The nation's 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, says Bank Negara.
It said currently, financial institutions maintained excess total capital buffers of RM135.9 billion.
“We remain 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 said in a statement today.
Overall, the central bank said the banking system continued to be underpinned by strong capitalisation, a sound credit portfolio and prudent levels of provisioning.
For the first half of 2018, the financial performance of the banking system was strong, with margins improving as banks benefited from continued efficiency gains and improved asset quality.
Bank Negara said overall total impaired loans (net of individual impairment provisions) contracted 10 percent to RM16 billion or one percent of total net loans (2017: RM17.8 billion or 1.1 percent).
“Annual returns on assets and equity are stable at 1.5 percent and 13.3 percent. Banks’ earnings performance is expected to be sustained amidst continuing efforts to enhance operational efficiency,” it said.
Liquidity and funding conditions remain conducive to support financial intermediation throughout the first six months of the year, with excess liquidity maintained by the banking system currently at RM156.2 billion.
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 made to borrowers with debt service ratios of less than 60 percent.
On the external front, Bank Negara said global growth remained firm, but trade-related tensions and rising interest rates in the US 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 general election.
“Notwithstanding this, the Malaysian financial system remained resilient, firmly supported by well-capitalised financial institutions, and deep and liquid financial markets which facilitated financial intermediation activities,” it added.