RAM: Bank­ing sec­tor’s liq­uid­ity still sound

New Straits Times - - Business -

KUALA LUMPUR: Malaysia’s bank­ing sys­tem’s liq­uid­ity is still sound de­spite a de­cline in sur­plus liq­uid­ity placed with Bank Ne­gara Malaysia over the past few years, says RAM Rat­ings.

Its fi­nan­cial in­sti­tu­tions rat­ings co-head Wong Yin Ching said the bank­ing sec­tor’s Basel III liq­uid­ity cov­er­age ra­tio (LCR) had av­er­aged 125 per cent since its im­ple­men­ta­tion and stood at 128 per cent as at end-Jan­uary.

He said while the in­dus­try’s av­er­age LCR ex­ceeded 100 per cent — the min­i­mum re­quire­ment ef­fec­tive Jan­uary 1 2019 — some banks had yet to reach the thresh­old.

“As these banks have to im­prove their LCRs to keep up with the reg­u­la­tory re­quire­ment, we ex­pect com­pe­ti­tion for re­tail and small-and-medium en­ter­prise (SME) de­posits to per­sist, due to a more favourable treat­ment un­der the LCR frame­work,” said Wong in a state­ment yes­ter­day.

At the same time, banks have the op­tion to ac­cess Bank Ne­gara’s Re­stricted Com­mit­ted Liq­uid­ity Fa­cil­ity (RCLF) to man­age their LCRs. In­tro­duced in Au­gust, the un­drawn por­tion of the RCLF will qual­ify as high-qual­ity liq­uid as­sets.

Last year, the bank­ing sec­tor’s de­posit growth, in­clud­ing in­vest­ment ac­counts from cus­tomers, re­mained lack­lus­tre at three per cent, at­trib­ut­able to com­pe­ti­tion from non-bank de­posit-tak­ing en­ti­ties, weaker cor­po­rate prof­its and cap­i­tal out­flows.

As de­posit growth trailed lend­ing ex­pan­sion, the sec­tor’s RAM cal­cu­lated loans-to-de­posits ra­tio climbed to 87.2 per cent as at end-Jan­uary from 85.4 per cent as at end-De­cem­ber 2015.

Wong said given the weak de­posit growth, banks had been tap­ping debt cap­i­tal mar­kets (DCM) for fund­ing, made pos­si­ble by the depth of the do­mes­tic DCM and banks’ good ac­cess to bond mar­kets abroad.

“The Basel III regime has fu­elled bank is­suance of cap­i­tal in­stru­ments, which rep­re­sent an­other source of long-term fund­ing,” he said.

The LD ra­tio of the eight do­mes­tic an­chor bank­ing groups stood at 91.7 per cent as at end De­cem­ber. Wong said this figure would come in at 84.1 per cent if cap­i­tal-mar­ket fund­ing was taken into con­sid­er­a­tion — both fig­ures in­clude in­vest­ment ac­counts from cus­tomers.

“How­ever, we ob­serve that cap­i­tal-mar­ket fund­ing re­mains only a small part of the fund­ing base of Malaysian banks, rel­a­tive to de­vel­oped na­tions,” he added.

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