PETALING JAYA: Domestic financial market conditions remained orderly throughout periods of heightened volatility in global financial markets in the second and third quarters of 2024, said Bank Negara Malaysia (BNM) in its Financial Stability Review First Half 2024.

BNM said that shifting investor expectations around major central banks’ monetary policy decisions contributed to the volatility in financial markets.

The ringgit, it added, continued to be primarily influenced by external developments. Since the beginning of 2024, the ringgit has appreciated by 11.4% against the US dollar as at Sept 30.

BNM said positive economic prospects and domestic structural reforms, complemented by ongoing initiatives to encourage foreign exchange flows, will continue to support the ringgit.

Business activities improved in the first half of 2024 supported by the recovery in export and stronger domestic demand. Some business sectors continued to face challenges arising from continuing cost pressures and slower recovery in consumer demand in some segments for non-essential products.

Overall, BNM said businesses have remained resilient against these challenges.

The credit quality of business loans remained sound, with the impairment ratio stable at 2.6% of business loans. The share of SMEs with delinquent loans has also declined.

Consistent with this, the share of SMEs undergoing repayment assistance programmes trended lower to 4.7% of total SME loans (or 0.8% of total loans from the banking system and development financial institutions).

The majority of SMEs that exited repayment assistance programmes have been able to sustain their loan repayments.

BNM said business resilience is expected to improve further in the second half of 2024 in line with the projected sustained expansion in economic activity.

Input costs are expected to ease amid lower commodity prices and the appreciating ringgit.

Household resilience continued to be supported by favourable economic and labour market conditions.

The ratio of household debt-to-gross domestic product has remained broadly unchanged at 83.8% as household debt grew in line with the pace of economic activity.

The median household debt-to-income ratio has also remained relatively stable.

BNM said banks’ prudent lending standards remained important in keeping household debt accumulation aligned with debt-servicing capacity.

Measures of debt repayment capacity, including the median debt service ratio, have correspondingly also remained prudent.

Household borrowings that may be at higher risk of default decreased to 4.4% of total household loans (December 2023: 4.8%), reflecting sustained loan repayments by most households.

Furthermore, BNM said continuous efforts by financial institutions to ensure strong operational risk management practices and fraud controls remain critical to support the financial system’s operational resilience.

Financial institutions continue to invest significant resources to enhance their cyber security detection and mitigation processes.

BNM said the strong buffers maintained by banks, insurers and takaful operators will continue to preserve the resilience of financial institutions against unexpected losses.

As at end-June 2024, the banking system’s aggregate total capital ratio stood at 18.4%, with capital buffers of RM136.1 billion in excess of the regulatory minimum.

Similarly, the insurance and takaful sector remained resilient, with an aggregate capital adequacy ratio of 227% and excess capital buffers of RM37.4 billion.

This will enable them to continue meeting households’ and businesses’ financing and protection needs as economic activities expand.

Deputy governor Jessica Chew said BNM continues to raise standards expected of financial institutions in response to new and emerging threats. “These include introducing enhanced expectations on managing risks posed by third-party service providers.”

The Real-time Electronic Transfer of Funds and Securities System and major retail payment systems maintained high system availability with no major incidents.

Malaysia’s regional cross-border instant payments connectivity has contributed to the increasing usage of cross-border Quick Response (QR) payments. The total cross-border QR payment transactions in the first six months of 2024 alone already doubled the transaction volume recorded for the whole of 2023.