Friday, October 31, 2008

What Crisis? Honky Dory Dude!

Bank Negara said that the banking system is strong enough to withstand the turmoil of the global financial crisis. It stood ready to pump liquidity into banks if needed. It has a fully developed supervisory and surveillance system and is closely engaging other monetary authorities in the region to monitor and respond with coordinated measures to deal with the current challenging environment. Several years of reforms, capacity building, and continuous efforts to enhance corporate governance and risk management practices have significantly strengthened the banking system.

With immediate effect, the following measures are being implemented:
•all deposits will be fully guaranteed by the Government through Perbadanan Insurans Deposit Malaysia (PIDM) until December 2010
•access to Bank Negara liquidity facility will be extended to insurance companies and takaful operators regulated by the Bank.

Non-performing loans in the banking system had improved to 2.5%. There is ample liquidity to facilitate the orderly functioning of economic and financing activities as the net interbank placements was RM198.5bil. The banking and insurance industries are therefore operating with adequate capital and liquidity buffers that have negligible exposure to both subprime-related securities and affected overseas financial institutions. More than 90% of total assets of these companies are in ringgit-denominated assets. Additionally all foreign financial institutions were locally incorporated (not operating as foreign branches).

The risk weighted capital ratio of the banking system was 13.2% and exceeded the minimum of 8% by RM42.3bil. It was an indication that the leverage position of the industry was manageable. The insurance industry posted a solvency surplus of RM16.5bil at the end of August.

The Association of Banks in Malaysia (ABM) is singing the same tune. The tune goes like this- there is no credit crunch in the country and that the banking sector remains strong and well capitalised despite the turmoil in the global financial markets. It is business as usual and commercial banks are not putting any brakes on lending.

As at end-August, loan-to-deposit ratio stood at 74.5% compared with the high 90% in 1997. The stable and low three-month domestic interbank rates, and relatively narrow spreads against the three-month Malaysian Government Securities yields are also indicative of the robustness of the banking system.

The additional strength is that credit extension is more diversified today between business and household loans, with no heavy exposure to any single segment. Malaysia has a savings rate of 37% which is high by international standards.

In summary, the strong liquidity, backed by high domestic savings rate and mid-September external reserves of US$119bil, will continue to facilitate the orderly functioning of transactional and lending activities so as to spur domestic economic growth, albeit at a more moderate pace.

However Tun Mahathir begged to differ. He doubted the claim that all is honky dory.

He said; " I am glad to hear that Malaysia will be spared from the fallout of the systemic collapse of the whole world's financial system. This ability to isolate Malaysian banks from the effect of the bankruptcies of all the biggest banks in the world must be regarded as a miracle. Our ability to manage our financial system better than others must earn us the admiration of the world. I hope we are right in forecasting the effect on us of the collapse of the world's financial system. But I have a sneaking feeling that all is not well."

So is there a crisis? No – then don’t worry be happy. Yes - can we survive the crisis?


Razali Razman said...

Actually both are correct, Bank Negara and TDM. Malaysian banks escaped because they are generally not involved in the activities that brought the house down, i.e. credit derivatives and repackaging and reselling of debts.

But Malaysia will not escape the crisis simply because prices of commodities has come down, it will hurt both company profitability and government revenue in 2009. Further, demand for products will come down worldwide and Malaysia being export oriented will feel the pinch.

Crisis will occur once in while. It is part of the business cycle. We were at the center of it in 1997 and still the economy and the stock market recovered. We will not be spared, but no one will. Just ride it out and look out for the good bargains now available, whether in stocks, unit trusts or properties.

CheeWee said...

Good comment bro. C'mon join the joyride n ride it out. Those who want to read more of Razali's views on finance & investment, check out

Be Yet Wiser.