BNM: Domestic financial market remained orderly throughout global volatility in Q2, Q3 2024

KUCHING (Oct 3): Malaysia’s domestic financial market conditions remained orderly throughout periods of heightened volatility in global financial markets in the second and third quarters of 2024, said Bank Negara Malaysia (BNM).

The central bank said shifting investor expectations around major central banks’ monetary policy decisions contributed to the volatility in financial markets.

“The ringgit continued to be primarily influenced by external developments. Since the beginning of this year, the ringgit has appreciated by 11.4 per cent against the US dollar as at Sept 30, 2024.

“Positive economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage foreign exchange flows, will continue to support the ringgit,” BNM said in its Financial Stability Review First Half 2024 today.

The central bank said business activities improved in the first half of this year, supported by the recovery in exports and stronger domestic demand.

Some business sectors continued to face challenges arising from continuing cost pressures and slower recovery in consumer demand in some segments for non-essential products, said BNM.

“Overall, businesses have remained resilient against these challenges. The credit quality of business loans remained sound, with the impairment ratio stable at 2.6 per cent of business loans.

“The share of SMEs with delinquent loans has also declined. Consistent with this, the share of SMEs undergoing repayment assistance programmes trended lower to 4.7 per cent of total SME loans (or 0.8 per cent of total loans from the banking system and development financial institutions),” said BNM.

According to BNM, most SMEs that exited repayment assistance programmes have been able to sustain their loan repayments.

It said business resilience is expected to improve further in the second half of this year in line with the projected sustained expansion in economic activity, adding that input costs are expected to ease amid lower commodity prices and the appreciating ringgit.

Meanwhile, BNM said household resilience continued to be supported by favourable economic and labour market conditions.

“The ratio of household debt-to-GDP (gross domestic product) has remained broadly unchanged at 83.8 per cent as household debt grew in line with the pace of economic activity.

“The median household debt-to-income (DTI) ratio has also remained relatively stable. Banks’ prudent lending standards remained important in keeping household debt accumulation aligned with debt-servicing capacity,” said BNM.

The central bank said measures of debt repayment capacity including the median debt service ratio (DSR) had correspondingly also remained prudent.

Household borrowings that may be at higher risk of default decreased to 4.4 per cent of total household loans (December 2023: 4.8 per cent), reflecting sustained loan repayments by most households.

BNM said continuous efforts by financial institutions to ensure strong operational risk management practices and fraud controls remain critical to support the financial system’s operational resilience.

It pointed out financial institutions continue to invest significant resources to enhance their cyber security detection and mitigation processes.

“BNM continues to raise standards expected of financial institutions in response to new and emerging threats,” said BNM deputy governor Jessica Chew.

She added these include introducing enhanced expectations on managing risks posed by third-party service providers.

BNM said the Real-time Electronic Transfer of Funds and Securities System (Rentas) and major retail payment systems (RPS) maintained high system availability with no major incidents.

“Malaysia’s regional cross-border instant payments connectivity has contributed to the increasing usage of cross-border Quick Response (QR) payments.

“The total cross-border QR payment transactions in the first six months of 2024 alone already doubled the transaction volume recorded for the whole of 2023,” said the central bank.

With volumes poised to grow further, BNM said regional authorities are working closely to ensure effective cross-border cooperation in ensuring that payment system operators continue to fulfil prescribed technical specifications for operational resilience.

According to BNM, the strong buffers maintained by banks, insurers, and takaful operators will continue to preserve the resilience of financial institutions against unexpected losses.

As of the end of June, BNM said the banking system’s aggregate total capital ratio stood at 18.4 per cent, with capital buffers of RM136.1 billion in excess of the regulatory minimum.

“Similarly, the insurance and takaful sector remained resilient, with an aggregate capital adequacy ratio of 227 per cent and excess capital buffers of RM37.4 billion.

“This will enable them to continue meeting households’ and businesses’ financing and protection needs as economic activities expand,” added BNM.