KUALA LUMPUR: Fitch Ratings expects Malaysian banks to offer higher rates on longer-term deposits to further move away from short-term funding, which is discouraged under the proposed new net funding rules and liquidity coverage ratio (LCR).
The ratings agency said on Wednesday banks were likely to continue to prioritise stable sources of funding and over a longer term, as they grow their balance sheets.
“In particular, we expect a further move away from short-term funding, which is discouraged under NSFR (net stable funding ratio) and LCR rules.
Fitch pointed out fixed deposits maturing within one month fell to 18% of total fixed deposits at end-August 2017 from 29% in January 2013 as the 30-day LCR was phased in.
The NSFR metric focuses on a 12-month timeframe and is likely to encourage banks to compete more aggressively for even longer-tenor deposits, and shift towards long-term wholesale debt funding.
“Banks are also likely to offer higher rates on longer-term deposits and shift towards longer-term wholesale debt funding.
“This could, to an extent, raise funding costs and lower net interest margins, but the impact on profitability is unlikely to be significant for the large banks or the banking sector as a whole,” it said.
Fitch also noted that most major Malaysian banks are unlikely to face difficulties in meeting NSFR requirements announced last week as part of BNM implementation of Basel III regulations.
It added the banking sector has already shifted towards more stable funding structures in recent years, which should reduce vulnerability to market disruptions.
The ratings agency noted that Bank Negara Malaysia (BNM) has said that more than three-quarters of Malaysian banks have an NSFR that meets the minimum requirement, which will be set at 100%.
Indeed, most major banks have strong domestic deposit franchises and prudent funding and liquidity policies that should help them comply with the new rules.
Moreover, the banking sector's loan/deposit ratio of 89% and liquidity coverage ratio (LCR) of 133% at end-August 2017 indicate that the system's aggregate funding and liquidity are reasonably healthy.