KUALA LUMPUR, March 28 — The risks to financial stability continue to be contained, with current macro prudential measures remaining appropriate, says Bank Negara Malaysia (BNM).
The Malaysian financial system remained resilient and efficient in supporting financial intermediation activities and meeting the needs of the real economy and domestic financial stability
In its Financial Stability and Payment Systems Report 2017 released today, BNM said in 2017, policy developments in the United States (US), ongoing volatility in the commodities market and heightened geopolitical risks continued to influence investor sentiments.
“Amidst these developments, domestic financial markets remained orderly, with the presence of long-term domestic and foreign investors providing stability and liquidity to markets.
“Financial institutions also maintained strong buffers to weather potential shocks. Sound asset quality and profitability were observed while liquidity and funding conditions remained conducive to finance the needs of businesses and households,” said BNM.
The central bank said overall debt servicing capacity of borrowers was sustained, however, domestic debt levels remained elevated and heightened risks in segments of the property market continued to be of concern.
Pockets of vulnerabilities persisted among lower income households generally those with monthly earnings below RM3,000 , it said.
Indicators of stress in domestic financial markets trended lower last year and despite the volatile two-way portfolio flows, domestic institutional investors, including financial institutions, provided the necessary support to domestic financial markets, thus preserving orderly market conditions, said BNM.
Overall, it said net portfolio outflows in 2017 were lower at RM9.2 billion compared with RM15.4 billion in 2016 with net inflows into equities offsetting net outflows from the government bond market.
Meanwhile , BNM said liquidity and funding risks had also improved as bank deposits registered a growth coupled with continued efforts by banks to diversify and increase the stability of funding sources.
Bank deposits including investment accounts grew four per cent in 2017 compared with 1.6 per cent in registered in the previous year.
In terms of contagion risks,it said the magnitude and nature of risk emanating from domestic non-bank financial institutions and banks’ external exposures and overseas operations remained low and broadly unchanged from the previous year.
Moving into 2018, domestic financial stability was expected to be preserved but for the household segment, managing the high cost of living would remain a challenge, said BNM.
However, favourable labour market conditions and continued income growth would continue to provide support to households’ debt repayment capacity, it added.
In the property sector, BNM said the oversupply of luxury high-rise residential properties, office space and shopping complexes was expected to persist and if left unchecked, this could pose risks to macroeconomic and financial stability.
While in the business sector, it said uncertainties in the sustainability of oil prices would continue to weigh on the oil and gas industry, with major oil producers likely to remain cautious in spending in the upstream segment.
Based on the most recent stress tests conducted by the central bank, the Malaysian financial system remained resilient under severe credit, market, funding and liquidity shocks.
BNM said it would continue to be vigilant against risks from increased volatility in financial markets triggered by geopolitical developments, expectations of monetary policy normalisation globally and domestic factors.
“Potential risks arising from the growth in financial technology and cryptocurrencies would also be closely monitored,” it said, adding that risks to the financial system arising from cyber threats, illegal financial schemes and market conduct developments would remain an important focus of the bank’s supervisory and enforcement activities. — Bernama
