DOMESTIC banking institutions are well poised to operate in a more deregulated and liberalised environment as envisioned under the second phase of the Financial Sector Masterplan (FSMP) now that the financial sector restructuring programme is completed and the foundation for a resilient banking system in place, Bank Negara said.
In addition to capacity building, the policy measures last year also focused on widening access to financing by key economic sectors, strengthening the consumer protection framework and preserving overall system resilience.
The central bank said the banking sector performed strongly last year with risk-weighted capital ratio sustained at levels above 13% while the net non-performing loan ratio fell to 5.9% by year-end - the lowest level since the Asian financial crisis.
Total new loans approved and disbursed grew by 13.6% and 10.6% respectively, resulting in an 8.5% growth in total outstanding loans last year.
Of the three agencies established to spearhead the financial sector restructuring in the wake of the Asian financial crisis, only Danaharta remained in operation last year.
Over its lifespan, Danaharta acquired adjusted loan rights amounting to RM52.4bil with an expected recovery rate of 59%. As at Dec 31 last year, 94% of the expected recoveries of RM30.8bil had been received by Danaharta, of which RM23.6bil was realised in cash while the balance held in restructured loans, securities, properties and other non-cash assets.
Danaharta has cumulatively distributed RM16.4bil in cash and 66.5 million units of securities to the government and the respective financial institutions in accordance with the 80:20 surplus recovery sharing agreements it has with these institutions.
The central bank said Danaharta was on track to unwinding its operations this year and closing the final chapter of the financial sector restructuring exercise.
The main thrust of policy measures last year continued to focus on enhancing the performance and competitiveness of the domestic banking institutions and on ensuring that these institutions were ready for a more liberalised operating environment.
In particular, efforts were directed at facilitating further improvements in the domestic banking institutions' operational efficiency and flexibility.
The central bank said greater competition in the banking sector was likely to ensue as the local financial landscape evolved.
In the case of the second phase of FSMP, there will be greater operational flexibility accorded to the incumbent foreign banking institutions.
It said banking institutions would also need to strengthen capabilities in personal financial advisory services, wealth management, consumer banking, and small and medium enterprises financing.
Domestic banking groups would increasingly expand regionally by further diversifying their earnings and enhance performance, it added.