Banking system Malaysia remains resilient. Numbers here.

Banking system Malaysia remains resilient. Numbers here.

I wrote this article not too long ago. Malaysian economy overview from the banks’ results All these banks’ results help to answer the many questions about whether or not the economy is growing or it’s declining because of the effects from Covid-19. Banks could not report good results if the economy is faltering. Their customers need to do well for the banks to do well. Now we have even more numbers for us to understand about the state of the economy.

Article in themalaysianreserve.com Bursa Malaysia’s non-executive chairman Abdul Wahid Omar shared the following numbers.

Banking system’s core equity Tier 1 capital ratio of 15.2% as of Dec 31, 2021, was significantly higher than the 9.05% core capital ratio as of Dec 31, 1997, and 10.61% as of Dec 31, 2008. 

Asset quality of the banks improved significantly with the net impaired loans ratio improving from a high of 13.59% in 1998 to 2.24% (2008) and 0.9% as of Dec 31, 2021. 

“Similarly, the loan loss cover ratio improved from 39% to 75% and 129.2% as of June 30, 2021, respectively. 

“The loan-to-fund ratio remained broadly stable at 82.3% as of Dec 31, 2021, and there is sufficient liquidity for the banks to fund future loans growth in order to expand the economy further.”

“On the back of these prospects, I am optimistic Malaysia’s GDP can rebound to pre-pandemic levels — and based on the economic recovery observed in 2021 and with the reopening of the borders from April 1 — Malaysia is poised to achieve its forecast GDP between 5.5% to 6.5% in 2022. 

“This corresponds to International Monetary Fund and World Bank predictions of 5.7% and 5.8% respectively.” Do read the full article for your reference here: Article in themalaysianreserve.com

What is Tier-1 Capital Ratio and why is this important?

Investopedia says The tier 1 capital ratio is the ratio of a bank’s core tier 1 capital—that is, its equity capital and disclosed reserves—to its total risk-weighted assets. It is a key measure of a bank’s financial strength that has been adopted as part of the Basel III Accord on bank regulation.

The tier 1 capital ratio is the basis for the Basel III international capital and liquidity standards devised after the financial crisis, in 2010. The crisis showed that many banks had too little capital to absorb losses or remain liquid, and were funded with too much debt and not enough equity.

To force banks to increase capital buffers, and ensure they can withstand financial distress before they become insolvent, Basel III rules would tighten both tier 1 capital and risk-weighted assets (RWAs). The equity component of tier-1 capital has to have at least 4.5% of RWAs. The tier 1 capital ratio has to be at least 6%. Read here for more: Investopedia says

Tier-1 Capital Ratio for Malaysian banks are alongside the best in the world

Please feel free to google for the tier-1 capital ratio for many of the advanced nations in the world to get some sense of where Malaysian banks stand yeah.

Secondly, our neighbour, Monetary Authority of Singapore wants all Singapore banks to adhere to the following: “For Common Equity Tier 1 capital, Singapore-incorporated banks will be required to maintain a ratio of at least 9% by 1 January 2015 (inclusive of a capital conservation buffer requirement of 2.5%) compared to the Basel III requirement of 7%.” Info source. Singapore’s requirements are thus higher than what Basel III accord says yeah.

Meanwhile Malaysian banking system exceeds even this tougher requirement of at least 9%. (We are at 15%) By the way, no one knows how things could turn out in another global financial crisis but what’s sure is that if it happens, our banks are going to face it from a position of strength versus a weakened position. That is surely a good thing. Happy understanding.

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