Financial Stability and Payment Systems Report 2010 Briefing to Analysts & Fund Managers by Dato’ Mohd Razif Abd. Kadir Deputy Governor 23 March 2011 1 Financial Stability and Payment Systems Report 2010
Stability of the financial sector was preserved throughout 2010 - strong fundamentals contributed towards efficient financial intermediation - orderly and efficient conditions in financial markets, and payments and settlements systems facilitated trade and domestic activities 2 Financial Stability and Payment Systems Report 2010
Financial system continues to be resilient Banking Sector (%) 2009 Jan’11 Capital Adequacy • Strong capital and liquidity buffers Risk-Weighted Capital Ratio 15.4 14.1 Core Capital Ratio 13.8 12.4 Capital Buffer (RM bil) 64.6 60.5 Profitability • Improved profitability Return on Assets 1.2 1.8 Return on Equity 14.0 19.7 Asset Quality • High asset quality Net Non Performing Loan* Ratio 1.8 2.2 Liquidity Position Liquidity buffer (<1 mth, % of deposits) 18.2 14.8 • Have capacity to withstand Insurance/Takaful Sector (%) 2009 2010 extreme macroeconomic and Capital Adequacy Capital Adequacy Ratio^ 225.7 224.6 financial conditions Capital Buffer^ (RM bil) 18.6 18.6 Profitability Profit Before Tax (RM bil) 14.7 16.3 * 2011 position based on impairment methodology ^ Conventional industry only 3 Financial Stability and Payment Systems Report 2010
Banking system recorded RM22.8 bil in pre-tax profit Conventional banking system: PBT of Islamic banking system: PBT of RM19.7 billion RM3.1 billion Conventional 2010 2010 Islamic Banking 2010 2010 Banking System System RM bil growth RM bil growth Net interest income 27.5 +15.8% Net income 6.8 +12.2% Fee/Commission-based 8.1 +11.2% Fee/Commission-based 0.7 +13.7% income income Net trading & investment 7.4 +62.4% Net trading & 0.4 +17.8% gains investment gains Staff cost and overheads 20.2 +14.4% Staff cost and 3.6 +56.1% overheads Pre-tax profit 19.7 +37.1% Pre-tax profit 3.1 +16.9% 4 Financial Stability and Payment Systems Report 2010
I nsurance and takaful sector registered RM16.3 bil in pre-tax profit Life insurance & family takaful: Excess General insurance & takaful: Operating of income over outgo of RM14.1 bil profits of RM2.2 bil Life Insurance Family Takaful Total 2010 RM bil growth RM bil growth RM bil growth Net premiums/ contribution 21.9 15.9% 3.3 21.3% 25.2 11.5% Net policy/ certificate benefits 13 9.2% 1.6 75.8% 14.6 14.7% Net Investment income 5.4 10.2% 0.5 42.9% 5.9 11.5% Net unrealised and capital gains 4.2 44.9% 0.01 -83.3% 4.3 46% Excess income over outgo 12.7 16.5% 1.4 -15.6% 14.1 12.1% General Insurance General Takaful Total 2010 RM bil growth RM bil growth RM bil growth Gross direct premiums/ contribution 15.2 8.6% 1.4 26.3% 16.6 10% Net claims incurred 6.8 11.5% 0.5 34.5% 7.3 12.3% Net Investment income 0.8 3.9% 0.1 17.7% 0.9 6.2% Net unrealised and capital gains 0.06 -75% 0.04 96.7% 0.1 -68.1% Operating Profit 1.9 2.7% 0.2 12.5% 2.1 3.8% 5 Financial Stability and Payment Systems Report 2010
Premiums for insurance sector continued to grow, driven by investment-linked and motor businesses New business premiums for Life Gross Premiums for General and Family Takaful RM bil I nsurance and General Takaful 10 Business RM bil 16 8 12 4.1 3.4 6 3.8 3.5 3.2 3.0 1.3 8 1.2 1.2 4 2.1 1.9 2.1 1.3 1.9 1.8 4 2 6.0 5.3 5.0 2.7 2.6 2.2 0 0 2008 2009 2010 2008 2009 2010 Motor Fire I nvestment-linked Par-products Non-Par products Annuity MAT Others 6 Financial Stability and Payment Systems Report 2010
Manageable trend in payouts of benefits and claims Total benefit payments of RM13 bil Claims experience in motor or 58.1% of premium continues to remain high % % 8 100 6.8 7 90 6 80.5 80 5 70.8 4 70 62.5 3 60 2 59.6 0.9 50 1 0 40 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H 2010 2008 2009 2008 2009 2010 Total benefits payments (Life Insurance) Gen. Insurance (Motor) Gen. Takaful (Motor) Total benefit payments (Family Takaful) Gen. Insurance (Total) Gen. Takaful (Total) New motor cover framework that is being formulated to preserve access to affordable motor cover while ensuring its sustainability over the longer term 7 Financial Stability and Payment Systems Report 2010
Continued access to financing by all sectors Financial System: Outstanding Financing RM bil % 1400 14 • Outstanding banking system financing 1,080.9 1,145.1 1,190.2 1,120.1 1200 grew by 13.1% 12 1000 800 – Continued expansion to all segments, 10 600 including SMEs 400 8 200 0 6 • Bank deposits increased by 9.1% Mar Jun Sept Jan 2011 Large Enterprises SME – Loan-to-deposit ratio stable at 81.2% Household Others Debt securities Annual growth (RHS) Banking System: Deposits RM bil % • Favourable condition since 2H 2010 1,400 9.2 1,159.4 1,073.3 1,091.4 1,113.7 1,200 facilitated fund raising in PDS market 9 1,000 8.8 – New corporate debt securities and 800 8.6 sukuk issuances of RM76 bil 600 8.4 400 – Danajamin approved RM4.6 bil worth 8.2 200 of guarantees 0 8 Mar Jun Sept Jan 2011 Business Household Others Annual growth (RHS) 8 Financial Stability and Payment Systems Report 2010
Higher new loans to large businesses and SMEs • Outstanding loans to businesses grew Ave. 2010: RM bil 10.1% to RM336.9 bil 100 RM85.8 bil Ave. 2009: – More moderate growth of 2.8% for 90 RM71.7 bil SME loans 80 – Adjusting for graduated accounts of 70 business reclassification as large 60 enterprises, SME loans had grew by 50 11.5% 40 30 • Bulk of new approvals to: 20 10 – Manufacturing (RM22 bil) 0 – Construction (RM25.5 bil) 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2009 2010 – Wholesale & retail (RM18.9 bil) Loans approved - Large Businesses – Real estate activities (RM18.5 bil) Loans approved - SMEs Loans approved - Households 9 Financial Stability and Payment Systems Report 2010
Overall financing quality remained intact Increase in NPLs reflect adoption of 6 impairment methodology since FYE 2010 Increase in NPLs of large businesses 5 4.8 amid adoption of impairment classification under FRS139 4 3.2 % 3 9 2.3 2.2 2.2 2 1.8 8 1 7 5.4 0 6 2006 2007 2008 2009 2010 Jan-11 5 Stable loans-in-arrears accounted for 4.9 RM bil % 4 4.1% of total loans 40 5 3 2.3 4 30 2 3 20 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2 2008 2009 2010 10 1 Large businesses SMEs Households 0 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q • New NPLs average at RM2.4 billion a month 2008 2009 2010 1-<2 month 2-<3 month 1-<2 month (% of total loans) 2-<3 month (% of total loans) • Loan loss coverage at 90.7% 10 Financial Stability and Payment Systems Report 2010
Margins rebounded on sustained financing activities and lower impairment provisions Net interest margins increased to 0.61 ppts Percentage Percentage point point 0.7 2.8 0.6 2.7 0.5 2.6 0.4 2.5 0.3 2.4 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 2008 2009 2010 2011 Net interest margin Gross interest margin (RHS) 11 Financial Stability and Payment Systems Report 2010
Manageable credit risk from business - sustained debt servicing capacity of businesses % Leverage position sustained <50% 60 (Debt-to-Equity Ratio) Profitability continues to uptrend despite moderating interest-coverage 50 45.6 44.5 ratio % Times 8 14 40 7.5 7 12 9.7 6 10 30 5 5.7 8 4 6 20 3 5.5 4 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2 2 2009 2010 1 0 0 Improved downgrade-to-upgrade ratio 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2009 2010 Year Downgrades Upgrades Ratio ROA (Export-related sectors) 2009 23 11 2.09 ROA Interest coverage ratio (Export-related sectors) (RHS) Interest coverage ratio (RHS) 2010 22 15 1.47 Source: RAM and MARC *Export-related sectors include timber & wood-based products, textiles & apparels, rubber gloves, plantation & agriculture, packaging materials, O&G, furniture, E&E, chemicals & chemical products 12 Financial Stability and Payment Systems Report 2010
Rising household indebtedness supported by strong financial buffers… Household financial assets are 2.4 Household debt-to-GDP ratio times of household debts unchanged at 75.9% RM billion % Household Financial Assets, 80 300 1,600 Household Debt-to-GDP Ratio (%) Deposits and Debts 75.9 76 1,400 250 1,200 200 1,000 70 800 150 600 100 400 60 50 200 0 0 2006 2007 2008 2009 2010 50 Financial Assets (LHS) Debts (LHS) 2006 2007 2008 2009 2010 Fin. Asset-to-Debt Ratio Deposit-to-Debt Ratio 13 Financial Stability and Payment Systems Report 2010
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