BNM allows banks to tap into capital buffers amid COVID-19

KUALA LUMPUR (March 25): Bank Negara Malaysia (BNM) announced today that it is allowing banking institutions to tap into their capital buffers, and to provide flexibility on several operating guidelines as the nation grapples with the impact of the COVID-19 outbreak.

For one, banking institutions will be allowed to draw down on capital and liquidity buffers to support lending activities.

“The banking system is facing these challenges from a position of strength, with excess capital buffers above the minimum regulatory requirement of RM119.7 billion as at end January 2020,” said BNM.

“To this effect, banking institutions may draw down on the capital conservation buffer of 2.5%, operate below the minimum liquidity coverage ratio of 100%, and utilise the regulatory reserves that were set aside during periods of strong loan growth.

“The bank fully expects banking institutions to restore their buffers within a reasonable period after Dec 31, 2020,” the central bank said in a statement today.

BNM said the flexibilities form part of the second Economic Stimulus Package to address the impact of the coronavirus outbreak on individuals and businesses.

Meanwhile, the implementation of the Net Stable Funding Ratio will proceed on July 1 as scheduled, but with a lower ratio of 80%.

The banking institutions will need to comply to a 100% ratio from Sept 30, 2021, BNM said.

The measures, BNM said, followed a review of its policy and supervisory initiatives in 2020 in order to ease compliance and operational burdens on banking institutions amid the Covid-19 outbreak.

The policy review was made in order to enable banking institutions to support their customers and proactively manage risks arising from current developments.

“As part of this review, policy and supervisory initiatives will be re-focussed on monitoring and responding to risk developments and ensuring that banking institutions continue to be a source of strength for the Malaysian economy,” it said.

Additionally, BNM is also extending the timeline for all ongoing consultations on published discussion papers and exposure drafts to June 30, 2020 and beyond.

“Flexibilities will also be provided for banking institutions to meet timelines for regulatory submissions to take into account the efforts being undertaken by the government to contain the spread of Covid-19,” it added.

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