Bank Negara Malaysia (BNM) today published its Annual Report 2021 (AR 2021), Economic and Monetary Review 2021 (EMR 2021) and Financial Stability Review for Second Half 2021 (FSR 2H2021).

Annual Report 2021

AR 2021 sets out the initiatives and workings of the Bank in 2021 in fulfilling its mandates to promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy. This includes the means in which BNM discharged its mandates to support Malaysia’s transition through and out of the pandemic, as well as other challenges such as the floods. AR 2021 also provides an account of the Bank’s operations and resources that enable it to function effectively and efficiently.

Four box articles on topical interests are featured in AR 2021:

• Cost of living.
• Linkages for efficient cross-border payments.
• Repayment assistance.
• Money laundering and terrorism financing.

The report also sets out BNM’s Audited Financial Statements for the financial year ended 31 December 2021. As audited and certified by the Auditor General, the financial position of BNM remained stable in 2021. BNM’s total assets amounted to RM551.6 billion as at 31 December 2021. A net profit of RM12.8 billion was recorded for the financial year, of which RM7.8 billion will be transferred into the General Reserve Fund. BNM has declared a dividend of RM5 billion to the Government for the financial year 2021.

Economic and Monetary Review 2021

The Economic and Monetary Review sets out BNM’s economic assessments and outlook.

Highlights of EMR 2021 include:

• 2022 is set to be a watershed year as most countries progressively transition towards endemic management of COVID-19. However, even as the global economy is expected to continue its recovery path, policymakers are adjusting their policy settings against rapidly evolving uncertainties, including the military conflict in Ukraine which began in February.
• The pace of economic recovery in Malaysia is projected to gather further momentum amid the reopening of the economy and international borders. With better COVID-19 management and higher vaccination rates, BNM expects less disruption to domestic economic activity and spending in the event of resurgences. Malaysia will also continue to benefit from the expansion in global demand. For 2022 as a whole, the economy is expected to grow between 5.3% and 6.3%.
• Headline inflation is forecasted to average between 2.2% and 3.2% in 2022. While high input costs are projected to exert some pressures on selected fresh food prices, these pressures will be partly mitigated by price controls. Meanwhile, core inflation is expected to average higher between 2.0% and 3.0% in 2022 due to stronger demand conditions amid lingering cost pressures. However, the extent of upward adjustments in core inflation will remain partly contained by the continued slack in the economy and labour market.
• Labour market conditions are expected to improve in 2022 as economic activity picks up. The unemployment rate is expected to decline further to around 4% of the labour force. This sustained recovery in employment and income is expected to drive an improvement in household spending.
• Monetary policy will remain accommodative to support a sustainable economic recovery while ensuring price stability. BNM is cognisant of the consequences of keeping interest rates low for an extended period of time. As the outlook for inflation remains largely supply-driven, BNM is closely monitoring for any signs of potential second-round effects, where price pressures could become more entrenched as domestic demand recovers. Ultimately, any potential adjustments to the degree of accommodation will remain data-dependent and be undertaken in a measured and gradual way to preserve an appropriate level of support to the economy.

The EMR 2021 also features two box articles pertinent to issues relating to the post-pandemic recovery:

• Recovery Prospects in the Global Economy after the Great Lockdown: Lessons from Cyclical and Structural Perspectives.
• Anatomy of Inflation: Effects from the Enduring Pandemic.

Financial Stability Review for Second Half 2021

The Financial Stability Review is a biannual publication which details BNM’s assessment of risks and outlook for domestic financial stability.

Highlights of FSR 2H 2021 include:

• Financial institutions remained vigilant in managing their risks given the continued uncertainty posed by domestic and global developments. Credit risk remains a key focus as banks continue to build up provisions to buffer against a potential rise in impairments. Provisions against loan losses in the banking system currently stand at 143%, which is close to its historical high. Despite expectations of continued market volatility, conditions in domestic financial markets are expected to remain orderly. This is supported by Malaysia’s deep and liquid bond market, diverse investor base, as well as positive real yields.
• Sound risk management practices of financial institutions, coupled with their strong capital and liquidity buffers, will continue to preserve domestic financial stability. Latest stress tests conducted by BNM continue to affirm the resilience of capital buffers of banks and insurers to withstand potential losses under severe macroeconomic and financial shocks, while sustaining support for economic recovery. Almost all banks were able to maintain post-shock capital ratios above the regulatory minimum. Banks' excess capital buffers currently amount to RM135 billion.
• Ensuring operational and cyber resilience remains a key focus for BNM and financial institutions. This comes amid an increasing reliance by financial institutions on third party service providers, higher cloud adoption and rising ransomware threats. Effectively managing the effects of climate risks will also be at the forefront of the financial sector agenda for BNM and the industry in the coming years.

Two box articles are featured in FSR 2H2021:

• Evolving Spaces in the Wake of the Pandemic: Vulnerabilities from the Commercial Real Estate Sector.
• Implementation of the Climate Change and Principle-based Taxonomy (CCPT) in the Financial Sector.

Bank Negara Malaysia Governor Tan Sri Nor Shamsiah Yunus said, “Going forward, well-executed structural reforms are needed to address the critical challenge of reinvigorating growth opportunities and strengthening our economic fundamentals. The three key areas that we ought to focus on are inclusivity, digitalisation, and sustainability. We must make the most out of this recovery period to rebuild better and ensure that Malaysia is well-prepared to harness future trends to our benefit.”

For more details of the publications, please visit bnm.gov.my/ar2021.

See also:

• EMR 2021 Key Highlights
• FSR 2H2021 Key Highlights
• Spotlight: Household Debt
• Spotlight: Housing (Un)affordability
• Press conference slides