THE banking system recorded preliminary unaudited pre-tax profits of RM11.8bil for calendar year 2004, up 16.1% than the preceding year.
Bank Negara said this was due to improved gross operating profits, higher net gains from securities trading and investment activities as well as increase in dividend income from non-banking entities.
The banking sector also posted gross operating profits of RM12.6bil, up 3.3% from 2003, driven by higher net income from interest and fee-related activities which offset increase in staff cost and overheads.
Income from loan and financing activities recorded a small 1.1% growth, reflecting strong competition in the loan market.
Net interest income of the commercial banks rose by 13.8% while that of finance companies fell by 14.6%, partly reflecting the technical adjustment following the mergers of five finance companies into the commercial banks.
Merchant banks, however, registered a 3.7% drop in net interest income during the year, given their continued focus on fee-based activities.
Despite asset quality improvements, total loan loss provisions rose by 5.4% as banking institutions set aside higher allocations for general provision, which increased by RM0.4bil following the expansion in loan base and specific provision which was RM0.1bil higher as several banking institutions adopted stricter provisioning and classification policies for NPLs to further strengthen their balance sheets.
Bank Negara said the interest margin continued to narrow last year as competition in the loan market exerted downward pressure on lending rates, particularly in the retail and small and medium enterprises lending segments.
Lending activities remained robust last year, given positive sentiments in household and business sectors and conducive interest rate environment, providing impetus to stronger demands for loans from the private sector. The bond market would remain an important channel for corporations to source funds. Last year, funds amounting to RM28bil were raised in the bond market mainly by the utilities and construction sectors.
As a result, outstanding private debt securities in the market rose by 10.7% to RM160.1bil as at end-2004. Total financing channelled to the economy, which included lending by banking institutions, expanded by 9% to RM674bil as at end of last year.
The central bank said the banking system remained resilient last year, with positive developments recorded in all key financial soundness indicators.
Bank Negara said that with non-performing loans (NPLs) continuing to trend downwards and profitability improving, capital ratios were sustained at high levels, providing the banking system with sufficient buffer to absorb unexpected shocks.
The sound financial position of banking institutions, together with sustained strong economic performance, low interest rate environment and favourable household and business sentiments, provided the main impetus for strong expansion in financing activities.
The banking systems performance highlights last year included high capital adequacy ratios, higher profitability with improved returns on equity and average assets, narrow net interest margin, falling NPLs, robust lending activities and prudent exposure to market risks.