The Malaysian banking sector remains resilient despite global banking crisis fears stemming from the collapse of several international banks.

The view was shared by Bank Negara Malaysia (BNM) during the release of its Financial Stability Review (FSR) report for the second half of 2022 (2H22).

In the report, BNM shared that exposure from the fallout of global financial instutitions were highly limited in the local banking sector as local banks were not plagued with similar concentration and repurtaion risks.

Instead their operational soundness is supported by a robust industry Common Equity Tier 1 (CET-1) ratio of 15.5 per cent as of Decc 2021 and total capital ratios sitting at 18.8 per cent which far exceeds the minimum requirements of 8 per cent.

The sector also boasted a commendable liquidity coverage ratio of 154 per cent which indicates banks can continue to lend while alleviating fear that they might fall short from obligations as other international banks have in recent headlines.

BNM’s conduced stress tests also projected a promising capital consumption of 2 per cent.

And regarding the safety of deposits, it was indicated that 96 per cent of overall depositors qualify under Perbadanan Insurans Deposit Malaysia’s (PIDM) RM250,000 deposit protection.

Following the release of the report, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) shared that it held a similar view with the central bank that the domestic financial system continues to be robust and assured by its strength, resilience and overall stellar management.

“We continue to believe that the fundamentals of the banking sector are well grounded and are not likely to experience any pressures which gravitates anything close to what is happening abroad,” the analysts said.

However, it acknowledged that the global sentiment for financial sectors has tumbled leaving local investors skittish.

“While this could present numerous buying opportunities across our coverage calls, we opine to selectively promote names which offer greater safety nets amongst its peers. We also avoid banks with a higher non-interest income exposure as investors may also view this space with greater caution.”

With that said, Kenanga Research sounded off that for 2Q23, their top picks for the sector are Public Bank Bhd (Public Bank) and RHB Bank Bhd (RHB Bank).

The analyst likes Public Bank due to its low gross impaired loan (GIL) reading at 0.4 per cent compared to the industry average of 1.5 per cent that is backed by highly collateralised loans book from a substantial mortgage portion of 41 per cent.

RHB Bank came in as the second pick due to strong capital safety with its CET-1 buffer hovering 17 per cent compared to the industry average of 15 per cent.