Clarification on Malaysian banks’ foreign currency liabilities

November 9, 2015
Kuala Lumpur, Monday, 9 November 2015:- The Association of Banks in Malaysia (ABM) wishes to clarify with reference to a recent report on Malaysian banks’ foreign currency denominated liabilities.

We are of the respectful view that the position of the foreign currency deposits in the banking system does not pose concerns on the country’s banking system stability. The foreign currency denominated liabilities and assets of Malaysian banks have expanded in line with firstly, the domestic banks’ regional operations as well as their regional trade activities and secondly, their centralised liquidity management.

Additionally, these liabilities do not represent immediate claims on Malaysia’s international reserves as foreign currency liabilities are generally well covered with foreign currency external assets, including overseas assets, lending and investment in debt securities.

Banks have proactively managed foreign exchange risk and foreign currency funding risks through robust internal controls, contingent funding plans and foreign currency funding programmes. We are given to understand that there is no dependence on external or cross-currency funding for operations in Malaysia. As a matter of fact, many, if not, most banks in Malaysia practise the same asset liability management as they would do with regard to their Ringgit exposure.

While some residents have recently increased their foreign currency deposits due to the depreciation in ringgit for reasons such as immediate business needs and children’s education, we wish to highlight that the Malaysian banking system’s foreign currency deposits remain relatively small at about 7 percent of total deposits. Meanwhile, according to Bank Negara Malaysia’s recent Monthly Statistical Bulletin, total non-resident deposits (in both Ringgit and foreign currency) amounted to about RM70 billion, but make up to only about 4% of total banking system deposits.

Turning to our country’s foreign reserves cover, Bank Negara Malaysia recently announced that Malaysia’s international reserves at US$94 billion remain adequate to facilitate international transactions without disruptions. It is sufficient to finance 8.7 months of retained imports, significantly higher than the international benchmark of 3 months of imports. The international reserves level is 1.2 times the short-term external debt.

We hold the view that not all short-term external debt pose an immediate claim on reserves given the external assets and export earnings of debt holders. It is also noted that more than two-thirds of the short-term external debt is accounted for by the banking sector, largely in the form of interbank borrowing and non-resident deposits. The debt liabilities are partly covered by the banks’ corresponding external assets.

The Malaysian banking sector remains resilient due to sound capital ratios, solid liquidity and low credit risks. The commercial banking sector is well-positioned to weather various challenges given the system’s strong regulatory framework.
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