05 February 2020

What is "Domestic Systemically Important Banks (D-SIB)"?

Bank Negara Malaysia (the Bank) today issued the policy document on Domestic Systemically Important Banks (D-SIB) Framework, which sets out the Bank’s assessment methodology to identify D-SIBs in Malaysia, and the inaugural list of D-SIBs.

Too-Big-To-Fail ???

D-SIBs refer to banks whose distress or failure have the potential to cause considerable disruption to the domestic financial system and the wider economy. Higher capital requirements introduced for such banks will complement the regulatory framework in place to mitigate the risks posed by D-SIBs to the stability of the Malaysian financial system and the wider economy.

A D-SIB is required to maintain higher capital buffers 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.

The banking groups identified as D-SIBs based on 2018 data and the assessment methodology set out in the policy document are as follows: 

In accordance with the framework, the applicable HLA requirement for these D-SIBs ranges between 0.5% to 1.0% of risk-weighted assets, at the consolidated level. The HLA requirement for these D-SIBs will come into effect on 31 January 2021.

Going forward, the list of D-SIBs will be updated annually and published together with the release of the Bank’s Financial Stability Review in the second half of each year.


So, any impact of those banks listed as D-SIB ???

Although the 3 largest banks in Malaysia are financially sound and capable of meeting the 'extra capital requirements', more or less it will impact the profitability of the bank due to slower loan growth amid higher capital allocated as a buffer.

Anyway, this will be a temporary effect once it's being imposed in 2021. It will slowly back to the normal loan/profit projection after that.

Past 1-year share price performance as at 5 Feb 2020

5 Feb 2020 market closing share price:

Maybank   RM8.36 −0.040 (-0.48%)
CIMB   RM4.98 +0.060 (+1.22%)
Public Bank   RM18.00 −0.20 (-1.10%)

Other than these 3 banks, the next potential candidates to be added into the 'premier' list would be Hong Leong Bank and RHB Bank.

Be able to join the 'premier' list should be Good news or Bad news?

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