In line with many central banks globally, Bank Negara Malaysia’s move on 16 October 2008 to guarantee deposits of all financial institutions until December 2010 is timely.
“While our banking sector still has strong fundamentals and does not need support like some other banking systems, this decisive measure is clearly a much welcomed confidence booster,” says Promod Dass, RAM Ratings’ Head of Financial Institution Ratings. This measure is purely pre-emptive in nature as the banking system is flushed with liquidity and is well-capitalised.
“This recent Bank Negara Malaysia action, however does not change the financial institutions’ ratings in RAM Ratings’ portfolio, which reflect a particular financial institution’s unique credit fundamentals,” he adds.
RAM Ratings, however, cautions that this medium term action which was also observed internationally by several central banks, while relevant and needed to restore global financial stability, should not be taken as a carte blanche by management teams to lower their risk management standards and throw care to the wind in making long-term decisions, which, if not checked, would create a serious moral hazard in the various banking systems.
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