Bank Negara governor calls for structural reforms

“Greater focus should be geared towards enhancing the three pillars, namely, social safety nets, social insurance, and active labour market policies," said Nor Shamsiah. — Bernama

PETALING JAYA: Bank Negara has urged the government to implement key structural reforms to enhance Malaysia’s competitiveness and growth potential.

Governor Tan Sri Nor Shamsiah Mohd Yunus said that reform initiatives will alleviate cost of living concerns, build a buffer against future shocks, and support the country’s transition to a high-income nation.

The central bank highlighted six key policy priorities for reforms, namely, digitalisation; fiscal resilience; climate resilient economy; growth potential; future-ready workforce; and social protection.


“Structural reforms remain important, but a carefully considered sequencing of these critical reforms will be important to deliver sustainable growth and price stability, while minimising transitory costs,” she told reporters during the launch of Bank Negara’s annual report.

The central bank also launched its Economic and Monetary Review 2022 and the Financial Stability Review for Second Half 2022 yesterday.

On reforms for growth potential, Nor Shamsiah said that a timely and well-coordinated implementation of the New Investment Policy is vital to attract quality investments, especially with the evolving global megatrends.

“Key strategies include to further improve investment targeting and promotion of key strategic sectors, develop dynamic and agile incentive packages, and strengthen environmental, social and governance practices,” she said.

Bank Negara has called for cohesive functioning and coordination among all investment promotion agencies. It also called for an automated tax incentive administration system as well as an outcome-based incentive design.

Nor Shamsiah also said that reforms to the social protection framework are important to address economic fragilities, facilitated by a multi-pillar approach.

“The drawdown of retirement savings during the pandemic have further exacerbated households vulnerabilities to future shocks.

“Greater focus should be geared towards enhancing the three pillars, namely, social safety nets, social insurance, and active labour market policies.

“Each of this pillar would reinforce each other and strengthen social mobility through higher skills and earnings, while providing protection against health, environment, social, and economic shocks,” she said.

The governor also highlighted the importance of introducing the Fiscal Responsibility Act and gradual subsidy rationalisation.

While she pointed out that subsidies are not sustainable, Nor Shamsiah said the magnitude and timing of subsidy rationalisation would determine inflation outcome.

She also noted that savings realised from subsidy rationalisation should be channeled towards deserving and vulnerable Malaysians.

Subsidy rationalisation, particularly for fuel subsidies, would help the country reduce carbon footprint and result in a reallocation of resources from the rich to those more deserving.

“It is never the right time to rationalise subsidy, but it is something that needs to be done to ensure fiscal sustainability,” she said.

Meanwhile, on the topic of digital financial services, Nor Shamsiah said that the country’s pioneering five digital banks are on track to begin operations by the second quarter of 2024.

As for digital insurers and takaful operators (Dito), Nor Shamsiah pointed out that up to five licenses may be offered once the Dito policy document is issued later this year.

The entry of digital banks and Ditos are expected to deliver greater inclusion, market competition and efficiency.

“In addition, an end-to-end digital motor claims process will foster an empowering consumer experience, as well as reduce claims leakages and fraud,”’ she said.

General insurers and takaful operators have committed to implement the first phase of the digital motor claims process - rollout of digital roadside assistance solutions - by end-2023

“On the cross-border front, I should share that our bilateral QR payment linkage with Singapore will go live on March 31.

“This is part of on-going efforts to make cross-border payments cheaper, faster and more transparent for the benefit of regional trade and tourism.

“Customers of participating financial institutions in both countries can now make in-store payments by scanning the respective QR codes of each country.

“Be on the look out for more details tomorrow,” she said.

Nor Shamsiah also commented on the recent banking stress in some advanced economies, following the collapse of Silicon Valley Bank and Credit Suisse.

While the events have sparked concerns on the global banking system, the governor said domestic financial market conditions remain orderly.

“It is also worth noting that the impact of the recent United States and Swiss banking sector stress on our banks has been minimal.

“Banks in Malaysia have limited exposures to the troubled US and Swiss banks. The depositor base of our banks is also more diversified.

“In terms of the impact of the mark-to-market losses due to rising interest rates on the bond holdings of banks in Malaysia, this remains well within the internal capital targets of banks.

“Banks also continued to hold high levels of high-quality liquid assets in the form of placements with Bank Negara and government bonds that can be pledged with the central bank to meet any additional liquidity needs,” according to Nor Shamsiah.

She added that the central bank has tested the resilience of Malaysian banks and insurance companies through Bank Negara’s annual stress test exercise.

She added pointed out that local banks have ample capacity to absorb losses under severe simulated downside scenarios.

Under the stress test, banks, insurers and takaful operators are subjected to operating environment scenarios that are more severe than that observed during the 2008 global financial crisis and the Covid-19 pandemic in 2020.

“The stress test results reaffirm that our banks are sound, with total capital ratio remaining well above the minimum requirement of 8% under adverse scenarios,” she said.

It is also worth noting that the Malaysian banking system remains resilient, with healthy levels of capital and liquidity buffers.

Total Capital Ratio stood at 18.8% as at December 2022, notably higher than the level observed during the 2008 global financial crisis.

The liquidity coverage ratio and net stable funding ratio also remained steady at 154% and 118%, respectively.

On a broader level, non-resident holdings of total outstanding government bonds remain stable at around 22.9%.

Similarly, non-resident holdings of equity has remained broadly stable.

The country’s foreign exchange (forex) liquidity also remained healthy, with relatively low forex volatility.

Separately, on the financial position of Bank Negara, Nor Shamsiah said the central bank’s total assets amounted to RM619.04bil as at end-December 2022, while net profit was recorded at RM6.99bil.

Bank Negara delivered a RM2.75bil dividend to the government in 2022.

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