two main indicators on the state of the banking system

With that, the very thing that has helped raise Malaysia’s resilience and been a source of comfort since the US subprime crisis reared its ugly head, which is the country’s strong and healthy banking system, has come under threat. As the siren gets louder and risk aversion is heightened, the biggest concern is – will banks start to cut lending?

Generally, there are two main indicators on the state of the banking system – capitalisation measured by the risk weighted capital ratio (RWCR) and asset quality marked by the level of net non-performing loans (NPLs) – both of which remain healthy and more so compared to banks in other countries.

The RWCR stands at 12.6%, exceeding the 8% requirement set by the central bank while NPL levels remain low at 2.2%. It helps that banks have adopted better risk management and improved loans quality since the Asian financial crisis.