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March 07, 2018

IMF published its staff report and selected issues report in the context of the 2018 Article IV consultation with Malaysia. Directors agreed that financial sector risks appear contained, with sound bank profitability, liquidity, and low nonperforming loans (NPLs). However, they noted that vulnerabilities in the household mortgages and the property development sector require vigilance and risk mitigation.

The staff report reveals that the overall corporate sector NPLs are at a manageable 2.7%. Internal bank credit underwriting standards have been effective in curbing household NPLs, which declined slightly to reach 1.4% of gross loans to households. The authorities largely agreed with staff’s view on prevailing financial sector conditions. They stated that risks are being monitored closely via stress-testing and other analyses, which indicate that domestic financial stability remains preserved even under extreme scenarios, supported by well-capitalized financial institutions. The authorities assess that banks can manage the potential risks to the property market, given the small size and sound quality of direct exposures to the segments with acute oversupply. Additionally, the Directors welcomed the commitment of authorities to take further actions to address deficiencies in the AML/CFT framework in Malaysia.

The selected issues report offers an overview of the labor market in Malaysia, which has evolved and performed strongly in the last three decades. The report also examines implications of the debt limit for the conduct of fiscal policy.

 

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Keywords: Asia Pacific, Malaysia, Banking, Article IV, NPLs, Stress Testing, IMF

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