sector does not call for the assurance.

"I certainly don't think Malaysia on its own has any need to introduce this. But because Singapore and other neighbouring countries are introducing it, Bank Negara really had to as well," he said.

Both Singapore and Hong Kong this week announced a blanket coverage to guarantee bank deposits in their system for a limited period.

It may result in funds outflow from Malaysia if we did not move in the same direction, Nazir said.

Citibank Bhd agrees that Malaysia's move is consistent with regional initiatives to preserve confidence in the respective financial systems.

"While the guarantee may not ultimately be utilised, we see this as a positive move to reassure and restore customers' confidence in the stability of financial institutions operating in Malaysia," said its country business head for consumer banking, Michellina Triwardhany.

Compared to the US' partial guarantee, OSK Investment Bank said Malaysia's full blanket guarantee across all banking institutions and deposit base helps reaffirm confidence.

The action was a reassurance that the fundamentals of the banking system remain sound under the current challenging economic scenario and is well-equipped to cope with the impending global slowdown, OSK banking analyst Keith Wee said.

Wee noted that the Malaysian banking system is still flush with liquidity as reflected by an average loan-to-deposit ratio of less than 74 per cent for the year so far, compared with a five-year historical average of 82 per cent.

This, he said, places the banks "in an excellent position" to chalk up robust and broad-based loan growth once confidence in the overall macro-economic environment improves.

Wee noted, however, that despite the guarantee provided by BNM, the overall market sentiment on the global economic outlook would be an important factor in determining banks' willingness to drive loan growth.

This is because the risk of rising credit defaults remains a larger concern for banks given the current market conditions.

Wee, in a report yesterday, cited Public Bank, Hong Leong Bank and RHB Bank as being among the most liquid banks here, with loans- to-deposit ratios of below 70 per cent compared to the industry average of 74 per cent.

Fitch Ratings, meanwhile, said the outlook on the credit ratings of Malaysian banks continues to be stable, thanks to its relatively strong credit profiles and resilience amid the global credit crisis.

"Malaysian banks may find it difficult to maintain earnings growth and asset quality improvement. Nevertheless, their capital levels are still satisfactory with a good buffer to absorb higher loan losses," it said in a statement yesterday.

"Liquidity conditions in Malaysia have remained largely stable, thanks to the local banks' stable funding and liquidity profiles," it added.