The credit rating agency said the average pre-tax return on assets (ROA) and return on equity (ROE) of 8 selected local banks under its review registered 1.37% and 13.8%, respectively, for the quarter (Q1 2023: 1.38% and 13.9%).
“Profit outperformance will be relatively limited in 2024. Potentially lower provisioning charges may be offset by more moderate loan growth, while margins are likely to stay flat,” it said in a statement.
It noted that the banking system’s loan growth was sustained at an annualised 5.3% as of the end of March 2024.
The business loan expansion, it added, staged a rebound in late 2023, which persisted into Q1 2024, in line with the recovery in exports led by the emerging semiconductor upcycle.
“Household credit demand, on the other hand, saw some moderation with all key household subsegments, except passenger car hire purchase, recorded softer growth,” it shared.
“Considering the impending retargeting of petrol subsidies, which may also have a dampening effect on credit demand in the second half of 2024 (H2 2024), we project loan growth of 5% for the full year,” it said.
RAM Ratings also pointed out that the net interest margins (NIMs) were significantly compressed in 2023 due to the elevated cost of funds from the upward repricing of deposits following multiple rate hikes and heightened deposit competition.
Its co-head of financial institution ratings, Wong Yin Ching, observed that on a positive note, margin trends have stabilised as competition for deposits eased.
“Although the average NIM of the 8 banks contracted by 10 basis points year-on-year (y-o-y) to 2.03% in Q1 2024, the metric registered a modest uptick on a quarter-on-quarter (q-o-q) basis (Q4 2023: 2.02%).
“Overall, we expect full-year margins in 2024 to remain largely suppressed, similar to the year before,” she commented.
On the asset quality front, Wong said the system’s gross impaired loan (GIL) ratio inched down marginally to 1.62% from 1.65% at the end of December 2023.
“Favourable labour market conditions, with the unemployment rate recovering to the pre-pandemic level of 3.3%, should help contain the adverse impact from the rollout of subsidy rationalisation,” she said.
“The GIL ratio is envisaged to come in between 1.6% and 1.7% by year-end,” she noted.
Wong said the 8 banks’ average credit cost ratio also stayed relatively benign at 22 basis points (bps) in Q1 2024 (Q1 2023: 18 bps; 2023: 23 bps), while the GIL coverage ratio was solid at 134% (with regulatory reserves), given the sizeable management overlays that remain.
“Some writebacks of these overlays are anticipated but banks are prudently assessing the quantum and timing of reversals in view of the macro headwinds,” she added.