Bank Negara to implement NSFR no earlier than Jan 1, 2019

After the doldrums, the sector is expected to pick up momentum in the second half of next year with a recovery in, among others, oil prices as well as a clear direction on US policies especially on its interest rates

KUALA LUMPUR: Bank Negara Malaysia (BNM) plans to implement the net stable funding ratio (NSFR) – a requirement to promote a more resilient banking sector – for banks no earlier than Jan 1, 2019.

The central bank said on Thursday this was to address the considerable uncertainty on the international front in terms of meeting the internationally agreed timeline of Jan 1, 2018.

BNM had also considered the international nature of Malaysian banking institutions' operations and the potential impact on domestic competitiveness against the immediate need for the implementation of the standard.

“To this end, the Bank intends to implement the NSFR at no earlier than Jan 1, 2019, ideally with greater certainty or harmonisation among key markets. This is not expected to affect the resilience of the Malaysian banking system,” it said.

The NSFR is a liquidity standard published by the Basel Committee for Banking Supervision, which forms part of the Basel III regulatory reforms. 

BNM said as at June 30, 2017, the banking system NSFR is estimated at above 100% – which was equal the Basel Committee's ratio of at least 100% on an on-going basis. 

The NSFR will require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. This standard complements the liquidity coverage ratio (LCR) which was phased out in in 2015.

BNM also pointed out the banking system LCR stood at 141% as at June 30, 2017 whilst the system NSFR is estimated at above 100%.

According to the Basel panel Committee, the NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.

“Available stable funding” is defined as the portion of capital and liabilities expected to be reliable over the time horizon considered by the NSFR, which extends to one year. 

The amount of such stable funding required of a specific institution is a function of the liquidity characteristics and residual maturities of the various assets held by that institution as well as those of its off-balance sheet exposures. 

BNM invites public feedback on the proposed regulatory requirements for NSFR. Banking institutions have two months to submit feedback to the exposure draft. 

Responses must be submitted to BNM by Nov 27, 2017 to [e-mail]