KUALA LUMPUR (March 21): External risks emanating from the European sovereign debt crisis and the US fiscal position, are deemed crucial threats to Malaysia’s financial stability in 2012, according to Bank Negara Malaysia (BNM).
In its Financial Stability and Payment Systems Report issued on Wednesday, BNM said uncertainties from both regions will continue to weigh on global market sentiment and economic growth.
“This in turn will continue to adversely affect the balance sheets and funding of global banks, hampering efforts to strengthen the financial systems in the advanced economies.
“Risks to domestic financial stability in 2012 are expected to continue to be mainly externally driven,” BNM said.
According to the central bank, these external uncertainties can lead to higher levels of domestic market volatility and continued challenges in foreign currency funding.
Moreover, weakness in advanced economies, which are also major importers of goods from emerging markets, could dent Malaysia’s export performance and the profitability of Malaysian companies, BNM said,.
Weaker corporate earnings in local firms may, in turn, lead to higher credit risks for domestic banks should borrowers fail to fulfill their debt obligations, according to BNM.
The central bank is however optimistic that the country’s financial sector is well positioned to mitigate the impact from such situation. The optimism is based on the anticipation that credit risk for Malaysian lenders will be manageable this year against a stable employment and income outlook within a sustained domestic demand backdrop, according to BNM.
The central bank said it will improve its ability to identify “second-order contagion risks that can affect the financial sector” and ensure domestic lenders exercise prudence in disbursing loans to consumers.
“Aside from maintaining a heightened vigilance over banks’ exposures to households, the bank will also increase its scrutiny on the quality of banks’ business credit exposures and financing to the commercial property sector,” BNM said.
Household debt is a crucial concern. The regulator said it plans to strengthen its emphasis on ensuring that household debt is at reasonable levels via the proper assessment of potential borrowers’ ability to take on new loans.
“The bank will continue to actively monitor the financial position of households, coordinating closely with other relevant authorities in implementing appropriate measures to ensure that the resilience of the household sector is preserved.
“While the foundations for financial stability is well entrenched, Malaysia will strive to improve further in safeguarding financial stability in a highly dynamic domestic and external environment,” BNM said.
On a global scale, the regulator said it hopes to strengthen its links with other central banks to jointly undertake proactive measures to counter risks in the broader financial backdrop.
Another crucial highlight is BNM’s aim to further strengthen financial market infrastructures especially payment and settlement systems to support rising volume of cross-border and multi-currency transactions.
The regulator also hopes to collaborate with other authorities to improve access to, and the transparency of, information on over-the-counter derivatives exposures.
In its Financial Stability and Payment Systems Report issued on Wednesday, BNM said uncertainties from both regions will continue to weigh on global market sentiment and economic growth.
“This in turn will continue to adversely affect the balance sheets and funding of global banks, hampering efforts to strengthen the financial systems in the advanced economies.
“Risks to domestic financial stability in 2012 are expected to continue to be mainly externally driven,” BNM said.
According to the central bank, these external uncertainties can lead to higher levels of domestic market volatility and continued challenges in foreign currency funding.
Moreover, weakness in advanced economies, which are also major importers of goods from emerging markets, could dent Malaysia’s export performance and the profitability of Malaysian companies, BNM said,.
Weaker corporate earnings in local firms may, in turn, lead to higher credit risks for domestic banks should borrowers fail to fulfill their debt obligations, according to BNM.
The central bank is however optimistic that the country’s financial sector is well positioned to mitigate the impact from such situation. The optimism is based on the anticipation that credit risk for Malaysian lenders will be manageable this year against a stable employment and income outlook within a sustained domestic demand backdrop, according to BNM.
The central bank said it will improve its ability to identify “second-order contagion risks that can affect the financial sector” and ensure domestic lenders exercise prudence in disbursing loans to consumers.
“Aside from maintaining a heightened vigilance over banks’ exposures to households, the bank will also increase its scrutiny on the quality of banks’ business credit exposures and financing to the commercial property sector,” BNM said.
Household debt is a crucial concern. The regulator said it plans to strengthen its emphasis on ensuring that household debt is at reasonable levels via the proper assessment of potential borrowers’ ability to take on new loans.
“The bank will continue to actively monitor the financial position of households, coordinating closely with other relevant authorities in implementing appropriate measures to ensure that the resilience of the household sector is preserved.
“While the foundations for financial stability is well entrenched, Malaysia will strive to improve further in safeguarding financial stability in a highly dynamic domestic and external environment,” BNM said.
On a global scale, the regulator said it hopes to strengthen its links with other central banks to jointly undertake proactive measures to counter risks in the broader financial backdrop.
Another crucial highlight is BNM’s aim to further strengthen financial market infrastructures especially payment and settlement systems to support rising volume of cross-border and multi-currency transactions.
The regulator also hopes to collaborate with other authorities to improve access to, and the transparency of, information on over-the-counter derivatives exposures.
