KUCHING: Bank Negara Malaysia (BNM) has issued a concept paper on July 15, 2015 which analysts note, sets out the central bank’s proposals to detail out the computation of weighted average countercyclical capital buffer (CCyB) requirements for
banks.
According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research), proposals from BNM’s earlier discussion paper issued on October 23, 2014 on Capital Adequacy Framework for Financial Holding Companies (Banking Groups) have been incorporated into this concept
paper.
“We understand that for computation of the private sector credit exposure, the financial institution is required to use an ultimate risk basis where possible.
“This means that credit exposure will be based on where the risk ultimately lies and not based on the location where the exposure has been booked in,” MIDF Research said.
In the scenario where the prevailing CCyB rate to be applied to a jurisdiction/country outside Malaysia is more than 2.5 per cent, the research arm noted that the CCyB rate for that jurisdiction will be capped at 2.5 per cent unless otherwise specified by BNM.
“In addition, where the relevant authority in jurisdiction outside Malaysia has yet to announce the CcyB rate, we understand the rate will be deemed as zero per cent for the computation of capital requirements on banks.
“On banks which greater regional exposure, the CCyB required will depend on the extent of which jurisdiction the group has highest credit exposure in and the applicable CCyB rate which will be determined by the authority of that jurisdiction,” it added.
MIDF Research noted that at this juncture, it is still premature to assess the CCyB required on all banking groups until authorities in all relevant jurisdictions outside Malaysia have finalised and announced their CCyB rates as well as until all proposals in the concept paper have been adopted.
The research arm further noted that the highlighted capital requirements with transitional arrangement will be effective for banking institutions on January 1, 2016 while the capital requirements for financial holding company which be effective January 1, 2019.
All in, MIDF Research maintained ‘neutral’ on the sector as it continued to see challenges to banks earnings from slower loan growth, persistent net interest margin (NIM) pressure, market volatility impacting treasury and investment bank (IB) income and lower return on equities (ROEs) reflecting softer market conditions.
There were no changes to the research arm’s calls and target prices for banking stocks except for the revision in its target price for AMMB Holdings Bhd (AMMB).
It noted that following the recent analyst briefing for AMMB, loan growth for the group is expected to remain subdued with a slowdown in consumer loans post goods and services tax (GST) implementation and higher inflation as well as slower momentum in corporate loans.
“Top line growth for AMMB is expected remain unexciting in view of the ongoing derisking of its auto loan book and rebalancing of loan portfolio towards higher quality assets which will impact both loan growth and NIM,” it said.
The research arm maintained its ‘buy’ calls on Hong Leong Bank Bhd, Malayan Banking Bhd and RHB Capital Bhd.
On the other stocks, it was ‘neutral’ on Public Bank Bhd, Affin Holdings Bhd, AMMB, Alliance Financial Group Bhd, CIMB Group Holdings Bhd and BIMB Holdings Bhd.