Expectations and directions for Malaysian Development Financial Institutions I would also like to share some reflections on expectations and directions for development financial institutions in Malaysia I am well aware that development financial institutions around the world, including in Malaysia, face unique challenges. In many ways, they have to manage and balance responsibilities that are substantially more complex than institutions with narrower profit-making mandates. In Malaysia, these institutions have embarked on initiatives over the last decade and a half to build greater financial resilience and stronger foundations for sound management. This has enabled them to pay an important counter-cyclical role during downturns, and to support economic activity in targeted segments. However, more effort is required on critical appraisal of their development impact. It is much needed to sharpen the development focus, redirect and amplify the impact of financing activities. It will also provide the impetus for them to focus on other interventions that can increase their impact. We intend to work with their leadership and other stakeholders in Government in the coming months to address a more focused delivery of mandates. In this respect, improving performance measurement frameworks and increasing transparency in the operations will be important areas of focus. We need to measure the right things, measure outcomes that matter and measure mandates that are relevant. This needs to be driven by a clear vision and strong leadership, and uncompromising governance. We expect our development financial institutions to operate with the highest level of professionalism and integrity at all levels of the organisation.

One of the benefits of set piece tests is that they enhance our understanding of the structure and sensitivities of firms’ balance sheets, and this can be used to undertake further, ad hoc, desk-based stress testing. For example, earlier in 2020 we were able to use information gleaned from last year’s stress tests to conduct a crude but rapid test of the potential impact of credit and insurance losses from the pandemic and its immediate economic consequences. We were aided in this by the resemblance between one of the scenarios used in 2019 and the economic aspects of the pandemic crisis. Fortunate perhaps, but equally, many different real world events might lead to similar impacts on the financial variables that drive at least the asset side of the balance sheet, as well as income. So generic stress tests can give us a guide to resilience under a diverse set of systemic shocks/scenarios regardless of the circumstances of a particular event. The results of our 2020 desk-based exercise helped us to identify the firms that were likely to be the most vulnerable, and apply supervisory focus to them. Insurance companies operate in a range of different markets, meaning that the impact of the pandemic on their financial positions has varied significantly. In the face of high uncertainty, firms need to continue to make decisions based on their individual exposures and risk appetites. Those decisions include whether or not to make distributions including dividends. Firm-specific stress testing of affordability is a key input to Board’s decisions.