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Nikkei Markets

Malaysia to extend bank funding ratio observation by a year

Stretched to 2020, any potential increase in ratio risks pressuring margin

Bank Negara Malaysia plans to conduct further on-site assessments to validate the maturity and robustness of the liquidity and funding practices of banks   © Reuters

KUALA LUMPUR (Nikkei Markets) -- A decision by Malaysian banking regulator to extend the observation period for an upcoming rule on funding ratio of banks by a year more to 2020 raises possibility of a fresh scramble for deposits that could intensify an-already brutal competition among the lenders in a slowing economy.

Bank Negara Malaysia said Tuesday it will continue to monitor the so-called Net Stable Funding Ratio, or NSFR, even as 'vast majority' of banks have already met the minimum level of 100%. The central bank previously planned to implement the standard at "no earlier than" January 1, 2019.

Banks in the Southeast Asian nation of 30 million people had an average NSFR of 107% as at June 2017 with more than two-thirds recording above 150%. If the central bank raises the NSFR level, analysts said, it could pressure cost of funds and net interest margin.

"The worry is, if they revise the NSFR and go above 120%," said Kenanga Investment Bank's Analyst Ahmad Ramzani Ramli. "If that happens, there will be further competition for funding or deposits."

The NSFR, a liquidity standard published by the Basel Committee on Banking Supervision, requires banking institutions to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities.

Bank Negara Malaysia plans to conduct further on-site assessments to validate the maturity and robustness of the liquidity and funding practices of banks, Governor Nor Shamsiah Yunus said today, according to a speech published on the central bank's website.

"The bank remains committed to implementing the NSFR requirements as part of overall liquidity standards applicable to licensed banks in Malaysia," Nor Shamsiah said in her address at a finance conference.

"At present, all banks maintain adequate liquidity buffers against short term liquidity stress, and the vast majority of banks already report NSFR levels above the minimum 100% based on observation data," she said.

Competition is fierce in Malaysia where more than two dozen local and foreign banks jostle for business. That has pressured margins as banks compete to offer higher returns on deposits and lower interest on loans.

Globally, authorities have been tightening regulations for banks to strengthen the lenders by boosting buffers and safeguard the overall financial system that is often challenged by sporadic financial crises.

"Our challenge isn't just a question about where, but when a crisis is going to strike and how it will spread," Nor Shamsiah said. "And therefore when, how and with what instrument policymakers should act."

Shares of CIMB Group Holdings, Malaysia's second-largest bank by assets, fell 3.9% on Tuesday in-part due to management's remarks to analysts warning of potential slower loan growth next year. Malaysia's biggest bank Malayan Banking (Maybank) fell 2.1%, while smaller rival Public Bank lost 0.3%.

--Jason Ng

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