Bank Negara Malaysia issues Policy Document on Statutory Reserve Requirement
26 May 2025
Following on the announcement on 8 May 2025 by Bank Negara Malaysia (“
BNM”) of the reduction of the Statutory Reserve Requirement (“
SRR”) ratio from 2% to 1%, effective 16 May 2025, BNM issued the
Policy Document on Statutory Reserve Requirement (“
SRR PD”) on 15 May 2025. The SRR PD takes effect on the same day that the reduction of the SRR ratio to 1% takes effect, i.e.
16 May 2025.
The SRR PD applies to:
- licensed banks and licensed investment banks, as defined in the Financial Services Act 2013; and
- licensed Islamic banks, except for licensed international Islamic banks, as defined in the Islamic Financial Services Act 2013,
(collectively “banking institutions”).
Banking institutions are required to maintain balances in their Statutory Reserve Accounts (“SRA”) equivalent to a certain proportion of their eligible liabilities (“EL”), namely the SRR rate (“SRR Rate”). Commencing 16 May 2025, the SRR Rate is 1.0% of EL.
In essence, the SRR PD:
- requires banking institutions to comply with the SRR at two levels, namely:
- on a fortnightly basis (based on two base periods from 1st to 15th and from 16th to the last day of each calendar month), the average daily balances in the SRA must be at least equal to the SRR Rate1; and
- on a daily basis, balances in the SRA must be within a ±20% variation band around the SRR Rate;2
- lists out the liabilities that are to be included in the computation of the EL and the items that are excluded or deductible from the EL base;3
- the conditions that have to be complied with for certain items to be included as an amount that is deductible from the EL base;4 and
- the basis of calculating the penalty which may be imposed on banking institutions that fail to comply with the minimum SRR5.
Examples of the computation of the EL in a base period and computation of the SRR are provided in Appendix 2 of the SRR PD.
Comments
According to BNM, the reduction in the SRR Rate to 1% will release approximately RM19 billion worth of liquidity into the domestic banking system.
6 This could significantly enhance lending activities within the system.
Alert by Sharifah Shafika Alsagoff (Partner) and Lee Ai Hsian (Partner) of the Banking and Finance Practice of Skrine.
1 In computing the average EL over a base period, negative EL should be zeroised and not netted off against positive EL.
2 Balances below the band are not permitted, while balances in excess of the band’s ceiling will not be recognised in meeting the average fortnightly requirement.
3 See paragraph 6.2 and Appendix 4 of the SRR PD.
4 See paragraphs 6.4 and 6.5 of the SRR PD.
5 See paragraph 7 of the SRR PD.
This alert contains general information only. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such. For further information, kindly contact skrine@skrine.com.