BNM: Malaysia’s 2020 financial account recorded higher net outflow at RM79.1 billion as FDI inflows moderate

KUALA LUMPUR (March 31): Malaysia’s 2020 financial account recorded a higher net outflow of RM79.1 billion, compared with a net outflow of RM33.8 billion a year earlier, mainly due to outflows more significant in the portfolio and other investment accounts and as Net FDI inflows moderated to 13.9 billion ringgit in a context of contraction in global economic activity, national containment measures induced by Covid -19 and low commodity prices, according to Bank Negara Malaysia (BNM).

In the BNM Economic and Monetary Review 2020 report released today, the central bank said the direct investment account component of the financial account had a marginal net outflow of RM200 million, compared to an inflow. of 5.6 billion ringgit a year earlier, as net FDI inflows moderated. to 13.9 billion ringgit.

Malaysia’s financial account, current account, and capital account are components of the country’s balance of payments, recording transactions made by the country’s entities with other global entities.

The BNM said that in the third quarter of 2020 (3Q20), the country’s FDI recorded its first net outflow since 4Q09, driven by large outflows of debt instruments.

“Nonetheless, this was temporary as FDI recorded net inflows in the following quarter, supported by higher equity injections and inflows of debt instruments. Singapore (30.1% of net FDI for year), Thailand (24.7%) and China (16.9%) were the top contributors to FDI for the year.

“By economic activity, the moderation of net FDI inflows has been generalized, mainly driven by the real estate and professional services sectors as well as the manufacturing and mining sectors. Despite the moderation in overall FDI, there have been pockets of improvement for some industries, most notably in financial services and information and communications, ”BNM said.

BNM said the country’s portfolio investment account recorded a higher net outflow of Ringgit 49.1 billion in 2020, compared to a net outflow of Ringgit 29 billion a year earlier, mainly due to the increase in resident investment abroad.

These investments were led by domestic institutional investors in equities and debt securities, in line with their continued efforts to diversify risk exposure and improve portfolio returns, BNM said.

“Meanwhile, portfolio investments by non-residents recorded a lower net inflow of R8.5 billion (2019: + RM12.6 billion) as non-residents liquidated domestic equity securities amid significant global uncertainties during the Covid-19 crisis.

“This trend has also been observed in other regional stock markets. This was partly offset by higher portfolio inflows from non-residents into the domestic debt market, driven by easing global financial conditions and improving investor confidence following unprecedented political support. to combat the negative economic impact of [Covid-19] pandemic, ”BNM said.

According to the BNM, the country’s other investment account recorded a net outflow of RM31.4 billion in 2020, compared with a net outflow of RMB 9.9 billion a year earlier, due to the net repayment of Interbank loans and withdrawals from investments of deposits with the bank. sector.

BNM said this reflects the declining external liquidity needs of onshore banks against a backdrop of sharp contraction in global and domestic economic activities and maturing intragroup / branch borrowing and lending operations by banks. of the Labuan International Business and Financial Center.

“Some national banks have also benefited from an increase in domestic currency deposits, thereby reducing the need for interbank financing from non-residents,” BNM said.

Read more stories from the BNM 2020 Annual Report here.