Financial Stability StatementRef No : 03/18/03 14 Mar 2018 Embargo : For immediate release
At its meeting on 9 March 2018, the Financial Stability Committee (FSC) of Bank Negara Malaysia assessed that domestic financial stability continues to be preserved and well-supported by sound financial institutions and orderly domestic financial markets.
Since the last meeting in November 2017, global financial market volatility has increased amid renewed uncertainties regarding the pace of interest rate normalisation in the advanced economies, commodity price movements and rising trade tensions. External developments are expected to cause bouts of higher volatility amid continued two-way capital flows. Potential risks will be cushioned by the favourable outlook of the Malaysian economy and the presence of large domestic institutional investors.
The Malaysian banking, insurance and takaful sectors remain resilient, supported by a high level of capitalisation. Funding and liquidity conditions continue to be favourable, with the banking system’s loan-to-fund ratio and Liquidity Coverage Ratio at 84% and 132% respectively as at end-January 2018. Domestic financial intermediation is expected to remain supportive of economic activity.
In terms of macro-financial linkages, risks to domestic financial stability from exposures to households are low. The debt servicing capacity of households remains intact amid low impairment levels, underpinned by stronger income and employment growth. Household financial assets were high, and grew faster than debt as at end-December 2017. For Malaysian corporations, aggregate leverage increased in tandem with investment activity, as debt-at-risk trended lower amid sustained financial health and low impairment levels. The overall credit outlook for the business sector is expected to improve given favourable economic conditions, although the oil and gas and property-related sectors still face some headwinds. Potential vulnerabilities from external borrowings of Malaysian corporations are contained with exposures largely hedged and comprising intra-company borrowings with longer maturities.
In the property market, access to house financing, particularly for first-time buyers of affordable houses, is sustained with approval rates at 73%. The FSC will continue to monitor the oversupply in the high-end high-rise residential property, office space and shopping complex segments with banks also remaining cautious in lending to these segments. The FSC agreed that existing macroprudential measures remain appropriate in managing vulnerabilities from macro-financial linkages.
The outlook for domestic financial stability in 2018 is expected to remain intact. Multi-year solvency stress tests conducted by the Bank affirm the strong capacity of Malaysian banks, insurers and takaful operators to withstand simulated macroeconomic and financial stresses. Overall capitalisation is expected to remain above the regulatory minimum under severe credit, market and insurance-specific shocks that are comparable to past domestic and global crises experience. This reflects the continued strengthening of balance sheets of households and businesses amid stronger economic conditions.
The FSC remains vigilant against risks from cyber security threats, illegal financial schemes and market conduct developments to promote public confidence and the smooth functioning of the Malaysian financial system. Banks continue to undertake measures to strengthen their defence against cyber threats and increase scrutiny on accounts potentially being used to facilitate illegal financial schemes.
Bank Negara Malaysia
14 March 2018
About the Financial Stability Committee (FSC)
The FSC is a high-level internal committee of the Bank. It is responsible for monitoring and taking actions to reduce or avert risks to financial stability stemming from both system-wide and institutional developments. Section 29 of the Central Bank of Malaysia Act 2009 defines “risk to financial stability” as “a risk which in the opinion of the Bank disrupts, or is likely to disrupt, the financial intermediation process including the orderly functioning of the money market and foreign exchange market, or affects, or is likely to affect, public confidence in the financial system or the stability of the financial system”.
The FSC reviews and decides on:
- macroprudential policies to reduce or avert identified risks to the financial system as a whole;
- significant supervisory responses to address risks arising in individual financial institutions which are regulated by the Bank;
- actions to resolve a financial institution that has ceased, or is about to cease, to be viable. This includes notifying the Malaysia Deposit Insurance Corporation (MDIC) for the purpose of resolution actions by the MDIC where applicable; and
- recommendations to the Financial Stability Executive Committee on the exercise of powers within its remit.
An important part of the FSC’s role is to monitor the effectiveness of policies and actions taken; and ensure they remain appropriate, taking into account risk developments.
The FSC is chaired by the Governor and its members comprise all the Deputy Governors and the Assistant Governors responsible for regulation, supervision, treasury operations and payment systems. The meeting is generally held four times a year and is also attended by selected senior officers of the Bank.
© Bank Negara Malaysia, 2018. All rights reserved.