Malaysian Banking System's Liquidity Remains Sound -- RAM Ratings

KUALA LUMPUR, March 30 (Bernama) -- The Malaysian banking system's liquidity remains sound with sector's Basel III liquidity coverage ratio (LCR) averaging at 125 per cent since its implementation and stood at 128 per cent as of end-January 2017. This was despite a decline in surplus liquidity placed with Bank Negara Malaysia (BNM) over the past few years, RAM Ratings said in a statement Thursday. However, it said that some banks had yet to reach the industry's average LCR of more than 100 per cent, the minimum requirement effective Jan 1, 2019. RAM Ratings Co-Head of Financial Institution Ratings Wong Yin Ching said as these banks had to improve their LCRs to keep up with the regulatory requirement, competition for retail and small and medium enterprises deposit was expected to persist due to a more favourable treatment under the LCR framework. RAM also said banks had the option to access BNM's Restricted Committed Liquidity Facility (RCLF) to manage their LCRs. Introduced in August 2016, it said the undrawn portion of the RCLF would qualify as high-quality liquid assets. In 2016, the rating agency said the banking sector's deposit growth, including investment accounts from customers, remained lacklustre at 3.0 per cent as compared to 2.3 per cent in 2015. "This is attributable to competition from non-bank deposit-taking entities, weaker corporate profits and capital outflows. "As deposit growth continued to trail lending expansion (+5.3 per cent in 2016), the sector's RAM-calculated loans-to-deposits (LD, including investment accounts from customers) ratio climbed to 87.2 per cent as of end-January 2017," it added. Given the weak deposit growth, Wong said banks had been tapping the debt capital markets (DCM) for funding, made possible by the depth of the domestic DCM and banks' good access to bond markets abroad. "The Basel III regime has also fuelled banks' issuance of capital instruments, which represent another source of long-term funding," she added. She said that the LD ratio of the eight domestic anchor banking groups stood at 91.7 per cent as of end-December 2016 and would come in at 84.1 per cent if capital-market funding is taken into consideration. "However, we observe that capital-market funding remains only a small part of the funding base of Malaysian banks relative to developed nations," she added. -- BERNAMA