KUALA LUMPUR: The Silicon Valley Bank (SVB) crisis in the United States will not affect Malaysia’s banking industry as it remains confident and is well positioned to avoid a similar situation, as well as there is no direct exposure to the stricken lender, according to AmBank Group and Credit Guarantee Corporation Malaysia Bhd (CGC).
AmBank Group CEO Datuk Sulaiman Mohd Tahir said what happened in the US is unlikely to occur in Malaysia due to the country’s well-regulated banking system and diversified customer base, which shields it from the fallout of the SVB crisis.
“The US is different from Malaysia because their interest rates increased too fast. The problem is that many banks invest in long-term bonds, which have lower rates when invested prior to rate hikes. As a result, when rates increase, mark-to-market losses occur. This causes book losses, which reduces their capital and leads to problems.
“In the case of SVB, over half of their assets are in bonds, and when they were marked to market, the bank faced risk capital issues. This caused people to panic and withdraw their money. SVB is a small community bank in the US, and regulations are not as strict as for larger banks, which is similar in Malaysia. Therefore, regulators in the US are applying the same controls for smaller banks, hoping to stabilise the situation,” he told reporters after its SME Portfolio Guarantee Scheme collaboration with CGC today.
Sulaiman said: “But Malaysia is very much controlled in terms of how much we can do in the bond books. And our interest rates do not increase as aggressively as in the US, which causes a big gap. We also have mark-to-market losses but it is not as big. In the case of AmBank, the duration of our bonds is not long, on average only two to three years.”
He said that for Malaysian banks, the impact is small. Additionally, almost all Malaysian banks are regulated in terms of concentration and exposure, even for deposits. Therefore, it is not a systemic issue in Malaysia.”
He said inflation in Malaysia is manageable, “so we do not have to increase rates as aggressively because we have a lot of subsidies. But the US has to increase rates fast because it needs to control inflation”.
“In Malaysia, it’s very unlikely to happen because there’s nothing systemic ... I don’t see anywhere when you look at all the bank books in terms of their portfolio because it’s very much regulated, it’s very minimal compared to the entire book. You don’t get as big as 57% (SVB investment portfolio in bonds compared to its total asset),” he said.
He added that in terms of deposits, customers should be comfortable because the balance sheets of the banks in Malaysia (excluding digital banks) are quite strong.
“Local banks are matured, went through all the regulation and control, hence pretty solid. The impact is there due to the investors. They might think it is the same way in Malaysia, but it is only a knee-jerk reaction, they will come back. In addition, we have no exposure to SVB bank, it is a small bank in the US,” he said.
CGC president & CEO Datuk Mohd Zamree Mohd Ishak concurred with Sulaiman, saying the main factor is mismatch between asset and liability causing mark-to-market losses.
“In addition, the diversification of customers’ deposit base is not as large. SVB depositors are the venture capital, tech companies and those holding cryptocurrencies and these are the sectors having problems now so they need to withdraw their money. But when they go to the bank, the money is not there.
“But despite only guaranteeing up to US$250,000, the US authorities now have said that the government is going to guarantee all the money in order to restore confidence and avoid the impact of spreading outside of the country. So there is no systemic risk but we still have to monitor closely.”
On Friday, SVB collapsed spectacularly, making it the most significant bank failure in the United States since the financial crisis of 2008. This shocking development has put markets and financial regulators across the globe on edge, as US bank customers are seeking refuge in larger, more secure banks due to mounting concerns over the health of smaller financial institutions and the possibility of additional failures in the industry.
