The outlook for domestic financial stability this year remains positive, supported by underlying strengths of the Malaysian financial system.
"Financial institutions have accumulated strong buffers totalling RM81.4bil to withstand external risks and domestic challenges, even under extreme scenarios of credit and market stress," Bank Negara said.
It noted that this would support the continued functioning of intermediation activities by the financial system.
"Key challenges to financial stability in 2011 are likely to be largely externally driven, as global economic conditions remain fragile," the central bank said.
Domestic growth, which would continue to be more moderate than last year, would continue to be underpinned by strong economic fundamentals and further expansion in consumption and investment, although developments in commodity and energy prices would affect the cost of living, particularly for average Malaysians living in urban areas.
"shifts in global liquidity will continue to pose challenges to the region," Bank Negara said, as the global search for higher yielding assets and expectations for the ringgit alongside other regional currencies to appreciate would continue to exert upward pressures on the prices of financial assets domestically.
While the local property market has not experienced a significant broad-based increase in prices as a result of capital inflows, domestic financial markets were likely to remain volatile and impacted by developments on the external front.
Financial asset prices and exchange rates remained susceptible to large and volatile portfolio inflows as well as potential sharp reversals.
"The pre-emptive measures taken to ensure that risk-taking behaviours by financial institutions continue to remain prudent and measurers that aim to create greater financial awareness among households, as well as hedging activities of businesses to manage exchange rate fluctuations, will collectively contribute towards mitigating these risks," the central bank said.
The enforcement of responsible lending practices would act to counter overly aggressive behaviours by financial institutions.
"Nontheless, the growing influence and significance of non-bank lenders will need to be managed to avoid excessive build-up of leverage among certain borrower segments," Bank Negara said.
Given the recent trend of rising commodity and oil prices, which would contribute to higher cost of living and cost of inputs for production, it would be particularly important for financial institutions to monitor risk developments in these segments and to act pre-emptively to assist affected borrowers.
"This will also contribute towards preserving the overall quality of bank's loan portfolio," the central bank said.
[Sources: Bank Negara Malaysia Report 2010]
"Financial institutions have accumulated strong buffers totalling RM81.4bil to withstand external risks and domestic challenges, even under extreme scenarios of credit and market stress," Bank Negara said.
It noted that this would support the continued functioning of intermediation activities by the financial system.
"Key challenges to financial stability in 2011 are likely to be largely externally driven, as global economic conditions remain fragile," the central bank said.
Domestic growth, which would continue to be more moderate than last year, would continue to be underpinned by strong economic fundamentals and further expansion in consumption and investment, although developments in commodity and energy prices would affect the cost of living, particularly for average Malaysians living in urban areas.
"shifts in global liquidity will continue to pose challenges to the region," Bank Negara said, as the global search for higher yielding assets and expectations for the ringgit alongside other regional currencies to appreciate would continue to exert upward pressures on the prices of financial assets domestically.
While the local property market has not experienced a significant broad-based increase in prices as a result of capital inflows, domestic financial markets were likely to remain volatile and impacted by developments on the external front.
Financial asset prices and exchange rates remained susceptible to large and volatile portfolio inflows as well as potential sharp reversals.
"The pre-emptive measures taken to ensure that risk-taking behaviours by financial institutions continue to remain prudent and measurers that aim to create greater financial awareness among households, as well as hedging activities of businesses to manage exchange rate fluctuations, will collectively contribute towards mitigating these risks," the central bank said.
The enforcement of responsible lending practices would act to counter overly aggressive behaviours by financial institutions.
"Nontheless, the growing influence and significance of non-bank lenders will need to be managed to avoid excessive build-up of leverage among certain borrower segments," Bank Negara said.
Given the recent trend of rising commodity and oil prices, which would contribute to higher cost of living and cost of inputs for production, it would be particularly important for financial institutions to monitor risk developments in these segments and to act pre-emptively to assist affected borrowers.
"This will also contribute towards preserving the overall quality of bank's loan portfolio," the central bank said.
[Sources: Bank Negara Malaysia Report 2010]
