Penang Properties News

PETALING JAYA: Malaysia at this juncture is not under pressure to raise its deposit insurance limits or provide blanket protection to deposits in view of the global financial meltdown.

Aseambankers chief economist of equity markets Suhaimi Illias said unlike other jurisdictions, the confidence level in the banking system was high as it was resilient and flush with liquidity with minimum exposure to subprime mortgages.

“I really don’t forsee our banking system in trouble and the necessity to review the existing deposit insurance system, as we are relatively insulated from the contagion effect of the global credit crunch,” he told StarBiz.

“Even if the financial crisis continues, I believe we can still hold up due to our well-capitalised banking system and will not be pressured to review the deposit insurance scheme or provide blanket protection compared with Singapore and Hong Kong, as these countries are regional financial centres.”

At present, more than 90% of the total assets of banks and insurance companies in the country are in ringgit-denominated assets.

An analyst with a bank-backed brokerage said if Singapore provided blanket protection for its depositors, that would certainly raise the perception that Singapore and Malaysian banks were at risk, although Malaysian banks do not invest in US securities substantially and Singapore banks have very limited exposure (less then 2%).

However, he said, if fears continued and, to prevent bank runs, blanket protection might be extended for a limited period in Singapore.

“If that situation arises, there will certainly be pressures for the Malaysian banking industry to react likewise or raise the limit on the currently low deposit insurance level.

“Whether the local banking industry will react accordingly is another thing because the risk domestically is not really heightened.

“In which case, there can be potential shifts in bank deposits from Malaysia to Singapore but this is quite remote and will only occur if the crisis continues and not in the immediate term,’’ he added.

The banking system in Malaysia, and in other parts of Asia, was far more robust than when the Asian financial crisis occured some 11 years ago, said Pacific Mutual Fund Bhd CEO Michael Auyeung.

He said most Asian banks had limited exposure to the toxic financial derivatives of the West, and writedowns were hardly a threat that would lead to any form of significant capital calls.

“However, should weaker central banks in the region start the process of raising depository protection, then other countries such as Malaysia may have no choice but to follow suit,’’ Auyeung noted.

He said if Malaysia indeed went for blanket depository protection, it would be one of the last in the region to do so and, even if it did, Pacific Mutual did not foresee deposits flowing into the banking system.

Such a protection might only be provided by the central bank to avoid panic in neighbouring markets and to stem any potential outflows, Auyeung added.

Recently, the US government had temporarily increased the deposit insurance limit for regular deposit accounts from US$100,000 to US$250,000 until Dec 31, 2009, after which the limit would be reduced to US$100,000.

The European Union followed suit by raising its deposit insurance limits while Ireland, Denmark and Greece went one step further by offering blanket guarantees for deposits. Australia and New Zealand, which do not have deposit insurance schemes, have also agreed to provide blanket guarantees for deposits.

It is understood that Bank Negara is studying the matter and following the developments worldwide closely, but has no intention to provide blanket protection at this time.

Perbadanan Insurans Deposit Malaysia CEO Jean Pierre Sabourin reiterated it had no intention to raise the limit for deposit insurance as the protection of up to RM60,000 per depositor per member bank was substantial enough to protect depositors.

“In safeguarding depositors’ funds, the first line of defence is for banks to be well capitalised. In this regard, our banks are very well capitalised, robust, resilient and profitable.

“The second line of defence is for banks to be well regulated and supervised. Our banks are certainly well regulated and supervised by Bank Negara.

“The third line of defence is the existence of an effective government deposit insurance system that can meet its obligations to depositors,’’ he noted.

The national deposit insurer, he added, would monitor the coverage limit to ensure that the majority of deposits would continue to be protected. Total outstanding deposits in the banking system stood at RM933.1bil as at end-August.

By Daljit Dhesi of The Star Newspaper