KUALA LUMPUR (Oct 14): Bank Negara Malaysia (BNM) said today the actual impact of the Covid-19 pandemic on banks’ will be subject to uncertainty and that financial service providers’ solvency over the next 12-18 months will depend on multiple factors, including the pace of the Malaysian and regional economic recovery besides initiatives taken by financial institutions to support viable borrowers.

BNM said in its Financial Stability Review for the first half of 2020 that the actual impact of the Covid-19 pandemic on banks’ solvency will also depend on banks’ move to shore up capital buffers besides additional policy intervention to support economic recovery.

"Actual impact on banks’ capital strength over the next 12-18 months will be subject to some degree of uncertainty.

"While banks can be expected to be more cautious given continued uncertainties and prospects of a more protracted recovery, it is in the collective interest of the banking industry to continue supporting viable businesses and households throughout this period. 

"Capital buffers built up over the years are intended to support lending during times of stress and therefore can be used. Further, such buffers are vital for banks to remain resilient and reduce risk aversion. This will be critical to avert larger repercussions on economic growth and recovery prospects, which in turn will inflict much higher losses on banks,” BNM said.

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For more BNM Financial Stability Review stories, click here.