Malaysia's financial system remains resilient amid marcoeconomic headwinds - Analysts

KUALA LUMPUR - Research houses are of the view that the domestic financial system remains resilient against macroeconomic headwinds, supported by the Bank Negara Malaysia's (BNM) strong fundamentals.

During a special briefing for the release of BNM's first half of 2023 (1H 2023) Financial Stability Review (FSR), the central bank said it remains assured that the domestic financial system can maintain its resilience in the face of macroeconomic headwinds.

RHB Research noted that most leading indicators for Malaysia were healthy, although the share of firms-at-risk in several sectors was still elevated vis-à-vis pre-pandemic levels.

"In the wake of the banking crisis in developed economies from earlier this year, investor appetite for additional Tier 1 (AT1) securities issued by domestic banks still appeared robust.

"The subdued ringgit is not a big concern as its performance was affected by external developments, including renewed expectations of a higher terminal interest rate in the United States and soft macroeconomic performance in China,” it said in a research note.

Nevertheless, RHB Research said the central bank is encouraged by the improved investor sentiment in the domestic equity market, as shown by the net inflow of non-resident funds in the third quarter of 2023 (3Q 2023). "The intensity of deposit competition has waned from the levels seen between 4Q 2022 and 2Q 2023, and should remain manageable moving forward in the absence of expectations of further rate hikes,” it added.

RHB Research said domestic banks’ exposures to the China real estate market are limited and well covered, while exposures to geographies affected by the ongoing conflict in the Middle East are also minimal, though BNM remains watchful of spillover effects into the Asian and global economies.

Sharing the same view, Hong Leong Investment Bank (HLIB) said that overall, the domestic banking system has stayed resilient despite heightened global market volatility and that it is capable of weathering any potential systemic shocks.

"Moreover, both the household and business segments have adequate financial buffers to sail through tough times.

"In addition, the risks are well contained and hence, financial stability is expected to stay intact this year. However, there are no fresh positive catalysts to spur share prices significantly higher,” it said.

Kenanga Research noted that BNM’s confidence in the resilience of the financial system is evidenced by sound buffers and strict regulations that have prevented major fall-outs seen abroad.

"Further, our domestic players (systemic and non-systemic) are expected to see highly limited exposure to riskier trade partners (i.e. China and currently Middle East markets).

"Barring unexpected turbulence in domestic sectors, it is expected for BNM to maintain the overnight policy rate (OPR) at 3.00 per cent, which we expect to persist till end-2024. Affordability could be the most immediate concern with possible targeted fuel subsidies likely to press certain demographics,” it said. - BERNAMA