Published August 13, 2009

BNP upgrades banking industry on policies

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(KUALA LUMPUR) Malaysia's banking industry was upgraded at BNP Paribas, which said positive government initiatives and an improving economy are helping to curb bad debts and revive lending growth.

BNP raised its ratings for Bumiputra-Commerce Holdings Bhd, Malaysia's second-biggest bank, AMMB Holdings Bhd, and EON Capital Bhd to 'buy' from 'reduce'. It increased the rating on the industry to 'positive' from 'negative'.

'A sharp credit deterioration scenario is unlikely to play out, aided by coordinated and targeted assistance by the government,' BNP analyst Ng Wee Siang said in a report yesterday. 'The coast is clear on credit quality' and loan growth is set to strengthen in the coming months, he added.

Malaysia's government has unveiled RM67 billion (S$27.4 billion) of stimulus measures to counter an economic slump and the central bank held interest rates steady at 2 per cent for a third straight meeting last month, saying the economy showed 'signs of stabilising' in the second quarter.

Shares of Bumiputra-Commerce have jumped 83 per cent this year and AMMB 73 per cent, outpacing the FTSE Bursa Malaysia KLCI Index's 35 per cent gain. Bumiputra-Commerce is the second-best performer on the benchmark index this year.

BNP raised its target price on Bumiputra-Commerce to RM14.30 from RM7.50 while AMMB was increased to RM5.20 from RM2.30. EON Capital's target price was raised to RM6.30 from RM2.90, the report said.

It lowered Hong Leong Bank Bhd and Malayan Banking Bhd to 'reduce' from 'hold'. Loan applications in Malaysia jumped 18.3 per cent in June, the biggest monthly gain since August 2008, according to central bank data released on July 31. Approvals gained 10 per cent, it said.

Since September, the Malaysian bank industry's gross non-performing loan ratio has fallen to its post-Asian financial crisis low of 3.9 per cent, BNP's Mr Ng said.

The central bank cut borrowing costs by 1.5 percentage points between November and February to revive growth as gross domestic product shrank 6.2 per cent in the first three months of 2009. The benchmark is at its lowest level since it was introduced in April 2004. -- Bloomberg