Nazir: Banks can trim excess capital as worst is probably over

By Chong Pooi KoonPublished: 2009/09/10

Analysts are also starting to project higher dividends or even capital repayment from Malaysian banks next year

MALAYSIAN banks, which boosted their capital since last year to prepare for the recession, can lighten their capital now even as the major economies are pushing for tougher bank capital standards.

CIMB Group Holdings Bhd chief executive officer Datuk Seri Nazir Razak said the worst is probably over for Malaysian lenders and many banks will be able to trim some of the excess capital soon.

Analysts are starting to project higher dividends or even capital repayment from local banks next year, as the need to keep a huge buffer against potential writedowns and loans default wanes as the economy recovers.

"I think it is natural that in an uncertain environment, banks will err on the conservative side and be over-capitalised," Nazir said.

"Those analyst reports are relatively correct. If we have the environment that actually clears up, there is room for many Malaysian banks to lighten their capital."

Yet, the Group of 20 nations are contemplating to impose stricter rules to get banks hold more capital to cushion potential losses. The issue was expected to take centre stage at the G-20 summit in Pittsburgh later this month.

"They are talking about tightening their standards, that's fine, but I don't think they are going to tighten to the extent that it is going to impact any of us (in Malaysia)," Nazir told reporters after a company event in Kuala Lumpur yesterday.

Malaysian banks operate very differently from their peers in the US and Europe, Nazir pointed out, so it was "not really a contradiction" when local lenders return excess capital even as banks in the US and Europe are going the opposite direction.

"We never optimise capital to the extent the Western banks did. In terms of leverage ratio, the asset-to-equity, we were in the teens. The Americans were in 20-30 times, whereas the Europeans were 50-60 times," Nazir said.

"So we are talking about different operating zones here."