Bank Deposits Growth Slows To 3 Percent In 2H 2024 On Rising Costs, Debt Repayment - BNM

KUALA LUMPUR, March 24 (Bernama) -- Banking system deposits grew at a slower pace of three per cent in the second half of 2024 (2H 2024), driven by the slower growth of deposits from resident businesses, partly due to higher costs and debt repayment.

In its Financial Stability Review for 2H 2024 released today, Bank Negara Malaysia (BNM) said resident businesses growth deposits recorded a marginal year-on-year growth of 0.1 per cent compared to 7.5 per cent in June 2024.

It said the seasonal trend in deposit competition picked up towards the end of 2024 as banks built up liquidity buffers in anticipation of year-end withdrawals, especially from large depositors.

“Consequently, interest rates on corporate deposits rose in the fourth quarter. The increase in corporate deposit rates was, however, offset by the declining retail fixed deposit board rates following measures by banks to actively manage their cost of funds,” it said.

Furthermore, BNM said the declining average cost of money market funds (December 2024: 3.77 per cent; December 2023: 3.92 per cent) amid global policy rate cuts also eased banks’ foreign currency funding costs.

“As a result, banks’ average cost of funds declined to 2.78 per cent in December 2024 (June 2024: 2.90 per cent). Consistent with this, there was little evidence of a notable tightening in credit conditions. Banks continued to lend at a healthy rate (+5.5 per cent; June 2024: +6.4 per cent),” it added.

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Banking system stable in 2H 2024

Overall, banks’ liquidity and funding positions were resilient against potential liquidity shocks in 2H 2024. 

The central bank said the aggregate liquidity coverage ratio and net stable funding ratio remained healthy and above regulatory minima, at 160.7 per cent and 116.3 per cent, respectively as of end-December 2024 (June 2024: 155.2 per cent and 115.5 per cent respectively).

Banks continued to hold adequate high-quality liquid assets (RM761.1 billion; June 2024: RM762.8 billion), mostly in the form of central bank placements and government bonds, which can be pledged in the interbank market or with BNM for access to additional liquidity.

Meanwhile, BNM said banks’ external debt remained broadly stable at RM445.2 billion in 2H 2024 (June 2024: RM447.2 billion), with interbank borrowings continued to make up the bulk of banks’ external debt, with more than half being intra-group exposures.

“These exposures were mainly by locally incorporated foreign banks sourcing funds from parent companies located abroad and by banks located in the Labuan International Business and Financial Centre to facilitate transactions arranged and managed by foreign head offices,” it said.

Banks also continued to be resilient against foreign exchange (FX) risk. Given increased market volatility in 2H 2024, banks actively managed their exposures by reducing their FX net open position, which stood lower at 3.9 per cent of total capital (June 2024: 5.2 per cent).

On earnings, BNM said banks’ profitability in 2H 2024 continued to be supported by interest income amid robust overall loan growth.

The higher interest income and a slower growth in interest expense contributed to the improvement of net interest margins (December 2024: 2.0 per cent; June 2024: 1.96 per cent).

The central bank said the banking system’s total capital ratio remained healthy at 18.3 per cent of total risk-weighted assets (June 2024: 18.5 per cent), with capital buffers of RM136.8 billion (June 2024: RM139.5 billion).

“These buffers continue to preserve banks’ capacity to supply credit to the economy, as well as absorb unexpected losses. Banks’ capital buffers were further supported by revaluation gains from bond holdings in the banking book, driven by a slight decline in domestic bond yields across all tenures between June and December 2024,” it added.

-- BERNAMA