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
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.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.
The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).
The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.
The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).
The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.
A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.
The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.
The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.
The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).
HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.