Review highlights financial resilience for first half 2024

KUCHING: Bank Negara Malaysia (BNM) has released its Financial Stability Review for the first half of 2024, highlighting the resilience of Malaysia’s financial system amid global volatility and positive domestic economic conditions.

Despite heightened fluctuations in global financial markets, domestic financial markets have remained orderly, largely supported by shifting investor expectations and the monetary policy decisions of major central banks.

According to its statement, the ringgit appreciated by 11.4 per cent against the US dollar, reflecting confidence in the country’s economic prospects, structural reforms, and ongoing initiatives to bolster foreign exchange flows.

It also highlighted the continued strength of the business sector, with resilience bolstered by improved economic conditions, particularly in export recovery and domestic demand.

“While some businesses are facing pressures from rising costs and slower demand for non-essential goods, the overall credit quality remains sound.

“The impairment ratio for business loans has remained stable at 2.6 per cent, and fewer small and medium enterprises (SMEs) are participating in repayment assistance programmes.

“The majority of SMEs that exited repayment assistance programmes have been able to sustain their loan repayments.

“As such, business resilience is expected to improve further in the second half of 2024 in line with the projected sustained expansion in economic activity. Input costs are expected to ease amid lower commodity prices and the appreciating ringgit,” it said.

Aside from this, household financial stability also shows positive signs, with household debt-to-GDP remaining steady at 83.8 per cent, supported by stable debt-to-income ratios and prudent lending standards.

It stated that banks’ prudent lending standards remained important in keeping household debt accumulation aligned with debt-servicing capacity.

“Measures of debt repayment capacity, including the median debt service ratio (DSR), have 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,” it said.

BNM deputy governor Jessica Chew emphasised that the bank continues to raise standards expected of financial institutions in response to new and emerging threats.

“These include introducing enhanced expectations on managing risks posed by third-party service providers,” she said.

Relating to that, Malaysia’s financial infrastructure, such as the Real-time Electronic Transfer of Funds and Securities System (RENTAS) and retail payment systems, continues to perform reliably, with no major incidents reported.

Regional cross-border instant payment connectivity has surged, with cross-border Quick Response (QR) payment transactions in the first half of 2024 already doubling the total volume recorded in 2023.

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

Touching on the domestic financial institutions, it said that the strong buffers maintained by banks, insurers and takaful operators will continue to preserve the resilience of financial institutions against unexpected losses.

It noted that as at end-June 2024, 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,” it said.