The two main risks are liquidity and solvency risks. I will start with liquidity risk, which arises from the tension between the lesser willingness of lenders to lend and the higher financing needs of firms. The pandemic has increased credit risks perceived by lenders, which together with the higher economic uncertainty, might discourage them from lending. Some lenders might react by demanding a higher risk premium on the interest rate charged on their lending operations, while others may instead decide to cut the amount they are willing to lend. This pattern has been observed in previous crisis episodes and, in particular, during the Great Financial Crisis. For firms, the shock implies a significant fall in their turnover due to the lockdown measures introduced by authorities to prevent the spread of the virus. The turnover reduction together with the existence of fixed costs translates into an increase in firms’ liquidity needs. Firms may cover part of these needs by using their liquid assets or by resorting to the undrawn amounts in their credit lines, but in many cases these buffers will not be large enough considering the size of the shock. Therefore, firms will try to cover their remaining liquidity needs by resorting to fresh borrowing. The result will be an increase in credit demand against the background of a possible contraction in credit supply. The severity in firms’ liquidity risks depends on the amount and composition of liquidity shortfalls and the buffers firms have to cover them.
The enhanced and robust competition in the marketplace would lead to greater consumer benefits in terms of improved business efficiency, product development and service quality. It is envisioned that the achievement of these imperatives will ensure that the Malaysian takaful industry is well-positioned to successfully make the transition from being "good-to-great" and, InsyaAllah, will remain as the global leader for takaful and retakaful. Ladies and Gentlemen, The overarching objective of our regulatory policies is to ensure that the financial system is in a position to serve the public with the best range and quality of products and services, that the interest of the consumer is at all times protected, and that best practices are adopted to ensure the soundness and stability of the system. It must be emphasised, however, that the ultimate responsibility for ensuring this rests on the players in the financial system, in particular, the Senior Management and the Board of Directors. This is particularly important to ensure public confidence in the efficiency and performance of the financial system to contribute to the overall development of the economy. The initiative formulated for the takaful industry in strengthening competition through the creation of new takaful players, is aimed at achieving this overarching objective. The presence of players with the right qualities and calibre in the marketplace is part of the process of ensuring product innovation and service excellence.