THE private sector, especially commercial banks, has a critical role to play in ensuring that Malaysia’s economic fabric remains intact in the long term, said Malaysian Rating Corporation Bhd (MARC).
In a statement, it said that commercial banking institutions can help support the economy by effectively utilising the liquidity made available by Bank Negara Malaysia (BNM) by lending to businesses that are in need of lifelines like small medium enterprises with good prospects.
“This is because experience from the global financial crisis (2008-2009) shows that a slow pick-up in lending growth in the United States (US) was the key reason behind the sluggish economic recovery, despite the massive liquidity injections by the US Federal Reserves through its quantitative easing policy,” it said.
MARC notes that the banking sector is in much better shape than it was prior to the 1998 and 2009 recessions.
In February 2020, the sector’s total capital ratio stood significantly higher at 18.4% compared with 12.6% in 2009.
Asset quality remained relatively steady last year with the gross impaired loans (GIL) ratio at year-end at 1.5%.
“Based on the current scenario, however, impaired loans could rise, and lending to businesses come with risks.
“However, it is important to note that if businesses do not get the necessary lifelines they need, there could be a more pronounced economic implication. Banks’ GIL could be pushed to even higher levels and this will place a heavier economic burden on banks,” it said.
BNM governor Datuk Nor Shamsiah Mohd Yunus said that based on the stress test conducted on the banking sector, the current economic and financial impact are within the range of shock applied in the adverse scenario of its stress test.
"We take our banking sector’s resilience seriously. The stress test does not include any policy intervention by authorities, neither does it include probable financial actions by the banking institution itself.
“In today's scenario, both banks and authorities take action to mitigate the impact," she said.
In its Annual Report 2019 released recently, BNM painted a subdued outlook for the Malaysian economy in 2020, projecting economic growth to be in the range of -0.2% to 0.5% due to the Covid-19 pandemic’s impact on both global and domestic economies.
MARC also shared BNM’s view regarding the expected sharp downturn of the Malaysian economy in 2020, as businesses have been impacted by the pandemic.
It noted that the government has provided some relief to individuals and businesses to help them weather these challenging times through its RM250 bil economic stimulus package, Prihatin.
“MARC takes comfort from BNM’s disclosure that households are in a position to face the challenges going forward, given their financial asset-to-debt ratio of 2.2 times.
“However, with the likelihood of a spike in the jobless rate this year, household balance sheets could come under pressure as incomes deteriorate and lending from banks decline,” it added. - April 5, 2020, Bernama