KUALA LUMPUR, March 11 — Corporate leverage of Malaysian firms remained below the level prior to the global financial crisis, in contrast to other emerging economies, says Bank Negara Malaysia (BNM).

It said strong and relatively stable corporate earnings over the past years have allowed firms to sustainably increase debt levels to fund growing capital expenditure and investments.

“This has been supported by improved debt servicing capacity observed at the aggregate and individual firm levels,” the central bank said in its 2014 Financial Stability and Payment Systems Report.

In an article entitled “Malaysian Corporate Leverage and its Systemic Implications”, it said the share of Malaysian corporate debt that represented potential “vulnerable debt” based on the individual borrowing firm’s leverage and financial indicators was low in comparison to regional peers.

More leveraged firms generally registered higher return on asset (ROA) and interest coverage ratios (ICR), while supported by stable cash balances.

More than 83 per cent of domestic corporate debt was considered non-risky based on a debt-to-equity ratio of borrowing firms of less than one while more than 42 per cent of debt were taken by firms registering a ROA above five per cent, providing substantial earnings buffers against potential shocks.

In terms of debt servicing capacity, 80.5 per cent of debt was owed by Malaysian firms that have sufficient earnings to cover more than two times interest expenses, providing flexibility to adjust to higher debt expenses or lower operating profits moving forward.

Meantime, external borrowings of Malaysian corporations increased at a modest annual rate of 4.2 per cent between 2008 and 2014, averaging at 18 per cent of Gross Domestic Product.

About 41 per cent of these external borrowings are in the form of long-dated debt securities, the bulk of which were issued by large home-grown conglomerates with operations in multiple jurisdictions.

The bulk of corporate external borrowings were denominated in major currencies such as the US dollar (76.1 per cent) and Singapore dollar (5.8 per cent). — Bernama