BNM to engage with banks on recovery plan submissions

Bank Negara Malaysia (BNM) will engage with banks in the coming months regarding the first batch of submissions of their recovery plans, Deputy Governor Jessica Chew said.

She said the key focus of the meetings is to ensure that the banking industry in Malaysia is sufficiently robust and that the stress scenarios developed by banks are sufficiently severe and diverse.

“This, in turn, aims to reduce the likelihood of a financial institution having to enter into resolution,” Chew said in her opening address at the National Resolution Symposium (NRS) 2023 today.

She said that BNM must also ensure that the strategic analyses provided by the banks are sufficiently robust and that the stress scenarios developed are appropriately severe and diverse.

“A well-executed recovery plan should significantly decrease the chances of a financial institution needing resolution,” she said.

Chew further explained that BNM’s approach leveraged the same information contained within the recovery plans to provide critical input for the development of credible resolution strategies.

“This aligns with our expectation that banks should manage risks in proportion to their ability to recover from severe and exceptional stress events that could threaten their viability.

“If the planning process indicates that recovery capacity is unlikely to be met, banks will be expected to consider business and operational measures to reduce their vulnerability to shocks,” she said.

Chew believes that this method might entail altering the business direction of some banks.

“We believe that this approach is consistent with the primary responsibility of banks, rather than resolution authorities, to ensure that they can withstand periods of severe stress,” she added.

- Bernama