TMR: KPMG says M’sian markets lack depth, liquidity

by Tanu Pandey

PETALING JAYA: Malaysian financial markets may not be armed with enough depth with a dearth of eligible liquidity instruments like short-term bonds or sukuk being traded, a situation that needs to be addressed as the country moves towards the Basel III regulation.

“If there is not enough liquidity, that is a concern. In the event of a crisis there may not be enough liquidity in the market,” KPMG head of financial services and advisory Andrew Tinney said yesterday in Kuala Lumpur.

Tinney was in Malaysia to launch a survey by KPMG and the Institute of Bankers Malaysia on the readiness of Malaysian financial institutions to implement Basel III.

His comments came as a surprise at a time when Malaysian market regulators and bankers have been talking about the country’s deep markets and ample liquidity.

When asked further, Tinney said: “The markets may be deep enough under the rules but may not be so as required under the Basel III. In fact, there is a lot of uncertainty around it (optimum level). We would rather raise a flag early that, this could be a possible risk.

The Islamic bond market in the country is also not deep enough with low trading of the instruments in the secondary market, he added.

“The country needs depth of the ringgit market in the shortterm instruments,” he said.

According to the Malaysian Rating Corp Bhd, the issuance of the Malaysian Government Securities (MGS) and Government Investment Issue (GII) this year is estimated to be between RM85 billion and RM90 billion.

In 2013, the government raised a total of RM92.5 billion from 27 debt auctions, out of which about 56% or RM51.5 billion were offered via the MGS market while the remaining were from the GII market.

Malaysia, along with other nations, are working towards adopting Basel III regulations which promotes more resilient banking system and strengthened global capital and liquidity regulations. The countries have a deadline to adopt the regulations by 2019.

According to the survey by IBBM and KPMG, about twothirds of the respondents from Malaysia have taken a proactive stand on the readiness for Basel III.

Malaysia is working towards adopting Basel III regulations and fortifying its capital base. Bank Negara Malaysia recently sent a circular to banks to set aside a minimum of 1.2% of total loans or collective assessment ratio by end of next year.

[THE MALAYSIAN RESERVE, 27 Feb 2014]