Financial sector more globally integrated

IN line with the aspiration of the Financial Sector Blueprint 20112020, Malaysia’s financial sector has become more integrated and diversified with regional and global financial markets.

The banking sector continues to record significant presence of foreign banks which accounted for 21.8 per cent of banking assets as at end of July, according to the Ministry of Finance’s Economic Report 2016/17.

There are 28 locally incorporated foreign banks operating in Malaysia from 57 banking institutions that include commercial banks, investment banks and Islamic banks following the free trade agreements and the Asean Banking Integration Framework last year.

During the period under review, credit growth in the banking system remained moderate, with total loan applications recording a marginal increase to RM461.6 billion compared with RM461.4 billion last year.

Total loan approvals and disbursements by the banking system fell 16 per cent to RM192.6 billion and 3.1 per cent to RM598.5 billion, respectively.

Meanwhile, total loans outstanding grew 5.1 per cent to RM1.5 trillion as at end of July.

Despite considerable presence within the Malaysian commerce landscape, financing to small and medium enterprises (SMEs) showed a decline in applications, approvals and disbursements at 8.6 per cent, 5.3 per cent and 4.4 per cent respectively.

Total SME loans outstanding grew 9.2 per cent to RM270.4 billion, accounting for 36.3 per cent of loans to businesses as at July.

As for the SME sector, financing was channelled into finance, insurance and business activities (30.7 per cent); wholesale and retail trade, restaurants and hotels (24.6 per cent) and manufacturing (15 per cent).

Household loans continued to stay moderate with loan applications declining 2.4 per cent to RM242.1 billion for the first seven months of the year while loan approvals and disbursements decreased 20.9 per cent and eight per cent, respectively.

Total household debt, however, continued to register a moderate growth of 5.9 per cent to RM1.1 trillion, which accounted for 89.1 per cent of gross domestic product for the period under review.

On an aggregate level, household balance sheet remained healthy. Households continued to accumulate more financial assets than debts and higher cost of living made households more cautious in taking on new debts.

Household financial assets grew RM45.3 billion compared with an increase of RM28.6 billion in household debt.

Overall banking system remained resilient, supported by strong capital position with the common equity tier 1 capital ratio, tier 1 capital ratio and total capital ratio at 13.3 per cent, 14.3 per cent and 16.9 per cent, respectively.