KUALA LUMPUR May 4 Banks in Malaysia will no
longer have to maintain a reserve fund, the central bank said on
Wednesday, a move that analysts say recognises the banking
sector's improved capital buffers and potentially allows them to
pay out more dividends.
The relaxation of rules by Bank Negara Malaysia, which still
requires banks to continue to maintain a minimum amount of
capital, became effective from May 3.
Previously, the central bank had required banks to maintain
a percentage of net profit as reserves, which could not be used
to declare dividends.
While that is no longer the case, central bank approval
would still be needed to payout dividends from reserve funds.
In a statement on its website on Wednesday, BNM said it
"expects banking institutions to exercise prudence before
submitting an application to distribute the reserves as
BNM said it removed the reserve fund requirement due to the
implementation of the capital conservation buffer as part of the
global "Basel III" rules enforced by regulators after the 2008
financial crisis aimed at bolstering the defences of banks
AmInvestment Bank analyst Kelvin Ong said the central bank's
move to remove the reserve fund requirement was a mild positive
for banks as it showed the sector was well capitalised.
"Banks can be more flexible on dividend declaration now but
they will still be prudent as it has to go through BNM for
approval," Ong said.
BNM reiterated on Wednesday that domestic banks should
maintain 2 billion ringgit ($462.64 million) as minimum capital
funds. Islamic banks and locally incorporated foreign banks are
required to maintain 300 million ringgit, while stand alone
investment banks should maintain 500 million ringgit.
Public Investment Bank analyst Ching Weng Jin said the move
does not necessarily mean banks will begin to declare a flurry
of dividends as they may opt to adopt a wait-and-see stance.
"While economic conditions are gradually improving,
challenges still remain and banks may decide to maintain
additional buffers to potentially counter any eventualities," he
said in a research note.
Banking stocks were lower on the local stock exchange due to
weaker broader market sentiment, the analysts said.
Shares of Malayan Banking Bhd (Maybank),
Malaysia's largest lender by assets, were down about 4 percent
on Thursday. CIMB Group Holdings Bhd, the second
biggest bank, was down 1 percent.
($1 = 4.3230 ringgit)
(Reporting by A. Ananthalakshmi; Editing by Shri Navaratnam)