GLOBAL rating agency’s downgrade on the country’s banking sector is a global trend affecting the whole of Asia Pacific and not only Malaysia’s financial institutions.
Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the country is facing an unprecedented situation and the Covid-19 pandemic is affecting everyone throughout the world.
“Regardless, we need to acknowledge that recent developments have increased the risk of financial stability. However, I would want to stress that banks will remain resilient as they are now more well-positioned,” she said during the BNM’s maiden virtual press conference which was carried live by BernamaTV on Astro 502 today.
According to BNM, banks now have a strong capital position, above regulatory approval with 18.4% of total capital ratio and RM121 bil in excess capital buffers compared with only 12.6% and RM39 bil in 2008.
Yesterday, Moody’s Investors Services changed its outlook for the local banking system to negative from stable due to the decline in profitability amid deteriorating economic conditions in the next 12 to 18 months.
Malaysia is not the only country whose banking sector has been downgraded.
Australia and Singapore are among many other countries that had their rating downgraded to negative from stable as well.
Based on the stress test conducted on the banking sector, the governor said the economic and financial impact of this development are within the range of shock applied in the adverse scenario of its stress test.
“We take the resilience of our banking sector seriously. This is why when balancing between conservatism and realism incur shocks, our stress test parameters always lean towards the conservative side.
“For instance, one, the adverse scenario was deliberately designed to be severe. The stress test does not include any policy intervention by authorities neither does it include probable financial actions by banking institution itself. In today’s scenario, both bank and authorities take action to mitigate the impact,” she said.
On the stimulus package, Nor Shamsiah said significant policy support underlines the commitment of policymakers to assist rebound in growth.
In comparison, crisis-related fiscal stimulus to gross domestic product (GDP) as at March 27 is at 17% compared with only 8% in 2009.
This is relatively higher than developed nations such as the United States (9.3%), European Union countries (2.6%), United Kingdom (2.5%) and Japan (3.5%).
Last Friday, the government announced a comprehensive RM250 bil stimulus package to boost the local economy by injecting capital at all levels.
On the commodity front, BNM forecasts that benchmark Brent Crude is expected to range between US$26 and US$35 per barrel, crude palm oil is expected to be at RM2,000 to RM2,200 per tonne and LNG stands at RM1,150 to RM1,250 per tonne.
Underpinned by its continuation of large-scale infrastructure projects as well as its diversified economy, Nor Shamsiah said Malaysia will be able to weather the storm despite expected contractions in the GDP.
BNM had revised the country’s GDP growth forecast to between a contraction of 2.0% and a growth of 0.5%.
Domestic growth would improve towards year-end and subsequently 2021 as risks from the pandemic subside, in line with the projected recovery in the global economy. — April 3, 2020, Bernama
