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Taklimat Laporan Tahunan 2016 dan Laporan Kestabilan Kewangan dan Sistem Pembayaran 2016 Gabenor Bank Negara Malaysia 23 Mac 2017 1

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Taklimat Laporan Tahunan 2016 danLaporan Kestabilan Kewangan dan Sistem Pembayaran 2016

Gabenor Bank Negara Malaysia

23 Mac 2017

1

Taklimat Laporan Tahunan 2016 danLaporan Kestabilan Kewangan dan Sistem Pembayaran 2016

Gabenor Bank Negara Malaysia

23 Mac 2017

2

In 2016, the Malaysian economy continued to expand despite multiple external shocks and domestic adjustments

Domestic Demand: 2014

Source: National authorities, Department of Statistics, Malaysia

…amid a period of adjustment

to various challenges

Within the region, Malaysia was among the

faster-growing economies…

5.0

4.2

0

1

2

3

4

5

6

7

8

PH ID MY TH KR SG

2015 2016

Annual change (%)

Real GDP growth of selected countries

• Volatile global commodity prices

• Weak global demand

• Depreciation of the ringgit

• Lingering impact of GST implementation

• Domestic price adjustments

3

Note: PH= Philippines, ID= Indonesia, MY= Malaysia, TH= Thailand, KR= South Korea, SG= Singapore

3.6 3.1 3.2

1.8

1.1 0.7

0.6

0.60.1

-0.5-0.1 0.0

1.2

-0.4 -0.2

6.0%

5.0%

4.2%

-2

0

2

4

6

8

2014 2015 2016p

Change in Stocks Net Exports

Public Investment Public Consumption

Private Investment Private Consumption

GDP Growth (%, yoy)

• Sustained private consumption:

- Supported by continued wage and employment growth,

with additional impetus from Government measures

• Private investment continued to expand:

- Supported by implementation of new and ongoing

projects in the manufacturing and services sectors

• Smaller negative contribution from net exports:

- Import growth moderated at a faster pace than exports

Private domestic demand remained the key growth driver

Contribution to

growth (ppt.)

Real GDP Growth

Source: Department of Statistics, Malaysia

p preliminary

4

2017 will be characterised by several developments

3

5

Volatile

financial markets

Improvement in

global growth

Higher

commodity prices

Socio- and geopolitical

developmentsPolicy adjustments

in advanced economies

Global Landscape

in 2017

Malaysia is positioned to benefit from positive developments and to withstand negative shocks

Diversified economic and trade structure

Well-developed and resilient financial system

Adequate reserves and manageable external debt

Policy space and flexibility

Structural transition towards high-value added sectors with varied export products and markets

Strong capital and liquidity buffers with continued access to financing

Ample international reserves and increased foreign asset holdings act as buffer against external shocks

Flexible exchange rate and monetary policy space

6

Higher global manufacturing and industrial production

data signal better global growth prospects

Recent indicators point to an improvement in global growth

Global Manufacturing Indicators

Exports in Asia has been recovering

48

49

50

51

52

53

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

3Q-13 1Q-14 3Q-14 1Q-15 3Q-15 1Q-16 3Q-16 Jan-Feb17

Global Industrial Production Index* (IPI)

Global Purchasing Managers' Index (RHS)

%, yoy Index

Source: Bloomberg, Haver, BNM

)

7

Export Value Growth in Selected Asian Economies

-25

-20

-15

-10

-5

0

5

10

15

20

25

-20

-15

-10

-5

0

5

10

15

20

3Q-13 1Q-14 3Q-14 1Q-15 3Q-15 1Q-16 3Q-16 Jan-Feb17**

KR MY

SG TH

ID (RHS)

%, yoy %, yoy

*Data available as at 2016

** January 2017 data for Malaysia and Thailand

Broad-based expansion in growth across regions

Source: International Monetary Fund (IMF)

Global growth and trade projected to expand in 2017

World trade to world GDP ratio to improve after

reaching the lowest ratio since 2001

GDP Growth By Region World Trade Growth and Trade to GDP Ratio

0

2

4

6

8

10

12

2010 2011 2012 2013 2014 2015 2016e 2017f

Global

Adv. economies

Asia

Other EMEs

%, yoy

8

e estimates f forecast

0

1

2

3

0

2

4

6

8

10

12

14

2010 2011 2012 2013 2014 2015 2016 2017f

World Trade Growth

World Trade to WorldGDP Ratio (RHS)

%, yoy Ratio

-1.8

2013 2015 2017f

4.4

2013 2015 2017f

6.1

2013 2015 2017f

L

4.2

2013 2015 2017f

Annual change (%)Real GDP Growth

4.8

4.3

The Malaysian economy to expand by 4.3 – 4.8% in 2017

Annual change (%)Private Consumption

Annual change (%)Private Investment

Annual change (%)Net Exports

Growth to remain anchored by private domestic demand,

with support from external sector

Source: Department of Statistics, Malaysia, Bank Negara Malaysia

f forecast

6.0 4.1

5.3

9

Real GDP by

Expenditure

(Annual change, %)

Share2

2016 (%)2016p 2017f

Domestic demand1 91.8 4.4 4.4

Private expenditure 70.2 5.7 5.6

Consumption 53.3 6.1 6.0

Investment 16.9 4.4 4.1

Public expenditure 21.6 0.4 0.5

Consumption 13.1 1.0 -0.2

Investment 8.5 -0.5 1.5

Net exports 8.1 -1.8 5.3

Exports 70.0 0.1 2.2

Imports 61.9 0.4 1.8

Real GDP 100.0 4.2 4.3 – 4.8

Domestic demand to remain a key driver, with support from improvement in net exports

Real GDP by

Economic Activity

(Annual change, %)

Share2

2016 (%)2016p 2017f

Services 54.2 5.6 4.9

Manufacturing 23.0 4.4 4.3

Mining & Quarrying 8.8 2.7 2.7

Agriculture 8.1 -5.1 4.0

Construction 4.5 7.4 8.0

Real GDP 100.0 4.2 4.3 – 4.8

1 Excluding stocks, 2 Numbers may not add up due to rounding and exclusion of import duties

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

p preliminary f forecast

10

Updated

Private consumption to remain supported by continued employment and income growth

Real private consumption

Annual change (%)

Sustained household spending…

6.1 6.0

4

5

6

7

8

9

2013 2014 2015 2016p 2017f

Source: Department of Statistics, Malaysia

p preliminary, e estimate, f forecast

13.9

14.1

14.2

13.6

13.7

13.8

13.9

14.0

14.1

14.2

14.3

2014 2015 2016e

Employment

+112k jobs

Wage growth in the manufacturing and

major services sectors

Annual change (%)

… and wage growth…supported by continued

employment growth…

Million Persons

5.34.9

4.2

0

1

2

3

4

5

6

7

2014 2015 2016e

Private

sector wages

11

65

16

17

3

Households have the capacity and resilience to support expenditure

Determinants of Private Consumption

(%share)

Source: Bank Negara Working Papers (WP7/2015), Department of Statistics, Malaysia, Bank Negara Malaysia, Malaysian Employers Federation

1Q’05 - 4Q’13

HH Liquid Financial Assets and Debt

1.01.1

1.51.5

2015 2016

HH Debt HH Liquid Financial Assets

Disposable income

(MEF salary increment in

2017f: 5.4%; 2016: 5.5%)

Others

Financial wealth

Housing wealth

(RM trillion)

Continued expansion in income,

the primary driver of private consumption

On aggregate, households have ample liquid

financial assets to cover debt

12

Private investment to register modest growth

Source: Department of Statistics, Malaysia, Bank Negara Malaysia, MIER

p preliminary, f forecast

Private investment activity to

grow at 4.1%

6.4

4.4 4.1

0

5

10

15

20

25

2011 2013 2015 2017f

Real Private

Investment GrowthAnnual

change (%)

Malaysia continues to attract FDI,

but in lower amounts

13

0

10

20

30

2011-2015 2015 2016p

23%

19%

22%

Share to Nominal

Private Investment (%)

Foreign Direct Investment

Avg.

Annual FDI:

RM36.6 bn

81.2

70

80

90

100

110

1Q15

2Q15

3Q15

4Q15

1Q16

2Q16

3Q16

4Q16

Business sentiments

remain soft

FDI:

RM41.2 bn

Business Condition Index

Points

Optimism threshold

(100 points)FDI:

RM43.4 bn

Private investment will be supported by the ongoing projects in the services and manufacturing sectors

Source: Department of Statistics, Malaysia, Bank Negara Malaysia

Services and manufacturing sectors account

for 75% of private investment activity

16

63

26

49

0

20

40

60

80

100

Manufacturing

Mining

Construction

Agriculture

Private Investment by Sector

(2010-2015)

Services

Services

• Transport and storage:

Oil and gas storage terminals,

seaports and aircrafts

• Telecommunication:

4G/LTE network expansion

• Electrical and electronics (E&E)

• Resource-based industries

Manufacturing

Key quality projects to increase efficiency,

productive capacity and employment

Share (%)

14

p preliminary, f forecast

Note: G3 refers to the US, EU and Japan, NIEs refers to Hong Kong, Korea and Chinese Taipei, ROW refers to rest of the world

External trade performance to improve

Annual change (%)% share

(2016)2016p 2017f

Gross exports 100.0 1.1 5.5

Manufactured 82.2 3.2 3.7

E&E 36.6 3.5 4.2

Non-E&E 45.5 3.0 3.3

Commodities 17.1 -8.6 14.8

Gross imports 100.0 1.9 6.4

Intermediate goods 57.1 -0.1 5.4

Capital goods 14.3 4.9 7.9

Consumption goods 9.6 7.3 9.9

Trade balance (RM billion) - 87.3 86.4

Higher export and import growth, lifted by positive

global factors amid sustained domestic demand

Diversified export structure across products and

markets to help mitigate shocks

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

Exports by Product, 2016

%share of total exports

45.5

36.6

17.1

E&E

Commodities

Non-E&E

Exports by Market, 2016

%share of total exports

29.4

28.412.5

10.4

19.3

G3

ASEAN

China

NIE

ROW

15

-15

0

15

30

2006 2008 2010 2012 2014 2016p0

20

40

60

2006 2008 2010 2012 2014 2016p

Current account balance to narrow but remain in surplus

17.6

1-2%

-12

-8

-4

0

4

8

12

16

20

24

-100

0

100

200

2006 2008 2010 2012 2014 2016p

Goods Services

Primary income Secondary income

% of GNI (RHS)

Current Account BalanceRM billion % of GDP

Moderating

savings

Rising

investment

Higher domestic investments

and moderating savings

Smaller CA surplus reflect global conditions

and domestic structural transformation

Source: Department of Statistics, Malaysia, Bank Negara Malaysia

Lower private sector surplus,

due partly to higher investment

Savings-Investment Gap

% of GNI % of GDPSavings-Investment Gap Saving-Investment Gap

by Sectors

2017f 2017f

Pvt. investment

growth (2011-16):

10.9%

Private sector

Public sector

2017f

16

-1.3

0.6

0.7

0.9

1.3

2.1

3.1

3.4

3.5

5.9

6.6

7.9

-5.3

-6.6

-17.1

2.8

-4.3

-3.7

0.4

-2.2

3.2

2.0

-1.0

-2.5

-25 -15 -5 5 15

PHP

CNY

GBP

IDR

MYR

EUR

THB

SGD

JPY

TWD

AUD

KRW

2016

2017 YTD

% change

The ringgit exchange rate has stabilised in 2017, in line with most major and regional currencies

The ringgit followed two distinct phases in 2016, with

most of the depreciation occurring after the US electionThe ringgit has, however, recovered slightly in 2017,

in line with most major and regional currencies

Performance of Selected Currencies against the

US dollar (USD) Exchange Rate of the Malaysian Ringgit (RM) and Selected

Regional Currencies against the US Dollar (USD)

Updated

90

95

100

105

110

115

De

c-1

5

Jan-1

6

Feb

-16

Ma

r-1

6

Apr-

16

Ma

y-1

6

Jun-1

6

Jul-

16

Aug-1

6

Sep-1

6

Oct-

16

No

v-1

6

De

c-1

6

Jan-1

7

Feb

-17

Ringgit

Index (Dec 2015 =100)

2017Appreciation

period

Depreciation

period

+9.9% -13.0%

1 Regional currencies: Chinese renminbi, Indonesian rupiah, Korean won, Philippine peso, Singapore dollar, New Taiwan dollar and Thai baht.

Each currency carries equal weight.

YTD year-to-date

Source: Bank Negara Malaysia

Index of Selected Regional

Currencies against the USD1

17

The FMC measures have lent stability to the ringgit and domestic foreign exchange market

4.65.2

0

1

2

3

4

5

6

Nov-16 Feb-17

219

53

0

50

100

150

200

250

Nov-16 Feb-17

65

40

0

10

20

30

40

50

60

70

Nov-16 Feb-17

504

275

100

200

300

400

500

600

Nov-16 Feb-17

Average Volatility of MYR/USD

Average MYR/USD

Bid-Ask Spread

Average Daily Turnover of

MYR Currency Pair

Average Daily MYR/USD

Offshore-Onshore GapUSD bnPoints

Points

Points

Daily turnover remained stable Ringgit volatility declined Offshore-onshore gap narrowed

Bid-ask spread narrowed

18

Source: Bloomberg, Bank Negara Malaysia

Note: Volatility refers to the difference between MYR/USD interbank intraday highest and lowest rate. Offshore rate refers to the NDF 3-month rate

while onshore rate refers to the spot rate.

FX conversion increased post-measures 5Y CDS spread narrowed

150.6

117.4

60

100

140

180

Nov-16 Feb-17

USD bn

Basis

points Average Daily 5-year CDS spreadNet Foreign Exchange Conversion

from Exports (Cumulative)

-0.5

2.0

-0.5

0.0

0.5

1.0

1.5

2.0

Jan - Nov-16 Dec-16 - Feb-17

42%

30%

17%

8%

2% 1% <0.5%0

20

40

60

80

Asse

tM

ana

ge

me

nt

Cen

tra

l B

ank/

Go

vern

me

nt

Pe

nsio

nF

unds

Ba

nks

Insura

nce

Co

mp

an

ies

Nom

inees/

Cu

sto

dia

ns

Oth

ers

RM billion

Non-resident holdings of Malaysian government bonds remained broadly stable as at end-2016

2014:28.2%

2015:29.6%

2016:30.6%

0

5

10

15

20

25

30

35

40

0

50

100

150

200

250

300

Dec-14 Jun-15 Dec-15 Jun-16 Dec-16

% share of total

RM billion

Outstanding Government Bond (LHS)

Non-Resident Holdings of Govt. Bonds (RHS)

Source: Bank Negara Malaysia

Distribution of Non-resident Holdings in

Government Bonds as at end-Dec’16

Non-Resident (NR) Holding of

Malaysian Government Bonds

Non-resident holdings of Malaysian Government

bonds stabilised towards the end of the yearMajority of non-residents holdings are by

long-term investors

Note:

- Malaysian Government Bonds includes Malaysian Government Securities (MGS), Malaysian Government Investment Issues (MGII), and Sukuk Perumahan

Kerajaan (SPK).

- ‘Others’ include individuals, non-financial corporations and unidentified sectors.

- Data may vary pending further classification by reporting entities.

19

Malaysia’s external debt remains manageable given its currency, maturity and balance sheet profiles

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

60.0%*

48.5%

25.4%

1998 2016

Ringgit-denominated debt

Foreign currency-denominated debt

*Based on previous definition of external debt

Medium- to

Long-term

58.6%

Short-term

41.4%

Limited

rollover risks

Foreign currency-denominated

debt remains low relative to Asian

Financial Crisis

Breakdown by Currency

(% of GDP)

59% of total external debt is in

medium- to long-term tenures

Breakdown by Maturity

(% of total share)

Short-term external debt partly

covered by short-term external assets

Short-term External Position of

Banks and Corporations (end-2016)

300

377

0

100

200

300

400

Short-termExternal Assets*

Short-termExternal Debt

RM billion

Total:

73.9%

*Debt instruments only

20

Going forward, Malaysia is well-positioned to intermediate volatile capital flows

Short-term capital flows were driven by

prevailing conditions in the global financial markets

• Going forward, large and volatile shifts in global

liquidity will continue to shape capital flow

movements

• Malaysia will be able to withstand these external

shocks, drawing on its diversified economic

structure, financial buffers and prevailing robust

policy framework

• Well-developed and resilient financial system

accord Malaysia the capacity to intermediate

large and volatile flows

-30

-20

-10

0

10

20

30

1Q2015

2Q2015

3Q2015

4Q2015

1Q2016

2Q2016

3Q2016

4Q2016

Resident Non-Resident

RM billion

Net Portfolio Flows

Source: Department of Statistics, Malaysia

21

0

20

40

60

80

100

2005 2016

Malaysia’s External Assets1

International reservesBank & non-bank corporates external assets

USD118.7

billion

USD265.4

billion

Ample international reserves and increased foreign asset holdings act as buffer against external shocks

8.3

1.1

0

2

4

6

8

10

12

14

0

50

100

150

200

1991 1996 2001 2006 2011 2016

Net International Reserves

Retained import cover (RHS)

Reserves/ST ext debt* (RHS)

15 Mar. 2017

USD94.9 bn

AFC 1997:

USD21.7 bn

Reserves position remains at about four-times

the level during the Asian Financial Crisis

Net International Reserves

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

2005

59%

26%

41%

74%

% share

Increased holdings of foreign assets by

banks and corporations

1 Based on the International Investment Position

2016

USD billion Times

22

*Lower ratio since 2009 following redefinition of external debt

0

1

2

3

4

5

Fe

b-1

4

Ma

y-1

4

Aug

-14

Nov-1

4

Fe

b-1

5

Ma

y-1

5

Aug

-15

Nov-1

5

Fe

b-1

6

Ma

y-1

6

Aug

-16

Nov-1

6

• For 2017, headline inflation to average

3 – 4% reflecting primarily the pass-through

impact of the increase in global oil prices on

domestic retail fuel prices

• Headline inflation would be relatively high in

1H 2017 before moderating thereafter

• The cost-driven inflation is not expected to

have significant spillovers given the

moderate domestic demand conditions

− Core inflation to increase only modestly

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

23

Higher average headline inflation driven by cost factors

Headline and Core Inflation

Annual Growth (%)

4%

3%

Core inflation

Headline inflation

Headline inflation outlook is subject to uncertainty in global oil prices

Source: Bloomberg and Bank Negara Malaysia

• Trajectory of domestic headline inflation

will be dependent on the future trend in

global oil prices which remain highly

uncertain

• The uncertainties in global oil prices arises

mainly from:

− Possible extension of OPEC's agreement on

the cut in crude oil production

− Recovery in the global growth

− Geo-political tensions

USD per barrel

0

10

20

30

40

50

60

70

80

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Ju

l-1

5

Sep

-15

Nov-1

5

Ja

n-1

6

Ma

r-16

Ma

y-1

6

Ju

l-1

6

Sep

-16

Nov-1

6

Ja

n-1

7

Ma

r-17

Ma

y-1

7

Ju

l-1

7

Sep

-17

Nov-1

7

Brent Global Oil Price

Updated

24

Monetary policy will focus on supporting the sustainable

growth of the economy while maintaining price stability

• OPR of 3.00% is currently consistent with steady growth and stable inflation

• The MPC will continue to assess balance of risks on outlook of domestic growth and inflation

GDP growth

4.3 – 4.8%

Inflation

3 - 4%

• Baseline: Sustained domestic demand supported by more

positive contribution from external sector

• Risk factors: Threats of protectionism, geopolitical

developments, cautious sentiments, financial disruptions

• Baseline: Cost-driven inflation primarily due to pass-through

impact of higher global oil prices on domestic fuel prices

• Core inflation to increase modestly

• Risk factors: Developments in global oil prices and higher

spillovers from cost-push inflation

25

151 184 220 232 239 273 268

0

200

400

600

800

1000

1200

1400

201

0

201

1

201

2

201

3

201

4

201

5

201

6

Funds Raised via Capital Markets

Loan Disbursements by the Banking System and DFIs

Loans Disbursed to SMEs

RM bn

1,084

842926

1,124

Financing to the private sector remained healthy with relatively stable borrowing costs

Gross Financing*

Broad-based loan disbursed across all economic

sectors for both businesses and households

1,209 1,2251,194

2

3

4

5

6

7

Overallprivatesector

Households Overallbusinesses

SMEs LargeCorporate(5y AAA

PDS)

Long-run average**

Jan-17

Interest Rates on New Loans to the

Private Sector

Private sector continue to benefit from stable

financing costs

Updated

Source: Bank Negara Malaysia

*Comprises gross loans from the banking system and DFIs, and gross funds raised from the capital markets

**Average (Jan 2002 – Dec 2016)

26

%

ROW

Market% share of exports

54

23

9 85

Services Mfg. Mining Agri. Const.

55.595.3

11.816.5

0

10

20

0

50

100

150

1998 2016p

Size of Bond MarketCapital Ratio* (RHS)

Malaysia’s macroeconomic fundamentals remain supportive of growth

Diversified sources of growth Stable labour market conditionsDiversified export market

and product

Deeper markets and

strong financial buffers

Current account balance

reflects strong investment

10.4

2.1

2010 2012 2014 2016p

% of GNI

Current Account Balance

Malaysia GDP by Economic Sectors (2016)

% of

nominal

GDP

Size of Bond Market

and Banking Capital Ratio %

* Capital ratio in ‘98 refers to the risk-weighted capital ratio; Ratio in 2016 refers to total capital ratio, reported based on Basel III Capital Adequacy Framework adopted since January 2013;

Note: HK= Hong Kong, SG= Singapore, JP=Japan, CN=China, US=United States, NL=Netherlands, UK= United Kingdom, KR=South Korea, CH= Switzerland

Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary

Conducive investment

destination for foreign investors

FDI Inflows by Source Country (2016)

% share of GDP

% share of total FDI inflows

Employment

(million)

2015 2016p

14.1

14.2

2015 2016p

4.94.2

Wage Growth

(%)

37

46

17

2016p

28

29

1310

20

2016p

Product% share of exports

E&E

Non-E&E

Commodities

PR ChinaNIE

G3

ASEAN

36

16

9 9 85 5 4 3

HK SG JP CN US NL UK KR CH

27

The economy remains resilient with the ability to manage potential downside risks to growth

The Malaysian economy to expand by 4.3 – 4.8% in 2017, driven by domestic demand

While headline inflation to range between 3.0 – 4.0%, underlying inflation is expected to

increase only slightly

Risks to growth emanating from global and domestic fronts

Malaysia’s strong fundamentals to provide resilience in confronting these risks

- Diversified economic, trade and FDI structures

- Stable labour market conditions

- Current account surplus and ample international reserves

- Strong financial buffers with well-capitalised banking system and developed capital markets

- Policy flexibility

1

3

4

2

28

• Upside: Positive spillovers from expansionary policies by major economies

• Downside: Slower global growth emanating from global policy uncertainties, volatility in capital flows

and exchange rates, and weaker consumer and business sentiments

Financial position remained strong in 2016:

• Total assets of BNM amounted to RM450.98 billion with

International Reserves of RM423.9 billion (USD 94.5 billion)

• Net profit of RM6.48 billion

• Dividend of RM2.5 billion to the Government

Bank Negara Malaysia: Annual Financial Statements 2016

29

Bank Negara Malaysia: Annual Financial Statements 2016

RM billion

Total Income 9.02

Less:

Recurring Expenditure 1.12

Development Expenditure 1.37

Taxation 0.05

Total Expenditure 2.54

Net Profit 6.48

Income Statement

(Year ended 31 December 2016)

Statement of Financial Position

(as at 31 December 2016)

390

400

410

420

430

440

450

460

Assets

Other Assets

Land and Buildings

Loans and Advances

Deposits with FIs

MGS

SDR

IMF Reserve Position

Gold and Foreign exchange

RM billion

0

50

100

150

200

250

300

350

400

450

500

Liabilities and Capital

Capital

Liabilities

RM billion

30

Laporan Kestabilan Kewangandan Sistem Pembayaran 2016

31

Laporan Kestabilan Kewangandan Sistem Pembayaran 2016

32

Financial stability was sustained in 2016

33

Source: Bank Negara Malaysia

Banking Sector (%) 2015 Jan 2017

Capitalisation

Common equity tier 1 ratio

Total capital ratio

Excess capital buffer (RM bn)

13.3

16.6

124.3

13.1

16.9

131.0

Profitability

Return on assets

Return on equity

1.3

12.3

1.3

11.6

Asset Quality

Net impaired loans ratio

Loans in arrears (1-<3 months)

1.2

2.2

1.2

2.2

Insurance/Takaful Sector (%) 2015 2016

Capitalisation

Capital adequacy ratio

Insurance

Capital adequacy ratio

Takaful

Capital buffer (RM bn)

251.6

191.6

45.9

248.5

205.3

47.9

Profitability

Profit (RM bn)

Claims ratio

14.7

60.2

16.6

56.0

• Domestic financial stability was sustained in

2016 amid heightened financial market

volatility

• Sound financial institutions and orderly

financial market conditions preserved

• Stable outlook for financial stability in 2017

• Financial institutions remain resilient to any

severe macroeconomic and financial

shocks, supported by strong financial buffers

2

1

43

73

115 106

178

269

0

50

100

150

200

250

300

2008 2012 2016

RM billionLong-term borrowing Capital

Healthy banking system liquidity positions, supported by diversified funding sources

481.3

385.7

124.8

80

100

120

140

0

400

800

Jun2015

Sep Dec Mar2016

Jun Sep Dec

Stock of HQLA

Net cash outflows

Liquidity Coverage Ratio (RHS)

RM billion %

Sufficient liquidity buffer to withstand

potential shocks

Increased contribution of equity and long term

debt instruments to support asset growth

CAGR (2008-2016):

12.5%

34

Source: Bank Negara Malaysia

0

2

4

6

8

10

12

14

0

1,000

2,000

3,000

4,000

2012 2013 2014 2015 2016

Debt Financial Assets

Debt (RHS) Financial Assets (RHS)

Income (RHS)

Annual change (%)

Source: Bank Negara Malaysia and Malaysia Employers Federation

Household debt accumulation more in line with asset and income growth

Growth in debt converged towards

financial assets and income growth

Debt: 5.4%

RM billion

Lower share of debt to vulnerable borrowers

0

10

20

30

40

0

10

20

30

40

50

Bottom20

20-40 40-60 60-80 Top 20

Debt (% of total debt)

Median DSR (RHS)

% of total household debt DSR (%)

Bottom

20Top 20

Financial assets: 5.4%

Income: 5.5%

35

Continued access to house financing, especially for first time home buyers

Source: Bank Negara Malaysia

Growth in financing mainly driven by

sustained demand for affordable housing

477.3

9.2

5.3p

0

4

8

12

16

0

200

400

600

2013 2014 2015 2016

Outstanding financing

Annual change (RHS)

MHPI - annual change (RHS)

RM billion Annual change (%)

72% of housing loan borrowers are first time

home buyers of houses priced <RM500K

0

1

2

3

4

5

0

20

40

60

80

100

2013 2014 2015 2016

< RM500K RM500K - RM1M

> RM1M 2 HLs (RHS)

≥3 HLs (RHS)

% Annual change, %

Houses

priced

< RM 250K,

mainly first-

time home

buyers

36

p preliminary

37

Houses are unaffordable in major

urban centres

Most unsold* houses are in the

higher-priced segments

*Includes unsold properties that were completed and under construction

Source: NAPIC, DOSM and BNM estimates. For details, refer to 2016 AR Box Article “Demystifying the Affordable Housing Issue in Malaysia”

Housing affordability remains low, amid slow pace of new supply in affordable segment

560

470

335

600

0

100

200

300

400

500

600

700

KL C

ity

Peta

ling

Jo

ho

r B

ah

ru

Geo

rge

tow

n

Estimated affordable house price

Median House Prices (actual)

RM 000

68

47

26 27

22

33

42 36

10 19

33 37

0

25

50

75

100

2008-2009

2010-2011

2012-2014

2015-2016

Above RM500,000

RM250,000-RM500,000

Below RM250,000

Higher-priced property forms

most of new launches

% share

Affordable segments,

20.9%

Higher-priced segments, 79.1%

• Raise productivity and income

• Reduce unproductive debt through debt

rationalisation and consolidation

• Accelerate supply of affordable housing

and rental schemes

• Ensure efficient allocation of affordable

housing units to eligible target buyers

Note: Delinquent loans refer to loan-in-arrears of between one and three months

1.8

6.3

6.5

-15

-10

-5

0

5

10

1Q2015

2Q 3Q 4Q 1Q2016

2Q 3Q 4Q

Delinquent household loans

Impaired household loans

Impaired housing loans

Annual change, %

38

Source: Bank Negara Malaysia

Existing measures still needed but

more can be doneIncrease in impairment and delinquency in recent

period, particularly for housing

Measures to encourage prudent financial discipline remain important, as signs of risk are emerging

1

2

3

4

Financing activities broadly in line with

domestic economic activities

39

Corporate sector borrowings continue to support domestic economic activities

Source: Bank Negara Malaysia

-6

-4

-2

0

2

4

6

8

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q

2014 2015 2016

GDP Business Sector: Domestic financing

Quarterly change, %

131.7%

99.6% 97.9%

105.5% 107.9%

0

50

100

150

1998 2013 2014 2015 2016

Domestic Loans to GDP

Domestic corporate bonds to GDP

External debt to GDP

% of GDP

Higher corporate debt driven by new

bond issuances

Debt servicing capacity of businesses remained sound

40

43.6

9.4

1.2

0

5

10

15

0

10

20

30

40

50

2012 2013 2014 2015 2016*

Debt-to-equity ratio

Interest coverage ratio (RHS)

Cash-to-short-term debt (RHS)

Times%

Low leverage, with debt servicing

capacity and liquidity sustained

above prudent thresholds

4.2 4.47.0

13.24.6 3.3

4.3

3.6

0

10

20

30

EMEA Malaysia LatinAmerica

EmergingAsia(ex-

Malaysia)

ICR ≤ 1 1 < ICR ≤ 2 2 < ICR ≤ 3

%

Debt-at-risk within

manageable levels

Source: Bank Negara Malaysia, International Monetary Fund

0

1

2

3

4

2012 2013 2014 2015 2016

Business: Impaired loans

SME: Impaired loans

Business: Delinquent loans

SME: Delinquent loans

%

Impaired and delinquent loans

broadly low and stable

*For 2016, data as at first nine months

^Debt-at-risk is measured as the share of debt borne by firms with an interest coverage ratio (ICR) of less than two times

ICR= Earnings before interest expense, taxes, depreciation and amortisation / interest expense

Overseas operations of domestic banks remain financially sound amid continued regional expansion

Source: Bank Negara Malaysia

Net external liabilities largely driven by LIFBs, while

DBGs continue to maintain net external assets

175

114

4.1

-150

-100

-50

0

50

100

-450

-300

-150

0

150

300

2012 2013 2014 2015 2016

RM billionRM billion

Others Debt securities

Securities under custody Loans

Capital funds Deposits & nostro

Interbank Banking system net exposures

Net exposures of LIFBs (RHS) Net exposures of DBGs (RHS)

50

150

Assets

Liabilities

100

0

10

20

30

3Q 2015 3Q 2016 3Q 2015 3Q 2016 3Q 2015 3Q 2016

Capital ratio Return on equity Gross impairedloans ratio (RHS)

%

0

5

10

%

Max

Min

Median

Continued earnings resilience and sustained asset

quality of DBGs’ overseas operations

41

LIFBs: Locally incorporated foreign banks; DBGs: Domestic banking groups

Continued regional expansion expected under ASEAN Banking Integration Framework

Source: Bank Negara Malaysia

• Presence in 15 countries

worldwide

• Bilateral arrangements with

Indonesia and other ASEAN

countries pave the way for

further regional integration

1

2

42

Assets (RM bn) 306.7 559.3

20123Q 2016

0

4

8

12

0

10

20

30

2012 2013 2014 2015 2016

%RM billion

OthersMotorMarine, aviation and transitFireGross premiums growth (RHS)

Additional

RInsurance and takaful sector continued to record positive growth

0

2

4

6

8

10

12

0

2

4

6

8

10

12

14

16

18

2012 2013 2014 2015 2016

%RM billion

OthersMedical and healthTemporaryEndowmentWhole lifeNew premiums growth (RHS)

0

100

200

300

2007 2010 2013 2016

Total assetsCorporate BondsMGSEquitiesCash and depositsOthers

RM billion

New life/family takaful premiums

driven by growth in endowment

and group term policies

In the general sector, growth in fire

premiums offset slower growth in

motor & MAT premiums

Insurance and takaful assets

expanded, with a shift to higher

yielding corporate bonds and equity

43

Source: Bank Negara Malaysia

0

20

40

60

80

100

2007 2010 2013 2016

%

Overall

Marine, aviation and transit

Additional

RGreater focus on strengthening domestic underwriting capacity and reducing the protection gap

Domestic underwriting capacity for more

complex & non-traditional risks remains

underdeveloped, mainly in the MAT sector

General Insurance/Takaful Retention Ratio

20%

30%

40%

50%

60%

2011 2012 2013 2014 2015

Number of policies per capita

Number of policies per capita

(without multiple policies)

Life Insurance/Family Takaful Penetration RateInsurance penetration plateaued, with

significant protection gap

• Only 35% of the population have at least 1 life

insurance/family takaful policy, with average

sum assured of RM61k per capita

• Initiatives being pursued to expand the

provision of simple & affordable products,

leveraging on technology & alternative

channels to enhance access

1

2

44

Source: Bank Negara Malaysia

20

30

40

50

60

%

Additional

RSustained demand for Islamic financial services, with encouraging growth in investment intermediation

Investment Account Framework and Implementation

Guide

• regulatory expectations on product structuring,

operational management & business conduct

• protection of investors

• recognition of distinct risk characteristics compared

to Islamic deposits

Composition of Investment Accounts out of Total Islamic Deposits & Investment Account (IDIA)

Investment Account Platform (IAP)

• Operationalised in April 2016 by a consortium of

6 Islamic banking institutions

• Raised RM20 million in new funding to date

• Combines wakalah or mudarabah with debt based

contracts (e.g. tawarruq)

Increasing share of investment accounts as a new

source of funding for Islamic banks, facilitated by:

45

Source: Bank Negara Malaysia

RM36.3 bn

RM37.4 bn

49.3%

50.7%

8.6%12.2%

91.4%

87.8%

Additional

RIslamic finance poised to assume a larger role in value-based intermediation

EfficiencyInclusivity

and Diversity

Institutional

QualitySustainability

Financial

Deepening

Contribution

to GDP

Growth

Cu

rre

nt

Me

as

ure

s

Fu

ture

Me

asu

res

Diversifying measures of effective intermediation in

realising socio-economic impact of Islamic finance

Impact and

Value

Creation

Institutional

Dynamism

and Agility

Institutional

Strength

Delivery

Channels

Range of

Products &

Services

Profitability

Cost

Efficiency

Business

Models

Entrepreneurial

Mindset

Community

Empowerment

Innovation

Technology

Adoption

1

2

46

Development of Corporate Value Intent

framework and value-based scorecard

• Promote high quality disclosures on intent,

strategy and performance of business

• Broader dimensions of performance

measurement to accelerate value creation

for the economy, shareholders and wider

community

Waqf and sadaqah applications in financial

products to deliver positive socio-economic

impact

• Cash waqf arrangements

• Debit card with waqf features

• Banking charity accounts

R

Regulatory measures taken to further strengthen financial system resilience and integrity

• Greater emphasis on

sound risk culture and

risk-aligned

compensation

• Strengthened

requirements for

independent boards

• Enhanced operational

and credit risk

management standards

• Improvements to stress

testing practices

Supported by supervisory and enforcement actions

• Proposed enactment of

Consumer Credit Law

• Financial Education

Network established to

drive the national

financial education

strategy

• Operationalisation of the

Ombudsman for

Financial Services

AML/CFT

• Strengthened compliance

with international

AML/CFT standards

• Enhanced cooperation to

combat terrorism

financing threats

• Smooth transition to

higher Liquidity

Coverage Ratio

• Implementation of

ICAAP for takaful

operators

Capital and

liquidity

Consumer

protection and

financial literacy

Corporate

governance and

risk management

47

Stable outlook for financial stability in 2017

Source: Bank Negara Malaysia

Stable labour market conditions, continued economic growth and sound lending and risk management practices expected to support asset quality

Ample domestic liquidity to remain supportive of financial intermediation

Banks and insurance companies are well positioned to manage transition to strengthened regulatory standards and more competitive environment

Effects from measures to deepen and broaden domestic foreign exchange market will contribute to orderly market conditions

48

Implementation of the Financial Sector Blueprint is on track with further priorities identified

Evolving a vibrant FinTech ecosystem

Key Initiatives Implemented

Developing more market-based funding

solutions

Developing deep and liquid financial

markets to manage risk exposures

Expanding insurance and takaful to

address protection gaps

Enhancing the role of

development financial institutions

Strengthened and new legislation (i.e. FSA

2013, IFSA 2013 and DFIA 2002)

Implementation of Payment Card Reform

Framework

Financial Ombudsman Scheme

Agent Banking Framework

ASEAN Banking Integration Framework

Reforms under the motor and LIFE

Framework

New/Expanded Priorities

6% Yet to

Commence

9% Under

Review41% Completed 44% On Track

1

2

3

4

5

49

Development of alternative finance to meet diverse financing needs of new economy

0

1

2

3

4

5

6

7

Lea

sin

g

Paw

nb

roker/

Ar-

Rah

nu

Coop

era

tives

Fa

cto

ring

Lic

en

se

d m

on

ey le

nde

rs

Ven

ture

ca

pita

l

Ang

el in

ve

sto

rs

Inve

stm

ent

Accou

nt P

latfo

rm

Cro

wdfu

nd

ing

1Q 2016

3Q 2016

SMEs Using Alternative Financing

Source: SME Corporation Malaysia

• Strengthen institutional arrangements

• Improve data on alternative finance and

the innovative economy

• Establish a unified collateral registry

• Promote the development of open

Application Programme Interfaces

• Raise SMEs’ awareness on alternative

financing avenues.

Policy priorities moving forward

% of SMEs

50

R

Providing a conducive regulatory environment for fintech innovation

Currency

ExchangePeer-to-peer

currency

exchange

model

Product

AggregatorComparison of

insurance

product

Artificial

IntelligenceDigital

identification

verification &

Chatbot

Remittancee-money

transfer to

parties across

countries

Solutions applied through

Regulatory Sandbox

• The Regulatory Sandbox

Framework allows innovative

fintech solutions to be tested

safely in a live environment

• Further initiatives planned to

facilitate open banking models,

common KYC utilities,

distributed ledger applications

and cloud computing

1

2

51

Motor insurance reform on track

From 1 July 2016 From 1 July 2017From 1 April 2017

New products and add-on

covers introduced by insurers

• Flexibility for insurers to

introduce new motor products at

market-based pricing

• Additional options for

consumers e.g. Guaranteed

Asset Protection product

• Important information will be disseminated

via print and social media, online, agents

and customer support channels

• Empowering consumers to compare

products, understand policy options and

be aware of price drivers

• Public encouraged to visit

www.bnm.gov.my; www.piam.org.my; or

www.malaysiantakaful.com.my for more

information

Nation-wide awareness campaign to

inform and empower consumers

Pricing of motor

comprehensive and third

party fire & theft products will

be liberalised to reflect risks

• More equitable and competitive

pricing based on risk

• Improved incentives for safe

driving and prevention of

vehicle theft

52

R

Increasing momentum in migration to e-payments

Transaction Volume for Cheques, IBG and Instant Transfer

Cheques

IBG

0

5

10

15

20

M J S D M J S D M J S D M J S D

Million

2013 2014 2015 2016 -

50

100

150

200

250

300

350

2011 2012 2013 2014 2015 2016

Thousands

Number (‘000)

Instant Transfer

Sustained decline in cheques with increasing use of electronic fund transfers

Average growth:

6.5% p.a.

Number of Point-Of-Sale (POS) terminals

Accelerated expansion of payment card acceptance points

Average growth:

18.6% p.a.

Source: Bank Negara Malaysia

53

0

R

Fostering stronger payment card security

Enhancement of payment card infrastructure Transition period Mandatory PIN verification

Jul 2015 1 Jul 2017Jan 2017

Migration to PIN-based transactions

6-month period to

adapt to the usage

of PIN at POS

terminals

All payment card

transactions at POS

terminals must be

completed with PIN

Migration from signature to PIN verification for

payment card transactions at POS terminals

Cardholders and merchants are urged to adopt the use of PIN today, before PIN is made

mandatory for all payment card transactions effective 1 July 2017

54

End of Presentation

55

56

End of Presentation