Bank Negara issues draft on net stable funding ratio, seeks feedback

KUALA LUMPUR: Bank Negara Malaysia today issued an exposure draft for feedback from banks to gather comments on net stable funding ratio (NSFR) implementation ahead of its proposed Jan 1, 2019 deadline.
NSFR is a liquidity standard which comes under the Basel III international regulatory reforms. It refers to requirements for banks to have in place a certain percentage of stable sources of funding, such as commercial papers that have more than a year’s maturity and retail deposits, to support their asset portfolios in the longer term.
The initial deadline proposed by the Basel committee for the NSFR standard of above 100% was Jan 1, 2018.
According to preliminary and indicative data, only 75% of banks’ NSFR is above 100%. The industry average, however, stands at 107%.
“This does not in any way signal that our banks are not having best practices in terms of liquidity. It is not reducing the resilience of our banking system,” Bank Negara assistant governor Marzunisham Omar said at a briefing today.
The industry average for liquidity coverage ratio, which reflects the short-term resilience of a bank’s liquidity risk profile, is at 141%, while all banks are above 100%.
Marzunisham explained that the Jan 1, 2019 deadline is in keeping with the divergence in timeline of implementation in other jurisdictions.The US, Canada and Europe have delayed implementation, while China, Japan and the Philippines are yet to decide. Indonesia, Singapore, Australia and Hong Kong have committed to a Jan 1, 2018 date.
It is also meant to give banks sufficient time to get ready operationally and for Bank Negara to engage the banking institutions for greater clarity in calculating the NSFR.
Marzunisham said it would be incorrect to assume that it is the smaller banks which are yet to meet the NSFR standard, explaining that it is a reflection of a bank’s strategy and not size.
Banking institutions have two months to submit their feedback.