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New Covid-19 waves could delay banking recovery, says rating agency

Updated: Nov 26, 2021

S&P Global Ratings expects new Covid-19 waves to further delay business recovery for the Malaysian banking sector as the asset quality trend of banks will stay weak over the next 2 years.

Image from The Star
The new waves, lockdowns and slow progress of the vaccination rollout could dampen economic recovery and weigh further on borrowers.

Image from Dalal Street Investment Journal

The rating agency had also lowered the Gross Domestic Product (GDP) projection for Malaysia this year to grow at 4.1%, down from an earlier projection of 6.2% in March 2021.

Malaysia government is pushing to accelerate the vaccine rollout. Effective containment of Covid-19 could support a solid economic rebound in 2022 that we forecast to grow 6.3%.

The unemployment rate could peak at 4.8% in 2021

It is expected that the unemployment rate to remain largely stable despite some notable weakening from the pre-pandemic level of 3-3.5%. The unemployment rate could peak at 4.8% in 2021 before declining to 4.4% in 2022, compared with 4.5% in 2020.

As for the industry’s non-performing loan (NPL) ratio, it will likely rise to 3-4% of gross loans by the end of 2022, compared with the reported 1.6% as of end-April 2021.

The new aggressive virus variants remain a notable risk to GDP growth next year

A more protracted economic recovery could translate into rising job market pressure and more asset quality pains for domestic banks.

S&P Global Ratings says the government’s loan moratorium is unlikely to see a big take-up rate because of the additional interest burden.

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