Taklimat Laporan Tahunan 2013 dan Laporan Kestabilan Kewangan dan - - PowerPoint PPT Presentation

Taklimat Laporan Tahunan 2013 dan Laporan Kestabilan Kewangan dan Sistem Pembayaran 2013

Gabenor Bank Negara Malaysia 19 Mac 2014

1 Embargo Not for publication or broadcast before 1800 hours on Wednesday, 19 March 2014

The Malaysian economy expanded by 4.7% in 2013

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

5.6%

• 5.0
• 3.0
• 1.0

1.0 3.0 5.0 7.0 9.0 11.0 2008 2009 2010 2011 2012 2013p Private Investment Private Consumption Public Investment Public Consumption Net Exports Stocks GDP Contribution to growth (ppt) 4.8 -1.5 7.4 5.1 5.6 4.7

2

Key highlights in 2013

• Weaker global economic environment weighed on domestic growth
• Robust domestic demand underpinned by strong investment and

consumption activity

• Low inflation of 2.1%
• Resilient external position with current account surplus, low level of

external debt and ample international reserves

• Capital flows remained well-intermediated

3

Global growth to improve in 2014

Note: Advanced economies include G7 economies, euro area, Australia, New Zealand and Israel Emerging economies include PR China, South Asia, Southeast Asia, other advanced Asian economies and other emerging economies Source: National authorities and IMF World Economic Outlook (January 2014 Update and October 2013)

• Improvement in global growth
• Broader recovery in the advanced economies
• Sustained growth in the emerging economies
• Downside risks to growth remain
• Considerable fiscal uncertainties in the advanced

economies

• Financial imbalances in both the advanced and

the emerging economies

• Risks from global monetary policy normalisation

5.2 3.9 3.1 3.0 3.7 2.6 1.5 1.4 1.2 2.1 7.6 6.1 4.6 4.5 5.0

• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 2008 2009 2010 2011 2012 2013 2014f Annual change (%) Global Growth Emerging economies Advanced economies

f forecast

L

4

3 3.5 4 4.5 5 5.5 6 4 5 6 7 8 9 10 11 12 13 4Q 07 4Q 08 4Q 09 4Q 10 4Q 11 4Q 12 4Q 13

Pace of recovery in the advanced economies to remain moderate due to structural constraints

Weak labour market conditions High indebtedness

1 2

Source: National authorities, Haver and IMF

Unemployment rate % % Japan (RHS) US Euro area 90 91 228 52 96 146 80 64 77 50 100 150 200 250 300 350 400 450 500 US Euro area Japan Government Corporate Household 248% 250% 450% Domestic debt by sector, 2012 % of GDP

Growth remains below trend due to:

90 95 100 105 110 115 120 4Q 00 4Q 02 4Q 04 4Q 06 4Q 08 4Q 10 4Q 12 1Q 05 = 100 Real GDP of G3 Economies GDP trend line Real GDP

5

• 3
• 2
• 1

1 2 3 4 5 6 2000 2002 2004 2006 2008 2010 2012 2014f EM Asia Other EMEs Adv. Economies Global growth Contribution to global growth (ppt)

Emerging economies: Contribution to global growth remains significant

f forecast Note: Advanced economies include G7 economies, euro area, Australia, New Zealand and Israel EM Asia includes PR China, South Asia, Southeast Asia and other advanced Asian economies Source: IMF World Economic Outlook (January 2014 Update and October 2013), BNM calculations

6

Asia: Sustained growth momentum

7.7 7.7 7.5 6.5 5.2 5 1.8 2.7 3.8 1 2 3 4 5 6 7 8 9 2012 2013 2014f 2012 2013 2014f 2012 2013 2014f PR China ASEAN-3 Other advanced Asian economies

GDP growth

Annual change (%)

f forecast Note: ASEAN-3 refers to Indonesia, Philippines and Thailand Other advanced Asian economies refers to Korea, C. Taipei, Hong Kong SAR, Singapore Source: National authorities, IMF WEO October 2013, BNM estimates

Growth performance in the region to be supported by country-specific factors

• PR China: Continued rebalancing efforts

towards more sustainable growth

• Asia ex-China: Growth to benefit from

improvement in the exports sector

7

Global inflation expected to remain moderate

Low inflation in the advanced economies with contained price pressures in Asia Commodity prices to remain broadly unchanged

Note: 1 Asia refers to PR China, Hong Kong SAR, Indonesia, Korea, Malaysia, Philippines, Singapore, Chinese Taipei and Thailand

2 G3 refers to US, euro area and Japan

Sources: IMF, Haver and BNM estimates

50 100 150 200 250 300 350 400 450 500 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Monthly index (Jan ’03 = 100)

Metals Crude

• il

Food

• 4
• 2

2 4 6 8 10 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14

G32 Asia1

Annual change (%)

8

Monetary policy remains accommodative

Divergent course of monetary policy across Asia The Fed reduced asset purchases in January and February 2014

Key interest rates (%)

Source: National authorities and BNM calculations

5 10 15 20 25 30 35 40 45 50 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 BOE ECB BOJ Fed

Central bank balance sheet to GDP

2 4 6 8 10 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Rate (%) % of GDP Philippines Korea PR China Thailand Indonesia Malaysia

• C. Taipei

India

9

The Malaysian economy is on a steady growth trajectory of 4.5 − 5.5% in 2014

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

• Better performance of the

external sector

• Domestic demand will

continue to anchor growth, led by the private sector

• Broad-based expansion across

all economic sectors

• 2
• 1

1 2 3 4 5 6 7 8 2008 2009 2010 2011 2012 2013p 2014f Annual change (%)

4.7% 4.5% 5.5% 10

Improvement in external demand amidst a moderation in domestic demand

2013p 2014f Annual change (%) Domestic demand1 7.6 6.9 Private sector 9.0 8.3 Consumption 7.6 6.9 Investment 13.6 12.6 Public Sector 3.7 2.9 Consumption 6.3 3.0 Investment 0.7 2.9 Net exports of goods & services

• 22.9
• 10.3

Exports of goods & services

• 0.3

2.1 Imports of goods & services 1.9 3.1 Real GDP 4.7 4.5 - 5.5

Note: 1 excluding stocks Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary f forecast

11

Private investment to remain robust…

5.1 13.6 0.1

• 7.4

18.4 10.5 21.9 13.6 12.6

• 10
• 5

5 10 15 20 25 2006 2007 2008 2009 2010 2011 2012 2013p 2014f Annual change (%)

Real private investment

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

• Avg. (‘91-’13): 7.4%

Private investment to be supported by:

• Improvement in external demand
• Commencement of new projects,

particularly in the services and manufacturing sectors

• Continued progress in existing

projects, including those in the mining sector L 12

… and broad-based

Investment approvals on an upward trend

Source: MIDA and BNM estimates

105.6 154.6 167.8 216.5 20 40 60 80 100 120 140 160 180 200 220 2010 2011 2012 2013 RM bil

Approved Investments

Capital spending to remain diverse across sectors

f forecast

Mining, 17% 20 40 60 80 100 2014f Public (37%) Share to total investment (%) Private (63%)

13

20 40 60 80 100 2014f Services, 49% Manufacturing, 27% Mining, 17%

Agriculture, 5% Construction, 3%

Share to total private investment (%)

Private consumption to moderate to its long-term average

Private consumption growth will be supported by:

• Sustained income growth
• Steady employment conditions

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

6.6 10.4 8.7 0.6 6.9 6.8 7.7 7.6 6.9 2 4 6 8 10 12 2006 2007 2008 2009 2010 2011 2012 2013p 2014f Annual change (%)

Real private consumption

• Avg. (‘90-’13): 6.6%

14

Favourable labour market conditions to support consumption

Source: Department of Statistics Malaysia, MEF Salary Survey, Bank Negara Malaysia

Stable employment conditions and sustained wage growth Employment to be supported by both export and domestic-oriented sectors

1 2 3 4 5 6 7 8 11 12 13 14 15 16 2012 2013p 2014 f

Employment Unemployment rate (RHS)

Persons (mil)

3.0 3.1 3.1 6.0 6.6 5.6

Annual change/ rate (%)

p preliminary f forecast Wage growth (RHS) 1 2 3 4 5 6 7 8 9 10 Export-oriented Domestic-oriented 2012 2013p 2014f

Persons (mil)

15

% share of GDP (2013) 2013p 2014f Annual change (%) Services 55.2 5.9 6.2 Manufacturing 24.5 3.4 3.5 Mining 8.1 0.5 1.6 Agriculture 7.1 2.1 3.8 Construction 3.7 10.9 10.0 Real GDP 100.0 4.7 4.5 - 5.5

Higher growth amid continued expansion in all economic sectors

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

• Services and manufacturing

sectors

• Benefit from improvement in the

global economy amidst growth in domestic demand

• Commodity sector
• Driven by higher production of

natural gas, crude oil and palm oil

• Construction sector
• Growth across residential and

commercial property and civil engineering projects

16

35.3 24.6 33.2 36.8 23.6 25.4 7.9 13.2 0% 50% 100% 2002 2014

Domestic economy continues to diversify

Note: 1 Refers to the agriculture and mining sectors Source: Department of Statistics, Malaysia and Bank Negara Malaysia BNM Annual Report 2013, Box Article: Further Diversification of Malaysia’s Resource-based Industries

33.1 17.2 43.1 14.8 24.2 55.7 Primary Manufacturing Services

Share of GDP (%)

1980 2014

Higher downstream resource-based activity in the manufacturing sector Ongoing diversification from primary to manufacturing and services sectors

Share to manufacturing value-added (%) Construction- related Consumer- related Primary-related (resource-based) Electronics & Electrical

1

f f

f forecast

17

External trade: Higher export growth amid continued expansion in imports

• Export performance to improve:
• Manufactured export growth supported

by the improvement in the global economy; and

• Commodity exports to improve with

better demand and lower decline in prices

• Gross imports driven by growth of

intermediate imports, amid the continued expansion in domestic demand

Annual change (%) 2013p 2014f Gross exports 2.4 5.8 Manufactured 5.7 7.2 E&E1 2.9 5.0 Non-E&E 8.4 9.3 Commodities

• 5.6

0.9 Agriculture

• 17.0

8.5 Minerals 3.8

• 4.1

Gross Imports 7.0 8.9 Capital 2.8 7.2 Intermediate 4.3 6.0 Consumption 8.7 8.5 Trade balance (RM bn) 70.6 54.6

Note: 1 Includes machinery and equipment Source: Department of Statistics, Malaysia and Bank Negara Malaysia p preliminary f forecast

18

Current account to remain in surplus

3.9% 3.0%

• 5.0

0.0 5.0 10.0 15.0 20.0

• 80
• 50
• 20

10 40 70 100 130 160 190 220 2008 2009 2010 2011 2012 2013p 2014f % GNI RM bn

Current account

Goods Services Primary Income Secondary Income Current account balance, % of GNI (RHS)

• A smaller current account surplus

reflects ongoing structural shifts in the domestic economy

• Lower trade surplus as imports

continue to outpace exports

• Continued strong investment will

improve Malaysia’s productive capacity and boost exports in the medium and longer term

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

RM37.3 bn RM30.8 bn

19

Global financial conditions to remain volatile

2013: Heightened volatility of capital flows following QE scale-back by the Fed 2014: Financial markets remain vulnerable to changes in sentiments

• Policy shifts in the advanced

economies

• Potential for contagion
• Large and volatile capital flows
• 400
• 300
• 200
• 100

100 200 300 400 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 USD mn

Malaysia: Total Equity and Bond Net Flow

Bond Flow Equity Flow Total Flow QE-3 First indication

• f possible QE

scale-back QE scale-back begins

Source: EPFR Note: EPFR refers to net portfolio flows (both equity and bonds) by non-resident investors. These data are compiled based on surveys

• f fund managers and do not capture investments by institutional investors.

20

• Stronger financial institutions
• Deeper and well-diversified capital market
• Greater exchange rate flexibility and ample international reserves
• Wider range of monetary instruments to sterilise excess liquidity
• Robust surveillance system on capital flows
• Stronger regional surveillance and collaboration

Deeper financial system and wider policy toolkit to manage global financial market volatility

21

Orderly ringgit exchange rate adjustments amid significant global financial market volatility

• 11.4
• 9.4
• 7.7
• 6.7
• 6.5
• 3.4
• 2.6
• 1.7

1.5 4.2 7.3 9.1 10.2

• 15
• 10
• 5

5 10 15 EUR GBP CNY USD KRW SGD TWD THB PHP INR AUD IDR JPY

% MYR appreciation % MYR depreciation Source: Bank Negara Malaysia

MYR performance against selected currencies since end-2012

• EM currencies were affected by significant

shifts in global liquidity and capital flows

• Ringgit adjustments remained orderly and

in line with other regional currencies

• Smooth functioning of the domestic foreign

exchange market amid two-way flows of trade and financial flows

22

International reserves remain ample

Source: Bank Negara Malaysia

International reserves remain ample, supported by the current account surplus

• Also reflected inflows of foreign

direct investment

• Partially offset by outflows of direct

investment abroad as well as

• utflows of portfolio and other

investments

23

9.0 3.3

2.0 4.0 6.0 8.0 10.0 12.0 40.0 60.0 80.0 100.0 120.0 140.0 160.0 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 USD bn Net International Reserves Retained import cover (RHS) Reserves/ST ext debt (RHS) Month / Times

Headline inflation to range between 3 – 4% in 2014

• Higher inflation largely due to rising

domestic costs

• The impact of cost-push factors will be

contained by:

• Subdued external price pressures
• Moderate demand conditions

1 2 3 4 5 6 2007 2008 2009 2010 2011 2012 2013 2014f Annual change (%)

Inflation forecast

3% 2.1% 4% Historical average, 1991-2013 = 3%

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

24

Monetary policy to support growth while mitigating risks from inflation and financial imbalances

Monetary policy in 2014 will focus on:

• Macroeconomic environment to support

sustainable economic growth amid continued uncertainties in the global environment

• Avoid cost-push inflation from becoming

pervasive and persistent

• Vigilant to risks related to financial

imbalances

1.5 2.0 2.5 3.0 3.5 4.0 Aug-08 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 Aug-12 Feb-13 Aug-13 Feb-14 Rate (%)

Overnight Policy Rate (OPR)

Source: Bank Negara Malaysia

25

6.9 6.8 6.0 3.4 3.2 1.7 13.5 13.5 11.7

4 8 12 16 2011 2012 2013 Others Vehicles Personal use Properties HH Debt Growth (RHS)

Continued access to financing for the private sector

Growth in credit to households* moderated Continued loans disbursement and funds raised in the capital market

3 Others comprises loans for the purchase of securities, credit card

facilities and loans for other purposes * Banks and Non-banks

2 1

Contribution to growth (ppt)

3

26

177.1 205.3 201.1 139.7 178.0 185.4 11.4 14.5 8.0

4 8 12 16 200 400 600 800 2011 2012 2013 Finance Construction & Real Estate WRRH Manufacturing Others Business Financing Growth (RHS)

Outstanding Annual change (%) Gross financing (RM bn)

5 10 15 20 25 30 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 RM bn Personal Loans Residential Property

Measures implemented to address pockets

• f risks of financial imbalances

Measures Implemented

July 2013 Reduce the maximum loan tenure for personal and housing loans Prohibit the offering of pre-approved personal financing products Jan 2014 Real property gains tax (RPGT) Prohibition of Developer Interest Bearing Schemes (DIBS) Transparency in property sales price

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

Measures to curtail financing products that give the appearance of affordable financing Moderation in growth of personal financing and property loans

Household Loan Applications (Banks and Non-banks) BNM Lending Measures Budget 2014

27

28

Government commitment to fiscal reforms will ensure sustainable and sound public finances

• 3.1
• 4.6
• 6.7
• 5.4
• 4.8
• 4.5
• 3.9
• 3.5
• 3.0
• 8.0
• 7.0
• 6.0
• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0

• 80
• 70
• 60
• 50
• 40
• 30
• 20
• 10

2007 2008 2009 2010 2011 2012 2013 2014B 2015B

% of GDP RM bn

Federal Government Fiscal Balance

RM billion % of GDP (RHS)

B Budget Source: Ministry of Finance

• Government expected to remain on

track to meet fiscal target

– Fiscal deficit of 3.5% of GDP in 2014 – Fiscal deficit of 3% of GDP by 2015; and – Balanced budget by 2020

• Fiscal reforms will be underpinned by

expenditure reforms & revenue expansion

• FPC to formulate and implement fiscal

strategies

29

Fiscal consolidation will further strengthen economic resilience

• Continuous improvement in fiscal balance would lower the

Government debt over the medium-term

– A stronger position of public finance will strengthen the economy’s resilience and fiscal buffer

• Subsidy rationalisation would allow efficient allocation of resources

in the economy but would also require:

– Development of a comprehensive social protection system – Further investments in infrastructure development

A gradual fiscal consolidation will allow businesses and households to make appropriate adjustments

Summary of outlook for 2014

• The Malaysian economy on a steady growth path of 4.5 – 5.5%,

supported by an improved external sector

• Domestic demand will continue to be the main anchor of growth, led by

the private sector in particular by robust investment activity

• Headline inflation to range between 3 - 4%
• Current account to remain in surplus
• Malaysia has the capacity to intermediate the continued volatility in

capital flows

30

Strong fundamentals to support Malaysia’s resilience

31

• More diversified economic structure
• Increasing share of domestic demand in the economy, led by the

private sector

• Low unemployment rate and stable employment conditions
• Diversified export market and trading partners
• Well-developed and resilient financial system

Financial position remained strong in 2013:

• Total assets of BNM amounted to RM474.2 billion with

International Reserves of RM441.9 billion (USD134.9 billion)

• Net profit of RM5.46 billion
• Dividend of RM1.5 billion to the Government

Bank Negara Malaysia: Annual Financial Statements 2013

32

FINANCIAL STABILITY AND PAYMENT SYSTEMS REPORT 2013

Press conference

33

Financial stability well preserved throughout 2013

Banking Sector (%) 2012 Jan-2014 Capitalisation Common equity tier 1 ratio Total capital ratio Excess capital buffer (RM bil) 13.9* 15.7* 87.1* 11.7 14.0 75.0 Profitability Return on assets Return on equity 1.6 17.4 1.5^ 15.9^ Asset Quality Net impaired loans ratio Loans in arrears (1-<3 mths) 1.4 3.4 1.3 2.4 Liquidity Position Liquidity buffer (<1 mth, % of deposits) 16.2 13.7 Insurance/Takaful Sector (%) 2012 2013 Capitalisation Capital adequacy ratio Capital buffer (RM bil) 219.1 22.6 245.9 23.5 Profitability Profits (RM bil) 20.8 16.3

Source: Bank Negara Malaysia *Based on Basel II capital requirements

• Financial intermediation remained

supportive of the economy – outstanding financing expanded by 10.6%

• Orderly intermediation of volatile

short-term capital flows

• Financial institutions have strong

capital and liquidity buffers

• Confidence in financial system

firmly intact

^Reflects 2013 position

34

• Banking system capital buffers in

excess of regulatory minimum at RM79 billion as at end-2013

• Adoption of the Risk-Based Capital

Framework for Takaful Operators in January 2014

Transition of banks and takaful operators to strengthened capital requirements

5 10 15 20 Common Equity Tier 1 Tier 1 Total Capital % Malaysian banking system Minimum requirements for 2013 12.1% 13.0% 14.4% 3.5% 4.5% 8.0%

Capital position as at end-2013

• Banks continue to maintain strong

capital positions under Basel III, supported by: − Prudent earnings retention − Issuance of new Basel III compliant capital instruments − Dividend reinvestment programmes

35

Household debt moderated to slowest pace since 2010

10 20 30 50 100 150 200 2009 2010 2011 2012 2013

HH debt-to-GDP HH financial asset-to-GDP HH debt (RHS) HH financial asset (RHS) Bank lending (RHS) Non-bank lending (RHS)

Households (HH) Debts and Financial Assets

Ratio (%) Annual change (%)

• Responsible financing measures

continue to show positive effects on strengthening household resilience

− Stable leverage of vulnerable borrowers − Prudent debt-service ratio observed for new financing

• Quality of household loans from the

banking system remain sound

− Both impaired loan ratio and loans-in- arrears continued to trend lower, at 1.3% and 2.1% respectively

36

37

<RM3K 27.3 RM3K-5K 23.1

>RM5K 49.6

193.5 86.8

Banks 80.9 Non-bank 19.1 Residential properties 44.2 Hire purchase 17.6 Personal Fin. 16.6 Securities 6.4 Non- residential 7.6 Credit card 4.2 Others 3.5

50 100 150 200 250 Household asset Household debt By income By Institution By purpose

• f financing

% of GDP % of Household Borrowing

Profile of Households Borrowings and Financial Assets

While household indebtedness is expected to remain high in the near term, risks to financial stability remains contained

• High indebtedness likely to persist given

concentration in housing and car loans: − Young working population with high propensity to borrow − Rising urbanisation − Large supply-demand mismatch for affordable houses takes time to narrow − Public transportation system initiatives yet to be completed

• Risks to financial stability are expected to

remain well contained − Strong capital buffers of banks to absorb potential losses from adverse shocks − Strong debt servicing capacity of households

3.0 3.2 3.4 3.6 3.8 4.0 4.2

• 6
• 4
• 2

2 4 M J S D M J S D M J S D 2011 2012 2013

Banks and Development Financial Institutions Insurance Pension Funds 10-Year MGS (RHS)

MGS Yields and Change in MGS Holdings by Domestic Institutional Investors Change in holdings (ppt) Yields (%)

Domestic institutional investors provided strong support to the bond market amid sell-off by non- residents between May-Sep 2013

2 3 4 5 M J S D M J S D M J S D

%

3-year 5-year 10-year MGS Yields 2011 2012 2013 3 4 5 6

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

AAA, 3-year AAA, 5-year AAA, 10-year AA, 3-year AA, 5-year AA, 10-year PDS Yields 2011 2012 2013 %

Cost of funding in the PDS market remained conducive to funding needs of businesses 38

Deeper and more diversified domestic financial markets support the orderly market conditions

Limited contagion risk from external exposures

• Higher external claims, mainly on Asia, in line

with expansion in regional trade and overseas

• perations of Malaysian banks
• Potential impact from deleveraging activities

by European financial institutions remain low

• Banks continue to proactively manage foreign

currency mismatch positions

Asia 51% Labuan 18% EU-3 8% Other Europe 1% USA 10% Middle East 4% Others 8% Banks’ Composition of External Claims by Location

• 20
• 10

10 20 2009 2010 2011 2012 2013 RM bn <1 week <1 month Banks’ US Dollar Liquidity Mismatch

39

8 16 24 32

2012 2013 2012 2013 2012 2013 %

% 4 3 2 1 Return on equity Capital ratios Gross impaired loans ratio (RHS)

Range of Key Financial Soundness Indicators of Banks’ Overseas Operations

Strengthened policy frameworks under FSA/IFSA further reinforce financial stability

• Approval of financial holding companies (FHCs)
• FHCs to observe group-wide prudential standards, to be

gradually issued from 2014

• Close coordination with relevant domestic and foreign

regulatory authorities in supervision of financial groups Enhanced oversight

• f financial

groups Strengthened framework for consumer protection

• Transformation of the Financial Mediation Bureau into

a Financial Ombudsman Scheme Strengthened end-to-end Shariah compliance

• Development of contract-based Shariah and operational

standards

• Oversight over implementation of Investment account

framework L 40

Supported by market-based reforms to improve efficiency and transparency of financial intermediation

• Pricing reforms in payment systems and motor insurance
• Tiered pricing structure for payment instruments to promote e-payment
• The motor premium adjustments, are accompanied by improved

efficiency in motor claims settlements

• Enhance efficiency and delivery of life insurance and family takaful
• Progressive deregulation of commission and expense limits
• Further development of alternative delivery channels
• Empower consumers and strengthen competition
• New reference rate framework to replace the base lending rate
• More relevant and reflective of funding market conditions

R 41

Further development of financial markets

• Deep and vibrant debt securities, sukuk and

foreign exchange (FX) market provided continued support for investment, trade and business activities – Outstanding debt and sukuk grew by 3% amid slower corporate fund raising activities – Maturity profile extended further with issuance of 30-year MGS – Average daily turnover of the FX market remained stable at USD10.4 billion

• Further liberalisation of the FX market

– Wider use of renminbi – Trade settlement in local currency – More efficient liquidity management and hedging

• 200

400 600 800 1,000 1,200

2008 2009 2010 2011 2012 2013

RM bn

Outstanding debt securities and sukuk

Public Sector Private Sector 2 4 6 8 10 12 2008 2009 2010 2011 2012 2013

USD bn

Average daily turnover in FX market

• Development of netting legislation
• Further enhancements to payment and settlement

infrastructure L 42

• SMEs from all economic sectors continue

to have access to financing − Services sector accounts for 60% of SME financing − Steady stream of SMEs with financing that grow and develop into large enterprises

• Supported by a holistic ecosystem that

also focuses on the development, sustainability and assistance for SMEs

• As at end 2013, SME financing represents

42.1% (2012: 40.5%) of total business financing by financial institutions − Total SME financing outstanding increased by 12.7% to RM213 billion SME Financing Framework

Outreach & Awareness Programmes Infrastructure for SME Financing & Development Financing & Guarantee Schemes Avenues to Seek Information & Redress Debt Resolution & Management

R 43

Share of SME financing from the financial system increased further

• Building on its strong value proposition

– Cost savings for financial institutions – Higher customer flow for agents – Convenience for consumers

Key Agent Banking data Served Mukims * (districts) Transactions by Agents Number of Agents

5,474 banking agents nationwide >13.8 mil transactions worth >RM1.6 bil Increased from 46% (end- 2011) to 92.5%

4,540 460 458 16

1,000 2,000 3,000 4,000 5,000 Sole proprietors Post offices Petrol stations Felcra agents

• No. of agents

Distribution by type of agent

Significant impact of agent banking framework on the financial inclusion agenda

Source: Bank Negara Malaysia *Refers to position as at end-2013

44

Increased global connectivity and presence

• Larger overseas presence of Malaysian banks

and increased foreign presence and participation

• Malaysia: World’s Islamic Finance Marketplace

– Sukuk growth despite challenging global environment: USD158.3 billion or 59% of global sukuk outstanding – Serving as the gateway to Asia for cross-border Islamic finance business

• Islamic finance innovations

– Inaugural issuance of RM4 billion Government Investment Issue (GII) based on the bai’ ‘inah concept

Global Sukuk Outstanding end-2013 (USD269.4 bn) Overseas operations of domestic banking groups (DBGs) No of DBGs with overseas

• perations

6 No of locations (countries) 22 Contribution to group assets RM338.6 bn (21%)

L 46

Source: Bloomberg, IFIS, KFHR

Stronger safeguards against threats of money laundering and terrorism financing

• Continued improvement to legislative framework and strengthening of AML/CFT

preventive measures

• Amendment to the Anti-Money Laundering and Anti-Terrorist Financing Act (AMLATFA) 2001

to ensure comprehensive coverage of AMLATFA and strengthen enforcement powers

• Revision to AML/CFT policies to ensure alignment with international standards
• Action on money laundering / terrorist financing threats and vulnerabilities prioritised towards

higher risk areas, to facilitate effective use of resources

• Monetary penalties and charges were brought against individuals and companies

for offences under AMLATFA, BAFIA and Money Services Business Act

• More than 1,800 charges brought against individuals and companies for offences under the

AMLATFA, Banking and Financial Institutions Act and Money Services Business Act

• RM1.3 million in monetary penalties

R 47

Expanding application of electronic payments to elevate efficiency and competitiveness

Encouraging progress made since commencement of pricing reform in May 2013 – Monthly IBG growth rate tripled to 6% from May to Dec 2013 compared to 2% from Sep 2012 to April 2013 – Cheques declined at a faster pace of 3.3% in 2013 compared to only 0.5% in 2012

3-pronged approach to accelerate the migration to e-payments

Building greater awareness of e- payments

• Media awareness campaigns
• IBG roadshows, Payment

System Forum and workshops to promote adoption of e- payments Enhancing e-payments infrastructure and user convenience

• ATMs and Internet kiosks to broaden

access to e-payments

• Enhancements to IBG services
• National Bill Payment Scheme

Conducive pricing structure

• Tiered pricing structure to

promote use of cost- effective payment channels

48

Macro and micro surveillance priorities in 2014

• Ensuring banks and non-banks continue to maintain sound lending standards
• Ensuring that bank lending for the development and purchase of property are

consistent with the sustainable development of the property market

• Monitoring developments in household and business leverage positions, and

ensuring banking system buffers continue to remain strong

• Ensuring that the risk appetite and business strategies of financial institutions,

including their overseas operations, are aligned with prudent risk-taking

• Reinforcing arrangements for crisis preparedness and contingency planning by

financial institutions, in coordination with domestic regulatory authorities and government agencies

• Ensuring the effectiveness of AML/CFT implementation in view of the Mutual

Evaluation on Malaysia by the Asia/Pacific Group on Money laundering in 2014

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Press Release

50

New Reference Rate Framework from January 2015

Profit Margins Benchmark Cost of Funds & SRR Credit Risk Operating Cost Liquidity Risk

+

Quoted Floating Lending Rate Spread Base Rate (BR)

• The Base Rate (BR) will replace the BLR

for the pricing of all retail loans tied to a reference rate.

• The Base Rate will only reflect the relevant

benchmark cost of funds and the SRR.

• Adjustments to floating retail lending rates

would be more transparent for borrowers.

L 51

Transition to the New Reference Rate Framework

• BLR-based loans and credit facilities contracted prior to January 2015

will remain priced against the BLR, of which changes will be linked to the Base Rate.

• The shift to the New Reference Rate Framework is neutral on interest

rates and does not represent a change in the monetary policy stance.

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Implementation of Islamic Deposit and Investment Account

• IFSA introduced two major classifications - Islamic deposit and investment

account

− The differentiation allows development of a wider range of products for both classifications, and better appreciation by the customers of product offerings by Islamic banks

• Ensuring seamless and effective transition process

− 2-year transition period until 30 June 2015 has been accorded to Islamic banks to facilitate reclassification into either Islamic deposit or investment account under IFSA − Islamic banks will engage their customers to inform and educate them on the transition process

• Ensuring protection of customers’ rights

− All Islamic deposits will continue be protected by PIDM throughout the transition period − Islamic banks will accord sufficient time to the customers to make an informed decision on the

• ptions provided to them

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New Pricing for Cheques will take effect on 1 Jan 2015

2 May 2013 IBG fee reduced to 10 sen 1 Jan 2015 Effective date of cheque processing fee

• The imposition of cheque processing fee is deferred to facilitate

comprehensive acceptance of e-payments by federal and state government agencies.

• BNM through its subsdiary, MyClear, will spearhead the widespread

deployment of payment card acceptance devices at the government counters to facilitate the acceptance of the domestic debit card.

• Banks will play an active role in ensuring e-payment infrastructure

readiness and boost public confidence in e-payments.

Discussion