Saturday August 11, 2012
Ratings agency expects Malaysian banks to meet Basel III capital rules
PETALING JAYA: Fitch Ratings expects major Malaysian banks to be able to meet the Basel III capital rules due to their satisfactory core capitalisation.
In its report yesterday, the ratings agency said the gradual transition to higher capital standards from Basel II would over time enhance the resilience of the domestic banking sector as a whole.
“Compliance does not appear to be a major challenge. Fitch estimates the consolidated common equity Tier 1 (CET1) capital ratio of the eight Malaysian banks to range between 8% and 11% at end-March 2012 under the Basel III guidelines, which are currently in the consultative stage,” it said.
Fitch said the average CET1 ratio was estimated to be 8.7%, slightly lower than 9.3% under the present Basel II framework.
It added the estimated capital ratios were higher than the effective 7% floor for CET1 capital ratio, which comprised the 4.5% regulatory minimum and 2.5% in the form of capital conservation buffer.
“Fitch believes that a CET1 capital ratio in the low double-digits is likely to become the norm for major Malaysian banks.
“The regulator can at times impose an additional requirement in the form of a countercyclical capital buffer of up to 2.5%,” it said.
Basel III rules are more punitive on bank-level (as opposed to consolidated-level) capital ratios, due to the presence of unconsolidated subsidiaries, and hence the potential deduction burden on CET1 capital.
Fitch estimates the CET1 capital ratio of a handful of banks falling within 6%-7% under Basel III.