January 24, 2018



It’s unnatural for loan writing to run ahead of deposit taking for so long.
By Andy Mukherjee

Something weird is going on at Malaysia’s banks. And no, it has nothing to do with the 1MDB money-laundering scandal.

The problem is about deposits, or more precisely, a lack of them. As CIMB Group Holdings Bhd. analyst Winson Ng notes, the banking industry’s loans-to-deposit ratio has gone from 76 percent in February 2012 to 90 percent in June. For Malayan Banking Bhd., or Maybank, the ratio is 94.7 percent, according to a press release from the lender. 1


Maybank, Malaysia’s largest lender, controls 26 percent of the $411 billion the country’s publicly traded financial institutions have in deposits. For the 15 years through 2011, Malaysian lenders’ advances grew at a compounded annual rate of about 8 percent, broadly in line with deposit expansion of 9 percent. In the past five years, however, deposit growth has slowed to less than 5 percent, while loans are expanding at an 8 percent annual rate. That gap of 3 percentage points is pushing up funding costs.

Large Malaysian banks — Maybank, Public Bank Bhd., CIMB and Hong Leong Bank Bhd. — are now earning a net interest spread of less than 2 percent, which puts them in the ranks of emerging Asia’s least profitable lenders. (Net interest margin, however, is healthy at 2.43 percent, and 9 basis points higher than a year earlier, Maybank’s press release cited Chief Financial Officer Amirul Feisal Wan Zahir as saying.)


With deposits getting squeezed, listed Malaysian banks and their subsidiaries have raised $6.4 billion from fixed-income markets this year, the most since 2014. Less than half of it is in ringgit, though.

The growing reliance on foreign-currency debt is disadvantageous. Borrowing three-month money in the local interbank market, and using those funds to buy dollars for the same period, costs Malaysia’s lenders 1.9 percent, an 60-basis-point spread over Libor. In Asia, this premium for short-term dollar funding is stiffer only for Indonesian banks. Unlike their Malaysian peers, however, the Indonesians have plenty of margin headroom.


It’s unnatural for loan writing to run ahead of deposit taking for so long. A similar surge in Indian banks’ loans-to-deposit ratios between 2008 and 2014 coincided, initially, with abysmal interest spreads. To boost the latter, lenders threw money at any large company that showed up with a semi-cooked proposal. The cycle ended, predictably, with a blowout in nonperforming assets.

Big Malaysian firms aren’t as reliant on banks for funding, which has helped contain system-wide bad loans at 1.65 percent. However, if banks keep paying more for deposits, they’ll have to accept riskier borrowers. The longer it goes on, the more sinister the deposit crunch may become.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Maybank’s press release was a response to a previous version of this column, which used Bloomberg data to peg the figure at 101 percent. Maybank said that its deposits ought to also include Islamic investment accounts. After adding 31.7 billion ringgit in such accounts at the end of March, the loans-to-deposit figure for the group is 94.7 percent, which Maybank says is “comfortable.”

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