# data[].attributes.headline
Controlled funding and currency of the bank's foreign debt risk

# data[].attributes.subject
Controlled funding and currency of the bank's foreign debt risk

# data[].attributes.body
The overall external debt of the banking system decreased by RM48 billion in the second half of 2020, mainly due to the maturity of intra-group borrowings of Labuan International Business and Financial Centre (LIBFC) banks.

The majority of external debt (60%) is composed of internal placements and long-term debt securities, which are more stable. 18% of external debt is denominated in ringgit and thus not affected by exchange rates.

Banks continue to maintain sufficient FCY liquid assets to cover three times the level of FCY external debt exposure.

# data[].attributes.headline
Regulatory and supervisory activities continue to strengthen the banking system's capacity and support the economy's financial needs

# data[].attributes.subject
Regulatory and supervisory activities continue to strengthen the banking system's capacity and support the economy's financial needs

# data[].attributes.body
Further improvement of banks' internal governance and risk management practices and domestic implementation of Basel III standards This can help limit leverage and improve liquidity management to strengthen banks' resilience and the level and quality of their assets.

The average leverage ratio of the banking system is 7.8% respectively, which is well above the minimum standard of 3% issued by BNM. A strong capitalization of the banking system is not expected to limit financial activities and require additional fundraising activities by LR.

Banks need to meet NSFR levels. banks with NSFR levels below 100% will need to meet the requirements by adjusting their balance sheets. the NSFR for banks in 2017 was 107.6% and about 76% of banks reported meeting NSFR levels or exceeding 100%.

# data[].attributes.headline
Banks remain cautious in handling and preventing risks

# data[].attributes.subject
Banks remain cautious in handling and preventing risks

# data[].attributes.body
Bank risk management is continuing to improve in handling delinquencies and maintaining good levels of loan impairment. The number of impaired loans (net of individual impairment provisions) decreased by RM104.3 million.

The banking system's loan loss coverage ratio was 114.8% well above the regulatory minimum and also high compared to the previous year 2016 at 112.1%.

Following the revision of the World Bank's Credit Risk Standard, financial institutions were mandated to use a more advanced credit loss estimation methodology. In addition, the World Bank also expensed Malaysian Financial Reporting Standard 9 (MFRS 9) for financial instruments as of January 1, 2018. MFRS 9 is going to banks or financial institutions in the new impairment rules to take into account the intentional expected credit losses of credit facilities throughout the cycle under the broader macroeconomic developments.

# data[].attributes.headline
Banks remain supportive of the financing needs of SMEs

# data[].attributes.subject
Banks remain supportive of the financing needs of SMEs

# data[].attributes.body
53% of total bank commercial financing is accounted for by SME financing, compared to 51% in 2016. In order to better optimize the use of funds and respond to the changing needs of SMEs due to the changing financial market, the bank merged four financing schemes such as e Fund for Small and Medium Industries 2, New Entrepreneurs Fund 2, Fund for Food, and Micro Enterprise Fund.

The Bank has also enhanced the BNM’s Fund for SMEs in order to assist SMEs that do not have a good track record and collateral.

# data[].attributes.headline
The banking system maintained a strong and sound financial position due to robust governance and the risk management.

# data[].attributes.subject
The banking system maintained a strong and sound financial position due to robust governance and the risk management.

# data[].attributes.body
The stable funds and strong capitalisation continued to support the financial needs by the business and households in the market and economy.

With the easing of competition for deposits, the banking sector's total profit before tax grew from RM32.2 billion in 2016 to RM36.2 billion in 2017, while net interest income increased to 7.8% from 1.9% the previous year. The share of demand deposits in 2017 was 22.1% of total deposits compared to 21.6% the year before. This increase helped to help the bank reduce its funding costs.

The return on equity rose to 13% while the return on assets came to 1.5%. Banks reported capital ratios well above minimum regulatory requirements mainly because a conservative earnings retention policy allows the banking system to maintain a high capital buffer.

# data[].attributes.headline
DBG's overseas operations maintain good and stable profitability and financial status

# data[].attributes.subject
DBG's overseas operations maintain good and stable profitability and financial status

# data[].attributes.body
DBG's overseas operations have improved profitability with the contribution of improved asset quality, operational efficiency, financial management, and increased revenue from financial and non-financial businesses such as banking and insurance.

The overall performance of the overseas businesses improved compared to the previous year, with return on equity coming in at 14.4% compared to 8.1% in 2017. The total capital ratio improved to 19.2% compared to 17.6% in 2017. Total impaired loan ratio decreased from 2.4% in 2017 to 1.7% in 2018.

The source of funding for the overseas operations of Noida is local currency deposits, so the risks related to cross-border funding and currency mismatch are avoidable. Low funding dependence on the parent bank insulates the overseas operations from market volatility and liquidity shocks.

Timely interaction with market information, analysis of new risks, and timely countermeasures with regulators in relevant market situations are important. Therefore, regular contact with host country regulators is conducted through supervisory committees and bilateral meetings.

# data[].attributes.headline
Banking system credit risk remains under control

# data[].attributes.subject
Banking system credit risk remains under control

# data[].attributes.body
Banks are actively and proactively managing credit risk by imposing monitoring on accounts with temporary repayment difficulties and by conducting pre-emptive restructuring.

Vulnerable sectors are also subject to more rigorous risk stress testing, such as simulating the impact of international markets on banks' asset quality, capital and liquidity buffers.

# data[].attributes.headline
Asset Quality remains continued improve and Loan Loss Coverage become higher

# data[].attributes.subject
Asset Quality remains continued improve and Loan Loss Coverage become higher

# data[].attributes.body
As the financial markets were favorable for finance at the beginning of the year, revenues from trading and investment income improved. The Net impaired loans ratio and Gross impaired loans ratio decreased by 0.9% and 1.5% respectively compared to the previous year 2017.

A closer look at household loans shows an upward trend in impairment especially in personal loans and loans on high-value properties, although the gross impaired loans ratio declined.

Bank loan loss coverage ratios have risen further, and a more forward-looking approach to provisioning in the banking system is required by MFRS9.

# data[].attributes.headline
Banks maintain healthy capitalization levels despite sustained profitability and improved asset quality

# data[].attributes.subject
Banks maintain healthy capitalization levels despite sustained profitability and improved asset quality

# data[].attributes.body
In 2018, the bank maintained a total excess capital of RM115.0 billion above the regulatory minimum despite a lower capital ratio than in 2016 and 2017 due to the impact of the new impairment standard in Malaysian Financial Reporting Standards (MFRS 9).

Banks' profitable income from financing activities and continued efficiency gains contributed to the banking system maintaining healthy profits in 2018, even as the return on assets and equity declined due to slow growth in pre-tax profits.

The implementation of MFRS9, which required banks to increase the amount of reserves set aside, and higher interest expenses on deposits due to the rise in OPR in January were the reasons for the slowdown in profit growth.

# data[].attributes.headline
DBG's overseas business risk remains low, despite sluggish economic environment

# data[].attributes.subject
DBG's overseas business risk remains low, despite sluggish economic environment

# data[].attributes.body
Weak economic conditions have impacted DBG's overseas business, falling from a return on equity of 10.7% in December 2018 to 6% in December 2019.

DBG's operations in Singapore, which account for 49.1% of total overseas assets, have faced headwinds in operations due to higher new impairments than hand-drawn capital, with impairments of up to 3.8%.

Loan losses in Indonesia also increased, with the impairment ratio rising to 4.1%. But the business remained profitable, which can be reflected in the return on equity of 9.8%.

The Thailand business has a better earnings performance 8.6% in December 2019 due to its solid economic conditions.

Hong Kong SAR has lost money to DBG's operations in Hong Kong SAR due to social unrest and political instability. However, the impact is limited due to the small market, which represents 7.5% of total overseas assets. DBG scaled back financial and banking activities in order to reduce risk exposure.

The impact of DBG's overseas operations showing further deterioration through the bank's internal stress tests remains manageable, as the reserve buffers and liquidity management built up over the years at the bank were able to allow the bank to be in a favorable position during the challenging times.

# data[].attributes.headline
Potential credit and market losses in the bank's financial buffer

# data[].attributes.subject
Potential credit and market losses in the bank's financial buffer

# data[].attributes.body
Most of the credit portfolio impairment ratios are still located low, so the banking system is maintaining a 1.5% in Gross impaired loans ratio.

With the start of the Covid-19 pandemic epidemic, banks restructured and rescheduled an increased share of loans, especially for affected borrowers. The deterioration in the performance of these loans is a potential loss, but remains within the banking system's buffer.

Banks have the ability to absorb losses from the potential impact on margins given the prudent provisions that have been built in.

# data[].attributes.headline
Good profitability and asset quality strengthen the solvency position of the banking system

# data[].attributes.subject
Good profitability and asset quality strengthen the solvency position of the banking system

# data[].attributes.body
The banking system's profitability moved above the estimated average cost of capital (9%), which strengthened bank solvency.

The annual growth in profit before tax was 15.4% due to strong growth in non-interest income. Trading and investment income grew as part of the banks' income streams through their profitability in the government bond market.

Net interest income increased at a slower pace amidst the slowdown in credit growth and compression of interest rates.

# data[].attributes.headline
Capitalization of the banking system remains strong

# data[].attributes.subject
Capitalization of the banking system remains strong

# data[].attributes.body
Potential stresses from adverse financial and macroeconomic shocks can be offset by strong bank capitalization.

The banking system has maintained levels well above regulatory standards thanks to good profitability and asset quality.

# data[].attributes.headline
Strong capitalization of the banking system, allowing banks to absorb potential shocks and support economic recovery

# data[].attributes.subject
Strong capitalization of the banking system, allowing banks to absorb potential shocks and support economic recovery

# data[].attributes.body
Banks are maintaining a buffer against increased credit losses by reducing dividends to their shareholders, implementing dividend-investment programs and raising new shares.

Banks maintained strong capitalization levels, 18.5%, while profits declined. The total excess capital buffer amounted to well over RM126.7billion.

# data[].attributes.headline
In the case of Covid-19, the financial performance of the bank's foreign operations was dragged down by challenging credit conditions

# data[].attributes.subject
In the case of Covid-19, the financial performance of the bank's foreign operations was dragged down by challenging credit conditions

# data[].attributes.body
Financial performance of DBGs' foreign operations remained subdued in most countries over the past year amid the COVID-19 pandemic and contraction in global economic activity. Overall asset quality in DBG's foreign operations improved slightly with a total impaired loan ratio of 3.9%, supported by continued moratorium and debt relief measures.

DBGs operations are primarily funded by deposits in local currencies, which has allowed asset quality to remain high even in the face of uncertainty over growth prospects. Maintaining a high level of capital helps buffer potential credit losses.

Continued adequate capital can protect against losses related to higher credit risk due to pandemic impact, oil price fatigue and economic recovery uncertainty by conducting stress tests on foreign operations.

# data[].attributes.headline
Higher credit costs due to credit risk and uncertainty of economic recovery also affects earnings

# data[].attributes.subject
Higher credit costs due to credit risk and uncertainty of economic recovery also affects earnings

# data[].attributes.body
The banking system's total impairment rate rose slightly by 1.6%, following the end of some automatic repayment suspensions. This was driven primarily by an increase in household impairments.

The rise in household impairments and the expected deterioration in corporate financial performance led to a rise in total loans driven by the banking system's Stage 2 loan classification under MFRS 9 to 10%. Banks continue to increase provisions to cover higher credit losses.

The 40% additional provisioning comes from banks applying management overrides on top of expected credit loss (ECL) model provisions. This reflects the challenge of incorporating forward-looking information in the ECL calculation due to uncertainty about the economic recovery and reduced visibility into the solvency of borrowers with suspended loans.

The decline in banks' pre-tax profits was the first and sharpest decline since the Asian financial crisis, at 31% in the second half of 2020. While other profit sources have improved, benefiting from stable spreads thanks to the re-adjustment of deposit prices after first going to the OPR reduction.

# data[].attributes.headline
The banking system's liquidity position remains supportive of intermediation activity, thanks to continued deposit growth and improved loan repayments

# data[].attributes.subject
The banking system's liquidity position remains supportive of intermediation activity, thanks to continued deposit growth and improved loan repayments

# data[].attributes.body
In 2020, the bank liquidity coverage ratio (LCR) was 148.2%. This is attributed to the return of loan repayments by households and SMEs to the level before the automatic suspension of lending.

The total Net Stable Funding Ratio (NSFR) of 116% also meets the regulatory minimum NSFR requirement of 100%. The main contribution was made by the significant increase in deposits in banks by banking institutions.

# data[].attributes.headline
The risk of domestic banking groups (DBGs) overseas business is still low

# data[].attributes.subject
The risk of domestic banking groups (DBGs) overseas business is still low

# data[].attributes.body
DBGs' profitability in Thailand, Singapore, and Indonesia are normal. Profitability in Indonesia and Thailand is improving more as the economy recovers. Singapore's earnings are lower than before due to rising credit risk.

The Hong Kong SAR business is also still losing money as the asset quality of specific borrowers has deteriorated further.

The risk posed by DBGs is limited, mainly because funding is provided by local currency deposits. A strong local buffer allows for unexpected losses to still be addressed without the support of the parent company.

# data[].attributes.headline
Strong capital position maintains bank's ability to support economic recovery 

# data[].attributes.subject
Strong capital position maintains bank's ability to support economic recovery 

# data[].attributes.body
The bank's total capital of RM135.4bn far exceeds the regulatory minimum requirement. This provides the bank with significant protection against any potential losses in a challenging environment and time frame.

It also maintains the bank's relative ability to support the financing needs of households and businesses during the period.

Overall bank profitability rose and shareholders earned more in dividends, although some banks continued to carry dividends in investment plans to save costs.

# data[].attributes.headline
Banks continue to build provisions for possible impairments

# data[].attributes.subject
Banks continue to build provisions for possible impairments

# data[].attributes.body
Stage 2 saw an increase in loan exposures and a further increase in overall provisioning to 1.9% of total loans.

The cumulative management coverage ratio was 27.7% of the bank's total loan provisions, indicating that banks continue to focus on strengthening their buffers against potential credit losses.

As economic conditions improved, borrowers' ability to repay gradually recovered. As a result, losses from repayment assistance to distressed borrowers are also expected to moderate.

# data[].attributes.headline
Banks remain cautious in the prospect of unstable credit risk

# data[].attributes.subject
Banks remain cautious in the prospect of unstable credit risk

# data[].attributes.body
As assistance measures for households and businesses continue to support better asset quality, avoiding borrowers from prematurely realizing defaults. As a result, the banking system's gross and net impaired loan ratios remained low.

The return to normal loan repayments by large corporate and individual borrowers and write-offs by several banks in the second half of 2021 have contributed to a modest improvement in the gross impaired loan ratio.

The proportion of loans in the Stage 2 is mainly contributed by individual and SME borrowing, with the loan ratio increasing to 11.2%. The Expected Credit Loss (ECL) model for some banks concluded that there was an increase in exposure in the second stage.

# data[].attributes.headline
The risk associated with the bank's foreign debt exposure is low

# data[].attributes.subject
The risk associated with the bank's foreign debt exposure is low

# data[].attributes.body
Interbank borrowing remains the most stable source of domestic funding, as reliance on external funding is limited.

External bank debt declines in the second half of 2021, among other things because the maturity of group transactions of banks in Labuan International Business and Financial Center (LIBFC) also leads to a decline in interbank borrowing.

Potential foreign exchange (FCY) liquidity tightening pressures remain resilient for banks. 1 in 5 external debts is denominated in MYR and therefore not affected by exchange rates. Banks' FCY liquid assets can cover FCY external debt exposure at 3.5 times.

# data[].attributes.headline
Strong funding and liquidity in the banking system can still support intermediation activities

# data[].attributes.subject
Strong funding and liquidity in the banking system can still support intermediation activities

# data[].attributes.body
With a net stable funding ratio (NSFR) of 116.2% in December 2021, all banks exceed the required minimum.

Household and business deposits are gradually growing as the economic market reopens. As a result, total deposits soared to a rate of 6.3% in December 2021 compared to 3.9% in June 2021.

Support measures for businesses and households affected by the epidemic continue, including extending the loan repayment moratorium. This has a limited liquidity impact on banks as they maintain a healthy liquidity buffer with a liquidity coverage ratio (LCR) above regulatory minimums.

# data[].attributes.headline
The Soundness and Resilience of the Malaysian banking system

# data[].attributes.subject
The Soundness and Resilience of the Malaysian banking system