West Asia Conflict Poses Downside Risks, But Impact On Malaysia's Financial Stability Manageable -- BNM

KUALA LUMPUR, Oct 5 (Bernama) -- The implications of the West Asia conflict, which has disrupted global commodity supplies and strategic trade routes, have remained manageable for Malaysia's financial stability, according to Bank Negara Malaysia (BNM). 

The central bank said the conflict emerged as a key source of downside risk to the global economic and financial outlook, driving up energy, logistics and other input costs, intensifying supply-side pressures and heightening volatility in global financial markets. 

"For Malaysia, the spillovers could be significant given the economy’s high degree of integration with global trade and financial markets. 

"Nevertheless, the implications for domestic financial stability have remained manageable," BNM said in its BNM Insights titled "Beyond Oil: From Geopolitical Conflict to Financial Stability Risk".

It said Malaysia’s financial system has limited direct exposures to West Asia, with the principal transmission channels operating through the real economy and global financial markets rather than through direct credit or funding exposures. 

Shocks arising from the conflict do not occur in isolation, but alongside other global economic and financial developments, as their implications for domestic financial stability depend on how these combined shocks interact with existing vulnerabilities. 

"Evidence so far indicates that the risk of such interactions amplifying financial stress has remained limited, with the financial system absorbing the shocks with a high degree of resilience," it said.

BNM said business conditions remain stable, underpinned by sustained domestic demand, robust electrical and electronics exports and continued investment activities.

It said the overall quality of business borrowings remained sound, as evidenced by the business loan impairment ratio, which stood at 2.8 per cent as at June 2026, while the share of loans classified as having increased credit risk remained below its near-term average. 

Banks remain well positioned to absorb the effects of adverse economic and financial conditions, BNM said, noting that the total capital ratio stood at 17.9 per cent of risk-weighted assets, comfortably above regulatory requirements. 

"This resilience was further supported by healthy profitability, with return on equity and return on assets standing at 11.5 per cent and 1.3 per cent, respectively," it said.

Credit risk remained contained, with the aggregate impairment ratio holding steady at 1.4 per cent, while the share of Stage 2 loans declined to 5.9 per cent, it said.

In addition, liquidity conditions across the banking system remained sufficient, supported by BNM’s operations, and continued to provide buffers against potential funding and liquidity shocks.

Meanwhile, insurers and takaful operators remain resilient, supported by strong capital positions. 

As at June 2026, the sector’s aggregate capital adequacy ratio stood at 225 per cent, well above the regulatory minimum. 

"Claims experience remained broadly stable, while healthy new business growth, low surrender payouts and favourable investment performance continued to support profitability," it said. 

-- BERNAMA