Banks and insurers can withstand shocks Thursday March 20, 2014 BANKS and insurance companies in Malaysia are strong enough to withstand future shocks including a sharp contraction in the economy worst than 2009 and a 40% drop in the value of stocks. The stress tests by Bank Negara also included business and consumers credit default scenarios, including loss of up to 30% in household loans that reflect sharp adjustment in property prices. According to Bank Negara, banks and insurers, both at the system and institutional levels, have sufficient earnings and capital buffer to weather extreme macro-economic and financial condition. The central bank’s stress test of the banking system and insurance industry was for the period 2014 to 2016. It included simultaneous shocks on revenue, funding, credit, market and insurance risk exposures, taking into account a series of tail-risk events and downside risks to the global economic outlook. Scenarios assumed for the stress test purposes included disorderly fiscal and monetary policy adjustments in advanced economies, unresolved structural fragility of major banking systems, and more subdued growth in emerging market economies due to domestic structural adjustments, tighter external funding conditions and volatile capital movements. The Bank Negara’s stress test of the banking system under the adverse scenario suggested that the banking system would remain strong, above the minimum regulatory requirement under Basel III. Basel III is a global regulatory standard imposed by the Basel Committee on Banking Supervision which requires banks to hold an increased 4.5% of common equity and 6% of Tier-1 capital of risk-weighted assets. Meanwhile, for the insurance industry, the post-stress capital adequacy ratio similarly remained above the minimum regulatory requirements under the adverse scenario. The central bank said the impact of capitalisation was more pronounced for the general insurance industry due to the impact of shocks applied in relation to higher provisions for motor claims. Life insurers on the other hand were more affected by mark-to-market losses in 2014. thestar.my/Business/Business-News/2014/03/20/Banks-and-insurers-can-withstand-shocks/
Posted on: Thu, 20 Mar 2014 11:27:20 +0000
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