Banks need to be proactive, support borrowers in difficult times - BNM

He said this includes extending new financing to support the economic recovery as more businesses are gradually allowed to resume operations.

"Since the structural reforms of the post-Asian Financial Crisis era, banks have been a source of stability and strength.

"This must continue, even as banks contend with the long-lasting effects of the pandemic, including the potential double whammy of reduced income and higher loan defaults by individuals and businesses," he said in his closing keynote address at the 2021 Malaysian Banking and Finance virtual summit today.

Jointly organised by KSI Strategic Institute for Asia Pacific and Economic Club of Kuala Lumpur, the one-day event brought together senior bankers, technology experts, and thought leaders to discuss post-pandemic challenges facing banks and financial institutions in the new normal.

At the end of the second quarter of 2021, outstanding loans to both the business and household segments increased by 1.3 per cent and 5.3 per cent, respectively, as compared to the same period last year, Abdul Rasheed noted.

He said banks must continue to strengthen their countercyclical role to support the economy by continuing to finance viable but distressed borrowers, while BNM will continue to assist the industry by providing support in various areas.

"The financial industry should seize this opportunity to contribute to the recovery process and broader reform agendas of the nation.

"The pandemic has underscored and exacerbated some of the deep structural issues in the economy, notably in the labour market, where more vulnerable workers groups have been affected," Abdul Rasheed said.

As the economy moves into the recovery period, he believes that policies should shift from job preservation to job creation, and banks can contribute through the provision of financing and also support in other ways.

Additionally, he said banks should also focus on sustainability as part of efforts to promote economic recovery, in line with the global focus to achieve a balance of economic, social, and environmental progress.

"Banks have a core role to play in the transition to a greener economy. For example, inclusive circular economy solutions and business models are seen as a critical piece for sustainable development and are still considered a high-risk venture for financiers.

"This is an opportunity for the banking sector to work closely with relevant stakeholders, including policymakers, to develop new and innovative financial instruments that de-risk circular economy investments while ensuring right incentives are in place for better public-private partnerships," he said.

Meanwhile, Abdul Rasheed said BNM is committed to foster an enabling environment for data-sharing in the financial sector, which will focus on developing common standards for high-impact use cases and strengthening the digital data governance framework to ensure the protection and fair treatment of financial consumers.

"Similarly, the banking sector should make the most of the progress in the data ecosystem to further advance financial inclusion, to empower consumers to make informed financial decisions, and to develop innovative financial solutions that benefit the rakyat as a whole.

"There has been encouraging progress in the areas of developing alternative credit scoring models with a wider range of data sources and in the provision of access to real-time personal financial management data for consumers, to name a few," he said.

These efforts, he added, are certainly notable and the banking sector must continue to progress on this front.

Looking ahead, Abdul Rasheed said BNM will be launching the Financial Sector Blueprint early next year, which will set the vision for the financial sector for 2022-2026.