KUALA LUMPUR: The country’s financial system remains resilient, with local banks recording excess liquidity of RM156.2 billion in the first half of 2018, according to Bank Negara Malaysia.
This was the finding from the central bank’s latest stress test on the country’s financial position.
“Domestic financial stability remained intact amid heightened uncertainties driven by both domestic and external factors in the first half of 2018.
“Domestic financial markets also experienced bouts of volatility due to uncertainties following the outcome of the 14th Malaysian general election,” Bank Negara said in a statement today.
“Notwithstanding this, the Malaysian financial system remained resilient, firmly supported by well-capitalised financial institutions and deep and liquid financial markets which have facilitated financial intermediation activities,” it added.
Bank Negara said Malaysia had conducive liquidity and funding conditions.
“Liquidity and funding conditions remained conducive to support financial intermediation throughout the first half of 2018 with excess liquidity maintained by the banking system currently stands at RM156.2 billion.
“Continued efforts by banks to diversify their funding base to include more stable medium-term debt instruments coupled with existing buffers of high quality liquid assets well above the minimum liquidity coverage ratio (LCR) requirement further bolster banks’ resilience to liquidity and funding-related stresses moving forward,” it added.
Bank Negara said the Malaysian banking system continued to be underpinned by strong capitalisation, a sound credit portfolio and prudent levels of provisioning.
“The domestic operations of Malaysian banks are funded predominantly by ringgit-denominated domestic funding sources.
“Domestic banking groups also continued to expand their regional operations in line with growing investment linkages within Asia, albeit at a more moderate pace.
“These operations continue to be supported by strong capitalisation levels with improved earnings, sound asset quality and stable funding structures,” it stated.
The central bank said the financial performance of the banking system in the first half of 2018 was strong with margins seen improving as banks benefitted from continued efficiency gains and improved asset quality.
Risks from household sector exposures continued to be mitigated by prudent underwriting and loan affordability assessments by financial institutions and sound risk management practices.
“New household borrowings remained of high quality. About three-quarters of new loans approved were to borrowers with debt service ratios (DSR) of less than 60 per cent.
“Overall total impaired loans (net of individual impairment provisions) contracted by 10 per cent to RM16 billion or one per cent of total net loans against RM17.8 billion or 1.1 per cent in 2017,” it added.
Annual returns on assets and equity were stable at 1.5 per cent and 13.3 per cent and banks’ earnings performance is expected to be sustained amid continued efforts to enhance operational efficiency.
Financial institutions currently maintain excess total capital buffers of RM135.9 billion.
Meanwhile, the financial position of Malaysian non-financial corporations (NFCs) remained sound during the first half of the year.
The aggregate leverage of NFCs increased at a moderate pace but firms continue to maintain healthy financials with their debt servicing capacity remaining above prudent thresholds with interest coverage ratio of 8.2 times.
“The business performance of firms in the agriculture and oil and gas sectors could be affected by supply disruptions, which are expected to persist until end 2018.
“However, most other sectors are expected to perform better on the back of positive consumer and business sentiments, higher retail spending during the tax-holiday period, as well as favourable labour market conditions,” Bank Negara added.