Bank Negara Malaysia (BNM) has listed Malayan Banking Bhd (Maybank), CIMB Group Holdings Bhd (CIMB), and Public Bank as banks whose distress or failure could considerably affect the domestic financial system and the wider economy.
Labelled as Domestic Systematically Important Banks (D-SIBS), these banks have the biggest market capitalisation in Malaysia, with over RM200 billion combined. They were identified as D-SIBs based on 2018 data, focusing on three factors: the bank’s size, interconnectedness, and substitutability.
As such, the three D-SIBs are required to maintain higher capital buffers compared to other banks, so as to meet regulatory capital requirements that include a Higher Loss Absorbency (HLA) requirement.
“This serves to increase a D-SIB’s capacity to absorb losses thereby reducing its probability of distress or failure during periods of stress. In turn, this will contribute to a safer and more resilient Malaysian financial system,” said BNM in a statement.
According to the central bank, the HLA requirement for the three D-SIBs is set between a range of 0.5% to 1.0% of their risk-weighted assets, at the consolidated level. This requirement is to come into effect from 31 January 2021 onwards.
The reveal of the inaugural list of D-SIBs is part of BNM’s announcement of the D-SIB Framework, which sets out the Bank’s assessment methodology to identify D-SIBs in Malaysia. BNM’s D-SIB Framework is drafted based on a framework that the Basel Committee on Banking Supervision uses to deal with D-SIBs and the structural characteristics of the Malaysian banking system.
BNM also clarified that the D-SIB Framework is not meant to be a yardstick to measure a bank’s risk. It further commented that banks in Malaysia are generally resilient enough to withstand potential losses even when faced with unfavourable economic and financial situations.
The D-SIB list will be updated annually and published with the release of the Financial Stability Review in the second half of each year.