BNM to implement NSFR no earlier than January 2019

The NSFR complements the LCR, which promotes short-term resilience of a bank’s liquidity risk profile

By NG MIN SHEN / Pic By ISMAIL CHE RUS

Bank Negara Malaysia (BNM) intends to implement the net stable funding ratio (NSFR), an international measure that promotes longer-term resilience of the banking sector, no earlier than Jan 1, 2019.

The central bank yesterday issued the exposure draft for the NSFR, a liquidity standard published by the Basel Committee for Banking Supervision which forms part of the Basel III regulatory reforms.

The NSFR requires banking institutions to maintain a stable funding profile to support their asset portfolio and off-balance sheet activities.

It complements the liquidity coverage ratio (LCR), which promotes short-term resilience of a bank’s liquidity risk profile through holdings of liquid assets and which has been phased in since 2015.

BNM said it has considered the global nature of domestic banking institutions’ operations and the potential impact on domestic competitiveness against the immediate need for implementation of the standard.

“The implementation timeline is in line with our priority in preserving the smooth functioning of the intermediary role of banking institutions in supporting national economic growth. This is not expected to affect the resilience of the Malaysian banking system,” the central bank said.

It added that there remains considerable uncertainty on the international front in terms of meeting the internationally agreed timeline of Jan 1, 2018.

Australia, Indonesia, Singapore and Hong Kong will implement the NSFR on January 1, 2018. Canada, Europe and the US have delayed their implementation dates, while the Philippines, Thailand, China, South Korea and Japan are unconfirmed.

BNM assistant governor Marzunisham Omar (picture) said lenders would require sufficient time to meet the operational requirements for the NSFR standard.

“We can then use this time to provide greater clarity on how banks are to meet the standard, and also get feedback and granular data to assess how well banks can fulfil the standard,” he said at a media briefing in Kuala Lumpur yesterday.

He said for domestic banks with regional presence such as Malayan Banking Bhd and CIMB Group Holdings Bhd, they would follow Malaysia’s timeline at the group level, while their overseas subsidiaries would comply with the standard, if already implemented in the operating country.

As at June 2017, the average industry NSFR stood at 107%, with more than three-quarters of banks at above the minimum requirement of 100%, while the banking system LCR stood at 141%.

“Local banking institutions do have sufficient safeguards in managing liquidity risk, supported by strong liquid asset buffers, more diversified funding profiles and robust liquidity risk management practices,” Marzunisham said.

He said the standard is not expected to have any major effect on borrowers at the moment, given that banks currently have sufficient liquidity buffers.

However, it could lead to banks offering innovative products to attract deposits from businesses.

The NSFR, according to the Basel guidelines, requires that the amount of available stable funding and the amount of required stable funding should be at a 100% ratio on an ongoing basis.

Available stable funding involves the portion of capital and liabilities expected to be reliable over the timespan considered by the NSFR, which is set at one year.

BNM is inviting public feedback on the proposed regulatory requirements for the standard. Banking institutions have up to Nov 27, 2017, to submit feedback to the exposure draft.