KUALA LUMPUR: Banks in Malaysia continue to hold large buffers of high-quality liquid assets to withstand liquidity and funding shocks, the country's central bank said.
"Banks continue to be well-capitalised to absorb unexpected shocks and support financial intermediation in the economy, with the total capital ratio of the banking system at 18.5 per cent and capital buffers in excess of the regulatory minimum amounting to RM142.6 billion as at end-December 2023," Bank Negara Malaysia said.
In its Financial Stability Review for Second Half 2023 (FSR 2H23), Bank Negara said the aggregate liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) stood at 160.9 per cent and 118.2 per cent respectively.
"As the need for precautionary cash buffers subsides, ongoing shifts by depositors towards longer-term deposits will continue to underpin the stability of banks' funding sources," it said.
During the year, a number of measures were taken by the central bank to further strengthen the regulation and supervision of liquidity risk.
This included a stronger focus on the ability of banks to monitor depositor concentrations at a granular level and the adequacy of their contingency funding plans, it said.
Higher funding costs contributed to lower year-on-year profitability for banks relative to the first half of 2023.
Nevertheless, sustained lending activities and an improvement in trading and investment income provided some support to bank earnings.
Bank Negara said annualised credit costs have also declined significantly from earlier peaks recorded during the pandemic.