Bank Negara Malaysia today released three reports, Annual Report 2020 (AR 2020), Economic and Monetary Review 2020 (EMR 2020) and Financial Stability Review for Second Half 2020 (FSR 2H2020).
Annual Report 2020
The AR 2020 details the initiatives and workings of the Bank in 2020 in fulfilling its mandates to promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy.
In particular, it sets out how the Bank took swift and broad-ranging measures to cushion shocks to the financial system and the economy arising from the pandemic. These include reducing the Overnight Policy Rate (OPR), ensuring adequate liquidity and orderly market conditions. The Bank worked with the financial industry to introduce relief measures for eligible individuals and Small and Medium Enterprises (SMEs) to enable immediate cash flow relief for households and businesses. To provide immediate cash relief to SMEs in hard-hit economic sectors and enhanced the innovative capacity of high-tech SMEs, the Bank channelled financing facilities under BNM’s Fund for SMEs through the financial institutions to support their recovery. It also highlights developmental initiatives undertaken to shape the capacity and capability of the Malaysian financial sector to meet the evolving needs of the economy. These include to support the nation’s move towards becoming a digital economy, as well as those to accelerate efforts to build a more climate resilient economy.
AR2020 also provides an account of the Bank’s operations and resources that enable it to function effectively and efficiently. The report describes how the Bank pivoted its operations in light of the pandemic, including of the steps taken to keep the Bank’s employees safe and healthy.
Four box articles are featured in AR 2020, covering topics of general interest:
The Bank’s currency operations in weathering the pandemic.
The Bank’s international reserves.
Central Bank Digital Currency in Malaysia’s context.
Personal financial management.
The Bank’s Audited Financial Statements for 2020 are also set out in the report. As audited and certified by the Auditor General, the financial position of Bank Negara Malaysia remained strong in 2020. Bank Negara Malaysia’s total assets amounted to RM488 billion, with a net profit of RM10.2 billion for the financial year ending 31 December 2020. Of this RM10.2 billion, RM6.2 billion will be transferred into the General Reserve Fund. Bank Negara Malaysia will declare a dividend of RM4 billion to the Government for the year 2020.
Economic and Monetary Review 2020
The EMR 2020 is a technical publication focusing on the Bank’s economic assessments and forecasts.
The global economic recovery is gaining momentum. There has been considerable progress in containing the COVID-19 pandemic, underpinned by rollouts of vaccination programmes in many countries, which are lifting confidence and signalling a gradual return to normalcy. Policy stimulus continues to provide support to economic activity. International trade has also recorded significant improvements.
For Malaysia, the expectation is for the economy to recover in 2021, with growth ranging from 6.0 - 7.5%. Growth will be underpinned by stronger external demand and higher private and public expenditure.
The rollout of the National COVID-19 Immunisation Programme will improve confidence and support the economic recovery. Malaysia's integration in fast-growing segments of global value chains and diversified external trade structure, as well as continued policy support would be key factors in driving the rebound in economic growth in 2021.
While heightened downside risks to growth remain, the immediate policy focus of the Bank is to facilitate a strong and sustainable recovery and minimise permanent output losses. Monetary policy in 2021 will therefore remain accommodative to support an enhanced and sustained economic growth. Although headline inflation is expected to rise, it will be driven mainly by supply side factors. Underlying price pressures, on the other hand, will remain subdued with core inflation projected to be between 0.5 – 1.5% amid spare capacity in the economy.
The Bank will continue to utilise its policy levers as appropriate. Even with the OPR at its current historical low of 1.75%, monetary policy space remains adequate to provide additional support to the economy if needed. The Bank will be mindful to avoid a premature withdrawal of monetary policy support. This is complemented by the availability of the Bank’s various liquidity management tools, targeted financial policies and regulatory flexibilities. All these afforded the Bank with sufficient flexibility to respond to risks using the most appropriate policy tool.
Beyond its cyclical impact on growth, the pandemic has fundamentally reshaped the economy and the way we conduct our businesses and daily affairs. It has sharpened the focus on critical areas of structural policy that call for renewed urgency. On the one hand, it has accelerated the shift towards the adoption of technology and sustainability agendas. On the other hand, it has accentuated gaps in our labour market and social protection system. As a nation, this is an opportunity to accelerate the execution of long-term structural reforms and pivot towards a more sustainable, resilient and agile economy.
The EMR 2020 includes four box articles covering issues critical and relevant in the post-pandemic period:
Structural issues in the labour market post-pandemic.
Innovation towards higher quality growth.
The social protection system in Malaysia.
Asset purchases by the Bank.
Financial Stability Review for Second Half 2020
The biannual FSR 2H2020 is similarly a technical publication detailing the Bank’s analysis of risk assessment and outlook on financial stability.
The financial system continues to be in a strong position to support the economic recovery, with strong capitalisation levels to absorb potential credit losses and ample liquidity to facilitate financial intermediation activity. The Bank’s updated stress tests, which also includes a hypothetical adverse scenario that assumes an L-shaped recovery, with GDP recording negative growth in 2021 and remaining below pre-pandemic levels even by end-2022, affirm the resilience of the financial system, with the banking system and insurance sector expected to maintain capital ratios above the regulatory minimum even under simulated scenarios.
Financial institutions also remain operationally resilient and continue to take steps to further strengthen their crisis response arrangements in light of operational challenges presented by the pandemic. This in turn will provide greater assurance of their ability to maintain critical operations and increase the speed with which financial institutions are able to adapt to changing operating conditions going forward.
While downward pressure on banks’ earnings is likely to persist going into 2021 amid higher credit cost, the impact is expected to be less severe than in 2020 partly owing to the front-loading of provisions by banks. Improvements in the domestic and global economy, coupled with continued support measures, including ongoing measures by banks to engage and assist borrowers in distress, will further help sustain debt serviceability and support bank earnings. The sustained earnings performance of banks will serve to preserve uninterrupted credit flows to support the recovery of the economy. In the insurance and takaful sector, the impact of temporary relief measures and recent floods on the profitability of insurers and takaful operators has also remained limited to date.