- Malaysian Banks are more resilient against financial crisis

Presently, there are a total of 22 commercial banks, comprising of 9 domestic banks and 13 locally incorporated foreign banks operating in Malaysia. Commercial banks constitute the largest and most important group of all financial institutions in Malaysia with total assets of approximately RM1,231 billion as at 30 June 2008. So, how are Malaysian banks affected by the financial crisis now ravaging the banking industries of the US and Europe?

Relatively unscathed actually. Our banking sector remains resilient, well capitalized with low loan to asset ratios in mortgage financing. Here some interesting statistics produced by ABM (Association of Banks in Malaysia):

• banks in Malaysia are mainly domestic focused with more than 90 per cent of total assets in Ringgit-denominated assets.
• most of the banks’ investments / assets are concentrated in the ASEAN region.
• credit extension is more diversified today between business and household loans with no heavy exposure to any single segment.
• there has been an improvement in banks’ assets quality, that being the 3-month Non-Performing Loan ratio to 2.5 per cent in August 2008 versus a high of 11.5 per cent in 2001.
• industry capitalization is also strong with risk-weighted capital ratio at 13.2 per cent in August 2008, exceeding the 8 per cent minimum requirement.
• industry loan loss coverage is at a comfortable 95.2 per cent.

We do not have a liquidity crunch. Liquidity level in our banking system is healthy as backed by the following data generated by ABM:

• loan to deposit ratio stood at 74.5 per cent as at end August 2008, as compared to the high 90 per cent seen in the1997-98 financial meltdown.
• stable and low 3-month domestic inter-bank rates, and relatively narrow spreads against the 3-month Malaysian Government Securities (MGS) yields are indicative of the robustness of our banking system.
• Malaysia has a savings rate of 37 per cent which is high by international standards.
• Bank Negara Malaysia’s strong external reserves of US$119 billion in mid September 2008.

Malaysian banks are now more resilient against financial crisis. Thanks to years of continuous reforms, enhancements in corporate governance practices and risk management standards, and a stringent supervisory and surveillance system by Bank Negara Malaysia: http://www.bnm.gov.my/. Lessons well learned from the 1997-98 Asian financial crisis.