BNM Finalizes Net Stable Funding Ratio Requirements for Banks

By Regulatory News

July 31, 2019

Basel III, Basel Liquidity Compliance

BNM finalized the requirements for net stable funding ratio (NSFR) for the licensed banks, licensed investment banks, and licensed Islamic banks in Malaysia. BNM published the policy document and reporting template on NSFR, in addition to its response to the feedback received on the consultation for NSFR requirements. The policy document will come into effect on July 01, 2020. The policy document supersedes the observation period reporting obligations under the Basel III Observation Period Reporting (Net Stable Funding Ratio), which were issued on March 23, 2018.

A banking institution shall comply with the requirements in this policy document at the consolidated level and shall maintain a minimum NSFR of 100% at all times. If NSFR of a banking institution falls below the minimum level, the banking institution shall notify BNM immediately, with an explanation of the cause of the decline and remedial measures taken or to be taken (with a proposed time frame) to bring the NSFR position into compliance. BNM will consider the reasons for the decline in the NSFR as provided by the banking institution, including prevailing market conditions, before deciding on the necessity and nature of a supervisory response. A banking institution shall submit the NSFR report on a quarterly basis and shall submit the electronic copy of the reporting templates to BNM through the Statistical Mart for Analysis and Reporting (STATsmart) system no later than 30 calendar days after the quarter-end reporting date.

The NSFR is a minimum standard that requires banking institutions to maintain a stable funding profile to support their assets and off-balance sheet activities. A stable funding profile reduces the likelihood of a banking institution’s liquidity position being severely eroded by material disruptions to its regular sources of funding. Under such circumstances, the viability of the banking institution may be put, or perceived to be, at risk. This could subsequently lead to broader systemic stress. The NSFR complements the Liquidity Coverage Ratio (LCR), which has been in effect in Malaysia since June 01, 2015. While LCR encourages the short term resilience (30 days) of a banking institution’s liquidity risk profile, NSFR aims to reduce funding risk over a time horizon of up to one year.

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Effective Date: July 01, 2020

Keywords: Asia Pacific, Malaysia, Banking, NSFR, Basel III, Liquidity Risk, Reporting, NSFR Template, BNM

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