KUALA LUMPUR – Bank Negara Malaysia plans to introduce the Net Stable Funding
Ratio (NSFR), a measure that will complement the Liquidity Coverage Ratio (LCR)
under the Basel III liquidity reforms.
Similar to the Liquidity Framework (LF) that was introduced in 1998, the
NSFR provides a one-year projection of maturity profiles for both assets and
liabilities under business-as-usual conditions.
“The NSFR improves on the LF by estimating the amount of stable funding that
a bank requires to fund various assets and off-balance sheet items.
“(This) depends on factors such as asset quality, transaction tenor,
counterparty type, encumbrance period and the likelihood of honouring
non-contractual obligations,” the central bank said in its Financial Stability
and Payment Systems Report 206 released today.
The LCR standard, which was enforced in Malaysia since June 2015, was
built on the conceptual foundations of the LF where it considers a broader range
of factors that can affect funding stability compared to the LF.
The measure ensures that banks have sufficient high-quality liquid assets
that can be used to satisfy liquidity needs in a 30-day severe stress
Bank Negara said as markets become more familiar with its underpinning
concepts, the LCR will eventually become an important liquidity indicator.
“As understanding and familiarity with improved liquidity risk indicators
such as the LCR and NSFR increases, these should provide a richer framework for
conveying information on liquidity risks.
“The bank will continuously enhance the data that it publishes on a regular
basis to take these developments into account, with the aim to better inform
markets,” it added.