Embargo Not for publication or broadcast before 1800 hours on Wednesday, 24 March 2010

Taklimat Laporan Tahunan 2009 dan Laporan Kestabilan Kewangan & Sistem Pembayaran 2009

Gabenor Bank Negara Malaysia 24 Mac 2010

Uneven global economic recovery in 2010

The global economy is on a recovery path:
The advanced economies to record modest growth, supported by stimulus measures The emerging economies, particularly Asia, to lead the global growth

Global financial conditions have stabilised

But lending activity in the advanced economies remains constrained

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Emerging economies leading the recovery

Global Growth Projection for 2010
2008 2009e 2010f

Annual change (%) World GDP World Trade US Euro area Japan East Asia Asian NIEs China ASEAN-4 India 3.0 2.8 0.4 0.6 -1.2 6.9 1.7 9.6 4.6
7.4

Modest growth in the advanced economies due to: Persistent high unemployment Restricted access to credit Sluggish housing market Continued de-leveraging by the private sector Fiscal consolidation plans

-0.8 -12.3 -2.4 -4.1 -5.2 5.1 -0.9 8.7 1.1

6.5

3.9 5.8 2.7 1.0 1.7 7.7~7.9 4.6~4.9 10.0 4.4~5.2

7.7

Better growth prospects in the emerging economies: Stronger domestic demand Robust financial sector Growing intra-regional trade

Source: IMF World Economic Outlook (WEO) (January 2010 Update), National authorities, BNM estimates

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Financial conditions have improved but lending activities in the advanced economies yet to resume
Spreads have narrowed Interbank market spreads
basis points

But credit growth remains negative

yoy, % 25 20 15

Credit growth to private sector

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Oct-2007 Oct-2008 Jan-2007 Jan-2008 Jan-2009 Oct-2009 Apr-2007 Apr-2008 Apr-2009 Jan-2010 Jul-2007 Jul-2008 Jul-2009 LIBOR-OIS TED spread

10 5 0 -5 -10 Jun-07 Jun-08 Sep-07 Sep-08 Jun-09 Dec-07 Dec-08 Sep-09 Mar-07 Mar-08 Mar-09 Dec-09

Euro area UK1 US

Lending to non-financial corporations

Source: Bloomberg

Source: National authorities & Haver

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Slow progress in financial sector resolution

Cumulative bank losses exceeding capital raised
Advanced economies losses Advanced economies capital

Cumulative bank losses for advanced economies expected to reach USD2.6 trillion1
USD bn 450 400 350

USD bn 1500 1200 900 600 300 0 Prior 3Q 07

Advanced economies cumulative losses (LHS) Advanced economies cumulative capital (LHS)

As at end-2009, realised losses have reached USD1.7 trillion2 (65% of expected losses) Continued deleveraging process Banks remain cautious in view of the ongoing financial reforms

300 250 200 150 100 50 0 4Q 07 1Q 08 2Q 08 3Q 08 4Q 08 1Q 09 2Q 09 3Q 09 4Q 09

1 2

Advanced economies refer to US and Europe Source: Bloomberg and BNM calculations

Based on IMF estimate (October 2009 GFSR) BNM calculations based on Bloomberg data

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Large fiscal deficits and rising public debt levels in several advanced economies
Fiscal balance as % of GDP

-1 -3 -5 -7 -9 -11 -13 -15 2008 2009e

Unprecedented stimulus measures during the crisis have led to rising fiscal deficit in many countries Growing sovereign debt problems and fiscal consolidation may affect strength of growth

Ireland

Source: IMF and national authorities

Japan

Spain

US

UK

Portugal

Greece

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Regional economies to lead global growth

Asian Region: Growth Outlook for 2010
3Q 09 4Q 09 2009 2010f

Annual change (%) Region1 PR China India Indonesia Singapore Malaysia Chinese Taipei Korea Hong Kong SAR Thailand Philippines
1 forecast excluding India Source: National authorities, IMF f

5.5 9.1 7.9 4.2 0.6 -1.2 -1.0 0.9 -2.2 -2.7 0.4

8.6 10.7 6.0 5.4 4.0 4.5 9.2 6.0 2.3 5.8 1.8

5.1 8.7 6.5 4.5 -2.0 -1.7 -1.9 0.2 -2.7 -2.3 0.9

7.7 ~ 7.9 10.0 7.7 5.5 ~ 6.0 4.5 ~ 6.5 4.5 ~ 5.5 4.7 4.6 4.0 ~ 5.0 3.5 ~ 4.5 2.6 ~ 3.6

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Modest inflation in 2010

Regional inflation rates rising moderately
yoy,% 10 8 6 4 2 0 -2 -4 -6 Jun-09 Jul-09 May-09 Aug-09 Nov-09 Jan-09 Feb-09 Sep-09 Jan-10 Apr-09 Dec-09 Feb-10 Mar-09 Oct-09

Global inflation is expected to rise, albeit moderately in 2010 : Improving demand conditions Upward trend in commodity prices But, underlying inflation is expected to remain contained

Indonesia Singapore

Thailand Malaysia

Philippines China

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Uneven recovery to lead to differences in thrust of policy

Advanced economies: Recovery and improving financial conditions
% 6 5 4
6 China Philippines Malaysia 2 Korea Thailand 0 2008 2009 2010

Regional economies: Stronger growth expected

% 10

Key interest rates, %

Key interest rates, %

8 Indonesia

3
4

2 1 0 2008 2009 2010

Euro area UK Japan US

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The Malaysian economy is projected to grow by 4.5% to 5.5% in 2010

Annual change (%) 7 6 5 4 3 2 1 0 -1 -2 2009p/ 2010f/ 2001 2002 2003 2004 2005 2006 2007 2008

Growth will be underpinned by strengthening domestic demand 5.5% and an improving external environment
4.5%

The underlying strong fundamentals will provide support to a private sector-led recovery Continued access to financing key in supporting private sector-led growth

Source: Department of Statistics, Malaysia and Bank Negara Malaysia

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Strengthening domestic demand to drive growth, reinforced by external demand

2009p 2010f 2009p 2010f Annual change (%) Domestic demand Private sector Consumption Investment Public sector Consumption Investment Net exports Exports of G&S Imports of G&S Real GDP -0.4 -3.4 0.8 -21.8 7.7 3.7 12.9 8.4 -10.1 -12.5 -1.7 3.2 3.3 3.8 0.7 2.7 -2.7 9.3 -18.6 7.7 11.7 4.5 ~ 5.5 Contribution to growth (p.p) -0.3 -2.2 0.4 -2.6 1.9 0.5 1.3 1.1 -12.0 -13.1 -1.7 2.8 2.1 2.0 0.1 0.7 -0.4 1.1 -2.7 8.3 11.0 4.5 ~ 5.5

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Private consumption to strengthen during the year

% yoy Private consumption

2008 8.5

2009p 0.8

2010f 3.8

Stronger expansion in consumer spending will be supported by : Improvements in labour market conditions Steady increase in disposable income Sustained consumer confidence Continued access to financing

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Improving labour market conditions in 2010

Unemployment rate (as % of labour force)

Lower unemployment rate in 2010

annual change (%)

4.0

10

3.6
3.5

3.7 3.6

3.4 3.1 3.3

8 6 4 2

3.0 2.5

2.4
0 -2 -4 2009e 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2010f

2.0

1.5

Employment (RHS)
e Estimate f Forecast Source: Economic Planning Unit

Labour force(RHS)

Unemployment rate (LHS)

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Private investment to recover gradually

% yoy Real private investment 2008 0.8 2009p -21.8 2010f 0.7

Nominal Private Investment

RM billion

Capital spending is forecast to recover with the strengthening of domestic and external demand Improved business optimism and resumption of projects that have been deferred

90 80 70 60 50 40 30 20 10 0

77.0 62.1

80.6 62.5 65.4

2006

2007

2008 Mining Services

2009p/

2010f/

Agriculture Construction

Manufacturing

Source: Department of Statistics, Malaysia and BNM

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Gross FDI inflows sustained in 2010

Gross FDI inflows into Malaysia RM billion 50 40 30 20 10 0 2004 2005 2006 2007 2008 2009p 2010f 27.1 37.3 31.6 25.4 32.4 46.2 49.0

Gross inflows of FDI at RM32.4 billion in 2010 Inflows into the manufacturing, services, and oil and gas sectors

p/ preliminary; f/ forecast Source: Department of Statistics, Malaysia and Bank Negara Malaysia

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Public sector to continue to support domestic demand in 2010

2009p 2010f

Annual change (%) Public sector Consumption Investment 7.7 3.7 12.9 2.7 -2.7 9.3

Contribution to growth (p.p) Public sector 1.9 0.7

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External trade to expand in 2010

yoy (%)
30 20 10 0 -10 -20 -30

Broad-based expansion in external trade

RMb
200

Export expansion to be more broad-based: Stronger external demand, particularly from the region Higher commodity prices

RM116.7b 14.6% 11.2%

100

Trade balance (RHS) Exports (LHS) Imports (LHS) 2005 2006 2007 2008

-100

-16.6% -16.6%
-200

2009e/ 2010f/

2009e

2010f

Imports to expand faster than exports: expansion in manufactured exports higher imports of consumption & capital goods

Annual change (%) Gross exports Manufactured E&E Non E&E Commodities Agriculture Minerals -16.6 -12.5 -11.0 -14.5 -27.6 -21.6 -32.2 11.2 10.1 10.0 10.3 16.3 12.8 19.4

Source: Department of Statistics, Malaysia and Bank Negara Malaysia e/ estimate f/ forecast

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Current account surplus to narrow but remains significant

Narrowing current account surplus
RMb 220 190 160 130 100 70 40 10 -20 -50 2006 2007 2008 2009p/ 2010f/ Goods Income Current Account, % GNI (RHS) Services Current transfers -5 0 10 % GNI 20

17% 14.3% RM112.7b

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Trade surplus to narrow as imports expand faster than exports Recovery in external trade and outbound tourism will result in a marginal services deficit Income deficit to widen due mainly to repatriation of profits and dividends by MNCs operating in Malaysia

RM103.8b

Source: Department Statistics, Malaysia and Bank Negara Malaysia p/ preliminary f/ forecast

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Broad-based growth across all sectors

Annual change (%) Agriculture Mining Manufacturing Construction Services Real GDP
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2009p 0.4 -3.8 -9.3 5.7 2.6 -1.7

2010f 3.1 2.5 6.5 3.7 4.9 4.5 ~ 5.5

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Services sector to be a key contributor to growth

2009p Sub-sector Annual change (%) Total Services Finance & insurance Real estate & business services Wholesale & retail trade Accommodation & restaurant Transport & storage Communication Utilities Other services Government services 2.6 4.4 2.1 1.2 2.7 -2.8 6.0 0.4 4.4 3.0 4.9 5.2 7.0 4.4 4.8 4.8 6.5 5.0 5.1 3.0 20 2010f

Higher demand for consumption-related services Continued lending and financial intermediation activities Recovery in trade and manufacturing-related services

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Strong recovery in the manufacturing sector

Value-added growth (% yoy) Total Manufacturing Export-oriented E&E Primary-related (e.g. chemicals, petroleum, rubber, wood) Domestic-oriented Construction-related (e.g. iron & steel, cement) Consumer-related (e.g. food & beverages, transport equipment) 2009p -9.3 -11.7 -18.7 -5.1 -4.5 -2.6 2010f 6.5 6.7 9.6 4.3 6.2 6.5

Broad-based expansion across all clusters, reflecting:

Improved external demand Strengthening of domestic demand

-9.4

5.4

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Better performance in the agriculture and mining sectors

% yoy Agriculture Palm oil Rubber Mining Crude Oil Natural gas 2009p 0.4 -1.0 -20.2 -3.8 -4.4 -4.0 2010f 3.1 1.1 20.3 2.5 1.8 2.5 Agriculture
Production of palm oil and rubber are expected to increase to meet higher demand

Mining
Higher crude oil production with the recovery in demand Higher gas output partly reflecting LNG exports to China

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Construction sector to maintain growth momentum

Growth in the Construction Sector
% yoy 6 5 4 3

5.7 4.7 3.7

Growth supported by the second stimulus package, benefiting the civil engineering and nonresidential sub-sectors, and the remaining projects under the Ninth Malaysia Plan Continued growth in residential sub-sector due to stronger demand

2.1
2 1 0 2007 2008 2009p/ 2010f/

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Headline inflation to remain modest at 2.0 2.5% in 2010

Inflation Forecast for 2010
Annual change 6 (%) 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010/f

Price increase in 2010 modest reflecting : Improving demand conditions Potential adjustments to administered prices
2.0 2.5%

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Monetary policy remains supportive of economic growth

The OPR was raised by 25 bps in March
%
5.0 4.5 4.0

OPR was reduced to a historic low in early 2009 under extraordinary conditions Given improved economic outlook, the OPR was adjusted in March 2010 to:
o o

OPR
3.5 3.0 2.5 2.0 1.5 1.0

3.5%

normalise monetary conditions prevent the risk of financial imbalances that could undermine the economic recovery process

2.0%

2.25%

Nov-08

Nov-09

Jul-08

Jan-08

Jan-09

Jul-09

Monetary policy continues to remain accommodative to provide support to domestic economic activity
Jan-10 Mar-10

May-08

May-09

Mar-08

Sep-08

Mar-09

Sep-09

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Continued access to financing is a key support to economic recovery

yoy, %

Net financing through banking system loans and PDS

14 13 12 11 10 9 8 7 6 5 Nov-09 Jan-09 Jun-09 Aug-09 Sep-09 Oct-09 Dec-09 Feb-09 Jan-10 Apr-09 Jul-09 May-09 Feb-10 Mar-09 Q3 09: 7.2% Q4 09: 8.5% Feb-10 9.9%

Domestic Sources of Financing for the Private Sector as at end 2009

PDS 19% Banking system loans 53% Equities 13% Other financial intermediaries 9%

Financing to businesses and households increasing, supported by : continued access to financing ample liquidity low interest rate environment Expansion in other sources of financing

DFIs 6%

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Cost of financing remains low

Commercial Banks' Lending Rates
%
14

BLR responded to OPR adjustments Lending rates remained near

12

10

Average Lending Rate

8

historical lows : Base lending rate: 5.76% (15 March 2010)

5.76% 4.85%
15 Mar 10 p Mar 10

Base Lending Rate

Average lending rate: 4.85% (end-Feb 2010)

4 May 97 May 04 Mar 96 Jan 95 Nov 00 Mar 03 Jan 02 Nov 07 Sep 99 Sep 06 Jan 09 Jul 98 Jul 05

Preliminary

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Deposit rates have increased

Term Structure of FD rates
% p.a. 2.7 2.6 2.5 2.4 2.3 2.2 2.1 2.0 2.00 1.9 1 3 6 mths
P

2.66

Post OPR hike p (15 Mar '10 )

2.50 2.35 2.3 2.25 2.35

FD rates raised by 16-30 bps following increase in OPR

Pre-OPR hike (Feb '10)

2.03 2.04 2.05

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Preliminary

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Domestic equity market recovered on improving economic conditions

Index (Jan 2008=100)

KLCI and Bursa Malaysia sectoral indices

Jpn UK US

Performance of Major Indices (% growth)

19.0 22.1 23.5 45.2 49.7 52.0 63.0 63.2 64.5 78.3 87.0

2008

2009

120 110 100 90 80 70 60 50 40 30 Jul-08 Sep-08 Nov-08 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 Jan-08 Mar-08 May-08 Jan-09 Mar-09
Finance KLCI Industrial Plantations Construction

-42.1 -31.3 -38.5 -39.3 -40.7

Msia Korea

HK -48.3 Phil -48.3 Thai -47.6 Spore -49.2 Taiwan -46.0 Indon-50.6 -60 -40 -20 0 20 40

60

80

100

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Ringgit performance driven by external developments and improving domestic fundamentals

115

Movement of Currencies against USD (31 Dec 2008 - 23 Mar 2010)

Major Regional

110

105

Ringgit was on a broad appreciating trend, in tandem with regional currencies Generally, orderly ringgit adjustment

Nov-09

Jan-09

Jun-09

Jan-10

Jul-09

Aug-09

Sep-09

Feb-09

Dec-08

Regional: CNY, IDR, KRW, PHP, SGD, TWD, THB Major: AUD, JPY, EUR, GBP

May-09

Dec-09

Mar-09

Feb-10

Oct-09

Apr-09

Index 31 Dec 08 =100

100

Ringgit

95

Appreciation against USD

90

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For Malaysia, policies will focus on strengthening private sector led growth
Strategies being put in place to transition Malaysia to a high value-added, high income economy Measures to promote private investment incentives for high growth sectors liberalisation of the economy privatisation of Government-owned corporations Monetary policy to remain supportive of growth Ensure continued access to financing

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Bank Negara Malaysia Annual Accounts 2009

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Financial position of the Bank remained strong in 2009

Total assets of BNM increased by RM18.5 billion to RM363 billion with international reserves of RM331.3 billion (USD96.7 billion) Net profit of RM7.7 billion Dividend paid amounted to RM2 billion

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FINANCIAL STABILITY AND PAYMENT SYSTEMS REPORT 2009

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Financial system stability was preserved, supported by a wellfunctioning financial intermediation process and orderly financial markets

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High degree of financial system resilience

Banking sector (%) Risk-weighted capital ratio Core capital ratio Capital buffer (RM billion) Insurance sector (%) Capital adequacy ratio Capital buffer (RM billion)
12 %

Dec 08 12.6 10.6 38.7 Dec 08 187.6 12.3

Jan 10 14.8 13.3 60.3 Dec 09 230.0 18.6

Strong solvency position Forward looking capital management since 2008 High quality of capital

Loan quality intact Improved underwriting standards Pro-active management of debts Historical high provisions

Net NPL ratio

10 8 6 4 2 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 Jan'10

3.2% 2.2%

1.8% 1.7%

Profitability sustained RoE of 13.9% and RoA of 1.2%

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Access to financing supported early recovery

RM billion 25

PDS issued
Loans approved - Households Loans approved - SMEs

RM billion 12 10 8 6

Loans approved - Large Businesses

20

15

10

4
5

2 0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2009

2009

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Improving quality of loan portfolio

NPL ratio on steady decreasing trend Stable loans-in-arrears
RM billion

12 10 8 6 4 2 0

40 30 20

5 4 3 2

10 0

1 0 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2007 2008 2009

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 2008 2009 2007 Large businesses SMEs Households

2- <3 month 1- <2 month 2- <3 month (% of total loans) 1- <2 month (% of total loans)

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Financial stability supported by supervisory vigilance and robust prudential framework

Early and prompt detection and management of emerging risks
Enhanced surveillance and stress testing Strengthening of home-host supervisory engagement to support consolidated supervision

Improved risk management and governance practices

Implementation of more sophisticated approaches to assessments of capital adequacy under Basel II and Risk-Based Capital Framework Continued strengthening of capital buffers to withstand potential shocks Enhanced liquidity framework to address market disruptions and foreign currency exposures Continued improvements in governance practices Strengthened oversight capability of boards of financial institutions

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Policy measures to enhance access to financing

Special funds
SME Assistance Guarantee Scheme (RM 2 billion) Working Capital Guarantee Scheme (RM 7 billion) Industry Restructuring Guarantee Scheme (RM 3 billion)

Avenues for debt restructuring

Large corporations: Corporate Debt Restructuring Committee (CDRC) SMEs : Small Debt Resolution Scheme (SDRS) Individuals : Agensi Kaunseling dan Pengurusan Kredit (AKPK)

Avenues for complaints and financial advice

BNM Integrated Contact Centre ABMConnect

Introduction of credit enhancement agency in 2009

Danajamin Nasional Berhad
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Developmental strategies continued to be pursued

- In addition to institutional arrangements, mechanisms and schemes for access to financing Enhance interlinkages with international economies
Liberalisation plan for financial sector MoUs to strengthen bilateral and multilateral cooperation Reinforce international dimension of Islamic finance

Promote financial inclusion

Raise level of financial literacy Operational flexibilities for new branches and bancassurance arrangements for insurance companies and takaful operators

Continuous priority on human capital development

Asian Institute of Finance (AIF) fully operationalised to coordinate human capital development initiatives Continuous enhancement to FSTEP programme design and delivery Enhance FIDE programme for boards of financial institutions

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Outlook for domestic financial stability

Malaysian financial system has adequate buffers to withstand external risks and domestic challenges
Banking system capitalisation expected to remain >10% under most challenging stress test scenario

Downside risks mainly stem from external environment

Sustainability of global economic recovery Orderly exit from unconventional support measures Reforms in global prudential regulations and regulatory structure Destabilising capital flows

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Supported by strengthened financial stability framework under Central Bank of Malaysia Act 2009
Greater clarity in mandates, functions and power Captures core elements of macroprudential stability
Ex-ante surveillance powers for timely risks identification Pre-emptive powers to avert or mitigate systemic risks Ex-post powers for resolution to reduce impact of instability

Complemented by strengthened framework for governance, transparency and accountability Positions the Bank to effectively address current and future challenges

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Areas of focus for financial sector in 2010

Blueprint for financial sector development
Develop a strong and stable financial sector that best serves Malaysia Competitive, dynamic and inclusive financial system

Comprehensive review of existing legislations to ensure an effective and efficient legislative framework to:
Align legislation with more principle-based and differentiated supervisory approaches Enhance appropriate enforcement and resolution framework Achieve more consistent legal framework across different financial sectors Strengthen market conduct regulation and supervision

Transition to enhanced deposit guarantee scheme Greater internationalisation of sukuk market

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Thank you

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