KUALA LUMPUR: RAM Ratings still sees the Malaysian banking system’s liquidity as sound, despite a decline in surplus liquidity placed with Bank Negara Malaysia (BNM) over the past few years.
The rating agency’s financial institutions ratings co-head Wong Yin Ching said the banking sector’s Basel III liquidity coverage ratio (LCR) has averaged 125 per cent since its implementation and stood at 128 per cent as at end-January 2017.
He said while the industry’s average LCR exceeds 100 per cent – the minimum requirement effective January 1, 2019 – some banks have yet to reach this threshold.
“As these banks have to improve their LCRs to keep up with the regulatory requirement, we expect competition for retail and SME (small and medium enterprise) deposits to persist, due to a more favourable treatment under the LCR framework,” said Wong.
At the same time, banks have the option to access Bank Negara’s Restricted Committed Liquidity Facility (RCLF) to manage their LCRs.
Introduced in August 2016, the undrawn portion of the RCLF will qualify as high-quality liquid assets.
In 2016, the banking sector’s deposit growth, including investment accounts from customers, remained lacklustre at three per cent as compared to 2.3 per cent in 2015, attributable to competition from non-bank deposit-taking entities, weaker corporate profits and capital outflows.
As deposit growth continued trailing lending expansion, the sector’s RAM-calculated loans-to-deposits ratio climbed to 87.2 per cent as at end-January 2017 from 85.4 per cent as at end-December 2015.
Wong said given the weak deposit growth, banks have been tapping the debt capital markets (DCM) for funding, made possible by the depth of the domestic DCM and banks’ good access to bond markets abroad.
“The Basel III regime has also fuelled bank issuance of capital instruments, which represent another source of long-term funding,” he said.
The LD ratio of the eight domestic anchor banking groups stood at 91.7 per cent as at end-December 2016.
He said this figure would come in at 84.1 per cent if capital-market funding is taken into consideration – both figures include investment accounts from customers.
“However, we observe that capital-market funding remains only a small part of the funding base of Malaysian banks relative to developed nations,” said Wong.