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    BNM Launches Benchmark Rate, Examines Exposure to Nature-Related Risks

    The Bank Negara Malaysia (BNM) launched the Malaysia Islamic Overnight Rate (MYOR-i) and published multiple reports, including those that review the financial sector stability, set out the work done by BNM in 2021, and assess potential exposures to nature-related risks through financing activities of banks.

    BNM announced launch of MYOR-i, which will replace the Kuala Lumpur Islamic Reference Rate (KLIRR), thus leading to discontinuation of KLIRR with immediate effect. MYOR-i is the first transaction-based Islamic benchmark rate in the world and it has been developed in accordance with the Principles for Financial Benchmarks. BNM will conduct periodic reviews of MYOR-i to ensure that it remains robust and representative of conditions in the underlying market. Additionally, the financial stability review notes that stress tests affirm the ability of financial institutions to support economic recovery, as almost all financial institutions are able to maintain post-shock capital ratios above regulatory minima.  

    Another key development involves the joint exploratory study of BNM and the World Bank, which uses local and global data to examine the relationship between the Malaysian financial sector and nature. The report provides a first assessment of nature-related financial risks for the Malaysian banking sector, examining the lending exposure to businesses that depend on, and impact, nature and its ecosystem services. Findings suggest substantial differences between individual banks in their exposure to sectors that depend highly on ecosystem services and that highly impact natural assets and ecosystem services. The report notes that key areas for actions to manage nature-related financial risks include Raising awareness and policy discourse, Enhancing capacity building of relevant stakeholders, enhancing macroeconomic surveillance capacity and risk identification, and developing regulatory and supervisory requirements. The exposure analysis conducted in this report is a step towards a fully-fledged nature stress-test. BNM will continue to engage with the financial sector and other key stakeholders to build capacity in this area.

     

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    Keywords: Asia Pacific, Malaysia, Banking, MYOR-i, KLIRR, Islamic Banking, Lending, Climate Change Risk, ESG, Financial Stability Review, Credit Risk, Stress Testing, Benchmark Reforms, BNM

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