Take 5: Volume 1

Stress test, IFRS developments, health check

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Stress test: Malaysian banking sector’s health

The International Monetary Fund (IMF) has just completed the Financial Sector Stability Assessment Program (FSAP) of Malaysia – a comprehensive and in-depth analysis of Malaysia’s financial sector.

Three macroeconomic scenarios were used to test the impact of four different risks on the banking sector’s health over a five-year period, 2012 - 2016.

Results

  1. Regardless of the three macroeconomic scenarios, Malaysia’s banks were found to be resilient to a range of economic and market shocks.
  2. Malaysia has a well-capitalised banking system. Its risk-weighted capital ratio (RWCR) is at 15.2% versus BNM’s minimum requirement of 8%.
  3. Malaysia’s regulatory and supervisory regime for banks, insurance firms, securities and market infrastructure is well developed and exhibits a high degree of compliance with international standards.

Source: Malaysia: Financial Sector Stability Assessment by IMF, February 2013, BNM Annual Report 2012


 

IFRS developments: IASB proposes new expected credit loss model

The International Accounting Standards Board (IASB) released a new exposure draft (ED), Financial Instruments: Expected Credit Losses on 7 March 2013. The ED proposes that entities should recognise and measure a credit loss allowance or provision based on expected rather than incurred credit losses.

Expected credit loss model

  • The new expected credit loss model would apply to loans, debt securities, trade receivables, lease receivables, irrevocable loan commitments and financial guarantee contracts.
  • Credit losses would be measured as the 12-month expected credit losses or, if the credit risk has increased significantly since initial recognition (with some exceptions), the credit losses would be measured as the lifetime expected credit losses.
  • A simplified approach would be available for trade and lease receivables.
  • The estimate of expected credit losses would reflect a probability-weighted outcome, the time value of money and the best available information.
  • The comment period for the exposure draft ends 5 July 2013.

Source: ey.com/IFRS


Health check: transformation of Malaysia’s economy

In 2012, private consumption grew strongly at 7.7% and private investment grew at an astounding 22%.

Across sectors, growth is expected to be buoyant in 2013, with uplifts expected in the palm oil and the oil and gas sectors.

In its transition towards a higher value-added and high income economy, the main challenges for the Malaysian economy include sustaining private-sector driven growth, improving productivity, increasing innovation and promoting inclusiveness.

Five key economic indicators for Malaysia

Five key economic indicators for Malaysia

Note: p - preliminary, f - forecast
Source: BNM Annual Report 2012