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.
Keywords: Asia Pacific, Malaysia, Banking, Article IV, Macro-prudential Policy, LCR, NSFR, D-SIBs, Climate Change Risk, ESG, Cyber Risk, Fintech, Systemic Risk, IMF
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.