Taklimat Laporan Tahunan 2010 dan Laporan Kestabilan Kewangan - - PowerPoint PPT Presentation

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Taklimat Laporan Tahunan 2010 dan Laporan Kestabilan Kewangan dan Sistem Pembayaran 2010

Gabenor Bank Negara Malaysia 23 Mac 2011

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Global growth projection for 2011

Challenge for global economy going into 2011 is sustaining growth with job creation

Source: National authorities, IMF World Economic Outlook, January 2011 Update

2009 2010 2011f Annual change (%)

World GDP

• 0.6

5.0 4.4 World Trade

• 10.7

12.0 7.1

US

• 2.6

2.8 3.0 Euro area

• 4.1

1.7 1.5 Japan

• 6.3

3.9 1.6 Developing Asia 1/ 7.0 9.3 8.4 China 9.2 10.3 9.6 ASEAN-5 2/ 1.7 6.7 5.5

Note: Forecasts for 2011 are IMF’s projections 1/ IMF: Asia ex-NIEs 2/ IMF: Indonesia, Malaysia, Philippines, Thailand and Vietnam

• Significant improvement in 2010
• Continued recovery in advanced

economies although growth remains slow

• Strong growth in emerging economies,

particularly in Asia underpinned by domestic demand and recovery in world trade

• More recently, rising commodity and

energy prices are leading to higher global inflation

3

Global growth mainly from EMEs in 2011

• 4
• 3
• 2
• 1

1 2 3 4 5 6 7 8 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f

• 80
• 60
• 40
• 20

20 40 60 80 100 120 140 160

Advanced economies EM: Africa EM: Asia EM: Eastern Europe EM: Middle East EM: Latin America EM: CIS EME contribution to global growth (RHS) Contribution to world growth, p.p. share of world growth. %

Source: IMF World Economic Outlook

Note: CIS is the Commonwealth of Independent States, formerly Soviet republics

While accounting for 47% of global economy, emerging economies expected to contribute more than 70% of global growth

4

3 5 7 9 11 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 1 2 3 4 5 6

US Euro area UK Japan (RHS)

% %

• 14
• 12
• 10
• 8
• 6
• 4
• 2

2 2001 2003 2005 2007 2009

• 12
• 10
• 8
• 6
• 4
• 2

% of GDP % of GDP

Advanced economies still need to address structural problems

• 10
• 5

5 10 15 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

• 4
• 3
• 2
• 1

1 2 3 4 5 6 %

% Restrained credit conditions High unemployment rate High fiscal deficit

1 3 2

Source: National authorities, Haver, IMF

Unemployment rate (%) Fiscal deficit, % of GDP Credit to private sector, growth

5

1 2 3 4 5 6 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Index 1 2 3 4 5 6 7 Index Korea Singapore Hong Kong China

• C. Taipei (RHS)

Thailand (RHS)

• 30
• 20
• 10

10 20 30 40 50 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10

• 15
• 10
• 5

5 10 15 20 25

Regional economies supported by resilient domestic demand

• 10

10 20 30 40 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10

• 8
• 4

4 8 12 16 yoy,%

Continued access to credit Rising retail sales Unemployment trending down

1 3 2

Source: National authorities, Haver

Unemployment rate Lending growth *

Note: * Refers to loans as reported in banks’ balance sheet, except for Indonesia which refers to loans outstanding

Indonesia

yoy,% Retail sales

yoy,% yoy,%

6

• 3
• 2
• 1

1 2 3 4 5 6 7 8 2003 2004 2005 2006 2007 2008 2009 2010 2011

Rising commodity prices have increased the risk to higher global inflation

50 100 150 200 250 300 350 400 450 500 2003 2004 2005 2006 2007 2008 2009 2010 2011

Metals Crude oil Food US Euro UK East Asia-9 …driving up inflation in most economies

Index (Jan ’03 = 100) Yoy (%)

Rising commodity prices amid supply disruptions and geopolitical tensions…

7

Different degrees of monetary policy response

2 4 6 8 10 2008 2009 2010 2011 PR China Thailand Indonesia Korea % Malaysia Ch Taipei 1 2 3 4 5 6 2008 2009 2010 2011 %

US Euro area UK Japan

…while most regional economies have started to normalise

• r tighten since 2010

Some advanced economies are expected to begin to normalise rates this year…

Key interest rates, % Key interest rates, %

8

Global shifts in liquidity: Volatile capital flows…

Large capital inflows driven by growth differentials and the search for yield…

4 8 12 16 20

• C. Taipei

Thailand India Malaysia Singapore Philippines Korea Indonesia PR China 2009 2010 Total flows into equity and bond markets USD billion

Source: EFPR

50 100 150 200 Hong Kong P.R China Malaysia Singapore Korea

• C. Taipei

Philippines Thailand Indonesia

Stock market Property prices

% change from end-2008 till end-2010

Stock market and property price performance

…driving stock and property prices higher

1

1/ till 3Q 10 for property prices

Source: Haver and Bloomberg

9

Several countries have implemented measures to manage the consequences of these flows

Measures introduced in the region to manage capital flows

Hong Kong SAR & Singapore Philippines Indonesia Thailand Chinese Taipei Korea PR China

Limit capital inflows – capital account measures Prudential & liquidity measures (macroprudential) Greater flexibility for capital

• utflows (liberalisation)

Administrative measures (real estate)

10

The Malaysian economy is projected to grow by 5% − 6% in 2011

• 2
• 1

1 2 3 4 5 6 7 8 2005 2006 2007 2008 2009 2010p 2011f Annual change (%)

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

5.0% 6.0% 7.2%

p preliminary f forecast

• Slower growth in 1H 2011

– High base in 1H 2010, particularly for exports and investment – Lower demand for electronic exports

• Growth is expected to improve in 2H

– Stronger expansion of domestic demand, particularly, private consumption and investment – Higher exports

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Strong growth in domestic demand to be driven by private sector activity

2010p 2011f 2010p 2011f Annual change (%) Contribution to growth (p.p) Domestic demand 6.3 6.7 5.6 6.0 Private sector 7.8 7.4 4.9 4.7 Consumption 6.6 6.9 3.6 3.7 Investment 13.8 9.7 1.4 1.0 Public sector 2.5 5.1 0.6 1.3 Consumption 0.1 7.2 0.0 1.0 Investment 5.5 2.7 0.6 0.3 Net exports

• 24.2

2.3

• 3.3

0.2 Exports of G&S 9.8 2.7 10.5 3.0 Imports of G&S 14.7 2.8 13.8 2.8 Real GDP 7.2 5.0~6.0 7.2 5.0~6.0

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

• Private domestic

demand to be the main growth driver

• Strong private

consumption

• Rising investment

activity

• Public sector to remain

supportive of growth

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Strong expansion in private consumption

Stronger expansion in consumer spending supported by: – Favourable labour market conditions – Rising disposable incomes – Sustained consumer confidence – Continued access to credit

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

Real private consumption

9.1 6.8 8.5 0.7 6.9 10.5 6.6 2 4 6 8 10 12 2005 2006 2007 2008 2009 2010p 2011f Annual change (%)

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Strong performance in private investment

Annual change (%) 2009 2010p 2011f Real private investment

• 17.2

13.8 9.7

• Increased capital spending in all

economic sectors

• Key sectors: services,

manufacturing and mining

• Factors supporting private

investment:

• Expansion of new growth areas
• Strengthening domestic demand
• Implementation of Government

initiatives

• Sustained business confidence

Nominal Private Investment 10 20 30 40 50 60 70 80 90 2006 2007 2008 2009 2010p 2011f RM billion Agriculture Mining Manufacturing Construction Services

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

62.1 76.6 79.8 65.2 76.9 86.9

p preliminary f forecast

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FDI to increase further in 2011

• Higher net inflows of FDI in 2011
• Better corporate earnings
• Rising business confidence
• Further improvement in global

FDI flows

• Liberalisation
• Implementation of Government

ETP projects

• Inflows channeled mainly into the

manufacturing, services, and oil and gas sectors

Net FDI inflows into Malaysia

29.5 24.1 5.0 27.6 32.4 10 20 30 40 50 2007 2008 2009 2010p 2011f RM billion

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

15 Annual change (%) 2010p 2011f Agriculture 1.7 3.4 Mining 0.2 2.0 Manufacturing 11.4 5.7 Construction 5.2 5.4 Services 6.8 5.9 Real GDP 7.2 5.0 ~ 6.0

Broad-based growth across all sectors

• Supported mainly by

the continued growth of domestic economic activity

• Trade-related services

and export-oriented manufacturing industries to record slower growth in line with the expected moderation in external demand

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

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External trade to expand in 2011

• Exports

– Moderation from the high base

• f 2010, particularly in

manufactured exports – But, strong support from commodity exports due to higher prices and sustained regional demand

• Imports

– Modest growth in intermediate imports – Growth in capital and consumption imports reflects strong domestic demand

Annual change (%) 2010p 2011f Gross exports 15.6 5.4 Manufactured 13.0 4.4 E&E 9.9 3.7 Non-E&E 17.3 5.2 Commodities 26.9 10.1 Agriculture 30.8 12.4 Minerals 23.4 8.0 Gross Imports 21.7 5.7 Capital 16.2 10.3 Intermediate 22.1 5.3 Consumption 10.1 8.4 Trade balance (RM bn) 110.2 114.6

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

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Current account to remain in surplus

• Larger trade surplus supported

by higher commodity exports

• Services surplus, benefiting

from higher tourism receipts

• Lower income deficit
• Higher earnings by

Malaysian companies investing abroad

• Lower repatriation of

profits and dividends by MNCs

Widening current account surplus

• 50
• 20

10 40 70 100 130 160 190 220 2007 2008 2009 2010p 2011f RMb

• 5

5 10 15 20 % GNI Goods Services Income Current transfers Current Account, % GNI (RHS) 12.5% 12.2% RM90.5b RM100.7b

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

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Headline inflation to range between 2.5 – 3.5% in 2011

Inflation Forecast 2011

0.0 1.0 2.0 3.0 4.0 5.0 6.0 2005 2006 2007 2008 2009 2010 2011/f

Annual growth (%)

2.5 – 3.5%

• Driven mainly by higher global commodity and energy prices, inflation is expected to

increase in 2011.

• This trend is similar to other regional economies

Regional Countries Headline Inflation Forecast

3.8% 3.3% 1.7% 2.8% 3.0-5.0% 3.0-5.0% 2.5-3.5% 3.0-4.0% 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0

Singapore Malaysia Thailand Phillippines

Annual growth (%) 2010 2011 forecast Note: Inflation forecast refer to the central bank official forecast

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Malaysia has adopted a comprehensive approach to manage inflationary pressures from commodity prices

In addition to macroeconomic policies, other measures taken are

• Increasing food production and its distributional efficiency
• Promoting greater energy efficiency by households and industry
• A more gradual subsidy rationalisation programme
• Providing income support to targeted groups

20

Monetary policy in 2011 will remain supportive of growth, while managing risks to inflation

2.75% 2.50% 2.0% 3.5% 2.25%

1.5 2.0 2.5 3.0 3.5 4.0

Jun-08 Aug-08 Oct-08 Dec-08 Feb-09 Apr-09 Jun-09 Aug-09 Oct-09 Dec-09 Feb-10 Apr-10 Jun-10 Aug-10 Oct-10 Dec-10 % Overnight Policy Rate (OPR)

• Given improved economic outlook, the

OPR was adjusted in 2010 to – Normalise monetary conditions – Prevent the risk of financial imbalances

• For 2011, focus of monetary policy is to

manage the risk of a more modest growth and higher inflation – Monetary policy has the flexibility to remain accommodative – The degree of accommodation may however, need to be reviewed to ensure sustainable economic growth

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Financing conditions expected to remain favourable

Net financing growth sustained…

3 6 9 12 15 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10

Annual change (%)

Loan growth: 12.7% Net financing growth: 11.3%

Total Financing 30 40 50 60 70 80 90 100 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Businesses Households Loans Applications by Businesses and Households

RM billion

2010 2009

…supported by robust demand for loans from businesses and households

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Two-way capital flows expected to continue

• In 2010, the capital inflows to Malaysia went into both the bond and equity markets
• Strong economic fundamentals and positive prospects will continue to attract portfolio inflows
• But this is likely to be interrupted by intermittent reversals driven by external events
• 15
• 10
• 5

5 10 15 20 25

Q1 Q2 Q3 2009 Q4 Q1 Q2 Q3 2010 Q4

Net Portfolio Investment into Malaysia

RM billion Source: Department of Statistics Malaysia

Cumulative net equity fund flows (since Jan 07)

• 40

40 80 120 160 200

Dec-06 Apr-07 Aug-07 Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09 Apr-10 Aug-10 Dec-10 USD billion

• 0.5

0.0 0.5 1.0 1.5 2.0 2.5

USD billion

All Emerging Markets (LHS) Malaysia (RHS)

07

Source: Emerging Portfolio Fund Research Global

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Domestic equity market had sustained growth in line with regional trends

KLCI and Bursa Malaysia sectoral indices

80 100 120 140 160 180 200 220

Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11

Index (Jan 2009=100)

Finance Industrial KLCI Plantation Construction

Performance of Major Indices (% growth)

87.0 63.2 63.0 49.7 45.2 23.5 64.5 78.3 22.1 52.0 19.0 46.1 40.6 37.6 21.9 19.3 12.8 10.1 9.6 9.0 5.3

• 3.0
• 20

20 40 60 80 100

Indonesia Thailand Philippines Korea Msia US Singapore Taiwan UK HK Japan % 2010 2009

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• 20
• 15
• 10
• 5

5 10 15 20

AUD JPY THB SGD PHP IDR CNY KRW USD GBP EUR

2010 2009

• 21.7%

20.6%

Ringgit performance driven by external and domestic developments

• MYR appreciated against most currencies in 2010 following a relatively

subdued performance in 2009

• Despite volatile capital flows, ringgit adjustments have been orderly

MYR performance against selected currencies in 2009 and 2010

% MYR appreciation % MYR depreciation

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Measures undertaken to allow more efficient management of foreign financial transactions

To allow more efficient management of foreign transactions, several measures have been undertaken, including:

• Allow settlements in local currencies
• Facilitate hedging activities by residents
• Allow unlimited holding of foreign currency accounts
• Allow settlement of transactions in foreign currency by exporters and

importers

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Large inflows have also led to increases in international reserves

Net International Reserves (Jan’08 - Mar’11)

130.5 110.4 80 90 100 110 120 130 140 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 USD bn 3.0 3.5 4.0 4.5 5.0 5.5 6.0 USD/MYR Deleveraging activities by international investors Resumption of capital inflows

Source: BNM

• Large inflows have led to increases

in international reserves – Since the resurgence of capital inflows in 2H 2009, net international reserves at USD110.4 bn in 15 March-11. – During previous episode in Aug-08: USD130.5 bn

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Capital flows currently well intermediated

• More diversified and developed financial system has helped to intermediate

the capital flows

• Managed float regime has the necessary flexibility for the exchange rate to

adjust to changing conditions

• Wider range of instruments for effective monetary operations
• Rigorous surveillance and information systems
• Stronger fundamentals and a healthy level of international reserves
• Closer cooperation and communication among central banks

Large inflows have increased liquidity in the domestic financial system but, this has been well managed

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Bank Negara Malaysia Annual Financial Statements 2010

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Financial position remained strong in 2010:

• Total assets of BNM amounted to RM390.2 billion with

International Reserves of RM328.7 billion (USD106.5 billion)

• Net profit of RM6.2 billion
• Dividend paid RM2 billion

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FINANCIAL STABILITY AND PAYMENT SYSTEMS REPORT 2010

31

Financial system expanded in 2010 with higher value-added to the economy

• Contribution of financial sector to GDP at 11.6%
• Banking and insurance sector employs more than 143,000 staff
• Financial intermediation continued to function efficiently with sustained access

to financing

• Money, foreign exchange and capital markets remained orderly with

capacity to absorb greater volume and volatility

32

Stability of the financial sector was preserved throughout 2010

• strong fundamentals contributed towards efficient financial

intermediation

• orderly conditions in financial markets and payment and

settlement systems facilitated trade and domestic economic activity

33

Financial system continues to be resilient

• Strong capital and liquidity buffers
• Improved profitability
• High asset quality
• Stress tests affirmed capacity to

withstand extreme macroeconomic and financial conditions

Banking Sector (%) 2009 Jan’11 Capital Adequacy Risk-Weighted Capital Ratio Core Capital Ratio Capital Buffer (RM bil) 15.4 13.8 64.6 14.1 12.4 60.5 Profitability Return on Assets Return on Equity 1.2 14.0 1.8 19.7 Asset Quality Net Non Performing Loan* Ratio 1.8 2.2 Liquidity Position Liquidity buffer (<1 mth, % of deposits) 18.2 14.8 Insurance/Takaful Sector (%) 2009 2010 Capital Adequacy Capital Adequacy Ratio^ Capital Buffer^ (RM bil) 225.7 18.6 224.6 18.6 Profitability Profit Before Tax (RM bil) 14.7 16.3

* Inclusive of impaired loans ^ Conventional industry only

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Continued access to financing by all sectors

• Loan outstanding in banking system

grew by 13.1% to amount to RM893.3 bil (January 2011)

– Continued expansion to all segments, including SMEs

• Bank deposits increased by 9.1%

– Loan-to-deposit ratio stable at 81.2%

• New PDS issuances of RM76 bil

– Danajamin approved RM4.6 bil worth of guarantees

Financial System: Outstanding Financing

1,190.2 1,145.1 1,120.1 1,080.9 200 400 600 800 1000 1200 1400 Mar Jun Sept Jan 2011

RM bil

6 8 10 12 14

%

Large Enterprises SME Household Others Debt securities Annual growth (RHS)

Banking System: Deposits

1,091.4 1,073.3 1,159.4 1,113.7 200 400 600 800 1,000 1,200 1,400

Mar Jun Sept Jan 2011

RM bil

8.0 8.2 8.4 8.6 8.8 9.0 9.2

%

Business Household Others Annual growth (RHS)

35

Overall financing quality remained intact

Net NPL ratio (%)

4.8 3.2 2.2 1.8 2.3 2.2 1 2 3 4 5 6 2006 2007 2008 2009 2010 Jan-11

%

Loans in arrears

10 20 30 40

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

RM bil 1 2 3 4 5 % 1 - <2 month (LHS) 2 - <3 month (LHS) 1 - <2 month (% of total loans) 2 - <3 month (% of total loans)

2010 2008 2009 Banks adopted Financial Reporting Standards (FRS) 139 since Jan 2010

Loans-in-arrears remained stable to account for 4.1% of total loans Increase in NPL reflects new accounting standards

36

Rising household indebtedness supported by strong financial buffers…

Household Debt-to-GDP Ratio (%)

50 60 70 80 2006 2007 2008 2009 2010

Household debt-to-GDP ratio unchanged at 75.9% Household financial assets are 2.4 times of household debts

Household Financial Assets, Deposits and Debts

200 400 600 800 1,000 1,200 1,400 1,600 2006 2007 2008 2009 2010 50 100 150 200 250 300

Financial Assets (LHS) Debts (LHS)

• Fin. Asset-to-Debt Ratio

Deposit-to-Debt Ratio RM billion %

37 Composition of HH Financial Assets (RM1,386 bil)

Savings with EPF 30% Unit Trust funds Equity Holdings 17% Endowm ent policies 6%

Deposits with FIs 31%

…and high level of liquid assets, with bulk of borrowings for purchase of assets

Secured financing constitute 64.9% of household debt

Composition of HH Financial Debts (RM581 bil)

Others 10%

Purchase

• f

Securities 5%

Car financing 20% Personal use 15% Credit Card 5%

Housing loan 45%

Liquid assets accounted for 64.6% of financial assets

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Household NPLs Ratio by Purpose (%)

3.2 1.2 2.5 1.9 0.7

3 6 9 12 2006 2007 2008 2009 2010

Housing loans Car financing Personal use Credit cards Purchase of securities

Quality of household loans continue to improve

• Debt servicing capacity remains

sound

– Delinquencies continued to improve – Gross NPL ratio: 2.3% (2009: 3.1%) – LIAs at 4.7% of total loans

• Banks maintain prudent loan

underwriting standards and risk management practices

• Supported by comprehensive credit

information system and infrastructure

Household NPLs and Loans in Arrears Ratio (%) 2 4 6 8 10 2006 2007 2008 2009 2010 NPL ratio LIA ratio

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Comprehensive, pre-emptive strategies to preserve household sector resilience

Prudential policies

• Maximum loan-to-value ratio and new credit

card guidelines

Intensive supervisory

• versight
• Risk management practices including pricing

Standards on prudent and responsible lending practices

• Suitability and affordability assessments

Targeted financial education programme by AKPK

• Including advisory and support arrangements

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Ensuring prudent and responsible conduct for retail financing as part of measures to preserve household sector resilience

• Inculcate responsible lending practices by financial institutions in dealing with

retail customers

• Requirements NOT intended nor expected to hamper credit availability
• Key requirements include

– Suitability and affordability assessment – Verification of customers' income – Product disclosure sheet to facilitate informed decision making – Compensation of sales and marketing personnel to take into account fair dealing conduct

• Complete submissions should not result in processing delays

41

Key contents of product disclosure sheet

• Borrowing rate, variable / fixed rate, tenure, repayment structure
• Repayment obligation

– Installment amount, total repayment (entire duration), changes to installment amount for 100-200bps increase in borrowing rate

• Applicable charges

– Stamp duty, disbursement fee, processing fee

• Implications of non-repayment

– Late payment penalty, review of borrowing rate, legal implications

• Risk associated with the product
• Assistance and redress mechanism

42

Financial markets exhibited enhanced capacity to intermediate larger and more volatile portfolio flows

Volatility of asset prices remained low

90-day volatility (%) 5 10 15 20 25 30 35 40 Jan- 08 Apr- 08 Jul- 08 Oct- 08 Jan- 09 Apr- 09 Jul- 09 Oct- 09 Jan- 10 Apr- 10 Jul- 10 Oct- 10 KLCI MGS (5-year yield) [RHS]

Lehman collapse European sovereign debt crisis

Lower returns to turnover ratio, denoting higher resilience

Ratio 0.000 0.004 0.008 0.012 0.016 0.020

Jan- 08 Apr- 08 Jul- 08 Oct- 08 Jan- 09 Apr- 09 Jul- 09 Oct- 09 Jan- 10 Apr- 10 Jul- 10 Oct- 10

0.1 0.2 0.3 0.4 FBM KLCI MGS [RHS] Ratio

Avg 2010: 0.04 Avg 2010: 0.006

Source: Bloomberg

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Limited impact from developments in Europe and Middle East

• Banks’

exposures at 18.3% of external exposures or 5% of capital base – No adverse spillovers from interbank funding strains in Europe – Regional operations of domestic banks’ unaffected due to strong fundamentals

• Counterparty risks to European

reinsurers well-contained – High net retention ratio of 71.4% – Reinsurance exposures to Europe

• nly 8.5% of total capital available for

general insurance

Banking System: External Exposures (RM bil, % of cap base)

GIIPS (0.1, 0.1) US (0.2, 0.2) Others (2.0, 1.3) Asia (25.7, 17.1) Middle East (2.2, 1.4) Europe (5.3, 3.5) Labuan (5.4, 3.6)

Distribution of Premium Income

0% 20% 40% 60% 80% 100%

Direct Insurers Domestic Reinsurers Offshore Reinsurers Foreign Reinsurers

44

Foundations for financial stability were further strengthened

Enhanced robustness

• f risk management,

stress testing and capital management More effective governance in financial institutions Strengthened cross-border supervisory cooperation Strengthened prudential standards for I slamic finance Enhanced protection for depositors and policyholders Adoption of more advanced capital approaches under Basel I I

45

Malaysian banking system well-positioned to meet Basel III requirements

• High level and quality of bank capital
• Liquidity standards have been in

place since 2000 – Banks to further strengthen buffers going forward

• Implementation strategy for local

adoption of Basel III to be communicated to industry in 2011 – Address specific characteristics of domestic market – Minimise impact on bank lending and economic growth

Share premium 14.6% Ordinary share capital 22.9% Retained profits 19.5% Others 6.1% Stat reserve fund 14.9% General provisions 7.1% Sub debt capital 14.8%

More than 70% is comprised of equity and reserves

46

Growth potential of financial sector reinforced by further strategic initiatives in 2010

Enhanced inter-linkages with regional and international economies

– Expanding regional footprint of Malaysian FIs – Issuance of new commercial banking and family takaful licences – Enhancing post-trade processing infrastructure for capital market – Enhancing cross-border payment infrastructure – Strengthened regional and international frameworks for cooperation

Improved environment for financing to SMEs

– With comprehensive institutional framework and proactive measures by FIs

Continued development of human capital

– ICLIF Leadership and Governance Center – Asian Institute of Finance

– INCEIF

Improving accessibility and sustainability of motor insurance

47

High global financial inclusion rankings

• No. 1

for 3 years

• No. 2 out of 87

countries

• No. 10 in 2010 out
• f 139 countries (up

from no.13 in 2009)

• No. 9 out of 110

countries

‘Getting Credit’

World Bank (Doing Business 2009, 2010 & 2011 Reports)

‘Loan accounts per 1,000 adults’

CGAP (Financial Access Report 2010)

‘Ease of Access to Loans’

WEF (The Global Competitiveness Reports 2009-2010 and 2010-2011)

‘Deposit accounts per 1,000 adults’

CGAP (Financial Access Report 2010)

Recent Achievements Pembiayaan Mikro1

• Financing grew by 25.8% yoy to RM776 million

benefiting over 66,000 microenterprises Physical Outreach of Financial Services

• 8 unserved districts in East Malaysia will have

physical access to financial services in 2011 via mini branches, mobile units & Pos Malaysia Comprehensive Mechanisms for Consumer Education and Protection

• POWER: Educate young adults & first time

borrowers on good money management & living with manageable debt

• Mobile LINK: Enhance accessibility of

financial assistance & education to non-urban population

2 1 3

• 1. As at end 2010

Expanded outreach of financial services

48

Migration to electronic means of payments has achieved significant advancements

Following successful launch of eShare Payment and eDividend Capital market Driving efficiency gains in various economic sectors and expanding the payment infrastructure Mobile banking and payment Unit trust, rights issues & refund

• f unsuccessful Initial Public

Offering (IPO) applications Multi-bank and mobile network operator neutral ecosystem to be piloted in 2H 2011

Internet B anking Transactio ns

50 100 150 200 2004 2005 2006 2007 2008 2009 2010 million Volume Ind Corp

D ebit C ard T ransactio ns

5 10 15 20 2004 2005 2006 2007 2008 2009 2010 million 1 2 3 4 5 RM bil Volume Value (RHS)

49

Outlook for domestic financial stability in 2011 remains positive

• Risks to financial stability likely to be largely externally driven
• Pre-emptive measures taken and strong financial buffers ensure that

Malaysia’s financial system is well-placed with capacity and flexibility to respond to emerging risks

• Macrosurveillance

and supervisory activities in 2011 will focus on:

– Ensuring prudent and responsible risk-taking and market conduct by FIs – Ensuring resilience and robustness of major payment and settlement systems – Active engagement in global regulatory and accounting reforms – Further strengthening of regulatory laws and prudential guidelines – Promoting closer domestic, regional and global cooperation and coordination

50

50

Malaysia maintains a leading role in development

• f Islamic finance

Malaysia tops global league tables in sukuk equity and fund management

Source: “Gateway to Asia: Malaysia, international Islamic finance hub” by Pricewaterhouse Coopers 2010

…and home to largest sukuk market

Global Sukuk Outstanding by Country* USD148 billion

*Source: Bloomberg Professional Services Terminal, as at end-2010

Malaysia 66% Indonesia 4% Offshore Centres 16% Others 1% Saudi 7% Bahrain 2% UAE 4% Singapore 0.1%

(USD94 billion)

51

Malaysia plays key role in development of Islamic international architecture

Islamic Financial Services Board 1 1

• Global standard-setting body based in Malaysia for prudential standards in Islamic finance – 11 standards

issued to date

• 195 members of which 53 regulators and supervisory authorities from Muslim and non-Muslim countries

Islamic Financial Stability Forum (IFSF) 2 2

• Established following recommendation in Financial Stability Report led by Bank Negara Malaysia.
• Strategic platform for dialogue among regulators of international Islamic financial system to promote financial

stability International Islamic Liquidity Management Corporation (IILM) 3 3

• Established in 2010 in Kuala Lumpur with participation of 12 central banks and regulatory agencies and 2

multilateral development institutions.

• Milestone in regional & international cooperation to build a robust liquidity management infrastructure at

national, regional & international levels

• Facilitate cross-border liquidity management among players in the Islamic financial industry via regular

issuances of short term high-grade Shariah-compliant instruments in major reserve currencies

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Significant achievements since 2001 FSMP

Robust regulatory, supervisory & surveillance framework

• Strengthened prudential standards
• Risk-based supervisory framework
• Stronger cross-border cooperation

Growing Islamic finance and MIFC

• Accounts for >20% of banking sector assets
• Comprehensive infrastructure and diversified

players

• Global leader in sukuk issuances

More developed financial markets Enhanced financial inclusion

• Wider outreach of banking services
• Higher lending to SMEs
• Comprehensive consumer education

and protection framework

Strong and mature domestic players

• Larger domestic banks with average assets of

>RM95 b

• Domestic banks market share > 75%
• Wide array of products and services

Strengthened linkages with international and regional economies

• 6 banking groups in 19 countries
• New licences

to global and regional players

• Higher PDS and sukuk financing with active

secondary trading

• Increased breadth and liquidity of FX market

More market driven and competitive financial system

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Moving forward…

The new financial sector blueprint will build on the strong foundations of the Malaysian financial system to: – remain resilient in withstanding any potential disruptions in the financial system and broader economy; – to best serve the needs of a high value-added and high income economy; while further promoting financial inclusion and regional financial integration