The International Monetary Fund (IMF) has bestowed compliments on Malaysia’s financial system, citing it withstood the global financial crisis and that there were no major deficits in liquidity.
Based on its latest Financial Sector Assessment Programme (FSAP), the Fund acknowledged Bank Negara Malaysia’s sound policy tools.
Malaysia enjoys a stable liquidity position - supported by a growing deposit base, with low exposure to foreign exchange funding, which safeguarded the country from the adverse effects of the global financial crisis.
“While the resilience shown by the financial sector is encouraging, the recent global financial crisis was not an extreme test for the monetary operations and the ELA (emergency liquidity assistance) framework in situations of severe stress,” the IMF alerted Malaysia.
Malaysia could do with a “self-reliant banking and financial system” to complement a strong central bank with the development of the financial market.
The FSAP covered technical notes on vulnerabilities and derivatives, stress testing of the Malaysian and Labuan IBFC banking sectors, monetary liquidity frameworks and banking system spillovers.
The Fund also noted that the banking sector remained stable during the 2008 global financial crisis due to healthy capital and liquidity levels, while the impact on the domestic economy was felt primarily through trade channels.
Malaysian banks are presently well capitalized with comfortable Tier 1 capital ratios and the domestic banking groups are expected to be able to meet Basel III capital requirements in 2019.
According to the IMF, the asset quality has been improving over the last five years.
Another area that IMF has recommended the authorities to look into is domestic banking groups that pursue overseas expansion.
“The importance of overseas assets (to some banks) and earnings are reaching levels which, based on international experience, warrant a review of internal controls.”
Currently, Bank Negara monitors developments at material overseas operations of banks on a monthly basis and conducts frequent onsite examination on key material overseas outfit.
The six biggest banking groups — Maybank, CIMB, Public Bank, Hong Leong, RHB Capital and AmBank -— all have overseas presence.
“Looking ahead, the expansion overseas of Malaysian banks is expected to continue,” said IMF.
Adapted from Business Times, 21 April 2014