This article first appeared in The Edge Financial Daily on September 27, 2018

KUALA LUMPUR: Malaysian banks recorded excess liquidity of RM156.2 billion in the first half of 2018 (1H18), according to Bank Negara Malaysia (BNM).

This resulted in a four-year high liquidity coverage ratio (LCR) of 139.3%, which was “well above the minimum LCR requirement [of 100%]”, data released by the central bank showed yesterday.

This was the result of continued efforts by banks to diversify their funding base to include more stable medium-term debt instruments, coupled with existing buffers of high-quality liquid assets, BNM added.

Total impaired loans net of individual impairment provisions contracted by 10% in 1H18 to RM16 billion, or 1% of total net loans, versus RM17.8 billion or 1.1% of total net loans in 2017, BNM said.

Meanwhile, annual returns on assets and equity were stable at 1.5% and 13.3% respectively over the period.

BNM said its latest stress tests affirm that the Malaysian financial system is expected to remain resilient, with capital buffers in excess of regulatory minimums, even under adverse scenarios.

“Financial institutions currently maintain excess total capital buffers of RM135.9 billion,” it said.

Household debt-to-gross domestic product has continued to moderate, standing at 83.8% in 1H18 compared with 84.2% in 2017.

“About three-quarters of new loans approved were to borrowers with debt service ratios of less than 60%,” BNM said, noting that new household borrowings remained high quality.

However, property market imbalances were seen persisting, with vacancy rates for office space and shopping complexes deteriorating further in the first quarter of 2018 (1Q18) “The number of unsold housing units correspondingly increased to about 146,196 units as at end of 1Q18, with more than 80% of unsold units priced above RM250,000,” the central bank said.

“Nevertheless, sustained demand for affordable housing, particularly from first-time homebuyers and prudent underwriting practice in lending to the property market and related sectors are expected to mitigate risks of a broad-based price correction,” it added.