PIDM revises premium framework for enhanced assessment of funds
These new indicators recognise a wider range of instruments that are regarded as stable funds, in line with regulatory and funding developments.
KUALA LUMPUR: Perbadanan Insurans Deposit Malaysia (PIDM) recently revised the Differential Premium Systems (DPS) framework for the Deposit Insurance System, effective from assessment year 2018.
The DPS framework, which provides a framework to determine differential premium rates to be paid by member banks, has been revised to introduce new indicators in respect of member banks’ funding profiles.
The ‘loans to available funds’ ratio and ‘composition of core funds’ indicator replaces the ‘loans to deposits’ ratio and the ‘composition of individual depositors’ indicator, respectively.
“These new indicators recognise a wider range of instruments that are regarded as stable funds, in line with regulatory and funding developments.
“Member banks that support their business with funding sources from deposits and debt instruments will benefit from the ‘loans to available funds’ ratio.
“Additionally, the ‘composition of core funds’ indicator provides incentives to member banks with high composition of stable funding sources,” said PIDM chief executive officer Rafiz Azuan Abdullah, in a press statement.
Implemented in 2008, the DPS framework incentivises member banks to improve their risk profiles and ensures fairness among
Rafiz Azuan Abdullah, PIDM chief executive officer
member banks. The better the risk profile of a member bank, the lower its applicable premium rate. PIDM reviews the DPS framework from time to time to ensure it remains current and relevant given a continuously evolving operating environment. The last review was carried out in 2015.
“Over time, banks have increasingly diversified their funding sources. Apart from traditional deposits, long-term debt instruments are gaining prominence as a source of stable funding, given the recognition under Basel III’s liquidity standards and advancements in Malaysia’s capital market. The revision to the DPS framework is timely to reflect such developments,” added Rafiz.
The revised DPS framework is effective beginning assessment year 2018. As such, the assessment of the indicators under the revised DPS framework will be based on member banks’ positions as at December 31, 2017.
PIDM also announced that the Malaysia Deposit Insurance Corporation (Terms and Conditions of Membership) (Amendment) Regulations 2017 has been gazetted and came into effect on 2 November 2017. The terms and conditions of membership sets out the obligations and responsibilities of PIDM’s member institutions.
The enhanced terms and conditions of membership include, among others, compliance with prudential and Shariah standards, proper maintenance of records, additional information requirements, and timeliness of notification to PIDM by member institutions of any event that may undermine its safety and soundness.
The revised DPS framework and T&C Regulations 2017 can be downloaded from PIDM’s website at www.pidm.gov.my.