Basel Committee: Top local banks still crucial in economy

The top local banks are deemed systemically important in the country, although they are deemed not so by global standards, according to the Basel Committee on Banking Supervision.


The Basel Committee recently agreed that the world's top banks must hold another 1% to 2.5% more of equity by 2019 as part of efforts to make them more resilient in the face of another financial crisis.
These banks, known as systemically important financial institutions (SIFIs), were the banks deemed “too big to fail” during the global financial crisis of 2008.

Anandakumar: ‘The failure of any bank linked to the domestic payments and settlements system can create stress.’

 

 

“It is therefore unlikely that Malaysian banking institutions will be immediately impacted by these measures given the current size of their cross-border operations,” the central bank said.

Malaysian Rating Corp Bhd vice-president-cum-financial institution ratings head Anandakumar Jegarasasingam said in an email reply that considering the structure of the local financial sector, the “failure of any bank linked to the domestic payments and settlements system could create stress” within the domestic financial system.

He pointed out that in the local context, asset size would likely be used as an important criterion to identify financial institutions of systemic importance to the domestic financial system.

“Normally, the top four or five banks are expected to be identified as systemically important banks. Therefore, apart from asset size, the regulator is also likely to define systemic importance more broadly in the domestic context to include linkages to the payment systems and perhaps even market share of deposits,” Anandakumar said.

He said the additional capital requirements would to some extent offset any funding advantage derived by the SIFIs from their status as institutions that are too big to fail.

Meanwhile, Bank Negara said local banks were well-positioned to comply with higher capital requirements, given their current strong capital positions and profitability.

“Banking institutions in Malaysia have always maintained capital levels well above the prevailing minimum regulatory requirements, with a majority also already operating at levels well above the new Basel III minimums,” it said.

It said local banks were therefore unlikely to face significant challenges in maintaining high capital levels moving forward since they have employed prudent earnings retention practices. (The Star Online)