RAM: Banking sector’s liquidity still sound
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.