IMF Publishes Reports on 2018 Article IV Consultation with Malaysia
IMF published its staff report and selected issues report under the 2019 Article IV consultation with Malaysia. The IMF Directors agreed that the financial sector appears resilient, with low non-performing loans (NPLs) and sound profitability and liquidity indicators. However, a few Directors suggested a more cautious approach in phasing out measures related to the "residency-based differentiation" in the property market, as systemic risks dissipate.
The staff report highlighted that the authorities viewed financial sector risks to be appropriately monitored and contained. They noted that the financial sector has the necessary buffers to cope with sizable shocks. Banks are well-capitalized and liquid, with capital and liquidity buffers exceeding the regulatory levels. Loan quality is strong, with aggregate NPLs at 1.5% of gross loans as of third quarter of 2018, and provisions are sizable. The potential for spillovers from the non-bank financial institutions (NBFIs) to the banking sector appears limited. NBFIs’ investments in equities and bonds continue to be the main transmission channel of contagion risk to the financial sector. To help manage these risks, BNM has taken steps to improve the flow of NBFIs’ financial reporting. Macro-prudential norms and credit underwriting standards have been effective in containing household NPLs at 1.4%.
Mortgages, which represent 60% of total household debt, mostly have a variable rate structure and are subject to interest rate risk. Despite high loan quality and the positive outcome of the latest stress testing of BNM, household debt continues to require close monitoring. According to the stress tests by BNM, potential bank losses originating from a possible sharp real estate price adjustment and shocks to income and interest rates are small relative to the capital buffers of banks. Given the sizable exposure of banks to mortgage lending and to the construction industry, a real estate market price correction, through a reduction in household and corporate wealth, and these agents’ debt-servicing capacity, could have a significant impact on growth and financial stability as NPLs rise. While agreeing that household balance sheet risks require close monitoring, the authorities noted that the associated problems do not pose systemic financial stability risks at this juncture. They were of the view that, with real estate price increases moderating and given the strength of the macro-prudential framework, the likelihood of a sizable adjustment with systemic implications is low.
Although the financial sector is deemed resilient at present, the authorities continue to closely monitor risks and consider measures to mitigate them. The authorities are making ongoing efforts to enhance operational resilience and crisis preparedness. These actions could be further strengthened by a comprehensive internal review of crisis preparedness, resolution framework, and related facilities and legislation. This would help ensure seamless inter- and intra-agency functioning at a time of distress. The framework governing the financial oversight functions of BNM appears robust. Regarding the crisis preparedness, the authorities indicated that, in addition to periodic reviews of such preparedness, resolution frameworks, and related liquidity facilities, they were increasingly focused on testing the banking system’s operational resilience, including to cyber risks. Moreover, the 2012 Financial Sector Assessment Program (FSAP) found that the overall supervision of the banking sector and some NBFIs, as mandated, is sound and delivers effective oversight. The main gaps identified by the 2012 FSAP—specifically, improving the administration of licensing standards, extending information-sharing arrangements with foreign supervisors, and strengthening the supervisory powers in the insurance sector—have been addressed.
Related Links
Keywords: Asia Pacific, Malaysia, Banking, Insurance, Securities, NPLs, Article IV, FSAP, NBFI, Stress Testing, Macro-Prudential Framework, BNM, IMF
Previous Article
FCA Issues Guidance on SoRs and Responsibilities Map Under SM&CRRelated Articles
|
News
BoE, FCA, and MAS Announce Collaboration on Cyber SecurityMAS and UK financial authorities (BoE and FCA) announced that they will work together to strengthen cyber security in their financial sectors.
June 13, 2019
WebPage
Regulatory News
|
|
News
CBIRC Advisory Committee Holds Meeting, Discusses Regulatory IssuesThe first meeting of the International Advisory Committee (IAC) of CBIRC was held in Shanghai from June 11 to 12, 2019.
June 13, 2019
WebPage
Regulatory News
|
|
News
APRA Response to Proposal on Revisions to Capital Framework for BanksAPRA published a paper in response to the first round of consultation on proposed changes to the capital framework for authorized deposit-taking institutions.
June 12, 2019
WebPage
Regulatory News
|
|
News
APRA Finalizes Schedule on Scope of Variable Remuneration Under BEARAPRA has released a response letter and the final wording of the schedule in relation to how the Banking Executive Accountability Regime (BEAR) applies to variable remuneration arrangements for medium and small authorized deposit-taking institutions (ADIs).
June 12, 2019
WebPage
Regulatory News
|
|
News
EC Publishes Fourth Progress Report on Reduction of NPLs in EU BanksEC published the fourth progress report on the reduction of non-performing loans (NPLs) in banks in EU.
June 12, 2019
WebPage
Regulatory News
|
|
News
FASB Adds Taxonomy Entry Points in Relation to 2019 DEI TaxonomyFASB has incorporated additional entry points for the 2019 GAAP [Generally Accepted Accounting Principles] Financial Reporting Taxonomy and the 2019 SEC Reporting Taxonomy, in connection with the issuance of the 2019 Document and Entity Information (DEI) Taxonomy by SEC.
June 11, 2019
WebPage
Regulatory News
|
|
News
EC Publishes Draft Equivalence Decisions for Credit Rating AgenciesEC is requesting feedback on the draft implementing decisions on recognition of legal and supervisory systems of Hong Kong, Japan, Mexico, and U.S. as equivalent to the requirements of Regulation (EC) No 1060/2009 on credit rating agencies.
June 11, 2019
WebPage
Regulatory News
|
|
News
BaFin Consults on AFS Recommendation to Increase CCyB for BanksBaFin is requesting feedback on increasing the domestic countercyclical capital buffer (CCyB) to 0.25%, with effect from July 01, 2019, pursuant to Article 92(3) of Capital Requirements Regulation (CRR).
June 11, 2019
WebPage
Regulatory News
|
|
News
MAS Revises Capital Adequacy Requirements for Banks in SingaporeMAS issued amendments to the Notice 637 on risk-based capital adequacy requirements for banks incorporated in Singapore.
June 10, 2019
WebPage
Regulatory News
|
|
News
PRA on Modification by Consent of Definition of Capital Rules in CRR 2PRA announced its decision to offer a modification by consent of the Rules 7.1 and 7.5 of the Definition of Capital Part of the PRA Rulebook.
June 10, 2019
WebPage
Regulatory News
|
