Banks well-positioned to lend support to businesses, households as economy recovers - BNM

In its Financial Stability Review - Second Half 2021 report released today, BNM said it has assessed the resilience of financial institutions using stress testing as an integral part of BNM's financial stability framework.

"Results affirm the capital buffers of financial institutions remain resilient even under severe simulated shocks," it said.

BNM said the banking system's overall capital ratios remain comfortably above the regulatory minimum requirements.

"Almost all banks maintain capital ratios above their internal capital targets, although up to 25 banks (out of 53 banks) are projected to record annual losses during the stress test horizon.

"Only two banks (accounting for only 0.5 per cent of total banking system assets) are projected to breach the minimum regulatory capital requirements under these adverse scenarios," the central bank said.

For insurers, a bottom-up industry-wide stress test was also conducted in the second half of 2021 to assess the ability of information technology outsourcing (ITOs) to manage liquidity risk arising from a prescribed set of severe but plausible insurance risk events, including a flood scenario with a 1-in-200-year severity.

"Results from this stress test affirm the ability of ITOs to meet their cash obligations under such adverse scenarios.

"The results are consistent with the bank's top-down macro assessment of insurers' ability to meet short-term liquidity needs under stressed conditions, backed by sufficient holdings of liquid assets," it added.

Besides, BNM said the actual impact on financial institutions under the stress scenarios is likely to be less severe and would depend on various factors, including ongoing repayment assistance by financial institutions to support households and businesses as well as recoveries on impaired loans.