KUALA LUMPUR: Banks in Malaysia and some Asia-Pacific (Apac) economies will be less impacted by higher energy prices, according to Moody’s Ratings.
This is due to their economies’ diversification and resilience, significant oil reserves, diversified energy mixes, and strong government balance sheets, said the credit rating agency in a report today.
It noted that Malaysia (A3 stable) is a net oil and gas exporter, hence its economy and banks will benefit from a positive terms-of-trade shock and higher corporate earnings in the energy sector.
“Several governments are continuing or introducing measures to cushion the impact of high energy costs on borrowers and the economy. Fuel subsidies or price caps, such as in India, Thailand, Vietnam, Indonesia and Malaysia, help to limit the pass-through of the oil price increase to consumers and small and medium enterprises (SMEs).
“By preserving borrowers’ near-term repayment capacity, this reduces nonperforming loan formation at banks,” it said.
Moody’s Ratings said monetary authorities also stand ready to provide targeted liquidity support to banks, if needed.
It said sustained high energy prices due to a prolonged West Asia conflict would impact APAC banks’ credit profiles, via their loan portfolios and financial channels.
Higher energy costs expose banks through consumers, malls, and SMEs, as they will negatively affect households’ purchasing power and SMEs’ cash flows, increasing asset quality risks.
Other impact channels include financial markets, capital flows and remittances, with many economies facing pressure to raise interest rates to curb inflation and currency weakness, potentially increasing banks’ funding costs, tightening liquidity and affecting remittance-dependent countries such as the Philippines and Bangladesh.
