Bank Negara says Malaysian banking system strong
(October 15th, 2008)It can wiithstand global financial crisis
KUALA LUMPUR: Bank Negara has assured Malaysian depositors that their money in banks and insurance companies in the country is safe as the banking system is strong enough to withstand the turmoil of the global financial crisis.
The central bank said it stood ready to pump liquidity into banks if needed and was closely engaging other monetary authorities in the region to monitor and respond with coordinated measures to deal with the current challenging environment.
“Several years of reforms, institutional development and capacity building, continuous efforts to enhance corporate governance and risk management standards and practices have significantly strengthened the banking system,’’ a central bank statement said, seeking to calm the nerves of Malaysians.
Bankers have been fielding calls from nervous depositors and investors worried about the financial crisis that has spread from the United States to Europe and now, on a limited basis, has worked its way to Asia.
Analysts said the move by Bank Negara to pacify depositors would provide much needed confidence.
“It is not unusual as this is in line with what central banks are doing to reassure people,’’ said the head of research at a local brokerage.
Some analysts wondered if the central bank would also guarantee the safety of all deposits in the country, a move taken by a number of countries with the latest being Hong Kong.
Bank Negara said non-performing loans in the banking system had improved to 2.5% and there was sufficient liquidity in the system as the net interbank placements was RM198.5bil.
“The banking and insurance industries are therefore operating with adequate capital and liquidity buffers that have negligible exposure to both subprime-related securities and to the affected financial institutions of other countries, with more than 90% of total assets of the banks and insurance companies in ringgit-denominated assets,’’ Bank Negara said.
It said all foreign financial institutions in the country were locally incorporated and, at end- August, the risk weighted capital ratio of the foreign financial institutions was 12.6%.
The risk weighted capital ratio of the banking system was 13.2% and exceeded the minimum of 8% by RM42.3bil, which Bank Negara said was an indication that the leverage position of the industry was manageable.
The insurance industry posted a solvency surplus of RM16.5bil at the end of August.
It added that the debt level of households was stable as the value of their assets was twice that of their debt. Corporations had a debt-to-equity ratio of 48% in the first half of the year.
“The strong capital position, combined with ample liquidity, provides adequate capacity to the banking system to continue to perform its intermediation function and to meet its financial commitments as well as the demand for financing and financial services in supporting domestic economic activities,’’ the central bank.