KUALA LUMPUR (Sept 29): Bank Negara Malaysia expects the country’s export growth to remain in contraction in the near term, albeit at a milder pace as downside risks remain, stemming from weaker external demand.

Exports contracted by 18.6% in August 2023 (July 2023: down 13%), reflecting weaker external demand and a decline in commodity prices amid a high base effect, the central bank said in its monthly highlight released on Friday.

Manufactured export growth was weighed mainly by electrical and engineering (E&E) products, petroleum and palm oil-based products, while commodities exports declined primarily due to lower palm oil, liquefied natural gas and crude petroleum shipments.

Headline inflation remained unchanged at 2%, as the decline in core inflation was offset by an uptick in inflation for non-core components, including fuel and electricity, BNM noted.

“The lower core inflation at 2.5% (July 2023: 2.8%) largely reflected lower inflation for food away from home, rental and discretionary services,” it added.

The central bank further said that global financial markets in August were weighed down by ongoing concerns surrounding China’s economic slowdown and a tighter US monetary policy.

“The People’s Bank of China announced an unexpected round of monetary policy easing. Meanwhile, the US Federal Reserve’s chair Jerome Powell reaffirmed at the Jackson Hole Symposium that US monetary conditions would need to remain tight for longer,” BNM said.

As a result, BNM said the ringgit depreciated against the US dollar by 2.1% (regional average: -2.4%), while the FBM KLCI declined by 0.5% (regional average: -2.0%).

At the time of writing, the ringgit was trading at 4.689 against the greenback, after having weakened 6.46% year to date, while the FBM KLCI was down 4.68% over the same period.

Meanwhile, yields for 10-year Malaysian Government Securities (MGS) were unchanged in August, BNM said.

In terms of loans, the central bank said credit to the private non-financial sector grew by 3.8% as at end-August, the same as July, supported by higher growth in outstanding loans.

For businesses, outstanding corporate bonds grew at a slower pace of 4.4% (July 2023: 5.2%), and outstanding loan growth increased to 0.7% (July 2023: 0.2%).

This mainly reflected improvement in the non-SME (small and medium-sized enterprises) segment for both working capital and investment loans.

Growth in outstanding loans to SMEs also remained largely forthcoming at 6.2% (July 2023: 6.7%), the central bank said.

“Growth in outstanding household loans was sustained at 5.3% compared to 5.2% in July 2023, supported by higher growth across most loan purposes,” BNM said.

Household loan growth continued to be driven by loans for the purchase of houses and cars, which grew by 7.3% and 8.7% respectively (July 2023: 7.1% and 8.4%, respectively).

The overall gross and net impaired loans ratios remained largely unchanged at 1.8% and 1.1% respectively, and loan loss coverage (LLC) ratio (including regulatory reserves) remained at a prudent 115.0% of impaired loans, with total provisions accounting for 1.6% of total loans.

The regulator added that banks also remained well-capitalised to support economic growth.

“Banks’ capital position remained strong to withstand potential shock and support credit intermediation growth in the economy. The banking system recorded excess capital buffers of RM133.3 billion as of the reporting date,” BNM added.