The growth of deposits in the banking system is slowing; preference grows for cash


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KUALA LUMPUR (September 29): Annual growth in total deposits in the Malaysian banking system slowed to 3.9% in June 2021 from 6% in March 2021, but remained supported by precautionary savings from households and businesses, Bank Negara Malaysia (BNM) said.

Deposits by non-bank financial institutions (NBFIs) moderated slightly, reflecting withdrawals from these institutions, in part to facilitate the implementation of government relief measures, the central bank said in its financial stability report. for the first half of 2021 (1H21) published on Wednesday.

Additionally, non-residents continued in withdrawal mode for the seventh consecutive month since December 2020, albeit at a slower pace.

At the same time, the continued preference for more liquid assets among Malaysian households, businesses and fund managers in an uncertain operating environment has resulted in lower funding costs and consequently improved net interest income for the banks.

The percentage of current and savings accounts out of total deposits in the local banking system rose to 35.9% in June 2021 from 32.4% a year ago, while term deposits fell to 29 , 5%, against 31.7%, according to the report.

As a result, the average cost of deposits stood at 1.34% in June 2021 from 1.57% in December 2020, while the average cost of funds fell to 1.46%, from 1.66% on the same period.

Banking sector net interest margins improved to 2.1% from 1.9% in December 2020, driven by lower funding costs and higher loan growth, especially in the segment. Household.

Bank holdings of government bonds also supported interest income, which rose 22 billion ringgit in 1H21.

“This partially offset a sharp drop in net trading income amid rising bond yields, following significant gains recorded in 2020,” he said.

Going forward, BNM said the general funding conditions should remain favorable for intermediation activity.

Amid potentially higher deposit withdrawals and increased reliance on repayment assistance, the report says banks’ liquidity positions are expected to remain resilient to these pressures.

“At the institutional level, the move towards shorter-term funding has resulted in larger movements in liquidity coverage ratio (LCR) positions for some banks. However, this is unlikely to have a significant impact on liquidity risks given the large liquidity cushions maintained by banks, ”BNM said.

“All banks continue to have an LCR above 100%, with increased holdings of high quality liquid assets (HQLA),” he added.

Based on a cautious simulation exercise conducted by the central bank – which incorporates the simultaneous materialization of these downside risks, coupled with the drawdown of unused credit lines by companies – banks’ liquidity positions remained resilient.

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