Malaysia’s domestic market stays resilient amid global volatility: Bank Negara

[KUALA LUMPUR] Malaysia’s domestic market conditions remain orderly despite continued heightened volatility in the global financial markets, said Bank Negara on Monday (Oct 9).

In the Financial Stability Review for the first six months of 2023, the central bank said the ringgit continued being influenced by external developments, but foreign exchange risk exposures in the corporate and banking sectors remained manageable.

“This is underpinned by the sizeable foreign currency liquid asset buffers held by banks and the prudent forex risk management practices of the corporate sector,” it added.

The Malaysian ringgit has fallen over 7 per cent against the US dollar this year. US$1 is now worth RM4.72, as compared to RM4.40 in the beginning of 2023.

In an earlier Bloomberg interview, Bank Negara Malaysia governor Abdul Rasheed Ghaffour said the recent excessive movement of the ringgit exchange rate is not reflective of Malaysia’s economic fundamentals.

The central bank forecasts the country’s gross domestic product (GDP) to grow within a range of 4 per cent to 5 per cent this year but expects the expansion pace to stay at the lower end of its projection in view of external headwinds.

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The domestic economy, Bank Negara said, is still largely supported by domestic demand, underpinned by continual income and employment growth.

“Domestic business activity has improved considerably. However, recovery remains uneven as certain sectors continue to face challenges arising from elevated input costs and weak external demand,” said the central bank in the Financial Stability Review statement.

In addition, climate-related risks and opportunities are more likely to be important considerations for businesses.

Bank Negara believed that most businesses are expected to withstand potential new shocks amid improvements in business leverage, healthy cash buffers and more agile business models.

Overall business loan impairments remain low at 1 per cent of total banking system loans. The share of small and medium enterprise loans with higher credit risks stayed at 2.1 per cent of total banking system loans.

Malaysia’s banking system remained well-capitalised throughout the first six months of 2023, with banks continuing to maintain strong liquidity buffers.

The aggregate liquidity coverage ratio and net stable funding ratio remain well above regulatory minima at 154.4 per cent and 117 per cent, respectively.

The total capital ratio stood at 18.5 per cent at end-June, with capital buffers of RM138.5 billion (S$40 billion) in excess of the regulatory minimum.

The insurance and takaful (Islamic insurance) sector remained resilient, with the aggregate capital adequacy ratio and excess capital buffers at end-June standing at 225 per cent and RM38.8 billion, respectively.

“The strong buffers of banks, insurers and takaful operators will continue to ensure the financial system’s resilience against future shocks and unexpected losses. This will enable them to continue supporting the financing and protection needs of households and businesses.

Income and employment growth continues to support household resilience, with the household debt-to-GDP ratio standing at 81.9 per cent – lower than 84.5 per cent in the same period last year.