ECONOMIC REVIEW AND OUTLOOK 2024 Overview of 2024 The global economy was shaped by profit rate adjustments from major central banks, geopolitical tensions, and shifts in investment strategies such as the China +1 approach. These factors influenced capital flows and trade patterns worldwide. Monetary policy was pivotal as major economies lowered profit rates to stimulate growth despite lingering inflation concerns. This shift prompted investors to seek higher yields in emerging markets, with Southeast Asia, including Malaysia, benefiting from stable monetary policies that reinforced investor confidence. Foreign exchange markets remained volatile, influenced by shifting profit rate differentials, trade realignments, and central bank interventions. Many economies responded with currency stabilisation measures, improved market engagement, and refined foreign exchange policies to manage capital flows effectively. Despite ongoing geopolitical tensions, the global economy showed resilience, supported by technological advancements, supply chain diversification, and the transition to green energy. Financial institutions played a crucial role in facilitating cross-border investments and maintaining liquidity. Overview of 2024 Malaysia’s economy remained resilient, underpinned by monetary stability, strong domestic demand, and an evolving financial sector. Bank Negara Malaysia (BNM) maintained its Overnight Policy Rate (OPR) at 3.0%, ensuring a conducive financial environment that sustained credit demand, improved Net Income Margins (NIMs), and bolstered investor confidence. BNM implemented measures to stabilise the Ringgit and further support financial stability, including by engaging closely with market participants and enhancing oversight of export proceeds conversion. These steps reinforced trust in the financial system and ensured liquidity remained robust. The banking sector expanded lending activities, aided by a stable macroeconomic environment that helped mitigate impairment risks. Simultaneously, the financial industry accelerated digital transformation, with banks investing in fintech partnerships, AIdriven services, and mobile banking to enhance operational efficiency and customer experience. The demand for sustainable financing also gained momentum, with banks integrating ESG principles into their strategies. The expansion of green bonds, Sukuk, and SRI products supported Malaysia’s transition towards a greener economy, aligning with global sustainability trends. Outlook for 2025 Several key factors will shape the global economy: • Trade Tensions: The ongoing USChina trade war and rising protectionist policies could disrupt supply chains, slow economic growth, and create instability in global markets. • Geopolitical Risks: The Russia-Ukraine conflict and Middle East tensions are likely to cause energy price volatility, impact trade routes, and increase inflationary pressures. • Monetary Policy Divergence: While some central banks may maintain accommodative policies to support growth, others might tighten monetary policies if inflation resurfaces, leading to capital flow shifts and currency fluctuations. Outlook for 2025 Malaysia’s economic outlook will be shaped by a combination of domestic demand, foreign investment inflows, and external challenges. Several key trends will influence the banking sector’s ability to adapt and sustain growth: THE GLOBAL ECONOMY THE MALAYSIAN ECONOMY Link to Risks: Link to Risks: CR CR MR MR LR LR CR CR RCR RCR 1. Steady Economic Growth and Monetary Stability • Economic expansion is expected to be driven by robust domestic demand and resilient external trade. • BNM is likely to maintain a balanced approach to monetary policy, ensuring continued credit expansion while managing inflationary pressures. 2. Foreign Investment and Corporate Lending Growth • Malaysia is positioned to benefit from diversified investment strategies, such as the China +1 approach, attracting Foreign Direct Investment (FDI) into key sectors like manufacturing, infrastructure, and renewable energy. • FDI inflows will drive corporate lending growth, particularly in industries aligned with Malaysia’s long-term economic priorities. Bank Islam Malaysia Berhad ◆ Integrated Annual Report 2024 42 Operating Environment
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