KUALA LUMPUR: The domestic financial stability remained intact in the first half of 2019 amid continued challenges in the external and domestic environment, with the ongoing trade tensions weighing on external demand and regional growth prospects.
In a statement yesterday, Bank Negara Malaysia (BNM) said on the global front, financial vulnerabilities remained elevated on concerns of slower global growth and rising geopolitical tensions which contributed to increased volatility in financial asset and commodity prices.
“These developments, coupled with concerns over the review of Malaysian government securities in two global benchmark indices, saw periods of increased volatility in the domestic financial markets.
“Risks to domestic financial stability, however, continued to be largely contained, supported by relatively resilient domestic economic growth, orderly market conditions and sound financial institutions,” it said.
Despite increased volatility, it said orderly conditions were preserved, with strong domestic institutional investors, including financial institutions, continued to provide an important source of stability to the domestic markets during periods of heavy portfolio outflows.
This, in turn, has supported stable domestic funding conditions for businesses and households, of which active risk management and hedging strategies by banks continued to contain market risk exposures at manageable levels, well within prudent internal loss limits.
“This, in part, reflects greater caution observed by banks amid prevailing uncertainties during the first half of 2019. Similarly, insurance and takaful operators also continued to actively manage their investments in line with their liability structures,” it added.
Meanwhile, BNM said the overall household debt level remained elevated at 82.2 percent of gross domestic product (GDP), with loans for the purchase of residential properties continuing to be the key driver of debt growth.
Although most households continue to be able to comfortably service their debt, the central bank said pockets of risks remain.
Despite the share of household debt held by borrowers earning less than RM3,000 per month continued to decline over the years, it said the leverage of these borrowers has risen steadily, largely due to housing loans which have been made more accessible under various loan assistance schemes introduced in recent years.
“This borrower group remains susceptible to financial distress, given their limited financial buffers to weather potential shocks. Risks to financial stability, however, remain largely contained, given the low exposures of banks to higher-risk borrowers as banks continued to maintain sound lending practices,” it said.
On the other hand, BNM said house prices continued to expand at a more moderate pace amid sustained demand for affordable properties, while total unsold units have risen further, mainly driven by properties priced above the maximum affordable house prices in individual states.
This, it said, contrasts with a strong recovery in housing transactions for units priced below RM500,000 recorded in the first quarter.
“While the mismatch between housing supply and demand is likely to take some time to resolve, firm demand for affordable housing is expected to mitigate risks of a sharp and broad-based decline in house prices,” it said.
In the non-residential segment, BNM said the incoming supply of new office space and shopping complexes (OSSC) remains significantly higher than recent average annual demand, which is likely to further compound already elevated levels of vacancy rates for prime office and retail space, and prime retail space per capita in major cities.
According to the central bank, the financial position of non-financial corporates (NFCs) weakened slightly during the first half of 2019 amid continued challenging business conditions.
“The median leverage of NFCs increased marginally to 24.9 percent, as firms in the telecommunications, aviation and utilities sectors were partly affected by adjustments to new financial reporting standards,” it said.
BNM added that liquidity in the banking system remained sufficient to support domestic financial intermediation, with the Liquidity Coverage Ratio of the banking system strengthening further over the past six months.
“As part of efforts to ensure that banks maintain a stable funding profile, the Net Stable Funding Ratio requirements will come into effect on July 1, 2020. Based on data gathered during the observation period, most banks are well-positioned to meet these requirements,” it added. – Bernama
