Fresh off the press, the Concept Paper on Liquidity Coverage Ratio is issued by BNM today.
Off-hand, there has been a lot of concerns with the issue of treatment of deposits, especially in the light of the treatment of Mudharaba Deposits as Investment Accounts, and the Wadiah with limitations on Hibah and perhaps the reclassification as Qardh. Each Bank had decided on a course of action with regards to how deposits are being treated and managed. There is expected to be shifts in the deposit structure of each Bank and worries that with the new changes, there will be deposit flight from the Islamic banking financing system.
The Liquidity Coverage Ratio (LCR) Concept Paper talks about the Bank having enough liquidity to withstand liquidity stress scenarios by maintaining sufficient High Quality Liquid Asset (HQLA).
The LCR is part of BNM’s effort to meet Basel III initiative to ensure high quality capital and liquidity strength of Banks. This is part of the framework that includes Net Stable Funding Ratio (NSFR) and Liquidity Risk Management Standards.
The areas covered under the CP includes:
- Application of the LCR by Banks
- Implementation timeline and transition requirements
- Definition of eligible stock of HQLA
- Treatment of cash-flow items for LCR computation.
Bankers will really need to digest this document to fully appreciate the intention of the paper. We have until end of November to come back with feedback on the issues on implementation of the LCR.
The effective date of this CP is 1 June 2015.