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The role of banks and financial institutions in supporting national economic recovery

Below is the opening keynote address by Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz at the Malaysian Banking and Finance Summit 2021 at 9.30am today (Sept 21).

Yang Berbahagia Tan Sri Abdul Wahid Omar, 

Chairman of the Advisory Council of The Economic Club of Kuala Lumpur 

Yang Berbahagia Tan Sri Michael Yeoh, 

President of the KSI Strategic Institute for Asia Pacific 

Ladies and gentlemen, 

Assalamualaikum Warahmatullahi Wabarakatuh and good morning, 

1. Foremost, allow me to express my gratitude to the organiser of the 2021  Malaysian Banking and Finance Summit for the honor of delivering  this morning’s opening keynote address. 

2. Eighteen (18) months since COVID-19 first shook the world, humanity  continues to grapple with the twin shock of the pandemic, namely, the  direct public health impact and economic effects as large parts of the  global economy were shuttered to contain the spread of the virus. 

3. Malaysia is no exception, recording over two (2) million cases and  losing over 21,000 lives thus far. The economic price has been equally  dear and unequal. While Malaysia’s GDP contracted 5.6% in 2020, it is  the vulnerable segment of our society that has been hit the hardest. 

4. And, the battle is far from over. Already, new challenges are emerging  in the form of more dangerous variants and growing community  transmissions, reflecting the difficult path to recovery.  

5. At the same time, our world has transformed dramatically since COVID 19. The pandemic has changed the old ways of how we earn a living, shop, learn and play. In just one year up to June 2021, we have seen: 

a. e-Wallet volume increase 89% to 468 million transactions;

b. merchant participation for QR payments jump 57% to 1 million registrations; and  

c. online banking volume improve 36% to 12.1 billion transactions.

6. Despite these challenges, I am optimistic that we are at the cusp of  recovery. For the rest of my keynote, allow me to share:  

a. the form and trajectory for Malaysia’s safe exit from lockdown and  the recovery of our economy, guided by the National Recovery  Plan;  

b. the role financial institutions played thus far; and  

c. their role, together with wider efforts by the Government, in  supporting recovery and building back better.  

The path to recovery

Ladies and gentlemen,  

7. The National Recovery Plan, or NRP, was introduced in June this year  as a comprehensive approach to restoring consumer confidence while  allowing the economy to open safely. At its heart, the NRP will catapult  the nation on the path to recovery.  

8. Through three (3) key headline indicators in line with the national vaccination rate objectives, all but two (2) states have “graduated” to  phases two and three of the NRP. 

9. Testimony to the NRP’s dynamic approach while ensuring BOTH lives  and livelihoods are preserved, the Government has recently announced  the:  

a. easing of restrictions for those fully vaccinated;  

b. a travel bubble for tourist destinations in Malaysia, beginning with Langkawi on Hari Malaysia; and 

c. ongoing efforts to simplify SOPs to just ten (10) in the coming  weeks.  

10. Alhamdulillah, we have seen some great progress thus far. Since its  inception, we have dramatically improved testing capabilities. We  continue to make testing widely available and affordable. And, our  contact tracing capabilities are being enhanced through the use of  technology and mobility data.  

11. On the vaccination front – a key enabler of Malaysia’s recovery – we  continue to fire on all cylinders. As of 18 September, more than 21  million people or 93% of the country's adult population had received  their first shot, including 18 million or 78% who are now fully vaccinated. 

Consequently, we have seen our hospitalisation and ICU rates stabilise in recent weeks.  

12. Insya Allah, we are well on our way to have 80% of the adult population  fully vaccinated by end-September, and 100% by end-October. Thereafter, the Government will progressively update the NRP to  prepare Malaysia for the next normal of living with COVID-19 as an endemic disease.  

13. How do these factors add up at the economic level? For one, the expected re-opening of the economy would support our recovery path,  complemented by stronger external demand, ramp-up in commodity  production, materialisation of pent-up demand, and continued  investment in large-scale infrastructure projects. All in, Malaysia’s GDP  is projected to grow between 3% to 4% in 2021.  

14. The recovery is expected to accelerate further in 2022 – with the World  Bank and IMF projecting growth rates for Malaysia of 5.0% and 6.0%,  respectively. This recovery will be supported by a gradual normalisation  of economic activities as well as the positive spill overs from continued  improvement in external demand.

The role of financial institutions thus far

Ladies and gentlemen,  

15. Since the pandemic first hit our shores, the Government has introduced  eight (8) assistance packages in addition to Budget 2021. All in, over  260 billion ringgit has been disbursed as at end-July, benefiting over  20 million rakyat and 2.4 million businesses.  

16. In that respect, the banking industry has been instrumental in  maintaining livelihoods while providing support to the wider economy.  

17. As part of the PRIHATIN assistance package, the banking sector  implemented the deferment of all performing loans for a period of six (6) months up to September 2020 and credit card outstanding balances that  can be converted to a 3-year term loan with reduced interest rates.  

18. Since then, the banking industry continues to facilitate repayment  assistance for borrowers including, most recently, under the  PEMERKASA+ and PEMULIH assistance packages which has  benefitted 2.6 million borrowers including 81,000 MSMEs from the  period of 1 June to 20 August 2021.  

19. Other key measures to support the economy include:  

a. the reduction in the Overnight Policy Rate by 125 basis points since January 2020;  

b. support for SMEs including 154 billion ringgit in bank financing  disbursed in 1H2021. This includes 3 billion ringgit disbursed from  the various financing schemes provided by Bank Negara Malaysia like the Targeted Relief and Recovery Facility, PENJANA Tourism  Financing, High Tech Facility, SME Automation & Digitisation  Facility, benefitting more than 12,000 SMEs in the same period;  

c. expansion of the iTEKAD blended finance programme which  combines social finance funds including zakat, cash waqf and social impact investment with microfinancing to provide seed  capital and working capital for micro-entrepreneurs. In addition, the  programme was expanded to include upskilling elements. As of 31 July 2021, iTEKAD led by Bank Islam has enrolled 98 micro entrepreneurs under a structured training programme with  approved micro-financing and zakat funds of approximately 2  million ringgit. In addition to Wilayah Persekutuan, the  programme has now been expanded to include Selangor and  Perlis. The participation of two (2) additional Islamic Banks, CIMB  Islamic and Bank Muamalat, will further increase the impact and  reach of the programme; and  

d. for the most affected borrowers, assistance to restructure one’s  finances via the Agensi Kaunseling & Pengurusan Kredit, or AKPK. 

The role of financial institutions moving forward

Ladies and gentlemen,  

20. 2022 will be a critical year for Malaysia, a rare window to jumpstart not  just an economic recovery, but a recovery of industries, livelihoods and  jobs, especially those hit hardest by the pandemic.  

21. In that respect, Budget 2022 will remain expansionary and is  conceptualised as a recovery budget while complementing the  Government’s wider and longer-term reform efforts under the Twelfth  Malaysia Plan. Budget 2022 will focus on 3Rs, namely Recovery,  Resilience and Reform.  

22. And, it is through those three (3) lenses that banks and financial  institutions – including development financial institutions or DFIs – will  play a critical role moving forward.  

23. As the health of the financial sector is tied to the wider economy, it is  crucial that the banking industry doubles down on driving a strong  economic recovery while supporting business continuity, especially in 
jumpstarting businesses when the economy reopens. In this  respect, the banking industry is expected to:  

a. facilitate lending to businesses with accommodative financing and  repayment terms, including participating in the offering of the  iTEKAD programme that supports microentrepreneurs to start and  sustain their business;  

b. provide non-debt-based facilities such as the CAKNA and Jana  Niaga liquidity schemes that relieves cashflow constraints of SMEs  without increasing their gearing positions;  

c. encourage digital payments, including through the onboarding of  small merchants to accept QR payments and ensuring affordable  merchant fees; and  

d. supporting, including via the various financing schemes, the most  underserved segments of borrowers, be it the hospitality sector,  micro-enterprises or women entrepreneurs.  

24. In enhancing our social protection coverage, I am pleased to share that  the Government in concert with BNM and the insurance and takaful  industry is in the final stages of rolling out the Perlindungan Tenang Voucher programme, which will provide financial assistance for up to  8.4 million Bantuan Prihatin Rakyat recipients in purchasing insurance  and takaful coverage from licensed providers. 

25. In the long run, the Government and BNM will continue to stress the  importance of financial literacy and sound financial decision making via  the various efforts under the Financial Education Network.  

26. In building Resilience, banks and financial institutions play a crucial role  in, amongst others:  

a. supporting your clients in their transition to the needs of a new  normal, including embracing digitalisation in their business focus  and operations; 

b. enhancing the role of financial intermediation throughout the  business cycle of any enterprise, be it the aspiring entrepreneur or  the conglomerate on the verge of an IPO; and 

c. exploring alternative forms of financing including blended finance, supply chain financing or new trade-based facilities.  

27. These efforts will complement wider initiatives by the Government  including the National Fourth Industrial Revolution Policy (4IR),  where digitalisation and technological adoption are crucial in boosting  our economic prospects and resilience, in accordance with the  Malaysian Digital Economy Blueprint. 

28. Just as it is crucial for us to exit this pandemic safely and systematically,  it is equally critical that we build back better. That is why the financial  sector must step up and play its part in the climate and sustainability  agenda. It is encouraging to see that the financial sector is stepping up  on this front, including via the offering of sustainable finance solutions  and assistance to companies in their transition journey. However, more  can and must be done.  

29. Make no mistake. As a mobiliser of capital, the banking industry is key  in facilitating the transition of companies towards low carbon and  sustainable practices via financing and investment beyond the  pandemic, be it supporting renewable energy adoption, new  technologies or novel ways of doing business. 

30. Of course, a factor in building back better is changing how banks  themselves operate. At a global level, it is encouraging to see that more  than 45% of the global banking industry have signed up to the UN  Environmental Finance Initiative’s Principles of Responsible  Banking. Out of these, 44 of them have formed a Net-Zero Banking  Alliance, planning to fully decarbonize their loan books.  

31. I urge more financial institutions in our country to follow suit, which will  augment their business with the objectives of the Sustainable Development Goals and the Paris Climate Agreement. Doing so will  ensure the deep integration of sustainability across all business areas  of a bank, from strategic decisions, credit appetite to procurement.  

32. Efforts like these will certainly complement the Government’s embrace  of the UN Sustainable Development Goals in its annual budgets.  Beginning with Budget 2021, this feature will continue in Budget 2022,  as well as through wider initiatives like the SDG-aligned Twelfth  Malaysia Plan and the Shared Prosperity Vision 2030.  

Closing

Ladies and gentlemen, 

33. If the pandemic has taught us one (1) thing, it is that rarely can we do it  all alone. The path to recovery, resilience and shared prosperity will  demand nothing short of a whole-of-nation approach.  

34. To that end, I call on all parties – government, private sector, civil society  organisations, and yes, banks and financial institutions - to come  together as one Keluarga Malaysia. In particular, I call on the banking industry to work hand-in-hand with the Government to support the rakyat and businesses on our path to recovery and in building back better.  

35. On that note, allow me to thank and congratulate the KSI Strategic  Institute for Asia Pacific, the Economic Club of Kuala Lumpur and the  Association of Banks in Malaysia for organising today’s Malaysian Banking and Finance Summit.  

36. Thank you for your attention and I wish you a fruitful discussion ahead. Wabiltaufiq Hidayah Wassalamualaikum Warahmatullahi Wabarakatuh. 

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