MFRS 9 to result in comprehensive provisioning methods


KUALA LUMPUR: Perbadanan Insurans Deposit Malaysia (PIDM) expects the Malaysian Financial Reporting Standards 9 (MFRS 9), which was implemented on Jan 1, 2018, to result in comprehensive provisioning methods.

In its annual report 2017, it said MFRS 9 would also result in the issuance of pricing of products which are more reflective of its degree of riskiness, and selective financial assets growth that protects asset quality.

PIDM or Malaysian Deposit Insurance Corporation, said the impact on capital ratios will be supported by ample capital buffers although member banks may likely experience an increase in credit cost from higher provisions.

Recall that the MFRS 9 will have an impact on the banking and insurance industries. It replaced the existing MFRS 139 “Financial Instruments: Recognition and Measurement” and introduced changes in classification and measurement of  financial assets; accounting for changes in own credit risk in financial liabilities; impairment, and hedge accounting.

PIDM said another regulatory development is the implementation of the Basel III Net Stable Funding Ratio (NSFR), where Bank Negara Malaysia has indicated that the earliest date for implementation would be Jan 2, 2019.

“Given their healthy funding positions, member banks are well-positioned to transition into the requirements of the NSFR.

“Lastly, the re-emergence of any form of intense competitive pressures, whether from the asset or funding side, can pose challenges to the member banks’ margins,” it said.

As for the insurance and takaful sector, PIDM said industry players are expected to fully focus on the preparation of the planned regulatory reforms and to strive towards the implementation of the new accounting standards.

“These initiatives are crafted to enhance their financial statements’ comparability and transparency, while the reforms are intended to improve product innovation, affordability and accessibility, strengthen the profitability of insurer members as well as increase the national penetration rate,” it said.

PIDM also said at the same time, these developments are likely to generate a moderate level of market competition and place some pressure on resources.

Spilling over from 2017, the general insurance industry is transitioning into a more liberalised environment, which allows some flexibility in the offering of new motor and fire products at market-based pricing.

“Under the Life Insurance and Family Takaful Framework, the industry players are required to diversify their distribution channels beyond the traditional agency channel and beef up their business strategies to be in line with the new structure of operating cost controls.

“Overall, the positive growth prospects and better operating conditions bode well for member institutions and present opportunities to build buffers. Member institutions will stay resilient, supported by robust risk management practices as well as sound capital and liquidity positions,” it said.

Meanwhile, PIDM chief executive officer Rafiz Azuan Abdullah said a key development in 2017 was the establishment of a policy framework to implement recovery and resolution plans (RRP) for financial institutions in Malaysia, as a key component for an effective resolution regime for Malaysia.

“The RRP initiative is jointly undertaken by PIDM and Bank Negara Malaysia, so as to ensure an integrated approach when implementing RRP in Malaysia.

“An effective resolution regime allows financial institutions to be resolved without severe systemic disruption to the financial system, while protecting public funds,” he added.

Rafiz said PIDM will be carrying out resolution planning pilot exercises for selected pilot banks.

This follows from the first phase of RRP, which involves the recovery planning pilot exercise by Bank Negara for selected pilot banks that was launched in July 2017.

“PIDM will engage with member institutions and financial safety net players throughout the resolution planning process.

“PIDM has enhanced its stakeholder engagement strategy for more effective collaboration among its key stakeholders. Public awareness initiatives will also continue to build better understanding about PIDM, the Deposit Insurance System  and the Takaful and Insurance Benefits Protection System,” he said.

In 2017, PIDM reported total income of RM575.4mil with an operational net surplus of RM463.0 mil, increasing its total funds and reserves to RM3.6bil.