With greater transparency, banks will be more discerning in their lending decisions. I also wish to reiterate my message at the recent Annual Conference with Financial Institutions that the Tier-1 status will not be accorded to a banking institution based solely on its capital strength. In evaluating whether a particular institution deserves to be granted Tier-1 status, Bank Negara will also consider other equally important aspects pertaining to that banking institution. Indeed, asset quality, level of management expertise and capability, productive use of resources to generate earnings and the prudent management of the liquidity position are part and parcel of the policy to strengthen the capital base of banking institutions. Banking institutions should not regard that a larger capital base must be accompanied by growth in loans in order to maintain the level of return on capital which shareholders and the market may expect.
Banking is a long haul business.
Most important is the soundness of the banking institution. There is also the national interest to ensure that credit is channelled to the most productive sectors of the economy, and that standards of good banking practice are not compromised in the drive to achieve loan growth. I would strongly advise banking institutions against relying heavily on the interbank market as a source of funds. Interbank borrowings can never substitute for a long-term stable deposit base. Malaysia has many of the basic elements which enable us to weather this regional currency turbulence.