BNM'S NOVEMBER REPORT: RESILIENT BANKING SYSTEM, BOND MARKET AMONG HIGHLIGHTS

Bank Negara released its November economic highlights of the country with salient points including the headline inflation which continued to moderate to 1.5% (October 2023: 1.8%), driven by lower core inflation (2.0%; October 2023: 2.4%) and fresh food inflation (0.1%; October 2023: 1.2%). Notably, the lower core inflation was largely driven by food away from home (3.9%; October 2023: 5.6%).

Meanwhile, manufacturing industrial production index (IPI) grew by 0.9% on an annual basis in October 2023 (September 2023: 0.4%), underpinned by a further improvement in domestic-oriented clusters, mainly transport equipment, and food, beverages, and tobacco. BNM said this was more than offset the continued drag from export-oriented clusters amid weaker semiconductor component production and the gradual restart from oil refinery maintenance. Core inflation is computed by excluding price-volatile and price-administered items.

Notably, credit to the private non-financial sector grew by 4.6% as at end-November (October 2023: 4.2%), driven mainly by higher growth in credit to businesses (3.5%; October 2023: 2.8%). Outstanding business loans expanded by 2.6% (October 2023: 1.1%), supported by higher growth in working capital loans. Of note, growth in outstanding loans to SMEs remained forthcoming (7.9%; October 2023: 7.2%). Meanwhile, outstanding corporate bonds growth moderated slightly to 4.6% (October 2023: 5.0%).

For households, outstanding loan growth was stable (5.7%; October 2023: 5.6%), supported by sustained growth across most loan purposes. Household loan growth continued to be driven by loans for the purchase of houses and cars, which grew by 7.6% and 9.4%, respectively (October 2023: 7.6% and 9.1%).

Domestic financial markets continued to be affected by global investor sentiments while global financial conditions were driven by financial market expectations that interest rates in advanced economies had peaked. Reflecting these investor sentiments, global bond yields declined while global equity markets traded higher.

Against this backdrop, the central bank pointed out on the ringgit's performance which appreciated by 2.4% against the US dollar (regional4 average: +3.2%), while the 10-year MGS yield decreased by 30 bps (regional average: -49 bps) amid non-resident inflows into the domestic bond market. The FBM KLCI also traded higher by 0.7%, in line with other bourses (regional average: 3.3%).

In November, BNM said banks remained well-capitalised to support economic growth with capital position remaining strong to withstand potential shocks and support credit intermediation growth in the economy. The banking system recorded an excess capital buffer of RM134.1 billion as of November 2023 (October 2023: RM132.9 billion). Banking system resilience continued to be underpinned by sound asset quality. Overall gross and net impaired loans ratios remain largely stable at 1.7% and 1.0%, respectively.

Loan loss coverage ratio (including regulatory reserves) remained at a prudent level of 119.7% of impaired loans, with total provisions accounting for 1.6% of total loans.