Prudential Financial Policy Department
In an effort to enhance liquidity management in banking institutions, Bank Negara Malaysia (the Bank) introduced the Liquidity Framework in 1998 to replace the liquid asset ratio requirement.
The Framework sets out to:-
create awareness among banking institutions of their funding structure and their ability to handle short to medium-term liquidity problems;
adopt a more efficient and on going liquidity measurement and management for banking institutions; and
provide the Bank with a better means of assessing the present and future liquidity position of banking institutions.
The Framework aims to address both institutional and market liquidity concerns:
The ability of banking institutions to meet all maturing obligations is assessed through the projection of the banking institutions’ inflows; and
The Framework gauges the ability of banking institutions to access funding from the market particularly under stress scenarios.
The Liquidity Framework is applicable to all banking institutions licensed under the Banking and Financial Institutions Act 1989 (BAFIA), namely commercial banks, finance companies and investment banks/merchant banks.