BNM's new guideline 'will strengthen M'sian banks'

Kuala Lumpur: Bank Negara Malaysia's (BNM) new guideline on restructured and rescheduled (R&R) loans, is viewed as a prudent move towards strengthening the resilience of the Malaysian banking sector in the longer term.The strength of the banking system lies in its regulatory framework, which has raised the bar for banks, and this new guideline follows on from a series of macro-prudential measures being observed over recent years, said RAM Ratings in a statement here.

"We expect to see an uptick in the industry's gross impaired loan (GIL) ratio this year resulting from new R&R activity after April 1, 2015, following the implementation of this new guideline," said the Co-Head of Financial Institution Ratings, Sophia Lee.

The new requirement only applies to loans that are rescheduled and restructured on or after April 1, 2015, and not retrospectively.

"Malaysian banks are in a sound position even after considering this potential uptick in the GIL ratio and we still have a stable outlook on the banking industry," highlights Sophia.

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The banking industry's latest GIL ratio stood at a low 1.6 per cent as at end-March 2015.

It continues to be well-capitalised with a common-equity tier-1 capital ratio standing strong at 12.2 per cent, while the system's tier-1 and total capital ratios remained favourable at 13.0 per cent and 14.9 per cent.

This guideline requires the new R&R loans after April 1, 2015 in the Central Credit Reference Information System (CCRIS) to be classified as impaired. CCRIS is used by banks as part of their assessment of borrowers' credit worthiness.

"We envisage that banks which are more stringent in classifying R&R as impaired will be less affected.

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The new guideline will discourage the 'evergreening' of loans as banks will have to set aside provisions, once these loans are classified as impaired, which would in turn affect their profit performance," Ram Ratings said.

Meanwhile, RAM expects the Overnight Policy Rate (OPR) to stay at 3.25 per cent this year, barring any adverse growth downside risks. – Bernama

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