Maybank, CIMB and Public Bank will comfortably meet the capital requirements by the central bank.

The three banking groups will also have ample room to meet the stricter capital requirements without having to raise additional capital, notes Wong Yin Ching, RAM Ratings’ co-head of Financial Institution Ratings.

On 5 February, Bank Negara Malaysia (BNM) issued the policy document on Domestic Systemically Important Banks (D-SIB) Framework, which sets out the central bank’s assessment methodology to identify D-SIBs in Malaysia that will come into effect on 31 January 2021.

The policy framework imposes more stringent capital requirements on D-SIBs, i.e. financial institutions that may pose risks to the stability of the financial system and the broader economy in the event of their distress or failure.

The three banks – Malayan Banking Berhad (Maybank, rating AAA/Stable/P1), CIMB Group Holdings Berhad (CIMB, rating AA1/Stable/P1) and Public Bank Berhad (Public Bank, rating AAA/Stable/P1), have also been identified by BNM and placed on their relative systemic importance with Maybank and CIMB placed in Bucket 2 while PBB is in Bucket 1.

Bucket 2 necessitates an additional common equity tier-1 capital surcharge of 1% of a bank’s risk-weighted assets above the existing minimum of 7%; Bucket 1 attracts an additional 0.5%.  As at end-September 2019, the three D-SIBs’ capital buffers ranged from 4.5-6.4 percentage points above their new minimum requirements.

Upon implementation of the new framework, Bucket 3 (with a 2% capital surcharge) will be unpopulated. However, it is maintained to discourage D-SIBs from elevating their systemic importance.

“We believe the implementation of the framework will be positive for the Malaysian banking industry as it will enhance large financial institutions’ ability to withstand shocks while safeguarding the sector’s stability in times of stress. Notably, the D-SIB additional capital requirements in Malaysia are less stringent than those of other regional jurisdictions and there are also fewer identified D-SIBs,” explains Wong.

According to the rating agency, its criteria paper, Systemic Support Assessment for Banks, is broadly in line with the D-SIB framework and no rating movements are expected to arise from its portfolio of rated banks.

Singapore has seven D-SIBs that are required to maintain an additional 2% capital surcharge while Thailand has five, which need to hold an extra 1% of capital. Similar to Malaysia, Indonesia and the Philippines have also introduced different buckets, depending on the profiles of the banks. These two countries house more than 10 D-SIBs each.