The critical role of banks in economic recovery


Given that the health of the financial sector is tied to the wider economy, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said it is crucial that the banking industry doubles down on driving a strong recovery while supporting business continuity as the economy reopens under the National Recovery Plan.

KUALA LUMPUR: Banks will continue to play a critical role in supporting the economic recovery and complementing the government’s wider reform efforts moving forward.

Given that the health of the financial sector is tied to the wider economy, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said it is crucial that the banking industry doubles down on driving a strong recovery while supporting business continuity as the economy reopens under the National Recovery Plan.

In this respect, the banking industry is expected to facilitate lending to businesses with accommodative financing and repayment terms, provide non-debt-based facilities, encourage digital payments and support the most underserved segments of borrowers.

“The year 2022 will be critical for Malaysia, a rare window to jumpstart not just an economic recovery, but a recovery of industries, livelihood and jobs, especially those hit hardest by the pandemic.

“In that respect, Budget 2022 will remain expansionary and is conceptualised as a recovery budget while complementing the government’s wider and longer-term reform efforts under the 12th Malaysia Plan.

The banking industry is expected to facilitate lending to businesses with accommodative financing and repayment terms, provide non-debt-based facilities, encourage digital payments and support the most underserved segments of borrowers.The banking industry is expected to facilitate lending to businesses with accommodative financing and repayment terms, provide non-debt-based facilities, encourage digital payments and support the most underserved segments of borrowers.

“Budget 2022 will focus on recovery, resilience and reform. And, it is through those three lenses that banks and financial institutions, including development financial institutions, will play a critical role moving forward,” he said in his keynote address at the Malaysian Banking and Finance Summit 2021 yesterday.In building resilience, he urged banks and financial institutions to support their clients in their transition to the needs of a new normal, including embracing digitalisation in their business focus and operations.

Tengku Zafrul also noted that there is a need for them to enhance the role of financial intermediation throughout the business cycle of any enterprise, be it the aspiring entrepreneur or the conglomerate on the verge of an initial public offering.

Banks should also explore alternative forms of financing including blended finance, supply chain financing or new trade-based facilities.

“These efforts will complement wider initiatives by the government including the National Fourth Industrial Revolution Policy, where digitalisation and technological adoption are crucial in boosting our economic prospects and resilience, in accordance with the Malaysian Digital Economy Blueprint,” he said. He also pointed out that the financial sector must step up its role in helping the country build back better through the climate and sustainability agenda.

“It is encouraging to see that the financial sector is stepping up on this front, including via the offering of sustainable finance solutions and assistance to companies in their transition journey. However, more can and must be done.

“As a mobiliser of capital, the banking industry is key in facilitating the transition of companies towards low carbon and sustainable practices via financing and investment beyond the pandemic, be it supporting renewable energy adoption, new technologies or novel ways of doing business,” he said.

Notably, more than 45% of the global banking industry has signed up to the UN Environmental Finance Initiative’s Principles of Responsible Banking. Of these, 44 have formed a Net-Zero Banking Alliance to fully decarbonise their loan books.

Tengku Zafrul urged more local financial institutions to follow suit to ensure the deep integration of sustainability across all business areas of a bank, from strategic decisions, credit appetite to procurement.

These will complement the government’s embrace of the UN Sustainable Development Goals in its annual budgets.

Meanwhile, Minister in the Prime Minister’s Department (Economy) Datuk Seri Mustapa Mohamed opined that banks should also pay attention to the needs of their employees, who will be affected by the gradual shift to virtual banking.

Efforts should be made to reskill and upskill them, particularly in the area of digital.

He added that banks should also do more to support high-tech businesses, such as startups in the digital space to ensure they are given the facilitation needed to thrive in the innovative economy.

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