Malaysian banks boast ample capital despite higher buffer requirement

The central bank has currently set the countercyclical buffer at 0%.

Malaysian banks are already more than adequately capitalised, with all having CET1 ratios exceeding 10.5% even if the buffer for “too big to fail” banks are accounted for, Maybank Kim Eng reported.

Basel III requires a minimum common equity and conservation buffer of 7% and countries must add on a countercyclical buffer (CCB) and a D-SIB buffer, to be set by individual banks. The CCB acts against cyclical systemic risks and ranges from 0-2.5%.

“Bank Negara Malaysia has currently set the CCB at 0%. Assuming a maximum CCB of 2.5%, Maybank and CIMB would have to set aside a minimum CET1 ratio of 10.5%,” analyst Desmond Ch’ng wrote.

The central bank has indicated domestic systematically important banks (D-SIBS) as Maybank, CIMB and Public Bank, and has required these banks to allocate a Higher Loss Absorbency (HLA) requirement of 0.5% for Public Bank and 1% for Maybank and CIMB effective 31 January 2021.

There is also a possibility of higher dividend payouts as Malaysian banks have already hit their minimum capital requirements, with RHB Bank Berhad having room to increase payout.

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