(AFP) Banks can expect a rising number of non-performing loans this year as the economy slows but they will stay within "manageable proportions", the central bank chief said today.

Bank Negara governor Zeti Akhtar Aziz, opening a banking conference, said non-performing loans (NPLs) at end-March amounted to 7.1 percent of total banking loans of RM455 billion.

Zeti said the figure was expected to rise as some RM2.6 billion in loans have yet to be classified as NPLs.

"However the level is expected to be contained well within manageable proportions."

Zeti said Bank Negara conducts regular tests to assess NPL levels and banks' capital positions under the more difficult economic circumstances.

"The results of these forward-looking assessments indicate that the banking system continues to be resilient even under the worst case scenarios," she said.

"While NPLs can be expected to increase, the magnitude can be absorbed by the banking system without threatening its solvency position nor disrupting the payments system."

Profit expected

Zeti said the banking sector had become "significantly strengthened" following the recent consolidation and could handle uncertainties in the current economic downturn.

"The banking system can still be expected to record another profitable year in 2001," she added.

Top bank Maybank recently raised NPL provisions by 34 percent after releasing weak nine-months earnings.

Zeti later told reporters that Bank Negara would announce gross domestic product figures for the first quarter on May 23.

In March the government unveiled a RM3 billion fiscal stimulus package to counter the US-led slowdown.

Almost 21 percent of all Malaysia's exports go to the United States, making it vulnerable to a downturn there.

Last month the independent Malaysian Institute of Economic Research reduced its growth forecast for this year to four percent from five percent.