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Nikkei Markets

Malaysia eases rules to support banks amid coronavirus crisis

Allows banks to dip into capital reserves, movements restricted until mid-April

Malaysia is moving to shield its economy from the worst of the impact of the coronavirus outbreak.   © Reuters

KUALA LUMPUR (Nikkei Markets) -- Malaysia's central bank Wednesday eased some regulations for lenders as part of additional steps to support the banking system amid the coronavirus outbreak, while the government extended a partial lockdown until mid-April to cut contagion risk.

Banking institutions may dip into their capital conservation buffer of 2.5%, operate below the minimum liquidity coverage ratio of 100%, and utilize the regulatory reserves set aside during periods of strong loan growth, Bank Negara Malaysia said in a statement.

"Banking institutions will be allowed to draw down on capital and liquidity buffers which were built up over the years to support lending activities," BNM said. "The bank fully expects banking institutions to restore their buffers within a reasonable period after 2020."

The implementation of the net stable funding ratio will proceed as scheduled on Jul. 1, although the minimum level will be lowered to 80%, BNM said. However, banking institutions will be again required to comply with the requirement of 100% from Sep. 30, 2021, it noted.

The announcement comes after BNM told chief executives of Malaysian banks on Tuesday to defer and restructure loans to assist individuals, small- and medium-sized enterprises and corporations to help blunt the impact from the coronavirus outbreak.

Among other measures, banks will offer option to defer all loan or financing repayments for six months beginning Apr. 1 to ease the cash flow of individuals and SMEs, which are likely to be the most affected by the COVID-19 pandemic.

These measures, including credit card payment arrangement and business loan restructuring, will involve total value of at least 100 billion ringgit ($23 billion), Prime Minister Muhyiddin Yassin said in a separate statement.

Analysts said the latest measures by BNM will help ease financial pressure on consumers and small businesses as domestic economic activity grinds to a halt with the partial lockdown in place, while the wiggle room granted to banks will help cushion impact from lower interest income.

"The risk, however, lies in a protracted slowdown which would further exacerbate asset quality issues for banks, while having a moratorium in place might deter some banks from extending new loans," Maybank Investment Bank Analyst Desmond Ch'ng said.

Prime Minister Muhyiddin, while extending the so-called movement control order to April 14 from March 31, said the finance ministry is working out another stimulus package that will be announced on Mar. 30.

"The current trend showed that the new cases of COVID-19 still happening," he said. "This trend is expected to continue for a period of time before it decreases. This has made the government to extend this restricted movement control for a longer period."

Malaysia reported its 17th death on Wednesday and more than 1,600 people have been infected.

The order calls for shutting down all government and private premises except those in essential services such as utility, telecommunication, and banks. The government has also banned overseas travel of Malaysians and restricted inbound arrivals.

The government has previously announced a $4.75 billion stimulus package to ease businesses' cash flow crunch, assist COVID-19 affected individuals, and stimulate demand at the badly-bruised travel and tourism sector. The government has since unveiled additional steps that include postponing study loan repayments.

On its part, the central bank has cut the benchmark policy interest rate on Mar. 3 to its lowest in a decade to support growth. BNM has also reduced the statutory reserve requirement ratio to a nine-year low in a bid to inject more cash into the banking system to boost lending.

Some analysts such as ANZ Research's Mustafa Arif and Sanjay Mathur are penciling in another quarter percentage point policy rate cut to 2.25%.

"Inflation seems to be hardly a concern for policymakers now as supporting growth against the headwinds of the COVID-19 outbreak and low commodity prices takes priority, in our view", they wrote in a note to investors.

Data out earlier Wednesday show Malaysia's consumer price index-based inflation rose at slower-than-expected 1.3% rate in February from a year earlier, decelerating from the previous month's 1.6% expansion pace.

--Jason Ng and Sarah Nadlin Rohim

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