Malaysian banks grapple with shrinking deposits, mounting bad loans

Absolute gross impaired loans jumped 15% in Q1.

Malaysia's largest lenders are struggling with a decline in deposits and a spike in impaired loans.

A report by Maybank Investment Bank showed that most banks saw a decline in loan-to-deposit ratios (LDR). The seven banks in the report—namely, Maybank, CIMB, Public Bank, AMMB, Hong Leong Bank, RHB Capital, and AFG—saw their gross LDR decline to 90.3% in Q1, compared to 91.9% in December last year.

Meanwhile, gross impaired loans rose 15% year-on-year at the end of Q1, led mainly by Maybank's 49% surge in shaky loans. CIMB's GIL continued to creep up in Indonesia and thailand while AMMB's GIL jumped 8% due to impaired O&G and property loans. AFG’s absolute GIL jumped 28% YoY on the back of R&R loans in the SME space.

As a consequence of higher impaired loans, average credit costs rose to 41bps, compared to 33bps in Q4. In particular, Maybank’s credit cost jumped to 77bps from 40bps.

Most other banks saw a decline in credit costs except for Public Bank, which saw the resumption of credit charges during the quarter after strong recoveries in 4Q15.

“While 1Q16 was operationally decent, asset quality issues are beginning to feature more prominently, especially on the corporate front. We trim our 2016 domestic loan growth forecast to 6% from 6.5% and drop our aggregate net profit growth estimate to 2.1% from 5.3%. We expect 2016 ROEs to slip to 10.4% from 11.2% in 2015,” the report noted.