BNM Publishes Financial Stability Review for the First Half of 2019
BNM published Financial Stability Review for the first half of 2019. The review presents the assessment of BNM on current and potential risks to financial stability and resilience of the financial system in Malaysia. It also covers actions taken to manage risks to financial stability and contains articles (in Box) on topics of special interest. The review uses data available up to June 30, 2019, unless otherwise stated. The review highlights that, in the first half of 2019, domestic financial stability remained intact amid continued challenges in the external and domestic environment.
Strong domestic institutional investors, including financial institutions, have continued to provide an important source of stability to the domestic markets during periods of heavy portfolio outflows. Active risk management and hedging strategies by banks continued to contain market risk exposures to manageable levels, well within the 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. In the insurance sector, regulatory reforms are supporting improvements in persistency and pricing, which in turn will sustain longer-term performance.
Overall, the financial sector remained resilient, underpinned by strong capital and liquidity buffers, and sustained profitability. Liquidity in the banking system remained sufficient to support domestic financial intermediation, with the liquidity coverage ratio (LCR) 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 (NSFR) requirements will come into effect on July 01, 2020. Based on data gathered during the observation period, most banks are well-positioned to meet these requirements. Banks as well as insurers and takaful operators maintained strong capitalization levels, well above the regulatory minimum and higher than internal target capital levels. This is further underpinned by strong buffers against potential losses, in line with more forward-looking financial reporting standards and regulatory requirements.
Stress tests conducted by BNM affirm the resilience of the Malaysian financial system to severe macroeconomic and financial strains, with financial institutions maintaining capital buffers in excess of the regulatory minima, even under adverse simulated shocks. BNM remains vigilant to external and domestic developments that may pose risks to domestic financial stability, including weaker global growth prospects amid increased volatility in capital flows, the elevated level of household debt, soft property market conditions, and operational disruptions from increasing cyber threats. Banks, however, remained cautious in lending to the non-residential segment, with low exposures that continue to be largely performing. Furthermore, based on the sensitivity analysis of BNM, banks have sufficient capital buffers to withstand severe losses under adverse stress scenarios in the broad property market.
Related Links
Keywords: Asia Pacific, Malaysia, Banking, Insurance, Securities, Financial Stability Review, Stress Testing, LCR, NSFR, Financial Stability, BNM
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Emil Lopez
Credit risk modeling advisor; IFRS 9 researcher; data quality and risk reporting manager
Karen Moss
Senior practitioner in asset and liability management (ALM) and liquidity risk who assists banking clients in advancing their treasury and balance sheet management objectives
Related Articles
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
US Regulators Release Stress Test Scenarios for Banks
The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).
Asian Governments Aim for Interoperability in AI Governance Frameworks
The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.
EBA Proposes Operational Risk Standards Under Final Basel III Package
The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.
EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS
The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.
ECB to Expand Climate Change Work in 2024-2025
Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.
BIS Bulletin Examines Cognitive Limits of Large Language Models
The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.
ECB is Conducting First Cyber Risk Stress Test for Banks
As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.
EBA Continues Momentum Toward Strengthening Prudential Rules for Banks
A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.
EU and UK Agencies Issue Updates on Final Basel III Rules
The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards