KUALA LUMPUR, April 8 — Moody’s Investors Service said the proposed additional capital requirement for domestic systemically important banks (D-SIBs) by Bank Negara Malaysia (BNM), is credit positive.
In a note today, it said the D-SIBs would increase Malaysia’s largest banks’ ability to absorb potential shocks and enhance banking system stability amid challenging operating conditions.
On April 3, the central bank held a public consultation on the proposed designation of D-SIBs and the implementation of higher loss absorbency requirements for them.
Under the proposed framework, banks designated as D-SIBs would have to maintain an additional capital buffer of 0.5 per cent-1.0 per cent of Common Equity Tier 1 (CET1) capital relative to risk-weighted assets on a consolidated group basis.
The rating agency said the proposed D-SIB buffer would complement other CET1 capital requirements implemented this year, such as the countercyclical capital buffer and capital conservation buffer.
“Assuming all six of the Moody’s-rated Malaysian banks are designated as D-SIBs, we expect all of them would comfortably meet the higher capital requirement without having to raise additional capital because they maintain buffers well above the new minimum regulatory capital levels,” it said.
Moody’s said the CET1 capital ratios of all six banks were more than 300 basis points above the eight per cent minimum CET1 ratio (including a one per cent D-SIB capital buffer) at the end of 2018.
“In addition, we expect the banks’ internal capital generation to remain sound and outpace capital consumption over the next 12-18 months because of sluggish loan growth and weak market sentiment,” it said.
To identify D-SIBs, Moody’s said BNM would use the criteria of size, interconnectedness and substitutability to determine the degree of a bank’s systemic importance and the effect that its failure would have on the domestic financial system and economy. — Bernama