Bank Negara to implement new funding rules for banks – and it could raise lending costs

Malaysia’s central bank announced on Thursday (Sep 28) that it is seeking to implement the net stable funding ratio (NSFR) for banks “no earlier than” Jan 1, 2019.

According to The Star, Bank Negara Malaysia (BNM) said this requirement aims to promote a more resilient banking sector, and address international uncertainties of meeting the globally agreed timeline of Jan 1, 2018.

In a separate news report, Bank Negara assistant governor Marzunisham Omar said the decision for the pushback was the result of several factors being considered.

He said: “We looked globally at the implementation timeline of other jurisdictions. This was important because our banks have a presence in other countries as well, and there is a divergence in the implementation timeline of the NSFR.”

Globally, the US, Canada and Europe has delayed implementation while other countries such as Singapore, Australia and Hong Kong have committed to the Jan 1, 2018 date.

As reported in The Straits Times, the NSFR was introduced in a bid to strengthen banks’ liquidity and discourage market-disrupting volatility, by ensuring liquidity over a one-year period.

Coming under the Basel III international regulatory reforms, the NSFR is a liquidity standard that requires banks to hold a certain percentage of stable sources of funding so as to support their asset portfolios in the longer terms.

Previously, banks were able to hold high-quality assets that were readily convertible into cash within 30 days, which tended to encourage ‘volatile’ short-term funding.

But under the new funding rules, potential drawbacks those seeking a loan include higher funding costs, lower margins and higher lending rates.

This is according to preliminary research by CIMB Equities reported in The Star, which also stated that Malaysian banks are in a strong position to meet the NSFR ratio with 75% of banks meeting the minimum requirement.

However, the research house is foreseeing the risk of a weaker loan growth this year compared to 2016.

“The upside/downside risks to our call are a pick-up/slowdown in loan growth and an improvement/deterioration in asset quality,” it said.

BNM is accepting public feedback on the proposed regulations for the NSFR and banking institutions will have until Nov 27 to submit feedback to the exposure draft.