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Financial Markets And Strong Domestic Institutional Investors Support Orderly Market, Says BNM


KUALA LUMPUR, March 23— The deep financial markets and presence of strong domestic institutional investors in Malaysia continued to support orderly market conditions, said Bank Negara Malaysia (BNM).

“While funding conditions were occasionally tighter amid the large volume of portfolio outflows, aggregate surplus liquidity in the domestic financial system placed with the Bank remained high at RM205.1 billion as at end-2015,” BNM said in its 2015 Financial Stability and Payment Systems Report released here Wednesday.

The provision of liquidity through the Bank’s reverse repurchase facilities and, more recently, the lowering of the Statutory Reserve Requirement preserved adequate liquidity conditions and helped smooth out adjustments by individual banks to heightened deposit competition and the more uneven distribution of deposits across banks.

The report said domestic banks, insurers and takaful operators continued to remain profitable and maintain strong capital positions.

“Banks, in particular, have shown a high degree of earnings resilience in spite of more challenging business conditions, allowing them to maintain strong buffers through prudent earnings retention policies,” it said, adding that the banks’ capital in excess of the minimum regulatory requirement increased further by 9.5% to RM117.3 billion.

BNM said the aggregate capitalisation of insurers and takaful operators similarly remained strong with excess capital buffers above the regulatory minimum amounting to RM46 billion.

“These factors have continued to firmly support domestic intermediation activities and sustained confidence in the Malaysian financial system,” said the central bank.

Growth in non-financial corporate borrowings continued to be driven by domestic investment activities and supported by generally healthy corporate balance sheets, it said.

Outstanding Malaysian non-financial corporate sector debt rose to RM1,212.9 billion or 104.8% of Gross Domestic Product (GDP) as at end-2015.

“While corporate leverage has increased in the last year, it remains within reasonably prudent levels,” it said.

The median debt-to-equity ratio of Malaysian non-financial corporations stood at 46.8% as at end-September 2015.

Bank exposures to the crude palm oil and oil and gas sectors were small at about four per cent and two per cent of total credit exposures to businesses, respectively.

Potential cumulative credit losses from simulated severe shocks on large borrower groups also remain manageable, the bank said, with excess capital buffers of banks sufficient to cover more than two times the estimated losses.

However, uncertainties in global demand, further exchange rate volatility and movements in commodity prices are expected to continue to weigh on the credit risk outlook for businesses in the coming year.

On the 2016 outlook, the central bank said the overall debt servicing capacity of Malaysian corporations is expected to remain broadly intact, given their stronger fundamentals.