27 February 2018
On 22 January 2018, Bank Negara Malaysia (“BNM”) issued a policy document on credit risk for banking institutions, insurers, takaful operators and financial holding companies. The revised standard is a culmination of BNM’s comprehensive review of the existing regulatory framework on “Best Practices for the Management of Credit Risk”. BNM’s announcement of the launch of the policy document explains that the revised standard aims to further elevate credit risk management practices across the industry, taking into account developments in the size and diversity of product offerings, greater internationalisation of the financial system and the growing role of domestic capital markets as an alternative source of financing.
Key changes to the revised policy document include:
- Clarity on governance expectations in respect of the involvement of the board and the risk management function in credit decision-making, management of problem credits and the independent credit review function;
- Expanded requirements on the management of exceptional credits and concentration risk;
- Strengthened requirements on credit risk measurement to promote greater sophistication in loss estimation approaches; and
- New expectations for the management of country risk, transfer risk and group-wide credit risk oversight.
The policy document will take effect beginning 1 July 2018 for banks on an entity basis and 1 July 2019 on a consolidated basis. Insurers and takaful operators are required to comply with the standard on 1 January 2021 on both entity and consolidated basis.