Bank Negara to extend observation period for net stable funding ratio by a year to 2020

PETALING JAYA: Bank Negara Malaysia (BNM) is looking to extend the observation period for the net stable funding ratio (NSFR) in Malaysia for a year to 2020.

NSFR is a liquidity standard which comes under the Basel III international regulatory reforms. It refers to requirements for banks to have in place a certain percentage of stable sources of funding, such as commercial papers that have more than a year’s maturity and retail deposits, to support their asset portfolios in the longer term.

The initial deadline proposed by the Basel committee for the NSFR standard of above 100% was Jan 1, 2018. It was then deferred to Jan 1, 2019.

Speaking at BNM’s Financial Stability Conference, governor Datuk Nor Shamsiah Mohd Yunus said the extension takes into account the intention to conduct further on-site assessments to validate the maturity and robustness of the liquidity and funding practices of banks, and uneven progress in implementation at the global level.

“The bank remains committed to implementing the NSFR requirements as part of overall liquidity standards applicable to licensed banks in Malaysia.”

She added that currently all banks maintain adequate liquidity buffers against short-term liquidity stress, and the vast majority of banks already report NSFR levels above the minimum 100% based on observation data.

On another note, Nor Shamsiah said the challenge now is when a crisis is going to strike and how it will spread.

In navigating an uncertain future, she suggested four strategic priorities for financial stability authorities.

First, authorities need to remain vigilant as emerging economies face mounting pressures that continue to see more volatile capital flows. Second, authorities must continue to develop and deepen their understanding of risk transmission. 

Third, authorities must have a broad policy toolkit for responding to financial stability risks. Fourth, authorities need to increase policy agility as every crisis or financial stability issue is different, and each requires a different policy response.

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