BNM: Banking sector downgrade is global

KUALA LUMPUR (April 3): A downgrade on the country's banking sector is a global trend affecting many countries including in Asia Pacific and not only limited to Malaysia.

Bank Negara Malaysia (BNM) governor Datuk Nor Shamsiah Mohd Yunus said the country is facing an unprecedented situation and the COVID-19 pandemic is affecting everyone throughout the world.

"Regardless, we need to acknowledge that recent developments have increased the risk of financial stability. However I would want to stress that banks will remain resilient as they are now more well positioned," she said during the BNM's maiden virtual press conference which was carried live by BernamaTv on Astro 502 today.

According to BNM, banks now have a strong capital position, above regulatory approval with 18.4 percent of total capital ratio and RM121 billion in excess capital buffers compared with only 12.6 percent and RM39 billion in 2008.

Yesterday, Moody’s Investors Services had changed its outlook for the local banking system to negative from stable due to the decline in profitability amid deteriorating economic conditions in the next 12 to 18 months.

Malaysia is not the only country where its banking sector has been downgraded.

Banking systems in the Asia Pacific including Australia and Singapore also had that their ratings downgraded to negative from stable as well.

Based on the stress test conducted on the banking sector, the governor said that the economic and financial impact of this development is within the range of shock applied in the adverse scenario of its stress test.

"We take the resilience of our banking sector seriously. This is why when balancing between conservatism and realism incur shocks, our stress test parameters are always leaning towards the conservative side.

"For instance, one the adverse scenario was deliberately designed to be severe. The stress test does not include any policy intervention by authorities neither does it include probable financial actions by banking institutions themselves. In today's scenario, both banks and authorities take action to mitigate the impact," she said.

On the stimulus package, Shamsiah said significant policy support underlines the commitment of policymakers to assist rebound in growth.

In comparison, crisis-related fiscal stimulus to Gross Domestic Product (GDP) as at March 27 is at 17 percent compared with only 8 percent in 2009.

This is relatively higher compared with developed nations such as United States (9.3 percent), European Union areas (2.6 percent), United Kingdom (2.5 percent) and Japan (3.5 percent).

Last Friday, the Government had announced a comprehensive RM250 billion stimulus package to boost the local economy during these tough times, by injecting capital in all levels of the economy.

On the commodity front, BNM forecasts that benchmark Brent Crude is expected to range between US$26 to US$35 per barrel, crude palm oil is expected to be at RM2,000 to RM2,200 per tonne and LNG at RM1,150 to RM1,250 per tonne.

Underpinned by its continuation of large-scale infrastructure projects as well as its diversified economy, Nor Shamsiah said that Malaysia will be able to weather the storm despite expected contractions in the GDP forecast.

BNM in its reports released today had revised the country's GDP forecast to a contraction of 2 percent to growth of 0.5 percent.

Domestic growth would improve towards year-end and subsequently 2021 as risks from the pandemic subside in line with the projected recovery in the global economy.