Fitch: Malaysia banks healthy; consumer asset quality a concern

Fitch Ratings said that while Malaysia's banking system remained generally healthy over 2005 and in the first quarter of 2006, pockets of weakness exist in the consumer loan segment.

The agency said this has been compounded by the rapid growth in consumer lending in recent years as well as the high level of non-performing loans in the residential mortgage segment, the largest loan segment at 27% of system loans.

Fitch noted that Malaysia's banks saw profitability sustained, system non-performing loans lower and capital ratios reduced but generally still adequate.

While structural factors are at work, including the challenge of unresolved legacy loans from the crisis days as well as some amount of directed lending to the low-cost housing loan segment, Fitch is of the opinion that more fundamental improvement in the area of credit controls and risk management practices among some of the Malaysian banks are also required.

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