Financial institutions, supported by strong capital buffers, have the capacity to weather adverse economic and market developments without disruptions to domestic financial intermediation.

At the end of the second quarter, the combined capital buffers of financial institutions amounted to RM153.8 billion.

"Financial institutions maintained strong levels of capitalisation," BNM said today in a statement to announce the second quarter Gross Domestic Product 2016 growth for the Malaysian economy.

The Malaysian economy grew 4.0 percent in the second quarter, leading to a 4.1 percent growth in the first half of 2016.

READ: Ringgit to perform in the long run, says BNM Governor

The common equity tier-1 capital ratio stood at 12.9 percent while tier-1 capital and total capital ratios were at 13.9 percent and 16.4 percent, respectively.

More than 90 percent of the banking system capital comprised retained earnings, paid-up capital and reserves which have strong loss-absorbing qualities.

Similarly, the capital adequacy ratio for the insurance and takaful sectors remained high at 228.1 percent (1Q 2016: 242.6 percent).

"Domestic financial stability was sustained despite the global uncertainties stemming mainly from the developments in China and the outcome of the United Kingdom's European Union referendum," BNM said.

Domestically, the direct impact from the referendum on financial institutions has been minimal given the limited exposure to the United Kingdom.

"Volatility in the domestic financial markets rose on 24 June 2016 but resumed its easing trend to end the quarter at levels below that recorded in the first quarter," BNM said.

As a whole, liquidity conditions remained supportive of the financing needs of businesses and households.

While businesses and households continued to adjust to the more challenging environment and higher cost of living, this was expected to have a modest impact on financial institutions’ earnings and asset quality.

As for the ringgit, BNM said it depreciated 2.5 percent against the US dollar, during the quarter, -0.6 percent against the euro and -10.9 percent versus the yen but appreciated against the pound sterling (4.3 percent) and the Australian dollar (0.4 percent).

The ringgit also depreciated against most regional currencies between 0.4 percent and 3.2 percent due to uncertainties surrounding the US monetary policy.

The local unit faced stronger depreciation pressure due to continued volatility in global crude oil prices and lower weightage of certain Malaysian stocks during the rebalancing of the Morgan Stanley Capital International Emerging Markets Index, the statement added.

The depreciation was, however, partially offset in June as expectations of a delay in a US interest rate increase resurfaced amid the release of weaker-than-expected US labour market data.