Banks well capitalised to support economic recovery, says BNM

Photo by Zahid Izzani Mohd Said/The Edge

Photo by Zahid Izzani Mohd Said/The Edge

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KUALA LUMPUR (Nov 30): The banking sector remains strong, and banks are well capitalised to support economic recovery and to withstand potential stress, Bank Negara Malaysia (BNM) said.

With excess capital buffers of RM123.1 billion, the central bank said banks will continue to support credit flows into the economy.

In its monthly highlights — October 2022 report on Wednesday (Nov 30), BNM said capital ratios rose marginally in October, driven by increases in retained earnings and new issuances of capital instruments.

“The resilience of banks continued to be underpinned by sound asset quality, with the overall gross impaired loan ratio unchanged at 1.8% and the net impaired loan ratio unchanged at 1.1%.

“The loan loss coverage ratio — including regulatory reserves — remained at a prudent level of 114.2% of impaired loans, with total provisions accounting for 1.8% of total loans,” it said. 

As at October, the central bank said, the banking system recorded RM41.9 billion in total provisions and regulatory reserves.

It noted that net financing grew by 5.7% in October, reflecting slightly higher growth in both outstanding loans (6.5%) and corporate bonds (3.6%), while household loan growth moderated to 6.3% (September: 6.6%), as loan repayment growth outpaced that of disbursements across major loan purposes.

“The slower growth in disbursements reflected moderation in loan demand, particularly for purchases of big-ticket items, such as houses and cars,” it said. 

For businesses, BNM said growth in outstanding loans increased to 5.5% (September: 5.2%), with higher loan growth recorded across most purposes and, by segment, growth in loan disbursements remained forthcoming, particularly for small and medium enterprises. 

The central bank also highlighted that exports registered a growth of 15% in October, in which manufactured export growth was driven by electrical and electronics and petroleum products, while commodity exports continued to be attributed mainly to liquefied natural gas and crude petroleum shipments.

“Moving forward, the moderation in global growth and lower commodity prices are expected to weigh on Malaysia’s export growth,” it said.

Nevertheless, BNM pointed out that Malaysia’s diversified exports across products and markets should help cushion the impact.

It also explained that global financial conditions continued to tighten, and many central banks had raised policy rates and signalled further rate hikes to dampen high and persistent inflation.

“As these factors continued to support US dollar strength, the ringgit depreciated by 1.9% against the US dollar during the month,” it said, adding that domestic financial market adjustments remained orderly and financial conditions had somewhat eased. 

It said the 10-year Malaysian Government Securities' yield declined by 4.0 basis points, while the benchmark FBM KLCI index gained 4.7%, supported by strong growth momentum of the domestic economy.

Meanwhile, BNM noted that headline inflation moderated to 4.0% in October, due to dssipation of the base effect in electricity inflation, while core inflation increased slightly to 4.1%, contributed by food-related services and goods.

“On a month-on-month basis, the increase in the core consumer price index moderated further to 0.1% in October,” it added.