THE banking system today is certainly on a stronger footing compared to the days of old and it will take a catastrophic weakening of domestic and external environments, though not improbable, to imbue widespread losses and impairment to capital.

ECM Libra Investment Research said the risk-weighted capital ratios of Malayan Banking (Maybank), Bumiputra-Commerce Holdings (BCH), Public Bank, AMMB Holdings and Hong Leong Bank were much in excess of the minimum regulatory capital adequacy requirement of eight per cent.

"Public Bank, AMMB Holdings and Hong Leong Bank had released their latest quarterlies as at December 31, 2008, with no signs of widespread increases in non-performing loans (NPLs)," it said in its weekly review for the banking sector released in Kuala Lumpur today.

ECM Libra said these financial institutions could afford to register net losses of anywhere between RM1.1 billion (comfortable levels of risk-weighted capital) and RM6 billion (minimum levels of risk-weighted capital) before any new raising of capital was necessary.

"In the case of two largest financial groups in the country, BCH and Maybank, the allowable net losses range from RM5.4 billion (comfortable) to RM14.7 billion(minimum)," it said.

The research house said there were two big-ticket items in both groups'profit and loss statements which could possibly drag earnings into negative territories at this point in time -- loan loss provisions and impairment losses.

It said Maybank and BCH, were most susceptible to rising NPLs at this point in time.

"A doubling of new NPLs from their annual average of RM4 billion will only cause the banks' profits to drop close to zero," it said. - Bernama