Bank Negara issues Policy Document on Statutory Reserve Requirement and lowers SRR rate

Bank Negara Malaysia (‘BNM’) issued a policy document, Statutory Reserve Requirement (‘Policy Document’) on 20 March 2020.
On the same day, BNM also lowered the Statutory Requirement Reserve (‘SRR’) rate from 3.0% to 2.0% with immediate effect.
The Policy Document applies to the following entities (each an ‘FI’) -
  • licensed banks under the Financial Services Act 2013 (‘FSA’);
  • licensed investments banks under the Financial Services Act 2013 (‘FSA’); and
  • licensed Islamic banks under the Islamic Financial Services Act 2013 (‘IFSA’).
The Policy Document, inter alia
  1. requires an FI to maintain in their Statutory Reserve Account with BNM (SRA) an amount at least equal to SRR at the rate prescribed by BNM in paragraph 4.1 of the Policy Document;
  1. sets out the manner in which the SRR is to be computed;
  1. sets out the items comprised in the Eligible Liabilities (‘EL’) which form the basis on which the SRR to be maintained by each FI is calculated, the items that can be deducted or excluded, and the manner in which the EL is to be calculated;
  1. the penalties that can be imposed on an FI that fails to comply with the SRR.
The reduction in the SRR rate will release funds into the financial system to improve liquidity and be deployed for credit creation in the wider economy.
From the Policy Document, it is interesting to note that the last time that the SRR rate was set at 2.0% was on 11 April 2011, and the highest SRR rate imposed was 13.5% from 1 June 1996 to 15 February 1998 whilst the lowest SRR rate was 1.0% from 1 March 2009 to 10 April 2011.