Bank Negara governor Datuk Abdul Rasheed Ghaffour
KUALA LUMPUR: Bank Negara is calling for the extension of recovery and resolution planning to non-members of Malaysia Deposit Insurance Corp or PIDM, in an effort to better prepare the financial sector for potential uncertainties.
Notably, last year PIDM introduced resolution planning requirements for its member banks. Currently, PIDM’s membership includes licensed banks and licensed Islamic banks.
However, non-member institutions such as investment banks, overseas branches of member banks, development financial institutions and cooperative banks fall outside its coverage.
Other non-bank financial intermediaries, including provident and pension funds, co-operative societies, housing credit institutions and building societies, are also not members of PIDM.
Bank Negara governor Datuk Seri Abdul Rasheed Ghaffour emphasised the importance of continuous improvement in recovery planning.
While acknowledging the submission of the first recovery plans by banks last year as a significant milestone, he highlighted that “the end game is not the plan, but rather, everything that goes into ensuring that the plan is credible and works when needed.”
He stressed that ongoing refinement is essential to ensure these plans are practical and executable during a crisis. “There is much work left to be done,” he said during his keynote speech at the National Resolution Symposium 2024 hosted by PIDM yesterday.
On the regulatory front, Abdul Rasheed underscored the importance of liquidity funding during stressful operating conditions.
“We are exploring ways to enhance our liquidity assistance framework by broadening the range of acceptable collateral during stressed periods and improving the time taken to value such collateral,” he explained.
He also emphasised the need for resolution planning for non-member institutions of PIDM, such as investment banks, noting: “It is perhaps timely for us to reflect on the applicability of the resolution framework for non-member institutions.”
“This would ensure that all institutions, regardless of membership status, are adequately prepared to manage potential crises.”
Additionally, Abdul Rasheed highlighted the importance of addressing the unique challenges posed by Malaysia’s dual financial system, which encompasses both conventional and Islamic finance.
“The fast increasing and significant scale of Islamic banking and takaful in Malaysia requires recovery and resolution processes to consider syariah requirements.
“Mechanisms such as asset sales, liquidity provisions and restructuring efforts involving Islamic financial institutions will need to integrate syariah considerations,” he said.
Meanwhile, PIDM chairman Datuk Seri Zukri Samat emphasised the importance of translating policies into practical actions.
“Our focus this year is on how we put words into action and translate policies into practices,” he said during the welcoming speech at the symposium, themed “Building Collaborative Resolvability: From Theory to Practise.”
“As we sow the seeds of resolution planning policy, we need to dive into the planting process, remove weeds and adjust as we go, water them with collaborative and effective efforts and patiently watch them grow into positive outcomes.”
Zukri highlighted that “collaborative resolvability” is key to ensuring financial institutions are prepared for resolution, emphasising that this involves building capabilities and removing barriers.
He also noted that resolution planning offers opportunities for financial institutions to create synergies and turn these plans into a strategic asset for their daily operations.
However, he acknowledged that “the challenge ahead is to bridge the gap to ensure that our well-crafted frameworks are not just beautiful concepts, but can become actionable realities that drive resiliency and sustainability of the financial system.”
To prepare for these challenges, Zukri said PIDM is working on a tailor-made roadmap for member institutions. This resolution plan, developed in collaboration with stakeholders, aims to ensure a seamless transfer of assets in the event of failure.
He further explained that this year’s symposium will focus on two critical topics – practical application of resolution planning and mergers and acquisitions or transfer strategy.
Another essential aspect of crisis preparedness, according to Zukri, is effective communication. “Getting crisis communications right is crucial for all organisations particularly in this digital age with the rise of social media which has the capability to transform the dynamics of bank runs, turning them into bank sprints,” he noted.
