AMBD’s signboard. Image: The Bruneian

The overall financial stability risk of Brunei’s financial sector is expected to rise due to the COVID-19 pandemic, according to the Autoriti Monetari Brunei Darussalam’s (AMBD) recently released policy statement.

Based on AMBD’s macro-prudential analysis, this elevation is expected to occur in the first half of 2020, and is attributed to the “rise in risks” in the external sector, the domestic economy, offshore assets as well as the increased credit risk in the corporate sector arising from the COVID-19 pandemic crisis.

“The risk in banks’ income from offshore investments are also expected to be elevated and will be closely monitored due to high volatility in the international financial markets and very low short-term interest rates globally,” continued the central bank.

With the aviation industry and tourism sectors expected to be more severely affected as the COVID-19 situation persists, credit risk borrowers related to these sectors are expected to be elevated for the immediate term.

A man walks past an AMBD Gallery signage. Image: The Bruneian

“However, the impact on the country’s overall economy and the financial sector is expected to be moderate as the transport and tourism sectors constitute a small portion of the economy,” the report read.

“In terms of banks’ loans/financing, these two sectors constitute 7.2 per cent and 0.6 per cent of total loans/financing respectively as of 2019,” it added.

Despite the heightened uncertainties brought on by the pandemic, the sultanate’s banking sector continued to exhibit resilience in the first quarter of 2020.

This is attributed to the banks’ “high level of capitalisation and liquidity, manageable credit risk and effective banks’ risk management as well as the provision of the comprehensive economic and financial stimulus package”.

As of the end of 2019, financial sector assets recorded a growth of 1.5 per cent year-on-year from the $21.9 billion to $22.3 billion.

AMBD is headquartered inside the Ministry of Finance and Economy. Image: The Bruneian

In the first quarter of 2020, the capital position of the banking sector remains robust with an aggregate Capital Adequacy Ratio of 20.3 per cent, well above the 10 per cent minimum requirement stipulated in the Banking Order, 2006, and Islamic Banking Order, 2008.

The banking sector also continued to hold surplus liquid assets with a Liquid Assets-to-Total Asset ratio of 46.7 per cent.

Furthermore, total loans or financing recorded an increase of 11 percent to $6 billion in Q1 2020 compared to $5.4 billion a year ago.

“This increase was primarily contributed by loans or financing to the corporate sector particularly in commercial property and financial sectors,” clarified the central bank, adding that the sector showed improved asset quality with a decline of Net Non-Performing Loans or Financing ratio of 2.6 per cent in Q1 2019 compared to the 2.3 per cent in Q1 2020.

A visitor having a look at Bruneian currency on display during AMBD’s Financial Awareness Roadshow at UBD. Image: The Bruneian

However, the profitability of the sector has slightly declined with aggregate Return on Assets and Return on Equity recorded at 1.2 per cent and 7.3 per cent respectively.

AMBD continues to ensure that there is sufficient liquidity to support the well-functioning of the financial system through the expansion of liquidity management measures to banks in Brunei Darussalam.

This includes the introduction of its own Islamic Bills Programme (AMBD I-Bills) in 2020 to support liquidity management measures to banks in Brunei Darussalam.

In line with AMBD’s efforts towards the development of a more efficient domestic money market, the inaugural AMBD I-Bills will be based on a Wakalah structure, the first of its kind in Brunei Darussalam, which will have a tenor of two weeks.



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