KUALA LUMPUR, 6 October 2022 – According to Bank Negara, the robust protection provided by banks, insurers, and takaful operators will keep financial institutions resilient in the face of any unforeseen losses.
“Post-shock aggregate capital ratios as of end-2023 remain comfortably above regulatory minimum levels at 15.4% for banks and 209% for insurers and takaful operators, assuming additional severe shocks are imposed on top of the bank’s stress test.
“As soon as economic activities pick up, this will allow them to continue serving individuals’ and enterprises’ finance and protection requirements,” according to a statement from Bank Negara.
The domestic financial markets have continued to experience increased volatility, but according to Bank Negara, there has been orderly trading, thanks to the efficient intermediation of two-way flows in the bond and equities markets.
It stated that due to aggressive policy rate rises in the US and a rush to what were seen as secure US dollar assets, the US dollar had greatly risen and had maintained a two-decade high.
Onshore foreign exchange market liquidity is still present, allowing for orderly responses to outside events. Businesses and market players will be helped by this in managing their foreign exchange risks.
According to the central bank, firms’ financial results have kept improving in line with the complete restoration of economic activity and the reopening of international borders.
The recovery is still uneven, though, and it has been slower in several economic subsectors. At 1.1% of all loans in the banking system, business loan impairments overall continue to be modest.
“In accordance with the ongoing improvement in economic circumstances, the percentage of business loans with greater credit risk has continued to drop, reaching 14.4% of all company loans.
“To 13.1% of all SME loans, or 2.3% of all loans from the banking system and development financial institutions, the proportion of SME loans subject to repayment assistance has decreased by half. SMEs who have left repayment assistance programmes may, for the most part, start making loan payments again.
It stated that firms were anticipated to continue to experience challenges, such as tighter global financial conditions and changes in currency rates.
Under simulated high stress circumstances, more business defaults are anticipated to be manageable.
For SMEs who continue to face transient financial difficulties, a number of specific debt management programmes are still in existence.
“At 84.5%, the household debt-to-GDP ratio has returned to more pre-pandemic levels. Despite a prolonged rebound in home lending, banks continue to maintain conservative lending requirements. According to Bank Negara, this includes preserving healthy loan servicing buffers among families and their capacity to mitigate the effects of rising borrowing and other expenditures. has decreased by 50%, or 2.3% of all loans from the banking system and development financial institutions, to 13.1% of all SME loans.
With a reduced percentage of household debt declared by banks to be of greater credit risk, the share of household debt subject to repayment assistance has dramatically decreased from 18.8% in December 2021 to 2.4% as of June 2022.
The household impairment and delinquency ratios, at 1.2% and 0.6%, respectively, slightly rose but nevertheless remained low and within expectations.
Rising living expenses and increased loan repayments on variable rate loans may put financial strain on some family borrower segments with high leverage and limited financial reserves.
Additionally, borrowers with lengthy periods of repayment help are more likely to pose a danger. It is anticipated that the risks posed by these borrowers would be limited. The percentage of home loans that banks have identified as having a greater credit risk.
As additional borrowers who have left repayment assistance programmes finish a required “observation” period of loan service, it is anticipated to continue to fall throughout the year.
According to Bank Negara, banks have set aside enough provisioning buffers to protect against these risks. Banks also continue to offer suitable assistance to home borrowers who still experience financial difficulties.
Financial institutions are investing a lot of money in maintaining robust technological risk controls and cyber defenses.
“We continue to work closely with the industry, relevant agencies, and law enforcement authorities to address new concerns,” Bank Negara Governor, Tan Sri Nor Shamsiah stated. Our main concern continues to be improving the financial sector’s ability to bounce back from various operational circumstances.
“Some of these initiatives involve simulating real-world operations to guarantee that operators of payment systems and financial institutions can properly carry out their cyber incident response plans.” Financial institutions must install extra safeguards against online banking fraud in the meantime.
Bank Negara, together with the industry, The Royal Malaysia Police, the Malaysian Communications and Multimedia Commission, are working together to improve fraud event response and recovery efforts and raise awareness among the public about using digital financial services safely.
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