Banking sector
Bank Negara Malaysia (BNM) will raise the minimum Tier-1 capital ratio to 6% (from 4% currently under Basel II requirement) and common equity Tier-1 capital ratio to 4.5% (from 2% currently under Basel II), while maintaining total CAR (capital adequacy ratio) at 8%. In addition, banks are required to keep 2.5% capital conservation buffer overand- above the regulatory minimum.
Separately, BNM will also consider introducing a countercyclical capital buffer (between 0% to 2.5% of risk-weighted assets to be held in common equity) in line with Basel III, which is over and above the conservation buffer. The higher capital requirements will be implemented gradually beginning 2013 through 2015, and the capital conservation buffer between 2016 and 2019.
Banks will be required to report their leverage ratio positions calculated according to Basel III rules from June 2012. BNM will consider enhancing the liquidity coverage ratio and implement a net stable funding ratio (an incentive for banks to fund activities with more stable sources). The rules will likely be implemented from 2015 and 2018, respectively. All banks are expected to comfortably meet the 3% leverage level.
Malaysian banks are relatively small and have less complex activities compared with global banks. However, as Malaysian banks evolve to be regional players (as in the case of Maybank and CIMB), it will be crucial for them to be able to absorb external shocks and contagion risks. As such, BNM will assess at a later date the need for additional loss-absorbency requirements as required under Basel III (ranging from 1% to 3.5% comprising common equity, depending on the bank’s systemic importance).
We like AFG (Buy, TP:RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and ROE. Among large caps, we prefer Maybank (Buy, TP:RM10.60) for its resilient transactional banking income and dividend yields. We also like HLB (Buy, TP:RM16.00) for merger synergies. — HwangDBS Vickers Research, Dec 22
This article appeared in The Edge Financial Daily, December 23, 2011.
Bank Negara Malaysia (BNM) will raise the minimum Tier-1 capital ratio to 6% (from 4% currently under Basel II requirement) and common equity Tier-1 capital ratio to 4.5% (from 2% currently under Basel II), while maintaining total CAR (capital adequacy ratio) at 8%. In addition, banks are required to keep 2.5% capital conservation buffer overand- above the regulatory minimum.
Separately, BNM will also consider introducing a countercyclical capital buffer (between 0% to 2.5% of risk-weighted assets to be held in common equity) in line with Basel III, which is over and above the conservation buffer. The higher capital requirements will be implemented gradually beginning 2013 through 2015, and the capital conservation buffer between 2016 and 2019.
Banks will be required to report their leverage ratio positions calculated according to Basel III rules from June 2012. BNM will consider enhancing the liquidity coverage ratio and implement a net stable funding ratio (an incentive for banks to fund activities with more stable sources). The rules will likely be implemented from 2015 and 2018, respectively. All banks are expected to comfortably meet the 3% leverage level.
Malaysian banks are relatively small and have less complex activities compared with global banks. However, as Malaysian banks evolve to be regional players (as in the case of Maybank and CIMB), it will be crucial for them to be able to absorb external shocks and contagion risks. As such, BNM will assess at a later date the need for additional loss-absorbency requirements as required under Basel III (ranging from 1% to 3.5% comprising common equity, depending on the bank’s systemic importance).
We like AFG (Buy, TP:RM4.30) for its scalable domestic franchise and non-interest income traction, which ensures sustainable earnings and ROE. Among large caps, we prefer Maybank (Buy, TP:RM10.60) for its resilient transactional banking income and dividend yields. We also like HLB (Buy, TP:RM16.00) for merger synergies. — HwangDBS Vickers Research, Dec 22
This article appeared in The Edge Financial Daily, December 23, 2011.
