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Central bank sees slight dip in growth forecast for 2023

Brunei Darussalam Central Bank (BDCB) noted in its second policy statement for 2022 published yesterday, that the International Monetary Fund (IMF) maintained its global economic growth forecast for 2022 at 3.2 per cent, and the growth forecast was slightly decreased from 2.9 per cent to 2.7 per cent in 2023.

The basis of the revised outlook is a combination of several shocks pummelling the world economy that has yet to fully recover from the COVID- 19 pandemic. This includes slower growth in China which has primarily been caused by COVID-19 outbreaks and a policy towards the virus, in addition to the nation’s real estate slowdown: higher-than-expected global inflation, particularly in major and advanced economies, and negative fallout from the situation in Ukraine.

Meanwhile, the domestic economy contracted 4.3 per cent in the first half of 2022. Looking ahead, domestic inflation and global inflation will remain elevated over the near-term.

However, given the Sultanate’s monetary policy with the value of the Brunei dollar at par with the Singapore dollar, several tightening of Monetary Authority of Singapore’s (MAS) monetary policy this year are expected to dampen the effects of imported inflation to the domestic economy BDCB’s inflation forecast for Brunei is expected to be in the 3.5 to 4.5 per cent range.

BDCB highlighted a notable growth in the financial sector’s total assets with an increase of 5.9 per cent year-on-year with total asset value of BND24.8 billion as of the third quarter (Q3) 2022. Of this, the Islamic finance sector accounts for 54.0 per cent, or BND13.4 billion, of the total assets. Deposit-taking institutions comprised of 92.6 per cent of the total financial sector assets with an asset base of BND23.0 billion.

The policy statement also highlighted that the banking industry continues to have a robust capital position with an aggregate capital adequacy ratio of 18.7 per cent as of Q3 2022.

In light of heightened global market volatility, the profitability of the banking industry has declined in Q3 of 2022 with the aggregate return on assets and return on equity recorded at 1.1 per cent and 8.4 per cent respectively, compared to 1.5 per cent and 95 per cent in the same quarter last year.

To further strengthen the monitoring and mitigation of fraud incidents within the financial sector, the notice on reporting of fraud incidents was introduced to banks, finance companies, takaful operators and insurance companies.

Guidelines on operational risk management were issued to all the banks stipulating sound principles and practices in managing their risks relating to banking operations. The notice on maintenance of capital adequacy ratio was also introduced to the finance companies to ensure the capital level remains adequate against the identified risks under the capital adequacy framework. For the takaful and insurance sector, existing guidelines on sound risk management practices for the identification and mitigation of risk exposures to takaful/insurance fraud incidents – the guidelines on insurance fraud risk management in insurance and Takaful were further enhanced.

A regulatory framework relating to the management of takaful funds and shareholders’ fund, that is the notice on establishment and maintenance of takaful funds for takaful operators, was also issued to promote efficient takaful business operations and sustainable takaful funds, while safeguarding takaful participants.

To ensure that the regulations related to Islamic finance are at par with international best practices, BDCB issued guidelines for syariah standards on tawarruq, murabahah, wakalah and mudharabah as references for financial institutions to structure Islamic products and services in accordance with hukum syara’.

BDCB has also introduced the notice on application process of Islamic product with the objective of providing guidance on the approval process for Islamic financial product applications. To further facilitate the approval process for application of takaful products as outlined in the new notice, the guidelines on product development and pricing were issued.

The waiver of fees and charges for online local interbank fund transfers (excluding third party charges) has been put in place since April 2020 to offer bank customers a safe alternative to make payments during the COVID-19 pandemic.

BDCB noted an increase in the number of transactions using the Real-Time Gross Settlement (RTGS) system by 91.7 per cent year-on-year from January to October 2022 compared to the previous year. Meanwhile, the total of direct credit transfers using the Automated Clearing House (ACH) system also increased by 54.1 per cent year-on-year during the same period.

However, as the fee waiver is expected to expire on December 31, 2022, BDCB advised the public to check on the prevailing fees and charges imposed by the banks.