Despite a decline in surplus liquidity placed with Bank Negara Malaysia, the liquidity of local banks is still sound, said Ram Ratings’ co-head of Financial Institution Ratings Wong Yin Ching.
“The sector’s Basel III liquidity coverage ratio (LCR) has averaged 125% since its implementation and stood at 128% as at end-January 2017,” said Wong.
While the industry’s average LCR exceeds 100% – the minimum requirement effective 1 January 2019 – some banks have yet to reach this threshold.
The rating agency said it expects competition for retail and SME deposits to persist, due to a more favourable treatment under the LCR framework.
At the same time, banks have the option to access BNM’s Restricted Committed Liquidity Facility (RCLF) to manage their LCRs.
Introduced in August 2016, the undrawn portion of the RCLF will qualify as high-quality liquid assets.
In 2016, the banking sector’s deposit growth (including investment accounts from customers) remained lackluster at 3.0% (2015: 2.3%).
This is attributable to competition from non-bank deposit-taking entities, weaker corporate profits, and capital outflows.