Coping with COVID-19: Risk Developments in the First Half of 2020 7 10 19 22
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Coping with COVID-19: Risk Developments in the First Half of 2020
Coping with COVID-19:
Risk Developments in the
First Half of 2020
7 Market Risk
10 Credit Risk
19 Operational Risk
22 Box Article: Measures to Mitigate the Impact of the COVID-19 Pandemic and
Preserve Financial Stability
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 5Coping with COVID-19 – 1H 2020 Developments 6 FINANCIAL STABILITY REVIEW - FIRST HALF 2020
Coping with COVID-19:
Risk Developments in the First Half of 2020
MARKET RISK retail investors drove trading value and volume on
the local bourse, overtaking domestic institutional
investors, although more recent profit-taking activity
since August has led to some price correction. While
Domestic financial market market volatility has subsided from the peak observed
in March, it remained above levels observed prior to
conditions remained orderly the crisis as markets remain sensitive to newsflows
despite significant market around COVID-19, the escalation of trade tensions, and
volatility domestic political developments (Charts 1.2 and 1.3).
Developments surrounding the pandemic, combined Chart 1.1: Financial Market – Cumulative Non-resident
with uncertainty on the impact of COVID-19 policy Equity Flows and Performance of the Domestic
Equity Market
measures, ongoing geopolitical tensions and volatile
oil prices, led to a tightening in global financial RM billion Point
conditions in March and April 2020. On the domestic 5 1,700
front, the implementation of the Movement Control 0 1,600
J F M A M J J A
Order (MCO)1 to curb the spread of COVID-19 and weak -5 2020 1,500
external demand conditions have led to a contraction -10
1,400
in economic activity which also resulted in higher 1,300
-15
levels of domestic market stress in 1H 2020. Policy 1,200
-20 1,100
interventions by the Bank served to maintain orderly
conditions within the foreign exchange, bond, and -25 1,000
money markets during this period, with conditions Non-resident equity flows FBM KLCI (RHS)
largely normalising by the end of 1H 2020. The Bank’s Source: Bloomberg
open market operations, which included the purchase
of government securities, helped to contain potential
market dislocation and smoothen excessive volatility in Chart 1.2: Financial Market – Performance and
the bond market, further aiding the market’s recovery Volatility of FTSE Bursa Malaysia Kuala Lumpur
from the period of heightened volatility and significant Composite Index (FBM KLCI)
capital outflows at the onset of the COVID-19 shock. The % Point
reduction in Statutory Reserve Requirement (SRR) also 50 1,700
continued to ensure ample liquidity to support effective 1,600
40
intermediation and orderly market conditions. 1,500
30 1,400
In the domestic equity market, non-resident (NR) 20 1,300
outflows have persisted, amounting to RM20.3 billion 1,200
10
(USD4.7 billion) up to end-August 2020 on heightened 1,100
investor concerns over the economic impact of the 0 1,000
J F M A M J J A
pandemic (Chart 1.1). The impact on equity prices was
2020
however offset by a higher participation of domestic 30-day volatility FBM KLCI (RHS)
retail investors in the equity market, and a strong rally Source: Bloomberg
in healthcare and technology stocks. Of note,
1
The MCO was implemented on 18 March 2020 by the Government as a
preventive measure in response to the COVID-19 pandemic.
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 7Coping with COVID-19: Risk Developments in the First Half of 2020
Chart 1.3: Financial Market – Performance and non-bank financial institutions (NBFIs) and insurers
Volatility of FTSE Bursa Malaysia ACE Index (FBM ACE) and takaful operators (ITOs), continues to play an
important role in preserving orderly conditions
% Point
and providing continued access to credit markets
100 13,000
throughout 1H 2020 (for more information, refer
11,000
80 to the Information Box on ‘Impact of COVID-19 on
9,000 Systemic Non-bank Financial Institutions’). Malaysia’s
60
7,000 deep and liquid bond market with the support from
40 this diverse investor base will also lend continued
5,000
20
support to orderly market conditions.
3,000
0 1,000 In the near term, financial market volatility is
J F M A M J J A
2020 expected to remain elevated. A resumption in the
30-day volatility FBM ACE (RHS) rise of COVID-19 infections in several countries will
Source: Bloomberg continue to weigh on financial markets and heighten
market volatility. Investor sentiment could also turn
more cautious on weaker-than-expected corporate
The domestic bond market experienced a temporary earnings and an escalation of trade tensions.
spike in bond yields with 10-year Malaysian Government
Securities (MGS) and 10-year AAA corporate bond yields
Chart 1.4: Financial Market – Cumulative
rising by 84 bps and 59 bps respectively, amid significant
Non-resident Bond Flows and Performance of the
NR outflows (RM22.4 billion or USD5.2 billion) between Domestic Bond Market
February and April. Cumulative NR outflows which
peaked in April 2020 have since reversed to record a RM billion %
RM4.3 billion (USD1.1 billion) net inflow until end-August 10 4
2020 (Chart 1.4) amid the gradual improvement in global 5
investor sentiment and a continued stable base of NR 3
0
J F M A M J J A
investors, such as governments and central banks, -5 2020
2
in the domestic bond market. Sustained demand -10
by domestic investors for Malaysian government -15 1
bonds was supported by the Bank’s measures to ease
-20
liquidity conditions, reflected in the bid-to-cover (BTC)
-25 0
ratio which averaged at 2.4 times in the first seven
months of 2020. However, auctions for long-term bonds Non-resident bond flows 10-year MGS yields (RHS)
since August saw a slight tapering in demand amid Source: Bank Negara Malaysia and Bloomberg
excess supply concerns post-tabling of the COVID-19
stimulus bill. Among NR investors, demand for
Malaysian government bonds began recovering since
Chart 1.5: Financial Market – 10-year MGS-UST Yield
May, supported by improved market sentiment and
Differential
the positive yield pickup over US Treasuries (Chart 1.5).
Along with the more accommodative monetary policy, Basis point
300
this has seen MGS yields gradually retreat from the
sharp increase observed in March. The corporate bond 250
market continued to function smoothly with credit
200
spreads for 10-year AAA papers normalising to around
54 bps after reaching a peak of 105 bps in April. Net 150
2019 average
corporate bond issuances have also recovered as firms 100
sought to shore up liquidity while taking advantage
50
of lower borrowing costs, although issuances remain
below levels in 2019 (January-August 2020: RM17.8 billion, 0
J F M A M J J A
January-August 2019: RM28.8 billion). As in previous
2020
episodes of market stress, the sustained demand Source: Bloomberg
from domestic institutional investors, such as banks,
8 FINANCIAL STABILITY REVIEW - FIRST HALF 2020Coping with COVID-19: Risk Developments in the First Half of 2020
Impact of COVID-19 on Systemic Non-bank Financial Institutions
Amid the COVID-19 outbreak, several systemic non-bank financial institutions (NBFIs) experienced increased
demands for liquidity arising from the implementation of Government support measures.2 Despite their significant
investment holdings in the capital market, rebalancing activities by some NBFIs in response to liquidity needs
have not had a material impact on asset prices. Increased liquidity needs of NBFIs were largely met from available
cash and other liquid assets, with rebalancing activities generally conducted in an orderly manner. Although
NBFIs’ deposit placements in banks fell briefly in the first quarter, this had limited impact on banks’ liquidity as
the share of banking system deposits held by these systemic NBFIs remained low (June 2020: 5.3%).
NBFIs remain key participants in the domestic financial markets with sizeable investment holdings of 30.5% and
42.4% of equity market capitalisation and outstanding debt issuances, respectively. During periods of heavy
sell-offs, NBFIs have continued to provide countercyclical support to markets, as observed when the FTSE Bursa
Malaysia KLCI (FBM KLCI) fell by 15% in the first quarter of 2020. NBFIs’ investments in equities correspondingly
increased amid attractive market valuations. Systemic NBFIs similarly provided support to the government bond
market amid bouts of sizeable non-resident outflows. NBFIs’ holdings of shares in banks increased during this
period from 37% to 40% of the market capitalisation of listed banks. Financial stability risks associated with
such holdings remain low given the continued financial strength of NBFIs, the strategic and longer-term nature of
these investments and the strong governance requirements imposed on licensed financial institutions.
Continued uncertainty surrounding the pandemic is likely to weigh on NBFIs’ investment performance for the
year. Some NBFIs may experience higher withdrawals or redemptions by investors who are more sensitive
to investment returns if returns underwhelm. Redemption risks by such investors, however, are expected
to be mitigated by more cautious risk appetite and low returns from alternative investments in the current
environment. Systemic NBFIs generally also continue to hold sufficient liquid financial buffers in the form of
cash deposits and government debt securities to meet potential stressed withdrawals over a period of more
than 90 days.
2
The relief measures include lowering the contribution rate and allowing the withdrawal of contributions from retirement funds, introducing wage
subsidy programmes to encourage continued employment, and education loan deferments.
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 9CREDIT RISK The share of firms at risk is expected to rise further
by the end of 2020 as more businesses may struggle
to adapt to new operating conditions.
Weaker operating conditions The impact of the pandemic has been more pronounced
on small and medium enterprises (SMEs).7 Surveys
weighed on the financial health indicate that among smaller firms, many have limited
of most firms financial buffers with cash reserves of only two months
or less of expenses.8 The lower level of digitalisation
The financial performance of Malaysian non- among SMEs9 has also constrained their ability to pivot
financial corporates (NFCs) deteriorated in the first to e-commerce platforms to sustain business activity,
half of 2020, amid significant business disruptions particularly during the early phase of the MCO. Relief
and weak demand across most sectors due to measures introduced by the Government and banks are
widespread lockdowns in Malaysia and other helping many businesses tide over temporary financial
countries to contain the spread of the virus. difficulties, although conditions will remain highly
While businesses have started to recover with challenging in industries that continue to be affected
the gradual easing of the MCO since May, the by international border restrictions (refer to the Box
recovery has been uneven. The tourism-related Article on ‘Measures to Mitigate the Impact of the
and services industries 3 were notably among the COVID-19 Pandemic and Preserve Financial Stability’ for
most impacted by the pandemic, as revenues fell details of measures introduced).
sharply following lower inbound passenger loads
and reduced spending on non-essential services. The significant relief measures introduced have kept
Restrictions on air travel also weighed heavily on business loan impairment ratios low and stable
global oil demand, disrupting the recovery of firms at 2.5% for overall NFCs (Chart 1.7). During the first
in the oil and gas sector observed in late 2019. half of the year, only one domestic corporate bond
More recently, the wholesale and retail sector has
seen a gradual recovery following the easing of
Chart 1.6: Business Sector – Key Financial
mobility restrictions post-MCO. Improvements were
Performance Indicators
also observed in the manufacturing sector, notably
within the electrical and electronics (E&E) and % Times
medical product segments, which have benefitted 30 6
25.1 25.4
from a backlog of orders due to the MCO. In the 4.8 4.8
23.8
real estate sector, activity has picked up slightly
in recent months although conditions remain 3.7
15 3
challenging (refer to the section on risks in the
property market below for further details).
5.7 5.6 4.8
While the overall debt-servicing capacity of NFCs 4
0.8 1.0 1.0
0 0
has weakened due to the significant impact of 1H '19 2H '19 1H '20p
COVID-19, it remained above the prudent threshold5 Debt-to-equity ratio Operating margin
reflecting reasonably healthy initial financial Cash-to-short-term debt ratio
Interest coverage ratio
conditions before the pandemic (Chart 1.6 and (ICR) (RHS) (CASTD) (RHS)
Diagram 1.1). The number of firms with an ICR of p Preliminary
less than two times rose to 32.1% of listed firms Note: Prudent thresholds for ICR and CASTD are two times and
one time, respectively
as at June 2020 (December 2019: 28.1%) despite
Source: S&P Capital IQ and Bank Negara Malaysia estimates
liquidity positions6 improving slightly from the first
quarter of 2020 as firms conserved cash reserves.
3
Including airlines, land transport, hotels and restaurants, 7
Including micro enterprises and sole proprietors.
entertainment and theme parks, medical tourism, travel agents, 8
Based on surveys done by SME Association of Malaysia and Small
and retail services. and Medium Enterprises Association (SAMENTA) in end-March and
4
As measured by the median interest coverage ratio (ICR). early-April 2020, respectively.
5
Prudent threshold for ICR is two times. 9
Based on 2018 SME Survey done by the Bank, only 14% of SMEs
6
As measured by the median cash-to-short-term debt ratio reported having an online presence such as dedicated web stores
(CASTD). and social media accounts.
10 FINANCIAL STABILITY REVIEW - FIRST HALF 2020Coping with COVID-19: Risk Developments in the First Half of 2020
Diagram 1.1: Key Indicators for Selected Vulnerable Sectors
Tourism- Wholesale
related and retail Construction Real estate Oil and gas
ICR (times) 3.7 4.9 2.3 2.6 3.1
CASTD (times) 1.0 1.2 0.5 0.5 0.8
CR (times) 2.0 2.4 1.8 1.6 1.3
DE (%) 23.8 27.4 36.8 39.1 36.1
% of bank loans
7.0 18.1 14.5 17.7 1.1
to businesses
Impairment 2.2 1.6 2.6 2.0 3.6
ratio (%)
Note:
1. The tourism-related sector includes companies in the following services sectors: airlines, land transport, hotels and restaurants, entertainment
.and theme parks, medical tourism, and travel agents
2. The following financial ratios are based on Bursa-listed companies only: ICR: Interest coverage ratio (prudent threshold: 2 times), CASTD:
Cash-to-short-term debt ratio (prudent threshold: 1 time), CR: Current ratio, DE: Debt-to-equity ratio
Source: Bank Negara Malaysia, S&P Capital IQ and Bank Negara Malaysia estimates
downgrade was reported (2019: 7), accounting for Chart 1.7: Business Sector – Gross Impaired Loans
0.03% of total corporate bonds and sukuk held by
financial institutions. However, banks have reported Ratio (%)
3.0
a higher share of business loans with increased
credit risks10 (13.9%; 2019: 11.5%), indicating signs 2.5 2.5
2.5
of businesses facing greater financial stress. The
targeted debt assistance and relief measures 2.0
J A S O N D J F M A M J
extended by banks will help viable businesses 2019 2020
maintain debt serviceability and avoid widespread Overall business: Gross impaired loans
defaults. For the period between April and July 2020,
SME: Gross impaired loans
banks approved 6.3 times as many applications
Source: Bank Negara Malaysia
from businesses to reschedule and restructure (R&R)
their loans compared to total outstanding R&R
business exposures as at end-2019. The outlook as demand for financing moderated sharply and banks
for business credit risks will however continue to re-assessed business sector risks. In the capital
be highly dependent on the pace and strength of market, refinancing risks remain low with corporates
economic recovery. observed to continue to be able to raise funding during
this period. While larger issuances of government
Total outstanding debt of the NFC sector grew by bonds going forward could see some crowding out of
3.8% annually to RM1.6 trillion or 108.1% of GDP corporate funding in the debt market, the majority
as at June 2020 (Chart 1.8), mainly attributed to of corporate bonds maturing this year continue to
lower repayments due to the moratorium and an be highly-rated, further mitigating refinancing risks.
increase in working capital loans. Aggregate new Corporate sector external debt increased by 4.9%,
loans disbursed to NFCs however declined (-3.4%) mainly driven by additional borrowings by firms in
the oil and gas-related sector and valuation effects
following the weaker ringgit during the first half of
10
Classified as Stage 2 loans under the Malaysian Financial
Reporting Standard 9. 2020 against selected major and regional currencies.
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 11Coping with COVID-19: Risk Developments in the First Half of 2020
Chart 1.8: Business Sector – Non-financial Corporate Institution Soundness and Resilience’ for further
Debt-to-GDP Ratio and Aggregate Debt Annual details). Intensified credit risk monitoring by banks
Growth Rate with a focus on borrowers in more vulnerable
% of GDP sectors is also expected to contain impairments by
[3.6%] [1.0%] [3.8%] enabling businesses to pre-emptively reschedule or
120
101.8 99.4 108.1
100 restructure their debt. At the banking system level,
80 around a quarter of business loans are subjected to
60
intensified monitoring.
40
20
Housing market activity fell in
1H 2020, while non-residential
0
Jun '19 Dec '19 Jun '20
Domestic loans/financing Domestic corporate bonds/sukuk properties experienced above-
External debt average vacancy rates and
[...%] refers to aggregate non-financial corporate debt annual
growth rate
depressed rental yields
Source: Bank Negara Malaysia
In the residential property segment, house prices as
measured by the Malaysian House Price Index (MHPI)
Risks to financial stability from external borrowings continued to register positive, albeit slower growth of
remain manageable as borrowings are mostly 1.1% in the first half-year of 202012 (2019: 2.2%). Market
medium- to long-term in nature and hedged against activity weakened considerably, with both volume
exposures to currency movements. and value of transactions falling sharply during the
period (Chart 1.9). Fewer housing projects launched
Business conditions are expected to improve in during the second quarter further dampened market
the second half of the year, in line with the gradual activity, with the number of new units amounting
improvement in economic activity. The extension to only about one-fifth (3,911 units) of the quarterly
of targeted financial relief measures will continue average in 2019. The number of unsold houses has
to help support businesses alongside corporate remained elevated at close to 170,000 units, with
and SME guarantee schemes as the recovery takes most still under construction (67% of unsold units) or
a stronger hold. More importantly, greater visibility priced above RM300,000 (73%).
on loan performance from the transition to more
targeted repayment assistance remains important In the non-residential property segment, short-term
to reduce risk aversion and improve credit supply accommodations such as hotels and budget hotels
during the recovery phase. were hit hardest by the pandemic as mandatory
travel restrictions and border closures, coupled with
However, vulnerabilities remain elevated for heightened concerns over health and finances, severely
sectors that may see a slower recovery, particularly impacted travel and vacation activities. The average
tourism-related sectors and high-touch service hotel occupancy rate plunged significantly to a low of
industries where border restrictions and 12% (5-year historical average: 61%), with many hotel
precautionary consumer behaviour continue to weigh operators either scaling down or closing operations.
on business activities. Risks of COVID-19 infections Following relaxations on interstate travel under the
rising again could also affect global demand. Sectors recovery MCO (RMCO),13 close to 90% of premises that
that may continue to be affected11 account for about were temporarily closed in April 2020 are reported to
16% of total banking system loans. The banking have resumed operations as at end-August,14 although
system is expected to remain resilient to a significant the outlook remains challenging given that cross-
increase in overall business impairments with losses border travel restrictions remain largely in place.
to banks substantially mitigated by collateralised
obligations and diversified revenue sources among
12
1.9% in 1Q 2020 and 0.4% in 2Q 2020 (preliminary estimates).
larger borrowers (refer to the Chapter on ‘Financial 13
CMCO and RMCO were implemented on 4 May 2020 and 10 June 2020,
respectively, after Malaysia reported successive lower daily new
COVID-19 cases.
11
Specifically, transport and storage, wholesale and retail trade, 14
Based on surveys conducted by Malaysian Association of Hotels in
hotels and restaurants, and manufacturing sectors. April and August 2020.
12 FINANCIAL STABILITY REVIEW - FIRST HALF 2020Coping with COVID-19: Risk Developments in the First Half of 2020
Shopping complexes were also adversely affected increase risks to financial stability given that loans
by the decline in footfall during the MCO and lagged for the purchase of residential properties account
recovery during the subsequent conditional MCO for the bulk of banks’ total property-related
(CMCO) and RMCO. Amid pre-existing oversupply exposures (Chart 1.12). That said, several factors
conditions and changes to consumption behaviour are expected to mitigate this risk. First, over 80%
since the pandemic, rental rates in the retail of loans are extended for homes that are owner-
commercial property market are likely to remain occupied which substantially reduces the likelihood
depressed in the period ahead. Industry insights of borrowers defaulting on their loans. Second, the
indicate that the recovery in footfalls in malls will be bulk (85%) of borrowings for investment purchases
gradual, and could take between 6 to 12 months given are associated with higher-income borrowers
continued cautious behaviour and adoption of the earning more than RM5,000 per month. Such
new standard operating procedures (SOPs). borrowers are generally more resilient to income
shocks and are unlikely to dispose of properties
at a loss if they can continue to service their debt.
Risks in the property market have
Third, speculative activity in the housing market
increased has remained subdued for some years now, with
prices in some segments already having moderated
Meanwhile in the office space segment, the significantly from exuberant valuations in the past.
immediate impact from an increase in flexible working Further, recent OPR cuts and the reintroduction
arrangements has been relatively muted so far, as of the Home Ownership Campaign15 (HOC) should
vacancy rates for prime office spaces in the Klang continue to provide some support to housing
Valley recorded only a slight increase. Anecdotal demand, particularly in the primary market, as
evidence suggests that businesses may review their already evidenced by the strong recovery in the
space requirements as leases come up for renewal to growth of applications of loans for the purchase of
take into account the higher number of staff expected residential property in June (20.0% annual growth
to continue working from home as well as physical rate; April: -72.1%), mainly in the affordable segment.
distancing conditions at the workplace. This could The automatic loan moratorium and targeted
further weigh on office occupancy and rental rates repayment assistance also provide vulnerable
(Charts 1.10 and 1.11). borrowers with some relief and will limit property
foreclosures that could put pressure on house
The pandemic may increase risks of a broader decline prices. In other property segments, the exposure
in house prices due to a deterioration in income of banks remains low and continued to be largely
and weaker demand conditions. This in turn would performing (Charts 1.13 and 1.14).
15
HOC was reintroduced by the Government in June 2020 until May 2021,
to provide financial incentives to homebuyers with stamp duty
exemptions and house price discounts. Additionally, the 70% margin
of financing limit applicable for the third housing loan onwards for
property valued at RM600,000 and above, was uplifted for the same
period, subject to internal risk management practices of financial
institutions.
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 13Coping with COVID-19: Risk Developments in the First Half of 2020
Chart 1.9: Property Market – Housing Transactions Chart 1.10: Property Market – Occupancy Rate for Hotels
and Vacancy Rates for Office and Retail Space
Annual change (%) Occupancy rate (%) Vacancy rate - Klang Valley (%)
10
6.0 5.6
1.4 60.6 59.7
0.3
0
-10
26.0 26.4 25.4
22.1 21.6 24.3
-20
12.1
-25.3 -26.7
-30
Volume Value Hotels Office space Retail space
1Q-4Q '18 average 1Q-4Q '19 average 1Q-2Q '20 average 2015-2019 average 4Q '19 2Q '20
Chart 1.11: Property Market – Rentals for Prime Office Chart 1.12: Property Market – Financial Institutions'
and Retail Space in Kuala Lumpur Exposures to the Property Market
Rajah 1.9: Pasaran
Annual change (%) Harta Tanah – Transaksi Perumahan %
RM948.8 billion RM17.1 billion RM12.7 billion
100
6
80 24%
4.9
5 60
Perubahan tahunan (%)
40 77% 49%
410 66%
6.0 5.6 20
1.4 0.3 22%
30 0
Banks Development Insurers and
2 financial institutions takaful operators
-10
1.5
0.8 0.9 0.9 End-financing for residential properties
1
-20
0.4
Rajah 1.10: Pasaran
End-financing Harta Tanahproperties
for non-residential – Kadar Penghunian Hotel
0
-25.3 -26.7 danWorking
Kadarcapital
Kekosongan Ruang
for construction Pejabat
and dan ofRuang
development Niaga
properties
-30
Bridging financing for construction and development of properties
Prime office space
Bilangan Prime retail
Nilai space 1
Corporate bonds/sukuk issued by property developers, held by
Kadar penghunian
financial (%)
institutions Kadar kekosongan - Lembah Klang (%)
Purata S1-S4
2015-2019 '18
average Purata
4Q '19S1-S4 '192Q '20 Purata S1-S2 '20
Investment in properties
60.6 59.7
Chart 1.13: Property Market – Loan Impairment Ratios Chart 1.14: Property Market – Banking System's Exposure
for End-Financing by Segment to Vulnerable Segments 22.1in the Property21.6
26.0 26.4 Market
24.3 25.4
12.1
% % of total loans in banking system
Rajah
2.5 1.11: Pasaran Harta Tanah – Sewa Ruang Pejabat 4 Hotel3.3 Ruang 3.3
pejabat Ruang niaga
3.2
Utama 2.0 2.1 2.1
dan Ruang Niaga Utama di Kuala Lumpur
2.0 Purata tahunan 2015-2019 S4 '19 S2 '20
2.1 2.0 1.9
1.5
Perubahan tahunan (%) 1.4 1.4 1.4 2
1.2 1.2 1.1
0.9 0.9 0.9
1.0
6
0.5 4.9
5 0
0.0
Rajah 1.12:
DecPasaran
’19 HartaMar
Tanah
‘20 – DedahanJun Institusi
‘20
4 Residential Non-residential Office space and Kewangan kepada Pasaran Harta Tanah
Financing to property developers with unsold residential property
property property² shopping complex
3 % Financing of office space and shopping complex
RM948.8 bilion RM17.1 bilion RM12.7 bilion
Dec '19 Mar '20 Jun '20 100Financing of hotel
2
1.5 80 24%
0.8 0.9 0.9
1 60
0.4 77% 49%
1
Average rents of the most prominent shops in major shopping complexes 40 66%
20Includes shops, hotels, industrial buildings, factories and land, but excludes office space and shopping complexes
20
Ruang pejabat utama Ruang niaga utama1 22%
Source: Bank Negara Malaysia, JLL Malaysia, Jones Lang Wootton, Malaysian Association0 of Hotels, Malaysia Tourism Promotion Board,
National Property Information Centre (NAPIC) and Savills Malaysia Bank-bank Institusi kewangan Penanggung
Purata tahunan 2015-2019 S4 '19 S2 '20 pembangunan insurans dan
pengendali takaful
Pembiayaan akhir untuk harta kediaman
Pembiayaan akhir untuk harta bukan kediaman
Modal kerja untuk pembinaan dan pembangunan harta tanah
Pembiayaan penghubung untuk pembinaan dan pembangunan harta tanah
Bon korporat/sukuk terbitan pemaju harta tanah yang dipegang
Rajah 1.13: Pasaran Harta Tanah – Nisbah Pinjaman Rajah
oleh1.14: Pasaran
institusi Harta Tanah – Dedahan Sistem
kewangan
Pelaburan dalam harta tanah
Terjejas bagi Pembiayaan Akhir Mengikut Segmen Perbankan kepada Segmen yang Lebih Mudah Terjejas
14 FINANCIAL STABILITY REVIEW - FIRST HALF 2020 dalam Pasaran Harta Tanah
% % daripada jumlah pinjaman dalam sistem perbankanCoping with COVID-19: Risk Developments in the First Half of 2020
Households were partially Chart 1.16: Household Sector – Annual Growth
cushioned by the relief measures of Debt
from the adverse impact of the Percentage point
pandemic 6
5
4.9 4.7
5.3 5.5
4.0
4
3
2
At the aggregate level, most households are
1
expected to remain reasonably resilient despite the 0
impact of the pandemic on household income and -1
employment prospects. Households continue to -2
Jun '18 Dec '18 Jun '19 Dec '19 Jun '20
maintain comfortable levels of financial assets and
Residential properties Non-residential properties
liquid financial assets (LFA) at 2.2 times and 1.4 times
Motor vehicles Credit cards
of debt, respectively as relief measures introduced
by Government and the Bank released extra cash to Personal financing Securities
households.16 Household deposits correspondingly Others Annual change: Debt (%)
recorded stronger annual growth of 7.0% as at Source: Bank Negara Malaysia
end-June 2020 (2019: 4.6%) (Chart 1.15). Meanwhile,
the growth in household debt17 moderated to 4.0%
(2019: 5.5%) amid movement restrictions and lower to the sharp contraction in nominal GDP in the
discretionary purchases as households turned more second quarter (Chart 1.17). This ratio is expected
cautious (Chart 1.16). This was mainly reflected in the to decline as economic activity improves and
weaker loan growth for the purchase of residential households gradually resume loan repayments.
properties and motor vehicles in 1H 2020 (7.2% and Although household debt levels remain elevated,
-0.9%, respectively; 2019: 8.5% and -0.4%, respectively). households are generally
Rajah 1.16: Sektor still
Isi Rumah borrowing within
– Pertumbuhan
their
Hutang means as reflected by the prudent overall
Tahunan
Despite the slower growth in debt, the household median debt service ratio (DSR) for outstanding
debt-to-GDP ratio rose above its previous peak of and newly-approved loans of 35% and 43%,
Mata peratusan
86.9% in 2015 to 87.5% as of June 2020 due mainly respectively
6
4.9
(2019: 37% and5.343%, respectively).
5.5
5 4.7 4.0
4
Chart 1.15: Household Sector – Annual Growth of Some
3 households, however, are facing increased
Financial Assets financial stress. Household leverage18 increased the
2
1
most among borrowers earning less than RM5,000
Percentage point 0
per
-1 month in 1H 2020, amid income prospects
8
6.7 6.5 -2
7
6 5.3
5.1
5.4 5.3 4.7 Chart
Jun1.17:
'18 Household
Dec '18 Sector – Key Ratios
Jun '19 Dec '19 Jun '20
5
4 3.4 Harta kediaman Harta bukan kediaman
3.0 2.7 % of GDP
3
2 200 Kenderaan bermotor Kad kredit 190.2
180.1 179.3
1
86.9 peribadi
Pembiayaan Sekuriti 87.5
0 150
(previous (new
-1 Lain-lain Perubahan tahunan: Hutang (%)
Jun '18 Dec '18 Jun '19 Dec '19 Jun '20 peak) peak)
100 82.9
EPF contributions Deposits Sumber: Bank Negara Malaysia
Unit trust funds Equity holdings 50 69.7 68.2 71.8
Insurance policies Annual change: Financial assets (%)
(surrender value) 0
Annual change: Liquid financial assets (%) Dec '15 Dec '19 Jun '20
Source: Bank Negara Malaysia, Bursa Malaysia, Employees Provident Debt-to-GDP: Total Financial assets-to-GDP
Fund, Securities Commission Malaysia
Debt-to-GDP: Banking system
Source: Bank Negara Malaysia, Bursa Malaysia, Department of
Statistics, Malaysia, Employees Provident Fund and
Securities Commission Malaysia
16
As to date, total cash disbursements under Bantuan Prihatin
Nasional (BPN) was RM11.2 billion involving 10.6 million recipients.
Total cumulative withdrawals under i-Lestari from April to September
amounted to RM9.33 billion, with 4.64 million applications approved.
17
Extended by both banks and non-bank financial institutions. 18
Measured as a ratio of outstanding debt to annual income.
Rajah 1.15: Sektor Isi Rumah – Pertumbuhan Aset
Kewangan Tahunan FINANCIAL STABILITY REVIEW - FIRST HALF 2020 15
Mata peratusanCoping with COVID-19: Risk Developments in the First Half of 2020
that are more uncertain and liquidity buffers for A notable development in the first half of 2020
borrowers earning less than RM3,000 that are already has been the significant increase in retail
stretched (Chart 1.18). The higher leverage has been participation in the equity market, which saw retail
mainly attributable to an increase in borrowings for investors purchasing a total of RM113.1 billion
the purchase of homes earlier in the year19 and in worth of listed shares. Our surveillance indicates
June following the reintroduction of the HOC. Despite that the surge in retail participation has not
expectations for labour market conditions to improve been funded by borrowings. Loans disbursed
going forward, borrowers with variable income and/or and outstanding for the purchase of shares,
employed in more adversely impacted sectors will also including margin financing, remained low and
likely face continued challenges. For these borrowers, broadly stable during this period (Chart 1.19). Such
the targeted assistance20 extended up to the first loans continue to account for a small share of
quarter of 2021 will provide further temporary financial overall household debt (0.5%) and bank lending
relief, while Government measures such as the wage to households (0.6%). There have also been no
subsidy, and reskilling and upskilling programmes discernible changes in the profile of household
will serve to improve future employment and income borrowers with share margin facilities, as they
prospects. This in turn will support debt serviceability. remain mostly within the higher-income segments
with larger financial buffers (Chart 1.20).
Chart 1.18: Household Sector – Leverage and
LFA-to-Debt Ratio Anecdotal insights suggest that some households
are using excess cash reserves from relief
Times measures and savings to invest in equities. This
.2 10 9.5 could increase risks to households through the
9.0
8 impact on debt-servicing capacity and wealth
6.8 7.1
6 5.3 5.5
effects if the value of equities fall substantially
3.9 4.0 when households have to resume their loan
4
1.3 1.5 repayments. As noted above, such risks are
2 0.7 1.0
assessed to be low given that leveraged retail
0 investors typically have larger financial buffers.Coping with COVID-19: Risk Developments in the First Half of 2020
Chart 1.19: Household Sector – Loans for Purchase of Chart 1.20: Household Sector - Outstanding Loans for
Quoted Shares, Personal Financing and Purchase of Purchase of Quoted Shares by Income Group
Shares in Equity Market
RM billion RM billion
35
8
30
Non-borrowings
25 6
20 6.3
4 [80] 5.3
15
[79]
10
2
5
0 0
J F M A M J J A S O N D J F M A M J Dec '19 Jun '20
2019 2020 Monthly income (RM'000)
Quoted shares: Loans disbursed (Flow figure)
10
Personal financing: Loans disbursed (Flow figure)
Quoted shares: Outstanding loans [ ] indicates % share of the components against total loans for quoted
Retail participation: Buy (Flow figure) shares in the banking system
Chart 1.21: Household Sector – Liquid Financial Chart 1.22: Pre- and Post-shock Scenarios – LFA Cover
Assets (LFA) by Type by Income Group
RM billion Times
Rajah
2000 1.19: Sektor Isi Rumah – Pinjaman bagi Pembe- Rajah
2.0 1.20: Sektor Isi Rumah - Pinjaman Terkumpul
Prudent
lian Saham
9% Disebut
9% Harga,9%
Pembiayaan
9% Peribadi
9% dan
9% bagi Pembelian Saham Disebut Harga Mengikut threshold:
Pembelian
1500 13% Saham
13% di Pasaran
12% Ekuiti
13% 13% 13% 1.5
Kumpulan Pendapatan 1 time of
14% 13% 13% 13% 13%
13% debt
1000 17% 17% 15% 15% 15% 16% 1.0
1.5 1.9 1.5
RM bilion RM bilion 1.3 1.4
1.1 1.2 1.1
35 0.5
500 0.7 0.5
47% 48% 50% 50% 50% 49% 8
30 0.0
Bukan pinjaman
25 0 6 BL S1 BL S1 BL S1 BL S1 BL S1
20 Jan ‘20 Feb ‘20 Mar ‘20 Apr ‘20 May ‘20 Jun ‘20 10 Total
15 4 [80] 5.3
Monthly income (RM'000) [79]
10 Deposits Investment in equities
5 Unit trust funds: Fixed-price 2 Baseline
BL:
Unit trust funds: Variable price Shock scenario, S1: 77% decline in value of equity and variable price
0 unit
0 trust fund holdings, based on the 77% drop in FTSE Bursa Malaysia
Insurance policies (surrender value)N D J F M A M J
J F M A M J J O S O
KLCI (FBM KLCI) inDis
1997
'19 Jun '20
2019 2020
Pendapatan bulanan (RM'000)
Saham disebut harga: Pinjaman dikeluarkan (Angka aliran)
10
Pembiayaan peribadi: Pinjaman dikeluarkan (Angka aliran)
Source: Bank Negara Malaysia, Bursa Malaysia
Saham disebut harga: Pinjaman terkumpul and Securities Commission Malaysia
[ ] menunjukkan % bahagian komponen kepada jumlah pinjaman
Penyertaan runcit: Beli (Angka aliran) saham disebut harga dalam sistem perbankan
The automatic
Rajah loanIsi
1.21: Sektor moratorium
Rumah - Aset provided many Mudah
Kewangan the Bank estimates that household borrowers who
households with immediate temporary financial relief, Rajah 1.22: Senario
may experience Sebelum(i.e.
difficulties danthose
Selepas
withKejutan
negative–
Tunai Mengikut Jenis Perlindungan Aset Kewangan Mudah Tunai Mengikut
particularly those who had lost their jobs and were financial margins) in servicing their debt as a result
Kumpulan Pendapatan
experiencing income declines. At its peak, close to 90% of income and unemployment shocks are unlikely
RM bilion
of household borrowers with about 87% of outstanding
2000 to account for more than 15% of total borrowers.
Kali
household 9% loans9%in the banking
9%
system
9%
were 9% under9% Among these borrowers, about 1% of total
2.0 Ambang
1500moratorium kehematan:
the 13%
as most borrowers
13% 12% 13%elected 13%to defer13% borrowers
1.5 with 3% of outstanding household debt
1 kali
14% 13% 13% 13% 13% 13%
their
1000
loan
17%
repayments
17%
to 15%
secure greater
15% flexibility
15% in
16% are
1.0
expected to default after accounting for financial
hutang
managing their cash flows during a highly uncertain buffers held1.3 and targeted1.5 1.9
repayment1.5 assistance
1.4
1.1 1.2 1.1
500 0.5
period. Many of these
47% 48% borrowers
50% would
50% have50% been 49%
able extended
0.7 0.5 to borrowers in need. About 40% of
to continue
0
servicing their debt if they had chosen to. the potential defaults arise from housing debt
0.0
BL S1 BL S1 BL S1 BL S1 BL S1
BasedJan on‘20
the enhanced
Feb ‘20 financial
Mac ‘20 Aprmargin
‘20 framework,
Mei ‘20
21
Jun ‘20 with an average LTV of 70%, thus limiting financial
10 Jumlah
Deposit Pelaburan dalam ekuiti exposures of affected
Pendapatanborrowers and losses to the
bulanan (RM'000)
21
Refer
Danato theamanah:
unit Information
HargaBox on “Forecasting
Dana unit Households’ Time to
amanah: Harga banking
BL: Dasar system. Furthermore, as elaborated in the
Default
tetap – Enhancements to the Financial Margin Framework” for Senario kejutan, S1: Kemerosotan 77% dalam nilai pemegangan ekuiti
berubah Financial Stability Review 2H 2019, borrowers with
dan dana unit amanah harga berubah, berdasarkan kejatuhan 77%
further details.
Polisi insurans (nilai serahan) Indeks Komposit Kuala Lumpur FTSE Bursa Malaysia (FBM KLCI) pada
tahun 1997
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 17Coping with COVID-19: Risk Developments in the First Half of 2020
positive equity 22 are less likely to default on their Chart 1.23: Household Sector – Coverage of Loan
housing loans. For households with lower income Moratorium in the Banking System
and financial buffers, income support measures will
Share of outstanding Share of total number of
remain important to avoid further financial hardship. household loans* household loan accounts*
88.9% 88.2%
86.9% 87.6%
While the automatic moratorium 85.5%
84.4%
provided borrowers the flexibility
to manage their finances, many are
resuming repayments in light of
clearer economic prospects Apr ‘20 May ‘20 Jun ‘20 Apr ‘20 May ‘20 Jun ‘20
*Excludes credit cards
Source: Bank Negara Malaysia
In recent months, more borrowers have started to
resume their loan repayments as their income and
employment prospects became clearer (Chart 1.23).
Many of the borrowers who recently opted out of the respectively (2019: 1.2% and 1.1%). Household asset
loan moratorium are also those with larger loans, quality is expected to see some deterioration in
earning salaried income above RM5,000 a month. Given 2H 2020 and throughout 2021 after the automatic
that around 70% of household debt comprise floating moratorium ends,Isibut banks are well-positioned
Rajah 1.23: Sektor Rumah – Liputan Moratorium
rate loans, debt serviceability after the moratorium will to absorb higher credit
Pinjaman dalam Sistem Perbankan losses (refer to the
be further supported by lower monthly debt obligations Chapter on ‘Financial Institution Soundness and
following successive OPR cuts during the year. Bahagianfor
Resilience’ pinjaman Bahagian
further details). Assetbilangan
quality akaun
terkumpul isi rumah* pinjaman isi rumah*
is also expected to remain supported 88.9%
by the
88.2%
With the automatic moratorium in place, aggregate transition
86.9% to more targeted assistance measures 87.6%
85.5%
impairment and delinquency ratios remained low at and gradual improvements84.4% in the income and
1.0% and 0.9% of total outstanding household debt, employment outlook.
Apr ‘20 Mei ‘20 Jun ‘20 Apr ‘20 Mei ‘20 Jun ‘20
* Tidak termasuk kad kredit
Sumber: Bank Negara Malaysia
22
Defined as outstanding loan held by a borrower being lower than the
market value of the corresponding house. Refer to the Information
Box on ‘Can Malaysian Households Survive a House Price Shock?’ in
Financial Stability Review 2H 2019 for further details.
18 FINANCIAL STABILITY REVIEW - FIRST HALF 2020OPERATIONAL RISK The implementation of the MCO to contain the
outbreak also introduced additional restrictions
that required financial institutions to swiftly
adapt their operations in ways that were not
There were no operational previously contemplated in most BCPs (further
elaborated below).
disruptions despite heightened
operational risks during The immediate establishment of a centralised
the pandemic, and financial communication channel between the Bank and the
institutions are taking further industry prior to the onset of the MCO was critical
to effectively coordinate the implementation of
steps to strengthen business health measures across the financial sector. It
continuity plans also supported the swift transmission of critical
information on operational risk incidents throughout
The pandemic presented new operational challenges the MCO period which enabled financial institutions
which tested the agility of financial institutions’ to take pre-emptive measures to protect their staff,
business continuity plans (BCPs). Notwithstanding customers and operations on a continuous basis.
heightened operational risks, financial institutions Financial institutions largely continued to operate
successfully activated BCPs which enabled the within their recovery time objectives for critical
continued provision of essential financial services to operations, supported by increased resources and
the public, while protecting the health and wellbeing management attention directed towards ensuring
of staff and customers (Diagram 1.2). system resilience throughout the MCO period.
Diagram 1.2: BCP Responses by Financial Institutions during the Pandemic
Activation of split operations Immediate activation of disaster
between headquarters, alternate recovery centres (DRC) to ensure
sites and work-from-home with readiness of critical IT back-up
critical employees isolated within systems, including their capacity
segregated groups to prevent to cope with a sudden surge in
cross-infections the volume of online transactions
Formation of a multi-disciplinary Close coordination with the Bank and
team and crisis command centres Government to ensure continued
involving various business access to critical third-party services,
functions to coordinate the and prompt adoption of workaround
implementation of BCP measures solutions in the event of third-party
across the institution service unavailability
Redeployment of resources
across premises to help manage
increased traffic at open branches
Source: Bank Negara Malaysia
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 19Coping with COVID-19: Risk Developments in the First Half of 2020
While financial institutions remained operationally location of their headquarters or main offices
resilient, they are taking steps to further enhance were subjected to enhanced MCO (EMCO). The
existing BCPs to specifically incorporate measures to experience highlighted the need to improve
respond to a pandemic event: continuity planning particularly to maintain
effective controls over critical functions that
are generally reliant on the physical presence
i. Preparation for prolonged or widespread
of staff such as treasury operations, call
disruptions to business
centres and IT support. For example, financial
BCPs typically have been designed to respond to
institutions are setting up alternative controls
disruptions that are either temporary in nature, or
to ensure the secure handling of customers’ and
contained to a limited number of locations, facilities
other confidential information by call centres
or systems, such as those caused by power or
and treasury staff working from home, and
infrastructure failures, cyber-attacks and natural
preparing multiple alternative sites to locate
disasters. While some BCPs included pandemics
critical staff who are not able to conducively
as a potential scenario, few financial institutions
perform their functions from home. Financial
envisioned disruptions to business operations that
institutions also need to ensure that they
could arise from multiple waves of a pandemic
maintain and regularly review their list of critical
affecting different parts of the country and the
activities and staff, including pre-identified
world over an extended period of time. For instance,
replacement staff who should be provided with
financial institutions assumed that operations
continuous practical training to ensure their
could continue to function by ‘swinging’ to disaster
readiness to perform such activities at all times.
recovery centres (DRCs), and by ensuring staff are
split between production and recovery centres.
iii. Reliance on critical third-party service providers
However, movement restrictions under a nationwide
The pandemic revealed instances in which
MCO forced financial institutions to rely heavily
the industry’s increasing reliance on third-
on remote working arrangements to support split
party service providers to support critical
operations or alternative sites. At the height of
business operations had not been adequately
the pandemic, staff working from home accounted
acknowledged and addressed in financial
for up to 70% of the total industry workforce. The
institutions’ BCPs. For instance, in the general
enforcement of remote working arrangements
insurance business, loss adjusters that are
and higher staff absenteeism due to quarantine
critical in assessing damage claims could not
measures also necessitated swift adjustments to
perform site visits, thus causing interruptions
business processes with a corresponding increase in
in the claims process. Many external IT vendors
unplanned IT needs for remote working. Therefore,
and support staff could not provide timely
financial institutions will need to review their risk
technical support as a result of movement
assessments under a pandemic scenario to identify
restrictions, raising the risk of systems failure.
the potential impact on their resources, IT capacity
Some banks also had to ration the issuance
and capability to support large-scale remote
of replacement credit and debit cards, as
working arrangements and the increased usage of
they could not replenish their stock of cards.
online banking services over a prolonged period.
Financial institutions will need to holistically
review their existing arrangements for
ii. Readiness for a full shutdown of the headquarters communicating and coordinating with third-
While BCPs generally contemplated the inability of party service providers to secure assurances on
financial institutions to access their main premises, the state of BCP preparedness of these entities,
some financial institutions struggled to swiftly and assess their own ability to move critical
shift their entire operations to alternate sites functions in-house or to alternative service
and/or remote working arrangements after the providers when necessary.
20 FINANCIAL STABILITY REVIEW - FIRST HALF 2020Coping with COVID-19: Risk Developments in the First Half of 2020
iv. Robustness of Security Operations Centre • Potential cross infections at work premises
(SOC) following the gradual return of staff to
In an environment of diverse and increasing the workplace amid a continuing threat of
connectivity to internal corporate networks, subsequent waves of COVID-19 infections.
financial institutions require SOCs that are
capable of monitoring their technology security
postures. During the pandemic, connectivity
Payment and settlement systems
notably increased due to greater reliance maintained operational continuity
on remote working arrangements, higher
number of end-point devices and external
without major disruptions
connections, and the rising volume of online
financial transactions, thereby prompting Malaysia’s payment systems continue to operate
financial institutions to review the capability smoothly without major disruptions, with the large-
and coverage of SOC surveillance. For SOCs value payment system, Real-time Electronic Transfer
managed by a third party, BCPs will also need of Funds and Securities System (RENTAS), 23 and
to incorporate appropriate contingency plans retail payment systems maintaining high system
to ensure continued surveillance over cyber availability above 99.9%. Enhancements to the
and end-point security. payment systems that were successfully completed
prior to the implementation of MCO further reduced
the risk of disruptions. As a result, the number of
No spike in operational risk losses incidents that caused isolated disruptions to RENTAS
and incidents, but emerging risks and retail payment systems declined significantly
in 1H 2020 by 24% and 43%, respectively, compared
warrant continued vigilance to the same period last year. Despite an increase
in payment transactions due to, among others, the
Despite the operational challenges arising from surge in e-commerce activity and implementation
the pandemic and MCO, operational risk losses of Government measures such as Bantuan Prihatin
have remained broadly stable. Nonetheless, the Nasional, both RENTAS and retail payment systems
Bank and financial institutions remain vigilant to were able to meet the increased demands on capacity.
risks associated with operational adjustments that
financial institutions have made to conform to new BCPs that included activating recovery centres,
norms of physical distancing. These include: implementing split operations between various
sites and enhancing remote access capabilities
• Increased exposures to cyber-attack risks were effectively implemented by the payment
arising from the implementation of teleworking system operators and have enabled continued
arrangements and greater reliance on digital operations with no major disruptions. The close
platforms; coordination and communication between payment
• Risks of information leakage and data theft system operators and participants through the
from operations conducted in home-based activation of Crisis Management Teams (CMTs)
environments; further ensured the timely implementation of
• Human error amid an anticipated increase in corrective measures to minimise risks of potential
exception handling and manual interventions disruptions. Similar to financial institutions,
to minimise operational disruptions. Ineffective payment system operators are also enhancing
communication during split operations and their BCPs to reflect insights and lessons from the
changes to standard operating procedures may pandemic as part of ongoing measures to preserve
also increase risks of errors and omissions; and operational continuity.
23
RENTAS is a real-time gross settlement system for interbank fund
transfers, debt securities settlement and depository services for
scripless debt securities.
FINANCIAL STABILITY REVIEW - FIRST HALF 2020 21Coping with COVID-19: Risk Developments in the First Half of 2020
Measures to Mitigate the Impact of the COVID-19 Pandemic and
Preserve Financial Stability
This box article elaborates on the measures taken by Bank Negara Malaysia (the Bank), in coordination with the
banking and insurance/takaful sectors, to assist borrowers affected by the COVID-19 pandemic.
In response to the significant economic disruption brought on by the COVID-19 pandemic and measures taken
to contain its spread, the Bank introduced broad-ranging measures to help businesses and individuals weather
this difficult period. The measures are aimed at supporting the economy through the large, temporary shocks
experienced, and thereby avert longer-term harm to the economy. At the same time, ensuring that the pandemic
does not evolve into a financial crisis continues to be of paramount importance to secure a swift and firm
economic recovery.
Measures Introduced in the Banking Sector
In the banking sector, measures were focused on: (i) extending immediate cashflow relief to individuals and
businesses to preserve jobs and livelihoods; (ii) providing appropriate regulatory and operational flexibilities
for banking institutions to respond swiftly to borrowers in need; and (iii) preserving the smooth functioning of
the financial intermediation process to support economic recovery and post-COVID-19 economic restructuring
and reforms.
Easing cashflow constraints of individuals and businesses (Diagram 1)
Phase 1: Measures to provide immediate cashflow relief following the implementation of the Movement Control
Order (MCO)
While banking institutions have been pro-actively supporting borrowers facing financial difficulties through
loan/financing rescheduling and restructuring since early-February, the MCO lockdown and temporary closure
of businesses in mid-March 2020 posed significant logistical challenges to these efforts as increasingly larger
numbers of borrowers required repayment assistance. Also of particular concern was the disproportionately
larger impact of the economic and social disruptions on individuals with lower income and smaller businesses.
After a brief consultation with the banking industry and taking into account the practical conditions presented
at the time, the Bank and the industry agreed to implement an automatic deferment of all eligible loan/
financing repayments for a period of six months from 1 April 2020 for individuals and small and medium
enterprises (SMEs). Borrowers who did not wish or need to defer their loan/financing repayments could continue
to make their scheduled payments. This enabled banking institutions to deliver immediate relief on a large
scale to individuals and SMEs through a very difficult period of financial pressure and low mobility. At the same
time, banking institutions’ operational resources were reallocated to focus on supporting corporates in need of
assistance by restructuring and rescheduling their loans/financing even though these were not covered under
the automatic deferment programme.
Temporary exemptions from credit reporting under the Central Credit Reference Information System (CCRIS)
were also provided to alleviate concerns among borrowers that availing themselves of the relief measures
would affect their credit history and future access to credit. The reporting exemption acknowledges the
exceptional conditions that existed, and still exist to some degree, which would substantially reduce the value
of credit reporting information as an indicator of a borrower’s normal expected repayment behaviour.
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