Banks' funding, liquidity within acceptable range

Banks were among the decliners at midday

KUALA LUMPUR: The funding and liquidity conditions of commercial banks in Malaysia are within acceptable levels,  says the Association of Banks in Malaysia (ABM).

It said on Tuesday the  loan-to-deposit ratio (LDR) of Malaysian financial institutions was a simplistic measure and did not accurately reflect the banks' funding and liquidity conditions of banks.

The ABM issued the statement in response to recent media reports that the LDR of Malaysian financial institutions was at worrying levels. 

It said the LDR did not take into account the increased sophistication by banks in Malaysia to diversify its sources of funding beyond the deposits and interbank markets to include bond and equity and other financial instruments. 

“LDR does not accurately reflect the funding and liquidity conditions of banks.  The use of LDR as a measure of banks’ liquidity has become less relevant in light of the developments in the financial system over the last 10 years,” it said.

The ABM said the regulators have introduced the use of other indicators of liquidity risk such as the liquidity coverage ratio (LCR), the loan-to-fund ratio (LTF) and loan-to-fund-and-equity ratio (LTFE) in 2015. 

“The LTF and LTFE are better measurements of liquidity as they reflect broader based funding of the banks.  LCR standard ensures that banks have sufficient high-quality liquid assets that can be used to satisfy liquidity needs in a 30-day severe stress environment,” it said.

The ABM said for commercial banks, the LCR stood at 142% as at June 2017 which is well above the minimum transitional requirement of 80% in 2017. 

Almost all banks maintained LCR levels above the fully phased-in requirement of 100%, which will only take effect in 2019, it added.