Association of Banks: No credit crunch in Malaysia

Association says banks are strong despite turmoil

KUALA LUMPUR: The Association of Banks in Malaysia (ABM) says there is no credit crunch in the country and that the banking sector remains strong and well capitalised despite the turmoil in the global financial markets.

In a statement yesterday, ABM chairman Datuk Seri Abdul Hamidy Abdul Hafiz said: “It is business as usual and commercial banks are not putting any brakes on lending.”

According to the ABM, unlike the liquidity crunch that was seizing some of the key developed markets such as the US, Britain and Europe, Malaysia had been relatively unaffected and liquidity level in the banking system was healthy.

“As at end-August, loan-to-deposit ratio stood at 74.5% compared with the high 90% seen in 1997.

“The stable and low three-month domestic interbank rates, and relatively narrow spreads against the three-month Malaysian Government Securities yields are also indicative of the robustness of our banking system,” he said.

While the association acknowledged that the immediate outlook for the global financial markets and ensuing world economic growth prospects appeared challenging, the commercial banks operating in Malaysia were healthy and would remain resilient.

Abdul Hamidy said: “ABM is confident that the commercial banks are in the position to continue to perform their intermediation function in full support of domestic economic activities.”

According to ABM, banks in Malaysia are mainly domestic focused with more than 90% of total assets in ringgit-denominated assets, and most of their investments or assets concentrated in the Asean region.

Adding to the strength of the local banking sector is the fact that credit extension is more diversified today between business and household loans, with no heavy exposure to any single segment.

Domestically, Malaysia has a savings rate of 37% which is high by international standards.

The local financial system’s strong liquidity, backed by high domestic savings rate and Bank Negara’s mid-September external reserves of US$119bil, will thus continue to facilitate the orderly functioning of transactional and lending activities so as to spur domestic economic growth, albeit at a more moderate pace.

This meant there was ample liquidity in the system, Abdul Hamidy said.

“Bank Negara’s commitment to continue to provide liquidity, whenever needed, to financial institutions under its purview and readiness to respond with coordinated measures with other monetary authorities in the region, will ensure that demand for financing as well as financial services, arising from economic and financing activities, remains intact and unaffected.”

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