Bank Negara Malaysia (‘BNM’) issued a Policy Document on Net Stable Funding Ratio
on 31 July 2019. This policy document will come into effect from 1 July 2020
The policy document applies to licensed banks, licensed investment banks and licensed Islamic banks (excluding licensed international Islamic banks) (“banking institution”).
The Net Stable Funding Ratio (“NSFR”) is a minimum standard that requires a banking institution to maintain a stable funding profile to support its assets and off-balance sheet activities. The policy document requires a banking institution to maintain an NSFR of 100%, which is to be calculated by dividing the total amount of available stable funding (ASF) by the total amount of required stable funding (RSF).
The policy document also sets out the weightage to be attributed to the items comprised in a banking institution’s capital and liabilities as well as its assets. A banking institution is required to immediately notify BNM if its NSFR falls below the prescribed ratio, together with an explanation as to the cause of the decline and the remedial measures (and proposed time frame) to bring its NSFR position into compliance.
The NSFR seeks to reduce a banking institution’s funding risk of over a time horizon of up to one year, and complements the Liquidity Cover Ratio (LCR) which addresses short term resilience (30 days) of a banking institution’s liquidity risk profile.
The policy document supersedes the observation period reporting obligations under the Basel III Observation Period Reporting (Net Stable Finding Ratio) issued on 23 March 2018.