Page 39 - Bank-Muamalat-AR2020

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Our Performance Sustainability Statement Our Governance Our Numbers Other Information
Governance

BANKING SECTOR REVIEW & OUTLOOK Outlook for 2021
2020 Review A vaccine-induced recovery in 2021
remains intact and provides overall
As with the majority of economic sectors, banks were not spared the impact of the positive sentiment for almost all
COVID-19 pandemic. The MCO implemented on 18 March 2020 led to a halt in economic sectors, including the banking
th
economic activities and raised the risk of banks’ asset quality deteriorating rapidly. sector. The financial performance
Fortunately, the government and Bank Negara Malaysia (“BNM”) stepped in with a of the banking sector is closely tied
swift policy action via stimulus measures to provide support to the economy and to the economic performance, being
businesses, and indirectly to banks. The blanket loan/financing moratorium gave
breathing space to those adversely affected, including the banks. Banks were also its backbone. Economic activities
allowed to not categorise restructured and rescheduled accounts as impaired, create demand for financial services
thus cushioning the banks’ asset quality from deteriorating extensively. such as productive financings for
businesses, consumptive financings and
The banking sector’s performance in the fourth quarter of 2020 was unsurprisingly transactional deposits.
weak due to elevated provisions across almost all the banks, with aggregate sector
earnings for the quarter plunging 33% y-o-y as net provisions more than tripled over The banking sector is projected to be
the same period. The sector’s net credit costs jumped by 131 basis points (“bps”) among the direct beneficiaries of the
as additional overlays and buffers were set aside. Delinquencies, mainly from the positive rebound in the country’s GDP
retail/consumer segment, had also risen following the automatic moratorium’s growth in 2021. In general, forecasts
expiry in October 2020. Up until February 2021, around 13% of the banks’ for Year 2021 include: (i) provisions
financings were under financial assistance, of which 9% were covered through Stage and financing impairments to start
1 and Stage 2 provisions stock. Given the ongoing market uncertainty, credit costs tapering by the third quarter of 2021;
are expected to moderate from 2020 highs but still elevated at around 60 bps. (ii) better growth from net interest
income (“NII”) coming from robust
Following the aggregate 125 bps policy rate reductions by BNM up until July 2020, financings growth and low cost of
a strong margin recovery was observed across the industry. Reported net interest fund; and (iii) operating expenditure
margin (“NIM”) recovered by an average of 13 bps on quarterly basis, as fixed (“OPEX”) continues to be well
deposits were re-priced and current account and savings account (“CASA”) deposit
balances stayed high. contained. For FY2021, earnings of banks
are projected to expand by circa 19.0%
Muted growths of circa 2.5% y-o-y and 0.7% quarter on quarter (“q-o-q”) were recorded y-o-y from the expectation of 24.0%
for financings in the last quarter of 2020. The availability of Targeted Payment/ y-o-y contraction in FY2020.
Repayment Assistance (“TPA TRA”) programmes to the retail/consumer segment
enabled most banks to avoid potential non-performing loans financings (“NPL/ Amid the anticipated improved
NPF”) shocks after the automatic moratoriums ended in October 2020. Nevertheless, economic environment, demand for
delinquencies did increase, particularly for customers on reduced installments. financings in 2021 is expected to
On a q-o-q basis, absolute gross impaired loans (“GIL”) rose by 4.0% for the banking accelerate, leading to higher financings
system, most of which originated from the more retail-centric banks. growth especially in the second half
of 2021. Consumer demand should
Banking System Financing Growth remain resilient, supported by the
1,850 8.0 extensions of automotive sales tax
7.5 exemption until June 2021 and Home
1,820 7.0 Ownership Campaign until May 2021.
6.5 Besides that, the business segment
would also drive financings growth in
1,790 6.0
2021 to fund for the expected increase
5.5
and recovery of business activities. As
1,760 5.0
such, financings growth for FY2021
4.5
is forecast at 5.0% y-o-y (against 3.4%
1,730 4.0 y-o-y in FY2020).
3.5
1,700 3.0
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20
Total Financings (RM billion) Growth (y-o-y)