KUALA LUMPUR: Malaysian banks' net interest margins (NIMs) are likely to stabilise in the second half of 2023 as interest rates peak and deposits reprice.
Profitability is likely to post modest improvements on a sustained economic recovery, and liquidity conditions in the system remain accommodative, Fitch Ratings said.
"The proportion of low-cost current and savings accounts in Malaysia's deposit mix is much lower than in regional peer markets.
"Banks' average cost of deposits has therefore increased significantly, and resulted in NIMs narrowing sooner and more significantly than in neighbouring markets," Fitch added.
NIMs fell below 2019's level across the major banks in the first half of 2023.
Nevertheless, the repricing of deposits is taking place quickly, and Fitch expects this to be complete by late-2023 as the domestic policy rate peaks and because the tenors of term deposits are overwhelmingly short term.
"We expect competition for deposits to ease as loan growth decelerates. Banks continue to be funded by a broad base of deposits, and system liquidity indicators remain steady," it said.