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Moody’s impressed by Malaysian banking system

Moody’s impressed by Malaysian banking system

(30 May 2014 – Malaysia) Moody’s Investors Service said it expects a stable operating environment in Malaysia and its outlook for the Malaysian banking system remains stable.

Measures taken by the Malaysian government to implement fiscal reform and consolidation will moderate somewhat the pace of economic growth over the outlook horizon, Moody’s said.

Inflation is expected to accelerate mildly, as subsidies on fuel, electricity and sugar are phased out.

Moody’s central forecast for real GDP growth in 2014 is 5 percent as domestic consumption and investment remain steady and exports rise in line with the ongoing recovery of the advanced economies.

In this context, the relatively high rate of economic growth will support the banks' asset quality as well as credit growth, which we expect to be slightly lower than the 11 percent recorded in 2013, according to Moody's.

Moody's conclusions were contained in its just-released Banking System Outlook Malaysia. Moody's had originally assigned the stable outlook on 15 May 2013.

The report noted that Islamic banking is Malaysian banks' main focus area for domestic business growth. All of the banks have Islamic banking subsidiaries, whose assets have been outgrowing the conventional banking assets of their parents.

As of March 2014, Islamic bank financings comprised 24 percent of total banking-system loans, and the country has a goal of expanding the proportion of Islamic financing of total domestic financing to 40 percent by 2020.

Moody's rates a total of 11 banks in Malaysia: eight are conventional commercial banks, one is an investment bank, one is an Islamic bank, and one is a government-owned development financial institution. The rated banks accounted for 73 percent of Malaysian banking-system assets as of end-2013.

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