IMF Publishes Reports on 2020 Article IV Consultation with Malaysia
IMF published staff report and selected issues report under the 2020 Article IV consultation with Malaysia. The IMF Directors agreed that the financial sector is stable and that profitability, capitalization, and asset quality of banks are sound. Directors advised the authorities to closely monitor risks in the real estate and household sectors, also highlighting that further enhancing the macro-prudential toolkit would be helpful. Directors commended the ongoing efforts to manage cyber risks and climate change risks in the financial sector.
The staff report highlighted that the financial sector is stable and further enhancements to the regulatory framework are underway. Banks are well-capitalized and asset quality is sound, with net impaired loans at 1% of total loans in October 2019. All banks have liquidity coverage ratio (LCR) levels well above the 100% regulatory minimum requirement while the LCR stood at 150% in October 2019. BNM has issued the finalized net stable funding ratio (NSFR) requirements, to come into effect in July 2020. The system-wide NSFR stood at 108.5% in the first half of 2019. BNM issued a consultation paper in April 2019 on the proposed assessment methodology to identify domestic systemically important banks (D-SIBs) as well as the applicable capital surcharge and reporting requirements. The D-SIB framework is expected to be finalized in 2020.
The staff report notes that the authorities’ focus on micro-prudential supervision of lending standards could be complemented by expanding the range of macro-prudential tools to ensure they are readily available when needed to manage the financial cycle. The authorities have a well-developed strategy to mitigate cyber risks. The BNM priority areas to enhance cyber-risk mitigation include strengthening existing guidance around cyber security and risk management and improving information-sharing on cyber threats across sectors. One of the priority areas is include strengthening the collective capabilities to respond to, and recover, from a cyber incident. BNM is developing a framework to assess climate change risks to the financial sector and is actively working on this as a member of the Network of Central Banks and Supervisors for Greening the Financial System or NGFS.
Fintech is becoming increasingly important in the financial sector in the country. Regulators have struck an appropriate balance between safeguarding financial stability and consumer protection while encouraging innovation. At present, financial stability risks from fintech appear limited, given the still-small size of the sector. Continued regulatory vigilance will be important given the rapid growth of fintech and entrance of big tech firms in Malaysia. The selected issues report highlights that fintech provides opportunities for incumbent financial institutions and new entrants, including in areas such as Islamic finance. Fintech in Malaysia is in the early stages and important challenges related to skills, talent, infrastructure, and funding need to be addressed to ensure continued rapid growth with due regard to financial stability.
Related Links
Keywords: Asia Pacific, Malaysia, Banking, Article IV, Macro-prudential Policy, LCR, NSFR, D-SIBs, Climate Change Risk, ESG, Cyber Risk, Fintech, Systemic Risk, IMF
Featured Experts
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Related Articles
APRA Sets LAC for D-SIBs, Proposes to Enhance Crisis Preparedness
APRA issued a letter on the loss-absorbing capacity (LAC) requirements for domestic systemically important banks (D-SIBs) and published a discussion paper, along with the proposed the prudential standards on financial contingency planning (CPS 190) and resolution planning (CPS 900).
EC to Review Macro-Prudential Rules while ESRB Assesses Policy Stance
The European Commission (EC) launched a call for evidence, until March 18, 2022, as part of a comprehensive review of the macro-prudential rules for the banking sector under the Capital Requirements Regulation (CRR) and Directive (CRD IV).
FSB Sets Out Good Practices for Crisis Management Groups
The Financial Stability Board (FSB) published a report that sets out good practices for crisis management groups.
APRA Penalizes Heritage Bank for Incorrect Reporting of Capital
The Australian Prudential Regulation Authority (APRA) found that Heritage Bank Limited had incorrectly reported capital because of weaknesses in operational risk and compliance frameworks, although the bank did not breach minimum prudential capital ratios at any point and remains well-capitalized.
OSFI Releases Annual Report 2021-2022
The Office of the Superintendent of Financial Institutions (OSFI) released the annual report for 2020-2021.
OSFI Updates Timeline for Implementation of Certain Basel Rules
Through a letter addressed to the banking sector entities, the Office of the Superintendent of Financial Institutions (OSFI) announced deferral of the domestic implementation of the final Basel III reforms from the first to the second quarter of 2023.
EC Defers Adoption of Regulatory Standards for Disclosures Under SFDR
EIOPA recently published a letter in which EC is informing the European Parliament and Council that it could not adopt the set of draft regulatory technical standards for disclosures under the Sustainable Finance Disclosure Regulation (SFDR) within the stipulated three-month period, given their length and technical detail.
FCA Releases MIFIDPRU Application Forms and Third Set of Rules on IFPR
The Financial Conduct Authority (FCA) published the third in a series of policy statements that set out rules to introduce the UK Investment Firm Prudential Regime (IFPR), which will take effect on January 01, 2022.
APRA Finalizes Capital Adequacy Standards for Banks
The Australian Prudential Regulation Authority (APRA) published, along with a summary of its response to the consultation feedback, an information paper that summarizes the finalized capital framework that is in line with the internationally agreed Basel III requirements for banks.
CPMI-IOSCO Seek Comments on Access to Central Clearing and Portability
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability.
