KUALA LUMPUR: Malaysia’s external debt remains manageable given its currency and maturity profiles, as well as, the availability of large external assets, said Bank Negara Malaysia (BNM).
As at end-December 2017, Malaysia’s external debt amounted to RM883.4 billion, equivalent to US$215.5 billion or 65.3 per cent of Gross Domestic Product (GDP) versus RM873.8 billion or US$204.7 billion or 64.6 per cent of GDP as at end-September 2017.
The higher external debt reflected the increase in loans, interbank borrowing and non-resident (NR) holdings of domestic debt securities which was partially offset by valuation effects following the strengthening of the ringgit against selected major and regional currencies during the fourth quarter.
“More than one-third of total external debt is denominated in ringgit (34.3 per cent), mainly in the form of NR holdings of domestic debt securities and in ringgit deposits in domestic banking institutions.
“As such, these liabilities are not subjected to valuation changes from the fluctuations in the ringgit exchange rate, BNM said in a statement.
The remaining external debt of RM580.7 billion (65.7 per cent) were denominated in foreign currency (FC) and subject to prudential liquidity management practices and hedging requirements on banking institutions and corporations.
“The bulk of these obligations are offshore borrowings, raised mainly to expand productive capacity and to better manage financial resources within corporate groups,” it added.
As at end-December 2017, offshore borrowings remained low at 37.5 per cent of GDP compared with 60 per cent of GDP during the Asian Financial Crisis.
Of the total FC-denominated external debt (inclusive of valuation effects), more than one-third (or amounting to RM211.6 billion) was accounted by interbank borrowings and FC deposits in the domestic banking system, said the central bank.
This largely reflected the banks’ intragroup liquidity management and placements of deposits from foreign parent entities, which are subjected to prudent liquidity management practices. Among these are internal limits on funding and maturity mismatches.
“This is then followed by long-term bonds and notes issued offshore which amounted to RM154.2 billion as at end-December 2017, primarily to finance asset acquisitions abroad that will generate future income,” it said.
The intercompany loans were typically on flexible and concessionary terms, such as no fixed repayment schedule or low-interest rate. From a maturity perspective, more than half of the total external debt was skewed towards medium- to long-term tenure (57.3 per cent of total external debt), suggesting limited rollover risks.
Given the export earnings of borrowers and external assets, BNM also said it was important to note that international reserves were not the only means for banks and corporations to meet their short-term external obligations.
International reserves accounted for about a quarter of total external assets, with the remaining external assets held by banks and corporations.
“As of January 30, 2018, international reserves is 1.1 times the short-term external debt and is sufficient to finance 7.2 months of retained imports,” it added. ― Bernama