KUALA LUMPUR: Bank Negara Malaysia (BNM) has cautioned banks not to rush and compete for deposits in an effort to show a good loan-to-deposit (LDR) ratio, which is very evident towards every end of the year.
Governor Tan Sri Muhammad Ibrahim, describing it as “disruptive behaviour”, said this was especially for corporates, whereby their short-term deposit shifting would push up rates and create significant distortions.
“This is damaging to all. Borrowing costs will rise. All will be impacted. Corporates will also suffer in the end, through higher longer term borrowing costs because of these unnecessary biddings,” he said in his keynote address last Friday at the Financial Markets Association, Malaysia annual dinner entitled "Of Perception, Sentiment and Reality".
Muhammad said banks should also not be fixated on the LDR ratio – which is a simplistic indicator – and it cannot provide an accurate representation of evolving bank balance sheets and funding strategies.
“We need to rely on other important indicators. As we start to transition into Net Stable Funding Ratio (NSFR), this ratio together with Liquidity Coverage Ratio (LCR), are the more reflective indicators of banks’ funding profile and liquidity positions,” he said.
Banks would be given sufficient time to adjust before implementation of the NSFR.
“We therefore like to suggest to the banking community to plan wisely and avoid rushing to comply or exceed the NSFR requirement, as this will create the same disruptive cycle caused by LDR-fixation.
“Nobody gains from any disruption. It does not bode well for our financial market. Therefore, we need to behave accordingly and contribute in creating orderly market conditions,” he said.
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