Bank Negara to counter any economic volatility following Brexit

Following Bank Negara

PETALING JAYA: Bank Negara is ready to take “proactive measures” to counter any economic fallout arising from the UK’s decision to leave the European Union.

The two-day global equity sell-off in the aftermath of last week’s Brexit vote had wiped more than US$3 trillion in terms of the value of stocks worldwide, according to reports.

The ringgit dropped 2% last Friday, but it had since recovered most of its losses.

“Bank Negara will continue to monitor these developments and work with the Financial Market Committee (FMC) members, including taking proactive measures, to address any further volatility that could re-emerge from the transition process to ensure orderly functioning of our financial markets.

“For the ringgit foreign exchange market, despite higher than usual volatility, liquidity remains supported and financial market participants are able to transact and execute their business without any disruptions,” FMC said in a statement yesterday.

The FMC added in the statement that the Malaysian capital markets had been resilient and continued to operate in an orderly manner post-Brexit.

It said key domestic markets including government bonds, corporate bonds and money markets were stable while the domestic markets had ample liquidity.

Meanwhile. Bank Negara said in a separate statement that the international reserves stood at RM383.2bil as of June 15.

The central bank said the level was ample to facilitate international transactions and was sufficient to finance 8.1 months of retained imports and 1.2 times the short-term external debt.

In May, the ringgit, along with most regional currencies, depreciated against the US dollar.The depreciation was due mainly to the strengthening of the US currency following heightened expectation for a policy rate increase by the Federal Reserve.

Although other regional currencies had also depreciated against the US dollar, the extent of the decline in the ringgit was the largest. This was due to weaker sentiment following intermittent declines in Brent crude oil price earlier in the month, which led to capital outflows.

However, the banking system maintained a strong capital position. The Common Equity Tier-1 Capital Ratio, Tier-1 Capital Ratio and Total Capital Ratio stood at 12.9%, 13.8% and 16.4%, respectively. Net impaired loans accounted for 1.2% of net loans. The loan loss coverage ratio declined slightly to 91.2%.

The level of loan applications and loan approvals for businesses also increased in May, with a moderate growth of 4.5%.

Annual loans to households registered a growth of 6.2%, reflecting continued moderation across most purposes.

On an annual basis, broad money or M3 growth increased to 2.2% driven mainly by the continued extension of credit to the private sector by the banking system.

The expansion, however, was partially offset by other influences, reflecting the continued issuance of equity by banks.

The reclassification of Islamic Investment Accounts that took place in July 2015, also had a negative impact on M3 and is reflected in other influences.