BNM’s proposed capital requirement increase for banks a credit positive — Moody’s

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KUALA LUMPUR (April 8): Bank Negara Malaysia's (BNM) proposed additional capital requirement for domestic systemically important banks (D-SIBs) is a credit positive, because the move will increase the country's largest banks' ability to absorb potential shocks and enhance banking system stability amid challenging operating conditions, Moody’s Investor Service said.

Moody's said in a note today that under BNM’s proposed framework, banks designated as D-SIBs will be required to maintain an additional capital buffer of 0.5%-1.0% of common equity tier 1 (CET1) capital relative to risk-weighted assets on a consolidated group basis. According to Moody's, the proposed D-SIB buffer will complement other CET1 capital requirements implemented this year, such as the countercyclical capital buffer and capital conservation buffer.

"Assuming all six of the Moody's-rated Malaysian banks are designated as D-SIBs, we expect all of them would comfortably meet the higher capital requirement without having to raise additional capital, because they maintain buffers well above the new minimum regulatory capital levels," Moody's said.

The six Moody's-rated Malaysian banks are AmBank (M) Bhd, CIMB Group Holdings Bhd, Hong Leong Bank Bhd, Public Bank Bhd, Malayan Banking Bhd and RHB Bank Bhd.

Moody's said these banks had CET1 capital ratios of more than 300 basis points above the 8% minimum CET1 ratio (including a 1% D-SIB capital buffer) at year-end 2018.

"In addition, we expect the banks’ internal capital generation to remain sound and outpace capital consumption over the next 12-18 months, because of sluggish loan growth and weak market sentiment," Moody's said.