Banks' Capital Buffers Strong Enough To Absorb Business Credit Losses – BNM

KUALA LUMPUR, March 24 (Bernama) -- Stress tests conducted by Bank Negara Malaysia (BNM) affirmed that banks’ capital buffers are sufficient to absorb a potential increase in credit losses from the business sector under adverse stress scenarios.

BNM, in its Financial Stability Review for the second half of 2024 (2H 2024) released today, said the credit quality of business loans continued to improve in 2H 2024, reflecting broad-based improvement among both small and non-small medium enterprises (SMEs).

The overall business loan impairment ratio declined to 3.1 per cent of total business loans (June 2024: 3.5 per cent).

The Small Debt Resolution Scheme (SDRS) and corporate debt resolution mechanisms under the Companies (Amendment) Act 2024 continue to offer restructuring options for distressed but viable firms.

Financing conditions remained supportive, with businesses maintaining a stable mix of funding sources. Business loans rose 5.1 per cent (June 2024: 5.7 per cent), driven mainly by investment-related borrowing amid favourable economic conditions.

In line with this, corporate bond issuances also increased, resulting in a slightly higher annual growth of outstanding corporate bonds of 3.3 per cent (June 2024: 3.2 per cent).

bootstrap slideshow

The increase was driven mainly by the construction and manufacturing sectors for working capital and new investments, as firms took advantage of the relatively cheaper borrowing cost in the capital market given the narrowing corporate bond spreads.

Looking ahead, risks are expected to remain manageable given the favourable outlook for domestic demand and exports, although there are continued concerns over challenging operating conditions.

These include the uncertainty surrounding geopolitical tensions and international trade policies, as well as the elevated cost environment, which would have a bearing on the near-term financial outlook for businesses.

It further said that continued cost challenges and domestic policy developments could continue to weigh on business performance, potentially delaying more sustained improvements in firms-at-risk.

Notwithstanding this, debt-servicing capacity, including for firms in sectors still facing cost pressures, has continued to be supported by healthy cash buffers, with the cash-to-short-term debt ratio close to or above historical levels.

-- BERNAMA