The Malaysian economy grew strongly at 6.0% in 2014, driven by private domestic demand and external trade. Growth is projected to moderate slightly to 4.5-5.5% in 2015, underpinned by private consumption and investment amid steady economic expansion across all sectors. While external conditions remain challenging, Malaysia is well-positioned to weather economic shocks due to its diversified economy and resilient financial system stemming from ongoing economic restructuring.

1. Taklimat
Laporan Tahunan 2014 dan
Laporan Kestabilan Kewangan
dan Sistem Pembayaran 2014
Gabenor
Bank Negara Malaysia
11 Mac 2015
1
Embargo
Not for publication or broadcast
before 1800 hours on Wednesday,
11 March 2015

2. 2
Malaysia was among the fastest-growing economies
in Asia
Domestic Demand: 2014
Source: IMF, Bank Negara Malaysia, Department of Statistics, Malaysia
p preliminary
* Figure refers to fiscal year prior to the rebase of GDP calculations
4.7
6.0
-2
-1
0
1
2
3
4
5
6
7
8
2006
2007
2008
2009
2010
2011
2012
2013
2014p
Malaysian economy recorded a stronger growth
of 6.0% in 2014
Annual
change (%)
Within the region, Malaysia was among the
fastest-growing economies
7.4
6.1 6.0 5.8
5.0
3.7
3.3 2.9
0.7
0
1
2
3
4
5
6
7
8
PRChina
Philippines
Malaysia
India*
Indonesia
ChineseTaipei
Korea
Singapore
Thailand
Annual
change (%)Real GDP Growth Real GDP Growth
Global growth: 3.3%

3. -4.0
-1.1
1.41.5
-0.5
0.7
0.8
0.6
3.0
2.0
1.8
4.1
3.6
3.7
5.6
4.7
6.0
-6
-4
-2
0
2
4
6
8
10
12
2012 2013 2014p
Private Consumption Private Investment
Public Consumption Public Investment
Change in Stocks Net Exports
GDP Growth
• Private consumption: Supported by
favourable income growth and stable labour
market conditions
• Private investment: Driven by the
manufacturing and services sectors
• Positive contribution from net exports
Growth in 2014 driven by private domestic demand
and external trade
p preliminary
Source: Department of Statistics, Malaysia
3
Contribution to
growth (ppt.)
Real GDP Growth

4. Global growth to remain moderate in 2015
5.4
4.1
3.4 3.3 3.3
3.5
0
1
2
3
4
5
6
7
8
2010 2011 2012 2013 2014e 2015f
Annual
change (%)
Emerging
Economies
Advanced
Economies
L
4
Real GDP Growth
Global
• Global economy to remain on a moderate growth
path in 2015, supported by:
- Improving fundamentals, particularly in the US
- Lower commodity prices
- Accommodative monetary policies
• Growth performance in the major economies to
become more divergent
- US: Strengthening private sector activity
- Euro area & Japan: Subdued growth amid
persistent structural weaknesses
- PR China: Growth to moderate, in line with
policymakers’ objective to rebalance the economy
Source: IMF and Bank Negara Malaysia estimates

5. Growth in Asia to improve, supported by
higher domestic demand and exports
5
In Asia, growth will be underpinned by domestic
demand and supported by external demand
In particular, Asia’s exports will continue to
benefit from higher demand from the US
US Imports by Origin
(2014: % Share of Total Imports)
Other
Emerging
Economies
31%
PR China
20%
ASEAN-4**
& NIEs
9%
Euro area,
UK & Japan
22%
Other
Advanced
Economies
18%
Source: Asian Development Bank, Haver, and National authorities
* EA-7 refers to Chinese Taipei, Hong Kong SAR, Indonesia, Korea, the Philippines, Singapore and Thailand
** ASEAN-4 refers to Indonesia, Malaysia, the Philippines and Thailand, while NIEs refers to Chinese Taipei, Hong Kong SAR, Korea and Singapore
*** PR China, NIEs and ASEAN-4 account for the majority of US imports from Asia
29% of US
imports are
sourced
from Asia***
4.6
0
1
2
3
4
5
2013
2014
2015f
Domestic Demand
Net Exports
3.8 3.7
Real GDP Growth of EA-7*
Annual change (%)

6. Global inflationary pressures to remain modest amid
lower commodity prices
Lower commodity prices to contain
inflationary pressures across economies
Global commodity prices are expected to
remain low in 2015 amid excess supply
0
1
2
3
4
5
6
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
G3**
Asia*
Annual change (%)
6
Source: Haver, IMF and Bank Negara Malaysia estimates
* Asia refers to Chinese Taipei, Hong Kong SAR, Indonesia, Korea, Malaysia, the Philippines, PR China, Singapore and Thailand
** G3 refers to the US, euro area and Japan
0
50
100
150
200
250
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015f
Food
Metal
Crude Oil
Index (2005=100)

7. Fed’s Median Interest Rate Projection
(as of Dec 2014)
0
10
20
30
40
50
60
70
80
90
100
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
ECB
BOJ
Fed
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
ECB
BOJ
Fed
Divergence in monetary policy amongst the
major advanced economies
ECB and BOJ will continue to increase monetary
accommodation through higher asset purchases …
Source: National authorities, Haver, Bank Negara Malaysia estimates
Central Bank Balance Sheet Size
% of GDP
7
Forecast
…whereas Federal Reserve could begin interest rate
normalisation in 2015 amid stronger growth
Rate (%)
Forecast

8. Downside risks to global growth remain
Prolonged weakness in domestic demand and persistence of disinflation or
deflation in several major economies
Uncertainties over monetary policy adjustments in major advanced economies
Uncertainty over commodity price movements affecting growth prospects of
other emerging economies
1
2
3
8

9. Emerging economies will continue to be confronted
with large and volatile capital flows
L
9
• Recent capital outflows from many EMEs caused
by uncertainties in the global economic, financial
and policy environment
• Despite the depreciation of exchange rates, the
domestic financial systems of the regional
economies have proved to be resilient in the face
of such outflows
2.5
1.6
0.4
0.6
1.1
0.7
0.0
1.5
-1.0
3.4
1.6
0.4
-0.3
-0.4
-0.4
-0.5
-0.7
-3.7
-5 -3 -1 1 3 5
India
Korea
Singapore
Malaysia
Indonesia
Russia
Thailand
Taiwan
Brazil
1 Sep 2014 - 25 Feb 2015 1 Feb 2014 - 29 Aug 2014
USD bn
Portfolio Flows of Selected Emerging Economies
Source: EPFR Global

10. The Malaysian economy to remain on a steady growth
path of 4.5 – 5.5% in 2015
• Domestic demand will continue to drive
growth, led by private sector spending
• All economic sectors to experience
continued expansion
• External sector to remain resilient
L
-2
-1
0
1
2
3
4
5
6
7
8
2008 2009 2010 2011 2012 2013 2014p 2015f
Annual
change (%)
5.5
4.5
6.0
Despite external shocks, growth to remain on steady trajectory amid strong
underlying fundamentals
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
10

11. Economic restructuring accords Malaysia the resilience
to weather the challenging external environment
11
Shifts in economic activity have resulted in
a more diversified economic structure
Malaysia: Economy by Sector (2014)
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
Higher private participation in the economy
(70% of GDP)
Diverse export structure across products
and markets
Resilient and well-developed financial
system, supporting growth
1
2
3
Reaping the benefits of Malaysia’s economic
restructuring and reforms
Services
55%Manufacturing
25%
Mining
8%
Agriculture
7%
Construction
4%

12. Domestic demand will continue to drive growth in 2015
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
12
Contribution to
growth (ppt.)
6.0
4.5 – 5.5
-2
-1
0
1
2
3
4
5
6
7
8
2014p 2015f
Private Consumption Private Investment
Public Consumption Public Investment
Change in Stocks Net Exports
Real Gross Domestic Product (GDP)Real GDP
Annual change (%)
% share
of GDP
(2014)
2014p 2015f
Domestic demand
(excluding stocks)
93.1 6.0 6.0
Private expenditure 70.0 8.0 6.7
Private consumption 52.5 7.1 6.0
Private investment 17.5 11.0 9.0
Public expenditure 23.0 0.2 3.7
Public consumption 13.2 4.4 2.7
Public investment 9.8 -4.9 5.1
Gross Fixed Capital Formation 27.3 4.7 7.6
Net exports of Goods
& Services
8.0 19.7 -7.8
Exports of Goods & Services 88.8 5.1 3.0
Imports of Goods & Services 80.8 3.9 4.0
Real GDP 100.0 6.0 4.5 – 5.5

13. Real GDP
Annual change (%)
% share
of GDP
(2014)
2014p 2015f
Services 55.3 6.3 5.6
Manufacturing 24.6 6.2 4.9
Mining 7.9 3.1 3.0
Agriculture 6.9 2.6 0.3
Construction 3.9 11.6 10.3
Real GDP 100.01 6.0 4.5 – 5.5
Continued expansion across all economic sectors
• Services
- Supported by consumption- and
trade-related sub-sectors
• Manufacturing
- Continued growth in electronics and
electrical (E&E) sector
• Mining
- Rising oil production
• Agriculture
- Lower production of palm oil and rubber
amid lower prices
• Construction
- Driven by activity in residential and
non-residential sub-sectors
1 Numbers do not add up due to rounding and exclusion of import duties
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
13
Services and manufacturing sectors to underpin growth

14. 7.5
5.2
0.5
0.3
0
2
4
6
8
10
12
14
2015f
Real private consumption
6.0
5
6
7
8
2010
2011
2012
2013
2014p
2015f
Annual change (%)
Unemployment and salary Government measures and savings
RM bil
While growth is affected by GST
and lower earnings in commodity
sectors…
…it remains supported by
stable labour market conditions
and continued growth in salary…
…and additional income from
Gov’t measures and savings
from lower fuel prices
Private consumption is projected to grow by 6.0%
in 2015
Avg. (‘90-’14): 6.7%
Note: * Disbursed to primary and secondary school students; Source: Department of Statistics, Malaysia, MEF Salary Survey, Bank Negara Malaysia
p preliminary f forecast
Bantuan Rakyat
1Malaysia (BR1M)
Savings from
lower fuel
prices
RM 100 cash
assistance program*
Baucar Buku
1Malaysia (BB1M)
2.8 2.9
5.4
5.8
2.9
3.0
2
3
4
5
0
1
2
3
4
5
6
7
2013 2014p 2015f
Annual change (%) % share of
labour force
Salary increment
Unemployment rate (RHS)
Employment growth
13.5
14

15. Private investment to be supported by a steady
flow of projects
18.4
9.4
22.8
13.1
11.0
9.0
0
5
10
15
20
25
2010
2011
2012
2013
2014p
2015f
Source: Department of Statistics, Malaysia, Malaysian Investment Development Authority (MIDA) and Bank Negara Malaysia
Avg. (‘90-’14): 8.5%
15
p preliminary f forecast
Private investment to expand
by 9.0%...
58%
64%
42%
36%52.1
71.9
0
20
40
60
80
2013 2014
Domestic-oriented
Export-oriented
Record-high manufacturing
investment approvals point
to sustained investment
RM bil
Private
(64%)
Services
Agriculture
Manufacturing
Mining
Construction
% share of
real GFCF
Public
(36%)
% share of real private
investment (sector)
3
5
16
51
26
…driven mainly by investment in the
manufacturing and services sectors
Annual change (%)

16. -3.1
-4.6
-6.7
-5.4
-4.8
-4.5
-3.9
-3.5
-3.2
-8
-7
-6
-5
-4
-3
-2
-1
0
-80
-70
-60
-50
-40
-30
-20
-10
0
2007 2008 2009 2010 2011 2012 2013 2014 2015e
% of GDPRM billion
Federal Government Fiscal Balance
RM billion % of GDP (RHS)
Fiscal consolidation will remain on course despite
low oil prices
e latest estimate reflecting Prime Minister’s speech on 20 Jan 2015
Source: Ministry of Finance, Malaysia
16

17. Earlier fiscal reform measures have yielded
positive results
17
Dependency on oil revenue has declined
Expenditure reforms is underpinned by the removal of the fuel subsidy, which will reduce the
operating expenditure
GST implementation will broaden the revenue base
1
2
3

18. Trade balance to remain in substantial surplus amid
more moderate export growth
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast
18
Malaysia’s Trade Performance
Trade
Annual change (%)
% share
(2014)
2014p 2015f
Gross exports 100.0 6.4 1.5
Manufactured 76.9 7.3 8.4
E&E 37.3 8.4 14.1
Non-E&E 39.6 6.3 3.0
Commodities 22.7 4.5 -22.6
Agriculture 9.0 0.6 -10.8
Minerals 13.7 7.3 -30.4
Gross imports 100.0 5.3 6.0
Capital goods 14.1 -2.1 10.0
Intermediate goods 59.8 7.6 6.8
Consumption goods 7.4 5.7 6.8
Manufactured exports to benefit from improvement in major advanced economies
83.1
53.6
40
50
60
70
80
90
100
110
120
130
200
300
400
500
600
700
800
900
2010
2011
2012
2013
2014p
2015f
Exports Imports Trade Balance (RHS)
RM bil RM bil

19. Note: NIEs include Hong Kong, Singapore, Korea and Chinese Taipei, while ASEAN-3 include Thailand, Indonesia and Philippines
19
Diversified trade structure in terms of products and
markets mitigates the impact of external developments
US
8%
PR
China
12%
Japan
11%
EU27
9%
NIEs*
26%
Rest of
World
22%
ASEAN-3*
11%
Malaysia’s Exports by Products Malaysia’s Exports by Markets
Sources: Department of Statistics, Malaysia and Bank Negara Malaysia
Chemical &
chemical products
6.7%
E&E,
37.4%
Manufactures
of metal
3.5%
Other
non-E&E
20%
Rubber & other
commodities
3.7%
Oil-
related
14%
Commodities
23%
Crude oil
4.4%
Refined petroleum
products
9.2%
LNG
8.4%
CPO
6.1%
Others
0.7%
Manufactured exports constitute the largest
share of total exports
Higher share of exports to regional countries
amid strengthened trade linkages

20. Current account surplus to remain in 2015
Source: Department of Statistics, Malaysia
p preliminary f forecast
20
Current account
component (net)
2014p 2015f
RM billion
Goods 125.1 94.2
Services -20.5 -16.4
Primary income -37.4 -38.0
Secondary income -17.6 -18.5
Current account balance 49.5 21.4
% of GNI 4.8 2 – 3
The narrowing of the current account surplus to 2 – 3% of GNI is consistent with
global rebalancing and structural transformation in the domestic economy
15.1
17.6
4.8
2-3
-12
-8
-4
0
4
8
12
16
20
24
-100
-50
0
50
100
150
200
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014p
2015f
Goods Services
Primary income Secondary income
% of GNI (RHS)
RM bil % of GNI
Current Account Balance

21. 21
Narrowing savings-investment gap driven by strength
in investment activity
Savings-Investment Gap
0
50
100
150
200
250
300
350
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014p
2015f
Gross Capital Formation
Savings-Investment Gap
RM bil
Gross National Savings
• Strong growth in investment activity has
been a key feature of the structural
transformation in the economy
• Investments undertaken in new growth
areas, high value-added industries and
infrastructure will further lift productive
and exports capacity of the economy
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
p preliminary f forecast

22. Ringgit movements driven by external factors
Note: REER uses latest daily NEER and latest available (monthly) inflation data
Source: Bank Negara Malaysia
22
• Depreciation of the ringgit and regional
currencies reflects the US dollar strength
• A larger adjustment in the ringgit is due to
concerns on the impact of lower oil prices on
the Malaysian economy
• The exchange rate is neither a demand
management tool nor a policy instrument to
affect export competitiveness
-3.5
7.0
6.0
-1.4
4.4
2.1
0.2
5.5
1.5
3.8
-1.4
3.2
3.8
5.8
5.5
-17.8
-17.7
-14.4
-14.3
-10.4
-9.6
-9.2
-8.7
-5.2
-3.5
-1.9
-1.9
-1.4
-6.4
-6.2
-20 -15 -10 -5 0 5 10
EUR
AUD
MYR
JPY
IDR
SGD
GBP
KRW
TWD
INR
CNY
THB
PHP
REER*
NEER
1 Sep 2014 - 9 Mar 2015 1 Feb 2014 - 29 Aug 2014 %
Performance of Selected Currencies
against the USD

23. Malaysia is better positioned to intermediate volatile
capital flows
Such sizeable reversals of capital flows have been
experienced before
Note: 1Reserves data up to 27 Feb 2015
Source: BNM
• Ability to absorb the volatility of these flows and
contain its spillover effects on the real economy
– Well-developed financial markets and resilient
banking system
– A wider range of tools and increased policy
flexibility
– Bigger buffers built over the years
• Despite the recent outflows, conditions in the
domestic financial market and foreign exchange
market has remained orderly
23
-39.3
-19.1 -21.0
-28.5
-5.5
-21.51
-45
-40
-35
-30
-25
-20
-15
-10
-5
0
GFC
(Mar '08 - Mar '09)
Taper tantrum
(22 May - 28 Aug
'13)
Current
(1 Sep '14 - 9 Mar
'15)
USD billion
NR Portfolio Flows Change in Reserves
NR Portfolio Flows, Reserves and Ringgit Performance
(-12.6)
(-9.7) (-14.4)
(% Change in
MYR/USD)

24. 24
Ample international reserves provide important buffer
Source: Bank Negara Malaysia
Reserves to short-term external debt coverage at 1.1
times is adequate for a country that has higher
degree of economic and financial openness
0
2
4
6
8
10
12
0
20
40
60
80
100
120
140
160
1991 1994 1997 2000 2003 2006 2009 2012 As at
27
Feb
2015
USD bil
Net International Reserves
Net International Reserves
Retained import cover (RHS)
Reserves/ST ext debt (RHS)
27 Feb 2015:
USD110.5 bil
1997:
USD21.7 bil
Times
Reserves have increased about five-fold since
the Asian Financial Crisis
Malaysia is the most financially open economy
in East Asia after Hong Kong and Singapore
High degree of financial openness reflected
by:
– High presence of non-resident participation
in the domestic financial market
– Increased regionalisation of domestic banks
– Progressive liberalisation of the capital
account
1
2

25. Short-term external debt position reflects greater financial
integration and more developed financial markets
Source: Bank Negara Malaysia, Bank of International Settlements, Asian Development Bank, Haver Analytics
Non-Resident
deposits, 24%
Others, 20%
Interbank
borrowing
39%
Money market
instruments
17%
Mainly the banks’
centralised foreign
currency liquidity
management
25
SG HK MY ID TH KR
Banks’ external asset
position
(% share of GDP) 1
116.9 20.2 21.4 4.2 n.a. 15.6
Bond market
capitalization
(% share of GDP) 2
81.9 68.3 103.8 15.2 76.3 123.2
NR holdings
(% share of govt.
bonds) 3
n.a. 7.4 28.3 37.3 17.3 10.6
1 end-Sep 2014 (except Malaysia end-Dec 2014)
2 end-Dec 2014 (except Hong Kong and Korea end-Sept 2014)
3 Mar ‘14 (HK), Sep ‘14 (KR), Feb ‘15 (MY, ID, TH)
Mainly trade credits and
intercompany loans
Non-resident (NR) holdings,
mainly in BNM Monetary Notes
Malaysia compares favourably in terms of financial
integration and financial market depth
Risks are well contained as the bulk of
short-term external debt reflects
increasing regionalisation of our banks

26. Headline inflation to range between 2 – 3% in 2015
• Lower inflation reflects the decline in global energy and
commodity prices
• Lower domestic fuel prices and moderate demand
conditions would partly offset the impact from GST
• Households will benefit through higher disposable
income from lower fuel prices
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
0
1
2
3
4
5
6
2008 2009 2010 2011 2012 2013 2014 2015f
Annual
change (%)
Inflation forecast
3.0
3.2
2.0
Historical avg.
(1991-2014) = 3%
26

27. Monetary policy will focus on ensuring steady
growth amid contained inflation outlook
• Monetary policy in 2015 will focus on
supporting the steady growth of the economy,
amid a contained inflation outlook
• The risks of destabilising financial imbalances
will continue to be monitored
Overnight Policy Rate (OPR)
Source: Bank Negara Malaysia
27
3.25
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Feb-09
Aug-09
Feb-10
Aug-10
Feb-11
Aug-11
Feb-12
Aug-12
Feb-13
Aug-13
Feb-14
Aug-14
Feb-15
%

28. Financing continues to be supportive of
economic activity
151 184 220 232 239
0
300
600
900
1200
2010
2011
2012
2013
2014
Funds Raised via Capital Markets
Loan Disbursements by the Banking System and DFIs
Loans Disbursed to SMEs
RM billion
986
763
847
984
Gross Financing through Loans
and the Capital Markets*
• Going forward, financing activity is expected to
remain robust
- Continued availability of financing for businesses,
especially for SMEs from the banking system and the
DFIs
- Funds raised from the capital market to remain high
given committed investment projects in the pipeline
• Supported by ample liquidity conditions
- Outstanding surplus liquidity with BNM remains high
at RM269.9 billion in 2014
1,107
28
*Comprises gross loans from the banking system and DFIs, and gross funds raised from the capital markets
Source: Bank Negara Malaysia

29. Low borrowing costs to the private sector
29
• Private sector will continue to benefit from
low financing costs
• Despite financial market volatilities, cost of
financing from capital markets remain
supportive of fund raising activities
- Strong domestic investor base allows
Malaysia to meet domestic financing needs
without relying on external sources of funds
2
3
4
5
6
7
Overall private
sector
Overall
businesses
SMEs Large Corporate
(5y AAA PDS)
Long-run average* Jan-15
Source: Bank Negara Malaysia
Interest Rates to the Private Sector
Note: * Average (Jan 2002 – Dec 2014)
%

30. 55.5
103.8
11.8
15.2
0
10
20
0
50
100
150
1998 2014
Size of Bond Market
Capital Ratio* (RHS)
Malaysia’s macroeconomic fundamentals remain
supportive of growth
60.4 60.7
68.8
70.0
50
60
70
80
2008 2010 2012 2014p
% share
3.3
3.7
3.1
2.9
2.5
3.0
3.5
4.0
2008 2010 2012 2014p
%
5.4
0.6
2.1
3.2
0
4
8
2008 2010 2012 2014
Annual
change (%)
Steady growth path High private sector
participation in the economy
Low and stable
inflation environment
Stable labour market conditions
Deeper markets and
strong financial buffers
4.8
-1.5
4.7
6.0
-4
0
4
8
12
2008 2010 2012 2014p
Current account balance
reflects strong investment
17.6
15.8
4.2 4.8
0
10
20
30
2008 2010 2012 2014p
Annual
change (%)
% of GNI
Source: Department of Statistics, Malaysia and Bank Negara Malaysia
Current account balanceInflation
GDP Private expenditure / GDP Unemployment rate
30
% of nominal GDP
Size of Bond Market
and Banking Capital Ratio
%
* Capital ratio in ‘98 refers to the risk-weighted capital ratio; Ratio in 2014 refers to total capital ratio, reported based on Basel III
Capital Adequacy Framework adopted since January 2013.

31. Malaysia remains resilient in an uncertain
external environment
31
• The Malaysian economy to remain on a steady growth path of 4.5 – 5.5%, driven by
domestic demand
- Economic diversification and structural reforms to mitigate adverse external developments
- Accommodative monetary policy that is supportive of economic activity
- Pro-growth and targeted policy measures such as assistance to SMEs and low-income households
• Current account to remain in surplus
- Diversified export markets and products
• Lower inflation of 2 – 3%
• Malaysia has the capacity to deal with capital flows
- Well-developed and resilient financial system and deep capital market
- Ample reserves with a wide range of monetary policy instruments
- Flexible exchange rate

32. 32
Financial position remained stable in 2014:
• Total assets of BNM amounted to RM427.6 billion with
International Reserves of RM405.4 billion (USD 115.9 billion)
• Net profit of RM6.38 billion
• Dividend of RM3.0 billion to the Government
Bank Negara Malaysia: Annual Financial
Statements 2014

33. 33
Bank Negara Malaysia: Annual Financial
Statements 2014
RM bil
Total Income 8.48
Less:
Recurring Expenditure 1.15
Development Expenditure 0.95
Total Expenditure 2.10
Net Profit 6.38
Income Statement
(Year ended 31 December 2014)
0
100
200
300
400
500
Assets
Other Assets
Land and Buildings
Loans and Advances
Deposits with FIs
MGS
SDR
IMF Reserve Position
Gold and Foreign Exchange
Statement of Financial Position
(as at 31 December 2014)
RM bil
0
100
200
300
400
500
Liabilities and Capital
Total Capital
Total Liabilities
RM bil

34. 34
Financial Stability And Payment Systems
Report 2014

35. Financial stability outlook for 2015 remains positive
Source: Bank Negara Malaysia
• Financial intermediation will remain
supportive of economic activities
• Market conditions are expected to
remain orderly despite higher volatility
• Financial institutions continue to
maintain strong capital and liquidity
buffers
35
Banking Sector (%) 2013 Jan 2015
Capitalisation
Common equity tier 1 ratio
Total capital ratio
Excess capital buffer (RM bil)
12.6
14.9
85.5
12.4
15.1
97.1
Profitability
Return on assets
Return on equity
1.5
15.9
1.5*
15.2*
Asset Quality
Net impaired loans ratio
Loans in arrears (1-<3 mths)
1.3
2.9
1.2
2.4
Liquidity Position
Liquidity buffer (<1 mth, % of deposits) 14.7 15.6
Insurance/Takaful Sector (%) 2013 2014
Capitalisation
Capital adequacy ratio – Insurance
Capital adequacy ratio – Takaful
Capital buffer (RM bil)
246.1
n/a
23.5
253.0
192.8
30.2
Profitability
Profit (RM bil) 16.4 16.9
* Refers to December 2014 position

36. • Growth in household debts moderated to
the slowest pace of 9.9% since 2010
‒ Continued deceleration in personal
financing
‒ Higher quality of new borrowings amid
strengthened affordability assessments
‒ Lower share of debt attributed to more
vulnerable households
• Receding risks from the property market
- Slower growth in average house prices
since 4Q 2013
- Speculative purchases with borrowings
remain in check
Sustained moderation in the growth of household
debt and property prices
36
RM bil Annual change (%)
856
940
1,903
2,013
0
4
8
12
16
0
500
1,000
1,500
2,000
2,500
2010 2011 2012 2013 2014
Debt Financial asset
Debt growth (RHS) Financial asset growth (RHS)
Household Debt and Financial Assets
0
2
4
6
8
10
12
14
0
4
8
12
16
20
1Q
2007
1Q
2008
1Q
2009
1Q
2010
1Q
2011
1Q
2012
1Q
2013
1Q
2014
Borrowers with ≥3 HL MHPI (RHS)
LTV 70%
Malaysian House Price Index (MHPI) and
Number of Housing Loan (HL) Borrowers
Annual change (%) Annual change (%)
LTV 60%

37. Corporate leverage remains within prudent levels
• Corporate leverage remained low at 42.7%
- Further supported by a healthy median
interest coverage ratio of 6.4 times
• Negligible growth in external borrowings
- Mainly intragroup funding for Malaysian and
overseas operations by multinational and
larger domestic corporations
• Quality of business loans remained sound,
with broad-based improvements in
delinquency and impairment trends
37
131.7%
88.3% 93.3% 98.4% 96.9%
45.5
42.5
40.0
42.7
30
35
40
45
50
55
0
50
100
150
1998 2011 2012 2013 2014p
Domestic Loans to GDP Domestic PDS to GDP
External debt to GDP Debt-to-Equity ratio (RHS)
Business Sector:
Leverage and Composition of Debt
% of GDP %

38. Limited risk of contagion from external exposures
38
• Centralised liquidity management
practices of banks contributed to
higher external exposures of financial
institutions, mainly in Asia
• Overseas operations of domestic
banking groups continued to maintain
healthy growth and profits, and a stable
risk profile
• Banks continue to proactively manage
foreign currency mismatch positions
-30
-20
-10
10
20
M J S D M J S D M J S D M J S D M J S D
2010 2011 2012 2013 2014
RM bil
All maturity <1 week <1 month
Banking System: US Dollar Liquidity Mismatch
-40
-20
0
20
40
-450
-350
-250
-150
-50
50
150
250
2010 2011 2012 2013 2014
Debt securities Loans
Deposits Equity & retained earnings
Others Growth in total external assets
Growth in total external liabilities
RM bil
AssetsLiabilities
Annual change (%)
Banks’ External Assets and Liabilities by Instruments

39. Strengthening the banking and insurance sectors
• Further strengthening of prudential framework, driven by the global reform agenda
and domestic reforms
• Insurance and takaful reforms to promote efficiency, enhance protection and ensure
long-term sustainability
39
New motor cover
framework
Life Insurance and
Family Takaful
Framework
(LIFE Framework)
• Market-based pricing to be phased in beginning 2016
Wider access through direct channels and product aggregators
for consumers to compare and purchase insurance/takaful
Larger pool of qualified
financial advisers
Improved incentive
structures to drive
professional conduct and
service quality
1
32

40. Further development of financial markets
40
• Continued growth of the debt securities, sukuk
and foreign exchange (FX) markets
- Total outstanding debt securities and sukuk
grew by 8.2%, with more diverse currency
and investor base
• Wider use of renminbi supported by liquidity
management and clearing facilities
- Operationalisation of the Renminbi Deposit
and Investment Facility
- Appointment of a designated Renminbi
clearing bank in Malaysia
• Enactment of the Netting of Financial
Agreements Act 2014
0
200
400
600
800
1000
1200
2009 2010 2011 2012 2013 2014
Public Sector Private Sector
RM bil
Outstanding debt securities and sukuk
Average daily turnover of foreign exchange market
0
2
4
6
8
10
12
14
2009 2010 2011 2012 2013 2014
USD bil

41. Strengthened arrangements to better protect
consumers
41
Strengthened redress mechanisms through the transformation of
the Financial Mediation Bureau into
an approved Financial Ombudsman Scheme
Ongoing financial education
initiatives
More balanced pre-
contractual disclosure
obligations and
proportionate remedies for
insurance / takaful contracts
1
32
Financial
Consumer
Protection
Initiatives

42. Financial inclusion remains a priority
Pilot microinsurance and microtakaful
projects
1
3
Improved access to financing
22% have access
through agent
banks
77% have access through
both bank branches and
agent banks
42
Implementation of a systematic financial
inclusion monitoring framework2
4 Amendments to the Development
Financial Institutions Act
Total
population:
30.3 mil
0.4% have access
through bank branches
Less than 1% is
unserved
99% of population have access to banking
services, through the following channels:

43. Significant progress achieved towards deeper
regional financial integration
• Conclusion of Sixth Package of Financial Sector Commitments under the ASEAN
Framework Agreement on Services (AFAS) in Q1 2015
• Finalisation of ASEAN Banking Integration Framework (ABIF)
- Completed the multilateral framework for the implementation of the banking integration
process
- Supported by a network of bilateral agreements between countries
- Signing of Heads of Agreement between Bank Negara Malaysia, Bank Indonesia and
Otoritas Jasa Keuangan in December 2014
• Enhancing integration of regional payment systems
- Adoption of the Principles of Product Transparency on Cross-border Trade Settlement to
enhance the efficiency of trade settlement between ASEAN economies
43

44. 2014
Malaysia continues to advance as an international
marketplace for Islamic finance
Components of GIFDI1
Quantitative Development
Knowledge
Governance
Corporate Social Responsibility
Awareness
Malaysia’s rank
1st
2nd
8th
1st
2nd
44
• Global leader in Islamic finance development
• Inclusion of Malaysian Government
Investment Issues (GII) in the Barclays
Global Aggregate, Asian Pacific Aggregate
and Emerging Markets Local Currency
Government indices effective 31 March 2015
• Increased vibrancy in the multi-currency
sukuk marketplace
- Five more ‘Emas’ foreign currency-
denominated sukuk.
- World’s first yen-denominated sukuk issued
in Malaysia
Source: ICD Thomson Reuters, Islamic Finance Development Report 2014; Bloomberg, KFH Research
Vibrancy of Multicurrency Sukuk Issuances (USD bil)
1.20
0.08 0.16
0.48
2010 2011 2012 2013
SGD
RMB
RMB
SGD
JPY
0.02
USD
1.85
USD
2.00
USD
1.16
USD
1.80
USD
2.33
1 Global Islamic Finance Development Indicator by ICD Thomson Reuters

45. 45
Increased adoption of electronic payments for retail
payment transactions
R
Notable progress made since commencement
of pricing reforms in May 2013
Cheque and IBG Transaction Volume
Incentive fund framework and payment
card reforms
Incentives for customers to migrate
to e-payments
Transparency requirements
Promote comparison shopping and
competition
Building awareness and confidence
Media campaigns, roadshows and outreach
programs
0
5
10
15
20
25
Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
IBG fee lowered from RM2
to 10 sen
Cheque
IBG
Imposition of 50 sen
cheque fee
Source: Bank Negara Malaysia
2013 2014
% increase (+) / % decrease (-)
Usage of Cheques - 3 - 10
IBG Transactions + 19 + 36
Continuous efforts to drive and sustain
e-payment adoption
million
Management of cyber risks
Critical IT systems remain resilient and
customer information is adequately protected

46. New arrangements to complement existing talent
development initiatives
46
FSTC
Elevating the standards of
professionalism, quality and ethics
Comprehensive talent development institutions
Financial Services
Talent Council
• Establishment of the Financial Services Talent
Council and Financial Services Professional Board
to raise the supply and quality of financial
professionals
• Continued focus on ensuring high standards of
professional learning programmes
- Finance Qualification Structure and FAA
Learning Standards
- Financial Institutions Directors’ Education in
Islamic Finance (FIDE-i) and Shariah Leaders
Education Programme
- Transformation of IBBM into Asian Institute of
Chartered Bankers and Asian Banking School

47. Discussion