DOMESTIC business conditions were supported by strong domestic demand and the continued expansion of intra-regional trade.
This was, however, moderated to varying degrees, by operating costs which remained elevated amid high prices of raw materials and revised tariffs for electricity and natural gas, and weaker external demand from advanced economies.
As a result, credit risk, as measured by the Expected Default Frequency, trended slightly higher during the year, with more pronounced increases observed in particular in the shipping and building and construction-related materials industries, and to a lesser extent, the electrical and electronics industry.
Overall, businesses remained in a relatively strong position, financially and operationally, to cope with these developments. The accumulation of financial buffers over the years and continued improvements in operational efficiency have provided domestic businesses with the enhanced capacity and flexibility to adjust to adverse changes in operating conditions.
In addition, businesses have continued to maintain relatively low and stable leverage positions since the Asian financial crisis, with an aggregate debt-to-equity ratio of 44.8% as at end-2011 and a healthy interest coverage ratio of 6.3 times (2010: 7.5 times) which remains supportive of businesses’ continued debt-servicing capacity.
In 2011, growth in total financing by the banking system to businesses remained strong, increasing at a faster pace of 13.5% (2010: 9.4%). Businesses also continued to meet funding needs through the bond and sukuk markets which drew firm support from a diversified institutional investor base, despite the more challenging market conditions during the year.
While the supply of shophouses and retail space has grown broadly in tandem with demand, ongoing and planned constructions of new office space are pointing to emerging signs of oversupply, especially in the Klang Valley, with the coming on stream of a number of large-scale office buildings.
Occupancy rates for office space have gradually declined in recent years to 82.3% at the national level (fourth-quarter 2010: 84.2%; fourth-quarter 2009: 85.2%) and 79.1% in the Klang Valley (fourth-quarter 2010: 80.2%; fourth-quarter 2009: 82%).