Bank Negara: Stress tests affirm resiliency of Malaysian financial system

Over 5 years ago · Edited

Bank Negara Malaysia’s statement on its “Financial Stability Review – First Half 2018” report (redacted for brevity):

KUALA LUMPUR (Sept 26): Domestic financial stability remained intact amid heightened uncertainties driven by both domestic and external factors in the first half of 2018. On the external front, global growth remained firm. However, trade-related tensions and rising interest rates in the US have contributed to higher global market volatility and a reversal of non-resident portfolio flows, particularly from emerging market economies, including Malaysia. Domestic financial markets also experienced bouts of volatility due to uncertainties following the outcome of the 14th Malaysian general election.

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.
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Risks from household sector exposures continue 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%. Overall household debt accumulation has also been on a more sustainable path relative to income growth, as a result of the cross-cutting measures that have been implemented since 2010. The ratio of household debt-to-GDP continued to moderate and currently stands at 83.8% in the 2Q 2018 (2017: 84.2%).
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[S]ustained demand for affordable housing, particularly from first-time home buyers and prudent underwriting practice in lending to the property market and related sectors are expected to mitigate risks of a broad-based price correction.
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Overall, the banking system continues to be underpinned by strong capitalisation, a sound credit portfolio and prudent levels of provisioning. The financial performance of the banking system in the first half of 2018 was strong with margins improving as banks benefited from continued efficiency gains and improved asset quality. Overall total impaired loans (net of individual impairment provisions) contracted by 10% to RM16 billion or 1% of total net loans (2017: RM17.8 billion or 1.1%). Annual returns on assets and equity were stable at 1.5% and 13.3%. Banks’ earnings performance is expected to be sustained amid continued efforts to enhance operational efficiency.
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Latest stress tests conducted by the Bank affirm that the Malaysian financial system is expected to remain resilient under severe macroeconomic and financial strains with financial institutions maintaining capital buffers in excess of regulatory minima even under adverse scenarios. Financial institutions currently maintain excess total capital buffers of RM135.9 billion. The Bank remains vigilant of domestic and external developments that could affect domestic financial stability, including further tightening in global financial conditions that could lead to higher financial market volatility.

Bank Negara Malaysia
26 September, 2018

“The ratio of household debt-to-GDP continued to moderate and currently stands at 83.8% in the 2Q 2018” – Bank Negara Malaysia

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