The country’s Central Bank has just released the Financial Stability Review for the second half of 2021 which is a biannual publication that details BNM’s assessment of risks and outlook for domestic financial stability.
BNM highlights that the financial institutions remained vigilant in managing their risks given the continued uncertainty posed by domestic and global developments. Credit risk remains a key focus as banks continue to build up provisions to buffer against a potential rise in impairments. Provisions against loan losses in the banking system currently stand at 143%, which is close to its historical high. Despite expectations of continued market volatility, conditions in domestic financial markets are expected to remain orderly. This is supported by Malaysia’s deep and liquid bond market, diverse investor base, as well as positive real yields.
It also adds, that sound risk management practices of financial institutions, coupled with their strong capital and liquidity buffers, will continue to preserve domestic financial stability. The latest stress tests conducted by the Central Bank continue to affirm the resilience of capital buffers of banks and insurers to withstand potential losses under severe macroeconomic and financial shocks, while sustaining support for economic recovery. Almost all banks were able to maintain post-shock capital ratios above the regulatory minimum. Banks’ excess capital buffers currently amount to RM135 billion.
Bank Negara adds in ensuring operational and cyber resilience remains a key focus for BNM and financial institutions. This comes amid an increasing reliance by financial institutions on third-party service providers, higher cloud adoption, and rising ransomware threats. Effectively managing the effects of climate risks will also be at the forefront of the financial sector agenda for BNM and the industry in the coming years.
