25/03/2025

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Malaysian Paper

/thesundaily /

BNM takes data-driven approach in rate decisions

Life insurance and takaful funds post profit drop in H2’24 KUALA LUMPUR: The overall profitability of life insurance and family takaful funds declined in the second half of 2024 (H2’24) to RM4.1 billion compared to RM8.4 billion in H1’24 due to weaker investment performance and larger net underwriting losses. In its Financial Stability Review for the 2H 2024 report, Bank Negara Malaysia (BNM) reported that the overall profitability of these funds, as measured by excess income over outgo (EIOO) for 2024, improved to RM12.4 billion from 2023’s RM9.4 billion, supported by the stronger performance of the equity market for the year. The report added that life insurers and family takaful operators (life and family ITO) recorded higher net underwriting losses in the H2’24, which was weighed down by higher medical payouts of RM6.2 billion, compared to RM5.3 billion in H1’24 and RM5.3 billion in H2’23. BNM attributed the higher medical payouts to increased overall average cost and utilisation rate for medical treatment, particularly from chronic and acute cases. It said this resulted in the upward adjustment of premiums for medical and health insurance/takaful (MHIT) policies/certificates to ensure the sustainability of long-term coverage. Meanwhile, the central bank reported that new business premium growth for life and family ITO expanded by 6.4% in H2’ 2024, mainly sustained by the growth in new business premium for investment linked products, said the report. This is compared with the 6.8% growth reported in H2’23 and the 9.1% half-yearly average from 2019 to 2023. In the general insurance and takaful sector, BNM said operating profits increased to RM1.9 billion in H2’24, supported by underwriting profit, compared with RM1.7 billion in H1’24 and RM1.8 billion in H2’23. Meanwhile, the net claims incurred ratio for the motor line of business stabilised in H2’24 at 69% after normalising from low levels during the pandemic and is slightly below the pre pandemic average of 71. “The insurance and takaful sector remained resilient, further supported by strong capital and liquidity positions. The aggregate capital adequacy ratio for the industry remained healthy at 224% in H2’24, well above the regulatory minimum of 130%. “In addition, aggregate capital buffers in excess of regulatory requirements also remained ample at RM41.1 billion (June 2024: RM37.4 billion),” BNM said. Moving forward, BNM said, the investment performance of life and family ITO continues to be susceptible to financial market conditions given the sizeable investment holdings of ITO in bonds and equities, as well as climate related risks, as increased physical and transition risks could translate into financial risks. “ITO are required to assess their exposure to climate-related risks in the inaugural Climate Risk Stress Testing exercise in 2025. ITO could also face constraints in growing new MHIT businesses due to concerns on medical cost pressures, making the current pricing structures unsustainable. “The measures taken by ITO to provide short-term relief to policyholders or participants from the repricing of MHIT premiums are also expected to weigh on the financial performance of the industry,” it said. – Bernama

In its Annual Report 2024, the central bank said outstanding DFI financing grew by 5.6% in 2024 to RM183.3 billion, supporting more than three million SMEs, microenterprises, startups and the low-income group vesus the 6% growth in 2023 to RM173.5 billion. “The financing yielded positive impacts, creating and sustaining employment for more than 130,000 individuals,“ it added. BNM said these achievements were enabled by the Performance Measurement Framework (PMF), which guides DFIs to develop intentional strategies that create additionalities via their business activities to add value to the financial system and the broader economy. In 2024, the PMF working group was esta blished to advance the rollout of the PMF across DFIs. “As a collaborative platform, it facilitates open dialogue among stakeholders to discuss challenges relating to PMF implementation, promotes the sharing of effective strategies and integrates technological advancements to streamline data collection processes,” the central bank said In 2024, BNM said, credit conditions remained KUALA LUMPUR: At the current rate of 3%, the Overnight Policy Rate remains supportive and is aligned with Bank Negara Malaysia’s (BNM) assessment of inflation and economic growth. Governor Datuk Seri Abdul Rasheed Ghaffour said the Monetary Policy Committee (MPC) takes a data-driven approach to interest rate decisions, closely monitoring evolving economic conditions. “We consider factors such as global tariffs, policy stances in other economies, and domestic policy measures to assess their impact on inflation and growth. In evaluating price stability, we examine how persistent price increases are and whether demand pressures are emerging. These insights shape our monetary policy decisions, ensuring that policies remain appropriate to support the economy,” he told reporters during the release of BNM flagship publications yesterday. He said while BNM remains aware of global developments, the central bank’s monetary policy is primarily driven by domestic con ditions. Abdul Rasheed said external factors are assessed in terms of their impact on Malaysia’s growth and inflation, rather than simply mirroring interest rate decisions made by other countries. “Ultimately, our focus is on maintaining a resilient and competitive economy. At every MPC meeting, we comprehensively review the o Governor: Monetary Policy Committee looks at factors such as global tariffs, policy stances in other economies, domestic measures Ű BY JOHN GILBERT sunbiz@thesundaily.com

Abdul Rasheed speaking during the release of Bank Negara Malaysia’s flagship publications yesterday. – BERNAMAPIC

The central bank said new SME financing approvals grew in 2024 amid a higher approval rate of 81.5% versus 80.9% in 2023, particularly for the construction sector. BNM’s Fund for SMEs, which accounted for 8% of outstanding financing to SMEs, complemented financing from banks and DFIs. As at end-2024, about RM5 billion remained available for utilisation. “The current focus is to channel funds into areas aligned with national economic and development priorities, including accelerating digital transformation and the greening of SMEs,” BNM said. In 2024, 45.5% of Malaysians had at least one life insurance or family takaful policy, an increase from pre-pandemic levels of 41.5% in 2019. BNM said life insurance and family takaful policies typically saw a higher uptake in urban areas like Kuala Lumpur and Penang, in tandem with greater awareness on the importance of protection. Throughout 2024, there were over 530,000 subscriptions of microinsurance and microtakaful latest data and economic outlook to determine the most appropriate policy stance. “Every decision reflects new evidence and aligns with our mandate to support sustainable growth and price stability,” he said. During his presentation, Abdul Rasheed said that domestic household spending has remained strong and is expected to continue driving economic growth in 2025. Consumer activity will remain a key pillar of the economy, and household spending is projected to grow faster, at 5.6%. This reflects sustained consumer confidence and steady income growth, supporting domestic demand. Investments will also continue to play a crucial role in the economy. Total investment is expected to expand by 9.3% in 2025, following a robust 12.0% growth in 2024. This expansion will be supported by stable external and domestic demand, positive investor sentiment, firms’ continued access to financing, and the ongoing realisation of various projects. Abdul Rasheed said these factors will contribute to a strong investment climate, ensuring continued economic momentum.

“This is roughly 49 times the take-up rate since the launch of the PT framework in 2017 up to 2021,” BNM said. Claims totalling RM17 million were paid out in 2024, a 20% rise against 2023. These payouts were against unexpected and adverse life events like deaths, personal accidents and critical illnesses. BNM said it will remain steadfast promoting a progressive and inclusive financial system in 2025 with efforts to concentrate on initiatives to advance the objectives within the Financial Sector Blueprint 2022–2026 until the desired outcomes are achieved. It noted that the central bank had a mid-term review in 2024 to evaluate the progress of current blueprint strategies and identify necessary adjustments, including accelerating support for orderly transition to a greener economy. “Alongside the blueprint strategies, our financial inclusion initiatives will be guided by the vision and strategies laid out in the Financial Inclusion Framework (2023–26),” it added. The central bank said efforts were under way to enhance financial literacy strategies. – Bernama Touching on the local note, he said the ringgit showed resilience in 2024, appreciating by 2.7% against the US dollar and strengthening by 7.5% on a nominal effective exchange rate (NEER) basis against Malaysia’s major trading partners. As of March 21, 2025, the ringgit has recorded a further 1.1% gain against the US dollar. Moving forward, foreign inflows – driven by a narrowing of interest rate differentials between Malaysia and advanced economies – are expected to provide additional support for the currency. Abdul Rasheed said the domestic banking system remains strong, with sufficient capital and liquidity buffers to withstand uncertainties while continuing to support economic lending. “Each year, we conduct stress tests to assess the system’s resilience. The latest results confirm that the banking sector remains stable, with the total capital ratio staying well above the 8% minimum requirement, even under adverse conditions. “For 2025, we will continue to ensure banks effectively implement this framework to safeguard customers’ interests,” he said.

DFI financing boosts 14,000 businesses, low-income group KUALA LUMPUR: More than 14,000 SMEs, microenterprises, startups and the low-income group grew in line with higher approval rates under development financial institution (DFI) financing in 2024, said Bank Negara Malaysia (BNM) yesterday. supportive of businesses’ financing needs which grew by 5.1% compared to 3.7% in 2023. Of this, outstanding small and medium enterprise (SME) financing growth continued to remain strong at 8.1% against 8.7% in the previous year, supported by continued disbursements mainly for working capital purposes. products under the Perlindungan Tenang (PT) framework. Since the launch of the revised PT policy document and the implementation of the PT voucher programme in 2021, cumulative PT take up grew significantly and currently stands at 4.9 million subscriptions.