The direct impact of the euro area debt-crisis on the domestic financial sector was well-contained as the increased volume and volatility in portfolio flows were effectively intermediated by the financial and bond markets.
The report stated that the impact on banks were also minimal given their prudent management of market risk exposures, low reliance on external borrowings for funding of domestic and locally-incorporated foreign banks (LIFBs) and limited credit exposures to European counterparties.
Notwithstanding the relatively sizeable foreign claims on Malaysia based on the Bank for International Settlements statistics (19.7 per cent of Gross Domestic Product as at end-2011), the risk to the domestic economy and financial system from deleveraging by European banks was limited.
In an unlikely event of a massive retreat by European banks from Malaysia, domestic financial intermediation could be sufficiently supported by Malaysian-owned banks and other non-European banks, given the strong capitalisation and liquidity position of these banks.
The report said a new foreign commercial bank, which was awarded a licence in 2010, commmenced operation in July 2012.
In addition, a foreign commercial bank from India had its commercial banking licence reinstated under a bilateral arrangement and has recommenced operations in July 2012.
Meanwhile, financing through the banking system remained strong with loan applications and disbursements increased 10 per cent and 20.9 per cent, respectively.
As at end-July 2012, the risk-weighted capital ratio (RWCR) and core capital ratio (CCR) stood at 14.4 per cent and 12.7 per cent, respectively.
These were well above the current regulatory minimum of eight per cent for RWCR and four per cent for CCR as well as the more stringent standards under Basel III.
The base lending rate of commercial banks was steady at 6.53 per cent as at end-July 2012 (end-2011:6.53 per cent).
However, the average lending rate of commercial banks fell by 13 basis points to 4.70 per cent (end-2011:4.83 per cent).
Lending by the banking system continued to support economic activities during the first seven months of 2012.
Demand for financing remained robust. Loan applications and disbursements grew 10 per cent and 20.9 per cent, respectively, while loan approvals rose at a slower rate of 1.4 per cent, partly reflecting the initial impact of the new lending guidelines, effective January 2012 (Jan-July 2011:23.5 per cent; 8.2 per cent; 20.5 per cent).
Financing to small and medium enterprises also remained robust with applications, aprovals and disbursements posting double-digit growth rates of 15.8 per cent, 17.7 per cent and 24.7 per cent (Jan-July 2011:31.6 per cent; 22.6 per cent; 18.9 per cent), respectively.
A large proportion of the loans disbursed was channelled to the wholesale and retail trade, accommodation and restaurant (35.1 per cent) and manufacturing (29 per cent) sectors.
SME loans outstanding increased 21.4 per cent to RM170.7 billion which accounted for 42 per cent of total business loans outstanding in the banking system as at end-July 2012 (end 2011:19.3 per cent; RM153.2 billion; 40.5 per cent).
According to the report, lending to the household sector remained active with total household loans outstanding growing 11.8 per cent to RM586.9 billion and accounted for 54.7 per cent of total loans outstanding as at end July 2012 (end 2011:12.9 per cent; RM552.5 billion; 55.1 per cent).
During the first seven months of 2012, household loan applications rose 2.1 per cent while loan approvals and disbursements declined 3.9 per cent and 0.7 per cent (Jan-July 2011:18.3 per cent; 16.1 per cent; 12.5 per cent), respectively. — Bernama