KUALA LUMPUR: Association of Banks in Malaysia (ABM) says foreign currency deposits in the Malaysian banking system by residents remain relatively small at about 7% of total deposits.
It said some residents had recently increased their foreign currency deposits due to the depreciation in ringgit for reasons such as immediate business needs and children's education.
As for total non-resident deposits (in both Ringgit and foreign currency), based on Bank Negara Malaysia’s recent Monthly Statistical Bulletin, they amounted to about RM70bil, but make up to only about 4% of total banking system deposits.
ABM also pointed out the position of the foreign currency deposits in the banking system does not pose concerns on the country’s banking system stability.
“The foreign currency denominated liabilities and assets of Malaysian banks have expanded in line with firstly, the domestic banks' regional operations as well as their regional trade activities and secondly, their centralised liquidity management,” it said.
It issued the statement to clarify a recent report on Malaysian banks’ foreign currency denominated liabilities
ABM also said these liabilities do not represent immediate claims on Malaysia's international reserves as foreign currency liabilities are generally well covered with foreign currency external assets, including overseas assets, lending and investment in debt securities.
“Banks have proactively managed foreign exchange risk and foreign currency funding risks through robust internal controls, contingent funding plans and foreign currency funding programmes.
“We are given to understand that there is no dependence on external or cross-currency funding for operations in Malaysia. As a matter of fact, many, if not, most banks in Malaysia practise the same asset liability management as they would do with regard to their Ringgit exposure,” it said.
On the country’s foreign reserves, it said Bank Negara Malaysia data showed that Malaysia’s international reserves at US$94bil remained adequate to facilitate international transactions without disruptions.
“It is sufficient to finance 8.7 months of retained imports, significantly higher than the international benchmark of 3 months of imports. The international reserves level is 1.2 times the short-term external debt.
“We hold the view that not all short-term external debt pose an immediate claim on reserves given the external assets and export earnings of debt holders.
“It is also noted that more than two-thirds of the short-term external debt is accounted for by the banking sector, largely in the form of interbank borrowing and non-resident deposits. The debt liabilities are partly covered by the banks’ corresponding external assets.
“The Malaysian banking sector remains resilient due to sound capital ratios, solid liquidity and low credit risks. The commercial banking sector is well-positioned to weather various challenges given the system's strong regulatory framework,” said ABM.