This article first appeared in The Edge Financial Daily on October 10, 2018

KUALA LUMPUR: Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the country’s economic fundamentals remain intact amid a challenging environment.

In her speech at the “Malaysia: A New Dawn” conference, the governor commented that the large presence of non-residents in the capital market, and the household and corporate debts are not a cause of concern, at least for now.

“It is sometimes highlighted that Malaysia is vulnerable due to the large presence of non-residents in our capital market. Non-residents have always been a big part of Malaysia’s financial markets. This is due to the relatively deeper and broader financial markets compared with others in the region.

“Nonetheless, non-resident holdings of ringgit-denominated debt have moderated since end-2016,” she said.

Nor Shamsiah said the profile of these holdings is favourable, as a majority of foreign holders are long-term and stable institutional investors.

Meanwhile, the participation of domestic institutional investors and the highly capitalised and liquid banking system have helped to reduce volatility. She said the international reserves have provided a sufficient buffer against external shocks and volatility of capital flows, adding that banks and corporates hold external assets which can also be called upon to meet external obligations.

Malaysia’s external debt remains manageable with a favourable debt profile, she said, worth nearly 70% of short-term external debt accounted for by the banking institutions.

The banking sector has substantial external assets of nearly US$72 billion (RM299.34 billion), which can be drawn upon to meet the external debt obligations of banks, said Nor Shamsiah.