Datasets:

izardy

/

malaysia-bnm-public-notice

like 0

09 Oct 2018

Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 187th Meeting

https://www.bnm.gov.my/-/ruling-of-the-sac-09102018-187th

https://www.bnm.gov.my/documents/20124/761682/SAC+187th+Meeting+Statement+%28Eng%29.pdf, https://www.bnm.gov.my/documents/20124/761682/SAC+187th+Meeting+Statement+%28BM%29.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 187th Meeting Share: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 187th Meeting Release Date: 09 Oct 2018 The Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 187th meeting on 27 August 2018 decided that the application of musyarakah contract between a retakaful operator and takaful operator in managing the expense strain of the latter arising from the implementation of ‘Minimum Allocation Rate’ requirement is permissible, subject to the following conditions: i. The musyarakah capital contribution especially in the form of cash, shall not be treated and accounted as an up-front wakalah fee as such treatment is inconsistent with the nature of a musyarakah contract; ii. The musyarakah capital shall be ring-fenced and shall not commingle with other capital in the shareholders’ fund; and other funds especially the tabarru` fund; iii.Determination of profit and loss from the musyarakah must reflect the actual profit and loss of th e identified portfolio, which must be ring-fenced from other portfolios; and iv. The in-kind musyarakah capital (if any) must be valued in monetary terms at the inception of the musyarakah contract. Please refer attachment for more information.   Keputusan Majlis Penasihat Shariah Majlis Penasihat Shariah (MPS) Bank Negara Malaysia pada mesyuarat ke-187 bertarikh 27 Ogos 2018 telah memutuskan bahawa pengaplikasian kontrak musyarakah antara pengendali takaful dan pengendali takaful semula bagi mengurus beban perbelanjaan pengendali takaful berikutan pelaksanaan  keperluan ‘Kadar Peruntukan Minimum’ dibenarkan, tertakluk kepada syarat-syarat berikut: i. Modal musyarakah terutamanya yang berbentuk wang tidak boleh dianggap sebagai fi wakalah pendahuluan (upfront wakalah fee) kerana ia tidak selari dengan ciri-ciri kontrak musyarakah; ii. Modal musyarakah hendaklah diasingkan (ring-fenced) dan tidak bercampur dengan modal lain dalam dana pemegang saham dan dana-dana lain terutamanya dana tabarru`; iii. Penentuan keuntungan dan kerugian musyarakah mestilah menggambarkan keuntungan dan kerugian sebenar bagi portfolio tertentu, yang perlu diasingkan (ring-fenced) daripada portfolio-portfolio yang lain; dan iv. Modal musyarakah yang berbentuk bukan kewangan (sekiranya ada) hendaklah dinilai berdasarkan nilaian wang ketika pemeteraian kontrak musyarakah. Sila lihat lampiran di sini  untuk maklumat lanjut. © 2024 Bank Negara Malaysia. All rights reserved.

Mesyuarat MPS ke-187 187th SAC Meeting 2018 1 The 187th Meeting of the Shariah Advisory Council (SAC) of Bank Negara Malaysia The SAC of Bank Negara Malaysia at its 187th meeting on 27 August 2018 ruled the following: Application of Musyarakah Contract in Managing Expense Strain of a Takaful Operator SAC Ruling The SAC decided that the application of musyarakah contract between a retakaful operator and takaful operator in managing the expense strain of the latter arising from the implementation of ‘Minimum Allocation Rate’ requirement is permissible, subject to the following conditions: i. The musyarakah capital contribution especially in the form of cash, shall not be treated and accounted as an up-front wakalah fee as such treatment is inconsistent with the nature of a musyarakah contract; ii. The musyarakah capital shall be ring-fenced and shall not commingle with other capital in the shareholders’ fund; and other funds especially the tabarru` fund; iii. Determination of profit and loss from the musyarakah must reflect the actual profit and loss of the identified portfolio, which must be ring-fenced from other portfolios; and iv. The in-kind musyarakah capital (if any) must be valued in monetary terms at the inception of the musyarakah contract. Background  There was a proposal for a takaful operator (TO) to enter into musyarakah contract with a retakaful operator (RTO) which enables the TO to manage the expense strain of a new business portfolio in a more effective manner.  This arrangement is one of the strategies to manage pressures on the shareholders’ fund of TOs arising from the requirement of ‘Minimum Allocation Rate’ (MAR)1 which will come into effect on 1 January 2019. The MAR requirement specifies the minimum proportion of contribution paid by takaful participants that must be retained in the unit fund for investment-linked products.  Both TO and RTO will enter into a musyarakah contract to jointly bear the expenses of an identified takaful portfolio during a specified period of time. Shariah Issue  Is the proposed musyarakah structure Shariah compliant? Illustration of musyarakah structure between Takaful Operator and Retakaful Operator 1 Life Insurance and Family Takaful Framework, issued on 23 November 2015. 187th SAC Meeting 2018 2 Key Highlights of the SAC Discussion Method for calculating and distributing profit and loss under a musyarakah arrangement  The profit calculation is based on the amount in excess of the initial musyarakah capital. The profit and loss of musyarakah contract will be determined based on the distribution of surplus and deficit of the portfolio under musyarakah.  The source of profit for musyarakah is from the net cash-flow based on the following calculation:  Net cash-flow = [Wakalah fee + certificate charge + tabarru` fund’s surplus] minus (-) [Commission for agent + management expenses]  Profit and loss distribution to musyarakah’s partners is proportionate to the capital contributions of respective partners. Justifications for profit distribution to the RTO (one of the partners)  The RTO is entitled to receive the profit on the basis of its capital contribution although it is not actively involved in the takaful business of the portfolio under musyarakah. Ring fencing of takaful portfolio under musyarakah  The portfolio under musyarakah will be placed in a dedicated tabarru` fund that is managed separately from the tabarru` fund of other takaful portfolios.  The takaful portfolio under musyarakah will be fully ring-fenced and recorded separately from accounting perspectives. In this regard, there is no commingling and cross-subsidisation between the tabarru` fund under the musyarakah and other tabarru` funds. Application of qard in the event that the tabarru` fund under musyarakah experiences deficit  The obligation to provide qard to the tabarru` fund in the event of a deficit remains with the TO, in accordance to the ‘Guidelines on Takaful Operational Framework’ issued by Bank Negara Malaysia.  However, the RTO may agree to provide qard to the tabarru` fund based on musyarakah’s terms and conditions. The provision of qard is not considered as an additional injection of musyarakah capital. Permissibility for TO (as agent) to enter into musyarakah contract with RTO without specific consent from the takaful participant (as muwakkil)  The SAC is of the view that there is no Shariah prohibition for the TO to enter into a musyarakah contract with the RTO without the specific consent from the takaful participants.  This is premised on the fact that the musyarakah contract is not intended to transfer the wakalah’s mandate (between TO and takaful participant) to the RTO. It is a separate contract to raise capital/fund from the RTO. Treatment of musyarakah capital from the RTO as wakalah fee  There was a proposal from the TO for the RTO’s musyarakah capital contribution to be treated as an upfront wakalah fee for the purpose of accounting treatment.  The SAC viewed that the musyarakah capital contributed by the RTO cannot be treated as wakalah fee since the wakalah contract only involves the participants and the TO. The RTO acts as a partner under the musyarakah contract and not as a muwakkil (principal) in the proposed musyarakah structure.  The SAC also viewed that the musyarakah capital fund must be ring-fenced and must not commingle with other funds especially the tabarru` fund. This is to attain more clarity in terms of the function and obligation of each fund. 187th SAC Meeting 2018 3 Basis of Ruling  There is no Shariah prohibition in the proposed musyarakah structure. The structure is also in accordance to the Shariah requirements as specified in the Policy Document on Musyarakah and Policy Document on Wakalah.  The proposed methodology for profit and loss sharing is also in line with the Shariah principles of musyarakah contract as seen below: الربح على ما شرطا والوضيعة على قدر المالين “Profit (of musyarakah) is based on what is agreed by both contracting parties and the loss is proportionate to their respective capital contributions” 2  The ring-fencing of the musyarakah capital fund from other funds especially the tabarru` fund; and the ring-fencing of the portfolio under the musyarakah from other portfolios are aimed at achieving greater clarity in terms of the function and obligation of each fund/portfolio. Implication of SAC Ruling  The proposed musyarakah structure can be one of the permissible methods to manage expense strain of a takaful operator that cannot be addressed under the existing retakaful arrangement; and at the same time fulfil the objectives of MAR. This ruling is immediately effective. However, relevant institution applying this concept would also require to observe the Bank’s policy. 2 Ibnu Nujaym, Al-Bahr al-Ra’iq Syarh Kanz al-Daqa’iq, Dar al-Kitab al-Islami, vol. 5, page. 188. Mesyuarat MPS ke-187 Mesyuarat MPS ke-187 2018 1 Mesyuarat Majlis Penasihat Shariah (MPS) Bank Negara Malaysia Ke-187 MPS Bank Negara Malaysia pada mesyuarat ke-187 bertarikh 27 Ogos 2018 telah memutuskan perkara berikut: Aplikasi Kontrak Musyarakah bagi Mengurus Beban Perbelanjaan Pengendali Takaful Keputusan MPS memutuskan bahawa pengaplikasian kontrak musyarakah antara pengendali takaful dan pengendali takaful semula bagi mengurus beban perbelanjaan pengendali takaful berikutan pelaksanaan keperluan ‘Kadar Peruntukan Minimum’ dibenarkan, tertakluk kepada syarat-syarat berikut: i. Modal musyarakah terutamanya yang berbentuk wang tidak boleh dianggap sebagai fi wakalah pendahuluan (upfront wakalah fee) kerana ia tidak selari dengan ciri-ciri kontrak musyarakah; ii. Modal musyarakah hendaklah diasingkan (ring-fenced) dan tidak bercampur dengan modal lain dalam dana pemegang saham dan dana-dana lain terutamanya dana tabarru`; iii. Penentuan keuntungan dan kerugian musyarakah mestilah menggambarkan keuntungan dan kerugian sebenar bagi portfolio tertentu, yang perlu diasingkan (ring-fenced) daripada portfolio- portfolio yang lain; dan iv. Modal musyarakah yang berbentuk bukan kewangan (sekiranya ada) hendaklah dinilai berdasarkan nilaian wang ketika pemeteraian kontrak musyarakah. Latar Belakang  Terdapat cadangan oleh pengendali takaful untuk memeterai kontrak musyarakah dengan pengendali takaful semula bagi membolehkan pengendali takaful mengurus beban perbelanjaan (expense strain) berkaitan perniagaan baharu takaful dengan lebih efektif.  Pengaturan ini merupakan salah satu strategi bagi mengurus tekanan ke atas dana pemegang saham pengendali takaful, berikutan keperluan ‘Kadar Peruntukan Minimum’ (Minimum Allocation Rate, MAR)1 yang berkuatkuasa pada 1 Januari 2019. Keperluan MAR menetapkan kadar peruntukan minimum sumbangan peserta takaful yang perlu dikekalkan dalam dana unit bagi produk berkaitan pelaburan (investment- linked product).  Kedua-dua pengendali takaful dan takaful semula akan memasuki kontrak musyarakah bagi menanggung perbelanjaan portfolio tertentu secara bersama dalam tempoh waktu tertentu. Isu Syariah  Adakah struktur musyarakah yang dicadangkan patuh Syariah? Ilustrasi struktur musyarakah antara pengendali takaful dan pengendali takaful semula 1 Rangka Kerja Insurans Hayat dan Takaful Keluarga (Life Insurance and Family Takaful Framework), diterbitkan pada 23 November 2015. Mesyuarat MPS ke-187 2018 2 Isu Utama Perbincangan MPS Kaedah pengiraan dan pembahagian keuntungan dan kerugian bagi musyarakah  Pengiraan keuntungan adalah berdasarkan nilai yang melebihi modal musyarakah. Keuntungan dan kerugian kontrak musyarakah akan ditentukan berdasarkan pengagihan lebihan dan defisit bagi portfolio di bawah musyarakah.  Sumber keuntungan bagi musyarakah adalah hasil daripada aliran tunai bersih berdasarkan pengiraan seperti berikut:  Aliran tunai bersih = [Fi wakalah + caj sijil + lebihan dana tabarru`] tolak (-) [Komisen untuk ejen + perbelanjaan pengurusan]  Pembahagian keuntungan dan kerugian bagi rakan-rakan kongsi dalam musyarakah adalah berkadaran (proportionate) dengan sumbangan modal masing-masing. Justikasi pengagihan keuntungan kepada pihak pengendali takaful semula (salah satu rakan kongsi)  Pengendali takaful semula berhak untuk menerima keuntungan atas dasar sumbangan modal (harta) yang diberikan meskipun pengendali takaful semula tidak terlibat secara aktif dalam perniagaan takaful bagi portfolio di bawah musyarakah. Kaedah pengasingan portfolio takaful di bawah musyarakah  Portfolio takaful di bawah musyarakah akan diletakkan dalam dana tabarru` yang diuruskan secara berasingan daripada dana tabarru` bagi portfolio-portfolio takaful yang lain.  Portfolio takaful di bawah musyarakah akan diasingkan (ring-fenced) secara sepenuhnya dan direkodkan secara berasingan daripada perspektif perakaunan. Dalam hal ini, tiada percampuran dan subsidi bersilang antara dana tabarru` di bawah musyarakah dengan dana-dana tabarru` yang lain. Pelaksanaan qard apabila dana tabarru` di bawah musyarakah mengalami defisit  Obligasi untuk memberikan qard kepada dana tabarru` sekiranya berlaku defisit masih di bawah tanggungjawab pengendali takaful, selaras dengan ‘Garis Panduan Rangka Kerja Operasi Takaful’ yang diterbitkan oleh Bank Negara Malaysia (BNM).  Di samping itu, pihak pengendali takaful semula juga boleh bersetuju untuk memberikan qard kepada dana tabarru’ berdasarkan terma perjanjian musyarakah. Pemberian qard ini tidak dianggap sebagai suntikan modal tambahan musyarakah. Keharusan pihak pengendali takaful (sebagai wakil) memeterai kontrak musyarakah dengan pengendali takaful semula walaupun tanpa keizinan khusus daripada peserta takaful (sebagai muwakkil)  MPS berpandangan bahawa tiada halangan Syarak bagi pengendali takaful memeterai kontrak musyarakah dengan pengendali takaful semula walaupun tanpa keizinan khusus daripada peserta takaful.  Ini adalah kerana kontrak musyarakah tersebut bukanlah dimeterai untuk memindahkan mandat wakalah (antara pengendali takaful dan peserta takaful) kepada pengendali takaful semula, tetapi merupakan kontrak yang berasingan bagi mendapatkan modal/ dana daripada pengendali takaful semula. Kemungkinan modal musyarakah daripada pengendali takaful semula dianggap sebagai fi wakalah  Terdapat cadangan daripada pengendali takaful supaya modal musyarakah yang disalurkan oleh pengendali takaful semula dianggap sebagai fi wakalah pendahuluan bagi menyelaraskan pelayanan dari sudut perakaunan.  MPS berpandangan bahawa modal musyarakah yang disalurkan oleh pengendali takaful semula tidak Mesyuarat MPS ke-187 2018 3 boleh dianggap sebagai fi wakalah. Ini kerana, kontrak wakalah hanya berlaku antara peserta takaful dan pengendali takaful. Manakala pengendali takaful semula dalam struktur cadangan musyarakah ini adalah rakan kongsi di bawah kontrak musyarakah dan bukannya muwakkil (prinsipal).  MPS juga berpandangan bahawa dana modal musyarakah hendaklah diasingkan (ring-fenced) dan tidak bercampur dengan dana-dana lain terutamanya dana tabarru`. Ia bertujuan memberi lebih kejelasan terhadap fungsi dan obligasi atau tanggungjawab bagi setiap dana. Asas Pertimbangan  Tiada halangan Syarak dalam struktur model musyarakah yang dicadangkan. Ia juga selari dengan keperluan-keperluan Syariah khususnya dalam Dokumen Polisi Musyarakah dan Dokumen Polisi Wakalah.  Kaedah perkongsian keuntungan dan kerugian yang dicadangkan juga selari dengan prinsip Syariah dalam kontrak musyarakah seperti berikut: الربح على ما شرطا والوضيعة على قدر المالين “Keuntungan (musyarakah) adalah berdasarkan apa yang disyaratkan oleh kedua-dua pihak berkontrak dan kerugian adalah berdasarkan sumbangan modal masing-masing” 2  Pengasingan dana modal musyarakah daripada dana-dana lain terutamanya dana tabarru`; dan pengasingan portfolio takaful di bawah musyarakah daripada portfolio-portfolio yang lain adalah bertujuan memberi lebih kejelasan terhadap fungsi dan obligasi atau tanggungjawab bagi setiap dana/ portfolio. Implikasi Keputusan MPS  Struktur musyarakah yang dicadangkan ini boleh dijadikan sebagai salah satu kaedah yang dibenarkan Syarak untuk mengurus beban perbelanjaan pengendali takaful yang tidak boleh ditangani melalui kontrak takaful semula yang sedia ada; dan dalam masa yang sama dapat mencapai objektif dasar MAR. Keputusan ini berkuatkuasa serta-merta. Walau bagaimanapun, institusi berkaitan yang mengaplikasikan konsep ini perlu mematuhi polisi BNM. 2 Ibnu Nujaym, Al-Bahr al-Ra’iq Syarh Kanz al-Daqa’iq, Dar al-Kitab al-Islami, j. 5, h. 188.

Public Notice

03 Oct 2018

Guidance Documents on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance

https://www.bnm.gov.my/-/guidance-value-based-intermediation-03102018

https://www.bnm.gov.my/documents/20124/761682/Implementation+Guide+for+Value-based+Intermediation.pdf

Reading: Guidance Documents on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance Share: Guidance Documents on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance Release Date: 03 Oct 2018 The Bank today issued 3 guidance documents to facilitate the practical adoption of Value-based Intermediation (VBI). The VBI aims to re-orient Islamic finance business models towards realising the objectives of Shariah that generate positive and sustainable impact to the economy, community and environment through practices, processes, offerings and conduct. The Implementation Guide for VBI provides guidance on practical value-based banking practices, as reference to Islamic financial institutions that intend to embark on the Value-based Intermediation initiative. It also outlines the phases of implementation and deliberates on key implementation challenges alongside some pragmatic solutions; The VBI Financing and Investment Impact Assessment Framework (VBIAF) facilitates the implementation of an impact-based risk management system for assessing the financing and investment activities of Islamic banking institutions in line with their respective VBI commitment. (This paper is jointly developed with The World Bank and INCEIF); and The VBI Scorecard provides an overview that covers purposes, key components of assessment and proposed measurement methodology. (This paper is jointly developed with the Global Alliance for Banking on Values) The Bank welcomes constructive feedback on the VBIAF and VBI Scorecard documents. Responses in the form of written feedback are to be submitted to vbi@bnm.gov.my by 30 November 2018. Further details can be found in the following documents: Implementation Guide for Value-based Intermediation © 2024 Bank Negara Malaysia. All rights reserved.

Mesyuarat MPS ke-187 187th SAC Meeting 2018 1 The 187th Meeting of the Shariah Advisory Council (SAC) of Bank Negara Malaysia The SAC of Bank Negara Malaysia at its 187th meeting on 27 August 2018 ruled the following: Application of Musyarakah Contract in Managing Expense Strain of a Takaful Operator SAC Ruling The SAC decided that the application of musyarakah contract between a retakaful operator and takaful operator in managing the expense strain of the latter arising from the implementation of ‘Minimum Allocation Rate’ requirement is permissible, subject to the following conditions: i. The musyarakah capital contribution especially in the form of cash, shall not be treated and accounted as an up-front wakalah fee as such treatment is inconsistent with the nature of a musyarakah contract; ii. The musyarakah capital shall be ring-fenced and shall not commingle with other capital in the shareholders’ fund; and other funds especially the tabarru` fund; iii. Determination of profit and loss from the musyarakah must reflect the actual profit and loss of the identified portfolio, which must be ring-fenced from other portfolios; and iv. The in-kind musyarakah capital (if any) must be valued in monetary terms at the inception of the musyarakah contract. Background  There was a proposal for a takaful operator (TO) to enter into musyarakah contract with a retakaful operator (RTO) which enables the TO to manage the expense strain of a new business portfolio in a more effective manner.  This arrangement is one of the strategies to manage pressures on the shareholders’ fund of TOs arising from the requirement of ‘Minimum Allocation Rate’ (MAR)1 which will come into effect on 1 January 2019. The MAR requirement specifies the minimum proportion of contribution paid by takaful participants that must be retained in the unit fund for investment-linked products.  Both TO and RTO will enter into a musyarakah contract to jointly bear the expenses of an identified takaful portfolio during a specified period of time. Shariah Issue  Is the proposed musyarakah structure Shariah compliant? Illustration of musyarakah structure between Takaful Operator and Retakaful Operator 1 Life Insurance and Family Takaful Framework, issued on 23 November 2015. 187th SAC Meeting 2018 2 Key Highlights of the SAC Discussion Method for calculating and distributing profit and loss under a musyarakah arrangement  The profit calculation is based on the amount in excess of the initial musyarakah capital. The profit and loss of musyarakah contract will be determined based on the distribution of surplus and deficit of the portfolio under musyarakah.  The source of profit for musyarakah is from the net cash-flow based on the following calculation:  Net cash-flow = [Wakalah fee + certificate charge + tabarru` fund’s surplus] minus (-) [Commission for agent + management expenses]  Profit and loss distribution to musyarakah’s partners is proportionate to the capital contributions of respective partners. Justifications for profit distribution to the RTO (one of the partners)  The RTO is entitled to receive the profit on the basis of its capital contribution although it is not actively involved in the takaful business of the portfolio under musyarakah. Ring fencing of takaful portfolio under musyarakah  The portfolio under musyarakah will be placed in a dedicated tabarru` fund that is managed separately from the tabarru` fund of other takaful portfolios.  The takaful portfolio under musyarakah will be fully ring-fenced and recorded separately from accounting perspectives. In this regard, there is no commingling and cross-subsidisation between the tabarru` fund under the musyarakah and other tabarru` funds. Application of qard in the event that the tabarru` fund under musyarakah experiences deficit  The obligation to provide qard to the tabarru` fund in the event of a deficit remains with the TO, in accordance to the ‘Guidelines on Takaful Operational Framework’ issued by Bank Negara Malaysia.  However, the RTO may agree to provide qard to the tabarru` fund based on musyarakah’s terms and conditions. The provision of qard is not considered as an additional injection of musyarakah capital. Permissibility for TO (as agent) to enter into musyarakah contract with RTO without specific consent from the takaful participant (as muwakkil)  The SAC is of the view that there is no Shariah prohibition for the TO to enter into a musyarakah contract with the RTO without the specific consent from the takaful participants.  This is premised on the fact that the musyarakah contract is not intended to transfer the wakalah’s mandate (between TO and takaful participant) to the RTO. It is a separate contract to raise capital/fund from the RTO. Treatment of musyarakah capital from the RTO as wakalah fee  There was a proposal from the TO for the RTO’s musyarakah capital contribution to be treated as an upfront wakalah fee for the purpose of accounting treatment.  The SAC viewed that the musyarakah capital contributed by the RTO cannot be treated as wakalah fee since the wakalah contract only involves the participants and the TO. The RTO acts as a partner under the musyarakah contract and not as a muwakkil (principal) in the proposed musyarakah structure.  The SAC also viewed that the musyarakah capital fund must be ring-fenced and must not commingle with other funds especially the tabarru` fund. This is to attain more clarity in terms of the function and obligation of each fund. 187th SAC Meeting 2018 3 Basis of Ruling  There is no Shariah prohibition in the proposed musyarakah structure. The structure is also in accordance to the Shariah requirements as specified in the Policy Document on Musyarakah and Policy Document on Wakalah.  The proposed methodology for profit and loss sharing is also in line with the Shariah principles of musyarakah contract as seen below: الربح على ما شرطا والوضيعة على قدر المالين “Profit (of musyarakah) is based on what is agreed by both contracting parties and the loss is proportionate to their respective capital contributions” 2  The ring-fencing of the musyarakah capital fund from other funds especially the tabarru` fund; and the ring-fencing of the portfolio under the musyarakah from other portfolios are aimed at achieving greater clarity in terms of the function and obligation of each fund/portfolio. Implication of SAC Ruling  The proposed musyarakah structure can be one of the permissible methods to manage expense strain of a takaful operator that cannot be addressed under the existing retakaful arrangement; and at the same time fulfil the objectives of MAR. This ruling is immediately effective. However, relevant institution applying this concept would also require to observe the Bank’s policy. 2 Ibnu Nujaym, Al-Bahr al-Ra’iq Syarh Kanz al-Daqa’iq, Dar al-Kitab al-Islami, vol. 5, page. 188.

Public Notice

28 Sep 2018

RINGGIT Newsletter (September 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-september-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed101+Sep+2018+v4.pdf

Reading: RINGGIT Newsletter (September 2018 issue) is now available for download Share: RINGGIT Newsletter (September 2018 issue) is now available for download Release Date: 28 Sep 2018 The highlight for this month is Pertimbangan Sebelum Membeli Kereta Baharu Other topics of interest include : Mengurus Kos Sara Hidup Yang Semakin Meningkat Kepentingan Insurans Perjalanan Ketika Melancong Pendidikan Kewangan untuk Kanak-Kanak Penipuan Pakej Pelancongan RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - September/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I SEPT 2 0 1 8 Kepentingan Insurans Perjalanan Ketika Melancong Penipuan Pakej Pelancongan PP 16897/05/2011 (029495) Mengurus Kos Sara Hidup Yang Semakin Meningkat Membeli Kereta Baharu Pertimbangan Sebelum Membeli kereta menjadi impian bagi graduan dan golongan yang baru bekerja. Kos membeli dan menyelenggara kereta merupakan perbelanjaan kedua besar selepas kos pembelian rumah. Oleh itu, anda perlu membuat pertimbangan yang serius sebelum membeli kereta. Statistik daripada Jabatan Insolvensi Malaysia menunjukkan faktor utama yang menyebabkan kebankrapan ialah pinjaman kereta. Ini bermakna ramai yang tidak membuat pertimbangan yang betul apabila membeli kereta. Sekiranya mereka gagal membayar balik pinjaman tersebut, ia akan menyebabkan mereka boleh diisytiharkan bankrap. Sekiranya anda ingin membeli kereta, anda perlu membuat pengiraan kos pemilikan kereta secara menyeluruh dan bukan hanya ansuran bulanan. Seringkali, pengguna menghadapi masalah tentang pemilikan kereta kerana mereka tidak membuat anggaran pemilikan kos kereta secara menyeluruh. Mereka hanya mengambil kira bayaran ansuran bulanan, dan dengan angka tersebut mereka telah membuat pertimbangan terhadap kemampuan untuk membeli kenderaan. Ini adalah satu kesilapan yang besar. Sebelum anda membeli kereta, anda mesti mempunyai lesen memandu yang sah. Seterusnya, untuk mendapatkan pembiayaan, dokumen-dokumen yang perlu disediakan, antaranya ialah: 1. Slip gaji untuk tempoh enam bulan yang lepas; 2. Borang Cukai atau KWSP (sekiranya perlu); 3. Penjamin (sekiranya perlu). Wang Pendahuluan Kebanyakan institusi kewangan memerlukan bayaran wang permulaan sebanyak 10% daripada harga kereta. Walaupun, ada institusi kewangan yang menawarkan 0% wang permulaan, pengguna harus sedar bahawa tanpa wang permulaan, bayaran ansuran bulanan akan menjadi lebih tinggi. Lebih tinggi bayaran permulaan, lebih rendah ansuran bulanan. Tidak dapat dinafikan bahawa harga kereta di Malaysia agak mahal berbanding negara-negara lain. Bayaran ansuran kereta akan memberi kesan terhadap perbelanjaan bulanan anda. Oleh itu, sebelum anda membuat keputusan untuk membeli kereta, anda juga perlu mengambil kira pilihan pengangkutan awam yang sedia ada seperti teksi, perkhidmatan e-panggilan, komuter dan sebagainya, untuk mengenal pasti pilihan yang lebih sesuai berdasarkan kemampuan anda. Memiliki kereta mungkin menjadi keperluan disebabkan kemudahan pengangkutan awam yang kurang memuaskan. Kereta menjadi keperluan untuk berulang-alik ke tempat kerja, membeli-belah, atau menjalani aktiviti riadah. Pengguna yang tinggal di luar bandar atau pinggir bandar seringkali terpaksa menggunakan kereta kerana pengangkutan awam adalah sangat terhad di tempat mereka. Bagi yang tinggal di bandar besar, seperti Kuala Lumpur dan Pulau Pinang, sistem pengangkutan awam lebih kerap dan lebih mudah untuk diakses. Pertimbangan Sebelum Membeli Kereta Baharu 2 | RINGGIT Kos pemilikan kereta melibatkan bukan sahaja bayaran ansuran bulanan tetapi juga kos lain seperti minyak dan penyelenggaraan. Jumlah kos pemilikan kereta adalah lebih besar daripada kos pembelian kereta semata-mata. Antara kos pembelian dan penyelenggaraan kereta ialah: Pembiayaan Anda memerlukan wang pendahuluan sebanyak 10% daripada harga kereta. Seterusnya anda perlu meminjam 90% daripada harga kereta, yang perlu dibayar dengan kadar faedah tertentu. Buat perbandingan dengan pelbagai institusi kewangan untuk mendapatkan kadar faedah yang paling rendah. Tempoh pinjaman kebiasaannya antara tiga hingga sembilan tahun. Lebih lama tempoh anda meminjam, lebih rendah bayaran ansuran. Sila lihat jadual berikut untuk contoh pengiraan pembiayaan bagi sebuah kereta berharga RM40,000, dengan wang pendahuluan 10% dan pinjaman 90% dengan kadar faedah 2.8% setahun: Tempoh Pinjaman Ansuran Bulanan Jumlah Bayaran Jumlah Faedah 3 tahun 1,084 39,024 3,024 5 tahun 684 41,040 5,040 9 tahun 417 45,072 9,072 Sidang Redaksi “Sekiranya anda ingin membeli kereta, anda perlu membuat pengiraan kos pemilikan kereta secara menyeluruh dan bukan hanya ansuran bulanan.” Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Sept 2018 | 3 S e b a i k - b a i k n y a n y a p i l i h l a h t e m p o h p i n j a m a n y a n g p a l i n g p e n d e k , untuk memastikan a n d a m e m b aya r kadar faedah yang minimum. Cukai Jalan Cukai jalan ialah satu kemestian bagi semua pemil ik kereta yang ingin menggunakannya di jalan raya. Bagi kereta kurang daripada 1600cc di Semenanjung, cukai jalan yang dikenakan ialah RM90. Insurans Insurans kereta juga adalah wajib. Di bawah liberalisasi insurans kereta oleh Bank Negara Malaysia, pengguna boleh membandingkan tawaran oleh pelbagai syarikat insurans untuk mendapatkan tawaran yang terbaik. Kadar premium insurans ditentukan oleh pelbagai faktor risiko pengguna, seperti ciri-ciri keselamatan kenderaan, usia kenderaan dan pemandu serta kesalahan lalu lintas berbanding hanya nilai diinsuranskan dan keupayaan enjin kenderaan. Petrol Kos petrol perlu diambil kira apabila memiliki kereta. Kos petrol merupakan kos kedua tertinggi dalam kegunaan kereta. Penyelengaraan dan Pembaikan dan keadaan kereta yang baik, anda perlu menyelenggara kereta mengikut jadual yang ditetapkan. Ruang Letak Kereta dan Tol Di bandar utama, pengguna menghadapi dua cabaran. Pertama, kesukaran untuk mendapatkan tempat letak kereta dan bayaran letak kereta yang agak mahal. Kedua, anda juga perlu membayar tol sekiranya menggunakan lebuh raya. Susut Nilai Kereta Susut nilai kereta adalah nilai semasa kereta. Jika anda membeli kereta pada bulan Januari dengan harga RM40,000, pada akhir tahun jika anda ingin menjual kereta, nilainya mungkin sekitar Kereta baharu biasanya diberi tempoh waranti sehingga 5 tahun. Pada masa itu anda perlu menyelenggara kereta di bengkel yang disahkan oleh syarikat kereta. Jika anda gagal menyelenggara di bengkel yang disahkan, kemungkinan waranti anda akan dibatalkan. Biasanya kereta perlu diselenggara selepas 5,000 km ataupun 10,000 km. Untuk memastikan prestasi RM32,000. Maka susut nilai kereta ialah 20%. Anda telah kehilangan nilai kereta sebanyak 20% dalam tempoh setahun. Faktor-faktor yang mempengaruhi susut nilai kereta adalah jumlah perbatuan (mileage), jenama kereta, cara penggunaan dan usia kereta, jadual penyelengaraan yang dipatuhi, pengubahsuaian kereta dan keadaan kereta. Sumber: FOMCA 4 | RINGGIT Dalam menghadapi cabaran hidup yang kian mencabar, rakyat Malaysia perlu bersedia untuk mengubah kehidupan mereka bersesuaian dengan perubahan yang berlaku pada masa ini. Perubahan dasar kerajaan terhadap subsidi turut memberi kesan kepada kehidupan sebahagian rakyat. Sebenarnya rakyat yang perlu membuat perubahan terhadap kehidupan mereka berdasarkan kemampuan mereka sendiri. Perubahan terhadap gaya hidup perlu dilakukan jika ia menyebabkan peningkatan kos sara hidup sehingga akhirnya membebankan kehidupan. Panduan untuk Membantu Anda Menguruskan Peningkatan Kos Sara Hidup 1. Anda perlu berazam menjalani kehidupan mengikut kemampuan sendiri. 2. Anda perlu belajar untuk membezakan antara keperluan dan kehendak, apa yang perlu dan apa yang tidak perlu. Ia akan membantu menentukan apa yang perlu ada di dalam senarai kos sara hidup dan kos gaya hidup supaya anda tidak menggabungkan kedua-dua kos tersebut. 3. Menggunakan pengangkutan awam yang semakin banyak dan mudah untuk mengurangkan kos pengangkutan harian. Apa yang Boleh Dilakukan Oleh Kerajaan untuk Rakyat Malaysia? Polisi harus dilaksanakan untuk memastikan keseimbangan gaji rakyat Malaysia. Kerajaan disarankan agar memastikan pendapatan rakyat Malaysia bukan sahaja meningkat, kenaikan itu juga perlu selaras dengan kenaikan kos sara hidup. Kerajaan perlu menyediakan beberapa langkah sebagai persediaan untuk menjadikan Malaysia sebagai negara berpendapatan tinggi menjelang tahun 2020, yang tempohnya kurang dari dua tahun. Selain itu, kerajaan juga harus memperkenalkan pendidikan kewangan di peringkat sekolah. Ia bertujuan untuk mendidik rakyat untuk lebih bertanggungjawab terhadap aspek pengurusan kewangan mereka. Kos hidup yang semakin meningkat ini boleh diurus dengan lebih baik apabila rakyat Malaysia semakin terdidik dengan ilmu pengurusan kewangan yang betul. Walaupun kita tidak mempunyai kawalan ke atas pergerakan harga barangan yang meningkat hasil daripada kesan inflasi, namun kita mempunyai kawalan terhadap perbelanjaan kita sendiri. Apa yang boleh dilakukan ialah anda perlu fokus pada perbelanjaan yang menjadi kehendak dan mengawal diri daripada membeli barang-barang mewah. Langkah pertama adalah dengan mempunyai ilmu pengetahuan tentang kewangan. Pelajaran yang utama di sini ialah: • Dapat membezakan antara kos sara hidup dan kos gaya hidup. • Meningkatkan ilmu kewangan dengan memahami konsep kewangan seperti faedah kompaun dan inflasi. • Elakkan diri daripada melakukan kesilapan dalam perbelanjaan sehingga melebihi kemampuan. Sumber: CompareHero.my Mengurus “Walaupun kita tidak mempunyai kawalan ke atas pergerakan harga barangan yang meningkat hasil daripada kesan inflasi, namun kita mempunyai kawalan terhadap perbelanjaan kita sendiri.” Kos Sara Hidup Yang Semakin Meningkat Sept 2018 | 5 Apakah yang anda perlu pertimbangkan sebelum membuat pilihan? Satu perkara yang perlu dipertimbangkan ialah sama ada syarikat insurans tersebut mempunyai talian kecemasan yang sentiasa bersedia menerima aduan daripada semua tempat yang anda jejaki. Talian ini perlu beroperasi 24 jam sehari, 7 hari seminggu dan 365 hari setahun. Individu yang kerap melancong tentu pernah merasa kehilangan bagasi walaupun sekali. Apabila perkara ini berlaku, anda perlu hubungi kaunter aduan syarikat penerbangan yang biasanya terletak berdekatan dengan karusel bagasi dan maklumkan mereka tentang kehilangan tersebut. Banyak syarikat penerbangan yang akan membayar pampasan serta-merta terutamanya kalau anda memerlukan pakaian dan barang keperluan harian. Perlindungan perjalanan sudah menjadi satu keperluan apabila anda ke luar negara, sama ada perjalanan untuk melancong, perniagaan dan sebagainya. Pengambilan skim perlindungan insurans adalah penting kerana ia menyediakan perlindungan terhadap kehilangan bagasi, pembatalan penerbangan, masalah hotel, belanja perubatan dan lain-lain. Kebanyakan agensi pelancongan dan syarikat penerbangan akan menawarkan pelbagai pilihan insurans, tapi adakah ia pilihan yang terbaik mengikut perjalanan dan keperluan anda? Anda mempunyai hak untuk mengetahui apa yang dilindungi dan tidak dilindungi dalam skim perlindungan insurans perjalanan tersebut. Kalau anda kerap bercuti (beberapa kali dalam setahun), polisi insurans tahunan adalah lebih baik daripada polisi individu. Kebanyakan insurans perjalanan menawarkan perlindungan untuk kehilangan bagasi, kelewatan perjalanan, pembatalan penerbangan, perbelanjaan perubatan dan pemindahan dalam situasi kecemasan. Satu aspek penting yang perlu dipertimbangkan adalah kos perubatan di destinasi anda. Kos perubatan di Amerika Syarikat, Jepun, Timur Tengah, beberapa bahagian di Eropah, Amerika Selatan dan Afrika adalah tinggi. Jadi, anda perlu memastikan yang anda mempunyai perlindungan perubatan yang komprehensif dalam polisi insurans anda. Sebaliknya, kalau anda membuat perjalanan ke Thailand, rawatan perubatan adalah antara yang termurah di dunia. Oleh yang demikian anda boleh membuat perjalanan dengan perlindungan perubatan yang lebih kecil. Semuanya bergantung kepada keperluan anda. Ketika Melancong Kepentingan Insurans Perjalanan 6 | RINGGIT Tapi, nilai pampasan biasanya tidak tinggi. Ia bergantung pada kelas penerbangan dan kekerapan anda bersama- sama dengan syarikat penerbangan tersebut. Kalau anda tidak mendapat semula bagasi anda, syarikat insurans biasanya menyediakan jumlah pampasan yang bersesuaian. Kalau anda mengembara dengan kamera, peralatan video, komputer riba dan sebagainya, dapatkan maklumat terperinci daripada syarikat insurans tentang kadar jumlah pampasan untuk peralatan ini sekiranya terjadi kes kehilangan atau kecurian. Kalau anda merancang untuk melakukan aktiviti berisiko tinggi semasa perjalanan anda seperti, terjun lelabah (bungee jumping), terjun udara (sky diving), rakit redah jeram (white water rafting), atau aktiviti kurang berisiko seperti menyelam, luncur air (water skiing), luncur jet (jet ski) dan sebagainya, pastikan bertanya sama aktiviti ini termasuk dalam perlindungan perjalanan. Perlindungan perubatan dalam insurans adalah yang paling penting. Pastikan anda mengetahui jenis kemudahan rawatan yang dilindungi oleh polisi insurans anda di negara yang akan anda lawati dan cara membuat tuntutan sekiranya peristiwa tidak diingini berlaku. Contohnya,ada syarikat insurans yang menawarkan perkhidmatan menghantar nombor saudara terdekat anda sekiranya anda dimasukkan ke hospital. Akhir sekali, dengan keadaan dunia yang tidak stabil sekarang ini, anda juga perlu bertanya bagaimana syarikat insurans anda akan melindungi anda dalam kes keganasan, penculikan dan sebagainya. Pastikan perlindungan insurans anda membuat pembayaran balik kalau anda membatalkan perjalanan disebabkan peperangan atau keganasan di negara yang anda lawati. Insurans pelancongan sepatutnya menyebabkan anda berasa tenang semasa bercuti. Walaupun proses memilih polisi yang betul agak merumitkan, ia akan memberikan anda rasa dilindungi sekiranya berlaku kejadian yang tidak diingini semasa bercuti. Selamat bercuti dengan tenang! Sumber: Makanlena.com Sept 2018 | 7 Pendidikan kewangan sewajarnya bermula pada masa kanak-kanak. Sekiranya nilai dan kemahiran kewangan yang bijak dapat disemai dan dipupuk pada peringkat kanak-kanak, mereka akan bersedia untuk menghadapi cabaran kewangan pada masa hadapan. Mendidik kanak-kanak tentang asas pengurusan kewangan serta memiliki sikap dan nilai yang positif terhadap pengurusan kewangan adalah kritikal untuk pembangunan insan. Asas-asas pengurusan kewangan, seperti menyediakan bajet, perbelanjaan, berjimat cermat dan pengurusan hutang, akan mewujudkan tabiat kewangan yang baik sepanjang hayat. Pendidikan Kewangan untuk Kanak-Kanak Didik Tentang Wang Pada masa ini, perbelanjaan dan urus niaga sering dilakukan dengan menggunakan kad kred i t , pembel ian da lam talian dan perbankan internet. Kanak-kanak kurang melihat p e r t u ka ra n wa n g s e ca ra fizikal. Hal ini berkemungkinan menyebabkan mereka sukar untuk memahami ciri-ciri kewangan dan aspek pertukaran dalam pembelian. Ada kemungkinan, kanak-kanak menganggap duit sebagai satu sumber tidak terhad, yang masuk dan keluar melalui akaun bank keluarga mereka. Anda perlu berbincang dengan anak-anak tentang aspek kewangan dan proses pembelian barang menggunakan wang supaya mereka memahami bahawa wang wujud secara fizikal. Mendidik kanak-kanak dalam keadaan sebenar pertukaran wang, akan lebih membantu kanak-kanak memahami punca wang diperoleh dan cara ia dibelanjakan. Didik Tentang Fungsi ATM Mesin Juruwang Automatik (ATM) adalah tempat yang baik sebagai permulaan untuk mendidik kanak- kanak tentang wang. Anda boleh menerangkan kepada mereka bahawa bank sebagai tempat untuk menyimpan pendapatan yang anda peroleh sebagai gaji daripada pekerjaan anda. Apabila anda mengeluarkan wang dari ATM, wang itu sebenarnya diambil daripada simpanan anda dan jumlah dalam simpanan anda akan berkurangan akibat pengeluaran tersebut. Didik Tentang Pembelian Apabila membeli barang di pasar raya, anda boleh menerangkan kepada anak anda cara suatu harga barang ditetapkan dan perbezaan harga bagi barang yang sama berdasarkan jenama dan timbangan berat. Anda juga boleh mendidik mereka untuk membuat perbandingan harga bagi mendapat nilai yang terbaik. Begitu juga anda boleh memberikan peluang mereka untuk membanding dan memilih barang yang berharga paling rendah. Jika anda hendak memilih barang yang lain, anda perlu menjelaskan kepada mereka mengapa anda memilih barang tersebut. Didik Tentang Bil Utiliti Apabila anda membayar bil utiliti seperti bil elektrik, air, siaran televisyen berbayar, internet dan sebagainya, anda boleh menerangkan kepada mereka mengapa anda perlu membayar bil tersebut. Ia bertujuan untuk memberi kesedaran kepada mereka bahawa kemudahan yang mereka gunakan itu bukannya diperoleh secara percuma, tetapi ada kos yang perlu dibayar. Secara tidak langsung, ini juga mendidik mereka supaya mengurangkan penggunaan tenaga elektrik dengan cara mematikan suis televisyen, lampu dan penyaman udara apabila tidak digunakan. Didik Tentang Perancangan Bajet Anda perlu melibatkan anak anda apabila merancang bajet rumah anda. Ini akan memberikan gambaran tentang perbelanjaan rumah kepada mereka. Dengan menerangkan perbelanjaan kepada anak-anak, mereka akan lebih memahami tentang perbelanjaan harian keluarga. Anda juga boleh meminta cadangan mereka bagaimana untuk menjimatkan perbelanjaan tersebut. 8 | RINGGIT Didik Tentang Wang Saku Anda juga boleh berbincang tentang wang apabila memberikan wang saku kepada anak anda. Mereka perlu memahami tentang perbelanjaan bijak, kepentingan u n t u k b e r j i m a t c e r m a t , menyimpan wang lebihan dan tanggungjawab untuk menderma kepada orang yang kurang berkemampuan. Didik tentang Keperluan dan Kehendak Anda juga perlu mendidik anak anda tentang perbezaan antara keperluan dan kehendak supaya mereka dapat membezakan antara perbelanjaan berasaskan keperluan dan kehendak. Didik tentang Perbelanjaan dan Tabungan Anak-anak juga perlu diberikan kefahaman tentang matlamat perbelanjaan dan tabungan. Sebagai contoh, jika mereka ingin membeli sesuatu barang, mereka perlu menyimpan sebahag ian wang untuk membeli barang tersebut. Jika penentuan matlamat ini dapat disemai dalam diri mereka, anak-anak akan bertanggungjawab dalam merancang kewangan dan perbelanjaan mereka. Kanak-kanak juga harus memahami perbezaan antara perbelanjaan dan tabungan serta kadar faedah dalam tabungan. Jika anak-anak berjaya menyimpan sejumlah wang tertentu di rumah, ibu bapa boleh membayar mengikut kadar faedah yang ditetapkan. Didik anak anda cara untuk mengira kadar faedah tersebut. Sekiranya wang simpanan mereka telah banyak, anda boleh membuka akaun simpanan untuk mereka. Ini bertujuan untuk menyemai semangat menyimpan wang secara tetap. Didik Menyimpan Rekod Perbelanjaan dan Tabungan Galakkan anak anda untuk menyimpan rekod tentang perbelanjaan dan tabungan. Rekod ini perlu dikemas kini dari semasa ke semasa. Anda per lu ser ing berb incang dengan mereka tentang corak perbelanjaan dan tabungan anak anda. Mendidik anak-anak anda melalui aktiviti akan membantu anak-anak untuk memahami pengurusan kewangan secara lebih praktikal dan seterusnya dapat menyemai amalan pengurusan kewangan yang bijak dalam diri anak-anak. Sumber: FOMCA Didik Tentang Keputusan Perbelanjaan A n d a j u g a p e r l u menggalakkan anak anda untuk membuat keputusan perbelanjaan. Galakkan mereka untuk membuat penyelidikan terlebih dahulu sebelum membeli. Didik mereka u n t u k m e m b u a t perbandingan harga dan pastikan mereka mendapat nilai yang terbaik untuk wang yang dibelanja. Didik tentang Peranan Iklan Apabila menonton iklan di televisyen, anda boleh berbincang dengan anak anda tentang mesej iklan tersebut. Jelaskan kepada mereka bahawa iklan bertujuan untuk menggalakkan mereka untuk membeli barang. Walau bagaimanapun, mereka perlu menilai secara kritikal sama ada barang tersebut benar-benar perlu atau tidak. Didik tentang Penipuan Anda juga perlu mendidik a n a k a n d a t e n t a n g penipuan (scam). Sekiranya sesuatu tawaran adalah t e r l a l u b a g u s u n t u k dipercayai, anda perlu meminta mereka supaya b e r w a s p a d a d e n g a n tawaran seperti itu. Berbincang dengan mereka sama ada tawaran tersebut tulen ataupun penipuan. Didik Tentang Kad Kredit Apabila anda membuat pembayaran menggunakan kad kredit, terangkan kepada mereka mengapa anda menggunakan kad kredit. Begitu juga tentang risiko penggunaan kad kredit. Anda juga boleh mendidik mereka tentang jenis kadar faedah apabila menggunakan kad kredit dan cara mengira kadar faedah tersebut. Sept 2018 | 9 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) Pakej Pelancongan Penipuan pakej pelancongan semakin berleluasa. Ramai pengguna yang tertipu dengan tawaran pelancongan yang istimewa dan menarik. Antara aduan yang diterima oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC) ialah berkaitan: • Perjalanan dibatalkan pada saat akhir • Ejen tidak boleh dihubungi selepas wang telah dimasukkan ke dalam akaun • Hotel dan kemudahan lain yang disediakan oleh agensi tidak memuaskan walaupun menggunakan caj yang tinggi • Syarikat pelancongan tidak wujud / tidak berdaftar Jumlah aduan mengenai penipuan pakej pelancongan yang diterima oleh NCCC pada tahun 2016 adalah sebanyak 3,458 kes dengan nilai kerugian sebanyak RM6 juta. Jumlah ini sangat membimbangkan memandangkan hanya segelintir daripada pengadu yang mendapat kembali wang mereka, manakala sebahagian lagi mengalami kerugian kerana agensi tersebut telah menamatkan operasi dan tidak dapat dikesan. Terdapat juga aduan pengguna yang mendakwa bahawa agensi pelancongan yang berlesen gagal memenuhi janji- janji mereka, walaupun selepas pelanggan telah membayar sepenuhnya. Ada juga kes yang melibatkan penipuan pembelian pakej pelancongan semasa Matta Fair. Bagi membantu pengguna daripada terjebak dengan agensi pelancongan yang tidak beretika, berikut disediakan beberapa langkah untuk panduan pengguna: 1. Senarai lesen dan agensi pelancongan boleh didapati di portal rasmi Kementerian Pelancongan, Seni dan Budaya Malaysia, www.motac.gov.my. Anda dinasihati untuk berurusan dengan agensi pelancongan yang berlesen sahaja. 2. Pengguna boleh mengetahui lebih lanjut tentang latar belakang syarikat melalui Suruhanjaya Syarikat Malaysia atau menyemak dengan Kementerian Pelancongan tentang status agensi pelancongan (sama ada lesen mereka telah dibatalkan). 3. Anda harus menerima butiran lengkap secara bertulis mengenai perjalanan sebelum membuat bayaran. Butiran yang perlu ada ialah jumlah harga, yuran pentadbiran dan caj perkhidmatan; pembatalan dan perubahan penalti, jika ada; dan maklumat khusus tentang semua komponen pakej. 4. Elakkan memberi butiran peribadi atau perincian perbankan secara rambang kepada sesiapa sahaja. Pengguna dinasihatkan supaya membuat aduan secepat mungkin. Sekiranya aduan itu didapati benar, pembatalan lesen dan amaran keras akan dikenakan kepada agensi pelancongan tersebut supaya mereka tidak mengulangi kesalahan itu, selaras dengan Akta Industri Pelancongan 1992. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Penipuan 10 | RINGGIT Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) JANGAN JADI MANGSA JENAYAH SIBER Sekiranya anda menerima PANGGILAN yang menyatakan anda mempunyai hutang tertunggak dengan mana-mana pihak, ingat perkara berikut. JANGAN PANIK. CATIT IDENTITI PEMANGGIL dan hutang yang dinyatakan. BERITAHU PEMANGGIL saya akan datang sendiri ke pejabat anda. LETAK TELEFON. HUBUNGI PUSAT PANGGILAN AGENSI BERKENAAN (gunakan nombor telefon yang disahkan) atau pergi sendiri ke Agensi yang dinyatakan. 1 2 3 4 5 PERINGATAN: ELAKKAN DARI MEMBUAT APA JUA TRANSAKSI DALAM TALIAN. @CyberCrimeAlertRMP

Public Notice

18 Sep 2018

Exposure Draft on Publishing Open Data using Open API*

https://www.bnm.gov.my/-/ed-publishing-api

Reading: Exposure Draft on Publishing Open Data using Open API* Share: Exposure Draft on Publishing Open Data using Open API* Release Date: 18 Sep 2018 This Exposure Draft sets out the Bank’s guidance on the development and publication of Open Application Programming Interface (Open API) for open data by financial institutions. The Exposure Draft encourages financial institutions to adopt the Open Data API Specifications on selected product information (credit card, SME loans and motor insurance product) developed by the Open API Implementation Groups. The Open Data API Specifications are available at https://github.com/BankNegaraMY. The Bank invites written feedback on the Exposure Draft, particularly on the specific questions raised throughout the document.  Responses may include suggestions on areas to be clarified or alternatives that the Bank should consider. The feedback should be supported with clear reasons, including accompanying evidence or illustrations where appropriate to facilitate an effective consultation process. Feedback on the Open Data API Specifications could also be provided via the GitHub link above. Responses must be submitted to the Bank by 28 September 2018. See also: Attachment (PDF version of the Exposure Draft)   *Open Application Programming Interface (Open API) refers to an API that allows third party access, which may be subject to certain controls by the Open API publisher. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

07 Sep 2018

Call for Submission of Contributed Paper Sessions (CPS)

https://www.bnm.gov.my/-/call-for-submission-of-cps-07092018

Reading: Call for Submission of Contributed Paper Sessions (CPS) Share: Call for Submission of Contributed Paper Sessions (CPS) Release Date: 07 Sep 2018 In conjunction with the International Statistical Institute World Statistics Congress 2019 (Congress), participants are invited to submit their research papers for the Contributed Paper Sessions. Those who are interested may submit their research papers at https://www.isi2019.org/guidelines-for-submission-system/ by 31 January 2019. The submission will be evaluated by a Local Programme Committee (LPC) and successful authors will be notified from 1 March 2019. The successful papers will be presented at the Congress in one of the following manner: i. Oral presentation where the author will have a slot to present his/her paper in one of the Contributed Paper Sessions; OR ii. Poster presentation where the author will display his/her poster (on the research paper) at the Congress venue. He/She will need to be present at the designated date and time for discussion with the Congress’s participants. Note: The presentation format will be based on the authors’ preferences (to be stated during submission). The copyright of the abstracts and papers presented during the Congress resides jointly with the authors and the International Statistical Institute (ISI). Authors are free to publish expanded versions of the papers in other publications after the Congress. For paper submission guidelines, please click here. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

04 Sep 2018

RINGGIT Newsletter (August 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-august-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed100+Aug+2018+v5.pdf

Reading: RINGGIT Newsletter (August 2018 issue) is now available for download Share: RINGGIT Newsletter (August 2018 issue) is now available for download Release Date: 04 Sep 2018 The highlight for this month is Pengurusan Kewangan Bagi Yang Baharu Bekerja Other topics of interest include : Nilai Kemampuan Anda Untuk Membayar Hutang Kelebihan Pelaburan Dalam Hartanah Langkah Kawal Perbelanjaan Undang-Undang Berkaitan Penyewaan Rumah RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - August/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I OGOS 2 0 1 8 Kelebihan Pelaburan Dalam Hartanah Undang-undang Berkenaan Penyewaan Rumah PP 16897/05/2011 (029495) Nilai Kemampuan Anda Untuk Membayar Hutang Pengurusan Kewangan Bagi Yang Baharu Bekerja Jika anda seorang yang baharu mula bekerja dan sedang mencari panduan berkenaan pengurusan kewangan, tahniah diucapkan kerana anda mempunyai kesedaran awal untuk merancang kehidupan anda dengan lebih bijak. Formula pengurusan kewangan akan memudahkan perjalanan anda untuk mencapai matlamat-matlamat kewangan anda. Untuk golongan yang baharu mula bekerja, berikut adalah formula pengurusan kewangan yang boleh anda amalkan. Formula pengurusan kewangan 30:10 , ia i tu membahagikan pendapatan kepada 4 bahagian; tiga bahagian 30% dan satu bahagian 10% (30:30:30:10) Formula tersebut berdasarkan kepada: • 30% – Simpanan, pelaburan dan perlindungan • 30% – Hutang dan simpanan perbelanjaan • 30% – Perbelanjaan • 10% – Penyucian harta Contohnya, seorang graduan baharu yang berpendapatan bersih RM3,000 / sebulan, maka pembahagiannya adalah RM 900:900:900:300. 30% – Simpanan, pelaburan dan perlindungan 30% pertama adalah untuk kesenangan masa hadapan meliputi simpanan, pelaburan dan perlindungan. Orang yang bijak dalam pengurusan kewangan menyimpan dahulu pendapatan yang diperoleh sebelum dibelanjakan. Semakin banyak bahagian yang boleh disimpan, semakin baik pengurusan kewangan tersebut. Tetapi, janganlah terlalu banyak menyimpan sehingga menyusahkan diri kerana tidak dapat berbelanja untuk keperluan-keperluan asas. Ramai juga yang tidak mahu memulakan tabungan kerana bimbang tidak dapat memberi komitmen terhadap tabungan tersebut. Walhal, terdapat banyak cara untuk menyimpan duit. Bagi orang yang baharu bekerja, misi pertama dalam menyimpan adalah untuk mewujudkan dana kecemasan. Selepas mempunyai dana kecemasan yang mencukupi, anda boleh membuat pelaburan untuk mengembangkan dan mengukuhkan lagi kedudukan kewangan. Anda boleh melabur dalam apa juga jenis pelaburan, seperti pelaburan emas, pelaburan hartanah, pelaburan saham atau jenis pelaburan yang lain. Yang penting pastikan pelaburan yang sah dan dapatkan ilmu yang betul daripada pakar yang berkelayakan. Pada masa yang sama, jangan lupa untuk mengambil perlindungan takaful / insurans secukupnya untuk menghadapi musibah kewangan yang tidak terduga. Mungkin pada permulaannya anda tidak perlu ambil perlindungan yang mahal, cukup sekadar mengambil perlindungan minimum untuk manfaat-manfaat asas terlebih dahulu. Pengurusan Kewangan Bagi Yang Baharu Bekerja “Bagi orang yang baharu bekerja, misi pertama dalam menyimpan adalah untuk mewujudkan dana kecemasan. Selepas mempunyai dana kecemasan yang mencukupi, anda boleh membuat pelaburan untuk mengembangkan dan mengukuhkan lagi kedudukan kewangan.” 2 | RINGGIT Apabila pendapatan telah bertambah, anda boleh meningkatkan jumlah perlindungan dan manfaat. 30% – Hutang dan simpanan perbelanjaan Kebanyakan graduan muda yang baharu mula bekerja terbeban dengan satu hutang, iaitu hutang pinjaman / pembiayaan pelajaran. Semasa belajar dahulu, tawaran biasiswa adalah terhad. Ibu bapa pula tidak mampu menanggung semua kos pelajaran, maka pilihan yang ada hanyalah pinjaman / pembiayaan pelajaran. Hutang tetap hutang, dan menjadi tanggungjawab untuk dibayar. Jadi, peruntukkan sebahagian gaji yang diperoleh untuk membayar hutang yang ditanggung. Semakin cepat diselesaikan hutang tersebut, semakin baik. Lebihan yang ada, bolehlah disimpan sebagai simpanan perbelanjaan. Simpanan perbelanjaan adalah duit yang disimpan untuk dibelanjakan, terutamanya untuk perbelanjaan-perbelanjaan besar. Contohnya, kebanyakan graduan muda berkeinginan untuk berkahwin. Simpanlah sebahagian daripada 30% pendapatan ini untuk mengumpul duit bagi persiapan majlis perkahwinan. Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Ogos 2018 | 3 Ada juga yang merancang untuk membeli kereta, sebagai hadiah kepada diri sendiri kerana telah menamatkan pembelajaran dan mula bekerja. Sebelum membeli kereta, mulakan dengan menyimpan wang sedikit demi sedikit untuk bayaran pendahuluan kenderaan. Selagi duit yang dikumpul tidak mencukupi 10% ke 20% harga kereta yang ingin dibeli, jangan membeli kereta tersebut. Membeli kereta mahal yang di luar kemampuan anda hanya akan menambah beban hutang dan perbelanjaan baharu. Sedangkan ada perbelanjaan yang lebih utama dan lebih besar yang perlu dilakukan, iaitu membeli rumah. Tetapi, jika terpaksa juga membeli kereta dan mengambil hutang baharu, pastikan jangan melebihi pembahagian 30% yang ditetapkan. Pada masa yang sama, sediakan sedikit bahagian untuk pembiayaan / pinjaman perumahan kelak. Lebih baik lagi, mulakan dahulu dengan membeli rumah dan jadikannya sebagai mesin wang. Apabila mesin wang semakin bertambah, hasilnya bolehlah digunakan untuk membeli kereta. 30% – Perbelanjaan Bahagian ketiga ini adalah untuk perbelanjaan-perbelanjaan harian, mingguan dan bulanan yang perlu dilakukan. Ini termasuklah perbelanjaan makan dan minum, sewa tempat tinggal, keperluan peribadi, bil-bil utiliti, tambang perjalanan, petrol, tol dan apa-apa sahaja perbelanjaan yang difikirkan perlu. Hadkan cuma 30% daripada pendapatan untuk perbelanjaan-perbelanjaan ini, yang biasanya orang disebut sebagai ‘belanja hangus’. 10% – Penyucian harta Dengan pendapatan yang diperoleh, janganlah lupa ‘hak orang lain’. Di sinilah perlunya diperuntukkan 10% daripada pendapatan untuk diberikan kepada orang lain sama ada menerusi zakat, cukai dan juga sedekah. Bagi umat Islam, secara umumnya pengiraan zakat pendapatan adalah 2.5% daripada pendapatan yang diperoleh. Pengiraan cukai pendapatan pula perlu mengambil kira banyak perkara, seperti jenis pendapatan bercukai, pengecualian, pelepasan dan rebat cukai. Sedekah pula adalah pemberian ikhlas secara sukarela. Jangan lupa juga untuk memberi wang kepada ibu bapa. Walaupun mungkin mereka tidak memerlukan duit gaji anda, tetapi tidaklah salah untuk menghulurkan wang pemberian sekadar kemampuan sebagai tanda penghargaan kepada mereka. Sesuaikan formula mengikut keperluan Formula pengurusan kewangan 30:10 adalah sebagai panduan asas sahaja, bukannya tegar (rigid). Bukan semua orang mempunyai pendapatan yang sama. Bukan semua orang mempunyai keperluan perbelanjaan yang sama. Tambahan lagi, dari tahun ke tahun, jumlah pendapatan mungkin semakin bertambah, selari dengan jumlah perbelanjaan yang semakin bertambah. Jadi, di sinilah perlunya kreativiti sendiri untuk mengubah suai formula tadi untuk memenuhi keperluan masing- masing. Jika boleh, hadkan peruntukan simpanan dan pelaburan pada paras minimum 20%, manakala paras hutang kepada maksimum 30% sahaja. Jika tiada hutang, itulah yang terbaik. Hutang yang terlalu tinggi adalah bahaya dan boleh menjejaskan kedudukan kewangan jika tidak dihadkan. Sumber: jomurusduit.com 4 | RINGGIT Kebanyakan individu perlu berhutang untuk membiayai perbelanjaan seperti perubatan, pelajaran, perkahwinan, ataupun memulakan perniagaan. Untuk bebas daripada hutang sepenuhnya mungkin agak mustahil. Tetapi, anda perlu mengetahui tentang kemampuan anda untuk membayar hutang- hutang anda. Hutang isi rumah rakyat Malaysia menunjukkan peningkatan. Pada tahun 2017, hutang isi rumah rakyat Malaysia ialah RM1,139.9 bilion. Malah, jumlah hutang isi rumah kini terlalu tinggi sehingga sebahagian besar daripada pendapatan bulanan digunakan hanya untuk membayar hutang sahaja. Pada tahun 2013, nisbah khidmat hutang rakyat Malaysia ialah 43.5%, suatu angka yang membimbangkan kerana lebih 13.5% daripada kadar hutang yang disarankan. Nisbah khidmat hutang yang disyorkan ialah pada 30%, untuk memastikan anda tidak berbelanja lebih satu pertiga daripada pendapatan anda untuk membayar hutang. Dalam cabaran ekonomi semasa serta keadaan kewangan peribadi yang tidak menentu, anda perlu memastikan diri anda tidak terperangkap dalam kitaran pembayaran hutang yang berterusan. Langkah pertama yang boleh diambil ialah dengan memahami kemampuan anda untuk membayar hutang. Nisbah Khidmat Hutang Sebagai permulaan, kaji jumlah kemampuan anda untuk membayar hutang yang ditanggung sekarang dengan menggunakan nisbah khidmat hutang. Nisbah ini digunakan oleh bank atau individu untuk mengetahui jumlah hutang yang boleh ditanggung oleh peminjam. Ia akan mengambil kira semua pinjaman serta kemudahan kredit anda, dan dibandingkan dengan jumlah pendapatan anda. Sebagai contoh, anda memiliki pendapatan sebanyak RM5,000 sebulan, dengan komitmen kewangan seperti di bawah: • Pinjaman kereta: RM600 sebulan • Bayaran insurans: RM200 sebulan Berdasarkan komitmen tersebut, nisbah khidmat hutang anda ialah: (RM800 / RM 5000) x 100 = 16% Dengan nisbah khidmat hutang 16%, jika anda ingin memohon pinjaman yang lain, anda perlu memastikan bayaran bulanan pinjaman tersebut tidak akan melebihi RM700 atau 14% daripada jumlah pendapatan anda (berdasarkan saranan nisbah khidmat hutang yang tidak melebihi 30%). Jelas sekali pada kadar gaji yang anda terima, anda tidak boleh mengambil pinjaman yang lain kerana kebarangkalian pinjaman itu akan melebihi nisbah khidmat hutang dan kemampuan anda membayar pinjaman tersebut. Jika tidak, sebahagian besar gaji anda akan digunakan hanya untuk membayar hutang. Kesannya, pendapatan boleh guna anda akan berkurangan. Namun, masih ada lagi cara yang membolehkan anda memohon pinjaman, sebagai contoh jika anda ingin membeli rumah. Nilai Kemampuan Anda Untuk Membayar Hutang Ogos 2018 | 5 Ramai yang masih tidak mengetahui tentang nisbah khidmat hutang ataupun ia dipandang remeh. Sebenarnya, mengetahui berapa nisbah khidmat hutang peribadi amat penting walaupun anda tidak merancang untuk memohon pinjaman. Ia akan membantu anda untuk bersedia apabila anda perlu memohon pinjaman. Panduan untuk Membayar Hutang Bayar hutang tertinggi terlebih dahulu Jika anda memiliki sejumlah wang, dan mempunyai pilihan sama ada untuk menyimpan wang tersebut dalam akaun simpanan, melabur ataupun membayar hutang anda, pilihlah alternatif yang ketiga. Pilihan ini adalah tepat terutamanya jika anda mempunyai beberapa pinjaman yang perlu dibayar. Walaupun anda hanya perlu melangsaikan satu pinjaman sahaja, keutamaan tetap perlu diberikan untuk menjelaskan hutang tersebut. Berdasarkan kadar faedah yang anda perlu bayar untuk hutang tersebut, ia akan menjejaskan kewangan anda dengan lebih teruk berbanding keuntungan yang anda dapat daripada akaun simpanan. Berdasarkan contoh di atas, jika anda mempunyai RM5,000 dan menggunakan untuk membayar balik hutang pinjaman, anda telah berjimat sebanyak RM600. Ini kerana jika anda simpan wang tersebut pada kadar faedah 6%, anda hanya akan mendapat pulangan sebanyak RM300. Jadi lebih baik jika anda menggunakan wang untuk melangsaikan hutang. Bayar lebih berbanding bayaran minimum Untuk pengetahuan anda, kad kredit juga merupakan sejenis pinjaman. Untuk menggunakannya dengan betul, pastikan anda mampu untuk membuat bayaran yang lebih berbanding bayaran minimum. Malah, lebih baik jika kad kredit digunakan apabila sangat diperlukan sahaja. Selain itu, pastikan anda mampu untuk membayar sepenuhnya sebaik sahaja anda menerima penyata kad kredit. Hentikan penggunaan kad kredit buat sementara waktu Sewaktu melangsaikan hutang anda, seeloknya kurangkan atau hentikan penggunaan kad kredit buat sementara waktu. Jangan menambah komitmen baharu sedangkan komitmen kewangan sedia ada masih belum dilangsaikan. Jika anda tidak mampu untuk mengehadkan penggunaan kad kredit, lebih baik anda berhenti menggunakan kad kredit sehingga anda selesai melangsaikan hutang. Tambah Pendapatan Salah satu cara untuk melangsaikan hutang dengan lebih cepat ialah dengan menambahkan pendapatan. Biasanya, apa yang terlintas di fikiran ialah untuk mencari pekerjaan dengan gaji yang lebih tinggi. Namun, ia tidak mudah untuk dilakukan. Jika anda tidak mampu untuk mencari pekerjaan dengan gaji yang lebih tinggi, anda boleh mulakan pekerjaan sambilan. Dengan pekerjaan sambilan, ia lebih fleksibel. Pilihan boleh dibuat untuk menentukan jenis kerja serta waktu bekerja. Dengan cara ini, hutang anda akan lebih cepat dan mudah untuk dilangsaikan. Sumber: CompareHero.my 6 | RINGGIT akan datang mungkin akan menghadapi masalah untuk memiliki rumah sendiri. Oleh itu, anda seharusnya memiliki lebih banyak aset yang mampu milik untuk dijadikan sebagai aset generasi akan datang. Selain itu, dengan memiliki aset sendiri, anda sebagai seorang suami juga telah menyediakan tempat perlindungan untuk isteri dan anak-anak jika sesuatu berlaku kepada diri anda. Mereka tidak perlu lagi menyewa jika rumah tersebut telah dibayar menggunakan pampasan takaful pinjaman perumahan. Melabur Menggunakan Teknik Leveraj Satu kelebihan melabur dalam hartanah ialah anda hanya perlu menyediakan 10% daripada harga rumah dan selebihnya, iaitu 90% akan dibayar oleh pihak bank. Teknik ini dikenali sebagai leveraj (leveraging). Jika anda mempunyai RM50,000, anda mungkin boleh membeli dua buah rumah yang bernilai RM250,000 setiap satu. Lebih menarik lagi, dalam pelaburan hartanah, anda boleh menggunakan simpanan daripada Akaun 2 KWSP untuk dijadikan deposit rumah. Selain itu, kos pemilikan aset tersebut juga akan dibayar oleh orang lain, seperti penyewa rumah, jika kadar sewa rumah tersebut melebihi bayaran bulanan kepada pihak bank. Jaringan Pelaburan hartanah juga membolehkan anda mewujudkan jaringan dengan ramai orang yang terlibat secara langsung dalam pelaburan ini. Antara pihak yang terlibat seperti pegawai bank, ejen hartanah, peguam dan jurunilai. Anda juga boleh berkenalan dengan pelabur hartanah lain yang mungkin mempunyai teknik dan cara pelaburan mereka sendiri. Melalui jaringan ini, anda dapat belajar banyak perkara daripada orang lain. Jaringan ini sangat penting untuk membantu anda untuk lebih berjaya dalam pelaburan hartanah. Anda lebih mudah untuk mendapat rumah yang lebih murah, lebih mudah untuk mendapat kelulusan pinjaman perumahan, dan lebih penting lagi apabila proses jual beli rumah anda dapat diselesaikan dengan segera. Sumber: www.duitkertas.com Ramai yang menganggap bahawa pelaburan hartanah hanya untuk orang kaya. Pelaburan tersebut memerlukan wang deposit yang banyak, kajian yang menyeluruh dan penyediaan dokumen sokongan yang pelbagai. Dalam masa yang sama, ramai yang berminat untuk melabur dalam bidang hartanah, tetapi tidak pasti sama ada pelaburan ini menguntungkan atau tidak. Jika anda berminat untuk melabur dalam bidang hartanah, berikut adalah beberapa kelebihan yang akan anda perolehi. Pendapatan Pasif Pendapatan daripada pelaburan hartanah boleh diterima melalui dua sumber utama, iaitu sewa dan kenaikan harga rumah. Jika kadar sewa yang anda letakkan melebihi bayaran kepada bank serta kos-kos lain, lebihan tunai tersebut boleh dijadikan sebagai pendapatan pasif anda pada setiap bulan. Mungkin anda tertanya-tanya bagaimana jika kadar sewa yang diterima lebih rendah daripada bayaran kepada bank? Bagaimana pula jika tiada siapa yang ingin menyewa rumah tersebut? Sebab itu dalam pelaburan hartanah anda perlu melakukan kajian yang menyeluruh sebelum buat keputusan untuk membeli rumah tersebut. Selain pendapatan yang anda terima daripada sewa rumah setiap bulan, anda juga boleh mendapat keuntungan melalui kenaikan harga rumah. Setiap tahun, harga rumah terus naik bergantung pada lokasi rumah tersebut. Rumah yang berada di kawasan yang terkenal dan mempunyai permintaan yang tinggi seperti di kawasan Lembah Klang, lazimnya mengalami kenaikan harga rumah yang sangat tinggi. Aset Pemilikan aset atau rumah secara amnya memang satu perkara yang sukar untuk dimiliki jika tiada ilmu tentang pemilikan tersebut. Tujuan utama membeli rumah biasanya adalah sebagai tempat perlindungan. Masih ramai tidak mampu memiliki rumah sendiri dan terpaksa menyewa untuk terus hidup. Aset yang anda miliki hari ini bukan sahaja boleh digunakan untuk keperluan anda, malah generasi akan datang juga akan mendapat manfaat. Dengan kenaikan harga rumah yang terlalu tinggi, generasi Kelebihan Pelaburan Dalam Hartanah Ogos 2018 | 7 Langkah Kawal Perbelanjaan Dalam menghadapi kos sara hidup yang meningkat pada masa kini, satu daripada langkah untuk mengurangkan beban kewangan anda ialah dengan mengawal perbelanjaan. Perbelanjaan yang terkawal akan menyekat anda daripada berbelanja melebihi kemampuan anda. Berikut ialah enam langkah yang anda boleh lakukan untuk mengawal perbelanjaan. Catat semua perbelanjaan harian • Catat semua perbelanjaan yang dilakukan setiap hari. • Boleh gunakan aplikasi telefon pintar untuk membuat catatan perbelanjaan. Banyak aplikasi yang tersedia di Playstore atau Appstore seperti aplikasi MyTabung yang diperkenalkan oleh Bank Negara Malaysia. Anda hanya perlu cari dan muat turun di telefon pintar anda sahaja. Jejak perbelanjaan • Tujuan mencatat adalah untuk menjejak perbelanjaan anda. • Catat perbelanjaan sekurang-kurangnya untuk tiga bulan. • Lihat pola perbelanjaan anda, sama ada wang telah dibelanjakan dengan betul atau tidak. Kenal pasti setiap perbelanjaan • Kenal pasti dan kategorikan setiap perbelanjaan yang dibuat berdasarkan perbelanjaan keperluan dan kehendak. Perbelanjaan keperluan ialah perbelanjaan untuk memenuhi keperluan asas hidup, contohnya seperti belanja dapur, makanan, bil air, bil elektrik, bayaran rumah, nafkah dan pakaian. Perbelanjaan kehendak ialah perbelanjaan sampingan sekadar untuk memenuhi tuntutan gaya hidup seperti hiburan, bayaran televisyen berbayar dan dan hobi. • Kenal pasti setiap perbelanjaan itu sama ada perbelanjaan tetap atau boleh ubah. Perbelanjaan tetap sukar untuk dikurangkan kerana bayaran telah ditetapkan oleh institusi kewangan. Perbelanjaan boleh ubah boleh dikurangkan supaya aliran tunai menjadi lebih baik, seperti hiburan, hobi dan sebagainya. Sediakan bajet sendiri • Kenal pasti setiap perbelanjaan dan sediakan bajet. • Senaraikan dan tetapkan berapa banyak wang yang perlu diperuntukkan untuk setiap perbelanjaan. • Potong mana-mana perbelanjaan yang dirasakan tidak perlu dan membazir. • Kurangkan peruntukan untuk perbelanjaan kehendak. • Pastikan jumlah perbelanjaan nanti adalah lebih kecil berbanding pendapatan, dan diperuntukkan sedikit untuk simpanan. Ikut bajet yang dibuat • Bajet yang dibuat perlu dipatuhi sepenuhnya. • Apabila gaji atau ketika anda memperoleh pendapatan lain, keluarkan wang secukupnya untuk menampung perbelanjaan yang ditetapkan. • Asingkan dan bahagi-bahagikan mengikut setiap perbelanjaan yang diperuntukkan. • Boleh guna kaedah sampul surat, bekas tupperware atau balang makanan, ataupun kaedah lain yang dirasakan sesuai. • Belanjakan jumlah yang diperuntukkan sahaja. • Jika ada lebihan, masukkan ke dalam simpanan. • Jika tidak mencukupi pula, anda tidak boleh mengambil daripada simpanan atau sampul / bekas yang lain. • Disiplinkan diri untuk berbelanja mengikut jumlah yang diperuntukkan sahaja. Semak semula bajet dari semasa ke semasa • Bajet yang dibuat boleh diubah suai dan disesuaikan dengan pendapatan dan keperluan semasa. Sumber: FOMCA 1 2 3 4 5 6 8 | RINGGIT Undang-Undang Berkaitan Penyewaan Rumah Ali (bukan nama sebenar) baru mula bekerja di daerah Petaling. Beliau ingin menyewa sebuah bilik di Kelana Jaya. Walau bagaimanapun, Ali tidak pasti tentang prosedur atau undang-undang berkaitan penyewaan bilik dan bagaimana untuk melindungi dirinya daripada ditipu oleh pemilik rumah atau ejen-ejen hartanah yang tidak bertanggungjawab. Berikut ialah beberapa panduan yang boleh anda gunakan apabila ingin menyewa bilik atau rumah. Di Malaysia tidak terdapat undang-undang yang khusus berkaitan penyewaan rumah. Bagaimanapun, terdapat beberapa peruntukan di bawah Kanun Tanah Negara 1965, dalam Bahagian 15: Pajakan dan Tenansi, yang biasanya digunakan untuk menyelesaikan sebarang pertikaian berkaitan dengan penyewaan. Selain itu, undang-undang lain tentang penyewaan ialah: • Akta Kontrak 1950 - untuk perkara berkaitan perjanjian penyewaan. • Akta Relief Spesifik 1950 – pemilik rumah adalah dilarang mengusir penyewa, menukar kunci, dan sebagainya tanpa perintah mahkamah. • Akta Undang-Undang Sivil 1956 - untuk perkara berkaitan pembayaran sewa. • Akta Distres 1951 - berkenaan hak penyewa apabila pemilik rumah ingin mengusir penyewa. Berikut adalah beberapa perkara penting yang perlu anda ketahui sebagai penyewa untuk melindungi diri anda daripada sebarang tindakan tidak bertanggungjawab oleh pemilik rumah. 1. Perjanjian Penyewaan Perjanjian penyewaan ditakrif sebagai kontrak yang ditandatangani oleh pemilik rumah dan penyewa, yang menyatakan dengan jelas semua terma dan syarat mengenai sewa harta. Kedua-dua pihak dibenarkan untuk merundingkan syarat-syarat perjanjian penyewaan. Apabila mereka telah bersetuju dan menandatangani kontrak, pemilik rumah dan penyewa akan terikat dengan syarat yang dinyatakan dalam perjanjian tersebut. Biasanya pemilik rumah akan membuat perjanjian penyewaan mereka sendiri. Oleh itu, penyewa disyorkan untuk mengupah seorang peguam atau ejen hartanah yang profesional untuk menyemak kontrak tersebut, bagi memastikan hak kedua-dua pihak dilindungi sepanjang tempoh penyewaan. Ogos 2018 | 9 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) 2. Apakah perkara yang terdapat dalam perjanjian penyewaan? Sebelum permulaan tempoh penyewaan, pastikan perkara berikut terdapat dalam perjanjian. Anda sebagai penyewa perlu bersetuju dengan perkara tersebut. Perkara Keterangan Sewa bulanan • Sewa biasanya boleh dirundingkan. Perjanjian tersebut perlu menyatakan tarikh penyewa perlu membayar sewa pada setiap bulan. Deposit Keselamatan • Deposit ini digunakan untuk menampung sebarang ganti rugi kepada harta atau perabot (disediakan oleh pemilik rumah) yang disebabkan oleh kecuaian penyewa semasa tempoh penyewaan. • Biasanya deposit keselamatan yang dikenakan ialah dua bulan sewa dan setengah bulan sewa sebagai deposit bayaran utiliti (air dan elektrik). • Deposit ini tidak akan dipulangkan jika penyewa membuat keputusan untuk mengosongkan premis sebelum tarikh tamat kontrak. Cara pembayaran sewa bulanan • Sewa biasanya dibayar melalui pindahan bank untuk mengelakkan sebarang kerumitan. Walau bagaimanapun, sebagai penyewa, pastikan anda meminta resit untuk bayaran sewa setiap bulan. Butir-butir pemilik dan penyewa • Pastikan perjanjian ini dilengkapi dengan nama penuh, nombor kad pengenalan / pasport dan alamat kedua-dua pihak. Tarikh permulaan dan tamat tempoh penyewaan • Tarikh permulaan penyewaan ialah tarikh penyewa diberikan kunci rumah sewa dan penyewa harus berpindah pada tarikh tamat tempoh penyewaan. Peruntukan ini juga perlu menyatakan jumlah notis (hari / bulan) penyewa harus memberi notis sebelum keluar atau jika ingin memperbaharui perjanjian penyewaan. Sebarang syarat khas lain yang dikenakan oleh pemilik rumah • Contohnya: ‘Tidak boleh membawa binatang peliharaan’, had bilangan orang yang dibenarkan tinggal di rumah, tempat letak kereta, dan sama ada penyewa boleh merokok dalam premis atau berhampiran dengan harta itu. • Pastikan anda berbincang dengan pemilik rumah jika anda tidak bersetuju dengan syarat-syarat yang dinyatakan dalam perjanjian penyewaan. 3. Bolehkah pemilik rumah mengusir atau mengunci penyewa jika penyewa gagal menjelaskan bayaran sewa pada masanya? Salah di sisi undang-undang bagi pemilik harta untuk mengusir penyewa atau mengambil kembali milik rumah / bilik tanpa perintah mahkamah mengikut Seksyen 7 (2) Akta Bantuan Khusus 1950. Oleh itu, pemilik rumah tidak harus menukar / memecah kunci atau mengusir penyewa tanpa perintah mahkamah. Sekiranya pemilik rumah berbuat demikian, mereka boleh didakwa kerana mencerobohi rumah yang dihuni oleh penyewa. Sebagai penyewa, anda perlu menjelaskan bayaran sewa bulanan tepat pada masanya. Jika anda menghadapi masalah berkaitan bayaran sewa, anda perlu menghubungi pemilik rumah dan berbincang mengenainya. Anda perlu menyedari terdapat pemilik rumah yang bergantung kepada sewa bulanan sebagai sumber pendapatan bulanan mereka. Akhir sekali, anda perlu memeriksa semua yang ada di dalam rumah sebelum anda menandatangani kontrak. Ini bagi memastikan premis tersebut diserahkan kepada anda dalam keadaan yang baik. Jika terdapat sebarang kecacatan terhadap rumah tersebut, anda perlu memberitahu pemilik rumah supaya kecacatan tersebut diketahui olehnya dan diperbaiki sebelum anda menghuni rumah tersebut. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) 10 | RINGGIT Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) Anda Boleh Semak Mule’s Akaun atau Nombor Telefon Palsu Now, you can check out mule's account or fake phone number 現在，你可以檢查出騾子帳戶或假電話號碼 இப்ப ோது நீங்கள் ப ோலி வங்கி கணக்கு எண்கள் மற்றும் ப ோலி த ோலலப சி எண்கலை சரி ோர்க்கலோம் http://ccid.rmp.gov.my/semakmule/ QR Code http://ccid.rmp.gov.my/semakmule/ Jabatan Siasatan Jenayah Komersil Polis Diraja Malaysia Date 03 Oct. 2017

Public Notice

29 Aug 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-29082018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 29 Aug 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 423 companies. The following company was added to the list: 1.VI Profit Galaxy (DSV Cryptoclub & LUX Galaxies) The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

28 Aug 2018

RINGGIT Newsletter (July 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-july-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed99+July+2018+v7.pdf

Reading: RINGGIT Newsletter (July 2018 issue) is now available for download Share: RINGGIT Newsletter (July 2018 issue) is now available for download Release Date: 28 Aug 2018 The highlight for this month is Persediaan Kewangan Menghadapi Masa Tua Other topics of interest include : Cara Menjimatkan Belanja Harian Teknik Terbaik Untuk Keluar Daripada Hutang Yang Banyak 5 Soalan Yang Perlu Ditanya Sebelum Membeli Insurans Perubatan Kerosakan Dikenakan Bayaran Walaupun Masih Dalam Tempoh Waranti RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - July/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I JULAI 2 0 1 8 Teknik Terbaik Untuk Keluar Daripada Hutang Yang Banyak Lima Soalan Yang Perlu Ditanya Sebelum Membeli Insurans Perubatan PP 16897/05/2011 (029495) Cara Menjimatkan Belanja Harian Persediaan Kewangan Menghadapi Masa Tua Pada 29 Jun 2017, sebuah akhbar dalam talian telah melaporkan tentang warga tua yang ditinggalkan oleh keluarga mereka. Beberapa orang yang ditemu ramah oleh akhbar tersebut berpendapat warga emas tidak sepatutnya mengharapkan anak-anak sahaja untuk menjaga mereka. Malah ada yang berpendapat, “Jangan bergantung sepenuhnya kepada anak-anak untuk menjaga anda kerana mereka mungkin ada komitmen lain yang perlu digalas.” Zaman tua sepatutnya merupakan zaman kemuncak anda selaras dengan gelaran warga emas. Namun ia boleh menjadi zaman yang kelam jika anda terasing tanpa tempat bergantung. Jika anda menyerahkan ibu bapa ketika usia tua mereka ke tangan orang lain, mungkinkah anak-anak anda juga akan melakukan perkara yang sama? Semua ini menambah lagi persoalan kepada generasi Y: adakah anda bersedia untuk menghadapi hari tua? Berikut adalah beberapa fakta tentang warga tua: 1. Pertubuhan Kesihatan Sedunia (WHO) menyatakan secara amnya, umur bagi seorang warga tua adalah 65 tahun. 2. Laporan Statistik Kesihatan Dunia 2017 yang diterbitkan oleh WHO mendedahkan jangka hayat bagi kedua-dua jantina di Malaysia adalah 75 tahun. 3. Berdasarkan data yang diperoleh daripada Bank Dunia, orang berumur 65 tahun ke atas merupakan 6% daripada jumlah penduduk Malaysia pada tahun 2015. Ini merupakan peningkatan sebanyak 3% sejak 1960, dan mengesahkan jumlah 1.9 juta warga tua di negara ini. 4. Jumlah penduduk warga tua di dunia kini meningkat dengan pantas. Menurut Tabung Penduduk Pertubuhan Bangsa-Bangsa Bersatu, orang berumur 60 tahun ke atas merupakan 12.3% daripada jumlah penduduk dunia. Jumlah ini dijangka meningkat kepada 22% menjelang 2050. 5. Jabatan Statistik Malaysia mengunjurkan Malaysia akan menjadi negara tua pada tahun 2030 apabila 15% penduduk terdiri daripada warga emas. 6. Lembaga Penduduk dan Pembangunan Keluarga Negara (LPPKN) pernah menjalankan kaji selidik ke atas keluarga Malaysia pada tahun 2014. Kaji selidik ini mendapati 9% daripada warga tua (168,000 orang warganegara) hidup bersendirian. 7. Dalam kaji selidik yang sama, 4.7% (88,000 warganegara) menyatakan yang mereka tidak pernah menerima sebarang bantuan daripada anak-anak mereka, sama ada dalam bentuk wang, keperluan harian mahupun bantuan dalam penjagaan rumah. Jadi apa yang anda perlu rancang untuk hidup sendiri? 1. Penjagaan kesihatan Tahun demi tahun badan anda akan melalui perubahan biologi yang akan meningkatkan kecenderungan terhadap penyakit dan kehilangan upaya. Kesihatan merupakan aspek fizikal paling penting dalam menjalani kehidupan yang bahagia, namun kos yang terlibat dalam penjagaan kesihatan juga agak tinggi. Jika anda tidak memberi perhatian terhadap kesihatan anda mulai sekarang, perbelanjaan kesihatan boleh mengurangkan wang simpanan anda kelak. Persediaan Kewangan Menghadapi Masa Tua 2 | RINGGIT 2. Bantuan tambahan Kemajuan teknologi dalam sektor perubatan telah meningkatkan jangka hayat penduduk dunia. Namun, jika mengambil kira kecacatan mental dan fizikal, anda memerlukan bantuan tambahan untuk melakukan perkara-perkara asas, seperti bangun daripada katil, makan, mandi dan juga untuk mengingatkan diri anda untuk makan ubat. Sudah tentulah anda mengharapkan seseorang untuk menjaga anda di rumah. Tinggal di rumah sendiri yang dikelilingi oleh insan yang sentiasa prihatin terhadap kesihatan anda, sudah pasti merupakan sesuatu yang terbaik untuk menghabiskan zaman tua. Namun anda mungkin perlu mengupah penjaga untuk mendapatkan bantuan tambahan. Ini lazimnya melibatkan kos yang agak besar. Satu lagi pilihan lain ialah rumah warga emas – yang boleh mengurangkan beban kewangan. Ini bermaksud anda perlu tinggal bersama-sama dengan orang yang tidak dikenali. Kos purata untuk tinggal di rumah warga tua berbeza-beza bergantung pada kemudahan yang ditawarkan, kualiti perkhidmatan dan juga keperluan tambahan yang lain. 3. Keperluan harian Semakin usia anda meningkat, keperluan anda juga mungkin bertambah. Kadang-kadang ia merupakan perkara yang anda tidak pernah fikirkan sebelum ini. Anda mungkin memerlukan kerusi roda untuk memudahkan pergerakan anda. Anda juga mungkin memerlukan kerusi untuk membuang air besar di sebelah katil anda, selain lampin dewasa dan peralatan-peralatan lain untuk membantu anda menjalani kehidupan seharian. Pemakanan anda juga akan mengalami perubahan yang besar. Beberapa produk perlu diambil setiap hari demi mengekalkan kesihatan dan juga stamina yang lebih baik. Contohnya tepung susu tambahan dan makanan yang lembut bagi membantu anda mengunyah dan menelan dengan sempurna. Kemalangan juga lebih mudah dialami oleh warga tua disebabkan kehilangan ingatan dan kadar tindak balas yang lebih perlahan berbanding usia muda. Oleh itu, anda perlu menyimpan bekalan ubat-ubatan asas seperti kain kapas, kain pembalut, kain lap basah dan sarung tangan getah. Menjaga warga tua bukanlah satu tugas yang mudah. Anda perlu menanggung kos perubatan yang tinggi dan menjaga mereka setiap masa. Anda mungkin tidak dapat melakukannya sendiri. Walaupun perancangan menghadapi hari tua boleh mengurangkan risiko beban kewangan anda, perkara paling penting yang anda perlukan ialah sokongan dan juga hubungan kekeluargaan yang kukuh. Aspek penjagaan tidak boleh dibeli dengan wang ringgit. Inilah masanya anda memerlukan keluarga dan sahabat. Bagi sesetengah kes, ada keluarga yang memilih rumah warga emas disebabkan kesempitan wang dan kekangan masa. Ia bukannya bermaksud mereka ingin memutuskan hubungan dengan ibu bapa mereka. Kadangkala pusat penjagaan warga tua yang beroperasi secara 24 jam dan 7 hari seminggu mungkin satu- satunya pilihan yang ada. Namun anak-anak masih perlu sentiasa melawat ibu bapa bagi menunjukkan kasih sayang dan memberi sokongan moral kepada ibu bapa mereka. Sumber: loanstreet.com.my Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Julai 2018 | 3 Harga barang memang mahal, sama ada barang dapur, pakaian, makanan, minuman, pengangkutan dan sebagainya. Walau apa pun sebabnya, yang perlu membayarnya adalah kita. Oleh itu, kita perlu mencari jalan untuk menjimatkan wang supaya perbelanjaan ini tidak membebankan kita. Jimat duit makan / minum Bayangkanlah harga segelas teh tarik mencecah RM2. Biasanya satu hari sekurang-kurangnya dua kali sehari kita minum teh tarik. Jadi harga minuman sahaja sudah mencecah RM4. Untuk menjimatkan wang, cuba bawa termos sendiri. Masuk air panas atau sejuk dalam termos. Beli termos yang berkualiti yang dapat menahan suhu panas atau sejuk dengan lebih lama. Satu lagi cara ialah membawa bekal dari rumah. Ramai yang tidak membawa bekal sebab tidak sempat masak. Sebenarnya banyak cara untuk menyediakan makanan dengan cepat untuk dibawa ke tempat kerja. Kalau terpaksa juga beli makanan luar, beli makanan yang murah dari gerai yang bersih untuk mengelakkan penyakit. Sekiranya anda jatuh sakit, anda perlu berbelanja untuk mendapatkan khidmat perubatan dan hal yang demikian akan menjejaskan matlamat anda untuk berjimat cermat. Beli barang dalam talian Kalau membeli barang di kedai, biasanya harga lebih mahal disebabkan kos operasi yang besar untuk menyewa kedai, iklan dan pekerja. Apatah lagi jika kedudukan kedai di pusat membeli belah sudah tentu lebih mahal sewanya. Barang yang sama jika dibeli dalam talian seringkali harganya lebih rendah, kadangkala sehingga 30% lebih Cara Menjimatkan Belanja Harian 4 | RINGGIT rendah daripada harga di kedai. Tambahan pula, anda mempunyai banyak pilihan apabila membeli secara dalam talian. Anda juga dapat menjimatkan wang untuk petrol dan parkir kerana tidak perlu pergi ke kedai. Satu lagi panduan apabila membeli secara dalam talian ialah jangan terburu-buru membuat bayaran. Perniagaan atas talian menawarkan banyak barang yang sama dengan harga yang berbeza-beza, berdasarkan tawaran daripada penjual yang berlainan. Anda boleh menggunakan kaedah tapisan (filter) untuk mencari harga yang lebih rendah. Namun anda juga perlu meneliti barangan yang berharga rendah terlebih dahulu, mungkin kualitinya lebih kurang. Selain itu, jangan terus mendaftar keluar (check out) barang- barang dalam bakul / troli (cart), biarkan beberapa hari dahulu. Sering juga, selepas dua tiga hari, anda mungkin tidak lagi berminat untuk membeli barang tersebut. Beli barangan terpakai (preloved) Kalau anda berasa tidak selesa membeli barang dalam talian atau tidak menjumpai barang yang anda sukai, anda boleh pergi ke kedai yang menjual barangan terpakai (preloved). Anda tidak perlu berasa malu atau merasakan barang terpakai ini berkualiti rendah. Sebenarnya banyak barang terpakai yang masih baik. Contohnya, barang terpakai dari Jepun yang masih kelihatan baharu dan murah. Di Jepun, terdapat banyak kedai yang menjual barang terpakai, kerana telah menjadi budaya rakyat Jepun membeli barang terpakai. Di Malaysia salah satu kedai yang banyak menjual barang-barang terpakai dari Jepun ialah Sasuke. Begitu juga dengan barang-barang jualan pukal (bundle), jauh lebih murah kalau dibandingkan dengan membeli barang baharu. Seluar jean berjenama popular yang baharu, harganya mencecah RM300, tetapi jika membeli secara pukal, anda boleh mendapat jean berjenama sama yang dijual kurang daripada RM100. Banyak kedai sebegini di seluruh Malaysia. Sendiri tanam sendiri makan Jika anda tinggal di rumah teres, anda boleh bercucuk tanam di halaman rumah. Bagi yang tinggal di rumah bertingkat pula, seperti pangsapuri atau kondomium, anda boleh menanam dalam pasu. Pilih jenis sayur- sayuran yang tidak memerlukan banyak cahaya matahari dan kekerapan untuk menyiram air. Anda boleh mendapatkan maklumat melalui laman sesawang atau media sosial yang berkongsi maklumat cara menanam sendiri, seperti di www.facebook.com/tanamsendiri. com. Selain dapat menjimatkan wang, menanam sendiri juga dapat memastikan sayur-sayuran bersih daripada racun dan kotoran-kotoran lain. Selain sayur-sayuran, tanaman lain seperti serai, pandan, ulam raja dan halia sangat mudah untuk ditanam dan dijaga. Sumber: naksihat.com Julai 2018 | 5 Seterusnya, anda perlu membahagikan hutang yang perlu diselesaikan lebih awal, seperti kad kredit dan pinjaman peribadi. Manakala hutang kereta dan rumah pula, bergantung kepada tahap bebanan anda selepas hutang kad kredit dan pinjaman peribadi selesai. Kenali Jenis Hutang Terdapat dua jenis hutang yang sering diambil iaitu tetap (seperti hutang kereta, kad kredit dan peribadi) dan kaedah pengurangan (hutang rumah). Perbezaan utama ialah daripada segi jumlah faedah / keuntungan yang perlu dibayar kepada pihak institusi kewangan. Jika hutang tetap, anda perlu membayar jumlah faedah sepenuhnya walaupun selesai dengan lebih awal. Manakala untuk hutang yang menggunakan kaedah pengurangan, jumlah faedah / keuntungan boleh dikurangkan apabila anda menyelesaikan bayaran prinsipal lebih awal. Seterusnya, kenal pasti kadar faedah setiap hutang yang anda miliki. Susun hutang-hutang tersebut mengikut Teknik Terbaik Untuk Keluar Daripada Hutang Yang Banyak Masalah hutang merupakan perkara umum dalam kalangan rakyat biasa. Masalah seperti ini lazimnya disebabkan kegagalan mengurus kewangan dengan baik. Kebanyakan individu terjebak dengan hutang seperti pinjaman kereta, pinjaman peribadi dan pinjaman rumah. Jika anda mempunyai masalah hutang, berikut adalah beberapa langkah yang boleh anda ambil untuk menguruskan hutang dengan lebih baik. Buat Rancangan Bebas Hutang Perkara pertama yang anda perlu lakukan adalah berniat untuk bebas daripada hutang. Anda perlu memberi komitmen sepenuhnya supaya hutang anda dapat diselesaikan. Selagi anda tidak mempunyai niat untuk bebas daripada hutang, selagi itu setiap rancangan anda akan gagal. Untuk merancang, anda perlu tahu beberapa perkara seperti berikut: • Jumlah hutang • Pemberi hutang (nama institusi kewangan) • Tempoh hutang • Jenis hutang 6 | RINGGIT Anda hanya perlu pekerjaan tambahan sehingga hutang anda dapat dikurangkan seperti yang anda kehendaki. Pastikan juga pekerjaan tambahan yang anda lakukan itu dapat membantu anda mengurangkan hutang. Selesaikan Hutang Yang Paling Sedikit Selesaikan dahulu hutang yang paling sedikit dan mudah untuk diselesaikan. Contoh: • Hutang Peribadi 1: RM20,000 • Hutang Peribadi 2: RM60,000 • Hutang kad kredit: RM10,000 Berdasarkan senarai hutang di atas, hutang kad kredit adalah hutang yang paling sedikit jumlahnya. Oleh itu, fokus untuk selesaikan dahulu hutang tersebut. Setiap bulan anda boleh membuat pembayaran lebih daripada bayaran minimum untuk melangsaikan hutang kad kredit tersebut. Manakala hutang yang lain, anda hanya perlu bayar seperti biasa. Apabila hutang kad tersebut sudah selesai, jumlah keseluruan hutang anda akan berkurangan dan anda boleh fokus pula pada hutang Peribadi 1 yang jumlahnya lebih rendah daripada Hutang Peribadi 2. Kurangkan perbelanjaan Jika anda berjaya menambah pendapatan tetapi perbelanjaan pula semakin meningkat, hutang anda tidak akan berjaya dikurangkan. Oleh sebab itu, selain menambah pendapatan, anda juga perlu kurangkan perbelanjaan dan berjimat cermat. Anda juga perlu kurangkan perbelanjaan gaya hidup yang mewah untuk mencapai matlamat ini. Cara ini boleh membantu mengurangkan hutang semasa anda. Sumber: www.duitkertas.com kadar faedah yang paling rendah hingga paling tinggi. Pada masa yang sama, lihat juga bayaran ansuran setiap bulan yang perlu dibayar. Tambah Pendapatan Jika anda memang betul-betul berniat untuk bebas daripada hutang yang terlalu tinggi, anda mungkin perlu menambah pendapatan. Cara ini akan membantu anda mengurangkan hutang anda lebih awal. Buat apa sahaja yang anda boleh lakukan untuk menambah pendapatan dan mengurangkan hutang anda. Berikut adalah beberapa contoh pekerjaan sampingan yang boleh anda lakukan: • Pemandu perkhidmatan e-panggilan (e-hailing driver) • Perniagaan dalam talian • Menjual makanan • Pendapatan melalui komisyen Anda boleh menambah pendapatan yang sesuai dengan diri anda supaya tidak mengganggu pekerjaan tetap anda. Julai 2018 | 7 Pemilihan pelan insurans perubatan yang sesuai boleh menyukarkan sesiapa sahaja yang ingin mencari insurans untuk perlindungan diri mereka. Terdapat beberapa salah faham tentang konsep insurans, seperti polisi yang terendah dan paling asas yang mencukupi untuk keperluan diri. Anda mungkin beranggapan anda tidak memerlukan pelan perubatan peribadi jika anda telah memiliki pelan perubatan daripada majikan. Memiliki kad perubatan bermaksud semua kos perubatan anda akan dibayar oleh syarikat insurans, tertakluk kepada syarat dan terma polisi. Kad perubatan juga akan membantu melindungi anda dalam semua isu berkaitan kesihatan anda. Dengan pelbagai maklumat daripada ejen insurans, keluarga dan rakan-rakan, anda mungkin berasa runsing dan sukar untuk membuat keputusan. Berikut disenaraikan lima soalan mudah yang perlu anda tanya sebelum memilih pelan perlindungan perubatan. Soalan Yang Perlu Ditanya Sebelum Membeli Insurans Perubatan Terdapat pelbagai pelan perlindungan kesihatan di pasaran – dan ini belum termasuk pilihan tambahan (yang juga dikenali sebagai rider). Semua pelan perubatan mempunyai satu ciri asas, iaitu untuk membiayai kos kemasukan ke hospital, pembedahan atau rawatan. Terdapat dua jenis pelan kesihatan yang anda boleh pilih bergantung kepada keperluan: • Insurans Perubatan Jangka Panjang, Kemasukan ke Hospital dan Pembedahan: Pelan perubatan asas yang melindungi kos rawatan di hospital dan kos rawatan susulan. • Pendapatan Hospital: Pelan perlindungan kewangan yang memberikan anda pendapatan harian sepanjang rawatan di hospital. Apakah Perlindungan Yang Diberikan Dalam Pelan Perubatan Saya? Jawapannya ialah ya. Pelan perubatan anda melindungi kos perubatan penyakit kritikal. Walau bagaimanapun, kos perubatan yang tinggi boleh menggunakan keseluruhan liputan perubatan anda, meninggalkan anda dengan nilai yang kosong untuk perlindungan pada masa akan datang. Di sinilah pelan penyakit kritikal dapat membantu. Pelan penyakit kritikal adalah satu polisi berasingan daripada pelan perubatan anda. Ramai yang tidak melihat kemungkinan mereka mengalami masalah kesihatan yang serius seperti penyakit kritikal. Diagnosis penyakit kritikal mempunyai pelbagai kesan dalam pelbagai aspek kehidupan, seperti pesakit terpaksa mengambil masa daripada kerja untuk waktu pemulihan, mengeluarkan sejumlah wang yang banyak untuk rawatan, terapi atau membeli peralatan perubatan di rumah. Pelan penyakit kritikal memberikan anda penyelesaian kepada masalah kewangan semasa sakit. Adakah Pelan Perubatan Saya Memberikan Perlindungan Ke Atas Semua Penyakit Dan Kecederaan? 8 | RINGGIT Untuk mengelakkan anda terpaksa membayar kos perubatan yang tidak dijangka atau kos yang tidak diketahui akibat pengecualian khas, anda perlu mengajukan kelima-lima soalan ini sebelum anda menurunkan tandatangan anda sebagai persetujuan untuk memilih pelan perlindungan perubatan tersebut. Sumber: www.aia.com.my Adakah Saya Patut Mengambil Pelan Yang Paling Rendah? Adakah Pelan Perubatan Saya Akan Melindungi Keadaan Kesihatan Saya Sekarang? Perlukah Saya Membayar Untuk Kemasukan ke Hospital? Antara salah faham yang biasa berlaku mengenai pelan perlindungan perubatan adalah anda tidak perlu membayar apa-apa walau satu sen untuk rawatan dan kemasukan ke hospital. Rujuk kembali kepada nombor 3 dan soalan seterusnya, iaitu mengapa saya perlu membayar kemasukan ke hospital saya dengan pelan perubatan? Meskipun syarikat perubatan menawarkan kad perubatan yang memberikan perlindungan dan akses mudah untuk rawatan, ia bukan satu jaminan bahawa keseluruhan proses itu tidak melibatkan wang. Sesetengah hospital masih memerlukan bayaran wang pendahuluan atau caj pemprosesan. Sesetengah pelan perubatan juga memiliki ciri-ciri ‘hanya leretkan’ kad kredit untuk kemasukan ke hospital dan ini memudahkan proses kemasukan dan pelepasan pesakit ke hospital-hospital panel. Terdapat beberapa keadaan yang tidak termasuk dalam pelan perubatan anda dan ini dipanggil pengecualian khas (major exclusions). Pengecualian ini merujuk kepada keadaan kesihatan yang tidak dilindungi pelan seperti: • Penyakit sedia ada, seperti penyakit yang anda sedari telah wujud sebelum bermulanya perlindungan perubatan yang baharu. Hampir semua pelan mempunyai tempoh menunggu untuk keadaan seperti ini. • Rawatan atau pembedahan untuk penyakit-penyakit tertentu dalam tempoh yang ditetapkan. • Pembedahan kosmetik / berkhatan / lensa pembaikan / rawatan gigi, melainkan ia diperlukan untuk merawat kecederaan daripada kemalangan. Anda perlu merujuk kontrak polisi anda untuk senarai penuh pengecualian. Apabila anda telah memutuskan jenis perlindungan perubatan yang anda mahu, perkara seterusnya adalah kos pelan anda atau juga dikenali sebagai premium bulanan. Jumlah yang anda bayar setiap bulan bergantung kepada tiga perkara: jumlah potongan, insurans bersama dan had tahunan. • Potongan: Potongan adalah bayaran awal yang anda dahulukan untuk semua penjagaan perubatan anda sebelum insurans diaktifkan. Pelan yang tinggi potongannya bermakna anda bertanggungjawab untuk bahagian yang lebih besar daripada kos penjagaan perubatan anda. Kesannya, anda akan membayar premium yang lebih rendah. Setelah potongan dilakukan, syarikat insurans akan membayar baki kos. Ini sangat ideal untuk mereka yang berdikari dan tidak mempunyai tanggungan. • Insurans bersama: Insurans bersama adalah peratusan caj perubatan yang anda bayar, manakala selebihnya dibayar oleh pelan perubatan anda. Sebagai contoh, anda mempunyai 20% insurans bersama, maka anda membayar 20% daripada bil perubatan anda dan pelan anda membayar baki 80%. • Had tahunan: Had tahunan adalah jumlah maksimum yang anda boleh tuntut daripada syarikat insurans dalam setahun. Satu kesilapan yang sering dilakukan oleh ramai orang ialah melihat kepada pelan dengan bayaran premium terendah dan tidak mengira had tahunan atau ciri-ciri lain. Kaji setiap pelan dan pilih kombinasi mana yang sesuai. Terdapat pelan seperti A-Life Med Regular yang mempunyai had tahunan tetapi tiada had untuk jumlah yang anda boleh tuntut sepanjang hayat, manakala A-Plus Med mempunyai ciri untuk meningkatkan jumlah had tahunan bermula daripada tahun ketiga polisi anda. A-Plus Med juga tiada ciri insurans bersama atau caj potongan, bermakna anda tidak perlu membayar apa-apa jumlah daripada caj perubatan anda. Julai 2018 | 9 Kerosakan Dikenakan Bayaran Walaupun Masih Dalam Tempoh Waranti SSaya telah membeli sebuah periuk nasi elektrik. Selepas dua kali menggunakannya, periuk tersebut gagal berfungsi. Oleh sebab periuk nasi elektrik tersebut masih dalam tempoh waranti, saya telah menghantar semula ke kedai untuk dibaiki. Sebulan kemudian, periuk nasi tersebut kembali rosak. Sekali lagi saya menghantar semula ke kedai untuk dibaiki. Namun kali ini, pekerja kedai tersebut meminta bayaran sebanyak RM150 sebagai kos pembaikan walaupun tempoh waranti masih ada. Apakah hak saya sebagai seorang pengguna dalam hal ini? Waranti / Gerenti Satu jaminan yang diberikan oleh pengeluar atau syarikat kepada pembeli untuk membaiki atau menggantikan barangan yang rosak atau cacat dalam tempoh yang ditetapkan tanpa sebarang caj dikenakan kepada pembeli. Seksyen 32 Akta Perlindungan Pengguna 1999, memperuntukkan bahawa barang yang dibekalkan kepada pengguna mempunyai gerenti tersirat, iaitu barang itu adalah daripada kualiti yang boleh diterima dan selamat untuk digunakan. Seksyen 41 (1) (a) dan 46 pula menyatakan, bagi barang yang gagal mematuhi gerenti, pembekal boleh: a) membaiki barang, jika kegagalan itu tidak berkaitan; b) memulihkan apa-apa kecacatan hak milik, jika kegagalan itu berkaitan dengan hak milik; c) menggantikan barang itu dengan barang yang serupa jenisnya; atau d) memberikan bayaran balik apa-apa wang yang telah dibayar atau balasan lain yang telah diberikan oleh pengguna berkenaan dengan barang itu jika pembekal tidak dapat dengan munasabahnya dikehendaki membaiki atau menggantikan barang itu atau memulihkan apa-apa kecacatan hak milik. Berdasarkan aduan yang dikemukakan, anda berhak untuk meminta wang dipulangkan atau menggantikan barang tersebut jika barang tersebut mengalami masalah kerosakan yang sama secara berulang-ulang. Biasanya pihak kedai akan membaiki kerosakan pada periuk nasi elektrik tersebut. Sekiranya kerosakan itu tidak boleh dibaiki, barulah mereka akan menggantikan periuk nasi berkenaan dengan periuk nasi yang baharu. Menurut undang-undang di Malaysia, semua produk pengguna mempunyai jaminan secara automatik. Jaminan ini dikenali sebagai gerenti tersirat. Ia bermaksud semua produk pengguna yang dijual di negara ini perlu mempunyai kualiti yang berpatutan. Pengeluar dan pengedar perlu memastikan produk yang dijual berkualiti dan boleh digunakan pada jangka masa yang munasabah. Sekiranya pihak kedai menafikan hak anda untuk menuntut pembaikan atau penggantian, anda boleh membuat aduan kepada Pusat Khidmat Aduan Pengguna Nasional (NCCC) atau memfailkan kes di Tribunal Tuntutan Pengguna Malaysia (TTPM) untuk membuat tuntutan. Anda perlu melampirkan bukti pembelian (resit / kad waranti) apabila membuat tuntutan tersebut. Maklumat lanjut mengenai TTPM boleh dilayari di pautan https://tribunal.kpdnkk.gov.my Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) 10 | RINGGIT Anda Boleh Semak Mule’s Akaun atau Nombor Telefon Palsu Now, you can check out mule's account or fake phone number 現在，你可以檢查出騾子帳戶或假電話號碼 இப்ப ோது நீங்கள் ப ோலி வங்கி கணக்கு எண்கள் மற்றும் ப ோலி த ோலலப சி எண்கலை சரி ோர்க்கலோம் http://ccid.rmp.gov.my/semakmule/ QR Code http://ccid.rmp.gov.my/semakmule/ Jabatan Siasatan Jenayah Komersil Polis Diraja Malaysia Date 03 Oct. 2017 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang)

Public Notice

09 Aug 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-09082018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 09 Aug 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 422 companies. The following company was added to the list: 1. ARS Ultimate Sdn Bhd (1268778 - A)  2. Project Tebus NIlai IQD Scheme The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

06 Aug 2018

RINGGIT Newsletter (June 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-june-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed98+June+2018+v5-1.pdf

Reading: RINGGIT Newsletter (June 2018 issue) is now available for download Share: RINGGIT Newsletter (June 2018 issue) is now available for download Release Date: 06 Aug 2018 The highlight for this month is Keperluan Lwn Kehendak Other topics of interest include : Jangan Jadi Mangsa Skim Cepat Kaya Strategi Menangani Bebanan Hutang Mengapa Orang Sering Pokai? 4 Perkara Utama Perlu Dilindungi Insurans / Takaful RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - June/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I JUN 2 0 1 8 Strategi Menangani Bebanan Hutang Empat Perkara Utama Perlu Dilindungi Insurans / Takaful PP 16897/05/2011 (029495) Jangan Jadi Mangsa Skim Cepat Kaya Anda sedang berjalan di sebuah pusat membeli- belah. Anda terpandang sehelai jaket kulit yang anda sangat inginkan. Mungkin jaket penting untuk memastikan badan anda sentiasa hangat sewaktu musim hujan. Tetapi perlukah membeli jaket kulit yang berjenama mahal? Ada perkara yang anda perlukan dan ada pula yang anda inginkan. Ada juga perkara yang jika tidak ada pun tidak mengapa. Bagaimana untuk membezakan antara kedua-dua perkara ini? Keperluan ialah perbelanjaan yang anda perlu ada supaya anda dapat menjalani kehidupan setiap hari. Berikut ialah antara senarai perbelanjaan dalam kategori keperluan: • Rumah; • Kenderaan; • Insurans; • Petrol dan eletrik; • Makanan. Kehendak pula ialah perbelanjaan yang menjadikan kehidupan anda lebih selesa. Anda boleh menjalani kehidupan seperti biasa walaupun kehendak tersebut tiada. Sebagai contoh, minuman ialah keperluan, tetapi minuman seperti mocha dan latte adalah kehendak. Apakah yang tergolong sebagai ‘kehendak’? Antara perkara yang menjadi kehendak ialah: • Melancong; • Hiburan; • Pakaian berjenama; • Keahlian gimnasium; • Memandu kereta mahal. Namun, keperluan dan kehendak bagi setiap orang tidak sama. Leslie H. Tayne, pengasas Tanyne Law Group, sebuah firma guaman yang menguruskan hutang di bandar New York, telah memberikan kaunseling kepada pelanggan beliau tentang pengurusan kewangan peribadi. Hasil daripada kajian beliau, konsep antara keperluan dan kehendak, mempunyai kaitan dengan faktor psikologi manusia. Sebagai contoh, anda memerlukan kereta untuk pergi bekerja setiap hari. Tetapi kereta dengan bayaran ansuran sebanyak RM2,000 sebulan di luar daripada kemampuan anda. Akibat nak ‘bergaya tak kena masa’ Bagi sesetengah orang, ini merupakan kemewahan yang mereka perlukan. Bagaimana untuk mengetahui sama ada itu adalah keperluan atau kehendak? Keperluan Lwn Kehendak “Jika sesuatu perkara itu tidak diperlukan dan tidak penting, maka ia adalah kehendak.” 2 | RINGGIT Contoh soalan yang sering digunakan adalah seperti berikut: “Adakah orang itu boleh hidup tanpa perkara tersebut?” Jika sesuatu perkara itu tidak diperlukan untuk menjalani kehidupan seharian, maka ia adalah kehendak. Tiga cara menyusun ‘keperluan’ dan ‘kehendak’ Mulakan dengan menyenaraikan semua barang yang dibeli, seperti tisu, alat mandian, hingga insurans nyawa. Bahagikan kepada dua bahagian. Satu ‘keperluan’ dan satu lagi ‘kehendak.’ Bagi kebanyakan orang, mereka akan meletakkan pelan telekomunikasi dan insurans dalam kategori ‘keperluan.’ Langganan TV satelit pula sebagai ‘kehendak.’ Jumlahkan kesemuanya, dan selaraskan mengikut perkara yang lebih utama. Mengikut NerdWallet (sebuah laman sesawang penasihat kewangan), menyarankan bajet 50/30/20: • 50% untuk belanja ‘keperluan,’ • 30% untuk belanja ‘kehendak,’ dan • 20% untuk ‘simpanan’ dan bayar hutang. Jika perbelanjaan anda tidak sepadan dengan senarai yang dibuat, apa yang anda perlu lakukan? Anda boleh membuat perubahan seperti berikut: 1. Lihat senarai yang anda buat Semak semula senarai yang anda buat. Mungkin ada perkara yang anda terlepas pandang, iaitu perkara yang diletakkan dalam kategori ‘keperluan,’ tetapi sebenarnya adalah ‘kehendak.’ 2. Rangka balik perbelanjaan ‘keperluan’ Walaupun anda perlu membayar sesuatu perkara (sebagai contoh insurans), ia tidak bermakna anda perlu membayar pada harga melebihi daripada harga yang sepatutnya. Hubungi syarikat insurans dan dapatkan pelan yang bersesuaian dengan kedudukan kewangan anda. 3. Kurangkan perbelanjaan ‘kehendak’ Ini mudah dilakukan, namun tidak semua orang sanggup melakukannya. Ini tidak bermakna anda langsung tidak boleh berbelanja, tetapi cuba kurangkan. Jika anda ingin membeli barang yang berharga mahal, kumpul wang untuk membelinya kemudian. Sumber: gilahartanah.com Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. jun 2018 | 3 5. Status Syarikat M a k l u m a t s y a r i k a t pelaburan tidak diberikan secara jelas. Anda juga menghadapi kesukaran untuk mendapatkan maklumat tentang syarikat dan jenis perniagaannya. Sebaik-baiknya melaburlah di institusi pelaburan yang dijamin oleh kerajaan atau diperakui oleh agensi pengawal selia seperti Suruhanjaya Sekuriti Malaysia, Suruhanjaya Syarikat Malaysia dan sebagainya. Jangan Jadi Mangsa Skim Cepat Kaya Terdapat banyak peluang pelaburan yang wujud pada masa kini. Namun anda perlu berhati-hati kerana terdapat juga penganjur pelaburan yang mengambil kesempatan untuk kepentingan mereka sendiri. Skim pelaburan seperti inilah yang dikatakan skim pelaburan cepat kaya. Untuk mengelak diri anda daripada terjebak dengan skim ini, berikut adalah beberapa cara untuk anda mengenal pasti skim tersebut. Sumber: siakapkelinews.blogspot.com 1. Hanya Keuntungan, Tiada Kerugian Penganjur skim hanya memberitahu tentang keuntungan yang akan diperoleh. Mereka langsung tidak menyentuh tentang kerugian yang mungkin berlaku terhadap pelaburan tersebut. Walhal dalam apa juga jenis pelaburan, sudah tentu terdapat untung dan rugi. 2. Keuntungan Berlipat Ganda Penganjur pelaburan mendakwa pelaburan tersebut akan mendapat pulangan yang sangat tinggi. Anda perlu berhati-hati kerana jika keuntungan tersebut sangat tinggi berbanding dengan jumlah pelaburan anda yang kecil, maka kemungkinan ia adalah penipuan pelaburan. 3. Dapat ‘Buah Tangan’ P e n g a n j u r j u g a menawarkan hadiah l u m aya n d e n ga n tujuan untuk menarik pelanggan. 4. Siapa Cepat, Dia Dapat P e l a b u r a n y a n g d i tawa r ka n h a nya d i b u k a d a l a m tempoh yang terhad. Anda diminta untuk membuat keputusan yang cepat untuk melabur. Jika anda g a g a l m e m b u a t keputusan pelaburan pada masa yang ditetapkan, anda terlepas peluang untuk melabur. 4 | RINGGIT Setiap orang mempunyai alasan tersendiri mengapa mereka berhutang. Ada yang berhutang untuk tujuan peribadi. Ada pula yang berhutang untuk tujuan perniagaan. Sesetengah orang pula berhutang kerana terdesak. Pengurusan hutang adalah satu aktiviti yang agak rumit dan memerlukan individu untuk mempunyai ilmu yang agak mendalam, terutamanya daripada segi pengurusan kewangan peribadi. Malangnya, tidak ramai orang yang mendalami dan menjadi pakar tentang ilmu pengurusan kewangan peribadi di negara ini. Ramai sedia maklum tujuan mereka berhutang. Walau bagaimanapun, tidak ramai yang boleh membuat penilaian sama ada hutang yang mereka ambil itu ialah hutang perlu atau sebaliknya. Amat penting untuk mengetahui jenis-jenis hutang dan sebab berhutang supaya peminjam menjadi lebih fokus sewaktu menangani bebanan hutang kelak. Berikut adalah antara sebab utama seseorang berhutang dan jenis hutang tersebut: Berhutang untuk mendapatkan barang-barang keperluan Lazimnya, individu berhutang untuk membeli atau membina r u m a h ke d i a m a n ata u membeli kenderaan yang menjadi keperluan pada zaman sekarang. Hutang jenis ini selalunya berlaku sekali dalam hidup seseorang. Hutang ini tergolong dalam kelompok hutang yang bersandarkan aset. Tempoh pembayaran yang panjang dan kadar faedah agak berpatutan bergantung pada keadaan ekonomi tempatan dan dunia. Berhutang untuk memenuhi kehendak dan keinginan Terdapat pula golongan yang berhutang untuk memenuhi kehendak dan keinginan mereka sehingga berbelanja di luar kemampuan kewangan. Hal ini berlaku kerana mereka gagal mengawal keinginan diri demi untuk menjaga reputasi, seperti membeli pakaian berjenama mahal dan sebagainya, yang akan membebankan mereka dengan masalah hutang. Kebiasaan golongan ini berhutang dengan menggunakan kad kredit kerana barang-barang yang dibeli bukanlah aset yang diterima oleh bank sebagai cagaran. Hutang yang tidak bersandarkan aset selalunya dikenakan kadar faedah yang tinggi oleh pihak bank kerana ia dianggap sebagai hutang berisiko tinggi. Tempoh bayaran bergantung kepada jumlah wang yang dibayar. Jika bayaran yang dibuat adalah jumlah minimum, individu tersebut akan mengambil masa yang lama untuk menjelaskan hutang kad kredit berkenaan. Berhutang untuk membuat pelaburan Golongan yang berhutang untuk membuat pelaburan biasanya terdiri daripada mereka yang mempunya i i lmu yang mendalam tentang pengurusan kewangan p e r i b a d i ata u m e re ka yang terlibat dalam bidang perniagaan secara persendirian. Asas utama yang perlu dipertimbangkan apabila berhutang untuk membuat pelaburan ialah kadar faedah yang dikenakan oleh pemberi hutang. Kadar faedah yang dikenakan atas hutang tersebut mestilah lebih rendah daripada untung yang akan diperoleh daripada pelaburan. Jika sebaliknya, pada akhir pelaburan, pelabur bukan sahaja tidak mendapat untung tetapi dibebani pula dengan hutang yang melambung. Berhutang kerana tuntutan semasa kecemasan Bukan semua orang suka berhutang. Terdapat juga segelintir golongan yang bijak menguruskan kewangan peribadi mereka. Mereka mempunyai disiplin yang tinggi dan mengamalkan sikap berbelanja mengikut kemampuan sendiri. Jika mereka ingin membeli sesuatu Strategi Menangani Bebanan Hutang jun 2018 | 5 barang, mereka akan mengumpul wang terlebih dahulu. Golongan ini mempunyai tahap kesabaran yang tinggi untuk menunggu sehingga wang yang dikumpul mencukupi untuk membeli barang yang mereka perlukan. Walau bagaimanapun, bak kata pepatah melayu ‘malang tidak berbau’. Dalam keadaan kecemasan seperti ditimpa kemalangan, kenderaan rosak dan sebagainya, seseorang mungkin terpaksa berhutang sebagai jalan penyelesaian untuk keluar daripada masalah yang dihadapi tersebut. Dalam keadaan ini, anda mungkin bernasib baik jika dapat meminjam wang daripada kawan atau saudara. Sesetengah orang pula terpaksa meminjam daripada pihak bank dan sebagainya. Kebiasaannya, kad kredit menjadi pilihan utama untuk berhutang bagi menyelesaikan masalah perbelanjaan yang tidak direncanakan, seperti apabila berlaku kemalangan atau kecemasan yang lain. Langkah untuk menangani beban hutang Hutang selalunya dianggap sebagai beban. Namun bagi segelintir orang, hutang juga boleh digunakan sebagai peluang dan memberi kemudahan serta langkah untuk memberi keuntungan. Walau apapun pandangan anda terhadap hutang, ia perlu diuruskan secara fokus dan teratur. Perkara pertama yang perlu anda lakukan ialah berhenti daripada menambah hutang baharu, terutama hutang ya n g m e l i b a t ka n ka d kredit. Seterusnya, anda perlu mendalami ilmu dan selok-belok tentang jenis- jenis hutang anda. Anda perlu menganalisis dan mengira jumlah faedah yang perlu anda bayar untuk menjelaskan hutang tersebut. Lumrahnya, hutang yang dikenakan kadar faedah yang paling tinggi, seperti hutang kad kredit, adalah hutang yang akan paling membebankan anda. Anda perlu mengambil langkah proaktif untuk menyelesaikan hutang kad kredit dengan membayar lebih daripada bayaran minimum yang dikenakan dan dalam tempoh yang lebih singkat. Jangan sekali- kali membayar lewat kerana anda akan dikenakan caj bayaran yang akan memburukkan lagi keadaan. Disiplinkan diri untuk membayar hutang pada atau sebelum tarikh yang ditetapkan. Jika anda mempunyai wang yang lebih, seperti mendapat bonus, gunakan wang tersebut untuk melangsaikan hutang. Dengan cara ini, anda akan dapat mengurangkan jumlah baki pinjaman. Apabila jumlah baki pinjaman rendah, jumlah bayaran untuk faedah juga turut berkurangan. Dengan ini, anda akan dapat melunaskan hutang dalam masa yang lebih singkat daripada tempoh asal. Jika anda mempunyai wang simpanan yang boleh digunakan untuk melangsaikan hutang, gunakan cara ini. Anda juga perlu rajin mencari maklumat mengenai cara untuk mengurangkan faedah yang dikenakan ke atas hutang anda. Terdapat produk di pasaran yang menawarkan pindahan baki hutang kad kredit daripada bank pengeluar kad kredit ke bank yang lain tanpa mengenakan sebarang faedah. Ini akan memberi penjimatan yang sewajarnya kepada anda dan wang yang telah dijimatkan tersebut bolehlah digunakan untuk membayar faedah pinjaman dan seterusnya mengurangkan baki pokok hutang anda. Anda mesti berbelanja dengan sebaik-baiknya. Membeli sesuatu mengikut kemampuan dan tidak berbelanja melebihi kemampuan diri, seperti membeli kasut berjenama yang tidak ditawarkan diskaun harga. Memadai jika anda mempunyai kasut yang selesa untuk dipakai ke tempat kerja. Di samping itu, setiap perbelanjaan yang dilakukan mestilah dengan perancangan yang teliti. Anda digalakkan untuk membeli barang yang diperlukan sahaja dan bukan membeli barang yang anda suka. Pembaziran seperti ini akan menyebabkan anda berhutang untuk memenuhi nafsu berbelanja yang tinggi. Tambahan lagi, apabila tiba musim gaji, perkara pertama yang perlu dilakukan sebaik mendapat gaji bulanan ialah membayar hutang dan bil-bil bulanan. Selepas membayar hutang, perbelanjaan barang keperluan perlu dibuat dengan sebaiknya bagi mengelakkan berlakunya pembaziran. Jangan belanjakan semua wang gaji yang diterima. Anda perlu membuat simpanan untuk kegunaan pada masa hadapan atau pada waktu kecemasan kerana kita perlu sentiasa bersedia menghadapi waktu tersebut bila-bila masa sahaja. Setidak-tidaknya, kita boleh mengeluarkan simpanan untuk kegunaan masa kecemasan dan bukan berhutang dengan pihak lain pula. Cara terbaik ialah memperuntukkan sebahagian daripada gaji terlebih dahulu sebagai simpanan. Jika segala usaha untuk menangani bebanan hutang tidak membuahkan hasil dan anda menemui jalan buntu, masih ada lagi satu cara sebagai alternatif. Agensi Kaunseling dan Pengurusan Kredit (AKPK) boleh membantu anda menguruskan hutang dengan lebih berdisiplin dan teratur. Maklumat mengenai AKPK boleh dilayari di www.akpk.org.my Sumber: www.usahawan.com 6 | RINGGIT Berdasarkan laporan Majlis Perancang Kewangan Malaysia (MFPC) pada tahun 2016, seramai 22,663 orang rakyat Malaysia yang berusia kurang daripada 35 tahun telah diisytiharkan muflis sepanjang tahun 2011 hingga 2015. Angka ini amat memeranjatkan. Mungkin anda tidak termasuk dalam golongan ini. Namun jika anda juga sering kehabisan wang (pokai) pada akhir bulan, atau anda mengalami kesukaran untuk memenuhi keperluan perbelanjaan bulanan, anda perlu melakukan sesuatu tentang pengurusan kewangan anda. Tidak dinafikan, kos sara hidup yang tinggi masa ini amat merisaukan, bukan sahaja kepada generasi milenial, tetapi juga generasi sebelumnya, generasi X. Jika anda dapat merancang kewangan anda dengan baik, maka anda dapat memperbaiki situasi kewangan anda. Sebelum anda mencari jalan untuk membaik pulih kedudukan kewangan, anda perlu mengenal pasti sebab anda mengalami masalah kewangan ini. Punca rakyat Malaysia sering mengalami kekurangan wang 1. Tidak membuat bajet bulanan Sebab utama mengapa ramai orang sering mengalami masalah kekurangan wang ialah kerana tidak membuat Mengapa Orang Sering Pokai? bajet dan tidak mengawasi perbelanjaan bulanan. Oleh itu mereka tidak tahu ke mana wang mereka dibelanjakan setiap bulan. Bajet membolehkan anda merancang dengan teliti perbelanjaan anda setiap bulan tanpa hilang fokus terhadap jumlah pendapatan yang boleh dibelanjakan. Anda perlu memadankan segala perbelanjaan bagi keperluan utama setiap bulan dengan jumlah pendapatan bersih anda. Anda mungkin terkejut apabila menyedari bahawa tidak banyak wang yang tinggal untuk perkara-perkara lain. Selama ini anda sebenarnya telah terlebih berbelanja. Pada hakikatnya anda mungkin tidak mampu pun untuk membayar latte sebanyak RM12 segelas setiap hari. Namun ramai yang tidak sedar hal ini, kerana setiap kali mereka kekurangan wang di dalam poket, mereka menggunakan kad kredit untuk membuat bayaran. Dengan adanya bajet bulanan dan mematuhinya dengan penuh disiplin, anda akan mengetahui jumlah wang yang tinggal untuk dibelanjakan. Dengan ini anda tidak akan berbelanja sewenang-wenangnya. 2. Berbelanja melebihi pendapatan Ini juga merupakan sebab mengapa orang selalu pokai. Ini berpunca daripada sikap tidak membuat bajet dan kegagalan untuk membentuk disiplin bagi mengawal sikap boros. jun 2018 | 7 Memang seronok untuk memiliki semua yang diinginkan seperti mempunyai model telefon pintar terkini, jenama beg tangan yang dipakai oleh selebriti terkenal dan sebagainya. Sila ambil perhatian mengenai pesanan ini: Jika anda tidak mampu membeli sesuatu secara tunai, anda sebenarnya tidak mampu memilikinya. Dalam hal ini, pengecualian pada pembelian rumah atau kereta. Anda memerlukannya walaupun tidak mampu membeli secara tunai. 3. Anda menjalani kehidupan sosial yang mewah Jika anda menetap di kawasan bandar, anda tidak boleh lagi menikmati sepinggan nasi ayam berharga RM5. Kini harga makanan untuk makan tengah hari lebih kurang RM10 sepinggan. Jika anda merasa ini sudah cukup membebankan, realitinya anda juga mungkin tidak mampu untuk mengunjungi kafe-kafe pada setiap hujung minggu untuk menikmati kek dan smoothie. Renungkan sejenak:- Adakah anda betul-betul perlu mengeluarkan belanja untuk makanan dan minuman di tempat-tempat mahal sebegini? Jangan terkeliru antara keperluan dan kemewahan. Jika tidak mampu, tinggalkan sifat ingin berlebih-lebihan. Cari alternatif yang lebih berpatutan dan bersesuaian dengan bajet anda. 4. Tidak miliki matlamat kewangan Semasa kanak-kanak, anda mungkin dibesarkan oleh ibu bapa yang sering memberi dorongan untuk memiliki cita-cita yang tinggi. Ibu bapa selalu berpesan kepada anak-anak mereka agar belajar rajin-rajin untuk menjadi doktor, peguam dan jurutera. Tetapi berapa ramai ibu bapa yang berpesan kepada anak-anak mereka bahawa mereka memerlukan matlamat kewangan yang kukuh untuk menjalani kehidupan yang sejahtera? Tidak hairanlah mengapa ramai yang tidak mengetahui tentang perancangan kewangan peribadi. Mereka menjalani kehidupan seolah-olah ‘kais pagi makan pagi, kais petang makan petang’. Mereka tidak mempunyai wang simpanan, perancangan untuk persaraan, tiada tabung kecemasan, tiada caruman takaful / insurans dan tiada sebarang pelaburan. Masih belum terlambat untuk mulakan perancangan masa depan anda. Mula menabung, belajar tentang pelaburan dan mulakan tabung kecemasan. Perlindungan perubatan juga tidak boleh diabaikan. 5. Tidak celik kewangan Anda tidak perlu menjadi seorang pakar dalam kewangan. Anda juga tidak perlu menghafal setiap perkataan dalam buku popular Robert Kiyosaki: Rich Dad Poor Dad. Tetapi jika anda tidak tahu berapakah perbelanjaan keperluan anda setiap bulan, atau berapakah kadar faedah yang dikenakan oleh syarikat kad kredit, anda sebenarnya menghadapi masalah besar. Celik kewangan bererti anda memiliki pemahaman tentang kewangan yang membolehkan anda membuat perancangan kewangan yang bijak. Tujuan celik kewangan ialah supaya anda sentiasa mempunyai kesedaran untuk memperbaiki kedudukan kewangan anda dari semasa ke semasa. Sumber: www.iBanding.com “Jika anda tidak mampu membeli sesuatu secara tunai, anda sebenarnya tidak mampu memilikinya.” 8 | RINGGIT Perkara Utama Perlu Dilindungi Insurans / Takaful Setiap orang memerlukan perlindungan daripada sesuatu keadaan yang tidak diingini. Terdapat beberapa keadaan utama dalam kehidupan yang memerlukan perlindungan iaitu kematian, kelumpuhan / kecacatan dan penyakit kritikal (yang juga dikenali sebagai 3D (death, disability dan disease)), serta aset / harta. 1. Kematian Mati itu pasti, cuma masanya sahaja yang tidak diketahui. Namun demik ian anda per lu membuat pers iapan untuk m e n g h a d a p i n y a . Dalam ha l in i , i a merupakan persiapan u n t u k w a r i s y a n g ditinggalkan. Persiapan ini termasuklah tempat untuk mereka tinggal dan juga sumber kewangan untuk mereka meneruskan kelangsungan hidup. Perlindungan insurans / takaful tidak melindungi anda daripada kematian, sebaliknya membantu anda membuat persiapan kewangan untuk waris. Bagi seorang suami atau ayah yang mempunyai tanggungan, jika berlaku kematian, beban tanggungan kini akan dipikul oleh isteri. Walaupun isteri turut bekerja, sedikit sebanyak akan terjejas kerana beban kewangan yang dahulu dipikul bersama-sama kini dipikul seorang diri. Lebih teruk lagi jika isteri tidak bekerja, sudah pasti sukar untuk meneruskan hidup, apatah lagi dengan anak-anak untuk ditanggung. Jadi, jika ada pampasan daripada syarikat insurans / takaful, sekurang-kurangnya nasib waris terbela. Dicadangkan supaya jumlah perlindungan yang diambil adalah menyamai / melebihi 10 kali ganda jumlah keperluan kewangan tahunan. Contohnya, jika keperluan keluarga adalah RM36,000 / tahun (RM3,000 / bulan), maka jumlah perlindungan yang dicadangkan adalah RM360,000. Dengan jumlah sebanyak ini, waris mampu bertahan sehingga 10 tahun daripada segi kewangan, iaitu satu jangka masa yang panjang sebelum mereka dapat berusaha mencari sumber kewangan sendiri. 2. Lumpuh / kecacatan Secara peribadi, l u m p u h / k e c a c a t a n m e r u p a k a n masalah kewangan yang besar. Apabila d i t impa keadaan ini , terutama j ika mengalami lumpuh t e r u k , s u m b e r p e n d a p a t a n b o l e h ter je jas sepenuhnya sedangkan anda juga memerlukan wang untuk keperluan hidup yang lain. Lumpuh / kecacatan bukan sahaja boleh terjadi disebabkan kemalangan, malahan boleh juga disebabkan oleh penyakit-penyakit tertentu. jun 2018 | 9 Oleh itu, anda perlu bersedia untuk menghadapi keadaan seperti ini. Berapakah jumlah perlindungan yang disarankan? Sama seperti perlindungan kematian, jumlahnya yang dicadangkan adalah sekurang-kurangnya 10 kali ganda jumlah keperluan kewangan tahunan. Lebih baik lagi jika jumlah perlindungan itu dapat menjana pendapatan pasif dividen, yang boleh digunakan untuk menampung keperluan hidup. Contohnya, jika jumlah perlindungan RM500,000 diperoleh sebagai pampasan, laburlah di tempat yang memberi dividen yang stabil, seperti di Tabung Haji atau unit amanah saham sebagai pendapatan pasif. Dengan anggaran kadar dividen antara 5% hingga 8% setahun, jumlah dividen yang boleh diperoleh adalah sebanyak RM25,000 hingga RM40,000 setahun. Ini bersamaan antara RM2,000 hingga RM3,500 sebulan; satu jumlah pendapatan pasif yang boleh membantu menampung keperluan hidup pada masa akan datang. 3. Penyakit kritikal Antara penyakit-penyakit kritikal yang sering dialami rakyat Malaysia ialah penyakit jantung, kanser, strok, kencing manis dan kegagalan buah pinggang. Dengan amalan gaya hidup dan corak pemakanan yang tidak sihat, kadar penyakit k r i t i k a l d i Malaysia semakin meningkat dar i tahun ke tahun. A p a b i l a d i s e ra n g p e nya k i t k r i t i ka l , t e r d a p a t d u a perkara yang boleh meruns ingkan, ia i tu pendapatan yang terjejas dan kos rawatan yang tinggi. Walaupun masih mampu b e k e r j a d a n m e n c a r i pendapatan, sedikit sebanyak pendapatan akan terjejas jika kerap mengambil cuti sakit atau dimasukkan ke hospital untuk rawatan. Untuk menjimatkan kos rawatan, anda boleh cuba rawatan di hospital kerajaan, tetapi mungkin perlu mengambil masa yang lama. Anda boleh mendapatkan rawatan di hospital swasta, tetapi kos rawatan adalah lebih mahal dan mungkin membebankan. Sebab itulah anda perlukan perlindungan insurans / takaful untuk mengurangkan bebanan kewangan ini. Anda dicadangkan supaya mengambil skim perlindungan yang memberikan pampasan apabila diserang penyakit kritikal. Pampasan ini boleh digunakan untuk menggantikan pendapatan yang terjejas tersebut. Di samping itu, anda juga perlu mengambil kad perubatan, untuk menampung bil hospital dan kos rawatan. 4. Aset / harta S e t i a p a s e t yang berni la i perlu dilindungi, seperti kereta, r u m a h d a n perniagaan. Jika ada lagi aset-aset yang dirasakan bernilai, ambillah perlindungan yang sewajarnya. D e n g a n a d a n y a perlindungan ini, sekurang- kurangnya anda mendapat pampasan j ika ber laku sebarang musibah. Ini sekali- gus dapat mengurangkan beban dan mengelakkan kerugian besar. Sebagai contoh, rumah anda mungkin mengalami kebakaran atau dilanda banjir. Anda boleh menuntut pampasan untuk memperbaiki kerosakan rumah. Skim perlindungan juga penting untuk aset-aset yang masih mempunyai hutang. Sekurang-kurangnya jika pendapatan terputus akibat kematian atau kelumpuhan, baki hutang akan diselesaikan oleh skim perlindungan yang diambil. Oleh itu, ia tidaklah dibebankan ke atas waris. Sebaik-baiknya, anda perlu memastikan semua perkara ini dilindungi secukupnya sebelum mengambil skim- skim perlindungan yang lain. Sumber: Jomurusduit.com 10 | RINGGIT Anda Boleh Semak Mule’s Akaun atau Nombor Telefon Palsu Now, you can check out mule's account or fake phone number 現在，你可以檢查出騾子帳戶或假電話號碼 இப்ப ோது நீங்கள் ப ோலி வங்கி கணக்கு எண்கள் மற்றும் ப ோலி த ோலலப சி எண்கலை சரி ோர்க்கலோம் http://ccid.rmp.gov.my/semakmule/ QR Code http://ccid.rmp.gov.my/semakmule/ Jabatan Siasatan Jenayah Komersil Polis Diraja Malaysia Date 03 Oct. 2017 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang)

Public Notice

02 Aug 2018

Tun Ismail Ali Scholarship for Postgraduate Programme 2018 / 2019

https://www.bnm.gov.my/-/tunismail-scholarship-postgrad-2018-2019

Reading: Tun Ismail Ali Scholarship for Postgraduate Programme 2018 / 2019 Share: Tun Ismail Ali Scholarship for Postgraduate Programme 2018 / 2019 Release Date: 02 Aug 2018 (Application will be closed on 12 August 2018) The Tun Ismail Ali (TIA) Scholarship is to be awarded in honour and recognition of the contributions of the late Tun Ismail Mohamed Ali, the first Malaysian Governor of Bank Negara Malaysia in conjunction with the commemoration of his 100th birthday. The TIA Scholarship will be awarded to eligible individuals who have shown outstanding achievements and demonstrated strong leadership potential to pursue (or who are currently pursuing) postgraduate studies in specialised area within Economics, Banking, Finance and Law. The candidate must fulfill the following minimum requirements: Malaysian citizen; Possess a First Class (Honours) Bachelor / Master's Degree from recognised universities; Outstanding achievement in SPM results; At least three (3) years of working experience; Age not exceeding 35 years old as at 1 July 2018; and Obtained admission to pursue or is currently pursuing postgraduate studies at Oxbridge or Ivy League universities. Those who fulfil the minimum requirements are required to submit the following documents to The Scholarship Section, Strategic Human Capital Department, Bank Negara Malaysia via email to profiling@bnm.gov.my: Resume; Academic Transcript; University offer; and One (1) page thesis summary. Only shortlisted candidates will be notified for assessment. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

19 Jul 2018

Rahn

https://www.bnm.gov.my/-/rahn-19072018

https://www.bnm.gov.my/documents/20124/761682/Rahn+PD.pdf, https://www.bnm.gov.my/documents/20124/761682/Rahn+PD+Feedback+Statement.pdf

Reading: Rahn Share: Rahn Release Date: 19 Jul 2018 The Bank has issued the policy document on Rahn which is aimed to strengthen Islamic financial institution’s (IFI) practice with respect to end-to-end compliance with Shariah. This policy document sets out the Shariah and operational requirements in relation to the operationalisation of Rahn contract. The Shariah requirements highlight the salient features and optional practices of a valid Shariah contract to facilitate sound understanding of a particular contract by the IFI. The operational requirements outline the regulatory expectations with respect to the governance and oversight, structuring, risk management, business and market conduct as well as financial disclosure.   The policy document will take effect from 1 August 2019.   Details can be found in the following documents: Rahn Response to Feedback© 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I SEPT 2 0 1 8 Kepentingan Insurans Perjalanan Ketika Melancong Penipuan Pakej Pelancongan PP 16897/05/2011 (029495) Mengurus Kos Sara Hidup Yang Semakin Meningkat Membeli Kereta Baharu Pertimbangan Sebelum Membeli kereta menjadi impian bagi graduan dan golongan yang baru bekerja. Kos membeli dan menyelenggara kereta merupakan perbelanjaan kedua besar selepas kos pembelian rumah. Oleh itu, anda perlu membuat pertimbangan yang serius sebelum membeli kereta. Statistik daripada Jabatan Insolvensi Malaysia menunjukkan faktor utama yang menyebabkan kebankrapan ialah pinjaman kereta. Ini bermakna ramai yang tidak membuat pertimbangan yang betul apabila membeli kereta. Sekiranya mereka gagal membayar balik pinjaman tersebut, ia akan menyebabkan mereka boleh diisytiharkan bankrap. Sekiranya anda ingin membeli kereta, anda perlu membuat pengiraan kos pemilikan kereta secara menyeluruh dan bukan hanya ansuran bulanan. Seringkali, pengguna menghadapi masalah tentang pemilikan kereta kerana mereka tidak membuat anggaran pemilikan kos kereta secara menyeluruh. Mereka hanya mengambil kira bayaran ansuran bulanan, dan dengan angka tersebut mereka telah membuat pertimbangan terhadap kemampuan untuk membeli kenderaan. Ini adalah satu kesilapan yang besar. Sebelum anda membeli kereta, anda mesti mempunyai lesen memandu yang sah. Seterusnya, untuk mendapatkan pembiayaan, dokumen-dokumen yang perlu disediakan, antaranya ialah: 1. Slip gaji untuk tempoh enam bulan yang lepas; 2. Borang Cukai atau KWSP (sekiranya perlu); 3. Penjamin (sekiranya perlu). Wang Pendahuluan Kebanyakan institusi kewangan memerlukan bayaran wang permulaan sebanyak 10% daripada harga kereta. Walaupun, ada institusi kewangan yang menawarkan 0% wang permulaan, pengguna harus sedar bahawa tanpa wang permulaan, bayaran ansuran bulanan akan menjadi lebih tinggi. Lebih tinggi bayaran permulaan, lebih rendah ansuran bulanan. Tidak dapat dinafikan bahawa harga kereta di Malaysia agak mahal berbanding negara-negara lain. Bayaran ansuran kereta akan memberi kesan terhadap perbelanjaan bulanan anda. Oleh itu, sebelum anda membuat keputusan untuk membeli kereta, anda juga perlu mengambil kira pilihan pengangkutan awam yang sedia ada seperti teksi, perkhidmatan e-panggilan, komuter dan sebagainya, untuk mengenal pasti pilihan yang lebih sesuai berdasarkan kemampuan anda. Memiliki kereta mungkin menjadi keperluan disebabkan kemudahan pengangkutan awam yang kurang memuaskan. Kereta menjadi keperluan untuk berulang-alik ke tempat kerja, membeli-belah, atau menjalani aktiviti riadah. Pengguna yang tinggal di luar bandar atau pinggir bandar seringkali terpaksa menggunakan kereta kerana pengangkutan awam adalah sangat terhad di tempat mereka. Bagi yang tinggal di bandar besar, seperti Kuala Lumpur dan Pulau Pinang, sistem pengangkutan awam lebih kerap dan lebih mudah untuk diakses. Pertimbangan Sebelum Membeli Kereta Baharu 2 | RINGGIT Kos pemilikan kereta melibatkan bukan sahaja bayaran ansuran bulanan tetapi juga kos lain seperti minyak dan penyelenggaraan. Jumlah kos pemilikan kereta adalah lebih besar daripada kos pembelian kereta semata-mata. Antara kos pembelian dan penyelenggaraan kereta ialah: Pembiayaan Anda memerlukan wang pendahuluan sebanyak 10% daripada harga kereta. Seterusnya anda perlu meminjam 90% daripada harga kereta, yang perlu dibayar dengan kadar faedah tertentu. Buat perbandingan dengan pelbagai institusi kewangan untuk mendapatkan kadar faedah yang paling rendah. Tempoh pinjaman kebiasaannya antara tiga hingga sembilan tahun. Lebih lama tempoh anda meminjam, lebih rendah bayaran ansuran. Sila lihat jadual berikut untuk contoh pengiraan pembiayaan bagi sebuah kereta berharga RM40,000, dengan wang pendahuluan 10% dan pinjaman 90% dengan kadar faedah 2.8% setahun: Tempoh Pinjaman Ansuran Bulanan Jumlah Bayaran Jumlah Faedah 3 tahun 1,084 39,024 3,024 5 tahun 684 41,040 5,040 9 tahun 417 45,072 9,072 Sidang Redaksi “Sekiranya anda ingin membeli kereta, anda perlu membuat pengiraan kos pemilikan kereta secara menyeluruh dan bukan hanya ansuran bulanan.” Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Sept 2018 | 3 S e b a i k - b a i k n y a n y a p i l i h l a h t e m p o h p i n j a m a n y a n g p a l i n g p e n d e k , untuk memastikan a n d a m e m b aya r kadar faedah yang minimum. Cukai Jalan Cukai jalan ialah satu kemestian bagi semua pemil ik kereta yang ingin menggunakannya di jalan raya. Bagi kereta kurang daripada 1600cc di Semenanjung, cukai jalan yang dikenakan ialah RM90. Insurans Insurans kereta juga adalah wajib. Di bawah liberalisasi insurans kereta oleh Bank Negara Malaysia, pengguna boleh membandingkan tawaran oleh pelbagai syarikat insurans untuk mendapatkan tawaran yang terbaik. Kadar premium insurans ditentukan oleh pelbagai faktor risiko pengguna, seperti ciri-ciri keselamatan kenderaan, usia kenderaan dan pemandu serta kesalahan lalu lintas berbanding hanya nilai diinsuranskan dan keupayaan enjin kenderaan. Petrol Kos petrol perlu diambil kira apabila memiliki kereta. Kos petrol merupakan kos kedua tertinggi dalam kegunaan kereta. Penyelengaraan dan Pembaikan dan keadaan kereta yang baik, anda perlu menyelenggara kereta mengikut jadual yang ditetapkan. Ruang Letak Kereta dan Tol Di bandar utama, pengguna menghadapi dua cabaran. Pertama, kesukaran untuk mendapatkan tempat letak kereta dan bayaran letak kereta yang agak mahal. Kedua, anda juga perlu membayar tol sekiranya menggunakan lebuh raya. Susut Nilai Kereta Susut nilai kereta adalah nilai semasa kereta. Jika anda membeli kereta pada bulan Januari dengan harga RM40,000, pada akhir tahun jika anda ingin menjual kereta, nilainya mungkin sekitar Kereta baharu biasanya diberi tempoh waranti sehingga 5 tahun. Pada masa itu anda perlu menyelenggara kereta di bengkel yang disahkan oleh syarikat kereta. Jika anda gagal menyelenggara di bengkel yang disahkan, kemungkinan waranti anda akan dibatalkan. Biasanya kereta perlu diselenggara selepas 5,000 km ataupun 10,000 km. Untuk memastikan prestasi RM32,000. Maka susut nilai kereta ialah 20%. Anda telah kehilangan nilai kereta sebanyak 20% dalam tempoh setahun. Faktor-faktor yang mempengaruhi susut nilai kereta adalah jumlah perbatuan (mileage), jenama kereta, cara penggunaan dan usia kereta, jadual penyelengaraan yang dipatuhi, pengubahsuaian kereta dan keadaan kereta. Sumber: FOMCA 4 | RINGGIT Dalam menghadapi cabaran hidup yang kian mencabar, rakyat Malaysia perlu bersedia untuk mengubah kehidupan mereka bersesuaian dengan perubahan yang berlaku pada masa ini. Perubahan dasar kerajaan terhadap subsidi turut memberi kesan kepada kehidupan sebahagian rakyat. Sebenarnya rakyat yang perlu membuat perubahan terhadap kehidupan mereka berdasarkan kemampuan mereka sendiri. Perubahan terhadap gaya hidup perlu dilakukan jika ia menyebabkan peningkatan kos sara hidup sehingga akhirnya membebankan kehidupan. Panduan untuk Membantu Anda Menguruskan Peningkatan Kos Sara Hidup 1. Anda perlu berazam menjalani kehidupan mengikut kemampuan sendiri. 2. Anda perlu belajar untuk membezakan antara keperluan dan kehendak, apa yang perlu dan apa yang tidak perlu. Ia akan membantu menentukan apa yang perlu ada di dalam senarai kos sara hidup dan kos gaya hidup supaya anda tidak menggabungkan kedua-dua kos tersebut. 3. Menggunakan pengangkutan awam yang semakin banyak dan mudah untuk mengurangkan kos pengangkutan harian. Apa yang Boleh Dilakukan Oleh Kerajaan untuk Rakyat Malaysia? Polisi harus dilaksanakan untuk memastikan keseimbangan gaji rakyat Malaysia. Kerajaan disarankan agar memastikan pendapatan rakyat Malaysia bukan sahaja meningkat, kenaikan itu juga perlu selaras dengan kenaikan kos sara hidup. Kerajaan perlu menyediakan beberapa langkah sebagai persediaan untuk menjadikan Malaysia sebagai negara berpendapatan tinggi menjelang tahun 2020, yang tempohnya kurang dari dua tahun. Selain itu, kerajaan juga harus memperkenalkan pendidikan kewangan di peringkat sekolah. Ia bertujuan untuk mendidik rakyat untuk lebih bertanggungjawab terhadap aspek pengurusan kewangan mereka. Kos hidup yang semakin meningkat ini boleh diurus dengan lebih baik apabila rakyat Malaysia semakin terdidik dengan ilmu pengurusan kewangan yang betul. Walaupun kita tidak mempunyai kawalan ke atas pergerakan harga barangan yang meningkat hasil daripada kesan inflasi, namun kita mempunyai kawalan terhadap perbelanjaan kita sendiri. Apa yang boleh dilakukan ialah anda perlu fokus pada perbelanjaan yang menjadi kehendak dan mengawal diri daripada membeli barang-barang mewah. Langkah pertama adalah dengan mempunyai ilmu pengetahuan tentang kewangan. Pelajaran yang utama di sini ialah: • Dapat membezakan antara kos sara hidup dan kos gaya hidup. • Meningkatkan ilmu kewangan dengan memahami konsep kewangan seperti faedah kompaun dan inflasi. • Elakkan diri daripada melakukan kesilapan dalam perbelanjaan sehingga melebihi kemampuan. Sumber: CompareHero.my Mengurus “Walaupun kita tidak mempunyai kawalan ke atas pergerakan harga barangan yang meningkat hasil daripada kesan inflasi, namun kita mempunyai kawalan terhadap perbelanjaan kita sendiri.” Kos Sara Hidup Yang Semakin Meningkat Sept 2018 | 5 Apakah yang anda perlu pertimbangkan sebelum membuat pilihan? Satu perkara yang perlu dipertimbangkan ialah sama ada syarikat insurans tersebut mempunyai talian kecemasan yang sentiasa bersedia menerima aduan daripada semua tempat yang anda jejaki. Talian ini perlu beroperasi 24 jam sehari, 7 hari seminggu dan 365 hari setahun. Individu yang kerap melancong tentu pernah merasa kehilangan bagasi walaupun sekali. Apabila perkara ini berlaku, anda perlu hubungi kaunter aduan syarikat penerbangan yang biasanya terletak berdekatan dengan karusel bagasi dan maklumkan mereka tentang kehilangan tersebut. Banyak syarikat penerbangan yang akan membayar pampasan serta-merta terutamanya kalau anda memerlukan pakaian dan barang keperluan harian. Perlindungan perjalanan sudah menjadi satu keperluan apabila anda ke luar negara, sama ada perjalanan untuk melancong, perniagaan dan sebagainya. Pengambilan skim perlindungan insurans adalah penting kerana ia menyediakan perlindungan terhadap kehilangan bagasi, pembatalan penerbangan, masalah hotel, belanja perubatan dan lain-lain. Kebanyakan agensi pelancongan dan syarikat penerbangan akan menawarkan pelbagai pilihan insurans, tapi adakah ia pilihan yang terbaik mengikut perjalanan dan keperluan anda? Anda mempunyai hak untuk mengetahui apa yang dilindungi dan tidak dilindungi dalam skim perlindungan insurans perjalanan tersebut. Kalau anda kerap bercuti (beberapa kali dalam setahun), polisi insurans tahunan adalah lebih baik daripada polisi individu. Kebanyakan insurans perjalanan menawarkan perlindungan untuk kehilangan bagasi, kelewatan perjalanan, pembatalan penerbangan, perbelanjaan perubatan dan pemindahan dalam situasi kecemasan. Satu aspek penting yang perlu dipertimbangkan adalah kos perubatan di destinasi anda. Kos perubatan di Amerika Syarikat, Jepun, Timur Tengah, beberapa bahagian di Eropah, Amerika Selatan dan Afrika adalah tinggi. Jadi, anda perlu memastikan yang anda mempunyai perlindungan perubatan yang komprehensif dalam polisi insurans anda. Sebaliknya, kalau anda membuat perjalanan ke Thailand, rawatan perubatan adalah antara yang termurah di dunia. Oleh yang demikian anda boleh membuat perjalanan dengan perlindungan perubatan yang lebih kecil. Semuanya bergantung kepada keperluan anda. Ketika Melancong Kepentingan Insurans Perjalanan 6 | RINGGIT Tapi, nilai pampasan biasanya tidak tinggi. Ia bergantung pada kelas penerbangan dan kekerapan anda bersama- sama dengan syarikat penerbangan tersebut. Kalau anda tidak mendapat semula bagasi anda, syarikat insurans biasanya menyediakan jumlah pampasan yang bersesuaian. Kalau anda mengembara dengan kamera, peralatan video, komputer riba dan sebagainya, dapatkan maklumat terperinci daripada syarikat insurans tentang kadar jumlah pampasan untuk peralatan ini sekiranya terjadi kes kehilangan atau kecurian. Kalau anda merancang untuk melakukan aktiviti berisiko tinggi semasa perjalanan anda seperti, terjun lelabah (bungee jumping), terjun udara (sky diving), rakit redah jeram (white water rafting), atau aktiviti kurang berisiko seperti menyelam, luncur air (water skiing), luncur jet (jet ski) dan sebagainya, pastikan bertanya sama aktiviti ini termasuk dalam perlindungan perjalanan. Perlindungan perubatan dalam insurans adalah yang paling penting. Pastikan anda mengetahui jenis kemudahan rawatan yang dilindungi oleh polisi insurans anda di negara yang akan anda lawati dan cara membuat tuntutan sekiranya peristiwa tidak diingini berlaku. Contohnya,ada syarikat insurans yang menawarkan perkhidmatan menghantar nombor saudara terdekat anda sekiranya anda dimasukkan ke hospital. Akhir sekali, dengan keadaan dunia yang tidak stabil sekarang ini, anda juga perlu bertanya bagaimana syarikat insurans anda akan melindungi anda dalam kes keganasan, penculikan dan sebagainya. Pastikan perlindungan insurans anda membuat pembayaran balik kalau anda membatalkan perjalanan disebabkan peperangan atau keganasan di negara yang anda lawati. Insurans pelancongan sepatutnya menyebabkan anda berasa tenang semasa bercuti. Walaupun proses memilih polisi yang betul agak merumitkan, ia akan memberikan anda rasa dilindungi sekiranya berlaku kejadian yang tidak diingini semasa bercuti. Selamat bercuti dengan tenang! Sumber: Makanlena.com Sept 2018 | 7 Pendidikan kewangan sewajarnya bermula pada masa kanak-kanak. Sekiranya nilai dan kemahiran kewangan yang bijak dapat disemai dan dipupuk pada peringkat kanak-kanak, mereka akan bersedia untuk menghadapi cabaran kewangan pada masa hadapan. Mendidik kanak-kanak tentang asas pengurusan kewangan serta memiliki sikap dan nilai yang positif terhadap pengurusan kewangan adalah kritikal untuk pembangunan insan. Asas-asas pengurusan kewangan, seperti menyediakan bajet, perbelanjaan, berjimat cermat dan pengurusan hutang, akan mewujudkan tabiat kewangan yang baik sepanjang hayat. Pendidikan Kewangan untuk Kanak-Kanak Didik Tentang Wang Pada masa ini, perbelanjaan dan urus niaga sering dilakukan dengan menggunakan kad kred i t , pembel ian da lam talian dan perbankan internet. Kanak-kanak kurang melihat p e r t u ka ra n wa n g s e ca ra fizikal. Hal ini berkemungkinan menyebabkan mereka sukar untuk memahami ciri-ciri kewangan dan aspek pertukaran dalam pembelian. Ada kemungkinan, kanak-kanak menganggap duit sebagai satu sumber tidak terhad, yang masuk dan keluar melalui akaun bank keluarga mereka. Anda perlu berbincang dengan anak-anak tentang aspek kewangan dan proses pembelian barang menggunakan wang supaya mereka memahami bahawa wang wujud secara fizikal. Mendidik kanak-kanak dalam keadaan sebenar pertukaran wang, akan lebih membantu kanak-kanak memahami punca wang diperoleh dan cara ia dibelanjakan. Didik Tentang Fungsi ATM Mesin Juruwang Automatik (ATM) adalah tempat yang baik sebagai permulaan untuk mendidik kanak- kanak tentang wang. Anda boleh menerangkan kepada mereka bahawa bank sebagai tempat untuk menyimpan pendapatan yang anda peroleh sebagai gaji daripada pekerjaan anda. Apabila anda mengeluarkan wang dari ATM, wang itu sebenarnya diambil daripada simpanan anda dan jumlah dalam simpanan anda akan berkurangan akibat pengeluaran tersebut. Didik Tentang Pembelian Apabila membeli barang di pasar raya, anda boleh menerangkan kepada anak anda cara suatu harga barang ditetapkan dan perbezaan harga bagi barang yang sama berdasarkan jenama dan timbangan berat. Anda juga boleh mendidik mereka untuk membuat perbandingan harga bagi mendapat nilai yang terbaik. Begitu juga anda boleh memberikan peluang mereka untuk membanding dan memilih barang yang berharga paling rendah. Jika anda hendak memilih barang yang lain, anda perlu menjelaskan kepada mereka mengapa anda memilih barang tersebut. Didik Tentang Bil Utiliti Apabila anda membayar bil utiliti seperti bil elektrik, air, siaran televisyen berbayar, internet dan sebagainya, anda boleh menerangkan kepada mereka mengapa anda perlu membayar bil tersebut. Ia bertujuan untuk memberi kesedaran kepada mereka bahawa kemudahan yang mereka gunakan itu bukannya diperoleh secara percuma, tetapi ada kos yang perlu dibayar. Secara tidak langsung, ini juga mendidik mereka supaya mengurangkan penggunaan tenaga elektrik dengan cara mematikan suis televisyen, lampu dan penyaman udara apabila tidak digunakan. Didik Tentang Perancangan Bajet Anda perlu melibatkan anak anda apabila merancang bajet rumah anda. Ini akan memberikan gambaran tentang perbelanjaan rumah kepada mereka. Dengan menerangkan perbelanjaan kepada anak-anak, mereka akan lebih memahami tentang perbelanjaan harian keluarga. Anda juga boleh meminta cadangan mereka bagaimana untuk menjimatkan perbelanjaan tersebut. 8 | RINGGIT Didik Tentang Wang Saku Anda juga boleh berbincang tentang wang apabila memberikan wang saku kepada anak anda. Mereka perlu memahami tentang perbelanjaan bijak, kepentingan u n t u k b e r j i m a t c e r m a t , menyimpan wang lebihan dan tanggungjawab untuk menderma kepada orang yang kurang berkemampuan. Didik tentang Keperluan dan Kehendak Anda juga perlu mendidik anak anda tentang perbezaan antara keperluan dan kehendak supaya mereka dapat membezakan antara perbelanjaan berasaskan keperluan dan kehendak. Didik tentang Perbelanjaan dan Tabungan Anak-anak juga perlu diberikan kefahaman tentang matlamat perbelanjaan dan tabungan. Sebagai contoh, jika mereka ingin membeli sesuatu barang, mereka perlu menyimpan sebahag ian wang untuk membeli barang tersebut. Jika penentuan matlamat ini dapat disemai dalam diri mereka, anak-anak akan bertanggungjawab dalam merancang kewangan dan perbelanjaan mereka. Kanak-kanak juga harus memahami perbezaan antara perbelanjaan dan tabungan serta kadar faedah dalam tabungan. Jika anak-anak berjaya menyimpan sejumlah wang tertentu di rumah, ibu bapa boleh membayar mengikut kadar faedah yang ditetapkan. Didik anak anda cara untuk mengira kadar faedah tersebut. Sekiranya wang simpanan mereka telah banyak, anda boleh membuka akaun simpanan untuk mereka. Ini bertujuan untuk menyemai semangat menyimpan wang secara tetap. Didik Menyimpan Rekod Perbelanjaan dan Tabungan Galakkan anak anda untuk menyimpan rekod tentang perbelanjaan dan tabungan. Rekod ini perlu dikemas kini dari semasa ke semasa. Anda per lu ser ing berb incang dengan mereka tentang corak perbelanjaan dan tabungan anak anda. Mendidik anak-anak anda melalui aktiviti akan membantu anak-anak untuk memahami pengurusan kewangan secara lebih praktikal dan seterusnya dapat menyemai amalan pengurusan kewangan yang bijak dalam diri anak-anak. Sumber: FOMCA Didik Tentang Keputusan Perbelanjaan A n d a j u g a p e r l u menggalakkan anak anda untuk membuat keputusan perbelanjaan. Galakkan mereka untuk membuat penyelidikan terlebih dahulu sebelum membeli. Didik mereka u n t u k m e m b u a t perbandingan harga dan pastikan mereka mendapat nilai yang terbaik untuk wang yang dibelanja. Didik tentang Peranan Iklan Apabila menonton iklan di televisyen, anda boleh berbincang dengan anak anda tentang mesej iklan tersebut. Jelaskan kepada mereka bahawa iklan bertujuan untuk menggalakkan mereka untuk membeli barang. Walau bagaimanapun, mereka perlu menilai secara kritikal sama ada barang tersebut benar-benar perlu atau tidak. Didik tentang Penipuan Anda juga perlu mendidik a n a k a n d a t e n t a n g penipuan (scam). Sekiranya sesuatu tawaran adalah t e r l a l u b a g u s u n t u k dipercayai, anda perlu meminta mereka supaya b e r w a s p a d a d e n g a n tawaran seperti itu. Berbincang dengan mereka sama ada tawaran tersebut tulen ataupun penipuan. Didik Tentang Kad Kredit Apabila anda membuat pembayaran menggunakan kad kredit, terangkan kepada mereka mengapa anda menggunakan kad kredit. Begitu juga tentang risiko penggunaan kad kredit. Anda juga boleh mendidik mereka tentang jenis kadar faedah apabila menggunakan kad kredit dan cara mengira kadar faedah tersebut. Sept 2018 | 9 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) Pakej Pelancongan Penipuan pakej pelancongan semakin berleluasa. Ramai pengguna yang tertipu dengan tawaran pelancongan yang istimewa dan menarik. Antara aduan yang diterima oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC) ialah berkaitan: • Perjalanan dibatalkan pada saat akhir • Ejen tidak boleh dihubungi selepas wang telah dimasukkan ke dalam akaun • Hotel dan kemudahan lain yang disediakan oleh agensi tidak memuaskan walaupun menggunakan caj yang tinggi • Syarikat pelancongan tidak wujud / tidak berdaftar Jumlah aduan mengenai penipuan pakej pelancongan yang diterima oleh NCCC pada tahun 2016 adalah sebanyak 3,458 kes dengan nilai kerugian sebanyak RM6 juta. Jumlah ini sangat membimbangkan memandangkan hanya segelintir daripada pengadu yang mendapat kembali wang mereka, manakala sebahagian lagi mengalami kerugian kerana agensi tersebut telah menamatkan operasi dan tidak dapat dikesan. Terdapat juga aduan pengguna yang mendakwa bahawa agensi pelancongan yang berlesen gagal memenuhi janji- janji mereka, walaupun selepas pelanggan telah membayar sepenuhnya. Ada juga kes yang melibatkan penipuan pembelian pakej pelancongan semasa Matta Fair. Bagi membantu pengguna daripada terjebak dengan agensi pelancongan yang tidak beretika, berikut disediakan beberapa langkah untuk panduan pengguna: 1. Senarai lesen dan agensi pelancongan boleh didapati di portal rasmi Kementerian Pelancongan, Seni dan Budaya Malaysia, www.motac.gov.my. Anda dinasihati untuk berurusan dengan agensi pelancongan yang berlesen sahaja. 2. Pengguna boleh mengetahui lebih lanjut tentang latar belakang syarikat melalui Suruhanjaya Syarikat Malaysia atau menyemak dengan Kementerian Pelancongan tentang status agensi pelancongan (sama ada lesen mereka telah dibatalkan). 3. Anda harus menerima butiran lengkap secara bertulis mengenai perjalanan sebelum membuat bayaran. Butiran yang perlu ada ialah jumlah harga, yuran pentadbiran dan caj perkhidmatan; pembatalan dan perubahan penalti, jika ada; dan maklumat khusus tentang semua komponen pakej. 4. Elakkan memberi butiran peribadi atau perincian perbankan secara rambang kepada sesiapa sahaja. Pengguna dinasihatkan supaya membuat aduan secepat mungkin. Sekiranya aduan itu didapati benar, pembatalan lesen dan amaran keras akan dikenakan kepada agensi pelancongan tersebut supaya mereka tidak mengulangi kesalahan itu, selaras dengan Akta Industri Pelancongan 1992. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Penipuan 10 | RINGGIT Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang) JANGAN JADI MANGSA JENAYAH SIBER Sekiranya anda menerima PANGGILAN yang menyatakan anda mempunyai hutang tertunggak dengan mana-mana pihak, ingat perkara berikut. JANGAN PANIK. CATIT IDENTITI PEMANGGIL dan hutang yang dinyatakan. BERITAHU PEMANGGIL saya akan datang sendiri ke pejabat anda. LETAK TELEFON. HUBUNGI PUSAT PANGGILAN AGENSI BERKENAAN (gunakan nombor telefon yang disahkan) atau pergi sendiri ke Agensi yang dinyatakan. 1 2 3 4 5 PERINGATAN: ELAKKAN DARI MEMBUAT APA JUA TRANSAKSI DALAM TALIAN. @CyberCrimeAlertRMP Rahn PD Feedback Statement Response to feedback received Rahn Introduction The Bank has finalised the policy document on Rahn (collateral) incorporating the policy requirements stipulated in the exposure draft (ED) and taking into account the feedback received during the consultation period. The Bank received written feedback from Islamic financial institutions (IFIs) that are broadly supportive of the proposals set out in the ED. The key comments provided by the IFIs and the Bank’s responses are set out in this document. The Bank appreciates the feedback and suggestions received and wishes to thank all respondents. Bank Negara Malaysia 18 July 2018 1 Scope and applicability of the policy document on IFI 1.1 The ED proposed for the policy document to be applicable to an IFI that offers products or services which apply rahn contract. 1.2 The Bank received feedback seeking clarifications whether the policy document is applicable to an IFI that– a. offers Islamic pawnbroking product i.e. Ar Rahnu only; and b. applies rahn contract in financing offered to its employees that is not part of its products or services. 1.3 The Bank wishes to reiterate the following: a. The policy document is applicable to an IFI that uses the rahn contract for its products and services, including Ar Rahnu; and b. IFI may adopt the requirements of the policy document for financing facilities offered to its employees. 2 Deposit placement as collateral 2.1 Some of the respondents sought confirmation on whether customer’s asset in the form of deposit or investment account can be pledged as collateral (marhun) and whether the deposit can be utilised by the IFI (as pledgee). 2.2 The Shariah Advisory Council of Bank Negara Malaysia (SAC) has resolved to allow the practice of accepting deposits or investment accounts to secure a financing obligation. 2.3 The SAC at its 182nd meeting dated 28 November 2017 ruled that the deposit can be utilised by IFI (as pledgee) with the consent of customers (as pledgor), subject to the following conditions: a. Customer is allowed to choose any type of account, including deposit or investment account as collateral against the payment of financing obligation; and b. The financial obligation or liability owed by the customer to the IFI does not arise from a loan (qard) contract. 3 Allowable expenses to be charged to customers 3.1 In line with the SAC’s ruling, the ED proposed for any expenses charged to customers must be based on cost that is directly related to rahn contract only i.e. without profit element. 3.2 In relation to paragraphs 16, 29.12 and 29.13 of the policy document, some of the respondents highlighted challenges to determine and measure the expenses directly related to rahn contract. 3.3 The Bank wishes to emphasise that an IFI may only charge the customer for any identified costs, either actual or estimated amount, that are directly related to rahn transaction e.g. fee for valuation of collateral. In line with paragraph 33.1, the IFI must review and ensure existing and prospective charges imposed on customer meet this requirement. From this review exercise, the Bank does not expect any increment to the current fees and charges imposed to the customer. IFIs shall be guided by the principles set forth under the Guidelines on Imposition of Fees and Charges on Financial Products and Services. 4 Usability of existing collateral documentation 4.1 Under paragraph 29.19 of the policy document, documentation on collateral must include terms that reflect rahn transaction and IFI’s risk management strategies such as contractual relationship, expenses, terms on liquidation and redemption and rights for IFI to undertake mitigation actions. 4.2 Some of the respondents sought clarification– a. whether existing documentation on collateral can be used; and b. on the treatment if the documentation requirements under this policy document contradict with the documentation requirements under various regulations such as charge document that is governed under National Land Code. 4.3 The Bank wishes to clarify that existing collateral documentation may be used subject to fulfilling the documentation requirements set forth under this policy document. Where lacking, the IFI may enhance the collateral documentation or supplement with additional documentation. The Bank expects the IFI to undertake assessment and highlight any legal impediments to implement the documentation requirements to the Bank in the implementation plan under paragraph 33.15. 5 Requirement to document consent from IFI, customer or third party pledgor 5.1 From Shariah perspective, consent is required to be obtained from the IFI, customer or third party pledgor for certain events e.g. when IFI wishes to utilise the collateral and appoints a party to perform liquidation of collateral. Under paragraph 29.20 of the policy document, such consent must be documented. 5.2 Some of the respondents are of the view that the requirement to document consent is irrelevant. 5.3 The Bank wishes to emphasise that the requirement for consent to be documented‒ (a) is in line with Shariah requirements; (b) aims to protect the rights of contracting parties; and (c) is only applicable for the events specified in the policy document. 6 Requirement for disclosure of information 6.1 Under paragraph 31.3(a) of the policy document, an IFI must inform the customer or third party pledgor at the pre-contractual stage that consent will be sought upon entering the contract in the event where the IFI will utilise the collateral. The ED also proposed for an IFI to disclose the terms of utilisation of collateral such as the purpose, duration and treatment of benefit and liability arising from such utilisation of collateral. 6.2 Some of the respondents opine that the information required to be disclosed is too granular and impractical especially when similar information will be disclosed upon entering the contract. 6.3 The Bank wishes to reiterate that customer or third party pledgor should be informed or made aware before entering the contract that the IFI will utilise the collateral. Nonetheless, the Bank takes cognisance on the potential challenges for IFI to disclose the proposed information and the need to strike the balance between practicality and disclosure of information. Therefore, the Bank has refined the requirement for the IFI to inform customer or third party pledgor that consent for such utilisation will be sought upon entering the contract. Furthermore, terms on utilisation and consent shall be disclosed and stipulated in the contract in line with the requirement under paragraph 29.19(g)(iv). 7 Requirement for financial disclosure 7.1 The ED proposed for separate disclosure of the qard (loan) amount and safekeeping fee in respect of Islamic pawnbroking product i.e. Ar Rahnu in the financial statement. 7.2 Some of the respondents are of the view that such disclosure would not accurately reflect the nature of Islamic pawnbroking transaction. 7.3 The Bank wishes to clarify that the requirement for separate disclosure of the loan amount and safekeeping fee for Islamic pawnbroking product is to reflect the nature of the safekeeping fee that does not arise from the provision of loan. In that regard, the Bank expects the IFI to ensure disclosure of Islamic pawnbroking transaction is in line with the requirements under Malaysian Financial Reporting Standards1 (MFRS) and Guidelines on Financial Reporting for Licensed Islamic Bank. 1 Including but not limited to MFRS 7 – Financial instruments: Disclosures and MFRS 9 – Financial Instruments.

Public Notice

03 Jul 2018

RINGGIT Newsletter (May 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-may-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed97+May+2018+v8.pdf

Reading: RINGGIT Newsletter (May 2018 issue) is now available for download Share: RINGGIT Newsletter (May 2018 issue) is now available for download Release Date: 03 Jul 2018 The highlight for this month is Perkiraan Sukarela - Mekanisme Penyelamat Bagi Mengelak Tindakan Undang-Undang Kebankrapan Other topics of interest include : Kos Lain Yang Perlu Ditanggung Apabila Membeli Rumah Bagaimana Untuk Jimat Belanja RM1,000 Sebulan? Ejen Pengutip Hutang Yang Tidak Beretika RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - May/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I MEI 2 0 1 8 Kos Lain Yang Perlu Ditanggung Apabila Membeli Rumah Bagaimana Untuk Jimat Belanja RM1,000 Sebulan? PP 16897/05/2011 (029495) Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Perkiraan Sukarela Mekanisme Penyelamat Bagi Mengelak Tindakan Undang-Undang Kebankrapan C O N T O H Akta Insolvensi 1967 menyediakan Perkiraan Sukarela (VA) sebagai mekanisme penyelamat untuk membantu seseorang peminjam daripada dikenakan tindakan undang-undang kebankrapan. Peminjam perlu memohon kepada mahkamah untuk memperoleh Perintah Sementara. Apabila Perintah Sementara dibenarkan, tindakan kebankrapan dan proses undang-undang lain tidak boleh dilaksanakan terhadap peminjam, melainkan setelah mendapat kebenaran mahkamah. Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya. Pelan ini hendaklah dipatuhi oleh pihak penyedia kredit apabila diluluskan. Agensi Kaunseling dan Pengurusan Kredit (AKPK) telah dilantik oleh Jabatan Insolvensi Malaysia (MdI) sebagai Penama untuk membantu menyelamatkan individu daripada jatuh muflis melalui pelaksanaan VA. Pelaksanaan Cadangan yang telah diluluskan ini akan berkuat kuasa pada tarikh penyedia kredit meluluskan cadangan tersebut setelah perjumpaan dengan penyedia kredit dibuat. Penyedia kredit tidak dibenarkan untuk mengambil tindakan undang-undang terhadap peminjam apabila VA telah dilaksanakan. Kebaikan VA terhadap peminjam ialah: a) Mengelakkan stigma terhadap kebankrapan b) Bebas daripada kehilangan kelayakan dan ketidakupayaan sebagai seorang muflis yang diperuntukkan di bawah Akta Insolvensi 1967. Antaranya, peminjam dibenarkan untuk: i. Keluar negara ii. Menjadi pengarah syarikat iii. Menjalankan perniagaan iv. Mengekalkan kerjaya / pekerjaan Kegagalan Mematuhi VA Sekiranya peminjam gagal mematuhi sebarang tanggungjawabnya di bawah VA, penyedia kredit boleh meneruskan tindakan untuk memfailkan petisyen kebankrapan terhadap peminjam tanpa sebarang notis. Perkiraan Sukarela – Mekanisme Penyelamat Bagi Mengelak Tindakan Undang-Undang Kebankrapan “Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya.” 2 | RINGGIT Fi dan Bayaran Penama Peminjam dikehendaki membayar yuran kepada Penama sebagaimana yang ditetapkan oleh Jabatan Insolvensi (Perkiraan Sukarela), Peraturan 2017 dan kos pentadbiran VA. Kesalahan Mana-mana pihak yang membuat pernyataan palsu dengan tujuan untuk memperoleh VA telah melakukan satu kesalahan. Seseorang yang disabitkan dengan kesalahan akan dikenakan hukuman penjara tidak melebihi 2 tahun atau dikenakan denda tidak melebihi RM5,000 atau kedua-duanya sekali. Artikel ini adalah lanjutan daripada siri VA yang telah diterbitkan pada edisi Mac 2018 yang lalu. Sumber: Agensi Kaunseling dan Pengurusan Kredit Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya.” Mei 2018 | 3 Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) ditubuhkan oleh Suruhanjaya Sekuriti Malaysia sebagai saluran pakar dalam pasaran modal yang bebas dan berkecuali untuk membantu pelabur menyelesaikan pertikaian kewangan yang mereka hadapi dengan ahli SIDREC dalam tempoh yang singkat dan tanpa kos yang membebankan pelabur. Proses penyelesaian pertikaian dijalankan dalam persekitaran yang tidak formal. Bagaimana SIDREC Membantu Pelabur? SIDREC ialah badan penyelesaian pertikaian alternatif yang mengendalikan pertikaian tuntutan kewangan oleh pelabur terhadap pengantara pasaran modal berkaitan produk atau perkhidmatan pasaran modal. SIDREC membantu menyelesaikan tuntutan dengan adil, cekap, dan dalam jangkamasa yang berpatutan. SIDREC mengendalikan tuntutan tidak melebihi RM250,000.00. SIDREC Memanfaatkan Pelabur & Ahli • Pusat sehenti yang mengendalikan tuntutan pertikaian pasaran modal secara percuma. Perkhidmatan cepat dan cekap serta mudah untuk pelabur. • Meningkatkan pemahaman pelabur mengenai pasaran modal dan tanggungjawab mereka terhadap pelaburan mereka. • Meningkatkan pemahaman ahli tentang masalah dan cabaran yang dihadapi oleh pelabur. • Badan khas yang bebas dan berkecuali yang membantu menyelesaikan pertikaian pasaran modal dengan pengetahuan pakar dan pengalaman. Untuk maklumat lanjut, sila rujuk https://sidrec.com.my. Sumber: Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Aliran Proses Penyelesaian 4 | RINGGIT Apabila anda membeli sebuah rumah yang berharga RM500,000.00 sebenarnya terdapat beberapa kos lain yang perlu anda tanggung untuk memiliki rumah tersebut. 1. Yuran Guaman Yuran guaman merupakan bayaran yang dibuat oleh pembeli hartanah untuk tujuan menyediakan dan merekod dokumen rasmi. Di Malaysia, terdapat dua yuran guaman yang anda perlu sediakan, iaitu untuk Perjanjian Jual Beli (SPA) dan Perjanjian Pinjaman. Caj yuran guaman bagi kedua-dua perjanjian tersebut boleh dirujuk dalam jadual di bawah. Peratus dan kiraan kos untuk kedua-dua perjanjian adalah sama. Walau bagaimanapun, yuran guaman jual beli adalah berdasarkan harga pembelian, manakala yuran guaman perjanjian pinjaman adalah berdasarkan jumlah pinjaman. Harga Rumah (RM) Skala Yuran Guaman RM 500,000 Pertama 1% (tertakluk kepada Fi Minimum RM 500) RM 500,000 Yang berikutnya 0.8% RM 2,000,000 Yang berikutnya 0.7% RM 2,000,000 Yang berikutnya 0.6% RM 2,500,000 Yang berikutnya 0.5% Nilai melebihi RM 7,500,000 1% (tertakluk kepada Fi Minimum RM 500) Jadual Yuran Guaman berdasarkan Perintah Saraan Peguam Cara (Pindaan) 2017 yang telah berkuat kuasa pada 15 Mac 2017 Pindaan Yuran Guaman tahun 2017 telah membenarkan peguam memberi diskaun tidak melebihi 25% daripada Yuran Guaman yang dikenakan untuk urusan pindah dan gadaian rumah. 2. Duti Setem Duti setem merupakan cukai yang dikenakan terhadap pengiktirafan undang-undang untuk dokumen- dokumen tertentu. Dalam kes ini, duti setem melibatkan perjanjian jual beli dan perjanjian pinjaman. Caj duti setem untuk dokumentasi jual beli hartanah boleh dirujuk dalam jadual di bawah. Harga Pembelian (RM) Caj Duti Setem 100,000 yang pertama 1.00% 400,000 yang berikutnya 2.00% Jumlah yang berikutnya 3.00% Caj duti setem untuk perjanjian pinjaman boleh dirujuk dalam jadual di bawah. Jumlah Pinjaman Caj Duti Setem Apa-apa jumlah 0.50% Mulai 1 Januari 2017, pembelian rumah pertama yang bernilai RM300,000 ke bawah akan dikecualikan daripada bayaran duti setem pindah milik dan duti stem dokumen utama pinjaman. Manakala untuk hartanah yang bernilai RM301,000 hingga RM500,000 pula, anda layak mendapat Kos Lain Yang Perlu Ditanggung Apabila Membeli Rumah Mei 2018 | 5 peremitan (diskaun) sebanyak RM5,000 daripada jumlah amaun sebenar duti setem pindah milik yang akan dikenakan, dan peremitan sebanyak RM1,500 daripada jumlah amaun sebenar duti setem dokumen utama pinjaman yang akan dikenakan. 3. Yuran Penilaian (apabila penilaian formal diperlukan) Yuran penilaian merupakan kos yang dibayar untuk menentukan nilai sesuatu aset. Kos ini perlu ditanggung apabila pembeli membeli daripada penjual yang bukan pemaju. Yuran penilaian ini perlu dibayar kepada jurunilai hartanah. Jadual di bawah menunjukkan caj yang dikenakan untuk yuran penilaian. Jumlah Penilaian Caj 100,000 yang pertama 0.250% 1,900,000 yang berikutnya 0.200% 5,000,000 yang berikutnya 0.167% 8,000,000 yang berikutnya 0.125% 35,000,000 yang berikutnya 0.100% Sumber: loanstreet.com.my Contoh: Hartanah bernilai RM500,000 dan pinjaman 90% (RM450,000) Jenis Yuran Cara Pengiraan Jumlah Bayaran 1. Yuran Guaman SPA RM500,000 yang pertama : RM500,000 x 1% = RM5,000 Tolak Diskaun 25% = RM1,250 RM3,750 2. Yuran Guaman Pinjaman RM500,000 yang pertama : RM450,000 x 1% = RM4,500 Tolak Diskaun 25% = RM1,125 RM3,375 3. Duti Setem Dokumentasi Jual Beli RM100,000 yang pertama : RM100,000 x 1% = RM1,000 RM400,000 yang berikut : RM400,000 x 2% = RM8,000 Tolak Peremitan duti setem pindah milik = RM5000 RM4,000 4. Duti Setem Perjanjian Pinjaman RM450,000 x 0.5% = RM2,250 Tolak Peremitan duti setem dokumen utama pinjaman = RM1500 RM750 5. Yuran Penilaian RM100,000 yang pertama : RM100,000 x 0.25% = RM250 RM400,000 yang berikut : RM400,000 x 0.2% = RM800 RM1,050 Jumlah RM12,925 “Duti setem merupakan cukai yang dikenakan terhadap pengiktirafan undang-undang untuk dokumen-dokumen tertentu.” 6 | RINGGIT Pernahkah anda menyemak baki akaun anda pada akhir bulan sebelum gaji anda dikredit ke dalam akaun? Kalau baki yang tinggal masih banyak lagi, itu tandanya anda menguruskan kewangan dengan baik. Bagaimana pula jika baki dalam akaun anda tinggal kosong? Itu tandanya anda perlu melakukan sesuatu terhadap pengurusan kewangan anda. Anda mungkin sedar yang kos sara hidup pada masa ini serba meningkat. Anda perlulah bijak mengatur perbelanjaan supaya keperluan anda tidak terabai. Perbelanjaan untuk mengikut gaya hidup seperti orang lain perlulah dielakkan sekiranya perbelanjaan tersebut adalah di luar kemampuan anda. Pendapatan dan perbelanjaan orang lain mungkin tidak sama seperti perbelanjaan dan pendapatan anda. Oleh itu, sebelum berbelanja, ukurlah baju di badan sendiri. Berikut dikongsikan beberapa panduan yang anda boleh lakukan sehingga mampu menjimatkan wang sebanyak RM1,000 sebulan. 1. Siaran Berbayar Jika anda peminat bola sepak, yuran bulanan untuk siaran berbayar yang paling murah ialah sebanyak RM90.95. Anda boleh menukar pelan televisyen berbayar anda Bagaimana Untuk Jimat Belanja RM1,000 Sebulan? kepada pelan seperti Astro Njoi yang anda hanya perlu bayar ketika pendaftaran sahaja. Jumlah penjimatan : RM90.95 2. Internet Pada zaman sekarang, internet sangat penting, terutama bagi mereka yang menjalankan perniagaan dalam talian. Jika anda masih baru dalam bidang perniagaan tersebut, pilih pakej murah yang kosnya masih rendah. Yuran bulanan pakej internet adalah berbeza- beza, ada yang mencecah RM200 sebulan sedangkan anda boleh memilih pakej yang lebih murah, iaitu RM100. Namun, jika perniagaan dalam talian anda memerlukan internet yang laju, tiada masalah sekiranya anda ingin melanggan internet yang mahal. Jumlah penjimatan : RM100.00 3. Internet (Data Telefon) Penggunaan telefon pintar perlu mempunyai pelan data internet kerana kebanyakannya menggunakan aplikasi seperti WhatsApp dan Facebook. C O N T O H Mei 2018 | 7 J ika anda seorang yang bekerja makan gaji, anda perlu berada di pejabat dari pagi hingga petang. Anda tidak memerlukan internet yang mahal jika fokus anda adalah kepada pekerjaan anda di pejabat. Sekiranya rumah anda sudah mempunyai internet, anda sebenarnya tidak memerlukan pelan data yang mahal. Jika anda melanggan talian pascabayar, komitmen bulanan paling murah anda ialah sebanyak RM80, yang sebenarnya anda boleh ambil pakej internet prabayar yang berharga RM30 sebulan. Jumlah penjimatan : RM50.00 4. Gimnasium Ramai yang ingin pergi ke gimnasium untuk memiliki badan yang sihat. Namun, kebanyakan yuran bulanan gimnasium boleh mencecah sehingga RM200 sebulan jika gimnasium tersebut adalah gimnasium yang terkenal. Anda sebenarnya boleh berjimat tanpa perlu pergi ke gimnasium. Buat senaman di taman, di luar rumah atau di dalam rumah. Selain itu, anda juga boleh melakukan pelbagai jenis diet untuk memiliki berat badan yang ideal. Jumlah penjimatan : RM200.00 5. Kopi Mahal Jika anda penggemar kopi mahal yang berharga RM15-RM20 secawan, anda patut melupakan minuman kegemaran tersebut. Anda sebenarnya telah membazir terlalu banyak sedangkan anda boleh mendapatkan kopi yang lebih murah di kedai mamak. Jika anda membeli kopi tersebut sebanyak 10 kali dalam sebulan, ini bermakna anda telah membelanjakan wang anda sebanyak RM200 sebulan. Ini ialah satu pembaziran yang tidak disedari. Jumlah penjimatan : RM200.00 6. Makanan Segera Waktu rehat di pejabat, ramai yang ingin mendapatkan makanan yang cepat disediakan dan makanan segera ialah pilihan yang terbaik. Tetapi, tahukah anda harga untuk set makanan segera boleh mencecah sehingga RM10 untuk makanan yang termasuk dalam kategori ‘biasa- biasa’ sahaja. Jika anda pergi ke restoran makanan segera, set makan tengah hari adalah lebih kurang RM20 untuk sekali makan. Jika anda ambil makanan segera sebanyak 2 kali sebulan, anda sudah membelanjakan sebanyak RM20 x 2 = RM40. Jumlah Jimat : RM40.00 Secara Keseluruhannya, Anda Boleh Jimat Seperti Berikut: 1. Siaran berbayar RM90.95 2. Internet RM200 3. Internet (data) RM50 4. Gimnasium RM200 5. Kopi mahal RM200 6. Makanan segera RM40 Jumlah RM780.95 Sumber: http://www.duitkertas.com 8 | RINGGIT Ejen Pengutip Hutang Yang Tidak Beretika Kenderaan merupakan keperluan untuk bergerak dari satu destinasi ke destinasi yang lain. Tanpa mengambil kira harga sesebuah kenderaan, kebanyakan pembelian kenderaan adalah melalui pembiayaan daripada institusi kewangan atau syarikat kredit. Dalam keadaan ekonomi yang tidak menentu pada masa ini, ramai yang menghadapi kesukaran dalam aspek kewangan sehingga menyebabkan ramai yang gagal untuk menjelaskan bayaran ansuran bulanan kenderaan mereka tepat pada masanya. Untuk mendapatkan tunggakan tersebut, kebanyakan institusi kewangan / syarikat kredit menggunakan khidmat ejen pengutip hutang. Namun terdapat ejen pengutip hutang yang bertindak secara tidak beretika untuk mendapatkan semula bayaran tunggakan tersebut. Pusat Khidmat Aduan Pengguna Nasional (NCCC) kerap menerima aduan berkenaan ejen pengutip hutang yang sering menimbulkan gangguan kepada peminjam. Antara aduan yang kerap diterima oleh NCCC ialah terdapat ejen pengutip hutang yang mengugut untuk mengambil tindakan mahkamah atau menyita barangan peminjam, menarik kenderaan tanpa sebarang notis, tidak memulangkan kenderaan yang disita itu kepada institusi kewangan dan mendedahkan masalah hutang peminjam kepada pihak ketiga. Bolehkah Institusi Kewangan / Syarikat Kredit Mengambil Kenderaan atau Barangan yang Dibeli Secara Kredit? Pembeli kenderaan secara ‘sewa beli’ dikenali sebagai penyewa, manakala syarikat kewangan pula ialah pemunya. Perjanjian sewa beli ini tertakluk di bawah Akta Sewa Beli 1964 atau juga dikenali sebagai Akta 212. Mengikut undang-undang, syarikat kewangan / syarikat kredit berhak mengambil semula kenderaan tersebut sekiranya penyewa gagal membayar jumlah ansuran sebanyak dua kali berturut-turut; termasuk gagal membayar ansuran terakhir. Dalam kes penyewa telah meninggal dunia, jika waris gagal membayar ansuran selama empat bulan berturut-turut, institusi kewangan / syarikat kredit akan mengambil semula kenderaan. Proses pengambilan semula kenderaan bermula dengan penghantaran notis yang dikenali sebagai RM Mei 2018 | 9 Notis Jadual Keempat. Notis ini memaklumkan hasrat institusi kewangan / syarikat kredit untuk menarik balik kenderaan tersebut dalam tempoh 21 hari. Dua minggu (14 hari) selepas tarikh Notis Jadual Keempat, institusi kewangan / syarikat kredit akan menghantar Notis Kedua bagi mengingatkan tentang hasrat mereka untuk menarik balik kereta tersebut selepas tarikh luput Notis Jadual Keempat. Apakah Peranan Ejen Pengutip Hutang? Apabila institusi kewangan atau syarikat kredit gagal mendapatkan bayaran daripada peminjam, mereka akan menggunakan khidmat ejen pengutip hutang swasta. Sesetengah ejen pengutip hutang ini menggunakan kaedah menghubungi peminjam untuk mengingatkan mereka supaya membuat bayaran segera. Selain itu, mereka juga menghantar kenyataan hutang, notis pemberitahuan pembayaran balik, surat permintaan dan sebagainya. Masalah timbul apabila terdapat ejen pengutip hutang yang bertindak melampaui batas sewaktu cuba mendapatkan bayaran balik pinjaman daripada peminjam. Apakah Hak Anda? Bank Negara Malaysia (BNM) telah mengeluarkan garis panduan yang berkaitan kepada institusi kewangan di bawah pengawalseliaannya. Berdasarkan garis panduan tersebut, proses kutipan hutang perlu dilakukan dengan tindakan yang sewajarnya terhadap peminjam. Institusi kewangan yang menggunakan khidmat ejen pengutip hutang perlu memastikan ejen pengutip hutang: • amalkan standard profesionalisme yang tinggi sewaktu mengutip hutang. • mengamalkan tindakan yang beretika dalam mengutip hutang. • tidak menggunakan kekerasan. • memberi notis pemberitahuan terlebih dahulu kepada peminjam. • menunjukkan kad kuasa. • memastikan maklumat peminjam adalah tepat dan jelas. • mematuhi undang-undang berkaitan perlindungan maklumat dan data peribadi. Garis panduan ini bertujuan untuk mengawal aktiviti ejen pengutip hutang yang dilantik oleh institusi kewangan yang dilesenkan oleh BNM. Berikut adalah senarai tindakan yang tidak boleh dilakukan oleh ejen pengutip hutang ketika berurusan dengan peminjam, iaitu: • menghubungi peminjam lebih daripada tiga kali seminggu, atau 12 kali sebulan sekiranya peminjam telah menjawab panggilan tersebut. • menyekat akses ke kediaman mereka atau menceroboh harta peribadi. • mengganggu peminjam dengan menggunakan bahasa yang kasar atau cuba untuk memalukan peminjam. • menghubungi jiran tetangga, rakan sekerja, rakan atau ahli keluarga peminjam untuk meminta bayaran. • memberi maklumat yang mengelirukan untuk menakutkan penghutang seperti mengancam untuk memufliskan penghutang, atau memfailkan tindakan jenayah terhadap penghutang. Apakah yang Harus Dilakukan Jika Ejen Pengutip Hutang Mengganggu Anda? Anda perlu menghubungi polis dan memfailkan laporan polis tentang kejadian itu. Anda juga perlu melaporkan gangguan ejen pengutip hutang kepada institusi kewangan yang berkaitan. Jika anda tidak berpuas hati dengan tindak balas pihak institusi kewangan, anda juga boleh memfailkan aduan kepada BNM. Nasihat kepada Peminjam Sekiranya anda mengalami masalah untuk membayar ansuran bulanan kenderaan, anda boleh berbincang dengan pegawai institusi kewangan yang berkaitan untuk menyusun semula ansuran bulanan anda. Anda juga boleh mendapatkan khidmat nasihat Agensi Kaunseling dan Pengurusan Kredit untuk membantu anda menyusun semula hutang anda melalui Program Pengurusan Kredit / (DMP) anda dengan institusi kewangan yang berkaitan. Maklumat lanjut mengenai DMP boleh dilayari di laman sesawang http://www.akpk.org.my/ Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) 10 | RINGGIT Anda Boleh Semak Mule’s Akaun atau Nombor Telefon Palsu Now, you can check out mule's account or fake phone number 現在，你可以檢查出騾子帳戶或假電話號碼 இப்ப ோது நீங்கள் ப ோலி வங்கி கணக்கு எண்கள் மற்றும் ப ோலி த ோலலப சி எண்கலை சரி ோர்க்கலோம் http://ccid.rmp.gov.my/semakmule/ QR Code http://ccid.rmp.gov.my/semakmule/ Jabatan Siasatan Jenayah Komersil Polis Diraja Malaysia Date 03 Oct. 2017 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang)

Public Notice

25 Jun 2018

Retail sale of commemorative currency at Sasana Kijang, Bank Negara Malaysia on 30 June 2018

https://www.bnm.gov.my/-/retail-sale-of-commemorative-currency-at-sasana-kijang-bank-negara-malaysia-on-30-june-2018

Reading: Retail sale of commemorative currency at Sasana Kijang, Bank Negara Malaysia on 30 June 2018 Share: Retail sale of commemorative currency at Sasana Kijang, Bank Negara Malaysia on 30 June 2018 Release Date: 25 Jun 2018 Retail sale of the following commemorative currency will be held from 10AM on 30 June 2018 (Saturday) at Sasana Kijang, Bank Negara Malaysia: RM60 commemorative banknote issued in conjunction with the 60th Anniversary of the Signing of the Federation of Malaya Independence Agreement; Nordic Gold coin issued in conjunction with the Installation of His Majesty Seri Paduka Baginda Yang di-Pertuan Agong XV Sultan Muhammad V; and Nordic Gold coin issued in conjunction with the 60th Anniversary of National Archives of Malaysia. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

01 Jun 2018

Exposure Draft on Trade Credit Insurance and Trade Credit Takaful

https://www.bnm.gov.my/-/ed-tradecreditinsurance-tradecredittakaful-01062018

https://www.bnm.gov.my/documents/20124/761682/ED_Trade_Credit_Insurance_and_Takaful.pdf

Reading: Exposure Draft on Trade Credit Insurance and Trade Credit Takaful Share: Exposure Draft on Trade Credit Insurance and Trade Credit Takaful Release Date: 01 Jun 2018 This exposure draft sets out the Bank’s proposed requirements on the offering of trade credit insurance and trade credit takaful. It also proposes the recognition of trade credit insurance and trade credit takaful as credit risk mitigation under the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets). Collectively, these proposed requirements seek to position insurance and takaful products to better meet the protection needs of businesses. The Bank invites written feedback on the proposed regulatory requirements. Responses must be submitted to nuruliman@bnm.gov.my by 16 July 2018. Further details can be found in the following documents: Exposure Draft on Trade Credit Insurance © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 31 May 2018 BNM/RH/ED 029-7 Trade Credit Insurance and Trade Credit Takaful Exposure Draft Applicable to: 1. Licensed insurers 2. Licensed takaful operators 3. Licensed Islamic banks 4. Licensed banks 5. Licensed investment banks 6. Licensed banks and licensed investment banks carrying on Islamic banking business 7. Financial holding companies Trade Credit Insurance and Trade Credit Takaful Issued on: 31 May 2018 This exposure draft (ED) sets out the Bank’s proposed requirements on the offering of trade credit insurance and trade credit takaful. It also clarifies the treatment of trade credit insurance and trade credit takaful as credit risk mitigation under the Capital Adequacy Framework for banking institutions. The Bank invites written comments on this exposure draft, including suggestions for particular issues/areas to be clarified or elaborated further and any alternative proposals that the Bank should consider. To facilitate the Bank’s assessment, please support each comment with a clear rationale, accompanying evidence or illustration, as appropriate. In addition to providing general feedback, insurers, takaful operators and banking institutions are requested to provide feedback on the questions in this exposure draft and the data template attached. Responses to the ED and the completed quantitative impact surveys must be submitted to the Bank by 16 July 2018 to– Pengarah Jabatan Perbankan Islam dan Takaful Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur In the course of providing your feedback, you may direct any queries to Nurul Iman Azwan at nuruliman@bnm.gov.my. mailto:nuruliman@bnm.gov.my Trade Credit Insurance and Trade Credit Takaful Issued on: 31 May 2018 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................. 1 1. Introduction.......................................................................................... 1 2. Applicability ......................................................................................... 1 3. Legal provisions .................................................................................. 1 4. Effective date ....................................................................................... 1 5. Interpretation ....................................................................................... 1 6. Related legal instruments and policy documents ................................ 2 7. Policy documents superseded ............................................................. 2 PART B POLICY REQUIREMENTS ..................................................................... 3 8. Offering of trade credit insurance and trade credit takaful ................... 3 9. Treatment of trade credit insurance and trade credit takaful by financial institutions ............................................................................. 4 APPENDICES ............................................................................................................ 7 Appendix 1 Submission requirements on trade credit insurance and trade credit takaful business ................................................................................... 7 Appendix 2 Illustration of the computation of limit on the size of trade credit insurance and trade credit takaful business ........................................ 8 Trade Credit Insurance and Trade Credit Takaful 1 of 8 Issued on: 31 May 2018 PART A OVERVIEW 1. Introduction 1.1 Trade credit insurance and trade credit takaful protect businesses against the risk of non-payment of goods and services by buyers. Such insurance and takaful can also help businesses manage country risk and thus opens up access to new markets. For financial institutions, trade credit insurance and trade credit takaful can also be used to manage risks of their trade financing portfolios. 1.2 This policy document aims to clarify the approval process and other requirements for the offering of trade credit insurance and trade credit takaful by licensed insurers and takaful operators respectively. It also sets out the treatment of trade credit insurance and trade credit takaful as credit risk mitigation (CRM) under the Capital Adequacy Framework for banking institutions. 2. Applicability 2.1 This policy document is applicable to licensed insurers, licensed takaful operators and financial institutions as defined in paragraph 5.2. 3. Legal provisions 3.1 The requirements in this policy document are specified pursuant to– (a) sections 14(3), 47(1), 115(3) and 143(2) of the Financial Services Act 2013 (FSA); and (b) sections 15(3), 57(1), 127(3) and 155(2) of the Islamic Financial Services Act 2013 (IFSA). 3.2 The guidance in this policy document is issued pursuant to section 266 of FSA and section 277 of IFSA. 4. Effective date 4.1 This policy document comes into effect upon the issuance of the final policy document. 4.2 The Bank is committed to ensure that its policies remain relevant and continue to meet the intended objectives and outcome. Accordingly, the Bank will review this policy document within five years from the date of issuance or the Bank’s last review and, where necessary, amend or replace this policy document. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the IFSA and the FSA, as the case may be, unless otherwise defined in this policy document. Trade Credit Insurance and Trade Credit Takaful 2 of 8 Issued on: 31 May 2018 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Capital Adequacy Framework for banking institutions” collectively refers to the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets). “financial institution” refers to– (a) a licensed bank; (b) a licensed investment bank; (c) a licensed Islamic bank, except for a licensed international Islamic bank; and (d) a financial holding company approved pursuant to section 112(3) of the FSA or section 124(3) of the IFSA and holds investment directly or indirectly in corporations that are engaged predominantly in banking business. “trade credit insurance or trade credit takaful” refers to insurance or takaful cover that protects sellers against the risk of non-payment of goods and services by buyers. 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Capital Adequacy Framework (Basel II – Risk-Weighted Assets); and (b) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets). 7. Policy documents superseded 7.1 Paragraph B of the circular on Pengeluaran Bon/Jaminan Kewangan oleh Penanggung Insurans (BNM/RH/CIR/003-7) issued on 11 August 2007 is superseded by this policy document. Trade Credit Insurance and Trade Credit Takaful 3 of 8 Issued on: 31 May 2018 PART B POLICY REQUIREMENTS 8. Offering of trade credit insurance and trade credit takaful 8.1 Section 14(3) of the FSA and section 15(3) of the IFSA stipulate that except with the prior written approval of the Bank, a licensed insurer or takaful operator shall not carry on trade credit insurance business or trade credit takaful business1. S 8.2 To offer trade credit insurance or trade credit takaful, as the case may be, a licensed insurer or takaful operator must have adequate technical capability to underwrite credit risk. This capability will be assessed by the Bank before the licensed insurer or takaful operator is allowed to carry on such business. S 8.3 In relation to paragraph 8.2, where a licensed insurer or takaful operator enters into a collaboration with a foreign institution to offer trade credit insurance or trade credit takaful, as the case may be, the licensed insurer or takaful operator must ensure that there is a clear and structured plan to develop its own underwriting expertise. S 8.4 A licensed takaful operator must ensure that it offers trade credit takaful in a Shariah compliant manner. S 8.5 For purposes of obtaining the Bank’s prior written approval under section 14(3) of the FSA or section 15(3) of the IFSA to carry on trade credit insurance or trade credit takaful business, as the case may be, a licensed insurer or takaful operator shall apply in writing for such approval and shall submit the information required in Appendix 1 together with its application to the Bank. S 8.6 Unless otherwise specified by the Bank, the annual gross premiums or contributions of trade credit insurance or trade credit takaful business must not exceed 10% of a licensed insurer or takaful operator’s total gross premiums or contributions of the preceding calendar year as illustrated in Appendix 2. S 8.7 A licensed insurer which was approved to carry on trade credit insurance business pursuant to the circular on Pengeluaran Bon/Jaminan Kewangan oleh Penanggung Insurans shall be deemed to be approved under section 14(3) of the FSA. For the avoidance of doubt, such a licenced insurer need not apply to the Bank for any further approval under section 14(3) of the FSA nor submit the information required under paragraph 8.5. Question 1 The purpose of limiting the size of trade credit insurance and trade credit takaful business in paragraph 8.6 is to restrict the risk exposure that could adversely affect 1 On the basis that credit guarantee insurance business or credit guarantee takaful business includes trade credit insurance business or trade credit takaful business. Trade Credit Insurance and Trade Credit Takaful 4 of 8 Issued on: 31 May 2018 the stability of the licensed insurer or takaful operator, and its insurance or takaful funds. Please comment on the appropriateness of the threshold and the formula as illustrated in Appendix 2. Where appropriate, please suggest an alternative approach to setting a prudential limit for this business. 9. Treatment of trade credit insurance and trade credit takaful by financial institutions G 9.1 A financial institution may recognise trade credit insurance or trade credit takaful as CRM under the Capital Adequacy Framework for banking institutions. S 9.2 Where a financial institution recognises trade credit insurance or trade credit takaful as CRM under the Capital Adequacy Framework for banking institutions, the financial institution must ensure that the trade credit insurance or trade credit takaful satisfies the guarantee requirements under Part B.2.5 or Part B.3.4, as the case may be, of the Capital Adequacy Framework. Modifications to the Capital Adequacy Framework for banking institutions 1. To ensure that the trade credit insurance or trade credit takaful functions as a qualifying guarantee that satisfies the CRM requirements under the Capital Adequacy Framework, a financial institution must demonstrate to the Bank that the trade credit insurance or trade credit takaful meets the requirements concerning guarantees. 2. Accordingly, CRM will be recognised only when: (a) the relevant requirements concerning guarantees in Part B.2.5 of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Part B.3.4 of the Capital Adequacy Framework for Islamic Banks (Risk- Weighted Assets) are met. In addition, the financial institution must– (i) establish policies and procedures to minimise the risk of delay and non-payment of claims, which include the following: (A) determination and verification of the completeness and appropriateness of documentation or information required for submission to the trade credit insurance or trade credit takaful provider; (B) monitoring of specified deadlines and credit standing of obligors; and (C) timely and regular communication between the financial institution and the trade credit insurance or the trade credit takaful provider; (ii) ensure that protracted default2 of an obligor (i.e. the buyer of the referenced trade transaction in the trade credit insurance policy or 2 Failure by the obligor to pay debt upon a pre-defined period, for whatsoever reason. Trade Credit Insurance and Trade Credit Takaful 5 of 8 Issued on: 31 May 2018 trade credit takaful certificate) is included as a risk event eligible for protection3; and (iii) have obtained external legal opinion confirming that the unconditionality4 and irrevocability5 requirements for CRM recognition under the Capital Adequacy Framework are fulfilled; and (b) the provider of the trade credit insurance or trade credit takaful is a licensed insurer or takaful operator. 3. Where the trade credit insurance or trade credit takaful is ceded to a reinsurer or retakaful operator, a financial institution may recognise the reinsurer or retakaful operator’s credit ratings or equivalent probability of default (PD) as if it were a direct claim in calculating the risk-weighted assets for the portion of exposure covered by the reinsurer or retakaful operator. To be deemed as a direct claim on a protection provider, this would be subject to the following conditions: (a) The reinsurer or retakaful operator is rated at least BBB- or has a PD equivalent to or lower than that associated with an external BBB- rating in the case where the financial institution adopts Internal Ratings Based Approach; and (b) The reinsurance or retakaful contract– (i) fulfils the guarantee requirements under the Capital Adequacy Framework; (ii) provides an equally robust level of protection6 as the trade credit insurance policy or trade credit takaful certificate between the financial institution and the trade credit insurance or trade credit takaful provider; and (iii) includes specific clause in the legal documentation that enables the financial institution to directly pursue claims payment from the reinsurer or retakaful operator upon the insurer or takaful operator default, for whatsoever reasons, in paying claims. Part B.2.5 and Part B.3.4 of the Capital Adequacy Framework will be revised to incorporate the above changes. 3 For the avoidance of doubt, default of a single exposure in a portfolio covered by trade credit insurance or trade credit takaful should also be eligible for protection to the financial institution. 4 Unconditional means no exclusion clause or provisions outside the financial institution’s control that prevents the licensed insurer or takaful operator from being obliged to pay out in a timely manner in the event that the obligor fails to make the payment due. Refers to paragraphs 2.142(iii) and 2.144(iii) of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets), respectively. 5 Irrevocable means no clause that allows the licensed insurer or takaful operator to unilaterally cancel the trade credit insurance or trade credit takaful or increase the effective cost of cover as a result of deteriorating credit quality of the protected exposure. Refers to paragraphs 2.142(ii) and 2.144(ii) of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets), respectively. 6 To the extent possible, must include similar terms as per the trade credit insurance policy or trade credit takaful certificate between the financial institution and the licensed insurer or takaful operator. For example, the reinsurance or retakaful contract must give similar effect of the risks covered, exclusions and claims payment timeline as in the insurance policy or takaful certificate. Trade Credit Insurance and Trade Credit Takaful 6 of 8 Issued on: 31 May 2018 Question 2 (a) What are the clauses that can affect the trade credit insurance policy or trade credit takaful certificate to be irrevocable and unconditional? To what extent can exclusion clauses or requirements under a trade credit insurance policy or trade credit takaful certificate be modified or eliminated to fulfil the requirements on unconditionality and irrevocability? (b) To what extent would the requirement to obtain an external legal opinion to confirm that the trade credit insurance or trade credit takaful is unconditional and irrevocable onerous? Please explain, including to elaborate on, where relevant, the costs and challenges involved in getting an external legal opinion. (c) What other measures can be used to minimise the risk of delay or non- payment of claims on trade credit insurance or trade credit takaful? (d) In an arrangement where the seller or exporter is the policy owner with the financial institution as beneficiary (e.g. loss-payee clause), how can a financial institution ensure that claims are paid in a timely manner? Are there sufficient safeguards which would justify the trade credit insurance or trade credit takaful arrangement qualifying as CRM? Please explain. (e) What are the potential risk of non-payment or delay of claims payment by the reinsurer or retakaful operator to the financial institution? What safeguards can be put in place to mitigate such risks? Quantitative impact surveys Licensed insurers and takaful operators are required to fill-up Attachment 1: Data on offering of trade credit insurance or trade credit takaful. Financial institutions are required to fill-up Attachment 2: Data on purchase of trade credit insurance or trade credit takaful. Trade Credit Insurance and Trade Credit Takaful 7 of 8 Issued on: 31 May 2018 APPENDICES Appendix 1 Submission requirements on trade credit insurance and trade credit takaful business 1. Product name and description; 2. Product benefits; 3. Target product launch date; 4. Proposed distribution channel(s) and target market; 5. Premium or takaful contribution and charges; 6. Targeted yearly business volume; 7. Underwriting criteria and appetite for credit assessment, e.g. obligor with rating A or equivalent, exposure to specific industry/sector etc.; 8. Plans to enhance internal underwriting expertise; 9. Impact to reserving and capital position, including capital required, capital available and capital adequacy ratio; 10. Proposed risk monitoring and control of key product risks identified; 11. Details of proposed reinsurance/retakaful arrangement; 12. Description on the collaboration with foreign insurers/takaful providers (if applicable) including the areas of support which the providers will be providing e.g. human resource, systems software etc.; and 13. In the case of a takaful operator– (a) product structure, including diagrams or transaction flows; (b) type(s) of Shariah contract used; (c) relevant resolution by the Shariah Advisory Council of Bank Negara Malaysia (SAC) that approved the product structure7; (d) deliberation by the Shariah committee, including– (i) Shariah issues arising from the product (if any); (ii) issues on takyif fiqhi (fiqh adaption) and relevant documents presented for deliberation of the Shariah committee which include fiqh literature, evidence and reasoning supporting the Shariah compliance of the product; (iii) the appropriate current Shariah ruling and/or recognised Shariah standard (if any); and (iv) minutes of the Shariah committee’s meeting in respect of the product; and (e) verification statement by the Shariah committee that the product structure does not attract any Shariah issue that has not been deliberated by the SAC. The statement must be signed off by the Chairman of the Shariah committee. In addition, the statement must include any dissenting views from any member of the Shariah committee and the Shariah committee’s deliberation and conclusions reached on such views. 7 For products that are subject to the SAC’s prior approval or resolution, submission of information for such products shall be made after obtaining approval or resolution of the SAC. Trade Credit Insurance and Trade Credit Takaful 8 of 8 Issued on: 31 May 2018 Appendix 2 Illustration of the computation of limit on the size of trade credit insurance and trade credit takaful business Business Limit of Trade Credit Insurance or Trade Credit Takaful Business, from January to December 2018 Total Gross Premiums or Contributions, from January to December 2017 = 10% X

Public Notice

31 May 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-31052018-02

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 31 May 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 419 companies. The following company was added to the list: 1. Kazuki Coin  The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

31 May 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-31052018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 31 May 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 420 companies. The following company was added to the list: 1. BDIG Investment Scheme  The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

25 May 2018

RINGGIT Newsletter (April 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-april-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed96+Apr+2018+v6-final.pdf

Reading: RINGGIT Newsletter (April 2018 issue) is now available for download Share: RINGGIT Newsletter (April 2018 issue) is now available for download Release Date: 25 May 2018 The highlight for this month is Jimatkan Kos Perubatan Other topics of interest include : Pelepasan Cukai Pendapatan 2017 Penyediaan Penyata Pendapatan Peribadi Berhati-Hati Apabila Berurusan Dengan Pajak Gadai RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - April/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I APR 2 0 1 8 Penyediaan Penyata Pendapatan Peribadi Berhati-Hati Apabila Berurusan Dengan Pajak Gadai PP 16897/05/2011 (029495) CUKAI Pelepasan Cukai Pendapatan 2017 Jimatkan Kos Perubatan Kos sara hidup semakin tinggi di Malaysia, ini termasuklah kos perubatan yang meliputi harga ubat, caj pemeriksaan di hospital dan klinik swasta. Kesihatan merupakan satu faktor yang tidak boleh dikompromi, namun masih ada cara untuk anda mengurangkan kos berkaitan perubatan dan penjagaan kesihatan anda. Dapatkan insurans / takaful perubatan yang komprehensif Masih ramai rakyat Malaysia yang memandang remeh kepentingan memiliki insurans / takaful perubatan. Bagi yang bekerja, kebanyakannya hanya bergantung kepada pelan insurans / takaful yang disediakan oleh pihak majikan. Sebenarnya tidak semua insurans / takaful yang disediakan oleh majikan mampu menanggung kos rawatan untuk penyakit-penyakit kritikal atau kecacatan kekal, kerana kebanyakannya hanya mampu menanggung kos rawatan asas yang terhad. Anda akan terasa beban apabila terpaksa menanggung sendiri kos rawatan yang tidak diliputi oleh polisi insurans / takaful. Oleh yang demikian, anda boleh melanggan polisi insurans / takaful yang komprehensif meliputi semua penyakit dan rawatan. Walaupun bayarannya mungkin sedikit mahal, namun ia amat wajar demi menjaga kesihatan anda dan keluarga. Fahami polisi insurans / takaful anda Polisi insurans / takaful perubatan yang komprehensif hanyalah langkah pertama anda ke arah penjimatan kos perubatan. Anda juga perlu memahami dengan teliti akan kandungan polisi insurans / takaful anda. Fahami had perlindungan, kelayakan wad, kelayakan rawatan di klinik, kunjungan wad kecemasan, faedah selepas rawatan, dan sebagainya. Ini akan membantu anda daripada berbelanja lebih untuk perkara yang telah tertakluk dalam polisi insurans / takaful anda. Jalani pemeriksaan kesihatan secara percuma Bak kata peribahasa, mencegah itu lebih baik dari mengubati. Tidak dinafikan pemeriksaan kesihatan dengan kerap itu amat digalakkan, tetapi kos yang mahal mungkin menghalang seseorang untuk menghadiri pemeriksaan kesihatan dengan lebih kerap. Ditambah pula dengan kebanyakan polisi insurans / takaful yang tidak menawarkan pemeriksaan percuma melainkan ia adalah sebahagian daripada proses rawatan. Ini tidak seharusnya menghalang anda untuk lebih ekonomik dalam menjalani ujian saringan pemeriksaan kesihatan. Anda boleh menjalani ujian saringan pemeriksaan kesihatan secara percuma yang disediakan oleh Kementerian Kesihatan Malaysia atau klinik swasta yang berhampiran. Jimatkan Kos Perubatan “Tidak dinafikan pemeriksaan kesihatan dengan kerap itu amat digalakkan, tetapi kos yang mahal mungkin menghalang seseorang untuk menghadiri pemeriksaan kesihatan dengan konsisten.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Gunakan khidmat penjagaan kesihatan awam Kerajaan telah memberi banyak subsidi dalam perkhidmatan dan fasiliti perubatan sektor awam untuk memastikan kosnya lebih murah berbanding sektor swasta. Sistem penjagaan kesihatan awam di Malaysia juga diiktiraf antara yang terbaik di dunia. Buat perbandingan harga Jika anda ingin menjalani pemeriksaan di pusat perubatan swasta, klinik dan pusat perubatan swasta ada menyenaraikan ujian-ujian pemeriksaan kesihatan yang perlu dijalani. Anda perlu bertanya kepada doktor sama ada pemeriksaan tersebut adalah perlu, ataupun jika terdapat alternatif ubat- ubatan lain yang boleh diambil jika anda merasakan diagnosis dan ujian itu akan menelan belanja yang tinggi. Bandingkan caj terhadap servis yang ditawarkan Bukan semua ubat dijual pada harga terkawal, jadi anda digalakkan untuk membandingkan harga untuk mendapat tawaran hebat bagi ubat yang anda perlukan. Beberapa farmasi besar sentiasa menawarkan promosi hebat “Tidak dinafikan pemeriksaan kesihatan dengan kerap itu amat digalakkan, tetapi kos yang mahal mungkin menghalang seseorang untuk menghadiri pemeriksaan kesihatan dengan konsisten.” Apr 2018 | 3 serta diskaun untuk ubat dan preskripsi umum yang dibeli di kaunter. Selain itu, farmasi di pasar raya besar turut menawarkan harga yang lebih murah walaupun pilihannya mungkin tidak sebanyak di farmasi-farmasi besar. Dapatkan anggaran harga Ramai rakyat Malaysia tidak menyedari akan hal ini, tetapi anda boleh mendapatkan anggaran caj untuk rawatan anda sebelum anda menjalani rawatan tersebut. Jika penyakit anda tidak terlalu kritikal, anda boleh membandingkan rawatan yang sama di pusat perubatan yang lain. Untuk bayaran semula pula, jika kosnya terlalu tinggi, cuba dapatkan diskaun setakat yang boleh. Diskaun untuk bayaran tunai Klinik dan hospital swasta biasanya lebih menggemari bayaran tunai berbanding tuntutan insurans / takaful atau kad kredit. Jika anda mempunyai simpanan khas untuk bayaran perubatan, cuba bertanya sama ada mereka menawarkan diskaun untuk bayaran tunai. Institusi ini mungkin boleh menawarkan diskaun bagi menggalakkan bayaran penuh. Periksa maklumat bayaran Walaupun hanya perbezaan yang kecil, ia boleh mendatangkan kos yang berbeza sama ada imbasan tomografi berkomputer (CT Scan) yang lebih murah ataupun imbasan pengimejan resonans magnet (MRI scan) yang lebih mahal. Semak dengan teliti bil anda. Hal ini juga sama dengan penyata yang dihantar oleh syarikat insurans / takaful anda. Pastikan semua kos ditanggung oleh polisi insurans / takaful anda. Jangan lupa untuk menyimpan bil dan resit asal untuk tujuan tuntutan cukai. Simpan salinan dan rekod perubatan Ini boleh membantu anda daripada membayar dan menjalani rawatan yang sama untuk kali kedua. Kebanyakan rekod perubatan tidak banyak berubah untuk beberapa tahun. Dengan rekod ini, ia akan memudahkan doktor untuk membuat diagnosis pada masa akan datang. Kurangkan kos selepas rawatan Langkah ini khusus untuk penyakit dan keadaan yang memerlukan rawatan jangka panjang, seperti patah tulang, kecederaan dan pembedahan. Sebagai contoh, jika anda perlu menjalani rawatan fisioterapi jangka panjang di hospital, minta pengurangan jumlah rawatan ataupun alternatif bagi menjalani rawatan tersebut di rumah. Doktor anda akan memahami keadaan kewangan anda jika anda jujur, namun anda haruslah memberi keutamaan untuk menjalani gaya hidup sihat, amalkan pemakanan yang seimbang dan sentiasa bersenam bagi mengelakkan risiko diserang penyakit. Sumber: Comparehero 4 | RINGGIT Setiap tahun, individu yang berpendapatan, sama ada yang mempunyai majikan atau bekerja sendiri, perlu melaporkan hasil pendapatan mereka untuk tujuan pembayaran cukai pendapatan. Bagi cukai pendapatan tahun 2017, kerajaan telah memberikan beberapa pelepasan yang dapat mengurangkan cukai pendapatan individu seperti berikut: CUKAI Pelepasan Cukai Pendapatan 2017 Jenis Potongan Individu RM9,000 Individu dan saudara tanggungan Perbelanjaan rawatan perubatan, keperluan khas dan penjaga ibu bapa (keadaan kesihatan disahkan oleh pengamal perubatan) ATAU Ibu dan Bapa Terhad 1,500 bagi hanya seorang ibu Terhad 1,500 bagi hanya seorang bapa. RM6,000 (Terhad) Peralatan Sokongan Asas (untuk individu kurang upaya, suami / isteri, anak atau ibu bapa yang kurang upaya). RM5,000 (Terhad) atau RM3,000 (Terhad) RM6,000 Individu Kurang Upaya RM7,000 (Terhad) Yuran Pendidikan (sendiri) : (i) Peringkat selain Sarjana dan Doktor Falsafah - bidang undang-undang, perakaunan, kewangan Islam, teknikal, vokasional, industri, saintifik atau teknologi; (ii) Peringkat Sarjana dan Doktor Falsafah - sebarang bidang atau kursus pengajian. Apr 2018 | 5 Perbelanjaan perubatan penyakit yang sukar diubati (individu atau suami / isteri atau anak- anak). RM6,000 (Terhad) RM2,500 (Terhad) Gaya Hidup : (i) Pembelian buku, jurnal, majalah, suratkhabar bercetak dan penerbitan (selain bahan bacaan terlarang) untuk diri sendiri, suami / isteri atau anak; (ii) Pembelian komputer peribadi, telefon pintar atau tablet untuk diri sendiri, suami / isteri atau anak; (iii) Pembelian peralatan sukan untuk aktiviti sukan mengikut Akta Pembangunan Sukan 1997 (tidak terpakai bagi jenis basikal bermotor) dan bayaran keahlian gimnasium untuk diri sendiri, suami / isteri atau anak; dan (iv) Bayaran langganan internet. RM500 (Terhad) Pemeriksaan perubatan penuh (diri sendiri, suami / isteri atau anak). RM1,000 (Terhad) Pembelian peralatan penyusuan Yuran penghantaran anak ke Pusat Asuhan Kanak- Kanak atau Pra-sekolah. RM1,000 (Terhad) RM6,000 (Terhad) Tabungan bersih dalam skim SSPN (Jumlah simpanan dalam tahun 2017 tolak jumlah pengeluaran dalam tahun 2017). RM4,000 (Terhad) Suami / Isteri / Bayaran alimoni kepada bekas isteri. RM2,000 Anak yang belum berkahwin dan berumur 18 tahun dan ke atas serta menerima pendidikan sepenuh masa (peringkat sijil, matrikulasi, persediaan atau pra-ijazah). RM2,000 Anak di bawah umur 18 tahun 6 | RINGGIT Maklumat lanjut, sila rujuk laman sesawang: www.hasil.gov.my Sumber: Lembaga Hasil Dalam Negeri Malaysia RM3,500 Suami / Isteri kurang upaya RM8,000 Anak yang belum berkahwin dan berumur 18 tahun dan ke atas tertakluk kepada syarat-syarat berikut: (i) mengikuti kursus di peringkat diploma dan ke atas di institusi pengajian tinggi dalam Malaysia (tidak termasuk kursus matrikulasi / pra-ijazah). (ii) mengikuti kursus di peringkat ijazah dan ke atas di institusi pengajian tinggi luar Malaysia. (iii) kursus dan institusi pengajian tinggi diiktiraf oleh pihak berkuasa kerajaan yang berkaitan. RM6,000 Insurans nyawa dan KWSP termasuk tidak melalui potongan gaji RM6,000 (Terhad) Anak Kurang Upaya Pelepasan tambahan sebanyak RM8,000 bagi anak kurang upaya berumur 18 tahun dan ke atas, belum berkahwin dan mengikuti diploma ke atas di dalam Malaysia atau peringkat ijazah ke atas di luar Malaysia dalam kursus di IPT yang diiktiraf oleh pihak berkuasa kerajaan yang berkaitan. RM3,000 (Terhad) Insurans pendidikan dan perubatan termasuk tidak melalui potongan gaji. RM250 (Terhad) Caruman kepada Pertubuhan Keselamatan Sosial (PERKESO). RM3,000 (Terhad) Skim Persaraan Swasta dan Anuiti Tertunda (Deferred Annuity) – berkuat kuasa mulai Tahun Taksiran 2012 hingga tahun taksiran 2021. Apr 2018 | 7 Penyediaan Penyata Pendapatan Peribadi Pasti ramai yang mengetahui kepentingan untuk menguruskan kewangan peribadi dan merekodkan semua perbelanjaan. Namun begitu, tidak ramai yang tahu bagaimana untuk melakukannya. Dalam artikel ini, anda akan diberikan panduan untuk menyediakan penyata pendapatan peribadi. Bagi memudahkan anda memahami kaedah menyediakan penyata pendapatan peribadi ini, sila hayati peranan yang dibawa oleh Aiman. Aiman berusia 29 tahun dan bekerja sebagai eksekutif jualan di sebuah bank. Baru-baru ini, beliau telah berkenalan dengan seorang wanita yang gemar membeli-belah. Aiman amat menyukai wanita tersebut, tetapi apabila mereka berjumpa pada setiap sesi membeli-belah, Aiman tidak pasti sama ada dia mampu untuk terus bertemu janji. Untuk menenangkan fikiran, Aiman ingin menganalisis keseluruhan perbelanjaan bulanannya. Berikut adalah langkah-langkah yang dilakukan oleh Aiman untuk menyediakan penyata pendapatan peribadi. Pendapatan Dalam menyediakan penyata pendapatan untuk bulan Januari, Aiman perlu menentukan terlebih dahulu jumlah wang yang diperoleh daripada pelbagai sumber pendapatan. Kebanyakan sumber pendapatan diperoleh daripada gaji, sewa daripada sewaan hartanah, faedah daripada simpanan, bonus dan dividen pelaburan. Selepas membuat senarai, pendapatan Aiman untuk bulan Januari adalah seperti berikut: • Gaji Aiman ialah RM32,000 setahun (selepas ditolak dengan caruman KWSP, Perkeso dan Sistem Insurans Pekerja) ialah RM2,353.45 sebulan. • Selaku eksekutif jualan, Aiman turut menerima komisyen jualan sebanyak RM18,000 setahun. • Aiman perlu pergi ke beberapa lokasi untuk tujuan pekerjaannya. Dia menerima elaun perjalanan sebanyak RM600 sebulan. • Beliau menerima bonus akhir tahun dengan nilai sebulan gaji (setelah ditolak caruman KWSP), iaitu RM2,372.00. • Aiman menerima dividen RM5 sesaham untuk 30 saham beliau di sebuah syarikat yang tersenarai di Bursa Saham. Beliau memiliki saham tersebut sepanjang tahun, maka tidak menjana keuntungan daripada modal tersebut. • Aiman tidak menyewakan apa-apa hartanah. Dalam penyata pendapatan, jumlah bersih pendapatan atau perbelanjaan perlu dibahagikan kepada setiap bulan yang menyumbang. Contohnya, bonus akhir tahun tersebut berdasarkan hasil kerja Aiman untuk 12 bulan yang lepas. 8 | RINGGIT Dengan maklumat di atas, Aiman telah menyediakan bahagian pertama Penyata Pendapatan seperti berikut: Pendapatan Bulan Januari Gaji Bulanan RM2,353.45 Komisyen Jualan RM1,500.00 Elaun Perjalanan RM600.00 Bonus Bulanan RM197.67 Dividen Bulanan RM13.00 Jumlah Pendapatan Bulanan RM4,664.12 Pendapatan bulanan berjumlah RM4,664.12 bukanlah bermakna akaun bank Aiman akan meningkat sebanyak jumlah tersebut dalam bulan Januari. Matlamat utama penyata ini ialah untuk menentukan sama ada gabungan pendapatan dan perbelanjaan anda mampu menghasilkan keuntungan. Penyata ini tidak akan memberikan maklumat mengenai baki tunai anda. Jika anda ingin mengetahui sama ada anda memiliki bekalan tunai yang mencukupi untuk membuat pembelian, Penyata Aliran Tunai lebih sesuai untuk tujuan tersebut. Perbelanjaan Selepas Aiman menyenaraikan semua sumber pendapatan, beliau kini perlu menyenaraikan perbelanjaan yang dibuat dalam bulan tersebut. Ini termasuklah perbelanjaan menggunakan kad debit dan kredit serta caj-caj yang dikenakan yang berkaitan dengan perbelanjaan pada bulan tersebut. Dalam situasi ini, Aiman hanya perlu menyenaraikan perbelanjaan pada bulan Januari sahaja. Walaupun Aiman telah membayar bil elektrik bulan Disember pada bulan Januari, ia tidak disenaraikan dalam Penyata Pendapatan Januari, tetapi sebaliknya dimasukkan dalam Penyata Pendapatan Disember. Berikut merupakan senarai perbelanjaan Aiman: • Makanan dan barangan dapur – RM1,300 • Sewa Rumah – RM1,500 yang dibayar pada bulan Disember • Pada bulan November, Aiman telah membayar insurans perlindungan berjumlah RM300 untuk tempoh 6 bulan • Pada bulan Oktober, Aiman melanggan keahlian gimnasium untuk tempoh 12 bulan, dengan kos RM1,440 • Pada bulan Januari, beliau telah menggunakan servis teksi sebanyak 20 kali, dengan kad kredit sebanyak RM600 • Teman wanita Aiman telah menggunakan kad kreditnya untuk membeli-belah sebanyak 12 kali pada bulan lepas, jumlah caj kad kredit RM1,400 • Aiman membayar langganan Netflix untuk bulan Januari sebanyak RM50 • Pelan Pascabayar telefon Aiman untuk bulan Januari berjumlah RM85 • Aiman juga membuat bayaran untuk pinjaman pendidikan sebanyak RM250 • Perbelanjaan lain pada bulan Januari berjumlah RM500 Aiman menggunakan maklumat perbelanjaan beliau untuk melengkapkan bahagian kedua penyata pendapatan. Seperti yang dinyatakan di atas, perbelanjaan yang dibayar sekali gus dan merupakan kombinasi bayaran bulanan perlu dibahagi kepada bulan yang berkaitan. Berdasarkan senarai di atas, bayaran insurans pada bulan November, atau langganan keahlian gimnasium (Oktober) yang telah dibayar lebih awal, tetapi membenarkan anda untuk menggunakan servis yang diberikan pada bulan Januari. Maka, kos-kos yang berkaitan perlu dikira. • Insurans: RM300 / 6 bulan = RM50 • Keahlian Gimnasium: RM1,440 / 12 = RM120 Perbelanjaan Bulan Januari Makanan / Barangan Dapur RM1,300.00 Sewa Rumah RM1,500 Bayaran Insurans RM50.00 Belanja Pengangkutan RM600.00 Membeli-belah RM1,400.00 Hiburan RM50.00 Pelan Telefon RM85.00 Pinjaman Pelajaran RM250.00 Keahlian Gimnasium RM120.00 Lain-lain RM500.00 Jumlah Belanja Bulanan RM5,855.00 Penyata Pendapatan Selepas menyempurnakan kedua-dua senarai pendapatan dan perbelanjaan tersebut, Penyata Pendapatan Aiman kini hampir sempurna. Tempoh Penyata Pendapatan boleh diatur secara bulanan, setiap suku tahunan, atau tahunan. Untuk penyata pendapatan peribadi, lebih mudah jika anda menggunakan format bulanan, dan menggunakan Apr 2018 | 9 maklumat-maklumat penyata pendapatan anda untuk menyediakan Penyata Pendapatan Tahunan. Jangan menyangka tugas anda telah selesai pula! Untuk mendapatkan gambaran sebenar mengenai perbelanjaan anda, kira berapakah peratus perbelanjaan daripada jumlah pendapatan. Dengan langkah ini, anda boleh membuat perbandingan bulanan dan melihat perbelanjaan-perbelanjaan yang mendatangkan kesan besar ke atas pendapatan anda. Hal ini amat berguna terutamanya jika pendapatan bulanan anda berbeza setiap bulan. Malah, anda juga boleh menggunakan perbandingan ini untuk membuat anggaran perbelanjaan untuk bulan-bulan akan datang. Langkah ini biasanya dikenali sebagai ‘peratus daripada jualan’. Memandangkan anda tidak menjual apa- apa, anda boleh menamakannya ‘peratus daripada pendapatan’. Peratus perbelanjaan daripada pendapatan Perbelanjaan Bulan Januari Jumlah Pendapatan Bulanan RM4,664.12 100% Makanan / Barangan Dapur RM1,300.00 28% Sewa Rumah RM1,500.00 33% Bayaran Insurans RM50.00 2% Belanja Pengangkutan RM600.00 13% Membeli-belah RM1,400.00 30% Hiburan RM50.00 2% Pelan Telefon RM85.00 2% Pinjaman Pendidikan RM250.00 5% Keahlian Gimnasium RM120.00 3% Lain-lain RM500.00 11% Jumlah Belanja Bulanan RM5,855.00 129% Jumlah Bersih - RM1,190.88 -29% Berdasarkan jadual di atas, apa yang boleh dirumuskan dengan penyata pendapatan Aiman adalah seperti berikut: • Pendapatan bulanan berada dalam skala negatif, yang menandakan Aiman berbelanja lebih daripada kemampuannya untuk bulan Januari. Untuk setiap pendapatan bernilai RM1.00, Aiman telah membelanjakan RM1.29. Jika Aiman tidak membuat sebarang perubahan, beliau tidak akan mampu menyimpan, dan bakal dibebani hutang dalam jangka panjang. • 34% daripada pendapatan Aiman ialah untuk membeli-belah, yang boleh dikira agak tinggi. Aiman perlu berbincang dengan teman wanitanya bagi menentukan penggunaan kad kredit yang betul. Anda mungkin telah menjalani hidup dengan jumlah pendapatan negatif lebih kerap daripada apa yang anda sedari. Ini hanya akan terserlah selepas anda membuat Penyata Pendapatan Peribadi. Banyak produk kewangan yang boleh membantu anda untuk mengekalkan pendapatan bulanan dalam skala positif (pinjaman peribadi, kad kredit). Jika anda memiliki aliran pendapatan yang negatif, cuba kurangkan perbelanjaan anda. Anda haruslah memastikan pendapatan anda cukup untuk menampung keperluan asas. Perbelanjaan yang tidak perlu seperti hiburan atau percutian boleh dikurangkan mengikut kemampuan atau keperluan semasa, selaras dengan kemampuan anda. Sumber: Comparehero.my “Banyak produk kewangan yang boleh membantu anda untuk mengekalkan pendapatan bulanan dalam skala positif ...” 10 | RINGGIT Pusat Khidmat Aduan Pengguna Nasional (NCCC) telah menerima banyak aduan daripada orang awam tentang segelintir kedai pajak gadai yang tidak mengikut peraturan yang ditetapkan di bawah Akta Pemegang Pajak Gadai 1972. Tujuan Akta Pemegang Pajak Gadai 1972 adalah untuk menyeragamkan undang-undang mengenai pajak gadai dan juga menjaga kepentingan pengguna. Antara aduan yang sering diterima oleh NCCC ialah barang-barang kemas telah dijual dan dilelong tanpa dimaklumkan terlebih dahulu kepada pengguna yang menggadaikan barang-barang kemas tersebut. Selain itu, walaupun pengguna telah meminta untuk melanjutkan tempoh masa untuk menebus, namun barang kemas tersebut tetap dilelong dengan alasan mereka tidak menerima sebarang notis daripada pengguna. Terdapat juga situasi beberapa kedai pajak gadai yang tidak berlesen mengenakan kadar faedah setinggi 6%. Mengikut Akta Pemegang Pajak Gadai 1972, kadar faedah yang dibenarkan ialah 2% sebulan atau 24% setahun. Jikalau kadar faedah yang dikenakan melebihi daripada kadar yang ditetapkan, ia merupakan satu kesalahan. Terdapat juga kes peniaga pajak gadai tidak memulangkan baki gadaian selepas lelongan. Pengguna perlu memahami dan mengetahui hak mereka sebelum menggunakan perkhidmatan pajak gadai. Peringatan yang paling penting kepada pengguna ialah mereka perlu menyimpan resit sebagai bukti. Pengguna mesti memastikan barang kemas, seperti cincin dan kalung perlu ditimbang dan diukur dengan tepat kerana terdapat beberapa kes barang-barang kemas yang ditebus menjadi lebih pendek, seolah-olah barang kemas tersebut telah dipotong. Oleh itu, adalah penting untuk merekodkan berat dan panjang / lebar barang kemas dengan betul untuk mengelakkan insiden tersebut daripada berlaku. Apabila pengguna ingin melanjutkan tempoh pembayaran, pengguna hendaklah berurusan secara bersemuka dengan kedai pajak gadai tersebut. NCCC juga menerima aduan mengenai permintaan pengguna untuk melanjutkan tempoh tebusan melalui telefon, tetapi permintaan itu tidak direkodkan dan barang tersebut telah dijual. Untuk makluman, setiap lanjutan tempoh yang diminta perlu dikemas kini dan dicatatkan dalam buku rekod. NCCC ingin menasihatkan orang ramai supaya lebih berhati-hati apabila berurusan dengan kedai pajak gadai. Sekiranya terdapat sebarang pertanyaan berkaitan pajak gadai, pengguna boleh menghubungi Kementerian Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan, Bahagian Pemberi Pinjam Wang & Pemegang Pajak Gadai, melalui Sistem Aduan Bersepadu KPKT di laman sesawang, https://aduan. kpkt.gov.my/aduan atau pengadu boleh hadir sendiri ke Bahagian Pemberi Pinjam Wang dan Pemegang Pajak Gadai (BPWG), Kementerian Kesejahteraan Bandar, Perumahan dan Kerajaan Tempatan atau boleh menghubungi Pusat Khidmat Aduan Pengguna Nasional(NCCC) di www.nccc.org.my. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Berhati-Hati Apabila Berurusan Dengan Pajak Gadai Apr 2018 | 11 BNM-flood adv. 2017_01_BM (outline).pdf 1 5/4/2018 6:29:25 PM

Public Notice

24 May 2018

Enforcement Action against Company Suspected To Be Using The Word "Bank" Without Approval

https://www.bnm.gov.my/-/enforcement-action-against-company-suspected-to-be-using-the-word-bank-without-approval

Reading: Enforcement Action against Company Suspected To Be Using The Word "Bank" Without Approval Share: 5 Enforcement Action against Company Suspected To Be Using The Word "Bank" Without Approval Release Date: 24 May 2018 A raiding operation was conducted on Axios Group Sdn Bhd located in Cheras on 24 May 2018. Axios Group Sdn Bhd was suspected to have committed an offence under section 139(1)(a) of the Financial Services Act 2013 (FSA) for using the word “bank” in their office premise signage and websites without written approval by Bank Negara Malaysia. During the raid, relevant documents and computers were seized to assist in the investigation.   Under section 139(1) of the FSA, it is an offence for any person to use the word “bank” without written approval unless such person is licensed under this Act to carry on banking business or investment banking business, where if convicted the person can be liable to imprisonment for a term not exceeding eight years or to a fine not exceeding RM25 million or to both.   Members of the public are advised to be wary of unlicensed companies that use the word “bank” without prior written approval from the Bank and should refer to licensed financial institutions listed on Bank Negara Malaysia’s website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

21 May 2018

Exposure Draft on Takaful Operational Framework

https://www.bnm.gov.my/-/ed-takaful-oprerational-framework-21052018

Reading: Exposure Draft on Takaful Operational Framework Share: Exposure Draft on Takaful Operational Framework Release Date: 21 May 2018 This exposure draft is being issued following a review of the existing Takaful Operational Framework to further clarify the application of Shariah contracts that complement the Shariah standards and operational requirements issued by the Bank. It provides additional guidance related to the specificities of takaful business. This document also seeks to strengthen takaful fund management practices to ensure its sustainability and prudent management. Collectively, these revisions seek to spur greater innovation in takaful industry while further safeguarding the position of takaful participants. The Bank invites written feedback on the exposure draft. Responses must be submitted to the Bank by 18 July 2018. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

10 May 2018

Announcement on the Release of Monetary Policy Statement

https://www.bnm.gov.my/-/announcement-on-the-release-of-monetary-policy-statement

Reading: Announcement on the Release of Monetary Policy Statement Share: Announcement on the Release of Monetary Policy Statement Release Date: 10 May 2018 As announced in Bank Negara Malaysia’s Schedule of Monetary Policy Committee Meetings for 2018, the Monetary Policy Statement will be released as scheduled on Thursday, 10 May 2018 at 3 p.m. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

27 Apr 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-27042018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 27 Apr 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 418 companies. The following company was added to the list: IPG Capital Spot Gold Scheme The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

25 Apr 2018

Enforcement Action Against Illegal Money Services Business Operators in Johor Bahru

https://www.bnm.gov.my/-/enforcement-action-against-illegal-money-services-business-operators-in-jb

Reading: Enforcement Action Against Illegal Money Services Business Operators in Johor Bahru Share: Enforcement Action Against Illegal Money Services Business Operators in Johor Bahru Release Date: 25 Apr 2018 On 24 April 2018, Bank Negara Malaysia (BNM) raided four premises owned by Famirah Sukses Wisata (JM06933714-V), suspected for carrying out illegal retail remittance business activities without license granted under section 7(1) of Money Services Business Act 2011 (MSBA), which is an offence under section 4(1) of MSBA. Relevant documents and cash amounting to RM139,922.89 were seized for the purpose of the investigation. The raids were conducted in various places in Johor, including: Kota Tinggi Pandan, Johor Bahru Bestari Bestmart, Skudai TJ Mart, Senai Taman Air Biru, Pasir Gudang In the same raiding operations, eleven illegal immigrants who were involved in manning the premises were detained in collaboration with the Immigration Department of Malaysia for breaching the Immigration Act 1959/63 (Act 155). This is part of the continuous enforcement actions undertaken by BNM to protect members of the public against any financial loss when dealing with informal channels. Members of the public are advised not to conduct any money changing or remittance transactions with illegal money services business operators and their agents. Any person who conducts transactions with an illegal money services business operator does so at his own risk, and appropriate legal action can be taken against him by the relevant authorities. Members of the public should conduct their transactions only with licensed money services business operators which are listed on BNM's website (www.bnm.gov.my). Any person or company who commits an offence under section 4(1) of the MSBA shall, on conviction, be liable to a fine not exceeding RM5 million or imprisonment for a term not exceeding ten years or to both. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

11 Apr 2018

Bai` al-Sarf (Currency Exchange)

https://www.bnm.gov.my/-/bai-al-sarf-currency-exchange

https://www.bnm.gov.my/documents/20124/761682/PD+Bai+Al-Sarf.pdf, https://www.bnm.gov.my/documents/20124/761682/Feedback+Statement_Sarf.pdf

Reading: Bai` al-Sarf (Currency Exchange) Share: 3 Bai` al-Sarf (Currency Exchange) Release Date: 11 Apr 2018 The Bank has issued the policy document on Bai` al-Sarf. It aims to promote end-to-end Shariah compliance within the Islamic financial institutions (IFIs) by specifying Shariah and operational requirements in relation to its application in Islamic financial transactions. The Shariah requirements highlight salient features and essential conditions of a bai` al-sarf contract. The operational requirements outline the regulatory expectations with respect to the governance and oversight, structuring, risk management as well as business and market conduct of bai` al-sarf.   The policy document will take effect from 1 April 2019.   Details can be found in the following documents: Bai` al-Sarf (Currency Exchange) Feedback statement © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 11 April 2018 BNM/RH/PD 028–74 Bai` al-Sarf (Currency Exchange) Applicable to: 1. Licensed Islamic banks 2. Licensed takaful operators and professional retakaful operators 3. Licensed banks and licensed investment banks carrying on Islamic banking business 4. Prescribed institutions carrying on Islamic financial business Bai` al-Sarf (Currency Exchange) Issued on: 11 April 2018 TABLE OF CONTENTS PART A OVERVIEW ................................................................................................... 1 1. Introduction .............................................................................................................. 1 2. Applicability .............................................................................................................. 1 3. Legal provisions ....................................................................................................... 1 4. Effective date ........................................................................................................... 2 5. Interpretation ........................................................................................................... 2 6. Related legal instruments and policy documents ..................................................... 3 PART B SHARIAH REQUIREMENTS AND OPTIONAL PRACTICES ...................... 4 7. Compliance with Part B............................................................................................ 4 8. Definition ................................................................................................................. 4 9. Nature… .................................................................................................................. 4 10. Components of bai` al-sarf ....................................................................................... 4 11. Contracting parties ................................................................................................... 4 12. Offer (ijab) and acceptance (qabul) .......................................................................... 5 13. Subject matter ......................................................................................................... 5 14. Salient features of bai` al-sarf .................................................................................. 5 15. Arrangement of bai` al-sarf with agency (wakalah) .................................................. 6 16. Arrangement of bai` al-sarf with promise (wa`d)....................................................... 6 17. Arrangement of bai` al-sarf with ijarah al-khadamat ................................................. 6 18. Payment of debt in different currency ....................................................................... 7 19. Dissolution of bai` al-sarf ......................................................................................... 7 20. Completion of bai` al-sarf ......................................................................................... 7 PART C OPERATIONAL REQUIREMENTS .............................................................. 8 21. Governance and oversight ....................................................................................... 8 22. Structuring ............................................................................................................... 9 23. Risk management .................................................................................................. 11 24. Business and market practices .............................................................................. 11 25. Submission requirement ........................................................................................ 12 APPENDICES ....................................................................................................... 13 Appendix 1 Legitimacy of bai` al-sarf………………… ....................................................... 13 Appendix 2 Glossary………………………………….. ........................................................ 14 Appendix 3 Exchange rules of currency ……………… ..................................................... 15 Appendix 4 Illustration of bai` al-sarf application ......................................................... 16 Bai` al-Sarf (Currency Exchange) 1 of 16 Issued on: 11 April 2018 PART A OVERVIEW 1. Introduction 1.1 Compliance with Shariah requirements is a prerequisite for ensuring the legitimacy and integrity of Islamic financial products and services. It is essential for an Islamic financial institution (IFI) to establish a sound operational framework and adequate infrastructure to ensure that its conduct is consistent with Shariah. 1.2 The Shariah contract-based regulatory policy is intended to promote consistency of Shariah contract applications in Islamic financial products and services. This policy is envisaged to strengthen legal certainty and Shariah compliance practices by IFIs. 1.3 This policy document aims to– (a) provide reference on the Shariah rulings applicable to bai` al-sarf; (b) set out key operational requirements for the implementation of bai` al- sarf; and (c) promote end-to-end compliance with Shariah requirements, which further promote sound banking practices and safeguard consumer interests. 1.4 This policy document sets out the following: (a) salient features and essential conditions of bai` al-sarf in Part B; and (b) regulatory and supervisory expectations for the operational requirements on governance and oversight, structuring, risk management as well as business and market conduct in Part C. 2. Applicability 2.1 This policy document is applicable to all IFIs as defined in paragraph 5.2 that offer products and services using bai` al-sarf contract which involves exchange of currency notes or coins that are legal tender and excludes gold or silver. 2.2 Where an IFI adopts bai` al-sarf for the purpose of money services business, in respect of these types of transactions – (a) only the Shariah requirements in Part B and paragraph 25 of this policy document are applicable; and (b) the operational requirements as provided in the policy document on Requirements for the Conduct of Money Services Business by Banking Institutions issued by the Bank continues to apply. 3. Legal provisions 3.1 The requirements in Part B of this policy document are specified pursuant to– (a) section 29(1) of the Islamic Financial Services Act 2013 (IFSA); and (b) section 33E(1) of the Development Financial Institutions Act 2002 (DFIA). Bai` al-Sarf (Currency Exchange) 2 of 16 Issued on: 11 April 2018 3.2 The requirements in Part C of this policy document are specified pursuant to– (a) sections 29(2), 57, 135(1) and 155 of the IFSA; and (b) sections 33E(2), 41, 42C(1) and 116 of the DFIA. 3.3 The guidance in this policy document is issued pursuant to section 277 of the IFSA and section 126 of the DFIA. 4. Effective date 4.1 This policy document comes into effect on 1 April 2019 except for paragraph 25 which takes effect immediately upon issuance of this policy document. 4.2 The Bank is committed to ensure that its policies remain relevant and continue to meet the intended objectives and outcome. Accordingly, the Bank will review this policy document within 5 years from the date of issuance or the Bank’s last review, and where necessary, amend or replace this policy document. 5. Interpretation 5.1 The terms and expressions used in this policy document must have the same meanings as assigned under the Financial Services Act 2013 (FSA), IFSA,and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement actions; “G” denotes guidance which may consist of statements or information, intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Islamic financial institution” or “IFI” refers to a– (a) licensed Islamic bank; (b) licensed takaful operator and professional retakaful operator; (c) licensed bank and licensed investment bank approved under section 15(1)(a) of the FSA to carry on Islamic banking business; and (d) prescribed institution approved under section 33B(1) of the DFIA to carry on Islamic financial business. “currency” refers to currency notes or coins that are legal tender in any country, territory or place; “money services business” refers to money-changing business and/or remittance business as defined under the Money Services Business Act 2011, extended by Islamic financial institutions. Bai` al-Sarf (Currency Exchange) 3 of 16 Issued on: 11 April 2018 5.3 A glossary of terms used in this policy document is set out in Appendix 2. 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank including– (a) Notice 1 of the Foreign Exchange Administration rules; (b) Requirements for the Conduct of Money Services Business by Banking Institutions; (c) Shariah Governance; (d) Corporate Governance; and (e) Risk Governance. Bai` al-Sarf (Currency Exchange) 4 of 16 Issued on: 11 April 2018 PART B SHARIAH REQUIREMENTS AND OPTIONAL PRACTICES 7. Compliance with Part B S 7.1 An IFI which uses bai` al-sarf as part of the underlying contract for its products and services must ensure that such products and services are in compliance with Part B of this policy document. 8. Definition S 8.1 Bai` al-sarf refers to a contract of exchange of money for money of the same or different type. S 8.2 Money is a medium of exchange that shall be in the form of currency, gold, silver, or other forms accepted by Shariah. S 8.3 For purposes of this policy document, bai` al-sarf refers to a contract of exchange of the same or different currency. 9. Nature S 9.1 Bai` al-sarf is an exchange contract that is binding in nature. Therefore, the contract shall not be terminated unilaterally by either of the contracting parties subject to paragraph 19.1(b). S 9.2 Terms or conditions that have been mutually agreed by the contracting parties, which do not contravene Shariah principles, shall be binding on the contracting parties. 10. Components of bai` al-sarf S 10.1 A bai` al-sarf shall consist of the following components: (a) the seller and buyer (collectively referred to as contracting parties); (b) offer (ijab) and acceptance (qabul); and (c) subject matter. 11. Contracting parties S 11.1 The contracting parties in bai` al-sarf shall be a seller and a buyer. S 11.2 The contracting parties shall be a natural person or a legal entity that must have the legal capacity1 to enter into bai` al-sarf. G 11.3 Any party to bai` al-sarf may enter into the contract through an agent (wakil). 1 Legal capacity of a person, from Shariah perspective, is defined as capacity to assume rights and responsibilities and capacity to give legal effect to his action. Among the important conditions are that the person must possess sound mind and the capacity to distinguish between what is harmful or beneficial to one’s interests. Legal capacity of a legal entity is defined as eligibility of an entity to acquire rights and assume responsibilities. In Malaysia, legal capacity is subject to the Contracts Act 1950 and the Age of Majority Act 1971. Bai` al-Sarf (Currency Exchange) 5 of 16 Issued on: 11 April 2018 12. Offer (ijab) and acceptance (qabul) S 12.1 A bai` al-sarf must be entered into through an offer and acceptance between the contracting parties. G 12.2 The offer and acceptance may be expressed orally, in writing or by any other methods recognised by Shariah. 13. Subject matter S 13.1 The subject matter of bai` al-sarf shall be currency which is known and delivered by the contracting parties during the contract session. S 13.2 The currency in bai` al-sarf shall be determined and mutually agreed by the contracting parties at the time of the execution of the contract. 14. Salient features of bai` al-sarf Delivery of currency S 14.1 The delivery and taking possession of the exchanged currency in all bai` al- sarf transactions, regardless of the currency, shall take place in full before the contract session ends. S 14.2 A contract session in bai` al-sarf refers to the period of time during which the contracting parties enter into a contract that– (a) commences with the offer (ijab), followed by an acceptance (qabul) to exchange currencies between each other; and (b) ends by the disengagement 2 of the contracting parties, or mutual waiving of the rights to revoke the contract (takhayur) by the contracting parties. S 14.3 In connection with paragraph 14.1, earnest money (`urbun) and conditional option (khiyar al-shart) shall not apply in bai` al-sarf. S 14.4 In the event the delivery of the exchanged currency cannot be carried out in accordance with paragraph 14.1, the delivery of the currency shall only be extended beyond the contract session provided that the extension is due to– (a) established customary business practice (‘urf tijari) resulting from operational constraints; or (b) any unexpected disruption to the business. Same currency S 14.5 In the event that the exchanged currencies are the same, the transaction shall be done at par.3 Different currency G 14.6 In the event that the exchanged currencies are different, the transaction may 2 includes physical parting or end of conversation on the bai` al-sarf including through telephone, chatroom or electronic platform. 3 Please refer to Appendix 3 on the exchange rules of currency. Bai` al-Sarf (Currency Exchange) 6 of 16 Issued on: 11 April 2018 be done at the prevailing currency rate or any mutually agreed rate at the time of the execution of the bai` al-sarf contract. Possession of currency S 14.7 The possession of the exchanged currency shall be in the form of physical possession (qabd haqiqi) or constructive possession (qabd hukmi). S 14.8 The buyer shall take possession of the exchanged currency upon delivery of the currency by the seller to the buyer through any mechanism permitted by Shariah (including customary business practice), such that the buyer shall have access to the currency and assume the ownership risk of the currency. S 14.9 The seller shall continue to have responsibility to effect delivery, and bear the risk of the exchanged currency prior to the buyer taking physical or constructive possession of the exchanged currency. ARRANGEMENT OF BAI` AL-SARF WITH OTHER CONTRACTS OR CONCEPTS 15. Arrangement of bai` al-sarf with agency (wakalah) 16. Arrangement of bai` al-sarf with promise (wa`d) 17. Arrangement of bai` al-sarf with ijarah al-khadamat G 15.1 In bai` al-sarf, the contracting parties may appoint an agent to execute bai` al- sarf and to take possession or deliver the currency on their behalf. G 16.1 A party may provide a unilateral binding promise (wa`d) to enter into bai` al- sarf with another party in the future. G 16.2 The parties may provide two separate unilateral binding promises (wa`dan) to each other which will be triggered by different causes of events respectively to enter into bai` al-sarf at a future date. G 16.3 The parties may provide bilateral binding promise (muwa`adah) to execute bai` al-sarf in the future. S 16.4 All arrangements in paragraphs 16.1, 16.2 and 16.3 shall only be for the purpose of hedging. G 17.1 Bai` al-sarf may be arranged with ijarah al-khadamat (services contract), which includes, but are not limited to, the following: (a) transfer of money (remittance) in a different currency; (b) cash withdrawal in a different currency; and (c) other related services such as the service of counting coins. G 17.2 Bai` al-sarf and ijarah al-khadamat may be combined in one document. S 17.3 Notwithstanding paragraph 17.2, both contracts must be specified and distinguished clearly in such document. Bai` al-Sarf (Currency Exchange) 7 of 16 Issued on: 11 April 2018 18. Payment of debt in different currency DISSOLUTION (FASAKH) AND COMPLETION (INTIHA’) OF BAI` AL-SARF 19. Dissolution of bai` al-sarf S 19.1 A bai` al-sarf contract shall dissolve under any of the following circumstances: (a) the contracting parties mutually agree to terminate the contract; or (b) one of the contracting parties exercises the defect option (khiyar al- `ayb) to terminate the contract. 20. Completion of bai` al-sarf S 20.1 A bai` al-sarf contract completes under any of the following circumstances: (a) possession of the exchanged currency by the contracting parties; (b) set-off (muqassah) of debt obligation between the contracting parties in different currencies; or (c) transfer of debt obligation (hiwalah al-dayn) to pay the counter-value to a third party provided that the settlement is effected on the spot. S 20.2 Upon completion of bai` al-sarf, the contracting parties shall be absolved from any further contractual obligations. G 17.4 For avoidance of doubt, the service provider may charge a fee for the service rendered under the services contract. G 18.1 A debtor may pay a debt obligation in a different currency from that of his original debt. G 18.2 Parties who have debt obligations against each other may agree to set-off their obligations in different currencies. S 18.3 In connection with paragraphs 18.1 and 18.2, the payment of debt in a different currency shall be mutually agreed by the debtor and creditor, and effected at the prevailing exchange rate or a mutually agreed rate on the day of payment (not a pre-agreed rate). Bai` al-Sarf (Currency Exchange) 8 of 16 Issued on: 11 April 2018 PART C OPERATIONAL REQUIREMENTS 21. Governance and oversight S 21.1 While the broad governance and oversight principles are applicable to bai` al- sarf contract, an IFI must observe specific requirements on governance arrangements as outlined in this policy document to address inherent risks associated with bai` al-sarf. S 21.2 An IFI must have sufficient understanding of its risk profile and ensure the availability of personnel with the appropriate knowledge and skills to offer bai` al-sarf. Board of Directors S 21.3 The Board of Directors of an IFI (the Board) must establish a sound governance structure to facilitate effective oversight on the management and implementation of bai` al-sarf. The adequacy of the governance structure shall commensurate with the nature, complexity and risk profile of bai` al-sarf. S 21.4 The Board has overall accountability and responsibility for Shariah governance and Shariah compliance of an IFI. As such, the Board must– (a) approve the business and risk strategies of an IFI with regard to the application of bai` al-sarf; (b) approve and oversee the implementation of policies governing the application of bai` al-sarf which includes risk management aspects; (c) ensure that the internal policies and procedures remain relevant and effective in managing the overall operational conduct and risk profile of the bai` al-sarf; (d) ensure that appropriate internal controls, systems and infrastructure are in place to implement bai` al-sarf in accordance with Shariah; (e) ensure that sufficient resources are in place, and that the IFI has adequate and competent personnel with sufficient knowledge on the concept, application and risks associated with bai` al-sarf; and (f) ensure that independent reviews are conducted regularly to assess compliance with the policy documents issued by the Bank and internal policies established by the IFI. Shariah Committee S 21.5 The Shariah Committee has the responsibility to advise an IFI in ensuring its business, affairs and activities involving bai` al-sarf transactions comply with Shariah. As such, the Shariah Committee must– (a) endorse the application of Shariah requirements in the relevant policies and procedures governing bai` al-sarf; (b) review, deliberate and endorse the terms and conditions stipulated in the legal documentations and other documents4 are in compliance with Shariah; (c) advise and provide clarification on relevant Shariah rulings, decisions or policy documents on Shariah matters issued by the Bank, and if relevant, any other authorities; and 4 Such as information published on promotional materials, product manuals or other publications. Bai` al-Sarf (Currency Exchange) 9 of 16 Issued on: 11 April 2018 (d) endorse any rectification measures that are needed to ensure that a transaction involving bai` al-sarf complies with Shariah requirements. Senior management S 21.6 The senior management has the responsibility to ensure that the business and operations of an IFI complies with Shariah requirements. As such, the senior management must– (a) establish policies, procedures and processes with regard to proper management of bai` al-sarf; (b) develop internal controls and risk management policies and procedures in line with the business and risk strategies approved by the Board; (c) implement relevant internal systems, infrastructure and mechanisms to identify, measure, control and monitor risks associated with bai` al- sarf; (d) identify, assign and train key personnel with the appropriate skills and ensure that the roles and responsibilities are properly delegated to the relevant functions to undertake bai` al-sarf; (e) undertake regular review and monitor compliance with the approved internal policies; and (f) ensure timely disclosure of relevant information with regard to bai’ al- sarf to the Board and the Shariah Committee. 22. Structuring Purpose G G 22.1 An IFI may adopt bai` al-sarf in a product or service to achieve a specific financial outcome such as for the purpose of foreign exchange investment, cash withdrawal in foreign currency and repayment of foreign currency financing. 22.2 Examples of the purpose and application of bai` al-sarf are provided in Appendix 4 for reference by IFIs. Contracting parties S 22.3 An IFI shall clearly identify the contracting parties as the seller or the buyer in a bai` al-sarf contract, which must include any appointment of agent, and the respective roles and responsibilities of the contracting parties. S 22.4 In the case where an agent acts on behalf of an IFI in executing a bai` al-sarf transaction, the IFI must– (a) ensure that the agent complies with the requirements of this policy document; and (b) ensure that the agent has the requisite capacity and capability to perform its duties and obligations in bai` al-sarf. Offer and acceptance S 22.5 An IFI shall ensure that each offer and acceptance of bai` al-sarf 5, is clearly evidenced by appropriate documentation6 or record7. 5 For example, in the case of foreign currency swap products, offer and acceptance of bai` al-sarf Bai` al-Sarf (Currency Exchange) 10 of 16 Issued on: 11 April 2018 Subject matter S 22.6 Where bai` al-sarf involves an exchange of physical currencies, an IFI shall have in place appropriate verification processes to ensure the authenticity and legitimacy of the currency. Rate of exchange S 22.7 In connection with paragraphs 14.6 and 18.3, an IFI shall refer to the reference rate fixed onshore for currencies involving the ringgit to determine the prevailing rate of the currency exchange. Settlement S 22.8 In connection with paragraph 14.1, the settlement terms agreed between the IFI and the customer shall include, at minimum, the following: (a) counterparties for the exchange; (b) date of the settlement or delivery of currency; (c) rate of exchange; (d) settlement mechanism; and (e) settlement amount. G 22.9 The settlement mechanism for the exchange of currency may include, but not limited to, the following: (a) payment by bankers cheque or currency order; (b) payment by debit card, charge card, credit card or prepaid card; (c) cash payment including online cash transfer to an account; or (d) electronic settlement system. Documentation S 22.10 An IFI must ensure that the legal documents on any bai’ al-sarf transaction must specify the agreed terms and conditions for the bai` al-sarf transaction. The IFI must ensure that the legal documentation clearly stipulate, at minimum, the following: (a) purpose of the bai` al-sarf; (b) contracting parties including the appointment of agent, if any; (c) rights and obligations of the contracting parties to the bai` al-sarf; where applicable; (d) description of exchanged currency i.e. the currency and unit of measurement used; (e) rate of exchange agreed for bai` al-sarf; (f) date of offer and acceptance; (g) arrangement with other Shariah contracts or concept 8 , where applicable; and (h) other terms, fees and charges including, brokerage fees, agency fee to be borne by the relevant contracting parties, where applicable. may occur at each payment dates. 6 Includes other generally acceptable documents in trade and financial transactions as an evidence of the transactions e.g. terms and conditions, confirmation and settlement of trades, enforceable document. 7 Includes records generated from the systems or trading platforms and receipts. 8 Such as wa`d, ijarah al-khadamat etc. Bai` al-Sarf (Currency Exchange) 11 of 16 Issued on: 11 April 2018 S 22.11 An IFI shall adequately clarify or translate the use of Arabic terminology, if any, in its documentations to enhance understanding of the contracting parties. Any translation shall be consistent with the rulings of SAC. 23. Risk management G 23.1 The application of bai` al-sarf contract may expose an IFI to various types of risks such as credit, market, liquidity and operational risks. S 23.2 An IFI shall establish a comprehensive and sound risk management framework and internal controls that is supported by adequate policies and procedures, processes and reporting to address risks associated with bai` al- sarf, which shall include, at minimum, the following: (a) processes and procedures for the identification, measurement, monitoring and control of risks; (b) appropriate risk mitigation measures; (c) setting out, where applicable, risk exposure limits such as counterparty settlement risk and foreign currency risk in line with the IFI’s risk appetite; and (d) reporting requirements9 to the Board, Shariah Committee and senior management. S 23.3 An IFI shall maintain all records relating to bai` al-sarf transactions. The IFI shall ensure that these internal records must be updated regularly and are available for inspection by the Bank or external auditors as and when required. S 23.4 An IFI must establish a systematic process to regularly review and update its policies and procedures, processes and internal limits to ensure consistency with its risk appetite, taking into account significant changes in business strategies that would increase its risk exposures. 24. Business and market practices General principle S 24.1 An IFI shall take into consideration customer’s interests in developing policies and procedures to ensure that a bai` al-sarf transaction is conducted in a fair, transparent, responsible and professional manner. Fair dealings S 24.2 An IFI must ensure that its internal policies and procedures on business and market conduct for the bai` al-sarf transaction reflects transparency and fair dealings to all contracting parties. At minimum, the IFI shall include the following in its internal policies and procedures: (a) information provided must be accurate and clear; (b) fees and charges related to the services offered under paragraph 17.1 must be disclosed, if any; and (c) reasonable care must be undertaken prior to providing advice and recommendations, if any. 9 Which may include the frequency and scope of reporting Bai` al-Sarf (Currency Exchange) 12 of 16 Issued on: 11 April 2018 Disclosure of information S 24.3 An IFI shall provide clear and adequate information to the customer prior to entering into the bai` al-sarf transaction. For this purpose, the IFI shall disclose the following information to facilitate the customer’s understanding of bai` al-sarf: (a) purpose of bai` al-sarf; (b) terms of settlement/delivery; (c) salient terms and conditions of bai` al-sarf, such as: (i) rights and obligations of the contracting parties; (ii) fees and charges, if applicable; and (iii) where relevant, arrangement with other Shariah contracts; and (d) termination and completion events of the bai` al-sarf contract. 25. Submission requirement S 25.1 An IFI that offers product or services that applies bai` al-sarf is required to submit an implementation plan to comply with this policy document to Jabatan Perbankan Islam dan Takaful of Bank Negara Malaysia no later than 11 July 2018. S 25.2 The Board and the Shariah Committee must respectively approve and endorse the IFI’s implementation plan to ensure full compliance with this policy document by 1 April 2019. S 25.3 In relation to paragraph 25.2, the IFI shall, at minimum,– (a) review and confirm existing policies, procedures and internal limits are in place; (b) where applicable, undertake enhancements to the existing system to address risks associated with the bai` al-sarf contract; and (c) establish appropriate monitoring and reporting mechanisms to ensure compliance with the requirements. S 25.4 The IFI must immediately notify Jabatan Perbankan Islam dan Takaful of Bank Negara Malaysia of any matter that will affect or impede full compliance of the requirements of this document by the effective date. Bai` al-Sarf (Currency Exchange) 13 of 16 Issued on: 11 April 2018 APPENDICES Appendix 1 Legitimacy of bai` al-sarf The Quran 1. The following verse of the Quran implies the general permissibility of sales contract including bai` al-sarf: اْلبَـْيَع َوَحرََّم الرِّبَاَوَأَحلَّ اللَـُّو “…whereas Allah SWT has permitted trading and forbidden usury…”10 The Sunnah of the Prophet Muhammad (peace be upon him) 2. The legality of bai` al-sarf is indicated in the following hadith: بالرب والشعري بالشعري والتمر بالتمر وامللح بامللح "الذىب بالذىب والفضة بالفضة والرب مثالً مبثل سواء بسواء يداً بيد، فإذا اختلفت ىذه األصناف فبيعوا كيف شئتم إذا كان يداً بيد" “[Exchange of] gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, or salt for salt [shall be] in equal quantities and hand to hand (spot). If they differ in type, you may trade them as you wish provided it is hand to hand (without deferment on either side)”11 The modern currencies are being used as medium of exchange which have same features (`illah thamaniyyah) with the gold and silver. Therefore, the rules of exchange of gold and silver as mentioned in the above hadith are also applied to the modern currencies. 10 Surah al-Baqarah, verse 275. 11 Sahih Muslim, hadith no. 2970. Bai` al-Sarf (Currency Exchange) 14 of 16 Issued on: 11 April 2018 Appendix 2 Glossary Terms Definition Hiwalah al-dayn Assignment/transfer of debt from the liability of the original debtor to the liability of a third person so that the original debtor becomes free of liability Ijab Offer ijarah al-khadamat Services contract Khiyar al-`ayb Option arising from a defect; the option of dissolving or continuing the contract upon discovery of a defect in the asset purchased Khiyar al-shart Conditional option Muqassah Offsetting Muwa`adah mulzimah Bilateral binding promises Qabd haqiqi Physical possession. It refers to a state where a person has actual possession and the rights to control an asset Qabd hukmi Constructive possession. It does not refer to an actual possession, but it is a presumptive possession based on the right of the owner towards an asset Qabul Acceptance `Urbun Earnest money paid to secure purchase of an asset in an exchange contract which is considered part of the price if the purchaser decides to continue the contract and is not refundable `Urf tijari Customary business practice which is acceptable by the community and does not contradict the Shariah principles Wa`d A promise or undertaking which refers to an expression of commitment given by one party to another to perform certain action(s) in the future Wakalah Agency Wakil Agent Bai` al-Sarf (Currency Exchange) 15 of 16 Issued on: 11 April 2018 Appendix 3 Exchange rules of currency Currency USD MYR Currency USD 1. On the spot 2. At par 1. On the spot MYR 1. On the spot 1. On the spot 2. At par Bai` al-Sarf (Currency Exchange) 16 of 16 Issued on: 11 April 2018 Appendix 4 Illustration of bai` al-sarf application Bai` al-sarf may be applied either as a supplementary transaction or as the main underlying contract of a product. In this regard, this policy document outlines examples of bai` al-sarf application in two (2) categories. Example 1: Bai` al-sarf application in foreign exchange investment product  Bai` al-sarf as supplementary contract for currency conversion in a foreign currency trading product such as cross currency swap. Example 2: Bai` al-sarf application in foreign currency financing  Bai` al-sarf transacted during the conversion of currencies, such as during the payment of foreign currency financing instalments. R A K A N K E W A N G A N A N D A E D I S I MEI 2 0 1 8 Kos Lain Yang Perlu Ditanggung Apabila Membeli Rumah Bagaimana Untuk Jimat Belanja RM1,000 Sebulan? PP 16897/05/2011 (029495) Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Perkiraan Sukarela Mekanisme Penyelamat Bagi Mengelak Tindakan Undang-Undang Kebankrapan C O N T O H Akta Insolvensi 1967 menyediakan Perkiraan Sukarela (VA) sebagai mekanisme penyelamat untuk membantu seseorang peminjam daripada dikenakan tindakan undang-undang kebankrapan. Peminjam perlu memohon kepada mahkamah untuk memperoleh Perintah Sementara. Apabila Perintah Sementara dibenarkan, tindakan kebankrapan dan proses undang-undang lain tidak boleh dilaksanakan terhadap peminjam, melainkan setelah mendapat kebenaran mahkamah. Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya. Pelan ini hendaklah dipatuhi oleh pihak penyedia kredit apabila diluluskan. Agensi Kaunseling dan Pengurusan Kredit (AKPK) telah dilantik oleh Jabatan Insolvensi Malaysia (MdI) sebagai Penama untuk membantu menyelamatkan individu daripada jatuh muflis melalui pelaksanaan VA. Pelaksanaan Cadangan yang telah diluluskan ini akan berkuat kuasa pada tarikh penyedia kredit meluluskan cadangan tersebut setelah perjumpaan dengan penyedia kredit dibuat. Penyedia kredit tidak dibenarkan untuk mengambil tindakan undang-undang terhadap peminjam apabila VA telah dilaksanakan. Kebaikan VA terhadap peminjam ialah: a) Mengelakkan stigma terhadap kebankrapan b) Bebas daripada kehilangan kelayakan dan ketidakupayaan sebagai seorang muflis yang diperuntukkan di bawah Akta Insolvensi 1967. Antaranya, peminjam dibenarkan untuk: i. Keluar negara ii. Menjadi pengarah syarikat iii. Menjalankan perniagaan iv. Mengekalkan kerjaya / pekerjaan Kegagalan Mematuhi VA Sekiranya peminjam gagal mematuhi sebarang tanggungjawabnya di bawah VA, penyedia kredit boleh meneruskan tindakan untuk memfailkan petisyen kebankrapan terhadap peminjam tanpa sebarang notis. Perkiraan Sukarela – Mekanisme Penyelamat Bagi Mengelak Tindakan Undang-Undang Kebankrapan “Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya.” 2 | RINGGIT Fi dan Bayaran Penama Peminjam dikehendaki membayar yuran kepada Penama sebagaimana yang ditetapkan oleh Jabatan Insolvensi (Perkiraan Sukarela), Peraturan 2017 dan kos pentadbiran VA. Kesalahan Mana-mana pihak yang membuat pernyataan palsu dengan tujuan untuk memperoleh VA telah melakukan satu kesalahan. Seseorang yang disabitkan dengan kesalahan akan dikenakan hukuman penjara tidak melebihi 2 tahun atau dikenakan denda tidak melebihi RM5,000 atau kedua-duanya sekali. Artikel ini adalah lanjutan daripada siri VA yang telah diterbitkan pada edisi Mac 2018 yang lalu. Sumber: Agensi Kaunseling dan Pengurusan Kredit Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Peminjam, dengan kerjasama Penama, perlu menyediakan pelan pembayaran balik (cadangan peminjam) untuk membayar hutangnya.” Mei 2018 | 3 Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) ditubuhkan oleh Suruhanjaya Sekuriti Malaysia sebagai saluran pakar dalam pasaran modal yang bebas dan berkecuali untuk membantu pelabur menyelesaikan pertikaian kewangan yang mereka hadapi dengan ahli SIDREC dalam tempoh yang singkat dan tanpa kos yang membebankan pelabur. Proses penyelesaian pertikaian dijalankan dalam persekitaran yang tidak formal. Bagaimana SIDREC Membantu Pelabur? SIDREC ialah badan penyelesaian pertikaian alternatif yang mengendalikan pertikaian tuntutan kewangan oleh pelabur terhadap pengantara pasaran modal berkaitan produk atau perkhidmatan pasaran modal. SIDREC membantu menyelesaikan tuntutan dengan adil, cekap, dan dalam jangkamasa yang berpatutan. SIDREC mengendalikan tuntutan tidak melebihi RM250,000.00. SIDREC Memanfaatkan Pelabur & Ahli • Pusat sehenti yang mengendalikan tuntutan pertikaian pasaran modal secara percuma. Perkhidmatan cepat dan cekap serta mudah untuk pelabur. • Meningkatkan pemahaman pelabur mengenai pasaran modal dan tanggungjawab mereka terhadap pelaburan mereka. • Meningkatkan pemahaman ahli tentang masalah dan cabaran yang dihadapi oleh pelabur. • Badan khas yang bebas dan berkecuali yang membantu menyelesaikan pertikaian pasaran modal dengan pengetahuan pakar dan pengalaman. Untuk maklumat lanjut, sila rujuk https://sidrec.com.my. Sumber: Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Pusat Penyelesaian Pertikaian Industri Sekuriti (SIDREC) Aliran Proses Penyelesaian 4 | RINGGIT Apabila anda membeli sebuah rumah yang berharga RM500,000.00 sebenarnya terdapat beberapa kos lain yang perlu anda tanggung untuk memiliki rumah tersebut. 1. Yuran Guaman Yuran guaman merupakan bayaran yang dibuat oleh pembeli hartanah untuk tujuan menyediakan dan merekod dokumen rasmi. Di Malaysia, terdapat dua yuran guaman yang anda perlu sediakan, iaitu untuk Perjanjian Jual Beli (SPA) dan Perjanjian Pinjaman. Caj yuran guaman bagi kedua-dua perjanjian tersebut boleh dirujuk dalam jadual di bawah. Peratus dan kiraan kos untuk kedua-dua perjanjian adalah sama. Walau bagaimanapun, yuran guaman jual beli adalah berdasarkan harga pembelian, manakala yuran guaman perjanjian pinjaman adalah berdasarkan jumlah pinjaman. Harga Rumah (RM) Skala Yuran Guaman RM 500,000 Pertama 1% (tertakluk kepada Fi Minimum RM 500) RM 500,000 Yang berikutnya 0.8% RM 2,000,000 Yang berikutnya 0.7% RM 2,000,000 Yang berikutnya 0.6% RM 2,500,000 Yang berikutnya 0.5% Nilai melebihi RM 7,500,000 1% (tertakluk kepada Fi Minimum RM 500) Jadual Yuran Guaman berdasarkan Perintah Saraan Peguam Cara (Pindaan) 2017 yang telah berkuat kuasa pada 15 Mac 2017 Pindaan Yuran Guaman tahun 2017 telah membenarkan peguam memberi diskaun tidak melebihi 25% daripada Yuran Guaman yang dikenakan untuk urusan pindah dan gadaian rumah. 2. Duti Setem Duti setem merupakan cukai yang dikenakan terhadap pengiktirafan undang-undang untuk dokumen- dokumen tertentu. Dalam kes ini, duti setem melibatkan perjanjian jual beli dan perjanjian pinjaman. Caj duti setem untuk dokumentasi jual beli hartanah boleh dirujuk dalam jadual di bawah. Harga Pembelian (RM) Caj Duti Setem 100,000 yang pertama 1.00% 400,000 yang berikutnya 2.00% Jumlah yang berikutnya 3.00% Caj duti setem untuk perjanjian pinjaman boleh dirujuk dalam jadual di bawah. Jumlah Pinjaman Caj Duti Setem Apa-apa jumlah 0.50% Mulai 1 Januari 2017, pembelian rumah pertama yang bernilai RM300,000 ke bawah akan dikecualikan daripada bayaran duti setem pindah milik dan duti stem dokumen utama pinjaman. Manakala untuk hartanah yang bernilai RM301,000 hingga RM500,000 pula, anda layak mendapat Kos Lain Yang Perlu Ditanggung Apabila Membeli Rumah Mei 2018 | 5 peremitan (diskaun) sebanyak RM5,000 daripada jumlah amaun sebenar duti setem pindah milik yang akan dikenakan, dan peremitan sebanyak RM1,500 daripada jumlah amaun sebenar duti setem dokumen utama pinjaman yang akan dikenakan. 3. Yuran Penilaian (apabila penilaian formal diperlukan) Yuran penilaian merupakan kos yang dibayar untuk menentukan nilai sesuatu aset. Kos ini perlu ditanggung apabila pembeli membeli daripada penjual yang bukan pemaju. Yuran penilaian ini perlu dibayar kepada jurunilai hartanah. Jadual di bawah menunjukkan caj yang dikenakan untuk yuran penilaian. Jumlah Penilaian Caj 100,000 yang pertama 0.250% 1,900,000 yang berikutnya 0.200% 5,000,000 yang berikutnya 0.167% 8,000,000 yang berikutnya 0.125% 35,000,000 yang berikutnya 0.100% Sumber: loanstreet.com.my Contoh: Hartanah bernilai RM500,000 dan pinjaman 90% (RM450,000) Jenis Yuran Cara Pengiraan Jumlah Bayaran 1. Yuran Guaman SPA RM500,000 yang pertama : RM500,000 x 1% = RM5,000 Tolak Diskaun 25% = RM1,250 RM3,750 2. Yuran Guaman Pinjaman RM500,000 yang pertama : RM450,000 x 1% = RM4,500 Tolak Diskaun 25% = RM1,125 RM3,375 3. Duti Setem Dokumentasi Jual Beli RM100,000 yang pertama : RM100,000 x 1% = RM1,000 RM400,000 yang berikut : RM400,000 x 2% = RM8,000 Tolak Peremitan duti setem pindah milik = RM5000 RM4,000 4. Duti Setem Perjanjian Pinjaman RM450,000 x 0.5% = RM2,250 Tolak Peremitan duti setem dokumen utama pinjaman = RM1500 RM750 5. Yuran Penilaian RM100,000 yang pertama : RM100,000 x 0.25% = RM250 RM400,000 yang berikut : RM400,000 x 0.2% = RM800 RM1,050 Jumlah RM12,925 “Duti setem merupakan cukai yang dikenakan terhadap pengiktirafan undang-undang untuk dokumen-dokumen tertentu.” 6 | RINGGIT Pernahkah anda menyemak baki akaun anda pada akhir bulan sebelum gaji anda dikredit ke dalam akaun? Kalau baki yang tinggal masih banyak lagi, itu tandanya anda menguruskan kewangan dengan baik. Bagaimana pula jika baki dalam akaun anda tinggal kosong? Itu tandanya anda perlu melakukan sesuatu terhadap pengurusan kewangan anda. Anda mungkin sedar yang kos sara hidup pada masa ini serba meningkat. Anda perlulah bijak mengatur perbelanjaan supaya keperluan anda tidak terabai. Perbelanjaan untuk mengikut gaya hidup seperti orang lain perlulah dielakkan sekiranya perbelanjaan tersebut adalah di luar kemampuan anda. Pendapatan dan perbelanjaan orang lain mungkin tidak sama seperti perbelanjaan dan pendapatan anda. Oleh itu, sebelum berbelanja, ukurlah baju di badan sendiri. Berikut dikongsikan beberapa panduan yang anda boleh lakukan sehingga mampu menjimatkan wang sebanyak RM1,000 sebulan. 1. Siaran Berbayar Jika anda peminat bola sepak, yuran bulanan untuk siaran berbayar yang paling murah ialah sebanyak RM90.95. Anda boleh menukar pelan televisyen berbayar anda Bagaimana Untuk Jimat Belanja RM1,000 Sebulan? kepada pelan seperti Astro Njoi yang anda hanya perlu bayar ketika pendaftaran sahaja. Jumlah penjimatan : RM90.95 2. Internet Pada zaman sekarang, internet sangat penting, terutama bagi mereka yang menjalankan perniagaan dalam talian. Jika anda masih baru dalam bidang perniagaan tersebut, pilih pakej murah yang kosnya masih rendah. Yuran bulanan pakej internet adalah berbeza- beza, ada yang mencecah RM200 sebulan sedangkan anda boleh memilih pakej yang lebih murah, iaitu RM100. Namun, jika perniagaan dalam talian anda memerlukan internet yang laju, tiada masalah sekiranya anda ingin melanggan internet yang mahal. Jumlah penjimatan : RM100.00 3. Internet (Data Telefon) Penggunaan telefon pintar perlu mempunyai pelan data internet kerana kebanyakannya menggunakan aplikasi seperti WhatsApp dan Facebook. C O N T O H Mei 2018 | 7 J ika anda seorang yang bekerja makan gaji, anda perlu berada di pejabat dari pagi hingga petang. Anda tidak memerlukan internet yang mahal jika fokus anda adalah kepada pekerjaan anda di pejabat. Sekiranya rumah anda sudah mempunyai internet, anda sebenarnya tidak memerlukan pelan data yang mahal. Jika anda melanggan talian pascabayar, komitmen bulanan paling murah anda ialah sebanyak RM80, yang sebenarnya anda boleh ambil pakej internet prabayar yang berharga RM30 sebulan. Jumlah penjimatan : RM50.00 4. Gimnasium Ramai yang ingin pergi ke gimnasium untuk memiliki badan yang sihat. Namun, kebanyakan yuran bulanan gimnasium boleh mencecah sehingga RM200 sebulan jika gimnasium tersebut adalah gimnasium yang terkenal. Anda sebenarnya boleh berjimat tanpa perlu pergi ke gimnasium. Buat senaman di taman, di luar rumah atau di dalam rumah. Selain itu, anda juga boleh melakukan pelbagai jenis diet untuk memiliki berat badan yang ideal. Jumlah penjimatan : RM200.00 5. Kopi Mahal Jika anda penggemar kopi mahal yang berharga RM15-RM20 secawan, anda patut melupakan minuman kegemaran tersebut. Anda sebenarnya telah membazir terlalu banyak sedangkan anda boleh mendapatkan kopi yang lebih murah di kedai mamak. Jika anda membeli kopi tersebut sebanyak 10 kali dalam sebulan, ini bermakna anda telah membelanjakan wang anda sebanyak RM200 sebulan. Ini ialah satu pembaziran yang tidak disedari. Jumlah penjimatan : RM200.00 6. Makanan Segera Waktu rehat di pejabat, ramai yang ingin mendapatkan makanan yang cepat disediakan dan makanan segera ialah pilihan yang terbaik. Tetapi, tahukah anda harga untuk set makanan segera boleh mencecah sehingga RM10 untuk makanan yang termasuk dalam kategori ‘biasa- biasa’ sahaja. Jika anda pergi ke restoran makanan segera, set makan tengah hari adalah lebih kurang RM20 untuk sekali makan. Jika anda ambil makanan segera sebanyak 2 kali sebulan, anda sudah membelanjakan sebanyak RM20 x 2 = RM40. Jumlah Jimat : RM40.00 Secara Keseluruhannya, Anda Boleh Jimat Seperti Berikut: 1. Siaran berbayar RM90.95 2. Internet RM200 3. Internet (data) RM50 4. Gimnasium RM200 5. Kopi mahal RM200 6. Makanan segera RM40 Jumlah RM780.95 Sumber: http://www.duitkertas.com 8 | RINGGIT Ejen Pengutip Hutang Yang Tidak Beretika Kenderaan merupakan keperluan untuk bergerak dari satu destinasi ke destinasi yang lain. Tanpa mengambil kira harga sesebuah kenderaan, kebanyakan pembelian kenderaan adalah melalui pembiayaan daripada institusi kewangan atau syarikat kredit. Dalam keadaan ekonomi yang tidak menentu pada masa ini, ramai yang menghadapi kesukaran dalam aspek kewangan sehingga menyebabkan ramai yang gagal untuk menjelaskan bayaran ansuran bulanan kenderaan mereka tepat pada masanya. Untuk mendapatkan tunggakan tersebut, kebanyakan institusi kewangan / syarikat kredit menggunakan khidmat ejen pengutip hutang. Namun terdapat ejen pengutip hutang yang bertindak secara tidak beretika untuk mendapatkan semula bayaran tunggakan tersebut. Pusat Khidmat Aduan Pengguna Nasional (NCCC) kerap menerima aduan berkenaan ejen pengutip hutang yang sering menimbulkan gangguan kepada peminjam. Antara aduan yang kerap diterima oleh NCCC ialah terdapat ejen pengutip hutang yang mengugut untuk mengambil tindakan mahkamah atau menyita barangan peminjam, menarik kenderaan tanpa sebarang notis, tidak memulangkan kenderaan yang disita itu kepada institusi kewangan dan mendedahkan masalah hutang peminjam kepada pihak ketiga. Bolehkah Institusi Kewangan / Syarikat Kredit Mengambil Kenderaan atau Barangan yang Dibeli Secara Kredit? Pembeli kenderaan secara ‘sewa beli’ dikenali sebagai penyewa, manakala syarikat kewangan pula ialah pemunya. Perjanjian sewa beli ini tertakluk di bawah Akta Sewa Beli 1964 atau juga dikenali sebagai Akta 212. Mengikut undang-undang, syarikat kewangan / syarikat kredit berhak mengambil semula kenderaan tersebut sekiranya penyewa gagal membayar jumlah ansuran sebanyak dua kali berturut-turut; termasuk gagal membayar ansuran terakhir. Dalam kes penyewa telah meninggal dunia, jika waris gagal membayar ansuran selama empat bulan berturut-turut, institusi kewangan / syarikat kredit akan mengambil semula kenderaan. Proses pengambilan semula kenderaan bermula dengan penghantaran notis yang dikenali sebagai RM Mei 2018 | 9 Notis Jadual Keempat. Notis ini memaklumkan hasrat institusi kewangan / syarikat kredit untuk menarik balik kenderaan tersebut dalam tempoh 21 hari. Dua minggu (14 hari) selepas tarikh Notis Jadual Keempat, institusi kewangan / syarikat kredit akan menghantar Notis Kedua bagi mengingatkan tentang hasrat mereka untuk menarik balik kereta tersebut selepas tarikh luput Notis Jadual Keempat. Apakah Peranan Ejen Pengutip Hutang? Apabila institusi kewangan atau syarikat kredit gagal mendapatkan bayaran daripada peminjam, mereka akan menggunakan khidmat ejen pengutip hutang swasta. Sesetengah ejen pengutip hutang ini menggunakan kaedah menghubungi peminjam untuk mengingatkan mereka supaya membuat bayaran segera. Selain itu, mereka juga menghantar kenyataan hutang, notis pemberitahuan pembayaran balik, surat permintaan dan sebagainya. Masalah timbul apabila terdapat ejen pengutip hutang yang bertindak melampaui batas sewaktu cuba mendapatkan bayaran balik pinjaman daripada peminjam. Apakah Hak Anda? Bank Negara Malaysia (BNM) telah mengeluarkan garis panduan yang berkaitan kepada institusi kewangan di bawah pengawalseliaannya. Berdasarkan garis panduan tersebut, proses kutipan hutang perlu dilakukan dengan tindakan yang sewajarnya terhadap peminjam. Institusi kewangan yang menggunakan khidmat ejen pengutip hutang perlu memastikan ejen pengutip hutang: • amalkan standard profesionalisme yang tinggi sewaktu mengutip hutang. • mengamalkan tindakan yang beretika dalam mengutip hutang. • tidak menggunakan kekerasan. • memberi notis pemberitahuan terlebih dahulu kepada peminjam. • menunjukkan kad kuasa. • memastikan maklumat peminjam adalah tepat dan jelas. • mematuhi undang-undang berkaitan perlindungan maklumat dan data peribadi. Garis panduan ini bertujuan untuk mengawal aktiviti ejen pengutip hutang yang dilantik oleh institusi kewangan yang dilesenkan oleh BNM. Berikut adalah senarai tindakan yang tidak boleh dilakukan oleh ejen pengutip hutang ketika berurusan dengan peminjam, iaitu: • menghubungi peminjam lebih daripada tiga kali seminggu, atau 12 kali sebulan sekiranya peminjam telah menjawab panggilan tersebut. • menyekat akses ke kediaman mereka atau menceroboh harta peribadi. • mengganggu peminjam dengan menggunakan bahasa yang kasar atau cuba untuk memalukan peminjam. • menghubungi jiran tetangga, rakan sekerja, rakan atau ahli keluarga peminjam untuk meminta bayaran. • memberi maklumat yang mengelirukan untuk menakutkan penghutang seperti mengancam untuk memufliskan penghutang, atau memfailkan tindakan jenayah terhadap penghutang. Apakah yang Harus Dilakukan Jika Ejen Pengutip Hutang Mengganggu Anda? Anda perlu menghubungi polis dan memfailkan laporan polis tentang kejadian itu. Anda juga perlu melaporkan gangguan ejen pengutip hutang kepada institusi kewangan yang berkaitan. Jika anda tidak berpuas hati dengan tindak balas pihak institusi kewangan, anda juga boleh memfailkan aduan kepada BNM. Nasihat kepada Peminjam Sekiranya anda mengalami masalah untuk membayar ansuran bulanan kenderaan, anda boleh berbincang dengan pegawai institusi kewangan yang berkaitan untuk menyusun semula ansuran bulanan anda. Anda juga boleh mendapatkan khidmat nasihat Agensi Kaunseling dan Pengurusan Kredit untuk membantu anda menyusun semula hutang anda melalui Program Pengurusan Kredit / (DMP) anda dengan institusi kewangan yang berkaitan. Maklumat lanjut mengenai DMP boleh dilayari di laman sesawang http://www.akpk.org.my/ Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) 10 | RINGGIT Anda Boleh Semak Mule’s Akaun atau Nombor Telefon Palsu Now, you can check out mule's account or fake phone number 現在，你可以檢查出騾子帳戶或假電話號碼 இப்ப ோது நீங்கள் ப ோலி வங்கி கணக்கு எண்கள் மற்றும் ப ோலி த ோலலப சி எண்கலை சரி ோர்க்கலோம் http://ccid.rmp.gov.my/semakmule/ QR Code http://ccid.rmp.gov.my/semakmule/ Jabatan Siasatan Jenayah Komersil Polis Diraja Malaysia Date 03 Oct. 2017 Bank Negara Malaysia Kuala Lumpur (Block D, Jalan Dato’ Onn) atau kunjungi mana-mana Pejabat BNM di Johor Bahru, Pulau Pinang, Kuala Terengganu, Kota Kinabalu and Kuching (Waktu urusan: Isnin - Jumaat, 9:00 pagi - 5:00 petang)

Public Notice

09 Apr 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-09042018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 09 Apr 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 416 companies. The following company was added to the list: Financial.org Malaysia Time Travel & Explorer Sdn Bhd The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

30 Mar 2018

Caution on fake crypto-related certification using Bank Negara Malaysia’s name

https://www.bnm.gov.my/-/caution-on-fake-crypto-30032018

Reading: Caution on fake crypto-related certification using Bank Negara Malaysia’s name Share: 82 Caution on fake crypto-related certification using Bank Negara Malaysia’s name Release Date: 30 Mar 2018 Bank Negara Malaysia (BNM) would like to state that it does not authorise or endorse any certification programme related to blockchain asset, crypto asset and fintech as published in https://zhuanlan.zhihu.com. The use of BNM and University of Malaya logos on the certificate is unauthorised. BNM does not recognise these certificate holders who use such documentation in offering consultation services. Members of the public are advised to verify the validity of any certification programme before registering. Digital currencies are not legal tender in Malaysia. Members of the public are advised to exercise caution before investing in crypto-related assets. See also: Announcement from University Malaya on the fake crypto-related certification © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

26 Mar 2018

Response to Singapore Straits Times Article entitled "Foreign Insurers in Malaysia Resisting Divestment: Sources"

https://www.bnm.gov.my/-/response-to-sg-straits-times-26032018

Reading: Response to Singapore Straits Times Article entitled "Foreign Insurers in Malaysia Resisting Divestment: Sources" Share: Response to Singapore Straits Times Article entitled "Foreign Insurers in Malaysia Resisting Divestment: Sources" Release Date: 26 Mar 2018 We refer to the article entitled “Foreign Insurers in Malaysia Resisting Divestment: Sources ” published in Singapore Straits Times on 26 March 2018. Foreign shareholders of insurers were allowed to operate in Malaysia based on their promise and commitment including maintaining specified levels of domestic shareholding within agreed timelines. Without these promises and commitments, they would not have been allowed to operate in Malaysia. Bank Negara Malaysia expects these insurers to honour their promises and commitments. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

22 Mar 2018

Finalised Strategy Paper on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance

https://www.bnm.gov.my/-/finalised-strategy-paper-on-value-based-intermediation-22032018

https://www.bnm.gov.my/documents/20124/761682/Strategy+Paper+on+VBI.pdf, https://www.bnm.gov.my/documents/20124/761682/Feedback+Statement+VBI.pdf

Reading: Finalised Strategy Paper on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance Share: Finalised Strategy Paper on Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance Release Date: 22 Mar 2018 In response to the issuance of the Strategy Paper on Value-based Intermediation (VBI) by Bank Negara Malaysia (the Bank) on 20 July 2017, the Bank has received written feedback from respondents with diverse background during the consultation period. The respondents include financial institutions, talent institutions, consultants and individuals, both local and international. An engagement session with the industry representatives was also held to discuss the feedback and suggestions in depth. Relevant comments and suggestions received have been incorporated in this finalised strategy paper. The necessary clarification and elaboration on commonly asked questions are also provided in the feedback statement which covers the following key areas: Definition of VBI; Potential implication of VBI adoption to business modality and risk management; Implementation approach of VBI strategies; and Streamlining adoption of VBI with existing initiatives. In essence, the VBI strategy paper articulates strategies to strengthen the roles and impact of Islamic banking institutions (IBIs) towards providing positive and sustainable values to the economy, community and environment. The strategies are envisaged to promote the application of VBI practices which will lead to an improved suite of products and services offered by IBIs. This will result in a better facilitation of entrepreneurship, community well-being, sustainable environment and economic growth, which are consistent with the shareholders’ sustainable returns and long-term interests. These strategies are expected to be adopted and implemented based on each IBI’s readiness. The full, finalised strategy paper and feedback statement can be found on the following link: Value-based Intermediation: Strengthening the Roles & Impact of Islamic Finance Value-based Intermediation: Feedback Statement   © 2024 Bank Negara Malaysia. All rights reserved.

Strategy Paper Value-based intermediation: Strengthening the roles & impact of Islamic Finance June 2017 Value-based Intermediation: Strengthening the Roles and Impact of Islamic Finance Issued on: 12 March 2018 BNM/RH/DP 034–2 Bank Negara Malaysia (the Bank), in collaboration with founding members of VBI Community of Practitioners1, have consulted key stakeholders in developing several strategies that aim to strengthen the roles and impact of Islamic banking institutions (IBIs). The strategies focus on adoption of relevant practices, offerings and conduct that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders’ sustainable returns and long-term interests. About the Strategy Paper The implementation approach of these strategies is business-driven where Islamic banking players will champion relevant initiatives based on their level of maturity. The strategies are universally applicable across financial sectors, but the immediate focus will be on the Islamic banking industry. The consultative approach aims to forge effective collaboration among key stakeholders through mutual understanding of the industry’s next strategic direction. 1 | Page This Strategy Paper sets out definition and underpinning thrusts of value-based intermediation (VBI) as well as proposed implementation approach and strategies in advancing VBI as the next strategic direction for Islamic banking industry. Constructive feedbacks and suggestions have been received during consultation period and have been incorporated in the issuance of this finalised Strategy Paper. Also, necessary clarification and elaboration on commonly asked questions have been provided in the Feedback Statement. Any further queries may be directed to: Azren Rizuani Aziz azren@bnm.gov.my or 03 2698 8044 (ext.7855) Mohd Hairi Mohd Tahir mohdhairi@bnm.gov.my or 03 2698 8044 (ext.8381) Siti Nurul Ain Zakaria ain@bnm.gov.my or 03 2698 8044 (ext.8332) 1 Comprising Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Agrobank, CIMB Islamic Bank Berhad and HSBC Amanah Malaysia Berhad mailto:azren@bnm.gov.my mailto:azren@bnm.gov.my mailto:azren@bnm.gov.my mailto:azren@bnm.gov.my mailto:azren@bnm.gov.my mailto:mohdhairi@bnm.gov.my mailto:mohdhairi@bnm.gov.my mailto:mohdhairi@bnm.gov.my mailto:mohdhairi@bnm.gov.my mailto:mohdhairi@bnm.gov.my mailto:ain@bnm.gov.my mailto:ain@bnm.gov.my mailto:ain@bnm.gov.my mailto:ain@bnm.gov.my mailto:ain@bnm.gov.my “…the rapid changes and dynamism of the industry require Islamic finance to strive even harder now. True to its name, Islamic finance needs to continuously carve its own branding and distinctiveness to provide wholesome value propositions. On this premise, the next frontier and the major milestone would be positioning Islamic finance to become more prominent and leading agent of positive change for the financial system, and operates within a network economy that is built upon shared values of integrity, inclusivity and sustainability. Greater attention will be devoted to value creation and value-based businesses that reflect the true essence of Islamic finance.” 2 | Page What the leaders say… Muhammad bin Ibrahim Governor Bank Negara Malaysia “Islamic finance has its roots in creating social justice and promoting a values based economy. This initiative championed by BNM will set a new global standard for value- based banking, and has the potential to create a platform for Islamic finance to lead the financial services industry into a new era.” Arsalaan Ahmed HSBC Amanah Malaysia Berhad “Islamic finance, with all its ingrained principles, remains relevant in a world that is increasingly focused on societal and environmental wellbeing which operates within systems of clear governance. Islamic finance is well-positioned to lead inclusive growth that leverages on ecosystem of responsible finance.” Khairul Kamarudin Bank Islam Malaysia Berhad “The time has now come for the Islamic finance to take the leadership role in ensuring all Shariah-compliant financing and solutions are also in line with sustainable development goals which are part of the higher objectives of Shariah. This transformation will further enhance the position of Islamic finance as a value-based financing.” Rafe Haneef CIMB Islamic Bank Berhad “Integrating value based principles into Islamic finance strong fundamentals, leadership and platform will complete the equation for an ethical and a more socially responsible banking environment.” Dato' Hj Mohd Redza Shah Abdul Wahid Bank Muamalat Malaysia Berhad “The inherent principles of fairness and social responsibility which are intrinsically linked to being Shariah compliant, are poised to support the demand for value-based banking. Financial stability, sustainable ecosystem, efficient use of resources and innovation to create new market opportunity resonate with the increase in society’s consciousness and thus present an enormous opportunity for Islamic finance.” Eqhwan Mokhzanee bin Muhammad Ambank Islamic Berhad “Collectively, we have a responsibility to advocate value based governance and make lasting and impactful contributions to the society besides providing opportunities and growth for our business.” Dato’ Mohamed Rafique Merican bin Mohd Wahiduddin Merican Maybank Islamic Bank Berhad 3 | Page Contents PART I Unlocking full potential of Islamic finance PART II Realigning focus towards creating greater socio-economic impact PART III Defining common underpinning thrusts of value-based intermediation PART IV Creating enabling environment for adoption of value-based intermediation 7 11 4 | Page 19 25 EXECUTIVE SUMMARY Executive Summary What’s next for the Malaysian Islamic financial industry? Financial Industry Greater innovation, enhanced efficiency and effective ecosystem An intermediation function that aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders’ sustainable returns and long-term interests What is Value-based Intermediation? How does Value-based Intermediation benefit us? What are the underpinning thrusts? How do we get there? Enabling environment for adoption of value-based intermediation Implementation will be driven by Islamic banks based on their level of maturity The Bank, in collaboration with other stakeholders, will promote a conducive environment via various strategies that aim to expedite implementation of this initiative: Nurturing Potential Champions Enhanced Disclosure Strategic Networking Performance Measurement Defining common underpinning thrusts as a basis for collective action It is imperative for Islamic banks to ensure their intent, strategy and performance are premised on the underpinning thrusts of value-based intermediation Regulator Strengthened financial stability Government Realignment of business focus with national agenda Customer/Community Improved standard of living, fair and transparent treatment 6 | Page VALUE-BASED INTERMEDIATION PART I Unlocking Full Potential of Islamic Finance Unlocking Full Potential of Islamic Finance What has the industry achieved so far? • The global Islamic financial industry experienced significant growth in the last two decades with an overall total asset of USD1.88 trillion as at end 20151. • Offering of Shariah-compliant financial products and services in 50 Muslim and non- Muslim jurisdictions around the world demonstrated that the industry has gained its traction among businesses and individuals from all walks of life2. • In Malaysia, the Islamic finance industry is well supported by comprehensive market infrastructure, robust regulatory framework and dynamic market participants as the industry’s key growth drivers. • Compliance to Shariah has been the focus in ensuring legitimacy of Islamic financial products and services. Diagram 1.1 summarises Malaysia’s journey in building an ecosystem that ensures Shariah compliance in Malaysia. 1 Islamic Financial Services Industry Stability Report, 2016. 2 Global Report on Islamic Finance 2016, “Islamic Finance: A Catalyst for Shared Prosperity?”, The World Bank and Islamic Development Bank Group. 8 | Page Diversification of Islamic financial business Centralisation of Shariah advisory Institutionalisation of Islamic financial players 1980 1997 2007 2017 Developed legal and regulatory framework to ensure end-to-end Shariah compliance of diversified Islamic financial business CBA 2009 Centralised Shariah advisory for Islamic finance and enhanced certainty of Shariah via talent and knowledge institutions Shariah Advisory Council • Established as apex authority in Islamic finance to harmonise views among Islamic financial institutions Talent and Knowledge Institutions • Established IBFIM, INCEIF and ISRA to nurture talents and generate knowledge, including in Shariah Finality of Shariah rulings • Shariah rulings by SAC bind the court and arbitrator Shariah Contract-Based Regulatory Framework • Enforced legal and regulatory framework for diversified Shariah contracts IFSA 2013 Shariah Governance • Strengthened roles and accountability of key functionaries in Islamic financial institutions Dedicated Muamalat Court • Led towards greater efficiency in managing Islamic finance cases SGF Developed legal and Shariah foundation and increased number of players to stimulate competition First Shariah Committee • Formed by Bank Islam Malaysia Berhad, the first Islamic bank established under Islamic Banking Act 1983 Shariah Compliance Regulation for Islamic Windows • Issued Guidelines of Skim Perbankan Islam to ensure Shariah compliance by conventional banks carrying out Islamic banking services Diagram 1.1: Evolution of an ecosystem that ensures Shariah compliance in Malaysia Optimising the potential of Islamic Finance for a meaningful growth 9 | Page • The market share of total Islamic banking assets in Malaysia increased by 7.1% from 2010 to 28% in 2016. • However, the decline in its annual growth rate from a double-digit in 2011 (24.2%) to 8.2% in 2016 signals that the Islamic financial industry needs to further explore new opportunities for sustained growth. Broadening offering mindset • Current offerings of Islamic financial products and services have been structured to meet the needs of customers that demand for Shariah-compliant financial services which are free of prohibited elements such as usury (riba) and speculation (maysir). • Current initiatives primarily focus on ensuring that the product structures, features and operational aspects of financial transactions (including services) comply with Shariah requirements as specified in the regulatory framework. • It is essential that greater emphasise should be given to consider the wider impact of the financial activities. • More business opportunities could be created if the current paradigm could be shifted to extend beyond compliance, towards delivering value propositions not only to all financial consumers, but to the wider stakeholders within the society and the economy at large. More business opportunities could be created if the current paradigm could be shifted to extend beyond compliance, towards delivering value propositions not only to all financial consumers, but to the wider stakeholders within the society and the economy at large Enhanced transparency shapes stakeholders’ perception • Industry’s disclosure has been largely driven by regulation. Existing information and data mainly focus on financial performance (i.e. profitability and asset quality) of industry players. • Enhanced transparency should include industry players’ role and impact to wider stakeholders especially in the non-financial aspects such as facilitation of entrepreneurship, community well-being, sustainable environment and economic growth. • The comprehensiveness of the transparency will influence financial industry’s key stakeholders’ perception and decision making. Where are we heading to? • Moving forward, it is imperative for Malaysia to move the Islamic financial industry to the next level of growth that is sustainable, with clear value proposition. • Diagram 1.2 provides a comparison between current perceived landscape and the future end game. “Moving on, we need to articulate over and over, on new wealth creation and generation in the 21st century as well as means and measure to create our new market share of the world.” Datuk Dr Mohd Daud Bakar Shariah Advisory Council Bank Negara Malaysia 10 | Page Perceived Current Financial Landscape Envisioned Future Financial Landscape Driven by short-term and narrow bottom line Performance measurement focuses on financial aspect Innovation mainly to create competitive advantage for shareholders and players Good conduct driven by regulation Minimal roles of other stakeholders Driven by long term and wider objectives (profit, people and planet) Performance measurement considers both financial and non-financial aspects Innovation to create values for all Impact-based approach that fosters good conduct Meaningful and active roles of key stakeholders (consumers, employees and public) Diagram 1.2: Current perceived landscape and future end game PART II Realigning Focus Towards Creating Greater Socio-economic Impact Strategic Direction: Value-based Intermediation Realigns Focus Towards Creating Greater Socio-economic Impact What is the next big shift? • Value-based intermediation (VBI) aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, consistent with the shareholders’ sustainable returns and long-term interests. • VBI also emphasises on minimisation and prevention of negative impact arising from Islamic banking industry’s practices, conduct and offerings. • VBI promotes a more holistic observation of Shariah, beyond Shariah compliance, i.e. ensuring Islamic banking offerings and practices not only comply with Shariah requirements but also achieve the intended outcomes of Shariah. • Intended outcomes of Shariah focus on enhancement of well-being of the people through preservation of wealth, faith, lives, posterity and intellect. In the context of Islamic financial business, preservation of wealth3 goes beyond its literal meaning since it includes encouragement to generate, accumulate and distribute the wealth in a just and fair manner. Diagram 2.1 illustrates the intended outcomes of Shariah, specifically in financial transactions. 12 | Page Strategy 1: Islamic banking industry adopts value-based intermediation as a common vision for the industry. Diagram 2.1: Intended Outcomes of Shariah4 Justice Wealth Preservation Wealth Circulation  Equitable wealth distribution  Prohibit wealth hoarding  Encourage income generation  Channeling wealth to productive sector  Recognise private ownership  Prohibit transgression of rights of others  Ensure valid transfer of ownership  Minimise unjust elements i.e. uncertainty, exploitation 3 Imam Al-Ghazali, Al-Mustasfa fi `ilm al-Usul, page 174. 4 See: Dr. `Izz Al-Din bin Zughaibah, Maqasid al-Shariah al-Khassah bi al-Tasarrufaat al-Maaliyah, page 253, 273 and 297. How will VBI change current banking offerings and practices? There are three (3) key components of VBI: 1. Offerings and market segments • Introduction of innovative products and services to create greater impact to existing market segment. • Impact-driven mindset will drive IBIs to focus on high-impact areas such as new growth areas and underserved segments. 2. Practices • Improvement in existing banking practices as illustrated in Diagram 2.2. • Adoption of techniques such as offtake agreement5 or supply chain finance, which enable industry players to manage the risks arising from serving the high- impact segments. 3. Collaboration • Enhanced collaboration with strategic partners and stakeholders (beyond the financial community) to leverage on specific skills and infrastructure that are critical but not owned by the IBIs. VBI aims to create focus on value and impact creation, regardless of any business modality (credit or investment intermediation) adopted by industry players. 13 | Page Impact-based assessment provides equal attention to applications’ potential impact to the society, environment and economy Impact-based Assessment Comprehensive performance measurement, covering both financial and non- financial indicators Comprehensive Measurement Impact-focused disclosure covers details of customers that they lend to and invest in (i.e. purpose, location and result) Impact-focused Disclosure Constructive collaboration with wider stakeholders, including those with no direct business relationships such as NGOs, societies and governments Constructive Collaboration Active engagement with multi- stakeholders including traditional and non-traditional stakeholders in decision making process Inclusive Governance Diagram 2.2: What do value-based banking practices look like? Impact Impact Impact Impact Impact Optimum allocation of resources to productive economic activities Balanced motivation to achieve short-term and long-term outcomes Enhanced confidence among customers and public New insights, wider opportunity and knowledge in improving business impact Greater alignment between stakeholders’ expectation and business focus 5 An agreement between the project company and the offtaker (the party who is buying the product/service that the project produces/delivers). In a project financing the revenue is often contracted, rather than being sold on a merchant basis. This agreement provides the project company with stable and sufficient revenue to pay its project debt obligation, covering the operating costs and provide certain required returns to the sponsors. Does VBI reinvent the wheel? • It is not completely a new concept. In fact, VBI shares similarities with several well- established concepts such as Environmental, Social and Corporate Governance (ESG), Ethical Finance and Sustainable, Responsible, Impact Investing (SRI), specifically on the intended outcomes. • The key difference between VBI and these concepts lies on its raison d'être (reason for being). VBI relies on Shariah in determining its underlying values, moral compass and priorities. • VBI intends to focus on: o Ensuring application of the established concepts is in line with Shariah; and o Emphasising Shariah values or principles that are yet optimally propagated such as entrepreneurship and community empowerment. • VBI will not start from a zero baseline since IBIs have consciously or unconsciously applied similar understanding and demonstrated several practices. However, it is believed that collective action is needed to amplify its potential and impact. Is VBI similar to Corporate Social Responsibility (CSR)? • VBI focuses on doing good that is well- integrated within business activities such as offerings and practices (as a source of competitive advantage) while CSR initiatives are usually separated from business activities (on philanthropy basis). CSR is commonly perceived as a cost centre, not a profit centre6. Would creating value for others lessen value created for the institution? • No. In fact, through VBI a banking institution can create better (more impactful and sustainable) economic value in the long run, if it is driven to create value for other stakeholders. • There are two main reasons: o A commercial entity does not operate in isolation. Issues or challenges faced by other stakeholders such as the community, environment and local economies will, to a certain extent, affect the business entity’s capacity to generate value for itself. Therefore, a positive change in the whole ecosystem will create positive impact to business performance7. o Value created for the commercial entity will not be deemed lesser if it recognises other types of capital such as social capital, human capital and intellectual property, which goes beyond the generic financial value8. 14 | Page 6 Cost centre refers to a department within an organisation that does not directly add to profit but still costs the organisation money to operate. A profit centre contributes to profitability directly through its actions. 7 Creating Shared Value, Michael E. Porter and Mark R. Kramer, Harvard Business Review, January-February 2011 issue. 8 The International Integrated Reporting Framework, December 2013, by the International Integrated Reporting Council (IIRC). Is VBI only relevant to Islamic financial institutions? • It is inherent for Islamic financial institutions (IFIs) to drive the adoption of VBI due to the following: o The Islamic finance industry in Malaysia is currently operating in a conducive environment, which is well- supported by comprehensive market infrastructure and regulatory framework. Given the current level of industry’s maturity, IFIs have the necessary capacity to move to the next level. o The Islamic finance industry is well- equipped with a variety of Shariah contracts Innovative application of these contracts (beyond the generic financing and deposit transactions) has the potential to create and deliver significant impact. • Given the size of its market share, the Islamic banking players are expected to drive this VBI initiative. Moving forward, the underpinning thrusts of the VBI will be re-visited to enhance its relevance to takaful industry. • Intended outcomes of VBI are universal in nature, which may also be relevant to conventional financial institutions. 15 | Page • Overdrawn account fees of $30 are charged when a customer’s personal transaction or savings account is overdrawn. • Based on customers’ complaint data, such fees recorded the highest number of complaints. • NAB staff had to deal with customers’ complaints which were demotivating and time consuming. • NAB decided from October 2009, the overdrawn fee will be abolished altogether to improve customers’ relation and staff productivity. Cost Benefit Analysis: The National Australia Bank’s Case Immediate Impact: Impact around 700,000 personal transactions or savings account customers per year. Forgone sum of $100 mil in revenue every year. Long-term Value Creation: Stronger relationship with existing customers • Complaints (on fees and charges) dropped by 24% (2011 – 2012) Gained more new customers • Total customers increased by 5.86% (2009 – 2010) Source: National Australia Bank Abolished overdrawn fees on all NAB personal transactions and savings account How would value-based intermediation benefit financial institutions? Innovation: • Impact-driven mind-set creates new market opportunity through development of innovative financial solutions that address unserved or underserved segments (e.g. affordable home ownership). Efficiency: • Optimal allocation of credit which prioritises business activity that delivers impact to wider stakeholders. Managing any negative externalities arising from such activity will minimise potential costs due to legal and/ or reputational risks faced by IBIs. Effective Ecosystem: • Improving existing skills, supply chain and supporting institutions or solving common issues faced by communities or other stakeholders, which eventually facilitates business success. Ultimately, these benefits would improve and enhance IBIs branding image and reputation over time. 16 | Page Al-Waqf Home Financing-i by Bank Islam resulted in the construction of 76 residential and 9 commercial lots on a 9-acre plot in Penang. This project (RM24 mil) was in partnership with Jabatan Agama Islam Pulau Pinang and a property development company. Source: Sustainability Report 2016 of BIMB Holding Berhad, Upholding Values. Bank Islam Malaysia Berhad: Affordable Housing Development Standard Chartered Saadiq assists its clients reaching the highest environmental and social standards through application of a risk-based approach, which assesses and manages environmental and social risks in identified sensitive sectors. The Position Statements guide its approach in providing financial services to clients operating in these sectors and reflect industry best practice and international standards (e.g. the International Finance Corporation and the Equator Principles). Where clients fall short of the criteria, its ESRM team specialist comprise of industry experts, will work with the clients to develop time-bound plans to fulfil the bank’s environmental and social standards. This arrangement creates a competitive advantage for the clients and enables them to contribute to a sustainable economic growth in the communities. Source: Standard Chartered Saadiq Malaysia Standard Chartered Saadiq: Environmental and Social Risk Management (ESRM) Agrobank, in collaboration with BERNAS launched an initiative to improve productivity of paddy and farmers’ standards of living. Agrobank provides working capital (RM50 mil) to farmers while BERNAS provides free technical consultation. Source: Agrobank allocates RM50mil for PRL BERNAS next year, Berita Harian Online, 7 Dec 2016 Agrobank: Program Rakan Ladang BERNAS Diagram 2.3: Examples of how VBI benefits financial institutions How would value-based intermediation benefit regulator and government? • Benefits could be realised through better realignment of business focus with the national agenda. For the financial sector, this will result in optimal allocation of financing to the targeted sectors. • Greater integration and effective collaboration to achieve common goals, as outlined in the various strategic documents such as the SME Masterplan, 11th Malaysia Plan, Economic Transformation Programme, UN Sustainable Development Goals and Green Technology. • Financial stability through strengthening resilience and performance of Islamic banking industry. o Values-based banks and banking cooperatives (VBBs) have constantly shown that serving the real economy delivers better and more stable financial returns than those shown by the Global Systemically Important Banks (GSIBs). These VBBs address the very real banking needs, especially for credit access, of enterprises and individuals within their communities 9. 17 | Page 9 Research Report on Real Economy – Real Returns: The Business Case for Values-based Banking, Research on Performance through Yearend 2016 - 1 December 2017 by the Global Alliance for Banking on Values (GABV). Diagram 2.4: Better performance and less volatility observed in profitability of VBBs Diagram 2.5: Strong and sustained growth of VBBs before and after the global financial crisis Chart: Growth (two time periods) Diagram 2.6: VBBs provide higher support to real economy and are funded by more deposits Real Economy 2016 2011 2006 VBBs (%) GSIBs (%) VBBs (%) GSIBs (%) VBBs (%) GSIBs (%) Loans/ Assets 74.7 41.5 74.4 39.0 68.8 42.1 Deposits/ Assets 81.6 53.0 75.6 47.3 68.6 46.4 How would value-based intermediation benefit the community and customers? Improved productivity and standard of living: • Financing disbursed is envisaged to empower the community to be self- sustainable in the long run, for example through establishment of their own businesses. Fair and transparent treatment: • Adoption of VBI initiative in the end-to-end operation of an institution also cultivates good and ethical conduct of the business operation. Hence, customers will receive better quality services from the provider. • Open channels provided to raise complaints or concerns also promotes transparency in doing business. This would lead to greater confidence among customers and public at large. Reduced negative externalities: • Through impact-focused assessment and disclosure, institutions would be more aware of the impact of undertaking certain activities. Any activities that would create damage to the community and the environment for example, pollution or deforestation will be reduced overtime. “In Malaysia’s robust and progressive economic landscape, we play an intermediation role to ensure successful development and sustainability of the agriculture sector providing agropreneurs with access to suitable financial products and services, supporting financial inclusiveness, bridging the rural-urban divide and elevate the social well-being of the lower income group in the country.” Agrobank 18 | Page Provides working capital financing for person with disabilities to run their agricultural related business, thereby increases income level and provides jobs for persons with disabilities. Source: http://www.agrobank.com.my/en/produ ct/agro-bakti-financing-programme/ Agrobank: AgroBakti Vancity has been adopting a triple bottom line approach to its business - measuring financial, social and environmental performance and reporting these results. Source: https://www.vancity.com/AboutVancity/ News/MediaReleases/Archives/MediaA rchive2002/Oct15VancitysSocialAccou ntabilityReport/ Vancity: Social Accountability Report Banco Santander decided to not renew funding to APRIL, a paper firm, until the company implements measures to ensure safety of the environment. Source: http://www.greenpeace.org.uk/blog/fore sts/result-santander-stops-financing- forest-destroyer-april-20150226 Banco Santander: Reducing Deforestation Diagram 2.7: Examples of how VBI benefits the community and customers http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ http://www.agrobank.com.my/en/product/agro-bakti-financing-programme/ https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaArchive2002/Oct15VancitysSocialAccountabilityReport/ https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaArchive2002/Oct15VancitysSocialAccountabilityReport/ https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaArchive2002/Oct15VancitysSocialAccountabilityReport/ https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaArchive2002/Oct15VancitysSocialAccountabilityReport/ https://www.vancity.com/AboutVancity/News/MediaReleases/Archives/MediaArchive2002/Oct15VancitysSocialAccountabilityReport/ http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 http://www.greenpeace.org.uk/blog/forests/result-santander-stops-financing-forest-destroyer-april-20150226 PART III Defining Common Underpinning Thrusts of Value-based Intermediation Our Perspective: Defining Common Underpinning Thrusts of Value-based Intermediation Why do we need a common agenda? • Pursuing business in a way that also benefits society requires a framework that facilitates successful collaborations between key stakeholders10. • This is due to the fact that commercial entities such as IBIs do not operate in isolation. Productivity level of the IBIs may be affected by challenges, which may arise from or persist due to complex combination or omissions of actions by their stakeholders. • In this regard, it is imperative for IBIs to ensure that the intent, strategy and performance of their Islamic financial businesses are premised on the underpinning areas of VBI that will eventually create values to the stakeholders. • Coordinated efforts among IBIs and industry’s key stakeholders are crucial for effective and impactful implementation of VBI. • The following four (4) underpinning thrusts serve as a preliminary guidance, and may expand over time depending on the collective understanding and implementation of VBI industry wide (Diagram 3.1). It is imperative for IBIs to ensure that the intent, strategy and performance of their Islamic financial businesses are premised on the underpinning thrusts of VBI that will eventually create values to the stakeholders 20 | Page Strategy 2: Islamic banking institutions (IBIs) and industry’s key stakeholders mutually define the underpinning thrusts of value- based intermediation as a basis for collective action. 10 Mark R. Kramer and Marc W. Pfitzer, “The Ecosystem of Shared Value”, Harvard Business Review (Article Strategy) Diagram 3.1: Underpinning thrusts of VBI Proposed Underpinning Thrusts of VBI 1. Entrepreneurial Mindset • The first key focus area is premised on greater involvement in facilitating entrepreneurial activities through holistic offerings by IBIs, which include financing and proactive support i.e. advisory, market infrastructure and business network. • Seizing the opportunity to offer holistic offerings to entrepreneurial activities will eventually boost IBIs’ innovation through development of new products, tools and business models to assist and support businesses and entrepreneurs. • Apart from that, IBIs would have a better understanding on multitude of challenges faced by businesses that go beyond access to credit, which may include poor management, inadequate technology and limited market accessibility. Therefore, offering an opportunity for IBIs to design and tailor their offerings and services accordingly. • Entrepreneurial activities have a special place in Islam that it is specifically illustrated in a hadith narrated by al-Tirmidhi, “Nine out of ten sources of income come from business activities”. In upholding the entrepreneurial spirit as promoted in Islam, it is fundamental to develop a supportive and proactive environment for businesses and entrepreneurs. How to measure? Possible indicators include: • Percentage of financing disbursed to identified sector/new growth areas • Number of innovative product launched for business sector/SMEs • Number of initiative to support business sector/SMEs • Number of first time banking customers (financial inclusion) • IBIs’ contribution to an improved efficiency and productivity level of business entity (customers) 21 | Page Provide space and facilities (such as free Wi-Fi, meeting rooms and networking area) for business customers and community partners to connect with clients and other members in their supply chain. Source: https://www.nab.com.au/business/the-village The Village Low-cost payment terminal initiative enables Malaysian SMEs and micro-enterprises to accept electronic payments, benefiting from mobile electronic transactions to grow their business. Source: BIMB Holdings Berhad Sustainability Report 2016 Payment Convenience for Petty Traders 2. Community Empowerment • Empowering communities through provision of financial solutions that create positive impact. • In the context of social obligation (fard kifayah), those who are capable have the responsibility to assist those who are not capable via effective distribution of wealth. Therefore, an IBI can play a significant role in creating socioeconomic impact for the communities11. • Balanced consideration between commercial and social aspects should provide a central lynchpin for the IBI in navigating its strategic decisions, thus creating the practice of giving back to society, beyond corporate social responsibility activities. • This can be achieved through development, funding and implementation of effective solutions for issues faced by the communities, which aim to create positive impact to the communities and new business opportunities for IBIs. • An example includes the integration of waqf and sadaqah within Islamic financial transactions12. How to measure? Possible indicators include: • Number of innovative products and services introduced for the community • Number of community-based projects driven by IBIs • Number of individuals benefitted from community-based projects • Social impact indicators e.g. enhanced standard of living 22 | Page 11 Economic Development and Islamic Finance, Zamir Iqbal and Abbas Mirakhor, 2013 International Bank for Reconstruction and Development/The World Bank. 12 Community empowerment initiative for Islamic financial institutions, Abd Aziz et al (Dec 2015), ISRA Islamic Finance Space Issue 04. Offer low-cost micro financing solution to the underserved market using sadaqah or waqf funds as alternative sources of fund. Financing for underserved market Offer scholarships and internship programs to nurture future talents which are consistent with the business requirements e.g. for the agriculture and renewable energy sectors. Source: http://www.santander.com/csgs/Satellite/CFWCSancomQP01/en_GB/ Corporate/Sustainability/Santander-Universities/Santander- committed-to-Higher-Education.html Scholarships for future talent 3. Good Self-Governance • Inculcating organisational discipline (self- restraint) and ensuring meaningful participation of all stakeholders in the governance framework. • There are two (2) main components: o Inclusive governance: Any decision made by an IBI will not only impact its shareholders, but also the extended stakeholders including the customers and investors. Hence, inclusive governance requires IBIs to proactively engage their stakeholders in key decision making process, akin to the principles of consultation (istisharah). Such holistic consultation provides IBIs with better perspective, insights and expectation that will determine or influence the outcome of their business plans. o Self-governance: Culture of self-discipline embedded within the operations and practices of IBIs. In line with the principles of righteousness (ihsan) from the Shariah perspective, this would result in greater accountability and integrity of the IBI driven by the common moral outlook for the ultimate good. • Thus far, governance in practice has been driven primarily by regulations. Moving forward, it is envisaged that the IBIs would embrace good self-governance proactively without relying solely on regulatory interventions. How to measure? Possible indicators include: • Robustness of engagement/ consultation with other stakeholders e.g. materiality assessment framework • Trend of internal fraud cases • Compliance to relevant global standards e.g. ESG and Integrated Reporting 23 | Page Establish effective and convenient platform (managed by the third party) for stakeholders to provide feedbacks or report complaints. This will encourage staffs to do the right thing when dealing with customers, suppliers and other stakeholders. Examples of Good Self-governance Develop an open channel that facilitates continuous consultation with employees, which focuses on highlighting concerns and ideas to improve internal management of the institution. 4. Best Conduct 13 • Best conduct refers to an adoption of practices that improve IBIs’ offerings, processes and treatments toward their stakeholders (including IBIs’ customers and employees). • It is a behaviour that is driven to achieve continuous improvement, in order to enhance satisfaction of stakeholders. • IBIs aim to provide efficient services to address public needs while ensuring rights of shareholders and stakeholders are protected. • Safeguarding the rights of stakeholders via fair and transparent disclosure for all transactions and decisions by the IBIs is also another demonstration of best conduct. All financial transactions shall be conducted in such a manner that important information is made available to the contracting parties. Any information asymmetry will lead to potential disputes. • Shariah has clearly outlined a set of rules to protect the interest of the contracting parties, including prohibition of unjust dealings associated with usury (riba), minimisation of uncertainty (gharar) that is caused by lack of information as well as avoidance of unintended disputes due to unfair and oppressive contractual terms. • Freedom of contract has been the fundamental element in contractual relationships between an IBI and its customers. How to measure? Possible indicators include: • Number of customers’ and employees’ complaints • Customer and employee satisfaction index • Enhanced level of transparency • Staff turnover rate • Quality of after-sales service • Number of affected customers benefitted from the implementation of proactive policies on dealing with customers with genuine financial difficulties e.g. affected by natural disaster • Amount of costs-saving resulting from improved staff’s competencies 24 | Page Provide financial hardship advisory and financing repayment options for struggling borrowers. Staff performance evaluation is linked to his or her success in proactively improving customers’ financial health. Impact-focused disclosure covers details of clients that they lend to and invest in (i.e. purpose, location and result). Examples of Best Conduct 13 ‘Good self-governance’ focuses on an institution’s internal decision making process and governance infrastructure, while ‘best conduct’ refers to an institution’s treatment towards its stakeholders (customers, employees, public and investors). PART IV Creating Enabling Environment for Value- based Intermediation Adoption Implementation Approach: Strategies Aim to Create Enabling Environment for IBIs to Adopt Value-based Intermediation How do we get there? • Implementation of this initiative will be driven and championed by industry players based on each institution’s level of maturity (willingness and capacity of each institution). • As part of the annual business plan discussion with the Bank, all IBIs are expected to indicate their respective commitment and timeline in advancing this initiative. • The Bank, in collaboration with other stakeholders, will implement the following strategies (illustrated in Diagram 4.1) aiming to shape the right behaviour of industry players in expediting the implementation of this initiative. As part of the annual business plan discussion with the Bank, all IBIs are expected to indicate their respective commitment and timeline in advancing this initiative • IBIs will create significant positive and sustainable impact if they embrace this mindset over time, guided by their understanding and practical experience. 26 | Page • The regulator will nurture potential champions or leaders to showcase success stories. Nurturing Potential Champions • IBIs to enhance disclosure on their commitment, implementation strategies and KPIs. Enhanced Disclosure • The regulator will develop a strategic collaboration with established value- based communities, key partners and stakeholders. Strategic Networking • The regulator, in collaboration with industry players will develop and introduce “value- based scorecard” as a common and complementary measurement. Performance Measurement Diagram 4.1: Four key strategies to create enabling environment for VBI implementation • VBI is a long journey that requires significant transformation of mindset among key stakeholders. Strong and visionary leadership is central to this paradigm shift, specifically in driving changes in the current culture, people and overall ecosystem. • Several willing market leaders will initiate and drive momentum in implementing this initiative. • Greater visibility of these leaders’ success will likely attract more institutions to become ‘committed adopters’. Greater visibility of these leaders’ success stories will likely attract more institutions to become ‘committed adopters’ What are the underlying motivations for potential champions? o Consistent with the institution’s strategic direction to enhance branding (reputation) and performance. o First-mover advantages in the industry. • In assessing the IBIs’ level of readiness in adopting VBI, there are two criteria to be considered, namely willingness and capacity. 27 | Page Strategy 3: Regulator, in collaboration with industry players, nurtures “potential champions” to showcase success stories of VBI. • Already embarked on several initiatives that share similar aspiration of VBI (e.g. leading innovation and sustainability initiatives) • Current leadership and shareholders demonstrate positive inclination towards VBI Willingness • Safe and sound institutions from supervisory perspective • Stable and strong financial performance Capacity • Enhanced transparency enables relevant stakeholders to react accordingly (stakeholders’ activism) as well as to project positive sentiment and perception. It will also allow the key stakeholders to make an informed decision given that more information on VBI is made transparent. • There will be two levels of transparency expectation as part of the enhanced disclosure strategy: i. Minimum transparency expectation for VBI. This transparency expectation is known as Corporate Value-Intent (CVI) (illustrated in Diagram 4.2). • Potential champions disclose important and relevant information and data for VBI initiative. Implementation Guidance will further outline these transparency expectations. ii. Additional information or data that goes beyond VBI minimum transparency expectations may be disclosed by potential champions on voluntary basis. What to disclose in the CVI? • Potential champions are expected to provide information on the following: o Their intent/commitment to adopt VBI, supported by the relevant implementation strategies and o The key performance indicators (KPIs). Potential champions are expected to disclose self- assessment progression of these implementation strategies. 28 | Page Strategy 4: Islamic banking institutions to enhance disclosure on their intent in adopting VBI, supported with implementation strategy and performance report. Diagram 4.2: Corporate Value-Intent (CVI)14 14 Details of the Corporate Value-Intent will be clarified in the VBI Implementation Guide that will be issued later. How would CVI promote adoption of VBI? • Well-informed stakeholders will realign their expectations accordingly and be able to consider such information in their financial decision making process. • Improved reputation of IBIs through positive brand reinforcement. • Market forces and competitive environment will naturally expedite the implementation of VBI. What are the differences between CVI vs. current corporate values, vision and mission? • Current corporate values demonstrate an institution’s operating philosophies or principles that guide its internal conduct and relationship with its customers, partners and shareholders, while CVI focuses on realigning organisational direction with objectives of Shariah. • Current corporate values are usually disclosed in the mission statement or in the institution’s statement of core values, while CVI is expected to be backed by an effective implementation plan and measurable KPIs. 29 | Page • VBI scorecard redefines the parameter of success by considering both financial and non-financial aspects (illustrated in Diagram 4.3). • The non-financial aspects may include facilitation of entrepreneurship, improved treatment towards employees, customers and public as well as enhanced community’s standard of living. How does the recognition of an institution’s progression in the non-financial aspects (which forms part of overall performance measurement) promote adoption of VBI? • More comprehensive performance measurement that recognises the institution’s progression in the non-financial aspects can shape positive and proactive behaviour among industry players. • A competitive environment encourages industry players to compete in creating positive and sustainable impact to their wider stakeholders. More comprehensive performance measurement that recognises the institution’s progression in the non-financial aspects can shape proactive behaviour among industry players 30 | Page Strategy 5: Regulator, in collaboration with Islamic banking institutions, will develop and introduce “VBI scorecard” as a common and complementary measurement of success for industry. Basic Requirements Quantitative Factors Qualitative Elements Diagram 4.3: • Compliance to Regulations • Intentions/Commitments • Reporting Transparency • Financial Viability • Real Economy Focus • Community Focus • Environmental Focus • Strategic Direction • Leadership • Talent Development • Governance • Conduct VBI Scorecard Components Supported by micro-indicators for specific areas and initiatives – link to respective institutional strategy 100 0 Overall Performance Index Note: Adapted from the scorecard of the Global Alliance for Banking on Values (GABV) • There are 3 key purposes of VBI Scorecard: o Self-assessment tool – objectively measuring progression of overall business activities and assessment of existing practices’ conformity to VBI. o Strategic planning – aligning current priorities to be gradually consistent with VBI. o Effective communication – enhancing stakeholders’ understanding on overall performance, including impact and value creation to economy, community and environment. What is the implementation approach? • Phased-in adoption approach – to allow IBIs to familiarise with the measurement and collect relevant data in a timely manner. o Phase 1: IBIs use the scorecard as a self- assessment tool that identifies gaps or areas that require more attention as well as measures their improvement. o Phase 2: The scorecard will be publicly disclosed to allow stakeholders to compare performance of IBIs. • The transition plan between Phase 1 and Phase 2 will depend on the level of readiness of industry players and other stakeholders. • Current focus is to ensure effective implementation of Phase 1 in 2018. • Proactive rating approach is adopted, i.e. the non-performing IBIs will be classified as “emerging adopter” – to manage potential negative perception on certain IBIs which are not performing very well (illustrated in Diagram 4.4). 31 | Page Diagram 4.4: Proactive Rating Approach Established: IBIs are demonstrating value-based business model, internal practices and results Engaged: IBIs are embracing the model and making efforts to steer the organisation in this direction, though its products and internal practices lack full realisation Emerging: IBIs whose management is convinced of the model and has made actions to steer its institution towards VBI 100 0 A B C D E F Note: Adapted from the scorecard of the Global Alliance for Banking on Values (GABV) • Strategic networking aims to link all relevant stakeholders to amplify impact beyond capability of financial institutions. With this extensive network identified, it is envisaged that the implementation of VBI will be more holistic and comprehensive. • The VBI network consists of six key clusters, with the Community of Practitioners (CoP) acting at the inner core of the network. • These clusters may expand over time based on ongoing engagement and evolving needs of the IBIs. • The CoP consists of IBIs who indicate interest to become early adopters of VBI. The Bank will play the role of a facilitator. Strategic networking aims to link all relevant stakeholders to amplify impact beyond capability of financial institutions. With this extensive network identified, it is aimed for the implementation of VBI to be more holistic and comprehensive • The CoP facilitates adoption of VBI through: o Promotion of industry-wide knowledge exchange; o Establishment of a single reference point to discuss and resolve implementation issues; and o Implementation of strategic industry-level projects that demonstrate principles of VBI – to allow leading IBIs to assist others and ensure effective collaboration with relevant agencies (rather than separate arrangement by individual IBIs).  Creating awareness to the consumers and public at large on VBI is viewed as crucial to ensure concrete understanding and greater appreciation on how IBIs could bring positive impact into their lives, in addition to serving their financial needs. 32 | Page Strategy 6: Development of effective networking through establishment of Community of Practitioners (CoP) as well as strategic collaboration with established value- based community, key partners and stakeholders (illustrated in Diagram 4.5). • Other five key clusters identified to advocate the concept of VBI include: i. Knowledge providers, advisory and thought leadership • Develop new research, ideas and training that can be resourceful in facilitating adoption of VBI and developing the right talent. ii. Network institutions • Share relevant knowledge and experience on value-based best practices. • Provide input and feedback on proposed implementations e.g. value- based scorecard based on expertise. iii. Government and policy bodies/agencies • Influence strategic direction of IBIs to incorporate element of VBI. • Create pressure group and promote stakeholders’ activism. • Strengthen the ecosystem (demand and supply) required for IBIs to implement VBI. iv. Advocacy group • Broadcast success stories and increase public awareness and activism on VBI. v. Business ventures and clients • Strengthen the ecosystem (demand and supply) in terms of corporate investors with aligned value propositions. 33 | Page Diagram 4.5: Value-based intermediation network The Bank acknowledges the contribution of the founding members of Community of Practitioners (comprising Bank Islam Malaysia Berhad, Bank Muamalat Malaysia Berhad, Agrobank, CIMB Islamic Bank Berhad and HSBC Amanah Malaysia Berhad) in developing and finalising the Strategy Paper. 34 | Page 1 Response to feedback received Value-based intermediation (VBI): Strengthening the Roles and Impact of Islamic Finance Introduction In response to the issuance of the Strategy Paper on Value-based Intermediation (VBI) by Bank Negara Malaysia (the Bank) on 20 July 2017, the Bank has received written feedback from respondents with diverse background during the consultation period. The respondents include financial institutions, talent institutions, consultants and individuals, both local and international. An engagement session with the industry representatives was also held to discuss the feedback and suggestions in depth. The Bank appreciates the feedback and suggestions received during the consultation process. Key comments received and the Bank’s responses are provided in the following sections. Relevant comments and suggestions for clarification have been incorporated in the final strategy paper where appropriate. Bank Negara Malaysia 12 March 2018 2 1. Definition of Value-based Intermediation (VBI) 1.1 There are suggestions for the Bank to review the current definition1 of VBI. This is due to the fact that creation of values to other stakeholders through business activities will, to a certain extent, have an impact on short-term financial returns, 1.2 Current definition of VBI has therefore been revised to emphasise that strengthening Islamic banking industry’s focus on creation of positive and sustainable impact to wider stakeholders (environment, community and overall economy) is consistent with the shareholders’ sustainable returns and long- term interests. 2. Potential implication of VBI adoption to business modality and risk management Business modality 2.1 Some respondents perceived that risk-sharing model is a better business modality to deliver the intended outcomes of VBI. 2.2 The Bank wishes to reiterate that VBI focuses on value and impact creation to key stakeholders, regardless of any business modality adopted by respective financial institutions. The adoption should be tailored to suit Islamic financial institutions’ (IFIs) structure (e.g. leveraging or stand-alone model), asset size and business focus (e.g. retail or non-retail focus). Risk management 2.3 Financial institutions highlighted that their existing risk management framework is designed for credit intermediation. This is deemed insufficient in managing the new risk dimension that may arise from the adoption of risk-sharing model or exposure in new growth areas following the adoption of VBI. 2.4 The Bank is of the view that the necessity of risk management enhancement should depend on respective IFIs’ overall risk strategy. This strategy should be linked to their business modality, as well as exposure to new growth areas in delivering the expected outcomes of VBI. 1 An intermediation function that aims to deliver the intended outcomes of Shariah through practices, conduct and offerings that generate positive and sustainable impact to the economy, community and environment, without compromising the financial returns to shareholders. 3 3. VBI strategies: Implementation approach 3.1 The respondents queried on the Bank’s future plan to implement the proposed VBI strategies, specifically the transparency expectation under the Corporate Value Intent (CVI) and the adoption of the VBI scorecard through imposition of regulatory requirement. 3.2 The Bank wishes to clarify that at this juncture, implementation of the transparency expectation under the Corporate Value-Intent Framework (CVI) and adoption of the VBI scorecard will be pioneered by members of the VBI Community of Practitioners (CoP)2. Adoption of VBI should be driven from a business point of view (competitive advantage) where Islamic banking institutions are expected to implement relevant initiatives based on their level of maturity (willingness and capability). 3.3 To further facilitate the adoption of VBI by the industry players, the Bank will highlight several value-based banking practices and offerings from financial institutions operating in other jurisdictions, the common implementation challenges and the proposed interim measures or solutions through the upcoming issuance of the VBI Implementation Guide. 3.4 Moving forward, the Bank may consider significant achievements and progression made in the adoption of VBI by financial institutions as part of its assessment of the institution’s contribution to financial and economic development. 4. Streamlining adoption of VBI with existing initiatives 4.1 The respondents also queried on the underlying rationale of VBI, given that several financial institutions have already embarked on initiatives that share similar aspiration such as the Environmental, Social and Governance (ESG), sustainability reporting, integrated reporting and the equator principles. 4.2 VBI aims to provide an effective platform for industry players to:  learn from each other, specifically on the best market practices;  share financial and technical resources in developing the relevant tools such as the VBI Scorecard, awareness campaign and talent development; and  enhance the visibility of IFIs’ individual initiatives (including product launching) through common strategic messaging and communication. 2 Bank Islam, Bank Muamalat, Agrobank, Maybank Islamic, CIMB Islamic, AmBank Islamic, Alliance Islamic, HSBC Amanah and Standard Chartered Saadiq

Public Notice

20 Mar 2018

List of financial institutions under the Appointed Overseas Office Framework

https://www.bnm.gov.my/-/fi-under-appointed-overseas-ofc-framework-23032018

https://www.bnm.gov.my/documents/20124/60360/AOO_List_by_Banking_Group.pdf, https://www.bnm.gov.my/documents/20124/60360/AOO_List_by_Country.pdf

Reading: List of financial institutions under the Appointed Overseas Office Framework Share: 2 List of financial institutions under the Appointed Overseas Office Framework Release Date: 20 Mar 2018 In efforts to facilitate greater access by non-residents to the Malaysian financial market, appended below is the list of Appointed Overseas Office – By banking group (Updated as at 14 December 2022) By country (Updated as at 14 December 2022) © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

16 Mar 2018

Interoperable Credit Transfer Framework (ICTF)

https://www.bnm.gov.my/-/ictf-16032018

https://www.bnm.gov.my/documents/20124/761682/FS_ICTF_Mar2018.pdf

Reading: Interoperable Credit Transfer Framework (ICTF) Share: Interoperable Credit Transfer Framework (ICTF) Release Date: 16 Mar 2018 Bank Negara Malaysia (“the Bank”) has today issued the Interoperable Credit Transfer Framework (ICTF), which has taken into account feedback received during the public consultation period on the Exposure Draft released on 7 December 2017. The ICTF seeks to foster an efficient, competitive and innovative payment landscape in Malaysia by enabling the interoperability of credit transfer services and promoting collaborative competition (co-opetition) between banks and non-bank electronic money (e-money) issuers through fair and open access to shared payment infrastructure. Credit transfer services, particularly when offered through the use of mobile devices, have the potential to complement debit cards as a cost-effective and convenient alternative to cash and cheques. In this regard, the growing penetration of smartphones and the availability of various mobile payment solutions offered by banking institutions and non-bank e-money issuers have the potential to accelerate the migration to electronic payments (e-payments) and advance financial inclusion by enabling every adult in Malaysia to make or receive payments electronically. The ICTF outlines requirements aimed at- enabling interoperability of credit transfer services leveraging on shared payment infrastructure to expand network reach and avoid market fragmentation; ensuring fair and open access to shared payment infrastructure to promote a level playing field and foster collaboration at the infrastructure level; facilitating effective oversight of shared payment infrastructure to maintain the safety and integrity of credit transfer systems and to ensure the integrity and stability of the financial system; encouraging innovation through the establishment of innovation sandbox facilities and publication of Application Programming Interfaces (APIs) by an operator of a shared payment infrastructure; establishing risk management measures proportionate to the nature, scale and complexity of the activities and risk profile of the respective providers of credit transfer services; and strengthening customer protection and fostering confidence in the use of credit transfer services. The Bank’s policy document and response to the key feedback received from the public consultation can be accessed via the links below. Policy Document on the Interoperable Credit Transfer Framework Response to Feedback Received © 2024 Bank Negara Malaysia. All rights reserved.

Page 1 of 6 Response to feedback received Interoperable Credit Transfer Framework Introduction The Bank issued today the policy document on Interoperable Credit Transfer Framework (ICTF). This policy document incorporates the proposals from the Exposure Draft issued on 7 December 2017 and has taken into account the feedback received during the consultation period. The Bank received written responses from 35 respondents during the consultation period. The key comments received and the Bank’s responses are set out in the following sections. Other comments and suggestions for clarification have been incorporated in the policy document. Bank Negara Malaysia 16 March 2018 Page 2 of 6 1. Scope of the ICTF 1.1 Some respondents requested for clarity on whether card-based payments, i.e. credit transfers initiated using debit, credit or charge cards, are included in the scope of the ICTF. 1.2 The Bank wishes to clarify that the scope of the ICTF covers all credit transfer transactions, including any credit transfer transaction where a payment card (e.g. debit card, credit card, charge card) is used as an identifier to generate the information required to make or to receive a credit transfer from a bank account1 or an e-money account. As defined in paragraph 5.2 of the ICTF, ‘credit transfer’ refers to a payment service which allows a payer to instruct the institution with which the payer’s bank account or e-money account is held to transfer funds to a beneficiary in another bank account or e-money account. For the avoidance of doubt, this excludes a conventional payment card transaction, where the customer’s account is debited based on a request for approval submitted by the merchant to the issuer via the acquirer and the payment card network. 2. Interoperable credit transfer services 2.1 Paragraph 7.3 of the ICTF requires all inter-bank credit transfer transactions and inter-scheme credit transfer transactions to be processed in Malaysia via an operator of a shared payment infrastructure. Some respondents were concerned that this requirement may impede competition and innovation, and create a single point of failure. 2.2 The Bank wishes to emphasise that the requirement for onshore processing of inter-bank and inter-scheme credit transfer transactions is a prudential requirement to ensure that the Bank is able to practically achieve and maintain effective oversight to maintain the safety and integrity of credit transfer systems, and to ensure the integrity and stability of the financial system. 2.3 The Bank wishes to also highlight that the ICTF aims at encouraging a more competitive market for payment services through collaboration at the infrastructure level and competition at the product or service level. By leveraging on an interoperable shared payment infrastructure to avoid duplication of resources and expand network reach, the Bank envisions that the industry resources can be more efficiently allocated towards enhancing the value proposition to consumers and merchants through the provision of innovative and value-added services. 1 This refers to a current account, a savings account or an account where a line of credit is extended by a banking institution to a customer such as a credit card account or a charge card account. Page 3 of 6 2.4 The security and resilience of shared payment infrastructure is a key priority to enable the safe and efficient functioning of the payment systems in Malaysia. In line with the Principles for Financial Market Infrastructures (PFMI), an operator of a shared payment infrastructure will be required to ensure that the shared payment infrastructure is supported by robust security controls and business continuity plans including adequate redundancies and disaster recovery sites to mitigate operational risks. 3. Fair and open access to shared payment infrastructure 3.1 Some respondents sought clarity on whether access to shared payment infrastructure is limited only to banking institutions and eligible issuers of e- money. An ‘eligible issuer of e-money’ is defined in paragraph 5.2 of the ICTF to mean an approved issuer of e-money with substantial market presence based on such criteria as may be specified by the Bank. The respondents further sought clarity on the criteria that the Bank will adopt in determining whether an approved issuer of e-money has substantial market presence. 3.2 The Bank wishes to clarify that access to shared payment infrastructure is open to any financial institution that fulfils the risk-based access requirements established by an operator of a shared payment infrastructure. In this regard, the Bank expects an operator of a shared payment infrastructure to ensure that its risk-based access requirements do not limit access to only banking institutions or eligible issuers of e-money. 3.3 The concept of an ‘eligible issuer of e-money’ is relevant only for the purpose of paragraph 7.1 of the ICTF where an approved issuer of e-money with substantial market presence is mandated to ensure interoperability of its credit transfer services with the credit transfer services offered by banking institutions and other eligible issuers of e-money, as well as to waive the transaction fee for any eligible credit transfer transaction up to RM5,000 per transaction. 3.4 In determining the criteria for ‘substantial market presence’, the Bank seeks to ensure that players of a sufficiently significant size are mandated to ensure interoperability of their credit transfer services to optimise network effects. As such, the Bank wishes to clarify that an approved issuer of e-money is deemed to have ‘substantial market presence’ if it fulfils any of the following criteria: (i) the issuer has at least 500,000 active users (i.e. with at least one financial transaction2 per month) for a consecutive period of six months; 2 This includes reloading of an e-money account, fund transfer or purchase transaction. Page 4 of 6 (ii) the issuer has a market share of at least 5% of the total e-money transaction volume or transaction value in Malaysia for a given year beginning 2017; (iii) the issuer has a market share of at least 5% of the total outstanding e- money liabilities in Malaysia for a given year beginning 2017; or (iv) the issuer is an affiliate3 of an eligible issuer of e-money. 4. Proportionate risk management 4.1 Some respondents proposed for the Bank to re-consider allowing ‘No Customer Due Diligence (No CDD)’ for the opening of e-money accounts while other respondents proposed for the Bank to consider imposing lower transaction limits for e-money accounts opened with ‘No CDD’ to mitigate money laundering and terrorism financing (ML/TF) risk. 4.2 The Bank wishes to highlight that the Bank adopts a risk-based approach in addressing any ML/TF risk arising from the e-money industry in line with international standards, such as the recommendations issued by the Financial Action Task Force (FATF)4. Under the ICTF, ‘no CDD’ is only allowed in circumstances where the ML/TF risk is assessed to be low (i.e. in the case of limited purpose e-money accounts where the e-money can only be used to make purchases at merchants that have undergone CDD by the issuer), while fund transfer and cash-out or withdrawals are not allowed. 4.3 Additionally, the Bank wishes to emphasise that the ICTF streamlines the Anti- Money Laundering and Counter Financing of Terrorism (AML/CFT) requirements for bank and non-bank issuers of e-money and strengthens the requirements and parameters for ‘No CDD’ in the Bank’s existing AML/CFT Guidelines. Under the existing Guidelines on AML/CFT – Electronic Money and Non-Bank Affiliated Charge & Credit Card (Sector 4) issued on 4 September 2013, CDD is not required for e-money accounts with a wallet limit of less than RM5,000 and transactions below RM3,000. The ICTF further limits the scope for customers to engage in ML/TF by introducing an additional cumulative annual transaction limit of RM50,000 per annum and prohibiting cash-out or withdrawals. The proposed cumulative annual transaction limit of RM50,000 per annum is lower than that of several other countries. In addition, e-money issuers are required to conduct on-going monitoring of transactions and to 3 An “affiliate” shall refer to an entity that controls, or is controlled by, or is under common control with, an approved issuer of e-money. In addition, it also includes relationships with other companies where non-controlling interests exists, but where significant influence is exercised. This may include a significant shareholder, joint venture, or special purpose entity, whether domestic or foreign. 4 The FATF Recommendations on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation (February 2012). Page 5 of 6 establish adequate internal controls to ensure compliance with e-money account limits. Scope of fee waiver requirement 4.4 Paragraph 7.1(c) of the Exposure Draft on ICTF requires banking institutions and eligible issuers of e-money to waive the transaction fee for eligible credit transfer transactions up to RM5,000 per transaction or such other amount as may be specified by the Bank. One respondent sought clarity on whether this requirement applies to cash advance transactions (e.g. short-term cash loans taken against the credit line on a cardholder’s credit or charge card). 4.5 The Bank wishes to emphasise that the intended policy outcome of the fee waiver requirement is to promote the usage of more cost-effective e-payment instruments. In this regard, the Bank has clarified in the ICTF that the scope of the fee waiver requirement is to be limited to only credit transfers funded using a current or savings account (CASA) or an e-money account. 5. Customer protection 5.1 Paragraph 11.1(e) of the Exposure Draft on ICTF requires financial institutions to ensure that customer data are securely protected and stored onshore. Some respondents expressed views that storage of customer data onshore does not guarantee the prevention of loss, theft or unauthorised access. 5.2 The growing number of incidents globally relating to breaches of data security in recent years underscores the importance of instituting strong data security protocols. In this regard, the Bank wishes to clarify that the requirement for onshore storage of customer data is intended to achieve two key policy outcomes. Firstly, the Bank seeks to ensure that infrastructure used to store customer data can be subject to periodic audits by the Bank (including onsite examinations) as part of arrangements to maintain effective, continuing oversight of payment systems. Secondly, the Bank aims to ensure that in the event that customer data is compromised or breached, effective and timely intervention can be undertaken. 5.3 In respect of these outcomes, the Bank notes that there are inherent risks that arise from storing sensitive customer data offshore. Notably, such arrangements are likely to give rise to technical, operational and legal complexities that may in turn constrain the ability of the Bank and financial institutions to effectively undertake pre-emptive and remedial measures to mitigate the risk of data security breaches. 5.4 As such, the Bank has maintained the requirement for onshore storage of customer data. In limited circumstances (e.g. where payment services are Page 6 of 6 offered only for specific and limited purposes), the Bank may allow offshore storage of customer data on a case-by-case basis. 5.5 Additionally, the Bank also wishes to clarify that the requirement is only applicable to non-bank financial institutions. As customer data handled and stored by banking institutions may be relevant to a variety of services provided by the banking institutions (e.g. deposit, loan/financing, payments, wealth management), requirements to safeguard the security of customer data are dealt with under other policy documents that are applicable to banking institutions. Accordingly, banking institutions will continue to be subject to data security requirements under those policy documents including those relating to outsourcing. Bank Negara Malaysia 16 March 2018

Public Notice

14 Mar 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-14032018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 14 Mar 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 414 companies. The following company was added to the list: Tü-E Capital Berhad (806096-H) The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

11 Mar 2018

Caution on unauthorized cryptocurrency investment platform Coinzer

https://www.bnm.gov.my/-/unauthorized-cryptocurrency-investment-coinzer-11032018

Reading: Caution on unauthorized cryptocurrency investment platform Coinzer Share: 12 Caution on unauthorized cryptocurrency investment platform Coinzer Release Date: 11 Mar 2018 BNM would like to state that it does not authorise or endorse the cryptocurrency platform called Coinzer. The use of BNM logo and Jata Negara on the proposed physical coin design, white paper and Coinzer's website are unauthorised. Members of the public are advised to exercise caution and carefully evaluate the risks associated with investment in digital currencies. Digital currencies are not legal tender in Malaysia. Accordingly, digital currencies are not covered by prudential and market conduct standards or arrangements that are applicable to financial institutions regulated by BNM.   Update: Coinzer has since removed the proposed physical coin design in its latest edition of white paper. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Mar 2018

Employee Screening

https://www.bnm.gov.my/-/employee-screening-09032018

https://www.bnm.gov.my/documents/20124/761682/Employee+Screening+PD.pdf, https://www.bnm.gov.my/documents/20124/761682/Employee+Screening+Feedback+Statement.pdf

Reading: Employee Screening Share: 31 Employee Screening Release Date: 09 Mar 2018 The Bank today issued the policy document on Employee Screening. The policy aims to promote an ethical workforce within the financial sector by strengthening the screening practices for recruitments by financial institutions. Greater transparency on conduct histories of prospective employees will facilitate financial institutions in making informed hiring decisions.  Beginning 1 July 2018, financial institutions will be required to conduct a screening on prospective employees. Salient requirements of the policy document are as follows: Financial institutions must request for employment references from  current and past employers of the prospective employee; Financial institutions receiving a request for employment references must provide specified information in response to the request; Prospective employees must provide a statutory declaration on past criminal convictions or ongoing criminal investigations or proceedings that he/she may be the subject of; Financial institutions must make an inquiry with the Financial Markets Association of Malaysia before employing– any individual as a financial market dealer; and any former financial market dealer or broker into any position.The policy document will be applicable to financial holding companies, licensed institutions and prescribed development financial institutions. Details can be found in the following documents: Employee Screening Response to Feedback © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 9 March 2018 BNM/RH/PD 028-72 Employee Screening Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Prescribed development financial institutions 7. Financial holding companies Employee Screening Issued on: 9 March 2018 TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... 1 1 Introduction ......................................................................................... 1 2 Applicability ......................................................................................... 1 3 Legal provisions .................................................................................. 1 4 Effective date ...................................................................................... 2 5 Interpretation ....................................................................................... 2 6 Related legal instruments and policy documents ................................ 3 PART B SCREENING REQUIREMENTS ......................................................... 4 7 Minimum screening requirements ....................................................... 4 8 Employment references ...................................................................... 5 9 Statutory declaration ........................................................................... 7 PART C OPERATIONAL REQUIREMENTS .................................................... 8 10 General ............................................................................................... 8 11 Internal disciplinary process ................................................................ 8 12 Preparation of references .................................................................... 9 13 Record keeping ................................................................................. 10 PART D TRANSITIONAL ARRANGEMENTS ................................................ 11 14 Transitional arrangements ................................................................ 11 APPENDIX 1 FUNCTIONS NOT SUBJECT TO SCREENING REQUIREMENTS 12 APPENDIX 2 REFERENCE TEMPLATE ................................................................ 13 Employee Screening 1 of 15 Issued on: 9 March 2018 PART A OVERVIEW 1 Introduction 1.1 The highest standard of integrity and professionalism by employees of financial institutions is critical to sustain public confidence in the financial sector. The behaviour of each individual employed by a financial institution may be perceived publicly to be a reflection of the broader state of conduct and culture within the financial sector. In this regard, a financial institution’s recruitment processes play an important role. They present a critical opportunity for a financial institution to select individuals who are aligned with its desired corporate culture and values. They also serve as a means for a financial institution to identify individuals who are predisposed to misconduct and thereby mitigate the risk of ‘rolling bad apples’ within the industry. 1.2 The Bank aims to promote an ethical workforce for the financial industry. Financial institutions can play an important role in this respect. To this end, this policy document seeks to strengthen the screening practices of financial institutions and the conditions for meaningful disclosures for employment references. Supported by greater transparency in conduct histories, financial institutions are expected to be better placed to make informed decisions on candidates. Financial institutions will continue to retain full discretion over recruitment strategies and final hiring decisions. These, however, should be informed by a broad range of considerations. It is not intended that financial institutions rely solely on the outcomes of screening carried out in accordance with this policy document. Instead, results obtained through the screening should be taken as a signal for greater scrutiny to facilitate character assessments of a candidate by the hiring institution. 2 Applicability 2.1 This policy document is applicable− (a) to all financial institutions as defined in paragraph 5.2; (b) in respect of the hiring of employees; and (c) in respect of the engagement of commissioned dealer’s representatives. 3 Legal provisions 3.1 This policy document is issued pursuant to– (a) sections 47(1), 143 and 266 of the Financial Services Act 2013 (FSA); (b) sections 57(1), 155 and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41(1), 126 and constitutes a notice under section 116(1) of the Development Financial Institutions Act 2002 (DFIA). Employee Screening 2 of 15 Issued on: 9 March 2018 4 Effective date 4.1 This policy document comes into effect on 1 July 2018 subject to the transitional arrangements set out in Part D, and shall apply in respect of applications for employment, or engagements of commissioned dealer’s representatives, made on or after this effective date. 4.2 The Bank is committed to ensure that its policies remain relevant and continue to meet the intended objectives and outcome. Accordingly, the Bank will review this policy document within 5 years from the date of issuance or the Bank’s last review and, where necessary, amend or replace this policy document. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA and DFIA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “broker” and “dealer” have the same meanings as defined in the Code of Conduct for Malaysia Wholesale Financial Markets; “employee” refers to any individual engaged by an institution under a contract of service, whether on a permanent basis or for a fixed term. The terms “employer”, “employ” and “employment” shall be construed accordingly; “financial institution” refers to− (a) a licensed person; (b) a financial holding company; and (c) a prescribed institution; “internal disciplinary proceedings” refers to the internal process of an institution for the management of alleged or suspected misconduct of its employees, which commences from an initiation of formal investigation or formal notification to the employee concerned of the initiation of the disciplinary process, whichever is earlier, and includes all subsequent stages up to the completion of the disciplinary process, including appeals. Employee Screening 3 of 15 Issued on: 9 March 2018 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Banking and Deposit-Taking Institutions (Sector 1) issued on 4 September 2013; (b) Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Insurance and Takaful (Sector 2) issued on 4 September 2013; (c) Code of Conduct for Malaysia Wholesale Financial Markets issued on 13 April 2017; (d) Corporate Governance issued on 3 August 2016; (e) Fit and Proper Criteria (applicable to licensed persons and approved financial holding companies) issued on 28 June 2013; (f) Fit and Proper Criteria (applicable to prescribed institutions) issued on 14 June 2017; and (g) Guidelines on Corporate Governance for Development Financial Institutions issued on 19 November 2011. Employee Screening 4 of 15 Issued on: 9 March 2018 PART B SCREENING REQUIREMENTS 7 Minimum screening requirements S 7.1 A financial institution must, before employing any individual1, complete a screening of the individual’s‒ (a) employment records, in accordance with paragraph 8; and (b) criminal records, in accordance with paragraph 92. S 7.2 The obligation in paragraph 7.1 does not apply in respect of any individual to be employed into a function as set out in Appendix 1. S 7.3 In respect of an individual− (a) who is being considered for employment as a dealer; or (b) who was previously employed as a dealer or broker, a financial institution must, in addition to the requirements in paragraph 7.1, make an inquiry with the Financial Markets Association of Malaysia (FMAM) as to whether the individual has been involved in any case of financial market misconduct, including breaches of the Code of Conduct for Malaysia Wholesale Financial Markets and contraventions of section 141 of the FSA and section 153 of the IFSA, irrespective of whether an investigation into the financial market misconduct has been concluded. S 7.4 As a prerequisite to employment and prior to initiating the screening required under paragraphs 7.3 and 8.1, a financial institution must obtain a written consent from an individual seeking its employment which− (a) authorises the financial institution to make an inquiry into his/her previous employment records which covers all current and former employers3 in the period of seven years up to the date of the application for employment and, where relevant, the FMAM; (b) authorises all the individual’s current and former employers in the period of seven years up to the date of the application for employment, to disclose his/her employment history, including the facts and details of any internal disciplinary proceedings the individual has been subject to, irrespective of whether such disciplinary proceedings have been concluded, or initiated after the individual left employment; (c) where relevant, authorises the FMAM to disclose the facts and details of any case of financial market misconduct the individual has been subject to, including disciplinary proceedings under the Asian Institute of Chartered Bankers (AICB)-FMAM Joint Disciplinary Scheme, irrespective of whether such proceedings have been concluded as at 1 For the avoidance of doubt, paragraph 7.1 does not apply to any individual to be appointed into a position of director or Shariah Committee member. 2 The requirements in this policy document apply in addition to any other screening requirements imposed by law or a regulatory authority (e.g. under the policy documents on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Banking and Deposit-Taking Institutions (Sector 1) and Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Insurance and Takaful (Sector 2)). 3 For the avoidance of doubt, this paragraph does not require the name of each current and former employer to be detailed out in the written consent. Employee Screening 5 of 15 Issued on: 9 March 2018 the date of the financial institution’s written inquiry with the FMAM; and (d) releases his/her current and former employers and, where relevant, the FMAM, from any contractual obligations which limit, in any way, their ability to disclose the information required under this policy document. S 7.5 A financial institution must append a copy of the written consent obtained under paragraph 7.4 to its written inquiry with the individual’s current and former employers, and with the FMAM. S 7.6 A financial institution intending to engage an individual as a commissioned dealer’s representative4 must− (a) screen the individual against the Securities Commission Malaysia’s published enforcement actions; and (b) obtain a statutory declaration from the individual in accordance with paragraphs 9.1(a) and (b). 8 Employment references S Obligation on a “hiring financial institution” 8.1 A financial institution must request for references from all the individual’s current and former employers in the period of seven years up to the date of application for employment. S 8.2 A financial institution making a request pursuant to paragraph 8.1 must complete Part A(i) of the reference template in Appendix 2, before furnishing the reference template to the individual’s current and former employers. S 8.3 Where an individual’s current or former employer is not a financial institution or is based outside Malaysia, a financial institution must take reasonable steps to obtain a reference from such employer. S 8.4 A financial institution must document relevant correspondences and applicable legal restrictions, and maintain appropriate records of the same to demonstrate compliance with paragraph 8.3. S 8.5 Notwithstanding paragraph 7.1, where an individual requests to maintain the confidentiality of the job-seeking process from his/her current employer and the hiring financial institution makes an offer for employment prior to making a request for the reference from the individual’s current employer, the offer by the hiring financial institution must be conditional upon‒ (a) the receipt of the reference from such employer; and (b) the financial institution’s discretion to withdraw the offer thereafter. 4 For the avoidance of doubt, paragraph 7.1 does not apply to any individual to be engaged as a commissioned dealer’s representative. Employee Screening 6 of 15 Issued on: 9 March 2018 G 8.6 A financial institution may proceed to finalise its employment assessment of an individual where any of the individual’s current or former employers fail to provide a reference within 15 working days from the date the financial institution made a request under paragraph 8.1, and after taking reasonable steps to follow up on the request. S Obligation on a “providing financial institution” 8.7 Upon receiving a request for a reference made pursuant to paragraph 8.1, a financial institution must provide the hiring financial institution a reference for the individual in writing using the template in Appendix 2, within 15 working days from the date of the request. G 8.8 Where a financial institution receives a request for a reference from an organisation that is not a financial institution or is based outside Malaysia, the financial institution should disclose relevant information on a best effort basis, having regard to the obligations owed to its employees including those set out in Part C and other applicable laws. S 8.9 The obligation to provide a reference will apply irrespective of− (a) the tenure of the individual’s employment with the financial institution; (b) the function held by the individual within the financial institution5; and (c) the manner in which the individual left the institution (e.g. resignation, termination, retirement or expiring contractual tenure). S Updates to references provided 8.10 Where a financial institution becomes aware of any new information6 relating to an individual after a reference has been provided, the financial institution must ensure that its records are updated to reflect such new information. Future references prepared in respect of such individual must be based on the updated records. G 8.11 Where the new information referred to in paragraph 8.10 is assessed by the financial institution to be significant, the financial institution should, on a best effort basis, seek to determine whether the individual is currently employed by a financial institution and provide such financial institution with details of the newly acquired information, in an updated reference7. Where it does so, the financial institution should similarly notify the individual in question that an update has been made to his/her reference. S Scope of references 8.12 A reference referred to in paragraphs 8.1 and 8.7 must cover, at a minimum, the information required in Part A and Part B of the template as set out in Appendix 2. 5 For example, a financial institution is required to provide a reference for an individual employed in an auxiliary function where the individual’s prospective function is within the scope of screening in this policy document. 6 For example, where a financial institution has concluded its internal disciplinary proceedings on an alleged misconduct after a reference was provided. 7 A financial institution is encouraged to practice this for a period of seven years from the date the individual left the financial institution’s employment. Employee Screening 7 of 15 Issued on: 9 March 2018 S 8.13 In respect of Question 1, Part B of the template, a financial institution must disclose information pertaining to any internal disciplinary proceedings that an individual has been subject to during his/her employment with the financial institution, irrespective of whether such disciplinary proceedings have been concluded, or initiated after the individual left employment. The obligation to disclose applies only in respect of− (a) an incident relating to an individual’s honesty and integrity8; and (b) internal disciplinary proceedings that have been formally initiated by the financial institution. G 8.14 In addition to information required to be disclosed under paragraph 8.12, a financial institution is encouraged to highlight other matters, whether positive or negative, which may be relevant to an assessment of the individual’s honesty and integrity, under Part C of the template. Examples of information that could be disclosed in Part C include‒ (a) evidence of good behaviour or exemplary conduct by the individual; (b) how transparent and cooperative the individual was in relation to any internal disciplinary proceedings; and (c) subsequent corrective actions taken by the individual following a finding of misconduct. S 8.15 For the purpose of paragraphs 8.13 and 8.14, a financial institution is required to make an assessment on a case-by-case basis whether an incident to be disclosed is one which relates to an individual’s honesty and integrity. G 8.16 For the avoidance of doubt, a hiring financial institution may request for additional information, to which a financial institution should disclose on a best effort basis. 9 Statutory declaration S 9.1 Before initiating an inquiry under paragraphs 7.3 and 8.1, a financial institution must obtain a statutory declaration in accordance with the Statutory Declarations Act 1960 from an individual it considers for employment, detailing− (a) the individual’s past criminal convictions under any written law relating to companies, financial services, capital markets, prevention of money laundering or terrorism financing, and for offences involving dishonesty or fraud under any written law, whether in or outside Malaysia, if any; (b) pending criminal investigations, inquiries or criminal charges or any other criminal proceedings against the individual relating to laws and offences referred to in paragraph 9.1(a), if any; (c) all the individual’s current and former employers in the period of seven years up to the date of the application for employment, if any; and (d) whether the individual has ever been employed as a dealer or broker. 8 Examples of incidents that relate to an individual’s honesty and integrity include theft and falsification of documents. Employee Screening 8 of 15 Issued on: 9 March 2018 PART C OPERATIONAL REQUIREMENTS 10 General S 10.1 A financial institution is required to comply with the requirements in the Personal Data Protection Act 2010 (PDPA), including the requirement to obtain consent for the processing of personal data and provisions relating to data correction. S 10.2 A financial institution must ensure that− (a) it has internal policies and procedures in place for compliance with the obligations under paragraphs 7 to 9; (b) all legal documents and arrangements are designed in a manner which enables the financial institution to comply with its obligations under paragraphs 7 to 9. This includes ensuring that such legal documents (including its recruitment documents and employment contracts) incorporate the necessary provisions for consent and do not, in any way, impede its ability to disclose the information required under this policy document; and (c) contact details and processes for hiring institutions to request for references are clearly published on its website. S 10.3 Without prejudice to existing obligations under the FSA, IFSA and DFIA, a financial institution must notify the Bank where it has reasonable grounds to believe that a chief executive officer, senior officer, material risk taker9 or dealer ceases to hold office or leaves the financial institution under suspicion of misconduct. 11 Internal disciplinary process S 11.1 A financial institution must have in place a code of ethics which articulates minimum standards of conduct, and written policies and procedures governing its internal disciplinary process. The financial institution must ensure that the code of ethics and internal disciplinary policies and procedures are conveyed to all employees upon employment and are accessible to them on an ongoing basis. G 11.2 A financial institution should periodically communicate the code of ethics to all employees to reinforce high standards of conduct and integrity. S 11.3 The policies and procedures governing a financial institution’s internal disciplinary process must outline, at a minimum, the rights of its employees throughout the disciplinary process, which must include− (a) a mechanism for appeals; and 9 Refers to an officer who is not a member of senior management and who (i) can materially commit or control significant amounts of the financial institution’s resources or whose actions are likely to have a significant impact on its risk profile; or (ii) is among the most highly remunerated officers in the financial institution. Employee Screening 9 of 15 Issued on: 9 March 2018 (b) a reasonable opportunity for an employee to make a written representation in response to allegations before conclusion of the internal disciplinary process. S 11.4 A financial institution is expected to address any breaches of its internal policies and procedures, including its code of ethics, in a manner that upholds high standards of integrity. To this end, a financial institution is required to initiate internal disciplinary proceedings where it has reasonable grounds to believe that an employee has been involved in misconduct. This also applies where the individual has ceased to be employed by the financial institution. Where the internal disciplinary process is initiated, this must be conducted in an objective manner and completed promptly. 12 Preparation of references10 S 12.1 A financial institution must ensure that the preparation of references is centralised within its organisation to promote consistency and integrity of references11. S 12.2 A financial institution must prepare a reference in good faith and must not intentionally cast doubt on the honesty and integrity of an employee without basis. S 12.3 A financial institution must ensure that a reference is clear and does not provide an unfair or misleading impression of the employee12. To this end, a financial institution must ensure− (a) that all information included in a reference is true, accurate and derived from documented fact; (b) that any expressions of opinions are based on, and supported by, documented facts that are true and accurate; and (c) that it does not withhold relevant information, where to withhold such information would render the information provided in a reference unfair or inaccurate. S 12.4 A financial institution must provide an employee a right to view a reference13 that the financial institution has prepared. 10 For the purpose of paragraphs 12 to 14, a reference to the term “employee” includes a reference to the financial institution’s former employees. 11 For the avoidance of doubt, a financial institution can leverage existing functions within its organisation (e.g. human resource function). 12 This includes addressing requests for data correction of personal data that is inaccurate, incomplete, misleading or not up-to-date in accordance with the requirements of PDPA. 13 For the avoidance of doubt, a right to view a reference does not constitute a right to edit the content of the reference. Employee Screening 10 of 15 Issued on: 9 March 2018 13 Record keeping S 13.1 A financial institution must maintain comprehensive records of documents and information relating to, or relied on in, the screening process and preparation of references. This must include all documents and information produced in the course of any internal disciplinary proceedings. S 13.2 A financial institution must keep all documents and information relating to its employees’ references and internal disciplinary proceedings strictly confidential. A financial institution is required to establish systems and controls to safeguard the security, confidentiality and integrity of all such documents and information, which includes controls for− (a) access to the disciplinary records and references of an employee; and (b) disclosures to hiring institutions with a written proof of consent from an employee. Employee Screening 11 of 15 Issued on: 9 March 2018 PART D TRANSITIONAL ARRANGEMENTS 14 Transitional arrangements S 14.1 For the purpose of paragraphs 8.6 and 8.7, references to “15 working days” must be read as “30 working days” until 30 September 2018. S 14.2 A financial institution is given until 30 September 2018 to complete a review of its existing employment contracts. Employee Screening 12 of 15 Issued on: 9 March 2018 APPENDIX 1 FUNCTIONS NOT SUBJECT TO SCREENING REQUIREMENTS No. Functions (however styled) 1. Receptionist 2. Clerical and administrative personnel 3. Dispatch officer 4. Call centre officer 5. Tele-marketing staff 6. Cleaner 7. Food and beverage personnel 8. Driver Employee Screening 13 of 15 Issued on: 9 March 2018 APPENDIX 2 REFERENCE TEMPLATE In accordance with paragraph 8.7 of Bank Negara Malaysia’s policy document on Employee Screening, this reference must be completed and returned to the hiring financial institution within 15 working days from the date of request for a reference. The written consent of the individual obtained by the hiring financial institution pursuant to paragraph 7.4 of Bank Negara Malaysia’s policy document on Employee Screening, which authorises an inquiry into, and disclosures of, the individual’s employment records is appended. PART A BACKGROUND (i) To be completed by the hiring financial institution Name and contact details of the financial institution requesting for the reference Date of request for the reference Individual’s name Individual’s MyKad/passport number (ii) To be completed by the individual’s current/former employers Name and contact details of the institution providing the reference Date the reference is provided All functions held by the individual in the institution, including past functions, and the period during which the individual held the function- Function From (date) To (date) Description of role Employee Screening 14 of 15 Issued on: 9 March 2018 PART B MANDATORY INFORMATION To be completed by the individual’s current/former employers. The responses to Questions 1 and 2 must cover the entire period the individual was employed by the institution. Question 1 Has the individual been subject to any internal disciplinary proceedings for an incident which relates to his/her honesty or integrity? Yes No If yes, please provide the following information (to be reported separately for each incident): i) Date of incident; ii) Date of initiation of internal disciplinary proceedings; iii) Factual description of the incident (e.g. nature of the allegations); iv) Details of the individual’s written representation in response to an allegation, if any; v) Status of internal disciplinary proceedings− a. Concluded (guilty/not guilty); b. Ongoing; or c. Unable to proceed (please specify reason, e.g. insufficient evidence); vi) Action(s) taken, if any; and vii) Outcome of appeal, if any. Question 2 To your knowledge, has the individual been found by any authority to be in breach14 of legal or regulatory requirements under laws, whether in or outside Malaysia, relating to− Yes No a) Financial services; b) Capital markets; c) Prevention of money laundering or terrorism financing? If yes, please provide the following information (to be reported separately for each incident): i) Date of breach; ii) Factual description of the breach; iii) Date of notification by the authority; and iv) Enforcement action(s) taken, if any. 14 For the avoidance of doubt, this covers breaches of legal and regulatory requirements that do not attract a criminal penalty. Employee Screening 15 of 15 Issued on: 9 March 2018 PART C OPTIONAL INFORMATION To be completed by the individual’s current/former employers Question 3 If you are aware of any additional information (positive or negative)15 that you consider relevant for an assessment of the individual’s honesty or integrity, please provide the information below. 15 For example, evidence of good behaviour or exemplary conduct by the individual, or information that the financial institution considers significant that may have an impact on the character assessment of the individual. Page 1 of 6 Response to feedback received Employee Screening Introduction The Bank issued today the policy document on Employee Screening for financial institutions. This policy document incorporates the proposals from the Exposure Draft issued in October 2017, and has taken into consideration feedback received during the consultation period. The Bank received written responses from 81 respondents during the consultation period. Key comments received and the Bank’s responses are set out in this document. Other comments and suggestions for clarification have been incorporated in the policy document or are otherwise addressed in the Frequently Asked Questions. Bank Negara Malaysia 9 March 2018 Page 2 of 6 1. Scope of individuals subject to screening Feedback received The operational burden of screening is not commensurate to the risk posed by individuals in functions that are auxiliary in nature. The attrition rate for this category of staff was also highlighted as an exacerbating factor. Respondents also expressed concerns over the inclusion of individuals engaged under agency arrangements and contracts for service, as it may entail an extension of financial institutions’ internal due process to these categories of individuals. The Bank’s view 1.1 The proposal in the exposure draft to include all individuals engaged by financial institutions within the scope of the policy was on the premise that instances of misconduct are not limited to certain categories of staff. However, the Bank intends to apply the screening requirements in a manner that is proportionate. 1.2 Recognising the operational burden of screening for certain categories of staff, the policy document narrows the scope of employees to be subject to the screening process. The Bank’s priority at this juncture is to focus on functions which have a greater propensity to cause financial or reputational harm to a financial institution. To this end, individuals to be employed into auxiliary functions will be excluded from the screening. A list of functions which fall within this category can be found in Appendix 1 of the policy document. 1.3 The final policy also generally excludes individuals engaged under agency arrangements or contracts for service. However, it is important that financial institutions maintain some degree of screening in respect of these individuals for vigilance on conduct risks. For commissioned dealer’s representatives (commonly known as remisiers) specifically, the policy recognises that the Securities Commission Malaysia’s (SC) published list of enforcement actions provides a key reference point for their conduct history. Therefore, notwithstanding that commissioned dealer’s representatives are not engaged under a contract of service, the Bank requires any financial institution that engages them to screen such individuals against the SC’s list of enforcement actions, and to obtain the individuals’ statutory declarations in accordance with paragraphs 9.1(a) and (b) of the policy document. Page 3 of 6 2. Scope of disclosures in employment references a. Financial institutions’ legal risk Feedback received Respondents highlighted concerns that the requirement to disclose any internal disciplinary proceedings that an individual has been subject to during his/her employment with the financial institution, irrespective of whether such proceedings have been concluded, may expose the financial institution to legal risk, such as claims of defamation or loss of employment opportunity. The Bank’s view 2.1 The final policy document preserves the scope of disclosures for employment references proposed in the exposure draft. The Bank considers that transparency over an individual’s past disciplinary cases, irrespective of whether they are completed by the time the individual left the financial institution’s employment, is important to provide hiring financial institutions a complete picture of the individual’s conduct history and support informed character assessments of the individual. With regard to concerns over legal risks, the Bank’s final stance was informed by considerations that the legal risk could be mitigated by the following: a. An applicant’s written consent will be obtained as a prerequisite to hiring, authorising inquiries into, and disclosures of, the individual’s conduct histories. All individuals intending to be employed in the financial sector are required to assent to full disclosures of their past conduct; and b. Mandatory disclosures in references are confined to factual information (i.e. not subjective expressions of opinion). This is supplemented by an expectation that financial institutions must ensure that references are true, accurate and supported by documented facts. This is expected to mitigate challenges on grounds of accuracy in addition to other safeguards the financial institutions may have in place. Page 4 of 6 b. Individuals’ interests Feedback received Employment reference checks may have implications on an individual’s job- seeking process, particularly where the individual is job-seeking while currently employed. Disclosures of unconcluded disciplinary proceedings, in particular, may prejudice an individual’s employment opportunities. The Bank’s view 2.2 To accommodate individuals who seek to maintain the confidentiality of the job- seeking process from their current employers, the final policy allows financial institutions to make an offer for employment prior to receiving a reference from the individual’s current employer. However, the offer must be conditional upon the receipt of such reference and the hiring institution’s discretion to withdraw such offer thereafter. This is clarified in paragraph 8.5 of the policy document. 2.3 The Bank is of the view that information pertaining to past disciplinary proceedings is crucial to provide hiring institutions a complete picture of the individual’s conduct history to support informed hiring decisions. On this note, the Bank would like to reiterate that the policy aims to support the ability of financial institutions to make informed hiring decisions. It is not intended that financial institutions rely solely on the results of screening in making an assessment of a candidate for employment. Rather, screening should only be relied on as a signal on the need for greater scrutiny, and forms part of a broader range of considerations. Where an individual’s references reveal findings or potential findings of misconduct, a financial institution should, as part of a more robust due diligence, make further enquiries to understand the nature of the incident to inform its character assessment of the individual. The Bank also wishes to emphasise that final employment decisions, subsequent to the completion of the screening process, remain within the full discretion of financial institutions. Page 5 of 6 3. Obligation to update Feedback received Implementing the obligation to inform the individual, and his/her current employer, of any updates to a reference previously provided poses operational challenges to financial institutions. These include identifying and contacting the individual or his/her current employer. The Bank’s view 3.1 The proposals in the exposure draft were premised on the basis of ensuring that the individual and his/her current employer are well informed of developments or outcomes of any disciplinary proceedings the individual may be subject to. However, given the operational challenges, the final policy document will require financial institutions to maintain updated records of an individual’s employment references for the purpose of ensuring that any future reference provided by such financial institutions, at the request of an individual or his/her current and future employers, will be based on updated records. 3.2 In the event an update to an employment reference incorporates information that is assessed by the financial institution to be significant, the financial institution is encouraged to share such information with the individual’s current employer (which is a financial institution) to facilitate their management of misconduct risk. In such case, the financial institution should also notify the individual of such an update. Page 6 of 6 4. Statutory declarations Feedback received The existing practice of self-declaration is sufficient, as falsified information on such a declaration is generally a basis for financial institutions to take action against the individual. The criminal penalty associated with statutory declarations may have a deterrent effect on individuals joining the financial industry. The Bank’s view 4.1 The final policy retains the requirement with respect to statutory declarations in view that the significance of, and reliability on, the declaration in making hiring decisions warrant the penal consequences of providing a false statutory declaration. This is crucial to ensure the effectiveness and integrity of the screening process.

Public Notice

07 Mar 2018

Auction of Commemorative Currency and Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/auction-of-commemorative-currency-and-ringgit-banknotes-with-special-serial-numbers

Reading: Auction of Commemorative Currency and Ringgit Banknotes with Special Serial Numbers Share: Auction of Commemorative Currency and Ringgit Banknotes with Special Serial Numbers Release Date: 07 Mar 2018 The auction of commemorative currency and Ringgit banknotes with special serial numbers will be conducted on Saturday, 10 March 2018, 8.30 a.m. onwards at the Auditorium Sasana Kijang, Bank Negara Malaysia. The auction will be conducted by the Bank’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP).   On auction will be 76 pieces of commemorative banknotes issued in conjunction with the 60th Anniversary of the Signing of the Federation of Malaya Independence Agreement.   In addition, 195 pieces of gold commemorative coins issued in conjunction with the Installation of His Majesty Seri Paduka Baginda Yang di-Pertuan Agong XV will be auctioned.   The Bank will also auction circulation banknotes with special serial numbers such as sets of the first 10 banknotes (e.g. BW0000001 – 0000010) and super solid numbers with repetitive prefix (e.g. BB8888888).   The online bidding and registration can be completed at www.best2bid.com. Further information on the auction can be obtained at MNP’s website, www.mnp.com.my. Kindly contact MNP’s customer service hotline at 017-400 6661 for more information.  © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

01 Mar 2018

RINGGIT Newsletter (March 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-march-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed95+Mar+2018+v7.pdf

Reading: RINGGIT Newsletter (March 2018 issue) is now available for download Share: RINGGIT Newsletter (March 2018 issue) is now available for download Release Date: 01 Mar 2018 The highlight for this month is Menangani Kenaikan Kos Sara Hidup Other topics of interest include : ADAM50: Amanah Dana Anak Malaysia 2050 Perkiraan Sukarela Membantu Menyelamatkan Individu Daripada Muflis Kenali Ciri-Ciri Pelaburan Haram Salah Faham Tentang Konsep Kewangan Apakah Pelaburan Terbaik? RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - March/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I MAC 2 0 1 8 Perkiraan Sukarela Membantu Menyelamatkan Individu Daripada Muflis Salah Faham Tentang Konsep Kewangan PP 16897/05/2011 (029495) ADAM50: Amanah Dana Anak Malaysia 2050 Menangani Kenaikan Kos Sara Hidup Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut. Berikut adalah beberapa cadangan yang boleh digunakan untuk mengurangkan bebanan kos sara hidup. 1. Berkongsi Kereta Kerajaan sering mengadakan kempen menggalakkan rakyat berkongsi kereta untuk mengurangkan jumlah kenderaan dan menjimatkan masa di jalan raya, khususnya di bandar-bandar besar seperti Kuala Lumpur. Malah kini, terdapat aplikasi telefon pintar yang memudahkan anda untuk mencari pemandu dan juga penumpang yang ingin berkongsi kenderaan untuk menuju ke destinasi yang sama. Selain itu, anda juga boleh menggunakan perkhidmatan yang disediakan oleh Grab melalui GrabHitch atau Uber dengan perkhidmatan perkongsian keretanya, UberPOOL. Bagi yang ingin menghantar anak berulang-alik ke sekolah pula boleh menggunakan perkhidmatan Kidz Carpool. 2. Penggunaan Kad Kredit Kad kredit dapat membantu anda menjimatkan perbelanjaan. Namun penggunaan kad kredit memerlukan tahap disiplin yang tinggi. Kad kredit mempunyai kebaikan dan keburukan, terpulang kepada cara anda menggunakannya. Anda boleh melayari pelbagai laman sesawang kewangan yang memudahkan anda untuk membandingkan kadar caj dan manfaat kad kredit tersebut. Cuba cari kad kredit yang menawarkan rebat tunai atau cashback. Ada yang memberi 5% rebat tunai. Contohnya jika anda berbelanja RM100, anda akan mendapat rebat RM5 pada penghujung bulan. Ada juga yang menawarkan mata ganjaran apabila berbelanja. Apabila sudah cukup banyak, mata ganjaran boleh ditebus untuk mendapatkan pelbagai jenis hadiah daripada pihak pengeluar kad. Namun anda perlu memastikan bahawa anda membayar sepenuhnya apabila menerima penyata bulanan kad kredit anda. Jangan biarkan kredit anda tertunggak kerana anda akan dikenakan kadar faedah yang tinggi. 3. Bawa Bekal Ke Tempat Kerja Di negara-negara maju seperti Jepun, Korea Selatan atau Amerika Syarikat, istilah lunch atau makan tengah hari sangat asing bagi mereka. Sedangkan kita setiap hari berbelanja sehingga RM10 – RM15 waktu makan tengah hari untuk sepinggan nasi dan lauk serta segelas air. Kita boleh menjimatkan belanja jika membawa bekal dari rumah. Menangani Kenaikan Kos Sara Hidup “Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Cuba cari menu sarapan atau makan tengah hari yang ringkas, yang boleh siap dalam masa 10 minit sahaja. Dengan memasak sendiri sebelum ke tempat kerja, anda boleh mendapat manfaat lain seperti: • sebagai senaman pagi sebelum ke tempat kerja • mengekalkan kesihatan • menjamin kebersihan • memberi kepuasan • meningkatkan kreativiti • mengawal kuantiti makanan untuk tujuan kesihatan 4. Beli Barang Semasa Jualan Murah atau Jualan Gudang Anda boleh menjimatkan perbelanjaan apabila membeli semasa jualan murah atau jualan gudang dengan menikmati diskaun ketika pihak penjual membuat promosi jualan murah atau jualan penghabisan stok. Sebagai contoh, pada musim perayaan seperti Hari Raya – ada pasar raya yang membuat promosi besar-besaran. Begitu juga jualan gudang yang diadakan pada setiap akhir tahun boleh membantu anda menjimatkan perbelanjaan menyediakan keperluan persekolahan anak-anak. Sekiranya anda dapat mengamalkan panduan di atas, sedikit-sebanyak ia dapat melegakan kos sara hidup yang semakin meningkat. Sumber: majalahlabur.com “Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut.” Mar 2018 | 3 Semasa pembentangan Bajet 2018 yang lalu, Perdana Menteri merangkap Menteri Kewangan, telah mengumumkan mengenai Amanah Dana Anak Malaysia 2050 atau lebih ringkas disebut sebagai ADAM50. Secara ringkasnya, ADAM50 ialah insentif yang diberikan kepada semua bayi warganegara Malaysia yang lahir bermula pada 1 Januari 2018 sehingga 31 Disember 2022. Insentif ini adalah dalam bentuk dana berjumlah RM200 yang diberi secara percuma sebagai dana permulaan tabungan sama ada di dalam dana Amanah Saham Bumiputera (ASB) bagi bayi Bumiputera atau dana Amanah Saham 1Malaysia (AS1M) bagi bayi bukan Bumiputera. Objektif utama insentif ini adalah untuk menggalakkan ibu bapa memulakan dana tabungan untuk anak-anak mereka. Insentif yang diberikan ini, berserta agihan pendapatan dividen atau bonus ke atasnya, tidak boleh dikeluarkan atau ditebus sehingga tempoh matang bayi berumur 18 tahun. Kriteria kelayakan ADAM50 ADAM50 layak diberikan kepada: • Bayi yang lahir pada 1 Januari 2018 hingga 31 Disember 2022 • Bayi merupakan warganegara Malaysia • Ibu atau bapa atau penjaga berdaftar merupakan warganegara Malaysia dan berumur 18 tahun ke atas • Ibu atau bapa atau penjaga berdaftar tidak diisytiharkan muflis semasa pendaftaran ADAM50 dilakukan Cara permohonan ADAM50 Bagi yang memenuhi kriteria-kriteria di atas, anda boleh memohon ADAM50 bagi anak yang baru dilahirkan. Tempoh permohonan adalah bermula dari kelahiran bayi sehinggalah setahun dari tarikh kelahiran bayi tersebut. Sebagai contoh, jika bayi lahir pada 20 Januari 2018, maka tempoh kelayakan untuk memohon ADAM50 bagi bayi tersebut adalah sehingga 20 Januari 2019. Selepas tempoh setahun tersebut, maka kelayakan untuk mendapatkan insentif percuma ADAM50 adalah terbatal. Untuk memohon ADAM50, ibu atau bapa atau penjaga berdaftar warganegara Malaysia hanya perlu datang ke mana-mana cawangan ASNB atau ejen ASNB di seluruh negara seperti Maybank, CIMB Bank, Pos Malaysia, RHB Bank, AmBank, Affin Bank atau Alliance Bank dengan membawa dokumen-dokumen berikut: • Dokumen pengenalan diri (MyKad) ibu atau bapa atau penjaga berdaftar. • Dokumen pengenalan diri (MyKid) bayi atau Sijil Kelahiran (sekiranya MyKid masih belum diterima). • Sebarang dokumen sokongan seperti Surat Pertalian Darah, perintah mahkamah dan lain-lain jika penjaga berdaftar bukan dalam kalangan ibu atau bapa bayi. ADAM50: Amanah Dana Anak Malaysia 2050 4 | RINGGIT Isi borang pendaftaran dan serahkan dokumen- dokumen tersebut. Jika semuanya memenuhi syarat, maka permohonan akan diluluskan. Akaun untuk bayi akan dibuka dengan jumlah permulaan sebanyak RM200 yang diberi percuma. Pelaburan tambahan Selepas akaun tersebut dibuka, ibu atau bapa atau penjaga berdaftar boleh membuat pelaburan tambahan untuk bayi dari semasa ke semasa. Contohnya, anda boleh membuat pelaburan tambahan setiap bulan dengan menolak sejumlah amaun daripada gaji anda. Setiap kali bayi mendapat hadiah wang seperti duit raya, maka anda boleh memasukkan wang tersebut ke dalam akaun ini. Dengan pelaburan tambahan tersebut, berserta agihan pendapatan yang diberikan dalam bentuk dividen dan bonus, jumlah yang semakin bertambah ini boleh dijadikan dana untuk masa depan si anak, sama ada sebagai dana pendidikan atau modal memulakan bisnes kecil-kecilan. Sumber: jomurusduit.com Mar 2018 | 5 Perkiraan Sukarela Membantu Menyelamatkan Individu Daripada Muflis Agensi Kaunseling dan Pengurusan Kredit (AKPK) telah dilantik oleh Jabatan Insolvensi Malaysia (MdI) sebagai Penama (Nominee) dalam usaha untuk membantu menyelamatkan individu daripada jatuh muflis melalui pelaksanaan Perkiraan Sukarela (Voluntary Arrangement / VA). Kewujudan VA merupakan sebahagian daripada pindaan yang dibuat dalam Akta Insolvensi 1967 (dahulu dikenali sebagai Akta Kebankrapan 1967) berkuat kuasa pada 6 Oktober 2017. VA merupakan satu mekanisme penyelamat yang memberi peluang kepada penghutang untuk berunding dan merancang satu pelan pembayaran semula dengan semua penyedia kredit bagi mengelakkan tindakan undang-undang kebankrapan. Sebagai peminjam, kebaikan VA antara lain adalah: - a. Mengelakkan stigma kebankrapan b. Bebas daripada kehilangan kelayakan dan ketidakupayaan sebagai seorang muflis yang diperuntukkan di bawah Akta Insolvensi 1967. Melalui VA, penghutang dibenarkan untuk mengembara ke luar negara, menjadi pengarah syarikat, menjalankan perniagaan dan kekal bekerja. c. Penghutang dilindungi di sisi perundangan melalui perjanjian antara penyedia kredit dan penghutang, sekiranya mereka mematuhi pelan ansuran seperti yang dipersetujui. Dalam usaha untuk memberi penjelasan yang lebih terperinci berkaitan VA dan peranan utama AKPK dalam membantu individu yang berpotensi muflis, AKPK telah mengadakan satu sesi taklimat di Dewan Serbaguna, Lanai Kijang, Bank Negara Malaysia baru- baru ini. Taklimat disampaikan oleh wakil MdI mengenai lapan perubahan Dasar Rang Undang-Undang (RUU) Kebankrapan (Pindaan) 2016, sementara wakil AKPK memberi penjelasan tentang prosedur operasi VA. Taklimat ini juga memberi penerangan yang lebih terperinci berkaitan mekanisme VA bagi membolehkan institusi atau organisasi berkaitan membantu penghutang yang terlibat untuk membuat permohonan VA. Taklimat dihadiri oleh Ketua Bahagian Kutipan Hutang, wakil-wakil dari institusi kewangan, penyedia kredit, agensi-agensi dan organisasi-organisasi yang berkaitan. Turut hadir adalah Ketua Pengarah Jabatan Insolvensi, Y.Bhg. Datuk Abdul Rahman Putra Bin Dato’ Haji Taha dan Ketua Pegawai Eksekutif AKPK, Encik Azaddin Ngah Tasir. Nantikan Ringgit edisi Mei 2018 untuk mendapatkan maklumat lanjut mengenai perincian VA. Sumber: Agensi Kaunseling dan Pengurusan Kredit (AKPK) 6 | RINGGIT Kenali Ciri-Ciri Pelaburan Haram Kenapa masih ramai tertipu dengan pelaburan haram? Walaupun pelaburan haram ini sudah wujud di Malaysia sejak dari dulu lagi, tetapi masih ramai yang tertipu. Ada beberapa cara untuk mengenal pasti penipuan ini, terutamanya yang berkaitan dengan pelaburan. Sumber: www.duitkertas.com 1. Pengambilan Deposit Jika anda ingin melabur dalam sesuatu pelaburan, wang pelaburan tersebut sepatutnya dibayar ke dalam akaun syarikat yang anda ingin melabur. Namun jika wang tersebut dimasukkan ke dalam akaun individu atau syarikat pihak ketiga, anda perlu berhati-hati. Tidak kira sama ada bayaran dibuat secara tunai, melalui cek atau pemindahan ke dalam akaun bank, sesebuah syarikat yang ingin menerima deposit daripada orang ramai untuk tujuan pelaburan perlu memiliki lesen daripada Bank Negara Malaysia (BNM) seperti bank atau syarikat kewangan. 2. Keuntungan Semua orang mudah dikaburkan dengan kadar keuntungan yang berlipat kali ganda. Namun kadar pulangan keuntungan tersebut perlu berpatutan berdasarkan jenis pelaburan. Jika pulangan berdasarkan berapa ramai downline yang berada di bawah anda, maka anda perlu berwaspada. Apa kaitan untung pelaburan dengan bilangan downline pula? 3. Risiko Ramai penganjur pelaburan haram yang mendakwa pelaburan mereka tidak mempunyai risiko langsung. Ini merupakan dakwaan klise yang perlu anda berhati-hati. Tidak ada pelaburan yang tidak mempunyai risiko. Setiap pelaburan ada untung dan rugi. 4. Dokumen rujukan Dalam apa juga jenis pelaburan, perlu ada dokumen rujukan, seperti prospektus. Prospektus tersebut perlu diluluskan oleh Suruhanjaya Sekuriti Malaysia (SC). Jika pelaburan yang ditawarkan kepada anda tidak mempunyai sebarang dokumen yang boleh dijadikan rujukan terhadap pelaburan tersebut, ia adalah pelaburan haram. 5. Produk Apabila anda ingin melabur, anda perlu tahu jenis produk pelaburan tersebut, seperti adakah pelaburan tersebut merupakan Amanah Pelaburan Hartanah (REITs), unit amanah dan sebagainya. Anda perlu mengetahui bagaimana pelaburan tersebut boleh menjana keuntungan dan apakah faktor yang mempengaruhi prestasi untung rugi pelaburan. C O N T O H Mar 2018 | 7 Salah Faham Tentang Konsep Kewangan Generasi milenium (Gen Y) pada masa ini kian tersepit. Menurut kajian Asian Institute of Finance (AIF), 38% daripada Gen Y memiliki pinjaman peribadi, dan 47% pula memiliki kad kredit, manakala hanya 28% yang benar-benar yakin dengan pengurusan kewangan peribadi mereka. Statistik di atas membangkitkan persoalan: adakah budaya atau kekurangan pendidikan yang mencetus polemik tersebut? Walaupun setiap individu perlu bertanggungjawab terhadap keputusan dan tindakan masing-masing, namun terdapat beberapa salah faham kewangan yang perlu diberi penerangan kerana ia akan mendatangkan kesan yang besar terhadap seluruh masyarakat. 1. Tidak baik untuk berhutang Sejak kanak-kanak lagi, ibu bapa telah menanam pemahaman bahawa berhutang merupakan tindakan yang buruk. Malangnya, pemahaman tersebut telah menyempitkan pandangan rakyat Malaysia terhadap skim-skim yang ditawarkan oleh bank dan institusi kewangan yang lain. Sebenarnya, terdapat pinjaman-pinjaman peribadi, pelan pindahan baki, ansuran tanpa faedah serta pelan pendahuluan tunai di pasaran yang boleh membantu pengguna dalam isu-isu kewangan untuk mencapai matlamat kewangan mereka, dengan kadar faedah yang rendah. Salah faham ini masih lagi ketara di kawasan pinggir bandar dan luar bandar, terutamanya apabila maklumat untuk menguruskan hutang dengan betul masih lagi sukar untuk diakses. Namun kemudahan pinjaman, cagaran, gadaian dan kad kredit hanya akan membantu sekiranya anda menggunakannya dengan betul. Lantas sebelum berhutang, pertimbangkan soalan- soalan berikut terlebih dahulu: • Bagaimanakah anda boleh menguruskan hutang dengan baik? • Bilakah anda boleh memohon pinjaman? • Apakah perbezaan antara hutang baik dan hutang buruk? • Bagaimanakah anda boleh menjelaskan hutang tanpa membebankan kewangan anda? 2. Tidak bagus memiliki kad kredit Persepsi masyarakat terhadap kad kredit yang menyangka kad kredit adalah untuk golongan yang boros berbelanja dan tidak tahu menyimpan. Sebenarnya kad kredit hanya akan membawa bencana jika pengguna tidak tahu akan ciri-ciri kad kredit dan menggunakannya tanpa batasan. Kad kredit akan membantu perbelanjaan anda terutamanya jika anda tahu akan kelebihan-kelebihan yang ditawarkan, seperti kadar faedah 0% untuk pembelian secara ansuran, penjimatan wang dengan tawaran rebat dan juga menikmati tawaran-tawaran eksklusif daripada bank. Tambahan pula, jika anda memiliki kad kredit dan membuat bayaran penuh setiap bulan, ia akan menambah baik skor kredit dan bakal memudahkan anda untuk membuat pinjaman pada masa akan datang. 8 | RINGGIT 3. Bank merupakan tempat baik untuk mengembangkan wang Walaupun kenyataan ini adalah betul, sebenarnya masih ada lagi alternatif pelaburan yang menawarkan kadar faedah dan dividen yang lebih tinggi di pasaran berbanding dengan deposit tetap serta akaun simpanan di bank. Pilihan-pilihan yang ada antaranya unit amanah, saham, bon ataupun memulakan perniagaan sendiri. Dengan portfolio yang seimbang, anda tidak perlu melabur semua wang yang anda miliki. Menyimpan semua wang di bank juga tidak akan mampu untuk mengembangkan wang, apatah lagi dengan kesan inflasi. Jadi, peruntukkan sebahagian daripada pendapatan anda untuk pelaburan-pelaburan yang anda yakini, terutamanya yang memberi pulangan yang stabil. 4. Perlu fokus kepada pendapatan pasif Pada era ini, pendapatan pasif (pendapatan yang tidak memerlukan anda bekerja) tidak dinafikan amat penting. Namun begitu, jika anda masih lagi mempunyai pekerjaan, sama ada sepenuh masa, secara kontrak, ataupun berniaga, kerjaya tersebut perlu diberi keutamaan. Ramai rakyat Malaysia yang terperangkap apabila memberi lebih tumpuan kepada pendapatan pasif mereka sehingga terjebak dengan skim penipuan pendapatan pasif, dan juga dipecat daripada kerja akibat tidak produktif semasa bekerja. Jika anda mempunya kemahiran, berikan sahaja tumpuan sepenuhnya terhadap kerja tetap dan tingkatkan kemahiran yang berkaitan dengan kerjaya seperti sijil-sijil kelayakan, ataupun kerja sambilan bagi menampung pendapatan. Di samping memberikan tumpuan terhadap pekerjaan, kembangkan wang simpanan anda dengan alternatif lain seperti pelaburan. 5. Berbelanja besar akan meningkatkan kualiti hidup Semakin ramai generasi milenium yang terperangkap dengan tarikan gaya hidup mewah. Salah faham tentang keperluan untuk berbelanja besar bagi meningkatkan taraf hidup ini bakal mencetuskan bencana jika tiada perubahan dilakukan. Jika ingin menuding jari untuk mencari siapa yang bersalah dalam hal ini, ia tidak akan berkesudahan. Namun, segalanya bermula dari rumah, iaitu ibu bapa berperanan dalam membentuk kesedaran kewangan kepada anak-anak sejak dari awal. Contohnya, mengajar anak-anak untuk membandingkan harga barang ketika di kedai, dan memilih untuk berjimat cermat ketika berbelanja. Daripada sudut yang lain pula, masih ramai rakyat Malaysia yang berhabis ratusan hingga ribuan ringgit membeli barang-barang berjenama, semata-mata untuk kelihatan berpendapatan tinggi. Sikap ini telah menjadi barah dalam komuniti dan melahirkan masyarakat yang materialistik dan hedonistik. Sikap ini juga akan membuatkan anda mudah terpedaya dengan perangkap harga, iaitu membeli barang-barang yang mungkin terlalu mahal berbanding kualiti yang ditawarkan. 6. Anda perlu ada RMXX pada umur tertentu Memang sesuatu yang baik untuk meletakkan sasaran kewangan bagi memotivasikan diri, tetapi ramai rakyat Malaysia terlalu fokus akan sasaran ini sehingga memandang rendah terhadap orang lain, daripada segi jumlah pendapatan sehinggalah usaha seseorang itu untuk menambah baik taraf hidup. Sikap ini juga telah dikhuatiri memburukkan budaya materialistik dalam kalangan masyarakat. Malah dalam usaha untuk mencapai sasaran tersebut, individu berkemungkinan akan menggunakan apa jua cara sehingga merampas hak orang lain. Jika anda risau tentang pendapatan anda berbanding golongan lain yang sebaya dengan anda, teruskan untuk menambah baik kemahiran diri anda sehingga menjadi yang terbaik dalam bidang yang anda ceburi. 7. Anda perlu berkira Menyimpan wang merupakan satu tindakan yang murni. Oleh itu, janganlah kedekut atau berkira untuk menyimpan wang. Sebaliknya anda perlu berkira untuk mendapat nilai barang dan perkhidmatan yang setimpal dengan apa yang anda telah bayar. Sumber: Comparehero.my Mar 2018 | 9 10 | RINGGIT KEFAHAMAN DAN PENGETAHUAN Instrumen pelaburan yang hendak dipilih seharusnya adalah pelaburan yang kita sendiri faham dan mempunyai pengetahuan yang mendalam berkenaannya. Contohnya pelaburan saham, seseorang itu perlu faham dan tahu tentang perkara-perkara asas seperti cara jual beli, kiraan unit, caj-caj terlibat, modal diperlukan, cara memilih kaunter terbaik, teknik menganalisis prestasi kaunter / syarikat (fundamental analysis) dan teknik membaca pergerakan carta saham (technical analysis). Begitu juga dengan pelaburan hartanah, perlu tahu tentang kos-kos terlibat, undang-undang berkaitan, cara beli rumah, strategi pelaburan hartanah yang menguntungkan dan teknik mendapatkan penyewa yang baik. Dalam membuat pelaburan, jangan sekadar mengikut orang lain, sebaliknya biar kita membuat keputusan berdasarkan kefahaman dan pengetahuan sendiri. Kesimpulannya, setiap peluang pelaburan adalah sesuai untuk semua orang, namun peluang pelaburan terbaik adalah mengikut citarasa dan minat masing-masing yang berbeza-beza. TOLERANSI RISIKO Secara mudah, toleransi risiko seseorang dikelaskan kepada rendah, sederhana dan tinggi. Orang yang mempunyai toleransi risiko yang rendah tidak sanggup menghadapi risiko yang tinggi dalam pelaburan, mereka takut kehilangan modal pelaburan dan tidak sanggup menunggu lama untuk mendapatkan pulangan modal. Mereka tidak sanggup menghadapi turun naik pasaran. Jadi, pilihan pelaburan terbaik untuk mereka adalah akaun deposit tetap (fixed deposit), bon dan sukuk. Manakala bagi yang mempunyai toleransi risiko yang lebih tinggi pula (sederhana dan tinggi), mereka boleh melabur dalam pelaburan yang lebih bersifat jangka masa panjang dan mengabaikan turun naik pasaran dalam jangka masa pendek seperti pelaburan unit amanah ekuiti dan saham. Mar 2018 | 11 BNM-flood adv. 2017_01_BM (outline).pdf 1 5/4/2018 6:29:25 PM

Public Notice

28 Feb 2018

Retail sale of commemorative currency at Bank Negara Malaysia’s Museum and Art Gallery from 5 March 2018 onwards

https://www.bnm.gov.my/-/retail-sale-of-commemorative-currency-at-bank-negara-malaysia-s-museum-and-art-gallery-from-5-march-2018-onwards

Reading: Retail sale of commemorative currency at Bank Negara Malaysia’s Museum and Art Gallery from 5 March 2018 onwards Share: Retail sale of commemorative currency at Bank Negara Malaysia’s Museum and Art Gallery from 5 March 2018 onwards Release Date: 28 Feb 2018 Retail sale of the following commemorative currency will begin on 5 March 2018 (Monday) at Bank Negara Malaysia’s Museum and Art Gallery: RM60 commemorative banknote issued in conjunction with the 60th Anniversary of the Signing of the Federation of Malaya Independence Agreement; and Nordic Gold coin issued in conjunction with the Installation of His Majesty Seri Paduka Baginda Yang di-Pertuan Agong XV Sultan Muhammad V. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

23 Feb 2018

Discussion Paper on Responsibility Mapping

https://www.bnm.gov.my/-/responsibility-mapping-23022018

https://www.bnm.gov.my/documents/20124/761682/dp_ResponsibilityMapping.pdf

Reading: Discussion Paper on Responsibility Mapping Share: Discussion Paper on Responsibility Mapping Release Date: 23 Feb 2018 The Bank today issued a discussion paper on Responsibility Mapping which sets out its thinking for a framework relating to responsibilities of individuals holding senior leadership positions in financial institutions. Organisational culture flows from the values established by the leaders of financial institutions, through their actions, decisions and attitudes. Given this significant influence, the Corporate Governance standards require the board and senior management to promote a sound corporate culture which reinforces ethical, prudent and professional behaviour. Building on this, the Bank intends to develop a framework to clarify the roles, responsibilities and accountability of individuals in senior roles. The Bank believes that such a framework will incentivise these individuals to take greater ownership in fostering a sound culture and addressing misconduct risk. To this end, this discussion paper sets out broad ideas for:- identifying the senior roles within each financial institution; assigning responsibilities of the senior roles to specific individuals; and holding individuals in senior roles to account. The Bank invites written feedback on this discussion paper, particularly on the specific questions raised throughout the document. Responses may include suggestions on areas to be clarified or alternatives that the Bank should consider. To facilitate an effective consultation process, the feedback should be supported with clear reasons, including accompanying evidence or illustrations where appropriate. Responses must be submitted to the Bank by 20 April 2018. See also: Attachment © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 23 February 2018 BNM/RH/DP 028-6 Responsibility Mapping Discussion Paper Applicable to: 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Prescribed development financial institutions 7. Financial holding companies Responsibility Mapping – Discussion Paper Issued on: 23 February 2018 This discussion paper sets out the Bank’s thinking on clarifying the responsibilities of individuals holding leadership positions in financial institutions. The Bank invites written feedback on this discussion paper, particularly on the specific questions raised throughout the document. Responses may include suggestions on areas to be clarified or alternatives that the Bank should consider. To facilitate an effective consultation process, the feedback should be supported with clear reasons, including accompanying evidence or illustrations where appropriate. Responses must be submitted to the Bank by 20 April 2018 to− Pengarah Jabatan Dasar Kewangan Pruden Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: pfpconsult@bnm.gov.my Electronic submission is encouraged. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of providing your feedback, you may direct queries to the following officers at 03-26988044: 1. Stephanie Tan Yen Li (ext: 7187) 2. Nathaniel Jinho Clement (ext: 8341) mailto:pfpconsult@bnm.gov.my Responsibility Mapping – Discussion Paper Issued on: 23 February 2018 TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... 1 1 Introduction ......................................................................................... 1 2 Broad approach .................................................................................. 1 PART B PROPOSED FEATURES ................................................................... 2 3 Identification of roles ........................................................................... 2 4 Allocation of responsibilities ................................................................ 7 5 Individual accountability .................................................................... 10 PART C TIMELINE ......................................................................................... 12 6 Key dates .......................................................................................... 12 Responsibility Mapping – Discussion Paper 1 of 12 Issued on: 23 February 2018 PART A OVERVIEW 1 Introduction 1.1 The Bank has introduced various reforms in recent years to strengthen corporate governance in the Malaysian financial system. This has translated into observable improvements in institutional governance arrangements and practices. With efforts to raise the bar for existing corporate governance standards substantially in place, the Bank is now sharpening its focus on the equally important, softer, aspects of governance (i.e. organisational culture and conduct). The state of culture and conduct within a financial institution is often perceived to be a reflection of the strength of its governance and is therefore critical to sustain confidence and the long term viability of the institution. 1.2 Leaders of financial institutions have a significant influence over organisational culture through the tone they set from the top, in their actions, decisions and attitudes. This discussion paper outlines the Bank’s thinking for a framework to sharpen the accountability of individuals in senior roles through responsibility mapping. Clarity on the roles, responsibilities and accountability will incentivise leaders to take greater ownership in fostering a sound culture and addressing misconduct risk. 2 Broad approach 2.1 The Bank’s approach to responsibility mapping entails three key elements: (a) identifying the senior roles within each financial institution; (b) allocating responsibilities of the senior roles to specific individuals; and (c) holding individuals in senior roles to account. Key elements of responsibility mapping Identification of roles  Each key business, operational and control activity must be within the responsibility of a senior role  Some senior roles will be unique to certain types of financial institutions  Most senior roles will be executive (for members of senior management), but some will be oversight roles to be held by non-executive directors Allocation of responsibilities  Each senior role must be assigned to an individual, whose responsibilities are clearly documented  In some cases, an individual may hold more than one senior role, or share the role with another individual – depending on potential conflicts of interest and competing commitments Individual accountability  Individuals in senior roles may be held accountable for regulatory contraventions occurring within their area of responsibility, and for personally failing to discharge a basic duty  Individual accountability for senior roles displaces neither the personal responsibility of subordinates nor the collective accountability of the board and of senior management Diagram 1 Responsibility Mapping – Discussion Paper 2 of 12 Issued on: 23 February 2018 PART B PROPOSED FEATURES 3 Identification of roles 3.1 The first element of responsibility mapping involves identifying the senior roles which will be subject to the proposed regime. Question 1 Please describe how individual roles and responsibilities are currently allocated for directors and senior managers in your financial institution. Please include any existing documentation1 relied on internally to clarify individual roles and responsibilities. Guiding principles 3.2 The primary consideration for identifying senior roles in a financial institution is to minimise organisational blind spots. All key business, operational and control functions should fall clearly within the responsibility of a senior role. This is the chief end of responsibility mapping. 3.3 In addition, the identification of senior roles should also reflect diversity across different financial institutions. Certain senior roles may be uniquely necessary for particular types of licensed business (e.g. appointed actuary for an insurer or takaful operator). Likewise, each financial institution should have sufficient flexibility in determining an internal structure appropriate to the needs and nuances of its activities. 3.4 While most senior roles will be executive positions for members of senior management, some will be oversight roles to be held by non-executive directors. Question 2 Do you agree with the proposed principles for identifying senior roles? Please indicate suggestions of considerations other than those identified in paragraphs 3.2 to 3.4. 1 Please use readily available material (e.g. job descriptions, organizational charts, etc.) within your financial institution, rather than documentation prepared for the purpose of this question. Responsibility Mapping – Discussion Paper 3 of 12 Issued on: 23 February 2018 Prescribed and additional senior roles 3.5 The Bank is considering to prescribe certain senior roles which financial institutions must establish. Each prescribed senior role will have a set of “generic responsibilities” attached to it. Since the exact scope of duties for a senior role may vary with differences of scale and organisation, financial institutions may also articulate “specific responsibilities” over and above those set by the Bank. 3.6 Financial institutions would also be free to articulate additional senior roles which have not been prescribed by the Bank, along with corresponding “specific responsibilities”. Diagram 2 3.7 In substance, this combination of prescribed and additional senior roles already exists under the present corporate governance framework. All financial institutions are currently required to have certain prescribed senior roles, such as board chairman, chief executive officer and chief risk officer. Various generic responsibilities are assigned to each of these roles, by virtue of the definition of the role as well as through standards set in policy documents. Beyond these, many financial institutions set specific responsibilities for individuals in senior roles, which differ from institution to institution. Financial institutions also assign additional senior roles for individuals who are considered members of senior management. This includes roles such as head of human resources, chief operating officer and head of a key business function – each of whom is internally assigned specific responsibilities based on the internal needs of the financial institution. 3.8 The responsibility mapping regime will streamline the existing expectations set by the Bank (represented by the dark blue boxes in Diagram 2). This will entail a review of the present set of prescribed senior roles and clarifying their corresponding generic responsibilities. 3.9 Diagram 3 summarises the prescribed senior roles already present under the existing framework, along with a non-exhaustive list of other senior roles which may be prescribed under the proposed responsibility mapping regime. Responsibility Mapping – Discussion Paper 4 of 12 Issued on: 23 February 2018 Prescribed senior roles Diagram 3 Type of financial institution Existing under the current framework Potential extensions under the new framework All Board (oversight)  Chairman  Chair of board risk management committee  Chair of board audit committee  Chair of board remuneration committee  Chair of board nominations committee  Non-executive director for whistleblowing Senior management (executive)  Chief executive officer  Chief risk officer  Chief of internal audit  Chief compliance officer  Chief financial officer Senior management (executive)  Head(s) of key business function(s)  Outsourcing  Legal Banking (including investment banks and Islamic banks) Senior management (executive)  Head of Shariah function Senior management (executive)  Capital funding and liquidity  Treasury management  Financial information and regulatory reporting  Recovery and resolution planning  Internal stress tests  Technology and infrastructure management  Corporate and business strategy Insurance / takaful Senior management (executive)  Appointed actuary  Head of Shariah function Senior management (executive)  Head of actuarial function (pricing)  Chief underwriting officer  Financial information and regulatory reporting  Technology and infrastructure management  Corporate and business strategy Question 3 Among the senior roles listed for consideration in the second column, which of these are not appropriate for inclusion as prescribed senior roles? Are there any other senior roles that should be considered but is not currently stated? Please elaborate and provide specific reasons for your answers. Responsibility Mapping – Discussion Paper 5 of 12 Issued on: 23 February 2018 3.10 This discussion paper does not set out the generic responsibilities for each prescribed senior role. These will be consulted upon at a later stage, after the Bank has reviewed the responsibilities presently attached to existing prescribed senior roles. Basic duties for senior managers 3.11 Under the existing framework, all directors are individually subject to a basic set of duties that are set out in the law2. There is presently no parallel set of basic duties for senior managers. Although they are subject to generic and specific responsibilities, these are attached to their respective senior roles rather than applied to all senior managers equally. 3.12 The responsibility mapping regime will introduce a set of basic duties for senior managers to promote a baseline expectation for each individual in an executive senior role. These will apply equally across all types of executive senior roles, and will underpin the generic and specific responsibilities applied to each senior role. 3.13 The proposed basic duties are that senior managers must– (a) take reasonable steps to ensure that the activity for which they are responsible is managed effectively; (b) take reasonable steps to ensure that the activity for which they are responsible complies with relevant legal and regulatory requirements; (c) take reasonable steps to ensure that any delegation of their responsibilities is to an appropriate person and that they oversee the discharge of the delegated responsibility effectively; and (d) disclose appropriately any information which the Bank would reasonably expect notice. Group-wide senior roles 3.14 Proposals in this discussion paper focus on applicability at the level of each legal entity. At the same time, the Bank is exploring the appropriateness of responsibility mapping at the group level. 3.15 Under the existing framework, the Bank implements group-wide prudential standards through the “apex entity” of a particular group3. As such, the responsibility of establishing and operating a clear governance structure for the group rests with the apex entity4. However, this group-wide responsibility does not displace the legal and governance responsibilities of each subsidiary financial institution as a separate legal entity5. 2 Section 57 of the Financial Services Act 2013 (FSA), section 66 of the Islamic Financial Services Act 2013 (IFSA) and section 5A of the Development Financial Institutions Act 2002 (DFIA). 3 Approach to Regulating and Supervising Financial Groups (May 2014) 4 Paragraph 20, Corporate Governance (August 2016) 5 Paragraph 21, Corporate Governance (August 2016) Responsibility Mapping – Discussion Paper 6 of 12 Issued on: 23 February 2018 Diagram 4 (from Financial Groups paper) Question 4 Please describe the existing governance structure across the legal entities in your group. Please indicate– (a) any group-wide senior roles in place (e.g. group chief risk officer, group head of human resources), along with a description of their corresponding responsibilities; (b) the distinction, if any, between group-wide roles and responsibilities and those focused on a particular legal entity; and (c) whether (and if so, how) your group allocates accountability for the responsibilities set out in paragraph 20.2 of the Corporate Governance policy document (e.g. through specific committees or senior roles). 3.16 If the responsibility mapping regime is applied to groups, each apex entity will be required to identify group-wide senior roles which bear responsibility for significant activities cutting across the legal entities in the group. These group- wide senior roles– (a) may be prescribed by the Bank, or internally established as “additional senior roles” by each apex entity as it deems appropriate; and (b) will be distinct from the entity-specific senior roles identified within each financial institution (e.g. group chief risk officer is a separate senior role compared to chief risk officer in one of the licensed persons within the group). Financial group Licensed institution or approved financial holding company (Apex entity) Shareholders Licensed institutions Other financial and financial-related businesses Responsibility Mapping – Discussion Paper 7 of 12 Issued on: 23 February 2018 4 Allocation of responsibilities 4.1 Once the senior roles have been identified for a financial institution, the corresponding responsibilities must be clearly allocated to specific individuals. This entails– (a) naming the relevant director or senior manager for each senior role; and (b) articulating, on top of the generic responsibilities, the specific responsibilities attached to each individual in a senior role. 4.2 The allocation of responsibilities must be based on how authority is distributed in reality rather than formal designations alone. As such, an individual may be considered a senior manager even if they are not formally employed by a financial institution – for instance, in cases where the individual is an officer of an affiliate but also makes decisions for the financial institution that are characteristic of a person in a senior role. 4.3 Generally, each senior role would be assigned to one individual. This is to promote clarity in identifying the person with the authority and responsibility of the affairs attached to that senior role. However, there will also be instances where the Bank may accept arrangements for an individual to hold more than one senior role (“double hatting”) or for two individuals to share a single senior role (“joint responsibility”). These exceptions will only be permitted where they are in accordance with the considerations outlined in paragraphs 4.4 to 4.8 below. Double hatting (multiple senior roles) 4.4 An individual may only be assigned to more than one senior role at a time if the combination of roles does not– (a) give rise to unacceptable conflicts of interest; or (b) result in an unreasonable workload for the individual, given the nature, size and complexity of the operations. 4.5 The Bank will clarify the types of potential conflicts that are “unacceptable” under paragraph 4.4(a). For instance, double-hatting should not be allowed for control function senior roles, in order to protect the independence and effectiveness of such functions. The need for such safeguards are explained in paragraphs 4.11 and 4.12 below. Similarly, double-hatting between group-wide and institution-specific senior roles may also be prohibited in certain circumstances. For example, the existing framework does not allow chief executive officers to double-hat executive positions across the group unless the Bank otherwise approves6. 4.6 Arrangements for an individual to be assigned more than one senior role are less likely to result in an “unreasonable workload” under paragraph 4.4(b) where the financial institution is small and less complex. Certain senior roles are also more likely to demand full-time attention – in general, an individual in 6 Section 55(3) FSA 2013 and section 64(3) IFSA 2013. Responsibility Mapping – Discussion Paper 8 of 12 Issued on: 23 February 2018 a senior role that is already prescribed under the existing framework7 should not hold any other senior roles. Question 5 (a) Describe the existing arrangements for double-hatting of senior roles in your financial institution, along with any specific concerns you may have on these proposals. (b) Please indicate and justify the combinations of senior roles that should be considered acceptable or unacceptable. Joint responsibility (one senior role) 4.7 In the exceptional case that a senior role is shared by two individuals, they will be held jointly and severally accountable for their area of responsibility. This means that each individual will be fully responsible for the entire senior role, notwithstanding the fact that they may employ a division of focus in practice. A senior role should not be shared by more than two individuals. 4.8 A senior role should not be shared between two individuals where one of them is subordinate to the other. In such a case, only the more senior individual should be assigned to the senior role. Likewise, a senior role should not be linked to an individual who is subordinate to another senior officer over the relevant affairs. Question 6 Please indicate if the proposed joint responsibility approach will require changes to existing arrangements in your financial institution. Please explain any specific concerns on these proposals, along with constructive suggestions for the Bank to consider. Collective decision-making 4.9 Collective decision-making is a common feature in financial institutions. Key decisions are often made by designated committees. The existing corporate governance framework recognises this, and imposes collective accountability for both the board and senior management. This promotes cooperation, alignment, and creates a sense of collegial responsibility within the board and senior management respectively. At the same time, the existing framework also assigns individual accountability through the definitions and corresponding responsibilities of prescribed senior roles (e.g. board chairman, chief executive officer, chief risk officer). 4.10 Responsibility mapping does not entail a departure from this complementary coexistence of individual and collective accountability. Rather, it seeks to give 7 The existing prescribed senior roles are listed in Diagram 3 on page 4. Responsibility Mapping – Discussion Paper 9 of 12 Issued on: 23 February 2018 effect to the existing legal and regulatory requirements by providing greater clarity on the implementation. While senior management should be collectively responsible for decisions taken together, this does not dilute the individual responsibility of each senior manager over their specific contribution to the decision-making process. It also should not absolve them of the affairs within their areas of responsibility. Question 7 Please explain the extent to which your financial institution applies the concept of collective accountability for the board and senior management respectively. Please elaborate on– (a) any existing arrangements to distinguish collective accountability from individual accountability within the financial institution; and (b) whether your financial institution has experienced any constraints or problems in applying collective accountability in the past, and if so, the reasons for and resolution to these challenges. Independence of senior roles in control functions 4.11 Control functions have the responsibility independent from business lines to provide objective assessment, reporting and assurance on the effectiveness of a financial institution’s policies and processes, and its compliance with legal and regulatory obligations. This includes the risk management function, the compliance function and the internal audit function. 4.12 Given the unique role of the control functions, it is crucial that the senior roles bearing responsibility over them are vested with sufficient stature, authority and independence to effectively discharge their duties. Under the existing corporate governance framework, the board plays an important task in safeguarding these senior roles from inappropriate influence by business line considerations and the rest of senior management. The Bank intends to streamline and generally raise the expectations in this regard, including requirements on– (a) direct access to the board; (b) board approval for appointments, removals and resignations; (c) board involvement in performance assessment, and board approval for remuneration packages; and (d) board oversight for fit and proper assessments. Question 8 (a) To what extent does your financial institution’s board already provide the safeguards set out in paragraph 4.12? (b) Please indicate any concerns or additional suggestions about the safeguards proposed in paragraph 4.12. Responsibility Mapping – Discussion Paper 10 of 12 Issued on: 23 February 2018 5 Individual accountability 5.1 The main occasions for individuals in senior roles to be held accountable are illustrated in Diagram 5 below and explained in the subsequent paragraphs. Diagram 5 Regulatory breach by the financial institution 5.2 An individual in a senior role may be held accountable where– (a) the financial institution breaches a regulatory requirement; (b) the breach occurs within the his area of responsibility; and (c) the individual consents to or is in connivance with the breach in question, or fails to exercise such diligence to prevent the breach as he had ought to, having regard to the nature of his function in that capacity and to the circumstances. Senior manager basic duty not discharged 5.3 A senior manager may be held accountable where he has failed to discharge any of the basic duties enumerated in paragraph 3.13. Enforcement approach 5.4 The primary aim of individual accountability is to secure appropriate behaviour in the first place, rather than punitively respond to occurrences of misconduct. Responsibility Mapping – Discussion Paper 11 of 12 Issued on: 23 February 2018 5.5 The Bank prefers that its enforcement powers will not have to be employed, and is committed to implementing individual accountability in a manner that is fair and reasonable. In designing the proposals, care will be taken to avoid pushing individuals into overly-cautious behaviour, or away from the Malaysian financial sector altogether. 5.6 As explained in paragraph 4.10, this emphasis on individual accountability will not substitute collective accountability. Where appropriate, the Bank will also hold the board or senior management responsible. Likewise, the accountability of individuals in senior roles does not take away the personal responsibility of their subordinates. A subordinate will be held to account for their own misconduct, and an individual in a senior role will not be held accountable for misconduct by a rogue subordinate which could not have reasonably been averted. 5.7 Depending on the facts of each case, administrative action may entail an order to take remedial steps, a reprimand, a requirement to make a public statement in relation to the breach, a monetary penalty – or a combination of these. The appropriate action will be determined in accordance with the Bank’s individual enforcement framework. Question 9 Please explain any specific concerns on the main occasions for senior role individual accountability, along with constructive suggestions for the Bank to consider. Responsibility Mapping – Discussion Paper 12 of 12 Issued on: 23 February 2018 PART C TIMELINE 6 Key dates 6.1 Responses to this discussion paper must be submitted to the Bank by 20 April 2018. These responses will be used for the development of more specific policy proposals on responsibility mapping. The Bank intends to consult the industry and finalise these specific proposals by the end of 2018, with a view for full implementation in 2019. Question 10 (a) Please explain the operational measures that your financial institution will need to undertake to implement the proposals outlined in this paper, along with an estimate of the time required. (b) Please indicate any concerns for your financial institution on working with the proposed timeline.

Public Notice

23 Feb 2018

Four former Genneva Sdn. Bhd directors jailed for 8 years and fined RM 1 million

https://www.bnm.gov.my/-/four-former-genneva-sdn.-bhd-directors-jailed-for-8-years-and-fined-1m

Reading: Four former Genneva Sdn. Bhd directors jailed for 8 years and fined RM 1 million Share: Four former Genneva Sdn. Bhd directors jailed for 8 years and fined RM 1 million Release Date: 23 Feb 2018 On 21 February 2018, the Court of Appeal have convicted the company and the four directors of Genneva Sdn. Bhd. (GSB) for accepting deposits without a license and money laundering, offences under Section 25(1) of the Banking and Financial Institutions Act (BAFIA) 1989 and Section 4(1) of Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA). The Court of Appeal passed the following sentences for: 5 Charges on BAFIA: Genneva Sdn. Bhd. – RM 2 million fine; Ng Poh Weng – Imprisonment 5 years and RM 1 Million fine (in default 1 year imprisonment); Marcus Yee Yuen Seng – Imprisonment 5 years and RM 1 Million fine (in default 1 year imprisonment); Chin Wai Leong – Imprisonment 5 years and RM 1 Million fine (in default 1 year imprisonment); and Liew Chee Wah – Imprisonment 5 years and RM 1 Million fine (in default 1 year imprisonment). And 154 charges on AMLA: (Imprisonment is concurrently served for all AMLA charges) Ng Poh Weng – Imprisonment 3 years (68 AMLA charges); Marcus Yee Yuen Seng – Imprisonment 3 years (28 AMLA charges); Chin Wai Leong – Imprisonment 3 years (46 AMLA charges); Liew Chee Wah – Imprisonment 3 years (12 AMLA charges). *BAFIA and AMLA sentences to be served consecutively © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

20 Feb 2018

4Q 2017 Labour Market Statistics of the Financial Services Sector

https://www.bnm.gov.my/-/4q-2017-labour-market-statistics-20021018

https://www.bnm.gov.my/documents/20124/761682/4Q2017_labour.pdf

Reading: 4Q 2017 Labour Market Statistics of the Financial Services Sector Share: 4Q 2017 Labour Market Statistics of the Financial Services Sector Release Date: 20 Feb 2018 In 4Q 2017, total employment in the financial services sector, covering banking institutions, development financial institutions and insurance companies/Takaful operators increased by 0.3% to 164,885 persons (4Q 2016: 164,463). Job creationexpanded by 8.7% for the full year 2017 (7,200; 2016: 6,624), despite a slight moderation in 4Q 2017 (1,170 jobs; 4Q 2016: 1,655 jobs), reflecting continued demand for high-skilled positions (96% of total jobs created). Job vacancies increased by 7.3% to5,609 positions in 4Q 2017 (4Q 2016: 5,227 positions), due largely to the increase in job creation during the year, coupled with marginally higher job separations (4Q 2017: 6,417; 4Q 2016: 6,284). The outlook of labour market conditions of the financial services sector remains positive with expected higher job creation in the first three to six months in 2018.  Meanwhile, about 70% of the FIs do not expect any layoffs and discharge. Click here to read more. © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I MAC 2 0 1 8 Perkiraan Sukarela Membantu Menyelamatkan Individu Daripada Muflis Salah Faham Tentang Konsep Kewangan PP 16897/05/2011 (029495) ADAM50: Amanah Dana Anak Malaysia 2050 Menangani Kenaikan Kos Sara Hidup Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut. Berikut adalah beberapa cadangan yang boleh digunakan untuk mengurangkan bebanan kos sara hidup. 1. Berkongsi Kereta Kerajaan sering mengadakan kempen menggalakkan rakyat berkongsi kereta untuk mengurangkan jumlah kenderaan dan menjimatkan masa di jalan raya, khususnya di bandar-bandar besar seperti Kuala Lumpur. Malah kini, terdapat aplikasi telefon pintar yang memudahkan anda untuk mencari pemandu dan juga penumpang yang ingin berkongsi kenderaan untuk menuju ke destinasi yang sama. Selain itu, anda juga boleh menggunakan perkhidmatan yang disediakan oleh Grab melalui GrabHitch atau Uber dengan perkhidmatan perkongsian keretanya, UberPOOL. Bagi yang ingin menghantar anak berulang-alik ke sekolah pula boleh menggunakan perkhidmatan Kidz Carpool. 2. Penggunaan Kad Kredit Kad kredit dapat membantu anda menjimatkan perbelanjaan. Namun penggunaan kad kredit memerlukan tahap disiplin yang tinggi. Kad kredit mempunyai kebaikan dan keburukan, terpulang kepada cara anda menggunakannya. Anda boleh melayari pelbagai laman sesawang kewangan yang memudahkan anda untuk membandingkan kadar caj dan manfaat kad kredit tersebut. Cuba cari kad kredit yang menawarkan rebat tunai atau cashback. Ada yang memberi 5% rebat tunai. Contohnya jika anda berbelanja RM100, anda akan mendapat rebat RM5 pada penghujung bulan. Ada juga yang menawarkan mata ganjaran apabila berbelanja. Apabila sudah cukup banyak, mata ganjaran boleh ditebus untuk mendapatkan pelbagai jenis hadiah daripada pihak pengeluar kad. Namun anda perlu memastikan bahawa anda membayar sepenuhnya apabila menerima penyata bulanan kad kredit anda. Jangan biarkan kredit anda tertunggak kerana anda akan dikenakan kadar faedah yang tinggi. 3. Bawa Bekal Ke Tempat Kerja Di negara-negara maju seperti Jepun, Korea Selatan atau Amerika Syarikat, istilah lunch atau makan tengah hari sangat asing bagi mereka. Sedangkan kita setiap hari berbelanja sehingga RM10 – RM15 waktu makan tengah hari untuk sepinggan nasi dan lauk serta segelas air. Kita boleh menjimatkan belanja jika membawa bekal dari rumah. Menangani Kenaikan Kos Sara Hidup “Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Cuba cari menu sarapan atau makan tengah hari yang ringkas, yang boleh siap dalam masa 10 minit sahaja. Dengan memasak sendiri sebelum ke tempat kerja, anda boleh mendapat manfaat lain seperti: • sebagai senaman pagi sebelum ke tempat kerja • mengekalkan kesihatan • menjamin kebersihan • memberi kepuasan • meningkatkan kreativiti • mengawal kuantiti makanan untuk tujuan kesihatan 4. Beli Barang Semasa Jualan Murah atau Jualan Gudang Anda boleh menjimatkan perbelanjaan apabila membeli semasa jualan murah atau jualan gudang dengan menikmati diskaun ketika pihak penjual membuat promosi jualan murah atau jualan penghabisan stok. Sebagai contoh, pada musim perayaan seperti Hari Raya – ada pasar raya yang membuat promosi besar-besaran. Begitu juga jualan gudang yang diadakan pada setiap akhir tahun boleh membantu anda menjimatkan perbelanjaan menyediakan keperluan persekolahan anak-anak. Sekiranya anda dapat mengamalkan panduan di atas, sedikit-sebanyak ia dapat melegakan kos sara hidup yang semakin meningkat. Sumber: majalahlabur.com “Ramai yang mengeluh bahawa kos sara hidup mereka meningkat. Namun tidak ramai yang memikirkan bagaimana untuk mengurangkan kesan akibat kenaikan kos sara hidup tersebut.” Mar 2018 | 3 Semasa pembentangan Bajet 2018 yang lalu, Perdana Menteri merangkap Menteri Kewangan, telah mengumumkan mengenai Amanah Dana Anak Malaysia 2050 atau lebih ringkas disebut sebagai ADAM50. Secara ringkasnya, ADAM50 ialah insentif yang diberikan kepada semua bayi warganegara Malaysia yang lahir bermula pada 1 Januari 2018 sehingga 31 Disember 2022. Insentif ini adalah dalam bentuk dana berjumlah RM200 yang diberi secara percuma sebagai dana permulaan tabungan sama ada di dalam dana Amanah Saham Bumiputera (ASB) bagi bayi Bumiputera atau dana Amanah Saham 1Malaysia (AS1M) bagi bayi bukan Bumiputera. Objektif utama insentif ini adalah untuk menggalakkan ibu bapa memulakan dana tabungan untuk anak-anak mereka. Insentif yang diberikan ini, berserta agihan pendapatan dividen atau bonus ke atasnya, tidak boleh dikeluarkan atau ditebus sehingga tempoh matang bayi berumur 18 tahun. Kriteria kelayakan ADAM50 ADAM50 layak diberikan kepada: • Bayi yang lahir pada 1 Januari 2018 hingga 31 Disember 2022 • Bayi merupakan warganegara Malaysia • Ibu atau bapa atau penjaga berdaftar merupakan warganegara Malaysia dan berumur 18 tahun ke atas • Ibu atau bapa atau penjaga berdaftar tidak diisytiharkan muflis semasa pendaftaran ADAM50 dilakukan Cara permohonan ADAM50 Bagi yang memenuhi kriteria-kriteria di atas, anda boleh memohon ADAM50 bagi anak yang baru dilahirkan. Tempoh permohonan adalah bermula dari kelahiran bayi sehinggalah setahun dari tarikh kelahiran bayi tersebut. Sebagai contoh, jika bayi lahir pada 20 Januari 2018, maka tempoh kelayakan untuk memohon ADAM50 bagi bayi tersebut adalah sehingga 20 Januari 2019. Selepas tempoh setahun tersebut, maka kelayakan untuk mendapatkan insentif percuma ADAM50 adalah terbatal. Untuk memohon ADAM50, ibu atau bapa atau penjaga berdaftar warganegara Malaysia hanya perlu datang ke mana-mana cawangan ASNB atau ejen ASNB di seluruh negara seperti Maybank, CIMB Bank, Pos Malaysia, RHB Bank, AmBank, Affin Bank atau Alliance Bank dengan membawa dokumen-dokumen berikut: • Dokumen pengenalan diri (MyKad) ibu atau bapa atau penjaga berdaftar. • Dokumen pengenalan diri (MyKid) bayi atau Sijil Kelahiran (sekiranya MyKid masih belum diterima). • Sebarang dokumen sokongan seperti Surat Pertalian Darah, perintah mahkamah dan lain-lain jika penjaga berdaftar bukan dalam kalangan ibu atau bapa bayi. ADAM50: Amanah Dana Anak Malaysia 2050 4 | RINGGIT Isi borang pendaftaran dan serahkan dokumen- dokumen tersebut. Jika semuanya memenuhi syarat, maka permohonan akan diluluskan. Akaun untuk bayi akan dibuka dengan jumlah permulaan sebanyak RM200 yang diberi percuma. Pelaburan tambahan Selepas akaun tersebut dibuka, ibu atau bapa atau penjaga berdaftar boleh membuat pelaburan tambahan untuk bayi dari semasa ke semasa. Contohnya, anda boleh membuat pelaburan tambahan setiap bulan dengan menolak sejumlah amaun daripada gaji anda. Setiap kali bayi mendapat hadiah wang seperti duit raya, maka anda boleh memasukkan wang tersebut ke dalam akaun ini. Dengan pelaburan tambahan tersebut, berserta agihan pendapatan yang diberikan dalam bentuk dividen dan bonus, jumlah yang semakin bertambah ini boleh dijadikan dana untuk masa depan si anak, sama ada sebagai dana pendidikan atau modal memulakan bisnes kecil-kecilan. Sumber: jomurusduit.com Mar 2018 | 5 Perkiraan Sukarela Membantu Menyelamatkan Individu Daripada Muflis Agensi Kaunseling dan Pengurusan Kredit (AKPK) telah dilantik oleh Jabatan Insolvensi Malaysia (MdI) sebagai Penama (Nominee) dalam usaha untuk membantu menyelamatkan individu daripada jatuh muflis melalui pelaksanaan Perkiraan Sukarela (Voluntary Arrangement / VA). Kewujudan VA merupakan sebahagian daripada pindaan yang dibuat dalam Akta Insolvensi 1967 (dahulu dikenali sebagai Akta Kebankrapan 1967) berkuat kuasa pada 6 Oktober 2017. VA merupakan satu mekanisme penyelamat yang memberi peluang kepada penghutang untuk berunding dan merancang satu pelan pembayaran semula dengan semua penyedia kredit bagi mengelakkan tindakan undang-undang kebankrapan. Sebagai peminjam, kebaikan VA antara lain adalah: - a. Mengelakkan stigma kebankrapan b. Bebas daripada kehilangan kelayakan dan ketidakupayaan sebagai seorang muflis yang diperuntukkan di bawah Akta Insolvensi 1967. Melalui VA, penghutang dibenarkan untuk mengembara ke luar negara, menjadi pengarah syarikat, menjalankan perniagaan dan kekal bekerja. c. Penghutang dilindungi di sisi perundangan melalui perjanjian antara penyedia kredit dan penghutang, sekiranya mereka mematuhi pelan ansuran seperti yang dipersetujui. Dalam usaha untuk memberi penjelasan yang lebih terperinci berkaitan VA dan peranan utama AKPK dalam membantu individu yang berpotensi muflis, AKPK telah mengadakan satu sesi taklimat di Dewan Serbaguna, Lanai Kijang, Bank Negara Malaysia baru- baru ini. Taklimat disampaikan oleh wakil MdI mengenai lapan perubahan Dasar Rang Undang-Undang (RUU) Kebankrapan (Pindaan) 2016, sementara wakil AKPK memberi penjelasan tentang prosedur operasi VA. Taklimat ini juga memberi penerangan yang lebih terperinci berkaitan mekanisme VA bagi membolehkan institusi atau organisasi berkaitan membantu penghutang yang terlibat untuk membuat permohonan VA. Taklimat dihadiri oleh Ketua Bahagian Kutipan Hutang, wakil-wakil dari institusi kewangan, penyedia kredit, agensi-agensi dan organisasi-organisasi yang berkaitan. Turut hadir adalah Ketua Pengarah Jabatan Insolvensi, Y.Bhg. Datuk Abdul Rahman Putra Bin Dato’ Haji Taha dan Ketua Pegawai Eksekutif AKPK, Encik Azaddin Ngah Tasir. Nantikan Ringgit edisi Mei 2018 untuk mendapatkan maklumat lanjut mengenai perincian VA. Sumber: Agensi Kaunseling dan Pengurusan Kredit (AKPK) 6 | RINGGIT Kenali Ciri-Ciri Pelaburan Haram Kenapa masih ramai tertipu dengan pelaburan haram? Walaupun pelaburan haram ini sudah wujud di Malaysia sejak dari dulu lagi, tetapi masih ramai yang tertipu. Ada beberapa cara untuk mengenal pasti penipuan ini, terutamanya yang berkaitan dengan pelaburan. Sumber: www.duitkertas.com 1. Pengambilan Deposit Jika anda ingin melabur dalam sesuatu pelaburan, wang pelaburan tersebut sepatutnya dibayar ke dalam akaun syarikat yang anda ingin melabur. Namun jika wang tersebut dimasukkan ke dalam akaun individu atau syarikat pihak ketiga, anda perlu berhati-hati. Tidak kira sama ada bayaran dibuat secara tunai, melalui cek atau pemindahan ke dalam akaun bank, sesebuah syarikat yang ingin menerima deposit daripada orang ramai untuk tujuan pelaburan perlu memiliki lesen daripada Bank Negara Malaysia (BNM) seperti bank atau syarikat kewangan. 2. Keuntungan Semua orang mudah dikaburkan dengan kadar keuntungan yang berlipat kali ganda. Namun kadar pulangan keuntungan tersebut perlu berpatutan berdasarkan jenis pelaburan. Jika pulangan berdasarkan berapa ramai downline yang berada di bawah anda, maka anda perlu berwaspada. Apa kaitan untung pelaburan dengan bilangan downline pula? 3. Risiko Ramai penganjur pelaburan haram yang mendakwa pelaburan mereka tidak mempunyai risiko langsung. Ini merupakan dakwaan klise yang perlu anda berhati-hati. Tidak ada pelaburan yang tidak mempunyai risiko. Setiap pelaburan ada untung dan rugi. 4. Dokumen rujukan Dalam apa juga jenis pelaburan, perlu ada dokumen rujukan, seperti prospektus. Prospektus tersebut perlu diluluskan oleh Suruhanjaya Sekuriti Malaysia (SC). Jika pelaburan yang ditawarkan kepada anda tidak mempunyai sebarang dokumen yang boleh dijadikan rujukan terhadap pelaburan tersebut, ia adalah pelaburan haram. 5. Produk Apabila anda ingin melabur, anda perlu tahu jenis produk pelaburan tersebut, seperti adakah pelaburan tersebut merupakan Amanah Pelaburan Hartanah (REITs), unit amanah dan sebagainya. Anda perlu mengetahui bagaimana pelaburan tersebut boleh menjana keuntungan dan apakah faktor yang mempengaruhi prestasi untung rugi pelaburan. C O N T O H Mar 2018 | 7 Salah Faham Tentang Konsep Kewangan Generasi milenium (Gen Y) pada masa ini kian tersepit. Menurut kajian Asian Institute of Finance (AIF), 38% daripada Gen Y memiliki pinjaman peribadi, dan 47% pula memiliki kad kredit, manakala hanya 28% yang benar-benar yakin dengan pengurusan kewangan peribadi mereka. Statistik di atas membangkitkan persoalan: adakah budaya atau kekurangan pendidikan yang mencetus polemik tersebut? Walaupun setiap individu perlu bertanggungjawab terhadap keputusan dan tindakan masing-masing, namun terdapat beberapa salah faham kewangan yang perlu diberi penerangan kerana ia akan mendatangkan kesan yang besar terhadap seluruh masyarakat. 1. Tidak baik untuk berhutang Sejak kanak-kanak lagi, ibu bapa telah menanam pemahaman bahawa berhutang merupakan tindakan yang buruk. Malangnya, pemahaman tersebut telah menyempitkan pandangan rakyat Malaysia terhadap skim-skim yang ditawarkan oleh bank dan institusi kewangan yang lain. Sebenarnya, terdapat pinjaman-pinjaman peribadi, pelan pindahan baki, ansuran tanpa faedah serta pelan pendahuluan tunai di pasaran yang boleh membantu pengguna dalam isu-isu kewangan untuk mencapai matlamat kewangan mereka, dengan kadar faedah yang rendah. Salah faham ini masih lagi ketara di kawasan pinggir bandar dan luar bandar, terutamanya apabila maklumat untuk menguruskan hutang dengan betul masih lagi sukar untuk diakses. Namun kemudahan pinjaman, cagaran, gadaian dan kad kredit hanya akan membantu sekiranya anda menggunakannya dengan betul. Lantas sebelum berhutang, pertimbangkan soalan- soalan berikut terlebih dahulu: • Bagaimanakah anda boleh menguruskan hutang dengan baik? • Bilakah anda boleh memohon pinjaman? • Apakah perbezaan antara hutang baik dan hutang buruk? • Bagaimanakah anda boleh menjelaskan hutang tanpa membebankan kewangan anda? 2. Tidak bagus memiliki kad kredit Persepsi masyarakat terhadap kad kredit yang menyangka kad kredit adalah untuk golongan yang boros berbelanja dan tidak tahu menyimpan. Sebenarnya kad kredit hanya akan membawa bencana jika pengguna tidak tahu akan ciri-ciri kad kredit dan menggunakannya tanpa batasan. Kad kredit akan membantu perbelanjaan anda terutamanya jika anda tahu akan kelebihan-kelebihan yang ditawarkan, seperti kadar faedah 0% untuk pembelian secara ansuran, penjimatan wang dengan tawaran rebat dan juga menikmati tawaran-tawaran eksklusif daripada bank. Tambahan pula, jika anda memiliki kad kredit dan membuat bayaran penuh setiap bulan, ia akan menambah baik skor kredit dan bakal memudahkan anda untuk membuat pinjaman pada masa akan datang. 8 | RINGGIT 3. Bank merupakan tempat baik untuk mengembangkan wang Walaupun kenyataan ini adalah betul, sebenarnya masih ada lagi alternatif pelaburan yang menawarkan kadar faedah dan dividen yang lebih tinggi di pasaran berbanding dengan deposit tetap serta akaun simpanan di bank. Pilihan-pilihan yang ada antaranya unit amanah, saham, bon ataupun memulakan perniagaan sendiri. Dengan portfolio yang seimbang, anda tidak perlu melabur semua wang yang anda miliki. Menyimpan semua wang di bank juga tidak akan mampu untuk mengembangkan wang, apatah lagi dengan kesan inflasi. Jadi, peruntukkan sebahagian daripada pendapatan anda untuk pelaburan-pelaburan yang anda yakini, terutamanya yang memberi pulangan yang stabil. 4. Perlu fokus kepada pendapatan pasif Pada era ini, pendapatan pasif (pendapatan yang tidak memerlukan anda bekerja) tidak dinafikan amat penting. Namun begitu, jika anda masih lagi mempunyai pekerjaan, sama ada sepenuh masa, secara kontrak, ataupun berniaga, kerjaya tersebut perlu diberi keutamaan. Ramai rakyat Malaysia yang terperangkap apabila memberi lebih tumpuan kepada pendapatan pasif mereka sehingga terjebak dengan skim penipuan pendapatan pasif, dan juga dipecat daripada kerja akibat tidak produktif semasa bekerja. Jika anda mempunya kemahiran, berikan sahaja tumpuan sepenuhnya terhadap kerja tetap dan tingkatkan kemahiran yang berkaitan dengan kerjaya seperti sijil-sijil kelayakan, ataupun kerja sambilan bagi menampung pendapatan. Di samping memberikan tumpuan terhadap pekerjaan, kembangkan wang simpanan anda dengan alternatif lain seperti pelaburan. 5. Berbelanja besar akan meningkatkan kualiti hidup Semakin ramai generasi milenium yang terperangkap dengan tarikan gaya hidup mewah. Salah faham tentang keperluan untuk berbelanja besar bagi meningkatkan taraf hidup ini bakal mencetuskan bencana jika tiada perubahan dilakukan. Jika ingin menuding jari untuk mencari siapa yang bersalah dalam hal ini, ia tidak akan berkesudahan. Namun, segalanya bermula dari rumah, iaitu ibu bapa berperanan dalam membentuk kesedaran kewangan kepada anak-anak sejak dari awal. Contohnya, mengajar anak-anak untuk membandingkan harga barang ketika di kedai, dan memilih untuk berjimat cermat ketika berbelanja. Daripada sudut yang lain pula, masih ramai rakyat Malaysia yang berhabis ratusan hingga ribuan ringgit membeli barang-barang berjenama, semata-mata untuk kelihatan berpendapatan tinggi. Sikap ini telah menjadi barah dalam komuniti dan melahirkan masyarakat yang materialistik dan hedonistik. Sikap ini juga akan membuatkan anda mudah terpedaya dengan perangkap harga, iaitu membeli barang-barang yang mungkin terlalu mahal berbanding kualiti yang ditawarkan. 6. Anda perlu ada RMXX pada umur tertentu Memang sesuatu yang baik untuk meletakkan sasaran kewangan bagi memotivasikan diri, tetapi ramai rakyat Malaysia terlalu fokus akan sasaran ini sehingga memandang rendah terhadap orang lain, daripada segi jumlah pendapatan sehinggalah usaha seseorang itu untuk menambah baik taraf hidup. Sikap ini juga telah dikhuatiri memburukkan budaya materialistik dalam kalangan masyarakat. Malah dalam usaha untuk mencapai sasaran tersebut, individu berkemungkinan akan menggunakan apa jua cara sehingga merampas hak orang lain. Jika anda risau tentang pendapatan anda berbanding golongan lain yang sebaya dengan anda, teruskan untuk menambah baik kemahiran diri anda sehingga menjadi yang terbaik dalam bidang yang anda ceburi. 7. Anda perlu berkira Menyimpan wang merupakan satu tindakan yang murni. Oleh itu, janganlah kedekut atau berkira untuk menyimpan wang. Sebaliknya anda perlu berkira untuk mendapat nilai barang dan perkhidmatan yang setimpal dengan apa yang anda telah bayar. Sumber: Comparehero.my Mar 2018 | 9 10 | RINGGIT KEFAHAMAN DAN PENGETAHUAN Instrumen pelaburan yang hendak dipilih seharusnya adalah pelaburan yang kita sendiri faham dan mempunyai pengetahuan yang mendalam berkenaannya. Contohnya pelaburan saham, seseorang itu perlu faham dan tahu tentang perkara-perkara asas seperti cara jual beli, kiraan unit, caj-caj terlibat, modal diperlukan, cara memilih kaunter terbaik, teknik menganalisis prestasi kaunter / syarikat (fundamental analysis) dan teknik membaca pergerakan carta saham (technical analysis). Begitu juga dengan pelaburan hartanah, perlu tahu tentang kos-kos terlibat, undang-undang berkaitan, cara beli rumah, strategi pelaburan hartanah yang menguntungkan dan teknik mendapatkan penyewa yang baik. Dalam membuat pelaburan, jangan sekadar mengikut orang lain, sebaliknya biar kita membuat keputusan berdasarkan kefahaman dan pengetahuan sendiri. Kesimpulannya, setiap peluang pelaburan adalah sesuai untuk semua orang, namun peluang pelaburan terbaik adalah mengikut citarasa dan minat masing-masing yang berbeza-beza. TOLERANSI RISIKO Secara mudah, toleransi risiko seseorang dikelaskan kepada rendah, sederhana dan tinggi. Orang yang mempunyai toleransi risiko yang rendah tidak sanggup menghadapi risiko yang tinggi dalam pelaburan, mereka takut kehilangan modal pelaburan dan tidak sanggup menunggu lama untuk mendapatkan pulangan modal. Mereka tidak sanggup menghadapi turun naik pasaran. Jadi, pilihan pelaburan terbaik untuk mereka adalah akaun deposit tetap (fixed deposit), bon dan sukuk. Manakala bagi yang mempunyai toleransi risiko yang lebih tinggi pula (sederhana dan tinggi), mereka boleh melabur dalam pelaburan yang lebih bersifat jangka masa panjang dan mengabaikan turun naik pasaran dalam jangka masa pendek seperti pelaburan unit amanah ekuiti dan saham. Mar 2018 | 11 BNM-flood adv. 2017_01_BM (outline).pdf 1 5/4/2018 6:29:25 PM

Public Notice

01 Feb 2018

RINGGIT Newsletter (February 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-february-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed94+Feb+2018+v10.pdf

Reading: RINGGIT Newsletter (February 2018 issue) is now available for download Share: RINGGIT Newsletter (February 2018 issue) is now available for download Release Date: 01 Feb 2018 The highlight for this month is Panggilan Penipuan Other topics of interest include : Berwaspada Dengan Skim Pelaburan Haram Uruskan Kewangan Anda Dengan eCCRIS Kawal Belanja Supaya Lebih Terurus Situasi Yang Tidak Dilindungi Oleh Insurans / Takaful Kenderaan RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - February/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I FEB 2 0 1 8 Uruskan Kewangan Anda dengan eCCRIS Kawal Belanja Supaya Lebih Terurus PP 16897/05/2011 (029495) Berwaspada dengan Skim Pelaburan Haram Panggilan Penipuan Dalam era teknologi maklumat pada masa ini, penipu ataupun scammers menjadi semakin pintar, terutamanya dengan bantuan teknologi yang semakin berkembang dan canggih. Sebahagian daripada penipuan yang sering dilaporkan di Malaysia adalah penipuan dalam talian (online scam), penipuan loteri, African Scam, penipuan pelaburan dan sebagainya. Baru-baru ini, Pusat Khidmat Aduan Pengguna Nasional (NCCC) telah menerima panggilan daripada seorang mangsa, Cik Chong (bukan nama sebenar), yang mendakwa beliau telah menerima panggilan daripada nombor yang tidak diketahui. Pemanggil mendakwa dirinya sebagai seorang anggota polis. Pemanggil tersebut menyebut nama dan nombor pengenalan mangsa, yang didapati benar. Pemanggil memberitahu mangsa bahawa beliau sedang disiasat atas beberapa kesalahan, termasuk kes dadah dan pengubahan wang haram. Terkejut dengan apa yang beliau dengar, mangsa menafikan dakwaan tersebut. Bagaimanapun, ini tidak menghalang pemanggil daripada mengancam mangsa dengan mengatakan hukuman bagi kesalahan itu adalah sangat berat dan mangsa boleh digantung sampai mati atas jenayah yang telah dilakukannya. Selain itu, pemanggil juga mengatakan gambar mangsa akan disiarkan di akhbar dan saluran berita tempatan. Untuk menyelesaikan masalah ini, mangsa terpaksa membuat pemindahan wang sebanyak RM30,000.00 ke sebuah akaun dan beliau perlu berbuat demikian sebelum akaunnya dibekukan oleh pihak berkuasa. Mangsa kemudiannya diberitahu bahawa seorang ‘Sarjan’ akan memanggil mangsa untuk menasihati tindakan seterusnya apabila pembayaran telah dibuat. Sekiranya mangsa gagal membayar, beliau akan direman selama 45 hari dan kos untuk mengikat jamin akan meningkat sehingga RM700,000.00. Mangsa yang mula berasa sangsi dengan permintaan pemanggil itu, terus meminta bantuan daripada keluarganya. Tindakan cepat mangsa telah menghalang mangsa daripada memindahkan wang titik peluhnya kepada akaun penipu tersebut. Panggilan Penipuan “Bagaimanapun, ini tidak menghalang pemanggil daripada mengancam mangsa dengan mengatakan hukuman bagi kesalahan itu adalah sangat berat dan dia boleh digantung mati atas jenayah yang telah dilakukannya. “ 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Mangsa kemudiannya dinasihati oleh ahli keluarga untuk membuat laporan polis. Polis telah mengesahkan bahawa penipuan sedemikian pernah dilaporkan dan menggesa mangsa supaya berwaspada. Nasihat daripada NCCC 1. Jika suspek mendesak anda untuk menyerahkan maklumat peribadi seperti kad kredit anda atau apa jua maklumat peribadi, kemungkinan besar pemanggil tersebut adalah penipu (scammer). Hentikan panggilan tersebut dan laporkan perkara berkenaan kepada pihak berkuasa. 2. Jangan mengikut arahan yang diberikan oleh pemanggil tanpa berunding dengan sesiapa terlebih dahulu. Hubungi polis atau institusi kewangan yang berkaitan untuk mendapatkan pengesahan. 3. Jika pemanggil memperkenalkan dirinya mewakili institusi kewangan, jangan dedahkan nombor akaun atau butiran kad kredit. Cuba hubungi institusi kewangan tersebut dengan merujuk maklumat yang betul di laman sesawang mereka untuk mendapatkan pengesahan. 4. Jangan panik dan bertenang, supaya anda boleh berfikir dengan waras dan menangani masalah dengan lebih berkesan. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Feb 2018 | 3 1. Skim Dagangan Mata Wang Asing Haram Skim ini melibatkan aktiviti pelaburan dalam mata wang asing dengan tujuan untuk mendapat pulangan yang tinggi daripada pergerakan kadar tukaran mata wang asing. Pelabur lazimnya mudah tertarik dengan pulangan lumayan yang dijanjikan serta kemudahan akses pelaburan yang kini kebanyakannya boleh dilakukan dengan mudah secara dalam talian. Pelabur diumpan dengan jemputan untuk menghadiri seminar dan bengkel percuma yang menerangkan tentang pulangan lumayan yang bakal mereka perolehi. Pelabur kemudiannya diminta membuka akaun dagangan mata wang asing dengan sesebuah syarikat yang didakwa mempunyai dagangan mata wang lesen yang sah. Setelah mendepositkan sejumlah wang ke dalam akaun tersebut, pelabur akan sentiasa diminta untuk menambahkan pelaburan dengan alasan kekurangan margin pelaburan awal dan untuk mengelakkan kehilangan modal. Akta Perkhidmatan Kewangan 2013 jelas menyatakan bahawa adalah menjadi satu kesalahan bagi seseorang untuk membeli atau menjual mata wang asing, atau terlibat atau mempunyai kaitan atau membuat persediaan di dalam sebarang perbuatan membeli atau menjual mata wang asing dengan mana-mana individu atau syarikat yang tidak mendapat kebenaran daripada Bank Negara Malaysia (BNM) untuk menjalankan aktiviti sedemikian. 2. Skim Pelaburan Internet Skim ini lebih terkenal kepada generasi celik IT yang tegar menggunakan internet dan media sosial untuk mendapatkan maklumat serta menggunakan kemudahan dalam talian untuk berurusan. Pelaburan ini membayangkan pulangan, faedah atau keuntungan yang besar, kebiasaannya pada kadar yang lebih tinggi daripada yang ditawarkan oleh institusi kewangan berlesen yang lain. Mereka juga meyakinkan pelabur bahawa risiko pelaburan dalam skim mereka adalah sangat rendah, bahkan sesetengah pengendali skim berani menjanjikan pulangan tanpa sebarang risiko pelaburan. Melalui laman sesawang atau e-mel, pelabur didekati oleh pengendali skim ini dengan tawaran khidmat nasihat kewangan percuma serta pujukan untuk melabur dengan mereka. Namun individu atau syarikat pengendali skim pelaburan ini sebenarnya tidak pernah dilesenkan sebagai penerima deposit dan tidak mendapat kebenaran daripada pihak BNM. Mereka juga tidak memperoleh lesen atau kelulusan daripada pihak Suruhanjaya Sekuriti (SC) untuk memberi nasihat pelaburan yang berkaitan dengan aktiviti sekuriti atau niaga hadapan, apatah lagi untuk menjalankan aktiviti pengurusan dana di Malaysia. Berwaspada Dengan Skim Pelaburan Haram 4 | RINGGIT 3. Pengambilan Deposit Secara Haram Mereka yang melabur di dalam skim ini turut dijanjikan dengan pulangan yang tinggi, meskipun pengendali skim ini tidak mempunyai kuasa atau kebenaran untuk mengambil deposit daripada mana-mana pihak. BNM tidak pernah mengeluarkan lesen kepada individu atau mana-mana syarikat selain daripada institusi-institusi kewangan untuk menawarkan apa-apa bentuk skim pelaburan dan mengambil deposit daripada orang ramai. Pengendali skim ini bijak beroperasi dengan meyakinkan pelabur melalui pulangan awal yang diberikan hasil kutipan daripada pelabur-pelabur baharu yang lain. Pelabur kemudiannya dipujuk untuk melabur semula dengan jumlah yang lebih besar untuk menikmati pulangan yang lebih lumayan pada kadar yang tinggi. Pelabur juga mungkin digalakkan untuk mempromosi dan mengajak rakan-rakan menyertai skim ini. Walau bagaimanapun, tiada jaminan yang pengendali ini mampu untuk terus membayar pulangan seperti yang dijanjikan jika mereka atau anda sendiri gagal mendapatkan pelabur-pelabur baharu. Akhirnya, skim ini akan gagal dan pelabur menghadapi kerugian apabila pengendali menghilangkan diri bersama-sama wang pelaburan yang terkumpul. 4. Penipuan Melalui Sistem Pesanan Ringkas (SMS), e-mel dan phishing Satu lagi trend penipuan pelaburan alaf baharu adalah dengan menggunakan perantaraan SMS dan e-mel untuk menjalankan aktiviti memancing data peribadi atau dikenali sebagai phishing. SMS dihantar secara rawak untuk menawarkan hadiah-hadiah menarik serta ganjaran hebat, sama ada wang tunai atau barangan mewah. Penerima yang bertuah akan dikehendaki menghubungi mereka semula untuk memberikan butiran lanjut supaya pemberian hadiah-hadiah dapat dilakukan. E-mel yang dihantar pula kononnya mengandungi notis makluman penting daripada pihak bank yang memerlukan pengguna untuk memberikan maklumat peribadi mereka, seperti nombor kad pengenalan, nombor akaun bank serta kata laluan akaun bank. Jika pengguna menjawab e-mel tersebut, maklumat peribadi pengguna akaun akan dapat digunakan oleh pengendali skim untuk mengakses dan memindahkan wang simpanan yang terdapat di dalam akaun bank pengguna. Meskipun penghantaran SMS dan e-mel ini sering dilakukan tanpa mengambil kira sama ada pengguna tersebut benar-benar mempunyai akaun di bank yang disebutkan, tetapi masih ada mangsa yang terpedaya dengan helah sedemikian. Berhati-hatilah dengan sebarang tawaran melalui SMS atau e-mel yang anda terima dan pastikan dahulu bahawa sumbernya adalah daripada pihak yang sah. Anda juga dinasihatkan supaya tidak melayari pautan yang mencurigakan, terutamanya apabila melakukan transaksi perbankan atas talian. Anda dinasihatkan supaya merujuk pada senarai syarikat dan laman sesawang yang tidak diberi kebenaran atau kelulusan di bawah undang-undang dan peraturan berkaitan yang ditadbir oleh BNM menerusi pautan Peringatan Kepada Semua Pengguna BNM di http://www.bnm.gov.my/index.php?long=bm= financialconsumeralert. Sila rujuk juga pada Investor Alert dan maklumat mengenai tindakan penguatkuasaan yang dikeluarkan Suruhanjaya Sekuriti melalui pautan berikut: https://www.sc.com.my/enforcement/investor- alerts/sc-investor-alerts/ Sumber: Agensi Kaunseling dan Pengurusan Kredit (AKPK) Feb 2018 | 5 Uruskan Kewangan Anda Dengan eCCRIS 6 | RINGGIT Feb 2018 | 7 CCRIS – SOALAN YANG LAZIM DITANYA Daftar akaun eCCRIS anda hari ini. Untuk maklumat lanjut, layari https://eccris.bnm.gov.my atau hubungi BNMTELELINK di 1300 88 5465 Sumber: Bank Negara Malaysia a) Laporan CCRIS mengandungi senarai obligasi pinjaman kewangan anda dengan institusi kewangan di Malaysia dan sejarah pembayaran balik anda untuk tempoh 12 bulan. Maklumat lanjut mengenai institusi kewangan yang menyertai CCRIS boleh dilayari di http://creditbureau.bnm.gov.my b) la juga menunjukkan permohonan pembiayaan anda sejak setahun yang lalu. 1 2 3 APAKAH YANG TERKANDUNG DALAM LAPORAN CCRIS? ADAKAH CCRIS DIANGGAP SEBAGAI SENARAI HITAM? MENGAPAKAH CCRIS PENTING KEPADA SAYA? a) CCRIS BUKAN laporan senarai hitam. b) la menyediakan maklumat positif dan negatif berkenaan status pinjaman kewangan anda. c) la tidak memberikan apa-apa penilaian terhadap status kredit atau kewangan anda. a) Institusi kewangan lazimnya menyemak laporan CCRIS apabila menilai permohonan pinjaman anda. Pastikan status pembayaran anda baik agar peluang permohonan pinjaman anda untuk diluluskan adalah lebih baik. b) Anda juga boleh memastikan akaun anda bebas daripada aktiviti penipuan dengan memantau laporan CCRIS. 8 | RINGGIT 1-300-88-5465 www.bnm.gov.mybnmtelelink@bnm.gov.my SYARAT-SYARAT GUNA PERBANKAN INTERNET Pendidikan Pengguna daripada: Pastikan perisian antivirus dan tembok api (firewall) sentiasa dikemas kini Jangan membiarkan tetingkap pelayar lain terbuka ketika membuat transaksi perbankan dalam talian Elakkan memuat turun perisian atau fail daripada laman sesawang yang tidak dikenali Pastikan anda tidak mengaktifkan ciri- ciri “perkongsian fail & pencetak” Sentiasa log keluar sebaik sahaja selesai melakukan transaksi Sentiasa menyemak rekod transaksi & penyata yang dihantar oleh bank Pastikan URL bermula dengan “https” & pastikan imej ibu kunci tertutup pada bar status pelayan web Tidak mendedahkan & selalu menukar kata laluan atau nombor PIN Jika anda sentiasa mengalami kesukaran untuk mengawal diri daripada nafsu berbelanja berlebihan, mungkin anda boleh mengikuti langkah-langkah berikut untuk mengawal perbelanjaan anda. 1. Catat perbelanjaan setiap hari • Mulakan dengan mencatat semua perbelanjaan yang dilakukan setiap hari. • Gunakan kemudahan komputer, tablet atau telefon pintar untuk membuat catatan perbelanjaan. • Gunakan aplikasi pengurusan kewangan telefon pintar yang sesuai dengan keperluan anda. 2. Jejak perbelanjaan • Tujuan catatan adalah untuk mengesan perbelanjaan anda. • Anda boleh melihat pola perbelanjaan anda sendiri, sama ada wang anda dibelanjakan dengan betul atau tidak. 3. Kenal pasti setiap perbelanjaan • Melalui catatan yang dibuat, kategorikan setiap perbelanjaan yang dibuat mengikut keperluan dan kemahuan. o Perbelanjaan keperluan adalah untuk memenuhi keperluan asas hidup, contohnya perbelanjaan dapur, makanan, bil air, bil elektrik, bayaran pinjaman / sewa rumah, nafkah dan pakaian. o Perbelanjaan kemahuan pula untuk memenuhi tuntutan gaya hidup, seperti perbelanjaan hiburan, percutian dan hobi. • Mengenal pasti setiap perbelanjaan itu, sama ada perbelanjaan tetap atau boleh ubah. o Perbelanjaan tetap agak sukar untuk dikurangkan, kecuali anda mengambil langkah yang drastik seperti membuat pembiayaan semula bayaran kereta dan bayaran rumah. o Perbelanjaan boleh ubah boleh dikurangkan supaya aliran tunai menjadi lebih baik. 4. Sediakan bajet sendiri • Kenal pasti setiap perbelanjaan dan cara untuk mengurangkan perbelanjaan dengan menyediakan bajet. • Senaraikan dan tetapkan jumlah wang yang perlu diperuntukkan untuk setiap perbelanjaan. • Potong mana-mana perbelanjaan yang dirasakan tidak perlu dan membazir. • Kurangkan peruntukan untuk perbelanjaan- perbelanjaan kemahuan. • Pastikan jumlah perbelanjaan nanti adalah lebih kecil berbanding pendapatan, dan diperuntukkan sedikit untuk simpanan. 5. Ikut bajet yang dibuat • Bajet yang dibuat perlu diikuti dan dipatuhi sepenuhnya. • Apabila gaji atau pendapatan diperoleh, keluarkan duit secukupnya untuk menampung perbelanjaan yang ditetapkan. • Asingkan terus mengikut setiap perbelanjaan yang diperuntukkan. • Boleh menggunakan pelbagai kaedah yang sesuai untuk mengasingkan perbelanjaan – sampul surat, bekas plastik dan sebagainya – belanja mengikut apa yang diperuntukkan dalam sampul atau bekas plastik. Jika ada lebihan, masukkan dalam simpanan. • Disiplinkan diri untuk berbelanja mengikut jumlah yang diperuntukkan sahaja. 6. Semak semula bajet dari semasa ke semasa • Bajet yang dibuat tidak terlalu ketat, boleh diubah suai dan disesuaikan dengan pendapatan dan keperluan semasa. • Bajet perlu disemak dari semasa ke semasa dan diubah suai agar tidak menyusahkan diri. Pada masa yang sama, dapat membantu anda mencapai matlamat kewangan yang diingini. Sumber: Jomurusduit.com Kawal Belanja Supaya Lebih Terurus 10 | RINGGIT Situasi Yang Tidak Dilindungi Oleh Insurans / Takaful Kenderaan Situasi Yang Tidak Dilindungi Oleh Insurans / Takaful Kenderaan Liabiliti undang-undang kepada penumpang dan untuk penumpang Cuba bayangkan senario ini. Suatu hari anda memandu kereta dengan membawa rakan anda, tiba-tiba anda terlibat dalam kemalangan. Walaupun tiada yang cedera, tetapi rakan anda menyaman anda di mahkamah ke atas trauma yang beliau lalui. Di sini, polisi anda tidak akan menjamin anda dan pihak insurans tidak akan membayar pampasan kepada rakan anda, walaupun beliau betul-betul cedera sekali pun. Jika ingin mengelakkan perkara sebegini daripada berlaku, sama ada elakkan berkawan dengan orang sedemikian, atau beli perlindungan tambahan yang dikenali sebagai Liabiliti Undang-Undang kepada Penumpang. Dalam senario lain, jika penumpang anda pula yang menyebabkan kerosakan harta benda atau kecederaan kepada orang lain dan anda pula yang disaman. Contohnya, penumpang anda membuka pintu kereta dengan tiba-tiba dan mengakibatkan kecederaan ke atas penunggang motosikal di sebelah. Polisi kenderaan tidak melindungi anda terhadap kes sedemikian, tetapi anda boleh dilindungi dengan membeli perlindungan tambahan, iaitu Liabiliti Undang-Undang untuk Penumpang. Jika anda pemandu bagi GrabCar atau Uber, anda dinasihatkan agar mengambil kedua-dua polisi tambahan ini. Malah polisi tambahan ini diwajibkan ke atas anda jika anda ingin memandu ke Singapura. Kerosakan total – tidak dapat dibaik pulih Kebanyakan kita membeli kereta dengan mendapatkan pinjaman daripada bank. Tetapi tahukah anda, jika anda mengalami kemalangan dan kereta anda rosak teruk yang tidak lagi dapat dibaiki, pihak insurans tidak akan menanggung baki pinjaman anda. Pihak insurans hanya akan membayar pampasan sebanyak mana nilai kereta anda pada harga pasaran. Kebiasaannya, jumlah ini lebih rendah daripada baki pinjaman kerana dua (2) faktor, iaitu kadar susut nilai kenderaan dan kadar bunga yang dikenakan oleh pihak bank. Oleh yang demikian, pastikan anda melindungi kenderaan anda dengan jumlah yang mencukupi. Kecederaan dan kematian diri Polisi insurans kenderaan anda sebenarnya tidak melindungi diri anda daripada kecederaan ataupun kematian. Jika kemalangan disebabkan oleh pihak ketiga, polisi insurans pihak ketiga tersebut yang akan membayar pampasan kepada anda terhadap kecederaan diri anda. Namun, jika anda sendiri yang menyebabkan kemalangan, maka polisi insurans kenderaan tidak akan membayar pampasan terhadap kecederaan diri anda. Oleh itu, anda perlu mempunyai insurans atau takaful perubatan untuk membiayai kos rawatan kecederaan tersebut. Sumber: www.iBanding.com Ramai yang beranggapan apabila kenderaan mereka telah dilindungi oleh insurans / takaful, maka kenderaan mereka sudah selamat. Sebenarnya tidak begitu. Terdapat banyak situasi kenderaan tidak dilindungi oleh insurans / takaful kenderaan yang biasa. Berikut adalah beberapa situasi yang menunjukkan kenderaan tidak dilindungi oleh polisi insurans / takaful kenderaan yang biasa. Kerosakan akibat rusuhan Segala kerosakan terhadap kenderaan anda yang disebabkan oleh rusuhan dan perbalahan tidak dilindungi polisi insurans. Perkara ini tidaklah begitu membimbangkan di Malaysia, kerana negara berada dalam keadaan yang aman. Walau bagaimanapun, sejak beberapa tahun kebelakangan ini, semakin banyak pula perhimpunan yang diadakan di kota raya. Anda masih bernasib baik kerana tidak banyak berlaku kerosakan harta benda. Pemasangan aksesori tambahan selepas pembelian kenderaan Aksesori yang dipasang selepas membeli kenderaan, seperti sport rims dan alat stereo yang canggih, tidak dilindungi oleh polisi insurans / takaful. Jika berlaku kecurian ke atas peralatan ini, polisi insurans / takaful kenderaan anda tidak akan membayar ganti rugi kepada anda. Oleh itu, jika anda telah banyak berbelanja ke atas aksesori kereta anda, anda dinasihatkan supaya membeli polisi tambahan yang melindungi peralatan ini. Banjir (dan bencana alam yang lain) Ramai rakyat Malaysia yang biasa dengan keadaan ini. Memandangkan ia sering berlaku, ramai yang bertanggapan kerosakan akibat banjir dilindungi polisi insurans / takaful. Sebenarnya tidak. Kerosakan enjin akibat kemasukan air, kereta ranap akibat pokok tumbang dan kerosakan lain yang disebabkan oleh bencana alam adalah tidak dilindungi oleh polisi insurans / takaful. Jika ingin dilindungi, anda boleh juga mendapatkan perlindungan tambahan untuk tujuan ini. Apabila kereta dipandu orang lain Sekiranya berlaku sesuatu kemalangan terhadap kenderaan yang dipandu oleh selain daripada pemilik polisi, termasuklah suami atau isteri, anak-anak, ibu bapa dan rakan, maka polisi insurans kenderaan anda tidak akan membayar ganti rugi untuk membaiki kereta anda. Perkara ini boleh diselesaikan dengan membayar RM400 (caj ekses) kepada syarikat insurans anda jika anda masih ingin membuat tuntutan ke atas kerosakan itu. Walau bagaimanapun terdapat cara yang lebih murah dan mudah iaitu dengan menambah nama pemandu lain ke dalam polisi anda. Setiap nama yang ditambah akan dikenakan caj sebanyak RM10 sahaja. Yang mana lagi murah, RM10 atau RM400? Feb 2018 | 11 BNM-flood adv. 2017_01_BM (outline).pdf 1 5/4/2018 6:29:25 PM

Public Notice

30 Jan 2018

Labour Market Conditions in the Financial Services Sector

https://www.bnm.gov.my/-/labour-market-conditions-30012018

https://www.bnm.gov.my/documents/20124/761682/Labour+Market+Conditions.pdf

Reading: Labour Market Conditions in the Financial Services Sector Share: Labour Market Conditions in the Financial Services Sector Release Date: 30 Jan 2018 Key Highlights: As at end-3Q 2017, total employment in the financial services sector, covering banking institutions, development financial institutions and insurance companies/Takaful operators, stood at 165,053 persons. Key developments in 3Q2017 were: 1. Job opportunities remain ample, with sizeable new jobs being created (1,976 jobs) and large job vacancies in the sector (5,857 jobs), driven mainly by high-skilled jobs 1/ . 2. Sustainable high number of new hires (7,208 persons) continued to exceed separations (6,752 persons), indicating positive hiring appetite within the sector. 3. Layoffs remained low at 391 persons as the bulk of job separations were due to quits and resignations (77.8% of total separations). Click here to read more. 1/ High-skilled refers to managers, professionals, technicians and associate professionals involved in formulating, planning, organising and executing policies, conducting research and applying scientific methods. Mid-skilled refers to those involved in compiling and maintaining records or transactions and related activities. Low-skilled refers to those performing general and miscellaneous functions such as drivers, telephone operators, office assistants and security guards. © 2024 Bank Negara Malaysia. All rights reserved.

1 1,994 1,745 1,976 0 500 1,000 1,500 2,000 2,500 1 Q 1 6 2 Q 1 6 3 Q 1 6 4 Q 1 6 1 Q 1 7 2 Q 1 7 3 Q 1 7 No of jobs Total Job Creation High-skilled Mid-skilled Low-skilled Total 5,467 5,892 5,857 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 1 Q 2 0 1 6 2 Q 2 0 1 6 3 Q 2 0 1 6 4 Q 2 0 1 6 1 Q 2 0 1 7 2 Q 2 0 1 7 3 Q 2 0 1 7 No of jobs Total Job Vacancies High-skilled Mid-skilled Low-skilled Total 5,905 5,499 5,590 1,824 1,437 1,618 7,729 6,936 7,208 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2 Q 1 6 3 Q 1 6 4 Q 1 6 1 Q 1 7 2 Q 1 7 3 Q 1 7 No of persons New Hires and Recalls Banking Sector Insurance and Takaful Total 5,514 5,489 5,253 6,561 6,925 6,752 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 2 Q 1 6 3 Q 1 6 4 Q 1 6 1 Q 1 7 2 Q 1 7 3 Q 1 7 No of persons Separations by Types Other Separations Layoffs & Discharges Quits & Resignations (excl retirements) Total Sizeable new jobs created, and continued to be driven by high-skilled jobs Sustained high number of new hires and recalls in both banking and insurance/Takaful Labour Market Conditions in the Financial Services Sector Large number of job vacancies, particularly in high-skilled jobs 1/ High-skilled refers to managers, professionals, technicians and associate professionals involved in formulating, planning, organising and executing policies, conducting research and applying scientific methods. Mid-skilled refers to those involved in compiling and maintaining records or transactions and related activities. Low-skilled refers to those performing general and miscellaneous functions such as drivers, telephone operators, office assistants and security guards. Key Highlights: As at end-3Q 2017, total employment in the financial services sector, covering banking institutions, development financial institutions and insurance companies/Takaful operators, stood at 165,053 persons. Key developments in 3Q2017 were: 1. Job opportunities remain ample, with sizeable new jobs being created (1,976 jobs) and large job vacancies in the sector (5,857 jobs), driven mainly by high-skilled jobs1/. 2. Sustainable high number of new hires (7,208 persons) continued to exceed separations (6,752 persons), indicating positive hiring appetite within the sector. 3. Layoffs remained low at 391 persons as the bulk of job separations were due to quits and resignations (77.8% of total separations). Low layoffs and discharges as quits/resignations represented largest segment of separations

Public Notice

22 Jan 2018

Credit Risk

https://www.bnm.gov.my/-/credit-risk-22012018

https://www.bnm.gov.my/documents/20124/761682/Credit+Risk.pdf, https://www.bnm.gov.my/documents/20124/761682/Response+to+Feedback+Received+%28Credit+Risk%29.pdf

Reading: Credit Risk Share: 2 Credit Risk Release Date: 22 Jan 2018 The Bank has issued the policy document on Credit Risk for banking institutions, insurers and takaful operators, and financial holding companies. The revised standard is a culmination of the Bank’s comprehensive review of the existing regulatory framework, Best Practices for the Management of Credit Risk guidelines. The revised standard aims to further elevate credit risk management practices across the industry, taking into account developments in the size and diversity of product offerings, greater internationalisation of the financial system and the growing role of domestic capital markets as an alternative source of financing. The standard also addresses requirements that will support the effective implementation of the Malaysian Financial Reporting Standards 9: Financial Instruments (MFRS 9) by financial institutions, and promote alignment with prudential objectives. Key changes to the revised policy document include:- clarity on governance expectations in respect of the involvement of the board and the risk management function in credit decision-making, management of problem credits and the independent credit review function; expanded requirements on the management of exceptional credits and concentration risk; strengthened requirements on credit risk measurement to promote greater sophistication in loss estimation approaches; and new expectations for the management of country risk, transfer risk and group-wide credit risk oversight. The policy document will take effect beginning 1 July 2018 for banks on an entity basis and 1 July 2019 on a consolidated basis. Insurers and takaful operators are required to comply with the standard on 1 January 2021 on both entity and consolidated basis. Details can be found in the following documents: Credit Risk Response to Feedback Received © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I FEB 2 0 1 8 Uruskan Kewangan Anda dengan eCCRIS Kawal Belanja Supaya Lebih Terurus PP 16897/05/2011 (029495) Berwaspada dengan Skim Pelaburan Haram Panggilan Penipuan Dalam era teknologi maklumat pada masa ini, penipu ataupun scammers menjadi semakin pintar, terutamanya dengan bantuan teknologi yang semakin berkembang dan canggih. Sebahagian daripada penipuan yang sering dilaporkan di Malaysia adalah penipuan dalam talian (online scam), penipuan loteri, African Scam, penipuan pelaburan dan sebagainya. Baru-baru ini, Pusat Khidmat Aduan Pengguna Nasional (NCCC) telah menerima panggilan daripada seorang mangsa, Cik Chong (bukan nama sebenar), yang mendakwa beliau telah menerima panggilan daripada nombor yang tidak diketahui. Pemanggil mendakwa dirinya sebagai seorang anggota polis. Pemanggil tersebut menyebut nama dan nombor pengenalan mangsa, yang didapati benar. Pemanggil memberitahu mangsa bahawa beliau sedang disiasat atas beberapa kesalahan, termasuk kes dadah dan pengubahan wang haram. Terkejut dengan apa yang beliau dengar, mangsa menafikan dakwaan tersebut. Bagaimanapun, ini tidak menghalang pemanggil daripada mengancam mangsa dengan mengatakan hukuman bagi kesalahan itu adalah sangat berat dan mangsa boleh digantung sampai mati atas jenayah yang telah dilakukannya. Selain itu, pemanggil juga mengatakan gambar mangsa akan disiarkan di akhbar dan saluran berita tempatan. Untuk menyelesaikan masalah ini, mangsa terpaksa membuat pemindahan wang sebanyak RM30,000.00 ke sebuah akaun dan beliau perlu berbuat demikian sebelum akaunnya dibekukan oleh pihak berkuasa. Mangsa kemudiannya diberitahu bahawa seorang ‘Sarjan’ akan memanggil mangsa untuk menasihati tindakan seterusnya apabila pembayaran telah dibuat. Sekiranya mangsa gagal membayar, beliau akan direman selama 45 hari dan kos untuk mengikat jamin akan meningkat sehingga RM700,000.00. Mangsa yang mula berasa sangsi dengan permintaan pemanggil itu, terus meminta bantuan daripada keluarganya. Tindakan cepat mangsa telah menghalang mangsa daripada memindahkan wang titik peluhnya kepada akaun penipu tersebut. Panggilan Penipuan “Bagaimanapun, ini tidak menghalang pemanggil daripada mengancam mangsa dengan mengatakan hukuman bagi kesalahan itu adalah sangat berat dan dia boleh digantung mati atas jenayah yang telah dilakukannya. “ 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Mangsa kemudiannya dinasihati oleh ahli keluarga untuk membuat laporan polis. Polis telah mengesahkan bahawa penipuan sedemikian pernah dilaporkan dan menggesa mangsa supaya berwaspada. Nasihat daripada NCCC 1. Jika suspek mendesak anda untuk menyerahkan maklumat peribadi seperti kad kredit anda atau apa jua maklumat peribadi, kemungkinan besar pemanggil tersebut adalah penipu (scammer). Hentikan panggilan tersebut dan laporkan perkara berkenaan kepada pihak berkuasa. 2. Jangan mengikut arahan yang diberikan oleh pemanggil tanpa berunding dengan sesiapa terlebih dahulu. Hubungi polis atau institusi kewangan yang berkaitan untuk mendapatkan pengesahan. 3. Jika pemanggil memperkenalkan dirinya mewakili institusi kewangan, jangan dedahkan nombor akaun atau butiran kad kredit. Cuba hubungi institusi kewangan tersebut dengan merujuk maklumat yang betul di laman sesawang mereka untuk mendapatkan pengesahan. 4. Jangan panik dan bertenang, supaya anda boleh berfikir dengan waras dan menangani masalah dengan lebih berkesan. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Feb 2018 | 3 1. Skim Dagangan Mata Wang Asing Haram Skim ini melibatkan aktiviti pelaburan dalam mata wang asing dengan tujuan untuk mendapat pulangan yang tinggi daripada pergerakan kadar tukaran mata wang asing. Pelabur lazimnya mudah tertarik dengan pulangan lumayan yang dijanjikan serta kemudahan akses pelaburan yang kini kebanyakannya boleh dilakukan dengan mudah secara dalam talian. Pelabur diumpan dengan jemputan untuk menghadiri seminar dan bengkel percuma yang menerangkan tentang pulangan lumayan yang bakal mereka perolehi. Pelabur kemudiannya diminta membuka akaun dagangan mata wang asing dengan sesebuah syarikat yang didakwa mempunyai dagangan mata wang lesen yang sah. Setelah mendepositkan sejumlah wang ke dalam akaun tersebut, pelabur akan sentiasa diminta untuk menambahkan pelaburan dengan alasan kekurangan margin pelaburan awal dan untuk mengelakkan kehilangan modal. Akta Perkhidmatan Kewangan 2013 jelas menyatakan bahawa adalah menjadi satu kesalahan bagi seseorang untuk membeli atau menjual mata wang asing, atau terlibat atau mempunyai kaitan atau membuat persediaan di dalam sebarang perbuatan membeli atau menjual mata wang asing dengan mana-mana individu atau syarikat yang tidak mendapat kebenaran daripada Bank Negara Malaysia (BNM) untuk menjalankan aktiviti sedemikian. 2. Skim Pelaburan Internet Skim ini lebih terkenal kepada generasi celik IT yang tegar menggunakan internet dan media sosial untuk mendapatkan maklumat serta menggunakan kemudahan dalam talian untuk berurusan. Pelaburan ini membayangkan pulangan, faedah atau keuntungan yang besar, kebiasaannya pada kadar yang lebih tinggi daripada yang ditawarkan oleh institusi kewangan berlesen yang lain. Mereka juga meyakinkan pelabur bahawa risiko pelaburan dalam skim mereka adalah sangat rendah, bahkan sesetengah pengendali skim berani menjanjikan pulangan tanpa sebarang risiko pelaburan. Melalui laman sesawang atau e-mel, pelabur didekati oleh pengendali skim ini dengan tawaran khidmat nasihat kewangan percuma serta pujukan untuk melabur dengan mereka. Namun individu atau syarikat pengendali skim pelaburan ini sebenarnya tidak pernah dilesenkan sebagai penerima deposit dan tidak mendapat kebenaran daripada pihak BNM. Mereka juga tidak memperoleh lesen atau kelulusan daripada pihak Suruhanjaya Sekuriti (SC) untuk memberi nasihat pelaburan yang berkaitan dengan aktiviti sekuriti atau niaga hadapan, apatah lagi untuk menjalankan aktiviti pengurusan dana di Malaysia. Berwaspada Dengan Skim Pelaburan Haram 4 | RINGGIT 3. Pengambilan Deposit Secara Haram Mereka yang melabur di dalam skim ini turut dijanjikan dengan pulangan yang tinggi, meskipun pengendali skim ini tidak mempunyai kuasa atau kebenaran untuk mengambil deposit daripada mana-mana pihak. BNM tidak pernah mengeluarkan lesen kepada individu atau mana-mana syarikat selain daripada institusi-institusi kewangan untuk menawarkan apa-apa bentuk skim pelaburan dan mengambil deposit daripada orang ramai. Pengendali skim ini bijak beroperasi dengan meyakinkan pelabur melalui pulangan awal yang diberikan hasil kutipan daripada pelabur-pelabur baharu yang lain. Pelabur kemudiannya dipujuk untuk melabur semula dengan jumlah yang lebih besar untuk menikmati pulangan yang lebih lumayan pada kadar yang tinggi. Pelabur juga mungkin digalakkan untuk mempromosi dan mengajak rakan-rakan menyertai skim ini. Walau bagaimanapun, tiada jaminan yang pengendali ini mampu untuk terus membayar pulangan seperti yang dijanjikan jika mereka atau anda sendiri gagal mendapatkan pelabur-pelabur baharu. Akhirnya, skim ini akan gagal dan pelabur menghadapi kerugian apabila pengendali menghilangkan diri bersama-sama wang pelaburan yang terkumpul. 4. Penipuan Melalui Sistem Pesanan Ringkas (SMS), e-mel dan phishing Satu lagi trend penipuan pelaburan alaf baharu adalah dengan menggunakan perantaraan SMS dan e-mel untuk menjalankan aktiviti memancing data peribadi atau dikenali sebagai phishing. SMS dihantar secara rawak untuk menawarkan hadiah-hadiah menarik serta ganjaran hebat, sama ada wang tunai atau barangan mewah. Penerima yang bertuah akan dikehendaki menghubungi mereka semula untuk memberikan butiran lanjut supaya pemberian hadiah-hadiah dapat dilakukan. E-mel yang dihantar pula kononnya mengandungi notis makluman penting daripada pihak bank yang memerlukan pengguna untuk memberikan maklumat peribadi mereka, seperti nombor kad pengenalan, nombor akaun bank serta kata laluan akaun bank. Jika pengguna menjawab e-mel tersebut, maklumat peribadi pengguna akaun akan dapat digunakan oleh pengendali skim untuk mengakses dan memindahkan wang simpanan yang terdapat di dalam akaun bank pengguna. Meskipun penghantaran SMS dan e-mel ini sering dilakukan tanpa mengambil kira sama ada pengguna tersebut benar-benar mempunyai akaun di bank yang disebutkan, tetapi masih ada mangsa yang terpedaya dengan helah sedemikian. Berhati-hatilah dengan sebarang tawaran melalui SMS atau e-mel yang anda terima dan pastikan dahulu bahawa sumbernya adalah daripada pihak yang sah. Anda juga dinasihatkan supaya tidak melayari pautan yang mencurigakan, terutamanya apabila melakukan transaksi perbankan atas talian. Anda dinasihatkan supaya merujuk pada senarai syarikat dan laman sesawang yang tidak diberi kebenaran atau kelulusan di bawah undang-undang dan peraturan berkaitan yang ditadbir oleh BNM menerusi pautan Peringatan Kepada Semua Pengguna BNM di http://www.bnm.gov.my/index.php?long=bm= financialconsumeralert. Sila rujuk juga pada Investor Alert dan maklumat mengenai tindakan penguatkuasaan yang dikeluarkan Suruhanjaya Sekuriti melalui pautan berikut: https://www.sc.com.my/enforcement/investor- alerts/sc-investor-alerts/ Sumber: Agensi Kaunseling dan Pengurusan Kredit (AKPK) Feb 2018 | 5 Uruskan Kewangan Anda Dengan eCCRIS 6 | RINGGIT Feb 2018 | 7 CCRIS – SOALAN YANG LAZIM DITANYA Daftar akaun eCCRIS anda hari ini. Untuk maklumat lanjut, layari https://eccris.bnm.gov.my atau hubungi BNMTELELINK di 1300 88 5465 Sumber: Bank Negara Malaysia a) Laporan CCRIS mengandungi senarai obligasi pinjaman kewangan anda dengan institusi kewangan di Malaysia dan sejarah pembayaran balik anda untuk tempoh 12 bulan. Maklumat lanjut mengenai institusi kewangan yang menyertai CCRIS boleh dilayari di http://creditbureau.bnm.gov.my b) la juga menunjukkan permohonan pembiayaan anda sejak setahun yang lalu. 1 2 3 APAKAH YANG TERKANDUNG DALAM LAPORAN CCRIS? ADAKAH CCRIS DIANGGAP SEBAGAI SENARAI HITAM? MENGAPAKAH CCRIS PENTING KEPADA SAYA? a) CCRIS BUKAN laporan senarai hitam. b) la menyediakan maklumat positif dan negatif berkenaan status pinjaman kewangan anda. c) la tidak memberikan apa-apa penilaian terhadap status kredit atau kewangan anda. a) Institusi kewangan lazimnya menyemak laporan CCRIS apabila menilai permohonan pinjaman anda. Pastikan status pembayaran anda baik agar peluang permohonan pinjaman anda untuk diluluskan adalah lebih baik. b) Anda juga boleh memastikan akaun anda bebas daripada aktiviti penipuan dengan memantau laporan CCRIS. 8 | RINGGIT 1-300-88-5465 www.bnm.gov.mybnmtelelink@bnm.gov.my SYARAT-SYARAT GUNA PERBANKAN INTERNET Pendidikan Pengguna daripada: Pastikan perisian antivirus dan tembok api (firewall) sentiasa dikemas kini Jangan membiarkan tetingkap pelayar lain terbuka ketika membuat transaksi perbankan dalam talian Elakkan memuat turun perisian atau fail daripada laman sesawang yang tidak dikenali Pastikan anda tidak mengaktifkan ciri- ciri “perkongsian fail & pencetak” Sentiasa log keluar sebaik sahaja selesai melakukan transaksi Sentiasa menyemak rekod transaksi & penyata yang dihantar oleh bank Pastikan URL bermula dengan “https” & pastikan imej ibu kunci tertutup pada bar status pelayan web Tidak mendedahkan & selalu menukar kata laluan atau nombor PIN Jika anda sentiasa mengalami kesukaran untuk mengawal diri daripada nafsu berbelanja berlebihan, mungkin anda boleh mengikuti langkah-langkah berikut untuk mengawal perbelanjaan anda. 1. Catat perbelanjaan setiap hari • Mulakan dengan mencatat semua perbelanjaan yang dilakukan setiap hari. • Gunakan kemudahan komputer, tablet atau telefon pintar untuk membuat catatan perbelanjaan. • Gunakan aplikasi pengurusan kewangan telefon pintar yang sesuai dengan keperluan anda. 2. Jejak perbelanjaan • Tujuan catatan adalah untuk mengesan perbelanjaan anda. • Anda boleh melihat pola perbelanjaan anda sendiri, sama ada wang anda dibelanjakan dengan betul atau tidak. 3. Kenal pasti setiap perbelanjaan • Melalui catatan yang dibuat, kategorikan setiap perbelanjaan yang dibuat mengikut keperluan dan kemahuan. o Perbelanjaan keperluan adalah untuk memenuhi keperluan asas hidup, contohnya perbelanjaan dapur, makanan, bil air, bil elektrik, bayaran pinjaman / sewa rumah, nafkah dan pakaian. o Perbelanjaan kemahuan pula untuk memenuhi tuntutan gaya hidup, seperti perbelanjaan hiburan, percutian dan hobi. • Mengenal pasti setiap perbelanjaan itu, sama ada perbelanjaan tetap atau boleh ubah. o Perbelanjaan tetap agak sukar untuk dikurangkan, kecuali anda mengambil langkah yang drastik seperti membuat pembiayaan semula bayaran kereta dan bayaran rumah. o Perbelanjaan boleh ubah boleh dikurangkan supaya aliran tunai menjadi lebih baik. 4. Sediakan bajet sendiri • Kenal pasti setiap perbelanjaan dan cara untuk mengurangkan perbelanjaan dengan menyediakan bajet. • Senaraikan dan tetapkan jumlah wang yang perlu diperuntukkan untuk setiap perbelanjaan. • Potong mana-mana perbelanjaan yang dirasakan tidak perlu dan membazir. • Kurangkan peruntukan untuk perbelanjaan- perbelanjaan kemahuan. • Pastikan jumlah perbelanjaan nanti adalah lebih kecil berbanding pendapatan, dan diperuntukkan sedikit untuk simpanan. 5. Ikut bajet yang dibuat • Bajet yang dibuat perlu diikuti dan dipatuhi sepenuhnya. • Apabila gaji atau pendapatan diperoleh, keluarkan duit secukupnya untuk menampung perbelanjaan yang ditetapkan. • Asingkan terus mengikut setiap perbelanjaan yang diperuntukkan. • Boleh menggunakan pelbagai kaedah yang sesuai untuk mengasingkan perbelanjaan – sampul surat, bekas plastik dan sebagainya – belanja mengikut apa yang diperuntukkan dalam sampul atau bekas plastik. Jika ada lebihan, masukkan dalam simpanan. • Disiplinkan diri untuk berbelanja mengikut jumlah yang diperuntukkan sahaja. 6. Semak semula bajet dari semasa ke semasa • Bajet yang dibuat tidak terlalu ketat, boleh diubah suai dan disesuaikan dengan pendapatan dan keperluan semasa. • Bajet perlu disemak dari semasa ke semasa dan diubah suai agar tidak menyusahkan diri. Pada masa yang sama, dapat membantu anda mencapai matlamat kewangan yang diingini. Sumber: Jomurusduit.com Kawal Belanja Supaya Lebih Terurus 10 | RINGGIT Situasi Yang Tidak Dilindungi Oleh Insurans / Takaful Kenderaan Situasi Yang Tidak Dilindungi Oleh Insurans / Takaful Kenderaan Liabiliti undang-undang kepada penumpang dan untuk penumpang Cuba bayangkan senario ini. Suatu hari anda memandu kereta dengan membawa rakan anda, tiba-tiba anda terlibat dalam kemalangan. Walaupun tiada yang cedera, tetapi rakan anda menyaman anda di mahkamah ke atas trauma yang beliau lalui. Di sini, polisi anda tidak akan menjamin anda dan pihak insurans tidak akan membayar pampasan kepada rakan anda, walaupun beliau betul-betul cedera sekali pun. Jika ingin mengelakkan perkara sebegini daripada berlaku, sama ada elakkan berkawan dengan orang sedemikian, atau beli perlindungan tambahan yang dikenali sebagai Liabiliti Undang-Undang kepada Penumpang. Dalam senario lain, jika penumpang anda pula yang menyebabkan kerosakan harta benda atau kecederaan kepada orang lain dan anda pula yang disaman. Contohnya, penumpang anda membuka pintu kereta dengan tiba-tiba dan mengakibatkan kecederaan ke atas penunggang motosikal di sebelah. Polisi kenderaan tidak melindungi anda terhadap kes sedemikian, tetapi anda boleh dilindungi dengan membeli perlindungan tambahan, iaitu Liabiliti Undang-Undang untuk Penumpang. Jika anda pemandu bagi GrabCar atau Uber, anda dinasihatkan agar mengambil kedua-dua polisi tambahan ini. Malah polisi tambahan ini diwajibkan ke atas anda jika anda ingin memandu ke Singapura. Kerosakan total – tidak dapat dibaik pulih Kebanyakan kita membeli kereta dengan mendapatkan pinjaman daripada bank. Tetapi tahukah anda, jika anda mengalami kemalangan dan kereta anda rosak teruk yang tidak lagi dapat dibaiki, pihak insurans tidak akan menanggung baki pinjaman anda. Pihak insurans hanya akan membayar pampasan sebanyak mana nilai kereta anda pada harga pasaran. Kebiasaannya, jumlah ini lebih rendah daripada baki pinjaman kerana dua (2) faktor, iaitu kadar susut nilai kenderaan dan kadar bunga yang dikenakan oleh pihak bank. Oleh yang demikian, pastikan anda melindungi kenderaan anda dengan jumlah yang mencukupi. Kecederaan dan kematian diri Polisi insurans kenderaan anda sebenarnya tidak melindungi diri anda daripada kecederaan ataupun kematian. Jika kemalangan disebabkan oleh pihak ketiga, polisi insurans pihak ketiga tersebut yang akan membayar pampasan kepada anda terhadap kecederaan diri anda. Namun, jika anda sendiri yang menyebabkan kemalangan, maka polisi insurans kenderaan tidak akan membayar pampasan terhadap kecederaan diri anda. Oleh itu, anda perlu mempunyai insurans atau takaful perubatan untuk membiayai kos rawatan kecederaan tersebut. Sumber: www.iBanding.com Ramai yang beranggapan apabila kenderaan mereka telah dilindungi oleh insurans / takaful, maka kenderaan mereka sudah selamat. Sebenarnya tidak begitu. Terdapat banyak situasi kenderaan tidak dilindungi oleh insurans / takaful kenderaan yang biasa. Berikut adalah beberapa situasi yang menunjukkan kenderaan tidak dilindungi oleh polisi insurans / takaful kenderaan yang biasa. Kerosakan akibat rusuhan Segala kerosakan terhadap kenderaan anda yang disebabkan oleh rusuhan dan perbalahan tidak dilindungi polisi insurans. Perkara ini tidaklah begitu membimbangkan di Malaysia, kerana negara berada dalam keadaan yang aman. Walau bagaimanapun, sejak beberapa tahun kebelakangan ini, semakin banyak pula perhimpunan yang diadakan di kota raya. Anda masih bernasib baik kerana tidak banyak berlaku kerosakan harta benda. Pemasangan aksesori tambahan selepas pembelian kenderaan Aksesori yang dipasang selepas membeli kenderaan, seperti sport rims dan alat stereo yang canggih, tidak dilindungi oleh polisi insurans / takaful. Jika berlaku kecurian ke atas peralatan ini, polisi insurans / takaful kenderaan anda tidak akan membayar ganti rugi kepada anda. Oleh itu, jika anda telah banyak berbelanja ke atas aksesori kereta anda, anda dinasihatkan supaya membeli polisi tambahan yang melindungi peralatan ini. Banjir (dan bencana alam yang lain) Ramai rakyat Malaysia yang biasa dengan keadaan ini. Memandangkan ia sering berlaku, ramai yang bertanggapan kerosakan akibat banjir dilindungi polisi insurans / takaful. Sebenarnya tidak. Kerosakan enjin akibat kemasukan air, kereta ranap akibat pokok tumbang dan kerosakan lain yang disebabkan oleh bencana alam adalah tidak dilindungi oleh polisi insurans / takaful. Jika ingin dilindungi, anda boleh juga mendapatkan perlindungan tambahan untuk tujuan ini. Apabila kereta dipandu orang lain Sekiranya berlaku sesuatu kemalangan terhadap kenderaan yang dipandu oleh selain daripada pemilik polisi, termasuklah suami atau isteri, anak-anak, ibu bapa dan rakan, maka polisi insurans kenderaan anda tidak akan membayar ganti rugi untuk membaiki kereta anda. Perkara ini boleh diselesaikan dengan membayar RM400 (caj ekses) kepada syarikat insurans anda jika anda masih ingin membuat tuntutan ke atas kerosakan itu. Walau bagaimanapun terdapat cara yang lebih murah dan mudah iaitu dengan menambah nama pemandu lain ke dalam polisi anda. Setiap nama yang ditambah akan dikenakan caj sebanyak RM10 sahaja. Yang mana lagi murah, RM10 atau RM400? Feb 2018 | 11 BNM-flood adv. 2017_01_BM (outline).pdf 1 5/4/2018 6:29:25 PM Page 1 of 7 Response to feedback received Credit Risk Introduction Bank Negara Malaysia (the Bank) has issued the policy document on Credit Risk for banking institutions and insurers/takaful operators (collectively referred to as financial institutions). This policy document incorporates the proposals from the exposure draft, and has taken into consideration various feedback and suggestions received during the consultation period. The Bank received more than 130 written responses from 69 respondents during the consultation period. Key comments received and the Bank’s responses are set out in this document. Other comments and suggestions for clarification have been incorporated in the policy document. Bank Negara Malaysia 22 January 2018 Page 2 of 7 1. Credit risk assessment a. Implicit support arrangement Industry feedback The Bank should consider reviewing the current prohibition for financial institutions to use implicit support arrangements1 in credit decision making process2. The continued prohibition restricts the ability of financial institutions in exercising business judgment when making credit decisions. There have been cases where implicit support arrangements proved to be effective as a loss mitigation tool. In such cases, strong internal practices were present to ensure that the outcome of the implicit support arrangement is effective. These include obtaining continuous attestation on the support provider’s willingness to accord support in times of stress, periodic assessment of the strategic relationship between the support provider and the counterparty and financial capacity of the support provider. The Bank’s view 1.1 The prohibition has been in place since 2001 to prevent financial institutions from being heavily reliant on implicit support arrangements when approving credits. Such overreliance in many cases turned out to be ineffective in mitigating losses. 1.2 The Bank acknowledges the views put forward by financial institutions. Over the years, financial institutions have demonstrated improvements on various aspects of credit risk management infrastructures, processes and practices that can equip financial institutions in exercising reasonably prudent business judgment when making credit decisions. However, the exercise of prudent business judgment must be supported by adequate safeguards. 1.3 Taking these into consideration, the final Credit Risk policy document will not prohibit the use of implicit support arrangements. Such arrangements, however, must not be the sole factor assessed when performing credit risk assessment or when making credit decisions. Financial institutions are also required to establish adequate internal governance arrangements, policies, controls and reporting requirements on the use of implicit support (refer to paragraph 9.14 and 16.2 of the Credit Risk policy document). 1 Include implicit guarantee, letter of comfort or expectations of support. 2 Include rating assignment to a counterparty, pricing or rate charged for a credit, terms and conditions of a credit and approval of a credit. Page 3 of 7 2. Credit risk measurement a. Methodology Industry feedback Estimation of probability of default (PD), loss given default (LGD), and exposures at default (EAD) should not be required for significant credit exposures3 categorised as ‘fair value through profit and loss’ (FVTPL) under the Malaysian Financial Reporting Standard 9: Financial Instruments (i.e. trading portfolios). Such exposures are not subject to impairment provisions under MFRS 9. The Bank’s view 2.1 The requirement to estimate PD, LGD, and EAD for all significant credit exposures is intended to elevate the standards for estimating expected credit losses across financial institutions. The requirement also complements the implementation of the Malaysian Financial Reporting Standard 9: Financial Instruments (MFRS 9) that takes effect for financial year beginning 1 January 2018. 2.2 The Bank is aware that exposures categorised as FVTPL are not subject to impairment provisions under MFRS 9. For such exposures, changes in credit risk are already reflected in the market price of the instrument. Hence, any impairment would have been reflected in the profit and loss statement of the financial institution. 2.3 Despite this, granular estimates of PD, LGD and EAD for significant credit exposures categorised as FVTPL generally contribute towards improving the overall credit risk management process (for example, through better approval and pricing mechanisms, limit setting and monitoring). 2.4 The Bank acknowledges that for some financial institutions, the potential value- add may not be commensurate with the efforts required to develop in-house estimates of PD, LGD and EAD for FVTPL exposures. In such situations, financial institutions are expected to adopt an appropriate credit risk measurement methodology to estimate expected credit losses, having regard to the nature, scale and complexity of such FVTPL exposures. 3 Refer to a credit exposure or a homogenous portfolio of credit exposures that has a material impact on a financial institution’s credit risk profile. Page 4 of 7 b. Validation Industry feedback The ability to perform validation may be constrained by unavailability of quality historical data and lack of in-house expertise. These challenges have affected the ability of some financial institutions to: a. assess appropriateness of underlying assumptions used in the credit risk measurement methodology; and b. back-test the outputs to ascertain the methodology’s accuracy and discriminatory power. The Bank’s view 2.5 For banking institutions, the Bank expects these challenges to have been addressed as part of the implementation of MFRS 9, which became effective on 1 January 2018, given the same expectations imposed. For insurers/takaful operators, an extended implementation timeline is granted to allow for sufficient time to prepare and address any challenges before the effective date of the Credit Risk standards on 1 January 2021. 2.6 Where insufficient historical data is a constraint to perform validation, financial institutions may consider using relevant proxy data. In such cases, the financial institution is expected to periodically review the appropriateness of using such proxy and adopt its own internal data, whenever feasible. 2.7 In addition, where the validation is performed by an external party, the financial institution must ensure that the validation process fulfils the requirements as set out in paragraphs 12.14 to 12.23 of the Credit Risk policy document. Page 5 of 7 3. Credit concentration risk Industry feedback The scope of correlation assessment as specified in the exposure draft is too broad (e.g. may include name, sector, and country correlation etc.) and may be too onerous. Therefore, there is a need for clarity on the type of correlation assessment that is required to be undertaken. There are also concerns on the operational difficulty to undertake name correlation assessment for all credit exposures, particularly for retail credit portfolio which are voluminous. The Bank’s view 3.1 The requirement for financial institutions to assess correlations between credit exposures is to enable identification of chain reactions due to a counterparty defaulting on its credit obligations. Information on the degree and relativity of the financial institutions' credit concentration risk can contribute to the containment of cumulative losses through the establishment of meaningful internal limits with early warning indicators. These information will also be useful in developing the financial institution’s risk appetite and credit risk strategy which could result in pricing adjustments, unwinding of existing credit exposures, increasing capital buffers or entering into additional credit risk mitigation arrangements. 3.2 The Bank takes note of the feedback from the industry. Paragraph 14.3 of the Credit Risk policy document clarifies that at a minimum, the financial institution must assess: a. name correlation between significant credit exposures; and b. correlations between sectors within its portfolio. These expectations complement the requirements in the Single Counterparty Exposure Limit and the Internal Capital Adequacy Assessment Process policy documents, respectively. 3.3 For name correlation, the Bank expects that financial institutions continue to gradually build capacity and capability to assess correlation for all names over time. In addition, the financial institution should endeavour to also assess name correlation for all credit exposures that are considered material to it based on its risk tolerance, to manage concentration to a single counterparty. Page 6 of 7 4. Problem credits a. Management of material problem credits Industry feedback Several respondents, mainly smaller and less complex financial institutions, highlighted that setting up a specialised team for managing material problem credits may be challenging given resource constraints. For such financial institutions, recovery actions can still be taken in an objective and timely manner through appropriate governance arrangements, including close monitoring of material problem credits and deliberation/approval of recovery actions at a committee level. The Bank’s view 4.1 The exposure draft proposed for material problem credits to be managed by a specialised team with relevant expertise. This proposal is based on the premise that dedicated resources with specific focus and specialised expertise will improve recovery outcomes of problem credits, particularly in terms of the amount of repayment collected. 4.2 The exposure draft also proposed for the specialised team to be independent from the credit approval authority or other officers involved in the credit decision. This is to ensure the continued objectivity of the financial institution’s problem credit management function and minimise delays in taking recovery actions (i.e. prevents ‘ever-greening’ of problem credits). 4.3 The Bank views that the request to allow financial institutions to institute an appropriate governance arrangement to manage problem credits merit consideration, so long as the policy objective can be met. The final Credit Risk policy document requires that the governance arrangement put in place by financial institutions must be commensurate with the complexity, materiality and volume of problem credits. Financial institutions must also consider the availability of resources and adequacy of existing safeguards to avoid ‘ever-greening’ of problem credits. Financial institutions must ensure that problem credits are not solely managed by the originating credit officer or team. b. Definition of problem credits 4.4 The Bank wishes to clarify that credits which are deemed to have experienced a significant deterioration in credit risk, whether due to counterparty-specific factors or those relating to macroeconomic and sectoral considerations include credits classified as Stage 2 under the MFRS 9. Page 7 of 7 5. Independent credit review Industry feedback Financial institutions should be given the flexibility in determining the structure that can best demonstrate the effectiveness of the independent credit review (ICR) function, taking into consideration the size, nature of credit portfolio, governance arrangements and its business model. The Bank’s view 5.1 Since 2001, the Bank has accorded flexibility for the ICR function to be housed under Internal Audit as a temporary arrangement. This flexibility recognises the resource and talent constraints faced by the industry then. Over time, improvements have been observed in the talent supply within the industry that would enable dedicated resources to undertake post-approval credit reviews. 5.2 The Bank is cognisant of the various ICR structures in the industry currently and views that flexible ICR structure can be allowed subject to the financial institution demonstrating that the ICR’s objectivity and effectiveness are preserved at all times (refer to paragraph 17 of the Credit Risk policy document). 5.3 In this regard, a financial institution must ensure that the ICR is undertaken by competent staff who are independent from credit origination and approval functions to avoid conflict of interest. The ICR function must have direct access to the Board Risk Committee and Board Audit Committee as well as the senior management to escalate issues and findings to prevent suppression of information. The Bank also reiterates that the ICR function, which forms part of the credit risk management process, must be subject to internal audit assessments, even if it is housed within the Internal Audit department.

Public Notice

17 Jan 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-17012018-02

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 17 Jan 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 409 companies. The following company was added to the list: GCMAsia The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

17 Jan 2018

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-17012018

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 17 Jan 2018 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 413 companies. The following company was added to the list: Globamas Trading Mayuni Enterprise Making Money For You (MM4U) Empires Making Money For You (EMM4U) The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Jan 2018

Compliance to SWIFT’s Security Controls Requirement

https://www.bnm.gov.my/-/compliance-to-swift-s-security-controls-09012018

Reading: Compliance to SWIFT’s Security Controls Requirement Share: Compliance to SWIFT’s Security Controls Requirement Release Date: 09 Jan 2018 The Society for Worldwide Interbank Financial Telecommunication (SWIFT) has published a set of mandatory and advisory security controls through their Customer Security Controls Framework in early 2017. All SWIFT users are required to attest their compliance with the mandatory controls annually with effective from 2017. In this regard, Bank Negara Malaysia as one of the users has submitted the self-attestation with regard to its full compliance with SWIFT's mandatory controls requirement. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

02 Jan 2018

List of Principal Dealers and Islamic Principal Dealers

https://www.bnm.gov.my/-/principal-islamic-principal-dealers-02012018

More Lists: Complaints Unit of Financial Service Providers Financial Holding Companies Approved Representative Offices of Foreign Banking Institutions In Malaysia Money Services Business Operators Money Services Business Licensees Principal Money Services Business Licensees Approved Money Services Business Agents Payment Systems Regulatees Non-Bank e-Money Issuers Approved and Registered Intermediaries Approved Money Brokers Approved Insurance Brokers Approved Insurance and Takaful Brokers Approved Takaful Brokers (Specialised) Approved International Marine, Aviation and Transit (MAT) Insurance Brokers Registered Adjusters Approved Financial Advisers and Approved Islamic Financial Advisers Representatives of Financial Advisers   Approved Electronic Trading Platforms (ETP) Registered Currency Processors Industry Associations, Training & Academic Institutions

Public Notice

01 Jan 2018

RINGGIT Newsletter (January 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-download-jan2018

https://www.bnm.gov.my/documents/20124/761682/Ringgit+Ed93+Jan+2018+v7.pdf

Reading: RINGGIT Newsletter (January 2018 issue) is now available for download Share: RINGGIT Newsletter (January 2018 issue) is now available for download Release Date: 01 Jan 2018 The highlight for this month is Perkhidmatan Penyelesaian Pertikaian Kewangan Alternatif Other topics of interest include : Manfaatkan Pengeluaran Simpanan KWSP Anda Perlindungan Tenang Menangani Produk Insurans / Takaful Yang Kompleks RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - January/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I JAN 2 0 1 8 Hendak Meminjam atau Tidak? Perlindungan Tenang Menangani Produk Insurans / Takaful Yang Kompleks Perkhidmatan Penyelesaian Pertikaian Kewangan Alternatif PP 16897/05/2011 (029495) Manfaatkan Pengeluaran Simpanan KWSP Anda Penyelesaian pertikaian kewangan alternatif di Malaysia dikendalikan oleh Ombudsman Perkhidmatan Kewangan (OPK). Apakah OPK dan Matlamat OPK? OPK dahulunya dikenali sebagai Biro Pengantaraan Kewangan (BPK) adalah pengendali Skim Ombudsman1 Kewangan yang diluluskan oleh Bank Negara Malaysia (BNM) di bawah Seksyen 126 Akta Perkhidmatan Kewangan 2013, Seksyen 138 Akta Perkhidmatan Kewangan Islam 2013 dan Seksyen 123 Akta Institusi Kewangan Pembangunan 2002. Skim Ombudsman Kewangan ini mula diperkenalkan pada 1 Oktober 2016. Sebelum ini, penyelesaian pertikaian kewangan dilaksanakan oleh BPK semenjak 2005 berdasarkan konsep sukarela. OPK adalah badan penyelesaian pertikaian alternatif yang bebas untuk menyelesaikan pertikaian antara pengguna kewangan dan Penyedia Perkhidmatan Kewangan (PPK). Anggota OPK adalah PPK yang dilesenkan dan diluluskan oleh BNM termasuk institusi perbankan konvensional dan Islam, syarikat insurans dan pengendali takaful, institusi kewangan pembangunan, pengeluar instrument pembayaran, broker insurans / takaful dan penasihat kewangan. Buat masa ini OPK mempunyai 184 Anggota. Perkhidmatan Penyelesaian Pertikaian Kewangan Alternatif 1 ‘Ombudsman’ adalah istilah Scandinavia yang bermaksud orang atau badan bebas yang ditubuhkan untuk menyelesaikan perselisihan secara adil dan cepat selain daripada Mahkamah. Angotta OPK Pengeluar Instrumen Pembayaran Konvensional / Islam (34) Syarikat Takaful (11) Syarikat Insurans (32) Perbankan Islam (18) Bank Konvensional (27) Broker Insurans / Takaful (30) Institusi Kewangan Pembangunan (6) Penasihat Kewangan Konvensional / Islam (26) 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Penubuhan Skim Ombudsman Kewangan merupakan sebahagian daripada rangka kerja perlindungan pengguna kewangan. Ia bertujuan untuk menyediakan saluran penyelesaian alternatif yang bebas, saksama, cekap dan efektif kepada pengguna kewangan untuk menyelesaikan pertikaian berkaitan produk dan perkhidmatan yang disediakan oleh PPK. Perkhidmatan yang diberi adalah percuma kepada pengguna kewangan Sebagai satu mekanisme penyelesaian pertikaian, adalah menjadi matlamat OPK untuk terus mengukuhkan keyakinan dan kepercayaan pengguna terhadap sistem kewangan negara kita dan mengukuhkan disiplin pasaran (market discipline) dalam kalangan PPK. Bagaimanakah OPK memainkan peranannya sebagai mekanisme penyelesaian yang bebas dan efektif? Untuk mencapai mandatnya, OPK berpegang kepada enam (6) prinsip yang diiktiraf pada peringkat antarabangsa dalam pelaksanaan Skim Ombudsman Kewangan, seperti berikut: • kebebasan • keadilan dan kesaksamaan • kemudahan akses • kebertanggungjawaban • ketelusan • keberkesanan Tadbir urus korporat dan tatacara operasi OPK telah mengambil kira prinsip- prinsip tersebut. OPK diterajui oleh Lembaga Pengarah yang dianggotai oleh majoriti pengarah bebas. Ahli-ahli Lembaga Pengarah OPK juga mempunyai pengalaman luas dalam isu-isu pengguna, perkhidmatan kewangan dan badan kehakiman Malaysia. OPK juga beroperasi berdasarkan terma rujukan Skim Ombudsman Kewangan yang diluluskan oleh BNM yang merangkumi tatacara perjalanan Skim Ombudsman Kewangan berdasarkan enam (6) prinsip di atas. Perkhidmatan Penyelesaian Pertikaian yang disediakan oleh OPK adalah PERCUMA. Pengguna tidak perlu melantik peguam untuk perkhidmatan ini. Perkhidmatan Penyelesaian Pertikaian Jan 2018 | 3 OPK amat menitik berat proses pengurusan kes, iaitu Pengurus Kes akan membuat penilaian terhadap kes berdasarkan maklumat dan dokumen-dokumen yang diterima daripada kedua-dua pihak atau informasi menerusi temu bual atau perjumpaan bersemuka. Menerusi proses ini OPK dapat mengenal pasti penambahbaikan atau cadangan yang boleh disarankan kepada PPK dalam penyampaian perkhidmatan kewangan. Bagi pihak pengadu, OPK memainkan peranan penting dalam mengenal pasti jurang dalam pengetahuan pengguna terhadap perkhidmatan kewangan yang digunakan dan bertindak untuk meningkatkan kesedaran pengguna. Ini bertujuan untuk meningkatkan pengetahuan kewangan dan kemahiran kerana apabila pengguna memahami ciri-ciri produk dan transaksi kewangan, mereka boleh membuat keputusan yang tepat dan mengetahui hak dan tanggungjawab mereka. Apakah jenis aduan / pertikaian yang boleh dirujuk kepada OPK? OPK menerima semua aduan, pertikaian dan tuntutan yang tertakluk di bawah bidang kuasa OPK. a) Siapa yang layak untuk merujuk pertikaian ke OPK Pengguna kewangan yang layak ialah mereka yang mengguna atau telah menggunakan mana-mana perkhidmatan kewangan atau produk yang disediakan oleh PPK bagi maksud persendirian, domestik atau isi rumah atau berkaitan dengan suatu perniagaan kecil sebagaimana definisi dalam “Garis Panduan Definisi Baru PKS” yang disediakan oleh SME Corporation Malaysia. Pengguna kewangan juga termasuk:- • orang yang diinsuranskan di bawah insurans berkelompok; • orang yang dilindungi di bawah takaful berkelompok; • pihak ketiga yang merupakan orang yang membuat tuntutan polisi insurans atau takaful motor bagi kerosakan harta benda pihak ketiga; • penjamin bagi kemudahan kredit yang diberi oleh seorang Anggota; • penama atau benefisiari di bawah suatu polisi hayat / sijil takaful keluarga atau suatu polisi kemalangan diri / sijil takaful kemalangan diri; • orang yang diinsuranskan dan benefisiari orang yang diinsuranskan di bawah kumpulan insurans. b) Had nilai kewangan untuk pertikaian yang boleh dirujuk adalah seperti berikut: Kehilangan kewangan langsung (Direct Financial Losses) berdasarkan had monetari ditetapkan seperti berikut: JENIS PERTIKAIAN HAD MONETARI Produk / Perkhidmatan Perbankan dan Tuntutan InsuransTakaful RM250,000.00 Kerosakan Harta Benda Pihak Ketiga Bagi Insurans / Takaful motor RM10,000.00 Pertikaian mengenai: (a) Transaksi tanpa kebenaran melalui internet, telefon, atau ATM; atau (b) Penggunaan Cek Tanpa Kebenaran RM25,000.00 c) Had masa untuk merujuk pertikaian Sebelum sesuatu pertikaian dirujuk kepada OPK, pengadu / pengguna perlu merujuk aduan / pertikaian mereka kepada PPK untuk tujuan mendapatkan suatu penyelesaian yang terbaik. Sekiranya pertikaian tersebut tidak dapat diselesaikan secara konsensus, pengadu boleh merujuk aduan ke OPK selepas mendapat keputusan daripada PPK. Pengguna boleh merujuk aduan / pertikaian kepada OPK:- (i) dalam tempoh enam (6) bulan dari tarikh keputusan muktamad diterima daripada PPK; atau (ii) selepas tempoh enam puluh (60) hari dari tarikh aduan pertama dirujuk kepada PPK berkenaan sekiranya pengguna belum menerima maklum balas daripada PPK tersebut. 4 | RINGGIT Pertikaian Luar Skop OPK Ciri-Ciri Produk & Perkhidmatan Keputusan Kredit Pengunderaitan Tuntutan Kecederaan Tubuh Badan / Kematian Pihak Ketiga Yang Sudah Dirujuk ke Mahkamah / Timbang Tara Aduan Yang Melebihi Masa di Bawah Akta Had Masa 1953, Ordinan Masa (Sabah) (Bab 72); atau Ordinan Had Masa (Sarawak) (Bab. 49) & T Bagaimanakah OPK menyelesaikan sesuatu pertikaian? Cara Mengemukakan Aduan d) Pertikaian luar skop OPK enquiry@ofs.org.my 03 - 2272 2811 Ombudsman for Financial Services Tingkat 14, Blok Utama, Menara Takaful Malaysia, No 4, Jalan Sultan SUlaiman, 50000 Kuala Lumpur 03 - 2272 1577 / 03 - 2274 5752 Jan 2018 | 5 Kumpulan Wang Simpanan Pekerja (KWSP) telah mewujudkan pelbagai jenis pengeluaran yang boleh dimanfaatkan oleh pencarumnya. Pengeluaran ini untuk membantu pencarum dalam menghadapi pelbagai keadaan dan tujuan. Antara jenis pengeluaran yang disediakan oleh KWSP adalah seperti berikut: Manfaatkan Pengeluaran Simpanan KWSP Anda Pengeluaran simpanan apabila ahli mencapai umur 60 tahun. (Peluasan kepada Pengeluaran Umur 55 Tahun sedia ada selaras dengan umur persaraan minimum 60 tahun.) Amaun Kelayakan Pengeluaran Apa-apa amaun pada bila-bila masa Pilihan Kaedah Bayaran i. Kesemua / sebahagian ii. Bayaran bulanan iii. Kombinasi iv. Dividen Tahunan Pengeluaran Kesemua Simpanan (Akaun 1&2) Pengeluaran simpanan apabila ahli mencapai umur 55 tahun. Amaun Kelayakan Pengeluaran Apa-apa amaun pada bila-bila masa Pilihan Kaedah Bayaran i. Kesemua / sebahagian ii. Bayaran bulanan iii. Kombinasi iv. Dividen Tahunan Pengeluaran simpanan bagi ahli yang tidak berupaya dari segi fizikal / mental / kehilangan keupayaan fungsi kekal untuk memperolehi pekerjaan. Amaun Kelayakan Pengeluaran Kesemua simpanan berserta dengan amaun bayaran Bantuan Hilang Upaya (RM5,000) jika memenuhi syarat pengeluaran. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Hilang Upaya Warganegara Malaysia yang telah melepaskan atau melucutkan taraf kewarganegaraan untuk berhijrah ke negara lain atau bukan warganegara Malaysia yang telah berhenti kerja dan akan meninggalkan Malaysia. Amaun Kelayakan Pengeluaran Kesemua simpanan. Pilihan Kaedah Bayaran Dibayar sekali gus. Amaun Kelayakan Pengeluaran Kesemua caruman pekerja berserta dividen sekiranya masih mempunyai baki simpanan di KWSP setelah pengembalian caruman syer kerajaan kepada Kumpulan Wang Persaraan (Diperbadankan) (KWAP). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran untuk mengagihkan simpanan KWSP kepada penama / waris / Pemegang Amanah / Pentadbir Pusaka yang layak setelah kematian ahli. Amaun Kelayakan Pengeluaran Kesemua simpanan berserta dengan amaun bayaran Bantuan Kematian (RM2,500) jika memenuhi syarat pengeluaran. Pilihan Kaedah Bayaran Dibayar sekali gus. Penjawat awam yang telah diberi taraf pekerja berpencen. Ahli yang memilih untuk bersara awal dari Perkhidmatan Awam. Pengeluaran Meninggalkan Negara Pengeluaran Kematian Pekerja Berpencen Pesara Pilihan Pengeluaran Umur 60 Tahun Pengeluaran Umur 55 Tahun 6 | RINGGIT Pengeluaran simpanan apabila mencapai umur 50 tahun. Amaun Kelayakan Pengeluaran Kesemua / sebahagian simpanan. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Sebahagian Simpanan (Akaun 2) Pilihan kepada ahli yang mempunyai simpanan sekurang-kurangnya RM1.05 juta mengeluarkan lebihan simpanan berkenaan untuk diuruskan sendiri. Amaun Kelayakan Pengeluaran Amaun minimum pengeluaran RM50,000 dari Akaun 2 dan jika tidak mencukupi akan diambil dari Akaun 1. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai kos pengajian ahli / anak ahli di Institut Pengajian Tinggi (IPT) di dalam atau di luar negara. Amaun Kelayakan Pengeluaran Yuran pengajian / kesemua simpanan Akaun 2 (mana yang terendah). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai kos rawatan perubatan penyakit kritikal dan / atau pembelian peralatan bantuan kesihatan yang diluluskan oleh Lembaga KWSP yang dihidapi oleh ahli atau ahli keluarga yang dibenarkan. Amaun Kelayakan Pengeluaran Kos perubatan sebenar / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran untuk menampung perbelanjaan asas mengerjakan Haji dan bukan kos keseluruhan Haji. Amaun Kelayakan Pengeluaran Perbezaan jumlah kos Haji dengan baki simpanan akaun Lembaga Tabung Haji (LTH) ahli tertakluk kepada amaun maksimum RM3,000 atau baki Akaun 2 (mana yang terendah). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Kesihatan Pengeluaran Pendidikan Pengeluaran Simpanan Melebihi RM1 Juta Pengeluaran Haji Pengeluaran Umur 50 Tahun Jan 2018 | 7 Maklumat di atas hanya sebagai panduan. Untuk mengetahui maklumat lebih lanjut, sila layari laman sesawang www.kwsp.gov.my Sumber : Kumpulan Wang Simpanan Pekerja Pengeluaran simpanan untuk membiayai pembelian / pembinaan sebuah rumah. Amaun Kelayakan Pengeluaran (Harga rumah - jumlah pinjaman) + 10% harga rumah / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Sebahagian Simpanan (Akaun 2) - untuk Perumahan Pengeluaran simpanan untuk mengurang / menyelesaikan baki pinjaman perumahan yang diambil daripada institusi pemberi pinjaman secara individu atau bersama dengan ahli keluarga terdekat. Amaun Kelayakan Pengeluaran Jumlah baki pinjaman perumahan / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai ansuran bulanan pinjaman perumahan bagi tujuan pembelian/pembinaan rumah. Amaun Kelayakan Pengeluaran Jumlah baki pinjaman perumahan/ kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Bayaran bulanan. Simpanan akan dihadang / diketepikan ke Akaun Pengeluaran Perumahan Fleksibel bagi membantu ahli mendapatkan pinjaman perumahan yang lebih tinggi untuk membeli/membina rumah. Amaun Kelayakan Pengeluaran Tiada amaun pengeluaran kerana simpanan dihadang di dalam Akaun KWSP. Pilihan Kaedah Bayaran: NIL Pengeluaran untuk membantu ahli memiliki sebuah rumah di bawah Skim Perumahan Rakyat 1 Malaysia (PR1MA) melalui hadangan simpanan Akaun 2. Amaun Kelayakan Pengeluaran Tiada amaun pengeluaran kerana simpanan dihadang di dalam Akaun KWSP. Pilihan Kaedah Bayaran: NIL PR1MA Pengeluaran Perumahan Fleksibel Pengeluaran untuk Ansuran Bulanan Pinjaman Perumahan Pengeluaran untuk Mengurang / Menyelesaikan Baki Pinjaman Perumahan Pengeluaran Perumahan PR1MA Pengeluaran untuk Membeli / Membina Rumah Pemindahan Simpanan KWSP Bagi Tujuan Pelaburan (Akaun 1) Skim Pelaburan Ahli Pemindahan simpanan bagi tujuan pelaburan untuk membantu ahli meningkatkan simpanan KWSP. Amaun Kelayakan Pengeluaran: Maksimum sehingga 30% daripada jumlah simpanan yang melebihi Simpanan Asas dalam Akaun 1. Pilihan Kaedah Bayaran: Dibayar sekali gus kepada Institusi Pengurusan Dana (IPD) yang diluluskan. 8 | RINGGIT Apa yang anda_ _ perlu tahu tentang p|njaman" Contoh . Anda dlberl satu kad kredlt dengan had kredlt sebanyak RM3,0o0. Jlka anda telah membelanjakan RM1,000 dengan kad kredlt tersebut, maka RM1,oOO SEBELUM krodlt sodla ads SELEPAS I-VIUTANG Sebelurn Meminjam Fikirkan illt-‘_;._,1'('.'._7'_._.4 Pin].-urn hanyn untuk Iujunn produktll suhnjn lain: tujunn unluk vnnnnnnbnh nIln| hnrln bnvalh s:onorK|n\nn\bolIrun\.1h. tnnnh dnn scbngnlnya. Instltusl kovvnngnn borlosnn. lernnxsuk bank pord.1qang.'In yang dllcsonkan oleh Bank Ncgnrn Malaysia (BNM) ununyodlnkun kt.-rnudnhnn krodlt knpndn ornng rnnuni. Unluk n\ond.1p.'\Ik.1n .-.on.'\rnI ponuh lnslltusl kowanqan b<.-vlcscn. :.||:u layarl Iavnan sosnvvnng IJNPI dl bald kcmudahan krodlt Adnlnh d|s.'sr.3nkan[un1l.1h pcrnbaynrnn bulannn sornua hulnng lldnk rrwolublhi 40".. (horlpndn poudnpnlnn Lvoralh nndn (snlopns polonqnn cuknl. PERKESO dnn KVVSP). ..'-.1.v.:.2 Kopor.1.'.|.1d.1Inh dlknwnl solin oloh Suruhnrunyn Kopernst Malaysia db bawnh Kc.-I1'Ic-ntcrian Purdnqungnn Dnluvn Nuqurl, Konnrnsl dun Knpnnqqunnnn, Ahll kopornsl boloh rnornlnjnns darlpndn kopernsl rn.-using-rnnslnq bcrdnsnrknn kvitorla kolnynkan yang tolnh dltulupknn oloh punguruv..'nI koporasl uvrsohul. £4. '\.--.~.Z. I ifi -§._ a ang. 5T ‘m’ .-.1-:,.i Porlk-snlnh krodlbllfll andn unluk rnurnohon pinjnnuun. L.IportIn CCPIS hnrus dlpnrlkvun. | , Pcrn|nj.1n1 vvnng bcrloson t1||a_v-u,-nknn olvh Kurnuntnt-rlnn Koxujnhlnvnnu Bnndnr. Dorunvahan dnn Kor:u|.1.1n Tonxpntnn untuk rncnnwarknn plnlnrnan kep.-ndn or.-ng ranwa-1|. Untuk rncndapatkan sonarnn nvnuh in-stilusl kc.-vvongnn burlunun. slln luyarl Inrniun sosnv-vnnu KDKT dl fflerek.-I rncnnwarkan plnjnrnan tnnpa cagaran pad.‘-n kndnr faedah yang sangat tlnggl. dcngan tonne dan syarat yang kct.-It dnn tldnk joins Al<PKofflclal Perlindungan Tenang Menangani Produk Insurans / Takaful Yang Kompleks Produk insurans dan takaful yang ada pada masa ini terlalu kompleks dan tidak mampu dimiliki sebahagian besar rakyat Malaysia. Kadar penembusan insurans hayat dan takaful keluarga di Malaysia kini berada pada 36.5%. Berbanding dengan negara maju, sebahagian besar daripada rakyat Malaysia masih lagi tidak memahami atau mementingkan perlindungan insurans dan takaful. Bagi mengatasi masalah ini, Bank Negara Malaysia (BNM), dengan kerjasama industri insurans dan takaful telah memperkenalkan “Perlindungan Tenang”. Ia bertujuan untuk memenuhi permintaan segmen isi rumah yang masih belum mempunyai perlindungan insurans / takaful, terutamanya golongan berpendapatan rendah. Produk di bawah Perlindungan Tenang ini merangkumi tiga kriteria, iaitu mampu milik, mudah difahami dan proses tuntutan yang mudah. Produk Perlindungan Tenang boleh dibeli dan sesuai untuk orang ramai, tetapi yang paling utamanya adalah diharapkan bahawa produk ini akan mencapai 8 juta rakyat Malaysia pada umur bekerja dan lebih 700,000 perusahaan mikro, yang memerlukan perlindungan insurans dan takaful bagi perlindungan terhadap risiko utama. Pada masa ini, tujuh syarikat insurans dan tiga pengendali takaful telah membangunkan produk Perlindungan Tenang. Untuk senarai lengkap produk, pihak awam boleh melayari laman sesawang persatuan industri insurans dan takaful iaitu www.liam.org.my, www.malaysiantakaful.com.my ataupun www.piam.org.my. Pihak awam boleh mengenal pasti produk Perlindungan Tenang menggunakan logo yang dipaparkan di atas. Dalam usaha untuk menerangkan tentang pentingnya perlindungan insurans dan takaful melalui Perlindungan Tenang, BNM akan menggiatkan kempen kesedaran dan program pendidikan, melalui pelbagai saluran dan platform. Selain itu, inisiatif itu turut menyasarkan peningkatan kadar pemilikan insurans dan takaful dalam kalangan rakyat kepada 75 peratus menjelang 2020. Perlindungan Tenang telah dilancarkan oleh Bank Negara Malaysia di Karnival Kewangan Sarawak 2017. Sumber: FOMCA 10 | RINGGIT Jan 2018 | 11 ADAKAH ANDA MANGSA KEJADIAN BANJIR BARU-BARU INI? Pelbagai bantuan yang disediakan oleh Bank Negara Malaysia dan institusi kewangan bagi meringankan beban individu dan perniagaan yang terjejas akibat bencana banjir: BANTUAN OLEH INSTITUSI PERBANKAN BANTUAN OLEH SYARIKAT INSURANS & PENGENDALI TAKAFUL > Penangguhan bayaran balik pinjaman dan pembiayaan > Penstrukturan dan penjadualan semula pinjaman dan pembiayaan > Pelepasan bayaran untuk penggantian kad-kad pembayaran (Kad ATM, kredit, debit) > Permohonan Skim Penyelesaian Pinjaman Kecil (Small Debt Resolution Scheme) untuk Perusahaan Kecil dan Sederhana (PKS) yang menghadapi masalah kewangan akibat bajir > Menyegera proses tuntutan dengan memberi fleksibiliti terhadap pelepasan dokumen yang musnah akibat banjir > Fleksibiliti untuk bayaran premium > Mengurangkan atau melepaskan faedah ke atas pinjaman polisi dan Pinjaman Premium Automatik (APL) > Pengecualian bayaran untuk penggantian polisi dan kad-kad perubatan The Association of Banks in Malaysia (ABM): 1300-88-9980 Association of Islamic Banking Institutions Malaysia (ABIM): 03-2026 8002 Association of Development Financial Institution of Malaysia (ADFIM): 03-2694 9871 UNTUK MAKLUMAT LANJUT, SILA HUBUNGI: Life Insurance Association of Malaysia (LIAM): 03-2691 6168 Persatuan Insurans Am Malaysia (PIAM): 03-2274 7399 Malaysian Takaful Association (MTA): 03-2031 8160 *Tertakluk kepada syarat-syarat perbankan

Public Notice

31 Dec 2019

Policy Document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs)

https://www.bnm.gov.my/-/policy-doc-amlcft-tfs-for-fis-31122019

https://www.bnm.gov.my/documents/20124/938039/AMLCFT+PD.pdf

Reading: Policy Document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) Share: Policy Document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions (AML/CFT and TFS for FIs) Release Date: 31 Dec 2019 The AML/CFT and TFS for FIs is a revision of the existing AML/CFT Sector 1 to 4 policy documents. This policy document also consolidates the four sectors-specific policy documents into a single policy document. This policy document sets out the responsibilities and obligations of reporting institutions imposed under the AMLA. Reporting institutions are expected to fulfil the requirement of implementing risk-based approach in managing ML/TF risks and to comply with the targeted financial sanctions requirements. See more: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Financial Institutions   © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

31 Dec 2019

Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs)

https://www.bnm.gov.my/-/amlcft-and-targeted-financial-sanctions-for-dnfbps-nbfis

https://www.bnm.gov.my/documents/20124/761679/AMLCFT+and+TFS+for+DNFBPs+and+NBFIs.pdf

Reading: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs) Share: 5 Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs) Release Date: 31 Dec 2019 Bank Negara Malaysia has issued the revised policy document on Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs) today. This policy document sets out obligations of reporting institutions with respect to the requirements imposed under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), implementation of a comprehensive risk-based approach in managing money laundering and terrorism financing risks and requirements on targeted financial sanctions. The policy document come into effect on 1 January 2020 and supersedes the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Designated Non-Financial Businesses and Professions (DNFBPs) & Other Non-Financial Sectors (Sector 5) issued on 1 November 2013. See more: Anti-Money Laundering, Countering Financing of Terrorism and Targeted Financial Sanctions for Designated Non-Financial Businesses and Professions (DNFBPs) & Non-Bank Financial Institutions (NBFIs) (AML/CFT and TFS for DNFBPs and NBFIs)   © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I JAN 2 0 1 8 Hendak Meminjam atau Tidak? Perlindungan Tenang Menangani Produk Insurans / Takaful Yang Kompleks Perkhidmatan Penyelesaian Pertikaian Kewangan Alternatif PP 16897/05/2011 (029495) Manfaatkan Pengeluaran Simpanan KWSP Anda Penyelesaian pertikaian kewangan alternatif di Malaysia dikendalikan oleh Ombudsman Perkhidmatan Kewangan (OPK). Apakah OPK dan Matlamat OPK? OPK dahulunya dikenali sebagai Biro Pengantaraan Kewangan (BPK) adalah pengendali Skim Ombudsman1 Kewangan yang diluluskan oleh Bank Negara Malaysia (BNM) di bawah Seksyen 126 Akta Perkhidmatan Kewangan 2013, Seksyen 138 Akta Perkhidmatan Kewangan Islam 2013 dan Seksyen 123 Akta Institusi Kewangan Pembangunan 2002. Skim Ombudsman Kewangan ini mula diperkenalkan pada 1 Oktober 2016. Sebelum ini, penyelesaian pertikaian kewangan dilaksanakan oleh BPK semenjak 2005 berdasarkan konsep sukarela. OPK adalah badan penyelesaian pertikaian alternatif yang bebas untuk menyelesaikan pertikaian antara pengguna kewangan dan Penyedia Perkhidmatan Kewangan (PPK). Anggota OPK adalah PPK yang dilesenkan dan diluluskan oleh BNM termasuk institusi perbankan konvensional dan Islam, syarikat insurans dan pengendali takaful, institusi kewangan pembangunan, pengeluar instrument pembayaran, broker insurans / takaful dan penasihat kewangan. Buat masa ini OPK mempunyai 184 Anggota. Perkhidmatan Penyelesaian Pertikaian Kewangan Alternatif 1 ‘Ombudsman’ adalah istilah Scandinavia yang bermaksud orang atau badan bebas yang ditubuhkan untuk menyelesaikan perselisihan secara adil dan cepat selain daripada Mahkamah. Angotta OPK Pengeluar Instrumen Pembayaran Konvensional / Islam (34) Syarikat Takaful (11) Syarikat Insurans (32) Perbankan Islam (18) Bank Konvensional (27) Broker Insurans / Takaful (30) Institusi Kewangan Pembangunan (6) Penasihat Kewangan Konvensional / Islam (26) 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Siti Rahayu binti Zakaria Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Penubuhan Skim Ombudsman Kewangan merupakan sebahagian daripada rangka kerja perlindungan pengguna kewangan. Ia bertujuan untuk menyediakan saluran penyelesaian alternatif yang bebas, saksama, cekap dan efektif kepada pengguna kewangan untuk menyelesaikan pertikaian berkaitan produk dan perkhidmatan yang disediakan oleh PPK. Perkhidmatan yang diberi adalah percuma kepada pengguna kewangan Sebagai satu mekanisme penyelesaian pertikaian, adalah menjadi matlamat OPK untuk terus mengukuhkan keyakinan dan kepercayaan pengguna terhadap sistem kewangan negara kita dan mengukuhkan disiplin pasaran (market discipline) dalam kalangan PPK. Bagaimanakah OPK memainkan peranannya sebagai mekanisme penyelesaian yang bebas dan efektif? Untuk mencapai mandatnya, OPK berpegang kepada enam (6) prinsip yang diiktiraf pada peringkat antarabangsa dalam pelaksanaan Skim Ombudsman Kewangan, seperti berikut: • kebebasan • keadilan dan kesaksamaan • kemudahan akses • kebertanggungjawaban • ketelusan • keberkesanan Tadbir urus korporat dan tatacara operasi OPK telah mengambil kira prinsip- prinsip tersebut. OPK diterajui oleh Lembaga Pengarah yang dianggotai oleh majoriti pengarah bebas. Ahli-ahli Lembaga Pengarah OPK juga mempunyai pengalaman luas dalam isu-isu pengguna, perkhidmatan kewangan dan badan kehakiman Malaysia. OPK juga beroperasi berdasarkan terma rujukan Skim Ombudsman Kewangan yang diluluskan oleh BNM yang merangkumi tatacara perjalanan Skim Ombudsman Kewangan berdasarkan enam (6) prinsip di atas. Perkhidmatan Penyelesaian Pertikaian yang disediakan oleh OPK adalah PERCUMA. Pengguna tidak perlu melantik peguam untuk perkhidmatan ini. Perkhidmatan Penyelesaian Pertikaian Jan 2018 | 3 OPK amat menitik berat proses pengurusan kes, iaitu Pengurus Kes akan membuat penilaian terhadap kes berdasarkan maklumat dan dokumen-dokumen yang diterima daripada kedua-dua pihak atau informasi menerusi temu bual atau perjumpaan bersemuka. Menerusi proses ini OPK dapat mengenal pasti penambahbaikan atau cadangan yang boleh disarankan kepada PPK dalam penyampaian perkhidmatan kewangan. Bagi pihak pengadu, OPK memainkan peranan penting dalam mengenal pasti jurang dalam pengetahuan pengguna terhadap perkhidmatan kewangan yang digunakan dan bertindak untuk meningkatkan kesedaran pengguna. Ini bertujuan untuk meningkatkan pengetahuan kewangan dan kemahiran kerana apabila pengguna memahami ciri-ciri produk dan transaksi kewangan, mereka boleh membuat keputusan yang tepat dan mengetahui hak dan tanggungjawab mereka. Apakah jenis aduan / pertikaian yang boleh dirujuk kepada OPK? OPK menerima semua aduan, pertikaian dan tuntutan yang tertakluk di bawah bidang kuasa OPK. a) Siapa yang layak untuk merujuk pertikaian ke OPK Pengguna kewangan yang layak ialah mereka yang mengguna atau telah menggunakan mana-mana perkhidmatan kewangan atau produk yang disediakan oleh PPK bagi maksud persendirian, domestik atau isi rumah atau berkaitan dengan suatu perniagaan kecil sebagaimana definisi dalam “Garis Panduan Definisi Baru PKS” yang disediakan oleh SME Corporation Malaysia. Pengguna kewangan juga termasuk:- • orang yang diinsuranskan di bawah insurans berkelompok; • orang yang dilindungi di bawah takaful berkelompok; • pihak ketiga yang merupakan orang yang membuat tuntutan polisi insurans atau takaful motor bagi kerosakan harta benda pihak ketiga; • penjamin bagi kemudahan kredit yang diberi oleh seorang Anggota; • penama atau benefisiari di bawah suatu polisi hayat / sijil takaful keluarga atau suatu polisi kemalangan diri / sijil takaful kemalangan diri; • orang yang diinsuranskan dan benefisiari orang yang diinsuranskan di bawah kumpulan insurans. b) Had nilai kewangan untuk pertikaian yang boleh dirujuk adalah seperti berikut: Kehilangan kewangan langsung (Direct Financial Losses) berdasarkan had monetari ditetapkan seperti berikut: JENIS PERTIKAIAN HAD MONETARI Produk / Perkhidmatan Perbankan dan Tuntutan InsuransTakaful RM250,000.00 Kerosakan Harta Benda Pihak Ketiga Bagi Insurans / Takaful motor RM10,000.00 Pertikaian mengenai: (a) Transaksi tanpa kebenaran melalui internet, telefon, atau ATM; atau (b) Penggunaan Cek Tanpa Kebenaran RM25,000.00 c) Had masa untuk merujuk pertikaian Sebelum sesuatu pertikaian dirujuk kepada OPK, pengadu / pengguna perlu merujuk aduan / pertikaian mereka kepada PPK untuk tujuan mendapatkan suatu penyelesaian yang terbaik. Sekiranya pertikaian tersebut tidak dapat diselesaikan secara konsensus, pengadu boleh merujuk aduan ke OPK selepas mendapat keputusan daripada PPK. Pengguna boleh merujuk aduan / pertikaian kepada OPK:- (i) dalam tempoh enam (6) bulan dari tarikh keputusan muktamad diterima daripada PPK; atau (ii) selepas tempoh enam puluh (60) hari dari tarikh aduan pertama dirujuk kepada PPK berkenaan sekiranya pengguna belum menerima maklum balas daripada PPK tersebut. 4 | RINGGIT Pertikaian Luar Skop OPK Ciri-Ciri Produk & Perkhidmatan Keputusan Kredit Pengunderaitan Tuntutan Kecederaan Tubuh Badan / Kematian Pihak Ketiga Yang Sudah Dirujuk ke Mahkamah / Timbang Tara Aduan Yang Melebihi Masa di Bawah Akta Had Masa 1953, Ordinan Masa (Sabah) (Bab 72); atau Ordinan Had Masa (Sarawak) (Bab. 49) & T Bagaimanakah OPK menyelesaikan sesuatu pertikaian? Cara Mengemukakan Aduan d) Pertikaian luar skop OPK enquiry@ofs.org.my 03 - 2272 2811 Ombudsman for Financial Services Tingkat 14, Blok Utama, Menara Takaful Malaysia, No 4, Jalan Sultan SUlaiman, 50000 Kuala Lumpur 03 - 2272 1577 / 03 - 2274 5752 Jan 2018 | 5 Kumpulan Wang Simpanan Pekerja (KWSP) telah mewujudkan pelbagai jenis pengeluaran yang boleh dimanfaatkan oleh pencarumnya. Pengeluaran ini untuk membantu pencarum dalam menghadapi pelbagai keadaan dan tujuan. Antara jenis pengeluaran yang disediakan oleh KWSP adalah seperti berikut: Manfaatkan Pengeluaran Simpanan KWSP Anda Pengeluaran simpanan apabila ahli mencapai umur 60 tahun. (Peluasan kepada Pengeluaran Umur 55 Tahun sedia ada selaras dengan umur persaraan minimum 60 tahun.) Amaun Kelayakan Pengeluaran Apa-apa amaun pada bila-bila masa Pilihan Kaedah Bayaran i. Kesemua / sebahagian ii. Bayaran bulanan iii. Kombinasi iv. Dividen Tahunan Pengeluaran Kesemua Simpanan (Akaun 1&2) Pengeluaran simpanan apabila ahli mencapai umur 55 tahun. Amaun Kelayakan Pengeluaran Apa-apa amaun pada bila-bila masa Pilihan Kaedah Bayaran i. Kesemua / sebahagian ii. Bayaran bulanan iii. Kombinasi iv. Dividen Tahunan Pengeluaran simpanan bagi ahli yang tidak berupaya dari segi fizikal / mental / kehilangan keupayaan fungsi kekal untuk memperolehi pekerjaan. Amaun Kelayakan Pengeluaran Kesemua simpanan berserta dengan amaun bayaran Bantuan Hilang Upaya (RM5,000) jika memenuhi syarat pengeluaran. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Hilang Upaya Warganegara Malaysia yang telah melepaskan atau melucutkan taraf kewarganegaraan untuk berhijrah ke negara lain atau bukan warganegara Malaysia yang telah berhenti kerja dan akan meninggalkan Malaysia. Amaun Kelayakan Pengeluaran Kesemua simpanan. Pilihan Kaedah Bayaran Dibayar sekali gus. Amaun Kelayakan Pengeluaran Kesemua caruman pekerja berserta dividen sekiranya masih mempunyai baki simpanan di KWSP setelah pengembalian caruman syer kerajaan kepada Kumpulan Wang Persaraan (Diperbadankan) (KWAP). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran untuk mengagihkan simpanan KWSP kepada penama / waris / Pemegang Amanah / Pentadbir Pusaka yang layak setelah kematian ahli. Amaun Kelayakan Pengeluaran Kesemua simpanan berserta dengan amaun bayaran Bantuan Kematian (RM2,500) jika memenuhi syarat pengeluaran. Pilihan Kaedah Bayaran Dibayar sekali gus. Penjawat awam yang telah diberi taraf pekerja berpencen. Ahli yang memilih untuk bersara awal dari Perkhidmatan Awam. Pengeluaran Meninggalkan Negara Pengeluaran Kematian Pekerja Berpencen Pesara Pilihan Pengeluaran Umur 60 Tahun Pengeluaran Umur 55 Tahun 6 | RINGGIT Pengeluaran simpanan apabila mencapai umur 50 tahun. Amaun Kelayakan Pengeluaran Kesemua / sebahagian simpanan. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Sebahagian Simpanan (Akaun 2) Pilihan kepada ahli yang mempunyai simpanan sekurang-kurangnya RM1.05 juta mengeluarkan lebihan simpanan berkenaan untuk diuruskan sendiri. Amaun Kelayakan Pengeluaran Amaun minimum pengeluaran RM50,000 dari Akaun 2 dan jika tidak mencukupi akan diambil dari Akaun 1. Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai kos pengajian ahli / anak ahli di Institut Pengajian Tinggi (IPT) di dalam atau di luar negara. Amaun Kelayakan Pengeluaran Yuran pengajian / kesemua simpanan Akaun 2 (mana yang terendah). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai kos rawatan perubatan penyakit kritikal dan / atau pembelian peralatan bantuan kesihatan yang diluluskan oleh Lembaga KWSP yang dihidapi oleh ahli atau ahli keluarga yang dibenarkan. Amaun Kelayakan Pengeluaran Kos perubatan sebenar / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran untuk menampung perbelanjaan asas mengerjakan Haji dan bukan kos keseluruhan Haji. Amaun Kelayakan Pengeluaran Perbezaan jumlah kos Haji dengan baki simpanan akaun Lembaga Tabung Haji (LTH) ahli tertakluk kepada amaun maksimum RM3,000 atau baki Akaun 2 (mana yang terendah). Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Kesihatan Pengeluaran Pendidikan Pengeluaran Simpanan Melebihi RM1 Juta Pengeluaran Haji Pengeluaran Umur 50 Tahun Jan 2018 | 7 Maklumat di atas hanya sebagai panduan. Untuk mengetahui maklumat lebih lanjut, sila layari laman sesawang www.kwsp.gov.my Sumber : Kumpulan Wang Simpanan Pekerja Pengeluaran simpanan untuk membiayai pembelian / pembinaan sebuah rumah. Amaun Kelayakan Pengeluaran (Harga rumah - jumlah pinjaman) + 10% harga rumah / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran Sebahagian Simpanan (Akaun 2) - untuk Perumahan Pengeluaran simpanan untuk mengurang / menyelesaikan baki pinjaman perumahan yang diambil daripada institusi pemberi pinjaman secara individu atau bersama dengan ahli keluarga terdekat. Amaun Kelayakan Pengeluaran Jumlah baki pinjaman perumahan / kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Dibayar sekali gus. Pengeluaran simpanan untuk membiayai ansuran bulanan pinjaman perumahan bagi tujuan pembelian/pembinaan rumah. Amaun Kelayakan Pengeluaran Jumlah baki pinjaman perumahan/ kesemua simpanan Akaun 2 (mana yang terendah) Pilihan Kaedah Bayaran Bayaran bulanan. Simpanan akan dihadang / diketepikan ke Akaun Pengeluaran Perumahan Fleksibel bagi membantu ahli mendapatkan pinjaman perumahan yang lebih tinggi untuk membeli/membina rumah. Amaun Kelayakan Pengeluaran Tiada amaun pengeluaran kerana simpanan dihadang di dalam Akaun KWSP. Pilihan Kaedah Bayaran: NIL Pengeluaran untuk membantu ahli memiliki sebuah rumah di bawah Skim Perumahan Rakyat 1 Malaysia (PR1MA) melalui hadangan simpanan Akaun 2. Amaun Kelayakan Pengeluaran Tiada amaun pengeluaran kerana simpanan dihadang di dalam Akaun KWSP. Pilihan Kaedah Bayaran: NIL PR1MA Pengeluaran Perumahan Fleksibel Pengeluaran untuk Ansuran Bulanan Pinjaman Perumahan Pengeluaran untuk Mengurang / Menyelesaikan Baki Pinjaman Perumahan Pengeluaran Perumahan PR1MA Pengeluaran untuk Membeli / Membina Rumah Pemindahan Simpanan KWSP Bagi Tujuan Pelaburan (Akaun 1) Skim Pelaburan Ahli Pemindahan simpanan bagi tujuan pelaburan untuk membantu ahli meningkatkan simpanan KWSP. Amaun Kelayakan Pengeluaran: Maksimum sehingga 30% daripada jumlah simpanan yang melebihi Simpanan Asas dalam Akaun 1. Pilihan Kaedah Bayaran: Dibayar sekali gus kepada Institusi Pengurusan Dana (IPD) yang diluluskan. 8 | RINGGIT Apa yang anda_ _ perlu tahu tentang p|njaman" Contoh . Anda dlberl satu kad kredlt dengan had kredlt sebanyak RM3,0o0. Jlka anda telah membelanjakan RM1,000 dengan kad kredlt tersebut, maka RM1,oOO SEBELUM krodlt sodla ads SELEPAS I-VIUTANG Sebelurn Meminjam Fikirkan illt-‘_;._,1'('.'._7'_._.4 Pin].-urn hanyn untuk Iujunn produktll suhnjn lain: tujunn unluk vnnnnnnbnh nIln| hnrln bnvalh s:onorK|n\nn\bolIrun\.1h. tnnnh dnn scbngnlnya. Instltusl kovvnngnn borlosnn. lernnxsuk bank pord.1qang.'In yang dllcsonkan oleh Bank Ncgnrn Malaysia (BNM) ununyodlnkun kt.-rnudnhnn krodlt knpndn ornng rnnuni. Unluk n\ond.1p.'\Ik.1n .-.on.'\rnI ponuh lnslltusl kowanqan b<.-vlcscn. :.||:u layarl Iavnan sosnvvnng IJNPI dl bald kcmudahan krodlt Adnlnh d|s.'sr.3nkan[un1l.1h pcrnbaynrnn bulannn sornua hulnng lldnk rrwolublhi 40".. (horlpndn poudnpnlnn Lvoralh nndn (snlopns polonqnn cuknl. PERKESO dnn KVVSP). ..'-.1.v.:.2 Kopor.1.'.|.1d.1Inh dlknwnl solin oloh Suruhnrunyn Kopernst Malaysia db bawnh Kc.-I1'Ic-ntcrian Purdnqungnn Dnluvn Nuqurl, Konnrnsl dun Knpnnqqunnnn, Ahll kopornsl boloh rnornlnjnns darlpndn kopernsl rn.-using-rnnslnq bcrdnsnrknn kvitorla kolnynkan yang tolnh dltulupknn oloh punguruv..'nI koporasl uvrsohul. £4. '\.--.~.Z. I ifi -§._ a ang. 5T ‘m’ .-.1-:,.i Porlk-snlnh krodlbllfll andn unluk rnurnohon pinjnnuun. L.IportIn CCPIS hnrus dlpnrlkvun. | , Pcrn|nj.1n1 vvnng bcrloson t1||a_v-u,-nknn olvh Kurnuntnt-rlnn Koxujnhlnvnnu Bnndnr. Dorunvahan dnn Kor:u|.1.1n Tonxpntnn untuk rncnnwarknn plnlnrnan kep.-ndn or.-ng ranwa-1|. Untuk rncndapatkan sonarnn nvnuh in-stilusl kc.-vvongnn burlunun. slln luyarl Inrniun sosnv-vnnu KDKT dl fflerek.-I rncnnwarkan plnjnrnan tnnpa cagaran pad.‘-n kndnr faedah yang sangat tlnggl. dcngan tonne dan syarat yang kct.-It dnn tldnk joins Al<PKofflclal Perlindungan Tenang Menangani Produk Insurans / Takaful Yang Kompleks Produk insurans dan takaful yang ada pada masa ini terlalu kompleks dan tidak mampu dimiliki sebahagian besar rakyat Malaysia. Kadar penembusan insurans hayat dan takaful keluarga di Malaysia kini berada pada 36.5%. Berbanding dengan negara maju, sebahagian besar daripada rakyat Malaysia masih lagi tidak memahami atau mementingkan perlindungan insurans dan takaful. Bagi mengatasi masalah ini, Bank Negara Malaysia (BNM), dengan kerjasama industri insurans dan takaful telah memperkenalkan “Perlindungan Tenang”. Ia bertujuan untuk memenuhi permintaan segmen isi rumah yang masih belum mempunyai perlindungan insurans / takaful, terutamanya golongan berpendapatan rendah. Produk di bawah Perlindungan Tenang ini merangkumi tiga kriteria, iaitu mampu milik, mudah difahami dan proses tuntutan yang mudah. Produk Perlindungan Tenang boleh dibeli dan sesuai untuk orang ramai, tetapi yang paling utamanya adalah diharapkan bahawa produk ini akan mencapai 8 juta rakyat Malaysia pada umur bekerja dan lebih 700,000 perusahaan mikro, yang memerlukan perlindungan insurans dan takaful bagi perlindungan terhadap risiko utama. Pada masa ini, tujuh syarikat insurans dan tiga pengendali takaful telah membangunkan produk Perlindungan Tenang. Untuk senarai lengkap produk, pihak awam boleh melayari laman sesawang persatuan industri insurans dan takaful iaitu www.liam.org.my, www.malaysiantakaful.com.my ataupun www.piam.org.my. Pihak awam boleh mengenal pasti produk Perlindungan Tenang menggunakan logo yang dipaparkan di atas. Dalam usaha untuk menerangkan tentang pentingnya perlindungan insurans dan takaful melalui Perlindungan Tenang, BNM akan menggiatkan kempen kesedaran dan program pendidikan, melalui pelbagai saluran dan platform. Selain itu, inisiatif itu turut menyasarkan peningkatan kadar pemilikan insurans dan takaful dalam kalangan rakyat kepada 75 peratus menjelang 2020. Perlindungan Tenang telah dilancarkan oleh Bank Negara Malaysia di Karnival Kewangan Sarawak 2017. Sumber: FOMCA 10 | RINGGIT Jan 2018 | 11 ADAKAH ANDA MANGSA KEJADIAN BANJIR BARU-BARU INI? Pelbagai bantuan yang disediakan oleh Bank Negara Malaysia dan institusi kewangan bagi meringankan beban individu dan perniagaan yang terjejas akibat bencana banjir: BANTUAN OLEH INSTITUSI PERBANKAN BANTUAN OLEH SYARIKAT INSURANS & PENGENDALI TAKAFUL > Penangguhan bayaran balik pinjaman dan pembiayaan > Penstrukturan dan penjadualan semula pinjaman dan pembiayaan > Pelepasan bayaran untuk penggantian kad-kad pembayaran (Kad ATM, kredit, debit) > Permohonan Skim Penyelesaian Pinjaman Kecil (Small Debt Resolution Scheme) untuk Perusahaan Kecil dan Sederhana (PKS) yang menghadapi masalah kewangan akibat bajir > Menyegera proses tuntutan dengan memberi fleksibiliti terhadap pelepasan dokumen yang musnah akibat banjir > Fleksibiliti untuk bayaran premium > Mengurangkan atau melepaskan faedah ke atas pinjaman polisi dan Pinjaman Premium Automatik (APL) > Pengecualian bayaran untuk penggantian polisi dan kad-kad perubatan The Association of Banks in Malaysia (ABM): 1300-88-9980 Association of Islamic Banking Institutions Malaysia (ABIM): 03-2026 8002 Association of Development Financial Institution of Malaysia (ADFIM): 03-2694 9871 UNTUK MAKLUMAT LANJUT, SILA HUBUNGI: Life Insurance Association of Malaysia (LIAM): 03-2691 6168 Persatuan Insurans Am Malaysia (PIAM): 03-2274 7399 Malaysian Takaful Association (MTA): 03-2031 8160 *Tertakluk kepada syarat-syarat perbankan

Public Notice

27 Dec 2019

Discussion Paper on Climate Change and Principle-based Taxonomy

https://www.bnm.gov.my/-/discussion-paprer-climatechange-principlebasedtaxonomy-27122019

https://www.bnm.gov.my/documents/20124/761679/Climate+Change+and+Principle-based+Taxonomy_Discussion+Paper.pdf

Reading: Discussion Paper on Climate Change and Principle-based Taxonomy Share: Discussion Paper on Climate Change and Principle-based Taxonomy Release Date: 27 Dec 2019 Bank Negara Malaysia has issued a discussion paper on “Climate Change and Principle-based Taxonomy.” The discussion paper aims to provide an overview of climate change and its impact to the financial system. It serves as a guidance to facilitate financial institutions in identifying and classifying economic activities that could contribute to climate change objectives.   The Bank invites written feedback on this discussion paper, including suggestions for particular areas to be clarified or elaborated further and any alternative proposals that the Bank should consider.   Feedback must be submitted to the Bank by 31 March 2020. Climate Change and Principle-based Taxonomy Attachment I - Survey © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

26 Dec 2019

Exposure Draft on Responsibility Mapping

https://www.bnm.gov.my/-/ed-responsibility-mapping-26122019

https://www.bnm.gov.my/documents/20124/938039/Responsibility+Mapping+ED_+028_13.pdf

Reading: Exposure Draft on Responsibility Mapping Share: Exposure Draft on Responsibility Mapping Release Date: 26 Dec 2019 Bank Negara Malaysia has issued the exposure draft on Responsibility Mapping today. The exposure draft sets out the Bank’s proposals to clarify the roles, responsibilities and accountability of individuals holding leadership positions in financial institutions. The proposals complement the existing governance arrangements to promote a corporate culture which reinforces ethical, prudent and professional behaviour.   The Bank invites written feedback on the proposed requirements, including suggestions on areas to be clarified and alternative proposals that the Bank should consider.   Responses must be submitted to the Bank by 31 March 2020.   Find out more: Exposure Draft on Responsibility Mapping © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 26 December 2019 BNM/RH/ED 028-13 Responsibility Mapping Exposure Draft Applicable to− 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Prescribed development financial institutions 7. Financial holding companies Responsibility Mapping – Exposure Draft Issued on: 26 December 2019 This Exposure Draft sets out the Bank’s proposals to clarify the roles, responsibilities and accountability of individuals holding leadership positions in financial institutions. The proposals complement the existing governance arrangements to promote a corporate culture which reinforces ethical, prudent and professional behaviour. Clarity on the expectations will encourage individuals in these positions to take greater ownership of the areas under their purview and set the appropriate tone from the top. The Bank invites written feedback on the proposed requirements, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, including accompanying evidence or illustrations where appropriate, to facilitate an effective consultation process. Responses must be submitted to the Bank by 31 March 2020 to− Pengarah Jabatan Dasar Kewangan Pruden Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: pfpconsult@bnm.gov.my Electronic submission is encouraged. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of providing your feedback, you may direct queries to the following officers at 03-26988044: (i) Toh Ying Ying (ext: 8345) (ii) Nurlida Jasmin Ismail (ext: 7595) (iii) Tay Weiling (ext: 8798) (iv) Clarice Chung Si Qi (ext: 7295) mailto:pfpconsult@bnm.gov.my Responsibility Mapping – Exposure Draft Issued on: 26 December 2019 TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... 1 1 Introduction ......................................................................................... 1 2 Applicability ......................................................................................... 2 3 Legal provisions .................................................................................. 2 4 Effective date ...................................................................................... 3 5 Interpretation ....................................................................................... 3 6 Related legal instruments and policy documents ................................ 4 PART B POLICY REQUIREMENTS ................................................................. 5 7 Principles of Responsibility Mapping ................................................... 5 Appendix 1 Summary of Responsibility Mapping Principles ............................ 8 Responsibility Mapping – Exposure Draft 1 of 8 Issued on: 26 December 2019 PART A OVERVIEW 1 Introduction 1.1 Good corporate governance is underpinned by a corporate culture that reinforces ethical, prudent and professional behaviour. This begins with the right “tone from the top”, where the core values established by the board and senior management shape the conduct and behaviour of individuals in financial institutions. 1.2 Responsibility mapping is a fundamental pillar within the governance framework that accords focus on the role of individuals holding leadership positions in financial institutions to promote actions and decisions in areas under their purview that are consistent with good governance and sound risk management. It complements existing standards1 issued by the Bank which promote the long-term financial soundness of financial institutions. 1.3 In recent years, the Bank has observed incidents where the span of control and influence at the senior management level has not been adequately translated into actions in practice, leading to heightened risks from inadequate oversight over the operations of the financial institution. This underscores the importance of ensuring responsibilities are clearly identified at the appropriate level of granularity and allocated to individuals at senior levels who have the competence, authority and accountability to effectively discharge them. 1.4 Responsibility mapping goes beyond clarifying normal job descriptions of individuals. Specifically, it aims to– (a) ensure that responsibilities for key functions of a financial institution, including those prescribed by law or regulations, are clearly allocated to individuals at an appropriate senior level within the financial institution; (b) clarify and strengthen the accountability of individuals to whom key responsibilities are allocated, in particular in circumstances where there are shared responsibilities, collective decision making and matrix reporting structures within groups; and (c) encourage a financial institution to carefully consider whether the allocation of responsibilities to individuals within senior management is compatible with effective risk management practices, taking into account the size, scale and complexity of the financial institution’s operations. Clarity and transparency in governance and accountability, supported by clear documentation, also facilitates meaningful engagements with the board and regulators on the operations and decision-making process of the financial institution. 1.5 The Bank expects the individual accountability framework to ultimately drive better ex-ante decisions by strengthening incentives for good conduct and culture, and encouraging financial institutions to identify and address barriers 1 These include policy documents on Corporate Governance, Fit and Proper Criteria and Employee Screening. Responsibility Mapping – Exposure Draft 2 of 8 Issued on: 26 December 2019 that may prevent individuals to whom key responsibilities are allocated, from effectively discharging their obligations. Therefore, financial institutions should determine how their governance structures surrounding business operations, risk and control functions are organised, guided by the intended outcomes of this policy document. 1.6 Responsibility mapping is intended to exist in parallel with, rather than substitute, existing governance arrangements where decisions are made at designated collective decision-making forums. Therefore, financial institutions can continue to maintain collective decision making within formal committees/groupings, drawing on contributions from individuals with distinct expertise and experience as a means of discharging corporate responsibilities over areas that cover a broad span of control. 1.7 The Bank will implement responsibility mapping in a manner that is fair and reasonable, as the primary objective is to foster appropriate conduct and behaviour that reinforces a sound culture and promotes the safety and sustainability of the financial institution. Accordingly, the Bank looks to financial institutions to ensure that a material failure by responsible individuals is met with appropriate consequences. Except in cases of serious misconduct committed with intent, the Bank generally does not expect to take enforcement actions as an immediate response to events of individual misconduct or poor behaviour. 1.8 This policy document sets out four principles governing the responsibility mapping framework. A diagrammatic representation of these principles is provided in Appendix 1. 2 Applicability 2.1 This policy document is applicable to all financial institutions as defined in paragraph 5.2. 2.2 In the case of a financial institution which operates in Malaysia as a branch of a foreign institution, the requirements in this policy document shall apply only in respect of the Malaysian operations of the branch. 3 Legal provisions 3.1 This policy document is issued pursuant to– (a) sections 47(1) and 266 of the Financial Services Act 2013 (FSA); (b) sections 57(1) and 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) sections 41(1) and 126 of the Development Financial Institutions Act 2002 (DFIA). Responsibility Mapping – Exposure Draft 3 of 8 Issued on: 26 December 2019 4 Effective date 4.1 Except for paragraph 4.2, the requirements in this policy document come into effect [1 year from date of issuance of final policy document]. 4.2 A financial institution must complete the documentation of each individual’s responsibilities under Principle 4 no later than [3 years from the effective date]. The Bank expects the financial institution to take measures and demonstrate meaningful progress in meeting the documentation requirement during the transition period. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA, DFIA or the policy documents referred to in paragraph 6.1, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “affiliate”, in relation to an entity, refers to any corporation that controls, is controlled by, or is under common control with, the entity; “board” means the board of directors of a financial institution, including a committee of the board where the responsibilities of the board have been delegated to such a committee; “financial institution” refers to a licensed person, a prescribed development financial institution and a financial holding company; “individual” refers to an individual who− (a) is employed by, or acting for2, a financial institution; (b) is principally responsible for a financial institution; and (c) has authority in the management of a financial institution; 2 For the avoidance of doubt, “an individual acting for a financial institution” refers to an individual who is employed by an affiliate of a financial institution and does not include any individual engaged by a financial institution or its affiliates under a contract for service. Responsibility Mapping – Exposure Draft 4 of 8 Issued on: 26 December 2019 “responsibility area” refers to a business, operational or control function, as the case may be, that is integral to the operations and affairs of a financial institution. This includes responsibilities arising from regulatory requirements issued by the Bank3. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Corporate Governance; (b) Corporate Governance for Development Financial Institutions; (c) Fit and Proper Criteria; and (d) Shariah Governance. 3 These include requirements issued in the policy documents on Compliance, Stress Testing, Outsourcing and Internal Capital Adequacy Assessment Process. Responsibility Mapping – Exposure Draft 5 of 8 Issued on: 26 December 2019 PART B POLICY REQUIREMENTS 7 Principles of Responsibility Mapping S Principle 1: The board shall oversee and ensure an effective process for identifying and assigning responsibility areas to individuals, as part of internal governance arrangements that promote sound management and decision making. This includes ensuring all responsibility areas are clearly identified and mapped into the organisational structure. S 7.1 The primary consideration for identifying responsibility areas in a financial institution is to minimise organisational blind spots or grey areas. A financial institution must have a robust mechanism in place to identify responsibility areas within its organisational structure, covering business, operational and control functions. This process must culminate in an organisational structure that clearly identifies the responsibility areas, their associated reporting lines and the individuals that are held to account. S 7.2 The chief executive officer (CEO), in leading the management team, shall be responsible for ensuring the responsibility areas are comprehensively identified and cover all functions integral to the conduct of the operations and affairs of a financial institution4. In identifying these responsibility areas, the CEO shall have regard to the following: (a) the distribution of responsibilities to individuals, taking into account the institution’s size, scale, risk profile and complexity. These shall cover responsibilities beyond duties inherent within the functions5; (b) the appropriate level of granularity in which responsibility areas are identified and mapped to individuals, such that there is clarity of where accountability lies for any aspect of the financial institution’s business or operations. The allocation should avoid opaque structures that make it difficult to determine where the responsibility for taking decisions actually rests; (c) in areas governed by shared responsibility and collective decision making6, whether they inappropriately dilute individual accountabilities given the nature and scope of decisions involved; and (d) whether the assignment of responsibility areas is aligned with the performance and remuneration policies, as well as the consequence management framework of the institution. 4 Refer to paragraph 16.1(b) of the policy document on Corporate Governance. 5 This includes responsibilities that may be assumed on an interim or project basis, for example, specific short term projects and tasks with temporary deliverables. 6 Including, but not limited to, the application of matrix management reporting and shared responsibility areas of individuals at a financial institution and those at the group level. Responsibility Mapping – Exposure Draft 6 of 8 Issued on: 26 December 2019 S Principle 2: The CEO must ensure that all identified responsibility areas are allocated to individuals at an appropriate senior level, and who have the professional competence, authority and accountability to manage these areas. G 7.3 The allocation of responsibilities to specific individuals helps to set out the nature and scope of an individual’s responsibilities beyond a basic definition of the role or function. G 7.4 In allocating the responsibility areas, the CEO should conduct the necessary due diligence on the individuals to ensure that they are capable of fulfilling their responsibilities, and should have regard to how authority and accountability is distributed in practice rather than under formal designations. S 7.5 Where a responsibility area is allocated to an individual outside of the financial institution, such allocation must be approved by the board. The CEO must not allocate responsibilities to an officer of an affiliate which is not a financial institution. S Principle 3: The individuals to whom responsibilities7 are allocated are accountable for the management and conduct of the responsibility areas, including for the staff under their purview. In discharging this responsibility, an individual must exercise sound professional judgment, diligence and due care8, adhere to the code of ethics of the financial institution and act with integrity9,10. Where a responsibility area is shared by more than one individual11, all individuals shall be held jointly and severally accountable for that responsibility area. S 7.6 In discharging the assigned responsibilities, an individual must act in good faith, and take reasonable steps to ensure that the responsibility area is managed effectively and in line with relevant legal and regulatory requirements. This includes ensuring that his/her staff complies with both the internal policies and regulatory requirements. S 7.7 Where an individual delegates his/her responsibilities, the delegation must be to an appropriate person and compatible with the inherent risks associated with the specific area of responsibility delegated. In any event, the individual continues to remain accountable for the responsibility area and must ensure the effective performance and discharge of the delegated responsibility. 7 Including responsibility in collective decision-making forums. 8 At a level reasonably expected of an individual having the same responsibilities. 9 A financial institution should consider adopting professional and ethical standards recommended by standard-setting bodies such as those issued by the Financial Services Professional Board. 10 Examples of failure to act with integrity include authorising or omitting to act on material misstatements/misrepresentations, failing to address conflicts of interests and acting dishonestly in a manner prejudicial to customers. 11 This refers to situations where the same responsibility is shared between two individuals and both individuals are held to account for discharging the responsibility. This is distinct from responsibilities under collective decision-making forums where individuals may be assigned specific and different responsibilities in relation to decisions taken, for example, responsibility of a Chief Risk Officer in relation to credit decisions taken at a credit committee (refer to paragraph 7.11(f)). Responsibility Mapping – Exposure Draft 7 of 8 Issued on: 26 December 2019 G 7.8 The Bank expects the individuals to deal with the Bank and relevant regulatory authorities in an open and constructive manner. S Principle 4: The CEO must maintain a complete and up-to-date register of each individual’s responsibilities, covering the individuals’ responsibility areas across the institution and, where relevant, the group. G 7.9 Clear and comprehensive documentation of responsibility promotes clarity in the scope of responsibility and lines of accountability of an individual. This process also provides the opportunity for a financial institution to reflect on its existing governance arrangements and make the necessary changes to the structure or reporting lines in the event that gaps are identified. G 7.10 The Bank expects the register to capture information that sufficiently articulates the individual’s responsibilities, taking into account the institution’s business model, size, scale, complexity and risk profile. The documentation of individual responsibilities should be prepared with the appropriate involvement of the individuals concerned to promote alignment and understanding of expectations of the individual, including how their responsibilities interact with others in the organisation. The documentation should clearly describe how an individual is expected to support the outcomes of the financial institution in his/her responsibility area, and identify the actions, decisions and outcomes for which the individual is responsible. G 7.11 Generally, the documentation should go beyond a normal job description that depicts how the individual discharges his/her responsibilities or the generic competencies and skills required to perform that responsibility area. The documentation should include the following information: (a) functional responsibility of the role or job, both at the financial institution and group level; (b) responsibilities arising from regulatory requirements issued by the Bank; (c) responsibilities that may be assumed on an interim or project basis, for example, where an individual’s scope of work is expanded to temporarily cover for an unforeseen resignation; (d) for a shared responsibility area, where relevant, explanation as to how this is applied to different individuals sharing the responsibility in practice; (e) where relevant, explanation on the relationship between responsibility areas of individuals at a financial institution and those at the group level; and (f) where relevant, responsibility of each individual in collective decision- making forums. G 7.12 Each individual should acknowledge in writing the responsibilities that have been assigned to him/her. This gives the individual greater clarity as to his/her responsibility areas, and would help to reduce the scope of mismatched expectations between the individual and the financial institution. Responsibility Mapping – Exposure Draft 8 of 8 Issued on: 26 December 2019 APPENDIX 1 SUMMARY OF RESPONSIBILITY MAPPING PRINCIPLES Board Oversee and ensure an effective process for responsibility mapping, including– • having a robust mechanism to identify the responsibility areas; and • ensuring all responsibility areas are clearly mapped into the organisational structure (Principle 1) CEO Identify responsibility areas that cover all functions integral to the conduct of the operations and affairs of the financial institution (Principle 1) Allocate responsibility areas to individuals, who– • are at an appropriate senior level; and • have the professional competence, authority and accountability to manage these areas (Principle 2) Maintain complete and up-to-date register of individual responsibilities (Principle 4) Individual • Be accountable for management and conduct of the responsibility areas, including his/her staff • Exercise sound professional judgement, diligence and due care • Adhere to the code of ethics of the financial institution • Act with integrity • Manage responsibility areas in line with legal and regulatory requirements • Act in good faith and remain accountable for responsibility areas, even if responsibility is delegated (Principle 3)

Public Notice

24 Dec 2019

Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business

https://www.bnm.gov.my/-/ops-cost-control-lifebusiness-familytakafulbusiness-24122019

https://www.bnm.gov.my/documents/20124/761679/pd_occforlifeandfamilytakafulbusiness_+dec2019.pdf

Reading: Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business Share: Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business Release Date: 24 Dec 2019 Bank Negara Malaysia has issued the policy document on Operating Cost Controls for Life Insurance and Family Takaful Business on 24 December 2019. The policy document sets out the roadmap for the deregulation of operating cost control limits for licensed life insurers and family takaful operators and standards to strengthen the professionalism of insurance and takaful intermediaries. This revised policy document which comes into effect on 1 January 2020 incorporates: Operational details of the balanced scorecard (BSC) framework for bancassurance partners as specified in paragraph 10 and Schedule 2 of Appendix II; The revised BSC framework for Agents as specified in Schedule 1 of Appendix I; and Existing specifications on the commission limits for financial advisers and brokers in paragraph 11.5 and Schedule 5 of Appendix I. These limits were previously stipulated in the Minimum Guidelines on Appointment of Financial Advisers issued by the Life Insurance Association of Malaysia. See more: Policy Document on Operating Cost Controls for Life Insurance and Family Takaful Business © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 24 December 2019 BNM/RH/PD 029-19 Operating Cost Controls for Life Insurance and Family Takaful Business Applicable to: 1. Licensed insurers carrying on life business 2. Licensed takaful operators carrying on family takaful business Operating Cost Controls for Life Insurance and Family Takaful Business Issued on: 24 December 2019 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................... 1 2 Applicability ................................................................................... 1 3 Legal provisions ............................................................................ 1 4 Effective date ................................................................................ 1 5 Interpretation................................................................................. 2 6 Related legal instruments and policy documents .......................... 4 7 Policy documents superseded ...................................................... 4 PART B ROADMAP FOR DEREGULATION OF OPERATING COST CONTROL LIMITS AND IMPLEMENTATION OF BSC FRAMEWORK ...................................... 5 8 Implementation timeline ................................................................ 5 PART C POLICY REQUIREMENTS ....................................................................... 6 9 Remuneration policy for intermediaries ........................................ 6 10 Implementation of BSC Framework .............................................. 6 11 Specifications of operating cost limits for specific products and intermediaries ............................................................................... 7 12 Agency-related requirements ........................................................ 8 13 Governance requirements ............................................................ 9 PART D REPORTING REQUIREMENTS ............................................................. 10 14 Reporting requirements .............................................................. 10 APPENDICES .......................................................................................................... 11 Appendix I Commission limits for intermediaries .......................................... 11 Appendix II Operational details of BSC Framework ...................................... 17 Appendix III Template for submission of returns (family takaful operators only) ............................................................................................ 20 Operating Cost Controls for Life Insurance and Family Takaful Business 1 of 20 Issued on: 24 December 2019 PART A OVERVIEW 1 Introduction 1.1 As set out in the Life Insurance and Family Takaful Framework issued on 23 November 2015, the Bank continues to implement reforms for the gradual removal of operating cost control limits for life insurance and family takaful business. 1.2 The deregulation of operating cost control limits will accord licensed persons greater flexibility to manage operating expenses commensurate with their business strategies and encourage greater innovation and competition. This will be accompanied by standards to strengthen the professionalism of insurance and takaful intermediaries. 1.3 This policy document sets out the following – (a) the roadmap for the deregulation of operating cost control limits; (b) expectations on remuneration policies implemented by a licensed person for intermediaries; (c) requirements relating to the implementation of the balanced scorecard framework (BSC Framework); (d) the disapplication of, and adjustments to, operating cost controls for specific products and intermediaries; (e) enhancements to and rationalisation of requirements relating to agency structures and related expenses; and (f) governance and reporting requirements. 2 Applicability 2.1 This policy document is applicable to licensed insurers carrying on life business and licensed takaful operators carrying on family takaful business. 3 Legal provisions 3.1 This policy document is issued pursuant to: (a) sections 47, 123, 143 and 266 of the Financial Services Act 2013 (FSA); and (b) sections 57, 135, 155 and 277 of the Islamic Financial Services Act 2013 (IFSA). 4 Effective date 4.1 This policy document comes into effect on 1 January 2020. Operating Cost Controls for Life Insurance and Family Takaful Business 2 of 20 Issued on: 24 December 2019 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “agency-related expenses” refer to expenses incurred for the provision of benefits in cash or kind to insurance/takaful agents, which include medical expenses, insurance/takaful schemes, contributions to retirement/gratuity schemes and sponsorship of agents’ participation in seminars/conferences, but excludes commissions; “agent” refers to any ordinary agent, agency leader (agency supervisor or agency manager) or corporate agent, or all of these, as the case may be; “annual premium/takaful contribution” is the premium/takaful contribution receivable on a policy/takaful certificate for any policy/takaful certificate year; “annuity premium/takaful contribution” refers to the premium/takaful contribution that is attributable to the annuity benefits; “bancassurance partner” includes a bancatakaful partner, and refers to a banking institution or development financial institution that has a distribution or marketing arrangement with a licensed person, as described in the Guidelines on Bancassurance and Guidelines on Bancatakaful; “board” means the board of directors of a licensed person, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “breakaway benefit” refers to the relief provided by a licensed person to the agency manager in respect of the immediate loss of overriding commissions due to the promotion of an agency supervisor reporting to the agency manager; “BSC commission” refers to the proportion of commission payable to the intermediary which is measured against the key performance indicators (KPIs) under the BSC Framework; “BSC Framework” refers to the operational framework that links remuneration of intermediaries to quality of service; Operating Cost Controls for Life Insurance and Family Takaful Business 3 of 20 Issued on: 24 December 2019 “commission” refers to any remuneration payable to intermediaries, and includes basic commission, overriding commission, production and persistency bonus, allowance and salary; “Continuous Professional Development (CPD) hours” includes five hours of training programmes relating to proper sales process, code of ethics and regulatory updates conducted by Malaysian Insurance Institute (MII), National Association of Malaysian Life Insurance and Family Takaful Advisors (NAMLIFA), Malaysia Financial Planning Council (MFPC), Islamic Banking and Finance Institute Malaysia (IBFIM) or related training programmes provided by bancassurance partners; “direct distribution channel” refers to the distribution of insurance or takaful products through any or both of the following – (a) the head office and branch premises of the licensed person; or (b) an online platform, whether developed as the licensed person’s proprietary system or outsourced to third party vendors, whereby consumers purchase the product directly from the licensed person; “first year persistency” refers to the premium/takaful contribution for a new product sold/marketed (other than single premium/takaful contribution product) which remains in force at the end of the first policy/takaful certificate year; “first year premium/takaful contribution” refers to the premium/takaful contribution receivable for the first policy/takaful certificate year, where the premium/takaful contribution payment term is two or more years; “intermediary” refers to any agent, approved financial adviser (including approved Islamic financial adviser), approved insurance broker (including approved takaful broker) or bancassurance partner, or all of these, as the case may be; “licensed person” refers collectively to a licensed insurer carrying on life business and a licensed takaful operator carrying on family takaful business; “ordinary life insurance/family takaful product” refers to any or a combination of an individual/group product, supplementary contract or rider attached to a basic policy/takaful certificate, but excludes any – (a) investment-linked product or annuity; and (b) medical and health insurance/takaful product; “product with paid-up option” refers to a life insurance/family takaful product that is designed and marketed with an option that enables the policyholder/takaful participant to cease payment of premium/takaful contribution prior to the full contractual premium/takaful contribution payment term, but excludes any product which offers a paid-up option as part of the non-forfeiture provision; Operating Cost Controls for Life Insurance and Family Takaful Business 4 of 20 Issued on: 24 December 2019 “pure protection product” refers to all or any of the following – (a) a term life insurance or family takaful product that covers only the risk of death with or without total permanent disablement, and does not have maturity benefits (referred to as a pure protection term product in this policy document); (b) a critical illness product that covers only critical illnesses (referred to as a pure protection critical illness product in this policy document); or (c) a medical and health product that covers only medical treatment, hospitalisation and surgery (referred to as a pure protection medical and health product in this policy document); “savings product” refers to a product which is designed to provide benefits during the policy/takaful certificate term (excluding surrender benefits) or on survival to maturity, and includes an investment-linked policy/takaful certificate and annuity; “second year persistency” refers to the premium/takaful contribution for a new product sold/marketed (other than a single premium/contribution product) which remains in force at the end of the second policy/takaful certificate year; “single premium/contribution” refers to the premium/takaful contribution receivable on a policy/takaful certificate where the entire premium/contribution for the policy/takaful certificate is payable at inception; and “substantiated complaints” refer to complaints made by potential/existing policyholders/takaful participants on unprofessional conduct of staff, representatives or agents (including that of bancassurance partners) that have been verified by licensed persons to be in relation to wrong advice, misrepresentation, misleading or incomplete advice/recommendations, twisting of policies and/or mishandling of premiums. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular – (a) Life Insurance and Family Takaful Framework; (b) Direct Distribution Channels for Pure Protection Products; (c) Guidelines on Medical and Health Insurance Business; (d) Guidelines on Medical and Health Takaful Business; (e) Guidelines on Bancassurance; (f) Guidelines on Bancatakaful; (g) Investment-Linked Business; and (h) Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business. 7 Policy documents superseded 7.1 This policy document supersedes the policy document on Operating Cost Controls for Life Insurance and Family Takaful Business issued on 26 December 2018 (BNM/RH/PD 029-19). Operating Cost Controls for Life Insurance and Family Takaful Business 5 of 20 Issued on: 24 December 2019 PART B ROADMAP FOR DEREGULATION OF OPERATING COST CONTROL LIMITS AND IMPLEMENTATION OF BSC FRAMEWORK 8 Implementation timeline S 8.1 The effective dates for the deregulation of operating cost control limits and implementation of the BSC Framework are set out below – Timeline S 8.2 Prior to the effective dates for removal of operating cost control limits as set out in paragraph 8.1, a licensed person shall observe the commission limits as specified in Appendix I in remunerating intermediaries and the limits on agency- related expenses specified in paragraph 12.4, unless otherwise provided in this policy document. Implementation of BSC Framework for bancassurance partners Implementation of the BSC Framework for agents, financial advisers and brokers Effective from 1 July 2020 onwards ononwards Adjustment of commission limits for bancassurance partners Removal of limits on commission and agency-related expenses for investment-linked insurance products Effective from 1 March 2019 onwards Effective from 1 Jan 2018 onwards Removal of commission limits for pure protection critical illness and pure protection medical and health products offered through all intermediaries, subject to meeting the specific requirements for pure protection critical illness and pure protection medical and health products offered through direct distribution channels Effective from 1 Jan 2021 onwards Effective from 1 July 2019 onwards ononwards Removal of commission limits for pure protection term products offered through all intermediaries, subject to meeting the specific requirements for pure protection term products offered through direct distribution channels Removal of limits on commission and agency-related expenses for investment-linked takaful products Operating Cost Controls for Life Insurance and Family Takaful Business 6 of 20 Issued on: 24 December 2019 PART C POLICY REQUIREMENTS 9 Remuneration policy for intermediaries S 9.1 In setting the remuneration policy and criteria for the maintenance of contracts or promotion of an intermediary, the board and senior management of the licensed person shall take steps to – (a) ensure intermediaries consider the financial needs and circumstances of consumers, and accordingly provide proper advice and recommendations to them; (b) provide for effective and responsive customer support services by intermediaries to a policyholder/takaful participant throughout the policy/takaful certificate term; (c) drive the continuous professional development of intermediaries; and (d) instil ethical and professional conduct in intermediaries at all times. 10 Implementation of BSC Framework S 10.1 A licensed person shall incorporate the BSC Framework in its remuneration policy – (a) for agents1, financial advisers and brokers2; and (b) by 1 January 2021 for bancassurance partners. G 10.2 A licensed person may exempt the following persons from the application of its BSC Framework: (a) agents who are totally new to the industry in the first two years of appointment; and (b) new bancassurance staff in the first six months of appointment into the role. S 10.3 A licensed person shall ensure that the design and operation of the BSC Framework are consistent with the outcomes specified in paragraph 9.1 and comply with the operational requirements specified under Appendix II. S 10.4 A licensed person shall reflect the following KPIs in the design of the BSC Framework – (a) completion rate of Customer Fact Find (CFF) form; (b) persistency rate; (c) number of substantiated complaints; and (d) CPD hours. G 10.5 Notwithstanding the definition of first year persistency and second year persistency in paragraph 5.2, a licensed person may adopt a stricter definition of persistency for purposes of implementation of the BSC Framework in order to ensure that the outcomes set out in paragraph 9.1 are achieved. 1 For agents who are reappointed by another licensed person, BSC shall apply the next calendar year. 2 Licensed persons have already been required to incorporate the BSC Framework in their remuneration policy for intermediaries such as agents, financial advisers and brokers from 1 January 2018 pursuant to the policy document on Operating Cost Controls for Life Insurance and Family Takaful Business issued on 29 December 2017. For the avoidance of doubt, licensed persons must continue to incorporate the BSC Framework into their remuneration policy for agents, financial advisers and brokers pursuant to paragraph 10.1(a) above with the coming into effect of this policy document. Operating Cost Controls for Life Insurance and Family Takaful Business 7 of 20 Issued on: 24 December 2019 Nevertheless, in computing the persistency rate, the licensed person may take into consideration genuine lapses. S 10.6 A licensed person shall measure the specific percentage of commission payable to an intermediary against the KPIs of the BSC Framework. The relevant percentage for BSC commission is set out in Appendix II. 11 Specifications of operating cost limits for specific products and intermediaries S S S S S S 11.1 The maximum commission limits for specific pure protection products sold/marketed through intermediaries are hereby removed, subject to a licensed person complying with the following conditions – (a) the pure protection products offered by the licensed person provide the same benefits and coverage as that for pure protection products available through its direct distribution channels; and (b) the licensed person meets all the requirements specified in the Policy Document on Direct Distribution Channels for Pure Protection Products. 11.2 The maximum limits on commission and agency-related expenses for investment-linked insurance/takaful products specified in Appendix I and in paragraph 12.4 respectively are removed3 with effect from – (a) 1 July 2019 for investment-linked insurance products; and (b) 1 July 2020 for investment-linked takaful products. 11.3 In relation to paragraph 11.2, prior to 1 July 2019 and 1 July 2020 for investment- linked insurance and investment-linked takaful products respectively, the maximum commission limits for investment-linked insurance/takaful products applicable to agents shall be those specified in Schedule 1 of Appendix I. 11.4 With effect from 1 January 2021, a licensed person shall not exceed the maximum commission limits applicable to bancassurance partners as specified in Schedule 4 of Appendix I4. Prior to 1 January 2021, the maximum commission limits applicable to bancassurance partners shall be those specified in Schedule 3 of Appendix I. In relation to paragraph 11.2, prior to 1 July 2020 the maximum commission limits for investment-linked takaful products applicable to bancassurance partners shall be as specified in schedule 3 of Appendix I. 11.5 A licensed person shall not exceed the maximum commission limits applicable to financial advisers and insurance/takaful brokers as specified in Schedule 5 of Appendix I. 11.6 Where the commission limits for specific life insurance/family takaful products are removed under paragraphs 11.1 and 11.2, a licensed person adjusting its respective commission rates for such products shall – (a) submit the relevant information to the Bank as specified in the Guidelines on Introduction of New Products by Insurers and Takaful Operators; and 3 As prescribed in the Policy Document on Investment Linked Business. 4 Commission limits for bancassurance partners will be aligned to that of corporate agents in tandem with the implementation of BSC framework. Operating Cost Controls for Life Insurance and Family Takaful Business 8 of 20 Issued on: 24 December 2019 (b) disclose the commissions in the sales/marketing illustrations. For products with no sales/marketing illustrations, the commissions must be disclosed in the product disclosure sheet. 12 Agency-related requirements G S S S S S S S S Agency-related expenses 12.1 A licensed person may provide additional benefits in cash or kind to agents. 12.2 Any expenses incurred by a licensed person for the provision of such benefits shall be deemed to be agency-related expenses. 12.3 The provision of benefits to agents and the corresponding qualifying criteria for receiving such benefits shall be clearly provided for and documented in the licensed person’s remuneration policy, with due regard to the outcomes set out in paragraph 9.1. 12.4 The aggregate amount of agency-related expenses incurred by a licensed person shall not exceed the following limits, except where operating cost limits are removed as provided in paragraph 11: (a) 3% of the total annual premium/contribution for ordinary life/family takaful products and investment-linked products; and (b) 0.5% of the annual or single annuity premium/contribution for deferred annuity insurance/takaful products. Agency organisation structure 12.5 Where a licensed person adopts a tiered structure for its agency organisation, the tiered structure shall not exceed three tiers5. Agency breakaway benefits 12.6 The breakaway benefits accorded by a licensed person to an agency manager shall not exceed 50% of the average annual overriding commissions earned from an agency supervisor’s unit over the two years immediately preceding the date of promotion of the agency supervisor. 12.7 No breakaway benefits shall be accorded by a licensed person to an agency supervisor in respect of the promotion of an ordinary agent under him. Career agent 12.8 When an ordinary agent who is eligible for promotion as an agency supervisor chooses not to accept such promotion, the licensed person shall provide an option for him to be promoted as a career agent under the supervision of an agency manager or directly under the supervision of an officer of the licensed person. 12.9 In such an event, additional commissions payable by the licensed person to the career agent (not inclusive of the basic agency commissions) shall not exceed 50% of the total overriding commissions which would have been payable to agency leaders. 5 Generally comprising an agency manager, agency supervisor and ordinary agent. The terminology used for these designations is not binding and a licensed person may adopt other terminology that corresponds to these designations. Operating Cost Controls for Life Insurance and Family Takaful Business 9 of 20 Issued on: 24 December 2019 S S S S Salaried agent 12.10 Where a licensed person remunerates its agents through a combination of a fixed salary and variable commission, the aggregate amount paid by the licensed person shall not exceed the commission limits specified in Appendix I. 12.11 A licensed person shall measure the aggregate amount of the salary and commission remunerated to the salaried agent against the KPIs of the BSC Framework, as specified under paragraph 10. 12.12 A licensed person shall not remunerate its salaried employees or officers with the exception of full-time marketing staff, by way of commissions or any other incentive payments by whatever name called that are linked to the quantum of premium/takaful contribution production. 12.13 Where a licensed person remunerates its salaried staff who are principally engaged in business development in the form of bonus based on the volume of business production, the aggregate amount of salary and benefits including bonus paid by the licensed person shall not exceed the commission limits specified in Appendix I. 13 Governance requirements S S Responsibilities of board and senior management 13.1 The board shall be responsible for ensuring that the conduct of the licensed person is consistent with the objectives and requirements set out in this policy document. 13.2 The senior management of the licensed person shall be responsible for – (a) developing the remuneration policies, which include parameters for the implementation of the BSC Framework for the approval of the Board. The remuneration policies must also address any inherent product bias which can increase the mis-selling risks of life insurance/family takaful products; (b) ensuring adequate training and support are provided to intermediaries to understand the key outcomes and implementation of the BSC Framework; (c) ensuring that the performance of intermediaries is reviewed against the KPIs of the BSC Framework at least once annually; and (d) monitoring the effective implementation of the remuneration policies and the BSC Framework and taking timely corrective measures as required to promote the objectives of the BSC Framework. Operating Cost Controls for Life Insurance and Family Takaful Business 10 of 20 Issued on: 24 December 2019 PART D REPORTING REQUIREMENTS 14 Reporting requirements S S 14.1 A licensed person shall submit to the Director of Consumer and Market Conduct Department, Bank Negara Malaysia a report on the performance of intermediaries against the KPIs of the BSC Framework as reviewed by the board under paragraphs 13.2, (c) and (d), and the information on the amount of BSC commissions payable to the intermediaries for the different categories (‘under- performer’, ‘normal’ and ‘outperformer’) by the end of the first quarter of the following year for each year beginning from the year 2018. 14.2 For bancassurance partners, the licensed person must also include in the report referred to in paragraph 14.1 above, the details on the agreed KPI thresholds of the BSC framework between the licenced person and each bancassurance partner, if such thresholds differ from the minimum thresholds set out in paragraph 1.6.7 of Schedule 2 of Appendix II. S 14.3 A licensed person shall submit to the Bank information relating to its compliance with the operating cost control limits as specified in accordance with the policy document, in the relevant statutory returns specified for life and family takaful business, as set out in the Statement of Operating Cost Control for Life Business (AS4) under the Guidance Notes for Insurance Companies Statistical System (for life business) and Appendix III (for family takaful business). S 14.4 The statutory returns required from licensed persons under paragraph 14.3 shall report for each annual period ending in December and shall be submitted to the Bank by 21 January of the following year. Life insurers shall submit the returns via the Bank’s Insurance Online Submission System website, and family takaful operators shall submit the returns in the manner and form set out in Appendix III to the Director of Insurance and Takaful Supervision Department, Bank Negara Malaysia. S 14.5 A licensed person shall maintain proper records of its agency-related expenses, which shall be made readily available to the Bank upon request. Operating Cost Controls for Life Insurance and Family Takaful Business 11 of 20 Issued on: 24 December 2019 APPENDICES Appendix I Commission limits for intermediaries 6 The requirement does not apply to the reduced paid-up option offered as part of the non-forfeiture provision. S G General requirements 1.1 A licensed person shall ensure that commissions for a policy/takaful certificate are paid over a minimum period of 6 years or the premium/takaful contribution payment period, whichever is shorter. In cases where the premium/takaful contribution paying term is less than 20 years, the licensed person shall apply the pro-rating formula to the basic and overriding commissions, and BSC commission as specified below. 𝑡 20 x maximum allowable percentages under Schedules 1, 2, 3 and 4 where t = term of premium/takaful contribution payment for policy/takaful certificate in years. 1.2 A licensed person may exclude the production and persistency bonus from the pro-rating requirements for insurance/takaful agents. S G S 1.3 In line with the pro-rating requirements, the commission payable for a product with paid-up option shall also be pro-rated by the licensed person based on the premium/takaful contribution payment term upon which the policyholder/takaful participant can exercise the paid-up option and cease payment of premium/takaful contribution6. 1.4 As an example, for a 20-year premium/takaful contribution payment term product with an option to cease payment of premium/takaful contribution in the 10th policy year, the commission payment by the licensed person shall be based on a 10-year pro-rated commission scale instead of a 20-year commission scale. 1.5 If the paid-up option is not taken up, the remaining commission (difference between the amount computed above and amount based on the original premium payment term) may be payable thereafter. Any savings in commission must be returned by the licensed person to consumers in the form of higher cash value/non-guaranteed benefits. S 1.6 Corporate agents shall be deemed as ordinary agents and therefore, shall not be entitled to payment of any overriding commissions by the licensed person. S 1.7 A licensed person shall observe the maximum allowable commission limits as specified in the following Schedules. Operating Cost Controls for Life Insurance and Family Takaful Business 12 of 20 Issued on: 24 December 2019 S 1.7.1 Commission limits for insurance/takaful agents Schedule 1: Commission limits pre-BSC implementation (prior to 1 January 2018) Ordinary life insurance/family takaful products with premium/takaful contribution paying term of 20 years or more: Policy Year Maximum % of annual premium/takaful contribution Ordinary/Corporate Agents Agency Leaders Total Commission Basic Commiss ion Production Bonus Persistency Bonus Overriding Commission 7 Production Bonus 1 35% 5%8 - 20% 5%11 65% 2 25% - 5%9 10% - 40% 3 15% - 5%10 6% - 26% 4 15% - - 5% - 20% 5 10% - - - - 10% 6 10% - - - 10% Total 110% 5% 10% 41% 5% 171% S 1.7.2 The maximum percentage of commissions (including overriding commission, if any) on single premium/takaful contribution ordinary life insurance/family takaful products, including mortgage term assurance/takaful and yearly renewable term assurance/takaful, shall be 10% of the single premium/takaful contribution. S 1.7.3 Investment-linked insurance/takaful products with premium/takaful contribution paying term of 20 years or more: Policy Year Maximum % of annual premium/takaful contribution Basic and Overriding Commission (including production and persistency bonus) 1 40% 2 40% 3 25% Total 160% S S 1.7.4 1.7.5 The maximum percentage of commissions (including overriding commission, production and persistency bonus) on single premium/takaful contribution investment-linked insurance/takaful products and top-up premium/takaful contribution shall be 3.75% of the single premium/takaful contribution. The maximum percentage of commissions (including overriding commission) on deferred annuity insurance/takaful products shall be 3% of the annual or single annuity premium/takaful contribution. 7 The maximum aggregate amount of overriding commissions payable to all levels of agency leaders is computed based on the maximum allowable percentage for the overriding commissions. A licensed person may however decide the manner in which the overriding commissions are apportioned to each level of agency leaders subject to the aggregate limit. 8 Conditional upon meeting the qualifying criteria as established under the remuneration policy of the licensed person. 9 Conditional upon achieving first-year persistency rate of 90%. 10 Conditional upon achieving second-year persistency rate of 80%. Operating Cost Controls for Life Insurance and Family Takaful Business 13 of 20 Issued on: 24 December 2019 S 1.7.6 Schedule 2: Commission limits post-BSC implementation (1 January 2018 and thereafter) In respect of ordinary life insurance/family takaful products with premium/takaful contribution paying term of 20 years or more11 the commission limits are as follows: Policy Year Maximum % of annual premium/contribution Basic Commissions for Ordinary/Corporate Agents Overriding Commissions for Agency Leaders Total Commission 1 40% 25% 65% 2 30% 10% 40% 3 20% 6% 26% 4 15% 5% 20% 5 10% - 10% 6 10% - 10% Total 125% 46% 171% S 1.7.7 Commission limits for single premium/takaful contribution ordinary life insurance/family takaful products shall be applicable as stipulated in Schedule 1. S S 1.7.8 1.7.9 Prior to the deregulation of commission limits for investment-linked insurance and investment-linked takaful products effective from 1 July 2019 and 1 July 2020 respectively, the commission limits shall be applicable as stipulated in Schedule 1. Commission limits for deferred annuity insurance/takaful products shall be applicable as stipulated in Schedule 1. 11 For products with premium paying term less than 20 years, the pro-rating of commissions shall be applied to total commissions (including basic commissions, overriding commissions and BSC commission). Licensed persons may exclude the production and persistency bonus from the pro-rating requirement. Operating Cost Controls for Life Insurance and Family Takaful Business 14 of 20 Issued on: 24 December 2019 S 1.7.10 Commission limits for bancassurance/bancatakaful partners Schedule 3: Commission limits pre-BSC implementation (prior to 1 January 2021) In respect of products with premium/takaful contribution paying term of 20 years or more, the commission limits are as follows: Policy Year Maximum % of annual premium/takaful contribution Protection Products 12 Savings Products 13 Production Bonus Persistency Bonus 1 30% 20% 5%14 - 2 10% 5% - 10%15 3 10% 5% - 10%16 4 10% 5% - - 5 10% 5% - - 6 10% 5% - - 7 - 5% - - 8 - 5% - - 9 - 5% - - 10 - 5% - - Total 80% 65% 5% 20% S 1.7.11 In respect of single premium/takaful contribution or yearly renewable products, the commission limits are as follows: Protection Products Savings Products Ordinary life insurance/family takaful products 10% 5% Investment-linked products (including top-ups) - 3.75% S 1.7.12 Schedule 4: Commission limits post-BSC implementation (1 January 2021 and thereafter) In respect of products with premium/takaful contribution paying term of 20 years or more17 the commission limits are as follows: Policy Year Maximum % of annual premium/takaful contribution Protection Products Savings Products 1 40% 30% 2 30% 20% 3 20% 15% 4 15% 5% 5 10% 5% 6 10% 5% 7 - 5% 8 - 5% 9 - 5% 10 - 5% Total 125% 100% 12 Protection products include credit/financing-related products. 13 Savings products include investment-linked and annuity products. 14 Conditional upon meeting the qualifying criteria as established under the remuneration policy of the licensed person. 15 Conditional upon achieving first-year persistency rate of 90%. 16 Conditional upon achieving second-year persistency rate of 80%. 17 For products with premium paying term less than 20 years, the pro-rating of commissions shall be applied to total commissions. Operating Cost Controls for Life Insurance and Family Takaful Business 15 of 20 Issued on: 24 December 2019 S 1.7.13 The commission limits stipulated in Schedule 3 shall continue to apply for credit/financing-related products and single premium/takaful contribution or yearly renewable savings-type ordinary life insurance/family takaful products. S 1.7.14 Commission limits applicable for investment-linked insurance has been removed effective from 1 July 2019 and the same for investment-linked takaful products will be removed effective 1 July 2020. Operating Cost Controls for Life Insurance and Family Takaful Business 16 of 20 Issued on: 24 December 2019 S 1.7.15 Commission limits for financial advisers and insurance/takaful brokers Schedule 5: Commission limits In respect of products with premium/takaful contribution paying term of 20 years or more18 the commission limits are as follows: Policy Year Maximum % of annual premium/takaful contribution Ordinary life insurance/family takaful products Investment-linked insurance/takaful products 1 65% 40% 2 35% + 5%19 40% 3 21% + 5%20 25% 4 20% 25% 5 10% 15% 6 10% 15% Total 161% + 10% 160% S 1.7.16 The maximum percentage of commissions on single premium/takaful contribution investment-linked insurance/takaful products and top-up premium/takaful contribution shall be 3.75% of the single premium/takaful contribution. S 1.7.17 The commission limits applicable for investment-linked insurance has been removed effective from 1 July 2019 and the same for investment-linked takaful products will be removed effective 1 July 2020. S 1.7.18 The maximum percentage of commissions on single premium/takaful contribution ordinary life insurance/family takaful products, including mortgage term assurance/takaful and yearly renewable term assurance/takaful, shall be 10% of the single premium/takaful contribution. S 1.7.19 The maximum percentage of commissions on deferred annuity insurance/takaful products shall be 3% of the annual or single annuity premium/takaful contribution. S 1.7.20 A licensed person shall pay renewal commission to its former tied agents and former agency leaders who have become a financial adviser's representatives (FAR) during the transition period of five years provided the former tied agents and former agency leaders achieved a persistency of at least 85% on premium/takaful contribution for their individual sales. The renewal commission to be paid to the former tied agents and former agency leaders is limited to the basic commission as specified in Schedule 2. A licensed person shall also pay overriding commission to the agency leaders on the former tied agents’ block of business. S 1.7.21 A licensed person shall not pay any other benefits to a financial adviser, FAR, insurance/takaful broker or insurance/takaful broking staff except for commissions and product knowledge and skills training. 18 For products with premium paying term less than 20 years, the pro-rating of commissions shall be applied to total commissions. 19 Conditional upon achieving first-year persistency rate of 90%. 20 Conditional upon achieving second-year persistency rate of 80%. Operating Cost Controls for Life Insurance and Family Takaful Business 17 of 20 Issued on: 24 December 2019 Appendix II Operational details of BSC Framework S 1.1 The BSC Framework shall only be applicable to the sale/marketing of regular premium/takaful contribution products that are subject to the Guidelines on Proper Advice Practices for Life Insurance/Family Takaful Business. S 1.2 The operational details of BSC Framework for agents and bancassurance partners are stipulated in Schedules 1 and 2, respectively. S 1.3 Subject to the effective timelines as specified in paragraph 10.1, a licensed person shall also measure the performance of the other intermediaries based on the weightages and criteria of the KPIs, as may be specified by the Bank. S 1.4 Subject to 1.5 below, a licensed person shall pay the BSC commission to the intermediaries based on their individual level of performance measured under the BSC Framework, which may exceed the commission limits specified by the Bank, as the case may be. S 1.5 Where the remuneration payable to the intermediaries exceeds the commission limits specified by the Bank, a licensed person shall fund the additional commissions directly from the shareholders’ fund. S 1.6 In relation to paragraph 1.5, except for the Participating Fund, any unpaid commission resulting from intermediaries under-performing the BSC shall be utilised, in a reasonable manner, by the licensed person for purposes of training and development of under-performing intermediaries. In the case of the Participating Fund, the licensed person shall either use any unpaid commission for training and development of under-performing intermediaries or add back to the asset shares of the policyholders in that Participating Fund. Operating Cost Controls for Life Insurance and Family Takaful Business 18 of 20 Issued on: 24 December 2019 S 1.6.1 Schedule 1: BSC Framework for Agents The percentage of BSC commission payable by a licensed person to an agent shall be set at 25% of the total commission payable. S 1.6.2 For the purpose of calculating the BSC commission for agents, a licensed person shall assign weightages for the respective KPIs according to the table below – No. Key Performance Indicators (KPIs) Weightage (%) 1 Completion rate of CFF form (Option 1 or 2) 20 2a 1st year persistency rate 25 2b 2nd year persistency rate 30 3 Number of substantiated complaints 10 4 CPD hours 15 S 1.6.3 A licensed person shall measure the performance of agents, where applicable, against the criteria set out in the tables below – No Key Performance Indicators (KPIs) 1 January 2020 onwards Under-performer Normal Outperformer BSC Score 50% 75% 100% 125% 150% 1 Completion rate of CFF form (Option 1 or 2)21 50% 60% 70% 80% 90% 2a 1st year persistency rate - 85% 90% 92.5% 95% 2b 2nd year persistency rate - 75% 80% 85% 90% 3 Number of substantiated complaints - - 0 - - 4 CPD hours - - 30 - - S 1.6.4 A licensed person must establish and apply appropriate procedures, processes and tools to ensure effective evaluation and independent review of the quality of the advisory process and recommendations provided to policyholders/takaful participants based on the CFF forms completed by their staff, agents and representatives. 21 The thresholds are applicable from 1 January 2020 to 31 December 2021. A licensed person may specify the minimum number of policies required for agents to qualify for outperformer commission only. Where the licensed person has specified the minimum number of policies for outperformer, the minimum number of policies set by the licensed person must not exceed 12 policies. Operating Cost Controls for Life Insurance and Family Takaful Business 19 of 20 Issued on: 24 December 2019 S 1.6.5 Schedule 2: BSC Framework for Bancassurance Partners The percentage of BSC commission payable by a licensed person to a bancassurance partner shall be set at 35% of the total commission payable. S 1 1.6.6 For the purpose of calculating the BSC commission for bancassurance partners, a licensed person shall assign weightages for the respective KPIs according to the table below – No. Key Performance Indicators (KPIs) Weightage (%) 1 Completion rate of CFF form (Option 1 or 2) 20 2a 1st year persistency rate 30 2b 2nd year persistency rate 35 3 Number of substantiated complaints 10 4 CPD hours 5 S 1.6.7 A licensed person shall measure the performance of bancassurance partners, where applicable, against the minimum thresholds set out in the table below – No Key Performance Indicators (KPIs) Under-performer Normal Outperformer BSC Score 50% 75% 100% 125% 150% 1 Completion rate of CFF form (Option 1 or 2) 50% 60% 70% 80% 90% 2a 1st year persistency rate - 85% 90% 92.5% 95% 2b 2nd year persistency rate - 75% 80% 85% 90% 3 Number of substantiated complaints - - 0 - - 4 CPD hours - - 30 - - S G 1.6.8 1.6.9 A licensed person must establish and apply appropriate procedures, processes and tools to ensure effective evaluation and independent review of the quality of the advisory process and recommendations provided to policyholders/takaful participants based on the CFF forms completed by bancassurance partners. A licensed person may adopt higher KPI thresholds for measuring the performance of bancassurance partners in ensuring the outcomes set out in paragraph 9.1 are achieved. A licensed person may also measure the performance of bancassurance partners against the thresholds at an entity level or individual staff level as agreed with its bancassurance partners. Operating Cost Controls for Life Insurance and Family Takaful Business 20 of 20 Issued on: 24 December 2019 Appendix III Template for submission of returns (family takaful operators only) Name of Company: __________________________________ Agency-Related Expenses (ARE) for Ordinary Family Takaful Business From January to December 20XX Currency: RM Description Source of Data Rate (%) (a) Gross Direct Contributions (b) Amount (c) = (a) x (b) A. Agency-Related Expenses (ARE) 1. Allowable ARE Amount Sch 1, Form FT1-1 3 2. Actual ARE / Wakalah Fee for Commission Expenses Sch 6, Form FT1-1 and Sch 3, Form FT2 / Form FT1-122 3. (Over) / Underspending [1 - 2] 4. % of Total (Over) / Underspending [(3/1) x 100] to allowable ARE Amount Explanation for Non-Compliance with BNM/RH/PD 029-35 [Text for explanation if A(3) is negative] Signature : ___________________________________ Name : ___________________________________ Chief Executive Officer Date : ___________________________________ 22 Wakalah fee for commission expenses (exclude gross commission on direct business).

Public Notice

24 Dec 2019

Exposure Draft on Valuation of Insurance and Takaful Liabilities

https://www.bnm.gov.my/-/ed-valuation-insuranstakaful-liabilities

https://www.bnm.gov.my/documents/20124/761679/ed_valuation+of+liabilities_dec2019.pdf

Reading: Exposure Draft on Valuation of Insurance and Takaful Liabilities Share: Exposure Draft on Valuation of Insurance and Takaful Liabilities Release Date: 24 Dec 2019 Bank Negara Malaysia has issued the exposure draft on Valuation of Insurance and Takaful Liabilities today. This exposure draft sets out the proposed requirements on the valuation of insurance and takaful liabilities. The enhancements to the valuation are developed with the aim of ensuring that the liabilities are valued in a way that is: (a) adequately reflective of the underlying cash flow obligations of the insurance and takaful contracts; and (b) consistent and comparable across different insurance and takaful products. This exposure draft sets out the following requirements in relation to the valuation of insurance and takaful liabilities: (a) the roles and responsibilities of the board, senior management and the appointed actuary; (b) internal governance and management of data; (c) measurement of insurance and takaful liabilities; and (d) reporting requirements. The Bank invites written feedback on this exposure draft, including suggestions for particular issues or areas to be clarified or elaborated further and any alternative proposals that the Bank should consider. To facilitate the Bank’s assessment, please clearly notate to which paragraph each comment is related to, and support each comment with a clear rationale and accompanying evidence or illustration, as appropriate. In addition to providing general feedback, licensed insurers and licensed takaful operators are requested to respond to the specific questions set out in this exposure draft. Feedback must be submitted to the Bank by 15 April 2020. Find out more: Exposure Draft on Valuation of Insurance and Takaful Liabilities © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 24 December 2019 BNM/RH/ED 029-15 Valuation of Insurance and Takaful Liabilities Exposure Draft Applicable to: 1. Licensed insurers 2. Licensed takaful operators 3. Professional reinsurers 4. Professional retakaful operators Valuation of Insurance and Takaful Liabilities Issued on: 24 December 2019 This exposure draft sets out the proposed requirements on the valuation of insurance and takaful liabilities. The enhancements to the valuation are developed with the aim of ensuring that the liabilities are valued in a way that is: (a) adequately reflective of the underlying cash flow obligations of the insurance and takaful contracts; and (b) consistent and comparable across different insurance and takaful products. The Bank is undertaking a review of the overall solvency framework as part of its holistic review of the overall capital adequacy framework. In developing the exposure draft, the Bank has taken into consideration the developments in global regulatory and accounting standards. The Bank invites written comments on this exposure draft, including suggestions for particular issues or areas to be clarified or elaborated further and any alternative proposals that the Bank should consider. To facilitate the Bank’s assessment, please clearly notate to which paragraph each comment is related to, and support each comment with a clear rationale and accompanying evidence or illustration, as appropriate. In addition to providing general feedback, licensed persons are requested to respond to the specific questions set out in this exposure draft. Responses must be submitted electronically in the prescribed format and addressed to pfpconsult@bnm.gov.my by 15 April 2020. Submissions received may be made public unless confidentiality is specifically requested for the whole or part of the submission. In the course of preparing your feedback, you may direct any queries to the following officers at 03-26988044 – (a) Chew Hwee Yin (ext 8732) (b) Rajeswari Eliyathamby (ext 8533) (c) Nur Nabila Zafirah Abdul Samat (ext 7285) for questions on templates mailto:pfpconsult@bnm.gov.my Valuation of Insurance and Takaful Liabilities – Exposure Draft 0 of xx Issued on: 24 December 2019 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Applicability ............................................................................................... 1 3 Legal provisions ........................................................................................ 2 4 Effective date ............................................................................................. 2 5 Interpretation ............................................................................................. 2 6 Related legal instruments and policy documents ...................................... 3 7 Policy documents superseded ................................................................... 3 PART B GOVERNANCE ......................................................................................... 4 8 Roles of the board, senior management and appointed actuary ............... 4 9 Data and information used for valuation .................................................... 5 PART C MEASUREMENT OF LIABILITIES ........................................................... 7 10 General requirements ................................................................................ 7 11 Recognition and derecognition of contracts............................................... 7 12 Boundary of a recognised contract ............................................................ 8 13 General requirements on central estimate liabilities ................................ 10 14 Specific requirements for life insurance and family takaful contracts ...... 15 15 Specific requirements for general insurance and general takaful contracts .................................................................................................. 16 16 Specific requirements for takaful contracts .............................................. 17 17 Specific requirements for inwards reinsurance and inwards retakaful contracts .................................................................................................. 19 18 Reinsurance and retakaful recoveries ..................................................... 20 19 Discount rate ........................................................................................... 21 20 Provision of risk margin for adverse deviation (PRAD) ............................ 32 PART D REPORTING ........................................................................................... 34 21 Reporting to the Bank .............................................................................. 34 APPENDICES .......................................................................................................... 36 Appendix I Guidance on assessment of contract boundary for common contracts ......................................................................................... 36 Appendix II Guidance on setting assumptions ................................................... 39 Appendix III Guidance on inwards reinsurance and inwards retakaful ................ 41 Appendix IV Parameters for non-ringgit denominated cash flows ....................... 43 Valuation of Insurance and Takaful Liabilities – Exposure Draft 1 of 43 Issued on: 24 December 2019 PART A OVERVIEW 1. Introduction 1.1 The valuation of insurance and takaful liabilities forms the foundation for measurement of the capital adequacy of a licensed person, and as such should contribute towards the measurement being sufficiently risk sensitive, comparable and robust. 1.2 This policy document is developed to ensure that the insurance and takaful liabilities are calculated in a way that is: (a) reflective of the underlying cash flow obligations of the insurance and takaful contracts; and (b) consistent and comparable across different insurance and takaful products and different licensed persons. 1.3 This policy document sets out the following requirements in relation to the valuation of insurance and takaful liabilities: (a) the roles and responsibilities of the board, senior management and the appointed actuary; (b) internal governance and management of data; (c) measurement of insurance and takaful liabilities; and (d) reporting. 2. Applicability 2.1 This policy document is applicable to licensed persons as defined in paragraph 5.2. 2.2 The requirements in this policy document are applicable to businesses generated from: (a) within Malaysia; and (b) outside Malaysia, except if the Bank has approved otherwise. 2.3 In relation to paragraph 2.2(b), the Bank may consider granting an approval to exempt a branch of a foreign insurer or foreign takaful operator from the requirements in this policy document, if the following conditions are met: (a) there is explicit undertaking from the branch’s head office to satisfy the liabilities arising from businesses outside Malaysia in the event that the branch is unable to fulfil its obligations; (b) the branch belongs to a group with a strong financial position; (c) the branch is subjected to consolidated supervision by a recognised and competent home supervisory authority; and (d) effective home-host supervisory cooperation arrangements between the Bank and the foreign insurer or foreign takaful operator’s home supervisory authorities are in place. Valuation of Insurance and Takaful Liabilities – Exposure Draft 2 of 43 Issued on: 24 December 2019 3. Legal provisions 3.1 This policy document is issued pursuant to: (a) sections 47(1), 143(1) and 266 of the Financial Services Act 2013 (FSA); and (b) sections 57(1), 155(1) and 277 of the Islamic Financial Services Act 2013 (IFSA). 4. Effective date 4.1 This policy document comes into effect on [dd/mm/yyyy, a date which will be determined later with the finalisation of the policy document]. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purposes of this policy document – “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “board” means the board of directors of a licensed person, including a committee of the board where the responsibilities of the board set out in this policy document have been delegated to such a committee; “licensed person” refers collectively to – (a) a licensed insurer; (b) a licensed takaful operator; (c) a professional reinsurer; and (d) a professional retakaful operator; “non-participating life policy” refers to a life policy not conferring any right to share in the surplus of a life insurance fund; “Participant Individual Fund” or “PIF” refers to a takaful fund established to allocate a portion of a takaful participant’s contributions for the purpose of investment or savings; “Participants Risk Fund” or “PRF” refers to a takaful fund established to pool a portion of a takaful participant’s contributions for the purpose of Valuation of Insurance and Takaful Liabilities – Exposure Draft 3 of 43 Issued on: 24 December 2019 meeting takaful claims associated with events or risks specified in the takaful certificate; and “senior management” refers to the chief executive officer and senior officers of a licensed person. 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular – (a) Risk-Based Capital Framework for Insurers; (b) Risk-Based Capital Framework for Takaful Operators; (c) Takaful Operational Framework; (d) Appointed Actuary: Appointment and Duties; (e) Appointed Actuary: Appointment and Duties (for reinsurers and retakaful operators); (f) Financial Condition Report; (g) Management of Participating Life Business; and (h) Corporate Governance. 7. Policy documents superseded 7.1 This policy document supersedes – (a) paragraphs 19.2 and 19.3 of Part D, Appendix VI and Appendix VII of the policy document on Risk-Based Capital Framework for Insurers issued on 17 December 2018; (b) Guidelines on Valuation Basis for Liabilities of Family Takaful Business issued on 16 May 2012; and (c) Guidelines on Valuation Basis for Liabilities of General Takaful Business issued on 15 May 2012. Valuation of Insurance and Takaful Liabilities – Exposure Draft 4 of 43 Issued on: 24 December 2019 PART B GOVERNANCE 8. Roles of the board, senior management and appointed actuary S 8.1 A licensed person must set up appropriate provisions for insurance or takaful liabilities, to ensure that adequate funds are available to meet all contractual obligations and commitments as they fall due. For licensed takaful operators1 (including professional retakaful operators), this includes liabilities in the shareholders’ fund as well as family or general takaful funds. S 8.2 The board and senior management are accountable for ensuring effective oversight and governance of the valuation of insurance or takaful liabilities. This shall be supported by robust internal policies and controls to ensure compliance with relevant laws, regulations and prudential requirements, including those relating to Shariah for licensed takaful operators. S 8.3 In fulfilling its responsibilities under paragraph 8.2, the senior management must: (a) establish relevant internal policies and controls related to the valuation of insurance or takaful liabilities; (b) establish mechanisms and processes to monitor compliance with the internal policies and controls related to the valuation of insurance or takaful liabilities at all times; (c) ensure adequate resources and support for the appointed actuary to perform the valuation of liabilities, including data, systems, people and technology; (d) ensure that the duties of the appointed actuary can be discharged without any hindrance; (e) provide2 the appointed actuary with unrestricted access to the relevant data, records and accounts, and furnish any requested information in a timely manner; (f) set up reserves for insurance or takaful liabilities in accordance with the valuation results prepared by the appointed actuary and authorised by the chief executive officer; and (g) undertake actions in a timely manner based on the results of the valuation and discussion with the appointed actuary. S 8.4 In performing his/her duties related to the valuation of insurance or takaful liabilities, the appointed actuary must: 1 The Shariah Advisory Council of the Bank has resolved that the setting up of provision for liabilities of takaful business is permissible. Holding provisions to ensure the ability of the takaful fund to meet its obligations is a prudent approach, as Shariah promotes taking precautionary measures to address future uncertainty. 2 Section 79 of the FSA and section 88 of the IFSA require the licensed person and any director, officer or controller of the licensed person to – (a) provide the appointed actuary all information within its or his/her knowledge or capable of being obtained by it or him/her which the appointed actuary may require; and (b) ensure that all such information provided under paragraph (a) is accurate, complete, not false or misleading, in any material particular, to enable the appointed actuary to carry out his/her duties and functions. Valuation of Insurance and Takaful Liabilities – Exposure Draft 5 of 43 Issued on: 24 December 2019 (a) comply with the requirements specified in paragraphs 9.1(a) and 9.4 of the policy document on Appointed Actuary: Appointment and Duties (BNM/RH/STD 029-5); (b) determine the level of reserves required, based on his/her professional valuation of the insurance or takaful liabilities of the licensed person, in accordance with the requirements in this policy document; (c) discuss the results of the valuation with the senior management and highlight issues that have implications on the financial condition of the licensed person; and (d) submit a report on the results of the valuation of insurance or takaful liabilities to the board and senior management annually, no later than 3 months after the financial year end. 9. Data and information used for valuation S 9.1 A licensed person must have in place internal policies, processes and procedures to ensure that the data used for the valuation of liabilities is appropriate, sufficiently credible, accurate and complete. S 9.2 In assessing the appropriateness of the data used, a licensed person must ensure that, at minimum: (a) the data is adequate to support the determination of assumptions and application of measurement methodologies; (b) the data provides a sufficient level of granularity to enable an assessment of the underlying risks of the insurance or takaful contract; and (c) data from different time periods are used consistently. S 9.3 A licensed person must ensure that adequate checks are carried out to assess the credibility, accuracy and completeness of data. S 9.4 In the event that there are reasons to believe that the data may not be credible, accurate and/or complete, a licensed person must ensure that an assessment is carried out to ascertain whether the use of such data may produce material biases in the results. In such circumstances, the appointed actuary must apply professional judgement and make adjustments or allowances in his/her estimations, where deemed necessary. G 9.5 Adjustments to the data may also be made by a licensed person to account for abnormal items (e.g. large losses or catastrophe losses). S 9.6 In the event that any adjustments or allowances are made, a licensed person must clearly document such actions and include, at minimum, the following information: (a) description of the data limitations; (b) impact of the data limitations in carrying out the valuation; (c) description of the actions taken to address the data limitations; and (d) rationale for the adjustments or allowances made. Valuation of Insurance and Takaful Liabilities – Exposure Draft 6 of 43 Issued on: 24 December 2019 S 9.7 Where industry data is used, the same quality of data must be observed by the licensed person, as would have been the case if the licensed person’s data is used. In this regard, the licensed person must be able to demonstrate knowledge of the source of the data and the assumptions or methodologies adopted to process the data. S 9.8 A licensed person must clearly document any use of industry data and include, at minimum, the following information: (a) source of the data; (b) assumptions and/or methodologies adopted to process the data; (c) rationale for the use of industry data instead of own data; and (d) actions taken to develop own data. S 9.9 In addition to quantitative information, a licensed person must also consider qualitative information and factors that would have an impact on the appropriateness of the valuation results, including, at minimum: (a) underwriting policy and processes; (b) claims policy and processes; (c) reinsurance or retakaful arrangements; (d) features of the policy or takaful certificate; (e) legal decisions affecting claims settlement; (f) operational issues, including changes to systems and personnel; and (g) any other information relevant for the purposes of valuation of insurance or takaful liabilities. Valuation of Insurance and Takaful Liabilities – Exposure Draft 7 of 43 Issued on: 24 December 2019 PART C MEASUREMENT OF LIABILITIES 10. General requirements S 10.1 A licensed person must calculate the liabilities of an insurance or takaful contract in compliance with the requirements set out in the following paragraphs, where the liabilities consist of: (a) the central estimate liabilities; and (b) a provision of risk margin for adverse deviation (PRAD). 11. Recognition and derecognition of contracts S 11.1 A licensed person must recognise an insurance or takaful contract from the earliest of the following: (a) the beginning of the coverage period of the contract; and (b) the date when the first premium or takaful contribution payment from the policy owner or takaful participant becomes due. If there is no contractual due date, the first payment from the policy owner or takaful participant is deemed to be due when it is received. S 11.2 A licensed person must derecognise an insurance or takaful contract when the obligations specified in the contract expire, are discharged or cancelled. Questions 1. For the purpose of determining when the first premium or takaful contribution becomes due: (a) How does your company define the “contractual due date” for the payment of the first premium or takaful contribution? (b) Are there any products with no contractual due date for the payment of the first premium or takaful contribution payment? If yes, please provide details on the products, views on any potential difficulties in applying the requirements in paragraph 11.1, and suggestions on alternative treatment, if any, for such products. 2. Does your company currently receive premiums or takaful contributions before the beginning of the coverage period of the contract? If yes, please provide the following information: (a) How these premiums or takaful contributions are currently treated (e.g. held as additional provisions until the policies or takaful certificates are incepted, or accounted for as part of the insurance or takaful liabilities); and (b) Whether the treatment of such premiums or takaful contributions would change in light of the requirements in paragraph 11.1. Please elaborate on the changes required and the wider impact of these changes (e.g. on the balance sheet and other relevant operational aspects). [Additional data required: For input in Workbook A Amount of these premiums or takaful contributions in terms of monetary amount and percentage of total gross written premiums or takaful contributions] Valuation of Insurance and Takaful Liabilities – Exposure Draft 8 of 43 Issued on: 24 December 2019 3. In relation to pipeline premiums or takaful contributions, please provide the following information: (a) How your company defines pipeline premiums or takaful contributions; (b) How these premiums or takaful contributions are currently treated (e.g. held as additional provisions or accounted for as part of the insurance or takaful liabilities); and (c) Whether any changes to the methodology, internal policies or systems will have to be made in order to comply with the requirements in paragraph 11.1. Please elaborate on the changes required and the wider impact of these changes (e.g. on the balance sheet and other relevant operational aspects). [Additional data required: For input in Workbook A Amount of these pipeline premiums or takaful contributions in terms of monetary amount and percentage of total gross written premiums or takaful contributions] 4. The proposed requirements intend to ensure that a contract is recognised as soon as the legal obligation is created. In your view, are there any other circumstances, apart from the receipt of premiums or takaful contributions, which may be construed as the creation of a company’s legal obligation to policy owners or takaful participants? If yes, please elaborate with reasons and details of any challenges that can be foreseen in accounting for these other circumstances. 5. Please elaborate on any other challenges in applying the requirements on recognition and derecognition of contracts (e.g. for contracts with conversions or modifications). 12. Boundary of a recognised contract S 12.1 In measuring the liabilities of a recognised contract, a licensed person must ensure that the time horizon (“boundary of a contract”) and corresponding cash flows taken into account are reflective of the underlying obligations of the contract. In order to do so, the licensed person must determine the boundary of a contract such that it ends when: (a) the licensed person can no longer compel the policy owner or takaful participant to pay the premiums or takaful contributions; or (b) the licensed person no longer has a substantive obligation to provide the policy owner or takaful participant with services or coverage. The licensed person must assess when this substantive obligation ends according to paragraph 12.2. S 12.2 A substantive obligation to provide services or coverage ends when: (a) the licensed person has the practical ability to reassess the insurance or takaful risks3 of the particular policy owner or takaful participant and, as a result, can set a price or level of benefits that fully reflects those risks; or (b) both of the following criteria are satisfied: (i) the licensed person has the practical ability to reassess the insurance or takaful risks of the portfolio of insurance or takaful 3 Insurance or takaful risks do not include lapse, expense and investment risks. Valuation of Insurance and Takaful Liabilities – Exposure Draft 9 of 43 Issued on: 24 December 2019 contracts that contains the contract and, as a result, can set a price or level of benefits that fully reflects the risks of that portfolio; and (ii) the pricing of the premiums or takaful contributions for coverage up to the date when the insurance or takaful risks are reassessed does not take into account the risks that relate to future periods after the reassessment date. S 12.3 In relation to paragraph 12.2(a), a licensed person has the practical ability to set a price at a future date that fully reflects the risks of the contract from that date if there are no constraints that prevent the licensed person from: (a) setting the same price it would for a new contract with the same characteristics as the existing contract issued on that future date; or (b) amending the benefits to be consistent with the price it will charge. S 12.4 In relation to paragraph 12.2(b)(i), a licensed person has the practical ability to set a price that fully reflects the risks of the portfolio if it is able to reprice an existing contract such that the price reflects the overall changes in the risks of a portfolio of insurance or takaful contracts, even if the price set for each contract does not reflect the risks specific to the contract. G 12.5 Appendix I sets out guidance on the assessment of the contract boundary for common insurance or takaful contracts. S 12.6 Notwithstanding paragraph 12.1, with regard to medical and health insurance or takaful contracts, a licensed person must determine the contract boundary such that it covers the entire duration where coverage is contractually guaranteed, even if premiums or takaful contributions are not guaranteed. This includes contracts where renewability is guaranteed. Questions 6. Are there any contracts for which you face challenges in determining the boundary? If yes, please provide details on the features of the contracts, the challenges faced and the proposed way forward. 7. With regard to medical and health insurance and takaful contracts, it is proposed that the contract boundary covers the entire duration for which the coverage is contractually guaranteed, in consideration of the lack of practical ability to fully reprice these contracts. For example: (a) If renewability of a yearly renewable medical and health insurance or takaful contract is guaranteed for 10 years, the contract boundary should cover the 10 years. (b) For a medical and health insurance or takaful contract which provides coverage for 10 years, the contract boundary should cover the 10 years even if the premiums or takaful contributions are reviewable during the duration of cover. (i) Please provide views on whether the proposed treatment reflects the characteristics of these contracts and whether there are any implications arising from the proposal. Valuation of Insurance and Takaful Liabilities – Exposure Draft 10 of 43 Issued on: 24 December 2019 (ii) Does your company have any participating medical and health insurance products which can be repriced? If yes, please explain how repricing is considered against revisions of bonus rates. [Additional data required: For input in Workbook A For medical and health insurance and takaful contracts other than non-guaranteed yearly renewable and participating ones, please provide the liabilities under two scenarios: (i) Where there is no ability to reprice; and (ii) Where there is ability to reprice. In both scenarios, the contract boundary must cover the entire duration for which the coverage is contractually guaranteed.] 13. General requirements on central estimate liabilities Principles for the calculation of central estimate S 13.1 A licensed person must determine the central estimate liabilities as the probability-weighted average of future cash flows that will arise as the licensed person fulfils the obligations of the insurance or takaful contract, discounted to allow for the time value of money. S 13.2 In determining the central estimate, a licensed person must adequately consider the variability and uncertainty of cash flows in order to ensure that they represent the mean of the distribution of cash flow values. G 13.3 In relation to paragraph 13.2, it may not be necessary or possible to explicitly account for all possible scenarios or develop probability distributions in all cases. As such, the licensed person may use other methods to proxy all scenarios, for example by using generally accepted closed-form solutions. S 13.4 A licensed person must measure the central estimate liabilities gross of reinsurance or retakaful. The recoveries from reinsurance or retakaful arrangements, which are to be determined net of any payments to the reinsurer or retakaful operator, are to be measured separately. S 13.5 In the event that the value of the central estimate liabilities is determined to be negative, a licensed person must not zeroise the central estimate liabilities. Cash flow projections S 13.6 In determining the central estimate, a licensed person must include: (a) cash flows arising from claim events that have occurred before or at the valuation date, where the obligations to meet these cash flows have not been extinguished; and (b) all future cash flows that are within the boundary of the contract. S 13.7 A licensed person must not include any amounts relating to expected premiums or takaful contributions or expected claims outside the boundary of the insurance or takaful contract in the measurement of the liabilities of the Valuation of Insurance and Takaful Liabilities – Exposure Draft 11 of 43 Issued on: 24 December 2019 contract. In this regard, cash flows that may arise from future new business must not be taken into account in the measurement of liabilities of the insurance or takaful contracts. S 13.8 In estimating future cash flows, a licensed person must: (a) incorporate in an unbiased way, all reasonable and supportable information about the amount, timing and uncertainty of those future cash flows; (b) take into account relationships between inter-dependent cash flows, including those arising from separate but related contracts; and (c) ensure that the estimates reflect conditions existing at the valuation date, including assumptions at that date about the future. G 13.9 In relation to paragraph 13.8(b), examples of relationships that must be considered include those between: (a) basic policies or takaful certificates, and riders or add-ons; and (b) cash flows in different funds, such as the PRF and the shareholders’ fund for takaful contracts. S 13.10 A licensed person must include the following as cash inflows within the boundary of an insurance or takaful contract: (a) future premiums or takaful contributions; (b) potential recoveries on incurred claims and from future claims, including recoveries from pre-payment of benefits, salvage and subrogation; and (c) for takaful contracts, shareholders’ fund income, including remuneration from the PRF and the PIF. S 13.11 A licensed person must include the following as cash outflows within the boundary of an insurance or takaful contract: (a) future payments to (or on behalf of) policy owners or takaful participants, in relation to claims that have already been incurred, as well as those expected to be incurred after the valuation date; and (b) direct and indirect expenses that will be incurred in fulfilling the insurance or takaful contract, including but not limited to, administrative, investment management, claims management, acquisition and overhead expenses. For takaful contracts, expenses are those incurred by both the takaful and shareholders’ funds. S 13.12 In relation to paragraph 13.11(a), a licensed person must include discretionary payments such as bonuses to participating life policy owners and surplus distribution to takaful participants. In doing so, the licensed person must take into account future management actions that would reasonably be expected to be carried out under the specific circumstances to which those actions apply. G 13.13 In relation to paragraph 13.12, examples of future management actions are bonus revisions for participating life contracts and decisions on the distribution of surplus for takaful contracts. Valuation of Insurance and Takaful Liabilities – Exposure Draft 12 of 43 Issued on: 24 December 2019 S 13.14 A licensed person must also identify and take into account all contractual options and financial guarantees embedded in the respective contracts. The central estimate of these options and guarantees must be valued using a stochastic method, unless they do not form a significant portion of the business and the result of using a deterministic method would not materially depart from that using a stochastic method. Methods for determining the central estimate liabilities S 13.15 A licensed person must ensure that the method used to determine the central estimate liabilities is appropriate to the nature of the liabilities, in order to achieve the outcome required under paragaph 13.1. G 13.16 The choice of method for determining the central estimate liabilities would differ according to whether the liabilities relate to life insurance or family takaful, or general insurance or general takaful contracts. For example: (a) the central estimate liabilities of life insurance and family takaful contracts are typically determined using discounted cash flow approaches, applied on a contract-by-contract basis, which explicitly takes into account the probabilities of the risk factors materialising (e.g. death, survival, disability and morbidity); and (b) the central estimate liabilities of general insurance and general takaful contracts are typically determined using aggregated projections of run- off claims triangles, frequency-severity models, estimations based on expected loss ratios, or a combination of these methods. These methods may also be suitable for life insurance and family takaful contracts, particularly those with contract boundary of one year or less. Determination of homogeneous risk groups S 13.17 For the purposes of valuation, a licensed person must group the insurance or takaful contracts based on homogeneity of risks (“homogeneous risk groups”). S 13.18 In assessing whether the risks are homogeneous, a licensed person must consider, at minimum, the following areas: (a) the risk drivers of the contract, taking into account the features of the product and the risk profiles of the policy owners or takaful participants; (b) the nature and duration of exposure to the risk; and (c) how risk is shared between contracts, including in relation to any internal policies on surplus participation or sharing and/or cross-subsidy. G 13.19 In assessing the areas set out in paragraph 13.18, a licensed person may consider the following factors: (a) for risk drivers, the coverage provided by the contract, underwriting practices, inception year, any underlying options and guarantees and the stability of experience and risk characteristics over time; and (b) for the nature and duration of exposure to the risk, not just the length of the contractual obligation, but also the nature of the tail of the risk. Valuation of Insurance and Takaful Liabilities – Exposure Draft 13 of 43 Issued on: 24 December 2019 S 13.20 In addition to the homogeneity of risks, a licensed person must take into account the following when determining the grouping of insurance or takaful contracts: (a) the methodology that will be applied to determine the central estimate liabilities of the insurance or takaful contracts within the group; and (b) the level of information needed to facilitate the analysis necessary to determine the assumptions underlying the central estimate. In this regard, the licensed person must balance between the credibility of data available and homogeneity of risk chararacteristics within the group. G 13.21 The appropriate level of homogeneity generally differs for different types of contracts. For example: (a) for life insurance and family takaful contracts, the homogeneity of risks is typically considered in terms of product type, the expected experience of risk factors (e.g. mortality, morbidity) and the way in which risk is shared between different contracts; and (b) for general insurance and general takaful contracts, the homogeneity of risks is typically considered in terms of business lines/sub-lines, length of the contractual obligation and/or nature of the tail of the risks. Assumptions underlying the central estimate S 13.22 In determining the appropriate assumptions for a homogeneous risk group, a licensed person must take into account: (a) the licensed person’s actual experience and, where relevant and appropriate, industry benchmark data; and (b) expectations on future changes that may affect the cash flows of the contracts. S 13.23 In relation to paragraph 13.22, a licensed person must consider, where relevant and appropriate, the following factors: (a) demographic assumptions, including mortality and morbidity; (b) policy owners’ or takaful participants’ behaviour, including persistency rates, and the exercise of other contractual options; (c) expenses; (d) economic inflation; (e) claims behaviour; and (f) counterparty default on recoveries, including from reinsurance or retakaful arrangements, pre-payment of claims, salvage, subrogation and structured products. G 13.24 Further guidance on the setting of assumptions is set out in Appendix II. S 13.25 A licensed person must periodically review and update the assumptions to ensure that they remain appropriate and relevant. At minimum, the licensed person must carry out a comparative study between actual and expected experience annually and use the outcome of the study to support the determination of assumptions. Valuation of Insurance and Takaful Liabilities – Exposure Draft 14 of 43 Issued on: 24 December 2019 S 13.26 A licensed person must ensure that the comparative study between actual and expected experience is carried out: (a) at a sufficient level of granularity; and (b) using an approach and basis that are appropriate to the nature of the risks underlying the contracts. G 13.27 In relation to paragraph 13.26, a licensed person may consider the different approaches and bases as follows: (a) for life insurance and family takaful contracts, the actual and expected experience may be analysed according to individual key risk factors, such as mortality, persistency, expense and investment, and based on policy or takaful certificate count and/or sum assured or sum covered; and (b) for general insurance and general takaful contracts, the analysis may be carried out on actual and expected claims experience of the entire homogeneous risk group. In addition, further analysis may be carried out based on the number of claims, average claims cost and claims frequency. Questions 8. Is there any undistributed surplus in any of the insurance funds or PRFs which has not been accounted for in determining the central estimate liabilities? If yes, please provide reasons for not including the surplus (e.g. assessed to be the estate, contractual limitations to surplus sharing). [Additional data required: For input in Workbook A Amount of undistributed surplus which has not been accounted for in the central estimate liabilities] 9. Are there any challenges in assessing and accounting for relationships between inter- dependent cash flows? If yes, please elaborate with details of the types of products or features which have given rise to the challenges. 10. Have you used stochastic models in determining the central estimate liabilities? If yes, please provide details of the products for which such models have been used, including types of products and aspects for which a stochastic model has been adopted. If no, please elaborate on the considerations and the approach you are likely to take moving forward. 11. In relation to paragraph 13.23(f), (a) How have you taken into account counterparty default in determining the central estimate for recoveries? Please elaborate. (b) Please provide the difference in reinsurance or retakaful recoveries (in terms of percentage) between two scenarios: (i) Where counterparty default is considered; and (ii) Where counterparty default is not considered. Valuation of Insurance and Takaful Liabilities – Exposure Draft 15 of 43 Issued on: 24 December 2019 14. Specific requirements for life insurance and family takaful contracts S 14.1 A licensed person must carry out cash flow projections, used in the measurement of central estimate liabilities, separately for each life insurance or family takaful contract. S 14.2 Where separate projections for each life insurance or family takaful contract is not possible and the licensed person carries out the cash flow projection by grouping the life insurance or family takaful contracts, it must ensure that: (a) there are no significant differences in the nature and complexity of the risks underlying the life insurance or family takaful contracts in the same group; (b) the grouping of life insurance or family takaful contracts does not misrepresent the risks inherent in the life insurance or family takaful contracts and does not misstate their expenses; and (c) the grouping of life insurance or family takaful contracts is likely to give approximately the same results for the measurement of central estimate liabilities as that of a projection on a per life insurance or family takaful contract basis. S 14.3 If a cash flow projection by groups of life insurance or family takaful contracts is adopted, the licensed person must clearly document the supporting justifications. S 14.4 In projecting the cash flows for participating life contracts, a licensed person must reflect the impact of managing the contracts according to cohorts, which have been determined in line with the requirements in paragraph 10.3 of the policy document on Management of Participating Life Business (BNM/RH/PD 032-1). This includes taking into account the restrictions on cross-subsidy between cohorts. Questions 12. Based on your understanding of the requirements, please describe how the following items have been taken into account in determining the central estimate liabilities. If they have not been taken into account, please elaborate on the current treatment and how you intend to treat them moving forward. (a) Policy loans (b) Funds held on deposit [Additional data required: For input in Workbook A Amount of policy loans and funds held on deposit] 13. In relation to management actions, please describe, where applicable: (a) For participating products, the methodology used to account for bonus adjustments, any challenges faced in modelling the cash flows and the proposed way forward. (b) For universal life products, the methodology used to account for changes in crediting rates, any challenges faced in modelling the cash flows and the proposed way forward. Valuation of Insurance and Takaful Liabilities – Exposure Draft 16 of 43 Issued on: 24 December 2019 [Additional data required: For input in Workbook A For participating products, please provide the liabilities under two scenarios: i) Based on your current approach; and ii) Incorporating future management actions regarding bonus rates] 14. Are there any contracts for which you have used the method more commonly used for general insurance or general takaful contracts, as described under paragraph 13.16(b)? If yes, please provide details of the relevant products, approach taken and the considerations for the choice of approach. 15. Specific requirements for general insurance and general takaful contracts S 15.1 For general insurance and general takaful contracts, a licensed person must determine the central estimate liabilities for homogeneous risk groups for the expired and unexpired portions of risk separately, where: (a) the expired portion of risk relates to all claim events that have already occurred before or at the valuation date, whether already reported or not, where the obligations to meet these cash flows have not been extinguished (“claims liabilities”); and (b) the unexpired portion of risk relates to future events that are expected to occur after the valuation date and within the boundary of the contract (“unexpired risk reserve (URR)”). S 15.2 In relation to paragraph 15.1, a licensed person must measure the central estimate liabilities as the discounted value of the expected cash inflows and outflows within the boundary of the underlying contracts. S 15.3 In relation to paragraph 15.2, a licensed person must explicitly account for claims inflation in determining the central estimate liabilities. S 15.4 In relation to paragraph 15.1(a), in determining the claims liabilities, a licensed person must ensure that more than one method is used, and comparisons are made between the results of different methods. Where the results differ significantly, the licensed person must clearly document the ultimate choice, with justifications. G 15.5 Examples of methods that may be used to determine the claims liabilities include the Chain Ladder, Bornhuetter-Ferguson and Frequency-Severity methods. S 15.6 A licensed person must ensure that claims that have been reported (“claims reported”) are accounted for appropriately and in a timely manner. In this regard, the licensed person must: (a) enter every claim intimation it receives in its register of claims, which is maintained in compliance with paragraph 15.1(b) of the policy document on Management of Insurance Funds (BNM/RH/PD 032-15) or paragraph 20.8 of the policy document on Takaful Operational Framework Valuation of Insurance and Takaful Liabilities – Exposure Draft 17 of 43 Issued on: 24 December 2019 (BNM/RH/PD 033-7), no later than 14 days from the date of receipt of the claim intimation, unless it establishes that the claim does not relate to any of its policies or takaful certificates; and (b) carry out the necessary investigations and assessments to determine its liability if the details of a claim intimation are insufficient for it to determine whether the claim relates to its policy or takaful certificate. S 15.7 A licensed person must account for expected claims behaviour until such time the claim is barred by the statute of limitations. S 15.8 In relation to paragraph 15.1(b), the URR must not be equal to the unearned premium or unearned takaful contribution calculated without any adjustments to adequately reflect the unexpired portion of risk. G 15.9 For a reasonably homogeneous and stable risk group with contract boundary of one year or less, a licensed person may estimate the URR by extending the outstanding claims valuation model on the basis of claims frequencies, average claims costs and ultimate loss ratios or some similar measure of exposure. If this is done, adjustments may be made to the assumptions to reflect the impact of discounting future claims, changes in risk exposure, underwriting standards, premium or takaful contribution rate levels, or other relevant factors on the expected future claims experience. Questions 15. In relation to paragraph 15.1(b), please describe how the URR has been calculated for contracts with boundary of one year or less. 16. Please describe the methodology for determining the central estimate liabilities for contracts with boundary of more than one year (e.g. long-term fire insurance and takaful contracts, guaranteed yearly renewable medical and health insurance and takaful contracts), including any challenges faced and potential ways forward. 17. In your view, what would be an appropriate methodology for determining the liabilities relating to the Malaysian Motor Insurance Pool (MMIP)? Please describe your proposed methodology in sufficient detail. 16. Specific requirements for takaful contracts S 16.1 In estimating future cash flows for the determination of the central estimate liabilities, for each takaful contract, a licensed takaful operator must take into account the inter-dependent cash flows managed under the PRF, PIF and shareholders’ fund (SHF). S 16.2 In line with paragraph 16.1, a licensed takaful operator must account for expected future distributions of surplus from the PRF to the shareholders’ fund as an inter-fund cash flow. Valuation of Insurance and Takaful Liabilities – Exposure Draft 18 of 43 Issued on: 24 December 2019 G 16.3 Figure 1 illustrates the cash flows underlying a takaful contract, taking into account the interactions between the PRF and the shareholders’ fund, and other forms of income to the SHF. G 16.4 The requirement to account for inter-dependent cash flows for each takaful contract set out in paragraph 16.1 does not preclude a licensed takaful operator from carrying out cash flow projections by grouping takaful contracts, provided that the conditions under paragraph 14.2 are met. S 16.5 In relation to future surplus or profit distributions from the PRF and the PIF: (a) The licensed takaful operator must ensure that these cash flows are estimated in accordance with its internal policies on surplus management and remuneration from PIF; and (b) For future surplus distributions from the PRF, which are determined at a level higher than individual takaful contracts, the licensed takaful operator must reallocate the estimated future surplus distribution back to the individual contracts to determine the central estimate liabilities. S 16.6 Notwithstanding the requirement to consider the inter-dependence of cash flows for each takaful contract, a licensed takaful operator must report the liabilities according to the relevant funds, in line with paragraph 21.6. Figure 1: Illustration of interactions between cash flows of takaful contracts Tabarru’ • Benefits • Expenses payable from PRF • Participant’s portion of distributable surplus Shareholders’ portion of distributable surplus Wakalah and other fees* Expenses Remuneration from PRF PRF SHF Inflows Outflows Remuneration from PIF * For example, fund management charges from investment-linked contracts Valuation of Insurance and Takaful Liabilities – Exposure Draft 19 of 43 Issued on: 24 December 2019 Questions 18. In relation to surplus sharing, (a) Please describe the internal policy on surplus sharing among takaful participants (for example, surplus sharing criteria, considerations in pooling takaful participants, use of the asset share concept); and (b) Please elaborate on how the surplus expected to be shared is re-allocated to the respective contracts for valuation purposes. [Additional data required: For input in Workbook A Please provide quantitative data which represents how surplus is shared between contracts] 19. Please provide your Shariah committee’s views on the proposed requirements in respect of determining the central estimate liabilities, such as whether the method for determining the expected future surplus distributions to takaful participants and shareholders is in line with the Shariah principles on probability and time value of money. 17. Specific requirements for inwards reinsurance and inwards retakaful contracts S 17.1 For inwards reinsurance and inwards retakaful contracts, a licensed person must determine the central estimate liabilities for homogeneous risk groups for the expired and unexpired portions of risk separately, in line with the requirements for general insurance and general takaful contracts under paragraph 15. S 17.2 For inwards reinsurance and inwards retakaful contracts, a licensed person must consider the unique characteristics of specific treaties or circumstances. This includes, but is not limited to: (a) treaties where termination is on a clean-cut basis; (b) inwards reinsurance or inwards retakaful business written from countries with strong experience of litigation; and (c) inwards reinsurance or inwards retakaful business where there is a possibility of latent claims exposure. G 17.3 Additional guidance on inwards reinsurance and inwards retakaful is set out in Appendix III. Questions 20. Please describe the methodology that your company uses to determine the central estimate liabilities for inwards reinsurance or inwards retakaful contracts. Please explain if there is a need to make changes to the methodology in light of the proposed requirements. Valuation of Insurance and Takaful Liabilities – Exposure Draft 20 of 43 Issued on: 24 December 2019 21. Please elaborate on any challenges faced or likely to be faced in measuring the central estimate liabilities of inwards reinsurance or inwards retakaful contracts. Please explain how you intend to manage these challenges. 18. Reinsurance and retakaful recoveries S 18.1 A licensed person must determine the expected net recoveries from reinsurance or retakaful arrangements for each direct underlying contract by projecting the expected future cash flows arising from the reinsurance or retakaful arrangement. S 18.2 In determining the amount of recoveries from the reinsurance or retakaful arrangement, a licensed person must: (a) assess the substance of the reinsurance or retakaful arrangement in place by considering the reinsurer or retakaful operator’s contractual obligations to the licensed person. This must include an assessment on renewability of the reinsurance or retakaful contract and reviewability of the reinsurance premiums or retakaful contributions; and (b) incorporate all relevant expected future cash flows, based on the assessment carried out under paragraph 18.2(a), including future payments to the reinsurer or retakaful operator, in relation to the particular underlying contract. S 18.3 In estimating the future cash flows for the reinsurance or retakaful arrangement, a licensed person must: (a) use assumptions that are consistent with those used to estimate the future cash flows of the underlying insurance or takaful contract; and (b) take into account the risk of counterparty default. S 18.4 Where it is not practical for a licensed person to explicitly determine the expected net recoveries from reinsurance or retakaful arrangements for each underlying contract according to paragraph 18.1 and the licensed person uses a simplified method to derive the expected net recoveries from reinsurance or retakaful arrangements, this must be documented. G 18.5 For example, for some reinsurance or retakaful arrangements which are non- proportional, the net reinsurance or retakaful recoveries may be derived as the difference between gross and net central estimate liabilities. Questions 22. In relation to paragraph 18.2(b), please explain how expected profit commissions is treated, in determining the amount of reinsurance or retakaful recoveries. Please provide the rationale for such treatment. 23. Do you foresee any challenges in explicitly deriving the expected reinsurance or retakaful recoveries according to paragraph 18.1? If yes, please elaborate and provide details on any simplifications which you intend to adopt (e.g. notional reattribution), with rationale. Valuation of Insurance and Takaful Liabilities – Exposure Draft 21 of 43 Issued on: 24 December 2019 19. Discount rate S 19.1 A licensed person must use the discounting approach outlined in paragraph 19 to discount all future cash flows when determining the central estimate liabilities of the insurance or takaful contracts. The same yield curve is to be used to discount all cash flows arising from a particular contract, and its inter- dependent contracts. S 19.2 A licensed person must set assumptions for investment returns which are consistent with the rates used for discounting future cash flows. A. Overall design of the yield curve The Bank intends to make enhancements to the discounting approach such that there is greater consistency and better reflection of the cost of writing long-term products. In doing so, the Bank is exploring potential designs for these enhancements. In this regard, the Bank would like to seek your feedback on the proposed discounting approach: (a) the base risk-free yield curve; and (b) for ringgit-denominated life insurance and family takaful contracts with boundary greater than one year, a positive adjustment to the risk-free yield curve, either in the form of: (i) a volatility adjustment; or (ii) a matching adjustment, where the applicability of adjustments will depend on the nature of the cash flows. An overview of the proposed enhancements to discounting approach is as follows: Discount rates and description of key features Eligible contracts Approval requirements Base risk-free yield curve  The base risk-free rate will be derived based on the Smith-Wilson methodology.  The method relies on additional inputs which are not in the methodology used in the existing requirements.  All general insurance and general takaful contracts  For life insurance and family takaful contracts: o Unitised or account- based contracts; and o Any other contracts which do not meet the criteria for the application of the volatility or matching adjustment, or which meet the criteria but the licensed person has chosen not to apply any adjustments. The Bank’s prior approval is not required. Valuation of Insurance and Takaful Liabilities – Exposure Draft 22 of 43 Issued on: 24 December 2019 Base risk-free yield curve plus volatility adjustment  The volatility adjustment is linked to the adjusted AA-rated spread of a fixed representative portfolio of the insurance or takaful industry’s holdings in corporate bonds or sukuk. Ringgit-denominated life insurance and family takaful contracts with:  contract boundary greater than one year; and  highly predictable cash flows, as assessed against the criteria specified in the section on volatility adjustment (Item C(1)). The Bank’s prior approval is required to apply the volatility adjustment.  Following approval, if the criteria can no longer be met, the licensed person must stop applying the adjustment and notify the Bank of this. Base risk-free yield curve plus matching adjustment  The matching adjustment is linked to the licensed person’s own ring-fenced matching asset portfolio. Ringgit-denominated life insurance and family takaful contracts with:  contract boundary greater than one year;  highly predictable cash flows, as assessed against the criteria specified in the section on matching adjustment (Item C(2)); and  a specifically identified, ring-fenced matching asset portfolio backing the liabilities. The Bank’s prior approval is required to apply the matching adjustment.  Following approval, if the criteria can no longer be met, the licensed person must stop applying the adjustment and notify the Bank of this. The details of the design, including the proposed parameters are set out in the following sections. All parameters may be subject to change over time. B. The base risk-free yield curve i. Methodology for determining the base risk-free yield curve The Bank proposes that the base risk-free yield curve for discounting cash flows be derived based on the Smith-Wilson methodology, which generates a market consistent, continuous interest rate term structure. The proposed yield curve consists of three segments, as follows: Segment Durations covered Methodology for setting rates 1 Up to the duration of the last liquid point (LLP) Rates set based on market information of government securities with matching duration, where available. Where market information is not available, the rates are to be interpolated using the Smith-Wilson method. 2 After the LLP but less than 60 years Rates extrapolated from Segment 1 using the Smith- Wilson method. 3 60 years or more Rates determined by applying the long-term forward rate (LTFR). Valuation of Insurance and Takaful Liabilities – Exposure Draft 23 of 43 Issued on: 24 December 2019 Figure 2: Illustration of the three segments of the base risk-free yield curve ii. Parameterisation of the base risk-free yield curve 1. For Malaysian ringgit denominated cash flows, the following parameters are proposed: (a) for Segment 1, the market information up to the LLP of 15 years refers to the zero- coupon spot yield of Malaysian Government Securities (MGS) for insurance contracts, or Government Investment Issues (GII) for takaful contracts. The MGS or GII zero-coupon spot yields must be obtained from a recognised bond pricing agency in Malaysia, or any other source as may be specified by the Bank; (b) for Segment 2, the LLP is 15 years and the alpha parameter, which determines the speed of convergence between the LLP and the LTFR, is set at 0.156; and (c) for Segment 3, the LTFR is set at 5%. These parameters have been used to create the base risk-free yield curve which is to be used for quantitative testing. The rates are provided in Workbook B. 2. For non-ringgit denominated cash flows, the parameters will be currency-specific, as set out in Appendix IV. Questions on the base risk-free yield curve Methodology D1. Please provide your views on the Smith-Wilson method, in particular: (a) For purposes of quantitative testing, the Bank has generated the base risk-free yield curves (as set out in the response templates). Given the parameters set out in this exposure draft, are you able to re-produce the base risk-free yield curve specified in the templates? If no, please provide details on the challenges faced and recommend possible solutions for the challenges. (b) In your view, are there alternative extrapolation models that would provide a better reflection of the cost of writing long-term products? If yes, please elaborate on the methodology, rationale of the proposed model and the differences between the proposed model and the Smith-Wilson model. In this regard, please consider, 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 0 10 20 30 40 50 60 70 80 90 100 Segment 1 Segment 2 Segment 3 LLP Valuation of Insurance and Takaful Liabilities – Exposure Draft 24 of 43 Issued on: 24 December 2019 amongst others, the market consistency of the model, smoothness of the modelled rates, and the technical and operational ease of calibrating the necessary parameters. Parameters D2. The LLP represents the last point obtained from market observations. One of the considerations in calibrating the LLP is the availability and transparency of market prices of the underlying financial instruments (e.g. the observable market yields may be less credible if the average daily number of trades is low). (a) Please provide your views on whether the proposed LLP of 15 years is appropriate for the MGS and GII markets. (b) If you would like to propose alternatives to be considered, please elaborate, with justifications. D3. The LTFR is assumed to target a nominal long-term growth rate which consists of projected inflation based on historical average rates of inflation and forecasted real economic growth based on studies by the Organisation for Economic Cooperation and Development (OECD). This estimate is consistent with that adopted for the Insurance Capital Standards (ICS) developed by the International Association of Insurance Supervisors (IAIS). (a) Please provide your views on whether the LTFR of 5% is appropriate. If you would like to propose alternative parameters to be considered, please elaborate, with justifications. (b) Do you agree that the LTFR is applied to the yield curve at year 60 onwards? If you would like to propose for the LTFR to be applied at earlier or later durations, please elaborate with justifications. D4. The speed of convergence between the LLP and the LTFR (as represented by the alpha parameter) highly determines the shape of Segment 2 of the yield curve. In selecting the alpha parameter, the difference between the extrapolated forward rate at duration 60 and the LTFR was considered. In this regard, the difference has been targeted to be no more than 1bps. (a) Please provide your views on appropriateness of the alpha parameter. If you would like to propose alternatives to be considered, please elaborate, with reasons. (b) The alpha is dependent on the extrapolated forward rate at year 60, which is related to market movements. Please provide your views on the circumstances which would warrant a review and/or a change in the alpha parameter. D5. Does Appendix IV sufficiently cover your non-ringgit denominated cash flows? Please provide details on any currencies which have not been captured and your views on how the relevant information to determine the parameters can be obtained. D6. If you have suggested alternative models to be used to derive the base risk-free yield curve under Question D1, please provide your proposal for the calibration of the parameters underlying the model, with justifications. Valuation of Insurance and Takaful Liabilities – Exposure Draft 25 of 43 Issued on: 24 December 2019 C. Adjustments to the base risk-free yield curve i. Overview of adjustments The adjustments described in this section would only be applicable to life insurance and family takaful contracts with contract boundary greater than one year at inception. With that said, not all contracts would qualify for an adjustment. A licensed person is only allowed to apply one of the two adjustments to the cash flows of a particular contract, and the choice of adjustment must be based on the outcome of the assessment against the prescribed criteria below. The application of adjustments is not compulsory, and a licensed person may choose not to apply the adjustments even if the contracts have been assessed to be eligible. A licensed person must seek approval from the Bank prior to applying any adjustments. Once approval is obtained for the specified contracts, the licensed person must ensure continued compliance with the criteria. If the licensed person is no longer able to comply with the criteria, the licensed person must stop applying the adjustment and notify the Bank of this. ii. Applicability of the adjustments (a) Adjustments can only be considered for contracts with highly predictable cash flows. In line with this, the following contracts would not qualify for any adjustments: (i) contracts with non-ringgit denominated cash flows; and (ii) contracts with unitised or non-unitised accounts, including investment-linked contracts, universal life contracts, and takaful contracts with PIF from which charges flow to the PRF on a regular basis (e.g. regular-drip products). Cash flows underlying these contracts are not considered to be highly predictable as the insurance charges, tabarru’, fund management charges, other fees and charges and the duration of the contract are linked to movements in the external market. (b) In addition, there are specific criteria that must be adhered to in order to qualify for the application of the adjustments. These are detailed in the respective sections on the volatility adjustment and the matching adjustment below. 1. Volatility adjustment (VA) i. Objective The intention of the VA is to minimise the impact of short-term market volatility on the licensed person’s solvency position. The proposed approach will pass through a proportion of the spreads observed in the market to the valuation of liabilities, thereby resulting in greater consistency between the valuation of assets and liabilities. ii. Additional criteria for applicability of the adjustment (a) The licensed person must ensure that the strategic asset allocation (SAA) for the contracts is designed to meet at least the guaranteed or fixed cash flows to a high degree of certainty, with a significant proportion of fixed income investments allocated to high quality fixed income assets; and (b) The licensed person must be able to demonstrate that it is able to adhere to its SAA over a business cycle of at least three years. Valuation of Insurance and Takaful Liabilities – Exposure Draft 26 of 43 Issued on: 24 December 2019 iii. Considerations for approval In assessing an application for approval, the Bank will consider relevant factors, including: (a) the level of predictability of cash flows. In particular, whether the cash flows exhibit characteristics which are similar to contracts that do not qualify for adjustments; (b) the licensed person’s ability to demonstrate that it has in place a clear governance structure and robust internal policies and procedures to ensure continuous adherence to the criteria for applicability of the adjustment. In particular, poor governance resulting in divergence from the SAA, and excessive risk taking via large investments in poor quality assets are unlikely to result in eligibility for the adjustment; and (c) the feasibility of the licensed person to realistically earn the spread amounting to the VA. iv. Design The VA is designed to recognise the proportion of corporate bond or sukuk spreads which is not required to cover credit risks (i.e. the illiquidity premium), derived based on a reference portfolio consisting of the aggregate asset holding of the insurance or takaful industry respectively. The adjustment is to be applied to the base risk-free yield curve up to the duration of the LLP. The Bank proposes that the VA be determined as follows: Volatility Adjustment = average factor * volatility proportion * min (AA spreads based on selected market input as at valuation date, limit on spreads for which credit can be taken) v. Parameterisation The proposed parameters are as follows: (a) Average factor: 40% for licensed insurers and 50% for licensed takaful operators (b) Volatility proportion: 60% (c) Limit on spreads for which credit can be taken: 125bps (d) Market input for AA spreads: Yield difference between an AA2 Financial class bond or Corporate class sukuk (as classified by Bond Pricing Agency Malaysia (BPAM)) of duration 7 years and MGS or GII of the same duration vi. Basis for the design and parameterisation (a) The proposed derivation is a simplification of the following formula: 𝑉𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 = ∑ (𝑥𝑖 × 𝑣𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 𝑝𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 × min (𝑚𝑎𝑟𝑘𝑒𝑡 𝑠𝑝𝑟𝑒𝑎𝑑 𝑜𝑓 𝑟𝑎𝑡𝑖𝑛𝑔 𝑖,𝑖 𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝑠𝑝𝑟𝑒𝑎𝑑 𝑓𝑜𝑟 𝑟𝑎𝑡𝑖𝑛𝑔 𝑖)) where, 𝑖 = 𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒 𝑟𝑎𝑡𝑖𝑛𝑔 𝑜𝑓 𝑐𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑒 𝑏𝑜𝑛𝑑 𝑜𝑟 𝑠𝑢𝑘𝑢𝑘 𝑖. 𝑒. 𝐴𝐴𝐴, 𝐴𝐴 𝑎𝑛𝑑 𝐴 ; 𝑥𝑖 = 𝑝𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 ℎ𝑜𝑙𝑑𝑖𝑛𝑔𝑠 𝑖𝑛 𝑏𝑜𝑛𝑑 𝑜𝑟 𝑠𝑢𝑘𝑢𝑘 𝑟𝑎𝑡𝑒𝑑 𝑖 𝑖𝑛 𝑡ℎ𝑒 𝑖𝑛𝑑𝑢𝑠𝑡𝑟𝑦 𝑟𝑒𝑓𝑒𝑟𝑒𝑛𝑐𝑒 𝑝𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 ; 𝑣𝑜𝑙𝑎𝑡𝑖𝑙𝑖𝑡𝑦 𝑝𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 = 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑠𝑝𝑟𝑒𝑎𝑑 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑡𝑜 𝑖𝑙𝑙𝑖𝑞𝑢𝑖𝑑𝑖𝑡𝑦 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 (b) Acknowledging the complexities in designing the VA, the following approach has been taken in deriving the parameters: Valuation of Insurance and Takaful Liabilities – Exposure Draft 27 of 43 Issued on: 24 December 2019 (i) the proportion of asset holdings in each corporate bond or sukuk rating category is based on the average actual proportion held in the last 3 years by life insurers and family takaful operators respectively; (ii) the market input for spreads at duration 7 years is assumed to represent the market spread applicable for the respective rating category, as it is the median duration based on secondary trading volume data; (iii) the volatility proportion is assumed to be 60%, based on empirical studies which suggest that approximately 20% to 40% of the credit spreads can be attributed to credit events; and (iv) the average factor represents the industry’s eligible corporate bond or sukuk investment as a proportion of total investments, based on an industry-wide reference portfolio. (c) For simplicity, the Bank has used the AA corporate bond or sukuk as a basis for deriving the VA, as it is broadly representative of the industry’s holdings of corporate bonds or sukuk. The average factor is derived by comparing the volatility-adjusted spread of an AA corporate bond or sukuk against the weighted volatility-adjusted spreads of AAA, AA and A corporate bonds or sukuk at the month-end data points for the last 3 years. The weights were determined based on the proportion of holdings of AAA, AA and A bonds or sukuk in the reference portfolio of the insurance and takaful industries respectively. BBB bonds or sukuk were excluded from the reference portfolio, as it was observed that such holdings were not significant (less than 0.5% of total assets). vii. Data request [for input in Workbook B] For contracts where the licensed person intends to apply the VA, the licensed person is required to provide the following data: (a) liabilities calculated based on the risk-free yield curve; and (b) liabilities calculated based on the risk-free yield curve plus VA. The parameters described in this section have been used to create the ‘base risk-free yield curve + VA’ which is to be used for quantitative testing. The rates are provided in Workbook B. Questions on the VA Criteria for applicability D7. Please provide your views on the criteria for applicability. If you would like to propose alternatives or other factors to be considered, please elaborate, with justifications. D8. In your view, would contracts that are not fully unitised (e.g. universal life contracts and contracts with a PIF) have highly predictable cash flows, considering that the company has control on the investment decisions and/or growth rate of the account value of the contract? If yes, please provide justifications and recommend reasonable tests to be conducted to demonstrate the level of predictability of the cash flows. D9. For licensed takaful operators, how do you propose to apply the above approach in the case where the PRF contains a mix of products which are not eligible for the VA and those which are? Valuation of Insurance and Takaful Liabilities – Exposure Draft 28 of 43 Issued on: 24 December 2019 Design and parameters D10. For the purposes of this exposure draft, the market input for spreads of each rating category is based on the spot yield of a Financial class bond and Corporate class sukuk obtained from BPAM, as these classes were observed to have the highest secondary trading volume over the last 2 years. In your view, what would be an appropriate source and basis for the market input used? If you have alternative proposals to that specified in the exposure draft, please elaborate with details on the source, classification and rationale. D11. Please provide your views on the appropriateness of the simplifications proposed (as explained under the basis of the design and parameters section). If you would like to propose alternatives or other factors to be considered, please elaborate, with justifications. D12. In relation to the construction of an industry reference portfolio: (a) Please provide your views on the appropriateness of the overall approach. In particular, do you foresee any complications or issues (for example, the mix being largely dependent on the asset allocations of larger companies)? If you would like to propose alternatives to be considered, please elaborate, with justifications. (b) For licensed takaful operators, the industry reference portfolio is an aggregate of the PRF(s) and the shareholders’ fund, recognising the cash flows for the identified contracts which reside in these funds. Is this approach to constructing an industry reference portfolio appropriate? What are your Shariah committee’s views on the approach in relation to the differing asset ownership of PRF(s) and shareholders’ fund? If you would like to propose alternatives to be considered, please elaborate, with justifications. 2. Matching adjustment (MA) i. Objective The MA serves the same purpose as the VA but allows a higher magnitude of adjustments for portfolios that have better matching of assets and liabilities. ii. Additional criteria for applicability of the adjustment A licensed person must evidence predictability and a high degree of matching between assets and liabilities. In this regard, the licensed person must ensure that: (a) the matching portfolio consisting of assets covering the corresponding liabilities are explicitly identified, and managed separately from the rest of the fund. In this regard, the licensed person must demonstrate that it is able to secure the ring-fenced assets; (b) the SAA for the ring-fenced assets is designed to meet the cash flows to a high degree of certainty, with a significant proportion of fixed income investments allocated to high quality fixed income assets. In addition, the licensed person must demonstrate that it is able to adhere to the SAA over a business cycle of at least three years; (c) the value of liabilities is not materially sensitive to lapse, mortality, morbidity and expense stress. In this regard, the value of liabilities is deemed not to be materially sensitive if the application of the insurance or takaful risk charges under the Risk-Based Capital Framework for Insurers (RBC) or Risk-Based Capital Framework for Takaful Operators Valuation of Insurance and Takaful Liabilities – Exposure Draft 29 of 43 Issued on: 24 December 2019 (RBCT) does not shift the discounted cash flow of the matching portfolio’s liabilities by more than 15%, in the situation where the cash flows are discounted using the base yield curve; (d) shortfalls in future years can be met by asset cash flows that have not been allocated to meet liability cash flows in earlier years, subject to a reduction in the MA to account for the reinvestment of excess cash flows at the risk-free rate; (e) contracts underlying the liabilities do not have future premiums or takaful contributions (e.g. fully paid up contracts, annuities); and (f) contracts with surrender options do not have surrender values that exceed the value of the assets covering the liabilities at the valuation date. iii. Considerations for approval In assessing an application for approval, the Bank will consider relevant factors, including: (a) the level of predictability of cash flows. In particular, whether the cash flows exhibit characteristics which are similar to contracts that do not qualify for adjustments; and (b) the licensed person’s ability to demonstrate that it has in place a clear governance structure and robust internal policies and procedures to ensure continuous adherence to the criteria for applicability of the adjustment. In relation to maintenance of the matching portfolio, the internal policies and procedures should cover at least the following: (i) identification of the matching portfolio; (ii) the transfer of assets in or out of the matching portfolio; and (iii) monitoring of the degree of matching between assets and liabilities, and steps to address any deviations. iv. Design The MA is equivalent to a positive fixed adjustment to be applied to the base risk-free yield curve up to the duration of the LLP. The Bank proposes that the MA be determined as follows: 𝑀𝑎𝑡𝑐ℎ𝑖𝑛𝑔 𝐴𝑑𝑗𝑢𝑠𝑡𝑚𝑒𝑛𝑡 = 𝑦𝐺𝑅𝑌 − 𝑦𝑎𝑑𝑗𝑢𝑠𝑡𝑒𝑑 − 𝑦𝐶𝑅𝐴 − 𝑦𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 where, 𝑦𝐺𝑅𝑌 = Average gross redemption yield of the allocated assets in the matching portfolio; 𝑦𝑎𝑑𝑗𝑢𝑠𝑡𝑒𝑑 = Adjustment for the use of excess assets to meet future shortfall. Excess assets are assumed to earn returns in line with the base risk-free yield curve; 𝑦𝐶𝑅𝐴 = Adjustment for credit risk based on allocated assets; 𝑦𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 = The average rate of return of the liability cash flows as referenced to the base risk- free yield curve. The adjustment for credit risk is proposed to be determined as follows: 𝑦𝐶𝑅𝐴 = ∑ (𝑥𝑖 × 𝑅𝐶𝑖 × min (𝑠𝑝𝑟𝑒𝑎𝑑 𝑜𝑓 𝑠𝑒𝑙𝑒𝑐𝑡𝑒𝑑 𝑚𝑎𝑟𝑘𝑒𝑡 𝑖𝑛𝑝𝑢𝑡 𝑓𝑜𝑟 𝑟𝑎𝑡𝑖𝑛𝑔 𝑖,𝑖 𝑚𝑎𝑥𝑖𝑚𝑢𝑚 𝑠𝑝𝑟𝑒𝑎𝑑 𝑓𝑜𝑟 𝑟𝑎𝑡𝑖𝑛𝑔 𝑖)) where, 𝑖 = 𝑒𝑙𝑖𝑔𝑖𝑏𝑙𝑒 𝑟𝑎𝑡𝑖𝑛𝑔 𝑜𝑓 𝑐𝑜𝑟𝑝𝑜𝑟𝑎𝑡𝑒 𝑏𝑜𝑛𝑑 𝑜𝑟 𝑠𝑢𝑘𝑢𝑘 𝑖. 𝑒. 𝐴𝐴𝐴, 𝐴𝐴 𝑎𝑛𝑑 𝐴 ; Valuation of Insurance and Takaful Liabilities – Exposure Draft 30 of 43 Issued on: 24 December 2019 𝑥𝑖 = 𝑝𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝑎𝑠𝑠𝑒𝑡 ℎ𝑜𝑙𝑑𝑖𝑛𝑔𝑠 𝑎𝑙𝑙𝑜𝑐𝑎𝑡𝑒𝑑 𝑡𝑜 𝑏𝑜𝑛𝑑 𝑜𝑟 𝑠𝑢𝑘𝑢𝑘 𝑟𝑎𝑡𝑒𝑑 𝑖 𝑖𝑛 𝑡ℎ𝑒 𝑚𝑎𝑡𝑐ℎ𝑖𝑛𝑔 𝑝𝑜𝑟𝑡𝑓𝑜𝑙𝑖𝑜 ; 𝑅𝐶𝑖 = 𝑝𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑜𝑓 𝑠𝑝𝑟𝑒𝑎𝑑 𝑎𝑡𝑡𝑟𝑖𝑏𝑢𝑡𝑒𝑑 𝑡𝑜 𝑟𝑖𝑠𝑘 𝑐𝑜𝑟𝑟𝑒𝑐𝑡𝑖𝑜𝑛 v. Parameterisation The proposed parameters are as follows: (a) Percentage of spread attributed to risk correction: 40% (b) Maximum spread that can be taken for credit rating AAA: 75bps (c) Maximum spread that can be taken for credit rating AA: 125bps (d) Maximum spread that can be taken for credit rating A: 225bps for licensed insurers and 300bps for licensed takaful operators (e) Market input: Yield difference between a Financial class bond or Corporate class sukuk (as classified by BPAM) of duration 7 years and MGS or GII of the same duration vi. Basis for the design and parameterisation Acknowledging the complexities in designing the MA, the following approach has been taken: (a) the market input for spreads at duration 7 years is assumed to represent the market spread applicable for the respective rating category, as it is the median duration based on secondary trading volume data; (b) the volatility proportion is assumed to be 60%, based on empirical studies which suggest that approximately 20% to 40% of the credit spreads can be attributed to credit events; and (c) BBB bonds or sukuk were excluded as it was observed that such holdings were not significant (less than 0.5% of total assets). vii. Data request [for input in Workbook B] A licensed person which intends to apply the MA must provide the information as requested in Workbook B. Questions on the MA Criteria for applicability D13. Please provide your views on the criteria for applicability. If you would like to propose alternatives or other factors to be considered, please elaborate, with justifications. D14. Based on the matching portfolios that you have proposed for your company, would the ring-fencing of assets be sufficient to ensure that the contracts in the portfolio are sustainable until the end of their terms? Please comment and elaborate on any additional safeguards, with justifications. D15. In your view, are there any practical constraints to managing the matching portfolios (e.g. process required to set up a matching portfolio, monitoring)? D16. Considering the criteria and requirements on maintaining a matching portfolio, please provide your views on the relative costs and benefits of applying the MA. Valuation of Insurance and Takaful Liabilities – Exposure Draft 31 of 43 Issued on: 24 December 2019 D17. Are there products in your portfolio which in your view should be eligible for the MA but do not meet the 15% sensitivity threshold set out in paragraph ii(c)? If yes, please provide details on the products, your rationale, and the impact of applying the insurance or takaful risk charges under the RBC or RBCT to the discounted cash flow of the liabilities. Design and parameters D18. For the purposes of this exposure draft, the market input for spreads of each rating category is based on the spot yield of a Financial class bond and Corporate class sukuk obtained from BPAM, as these classes were observed to have the highest secondary trading volume over the last 2 years. In your view, what would be an appropriate source and basis for the market input used? If you have alternative proposals to that specified in the exposure draft, please elaborate with details on the source, classification and rationale. D19. Please provide your views on the appropriateness of the simplifications proposed (as explained under the basis of the design and parameters section). If you would like to propose alternatives or other factors to be considered, please elaborate, with justifications. D20. It has been proposed that the MA be applied only up to the LLP. In your view, should the MA be applied beyond the LLP? If yes, please provide reasons and recommend, with justifications, a suitable methodology to taper the MA towards the risk-free yield curve after the LLP (e.g. straight line approach). D21. For licensed takaful operators, please provide your views on whether the market observations are sufficient in volume to provide a credible basis for the observed spreads for each rating category. Should you have an alternative proposal, please elaborate, with justifications. General questions on the overall design D22. Do you agree with the proposed design in deriving discount rates for the purpose of valuing liabilities, as described above? If you would like to propose alternative methodologies to be considered, please elaborate, with justifications. D23. Do you agree with the differentiation between the base yield curve and the additional adjustments? If you would like to propose alternatives to be considered, please elaborate, with justifications. D24. The key principles underlying the criteria for the applicability of the adjustments are predictability of cash flows and for the MA, the degree of matching between assets and liabilities as well. In view of this, it has been proposed that the adjustments be considered only for life insurance and family takaful contracts, and not for general insurance and general takaful contracts. This is intended to reflect the relatively low predictability of cash flows underlying general insurance and general takaful contracts. Valuation of Insurance and Takaful Liabilities – Exposure Draft 32 of 43 Issued on: 24 December 2019 If you are of the view that there are general insurance or general takaful contracts with highly predictable cash flows, and which would meet the criteria set out for the adjustments, please provide:  details on these contracts;  justifications for the applicability of VA or MA to these contracts; and  recommendations on reasonable tests to be conducted to demonstrate the level of predictability of the cash flows. D25. For licensed takaful operators, what is your Shariah committee’s views on the proposed design and approach taken to derive the applicable discount rates? In particular, are there any aspects of the design which may not be in line with Shariah principles and/or require specific Shariah considerations? Suggested further reading:  ‘A Technical Note on the Smith-Wilson Method’ by the Financial Supervisory Authority of Norway  Public Consultation Document on Risk-based Global Insurance Capital Standard (ICS) Version 2.0 by the International Association of Insurance Supervisors  IAIS Base Yield Curve Methodology for ICS Version 2.0 by the International Association of Insurance Supervisors  Technical documentation of the methodology to derive EIOPA’s risk-free interest rate term structures by the European Insurance and Occupational Pensions Authority 20. Provision of risk margin for adverse deviation (PRAD) S 20.1 In order to reflect the uncertainty in the amount and timing of future cash flows, a licensed person must apply a PRAD such that the valuation of cash flows relating to guaranteed benefits, or takaful benefits and expenses, secures a 75% level of sufficiency. S 20.2 In determining the PRAD, a licensed person must account for the relationships between inter-dependent cash flows, in a manner that is consistent with that used for the central estimate liabilities. G 20.3 In relation to paragraph 20.2, for example, the PRAD for takaful contracts should not be determined on a fund basis but from a takaful certificate perspective, taking into account the interactions between funds. S 20.4 A licensed person must not apply PRAD to the discount rates or the projected investment returns. S 20.5 In relation to PRAD applied to reinsurance or retakaful recoveries, a licensed person must determine this as the amount of risk transferred by the licensed person to the reinsurer or retakaful operator. Valuation of Insurance and Takaful Liabilities – Exposure Draft 33 of 43 Issued on: 24 December 2019 Diversification for general insurance and general takaful business S 20.6 Where a licensed person accounts for the diversification of risk arising from correlations between the risks from different homogenous risk groups, it must do so only by way of reducing the levels of PRAD calculated at homogenous risk group level. In addition, it must ensure that: (a) the valuation of liabilities has a 75% level of sufficiency at entity level; (b) the amount of diversification benefit is determined using an appropriate methodology; and (c) the diversification discount adopted is no more than 50% of the aggregate of the PRADs of all homogeneous risk groups. S 20.7 In relation to paragraph 20.6(a), where a licensed person uses a triangle of combined data to determine the amount of diversification benefit, the licensed person must give due regard to the extent that underlying volatilities may be obscured. S 20.8 A licensed person must clearly document in the valuation report the methodology used to determine the amount of diversification benefit, with the rationale for the chosen methodology and limitations, if any. Questions 24. For life insurance and family takaful business, the PRAD should be determined in line with the basis described under paragraph 20.1 (i.e. without considering discretionary payments). The PRAD should then be held on top of the total central estimate liabilities, in line with the requirement of paragraph 10.1. Please provide your views on: (a) The approach in setting PRAD; and (b) Whether or not diversification should be taken into account in determining the PRAD, with reasons. If yes, please propose a suitable methodology, with sufficient details. Valuation of Insurance and Takaful Liabilities – Exposure Draft 34 of 43 Issued on: 24 December 2019 PART D REPORTING 21. Reporting to the Bank S 21.1 A licensed person must submit the report on valuation of insurance or takaful liabilities, together with the annual audited financial statements, to the Bank within three months from the financial year end. S 21.2 Notwithstanding the grouping of risks that a licensed person may use in determining the insurance or takaful liabilities in relation to paragraph 13.17, the licensed person must report the value of the liabilities based on the classifications specified in paragraphs 21.3 to 21.6. S 21.3 A licensed person carrying on life insurance business must report the liabilities for its life insurance contracts separately for the following: (a) ordinary life business or annuity business; (b) individual life or group life; (c) participating life business, non-participating life business, investment- linked business or universal life business; and (d) cohorts for participating life business, as set out in the licensed person’s policy for the management of its participating life business. S 21.4 A licensed person carrying on family takaful business must report the liabilities for its family takaful contracts separately for the following: (a) protection or annuity; (b) ordinary family business or investment-linked business; and (c) individual family or group family. S 21.5 A licensed person carrying on general insurance or general takaful business must report the liabilities for its contracts separately for the following classes of business: (a) Aviation; (b) Bonds; (c) Cargo; (d) Contractors’ All Risks & Engineering; (e) Fire - separately for: (i) Long-Term Fire4; and (ii) Short-Term Fire; (f) Liabilities - separately for: (i) Public Liability; (ii) Product Liability; (iii) Professional Indemnity; (iv) Directors & Officers Liability; and (v) Other Liabilities; (g) Marine Hull & Liability; (h) Medical & Health; (i) Motor “Act”; 4 Fire insurance or fire takaful products with tenure or duration of cover that exceeds a continuous period of 12 months as per the Bank’s specification letter dated 3 September 2018. Valuation of Insurance and Takaful Liabilities – Exposure Draft 35 of 43 Issued on: 24 December 2019 (j) Motor “Others”; (k) Offshore Oil & Gas Related; (l) Personal Accident; (m) Workmen’s Compensation & Employer’s Liability; and (n) Others. S 21.6 A licensed takaful operator or professional retakaful operator must also report the liabilities for its takaful contracts separately for the following: (a) liabilities relating to the PRF(s) (i.e. takaful liabilities); and (b) liabilities relating to the shareholders’ fund (i.e. expense liabilities). S 21.7 A licensed person must document the outcome of the comparative study of actual and expected experience required under paragraphs 13.25 and 13.26 in the valuation report. The documentation must include the appointed actuary’s assessment and opinion on: (a) the appropriateness of assumptions previously set; (b) significant trends in experience over the past years, if any; (c) deviations in actual experience from the previous assumptions; (d) the underlying reasons for any material deviations of actual experience from the previous assumptions; and (e) the rationale for the assumptions chosen for the current valuation period, with supporting qualitative and/or quantitative justifications. Questions 25. For general insurance and general takaful business: (a) Do you foresee any operational challenges in reporting liabilities according to the classifications in paragraph 21.5? Please elaborate on the challenges and propose alternative classifications, if any. (b) Out of your ‘Liabilities’ line of business as per the current reporting, how significant is the business with duration of cover that is more than one year? (i) Please state the magnitude in terms of monetary amount and percentage of gross written premiums or takaful contributions for the ‘Liabilities’ line of business. (ii) Please list your ‘Liabilities’ sub-lines of business with duration of cover that is more than one year. (c) Out of your ‘Liabilities’ line of business as per the current reporting, how significant is the claims experience which is long-tailed in nature? (i) Please state the magnitude in terms of monetary amount and percentage of claims liabilities for the ‘Liabilities’ line of business. (ii) Please list your ‘Liabilities’ sub-lines of business which have long-tailed claims experience. Valuation of Insurance and Takaful Liabilities – Exposure Draft 36 of 43 Issued on: 24 December 2019 APPENDICES Appendix I Guidance on assessment of contract boundary for common contracts 1. For renewable insurance or takaful contracts: (a) a licensed person would not be considered to have the practical ability to reassess the risks at the policy or takaful certificate level if the renewability is guaranteed (i.e. the contract can be renewed without further underwriting). In such cases, with the exception of medical and health insurance and takaful contracts, the licensed person would then proceed to assess if it has the practical ability to reassess the risks at the portfolio level; and (b) a licensed person would be considered to have the practical ability to reassess the risks at the policy or takaful certificate level if the renewability is not guaranteed. In such cases, the licensed person would proceed to assess if it has the practical ability to set a price that fully reflects the risks of the contract, based on the criteria set out in paragraph 12.3 of this policy document. If there are constraints, the licensed person would then assess if it has the practical ability to reassess the risks at the portfolio level. Figure 3 illustrates the key decision points in the assessment of the practical ability to reassess the risks and set a price that fully reflects the risks for renewable contracts other than medical and health insurance and takaful contracts. 2. For insurance or takaful contracts (other than medical and health insurance and takaful contracts) with coverage period of more than one year but reviewable premiums or takaful contributions, the assessment of the contract boundary is similar to guaranteed renewable contracts as per paragraph 1(a) of this appendix. 3. For extension and conversion options, cash flows arising from such options are considered to be within the boundary of the original contract if: (a) the options are guaranteed; or (b) the pricing of premiums or takaful contributions up to the reassessment date takes into account the risks that relate to future periods, arising from the options. 4. For annuities, cash flows for the entire annuitisation period are considered to be within the boundary of the contract if the annuitisation phase is guaranteed, even if the annuitisation rate is not guaranteed. Valuation of Insurance and Takaful Liabilities – Exposure Draft 37 of 43 Issued on: 24 December 2019 Figure 3: Key decision points for assessment of renewable contracts (other than medical and health insurance and takaful contracts) No Yes Are there constraints that prevent the licensed person from:  setting the same price it would for a new similar contract; or  amending the benefits to be consistent with the price? a) Are there any other constraints to revising price or benefits to fully reflect the risks? b) Did the price up to the reassessment date take into account the risks relating to future periods? Refer to Table 1 below for examples of assessment for common contracts. No practical ability to reassess the risks at policy or takaful certificate level. Assess if there is practical ability to reassess the risks and set price to reflect the risks at portfolio level. No Yes Are premiums or takaful contributions guaranteed? Cash flows beyond the renewal date are within the contract boundary No Contract boundary ends at the renewal date Yes to at least one No to both Yes Is renewability guaranteed? Valuation of Insurance and Takaful Liabilities – Exposure Draft 38 of 43 Issued on: 24 December 2019 Table 1: Examples of assessment of practical ability to reassess risks at portfolio level, for contracts other than medical and health insurance and takaful contracts Type of contract At renewal date Are there known practical constraints to revise price or benefits to fully reflect risks at the portfolio level? Did the pricing of premiums or takaful contributions up to the reassessment date take into account the risks that relate to future periods? Contracts with level premiums or takaful contributions No Yes The premiums or takaful contributions in earlier periods subsidise the premiums or takaful contributions in later periods Contracts with step-rated premiums or takaful contributions (e.g. according to attained age) No No Contracts with premiums or takaful contributions which are step-rated but level for specific periods of time (e.g. step-up every 3 years) No Yes The premiums or takaful contributions at the start of the step-up subsidise the premiums or takaful contributions until the next step-up Contracts with coverage period of more than 1 year but reviewable premiums or takaful contributions (similar to guaranteed renewability) Assess based on paragraph 12.4 of this policy document, considering factors which affect the practical ability to set a price that fully reflects the risks such as policy owners or takaful participants’ reasonable expectations, feasibility of re-pricing, etc. Refer to assessment for contracts with level or step- rated premiums or takaful contributions Consortium products where assessment of price is not carried out at the company level Yes Not applicable Valuation of Insurance and Takaful Liabilities – Exposure Draft 39 of 43 Issued on: 24 December 2019 Appendix II Guidance on setting assumptions 1. Mortality and morbidity Mortality and morbidity assumptions should be determined taking into consideration the actual historical experience of the homogeneous risk group. Where it is determined that the licensed person’s actual experience is inappropriate to be used in its entirety (for example, where the risk pool is not sufficiently large for data to be credible), industry or benchmark data may be used. 2. Policy owners’ or takaful participants’ behaviour Any assumptions made by the licensed person with respect to the likelihood that policy owners or takaful participants will exercise contractual options, including surrenders, lapses and withdrawals, should be based on an analysis of past behaviour and a prospective assessment of expected behaviour. In doing so, the licensed person should consider: (a) the influence of past and future economic conditions; and (b) the impact of past and future management actions. 3. Expenses The licensed person should consider the following bases in determining expense assumptions: (a) for distribution expenses (e.g. commissions), the actual costs incurred; and (b) for management expenses, the analysis of past expenses, with consideration for likely changes in the future, including due to inflation. The allocation of indirect expenses should also be carried out with regard to this analysis. 4. Economic inflation Examples of economic inflation factors are wage and price inflation. The licensed person should consider how these factors affect other assumptions (e.g. expenses, behaviour of medical claims). These factors may be determined based on the use of publicly available information on historical inflation and economists’ forecasts. 5. Claims behaviour The licensed person should leverage on its own claims experience as well as industry analysis in order to better understand claims behaviour. In assessing claims behaviour, it should consider the following: (a) possible factors affecting claims behaviour including latency, legislative and environmental changes, trends in court awards, changes in consumer behaviour and technological improvements (including medical advances). These factors may impact not just the likelihood, frequency and severity of claims, but also the nature of the tail of the risk; and (b) where claims can be made by a third party or where there is a possibility of disputes or repudiation of claims, the licensed person should appropriately account for the likely outcomes. Valuation of Insurance and Takaful Liabilities – Exposure Draft 40 of 43 Issued on: 24 December 2019 6. Counterparty default The adjustment for counterparty default should be based on an assessment of the probability of default of the counterparty, whether this arises from insolvency or dispute, and the average loss resulting from the default. Valuation of Insurance and Takaful Liabilities – Exposure Draft 41 of 43 Issued on: 24 December 2019 Appendix III Guidance on inwards reinsurance and inwards retakaful 1. Due to the more volatile nature of reinsurer or retakaful operator’s claims experience and the lesser amount of data available to the reinsurers or retakaful operators as compared to direct insurers or direct takaful operators, the reinsurer or retakaful operator’s own data may not be sufficient for the licensed person to reliably determine the central estimate liabilities. As such, the licensed person may have to utilise additional information obtained from external sources and exercise more judgement than in the case of direct insurance or direct takaful. 2. Data limitations may also have a significant impact on the licensed person’s approach in calculating the PRAD. The licensed person may not be able to formulate PRAD assumptions based solely upon the reinsurer or retakaful operator’s own data and hence, may need to consider how the levels of PRAD obtained for direct insurers or direct takaful operators could be adjusted to be applicable to reinsurance or retakaful. 3. The licensed person should also consider qualitative information to facilitate the determination of appropriate allowances to be made in the central estimate liabilities and PRAD. For example, the licensed person should seek to better understand the nature of the business written currently and in the past, the trends in reinsurance premium or retakaful contribution and exchange commission rates, and the types of reinsurance or retakaful programmes, limits and deductibles. 4. In determining the homogeneous risk groups, the licensed person should take into account the extent and reliability of the data. In addition, the licensed person may consider analysing the data by the following sub-groups: (a) type of reinsurance or retakaful (e.g. treaty proportional and non- proportional, facultative proportional and non-proportional); (b) geographical location of risk; and (c) line of business (e.g. property, marine, liability). 5. The licensed person should ensure that the measurement methodologies are appropriate based on the nature of the claims and exposure information available. For example, while the Incurred Chain Ladder, Expected Loss Ratio and Incurred Bornhuetter Ferguson methods are commonly used for contracts with boundary of one year or less, methods based on paid claims data are often not reliable due to the volatility of the available information. 6. The licensed person may find it more appropriate to carry out the valuation on an underwriting year basis, rather than on an accident year basis, as the reinsurance or retakaful data is usually presented in this manner. For this purpose, an approach that the licensed person may consider is as follows: (a) Determination of central estimate liabilities for expired portion of risk (i) The licensed person may conduct claims analysis by underwriting year and project the latest underwriting year’s claims in full (ultimate claims cost), allowing for the estimated total written premiums or takaful contributions for each underwriting year (i.e. produce Valuation of Insurance and Takaful Liabilities – Exposure Draft 42 of 43 Issued on: 24 December 2019 triangulations of claims and written premiums or takaful contributions by underwriting year and develop all years to ultimate). (ii) As the liabilities derived from such underwriting year analysis will include liabilities relating to both incurred outstanding claims and unexpired risks relating to unearned premiums or takaful contributions (particularly for the most recent underwriting year where most of the unearned premiums or takaful contributions lie), the licensed person should apportion the latest underwriting years’ liabilities into earned and unearned components. The earned component may be determined by deducting the expected claims cost in respect of the unexpired portion of risk from the ultimate claims cost. (b) Determination of central estimate liabilities for unexpired portion of risk (i) The liabilities should be derived based on the expected claims cost in respect of the unexpired portion of risk plus allowance for the reinsurer or retakaful operator’s expenses, including overheads and cost of reinsurance or retakaful, expected to be incurred during the unexpired period in administering these policies or takaful certificates and settling the relevant claims. Valuation of Insurance and Takaful Liabilities – Exposure Draft 43 of 43 Issued on: 24 December 2019 Appendix IV Parameters for non-ringgit denominated cash flows The parameters to be used to derive the base risk-free yield curve for non-ringgit denominated cash flows are as set out in the table below. Currency Market information to be used as input to Segment 1 Last liquid point (LLP) Long-term forward rate (LTFR) AUD – Australian Dollar Government Bonds 30 3.8% EUR – Euro Swaps 20 3.8% GBP – Pound Sterling Swaps 50 3.8% HKD – Hong Kong Dollar Swaps 15 4.4% IDR – Rupiah Swaps 10 8.0% INR – Indian Rupee Swaps 10 7.0% JPY – Yen Government Bonds 30 3.8% PHP – Philippine Peso Swaps 10 7.0% SAR – Saudi Riyal Swaps 15 6.0% SGD – Singapore Dollar Government Bonds 20 3.8% THB – Baht Government Bonds 10 5.0% TRY – Turkish Lira Government Bonds 10 7.0% TWD – New Taiwan Dollar Government Bonds 10 4.4% USD – US Dollar Government Bonds 30 3.8% Source: Public 2019 IAIS Field Testing Technical Specifications (https://www.iaisweb.org/page/supervisory-material/insurance-capital-standard) These parameters are subject to periodic review by the International Association of Insurance Supervisors (IAIS). The updated parameters will be published on the Insurance Capital Standards section of the IAIS website. A licensed person would be expected to ensure that the latest parameters are used when conducting the valuation of insurance or takaful liabilities. https://www.iaisweb.org/page/supervisory-material/insurance-capital-standard

Public Notice

24 Dec 2019

Equity Investments

https://www.bnm.gov.my/-/equity-investments-24122019

https://www.bnm.gov.my/documents/20124/761679/pd_equity+investments_dec2019.pdf

Reading: Equity Investments Share: Equity Investments Release Date: 24 Dec 2019 Bank Negara Malaysia has issued the policy document on Equity Investments today. The policy document sets out the requirements in relation to equity investments by financial institutions. The Bank had received written feedback and queries from the public throughout the consultation period. Where relevant, the Bank has incorporated the feedback in the policy document. The policy document takes effect from 1 January 2020. Read more: Equity Investments Equity Investments Reporting Template   © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 24 December 2019 BNM/RH/PD 028-106 Equity Investments Applicable to– 1. Licensed banks 2. Licensed investment banks 3. Licensed Islamic banks 4. Licensed insurers 5. Licensed takaful operators 6. Financial holding companies 7. Prescribed development financial institutions Equity Investments Issued on: 24 December 2019 TABLE OF CONTENTS PART A OVERVIEW....................................................................................... 1 1 Introduction ....................................................................................... 1 2 Applicability ....................................................................................... 2 3 Legal provisions ................................................................................ 2 4 Effective date .................................................................................... 2 5 Interpretation ..................................................................................... 2 6 Related legal instruments and policy documents .............................. 3 7 Policy documents superseded .......................................................... 3 PART B POLICY REQUIREMENTS ............................................................... 4 8 Approval and notification requirements ............................................. 4 9 Prudential limit and maximum holding period ................................... 7 10 Annual reporting requirement............................................................ 8 11 Transitional arrangements ................................................................ 8 APPENDIX 1 EXAMPLES OF FINANICAL AND FINANCIAL RELATED CORPORATIONS ............................................................................. 9 APPENDIX 2 SUMMARY OF APPROVAL AND NOTIFICATION REQUIREMENTS ........................................................................... 10 Equity Investments 1 of 10 Issued on: 24 December 2019 PART A OVERVIEW 1 Introduction 1.1 Section 85 of the Financial Services Act 2013 (FSA), section 97 of the Islamic Financial Services Act 2013 (IFSA) and section 25 of the Development Financial Institutions Act 2002 require a financial institution to obtain the Bank's approval for the establishment or acquisition of a subsidiary, or the acquisition or holding of material interest in a corporation. The approval requirement is intended to ensure that such acquisitions do not expose a financial institution to undue contagion risk as a result of the association with these corporations or hinder effective supervision by the Bank. The Bank generally limits a financial institution from investing in non-financial corporations 1 , given the inherent differences in the nature of risks involved and to ensure that the focus of the financial institution is not diverted from its core financial business. In addition, the approval regime also complements the existing prudential safeguards to address risks arising from the equity exposures, including capital adequacy requirements and prudential limits. 1.2 The transformation of the financial landscape in recent years has seen an increased integration between e-commerce activities and e-payments services. The growing interest in integrated digital ecosystems offered by these corporations has further spurred financial institutions to either collaborate with, or hold material equity interest in, these corporations in order to realise business synergies. In light of these developments, a review of the current requirement on equity investments is necessary to ensure that financial institutions continue to remain relevant, competitive and are able to offer a wider range of services to their customers. Moving away from a “one-size-fits- all” limit on equity exposures allows greater flexibility for financial institutions to manage their equity exposures, and facilitates business expediency. The Bank therefore expects greater oversight by the board in ensuring that the financial institution clearly articulates the equity investment risk appetite and determines its own internal limits, consistent with the institution's business strategy, level of expertise and risk management capabilities. 1.3 This policy document sets out the approval and notification requirements relating to equity interests held by financial institutions in corporations. In addition, prudential safeguards are introduced to address risks from equity exposures, including a targeted prudential limit which is intended to replace existing aggregate limits on equity-related exposures applied to banking institutions specified under the Guidelines on Investment in Shares, Interest-in- Shares and Collective Investments Schemes (IIS) and IIS for Islamic Banks. 1 Non-financial corporations refer to corporations that are not financial or financial-related corporations. Examples of financial and financial-related corporations are set out in Appendix 1. Equity Investments 2 of 10 Issued on: 24 December 2019 2 Applicability 2.1 This policy document is applicable to financial institutions as defined in paragraph 5.2. 2.2 In the case of a financial institution which operates in Malaysia as a branch of a foreign institution, the requirements in this policy document shall apply only in respect of the Malaysian operations of the branch. 2.3 Paragraphs 9, 10 and 11 shall not apply to a licensed insurer, licensed takaful operator, prescribed development financial institution and financial holding company of a financial group engaged predominantly in insurance/takaful business. 3 Legal provisions 3.1 This policy document is specified pursuant to– (a) section 47(1), section 85(2), section 114(2), section 143 and section 266 of the Financial Services Act 2013 (FSA); (b) section 57(1), section 97(2), section 126(2), section 155 and section 277 of the Islamic Financial Services Act 2013 (IFSA); and (c) section 25(5), section 41(1), and section 126 of the Development Financial Institutions Act 2002 (DFIA). 4 Effective date 4.1 This policy document comes into effect on 1 January 2020, subject to the transitional arrangements as set out in paragraph 11. 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA, IFSA, DFIA or the policy documents referred to in paragraph 6.1, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; Equity Investments 3 of 10 Issued on: 24 December 2019 “banking institution” refers to a licensed bank, a licensed investment bank or a licensed Islamic bank except for a licensed international Islamic bank, as the case may be; “corporation” refers to a financial, a financial-related and a non-financial corporation, as the case may be; “financial institution” refers to a licensed person, a prescribed development financial institution and a financial holding company, as the case may be; “indirect interest” refers to the voting shares or voting power in a corporation acquired or held by a subsidiary of a financial institution; “indirect acquisition” or “indirect holding” refers to acquisition or holding of the voting shares or voting power in a corporation by any subsidiary of a financial institution; and “material interest” refers to 20% or more of the voting shares or voting power in a corporation. 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Approach to Regulating and Supervising Financial Groups; (b) Capital Adequacy Framework (Basel II – Risk-Weighted Assets); (c) Capital Adequacy Framework (Capital Components); (d) Capital Adequacy Framework for Islamic Banks (Capital Components); (e) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets); (f) Guidelines on Property Development and Property Investment Activities by Islamic Banks; (g) Single Counterparty Exposure Limit; and (h) Single Counterparty Exposure Limit for Islamic Banking Institutions. 7 Policy documents superseded 7.1 This policy document supersedes the following guidelines and policy documents: (a) Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes (IIS) issued on 10 October 2008; (b) Guidelines on Investment in Shares, Interest-in-Shares and Collective Investment Schemes (IIS) for Islamic Banks issued on 29 June 2007; and (c) paragraph 7.1(ii) of the Guidelines on Property Development and Property Investment Activities by Islamic Banks issued on 31 March 2010. Equity Investments 4 of 10 Issued on: 24 December 2019 PART B POLICY REQUIREMENTS 8 Approval and notification requirements S 8.1 A financial institution must obtain the Bank’s prior written approval for– (a) the establishment or acquisition of a subsidiary; or (b) any direct or indirect acquisition or holding of– (i) material interest in a corporation; (ii) 33% 2 or more of the voting shares or voting power in a corporation3; or (iii) any interest referred to in paragraph 8.8. S 8.2 In respect of paragraph 8.1(b)(i), unless otherwise notified by the Bank in writing, approval is given to a banking institution 4 and a prescribed development financial institution to acquire or hold direct interest in a corporation arising from− (a) satisfaction of debts or foreclosure of shares pledged as collateral; (b) debt restructuring or conversion schemes; (c) equity underwriting activities; and (d) fund management activities (including private equity, venture capital, unit trust or collective investment scheme). S 8.3 Except for an application by a licensed Islamic bank or a prescribed development financial institution, the Bank will not consider an application under paragraph 8.1 where the investee corporation will be, or is carrying on, any of the following activities: (a) manufacturing, processing, refining or otherwise altering goods; (b) direct selling of non-financial services and products to consumers5; (c) property development; (d) provision of hotel and resort facilities to non-employees; and (e) management of properties that are not held by the financial institution or any of its subsidiaries. For the avoidance of doubt, this paragraph does not apply to material interest acquired or held in non-financial corporations arising from the provision of financial services as set out in paragraph 8.2. 2 The percentage holding for a mandatory offer under the Malaysian Code on Take-Overs and Mergers prescribed under section 217 of the Capital Markets and Services Act 2007. 3 For example, where a financial institution has obtained the Bank’s approval to acquire or hold a material interest in a corporation (e.g. at 20%) under paragraph 8.1 (b)(i), the financial institution must also obtain the Bank’s approval under paragraph 8.1(b)(ii) if the financial institution increases its shareholding to or exceeding 33% (e.g. to 35%). 4 The approval also applies to indirect interest by a financial holding company in a corporation arising from the provision of financial services by its subsidiary banking institution. 5 For the avoidance of doubt, this does not prohibit a financial institution from acquiring or holding interest in a corporation that operates digital platforms which solely match buyers and sellers of goods and services. Equity Investments 5 of 10 Issued on: 24 December 2019 S 8.4 Where the Bank’s approval has been obtained under paragraph 8.1, a licensed Islamic bank must ensure that the material interest held in a non-financial corporation engaged in activities are subject to the following: (a) such interest acquired must be in connection with, or for the purpose of, its Islamic banking business as defined under the IFSA, and the equity investment is structured based on a relevant Shariah contract 6 as approved by the Shariah committee of such licensed Islamic bank; (b) the interest held are within the risk strategy and risk limit as approved by the board. In determining the risk limit, considerations must be given to the potential risk to the licensed Islamic bank as a result of its association with the corporation; and (c) submission of a report to the board, at least on an annual basis, on the review of the performance of all of its investee corporations and whether these investments remain consistent with the licensed Islamic bank’s business strategies and risk appetite. G 8.5 In assessing the application under paragraph 8.1, the Bank will have regard to the following factors: (a) the extent to which the acquisition could give rise to a material increase in contagion risk to the financial institution or broader financial system; (b) impact of the proposed acquisition on the risk profile and resources of the financial institution, taking into account the financial capacity and risk management capabilities, readiness of existing infrastructure and resources to manage the proposed acquisition; and (c) impact of the proposed acquisition on the Bank’s ability to supervise and implement corrective measures, including on the orderly resolution of the financial institution. S 8.6 An application for approval must be supported by the submission of the following documents: (a) a copy of the relevant approval by an approving authority as determined under the financial institution’s internal governance framework on the proposed acquisition, including− (i) deliberation on the business case for the acquisition and the financial institution’s assessment of the– (A) impact of the acquisition to the financial institution’s risk profile, financial condition, business continuity, and recovery and resolution plans; (B) readiness of existing infrastructure, internal controls and governance arrangements to manage the risk arising from the proposed acquisition; and (C) risk mitigation measures and remedial actions (including exit strategies) in the event of material deterioration in the performance of the investee corporation; (ii) representation of the financial institution, if any, in the board or management of the investee corporation; 6 Including, but not limited to, those Shariah contracts that are governed by the specific policy documents issued by the Bank pursuant to IFSA. Equity Investments 6 of 10 Issued on: 24 December 2019 (iii) whether there is any restriction in terms of the financial institution’s ability to obtain information and documents of the investee corporation; and (iv) where relevant, any centralised and shared services or functions between the financial institution and the investee corporation; (b) amount (in Ringgit Malaysia) and type of consideration for the acquisition7, including details as to how the acquisition will be funded and the basis for the valuation; (c) where relevant, details of other interest-in-shares8 held in the investee corporation; (d) details of the investee corporation, including– (i) past financial records 9 , where available, and future business plans; (ii) shareholding structure depicting legal and beneficial ownership; and (iii) organisational structure including information on composition of the board and management team; (e) where relevant, a copy of the Shariah committee’s decision that the proposed equity investment in the investee corporations is in compliance with Shariah; and (f) any other information as may be required by the Bank. S 8.7 Where the Bank’s approval has been obtained under paragraph 8.1(b)(i), the financial institution must notify the Bank of any subsequent direct or indirect acquisition where it results in an increase in shareholding at any multiple of five (5) per cent above the material interest threshold, at least one month before the proposed acquisition. Such subsequent acquisition shall also be subject to paragraph 8.1(a) or 8.1(b)(ii), where relevant. The notification must be supported by the submission of the following documents: (a) details of the investee corporation; (b) proposed increase in, and the resultant level of, shareholding in the investee corporation; and (c) amount (in Ringgit Malaysia) and type of consideration for the acquisition7, including details as to how the acquisition will be funded and the basis for the valuation. A summary of the notification required at the relevant thresholds is provided in Appendix 2. S 8.8 Notwithstanding paragraph 8.7, the Bank may require a financial institution to obtain its written approval prior to any subsequent increase in the direct or indirect interest beyond the material interest threshold. In considering this, the Bank shall have regard to the following: 7 For example, cash, in-kind, equity or assumption of liabilities. 8 Refers to any right to purchase or receive shares of a corporation e.g. equity options, warrants, convertible loan stocks, and etc. 9 Preferably past 3 financial years unless otherwise specified by the Bank. Equity Investments 7 of 10 Issued on: 24 December 2019 (a) the impact of the subsequent increase on the financial or capital position of the financial institution and the effectiveness of the financial institution’s risk management capabilities and internal controls to manage risks emanating from such interests, particularly for interest in corporations outside of Malaysia; or (b) the impact of the performance of the investee corporation on the ongoing safety and soundness of the financial institution. S 8.9 An application under paragraph 8.1 and notification under paragraph 8.7 must be submitted to Jabatan Penyeliaan Konglomerat Kewangan, Jabatan Penyeliaan Perbankan, or Jabatan Penyeliaan Insurans dan Takaful, as the case may be. 9 Prudential limit and maximum holding period Aggregate limit on non-financial investments S 9.1 A financial institution’s aggregate direct and indirect acquisition or holding of interest in non-financial corporations, including those held below the material interest threshold, must not exceed 10%10 of its Tier 1 Capital11. S 9.2 A banking institution shall comply with the prudential limit at both the entity and consolidated levels. A financial holding company shall comply with the prudential limit at the consolidated12 level only. S 9.3 The 10% limit shall exclude− (a) interests which are deducted in the calculation of Tier 1 Capital; (b) for a licensed Islamic bank, direct acquisition or holding of interest in non-financial corporations. For the avoidance of doubt, interest acquired or held in non-financial corporations by a licensed Islamic bank arising from the provision of financial services as set out in paragraph 8.2 are not excluded from the 10% limit and subject to paragraphs 9.5 and 9.6; (c) interest in non-financial corporations held within the holding period13 as specified in paragraph 9.4; (d) interest in excess of the material interest threshold in a non-financial corporation held after the maximum holding period except for those interest referred to in paragraph 9.7; (e) interest in non-financial corporations which are acquired or held for the purpose of trading11; and 10 For the avoidance of doubt, a financial institution shall continue to aggregate its equity exposures with other exposures in the computation of the prudential limits as set out in the policy documents on Single Counterparty Exposure Limit and the Single Counterparty Exposure Limit for Islamic Banking Institutions, as the case may be. 11 As defined in the policy documents on Capital Adequacy Framework (Capital Components) or Capital Adequacy Framework for Islamic Banks (Capital Components), as the case may be. 12 Interest in non-financial corporations held by the financial holding company and all financial and non-financial subsidiaries, except insurance/takaful subsidiaries. 13 For the avoidance of doubt, any interest below the material interest threshold in a non-financial corporation held after the maximum holding period shall be included within the 10% limit. Equity Investments 8 of 10 Issued on: 24 December 2019 (f) equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia or Malaysian Investment Banking Association. Maximum holding period S 9.4 Where the material interest in a non-financial corporation is acquired or held arising from the provision of financial services as set out in paragraph 8.2, a banking institution must not hold these interests beyond the holding period as set out below: Maximum holding period In satisfaction of debts 12 months from the date of acquisition of equity interest Equity underwriting activities Debt-to-equity conversion schemes 5 years from the date of acquisition of equity interest Fund management activities 12 months upon liquidation of the fund S 9.5 Where a banking institution holds any interest in excess of the material interest threshold in a non-financial corporation after the maximum holding period, the banking institution must deduct such interest in the calculation of its CET1 Capital unless otherwise approved by the Bank. S 9.6 The Bank will not consider an application under paragraph 9.5 where the investee corporation is carrying on any of the activities as listed in paragraph 8.3. S 9.7 Where the Bank’s approval has been obtained under paragraph 9.5, a banking institution shall include such interest in excess of the material interest threshold within the 10% limit as specified in paragraph 9.1. 10 Annual reporting requirement S 10.1 A financial institution must submit on an annual basis, its holdings of equity interests for the 31 December reporting position using the reporting template provided by the Bank, within 30 calendar days. S 10.2 The electronic copy of the reporting template must be submitted to Jabatan Penyeliaan Konglomerat Kewangan or Jabatan Penyeliaan Perbankan, as the case may be. Unless otherwise specified by the Bank, submission of the printed copy of the reporting template is not required. 11 Transitional arrangements S 11.1 Unless otherwise approved by the Bank, a financial institution must ensure that all existing holdings of material equity interest in non-financial corporations be brought into compliance with this policy requirement by 31 December 2021. Equity Investments 9 of 10 Issued on: 24 December 2019 APPENDIX 1 EXAMPLES OF FINANICAL AND FINANCIAL RELATED CORPORATIONS 1. A financial corporation includes, but is not limited to, a corporation engaged in any of the following: (a) licensed business, approved business or registered business as defined under the FSA or IFSA or corresponding businesses for corporations outside Malaysia; (b) licensed entity as defined under the Labuan Financial Services and Securities Act 2010 and the Labuan Islamic Financial Services and Securities Act 2010; (c) money services business as defined under the Money Services Business Act 2011 or a corresponding business for corporations outside Malaysia; (d) regulated activity carried out pursuant to a Capital Markets Services Licence as defined under the Capital Markets and Services Act 2007 or corresponding activities for corporations outside Malaysia; (e) moneylending business as defined under the Moneylenders Act 1951 or a corresponding business for corporations outside Malaysia; (f) custodial or trust business; or (g) operating a financial market infrastructure14 that is used for the purposes of clearing, settling, or recording financial transactions. 2. A financial-related corporation refers to a corporation engaged in services which serve or support the business or operations of corporations within a financial group15. 14 Including central securities depositories, payment and securities settlement systems, central counterparties, trade repositories. 15 For example, risk management, finance, legal and compliance, information technology, human resources, security services. Equity Investments 10 of 10 Issued on: 24 December 2019 APPENDIX 2 SUMMARY OF APPROVAL AND NOTIFICATION REQUIREMENTS Interest held (%) Prior notification required? Prior approval required? Description <20%   Below the material interest threshold 20%   Material interest threshold 25%, 30%   Multiple of 5 per cent above the material interest threshold 33%   Mandatory offer threshold 35%, 40%, 45%, 50%   Multiple of 5 per cent above the material interest threshold >50%   Acquisition of a subsidiary 55%, 60%, …, 100%   Multiple of 5 per cent above the material interest threshold For indirect holdings of voting shares or voting power in a corporation, only those held by a subsidiary of a financial institution would require the Bank’s approval. A financial institution must also notify the Bank for any subsequent increase in indirect interest beyond the material interest threshold.

Public Notice

23 Dec 2019

Interoperable Credit Transfer Framework (ICTF)

https://www.bnm.gov.my/-/ictf-23122019

https://www.bnm.gov.my/documents/20124/761679/PD+ICTF.pdf, https://www.bnm.gov.my/documents/20124/761679/Clarification+document.pdf

Reading: Interoperable Credit Transfer Framework (ICTF) Share: Interoperable Credit Transfer Framework (ICTF) Release Date: 23 Dec 2019 The ICTF seeks to foster an efficient, competitive and innovative payment landscape in Malaysia by enabling the interoperability of credit transfer services and promoting collaborative competition (co-opetition) between banks and non-bank e-money issuers through fair and open access to shared payment infrastructure. The revised ICTF is intended to clarify certain areas which received further feedback from the industry following the first issuance of the ICTF on 16 March 2018. Supplementing this, the Bank has also issued a clarification document to address Frequently Asked Questions on the ICTF. The revised ICTF will take effect immediately. Read more: Interoperable Credit Transfer Framework Clarification and Frequently Asked Questions © 2024 Bank Negara Malaysia. All rights reserved.

Interoperable Credit Transfer Framework Issued on: 23 December 2019 BNM/RH/PD 028-73 Interoperable Credit Transfer Framework Applicable to: 1. Licensed banks 2. Licensed Islamic banks 3. Development financial institutions 4. Approved issuers of designated payment instruments 5. Registered merchant acquirers 6. Approved operators of payment systems Issued on: 23 December 2019 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................... 1 1 Introduction ................................................................................................ 1 2 Applicability ............................................................................................... 2 3 Legal provisions ........................................................................................ 2 4 Effective date ............................................................................................. 2 5 Interpretation ............................................................................................. 3 6 Related legal instruments and policy documents ...................................... 7 PART B POLICY REQUIREMENTS ........................................................................ 7 7 Interoperable credit transfer services ........................................................ 7 8 Fair and open access to a shared payment infrastructure ......................... 8 9 Innovation sandbox and open APIs ......................................................... 10 10 Proportionate risk management .............................................................. 10 11 Customer protection ................................................................................ 11 12 Provisions applicable to approved issuers of e-money ............................ 12 APPENDIX ............................................................................................................... 13 Appendix 1: Eligibility criteria for ‘substantial market presence’ ........................... 13 Appendix 2: Limits and requirements for CDD for e-money accounts .................. 14 Interoperable Credit Transfer Framework 1 of 14 Issued on: 23 December 2019 PART A OVERVIEW 1 Introduction 1.1 Credit transfers are payment services that allow a payer to instruct the institution, with which the payer’s account is held, to transfer funds to a beneficiary. In Malaysia, credit transfer systems such as Interbank GIRO (IBG) and Instant Transfer are accessible to the current and savings account (CASA) holders via Internet banking, mobile banking and Automated Teller Machine (ATM) channels. 1.2 With a high penetration of debit cards and mobile phones in Malaysia, each adult is likely to carry both a debit card and a mobile phone. These instruments can be leveraged on to make payments as substitutes for cash and cheques. Over the past 12 months, credit transfer services are increasingly being offered not only by banking institutions via mobile banking applications, but also by non-bank electronic money (e-money) issuers through person-to-person (P2P) fund transfer services under their respective mobile payment applications. Credit transfer services, particularly when offered through the use of mobile devices, have the potential to complement debit cards as a cost-effective and convenient alternative to cash and cheques. In this regard, the growing penetration of smartphones and the availability of various mobile payment solutions offered by banking institutions and non-bank e-money issuers have the potential to accelerate the migration to electronic payments (e-payments) and advance financial inclusion by enabling every adult in Malaysia to make or receive payments electronically. 1.3 Given the importance of network effects in promoting greater payment efficiency, banking institutions and non-bank e-money issuers should collaborate at the infrastructure level by leveraging on a shared payment infrastructure and ensuring the interoperability of their respective credit transfer services. This would bring about economies of scale and expand network reach, thus lowering costs while encouraging competition at the product and service level. This is envisaged to create a more efficient, competitive and innovative payment landscape that fosters continuous improvements in payment services to keep pace with emerging technological changes and evolving user demands. 1.4 This policy document outlines requirements aimed at– (a) enabling interoperability of credit transfer services leveraging on shared payment infrastructure to expand network reach and avoid market fragmentation; (b) ensuring fair and open access to shared payment infrastructure to promote a level playing field and foster collaboration at the infrastructure level; (c) facilitating effective oversight of shared payment infrastructure to maintain the safety and integrity of credit transfer systems and to ensure the integrity and stability of the financial system; Interoperable Credit Transfer Framework 2 of 14 Issued on: 23 December 2019 (d) encouraging innovation through the establishment of innovation sandbox facilities and publication of Application Programming Interfaces (APIs) by an operator of a shared payment infrastructure; (e) establishing risk management measures proportionate to the nature, scale and complexity of the activities and risk profile of the respective providers of credit transfer services; and (f) strengthening customer protection and fostering confidence in the use of credit transfer services. 2 Applicability 2.1 This policy document is applicable to a licensed bank, licensed Islamic bank, prescribed development financial institution, approved issuer of designated payment instrument, registered merchant acquirer and approved operator of payment system that operates a shared payment infrastructure as defined in paragraph 5.2. 2.2 For ease of reference, the applicability of the specific requirements in this policy document is as follows: Relevant entity Applicable paragraphs Banking institution 7.1, 7.2 Approved issuer of e-money 10.3, 10.4, 10.5, 12.11,12.21, 12.3 Eligible issuer of e-money 7.1, 7.2 Financial institution 7.3, 11.1, 11.22, 11.3 Operator of a shared payment infrastructure 7.4, 8.1, 8.2, 8.3, 8.4, 8.5, 9.1, 9.2, 10.1, 10.2, 10.6, 10.7 Sponsor institution 8.6 3 Legal provisions 3.1 The requirements in this policy document are specified pursuant to ̶ (a) sections 18, 33, 47, 49 and 123 of the Financial Services Act 2013 (FSA); (b) sections 43, 57 and 135 of the Islamic Financial Services Act 2013 (IFSA); (c) sections 41 and 42C of the Development Financial Institutions Act 2002 (DFIA); and (d) sections 16 and 83 of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLATFPUAA). 4 Effective date 4.1 This policy document shall come into effect on 23 December 2019. 1 Applicable only to approved issuers of e-money that are not banking institutions. 2 Applicable only to financial institutions that are not banking institutions. Interoperable Credit Transfer Framework 3 of 14 Issued on: 23 December 2019 5 Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA or IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Application Programming Interface or API” means a set of commands, functions, protocols and objects used to create software and interact with external systems; “approved issuer of designated payment instrument” means an issuer of debit card, debit card-i, credit card, credit card-i, charge card, charge card-i and e-money approved by the Bank under section 11 of the FSA or section 11 of the IFSA; “approved issuer of e-money” means a person approved under section 11 of the FSA or section 11 of the IFSA to issue e-money and for the avoidance of doubt, this may include a banking institution or a non-bank issuer of e- money; “approved operator of a payment system” means an operator of a payment system approved under section 11 of the FSA or section 11 of the IFSA; “Bank” means Bank Negara Malaysia; "bank account” means a current account, a savings account or an account where a line of credit is extended by a banking institution to a customer; “banking institution” means a licensed bank as defined under the FSA, a licensed Islamic bank as defined under the IFSA, and a development financial institution prescribed under the DFIA; Interoperable Credit Transfer Framework 4 of 14 Issued on: 23 December 2019 “credit transfer” means a payment service which allows a payer to instruct the institution with which the payer’s bank account or e-money account is held to transfer funds to a beneficiary in another bank account or e-money account, irrespective of any underlying obligation between the payer and the beneficiary. For the avoidance of doubt, any reference to “credit transfer” in this policy document shall include a reference to both a fund transfer transaction and a purchase transaction regardless of the technology used to facilitate the transaction including Quick Response (QR) code. Where a payment card is used to generate the information required to make or receive a credit transfer from a bank account or an e-money account, such transaction is a credit transfer transaction and not a payment card transaction; “customer” means a financial consumer as defined under section 121 of the FSA and section 133 of the IFSA, in relation to a bank account or an e-money account; “customer data” means personal data as defined under the Personal Data Protection Act 2010 and credentials that are used for customer authentication and transaction authorisation, and such other customer data as may be specified by the Bank; “electronic money or e-money” means a payment instrument or an Islamic payment instrument, whether tangible or intangible, that stores funds electronically in exchange for funds paid to the issuer and is able to be used as a means of making payment to any person other than the issuer; “eligible credit transfer transaction” means a credit transfer transaction but excludes: (a) bulk payment including Interbank GIRO (IBG) transactions; (b) bill payment including JomPAY transactions; (c) electronic or mobile commerce transactions including Financial Process Exchange (FPX) transactions; (d) Real-time Electronic Transfer of Funds and Securities System (RENTAS) transactions; and (e) such other types of credit transfer transactions as may be specified by the Bank; “eligible issuer of e-money” means an approved issuer of e-money with substantial market presence based on the criteria set out in accordance with Appendix 1 or such other criteria as may be specified by the Bank from time to time; “financial institution” means a banking institution, an approved issuer of a designated payment instrument and a registered merchant acquirer; Interoperable Credit Transfer Framework 5 of 14 Issued on: 23 December 2019 “innovation sandbox” means a contained non-live test environment that mimics the functionality of a production environment, established by an operator of a shared payment infrastructure in which participants and other third parties may test their product, service or solution3; “inter-bank credit transfer” means any credit transfer in Malaysia between a bank account maintained with a banking institution and another bank account maintained with another banking institution but excludes any fund transfer between bank accounts maintained with the same banking institution; “inter-scheme credit transfer” means any credit transfer in Malaysia between– (a) a bank account maintained with a banking institution and an e-money account maintained with an approved issuer of e-money; or (b) an e-money account maintained with an approved issuer of e-money and another e-money account maintained with another approved issuer of e-money, but excludes any fund transfer between e-money accounts maintained with the same approved e-money issuer; “licensed bank” means a person licensed under the FSA to carry on banking business; “licensed Islamic bank” means a person licensed under the IFSA to carry on Islamic banking business; “merchant” means a ‘legal person’ as defined under the Bank’s policy document on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Banking and Deposit-Taking Institutions (Sector 1) and AML/CFT – Electronic Money and Non-Bank Affiliated Charge & Credit Card (Sector 4) who receives payments for purchase transactions; “National Addressing Database” means a central addressing repository established by an operator of a shared payment infrastructure that– (a) links a bank account or an e-money account to common identifiers of an account holder such as a mobile phone number, National Registration Identity Card (NRIC number), company registration number or business registration number; and (b) facilitates payment to be made to a recipient by referencing the recipient’s common identifiers; 3 For avoidance of doubt, this is separate and distinct from the ‘fintech regulatory sandbox’ established under the Financial Technology Regulatory Sandbox Framework issued by Bank Negara Malaysia, which is a live environment where approved applicants may test any financial product, service or solution subject to specified parameters and timeframes. Interoperable Credit Transfer Framework 6 of 14 Issued on: 23 December 2019 “operator of a shared payment infrastructure” means an approved operator of a payment system under the FSA or the IFSA, as the case may be, that operates a payment system that is established and located in Malaysia and facilitates inter-bank credit transfer and/or inter-scheme credit transfer; “passcode” means a password or code that is used to authenticate the identity of a customer and to authorise a transaction. A passcode may consist of numbers, letters, a combination of both, or a phrase. Examples of a passcode include: (a) password; (b) one-time password (OTP); (c) personal identification number (PIN); and (d) code generated by a security device. “payment card” means a debit card, debit card-i, credit card, credit card-i, charge card, or charge card-i as defined under the Financial Services (Designated Payment Instruments) Order 2013 [P.U.(A) 202], the Financial Services (Designated Payment Instruments) (Amendment) Order 2016 [P.U.(A) 82], the Islamic Financial Services (Designated Payment Instruments) Order 2013 [P.U.(A) 208] and the Islamic Financial Services (Designated Islamic Payment Instruments) (Amendment) Order 2016 [P.U.(A) 83]; “prescribed development financial institution” means a development financial institution prescribed under the DFIA; “purchase transaction” means any transaction between a customer and a merchant for the purchase of goods or services; “registered merchant acquirer” means an operator of a payment system that provides merchant acquiring services registered under section 17 of the FSA; “security device” means a token or other device that generates a passcode; “service provider” means an entity, including an affiliate, providing services under an arrangement with the financial institution to perform an activity on behalf of the financial institution; “shared payment infrastructure” means a payment system, as may be determined by the Bank, which is established and located in Malaysia and facilitates inter-bank credit transfer and/or inter-scheme credit transfer; and “sponsor institution” means a banking institution, an approved issuer of a designated payment instrument or a registered merchant acquirer that provides a financial institution with access to a shared payment infrastructure for the purpose of enabling inter-bank credit transfer and/or inter-scheme credit transfer within Malaysia. Interoperable Credit Transfer Framework 7 of 14 Issued on: 23 December 2019 6 Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant instruments and policy documents that have been issued by the Bank, including the following: (a) Guideline on Electronic Money (E-Money) issued on 31 July 2008; (b) Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Banking and Deposit-Taking Institutions (Sector 1) issued on 4 September 2013; and (c) Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Electronic Money and Non-Bank Affiliated Charge & Credit Card (Sector 4) issued on 4 September 2013. 6.2 In the event of any conflict or discrepancy between the provisions in this policy document and the policy documents listed in paragraph 6.1 above, the provisions in this policy document shall prevail and take precedence. PART B POLICY REQUIREMENTS 7 Interoperable credit transfer services S 7.1 A banking institution and an eligible issuer of e-money shall– (a) enable its customers to register their account information and common identifiers in the National Addressing Database; (b) ensure that its customers are able to make payment to and receive payment from another customer of the same or another banking institution or eligible issuer of e-money, including through the use of common identifiers registered in the National Addressing Database and via the interoperable QR code scheme established under paragraph 7.4; (c) facilitate its customers to generate a common QR code established by an operator of a shared payment infrastructure under paragraph 7.4; and (d) waive the transaction fee imposed on its customers who are either the sender or the recipient for any eligible credit transfer transaction funded using a current account, a savings account or an e-money account up to RM5,000 per transaction or such other amount as may be specified by the Bank. G 7.2 Notwithstanding sub-paragraph 7.1(d), a banking institution and an eligible issuer of e-money may impose a fee on customers whose business relationships are established as merchants, for value-added services provided in addition to the credit transfer services and the facilities specified in sub-paragraphs 11.1(a), (b) and (c). Interoperable Credit Transfer Framework 8 of 14 Issued on: 23 December 2019 S 7.3 Unless otherwise approved by the Bank4, a financial institution shall ensure that any inter-bank credit transfer transactions and inter-scheme credit transfer transactions are processed in Malaysia through an operator of a shared payment infrastructure to facilitate the Bank’s effective oversight of such an operator to maintain the safety and integrity of credit transfer systems, and ensure the integrity and stability of the financial system. S 7.4 An operator of a shared payment infrastructure shall– (a) establish an interoperable QR scheme and a common QR code that facilitate the customers of its participants to make inter-bank credit transfer and inter-scheme credit transfer transactions; (b) ensure that the common QR code established under sub-paragraph (a) will enable a customer of its participants to receive payment from another customer of any of its participants; and (c) develop technical standards and business rules to facilitate interoperability of credit transfer services, which shall include but not limited to secure QR code standards, API standards, communication protocols, and standard operating procedures for populating and operating the National Addressing Database. 8 Fair and open access to a shared payment infrastructure S 8.1 An operator of a shared payment infrastructure shall– (a) allow any financial institution5 to have access to the shared payment infrastructure which shall include the switching and clearing system and the National Addressing Database, based on the access requirements established in accordance with sub-paragraph (b) below; (b) establish objective, non-discriminatory and risk-based access requirements to the shared payment infrastructure, including the requirements to be fulfilled by a sponsor institution, which shall not inhibit access except as reasonably necessary to safeguard against settlement, operational and business risks, and to protect the financial and operational stability of the payment system; (c) publish in its website, at the minimum, the following information: (i) access requirements and application procedure to be granted access to the shared payment infrastructure; (ii) name of its participants; (iii) timeframe in which a decision will be made in relation to an application by a financial institution for access to the shared payment infrastructure; and (iv) timeframe in which a decision will be made in relation to an appeal made by a financial institution under paragraph 8.3; and 4 For the avoidance of doubt, this approval application shall be submitted by the prospective operator of a payment system for inter-bank credit transfer transactions and inter-scheme credit transfer transactions. 5 For the avoidance of doubt, this is not limited to a banking institution or an eligible issuer of e-money. Interoperable Credit Transfer Framework 9 of 14 Issued on: 23 December 2019 (d) notify a financial institution in writing of its decision on whether to allow the financial institution to have access to the shared payment infrastructure and the relevant access conditions or reasons for refusal of access, where applicable. S 8.2 An operator of a shared payment infrastructure shall establish an appeal handling process to hear an appeal made by a financial institution that has been denied access to the shared payment infrastructure or disagrees with the access conditions imposed by the operator. S 8.3 The appeal handling process established under paragraph 8.2 shall, at the minimum, include the following: (a) a financial institution may submit its appeal to a Board committee of the operator which comprises at least three individuals (one of whom will be the chair), the majority of whom are independent directors; (b) in determining an appeal, the Board committee shall have regard to the provisions set out in this policy document; and (c) the Board committee shall notify the financial institution in writing of its decision in relation to the appeal of the operator’s decision and the reason for any rejection of the appeal, where applicable. S 8.4 An operator of a shared payment infrastructure shall– (a) establish transparent, objective and non-discriminatory fee structure applicable to its participants; (b) disclose to its participants the basis in which the fee structure is determined; and (c) disclose to its participants the manner in which the fees collected from its participants are utilised. S 8.5 An operator of a shared payment infrastructure shall establish rules for the withdrawal, suspension and termination of the access by a participant to the shared payment infrastructure, which shall– (a) clearly define the circumstances that may give rise to such events; and (b) set out the rights and obligations of participants during such events. S 8.6 A sponsor institution shall– (a) establish objective, non-discriminatory and risk-based requirements to be fulfilled by a sponsored financial institution for access to a shared payment infrastructure via the sponsor institution; (b) publish on its website, at the minimum, the following information: (i) a description of the services offered as a sponsor institution; and (ii) the requirements established under sub-paragraph (a). Interoperable Credit Transfer Framework 10 of 14 Issued on: 23 December 2019 9 Innovation sandbox and open APIs G 9.1 An operator of a shared payment infrastructure should coordinate with its participants to– (a) publish APIs; (b) establish an innovation sandbox facility; and (c) permit any third party to use the APIs published under sub-paragraph (a) and the innovation sandbox established under sub-paragraph (b), for the purpose of experimenting and testing of a new product, service or solution. S 9.2 Where APIs are published under paragraph 9.1(a), an operator of a shared payment infrastructure shall define the process in relation to information handling, authentication and authorisation in a manner that is consistent with relevant laws, policies and guidelines dealing with data privacy and security. 10 Proportionate risk management S 10.1 An operator of a shared payment infrastructure shall establish procedures, controls and measures for the management of risks associated with inter-bank credit transfers and inter-scheme credit transfers, including but not limited to credit or settlement risk, liquidity risk, security risk and risk associated with data privacy. S 10.2 An operator of a shared payment infrastructure shall ensure that the procedures, controls and measures established under paragraph 10.1 are proportionate to the nature, scale and complexity of the respective activities and risk profiles of its participants. S 10.3 In circumstances where the money laundering and terrorism financing (ML/TF) risks are assessed to be low and are within the limits set out in the Appendix 2, an approved issuer of e-money6 may perform, as the case may be– (a) no customer due diligence (CDD); or (b) simplified CDD measures as stipulated in the Appendix 2. S 10.4 For the purpose of paragraph 10.3, an approved issuer of e-money shall– (a) ensure that it has put in place adequate internal controls to mitigate ML/TF risks; (b) ensure that it has put in place appropriate systems and controls to ensure compliance with CDD requirements for the relevant limits stipulated in the Appendix 2 including a system to detect when a customer is approaching the limits and trigger specific CDD measures; (c) conduct CDD on all customers whose business relationships are established as merchants; and 6 For the avoidance of doubt, an approved issuer of e-money refers to a banking institution or a non-bank entity that is approved to issue e-money under the FSA or the IFSA. Interoperable Credit Transfer Framework 11 of 14 Issued on: 23 December 2019 (d) conduct enhanced CDD7 if– (i) it has knowledge or suspicion of ML/TF; (ii) it becomes aware of anything that raises doubt as to the identity or intentions of the customer or the beneficial owner; or (iii) the business relationship with the customer or the beneficial owner is assessed to pose a higher ML/TF risk. S 10.5 The Bank may require an approved issuer of e-money to observe a lower account limit and/or a lower transaction limit or to perform additional CDD measures other than that stipulated in the Appendix 2 based on the Bank’s or the issuer’s assessment of the ML/TF risks and/or the adequacy of the internal controls of the issuer. S 10.6 An operator of a shared payment infrastructure shall establish rules that shift the liability for fraud losses in relation to an inter-bank credit transfer transaction and/or an inter-scheme credit transfer transaction to its participant with the weaker security or AML/CFT controls. S 10.7 An operator of a shared payment infrastructure shall establish a fair, effective, transparent and efficient dispute resolution mechanism to resolve dispute between its participants in relation to the services provided via the shared payment infrastructure. 11 Customer protection S 11.1 A financial institution shall, in relation to credit transfer services offered to its customers– (a) provide a convenient means for its customers to manage their transaction limits, at the minimum, via its website or mobile application; (b) provide instant notification to its customers for any transaction made8 or received9; (c) provide a convenient means for its customers to check their account balance on a real-time basis, at the minimum, via its website or mobile application; (d) disclose the pricing and information on its credit transfer services in a manner that is transparent and would facilitate comparison and informed decision-making by the customers; (e) ensure that its customer data are securely protected including but not limited to deploying preventive and detective controls to prevent any occurrence of loss, theft or unauthorised access of customer data; and (f) take reasonable steps to ensure its customers are adequately alerted and provided with updated safety tips that are practicable and effective, including but not limited to the obligations set out in sub-paragraphs 11.3(b) in order to prevent customers from becoming victims of fraud. 7 In accordance with paragraph 13.5 of the AML/CFT – Banking and Deposit-Taking Institutions (Sector 1) and paragraph 13.5 of the AML/CFT – Electronic Money and Non-Bank Affiliated Charge & Credit Card (Sector 4). 8 To be fulfilled by the payer’s financial institution. 9 To be fulfilled by the payee’s financial institution. Interoperable Credit Transfer Framework 12 of 14 Issued on: 23 December 2019 S 11.2 A financial institution which is not a banking institution shall obtain the Bank’s written approval before entering into an arrangement with a third party service provider to perform an activity related to the retention and storage of customer data on behalf of the financial institution for credit transfer services. S 11.3 A financial institution shall ensure that a customer shall not be held liable for losses arising from a credit transfer transaction unless the financial institution can prove on a balance of probabilities that– (a) the customer has acted fraudulently; (b) the customer has failed to carry out the following obligations as communicated by the financial institution to the customer in accordance with sub-paragraph 11.1(f): (i) not deliberately disclosing the access identity (ID) and passcode to any other person; (ii) taking reasonable steps to keep security device secure at all times; or (iii) reporting a breach of the security of a passcode, the loss of a security device or any unauthorised transaction to the financial institution as soon as reasonably practicable, upon the customer becoming aware of the breach, loss or unauthorised transaction respectively. 12 Provisions applicable to approved issuers of e-money S 12.1 As part of good risk management practice, an approved issuer of e-money that is not a banking institution shall diversify the placement of the funds received from its customers in exchange of the e-money issued, in bank accounts maintained at several banking institutions to mitigate exposure to any single banking institution. S 12.2 An approved issuer of e-money that is not a banking institution shall not use its e-money platform or system to promote or cross-sell any financial products except with the Bank’s prior written approval. S 12.3 An approved issuer of e-money shall not undertake any activity that has the object or effect of circumventing the prohibition set out in paragraph 13.1 of the Bank’s Guideline on Electronic Money on– (a) the issuance of e-money at a discount, i.e. issue e-money that has a monetary value greater than the sum received; (b) the use of the money collected to extend credit to any other persons; (c) the extension of credit to the user, or payment of interest or profit on the e- money balances, or anything else that would add to the monetary value of the e-money; and (d) associating, linking or using the e-money scheme or platform to conduct illegal activities. Interoperable Credit Transfer Framework 13 of 14 Issued on: 23 December 2019 APPENDIX Appendix 1: Eligibility criteria for ‘substantial market presence’ For the purpose of the definition of an ‘eligible issuer of e-money’ under paragraph 5.2, an approved issuer of e-money is deemed to have ‘substantial market presence’ if it fulfils any of the following criteria: (a) the issuer has at least 500,000 active users (i.e. with at least one financial transaction10 per month) for a consecutive period of six months; (b) the issuer has a market share of at least 5% of the total e-money transaction volume or transaction value in Malaysia for a given year beginning 2017; (c) the issuer has a market share of at least 5% of the total outstanding e-money liabilities in Malaysia for a given year beginning 2017; or (d) the issuer is an affiliate11 of an eligible issuer of e-money. The Bank reserves the right to add, vary, amend or remove the criteria set out above from time to time. 10 This includes reloading of an e-money account, fund transfer or purchase transaction. 11 An “affiliate” shall refer to an entity that controls, or is controlled by, or is under common control with, an approved issuer of e-money. In addition, it also includes relationships with other companies where non-controlling interests exists, but where significant influence is exercised. This may include a significant shareholder, joint venture, or special purpose entity, whether domestic or foreign. Interoperable Credit Transfer Framework 14 of 14 Issued on: 23 December 2019 Appendix 2: Limits and requirements for CDD for e-money accounts CDD requirement Limits Account functionality Account limit Transaction limit No CDD  Purchase transactions  Fund transfer not allowed  Cash-out/ withdrawal not allowed12 Less than RM5,000  Less than RM3,000 per transaction  Up to RM50,000 per annum Simplified CDD Identify and verify the customer’s identity by-  collecting customer’s information13;  funding e-money account from a bank account or a payment card; and  verifying the customer’s name or NRIC number with a banking institution or an issuer of payment card.  Purchase transactions  Fund transfers within Malaysia  Cash-out/ withdrawal not allowed12 Up to the account limit approved by the Bank  Up to RM50,000 per annum14  No restriction on fund transfer to the customer’s own bank account 12 A customer is allowed to obtain a refund of the funds in his or her e-money account upon termination or closure of the e-money account. An approved issuer of e-money must ensure timely refund of its customer's funds in accordance with the requirements in the Guideline on E-Money. 13 In accordance with paragraph 13.4.1 of the Bank’s policy document on AML/CFT Sector 1 (Banking and Deposit-Taking Institutions) and paragraphs 13.4.1 and 13.4.2 of the AML/CFT Sector 4 (Electronic Money and Non-Bank Affiliated Charge & Credit Card). 14 This refers to the permissible cumulative amount of purchase transactions and fund transfers that a customer can make within a calendar year. Page 1 of 5 Clarification and Frequently Asked Questions on the Interoperable Credit Transfer Framework Introduction The Bank had issued the Interoperable Credit Transfer Framework (ICTF) (effective since 1 July 2018) with the main objective of fostering an enabling environment that facilitates interoperability of credit transfer services to expand network reach and avoid market fragmentation. To achieve the objectives set out in the ICTF and ensure the effectiveness of the framework, the Bank had continuously engaged the industry to identify and address implementation challenges. Based on the additional feedback received during these engagements, the Bank has undertaken further enhancements to the ICTF, which will take effect immediately. Further clarification on these revisions and as well as other areas raised by industry players since implementation are incorporated in the following sections. Bank Negara Malaysia 23 December 2019 Page 2 of 5 1. Interoperable credit transfer services Permissible participation models for a shared payment infrastructure 1.1 Some prospective eligible issuers of e-money sought for clarity on whether eligible issuers of e-money are required to enable interoperability of its credit transfer services through direct participation1 in a shared payment infrastructure. 1.2 The Bank wishes to clarify that eligible issuers of e-money may access a shared payment infrastructure via any of the following access models: (i) Direct participation, i.e. where an eligible issuer of e-money connects directly to a shared payment infrastructure for the purpose of sending and receiving payment and clearing messages, and to a participant of RENTAS for the purpose of performing settlement on the transactions made via the shared payment infrastructure; or (ii) Indirect participation, i.e. where an eligible issuer of e-money connects to a shared payment infrastructure via a sponsor institution for the purpose of sending and receiving payment and clearing messages, and to a participant of RENTAS for the purpose of performing settlement on the transactions made via the shared payment infrastructure. 1.3 The Bank recognises the importance of enabling different access models to a shared payment infrastructure to facilitate the business models and needs of the industry players. To this end, the Bank encourages all industry players to explore a range of access options, whether directly or indirectly via a sponsor institution. 1.4 In relation to providing access to a shared payment infrastructure as a sponsor institution, the Bank has clarified in paragraph 5.2 of the revised ICTF that any financial institution with direct access to a shared payment infrastructure, whether bank or non-bank, may provide the sponsorship services to facilitate another institution to connect to a shared payment infrastructure for the purpose of sending and receiving payment and clearing messages. Offshore processing of inter-bank and inter-scheme credit transfer transactions 1.5 The Bank’s primary objective in requiring inter-bank and inter-scheme credit transfer transactions to be processed onshore through a shared payment 1 For the avoidance of doubt, ‘direct participation’ refers to a scenario where an entity is granted approval by an operator of the shared payment infrastructure to connect directly to the infrastructure to facilitate credit transfer services. Page 3 of 5 infrastructure is to enable effective oversight, which in turn preserves the safety and integrity of credit transfer systems. 1.6 Following the issuance of the ICTF, the Bank received further representations from prospective operators of payment systems to allow the processing of inter- bank and inter-scheme transactions to be conducted offshore by leveraging on global systems to achieve greater economies of scale. 1.7 The Bank is committed to striking a balance between the need for effective oversight and fostering vibrant competition in Malaysia’s payments landscape. To this end, the Bank will continue to require financial institutions (as defined under the ICTF) to participate (whether directly or indirectly) in the shared payment infrastructure2. 1.8 In addition to participating in the shared payment infrastructure that undertakes onshore processing of credit transfer transactions in Malaysia, the Bank wishes to emphasise that this does not preclude financial institutions from also participating in other payment systems, subject to appropriate safeguards. In this regard, the Bank has clarified in paragraph 7.3 of the revised ICTF that an operator of a payment system is required to obtain the Bank’s prior written approval to process inter-bank and inter-scheme credit transfer transactions offshore. In assessing such applications, the Bank will have regard to, among others, the following factors: (i) appropriateness of prudential safeguards to facilitate the Bank’s oversight; (ii) measures to mitigate market fragmentation risks, which may include facilitating interoperability between credit transfer systems in Malaysia; (iii) measures to promote greater transparency to facilitate the industry players in making better informed decisions on which credit transfer system to participate in; and (iv) other relevant matters (e.g. cooperation arrangements between the Bank and relevant financial regulatory authorities, exclusivity arrangements that may impair competition and market vibrancy of Malaysia’s credit transfer landscape). 2 At this stage, the shared payment infrastructure refers to the Real-time Retail Payments Platform (RPP) operated by Payments Network Malaysia Sdn. Bhd. (PayNet). Page 4 of 5 Provision of common QR code under the interoperable QR code scheme 1.9 Some financial institutions have requested for clarity on whether financial institutions are allowed to offer proprietary QR codes to customers in addition to the common QR code under the interoperable QR code scheme that is established by the operator of the shared payment infrastructure. 1.10 The Bank recognises the benefits of offering proprietary QR codes with innovative and value-added functions to enhance customer experience. In balancing these benefits with the envisioned outcome of interoperability, the Bank wishes to clarify the following: (i) At a minimum, banking institutions and eligible issuers of e-money must offer the common QR code to customers3; and (ii) In addition to the common QR code, financial institutions may offer their proprietary QR codes to customers. For the avoidance of doubt, banking institutions and eligible issuers of e-money are not allowed to offer only their proprietary QR codes to customers. 2. Customer protection Transaction limits 2.1 Some non-bank e-money issuers have requested for clarity on whether the requirement for financial institutions to provide convenient means for their customers to manage their transaction limits is applicable to non-bank e-money issuers, considering that non-bank e-money accounts have smaller account limits as compared to bank accounts, hence posing lower fraud risks. 2.2 The Bank wishes to clarify that the requirement to provide convenient means for customers to manage transaction limits is applicable to all financial institutions, regardless of whether it is a bank account or a non-bank e-money account. While the approved account limit for respective financial institutions are based on several factors including the financial institution’s business models and risk management capabilities, the option to manage transaction limits must be provided to customers to foster confidence in and encourage the usage of credit transfer services. 3 Namely, financial institutions that are a participant (whether direct or indirect) of the interoperable QR code scheme. In respect of merchant acquiring activities, banking institutions and eligible issuers of e-money are expected to ensure that their merchants display the common QR code. For the avoidance of doubt, at this stage, the interoperable QR scheme and common QR code refer to the PayNet’s RPP QR scheme and RPP QR code, respectively. Page 5 of 5 Instant notifications 2.3 Financial institutions also sought for clarity on the types of credit transfer services in which financial institutions are required to provide their customers with instant notification for any transaction made or received. 2.4 The Bank wishes to emphasise the importance of fostering customer confidence in the usage of credit transfer services. To this end, the Bank encourages financial institutions to provide customers with instant notifications for any credit transfer transaction made or received. At the minimum, financial institutions must provide instant notifications for real-time credit transfer transactions (such as those facilitated through the RPP). Storage of sensitive customer data 2.5 The Bank wishes to emphasise the importance of protecting data confidentiality of customers. To ensure that adequate safeguards are in place to mitigate the risk of any misuse, unauthorised or inadvertent disclosure of sensitive customer data, financial institutions who are not banking institutions are required to obtain the Bank’s prior written approval before engaging a third party service provider, whether in or outside Malaysia, to perform an activity related to the storage of customer data for credit transfer transactions on behalf of a financial institution. Banking institutions on the other hand, are subject to the relevant requirements stipulated in the Policy Document on Outsourcing. 2.6 In assessing an application from a financial institution to engage a third party service provider, whether in or outside Malaysia, to perform an activity related to the storage of customer data for credit transfer transactions, the Bank will have regard to, among others, the following factors: (i) Whether the financial institution has satisfied itself that the level of security controls, governance, policies, and procedures at the service provider are robust to protect the security and confidentiality of information shared under the arrangement with the service provider; and (ii) Whether the financial institution has put in place appropriate controls and safeguards to manage the additional risks including country risk arising from an arrangement with a third party service provider, where the service provider is located or performs the activity on behalf of a financial institution outside Malaysia, having regard to social and political conditions, government policies and legal and regulatory developments. Bank Negara Malaysia 23 December 2019

Public Notice

20 Dec 2019

Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 194th and 195th Meeting

https://www.bnm.gov.my/-/ruling-of-the-sac-20122019

https://www.bnm.gov.my/documents/20124/761679/SAC+194th+%26+195th+Meeting+Statement+%28ENG%29.pdf

Reading: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 194th and 195th Meeting Share: Ruling of the Shariah Advisory Council (SAC) of Bank Negara Malaysia at its 194th and 195th Meeting Release Date: 20 Dec 2019 The Shariah Advisory Coucil (SAC) of Bank Negara Malaysia at its 194th meeting on 25 June 2019 and its 195th meeting on 31 July 2019 resolved that the ar-rahnu product structure offered by Islamic financial institutions (IFIs) through the combination of qard (loan), rahn (pledge), wadi`ah (safekeeping) and ujrah (fee) does not fulfil the Shariah requirements in Rahn Policy Document due to the following: The interconditionality and interdependency between the loan contract and the elements of pledge, safekeeping and fee in the product structure gives rise to the issues of qard jarra naf`an (loan that benefits the lender) and bai` wa salaf (combination of sales contract with a loan) which are prohibited in Shariah. In the ar-rahnu structure, each contract will not take effect without the other contracts. For instance, the loan will only be provided with the condition that customers safekeep their gold with the Islamic financial institution (IFI) where a safekeeping fee is charged. Such structure where the safekeeping fee charged is connected to the loan provided indirectly raises the issue of qard jarra naf`an; and The combination between the pledge and the loan contract in the ar-rahnu structure for the purpose of profit generation is not in line with the objective of both contracts (muqtada ‘aqd) in which the former is for pledging while the latter is for charity. The SAC at its 195th meeting ruled the following: The SAC ruling decided at the 194th meeting on 25 June 2019 regarding prohibition of ar-rahnu based on the above structure will take effect on 1 February 2020; IFIs are temporarily allowed to apply the views of their respective Shariah Committee on the ar-rahnu product structure up until the date of the SAC ruling comes into effect; and Any new and outstanding ar-rahnu financing including the income generated before the above SAC ruling takes effect is allowed to continue until the maturity of the financing, based on the previous decision of the respective Shariah Committee of IFIs. Please refer attachment for more information. © 2024 Bank Negara Malaysia. All rights reserved.

Mesyuarat MPS ke-179 195th SAC Meeting 2019 1 The 194th and 195th Meeting of the Shariah Advisory Council (SAC) of Bank Negara Malaysia The SAC at its 194th meeting on 25 June 2019 and its 195th meeting on 31 July 2019 ruled the following: Compliance of Islamic Pawn Broking Product (Ar-Rahnu) towards the Rahn Policy Document (Rahn PD) SAC Ruling The SAC at its 194th meeting resolved that the ar-rahnu product structure offered by Islamic financial institutions (IFIs) through the combination of qard (loan), rahn (pledge), wadi`ah (safekeeping) and ujrah (fee) does not fulfil the Shariah requirements in Rahn PD due to the following: (i) The interconditionality and interdependency between the loan contract and the elements of pledge, safekeeping and fee in the product structure gives rise to the issues of qard jarra naf`an (loan that benefits the lender) and bai` wa salaf (combination of sales contract with a loan) which are prohibited in Shariah. In the ar-rahnu structure, each contract will not take effect without the other contracts. For instance, the loan will only be provided with the condition that customers safekeep their gold with the Islamic financial institution (IFI) where a safekeeping fee is charged. Such structure where the safekeeping fee charged is connected to the loan provided indirectly raises the issue of qard jarra naf`an; and (ii) The combination between the pledge and the loan contract in the ar-rahnu structure for the purpose of profit generation is not in line with the objective of both contracts (muqtada ‘aqd) in which the former is for pledging while the latter is for charity. The SAC at its 195th meeting ruled the following: (i) The SAC ruling decided at the 194th meeting on 25 June 2019 regarding prohibition of ar-rahnu based on the above structure will take effect on 1 February 2020; (ii) IFIs are temporarily allowed to apply the views of their respective Shariah Committee on the ar-rahnu product structure up until the date of the SAC ruling comes into effect; and (iii) Any new and outstanding ar-rahnu financing including the income generated before the above SAC ruling takes effect is allowed to continue until the maturity of the financing, based on the previous decision of the respective Shariah Committee of IFIs. Background  Ar-rahnu was introduced as an alternative to the conventional interest-based pawn broking product.  Generally, ar-rahnu products offered by IFIs involve four main Shariah contracts which are loan (qard), pledge (rahn), safekeeping (wadi`ah) and fee (ujrah). In ar-rahnu financing, the pledging of gold belonging to the customer is made as a condition for the loan to be provided. IFI will safekeep the collateral based on the concept of wadi`ah and a safekeeping fee will be charged on customers for the safekeeping service provided by the IFI. 195th SAC Meeting 2019 2  The Bank has issued Rahn PD (effective on 1 August 2019) that outlines the Shariah and operational requirements related to rahn contract. The requirements specified in the Rahn PD is applicable to ar-rahnu as rahn is the underlying contract for the product.  Rahn PD requires that any charges related to rahn shall be limited to the cost directly related to the rahn transaction without any profit elements.  Based on the above, the SAC is referred with regards to the Shariah compliance of the existing ar-rahnu product against the Rahn PD requirements. Shariah issue Does the existing ar-rahnu structure fulfil the Shariah requirements? Illustration of Ar-Rahnu Product Structure Key Highlights of the SAC Discussion Interdependency and interconditionality between the loan and safekeeping service for the collateral  The loan is only offered to customers in the ar-rahnu product who pledge and safekeep the gold to the IFI and the safekeeping fee charged is based on the gold value.  Based on this structure, it is viewed that the current practice has an element of interconditionality and interdependency between the loan and the safekeeping service contracted between the IFI and the customer. Element of profit in the safekeeping fee of the collateral  In the current practice, the service fee charged by IFIs to safekeep the gold is based on the value of gold pledged. The method in determining the safekeeping fee is deemed to have element of profit and is not in line with Shariah requirements which only allows the safekeeping fee to be charged based on costs that are directly related to the rahn transaction only.  Typically, the financing products offered by IFIs in the Islamic banking industry apply the concept of sales (bai`) or lease (ijarah) which generates income and profit. In such cases, the profit generated from both underlying contracts is permissible in Shariah. 195th SAC Meeting 2019 3  This is different in the case of the existing ar-rahnu structure which applies the contract of qard (loan) as the main underlying contract. From a Shariah perspective, the lender must not receive more than the loan amount provided (directly or indirectly) as it creates financial benefits to the lender. Basis of Ruling Compliance of Ar-Rahnu Product  The combination of both the loan and the pledge contract for the purpose of income generation is not in line with the objective of the contracts. The loan contract is a tabarru`at contract (charitable contract) and rahn is a pledge contract. The objective of both types of contract is not for profit generation as in the case of sales contract (bai`), investment (mudarabah, wakalah bil istithmar) or service fee (ujrah or ijarah khadamat).  The Rahn PD specifies that the fee that may be charged to the pledgee is limited to the cost directly related to the safekeeping of the collateral.1 Any charges beyond the direct cost are not permissible as it may lead to profit generation which is contradictory to the real objective of rahn contract. 2  The interconditionality and interdependency between the loan, pledge, safekeeping and fee contracts in the product structure may bring about the issues of qard jarra naf`an (loan that gives benefit to the lender) and bai` wa salaf (combination between loan and sales contract) which are prohibited in Shariah. عن علي رضي هللا عنه قال: قال رسول هللا صلى هللا عليه وسلم: كل قرض جر منفعة فهو راب “From Ali r.a who said, that Rasulullah SAW said: Every loan which brings benefits (to the creditor) amounts to riba.”3  In addition, the charging of the safekeeping fee based on the value of the gold (collateral) is deemed to have the element of profit to IFI. This also brings about the issues of qard jarra naf`an and bai` wa salaf which are prohibited in Shariah. Rationale and Impact of the Enforcement of the SAC Ruling  The SAC ruling with regards to the compliance of ar-rahnu product with the Rahn PD will take effect on 1 February 2020. This ruling is based on the consideration of preserving the public interest .and to ensure the continuity and stability of mu`amalat transactions (istiqrar ta`amul) (مصلحة عامة)  Any new and outstanding ar-rahnu financing offered before the effective date of the SAC ruling may be continued until the maturity of the financing and the income generated may be recognized in Shariah. The ruling to allow the offering of ar-rahnu product takes into consideration the decision of the Shariah Committees of respective IFIs (which is applied before the issuance of SAC ruling). This ruling is also based on the discretion of the SAC as the authority in ascertaining Shariah rulings in Islamic finance businesses. 1 Rahn Policy Document, Paragraph 16.1: Expenses in rahn are categorised into– (a) expenses incurred that are directly related to the maintenance of collateral; and (b) all other expenses incurred that are directly related to the rahn contract including safekeeping, documentation, liquidation and discharging of collateral. 2 Rahn Policy Document, Paragraph 5.2: “direct cost” refers to costs that are directly related to the rahn transaction, either based on actual or estimated amount, without any profit or mark-up element; 3 Ibnu Hajar al-`Asqalani, Bulugh al-Maram min Adillah al-Ahkam, Matba`ah al-Salafiyyah, 1928, h. 176. 4 195th SAC Meeting 2019  The consideration for the SAC ruling to not give a retrospective effect towards the ar-rahnu products offered before the effectivity of the SAC ruling is based on maslahat and to remove extreme difficulty (raf` al-haraj). Impact of the SAC Ruling  Ar-rahnu products must be reviewed and restructured to ensure that the products comply with the requirements of Shariah as outlined in Rahn PD.  The existing ar-rahnu products are allowed to be offered throughout the transition period and the profit generated from the facility may be recognized by IFIs as Shariah compliant income. This ruling will take effect on 1 February 2020 for the Ar Rahnu product based on the above structure. An IFI shall comply with this ruling pursuant to section 28(1) of the Islamic Financial Services Act 2013 or section 33D(1) of the Development Financial Insitutition Act 2002, as the case may be.

Public Notice

06 Dec 2019

Enforcement Action against Illegal Money Services Business Operators in Johor

https://www.bnm.gov.my/-/enforcement-action-illegal-msb-06122019

Reading: Enforcement Action against Illegal Money Services Business Operators in Johor Share: Enforcement Action against Illegal Money Services Business Operators in Johor Release Date: 06 Dec 2019 On 4 December 2019, Bank Negara Malaysia (BNM) in collaboration with the Royal Malaysia Police raided five premises in Johor for carrying out money services business without a license under section 7(1) of Money Services Business Act 2011 (MSBA). This is an offence under section 4(1) of MSBA and also constitutes a money laundering offence under section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds on Unlawful Activities Act 2001 (AMLA). Relevant documents and cash amounting to RM300,000 were seized to assist the investigation. The raids were conducted at various locations in Johor, including in Kota Tinggi Pandan, Senai and Kempas. Any person or company who commits an offence under section 4(1) of the MSBA shall on conviction, be liable to a fine not exceeding RM5 million or imprisonment for a term not exceeding 10 years or both. Under the AMLA, any person who commits a money laundering offence shall on conviction, be liable to imprisonment for a term not exceeding 15 years and a fine of not less than five times the sum or value of the proceeds or RM5 million, whichever is the higher.  Members of the public are advised not to deal with or conduct any money changing or remittance transaction with illegal money services business operators and their agents. Any person who conducts transactions with an illegal money services business operator does so at their own risk, and appropriate legal actions can be taken against them by the relevant authorities. Members of the public should conduct their transactions only with licensed money services business operators which are listed on BNM's website (www.bnm.gov.my). ­­­­ © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

05 Dec 2019

RINGGIT Newsletter (Bil 6/2019 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-6/2019-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/763169/Ringgit+Bil+6+2019.pdf

Reading: RINGGIT Newsletter (Bil 6/2019 issue) is now available for download Share: RINGGIT Newsletter (Bil 6/2019 issue) is now available for download Release Date: 05 Dec 2019 The highlight for this issuance is "Dana Khas Bank Negara Malaysia Untuk Pembelian Rumah Mampu Milik". Other topics of interest include : Kepentingan Skor Kredit Untuk Urusan Kewangan Anda Program Subsidi Petrol (PSP) Mulai Januari 2020 Perlindungan Insurans / Takaful Jenis-Jenis Tuntutan PERKESO Perkara Yang Perlu Dipertimbangkan Sebelum Menjadi Penjamin Impian Percutian Musnah Ditipu Sindiket Pelancongan RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 6/2019 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 6/2019 Jenis-Jenis Tuntutan PERKESO Program Subsidi Petrol (PSP) Mulai Januari 2020 PERCUMA | PP 16897/05/2013 (032581) Kepentingan Skor Kredit Untuk Urusan Kewangan Anda Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Dana Khas Bank Negara Malaysia Untuk Pembelian Rumah Mampu Milik Bermula 2 Januari 2019, rakyat Malaysia yang berkelayakan boleh memohon Dana Rumah Mampu Milik Bank Negara Malaysia (BNM) yang ditubuhkan khas bagi membiayai pembelian rumah pertama. Dana sebanyak RM1 bilion ini diumumkan selepas pembentangan Belanjawan 2019 yang lalu. Di bawah dana ini, pembeli rumah yang layak boleh mendapatkan pembiayaan (konvensional atau Islam) pada kadar konsesi di institusi kewangan yang mengambil bahagian. Dana ini sah selama dua tahun, bermula bermula 2 Januari 2019 hingga 31 Disember 2020, atau sehingga dana berjumlah RM1 bilion tersebut habis digunakan, yang mana lebih awal. Gabenor Bank Negara, Datuk Nor Shamsiah Mohd Yunus memaklumkan lebih ramai individu yang berkelayakan boleh memohon dana ini memandangkan had kelayakan pendapatan maksimum bulanan isi rumah telah dinaikkan ke RM4,360 berbanding RM2,300 sebelum ini. Malah had harga maksimum rumah layak dibiayai turut dinaikkan ke RM300,000 berbanding RM150,000 sebelum ini, sejajar dengan definisi harga rumah mampu milik yang ditetapkan oleh Dasar Perumahan Mampu Milik Negara. Penambahbaikan kepada kriteria kelayakan dan ciri-ciri Dana Rumah Mampu Milik tersebut telah berkuat kuasa pada 1 September 2019. Kriteria dan Ciri-ciri Dana BNM bagi Rumah Mampu Milik ialah: • Pendapatan maksimum bulanan isi rumah dinaikkan sehingga RM4,360; • Harga maksimum harta tanah dinaikkan sehingga RM300, 000 • Kadar pembiayaan sehingga 3.5% setahun; dan • Institusi kewangan yang mengambil bahagian ialah AmBank, Bank Simpanan Nasional, CIMB Bank, Maybank dan RHB Bank. Tempoh pembiayaan adalah sehingga 40 tahun atau sehingga umur 70 tahun, yang mana lebih rendah. Bagi membantu pembeli rumah kali pertama yang memohon pembiayaan di bawah dana ini, modul pendidikan kewangan dalam talian yang ringkas dan mudah telah disediakan oleh Agensi Kaunseling dan Pengurusan Kredit (AKPK). Orang ramai boleh menghubungi institusi kewangan yang mengambil bahagian untuk mendapatkan maklumat lanjut. Pelancaran dana telah dilengkapi dengan pelbagai langkah untuk membantu pembeli rumah yang pendapatan bulanan mereka adalah sebanyak RM4,360 dan ke bawah untuk membeli rumah pertama mereka yang berharga sehingga RM300,000. Dana Khas Bank Negara Malaysia Untuk Pembelian Rumah Mampu Milik 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Maizatul Aqira Ishak Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Langkah-langkah yang dijalankan untuk pembiayaan rumah yang layak daripada semua institusi kewangan ini adalah bertujuan untuk mengurangkan kos sampingan pemilikan rumah bagi peminjam yang berkelayakan. Langkah-langkah tersebut seperti pengecualian duti setem, kadar yang berpatutan untuk jumlah perlindungan gadai janji dan pelepasan yuran guaman bagi perjanjian jual beli dan pembiayaan. Untuk maklumat lanjut, anda boleh menghubungi institusi kewangan yang mengambil bahagian seperti yang tertera di bawah: • AmBank (M) Berhad (AmBank) – 03-2178 8888 • Bank Simpanan Nasional (BSN) – 1-300 88 1900 • CIMB Bank Berhad (CIMB) – 03-6204 7788 • Malayan Banking Berhad (Maybank) – 1-300 88 6688 • RHB Bank Berhad (RHB) – 03-9206 8118 (Semenanjung Malaysia) Orang ramai juga boleh menghubungi BNMTELELINK di talian 1-300-88-5465 (LINK) atau layari http://www.bnm.gov.my Sumber: www.bnm.gov.my bil. 6/2019 | 3 Secara amnya, skor kredit berfungsi sebagai petunjuk mengenai keupayaan anda untuk membayar balik pinjaman kepada institusi kewangan. Ia menilai sejarah kewangan anda supaya institusi kewangan boleh menentukan jika mereka ingin berurusan dengan anda. Jika anda menyediakan resume untuk memohon pekerjaan, begitu jugalah apabila anda ingin memohon pinjaman. Anda juga perlu menjalani pemeriksaan kesihatan kewangan yang lengkap. Skor kredit yang baik akan memberi anda pelbagai pilihan pembiayaan kerana lebih banyak bank yang ingin berurusan dengan anda. Selain itu, bank-bank ini juga mungkin menawarkan pelan pembayaran balik yang lebih baik. Skor kredit yang kurang memuaskan mungkin boleh menyebabkan bank enggan memberikan pinjaman kepada anda. Anda mungkin tidak menyedarinya, tetapi skor kredit anda telah mempengaruhi kehidupan anda, terutamanya keputusan kewangan anda – lebih daripada apa yang anda fikirkan. Bagaimanakah skor kredit ini berfungsi? Skor kredit memberikan anda penarafan berdasarkan bilangan pinjaman dan kad kredit yang anda telah ambil, serta konsistensi dalam pembayaran balik pinjaman. Kepentingan Skor Kredit Untuk Urusan Kewangan Anda “Selain memberikan skor anda, laporan ini juga memberi analisis mendalam mengenai semua hutang dan tabiat pembayaran balik anda.” 4 | RINGGIT banyak masalah kepada anda pada masa akan datang. Sebagai contoh, ia mungkin menjejaskan peluang untuk memiliki rumah impian anda kerana permohonan anda untuk pembiayaan rumah mungkin akan ditolak. Ini juga boleh menjejaskan hubungan anda dengan pasangan anda kerana masalah tersebut mungkin disebabkan oleh salah seorang daripada anda. Jika anda mempunyai skor kredit yang kurang memuaskan, ia juga mungkin menjejaskan prospek pekerjaan anda. Pada amnya, majikan tidak menyemak skor kredit bakal pekerja mereka. Namun demikian, jika pekerjaan tersebut berkait rapat dengan bidang kewangan, atau jika majikan ingin memberi anda tanggungjawab berkaitan hal-ehwal kewangan, skor kredit anda akan mendedahkan sikap anda terhadap pengurusan kewangan dan mempengaruhi keputusan bakal majikan untuk mengambil anda bekerja. Sumber: www.imoney.my Selain memberikan skor anda, laporan ini juga memberi analisis mendalam mengenai semua hutang dan tabiat pembayaran balik anda. Oleh itu, anda boleh menilai tabiat pembayaran balik pinjaman anda sendiri, dan juga menyemak jika anda terlepas apa-apa bayaran penting yang akan memberi kesan dan menjejaskan skor anda. Laporan anda juga akan memberitahu anda jika terdapat sebarang tuntutan undang-undang aktif yang diambil terhadap anda. Jika anda beranggapan bahawa tiada sesiapa akan mengetahui bahawa anda gagal membuat bayaran bulanan Pinjaman Tabung Pendidikan Tinggi Nasional (PTPTN) dan sebaliknya menggunakan wang tersebut untuk menikmati percutian hujung minggu – anda salah. Sejarah kredit anda disimpan dan dijejak oleh pangkalan data dimiliki Bank Negara Malaysia yang dikenali sebagai Sistem Maklumat Rujukan Kredit Pusat (CCRIS). Dari sini, agensi pelaporan kredit seperti RAM Credit Information Sdn Bhd (RAMCI), CTOS, dan Biro Kredit Malaysia dibenarkan mengakses maklumat ini, justeru dapat menjana skor kredit anda. Apakah yang akan menjejaskan skor kredit saya? Skor kredit mengambil kira aspek pinjaman seperti pinjaman pendidikan sebagai contoh, PTPTN, pinjaman kenderaan, kad kredit, ansuran bulanan sewa beli, pinjaman perumahan dan sebagainya. Agensi penarafan kredit mempertimbangkan banyak perkara, seperti sejarah pembayaran kredit individu, campuran kredit dan jumlah pinjaman yang terhutang, tempoh sejarah kredit, permohonan kredit baharu dalam tempoh 12 bulan yang lepas, dan rekod prestasi undang- undang. Secara ringkas, selagi anda mengutamakan pembayaran balik bulanan anda pada setiap bulan, anda akan mempunyai skor yang lebih tinggi. Ini bermakna sebaik sahaja anda mendapat gaji, anda akan terus membayar pinjaman pendidikan, pinjaman kenderaan, hutang kad kredit, dan hutang lain anda kepada institusi pemberi pinjaman. Bagaimana jika saya abaikan skor kredit? Seperti yang telah dinyatakan sebelum ini, skor kredit anda mempengaruhi kehidupan anda dalam pelbagai cara, sama ada anda menyedarinya atau tidak. Sekiranya anda tidak menjaga kesihatan kewangan anda, ia akan mendatangkan “Sekiranya anda tidak menjaga kesihatan kewangan anda, ia akan mendatangkan banyak masalah kepada anda pada masa akan datang.” bil. 6/2019 | 5 Program Subsidi Petrol (PSP) Mulai Januari 2020 Program Subsidi Petrol (PSP) adalah inisiatif kerajaan untuk meringankan beban isi rumah berpendapatan rendah melalui pengagihan semula subsidi petrol. Ia adalah satu bentuk bantuan kewangan untuk membantu rakyat membiayai sebahagian kos penggunaan petrol. Prinsip bantuan yang hendak disampaikan oleh kerajaan ialah melalui pengagihan semula subsidi yang saksama (equitable redistribution) dan dasar berpandukan data (data driven policy). Subsidi petrol yang sedia ada diberikan secara pukal. Ia dinikmati oleh semua orang tanpa mengira kerakyatan dan pendapatan. Pengagihan subsidi ini akan diberikan kepada golongan sasar yang layak, iaitu warganegara Malaysia yang sangat memerlukan bantuan tersebut. Kementerian Perdagangan Dalam Negeri dan Hal Ehwal Pengguna (KPDNHEP) telah mengumumkan akan melaksanakan PSP mulai Januari 2020. Berikutan dengan pelaksanaan PSP, kerajaan akan mengembalikan sistem apungan harga petrol bagi RON95 di seluruh negara, kecuali Sabah, Sarawak dan Labuan. Sehubungan dengan itu, kementerian tersebut telah mengumumkan bahawa penerima Bantuan Sara Hidup (BSH) sahaja yang akan menerima subsidi berkenaan. Semak kelayakan subsidi petrol anda melalui butiran berikut: Kelayakan PSP Tahun 2020 1. Warganegara Malaysia. 2. Penerima BSH tahun 2020. 3. Kereta berkapasiti enjin 1.6 liter setara dan ke bawah atau 1.6 liter ke atas yang berumur lebih 10 tahun ke atas atau setara. 4. Motosikal berkapasiti enjin 150cc ke bawah atau 150cc ke atas yang berumur lebih 7 tahun ke atas atau setara. 5. Penerima BSH di Semenanjung sahaja. 6. Sabah, Sarawak & Labuan dikecualikan kerana kerajaan masih menanggung subsidi petrol RON95. Kadar Kelayakan Subsidi Mengikut Kenderaan Penerima yang berkelayakan akan diberikan subsidi sebanyak RM30 setiap bulan bagi kereta dan RM12 setiap bulan bagi motosikal. Pemberian subsidi ini akan dikreditkan terus ke akaun penerima dalam tempoh empat bulan sekali. Hubungi KPDNHEP untuk maklumat lanjut, melalui saluran berikut: Tel : 1-800-88-6800 E-mel : psp@kpdnhep.gov.my WhatsApp : 019-2786356 Sumber: www.psp.kpdnhep.gov.my 6 | RINGGIT PERKESO (Pertubuhan Keselamatan Sosial) juga dikenali sebagai SOCSO (Social Security Organization) adalah merupakan sebuah agensi kerajaan Malaysia yang ditubuhkan pada 1972 di bawah Kementerian Sumber Manusia. Konsep Perlindungan Keselamatan Sosial PERKESO adalah berteraskan konsep tanggungjawab bersama menerusi sumber terkumpul, perkongsian risiko dan penggantian pendapatan (pooling of resources, sharing of risk and replacement of income). Fungsi utama PERKESO adalah untuk memberi perlindungan keselamatan sosial kepada pekerja dan tanggungannya menerusi Skim Bencana Pekerjaan dan Skim Keilatan. PERKESO juga menjalankan aktiviti pencegahan kemalangan melalui program kesedaran keselamatan dan kesihatan pekerjaan dalam kalangan pekerja dan majikan. Akta Keselamatan Sosial Pekerja 1969 (Akta 4) PERKESO mempunyai tiga skim perlindungan buat ahli yang berdaftar, iaitu Skim Bencana Pekerjaan, Skim Keilatan dan Skim Bencana Kerja Pekerja Asing. i. Skim Bencana Pekerjaan Menurut laman sesawang PERKESO, Skim Bencana Pekerjaan memberi perlindungan kepada pekerja yang mengalami kemalangan atau suatu penyakit khidmat yang berpunca atau terbit daripada pekerjaannya. Perlindungan di bawah skim ini meliputi kemalangan berikut: • Kemalangan perusahaan semasa menjalankan pekerjaannya • Kemalangan semasa dalam perjalanan Nota: Kemalangan yang berlaku dalam masa apa-apa perhentian a t a u l e n c o n g a n t idaklah dis i fatkan terbit daripada dan dalam masa menjalankan pekerjaannya. • Kemalangan semasa kecemasan Kemalangan yang berlaku semasa pekerja berada dalam atau berdekatan dengan mana-mana premis tempat bekerjanya bagi tujuan menyelamatkan, membantu atau melindungi orang yang mendapat bencana atau bahaya semasa kecemasan. • Penyakit khidmat Penyakit yang berpunca atau terbit daripada pekerjaan sebagaimana yang disenaraikan di Jadual Kelima, Akta Keselamatan Sosial Pekerja 1969. Antara contoh penyakit khidmat adalah seperti: > Hilang pendengaran disebabkan oleh paras tekanan bunyi tinggi yang berterusan. > Penyakit asma disebabkan oleh pekerjaan yang melibatkan pendedahan berterusan kepada sedutan habuk atau bahan kimia yang berbahaya dan sebagainya. ii. Skim Keilatan Seseorang berinsurans dianggap sebagai menghidap keilatan apabila mengalami suatu keuzuran yang berkekalan sama ada tidak boleh diubati atau tidak mungkin sembuh serta tidak berupaya mencari nafkah dengan kerja yang berpadanan dengan kekuatan dan Jenis-Jenis Tuntutan PERKESO bil. 6/2019 | 7 tenaganya, sekurang-kurangnya satu pertiga (1/3) daripada keupayaan pekerja yang normal. S k i m i n i m e m b e r i per l indungan 24 jam kepada pekerja daripada keilatan atau kematian akibat daripada sebarang sebab yang tidak berkaitan dengan pekerjaan. iii. Skim Bencana Kerja Pekerja Asing PERKESO juga memperluaskan l iputannya kepada semua pekerja asing yang sah (kecuali pekhidmat rumah tang ga) d i Ma lays ia . Berkuat kuasa 1 Januari 2 0 1 9 , p e ke r j a a s i n g yang sah akan dilindungi oleh Skim Bencana Kerja (SBK) di bawah Akta 4. SBK menyediakan perl indungan kepada pekerja yang mengalami kemalangan di tempat kerja atau penyakit khidmat yang berpunca atau terbit daripada pekerjaannya serta kemalangan semasa dalam perjalanan. Caruman bagi skim ini telah ditetapkan pada kadar 1.25% daripada gaji bulanan dan dibayar setiap bulan oleh majikan. Mulai 1 Januari 2020, semua majikan dikehendaki berdaftar dengan PERKESO walaupun pekerja asing tersebut masih diliputi di bawah Skim Pampasan Pekerja Asing (SPPA). Syarat kelayakan SBK: • Mempunyai pasport dan Pas Khas untuk pekerja asing baharu; atau • Mempunyai pasport dan Pas Lawatan Kerja Sementara (PLKS) Caruman di bawah Akta ini terbahagi kepada dua (2) jenis, iaitu: Caruman Jenis Pertama Untuk pekerja yang berumur kurang daripada 60 tahun, caruman yang perlu dibayar oleh majikan dan pekerja adalah untuk Skim Bencana Pekerjaan dan Skim Keilatan. Kadar caruman di bawah jenis ini adalah terdiri daripada 1.75% syer majikan dan 0.5% syer pekerja berdasarkan gaji bulanan pekerja itu, mengikut kadar jadual caruman yang telah ditetapkan. Nota: Semua pekerja yang belum mencapai umur 60 tahun perlu dicarumkan di bawah Jenis Pertama kecuali bagi pekerja yang telah mencapai umur 55 tahun dan tiada caruman telah dibayar sebelum 55 tahun kerana tidak layak di bawah Akta Keselamatan Sosial, 1969. Caruman Jenis Kedua Kadar caruman jenis ini adalah daripada syer majikan sahaja, iaitu sebanyak 1.25% daripada gaji bulanan pekerja itu, mengikut jadual caruman yang telah ditetapkan. Semua pekerja yang telah mencapai umur 60 tahun perlu dicarumkan di bawah Jenis Kedua bagi perlindungan Skim Bencana Pekerjaan sahaja. Nota: Bagi pekerja baharu yang layak mulai umur 55 tahun, mereka hendaklah dicarumkan di bawah Jenis Kedua. 8 | RINGGIT Akta Keselamatan Sosial Pekerjaan Sendiri 2017 (Akta 789) Akta ini memberi perlindungan di bawah Skim Bencana Kerja Pekerjaan Sendiri kepada pemandu teksi yang bekerja sendiri dan individu yang menjalankan perkhidmatan seumpamanya termasuk pemandu e-panggilan (e-hailing) seperti GrabCar dan juga pemandu bas yang bekerja sendiri seperti bas berhenti-henti, bas carter, bas ekspres, bas mini, bas pekerja, bas pengantara, bas sekolah dan bas lapangan terbang. Kadar caruman yang ditetapkan adalah sebanyak 1.25% sebulan daripada opsyen pendapatan yang diinsuranskan. Sekiranya gagal mencarum, pemandu boleh didenda tidak melebihi RM10,000 atau penjara selama tempoh tidak melebihi dua tahun, atau kedua-duanya. Perlindungan bagi tempoh bulanan / tahunan bermula dari tarikh dan masa caruman dibayar serta diperakui menerusi resit bayaran caruman. Syarat Kelayakan: • Warganegara Malaysia/permastautin tetap tanpa mengira had umur; dan • Mempunyai lesen memandu (JPJ) yang sah; dan • Mempunyai Kad PSV atau Kad Pemandu/surat kebenaran dari LPKP (Sabah dan Sarawak) yang masih sah laku; atau • Berdaftar dengan perkhidmatan e-panggilan Akta Sistem Insurans Pekerjaan 2017 (Akta 800) Akta Sistem Insurans Pekerjaan 2017 (Akta 800) pula bertujuan untuk melindungi dan membantu pekerja yang kehilangan pekerjaan. Sistem Insurans Pekerjaan (SIP) merupakan skim yang memberi perlindungan kepada pekerja-pekerja yang kehilangan pekerjaan bagi menggantikan pendapatan yang hilang, memberi latihan untuk memantapkan semula kemahiran dan meningkatkan kebolehkerjaan mereka serta menyediakan perkhidmatan pekerjaan supaya mereka yang kehilangan pekerjaan mendapat pekerjaan lain yang sesuai dengan lebih cepat. SIP menawarkan dua jenis faedah iaitu faedah berbentuk kewangan dan faedah bantuan pencarian pekerjaan. Definisi kehilangan pekerjaan merangkumi: • Penutupan tempat kerja kerana bencana alam • Bankrap atau penutupan tempat kerja • Pembuangan kerja konstruktif • Peletakan jawatan disebabkan gangguan seksual atau ugutan di tempat kerja • Peletakan jawatan apabila diarah melaksanakan kerja di luar skop yang membahayakan keselamatan Penguatkuasaan Pembayaran caruman hendaklah dibuat selewat-lewatnya pada 15 hari bulan bagi caruman bulan sebelumnya (contoh; caruman bulan Julai 2017 hendaklah dibayar selewat-lewatnya pada 15 Ogos 2017). Faedah Caruman Lewat Bayar Faedah caruman lewat bayar akan dikenakan pada kadar 6% setahun bagi tiap-tiap satu hari caruman yang tidak dibayar dalam tempoh yang ditetapkan. Sumber: www.perkeso.gov.my “Kadar caruman yang ditetapkan adalah sebanyak 1.25% sebulan daripada opsyen pendapatan yang diinsuranskan. Sekiranya gagal mencarum, pemandu boleh didenda tidak melebihi RM10,000 atau penjara selama tempoh tidak melebihi dua tahun, atau kedua-duanya.” bil. 6/2019 | 9 Perkara Yang Perlu Dipertimbangkan Sebelum Menjadi Penjamin Penjamin telah terikat dengan kontrak sah yang menyatakan mereka bertanggungjawab untuk membayar hutang sekiranya peminjam gagal membuat bayaran. Adalah penting untuk penjamin memahami perkara ini sebelum bersetuju untuk menjamin sesuatu pinjaman. Bakal penjamin boleh mendapatkan nasihat daripada peguam, sekiranya mampu, untuk memahami tanggungjawab dan risiko yang perlu dihadapi daripada kontrak jaminan. Kesimpulannya Keburukan menjadi penjamin adalah beban yang perlu anda pikul sekiranya peminjam tidak menyelesaikan hutangnya. Ini akan menjejaskan kedudukan kredit anda dan boleh menyukarkan anda dari segi kewangan. Risiko untuk kehilangan keistimewaan kredit anda adalah tinggi. Oleh itu, anda perlu berfikir dengan teliti sebelum bersetuju untuk menjadi penjamin. Jangan biarkan masa depan anda rosak gara-gara tindakan orang lain yang tidak bertanggungjawab. Sumber: www.directlending.com.my Kenal pasti tujuan pinjaman tersebut dilakukan Bertanya kepada pihak peminjam mengenai tujuan pinjaman tersebut dilakukan. Tujuan pinjaman haruslah jelas agar anda tidak menjamin sesuatu yang sia-sia. Dapatkan maklumat lanjut mengenai keperluan mereka yang memerlukan penjamin untuk pinjaman yang dipohon. Ini untuk memastikan anda mengenal pasti peminjam tersebut mempunyai kemampuan untuk membayar balik pinjaman. Pertimbangkan kemampuan anda untuk melunaskan pinjaman tersebut jika peminjam gagal menyelesaikannya Sebelum anda bersedia untuk menjadi penjamin, anda perlu menganalisis kedudukan kewangan anda terlebih dahulu. Pastikan anda mampu menyelesaikan pinjaman berkenaan jika peminjam tersebut gagal melangsaikannya. Selain daripada tunggakan pinjaman, anda juga perlu menyelesaikan kos tambahan lain yang berkaitan. 1 Kaji kontrak dan perjanjian pinjaman Anda perlu meneliti setiap perkataan yang digunakan di dalam dokumen tersebut. Dapatkan khidmat *nasihat guaman bebas untuk memahami risiko dan hak anda sebagai penjamin. Jangan turunkan tandatangan anda dengan terburu-buru melainkan anda benar-benar memahami setiap perkara di dalam dokumen perjanjian tersebut. Sediakan surat ganti rugi yang ditandatangani oleh peminjam sebagai langkah keselamatan. Dengan adanya surat ganti rugi, anda boleh mengambil tindakan mahkamah terhadap kerugian yang akan anda hadapi sebagai penjamin. *Nasihat Guaman Bebas: Usaha mendapatkan nasihat guaman bebas adalah untuk memastikan bahawa anda benar-benar faham akan sifat sebenar dokumen tersebut dan implikasi undang-undang terhadap penjamin. Contohnya hak-hak dan liabiliti di bawah sesuatu kontrak jaminan, terutamanya jika institusi kewangan menukar terma dan syarat semasa tempoh pinjaman tersebut. 3 2 Jangan sesekali tandatangan dokumen pinjaman kosong Jangan sesekali lakukan perkara ini. Bertegas dengan peminjam supaya anda diberi dokumen yang mempunyai maklumat pinjaman. Dokumen tersebut perlu menyatakan jumlah pinjaman, kadar faedah dan jangka masa kontrak dengan jelas. Ketahui kesannya terhadap rekod kedudukan kredit anda Anda perlu fikirkan kedudukan kredit anda yang mungkin akan terkesan dengan tindakan anda untuk menjadi penjamin. Apabila anda sudah menandatangani per janj ian tersebut, maka anda per lu bertanggungjawab dan menanggung beban untuk menyelesaikan hutang orang lain jika peminjam itu tidak menjalankan tanggungjawabnya. 4 5 Perkara Yang Perlu Diteliti Sebagai Penjamin: Sesiapa pun boleh menjadi penjamin tetapi mestilah memenuhi keperluan undang-undang seperti: • Berumur 18 tahun ke atas • Tidak berada dalam keadaan muflis • Berfikiran waras dan mempunyai keupayaan mental agar dapat memahami dokumen jaminan • Sanggup menerima syarat tanpa tekanan daripada rakan sebaya 10 | RINGGIT “Berdikit-dikit, lama-lama menjadi bukit”, peribahasa Melayu yang begitu sinonim dengan tabiat menabung. Ramai pengguna yang menyimpan wang secara sedikit demi sedikit untuk tujuan melancong. Namun demikian, ramai yang tersungkur dengan kerenah penipuan sindiket pelancongan dan juga penipuan yang berlaku dalam bidang pelancongan ini. Jumlah aduan tentang penipuan ini kian meningkat saban hari. Pada 2017, sebanyak 3,590 aduan telah diterima oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC), manakala pada tahun 2018, jumlah aduan telah meningkat ke 4,411 kes. Kebanyakan aduan adalah bersabit dengan penipuan yang juga dikenali sebagai scam. Jumlah aduan yang diterima adalah hampir 28%, iaitu sebanyak 1,235 kes daripada keseluruhan jumlah aduan mengenai pelancongan. Kebanyakan scam ini berlaku kerana para pengguna mudah terperdaya dengan pakej percutian yang ‘indah khabar dari rupa’ yang ditawarkan oleh sindiket pelancongan yang tidak sah, sekali gus tidak mempunyai lesen untuk mengendalikan aktiviti pelancongan daripada pihak berkuasa. Sindiket ini menawarkan harga yang jauh lebih murah berbanding harga yang kebiasaannya ditawarkan oleh syarikat-syarikat pelancongan yang berlesen. Pakej yang ditawarkan lazimnya merangkumi tambang perjalanan, makanan dan juga penginapan di hotel tiga bintang. Namun demikian, pengguna perlu membuat tempahan seawal enam sehingga lapan bulan sebelum tarikh perjalanan, serta perlu membayar wang pendahuluan. Di samping itu juga, mereka terpaksa membayar wang tempahan sehingga 50% daripada bayaran penuh kos pelancongan. Apabila tarikh percutian hampir tiba, para pelancong akhirnya gagal menghubungi syarikat atau ejen sindiket pelancongan untuk mendapatkan tiket dan butir- butir perjalanan. Harapan dan impian untuk bercuti musnah begitu sahaja. Wang yang disimpan sekian lama untuk melancong kononnya, lesap tanpa dapat dikesan. Kebanyakan ejen tanpa lesen tersebut menjalankan operasi sebegini secara dalam talian dan bayaran turut dibuat dalam talian. Mereka menjalankan operasi tanpa mendaftarkan diri dengan Suruhanjaya Syarikat Malaysia (SSM) supaya tidak mudah dijejaki sekiranya mereka melarikan diri atau gulung tikar. Adalah menjadi tanggungjawab para pengguna untuk memastikan mereka berurusan dengan pihak pengendali pelancongan yang bertauliah dan berdaftar. Pengguna boleh melayari portal Kementerian Pelancongan, Seni dan Budaya (MOTAC) untuk mengenal pasti sama ada syarikat yang mereka berurusan terdapat dalam senarai Lesen Pengendalian Pelancongan dan Agensi Pengembaraan (TOBTAB). Pengguna boleh melayari laman sesawang MOTAC di pautan http://www.motac.gov.my/semakan/ tobtab. Para pengguna juga harus memastikan syarikat pelancongan ini masih aktif. Pengguna boleh mendapatkan maklumat tersebut dengan menghubungi pihak SSM, atau layari laman sesawang SSM di pautan http://www.ssm.com.my/ Pages/Quick_Link/e-Search.aspx. Pengguna juga boleh berurusan terus di pejabat SSM yang terdekat. Para pengguna perlu berwaspada kerana ramai pengguna terpedaya dengan tawaran menarik yang ditawarkan oleh syarikat-syarikat pelancongan. Selidiki dahulu sebelum berurusan dengan mana-mana syarikat ini supaya anda tidak terpedaya. Sumber: Pusat Khidmat Aduan Pegguna Nasional (NCCC) Impian Percutian Musnah Ditipu Sindiket Pelancongan bil. 6/2019 | 11 Jangan jadi Pemilik Akaun Keldai/Tumpang Apakah Akaun Keldai/Tumpang? Langkah-langkah keselamatan JANGAN mudah percaya dengan tawaran wang bagi penggunaan akaun anda JANGAN dedahkan maklumat perbankan peribadi/nombor akaun/nombor PIN/ kata laluan kepada pihak ketiga ****** JANGAN benarkan akaun bank anda digunakan oleh penjenayah kewangan/ pihak ketiga Individu yang membenarkan akaun bank mereka digunakan oleh orang lain untuk transaksi kewangan yang tidak sah atau menyalahi undang-undang Hukuman dan tindakan terhadap Pemilik Akaun Keldai/Tumpang Akaun bank anda akan disekat dan anda tidak boleh membuat sebarang transaksi perbankan termasuk penerimaan gaji Boleh didakwa atas kesalahan membantu menyembunyikan atau memindahkan harta orang lain yang membawa hukuman penjara 5 tahun atau denda atau kedua-duanya bnm.official1-300-88-5465 https://telelink.bnm.gov.my Inisiatif literasi kewangan daripada: BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA

Public Notice

02 Dec 2019

Appointment of Members to Bank Negara Malaysia's Financial Stability Executive Committee

https://www.bnm.gov.my/-/appointment-of-members-to-bank-negara-malaysia-s-financial-stability-executive-committee

Reading: Appointment of Members to Bank Negara Malaysia's Financial Stability Executive Committee Share: Appointment of Members to Bank Negara Malaysia's Financial Stability Executive Committee Release Date: 02 Dec 2019 Bank Negara Malaysia (the Bank) wishes to announce the appointment of Dato’ Abdul Rauf Rashid, and reappointments of Deputy Governor Abdul Rasheed Ghaffour and Puan Yoong Sin Min as members of the Bank’s Financial Stability Executive Committee (Executive Committee) following the expiry of the term of appointments of the non-ex officio members. These appointments are in accordance with Section 37(2) of the Central Bank of Malaysia Act 2009 (CBA 2009). The appointments are effective for a three-year term from 3 November 2019 to 2 November 2022. The Executive Committee consists of seven members, a majority of whom are non-executive members who are independent of the Bank’s management. Datuk Nor Shamsiah Mohd Yunus Governor and Chairman Tan Sri Ahmad Badri Mohd Zahir Secretary-General of Treasury Datuk Syed Zaid Albar Chairman of Securities Commission Malaysia Encik Rafiz Azuan Abdullah Chief Executive Officer of Perbadanan Insurans Deposit Malaysia Datuk Abdul Rasheed Ghaffour Deputy Governor Puan Yoong Sin Min Partner of Shook Lin & Bok Dato’ Abdul Rauf Rashid Managing Director of Ernst & Young Malaysia The Executive Committee was established in 2010 pursuant to Section 37 of the CBA 2009 and generally meets at least twice a year. Its primary purpose is to contribute to the fulfilment of the Bank’s statutory mandate of preserving financial stability through its powers to decide on specific policy measures that may be taken by the Bank to avert or reduce risks to financial stability. The Executive Committee is a key component of the accountability framework that has been institutionalised for the exercise of the broad financial stability powers accorded to the Bank under the CBA 2009. It is responsible to ensure that the proposed measures within its purview are appropriate, having regard to the Bank’s assessment of risks to financial stability.   Profiles of the newly appointed and re-appointed members of the Bank Negara Malaysia’s Financial Stability Executive Committee:   Datuk Abdul Rasheed Ghaffour Datuk Abdul Rasheed is the Deputy Governor of Bank Negara Malaysia and is responsible for the overall development of the Malaysian financial sector, which includes the banking, insurance and payments development functions, as well as Islamic banking and takaful development. He was also responsible for the Bank’s Monetary and Economics Sector, which also includes the international relations and statistical services. He is a member of the Monetary Policy Committee, the Management Committee, Financial Stability Committee, the Reserve Management Committee and the Risk Management Committee of the Bank. During his career in the Bank that spans over 30 years, he has been involved in key areas of central banking, including policy formulation in financial sector development, financial surveillance and prudential policies for the banking and insurance sector.   Puan Yoong Sin Min Puan Yoong joined the legal firm Shook Lin & Bok in 1985 and became a partner in 1992. She has been admitted to both the Bars in Malaysia and Singapore and is a litigator in civil disputes, with her specialty in the area of banking and finance litigation. Puan Yoong has extensive experience in financial sector issues including matters relating to Islamic finance, private debt securities, investment banking, receivership and insolvencies. She has been involved in issues relating to vesting orders arising from various bank mergers as well as vesting of bank non-performing loans (NPLs) to non-banking institutions. She is a council member of the Insolvency Practitioners Association of Malaysia (IPAM) and has been recognised by several established publications including Legal500, Chamber and Partners and Asialaw Profiles.   Dato’ Abdul Rauf Rashid Dato’ Abdul Rauf is the Country Managing Partner of EY in Malaysia and also a Managing Partner of the EY Asean Assurance practice. Starting his professional practice in the United Kingdom, he has more than 27 years of both local and international professional experience in assurance and business advisory services. He has provided various types of assurance and business advisory services across the financial services industry. Among his portfolio of clients are banks, insurers and takaful operators, fund managers, occupational pension schemes and investment companies. A member of the Malaysian Accounting Standards Board (MASB) Standing Committee on Islamic Financial Reporting, he is also EY’s leader for Islamic financial services. He is a fellow of the Institute of Chartered Accountants in England and Wales (ICAEW) and sits on the council of the Malaysian Institute of Accountants (MIA). He also sits on the council of the Malaysian Institute of Certified Public Accountants (MICPA), where he served as the President from June 2014 to June 2017, and currently serves as the Alternate Chairman for a committee in charge of investigations. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Nov 2019

Cash Transaction Limit (CTL) : What You Need to Know

https://www.bnm.gov.my/-/cash-transaction-limit-ctl-what-you-need-to-know

https://www.bnm.gov.my/documents/20124/761679/CTL+InfoPack+Eng.pdf

Reading: Cash Transaction Limit (CTL) : What You Need to Know Share: 50 Cash Transaction Limit (CTL) : What You Need to Know Release Date: 09 Nov 2019 The National Coordination Committee to Counter Money Laundering (NCC) proposes a cash transaction limit (CTL) as an additional deterrent against illicit activities. It also serves to protect Malaysians and businesses from unknowingly facilitating money laundering. The CTL complements existing measures to further improve financial integrity in Malaysia.  Once in effect, physical cash transactions above the prescribed limit will need to be made electronically, by cheque or through the banking system. Learn more about the CTL and scenarios you may encounter when making cash transactions: CTL Info Pack (FAQs & Scenarios involving CTL) © 2024 Bank Negara Malaysia. All rights reserved.

Cash Transaction Limit Information Pack Key Questions on the Cash Transaction Limit What is being proposed? • A limit on physical cash transactions (i.e. currency notes and coins), as provided under Clause 21 of the Currency Bill 2019 that was passed by Dewan Rakyat and Dewan Negara in December. Any transactions above this limit will have to be made electronically, by cheque or through the banking system. • This will cover all physical cash transactions i.e. consumer-to-consumer, entity-to-entity, entity-to- consumer (vice versa). • However, cash transaction(s) with or through licensed banks under the Financial Services Act 2013, licensed Islamic banks under the Islamic Financial Services Act 2013, licencees under the Money Services Business Act 2011, or prescribed institutions under the Development Financial Institutions Act 2002 are exempted from this limit. As regulated entities, financial institutions are already subject to various anti-money laundering/counter terrorism financing requirements. • Cash transaction(s) under exigent situations such as for humanitarian aid and disaster relief will also be exempted from the limit. This will require approval from the Minister of Finance on the recommendation of Bank Negara Malaysia. • Breaking-up or structuring the transaction with the deliberate intention of circumventing this limit is an offence. Both the payer and payee will be liable, if convicted, to a fine not exceeding three times the aggregate sum or value of the transaction at the time the offence was committed. Why is this measure needed? • The untraceable and anonymous nature of cash makes it an ideal vehicle to facilitate illicit activities. • Malaysia’s 2017 National Risk Assessment on Money Laundering and Terrorism Financing identified corruption, fraud, smuggling, drug trafficking and organised crimes as high-risk crimes. It also concluded that physical cash remains widely exposed to abuse. This measure targets large cash transactions that are at higher risk of being abused. What are the objectives of this measure? • The cash transaction limit is among a series of measures to combat risks from money laundering and illicit activities. It acts as an additional deterrent against cash abuse and complements existing measures such as the suspicious transaction report and the cash threshold report that facilitate monitoring, investigations and enforcement actions by law enforcement agencies. • This measure also sends a strong public signal that improving financial integrity in Malaysia is not only the responsibility of policy makers and law enforcement agencies, but a vigilant public could also play an important role. It enlists the help of the public to insist that large transactions be made through traceable methods without concerns of being commercially disadvantaged if they do so. The resulting public scrutiny will make it harder for criminals to abuse the system for their own gains. What’s the difference between the cash transaction limit and the cash threshold report (CTR)? • The cash transaction limit is a limit on physical cash transactions, while the CTR refers to the obligation of reporting institutions (e.g. banks, selected development financial institutions, Lembaga Tabung Haji, casino) to report any cash transactions including deposits or withdrawals, amounting to RM25,000 and above in a day to Bank Negara Malaysia. • There is no limit to the amount of physical cash that one can transact with licensed banks and development financial institutions. However, the CTR and other anti-money laundering/counter terrorism financing requirements (e.g. customer due diligence (CDD) and suspicious transaction report (STR)) will still apply. What is the proposed limit for physical cash transactions in Malaysia? • No decision has been made on the limit for physical cash transactions in Malaysia. This is a public consultation exercise with the intention of hearing from you. Have other countries implemented a similar measure? • Yes. Several countries in Europe such as France, Spain and Italy have implemented it. The UK has a similar arrangement through its supervision of High Value Dealers (HDV). HDV refers to any business or sole trader that accepts or makes payments of €10,000 or more. In Asia-Pacific, India has introduced this measure. Australia and Indonesia are also in the midst of implementing a limit on cash payments. Does the cash transaction limit apply to foreign currency transactions in Malaysia? • Existing foreign exchange administration (FEA) rules will apply. Payment between residents must be settled in ringgit except for eligible payments specified under the existing rules. For more information on existing FEA rules, please visit bnm.my/fea How will the cash transaction limit be enforced? • Enforcement actions will focus on transactions associated with illicit activities and not on those supporting genuine business activities. Scenarios for cash transaction limit To illustrate the application of the measure, the cash transaction limit is assumed to be at RM50,000, with exemptions for most financial institutions and exigent circumstances. Any physical cash payments above RM50,000 in a single transaction is not allowed. Multiple transactions are also considered as a single transaction if it is made with the same person, for the same purpose, and within the same day. Actions to circumvent the application of the limit is an offence. 1. What transactions would be subject to the cash transaction limit? It will apply to all physical cash transactions. However, there are two notable exceptions. Transactions with financial institutions (i.e. licensed banks, development financial institutions, money services businesses) and under exigent circumstances with approval from the Minister of Finance on the recommendation of Bank Negara Malaysia are exempted from the limit. 2. The price of goods purchased is RM51,000. Can this be paid in cash? No. It must be paid electronically, by cheque or through financial institutions. 3. The price of goods purchased is RM100,000. Can I pay for a portion of it in cash (e.g. RM40,000), with the remainder paid for electronically, by cheque or through financial institutions? Yes, this is because in this single transaction, the physical cash component is below RM50,000. 4. The price of goods purchased is RM100,000. Can I pay for a portion of it in cash (e.g. RM70,000), with the remainder paid for electronically, by cheque or through financial institutions? No, this is because in this single transaction, the physical cash component is above RM50,000. 5. The price of goods purchased is RM60,000. Can I pay for it through six separate cash payments of RM10,000 each in the same day? No. A series of transactions is still considered as a single transaction if it is made with the same person, for the same purpose, and within the same day. Splitting the payment of goods and services into several smaller transactions to avoid the application of the limit is prohibited. 6. Can I deposit or withdraw RM60,000 in cash into/from my bank account? Yes. Cash transactions (e.g. deposit, withdrawal, payment or transfer) with or through licensed banks under the Financial Services Act 2013, licensed Islamic banks under the Islamic Financial Services Act 2013 or prescribed institutions under the Development Financial Institutions Act 2002 are exempted from the limit. This would include all commercial banks – conventional and Islamic. 7. The price of a vehicle purchased is RM60,000. Can I settle my monthly loan instalment of RM2,000 with my bank for the next 30 months in cash? Yes, cash transactions (e.g. deposit, withdrawal, payment or transfer) with or through licensed banks under the Financial Services Act 2013 or licensed Islamic banks under the Islamic Financial Services Act 2013 are exempted from the limit. 8. Where can I get the list of financial institutions which are exempted from the cash transaction limit? You may refer to the following links: (a) licensed banks under the Financial Services Act 2013: http://www.bnm.gov.my/index.php?ch=li&cat=banking&type=CB&fund=0&cu=0 (b) licensed Islamic banks under the Islamic Financial Services Act 2013: http://www.bnm.gov.my/index.php?ch=li&cat=islamic&type=IB&fund=0&cu=0 and http://www.bnm.gov.my/index.php?ch=li&cat=iib&type=IIB&fund=0&cu=0 http://www.bnm.gov.my/index.php?ch=li&cat=banking&type=CB&fund=0&cu=0 http://www.bnm.gov.my/index.php?ch=li&cat=islamic&type=IB&fund=0&cu=0 http://www.bnm.gov.my/index.php?ch=li&cat=iib&type=IIB&fund=0&cu=0 (c) licensed money services business (e.g. money changers, remittance service providers and currency wholesalers): http://www.bnm.gov.my/index.php?ch=fs&pg=fs_msb_regulatees&ac=134. (d) prescribed development financial institutions: http://www.bnm.gov.my/index.php?ch=fs&pg=fs_mfs_dfi&ac=162 9. A second-hand car is put up for sale for RM60,000. This is a transaction between two individuals with no financial institution involved. Can I pay the seller RM2,000 in cash for the next 30 months? Yes, the breaking-up of a transaction into several small amounts for legitimate business purposes is allowed (e.g. cash instalments). However, each instalment payment cannot be more than RM50,000 in physical cash. 10. Can I transfer RM60,000 in cash to another person? No. The proposed measure covers all physical cash transactions, including individual-to-individual transactions. So, this is a breach of the limit. A transfer above RM50,000 must be done electronically, by cheque or through financial institutions. 11. Can I donate RM60,000 in cash to a charity or NGO of my choice? No. The proposed measure covers entity-to-entity, and entity-to-individual (vice- versa) cash transactions. So, this is a breach of the limit. Donations above RM50,000 must be done electronically, by cheque or through financial institutions. 12. Can I pay all my employees in cash (assume 30 persons), assuming the salary per person is RM2,000? http://www.bnm.gov.my/index.php?ch=fs&pg=fs_msb_regulatees&ac=134 http://www.bnm.gov.my/index.php?ch=fs&pg=fs_mfs_dfi&ac=162 Yes, cash transactions with multiple different persons are not aggregated for purposes of the cash transaction limit. This is so long the physical cash transaction per person does not exceed the limit. 13. Can I pay or transfer physical cash to a middle person for further disbursement of salaries to employed workers (assume 30 persons with salary of RM2,000 each)? Yes, provided the payment/transfer of physical cash to the middle person does not exceed the limit. In this case, the payment/transfer of RM60,000 exceeds the limit and as such is not allowed under the measure. 14. I have USD20,000 in cash. Can I exchange it for ringgit with a licensed money changer over the counter and receive the ringgit in cash? Yes, a money-changing transaction with a licensed money changer is not subject to the cash transaction limit. 15. My wife and I want to pay the deposit for a condominium amounting to RM60,000 to the developer. Can each of us separately withdraw cash from our respective banks and pay the deposit in cash to the developer? No. You can only make payment up to RM50,000 in cash to the developer and the remaining balance should be paid electronically or by cheque. Alternatively, you and your wife can instruct your banks to directly transfer the amount into the developer’s account without the need for withdrawal of cash. 16. Does the limit apply to foreign currency transactions in Malaysia? Existing foreign exchange administration (FEA) rules will apply. Payment between residents must be settled in ringgit except for eligible payments specified under the existing rules. For more information on existing FEA rules, please visit bnm.my/fea http://www.bnm.my/fea Limiting the ease of conducting high-value cash transactions will mitigate abuse of cash in facilitating crime Why the need for a cash transaction limit? Cash is untraceable and anonymous • Ideal medium of exchange to launder gains from illicit activities. Criminals able to conceal the origin and hide true ownership of fund through cash Cash facilitates illicit activities • Cash is mainly used in illicit activities, especially in high-risk crimes such as corruption, fraud, smuggling, drug trafficking and organised crime • This is evidenced by large amount of physical cash seized from enforcement actions Illicit activities affect law-abiding Malaysians and businesses • Law-abiding businesses and individuals disadvantaged if illicit activities are left unaddressed • The public may be at higher risk of unknowingly facilitating money laundering schemes and other illicit activities when transacting in large cash payments Cash transaction limit (CTL) is to strengthen financial integrity …is a limit per physical cash transaction …apply to the total physical cash transactions for the day. One can have multiple different transactions …exempts transaction(s) with or through financial institutions (FIs) …targets high-value transactions that are of higher risk of being abused …affect deposit, withdrawal, transfer, loan repayment or money exchange through FIs …affect most single cash payments – a majority of them are for small-ticket items The CTL should not be confused with the cash threshold report (CTR) requirement, which refers to the obligation of reporting institutions to report any cash transactions including deposits or withdrawals, amounting to RM25,000 and above to Bank Negara Malaysia …applies to transaction(s) between parties …apply to accumulation, holding or safekeeping of physical cash …applies to physical cash only (currency notes & coins) …apply to non-physical cash transactions (e.g. electronic, cheque) The CTL… The CTL does not… Proposal to limit cash payments is neither new, nor unique to Malaysia • Residents: up to EUR1,000 for tax purpose of professional activity • Non-residents: up to EUR15,000 (not for professional purpose) • Local government office: Up to EUR300 • Residents: Up to EUR2500 when one of the parties acts as employer or professional • Non-residents: Up to EUR15,000 • Residents: Up to EUR2,999 • Non-residents: Up to EUR15,000 for tourism related transactions • Must not accept or make high value cash transaction (EUR10,000 or more) until one has registered as a high value dealer • Limit on all cash transactions equal to or in excess of INR200,000 • Exemptions: receipts from the Government, post-offices, banks and cooperative banks • Limit on all cash transactions equal to or in excess of AUD10,000 • Exemptions: all cash deposits and withdrawal from bank account with an authorized deposit-taking institution (ADI), exchanging foreign currency and all consumer-to consumer-transactions, except real estate transactions • Draft bill proposed in 2018 to limit any cash payment to a maximum Rp100,000,000 France Spain Italy UK India Australia Indonesia Note: For more details, please visit the sites of the respective authorities 3 2020-01-28 Cash Transaction Limit InfoPack (toARAB).pdf Limiting the ease of conducting high-value cash transactions will Why the need for a cash transaction limit? Cash facilitates illicit activities Illicit activities affect law-abiding Malaysians and businesses Cash transaction limit (CTL) is to strengthen financial integrity that are of higher risk of being abused …affect most single cash payments – a majority of them are for small-ticket items 3Q GDP PC - CTL Slide Extract.pdf Prestasi Ekonomi Suku Ketiga Tahun 2019 Limiting the ease of conducting high-value cash transactions will mitigate abuse of cash in facilitating crime Cash transaction limit (CTL) is to strengthen financial integrity Proposal to limit cash payments is neither new, nor unique to �Malaysia NCC seeks feedback on cash limit. No decisions made yet on �design and implementation

Public Notice

07 Nov 2019

RINGGIT Newsletter (Bil 5/2019 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-5/2019-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761679/RINGGIT_Bil_52019.pdf

Reading: RINGGIT Newsletter (Bil 5/2019 issue) is now available for download Share: RINGGIT Newsletter (Bil 5/2019 issue) is now available for download Release Date: 07 Nov 2019 The highlight for this issuance is "Pelancaran Strategi Literasi Kewangan Kebangsaan". Other topics of interest include : Cara OFS Menyelesaikan Pertikaian Kewangan MyKNP - Sediakan Khidmat Nasihat untuk Pembiayaan Perlindungan Insurans / Takaful Pernahkah Anda Diperdaya Ejen Pihak Ketiga Yang Menawarkan Rundingan Kewangan? Jenayah Siber RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 5/2019 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 5/2019 Jenayah SiberMyKNP Sediakan Khidmat Nasihat untuk Pembiayaan PERCUMA | PP 16897/05/2013 (032581) Cara OFS Menyelesaikan Pertikaian Kewangan Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Pelancaran Strategi Literasi Kewangan Kebangsaan Pada 23 Julai 2019, Perdana Menteri Tun Dr Mahathir Mohamad telah melancarkan Strategi Literasi Kewangan Kebangsaan 2019-2023 (Strategi Literasi Kewangan Kebangsaan). Perdana Menteri menyatakan bahawa ramai rakyat Malaysia bergelut dalam menguruskan kewangan sehingga memberi impak kepada mereka yang menghadapi isu kewangan di luar jangkaan. Semasa pelancaran Strategi Literasi Kewangan Kebangsaan, Perdana Menteri menyatakan, “Saya menerima baik pelaksanaan Strategi Literasi Kewangan Kebangsaan 2019-2023, yang menetapkan matlamat untuk meningkatkan tahap literasi kewangan dan memupuk tabiat dan sikap yang bertanggungjawab dalam pengurusan kewangan.” “Dalam hal ini, akses kepada pendidikan kewangan adalah penting kepada seluruh rakyat Malaysia pada semua peringkat umur dan tahap pendidikan,” ujar beliau lagi. PELANCARAN Strategi Literasi Kewangan Kebangsaan Strategi Utama dan Pelan Tindakan Malaysia 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Maizatul Aqira Ishak Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri.Sumber: www.fenetwork.my Strategi Utama dan Pelan Tindakan Malaysia bil. 5/2019 | 3 Cara OFS Menyelesaikan Pertikaian Kewangan Secara umumnya, Ombudsman Perkhidmatan Kewangan (OFS) merupakan sebuah badan bebas dan sebahagian daripada rangka kerja perlindungan pengguna kewangan yang telah diluluskan oleh Bank Negara Malaysia (BNM) di bawah Akta Perkhidmatan Kewangan 2013, Akta Perkhidmatan Kewangan Islam 2013 dan Akta Institusi Kewangan Pembangunan 2002 sebagai operator Skim Ombudsman Kewangan. Sejak pelaksanaan Skim Ombudsman Kewangan pada Oktober 2016 sehingga 31 Disember 2018, OFS telah menyelesaikan sebanyak 2,470 pertikaian. OFS telah mengendalikan sejumlah 10,178 pertanyaan dan aduan pada tahun 2018, peningkatan sebanyak 16% berbanding tahun sebelumnya. Daripada jumlah ini, sebanyak 4,530 adalah aduan dan pertanyaan baharu. Bilangan ini telah meningkat lebih daripada 100% berbanding tahun 2017, berpunca daripada peningkatan kesedaran orang awam berkenaan kewujudan OFS. Daripada 4,530 aduan dan pertanyaan tersebut, 761 (17%) telah didaftarkan oleh OFS sebagai pertikaian yang layak. Selebihnya merupakan pertikaian yang bukan dalam bidang kuasa OFS seperti isu khidmat pelanggan, keputusan kredit dan sebagainya. Daripada 761 kes baharu yang didaftarkan pada 2018, 74% adalah pertikaian berkenaan insurans dan takaful; 25% OFS merupakan SALURAN ALTERNATIF PENYELESAIAN PERTIKAIAN KEWANGAN yang melibatkan kerugian kewangan (financial losses) antara pengguna kewangan dan penyedia perkhidmatan kewangan. Apakah itu Ombudsman? “Ombudsman adalah orang atau badan bebas untuk menangani dan menyelesaikan pertikaian secara adil dan cepat, alternatif kepada mahkamah atau sebarang cara perundangan lain.” Penyelesaian pertikaian yang ADIL, BEBAS dan MUDAH AKSES kepada semua pengguna kewangan. Perkhidmatan OFS adalah PERCUMA dan tidak memerlukan perkhidmatan peguam. 4 | RINGGIT merupakan pertikaian perbankan (termasuk perbankan Islam) dan 1% adalah pertikaian instrumen pembayaran. Kes yang paling kerap didaftarkan ialah pertikaian berkaitan dengan insurans hayat atau keluarga, motor dan bukan motor. Pertikaian berkenaan dengan kad kredit atau kad debit mengalami pengurangan drastik berbanding tahun 2017. Trend ini boleh dikaitkan dengan pelaksanaan sistem kad berasaskan PIN yang lebih selamat. Kebanyakan kes yang telah didaftarkan pada tahun 2018 adalah dari kawasan Lembah Klang (57%) sama seperti tahun-tahun sebelumnya. Ini diikuti oleh zon utara (18%), selatan (16%), pantai timur (5%) serta Sabah dan Sarawak (4%). Pengguna kewangan individu memfailkan 93% daripada pertikaian yang diterima, sementara 7% telah difailkan oleh perusahaan kecil dan sederhana (PKS). OFS mengambil pendekatan proaktif dalam berurusan dengan aduan yang diterima, termasuk memudahkan penyelesaian pada peringkat semakan. Bagi pertikaian di luar skop OFS, pegawai OFS biasanya akan merujuk pengguna kepada agensi yang berkaitan. Satu daripada objektif utama OFS dalam proses penyelesaian pertikaian adalah untuk memastikan ketelusan. OFS sering berkongsi pandangan, pengalaman dan hasil penyelesaian pertikaian dengan semua pihak. OFS juga senantiasa berusaha meningkatkan kesedaran mengenai fungsi OFS dalam kalangan pengguna kewangan. Pemerhatian Am Berdasarkan kes-kes pertikaian yang dikendalikan, OFS mendapati pengguna kewangan pada umumnya tidak berpengetahuan luas tentang produk kewangan seperti insurans atau perbankan serta jarang membaca terma dan syarat-syarat polisi atau kontrak perjanjian produk yang dibeli. Oleh itu, adalah penting bagi pengguna meluangkan masa untuk membaca terma produk dengan teliti dan bertanya dengan penyedia perkhidmatan kewangan jika tidak pasti mengenai ciri-ciri produk tersebut. Pengguna harus berhati-hati dan mengambil langkah- langkah yang sepatutnya untuk melindungi kad ATM atau kad debit/kredit dan maklumat pengguna. Mereka juga harus sentiasa berwaspada dengan sindiket penipuan atau scam yang semakin berleluasa. Sumber: www.ofs.org.my bil. 5/2019 | 5 MyKNP Sediakan Khidmat Nasihat untuk Pembiayaan Khidmat Nasihat Pembiayaan (MyKNP)merupakan kerjasama antara Bank Negara Malaysia (BNM), Credit Guarantee Corporation (CGC) dan Agensi Kaunseling dan Pengurusan Kredit (AKPK) untuk menyediakan bantuan khidmat nasihat kepada pemohon yang tidak berjaya mendapatkan pembiayaan PKS atau pembiayaan perumahan. MyKNP merupakan satu lagi usaha yang dilaksanakan secara kolektif dalam ekosistem pembiayaan yang sedia ada. MyKNP bertujuan memberikan panduan yang lebih baik kepada pemohon pembiayaan, termasuk meningkatkan kefahaman pemohon tentang faktor-faktor yang mempengaruhi permohonan pembiayaan mereka serta meningkatkan kelayakan mereka untuk mendapatkan pembiayaan pada masa hadapan. Pemohon yang tidak berjaya mendapatkan pembiayaan perusahaan kecil dan sederhana (PKS) atau pembiayaan perumahan boleh mendapatkan khidmat nasihat dengan menghubungi sama ada MyKNP @ CGC (pembiayaan PKS) atau MyKNP @ AKPK (pembiayaan perumahan), dan mendapatkan khidmat nasihat yang berikut: • Penjelasan lanjut berhubung dengan sebab-sebab permohonan pembiayaan daripada institusi kewangan tidak berjaya; • Khidmat nasihat untuk meningkatkan kelayakan bagi permohonan pembiayaan pada masa hadapan; dan • Maklumat tentang sumber pembiayaan alternatif (untuk PKS) atau penyelesaian alternatif (bagi pembeli rumah). Khidmat nasihat yang disediakan adalah percuma. 6 | RINGGIT Sumber: www.myknp.com.my Bagaimana MyKNP Berfungsi? Langkah 1 “Permohonan saya untuk mendapatkan pembiayaan tidak berjaya. Apa patut saya buat?” Langkah 2 Dapatkan penjelasan mengenai permohonan yang tidak berjaya. PKS dan individu boleh mendapatkan penjelasan daripada institusi kewangan. Langkah 3 Hubungi Pusat Kemudahan Pembiayaan (MyKNP). Hubungi CGC atau AKPK untuk mendapatkan khidmat nasihat dan lawati laman sesawang MyKNP@AKPK atau MyKNP@CGC. Langkah 4 Dapatkan Khidmat Nasihat Khusus dari CGC atau AKPK. Nasihat tentang cara meningkatkan kelayakan dan mendapatkan pembiayaan sumber alternatif kewangan. Langkah 5 “Wah, sekarang saya tahu apa perlu dibuat apabila saya cuba memohon pembiayaan sekali lagi”. bil. 5/2019 | 7 Perlindungan Insurans / Takaful Ramai yang mempunyai perlindungan insurans atau takaful untuk kereta atau rumah mereka. Lazimnya, kereta dan rumah diinsuranskan kerana pemilik tidak mahu berlaku sebarang perkara yang tidak diingini ke atas harta benda ini. Tetapi mengapa masih ramai yang tidak melindungi diri dan keluarga seperti melindungi harta benda mereka? Ramai orang yang beranggapan sesuatu perkara yang buruk tidak akan menimpa mereka. Hakikatnya, kehidupan bukanlah sesuatu yang boleh diramal. Insurans dan takaful mungkin tidak dapat menjamin masa depan yang cerah untuk anda, tetapi sekurang-kurangnya perlindungan dan bantuan yang diperlukan anda dan keluarga dijamin ketika anda memerlukannya. Langkah 1 : Rancang Soalan: Apakah polisi yang anda miliki? Sudahkah anda membeli polisi insurans untuk diri anda? Adakah majikan anda menyediakan insurans hayat dan perubatan untuk diri anda? Bagaimana dengan keluarga anda? Isteri atau suami anda? Anak-anak anda? Adakah mereka dilindungi? Jawapan: Jika anda menjawab tidak, inilah masanya untuk anda merancang langkah seterusnya dengan teliti. Nilai sejauh mana anda dilindungi sekarang dan apa yang anda perlu lindungi. Langkah 2 : Laksanakan Sebelum anda membeli polisi insurans atau pelan takaful, selidik dan ketahui lebih lanjut tentang produk insurans dan takaful yang ada di pasaran. Bukan semua polisi atau pelan sesuai untuk anda. Polisi-polisi atau pelan-pelan yang berbeza ini menawarkan ciri-ciri, manfaat, syarat-syarat dan pengecualian yang berbeza. Kaji terlebih dahulu polisi atau pelan yang ingin dibeli agar bersesuaian dengan keperluan dan peringkat hidup anda. Lindungi diri anda. Lindungi mereka yang tersayang dan pastikan pelaburan anda untuk perlindungan ini adalah berbaloi. Bolehkah Keluarga Anda Meneruskan Hidup Tanpa Anda? Kehidupan di dunia ini adalah singkat. Mungkin anda telah memastikan keluarga anda terpelihara jika anda pergi dahulu, tapi adakah ia mencukupi? Insurans hayat dan pelan takaful keluarga dapat menjamin daripada segi kewangan dan boleh memberi mereka perlindungan kewangan tambahan untuk meneruskan kehidupan setelah anda tiada. Dengan polisi seperti insurans berkaitan pelaburan dan pelan pendidikan anak, keluarga anda pasti akan mendapat perlindungan menyeluruh. 8 | RINGGIT Adakah Ahli Keluarga Anda memerlukan Rawatan Perubatan? Kecederaan boleh berlaku dan penyakit boleh menyerang tanpa sebarang amaran. Rawatan yang tepat dan cepat merupakan antara cara yang terbaik untuk memastikan kecederaan atau penyakit yang dialami tidak memudaratkan. Dengan kos perubatan moden yang semakin meningkat, mendapatkan rawatan yang boleh menyelamatkan nyawa tidak harus bergantung kepada simpanan atau wang tunai anda semata-mata. Pastikan kos rawatan dan perubatan anda tidak menjadi masalah ketika anda memerlukannya dengan insurans atau takaful perubatan dan kesihatan. Adakah simpanan anda cukup untuk kehidupan selepas persaraan? Anda mungkin menghitung hari sehingga anda boleh berehat dengan secukupnya di samping keluarga. Walau bagaimanapun, dengan kadar inflasi kini, kadangkala wang simpanan anda tidak dapat memenuhi keperluan tersebut. Dengan anuiti persaraan, anda boleh melabur wang anda untuk kehidupan anda selepas bersara, agar wang yang anda peroleh sekarang boleh digunakan dengan lebih bermakna kelak. Adakah rumah anda dilindungi? Rumah anda merupakan tanggungjawab kewangan anda yang terbesar. Oleh itu, tidak hairanlah jika anda mahu memastikan aset anda ini kekal selamat daripada bencana alam, kemalangan dan kecurian. Insurans perumahan dan takaful perumahan boleh menjamin rumah serta kelengkapan di dalamnya dilindungi dengan selamat. Adakah anda memiliki kenderaan? Sekiranya anda mempunyai kenderaan bermotor atau motorsikal, anda wajib untuk membeli insurans motor. Jadi, luangkan sedikit masa untuk memahami apa yang dilindungi insurans motor dan takaful motor anda. Pastikan bagaimana polisi tersebut melindungi kenderaan anda dan boleh membantu anda ketika membaiki atau mendapatkan kembali kenderaan anda jika berlaku sebarang kemalangan atau kecurian. Adakah anda sering melancong? Ketika berada di luar negara, pelbagai perkara yang tidak diingini boleh berlaku seperti kehilangan pasport, kecederaan atau berlaku sesuatu yang lebih buruk. Insurans perjalanan menjamin anda serta barangan milik anda terpelihara. Insurans atau takaful kemalangan diri pula menjamin perlindungan ke atas diri anda 24 jam seantero dunia, tidak kira di mana anda berada. Sumber: www.insuranceinfo.com.my bil. 5/2019 | 9 Kami tahu perasaan anda. Anda memerlukan seseorang untuk datang dan membantu anda menyelesaikan kekusutan kewangan yang kian mendesak. Anda mula berasa terancam dan tidak akan teragak-agak untuk mempercayai sesiapa sahaja yang berani berjanji untuk menolong anda membebaskan diri daripada cengkaman hutang. Maka datanglah seorang pakar runding melalui satu panggilan telefon. Dengan mudah pakar runding tersebut berjaya meyakinkan anda bahawa anda telah menemukan penyelamat anda. Anda pun menceritakan segala-galanya dan berkongsi maklumat-maklumat sulit, dan sesudah semua itu, anda diminta membuat bayaran. Anda mengeluh, “Sudahlah tinggi, mulanya pun belum”, tetapi anda tetap membayarnya walaupun anda berasa sangsi. Rupa-rupanya, telahan anda betul. Anda telah diperdaya. Anda teringat bagaimana anda diminta untuk berurusan dengan Agensi Kaunseling dan Pengurusan Kredit, atau (AKPK), bagi penstrukturan semula pinjaman anda di bawah Program Pengurusan Kredit (PPK) sejurus selepas membuat bayaran. Ini membuatkan anda tertanya-tanya, jika pakar runding itu tidak mempunyai sebarang mandat untuk membantu anda. AKPK yang menguruskan kes anda tidak pernah melantik mana-mana ejen pihak ketiga untuk mendaftarkan anda ke dalam programnya. Bahkan, AKPK menyediakan perkhidmatan kaunseling kewangan dan PPK tanpa bayaran kepada individu. Anda sebenarnya telah membayar untuk perkhidmatan yang anda boleh peroleh secara percuma. Lebih malang jika anda membayar menggunakan kad kredit kerana anda telahpun menambah hutang sedia ada padahal itulah yang anda mahu langsaikan pada asalnya. Seperti pepatah Melayu, “Sudah jatuh ditimpa tangga”, masalah anda kini sudah berganda. Kes sebenar pernah terjadi membabitkan seorang wanita dari Melaka. Setelah beberapa lama membuat pinjaman sebanyak RM200,000 dari sebuah penyedia kredit, wanita tersebut mula ingkar membuat pembayaran balik mengikut jadual. Seperti orang mengantuk disorongkan bantal, seorang pakar runding dari Kuala Lumpur yang memperkenalkan dirinya sebagai ejen AKPK menelefon dan menawarkan bantuan untuk melangsaikan hutangnya. Bayaran upah yang diminta adalah sebanyak 10% daripada nilai pinjaman. Termakan dengan janji untuk menamatkan masalah kewangannya, wanita terbabit bersedia untuk membuat bayaran tersebut. Mujurlah seorang saudaranya sempat menyebut tentang perkhidmatan percuma AKPK. Setelah membuat pertanyaan di pejabat AKPK cawangan Melaka, wanita terbabit dengan segera mendaftarkan diri ke dalam program AKPK sekali gus mengelakkan dirinya daripada ditipu membayar upah sebanyak RM20,000. Sebagai pengajaran, hal berkaitan kewangan yang membabitkan ejen pihak ketiga selalunya berisiko, lebih- lebih lagi jika melibatkan bayaran yang tinggi. Semaklah terlebih dahulu dengan pihak berwajib atau institusi- institusi yang sah tentang tatacara yang betul bagi menyelesaikan isu-isu kewangan anda, serta pegawai bertugas yang dikhususkan untuk membantu anda. Dalam hal ini, AKPK ialah agensi yang diberi mandat oleh Bank Negara Malaysia sejak 2006 lagi untuk membantu dan mendidik pengguna mengurus kewangan mereka sebagai usaha mewujudkan masyarakat celik wang. Ia adalah sejajar dengan visi AKPK iaitu, ‘Amalkan Pengurusan Kewangan Berhemat Sebagai Budaya Hidup’. Sumber: www.akpk.com Pernahkah Anda Diperdaya Ejen Pihak Ketiga Yang Menawarkan Rundingan Kewangan? 10 | RINGGIT Dengan peredaran zaman pada masa ini, masyarakat lebih cenderung dan bergantung kepada pembelian secara dalam talian. Kemudahan internet yang semakin meluas membolehkan ramai orang membeli barangan secara dalam talian. Kini terdapat banyak syarikat, sama ada dalam mahupun luar negara yang menawarkan perkhidmatan jual beli secara dalam talian. Malangnya dengan peningkatan kemudahan ini, aduan mengenai penipuan oleh peniaga dalam talian kian meningkat. Pusat Khidmat Aduan Pengguna Nasional (NCCC) menerima aduan sebanyak 7,692 pada tahun 2015, dan bilangan ini meningkat kepada 10,160 aduan pada 2018, iaitu peningkatan sebanyak 32% dalam tempoh tiga tahun. Aduan penipuan siber merupakan aduan tertinggi yang diterima oleh NCCC saban tahun berbanding aduan dalam kategori lain. Polis Diraja Malaysia menganggarkan sejumlah RM2 bilion dikaut oleh penjenayah siber (scammers) (The Star 7 Ogos 2019). Terdapat banyak jenis penipuan siber (scams) seperti Macau Scam, Penipuan Cinta (Love scam), memancing data (phishing), penipuan pekerjaan, Nigerian scam, penipuan loteri dan penipuan dalam talian, termasuk urus niaga jual beli barangan (shopping scams). Malaysia merupakan negara yang pertama di Asia Tenggara yang telah merangka satu polisi untuk menangani isu ini. Agensi Keselamatan Siber Negara (NCSA) menjadi agensi tunggal menyelaras semua agensi berkaitan ancaman keselamatan siber dengan meletakkan pakar keselamatan siber di bawah satu agensi induk. Walaupun para pengguna dilindungi dengan beberapa akta, seperti Akta Jenayah Komputer 1997, Akta Perlindungan Pengguna 1999 dan beberapa akta lain, namun penipuan siber masih berleluasa menggunakan pelbagai kaedah untuk memperdaya orang ramai. Pihak berkuasa perlu mengenakan tindakan yang tegas untuk menangani isu ini. Dalam pada itu, para pengguna juga harus berhati-hati sewaktu berurusan dengan sebarang syarikat atau individu yang menawarkan perkhidmatan mahupun menjual barangan dalam talian. Sebagai pengguna, anda perlu mengambil inisiatif untuk mengenal pasti sama ada pihak yang anda berurusan itu ialah peniaga yang tulen. Terdapat beberapa kaedah untuk mengelakkan anda terjerumus dalam masalah ini. Antaranya ialah: a. Pastikan anda berurusan dengan syarikat yang berdaftar dengan Suruhanjaya Syarikat Malaysia (SSM), dengan menyemak maklumat pendaftaran syarikat di pautan, www.ssm.com.my/bm/Pages/ Quick_Link/e-Search.aspx b. Anda juga boleh menyemak nombor akaun syarikat yang pernah dilaporkan sebagai akaun yang mencurigakan di ccid.rmp.gov.my/semakmule. c. Jangan sekali-kali memberi butiran mengenai kad kredit anda atau menghantar wang kepada mana- mana pihak tanpa usul periksa. Anda perlu mengambil langkah berhati-hati setiap masa apabila membeli-belah ataupun ketika berurusan secara dalam talian. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) S I B E R Jenayah bil. 5/2019 | 11 poster keldai akaun REDUCED v2 (OL).pdf 1 4/10/2019 4:05:33 AM

Public Notice

29 Oct 2019

Enforcement Action against Company Suspected to be Using the Word "Bank" Without Approval

https://www.bnm.gov.my/-/enforcement-action-against-company-suspected-to-be-using-the-word-bank-without-approval-29102019

Reading: Enforcement Action against Company Suspected to be Using the Word "Bank" Without Approval Share: Enforcement Action against Company Suspected to be Using the Word "Bank" Without Approval Release Date: 29 Oct 2019 A raiding operation was conducted on RSI International Berhad (1163501-P) located in Cheras on 23 October 2019. RSI International Berhad was suspected to have committed an offence under section 139(1)(a) of the Financial Services Act 2013 (FSA) for using the word “bank” in their office premise signage without written approval by Bank Negara Malaysia. During the raid, relevant documents and computers were seized to assist in the investigation. Under section 139(1) of the FSA, it is an offence for any person to use the word “bank” without written approval unless such person is licensed under this Act to carry on banking business or investment banking business. If convicted, the person can be liable to imprisonment for a term not exceeding eight years or to a fine not exceeding RM25 million or to both. Members of the public are advised to be wary of unlicensed companies that use the word “bank” without prior written approval from the Bank and should refer to licensed financial institutions listed on Bank Negara Malaysia’s website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

11 Oct 2019

Download the 2020 Budget Speech by Finance Minister of Malaysia

https://www.bnm.gov.my/-/download-the-2020-budget-speech-by-finance-minister-of-malaysia

https://www.bnm.gov.my/documents/20124/761679/bs2020.pdf

Reading: Download the 2020 Budget Speech by Finance Minister of Malaysia Share: Download the 2020 Budget Speech by Finance Minister of Malaysia Release Date: 11 Oct 2019 The 2020 Budget Speech by YB Tuan Lim Guan Eng, Finance Minister of Malaysia. Click on the hyperlink below to download. The 2020 Budget Speech © 2024 Bank Negara Malaysia. All rights reserved.

1 of 88 2020 BUDGET SPEECH BY YB TUAN LIM GUAN ENG MINISTER OF FINANCE INTRODUCING THE SUPPLY BILL (2020) IN DEWAN RAKYAT FRIDAY, 11 OCTOBER 2019 “DRIVING GROWTH AND EQUITABLE OUTCOMES TOWARDS SHARED PROSPERITY” Tan Sri Speaker Sir, 1. I beg to move the Bill intituled “An Act to apply a sum from the Consolidated Fund for the service of the year 2020 and to appropriate that sum for the service of that year” be read a second time. 2 of 88 INTRODUCTION 2. Greetings, Salam Harapan and Salam Sayangi Malaysiaku, I bid to the Honourable Speaker, Honourable Members of Parliament of both the Government and the Opposition, and to all Malaysians. We are grateful that by God’s grace, Malaysia continues to be a peaceful, stable and prosperous nation. 3. First and foremost, allow me to convey my undivided loyalty and my congratulations on the coronation of Kebawah Duli Yang Maha Mulia Seri Paduka Baginda Yang Dipertuan Agong Ke-16, Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah Ibni Almarhum Sultan Haji Ahmad Shah Al-Musta’in Billah. 4. I am humbled to stand before you to table the 2020 Budget. This is the second budget to be tabled under the Pakatan Harapan Government. Indeed, 2020 is a special year given that Wawasan 2020 was envisioned by our YAB Prime Minister Tun Dr Mahathir bin Mohamad nearly three decades ago in 1991, to celebrate Malaysia joining the ranks of developed nations. Vision 2020 would have succeeded, if not for the massive financial scandals, corruption and mismanagement of the previous Government. 5. The first Pakatan Harapan Budget tabled in 2018 focused on fiscal consolidation and rationalisation, institutional reforms and people-centric policies to right the many wrongs of the previous 3 of 88 administration. For this Budget, the theme is on “Driving Growth And Equitable Outcomes Towards Shared Prosperity”. The Government is committed to bringing stability to the Government’s finances and achieving the goal of Vision 2020 with a new growth trajectory under the foundation of “Shared Prosperity Vision 2030” as initiated by YAB Prime Minister, Tun Dr. Mahathir bin Mohamad. ECONOMIC PERFORMANCE AND CHALLENGES Tan Sri Speaker Sir, 6. The global economy has been thrown into a state of uncertainty caused by the trade war between the United States and other nations, especially the People’s Republic of China. The International Monetary Fund (IMF) has revised downwards the global economic growth forecast for the year 2019 from 3.9% in July 2018 to 3.2% in July 2019. The World Trade Organisation (WTO) has also reduced the forecast for world merchandise trade growth for 2019 from 2.6% in April 2019 to 1.2% in October 2019, the lowest since 2009. 7. As a trading nation, Malaysia cannot avoid being affected by these external headwinds. However, with economic policies and reforms implemented by the Pakatan Harapan government, our economy will remain resilient. In the first half of 2019, GDP growth 4 of 88 was 4.7%, with a growth rate of 4.9% in the 2nd quarter. Indeed, Malaysia is one of the few economies in the world that experienced faster growth in the second quarter compared to the previous quarter. 8. The Government has also been very successful in taming inflation, with 0.2% recorded in the first half of 2019 compared to 1.0% and 3.7% for the whole of 2018 and 2017 respectively. Clearly the Goods and Services Tax (GST) implemented under the previous regime had contributed significantly to higher prices. By abolishing the GST of 6% in June 2018 and replacing it with the Sales and Services Tax (SST) regime in September 2018, the country’s inflation rate has been reduced to its lowest levels since 2007. For the full year of 2019, the inflation rate is expected to be at 0.9%. To respect the mandate given by the Rakyat in last year’s General Elections, the Government does not intend to bring back GST. 9. Despite the global trade war, Malaysian exports only shrank marginally for the first 8 months of 2019 by 0.4% from a year ago. Malaysian exports are still expected to record positive growth for 2019. During the same period, Malaysia recorded RM92.5 billion worth of trade surplus, which is 28.7% larger than the RM71.9 billion recorded during the same period in 2018. 10. This healthy trade balance will keep the country’s current account in surplus for the year. Overall, Malaysia’s balance of 5 of 88 payments continues to be firmly positive, with the current account surplus for 2019 is expected at RM43.4 billion or 2.9% of Gross National Income (GNI). Meanwhile, as at 30 September 2019 our international reserves remain healthy at RM431.3 billion or USD103 billion, which is sufficient to finance 7.6 months of retained imports and is 1.1 times of our external short-term debts. 11. The Malaysian financial system also remains sound and stable, despite a challenging global environment and high degree of volatility in the international financial markets throughout the year. 2020 BUDGET THEME - DRIVING GROWTH AND EQUITABLE OUTCOMES TOWARDS SHARED PROSPERITY Tan Sri Speaker Sir, 12. We as Malaysians have a shared responsibility to rebuild the nation. Therefore, extensive consultations for Budget 2020 with stakeholders were undertaken. On top of the Budget Consultation hosted at the Ministry of Finance, we had a total of 12 Focus Group sessions held together with other Ministries and state governments all around the country involving over 2,500 people representing over 1,200 organisations. 13. The four thrusts anchoring the 2020 Budget are: 6 of 88 FIRST : Driving Economic Growth in the New Economy and Digital Era SECOND : Investing in Malaysians: Levelling Up Human Capital THIRD : Creating a United, Inclusive and Equitable Society FOURTH : Revitalisation of Public Institutions and Finances FIRST THRUST: DRIVING ECONOMIC GROWTH IN THE NEW ECONOMY AND DIGITAL ERA Strategy 1: Making Malaysia the Preferred Destination for Investment Tan Sri Speaker Sir, 14. During YAB Tun Dr Mahathir’s first stint as the Prime Minister, he led Malaysia to its fastest decade of economic growth from 1988 to 1997 at an average annual GDP growth rate of 9.3%, marking the country’s ascent to be an Asian Economic Tiger. The influx of Foreign Direct Investments (FDIs) had not only brought in new jobs with better wages, new businesses into the market and new economic opportunities, it also structurally upgraded Malaysia from being an agriculture-based domestic-centric economy into an industrialised export-oriented nation. 15. However, at the turn of the century, Malaysia’s economic growth tapered off to an average of 5.1% since 2000. The premature 7 of 88 deindustrialisation of the Malaysian economy resulted in the shift of our economy to one that is more reliant on labour intensive, low- skill, and low-cost structure. As a result, we remain trapped as a middle-income nation that has been hindered from becoming a truly developed economy based on productivity, innovation and shared prosperity. Trade War Opportunities 16. The protracted trade war creates a unique opportunity for Malaysia to again be the preferred destination for high value-added Foreign Direct Investments (FDI). The shift in the global supply chain investments has witnessed approved FDI increasing by 47% to RM80.1 billion in 2018 from RM54.4 billion in 2017. 17. For the first half of this year, approved FDI increased by 97% to RM49.5 billion from RM25.1 billion in the same period last year. The approved manufacturing FDI from the United States of America (US) was the highest at RM11.7 billion, followed by the People’s Republic of China at RM4.8 billion. As China is our largest trading partner, FDI from China should be comparable with the US. As such, a ‘Special Channel’ to attract investments from China shall be established under InvestKL. 18. To overcome delays in approving foreign and domestic investments, we have established the National Committee on 8 of 88 Investment (NCI), jointly chaired by the Minister of Finance and the Minister of International Trade and Industry. In our inaugural meeting on 28 August this year, three investments worth RM2.2 billion were approved. 19. This year, the Government has embarked on a comprehensive review and revamp of the existing incentive framework, comprising the Promotion of Investments Act 1986, Special Incentive Package and incentives under the Income Tax Act 1967. This new framework is expected to be ready by 1 January 2021. 20. The Government will make available up to RM1 billion worth of customised packaged investment incentives annually over 5 years, as part of the strategic push to attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors. To qualify, these companies must invest at least RM5 billion each in Malaysia which will generate additional economic activities that will support our Small Medium Enterprises (SMEs), create 150,000 high quality jobs over the next 5 years and strengthen our manufacturing and service ecosystems. 21. To transform Malaysia’s best and most promising businesses into the most competitive enterprises in global export markets, the Government will also make available up to RM1 billion in customised packaged investment incentives annually over 5 years. 9 of 88 These incentives are strictly conditional upon these companies proving their ability to grow and export their products and services globally. We expect this measure to significantly strengthen our local supply chain ecosystem and create additional 100,000 high quality jobs for Malaysians over the next 5 years. 22. In addition to expediting approval of investments, the Ministry of International Trade and Industry (MITI) will give additional focus on post-approval investment monitoring and realisation. For this purpose, the Government will allocate RM10 million. 23. The Government will also provide tax incentives to further promote high-value added activities in the Electrical and Electronics (E&E) industry to transition into 5G digital economy and Industry 4.0. These incentives include: First: income tax exemption up to 10 years to E&E companies investing in selected knowledge-based services; and Second: special Investment Tax Allowance to encourage companies in E&E sector that have exhausted the Reinvestment Allowance to further reinvest in Malaysia. 24. In addition, to encourage automation and to increase company’s productivity, it is proposed: 10 of 88 First: Accelerated Capital Allowance and automation equipment capital allowance for manufacturing sector on the first RM2 million and RM4 million incurred on qualifying capital expenditure is extended to the year of assessment 2023; and Second: The incentive is also be expanded to include services sector on the first RM2 million incurred on qualifying capital expenditure from the year of assessment 2020 to the year of assessment 2023. Improving Competitiveness Tan Sri Speaker Sir, 25. The Pakatan Harapan Government is committed to continuously improve the business climate in Malaysia. One of the key reforms to be implemented is to improve the ease of doing business in Malaysia by reducing the number of steps to register a business. 26. It goes without saying that well-functioning ports and logistics system is crucial for a trading nation like ours. The World Economic Forum (WEF) 2019 Global Competitiveness Report ranks Malaysia’s sea transport infrastructures is one of the best in the world. 11 of 88 27. Port Klang is currently the 12th busiest container port in the world and is expected to reach full capacity in the next five years. For the next phase of growth, the Government is undertaking an in- depth feasibility study on the development of Pulau Carey. This is to make Port Klang as a regional maritime centre and cargo logistics hub combining manufacturing, distribution, cargo consolidation, bunkering and ship repairs. 28. The Government will allocate RM50 million for the repair and maintenance of roads leading to Port Klang. The Ministry of Transport will commence feasibility studies on the Serendah-Port Klang Rail Bypass for cargo shipments and the Klang Logistics Corridor, a dedicated privatised highway connecting Northport and Westport for commercial vehicles, with both projects estimated to cost RM8.3 billion. 29. To better facilitate trade movement through our ports, the Royal Malaysian Customs Department (RMCD) will introduce a deferred payment facility to expedite the clearance process of cross border transactions. This will reduce the time and cost for cross border trade significantly. 30. Beyond our sea ports, the Government intends to strengthen trade with Thailand via our 100-acre logistics hub, Kota Perdana Special Border Economic Zone (SBEZ) at Bukit Kayu Hitam. Further to the development of a Truck Depot as announced in 12 of 88 Budget 2019, the Government will allocate an additional RM50 million to stimulate public-private partnerships for the project. The Government would provide support for the construction of primary infrastructure, while the private sector will invest in critical business assets to catalyse potential domestic investment worth RM800 million which would provide job opportunities to more than 600 people. 31. RM1.1 billion is allocated in 2020 to support projects for corridor development activities including: First: RM50 million for the development of Chuping Valley Industrial Area in Perlis by NCIA; Second: RM69.5 million for the Kuantan Port related projects by ECERDC; Third: RM42 million for the construction of Sungai Segget Centralised Sewerage Treatment Plant in Johor by IRDA; Fourth: RM55 million for infrastructure in the Samalaju Industrial Park in Sarawak by RECODA; and Fifth: RM20 million for the Sabah Agro-Industrial Precinct by SEDIA 13 of 88 Strategy 2: Accelerating the Digital Economy Tan Sri Speaker Sir, Building Digital Infrastructure 32. YAB Prime Minister launched Malaysia into the Information and Communications Technology (ICT) era with the establishment of the Multimedia Super Corridor (MSC) in 1996. We are now entering the digital era. This Government is committed towards digital transformation. 33. For the past year, the regulatory reforms implemented by the Malaysian Communications and Multimedia Commission (MCMC) on the Mandatory Standard on Access Pricing (MSAP) has successfully lowered broadband prices by 49% and triggered a shift in consumer demand for faster internet connections. The World Bank has praised the Government for accelerating average broadband speed by 3 times in just one year. 34. Now, the Government will create the necessary infrastructure to construct a Digital Malaysia by implementing the National Fiberisation & Connectivity Plan (NFCP) over the next 5 years which will provide comprehensive coverage of high speed and quality digital connectivity nationwide including rural areas. The NFCP will adopt a public private partnership approach involving a 14 of 88 total investment of RM21.6 billion. The Government, through MCMC, will finance at least half of the required investment with corresponding investments by the private sector telecommunications players via a matching grant mechanism. 35. As part of NFCP, we will improve connectivity in remote areas of Malaysia, especially in Sabah and Sarawak, to ensure that no one is left behind in our digital drive. MCMC will allocate RM250 million to leverage on various technologies, including via satellite broadband connectivity. 36. In addition, the Government will allocate RM210 million to accelerate the deployment of new digital infrastructure for public buildings particularly schools and also high impact areas such as industrial parks. Priority will be given to locations within states that are able to facilitate and expedite the implementation of the NFCP. Building Digital Applications 37. The vigorous rollout of the NFCP will be key to bringing 5G technology and services to the Malaysian public. To seed technological developments by Malaysian companies to ride the global 5G wave, which is 100 times faster than 4G, the Government will introduce a 5G Ecosystem Development Grant worth RM50 million. 15 of 88 38. In addition, an allocation of RM25 million will be given to set up a contestable matching grant fund to spur more pilot projects on digital applications such as drone delivery, autonomous vehicle, blockchain technology, and other products and services that leverage on our investments in fibre optics and 5G infrastructure. 39. Digital content creates economic value. For instance, the global video gaming industry today has revenue upward of USD150 billion, higher than both the music and movie industries combined. Therefore, we will allocate RM20 million to Malaysian Digital Economy Corporation (MDEC) to grow local champions in creating digital content, especially in e-Games, animation and digital arts. Building Digital Companies 40. To build a Digital Malaysia, the private sector must come onboard. More Malaysian Small Medium Enterprise (SMEs) need to adopt digitalisation measures for their business operations, including electronic Point Of Sale systems (e-POS), Enterprise Resource Planning (ERP) and electronic payroll system. The Government will provide a 50% matching grant of up to RM5,000 per company for the subscription of the above services. This matching grant will be worth RM500 million over 5 years, limited to the first 100,000 SMEs applying to upgrade their systems. 16 of 88 41. The Government will also allocate RM550 million to provide Smart Automation matching grants to 1,000 manufacturing and 1,000 services companies to automate their business processes. This grant will be given on a matching basis up to RM2 million per company. 42. The Government plans to build up to 14 one-stop Digital Enhancement Centres in all states to facilitate access to financing and capacity building of our businesses, especially SMEs in line with the Fourth Industrial Revolution (IR4.0). A budget of RM70 million will be allocated to MDEC to set up these centres as an extension of the ‘100 Go Digital’ programme. To also promote knowledge sharing and education through digital enabled content, the Government proposes to establish 3 new digital libraries in Kedah, Perak and Johor. 43. Programmes such as the Coach and Grow Programme (CGP) by Cradle Fund for high impact technology entrepreneurs involving 469 companies to date have generated RM2.3 billion in revenues, including RM300 million in exports. As part of the Government’s continued commitment to promote early stage innovations, the Government will provide RM20 million to Cradle Fund for the provision of training and grants to seed companies. 17 of 88 Building Digital Malaysians 44. To ensure gains arising from successful Digital Companies are shared with the Rakyat, the Government will introduce the concept of Digital Social Responsibility (DSR). DSR is the commitment by businesses, to contribute to digital economic development while improving the digital skills of the future workforce with initiatives such as technology scholarships, training and upskilling for digital skills for communities in need. Contributions towards DSR by the companies will be given tax deduction. 45. We will continue providing funds of RM10 million to MDEC to train micro-digital entrepreneurs and technologists to leverage on e-Marketplaces and social media platforms to sell their products. 100 of these micro-digital entrepreneurs, a majority of whom are women and youth, were able to generate RM23 million in revenues over just 6 months, unleashing life changing experiences. 46. The Pakatan Harapan government recognises the growing potential of eSports and will provide an increased allocation of RM20 million for 2020. We wish our Malaysian team the very best of luck to bring home many gold medals from the Southeast Asian Games in Manila in December 2019. 18 of 88 Tan Sri Speaker Sir, 47. According to Bank Negara Malaysia’s Financial Sector Blueprint for 2011 to 2020, Malaysia stands to gain about 1% in cost savings to our GDP annually by switching fully to e-payments processes and becoming a cashless society. This is at a time where mobile payment transaction volume had increased twenty-fold to over 34 million transactions in 2018 from just below 2 million transactions in 2017. However, the overall adoption of e-wallet remains low at only 8%, based on a survey report by Nielsen in January this year. 48. To significantly increase the number of Malaysians, participating merchants and SMEs to use e-wallets, the Government will offer a one-time RM30 digital stimulus to qualified Malaysians aged 18 and above with annual income less than RM100,000. All you need is to own an identity-verified e-wallet account with selected service providers. The one-time digital stimulus per person can be redeemed and used for a two-month period commencing 1 January 2020 and expiring on 29 February 2020. The Government will allocate up to RM450 million to Khazanah Nasional to implement this digital stimulus, which will benefit up to 15 million Malaysians. 19 of 88 Strategy 3: Strengthening Access to Financing for Businesses Tan Sri Speaker Sir, 49. To better facilitate access to financing for SMEs in priority segments, the Government will implement enhancements to the Skim Jaminan Pinjaman Perniagaan (SJPP). For Bumiputera SMEs, export-oriented SMEs and SMEs investing in automation and digitalisation, the Government guarantee will be increased from 70% to 80% and in addition, will reduce the guarantee fee to only 0.75%. A new SJPP allocation of RM500 million in guarantee facility will also be launched, earmarked for women entrepreneurs. 50. To further support our up and coming entrepreneurs, SME Bank will introduce two new funds where the Government will provide an annual interest subsidy of 2% to reduce borrowing costs as follows: First: a RM200 million fund specifically for women entrepreneurs, offering loans of up to RM1 million per SME; and Second: a RM300 million fund to support Bumiputera SMEs with the potential to become regional champions, with priority given to producers of halal products and manufacturers with high local content. 20 of 88 51. The Government will allocate RM10 million to the Ministry of Entrepreneur Development to focus on advocacy and awareness for halal certification, halal product development and providing platforms for local players to tap on the USD3 trillion global halal market. 52. For SMEs to remain competitive, they must continually expand their exports. The Pakatan Harapan Government will increase the ceiling per company for the Market Development Grant (MDG) initiative by Malaysia External Trade Development Corporation (MATRADE) from the current RM200,000 to RM300,000 yearly. At the same time, the ceiling for the participation in each export fair will also be revised upwards from RM15,000 to RM25,000. The Government will also allocate RM50 million to encourage SMEs to engage in more export promotion activities. 53. In the era of fintech, Bank Negara Malaysia (BNM) is finalising the licensing framework for digital banks to be issued by year end for public consultation. The final framework will be issued by the first half of 2020 to invite applications. 54. The Government will support and encourage new digital financial innovations such as Equity CrowdFunding (ECF) and Peer-to-Peer (P2P) platforms. Collectively, more than RM430 million was raised as at June 2019, benefitting more than 21 of 88 1,200 SMEs. Building on this early success, the government will further allocate an additional RM50 million to My Co-Investment Fund (MyCIF) under the Securities Commission Malaysia to leverage such platforms to help finance the underserved SMEs. 55. To further encourage alternative sources of funding for start- ups companies and to attract more foreign investment to Malaysia, tax incentives given to venture capital and angel investors will be extended until the year 2023. 56. To catalyse and promote financing to construction consortiums bidding for projects and concessions overseas, the Government will provide a RM1 billion 1:5 matching guarantee for dedicated private equity funds to invest in Malaysian consortiums. 57. To support Bumiputera entrepreneurial development, grants amounting to RM445 million will be provided in terms of access to financing, provision of business premises and entrepreneur training. This includes: First: RM150 million for overall entrepreneurship development and upskilling by Perbadanan Usahawan Nasional Berhad (PUNB); Second: RM75 million by SME Corporation (SMECorp) for capacity building and export focus for Bumiputera SMEs, 22 of 88 which includes enhancing marketing, packaging, and financial literacy; Third: RM170 million in total for access of financing via TEKUN, SME Bank and Pelaburan Hartanah Berhad; and Fourth: RM50 million for entrepreneurship under Unit Peneraju Agenda Bumiputera, Ministry of Economic Affairs. 58. The Government will continue to support strategic projects through financing programmes under Bank Pembangunan Malaysia Berhad, offering a 2% interest subsidy per annum via: First: the Sustainable Development Financing Fund size increased from RM1 billion to RM2 billion; Second: the RM1 billion Maritime & Logistics Fund; and Third: the RM2 billion Industry Digitalisation Transformation Fund which will now also support the implementation of connectivity projects. 59. Unlike the previous administration, which handed out small business loans to their politically-linked co-operatives the Pakatan Harapan administration has separated politics and public funding, by providing RM100 million for Small Business Loans (Program 23 of 88 Pembiayaan Usahawan Perusahaan Kecil Komuniti Cina) for the Chinese community via Bank Simpanan Nasional with more than 380 branches throughout the country, at an interest rate of 4%. 60. For Indian entrepreneurs, the Government will provide RM20 million under TEKUN Nasional’s Skim Pembangunan Usahawan Masyarakat India (SPUMI) which is expected to benefit 1,300 entrepreneurs at an interest rate of 4%. Restructuring Development Financial Institutions (DFIs) 61. Development Financial Institutions (DFIs) play an important role as public institutions that support the nation’s development goals and serve the needs and requirements of the new economy. To strengthen the development finance ecosystem, Bank Negara Malaysia is proposing a 2-phase restructuring plan for our DFIs to form a new financial institution through the merger of Bank Pembangunan Malaysia, Danajamin Nasional, SME Bank, and the Export-Import Bank of Malaysia. Growing Islamic Finance 62. This year, the Ministry of Finance established the Special Committee on Islamic Finance (JKKI) chaired by the Yang Berhormat Deputy Minister of Finance, with the main objective of further promoting and developing the Islamic Finance ecosystem. 24 of 88 To position Malaysia as the centre of excellence for Islamic finance, this special committee will: First: formulate the Islamic Economic Blueprint, with all relevant agencies; Second: organise outreach initiatives and professional courses to promote deeper understanding of Islamic Finance nationwide. 63. The current tax deductions on the cost of issuance and additional deductions on sukuk issuance costs under the principle of Wakalah will be extended for 5 years until year of assessment 2025. 64. To further promote Islamic fund and Sustainable and Responsible Investment (SRI) fund management activity, the tax exemption for fund management companies managing Shariah compliant funds and SRI funds, and the tax deduction on the cost of issuing SRI Sukuk will be extended for another 3 years until year of assessment 2023. 25 of 88 Strategy 4: Strengthening Economic Diversity Tan Sri Speaker Sir, 65. In order to achieve economic diversity to expand growth, there will be specific measures on four areas: green economy, agriculture, Research and Development (R&D), and tourism. Green Growth and Energy for the Future 66. As part of the liberalisation of the electricity market, the Government has decided to migrate the current power purchase system towards a wholesale market in the future. Renewable energy suppliers will also be able to compete directly in the retail market. The more transparent and competitive electricity market will ensure a lower cost of electricity for Malaysian consumers. 67. The Government intends to attain Malaysia’s goal to generate 20% of our energy consumption from renewable sources by 2025. Last year, we had significantly expanded the qualifying list of green assets for Green Investment Tax Allowance (GITA) under the MyHijau directory. For Budget 2020, we are happy to announce that the GITA and Green Income Tax Exemption (GITE) incentives will be extended to 2023. A 70% income tax exemption of up to 10 years will be given to companies undertaking solar leasing activities. 26 of 88 68. Through Energy Performance Contracting (EPC), the upfront capital investment into energy saving equipment for Government buildings will be repaid through the savings in utility costs achieved. In 2020, the Government will accelerate EPC implementation for Government buildings, prioritising hospitals and education institutions. Commodity Development 69. The Government is concerned by the impact of low commodity prices on the livelihoods of Malaysians in this sector, particular the smallholders. At the same time we are disappointed and unhappy with the staged efforts aimed at curtailing market access for our palm oil exports by the European Union (EU) and the United States. For the palm oil sector, this Government intends to support this industry with the following measures: First: RM550 million palm oil replanting loan fund for smallholders collateral-free at an interest rate of 2% per annum, with a tenure of 12 years including a 4 year moratorium on repayment. The replanting will be undertaken using the latest seedlings and also in compliance with Malaysian Sustainable Palm Oil (MSPO) standards to ensure better productivity and marketability; 27 of 88 Second: An allocation of RM27 million to support Malaysian Palm Oil Board’s (MPOB) efforts to market palm oil internationally and counter anti-palm oil campaigns; Third: Enhance implementation of biodiesel, with the B20 biodiesel for the transport sector to be implemented by the end of 2020. This is expected to increase palm oil demand by 500,000 tonnes per annum. 70. The Government recognises the hardships caused by low rubber prices and low yield during the rainy seasons. Hence we will allocate RM200 million for Bantuan Musim Tengkujuh to eligible rubber smallholders under RISDA and Lembaga Industri Getah Sabah (LIGS). The Government will provide RM100 million for Rubber Production Incentive in 2020 to enhance the income of smallholders faced with low rubber prices. 71. The Government will allocate RM810 million for the welfare of FELDA community, as follows: First: RM250 million for an income enhancement program benefiting 11,600 settlers; Second: RM300 million to write-off the interest of the settlers’ debts; 28 of 88 Third: RM100 million for the FELDA water supply projects; Fourth: RM70 million for housing the new generation of FELDA settlers; and Fifth: RM90 million for the upgrading of FELDA roads and basic infrastructure. 72. Separately, we will provide RM738 million for RISDA and Federal Land Consolidation and Rehabilitation Authority (FELCRA) to implement various income-generating programmes to benefit the more than 300,000 RISDA and 100,000 FELCRA smallholders. Increasing the Incomes of Farmers 73. The Government has increased the allocation to the Ministry of Agriculture from RM4.4 billion in 2019 to RM4.9 billion in 2020, with a special focus towards enhancing incomes of farmers. 74. For 2020, the Government proposes to increase the fishermen allowance from RM200 to RM250 per month, with a total allocation of RM152 million for 2020. Tan Sri Speaker Sir, 29 of 88 75. To help our farmers, fishermen and smallholders diversify their income, the Government is allocating a sum of RM150 million to facilitate crop integration to help supplement their income such as through chili, pineapple, coconut, watermelon and bamboo. 76. Government also intends to make the glutinous rice a signature product of Langkawi Island and provide farmers with a higher income. To support this initiative, the Government will allocate RM30 million for the production of glutinous rice in Langkawi Island which is expected to benefit 1,200 farmers. 77. To raise the padi yield, the Government will increase the allocation for padi inputs from RM796 million in 2019 to RM855 million in 2020 under the Skim Baja Padi Kerajaan Persekutuan (SBPKP) and Skim Insentif Pengeluaran Padi (SIPP). In addition, the Government will continue the subsidy for Padi Bukit and Padi Huma. 78. Finally, we will allocate RM43 million for Agriculture Industry 4.0 to develop new crop varieties with higher productivity and quality. 30 of 88 Tan Sri Speaker Sir, Enhancing Research & Development (R&D) Framework 79. Malaysia’s global ranking has improved from 37th in the world in 2017 to 35th in the world in 2019 in the Global Innovation Index (GII) as published by the World Intellectual Property Organization (WIPO). However, we must not stop there. We will continue enhancing Malaysia’s R&D framework by: First: Intensifying R&D in the public sector with an allocation of RM524 million to Ministries and Public Agencies; Second: The Government will also allocate RM30 million for R&D matching grants for collaborations with industry and academia to develop higher value added downstream uses of palm oil, specifically tocotrienol in pharmaceuticals and bio-jet fuel; and Third: The Government will establish a Research Management Agency, with an allocation of RM10 million to centralise and coordinate management of public research resources; 31 of 88 Fourth: To promote commercialisation of R&D from the public sector, research universities beginning with the University of Malaya, will establish a one-stop Innovation Office to transform intellectual property into commercially exploitable opportunities; and Fifth: IP-generated income based on the Modified Nexus Approach (MNA) derived from patents and copyright software will be given tax exemption for a period of up to 10 years. 80. The Government will allocate RM11 million towards initiatives by the Ministry of Education in collaboration with Ministry of Environment, Science, Technology and Climate Change (MESTECC) to inculcate the Science, Technology and Innovation (STI) culture, encouraging more students into the fields of Science, Technology, Engineering and Mathematics (STEM). Tan Sri Speaker Sir, Visit Malaysia 2020 81. Visit Malaysia 2020 (VMY2020) is the Government’s primary effort to brand Malaysia as a top destination for tourism, with a target of achieving 30 million tourist arrivals. The Government will continue to allocate 50% of tourism tax to respective State 32 of 88 Governments to support their efforts in conjunction with VMY2020. To fulfil the aspirations of VMY2020, the Government has allocated RM1.1 billion to the Ministry of Tourism, Arts and Culture, including an allocation of RM90 million to drive awareness, promotions and programmes for the VMY2020 campaign. A substantial portion of the departure levy collected will be allocated for tourism infrastructure projects. 82. To amplify the economic benefits of VMY2020, the Government will roll out a host of tax incentives targeted at the arts and tourism sector, such as: First: Income tax exemption be given for organisers of approved arts and cultural activities, approved international sports recreational competitions, and conferences organisers; Second: New investments in international theme park projects will be given income tax exemption of 100% of statutory income or Investment Tax Allowance of 100% to be set off against 70% for 5 years; Third: Increasing tax deductions given to companies sponsoring arts, cultural and heritage activities in Malaysia from RM700,000 to RM1,000,000 per year; 33 of 88 Fourth: Accelerated Capital Allowance for expenditure incurred on the purchase of new locally assembled excursion bus to be fully claimed within 2 years; and Fifth: excise duty exemption of 50% for locally assembled vehicles be given to tour operators for the purchase of qualified new tourism vehicles. 83. The funicular train service to Penang Hill will achieve more than 2 million passengers per year, exceeding its capacity. The Government will contribute RM100 million towards the construction of a new cable car system to Penang Hill, with any additional costs to be financed by the State Government. 84. In addition, the Government will allocate RM5 million to Cultural Economy Development Agency (CENDANA) to support Malaysian visual art galleries and exhibition organisers in holding art exhibitions. In addition, RM10 million will be allocated to Think City to preserve culture and urban heritage. 85. Among the VMY2020 programmes, we are also having Malaysia Year of Healthcare Travel 2020 to solidify Malaysia’s leading position as a medical tourist destination in the region. Medical tourism is a rapidly expanding sector in Malaysia, growing 17% annually from 2015 until 2018. In 2018, it generated RM1.5 billion revenue receipts from 1.2 million healthcare 34 of 88 travellers. The Government will allocate RM25 million to the Malaysian Healthcare Tourism Council (MHTC) to strengthen the position of Malaysia as the preferred destination for health tourism in ASEAN for oncology, cardiology and fertility treatment. 86. To date, e-visa applications are available for 10 countries, including China and India. To facilitate the visa application process, licensed travel agents under the Ministry of Tourism, Arts and Culture (MoTAC) are allowed to submit group application for up to 100 people per transaction through the eNTRI and eVISA system. SECOND THRUST: INVESTING IN MALAYSIANS - LEVELLING UP HUMAN CAPITAL Tan Sri Speaker Sir, 87. Growth is necessary, but not sufficient to ensure Shared Prosperity. Economic growth must see that all Malaysians can participate meaningfully, and the fruits are shared equitably. There are three interrelated challenges that we face now in our labour market that need to be addressed. 88. Firstly, we are concerned with more than half a million unemployed Malaysians in 2018, of which roughly 140,000 are graduates. Additionally out of those unemployed, about 290,000 of them were youth up to 24 years old. 35 of 88 89. Secondly, the gender gap in our employment remains sizeable despite making significant progress in the past few years with the appointment of the first woman Deputy Prime Minister, Chief Justice and Chief Commissioner of SPRM. Female labour force participation rate continues to stagnate at around 55%, far from our target of 60%. A recent World Bank study concluded that if all barriers against Malaysian women are removed and women’s participation in our economy is increased, the country’s income per capita could grow by 26.2%. 90. Thirdly, Malaysia has become overly dependent on low-skilled labour, especially foreign workers. Cheap foreign labour disincentivises companies from investing in more productive capital and technology. As of end-2018, there were officially 2.2 million foreign workers, or 15% of the national labour force of 15 million people. We must reverse the addiction to low-skilled foreign labour, while recognising the many challenges industries face in securing adequate workforce for their industry. 36 of 88 Strategy 5: Enhancing job opportunities for Malaysians Tan Sri Speaker Sir, Malaysians@Work 91. Recognising the key challenges we face, the Government will be launching the Malaysians@Work initiative, aimed at simultaneously creating better employment opportunities for youth and women and reducing our over-dependence on low-skilled foreign workers. Very simply, Malaysians@Work is divided into four programmes directed at providing both wage incentives for workers and hiring incentives for employers as follows: First: Graduates@Work is designed specifically for the hiring of graduates who have been unemployed for more than 12 months. The graduates who secures work will receive a wage incentive of RM500 per month, for a duration of two 2 years, while employers receive a hiring incentive up to RM300 per month for each new hire, for 2 years; Second: Women@Work seeks to create 33,000 job opportunities per year for women who have stopped working for a year or more, and are between 30-50 years-old. The wage incentive for returning women workers is RM500 per month for two years, and a corresponding hiring 37 of 88 incentive for employers up to RM300 per month for 2 years. On top of the above, the current income tax exemption for women who return to work after a career break be extended for another 4 years until 2023; Third: Locals@Work is a hiring cost equalisation programme, aimed at incentivising the shift away from low-skilled foreign workers dependency. The wage incentive for Malaysians who are hired to replace foreign workers is at either RM350 or RM500 per month, depending on the sectors, for a duration of two 2 years, and corresponding hiring incentive for employers up to RM250 per month for 2 years; and Fourth: Apprentice@Work is a TVET incentive programme, aimed at encouraging more youth to enter TVET courses, in the form of additional RM100 per month on existing allowance for trainees on apprenticeships. The Government will also extend double tax deduction on expenses incurred by companies participating in Skim Latihan Dual Nasional (SLDN) for another two years. In addition, the double tax deduction currently given to companies undertaking Structured Internship Programme (SIP) approved by Talent Corporation Malaysia Berhad (TalentCorp) will be expanded to include 38 of 88 students from all academic fields rather than just engineering and technology. 92. The Government believes that Malaysians@Work programme will enable Malaysians who are unemployed to gain the necessary skill sets and capabilities with on-the-job training, to ensure continued employment with the relevant company, with the retention rate expected to exceed 90% after the incentive ends in two years. This will build human capital from the unemployed to become a self-reliant worker, able to contribute productively to the labour market. 93. Other than the Apprentice@Work programme, the Malaysians@Work initiatives will be managed by the EPF, and will be subsequently integrated with the Employment Insurance System (EIS) as well as other active labour market programmes. The Government anticipates that the Malaysians@Work initiative will cost RM6.5 billion over five years and create an additional 350,000 jobs for Malaysians and reduce foreign workers dependency by more than 130,000. 94. The Government will also be undertaking further measures to improve the working environment for women and parents in general. In year 2019, RM10 million was allocated for the development early childhood care facilities in government buildings. Through this, 66 new TASKAs were created in 39 of 88 government facilities. The Government will allocate an additional RM30 million in 2020 to provide more TASKAs, focusing especially on hospitals and schools. In addition, to ease the financial burden of parents who enrol their children in registered nurseries and kindergartens, individual tax relief for fees paid will be increased from RM1,000 to RM2,000. Strategy 6: Modernising the Labour Market 95. In addition to creating new employment opportunities, the Government will also continuously pursue efforts to modernise our labour market and enhance the employment conditions of workers. 96. In order to remain relevant with the current needs of the labour market, the Government will review the Employment Act 1955, which includes the following: FIRST: In order to increase maternity leave from 60 days to 90 days effective 2021, SECOND: Extend the eligibility to overtime from those earning less RM2,000 to those earning less than RM4,000 per month; THIRD: Improve protection and procedures for handling sexual harassment complaints, and; 40 of 88 FOURTH: Introduce new provisions on the prohibition of discrimination on religion, ethnicity, and gender. 97. The Pakatan Harapan Government is committed to improve livelihoods, particularly for lower income groups. The Government had increased the minimum wage to RM1,100 per month effective January 2019. In balancing the needs of employees and employers, the Government takes cognisance of the higher cost of living in major urban centres, the Government proposes to increase the minimum wage rate only in major cities to RM1,200 per month effective 2020. Tan Sri Speaker Sir, Enhancing social protection 98. With the ever changing work environment, the existing mechanism for social protection for workers will also need to be enhanced. In this regard: First: The Employees Provident Fund (EPF) will extend coverage to contract workers, for those under Contract for Services and Professionals. As a start, this will be a voluntary scheme for workers in the arts and entertainment industry via collaboration between EPF and the National Film Development Corporation Malaysia 41 of 88 (FINAS) before extending the coverage to other sectors; and Second: The current Self-Employment Social Security Scheme by the Social Security Organisation (SOCSO) will be expanded to enable contributions by other self- employed groups across 18 key sectors, such as fishermen, farmers, sole proprietors and partnerships. 99. SOCSO will build a new RM500 million rehabilitation centre in Perak to mirror the success of the SOCSO Rehabilitation Centre in Melaka. The new centre will be equipped with the latest technology including robotics, trauma treatment and with a centre of excellence for prevention of accidents, in collaboration with relevant agencies. i-Suri for Spouse 100. In 2019, the i-Suri programme received an allocation of RM45 million where the Government topped-up on contribution made by husbands to their housewives. In 2020, this programme will also be expanded whereby husbands may voluntary elect to contribute 2% from his 11% EPF employee contribution to his wife’s EPF Account. 42 of 88 101. The Government will also allocate RM20 million in 2020 to further extend the benefits under i-Suri via social safety coverage under SOCSO. Strategy 7: Investing in Education and Talent Tan Sri Speaker Sir, 102. The Government is committed to provide quality education at different stages of life for the rakyat. Hence, MoE continues to receive the largest allocation increasing from RM60.2 billion in 2019 to RM64.1 billion in 2020. This reflects the commitment by Government in investing in the future of our children. Upgrading our Schools 103. The Government will continue to invest into building new schools in line with demand as the population grows. However, what has often happened in the past is the neglect of the existing schools. Hence, to ensure that our existing schools deliver a more conducive learning environment for our children, the Government will increase the allocation for school maintenance and upgrading works from RM652 million as announced in Budget 2019 to RM735 million in 2020, as follows:  National Schools RM300 million  National-type Chinese Schools RM 50 million 43 of 88  National-type Tamil Schools RM 50 million  Boarding Schools RM 50 million  MARA Junior Science Colleges RM 50 million  Government Aided Religious Schools RM 50 million  Missionary Schools RM 50 million  Tahfiz Schools RM 50 million  People’s Religious Schools & Private Religious Schools RM 25 million  Registered Religious Pondok Schools RM 25 million  National-type Secondary Schools RM 20 million  Independent Chinese Secondary Schools RM 15 million 104. To ensure a safe and comfortable learning environment, the Government will focus on repairing dilapidated schools by providing RM783 million in 2020, particularly for schools in Sabah and Sarawak. The Government will construct in 2020 schools such as in Langkawi, Kulai, Hulu Langat, Putrajaya, Pasir Gudang, Tumpat, Marang and Johor Bahru. 105. For National Schools, the Government will further allocate RM23 million to ensure that these school facilities are disabled friendly. This is in line with the ‘zero reject’ policy introduced by the Ministry of Education, whereby no disabled child shall be denied an education due to his or her disability. 44 of 88 106. The Government will also increase the amount of utility assistance to include sewerage services, with an additional allocation of RM12 million benefitting 2,000 government-aided schools. Mainstreaming TVET 107. Another key focus area of the Government’s human capital development policy is the mainstreaming of the Technical & Vocational Education & Training (TVET) programme. The Government is increasing the allocation from RM5.7 billion in 2019 to RM5.9 billion in 2020 on TVET, including to: First: further strengthen the public and private sectors’ synergy on the TVET programme through increased funding of the State Skills Development Centres (SSDCs). The Government will provide RM50 million through Perbadanan Tabung Pembangunan Kemahiran (PTPK) to fund TVET courses conducted by SSDCs; Second: promote greater industry collaboration by Public Skills Training Institutions (ILKA) by: ● allowing ILKAs to utilise surplus revenues generated from TVET courses provided to the industry for expenditures such as upgrading equipment and hiring trainers from industry; and 45 of 88 ● providing matching grant fund of RM20 million to support customised TVET courses undertaken in collaboration with industries. Third: the Government will expand pathways for TVET graduates to pursue further studies and securing jobs. The Malaysia Technical University Network (MTUN) universities will offer degree courses for trainees graduating from Vocational Colleges (Kolej Vokasional) next year; and Fourth: the Human Resource Development Fund (HRDF) will collaborate with the industry to provide TVET training linked to employment opportunities. For this purpose, the Government will provide RM30 million to train more than 3,000 youths from low income households. Professional certifications 108. To encourage adult learning, the EPF will expand the scope of its education withdrawal for qualifications attained at certificate level, especially for accredited programmes that are in line with the nation’s IR4.0 aspirations. The EPF is looking to expand this withdrawal to include members’ parents and spouse. In addition, the Government will allocate RM20 million to be matched by another RM20 million from HRDF towards encouraging working 46 of 88 adults to undertake professional certification examinations in fields relating to IR4.0. MARA and Yayasan Peneraju 109. The Government will continue to emphasise learning opportunities under MARA and Yayasan Peneraju Pendidikan Bumiputera (Yayasan Peneraju). This is a targeted assistance by MARA for low-income and rural bumiputeras through education institutions such as Maktab Rendah Sains Mara, Kolej GIATMARA and Universiti Kuala Lumpur (UniKL). The total allocation for education institutions under MARA for 2020 amounts to RM1.3 billion, with a further RM2 billion allocated for student loans benefitting 50,000 students. In addition, RM192 million is also allocated for professional certification programmes under Yayasan Peneraju. THIRD THRUST: CREATING A UNITED, INCLUSIVE AND EQUITABLE SOCIETY Tan Sri Speaker Sir, 110. A country can only be united if our economic development is inclusive regardless of race, religion, geographical location and 47 of 88 background. The Federal Government strives to defend and empower all inclusively and not only one group exclusively. Strategy 8: Inclusive Development – RM10.9 billion Allocated for rural development 111. Despite recent improvements in income inequality in Malaysia, the Government will continue to enhance efforts to reduce income inequality in the country, particularly between rural and urban areas. The Government will increase the allocation for rural development projects from RM9.7 billion in 2019 to RM10.9 billion in 2020. Narrowing Inequality and the Rural-Urban Divide 112. The first set of measures under this inclusive development strategy is to narrow the urban-rural divide by expanding coverage of basic infrastructure for rural areas, particularly for Sabah and Sarawak. 113. For 2020, approximately RM587 million will be allocated for rural water projects, out of which RM470 million for Sabah and Sarawak to meet our target of 99% access to clean water. 48 of 88 114. The Government will also spend RM500 million on rural electrification benefiting more than 30,000 rural households, with a majority of the beneficiaries living in Sabah and Sarawak. 115. Another major developmental priority is on rural roads with a total allocation of RM1 billion throughout Malaysia, primarily targeted at Sabah and Sarawak. Rural road projects in Sabah amount to RM326 million and Sarawak amounts to RM224 million and will benefit 145,000 rural population. 116. The Government remains committed to complete the Pan- Borneo Highway project, which is an important catalyst to economic growth in Sabah and Sarawak. The savings from the on-going cost rationalisation to date is RM1.2 billion, reducing the project cost to RM29 billion. What is saved now will allow us to plan for even more projects to spur economic growth, including in Sabah and Sarawak, such as the 165 kilometres Trans-Borneo Highway connecting Sabah and Sarawak to Eastern Kalimantan. An important component of this project is the package worth RM600 million for the 40 km Jalan Kalabakan-Serudong and the construction of the Customs, Immigration, Quarantine and Security Complex (CIQS) and government housing quarters. 117. In 2018, Sabah and Sarawak were the highest recipients of Federal Government financial grants to states amounting to RM1.14 billion and RM1.30 billion respectively. For 2020, Sabah and 49 of 88 Sarawak will receive the largest portion of Development Expenditures amounting to RM5.2 billion and RM4.4 billion respectively. Overall, these allocations demonstrate that the Pakatan Harapan government prioritises the needs of Sabah and Sarawak. In the same spirit, the Federal Government intends to increase the financial grants disbursed to Sabah and Sarawak as provided for under the current Malaysia Agreement 1963. 118. Included in the federal grants is the Special Grant under Section 112D of the Federal Constitution, which has not been reviewed and remained unchanged since 1969. The rate set by the previous government was RM26.7 million for Sabah and RM16 million for Sarawak per annum. For the first time, the Government proposes to increase the rate, doubling it for 2020 to RM53.4 million for Sabah and RM32 million for Sarawak. The Government plans to double the rate again to RM106.8 million to Sabah and RM64 million for Sarawak within 5 years. 119. A total of RM4.85 billion is also provided under the MARRIS fund from the Federal to all state governments to maintain roads. The existing guidelines do not allow for MARRIS funds to be used for repair and upgrading works. To provide greater flexibility, state governments will be allowed to upgrade roads, slopes, bridges and drains utilising up to 15% or RM20 million from MARRIS funds allocated to each state, whichever is lower. 50 of 88 120. To ensure that rural communities, especially in Sabah and Sarawak are able to obtain necessities including LPG and petrol at reasonable prices, the Government is allocating RM170 million toward subsidising the cost of transportation and distribution for basic goods to rural areas. Tan Sri Speaker Sir, Subsidies Increased to RM24.2 billion 121. The allocation for total subsidies and social assistance will be increased from RM22.3 billion in 2019 to RM24.2 billion in 2020, including welfare assistance such as Bantuan Sara Hidup and subsidy payments such as agriculture related, fuel and interest subsidies. Bantuan Sara Hidup 122. In 2019, the Bantuan Sara Hidup (BSH) scheme has benefitted 3.9 million households. Next year, the Government will allocate RM5 billion for BSH and expand the scheme to cover 1.1 million single individuals aged above 40 years old who are earning less than RM2,000 per month. In addition, all disabled persons aged 18 years old and above, with an income less than RM2,000 per month will also be covered. They will be entitled to receive BSH 51 of 88 payment of RM300, and qualify automatically as a recipient of the free MySalam Takaful scheme. Social Enterprise and Community Development 123. The Government will continue to support welfare agencies and non-governmental organisations in their activities, including but not limited to: First: RM575 million socio-economic assistance to senior citizens benefiting 137,000 seniors whose household income is below the poverty level. We have also allocated RM4.6 million to the Senior Citizens Activity Centre (PAWE) to cover the expenditure of 129 centres across Malaysia benefiting 37,000 senior citizens; Second: An allocation of RM80 million towards upgrading, repair and maintenance of 67 various institutions under the Department of Social Welfare (JKM) including child care, disabled and elderly centres; Third: An allocation of RM25 million for the management, administration and expansion of the Food Bank program throughout Malaysia, an initiative to redistribute an estimated 3,000 metric tonne of excess food that is donated daily to the needy target groups, especially B40; 52 of 88 Fourth: An allocation of RM20 million for 5 new Independent Learning Centres, Down Syndrome training and a disabled TASKA. In addition, all training and coaching services provided by training service provider to the disabled persons will be exempted from services tax; Fifth: RM15 million allocation to the National Anti-Drugs Agency’s pilot RINTIS program on drug addict rehabilitation with Non-Governmental Organisations (NGOs) and local communities; and Sixth: An allocation of RM4.5 million to Anjung Singgah for the year 2020, which will benefit about 7,000 homeless Malaysians. 124. During the 16th Agong Coronation, our beloved Duli Yang Maha Mulia Seri Paduka Baginda Raja Permaisuri Agong, had worn the Kain Tenun Pahang DiRaja made by inmates from Penor and Bentong Prison with pride. In view of this, the Government will allocate RM20 million to expand skills training and programmes that meet the national TVET standard for inmates in areas such as in food & beverage, carpentry, laundromat and metal works. 125. To support the growth of social enterprises, which help to improve the socio-economy of local communities, the Government 53 of 88 will provide RM10 million to Malaysian Global Innovation & Creativity Centre (MaGIC) to support such enterprises. 126. The Government will also allocate an additional RM10 million to MyCIF specifically for social enterprises to fundraise via P2P Financing platforms, where MyCIF will co-invest with private investors on a one-to-one basis, by providing financing at affordable rates for Social Enterprises. 127. To further encourage the private sector to donate as part of their corporate social responsibility, effective 5 September 2019, the Government has increased the donation reporting threshold from RM5,000 to RM10,000 under Subsection 44(6) of the Income Tax Act 1967. This will subsequently be increased to RM20,000 beginning 2020. 128. To inculcate philanthropy, tax deduction on donation for charitable and sports activities and projects of national interest currently capped at 7% from the aggregate income for tax payer who are other than company will be increased to 10% in line with the threshold given to companies. The tax deduction is also expanded to: First: Cash wakaf contribution to state religious authorities or a body established by state religious authorities administering wakaf; 54 of 88 Second: Cash wakaf contribution to public universities allowed by the state religious authorities to receive wakaf; and Third: Cash endowment contribution to public universities 129. Currently, income tax exemptions is given for all income received by religious institution or organisation established for the purpose of religious worship or the advancement of religion and registered under the Registrar of Societies Malaysia. Beginning 2020, similar tax exemption will be extended to religious institution or organisation registered as a Company Limited By Guarantee with the Companies Commission of Malaysia. 130. Department of Orang Asli Development (JAKOA) will be allocated RM57 million to provide and improve the welfare and assistance of Orang Asli. In addition, another RM83 million is also allocated for overall economic development, education and infrastructure of the Orang Asli. 131. The Government remains sensitive to the difficulties and specific challenges faced by segments of the Indian community. Therefore, the Government will once again allocate a grant of RM100 million to Malaysian Indian Transformation Unit (MITRA) for Budget 2020 of which 80% will be programme-based not organisation specific to strengthen initiatives targeted at improving 55 of 88 the socio-economic situation, skills development, health, education and women empowerment of this community. 132. To support the development and repair of basic infrastructure in new villages, the Government will continue to provide RM85 million in 2020. Bumiputera Agenda 133. In last year’s 2019 Budget, a total of RM7.6 billion was allocated to assist the Bumiputera institutions and entrepreneurs. This total has been increased in 2020 to RM8.0 billion, including the following: First: RM6.6 billion provided for Bumiputera institutions focused on education such as Majlis Amanah Rakyat (MARA), Universiti Teknologi Mara (UiTM) and Yayasan Peneraju Pendidikan Bumiputera; Second: RM1 billion of financing for Bumiputera SMEs such as through SJPP and SME Bank; and Third: RM445 million provided for entrepreneurship programmes mainly under SMECorp, Pelaburan Hartanah, PUNB, TEKUN and TERAJU. 56 of 88 134. Year to date until August 2019, Bumiputera companies have successfully secured new projects via tender valued at more than RM3.6 billion worth of contracts awarded by the Government in 2019. In 2020, the Government will continue to ensure at least 30% of tenders of each Ministry are reserved for only Bumiputera contractors. Upholding Islam Tan Sri Speaker Sir, 135. The Government will continue to uphold the Federal Constitutional position of Islam as the religion of the Federation. The allocation for Islamic affairs under the Prime Minister’s Department will be increased to RM1.3 billion in the 2020 Budget, from RM1.2 billion this year. 136. We will increase the allowance to Al-Quran dan Fardu Ain class (KAFA) Teachers by RM100 a month to 33,200 existing KAFA teachers with an additional cost of RM46 million. 137. In appreciation for their role in the community, the Government proposes a one-off special bonus of RM500 for each Imam, Bilal (Muezzin), Tok Siak/Noja/Merbot (mosque caretakers) and Guru Takmir. 57 of 88 138. The Government will allocate for Rahmatan Lil-Alamin a sum of RM10 million to the Department of Islamic Development Malaysia (JAKIM) to develop a greater understanding of Maqasid Shariah via a series of advocacy programmes and deliberations. Strategy 9: Towards Better Health Services Tan Sri Speaker Sir, 139. The Government remains committed to ensure access to quality healthcare for all, as part of its aspiration of creating an inclusive Malaysian society. We will allocate resources to intensify preventive measures to manage the burden on public healthcare expenses. For Budget 2020, a total of RM30.6 billion as compared to RM28.7 billion under Belanjawan 2019 will be allocated to the Ministry of Health for healthcare services, including: First: RM1.6 billion for the construction of new hospitals as well as upgrading and expansion of existing ones. These include Tengku Ampuan Rahimah Hospital in Klang, Kampar Hospital and Labuan Hospital. The expansion includes expanding cardiology centres at existing hospitals such as Queen Elizabeth II hospital in Sabah; Second: RM319 million for the construction and upgrading of health and dental clinics, as well as quarters facility. 58 of 88 The new clinics will be built in Setiu, Sungai Petani and Cameron Highlands as well as Kudat and Tawau in Sabah; and Long San and Sungai Simunjan in Sarawak; Third: In line with the principle of 3R culture, Repair – Replace – and Restore, a total of RM227 million will be provided to upgrade medical equipment while RM95 million for renovation of medical infrastructure and facilities such as at Pontian Hospital; Fourth: an initial allocation of RM60 million will be provided to kick-start the pneumococcal vaccination for children, as promised in the Pakatan Harapan manifesto; Fifth: RM59 million will be allocated in collaboration with NGO medical ambulance services to acquire more ambulances, to ensure a more responsive emergency and trauma services; Sixth: RM31 million is allocated for upgrading and maintenance of ICT services which will include a pilot project for hospital electronic medical records; and Seventh: RM5 million to provide mobile clinics in rural areas, especially Orang Asli in line with the Sustainable 59 of 88 Development Goals of achieving universal health coverage. Expansion of MySalam & PEKA B40 140. MySalam was a new social protection scheme introduced by the Pakatan Harapan government this year which provided 4.3 million individuals with takaful coverage in the event of a critical illness and hospitalisation. For those diagnosed this year with a critical illness, they will receive RM8,000 cash payout, while those who are warded at Government hospitals can claim RM50 income replacement each day for up to 14 days. All household recipients of Bantuan Sara Hidup (BSH) aged between 18 and 55 years old are automatically covered. 141. Starting 1 January 2020, the coverage will be extended to: First: Cover 45 illnesses from the existing 36, including polio and terminal illness; Second: Those aged up to 65 years old, compared to the current 55 years old, benefiting an additional 1.5 million individuals; and Third: Those with gross annual income up to RM100,000. They will receive critical illness pay out of RM4,000 and RM50 60 of 88 daily hospitalisation income replacement for up to 14 days when diagnosed and warded at Government hospitals. This will benefit an additional up to 5 million Malaysians. 142. The Government has also launched the Skim Peduli Kesihatan (PeKA) B40 to provide screenings and early intervention for non- communicable diseases such as mental health and cancer for those aged between 50 and 60 years old. A total of 100,000 have benefited from this initiative and the Government will expand its coverage to those aged 40 and above. Fertility Incentive 143. Today, the fertility rate in Malaysia has fallen alarmingly from 4.9 children per woman in the 1970s to 1.9 children per woman, which is below replacement level. Therefore, to assist couples seeking fertility treatment, EPF will introduce a new category of withdrawals, allowing for fertility treatment such as in-vitro fertilisation (IVF) procedure. Additionally, the income tax relief of up to RM6,000 given on expenses incurred for medical treatment of serious illnesses will be expanded to include expenses incurred on fertility treatment. 61 of 88 Private Retirement Schemes (PRS) 144. The Private Retirement Schemes (PRS) offer a complementary channel for Malaysians to save especially for those not subjected to any mandatory retirement savings scheme. Government will allow for pre-retirement withdrawals for the Private Retirement Schemes for the purposes of healthcare and housing with the same terms and conditions as that allowed by EPF and not subject to any penalty for early withdrawal. Strategy 10: Enhancing the Transportation Ecosystem Tan Sri Speaker Sir, 145. This Government is committed to enhance the mobility of Malaysians by reducing transport costs and improving infrastructures Prioritising Public Transport 146. In January 2019, the government introduced My50 and My100 monthly travel passes providing unlimited travel on all rail and bus services under RapidKL. The scheme has since benefitted more than 120,000 public transport users. Subsequently, the Government launched Pas Mutiara for RM50 in Pulau Pinang, 62 of 88 providing unlimited travel in a month on Rapid buses and Rapid Ferry. 147. To demonstrate our commitment to improve public transport as well as to nurture cleaner and greener cities, the Government intends to invests RM450 million to acquire up to 500 electric buses of various sizes for public transport in selected cities nationwide. 148. The Government will further support last-mile connectivity in rural and urban areas by subsidising the bus operators with an allocation of RM146 million in 2020. 149. The Government will be upgrading the rail tracks from Gorge Line between Halogilat Station to Tenom Station in Sabah at a cost of RM50 million. This will enhance traveling convenience for locals while providing a memorable experience for tourists. Sultan Azlan Shah Airport, Ipoh 150. The Government plans to upgrade the Sultan Azlan Shah Airport in Ipoh including an extension of its runway. Towards this, the Government will invite proposals on public private partnership basis to realise this investment. 63 of 88 Easing Johor Causeway 151. Another pressing issue the Government seeks to address is improving the congestion problem at Johor Causeway, whereby over 300,000 Malaysians commute daily to Singapore. To better ease congestion at the Causeway and 2nd Link, the Government will invest RM85 million beginning 2020 towards enhancing vehicle and traffic flow through the Customs, Immigration and Quarantine Complex (CIQ). An additional 50 counters will be opened for motorcyclists and with streamlining of immigration and PLUS counters. As part of a longer term solution to address the congestion, the Government intends to proceed with the Rapid Transit System (RTS) between Johor Bahru and Singapore. Reducing Highway Toll Burden Tan Sri Speaker Sir, 152. In the Pakatan Harapan Manifesto, it has been stated that negotiations will be undertaken to obtain the best price in taking over every toll concession with the end goal of abolishing toll collection gradually. 153. The Cabinet will consider all proposals, including those from Khazanah Nasional Berhad (Khazanah), to acquire or dispose all 64 of 88 shares of PLUS Malaysia Berhad. There will be a minimum reduction of average toll charges by 18% discount across all PLUS highways. Such proposals must be fiscal positive without increasing the present debt burden or the debt services charges of the Government. At the same time, the 18% discount on Toll Charges for the North South Highway will save highway users up to RM1,130 million in 2020, and RM43 billion over the entire concession period until 2038. 154. In addition, the Cabinet has approved the proposed offer to acquire 4 Klang Valley highways – Shah Alam Expressway (KESAS), Damansara-Puchong Expressway (LDP), Sprint Expressway (SPRINT) and SMART Tunnel (SMART) to be funded via Government-guaranteed borrowings. With the introduction of congestion charges that will be lowered by up to 30% of the present toll rates during near peak and normal hours and free during off-peak hours, this will provide a savings to the highway users nearly RM180 million a year, or RM2 billion over the respective concession periods. There will be no extension of the existing concession and will end according to the existing concession contract. 155. The acquisition of these highways will not burden the Government because the financing, operations and maintenance cost will be entirely funded by the collection of toll and congestion charges without requiring any future funding by the Government. 65 of 88 Clearly, this Government rejects the previous Government’s policy of privatising profits and socialising losses. 156. During Belanjawan 2019, the Government abolished the toll for motorcycles for the First and Second Penang Bridge. Towards aligning the toll rates between the First and Second Penang Bridge, effective 1 January 2020, the toll rates for cars at the Second Penang Bridge will be reduced from RM8.50 to RM7.00. Targeted Fuel Subsidy 157. The fuel Targeted Subsidy Programme (PSP) was part of the Pakatan Harapan promise. Individuals who own not more than 2 cars and 2 motorcycles are eligible to receive PSP for one vehicle. 158. The qualifying criteria for the vehicle are:  A passenger car with 1,600cc engine capacity and below; or  Any car above 1,600cc must be more than 10 years old; or  Whereas, a qualified motorcycle must be 150cc and below; or  Any motorcycles above 150cc must be more than 7 years old. All luxury vehicles will not be qualified to receive the targeted subsidies. 66 of 88 159. Starting January 2020, PSP will be launched in Peninsular Malaysia with two eligible categories as follows: FIRST: For eligible recipients of the BSH, the petrol subsidy receivable will be RM30 per month for car owners and RM12 per month for motorcycle owners. This subsidy will be in the form of cash transfer, deposited into the recipient’s bank account every 4 months. The first payment will be made in April 2020 for the period January to April 2020; and SECOND: For all other motorists who are not BSH recipients, they will receive a special Kad95 which allows them to enjoy the fuel subsidy at a discount of 30 sen per litre limited to 100 litres per month for cars or 40 litres per month for motorcycles when purchasing RON95 at the petrol station. The Kad95 will be implemented progressively during the first quarter of 2020. 160. Upon commencement of the fuel subsidy scheme, RON95 and diesel retail prices will be gradually floated. This will reduce leakages and cross-border smuggling of subsidised fuel which is estimated to cost the Government millions of ringgit. The fuel subsidy will kick-in whenever the RON95 market price determined by the Automatic Pricing Mechanism (APM) is above RM2.08 per 67 of 88 litre but no fuel subsidy will be given when the market-determined APM price falls below RM2.08 per litre. 161. The Government will allocate RM2.2 billion for the proposed scheme which will benefit more than 8 million motorists. Motorists in Sabah and Sarawak will continue to enjoy a fuel price ceiling of RM2.08 per litre for RON95 and RM2.18 per litre for diesel. Should the Sabah or Sarawak State Government would like to participate in the PSP, the Federal Government is ready to accept the request. Strategy 11: Promoting Access to Housing Tan Sri Speaker Sir, Fund for Affordable Homes 162. Bank Negara Malaysia launched a Fund for Affordable Home earlier in January 2019 to help home buyers from the lower-income group to purchase their first homes, for property priced up to RM150,000 at a concessionary interest rate up to 3.5%. The qualifying criteria was expanded on 1 September 2019 to include property priced up to RM300,000 for households with maximum income of RM4,360, being the threshold income for B40. As of September 2019, 2,840 applications amounting to RM472.7 million have been received. The approval rate is 77.9%, with 982 applications amounting to RM156.2 million being approved. 68 of 88 163. In partnership with the private sector, the Government has launched the Home Ownership Campaign where developers providing at least a 10% discount for qualified properties will be matched with stamp duty exemptions. As many as 21,000 property units valued at RM13.44 billion under the Home Ownership Campaign have been successfully sold, exceeding the RM3 billion initial sales target. The Campaign deadline has been extended by 6 months from 30 June to 31 December 2019. 164. To address those who are unable to afford the initial 10% deposit and access to financing in purchasing their homes, the Government will collaborate with financial institution in introducing Rent To Own (RTO) financing scheme. Through this scheme, financing of up to RM10 billion will be provided by the financial institutions with the support from the Government via a 30% or RM3 billion guarantee. This RTO scheme is for purchase of first home up to RM500,000 property price. Under this scheme, the applicant will rent the property for up to 5 years and after the first year, the tenant will have the option to purchase the house based on the price fixed at the time the tenancy agreement is signed. The government will provide stamp duty exemptions on the instruments of transfer between the developer and financial institution, and between financial institutions and the buyer in this scheme. 69 of 88 165. To reduce supply overhang of condominiums and apartments amounting to RM8.3 billion in the second quarter of 2019, the Government will lower the threshold on high rise property prices in urban areas for foreign ownership from RM1 million to RM600,000 in 2020. 166. To assist the Youth in purchasing their first home, the Government will extend the Youth Housing Scheme administered by Bank Simpanan Nasional from 1 January 2020 until 31 December 2021. The scheme also offers a 10 percent loan guarantee through Cagamas to enable borrowers of full financing and RM200 monthly instalment assistance for the first two years limited to 10,000 home units. 167. In response to the public view regarding the Real Property Gain Tax (RPGT) imposed on disposal of properties after 5 years onwards, the Government will enhance RPGT treatment by revising the base year for asset acquisition at 1 January 2013 for asset acquired before 1 January 2013 as compared to the previous base year of 1 January 2000. Maintenance of Public Housing 168. The Government is concerned about the state of low and medium cost strata housing. For 2020, the Government will allocate RM100 million in 2020 for the repair and refurbishment of these 70 of 88 housing, to ensure lifts, electrical wiring, sanitary pipes and roofing are safe and in good working order. 169. The Government will allocate RM15 million to the Safe City Initiative (Bandar Selamat) to provide outdoor lighting, parking with security features for motorcycles, anti-climb fences, and safety advocacy programmes. Strategy 12: Unity through Sports Tan Sri Speaker Sir, 170. Sports can unite the Rakyat. the Government will allocate the following budget for our sports agenda: First: RM299 million to implement the Sports For All program, including rehabilitating and upgrading of overall sports facilities, Youth & Sports Complexes and Community Sports Complexes throughout the country; Second: RM179 million for our preparation in international sporting events such as the Tokyo Olympics 2020 and Hanoi Sea Games 2021 which includes the development of paralympic athletes ; and 71 of 88 Third: RM45 million for the National Football Development Programme, compared to the RM15 million in last year’s 2019 Budget. 171. The sportswomen in our country such as Datuk Nicol Ann David, Pandelela Rinong and Farah Ann Abdul Hadi have succeeded at the highest levels and made Malaysians proud. Therefore, the Government will allocate RM10 million next year to further promote women in sports and nurture the next generation of world class sportswomen. 172. The Government will continue to intensify youth development programs with an allocation of RM138 million for the Youth Power Club (YPC), Malaysia Future Leaders School (MFLS) and volunteerism initiatives. Strategy 13: Promoting Environmental Sustainability Tan Sri Speaker Sir, 173. The recent incidents at Sungai Kim Kim and Pasir Gudang, as well as the spread of hazardous transboundary haze are painful reminders of the importance of protecting our environment, and the cost of greed. A total of RM30 million is allocated to raise the capability and capacity of the Department of Environment and Department of Chemistry to tackle this problem. 72 of 88 174. To mitigate the occurrence of flash floods and the damage they may cause, the Government will allocate RM443.9 million towards flood mitigation projects and RM150 million towards the maintenance of existing flood retention ponds. 175. Additionally, to assist farmers in their time of need, the Government will establish a RM100 million Disaster Assistance Fund to provide loans at an interest rate of 4%. Preserve Our Forests 176. The Government will allocate RM48 million to preserve Malaysia’s pristine forests and natural biodiversity. Of this allocation, RM10 million will be utilised as a matching grant against private sector contributions towards conservation and biodiversity initiatives. These efforts include supporting the Central Forest Spine and Heart of Borneo initiatives, in addition to rehabilitate and restore degraded forests. 177. There are fewer than 200 Malayan tigers left in the wild, and it is estimated there are about 11,000 orangutans in Malaysia. To support the efforts of the protecting these endangered animals, the Government will allocate RM 15 million to the Malaysian Conservation Alliance for Tigers (MyCat) and Sepilok Orangutan Rehabilitation Centre and other NGOs. 73 of 88 178. To protect our flora and fauna better, RM20 million will be provided to employ more forest rangers among retired soldiers and local Orang Asli communities who know their lands the best. Sustainable Development Goals (SDG) 179. The Government will allocate RM10 million towards a joint Government-UN Sustainable Development Goals (SDG) fund to co- finance SDG initiatives in Malaysia. In addition, the Government will allocate RM5 million to support the convening of Parliamentary Select Committee meetings and also for greater engagement by Members of Parliament with civil society, including to address the Sustainable Development Goals at the local level. Defence and Public Security 180. To safeguard national safety, the allocation to the Ministry of Home Affairs will be strengthened from RM15.6 billion in 2019 to RM16.9 billion in 2020. 181. In the defence of our nation’s sovereignty, the Government will increase the allocation to the Ministry of Defence from RM13.9 billion in 2019 to RM15.6 billion in 2020. The key focus going forward will be to enhance defence readiness, such as by improving the Armed Forces mobility. Enhanced readiness includes 74 of 88 meeting the changing nature of threats, such as having Fast Interceptor crafts for safeguarding the waters of Sabah. FOURTH THRUST: REVITALISATION OF PUBLIC INSTITUTIONS AND FINANCES Tan Sri Speaker Sir, 182. The YAB Prime Minister’s Vision 2020 of Malaysia becoming a high-income nation was derailed due to the shameless turning of Malaysia into a global kleptocracy and involved a total of over RM150 billion. 183. The Government is committed to paying off all borrowings and obligations inherited from the previous regime. For the year 2019, the Government is paying RM2.4 billion to service the debt interest of in 2019 and RM2.7 billion in 2020 for 1Malaysia Development Berhad (1MDB) and SRC International. We would like to express our utmost appreciation to the people of Malaysia who have generously contributed RM203 million towards Tabung Harapan Malaysia, which is utilised for the above repayments. 184. As of July 2019, approximately RM1.45 billion has been returned by international authorities, including the proceeds from the sale of the mega-yacht Equanimity. The Malaysian government 75 of 88 will continue to leave no stone unturned in our attempt to recover the stolen funds and assets from around the world. This includes pursuing Goldman Sachs as well as their 17 directors for their complicity in the 1MDB scandal. 185. The Government was successful in reducing our overall debt and liabilities ratio to GDP from 79.3% in 2017 to 75.4% in 2018. However the figure is expected to rise to 77.1% as at end June 2019. To a large extent, this is due to the increase in the committed Government guarantee for the continuation of the MRT and Pan Borneo infrastructure projects, as well as the RM20 billion bailout of Tabung Haji, or 1.3% of the GDP. 186. In fact, our total debt and liabilities would have grown bigger if not for the fact that we have rationalised various megaprojects, such as the Light Rapid Transit 3 (LRT3), Mass Rapid Transit (MRT2) and East Coast Rail Link (ECRL). The Government saved at least RM46 billion in capital expenditure. 187. We are pleased with the trust which has been built by YAB Prime Minister with the Japanese Government via the Japan Bank for International Cooperation (JBIC) has once again offered to guarantee an additional tranche of Samurai bond with an even lower interest rate of less than 0.5%, compared to the previous rate of 0.63%. The Federal Government intends to issue the Samurai 76 of 88 Bonds early next year where the issuance size will be determined after further discussions with the JBIC. Strategy 14: Commitment to Fiscal Consolidation Tan Sri Speaker Sir, 188. Despite the burden of servicing the nearly RM1.1 trillion of debt and liabilities inherited from the previous administration, this Government remains committed to gradual fiscal consolidation. The Government recorded a fiscal deficit of 3.7% of GDP in 2018 and is on track to achieve the targeted deficit of 3.4% in 2019. 189. In the previous Budget, we had announced a fiscal deficit target of 3.0% for 2020. However, a heightened risk of a global economic slowdown and the unanticipated expenditure needed to rescue troubled institutions inherited from the previous administration requires pre-emptive fiscal measures. To sustain economic growth, the Government will be adopting a mildly expansionary budget, with a revised target of 3.2% fiscal deficit in 2020. We expect the fiscal deficit to reduce further on average at 2.8% GDP over the medium term. 190. The 2020 Budget will allocate a total expenditure of RM297 billion, excluding contingency reserve of RM2 billion, which is an increase of RM19.5 billion compared to RM277.5 billion in 77 of 88 2019, after excluding the one-off allocation for outstanding GST and income tax refunds. The 2020 Budget comprises Operating Expenditure of RM241 billion and Development Expenditure of RM56 billion. Enhancing Government Revenue 191. The Government expects to collect RM244.5 billion in revenue in 2020, an increase of RM11.2 billion from 2019, after excluding the one-off PETRONAS special dividend of RM30 billion. 192. Despite the healthy increase in tax revenue, we collect significantly lower taxes than some other countries. For 2017, Malaysia’s tax revenue relative to GDP is only 13.1%, while countries such as Vietnam, South Korea, Poland and Chile collect 19.0%, 15.4%, 16.8% and 17.4% respectively. 193. To ensure a more progressive personal income tax structure, it is proposed that a new band for taxable income in excess of RM2 million be introduced and taxed at 30%, which is a 2 percentage point increase from the current 28% rate. This increase will affect approximately 2,000 top income earners in the country. 194. The SME income tax rate for Chargeable Income up to the first RM500,000 was reduced by 1% to 17% in 2019. To further support the growth of the SME, the chargeable income subjected to 17% 78 of 88 rate will be increased to RM600,000, subject to the SME having paid-up capital of not more than RM2.5 million and annual sales of not more than RM50 million. 195. We are also pleased to announce that as at end-September 2019, the Government has managed to repay GST refunds amounting to RM15.9 billion have been returned to more than 78,000 companies and income tax refunds amounting to RM13.6 billion have been returned to 448,000 companies and 184,000 taxpayers. The Pakatan Harapan Government has fulfilled our promise to the rakyat to refund a significant portion of the RM37 billion of the taxes which were unjustly withheld from them for the past 5 years by the previous regime. 196. To improve efficiency of management of taxpayer appeals, the Government will merge the Special Commissioner of Income Tax and Customs Appeal Tribunal into the Tax Appeal Tribunal. Through this merger, taxpayers who are dissatisfied with the decision of the Director General of the IRB or the Director General of RMCD may submit a tax-related appeal under all applicable tax laws to the Tax Appeal Tribunal to be operation in 2021. 197. As announced in the previous Budget, the Digital Services Tax will be implemented with effect from 1 January 2020, to include services such as, but not limited to downloaded software, music, video or digital advertising. Foreign service providers can commence 79 of 88 registration with the Royal Malaysian Customs Department (RMCD) as of 1 October 2019. 198. Beginning January 2021, Malaysians above the age of 18 and corporate entities will be assigned a Tax Identification Number or TIN. In order to implement this initiative, engagement sessions with all stakeholders will commence next year. 199. In order to strengthen enforcement and to reduce leakages from smuggling through containerised cargo and wrongful declaration for customs duties the government will allocate RM235 million to purchase 20 additional cargo scanners to be placed at all our strategic ports of entry. 200. To curb illegal gambling, the Government will propose a higher minimum mandatory penalty of RM100,000 for illegal gamblers, along with a minimum mandatory jail sentence of 6 months. For illegal operators, a higher minimum mandatory penalty of RM1 million and a 12 month minimum mandatory jail sentence will be imposed. Commencing 2020, the total number of special draws for Numbers Forecast Operator (NFO) will be reduced from 11 to 8 times a year. 201. The Government will dispose assets which were approved previously via competitive bidding process in order to realise the full 80 of 88 potential of these assets. This is expected to generate revenue of more than RM3 billion in 2020. 202. The Government has decided to proceed with the Bandar Malaysia Project which involves 486 acres at Sungai Besi, Kuala Lumpur having negotiated better terms for the Government. The project will now include a People’s Park, with an additional 5,000 units of affordable homes and greater Bumiputera participation throughout the project. The proceeds from the project will be valued and announced in due course, and will be utilised to reduce the debts of 1MDB. Rationalising Government Expenditure 203. As an example of how the Government will continue to innovate to optimise expenditure, the Government will centralise and combine the tender and procurement of RM500 million worth of medicine across the Ministry of Health, Ministry of Defence and University Hospitals to generate savings from bulk purchase. 204. The previous administration had often been criticised for continuously building new infrastructure and buildings without providing sufficient funds to maintain existing assets resulting in their deplorable condition. While decades of neglect cannot be remedied overnight, this Government will now focus on 3R: Repair, Replace, and Restore. The operating expenditure allocation for 81 of 88 maintenance and repair of existing public assets will increase from RM6.3 billion in 2019 to RM10.5 billion in 2020. Local Content Procurement Policy Tan Sri Speaker Sir, 205. Buy Made in Malaysia product campaigns will be intensified. To support our local medical device industry, the Government will introduce an initiative to encourage local producers to upgrade equipment and tools used in public clinics and hospitals, based on a minimum allocation of 30%. 206. We are expanding opportunities for many more Bumiputera contractors to participate in government procurement. Hence, the Government has reopened the registration for contractor Bumiputera Gred 1 (G1) beginning 1 September 2019. As of end- September 2019, a total of 946 applications have been received. Existing and new registered contractors will get to bid for government jobs worth RM1.3 billion, dedicated solely for Bumiputera contractors. 82 of 88 Strategy 15: Strengthening Institutions, Governance & Integrity Tan Sri Speaker Sir, 207. The Government has launched National Anti-Corruption Plan (NACP) on 29 January 2019. To date, a total of 115 initiatives have been introduced of which 15% of the NACP initiatives have been completed, with another 78% of measures in progress. Notable achievements include disclosure of assets by all Ministers and Members of Parliament. 208. The Government will further increase the resources made available to the Malaysian Anti-Corruption Commission (MACC), by adding an additional 100 personnel in 2020 and allocate RM10 million to undertake Risk Assessment Tests at all Ministries, Departments and Agencies. 209. The Government will implement much needed reforms, which includes establishing laws and institutions such as: FIRST: The Independent Police Complaints and Misconduct Commission (IPCMC) to raise public confidence in our Royal Malaysian Police Force (PDRM) ; and 83 of 88 SECOND: Establish the Malaysian Ombudsman to replace the Bureau of Public Complaints to enhance governance and delivery systems of the Government. 210. This Government is duly concerned with custodial deaths and alleged mistreatment of suspects. Hence, the Government will allocate RM50 million through GIACC to enhance detention procedures and facilities, in particular the installation of 11,500 units of Closed-Circuit Televisions (CCTV) in police detention centres and immigration entry points. Uplifting the Public Service 211. The civil service represents the backbone to the Government. There are 1.6 million people dedicating their career in delivering public service to the rakyat. Hence, we intend to improve some of the terms of their remuneration as follows: First: The Cost of Living Allowance (COLA) will be increased by RM50 per month beginning 2020 for support group, with an additional allocation of RM350 million annually; and Second: Civil servants will be allowed early redemption of Accumulated Leaves (Gantian Cuti Rehat) for up to 84 of 88 75 days as replacement pay, for those who have at least 15 years of service; and Third: The Public Sector Home Financing Board (LPPSA) will offer free personal accident insurance (up to RM100,000 coverage) for two years to new Government housing loan borrowers. 212. In addition, to help relieve the burden of dependants to civil servants who have died in service, the Government will improve the current benefits as follows: First: Introduce an Ex-Gratia Death Benefit of up to RM150,000 payable to dependants of the deceased; and Second: The Annual Salary Movement (PGT) is brought forward for civil servants who have died in service before the Salary Movement Date (TPG). 213. The People's Volunteer Corps or RELA will enjoy higher allowance of RM2 per hour beginning from 1 January 2020, resulting in an additional allocation of RM26 million. 214. I would like to take this opportunity to personally thank all personnel of Jabatan Perkhidmatan Bomba dan Penyelamat Malaysia for answering emergency calls from all over the country 85 of 88 day and night. In recognition of their service who received the grace of Kebawah Duli Yang Maha Mulia Seri Paduka Yang Di Pertuan Agong, all personnel will receive a special allowance of RM200 a month, amounting to RM35 million. This will benefit 14,400 personnel of the Fire and Rescue Department of Malaysia. 215. The government values the sacrifice and heroism of our armed forces, particularly holders of the Pingat Jasa Malaysia. Hence, the Government will accord a one-off payment of RM500 to the 70,000 holders of the Pingat Jasa Malaysia, with an allocation of RM35 million. 216. In line with the Repair, Replace, and Restore (3R) philosophy, the Government will allocate RM330 million to Property and Land Management Division under the Prime Ministers Department to repair and maintain the public service quarters. In addition, RM150 million and RM250 million is allocated for the repair and refurbishment of Malaysian Armed Forces family housing units (RKAT) and PDRM quarters respectively. 217. The country records its appreciation to the Malaysian Armed Forces, Royal Malaysian Police, Fire Rescue Department, Royal Malaysian Customs Department, doctors, nurses, teachers and all civil servants for tirelessly striving to make Malaysia better. For your effort and dedication, the Government would like to announce a special payment of RM500 for civil servants Grade 56 and below. 86 of 88 For government retirees, a special payment of RM250 will be paid and this will be extended to non-pensionable veterans. All will be paid before end of this year. CONCLUSION Tan Sri Speaker and Members of this August House, 218. There is a need for constructive engagement and open dialogue. Multilateralism is still the best formula to resolve any disputes. Disruption of the present global economic order and global trading system will only result in growth to spiral downwards where there are no winners, only losers. 219. It is against this backdrop that this Government crafted the Budget tabled before you today. To boost our growth sustainably, we need an industrial policy. Selective state interventions are required to improve national competitiveness, raise productivity, prioritize investment in strategic sectors, re-energise export-led industrialisation and encouraging entrepreneurship. Make no mistake – this Budget is growth-centric, with precisely designed measures to optimise the impact on economic growth, job creation and structural change, without compromising our commitment to restore our fiscal health in the medium term. 87 of 88 220. As a result of the budgetary measures the Malaysian economy will remain resilient going forward - with GDP expected to grow by 4.7% this year and improving to 4.8% in 2020, while inflation is expected to remain well anchored at 2% in 2020. In the event of continued worse-than-expected external environment, the Government stands ready to step in with contingency measures to provide further support or stimulus to growth. 221. This Budget builds its foundation on institutional reforms that began last year. The hard work is paying off. Our country Malaysia is among the best performers in the World Bank’s 2019 Worldwide Governance Indicators (WGI). This is concrete proof of a kleptocracy before and a democracy now. 222. With the hosting of Asia-Pacific Economic Cooperation (APEC) 2020 by Malaysia, Malaysia is given a unique chance to reintroduce our beloved country to the world. This is our opportunity to prove that we are on the right track, a country that is proud because we are clean, green, safe and prosperous. Now we are filled with one purpose and one hope under the leadership of YAB Prime Minister who has inspired various initiatives in this Budget. 223. A vision of Shared Prosperity continues the tradition of Vision 2020, infused with ideas, idealism, innovation, institutional reforms and integrity to forge a new Malaysia. A New Malaysia that offers as the birth right of all Malaysians, adequate medical care; a 88 of 88 good education; useful and remunerative job; decent home; freedom from unfair competition and monopolies; human dignity filled with rights and respect; and a society devoted to religious tolerance and racial harmony, where our children grow up free from fear but full of promise and opportunity. 224. A Malaysia that belongs to everyone regardless of age, race, religion, background or geography. From Perlis to Sabah, let us unite to strive together so that the fruits of our efforts can be shared equitably with care and respect for each other. We are entrusted with this new hope as our duty; Let’s strengthen national unity and integration towards building a better life and brighter future for our children. 225. Tan Sri Speaker Sir, I beg to propose.

Public Notice

19 Sep 2019

Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2)

https://www.bnm.gov.my/-/amlcft-msb-no2

https://www.bnm.gov.my/documents/20124/761679/eKYC+Money_Changing_Sep2019.pdf, https://www.bnm.gov.my/documents/20124/761679/FAQs_eKYC+for+money+changing.pdf

Reading: Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2) Share: Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2) Release Date: 19 Sep 2019 Issuance Date: 19 September 2019 Effective Date: 19 September 2019 Summary: This policy document provides for approved money changers licensed under the Money Services Business Act 2011 (MSBA) which offer money changing services via online channel or mobile channel to establish business relationships with customers by way of electronic means without face-to-face verifications, and sets out the minimum requirements and standards that an approved licensed money changer must observe in implementing e-KYC for the customer on-boarding process. This is to ensure effective and robust Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) control measures and systems for the provision of online and mobile money changing services. Applicability: MSBA Section in Charge: Policy, Communication & Industry Transformation Issuing Department: Money Services Business Regulation Department   See also: Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2) Frequently Asked Questions and Answers (FAQs) © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 19 September 2019 BNM/RH/PD 031-14 Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) - Money Services Business (Sector 3) (Supplementary Document No. 2) Issued on: 19 September 2019 BNM/RH/PD 031-14 PART A: OVERVIEW 1. Introduction ...…..……….…………………….………….………….….……… 1 2. Legal Provisions ...……………………………………………………….......…… 2 3. Applicability ...…………………………………..…………………...……….....…. 2 4. Effective Date …...………………………………………………………….......…. 2 5. Policy Superseded ……………………………………………….……………….. 2 6. Relationship with Existing Policies ……………………………………………… 2 7. Interpretation…………….………………………….………….……….……..…… 3 PART B: POLICY REQUIREMENTS 8. Implementation of e-KYC ………………………………………………………… 5 9. Enforcement ……………………………………………………………………….. 7 1 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 PART A: OVERVIEW 1. Introduction 1.1. In tandem with the continuous effort to promote digitalisation in the money services business (MSB) industry towards increasing access to more convenient and competitive authorised MSB services, the potential to adopt digital solutions for conducting money changing business has become more apparent as evidenced by the increasing leverage on electronic channels by licensed money changers in providing their services. In light of this and following the introduction of electronic Know Your Customer (e-KYC) solutions for remittance business in 2017, the scope of e-KYC implementation is expanded for the conduct of money changing business, with the view of facilitating the delivery of more efficient and inclusive electronic money changing solutions through online channel and mobile channel, supported by the adoption of financial technology. This document provides for approved money changers licensed under the Money Services Business Act 2011 (MSBA) which offer money changing services via online channel or mobile channel to establish business relationships with customers by way of electronic means without face-to-face verifications, and sets out the minimum requirements and standards that an approved licensed money changer must observe in implementing e-KYC for the customer on-boarding process. This is to ensure effective and robust Anti- Money Laundering and Counter Financing of Terrorism (AML/CFT) control measures and systems for the provision of online and mobile money changing services. 2 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 2. Legal Provisions 2.1. This document is issued pursuant to: (a) sections 16, 18, 19, 66E and 83 of the Anti-Money Laundering, Anti- Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA); and (b) section 74 of the MSBA. 3. Applicability 3.1. This document is applicable to reporting institutions licensed under the MSBA which carry on money changing business through online channel or mobile channel using e-KYC. 4. Effective Date 4.1. This document comes into effect on 19 September 2019. 5. Policy superseded 5.1. This document supersedes paragraph 18, Part B of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) policy document issued on 15 September 2013 insofar as it applies to reporting institutions as defined under this document. 6. Relationship with Existing Policies 6.1. This document shall be read together with – (a) the AML/CFT – Money Services Business (Sector 3) which came into effect on 15 September 2013; and (b) other documents issued by the Bank relating to compliance with AML/CFT requirements. 3 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 7. Interpretation 7.1. The terms and expressions in this document shall have the same meanings assigned to them in the AMLA, the MSBA and the AML/CFT – Money Services Business (Sector 3), as the case may be, unless otherwise defined in this document. 7.2. For the purpose of this document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action. “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. “the Bank” means Bank Negara Malaysia. “electronic Know Your Customer (e-KYC)” means establishing business relationships and conducting customer due diligence by way of electronic means, including online channel and mobile channel. “mobile channel" means conducting money changing transactions through any electronic devices using a mobile application provided by the reporting institution. “online channel" means conducting money changing transactions through any electronic devices other than money changing transactions conducted via the mobile channel. “reporting institution” means a money changer licensed under the MSBA which implements e-KYC for establishing business relationships and conducting consumer due diligence. 4 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 “money changing account” means a customer account which contains customer information including personal details and money changing transaction records of the customer, that is maintained by a reporting institution. 5 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 PART B: POLICY REQUIREMENTS 8. Implementation of e-KYC S 8.1. A reporting institution shall obtain the prior written approval of the Bank to implement e-KYC for the provision of money changing business through online channel or mobile channel. An application to the Bank shall include relevant information to demonstrate the reporting institution’s ability to comply with the standards in this document. S 8.2. The Board of a reporting institution shall set and ensure the effective implementation of appropriate policies and procedures to address any risks associated with the implementation of e-KYC. This shall include the implementation of enhanced monitoring and reporting mechanisms to identify potential money laundering and terrorism financing (ML/TF) activities. S 8.3. A reporting institution shall ensure and be able to demonstrate on a continuing basis that appropriate measures for the identification and verification of a customer’s identity are at least as effective as that for face-to-face customer verifications. S 8.4. For the purpose of paragraph 8.3, a reporting institution shall take measures including, but not limited to the following, to identify and verify a customer’s identity: (a) establish independent contact with the customer; (b) verify the customer’s information against independent and credible sources to confirm the customer’s identity, and identify any known or suspected AML/CFT risks associated with the customer; (c) request, sight and maintain records of additional documents required to perform face-to-face customer verifications; and (d) clearly define parameters for higher risk customers that are not allowed to transact with the reporting institution through e-KYC. 6 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 G 8.5. In identifying and verifying a customer’s identity as required in paragraphs 8.4 (a), (b) and (c), a reporting institution may: (a) conduct video calls with the customer before setting up the customer’s money changing account or allowing the customer to perform transactions; (b) communicate with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verify the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists specified under paragraph 25 of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) policy document or social media platforms with a broad outreach; or (d) request to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. S 8.6. A reporting institution shall ensure the system and technology developed and used for the purpose of establishing business relationships using e-KYC (including for verification of identity document) have proven capabilities1 to support an effective AML/CFT compliance programme. S 8.7. A reporting institution shall additionally comply with the following requirements for money changing transactions performed using e-KYC: (a) only transact with an individual who has a bank account with any licensed bank under the Financial Services Act 2013, any licensed Islamic bank under Islamic Financial Services Act 2013, or any prescribed institution under the Development Financial Institutions Act 2002; and 1 For the purpose of this document, proven capabilities do not necessarily require a reporting institution to obtain independent certifications on the system and technology capabilities from any agency or preclude the adoption of emergent systems and technologies. Nevertheless, the demonstrated capabilities of the system and technology must be proven through appropriate and rigorous testing by reporting institutions. 7 of 7 Issued on: 19 September 2019 BNM/RH/PD 031-14 (b) put in place robust and appropriate information technology security control measures which include, but are not limited to tying up a customer’s money changing account to only one mobile device for the purpose of authenticating the money changing transactions. The Bank may at any time impose additional specific controls as it deems appropriate. 9. Enforcement S 9.1. The Bank may revoke an approval given under paragraph 8.1 where the Bank is satisfied that the requirements in this document have not been complied with, in addition to enforcement actions provided under the AMLA and MSBA. Implementation Guidance on eKYC by Approved Money Changers Frequently Asked Questions and Answers (FAQs) Introduction The FAQs are intended to provide clarifications to reporting institutions on the compliance with the policy document on “Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2)”. No. Questions Answers 1. What are the capabilities of which a system must demonstrate for the purpose of establishing business relationship using e-KYC? The system used for the purpose of establishing business relationship through e-KYC must at a minimum be able to effectively identify and verify the customers, which includes the capabilities to: (i) Authenticate and validate a customer’s ID. This can be supported by features such as hologram checks; optical character recognition; and other security checks such as the MRZ Code on passports and microprint on national IDs; and (ii) Verify a customer’s identity. For this purpose, the system is expected to enable the reporting institution (RI) concerned to effectively perform customer verification, such as by being able to: a) Support facial recognition through video, video call or photo taken through ‘selfie’; and subsequently perform facial matching against the photo on the customer’s ID; b) Detect the use of pre-saved photos or pre-recorded video by the customer; and c) Detect any manipulation or alteration made to the video or photo. 2. Besides using a bank account to make payments of money changing transactions performed using e-KYC, can such payments also be made through an e-wallet by a customer? Yes, customers on-boarded through e-KYC are also allowed to make payments for money changing transactions using an e-wallet besides bank account. However, the RI concerned is required to ensure that its customers fulfil the requirement of having a bank account in order to undertake such exchange transactions. 3. Must customer due diligence (CDD) be performed by a RI when on-boarding new customers using e-KYC for conducting money changing transactions below RM3,000? Yes, the RI needs to conduct CDD on new customers who are on-boarded through e-KYC to perform money changing transactions for any amount, including transactions below RM3,000. Any updates to the FAQs will be notified to the licensees from time to time. Should you have additional queries related to the policy document, please submit your queries via any of the following means: a) Mail : Director Money Services Business Regulation Department Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur b) Email : msbr@bnm.gov.my mailto:msbr@bnm.gov.my

Public Notice

23 Aug 2019

Four Directors of MGSB Berhad Pleaded Guilty to Illegal Deposit Taking and Money Laundering Charges

https://www.bnm.gov.my/-/four-directors-of-mgsb-berhad-pleaded-guilty-to-illegal-deposit-taking-and-money-laundering-charges

Reading: Four Directors of MGSB Berhad Pleaded Guilty to Illegal Deposit Taking and Money Laundering Charges Share: Four Directors of MGSB Berhad Pleaded Guilty to Illegal Deposit Taking and Money Laundering Charges Release Date: 23 Aug 2019 MGSB Berhad and its four directors were charged under section 137(1) of the Financial Services Act 2013 (FSA) and section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA), pleaded guilty to the charges for accepting money from depositors without a valid license under section 10 of the FSA and involvement in money laundering activities at the Kajang Session Court on 22 August 2019. The Session Court’s Judge meted the following sentences: A. Charges under section 137(1) FSA: MGSB Berhad was fined RM5 million, while the directors Hisyamuddin Che Ali and Ahmad Zalimi Mohd Ali were each sentenced to imprisonment of 2 years and fined RM1 million (in default 6 months imprisonment) while Halimatun Saadiah Che Omar was sentenced to imprisonment of 1 year and fined RM1 million (in default 6 months imprisonment). B. Charges under section 4(1) AMLA: MGSB Berhad was fined a total of RM 288 million, while the directors Ahmad Zalimi Mohd Ali, Halimatun Saadiah Che Omar and Nur Ain Aliana Mat Azmi were each sentenced to 2 years imprisonment for each of 3 charges and fined to a total of RM288 million (in default 1 year imprisonment). Hisyamuddin Che Ali was sentenced to 2 years imprisonment for each of 5 charges and fined to a total of RM298 million (in default 1 year imprisonment). The sentences under FSA and AMLA are to be served consecutively. Members of the public are reminded not to place any monies or deposits with unlicensed institutions or be involved in any form of get-rich-quick schemes to avoid losing their hard-earned money. A list of institutions licensed under the laws administered by Bank Negara Malaysia to accept deposits is available on its website at www.bnm.gov.my. Members of the public can also access information relating to illegal financial schemes and enforcement actions taken by Bank Negara Malaysia at the Financial Fraud Alert Site (http://fraudalert.bnm.gov.my).   For further enquiries, members of the public may contact Bank Negara Malaysia at the following: Laman Informasi Nasihat dan Khidmat (BNMLINK) (Walk-in Customer Service Centre) Ground Floor, D Block, Jalan Dato' Onn 50480 Kuala Lumpur Telephone: 1-300-88-5465 (BNMTELELINK) E-mail: bnmtelelink@bnm.gov.my © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

21 Aug 2019

RINGGIT Newsletter (Bil 4/2019 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-4/2019-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761679/Ringgit+Ed108+2019-04+v4.pdf

Reading: RINGGIT Newsletter (Bil 4/2019 issue) is now available for download Share: RINGGIT Newsletter (Bil 4/2019 issue) is now available for download Release Date: 21 Aug 2019 The highlight for this issuance is Pengurusan Kewangan Secara Bijak Other topics of interest include : Akibat Meminjam Dengan Pemberi Pinjaman Wang Tidak Berlesen Cara Melabur RM10,000 Dengan Bijak Bantuan Kerajaan Untuk Golongan B40 Penipuan Seminar Pelaburan RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 4/2019 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 4/2019 Penipuan Seminar Pelaburan Cara Melabur RM10,000 Dengan Bijak PERCUMA | PP 16897/05/2013 (032581) Akibat Meminjam Dengan Pemberi Pinjaman Wang Tidak Berlesen Pengurusan Kewangan Secara Bij ak Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Pengurusan Kewangan Secara Bij ak Kalau anda tidak merancang, maka anda merancang untuk gagal. Kemahiran menguruskan wang adalah ilmu yang semakin penting. Ramai orang berlumba- lumba ingin mempelajarinya. Ada individu yang pandai menjana pendapatan yang tinggi, tetapi tidak pandai pula menguruskan duit gaji dan kekayaan yang diperoleh. Ini adalah lumrah kehidupan di bandar yang masyarakatnya sibuk dengan kerjaya masing- masing, sehingga lupa untuk menguruskan kewangan sendiri dan keluarga. Sebagai panduan untuk menguruskan kewangan dengan bijak dan sistematik, berikut adalah beberapa langkah yang boleh diamalkan: 1. Mempunyai Matlamat Kewangan Anda mesti tahu a p a y a n g a n d a mahukan da lam hidup. Misalnya, apa yang anda mahu pada usia persaraan? Apakah simpanan untuk persaraan nanti adalah mencukupi jika mengambil kira faktor-faktor kenaikan kos sara hidup, inflasi yang berlaku saban tahun? Benar, barangkali persaraan itu hanya akan berlaku lagi 10, 20, 30 tahun akan datang, namun pengurusan kewangan yang baik membabitkan matlamat kewangan jangka pendek, sederhana, dan panjang. Mulakan dengan matlamat paling jauh. Apabila kita mempunyai satu pandangan jauh, kita telah menetapkan langkah yang betul untuk berjaya. 2. Mempunyai Sumber Pendapatan yang Mencukupi Sama ada anda makan gaji atau bekerja sendiri, anda p e r l u b e n a r - b e n a r berjaya (termasuklah m e m p e r o l e h g a j i tinggi) dalam bidang yang anda ceburi. Jika anda tidak mempunyai p e n d a p a t a n y a n g m e n c u k u p i , m a k a sukar untuk mempunyai simpanan yang sewajarnya kerana kos sara hidup yang semakin meningkat. Pada masa kini, mempunyai satu sumber pendapatan sahaja adalah tidak mencukupi. Sekurang-kurangnya setiap individu mesti mempunyai pendapatan kedua, iaitu daripada sumber pelaburan. 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Maizatul Aqira Ishak Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. 3. Simpan Sebelum Belanja Sekiranya anda membelanjakan semua pendapatan terlebih dahulu, dan jika ada lebih, baharu ingin menyimpan, maka itulah langkah paling berkesan untuk mencipta masalah kewangan yang kronik pada masa akan datang. Jadi, gunakan formula ini: Gaji – Simpanan = Belanja 4. Berbelanja Dengan Bijak Anda perlu menyusun keutamaan perbelanjaan. Bermula dengan keperluan- keperluan asas hidup, iaitu untuk makan, minum, pakaian, tempat tinggal, pendidikan dan kesihatan. Disusuli dengan kehendak-kehendak, kemudian baharulah kemewahan. Dalam hal ini, penyata kewangan memainkan peranan penting sebagai langkah pertama untuk bermula. Angka-angka dalam penyata kewangan adalah data terbaik yang anda ada, sama ada selama ini anda sebenarnya banyak berbelanja untuk harta ataupun liabiliti. Berdasarkan penyata kewangan, ianya juga dapat menentukan sama ada anda perlu memperbaiki aliran tunai, menyelesaikan hutang atau dapat terus memulakan pelaburan secara serius. 5. Mengurus Risiko Kewangan Risiko kewangan adalah sesuatu yang tidak dapat dihapuskan sepenuhnya. Apa yang anda boleh lakukan adalah mengurus risiko tersebut dengan efektif. Bagi kebanyakan individu, cara paling mudah mengurus risiko kewangan adalah dengan mengambil produk-produk insurans/takaful. Untuk menjadi seorang yang betul-betul berjaya dalam pengurusan kewangan, ilmu adalah sangat penting kerana produk insurans/ takaful tidak mampu mengurus semua risiko kewangan anda. Tiada produk insurans/takaful yang dapat melindungi anda daripada inflasi, kejatuhan ekonomi atau kemerosotan perniagaan. bil. 4/2019 | 3 6. Membayar Zakat dan Cukai Zakat dan sedekah merupakan proses 3+1. Melalui zakat, kita dapat menyucikan harta, melindungi dan mengembangkan harta sekali gus. Harta-harta yang kita beri ini sama sekali tidak berkurangan, malah semakin bertambah dengan cara yang Allah sahaja yang mengetahuinya. Zakat hanya untuk harta halal, manakala harta daripada sumber haram perlulah dibersihkan 100%. Manakala cukai pula adalah kewajipan seorang rakyat ke p a d a s e s e b u a h negara. Duit cukai ya n g k i ta b aya r m e m b o l e h k a n k e r a j a a n m e n y e d i a k a n pelbagai infrastruktur asas seperti jalanraya, s e ko l a h , l o n g ka n g , hospital dan kemudahan- kemudahan yang lain. 7. Membuat Pelaburan yang Bijak Antara kegunaan simpanan yang telah dilakukan adalah untuk dijadikan modal pe laburan. Tu juan pelaburan adalah u n t u k ke g u n a a n menunaikan haji , tabung persaraan, tabung pendidikan anak-anak, tabung percutian dan segala matlamat kewangan yang lain. Kita perlu menyusun strategi pelaburan dengan bijak kerana ramai orang yang melabur tetapi berapa ramaikah yang telah melabur dengan bijak? 8. Membahagikan Harta Setelah anda berjaya mengumpul harta, jangan lupa menyediakan perancangan untuk pembahagian harta tersebut kerana kita semua pasti akan meninggal dunia suatu hari nanti. Pastikan harta-harta anda sudah ada penama dan jika perlu anda boleh menggunakan wasiat, hibah, wakaf, pengisytiharan h a r ta s e p e n ca r i a n d a n pemegang amanah untuk membahagikan harta tersebut, berdasarkan kemahuan anda sendiri. Sumber: www.majalahlabur.com “Jika anda tidak mempunyai pendapatan yang mencukupi, maka sukar untuk mempunyai simpanan yang sewajarnya kerana kos sara hidup yang semakin meningkat.” 4 | RINGGIT Akibat Meminjam Dengan Pemberi Pinjaman Wang Tidak Berlesen Anda mungkin pernah mendengar perkataan Pemberi Pinjaman Wang Tidak Berlesen atau sering dikenali sebagai ‘along’, akan terbayang simbahan cat merah di rumah/kereta, samseng dan iklan-iklan ditampal pada tiang lampu, pondok telefon dan sebagainya. Ini adalah modus operandi along yang terdahulu dan sekarang ia sudah bertukar modus operandi. Mereka mula menjalankan kegiatan haram melalui platform media sosial dengan taktik pinjaman ‘mudah lulus’. Walaupun ramai yang mengetahui akan pelbagai risiko apabila meminjam wang dengan along ini, namun masih ramai yang sanggup berurusan dengan mereka kerana terdesak untuk mendapatkan wang. Tambahan pula proses pinjaman oleh along ini mudah dan tidak memerlukan dokumen yang banyak seperti yang diperlukan oleh pihak bank. Mengikut laporan yang dikeluarkan oleh The Star pada Jun 2019, sebanyak 170,000 daripada 1.6 juta kakitangan kerajaan atau 11% daripada keseluruhan kakitangan kerajaan yang meminjam terbabit dengan penipuan pinjaman dengan jumlah kerugian sebanyak RM340 juta dengan alasan terbeban dengan kos sara hidup yang semakin meningkat. Jika kakitangan kerajaan terbeban, bagaimana dengan yang lain? Pinjaman yang diberi oleh pihak along adalah sangat mudah untuk mendapat kelulusan kerana ia akan diluluskan dalam masa sehari sahaja. Malahan, ia tidak perlu berurusan dengan Sistem Maklumat Rujukan Kredit Pusat (CCRIS) atau agensi pelaporan kredit yang lain seperti CTOS dan tiada sebarang dokumen yang diperlukan. Hal ini menunjukkan walaupun individu itu tidak mempunyai latar belakang kredit yang memuaskan, ia masih boleh mendapatkan pinjaman. Jika anda terfikir untuk meminjam daripada along, fikir seketika kerana terdapat banyak akibat yang bakal menimpa anda jika meminjam dengan along. 1. Adakah anda pernah mendengar ‘sepuluh tiga’? Maksud sepuluh tiga merujuk pada kadar faedah yang dikenakan oleh along iaitu kadar faedah yang dikenakan adalah sebanyak 3 sen daripada setiap 10 sen. Ia seolah- olah anda perlu membayar jumlah yang sedikit. Jangan terpedaya! 3 sen daripada setiap 10 sen bermaksud 30% kadar faedah yang sebenar. Kadar faedah yang dikenakan bukan mengikut tahun akan tetapi ia adalah untuk setiap bulan. Katakan anda ingin meminjam RM1,000, kadar faedah yang dikenakan pula adalah sebanyak RM300 setiap bulan. Jika kadar ‘sepuluh tiga’ tidak membuat anda cukup takut, terdapat juga kadar sepuluh empat dan sepuluh lima, bergantung pada amaun yang dipinjam dan status kredit peminjam. Tidak mustahillah kadar faedah yang tinggi ini akan mendatangkan huru-hara ke atas hidup peminjam. bil. 4/2019 | 5 2. Anda tidak dibenarkan untuk membuat bayaran penuh Jika anda fikir anda boleh menyelesaikan hutang along dengan mudah, anda silap! Baru-baru ini, terdapat berita berkenaan seorang lelaki yang masih diganggu oleh along walaupun telah membayar sebanyak RM120,000 untuk menjelaskan sebahagian hutangnya. Mengapa boleh jadi begini? Tidak kisahlah jika anda mempunyai sejumlah wang yang banyak untuk menyelesaikan hutang sekalipun, kebanyakan along tidak menerimanya kerana ia tidak membawa sebarang keuntungan kepada mereka. Seperti bank, along mendapatkan keuntungan daripada kadar faedah yang mereka kenakan. Realiti yang anda perlu tahu ialah along tidak peduli akan kesusahan hidup anda. Mereka hanya ingin mengambil kesempatan dalam kesempitan anda untuk mengaut keuntungan. 3. Barang peribadi anda akan dijadikan wang jaminan Bagi memastikan anda tidak lari dan sentiasa membayar hutang, along akan mengambil barang peribadi yang penting seperti pasport, kad bank, bahkan kad pengenalan untuk dijadikan wang jaminan atau cagaran. Mungkin ada yang bertanya, “Bolehkah mereka buat sedemikian?”. Mengikut undang-undang, mereka tidak boleh berbuat demikian. Namun memandangkan perniagaan mereka sendiri adalah tidak berlesen, mereka memang tidak peduli akan tindakan undang-undang dan akan memastikan anda sentiasa terikat dengan mereka. Ini boleh menimbulkan masalah lain dan ada kemungkinan bahawa along ini akan menyalahgunakan butiran peribadi anda tanpa pengetahuan anda. Sebagai contoh, along mungkin akan menggunakan maklumat anda untuk memohon pinjaman lain atau memanfaatkannya untuk kegunaan sindiket lain seperti kecurian identiti dan menjadikan akaun bank anda sebagai keldai akaun. 4. Terma dan syarat sering berubah Cara along melakukan kerjanya lain daripada cara operasi bank dan institusi kewangan yang lain. Pelbagai dokumen yang anda perlu sediakan jika berurusan dengan bank dan institusi kewangan. Tetapi jika berurusan dengan along, anda hanya perlu menelefon mereka dan menandatangani perjanjian tanpa terma dan syarat yang jelas dan terus boleh memperoleh wang! Along boleh menukar terma dan syarat perjanjian sesuka hati. Contohnya, mungkin hari ini mereka menawarkan 10% kadar faedah tetapi selepas dua bulan, mereka boleh mengenakan kadar faedah yang lebih tinggi dan memaksa peminjam untuk percaya bahawa ia termasuk dalam yuran pemprosesan. Bukan itu sahaja, peminjam yang lewat membuat bayaran akan dikenakan caj sebanyak RM500 bagi setiap 30 minit lewat bayaran. 5. Tidak mampu untuk membayar? Pinjam dengan along lain untuk menyelesaikan hutang Terdapat banyak tipu muslihat yang digunakan oleh along yang anda mungkin tidak sedar. Jika anda mempunyai alasan tidak mampu membayar hutang, mereka bukan sahaja akan mengacau dan mengugut secara fizikal dan mental, malah mereka akan memaksa anda untuk membuat pinjaman dengan along yang lain untuk anda membayar balik hutang mereka. Kaedah yang digunakan oleh pihak along tidak sama seperti kaedah penyatuan hutang dengan bank, sebaliknya anda perlu membayar lebih banyak kadar faedah. Pinjamlah daripada institusi kewangan yang berlesen Jangan menjadi mangsa dalam skim pinjaman mudah ini kerana ia akan memudaratkan anda. Anda dinasihatkan agar tidak membuat pinjaman daripada along dalam apa jua keadaan sekalipun. Sumber: www.loanstreet.com.my C O N T O H 6 | RINGGIT Anda tidak perlu menjadi seorang jutawan untuk mengaut keuntungan daripada pelaburan yang bijak. Dengan informasi dan pengetahuan yang betul, anda boleh memanfaatkan peluang pelaburan untuk mengubah kedudukan kewangan dan gaya hidup anda. Berikut adalah langkah yang membolehkan anda melabur RM10,000 secara bijak. 1. Fahami Risiko Pelaburan Bukan semua pelaburan sama. Terdapat pelbagai pilihan dan risiko yang tersedia untuk anda, daripada risiko rendah seperti sekuriti kerajaan dan simpanan tetap yang bersifat konservatif sehinggalah risiko yang lebih tinggi seperti dana ekuiti dan saham syarikat senaraian awam bermodal kecil. Secara kebiasaannya, pelaburan yang berisiko rendah memberikan pulangan yang rendah tetapi jaminan sekuritinya lebih tinggi. Manakala dengan pilihan yang lebih berisiko, anda berkemungkinan mendapat pulangan yang jauh lebih tinggi tetapi wujud kemungkinan yang anda mungkin tidak akan mendapat pulangan sama sekali. Oleh itu, ia terpulang kepada individu untuk memahami risiko yang sanggup diambil untuk mendapatkan pulangan ke atas pelaburan yang dilakukan. Anda dicadangkan supaya mewujudkan suatu jaring keselamatan, iaitu bersamaan jumlah enam bulan gaji sebelum memulakan pelaburan. Simpanan ini memberi ruang untuk mengejar pelaburan yang lebih berisiko tinggi agar ia dapat memberikan pulangan yang lumayan dalam jangka masa panjang. 2. Simpanan Tetap Menawarkan Pilihan Berisiko Rendah Kadar faedah bagi akaun simpanan bank masih kekal hampir 0% selama beberapa tahun kebelakangan ini. Namun begitu, jika anda meletakkan wang anda dalam simpanan tetap, anda akan lihat bahawa akaun tersebut menjana kadar faedah antara 3% dan 4%. Cara Melabur RM10,000 Dengan Bijak bil. 4/2019 | 7 Anda boleh mendapatkan pulangan ke atas simpanan tetap dengan pilihan yang mudah. Menurut Perbadanan Insurans Deposit Malaysia (PIDM), simpanan tetap di Malaysia dilindungi sehingga RM250,000 menjadikannya satu pilihan pelaburan berisiko rendah dengan pulangan yang stabil. Walau bagaimanapun harus diingat bahawa simpanan tetap masih beroperasi di bawah kadar inflasi, jadi jika anda berhasrat untuk meningkatkan aset anda berlipat kali ganda, ia mungkin bukan pilihan yang terbaik. 3. Jual Beli Saham Menawarkan Pulangan Yang Lebih Baik, Namun Berisiko Tinggi Membeli saham dan menjadi pemegang saham syarikat tersenarai merupakan antara perkara menjanjikan pulangan yang tinggi ke atas pelaburan yang dibuat. Caranya ialah dengan mencari syarikat yang berkualiti tetapi terkurang nilai (undervalued). Ia mungkin syarikat pemula (start-up) yang baru beroperasi atau perniagaan yang sedang bergelut, namun mempunyai ruang untuk kembali menjadi lebih besar dan kukuh. Walau bagaimanapun, semua pelaburan ini tidak bersifat ‘selamat’, jadi anda perlu melakukan kajian yang lebih sempurna untuk memilih pelaburan terbaik yang mampu memberikan pulangan tinggi. 4. Komoditi Sebagai Pilihan Pelaburan Komoditi seperti emas dan perak adalah satu lagi pilihan pelaburan yang anda boleh pertimbangkan dengan modal RM10,000. Sejak dahulu lagi, harga emas memberikan para pelabur keuntungan yang bagus. Namun, harga komoditi ini tidak stabil semenjak beberapa tahun kebelakangan ini menjadikannya suatu pelaburan yang semakin berisiko. 5. Pelbagaikan Jenis Pelaburan Jika wujud hanya satu peraturan yang perlu dipatuhi dalam dunia pelaburan, tentu ia mengatakan bahawa anda perlu mempelbagaikan sumber pelaburan agar anda tidak bergantung sepenuhnya hanya pada satu sumber sahaja. Prinsip ini juga boleh diguna pakai untuk modal RM10,000 anda. Cuba imbangkan antara pelaburan berisiko rendah dan tinggi supaya anda dapat manfaat daripada kedua- dua jenis pelaburan tersebut. Dengan menggabungkan pelaburan berisiko rendah dan tinggi dalam portfolio tersebut, anda tidak akan kehilangan wang sekali gus, jika salah satu pelaburan itu tidak mendatangkan keuntungan. Sumber: www.aia.com.my 8 | RINGGIT Bantuan Kerajaan Untuk Golongan B40 4) Dana Rumah Mampu Milik 2019 BNM Kerajaan juga telah memperkenalkan bantuan pembiayaan pemilikan rumah pertama untuk golongan yang berpendapatan rendah yang dikenali sebagai Dana Rumah Mampu Milik Bank Negara Malaysia (BNM). Dana Rumah Mampu Milik BNM merupakan dana berjumlah RM1 bilion, iaitu warganegara Malaysia yang mempunyai isi pendapatan rumah tidak lebih dari RM2,300 dan tiada rekod pembayaran terjejas untuk tempoh 12 bulan kebelakang, layak memohon untuk membeli kediaman yang berharga RM150,000 ke bawah. Kadar faedah maksimum ditetapkan pada 3.5 peratus setahun untuk tempoh pembiayaan 40 tahun atau sehingga berumur 70 tahun, yang mana terdahulu. 5) Bantuan Awal Persekolahan (BAP) Bantuan ini tidak perlu dimohon tetapi akan diberikan secara automatik dengan melihat pendapatan kasar bulanan seisi rumah ibu bapa atau penjaga pelajar iaitu tidak melebihi RM3,000. Bantuan yang akan diberikan adalah seperti berikut: • RM 100 kepada setiap seorang pelajar tahun satu sehingga tingkatan lima 6) i-Suri KWSP Bagi golongan suri rumah, ibu tunggal dan balu, kerajaan juga menyediakan sebuah insentif khas kerajaan bagi yang telah berjaya mendaftar dalam Pengkalan Data Kemiskinan Nasional (eKasih). Bagi program ini penerima akan mendapat manfaat seperti ahli KWSP yang lain. Seperti dividen tahunan ke atas simpanan persaraan, bantuan hilang upaya, bantuan kematian serta pengeluaran ketika berumur 50, 55 dan 60 tahun. 7) Skim Peduli Kesihatan PeKa B40 Skim Peduli Kesihatan untuk Kumpulan B40 (PeKa B40) adalah satu inisiatif atau senarai bantuan Kerajaan melalui Kementerian Kesihatan Malaysia (KKM) yang bertujuan untuk menampung keperluan kesihatan golongan berpendapatan rendah memberi fokus terhadap penyakit tidak berjangkit (NCD). Untuk makluman, PeKa B40 ditawarkan kepada rakyat Malaysia yang berada dalam lingkungan pendapatan isi rumah 40% terendah, yang dikenali sebagai kumpulan B40. Penerima bantuan Sara Hidup (BSH) dan pasangan mereka, yang berumur 50 tahun dan ke atas, secara automatik layak menyertai PeKa B40. Sumber: www.Permohonan.my 1) Bantuan Sara Hidup Rakyat (BSH) 2019 Untuk makluman anda, terdapat 4 kategori penerima BSH. Keempat-empat kategori itu adalah seperti berikut: • I s i r u m a h b e r p e n - d a p a t a n b u l a n a n RM2,000 dan ke bawah akan menerima bantuan berjumlah RM1,000. • Isi rumah berpendapatan bulanan dari RM2,001 hingga RM3,000 ke bawah akan menerima bantuan berjumlah RM750. • Isi rumah berpendapatan bulanan dari RM3,001 hingga RM4,000 akan menerima bantuan berjumlah RM500. • Kadar tambahan sebanyak RM120 untuk setiap anak berumur 18 tahun ke bawah tetapi terhad kepada 4 orang, kecuali anak kurang upaya yang tidak dihadkan umur. 2) Dana Perlindungan Kesihatan Nasional (Skim MySalam) Bermula 1 Januari 2019, kerajaan telah mengimplementasikan Skim Perlindungan Nasional B40 yang dikenali sebagai Skim MySalam untuk mewujudkan jaringan keselamatan sosial secara percuma kepada yang berkelayakan. Penerima yang terdiri daripada golongan B40 berumur antara 18 hingga 55 tahun dan menghidap salah satu daripada 36 jenis penyakit kritikal. 3) Rebat Bil Elektrik RM40 Bil Elektrik RM40 adalah program khusus kepada kumpulan sasar misk in tegar dan miskin selaras dengan hasrat Kerajaan untuk mengurangkan beban kewangan rakyat. Penerima yang layak adalah Ketua Isi Rumah yang tersenarai dan disahkan di bawah kategori miskin tegar dan miskin dalam Sistem eKasih Unit Penyelarasan Pelaksanaan, Jabatan Perdana Menteri ICU JPM. Penerima bantuan hanya perlu membayar baki bil elektrik yang melebihi RM40 dan sekiranya bil tersebut di bawah RM40 maka ianya adalah percuma. bil. 4/2019 | 9 Sejak kebelakangan ini, Pusat Khidmat Aduan Pengguna Nasional (NCCC) sering menerima aduan berkaitan aktiviti pemasaran pakej, dalam bentuk seminar produk ‘pelaburan’. Aktiviti pemasaran ini bertujuan untuk mengumpan bakal pelanggan dengan menawarkan pelbagai peluang pelaburan yang lumayan. Modus operandi aktiviti ini ialah mengadakan seminar pelaburan di hotel-hotel mewah. Anda akan dihubungi oleh wakil syarikat ini supaya datang ke hotel tersebut pada tarikh dan masa yang ditetapkan. Peserta disyaratkan supaya hadir bersama-sama suami atau isteri masing- masing. Anda akan dijanjikan ganjaran dalam bentuk baucar penginapan hotel sekiranya menghadiri seminar berkenaan. Semasa seminar, anda akan dimaklumkan mengenai strategi pelaburan yang akan membolehkan anda mendapat ganjaran lumayan secara cepat dan mudah. Penceramah seminar menggunakan kenyataan yang mengelirukan untuk menarik bakal pelabur untuk membeli produk mereka yang berharga mahal atau menyertai pelaburan dalam syarikat tertentu. Anda akan diminta untuk membuat pembelian atau pelaburan pada masa itu juga dengan membayar menggunakan kad kredit. Apabila anda pulang ke rumah, baru anda menyedari bahawa anda sebenarnya terjebak dengan pelaburan yang meragukan. Anda perlu mengenali dan mengelakkan daripada bentuk tawaran yang berunsur penipuan seperti seminar pelaburan yang dinyatakan di atas. Terdapat tiga jenis penipuan pelaburan yang utama: 1. Pelaburan rekaan yang tidak wujud. 2. Pelaburan itu mungkin wujud tetapi penipu mengambil wang itu untuk kegunaan diri sendiri dan bukannya digunakan untuk pelaburan. 3. Penipu mendakwa mewakili syarikat pelaburan tertentu yang sah dan dipercayai. Tanda-tanda Penipuan Seminar Pelaburan: • Wakil syarikat menghubungi anda secara mengejut melalui panggilan telefon, khidmat pesanan segera, mesej di media sosial, e-mel dan sebagainya. Penipu juga menggunakan platform media sosial seperti Facebook, Instagram dan Twitter untuk menarik orang ramai menghadiri pelaburan tentang matawang kripto, pertukaran mata wang asing dan pilihan binari. Penipu sering mempunyai profil media sosial atau laman sesawang yang meyakinkan dengan testimoni palsu. • Penganjur akan mendesak anda membuat keputusan dengan segera. Mereka akan mempengaruhi anda dengan mengatakan bahawa tempoh tawaran pelaburan adalah terhad, anda mendapat bonus atau diskaun jika mendaftar pada hari tersebut. • Mereka akan menghubungi anda atau menghantar e-mel secara berulang kali yang bertujuan untuk memberi tekanan kepada anda supaya membuat keputusan dengan segera. • Pelaburan tersebut dikatakan memberi pulangan yang lumayan, yang seolah-olah adalah terlalu bagus untuk dipercayai (too good to be true). Pelaburan mempunyai beberapa tahap risiko yang tertentu. Tahap risiko ini biasanya berkait rapat Penipuan Seminar Pelaburan 10 | RINGGIT dengan pulangan yang akan diterima oleh pelabur. Jika risikonya rendah, bermakna hasil pulangan yang rendah. Begitu juga sekiranya hasil pulangan adalah tinggi, ia melibatkan risiko yang lebih tinggi juga. Penganjur akan cuba meyakinkan para peserta seminar bahawa pulangan pelaburan adalah ‘terjamin’ dan mereka akan mengalami kerugian jika tidak menyertai pelaburan tersebut. • Mereka meminta anda supaya tidak memberitahu sesiapa berkenaan pelaburan ini. Penipu mungkin memberitahu anda bahawa peluang pelaburan ini hanya untuk anda dan meminta anda supaya tidak memberitahu sesiapa. Cara-cara Menghindari Penipuan Seminar Pelaburan • Anda perlu mendapatkan maklumat sebelum menghadiri seminar. Sebelum menghadiri mana- mana seminar mengenai strategi pelaburan, anda harus meneliti individu atau syarikat yang menganjurkan seminar pelaburan. • Anda perlu bertanya soalan mengenai strategi pelaburan. Antara soalan tersebut ialah: o Berapakah kos untuk mempelajari strategi pelaburan? Peserta perlu menentukan kos pendahuluan dan kos-kos lain yang berkaitan dengan pembelajaran dan melaksanakan strategi pelaburan. o Apakah risiko strategi pelaburan ini? Setiap pelaburan mempunyai risiko tertentu. Pelabur perlu berwaspada terhadap sebarang strategi pelaburan yang tidak mempunyai risiko atau dikatakan berisiko rendah. • Berwaspada dengan dakwaan kejayaan pelaburan pada masa lalu. Sesetengah penganjur akan cuba untuk mengesahkan keberkesanan strategi pelaburan mereka dengan menekankan tentang kejayaan pelaburan yang diperolehi oleh bekas pelabur sebelum ini, yang menggunakan strategi pelaburan mereka. Terdapat juga penganjur yang membawa ‘bekas pelabur’’ untuk muncul di seminar pelaburan itu untuk berkongsi kejayaan pelaburan mereka. Penganjur turut memberikan rekod pelaburan palsu atau mengelirukan untuk menunjukkan kejayaan pelaburan mereka. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) “Penipu mungkin memberitahu anda bahawa peluang pelaburan ini hanya untuk anda dan meminta anda supaya tidak memberitahu sesiapa.” bil. 4/2019 | 11 TIPU A NJAMA Tanpa penjamin! Blacklist bank boleh mohon! Berhati-hati dengan tawaran pinjaman atas talian yang mudah dan cepat. Jangan terpedaya dengan bayaran proses, guaman, insurans dll yang diminta oleh saspek. TAHUKAH ANDA ?? Pemberi Pinjam Wang yang sah hanya boleh menjalankan urusan pinjaman di alamat operasi (pejabat) yang diluluskan sahaja. Setiap premis yang menjalankan perniagaan sebagai Pemberi Pinjam Wang yang sah perlu mempamerkan lesen mereka di tempat yang mudah dilihat. j/:3:::u~:'éa::::m aesmm Pous DIRAJA MALAYSIA http:lIccid.rmp.gov.my ‘-1 A; V‘ ~ “"7 !{riu_n. 9%‘-"'

Public Notice

19 Aug 2019

Online Ordering and Payment Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia

https://www.bnm.gov.my/-/online-ordering-and-payment-facility-for-sale-of-commemorative-currency-issued-by-bank-negara-malaysia

Reading: Online Ordering and Payment Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia Share: 7 Online Ordering and Payment Facility for Sale of Commemorative Currency Issued by Bank Negara Malaysia Release Date: 19 Aug 2019 Bank Negara Malaysia wishes to announce the availability of the online ordering and payment facility for the sale of commemorative coins issued in conjunction with the installation of His Majesty Seri Paduka Baginda XVI Al-Sultan Abdullah Ri’ayatuddin Al-Mustafa Billah Shah Ibni Almarhum Sultan Haji Ahmad Shah Al-Musta’in Billah as the sixteenth Yang di-Pertuan Agong. Online Ordering Members of the public can place their orders at https://duit.bnm.gov.my from 19 August (9.00 a.m.) to 23 August 2019 (11.00 p.m.). In the event of oversubscription, balloting will be undertaken. Members of the public are advised to place their orders through the Bank Negara Malaysia online system and not with any other party or unauthorised ordering facility. All orders will be considered and there will be no preference given to orders based on order date and time. Payment To facilitate efficient ordering, all orders are to be submitted with electronic payment (e-payment) using credit/ debit card or online banking facility. Payment for unsuccessful orders during the ballot will be fully refunded to buyers through the mode of e-payment used during order submission. Buyers may receive their refund prior to the announcement of the successful orders. Online Purchase Limits To provide for fair distribution, there will be a purchase limit for each buyer, as follows: Type Purchase Limit Gold 1 Single Silver 1 Single Nordic Gold 3 Set of two Silver and Nordic Gold 1 Order Result Announcement Results will be announced on 17 September 2019 at https://duit.bnm.gov.my. Buyers can access and view the results by using the registered login during ordering. Collection Successful buyers may collect their orders from 30 September to 11 October 2019 at the collection location selected during the submission of order. Collection can be made during business hours on normal work days at Bank Negara Malaysia’s Headquarters (Block D) and at the Bank’s offices.  Buyers have to personally present valid identification when collecting the commemorative coin (e.g. MyKad for Malaysians / Passport for non-Malaysians). Malaysian passports will NOT be accepted as identification when collecting the commemorative coin. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

09 Aug 2019

Exposure Draft on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2)

https://www.bnm.gov.my/-/ed-amlctf-09082019

https://www.bnm.gov.my/documents/20124/761679/Anti-Money+Laundering+and+Counter+Financing+of+Terrorism.pdf

Reading: Exposure Draft on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2) Share: Exposure Draft on Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) (Supplementary Document No. 2) Release Date: 09 Aug 2019 This exposure draft outlines the proposed minimum requirements and standards that a licensed money changer approved to implement electronic Know Your Customer (e-KYC) must observe in on-boarding customers for the provision of money changing business through online or mobile channels. The minimum requirements and standards are proposed to ensure that effective and robust Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) controls and systems are in place to safeguard the safety and integrity of online and mobile money changing services. See also: Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) - Money Services Business (Sector 3) (Supplementary Document No. 2) © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 9 August 2019 BNM/RH/ED 031-4 Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) - Money Services Business (Sector 3) (Supplementary Document No. 2) Exposure Draft Issued on: 9 August 2019 BNM/RH/ED 031-4 This exposure draft outlines the proposed minimum requirements and standards that a licensed money changer approved to implement electronic Know Your Customer (e-KYC) must observe in on-boarding customers for the provision of money changing business through online or mobile channels. The minimum requirements and standards are proposed to ensure that effective and robust Anti- Money Laundering and Counter Financing of Terrorism (AML/CFT) controls and systems are in place to safeguard the safety and integrity of online and mobile money changing services. The Bank invites written feedback and comments on this exposure draft. To facilitate the Bank’s assessment, please support each comment with a clear rationale and accompanying evidence or illustration, as appropriate. Feedback and comments shall be submitted to the following address by 8 September 2019 to: Pengarah Jabatan Pengawalan Perniagaan Perkhidmatan Wang Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: msbr@bnm.gov.my Electronic submission is encouraged. Feedback and comments received may be made public unless confidentiality is specifically requested for the whole or part of the feedback or comments. To facilitate the Bank’s collation efforts, kindly use the feedback form attached for your submission. Any query may be directed to: Amalina Nabilah Rozlan nabilahr@bnm.gov.my or 03 2698 8044 (ext.8235) Noor Nazatul Hashimi Hashim nazatul@bnm.gov.my or 03 2698 8044 (ext.7394) Issued on: 9 August 2019 BNM/RH/ED 031-4 PART A: OVERVIEW 1. Introduction ...…..……….…………………….………….………….….……… 1 2. Legal Provisions ...……………………………………………………….....…… 2 3. Applicability ...…………………………………..…………………...………....…. 2 4. Effective Date …...…………………………………………………………......…. 2 5. Policy Superseded ……………………………………………………………….. 2 6. Relationship with Existing Policies ……………………………………………… 2 7. Interpretation…………….………………………….………….………….….…… 3 PART B: POLICY REQUIREMENTS 8. Implementation of e-KYC ………………………………………………………… 5 9. Enforcement ……………………………………………………………………….. 7 1 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 PART A: OVERVIEW 1. Introduction 1.1. In tandem with the continuous effort to promote digitalisation in the money services business (MSB) industry towards increasing access to more convenient and competitive authorised MSB services, the potential to adopt digital solutions for conducting money changing business has become more apparent as evidenced by the increasing leverage on electronic channels by licensed money changers in providing their services. In light of this and following the introduction of electronic Know Your Customer (e-KYC) solutions for remittance business in 2017, the scope of e-KYC implementation is expanded for the conduct of money changing business, with the view of facilitating the delivery of more efficient and inclusive electronic money changing solutions through online channel and mobile channel, supported by the adoption of financial technology. This document provides for approved money changers licensed under the Money Services Business Act 2011 (MSBA) which offer money changing services via online channel or mobile channel to establish business relationships with customers by way of electronic means without face-to- face verifications, and sets out the minimum requirements and standards that an approved licensed money changer must observe in implementing e-KYC for the customer on-boarding process. This is to ensure effective and robust Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) control measures and systems for the provision of online and mobile money changing services. 2 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 2. Legal Provisions 2.1. This document is issued pursuant to: (a) sections 16, 18, 19, 66E and 83 of the Anti-Money Laundering, Anti- Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA); and (b) section 74 of the MSBA. 3. Applicability 3.1. This document is applicable to reporting institutions licensed under the MSBA which carry on money changing business through online channel or mobile channel using e-KYC. 4. Effective Date 4.1. This document comes into effect upon issuance of the final document. 5. Policy superseded 5.1. This document supersedes paragraph 18, Part B of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) policy document issued on 15 September 2013 insofar as it applies to reporting institutions as defined under this document. 6. Relationship with Existing Policies 6.1. This document shall be read together with – (a) the AML/CFT – Money Services Business (Sector 3) which came into effect on 15 September 2013; and (b) other documents issued by the Bank relating to compliance with AML/CFT requirements. 3 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 7. Interpretation 7.1. The terms and expressions in this document shall have the same meanings assigned to them in the AMLA, the MSBA and the AML/CFT – Money Services Business (Sector 3), as the case may be, unless otherwise defined in this document. 7.2. For the purpose of this document– “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action. “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted. “the Bank” means Bank Negara Malaysia. “electronic Know Your Customer (e-KYC)” means establishing business relationships and conducting customer due diligence by way of electronic means, including online channel and mobile channel. “mobile channel" means conducting money changing transactions through any electronic devices using a mobile application provided by the reporting institution. “online channel" means conducting money changing transactions through any electronic devices other than money changing transactions conducted via the mobile channel. “reporting institution” means a money changer licensed under the MSBA which implements e-KYC for establishing business relationships and conducting consumer due diligence. 4 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 “money changing account” means a customer account which contains customer information including personal details and money changing transaction records of the customer, that is maintained by a reporting institution. 5 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 PART B: POLICY REQUIREMENTS 8. Implementation of e-KYC S 8.1. A reporting institution shall obtain the prior written approval of the Bank to implement e-KYC for the provision of money changing business through online channel or mobile channel. An application to the Bank shall include relevant information to demonstrate the reporting institution’s ability to comply with the standards in this document. S 8.2. The Board of a reporting institution shall set and ensure the effective implementation of appropriate policies and procedures to address any risks associated with the implementation of e-KYC. This shall include the implementation of enhanced monitoring and reporting mechanisms to identify potential money laundering and terrorism financing (ML/TF) activities. S 8.3. A reporting institution shall ensure and be able to demonstrate on a continuing basis that appropriate measures for the identification and verification of a customer’s identity are at least as effective as that for face-to-face customer verifications. S 8.4. For the purpose of paragraph 8.3, a reporting institution shall take measures including, but not limited to the following, to identify and verify a customer’s identity: (a) establish independent contact with the customer; (b) verify the customer’s information against independent and credible sources to confirm the customer’s identity, and identify any known or suspected AML/CFT risks associated with the customer; (c) request, sight and maintain records of additional documents required to perform face-to-face customer verifications; and (d) clearly define parameters for higher risk customers that are not allowed to transact with the reporting institution through e-KYC. 6 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 G 8.5. In identifying and verifying a customer’s identity as required in paragraphs 8.4 (a), (b) and (c), a reporting institution may: (a) conduct video calls with the customer before setting up the customer’s money changing account or allowing the customer to perform transactions; (b) communicate with the customer at a verified residential or office address where such communication shall be acknowledged by the customer; (c) verify the customer’s information against a database maintained by relevant authorities including the National Registration Department or Immigration Department of Malaysia; telecommunication companies, sanctions lists issued by credible domestic or international sources in addition to the mandatory sanctions lists specified under paragraph 25 of the Anti-Money Laundering and Counter Financing of Terrorism (AML/CFT) – Money Services Business (Sector 3) policy document or social media platforms with a broad outreach; or (d) request to sight additional documents such as recent utility bills, bank statements, student identification or confirmation of employment. S 8.6. A reporting institution shall ensure the system and technology developed and used for the purpose of establishing business relationships using e-KYC (including for verification of identity document) have proven capabilities1 to support an effective AML/CFT compliance programme. S 8.7. A reporting institution shall additionally comply with the following requirements for money changing transactions performed using e-KYC: (a) only transact with an individual who has a bank account with any licensed bank under the Financial Services Act 2013, any licensed Islamic bank under Islamic Financial Services Act 2013, or any prescribed institution under the Development Financial Institutions Act 2002; and 1 For the purpose of this document, proven capabilities do not necessarily require a reporting institution to obtain independent certifications on the system and technology capabilities from any agency or preclude the adoption of emergent systems and technologies. Nevertheless, the demonstrated capabilities of the system and technology must be proven through appropriate and rigorous testing by reporting institutions. 7 of 7 Issued on: 9 August 2019 BNM/RH/ED 031-4 (b) put in place robust and appropriate information technology security control measures which include, but are not limited to tying up a customer’s money changing account to only one mobile device for the purpose of authenticating the money changing transactions. The Bank may at any time impose additional specific controls as it deems appropriate. 9. Enforcement S 9.1. The Bank may revoke an approval given under paragraph 8.1 where the Bank is satisfied that the requirements in this document have not been complied with, in addition to enforcement actions provided under the AMLA and MSBA.

Public Notice

02 Aug 2019

Enforcement Action against Network of Illegal Money Services Business Operators

https://www.bnm.gov.my/-/enforcement-action-illegal-msb-14022019-1

Reading: Enforcement Action against Network of Illegal Money Services Business Operators Share: Enforcement Action against Network of Illegal Money Services Business Operators Release Date: 02 Aug 2019 On 1 August 2019, Bank Negara Malaysia (BNM) in collaboration with Royal Malaysia Police and the Immigration Department Malaysia conducted a joint raiding operation in Klang Valley and Pulau Pinang on a network of illegal money services business (MSB) operators, suspected to be facilitating illegal remittance activities, mainly for foreign customers and business traders. The network is investigated for suspected offences of carrying out MSB activities without a license under section 4(1) of the Money Services Business Act 2011 (MSBA) and engaging in money laundering activities, which is an offence under section 4(1) of the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). The raids were conducted on eight premises related to Magmatrans (M) Sdn Bhd, Vonstar Resources Sdn Bhd and Vonstar Sdn Bhd located at: Jalan Silang in Kuala Lumpur Puchong, Selayang, Balakong and Klang in Selangor Georgetown and Bukit Mertajam in Pulau Pinang The operation resulted in the freezing of 35 bank accounts and seizure of cash and properties amounting to RM4 million, along with documents, computers and mobile phones related to the activities. Fourteen individuals were questioned to assist in the investigation. In addition, 22 illegal immigrants, who are suspected to be the staff and customers of the illegal operators were detained by the Immigration Department Malaysia for investigation under the Immigration Act 1959/63. Those committing offences under section 4(1) of the MSBA shall be liable to a fine not exceeding RM5 million or imprisonment not exceeding 10 years or both. For an offence under section 4(1) of AMLA, persons convicted shall be liable to imprisonment not exceeding 15 years and a fine of not less than five times the sum or value of the proceeds of an unlawful activity or instrumentalities at the time the offence was committed or RM5 million, whichever is higher. Members of the public are advised not to deal with any illegal MSB operators for remitting monies. Anyone involved will not be protected against any financial loss in the event of a dispute. Members of the public should conduct their transactions with licensed money services businesses, which are listed on Bank Negara Malaysia’s website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

01 Aug 2019

Exposure Draft on Operating Cost Controls for Life Insurance and Family Takaful Business

https://www.bnm.gov.my/-/ed-operating-cost-control-01082019

Reading: Exposure Draft on Operating Cost Controls for Life Insurance and Family Takaful Business Share: Exposure Draft on Operating Cost Controls for Life Insurance and Family Takaful Business Release Date: 01 Aug 2019 The Operating Cost Controls for Life Insurance and Family Takaful Business policy document issued on 26 December 2018 (which took effect on 1 January 2019) set out the deregulation of operating cost control limits for Licensed Life Insurers and Family Takaful Operators and standards to strengthen the professionalism of insurance and takaful intermediaries. This exposure draft sets out the revisions to the Operating Costs Controls for Life Insurance and Family Takaful Business policy document to incorporate: operational details of the balanced scorecard (BSC) framework for bancassurance partners as specified in paragraph 10 and Schedule 2 of Appendix II. existing specifications on the commission limits for financial advisers and brokers in paragraph 11.5 and Schedule 5 of Appendix I. These limits were previously stipulated in the Minimum Guidelines on Appointment of Financial Advisers issued by the Life Insurance Association of Malaysia. Submission of feedback -  The Bank invites written comments on this exposure draft, including suggestions for particular issues/areas to be clarified or elaborated further and any alternative proposals that the Bank should consider. To facilitate the Bank’s assessment, please support each comment with a clear rationale and accompanying evidence, as appropriate. In addition to providing general feedback, financial  institutions are requested to respond to the specific questions set out in this exposure draft. Responses must be submitted to the Bank by 30 September 2019 to - Pengarah Jabatan Pembangunan Insurans Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Email: occlife@bnm.gov.my © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

22 Jul 2019

RINGGIT Newsletter (Bil. 3/2019 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil.-3/2019-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761679/Ringgit+Ed107+2019-03+v6A+%281%29.pdf

Reading: RINGGIT Newsletter (Bil. 3/2019 issue) is now available for download Share: RINGGIT Newsletter (Bil. 3/2019 issue) is now available for download Embargo : For immediate release Not for publication or broadcast before 1017 on Monday, 22 July 2019 22 Jul 2019 The highlight for this issuance is Skim Peduli Kesihatan Untuk Kumpulan B40 Other topics of interest include : Akibat Menangguh Bayaran Balik Pinjaman Perkara Asas Yang Perlu Diketahui Apabila Menandatangani Kontrak Prinsip Asas Meminjam Telekomunikasi RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil. 3/2019 [PDF] Bank Negara Malaysia 22 July 2019 © Bank Negara Malaysia, 2019. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 3/2019 Telekomunikasi Perkara Asas Yang Perlu Diketahui Apabila Menandatangani Kontrak PERCUMA | PP 16897/05/2013 (032581) Akibat Menangguh Bayaran Balik Pinjaman Skim Peduli Kesihatan Untuk Kumpulan B40 Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Beban Penyakit Tidak Berjangkit 47.6% kumpulan B40 berumur 50 tahun dan ke atas menghidapi sekurang-kurangnya satu penyakit tidak berjangkit yang belum didiagnosis. Kesihatan Mental 3 daripada 10 orang dewasa menderita masalah kesihatan mental. Kumpulan B40 mencatat kadar yang lebih tinggi, iaitu 32% berbanding 28% bagi kumpulan bukan B40. Beban Kanser Kes kanser semakin meningkat. Lebih membimbangkan lagi apabi la 60% dikesan pada peringkat lewat, yang boleh mengurangkan peluang untuk sembuh. Satu lagi bantuan yang disediakan oleh kerajaan untuk kumpulan B40 ialah Skim Peduli Kesihatan atau PeKa B40. Skim ini diuruskan oleh ProtectHealth Corporation Sdn. Bhd. (PHCorp), iaitu sebuah syarikat di bawah Kementerian Kesihatan Malaysia (KKM). Apakah PeKa B40? Skim Peduli Kesihatan untuk Kumpulan B40 (PeKa B40) adalah satu inisiatif kerajaan melalui Kementerian Kesihatan Malaysia (KKM). PeKa B40 bertujuan untuk meningkatkan akses kepada perkhidmatan kesihatan yang diperlukan, mengurangkan beban kos sara hidup dan meningkatkan kesejahteraan rakyat. Inisiatif ini memberi penekanan terhadap penyakit tidak berjangkit dan memberi tumpuan kepada jalinan kerjasama antara sektor awam dan swasta, lebih-lebih lagi pada peringkat penjagaan kesihatan primer. PeKa B40 ditawarkan kepada rakyat Malaysia yang berada dalam lingkungan pendapatan isi rumah 40% terendah, yang dikenali sebagai kumpulan B40. Penerima Bantuan Sara Hidup (BSH) dan pasangan mereka, yang berumur 50 tahun dan ke atas, secara automatik layak menyertai PeKa B40. Tiada pendaftaran khusus diperlukan untuk menyertai PeKa B40. Fakta Kesihatan Golongan B40 Skim Peduli Kesihatan untuk Kumpulan B40 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. Rawatan Kanser Ramai pesakit tidak melengkapkan rawatan kanser dan hanya kembali semula ke hospital apabila sudah tenat. Ini menipiskan peluang untuk sembuh dan meningkatkan kos rawatan. Kos Alat Perubatan Walaupun rawatan di hospital KKM diberi subsidi yang tinggi daripada kerajaan, sebahagian kos alat perubatan masih perlu ditanggung oleh pesakit seperti kos untuk perentak jantung, implan untuk tulang belakang, dan sebagainya. Ini menambah beban kewangan kepada mereka yang kurang berkemampuan. Masalah Pengangkutan Ramai pesakit yang kurang berkemampuan, terutamanya di kawasan pedalaman, yang tidak meneruskan rawatan akibat kekangan kewangan untuk membayar tambang pengangkutan. bil. 3/2019 | 3 Empat Manfaat PeKa B40 PROGRAM SIHAT CERGAS FASILITI KKM Keputusan: MEMERLUKAN RAWATAN SUSULAN Keputusan: NORMAL Lawatan Kedua: Konsultasi Doktor aturkan janji temu lawatan kedua pada akhir lawatan pertama atau menerusi panggilan telefon. Doktor semak keputusan makmal Spesimen dihantar ke makmal untuk diuji Lawatan Pertama: Pemeriksaan kesihatan termasuk kesihatan mental dan pemeriksaan klinikal (jika diperlukan) KLINIK KLINIK Syarat Kelayakan PeKa B40 1. A n d a m e s t i l a h merupakan individu yang layak menerima BSH. 2. Umur anda atau ibu bapa anda mestilah 50 tahun dan ke atas. 1. Untuk terima rawatan mudah sahaja. Anda boleh membuat semakan status kelayakan anda secara dalam talian melalui https://kelayakan.pekab40.com. my/semakan-kelayakan. 2. Setelah menyemak status kelayakan, anda boleh mengunjungi mana-mana klinik PeKa B40 yang mempunyai pelekat logo PeKa B40. 3. Anda perlu melakukan pemeriksaan kesihatan di klinik PeKa B40 semasa lawatan kali pertama. 4. Anda perlu hadir kali kedua untuk mendapatkan keputusan makmal daripada doktor dan juga tindakan susulan sama ada rujukan ke Fasiliti KKM atau Program Sihat Cergas KKM. Sumber: www.pekab40.com.my Proses Saringan Kesihatan PeKa B40 “PeKa B40 ditawarkan kepada rakyat Malaysia yang berada dalam lingkungan pendapatan isi rumah 40% terendah yang dikenali sebagai kumpulan B40.” Saringan Kesihatan • Pemeriksaan kesihatan termasuk pemeriksaan mental , k l in ikal payudara dan klinikal prostat (jika diperlukan) • Pemeriksaan makmal: Ujian darah, ujian diagnosis / kawalan diabetes, ujian tahap kolesterol, ujian air kencing, ujian fungsi buah pinggang. Bantuan Alat Perubatan* • Had maksimum: RM20,000 (seumur hidup) terhad kepada kategori tertentu**, di Hospital KKM Insentif Melengkapkan Rawatan Kanser* RM1,000 dibayar kepada pesakit yang melengkapkan rawatan hanya di hospital KKM. Bayaran secara berperingkat bergantung kepada tahap rawatan. Insentif Tambang Pengangkutan* • Untuk penerima Manfaat 2 & 3 • Had maksimum (setiap penyakit) - RM500 (Semenanjung)*** - RM1,000 (Sabah/Sarawak)*** * Manfaat 2, 3 & 4 hanya diperoleh selepas saringan dijalankan. ** Senarai Kategori Bantuan Alat Perubatan: 1. Sten untuk jantung 2. Alat sendi tiruan 3. Alat bantuan pendengaran 4. Perentak jantung 5. Prostesis dan implan untuk tulang belakang 6. Prostesis dan ortosis tulang anggota 7. Kanta mata intraokular 8. Alat terapi pernafasan dan pemekat oksigen 9. Bantuan sokongan nutrisi 10. Kerusi roda *** Tertakluk kepada jarak hospital dari rumah 1 2 3 4 4 | RINGGIT Akibat Menangguh Bayaran Balik Pinjaman Ada masanya anda terlewat membuat bayaran untuk pinjaman anda. Mungkin anda beranggapan ia bukan sesuatu perkara yang besar. Anda perlu membuang tanggapan tersebut. Sama ada pinjaman peribadi, pinjaman perumahan, kad kredit ataupun pinjaman pendidikan, anda bakal berhadapan akibat buruk jika anda lewat membayar balik pinjaman. Anda Perlu Membayar Lebih Sama ada pembayaran balik untuk pinjaman peribadi ataupun kad kredit, anda akan dikenakan caj penalti bayaran lewat dan juga caj-caj lain. Selain itu, anda juga perlu tahu tentang sistem bayaran berperingkat yang diperkenalkan oleh Bank Negara Malaysia. Akibat daripada lewat membayar balik pinjaman, pihak bank berhak untuk meningkatkan kadar faedah yang dikenakan kepada anda. Kadar faedah berperingkat ini adalah untuk kad kredit. Contohnya jika anda mempunyai kad kredit yang dikenakan kadar faedah 15% setahun, caj untuk kadar faedah akan dinaikkan jika anda kerap lewat membayar balik pinjaman. Sistem yang dilaksanakan pada Jun 2008 itu bertujuan untuk meningkatkan disiplin kewangan serta penggunaan berhemah dalam kalangan pengguna kad kredit. Kadar faedah berperingkat untuk kad kredit adalah seperti berikut: Untuk pinjaman rumah dan pinjaman peribadi, bank turut berhak meningkatkan kadar faedah jika anda sering lewat membuat bayaran balik. Oleh yang demikian, lebih selamat jika anda berdisiplin dalam pembayaran balik pinjaman anda. Risiko Kehilangan Aset Anda Untuk pinjaman perumahan dan pinjaman kenderaan, selain risiko bayaran balik yang lebih tinggi seperti yang telah dibincangkan di atas, aset yang anda beli melalui pinjaman tersebut (rumah atau kereta) juga boleh ditarik oleh pihak bank jika anda kerap lewat atau tidak membuat bayaran • Peringkat 1: Kadar faedah maksimum 15% setahun (untuk pemegang kad kredit yang melangsaikan bayaran minimum bulanan bagi 12 bulan berturut-turut) • Peringkat 2: Kadar faedah maksimum 17% setahun (untuk pemegang kad kredit yang melangsaikan bayaran minimum bulanan sekurang-kurangnya 10 bulan dalam tempoh 12 bulan) • Peringkat 3: Kadar faedah maksimum 18% setahun. bil. 3/2019 | 5 balik. Oleh itu, pastikan anda membayar balik tepat pada masanya untuk mengelakkan aset anda ditarik. Selain daripada perlu melangsaikan caj tambahan kerana lambat membayar pinjaman, anda juga perlu menanggung kos tambahan jika kereta anda ditarik. Walaupun anda telah melangsaikan bayaran tersebut, anda terpaksa menunggu surat pengesahan dari bank sebelum anda boleh menuntut kembali kereta anda. Anda harus sedar bahawa lewat membayar balik pinjaman akan menambah kos dan juga menyusahkan anda pada kemudian hari. Bagi pinjaman rumah pula, jika anda lewat atau tidak melakukan bayaran balik, ia boleh mendatangkan risiko rumah anda dilelong oleh bank. Pastikan anda membuat bayaran balik segera dan jangan panik terutamanya apabila telah menerima perintah mahkamah yang rumah anda akan dilelong. Pastikan anda tidak terlepas jadual pembayaran, kerana kesannya adalah lebih buruk. Ingat, selagi anda belum melangsaikan bayaran balik sepenuhnya, rumah anda masih lagi milik bank. Anda Sukar untuk Memohon Pinjaman atau Perkhidmatan Kewangan Lain pada Masa Akan Datang Jika kerap lewat atau tidak membayar balik pinjaman, anda bakal berhadapan dengan kesukaran untuk mendapat akses kepada kemudahan perkhidmatan kewangan yang lain pada masa akan datang. Corak pembayaran anda itu akan direkod dalam skor atau laporan kredit anda yang menjadi panduan bagi bank, pemberi pinjaman malah juga segelintir tuan rumah sebelum mereka meluluskan permohonan anda. Dengan skor atau laporan kredit yang buruk akibat corak pembayaran yang tidak menentu, bank bakal mengenakan kadar faedah yang lebih tinggi untuk anda, permohonan pinjaman akan ditolak, dan tuan rumah mungkin keberatan untuk menyewakan hartanahnya kepada anda. Malah, skor atau laporan kredit juga boleh menjadi penentu sama ada anda bakal diambil bekerja ataupun tidak, terutamanya untuk pekerjaan dalam sektor kewangan. Seperti yang telah dimaklumkan, skor atau laporan kredit memainkan peranan penting dalam aspek kewangan dan kehidupan anda. Cara untuk menambah baik skor atau laporan kredit anda amat mudah, iaitu berdisiplin dalam pembayaran balik pinjaman anda. Sumber: www.comparehero.my “Bagi pinjaman rumah pula, jika anda lewat atau tidak melakukan bayaran balik, ia boleh mendatangkan risiko rumah anda dilelong oleh bank.” 6 | RINGGIT Perkara Asas Yang Perlu Diketahui Apabila Menandatangani Kontrak Sebelum menerima tawaran pekerjaan, kebiasaannya anda akan dikehendaki menandatangani kontrak pekerjaan. Begitu juga apabila membeli kereta baharu anda dikehendaki menandatangani kontrak perjanjian sewa beli. Kalau membeli rumah pula, anda akan menandatangani perjanjian pinjaman perumahan. Istilah yang digunakan mungkin berlainan seperti ‘kontrak’, ‘persetujuan’, atau ‘perjanjian bersama’. Di Malaysia, semuanya dikawal di bawah Akta Kontrak 1950. Berikut adalah beberapa perkara asas yang anda perlu ketahui tentang kontrak: 1. Tandatangan kontrak • Kontrak ialah satu set cadangan yang dirunding dan dipersetujui oleh dua individu atau beberapa pihak. • Anda perlu menandatangani sesebuah kontrak. • Anda perlu mencatat tarikh bila menandatangani kontrak, selalunya di tepi atau bawah tandatangan. Tarikh merupakan perkara penting dalam kontrak, terutamanya jika kontrak tersebut sensitif dari segi masa. Kontrak yang menyatakan tarikh kuat kuasa di dalamnya, bermaksud itulah tarikh bermula kontrak tersebut. • Anda mungkin memerlukan kontrak yang ditulis khas kerana kontrak ‘standard’ yang sedia ada tidak dapat memenuhi keperluan anda. Peguam anda atau peguam rakan strategik akan menulis draf kontrak, yang akan dikaji dan disemak sebelum ditandatangani oleh kedua-dua pihak. • Jika kontrak belum dimuktamadkan, jangan menurunkan tandatangan anda pada sebarang bentuk draf kontrak yang anda hantar atau terima. Jika anda berbuat demikian, anda mungkin akan menghadapi masalah jika ingin membuat pembetulan kontrak, kecuali jika anda sudah mencapai persetujuan dengan rakan strategik. 2. Jangan tandatangan sebarang draf kontrak bil. 3/2019 | 7 3. Pastikan anda membaca semua lampiran • Apabila menandatangani kontrak yang melibatkan penerimaan perkhidmatan, ia selalunya akan melibatkan ‘Dasar Privasi’ – iaitu syarikat terbabit akan menggunakan data persendirian anda dan melindungi hak persendirian anda. • Lampiran yang disertakan adalah terikat dengan kontrak anda, tanpa mengambil peduli sama ada anda membacanya atau tidak. Lampiran ini mungkin disertakan secara berasingan atau diberi sebagai pautan (link), seperti mana yang dilakukan untuk kontrak secara dalam talian. • Anda perlu meminta salinan kontrak untuk anda mengetahui apa yang telah anda tandatangani supaya anda mempunyai rekod hak dan tanggungjawab anda dalam kontrak. • Jika anda tidak diberi satu salinan kontrak, maka anda perlu memintanya kerana dari segi undang-undang, rakan strategik anda tidak diwajibkan memberi salinan kepada anda. • Jika anda perlukan bukti apabila berlaku perselisihan mengenai kontrak, anda perlu memastikan bahawa kontrak anda adalah yang asli ataupun salinan yang disahkan. Jika kontrak anda adalah salinan asli, ini bermakna anda menerima satu daripada dua salinan yang telah ditandatangani. 4. Simpan satu salinan kontrak Sekiranya terdapat kontrak yang tidak adil, anda sebenarnya diberi perlindungan di bawah Akta Perlindungan Pengguna 1999, yang termaktub di dalam seksyen 24A, Bahagian IIIA, Terma Tidak Adil subseksyen C yang menyatakan “Terma Tidak Adil” ertinya mengambil kira semua keadaan yang boleh menyebabkan ketidakseimbangan signifikan dalam hak dan tanggungjawab pihak-pihak di bawah kontrak sehingga menyebabkan kerugian kepada pengguna. Sumber: www.asklegal.my 5. Tandatangan semua muka surat dalam kontrak • A n d a p e r l u menandatangani setiap muka surat k o n t r a k a t a s beberapa sebab, iaitu: o Anda per lu memastikan y a n g a n d a menerima semua muka surat kontrak. o Sebagai tanda bahawa anda telah membaca dan memahami kontrak. o Jika ada barisan atau muka surat tambahan yang ditambah tanpa kebenaran anda, ia tidak akan mengandungi tandatangan anda, dan sebagai indikasi bahawa anda tidak bersetuju dengan terma tersebut. 6. Sentiasa baca dan memahami kontrak • Anda hendaklah memahami kontrak yang ditandatangani. Kontrak menggariskan s e m u a h a k u n d a n g - u n d a n g d a n tanggungjawab yang perlu anda ketahui jika berlaku sebarang perselisihan. • Ambil masa untuk m e m b a c a d a n memahami setiap bahagian kontrak – s e s e t e n g a h kontrak mungkin m e n g a n d u n g i terma yang boleh digunakan untuk mengambil kesempatan terhadap anda. • Minta bantuan peguam j ika perlu, terutamanya jika ia melibatkan kontrak penting seperti pembelian hartanah dan perniagaan. 8 | RINGGIT Prinsip Asas Meminjam Komponen Utama Pinjaman Semua pinjaman, sama ada pinjaman kereta, pinjaman rumah atau pinjaman peribadi, terdiri daripada tiga komponen utama: kadar faedah, cagaran dan tempoh. Kadar Faedah Kadar faedah ialah caj yang dikenakan oleh pemberi pinjaman kerana menggunakan duit mereka. Biasanya kadar faedah ditunjukkan dalam bentuk peratusan daripada jumlah pinjaman dalam setahun. Faedah yang dikenakan berdasarkan pengkompaunan (iaitu faedah-atas-faedah) dan ia boleh terdiri daripada pengkompaunan tahunan / bulanan / harian (satu lagi istilah yang digunakan ialah kiraan atas baki tahunan/bulanan/harian). Terdapat dua jenis kadar faedah: a. Kadar tetap: tetap dan tidak berubah. Jika kadar faedah tetap anda ialah 6% setahun, ia akan kekal 6% setahun sepanjang tempoh pinjaman. b. Kadar boleh ubah: boleh bertukar mengikut masa dan biasanya ditetapkan pada kadar piawaian (standard) pasaran, seperti Kadar Asas (BR). Cagaran Tempoh Tempoh suatu pinjaman ialah jangka masa si peminjam perlu membayar balik pinjaman. Kebanyakan pinjaman peribadi / kereta mempunyai tempoh tiga hingga sembilan tahun, manakala tempoh pinjaman rumah adalah jauh lebih lama dan biasanya boleh mencapai sehingga 30 tahun. Tempoh adalah jangka masa maksimum untuk si peminjam membayar balik pinjaman mereka. Pinjaman boleh dijelaskan sebelum tempoh tamat tetapi mungkin caj akan dikenakan untuk penyelesaian awal. Sila semak dengan institusi kewangan anda mengenai caj tersebut. Semua pinjaman bergantung sama ada pemberi pinjaman menghendaki anda mencagarkan aset, (biasanya dirujuk sebagai cagaran) untuk menjamin pinjaman anda. Jika anda mempunyai pinjaman bercagar, bermakna pemberi pinjaman anda boleh merampas aset jika anda gagal menjelaskan hutang pinjaman. Oleh kerana terdapat cara alternatif pembayaran balik, faedah dalam pinjaman bercagar adalah lebih rendah berbanding dengan faedah pinjaman tidak bercagar. Apabila anda membiayai pembelian kereta anda melalui pinjaman bank, anda sebenarnya adalah penyewa (bukan pemilik) kereta yang anda pandu sehingga anda selesai membayar sepenuhnya pinjaman anda. Begitulah juga dalam kes pinjaman rumah, bank akan memiliki ‘tuntutan pemilikan’ terhadap rumah tersebut sehingga anda selesai membayar sepenuhnya pinjaman rumah. Dalam pinjaman tidak bercagar, tiada aset yang boleh disita oleh bank jika mungkir membayar balik pinjaman. Memandangkan pinjaman ini berisiko, pinjaman tidak bercagar selalunya mempunyai kadar faedah yang lebih tinggi berbanding dengan pinjaman bercagar. Untuk mengurangkan risiko, institusi pemberi pinjaman kadangkala menghendaki orang ketiga menandatangani perjanjian bagi pinjaman tidak bercagar atau menjamin jumlah pinjaman. bil. 3/2019 | 9 Sumber: Agensi Kaunseling dan Pengurusan Kredit (AKPK) Apakah Prinsip Asas Meminjam? Prinsip 1: Meminjam untuk sesuatu yang anda perlukan – bukan yang anda mahukan Sebelum ini, kita sudah membincangkan perbezaan antara keperluan dan kehendak. Malah dalam situasi meminjam, perbezaan ini amatlah penting untuk kita fahami. Anda hanya perlu meminjam untuk sesuatu yang anda benar-benar perlu tetapi tidak mempunyai wang tunai untuk membayarnya. Sebagai contoh, untuk membeli rumah, untuk membiayai pendidikan lanjutan anak-anak anda dan untuk membeli kereta. Prinsip 2: Meminjam sejumlah wang dalam kemampuan anda untuk membayar balik Ini mungkin logik tetapi malangnya, ia bukan amalan biasa. Ramai orang terlebih memberi komitmen dalam hutang kerana menyangka bahawa ekonomi akan terus berkembang dan situasi yang baik akan terus kekal. Jika anda meminjam lebih daripada kemampuan, anda mungkin akan menghadapi kesukaran untuk membayar balik pinjaman dan mungkin juga terpaksa berhadapan dengan tindakan undang-undang yang akan diambil oleh pihak institusi kewangan. Adalah disarankan bahawa setiap individu patut mengehadkan jumlah bayaran balik pinjaman kurang daripada 1/3 pendapatan kasarnya. Prinsip 3: Elakkan daripada meminjam untuk membiayai aset yang susut nilai Prinsip ini mungkin tidak disukai oleh sesetengah orang, tetapi ia adalah prinsip yang baik untuk diikuti. Aset susut nilai adalah harta yang hilang nilainya mengikut masa, seperti kereta, perabot dan peralatan rumah. Barangan ini akan susut nilai dengan cepat sementara pinjaman anda berkurangan dengan agak lambat. Dalam situasi yang anda tidak dapat menjelaskan hutang, barangan tersebut akan disita dan anda mesti menambah nilai yang kurang kerana aset susut nilai anda tidak cukup untuk menjelaskan baki pinjaman. Prinsip 4: Elakkan daripada menjadi penjamin Seorang penjamin bertanggungjawab menjelaskan pinjaman sekiranya peminjam mungkir membayar balik pinjaman atas apa sahaja alasan. Melainkan anda bersedia untuk menunaikan tanggungjawab ini, anda patut mengelak daripada menjadi penjamin. Prinsip 5: Si peminjam mempunyai komitmen moral dan mutlak untuk membayar balik Pernahkah anda bertemu dengan seseorang yang telah meminjam daripada anda tetapi masih belum membayar balik? Bagaimana anda rasa? Kecewa? Ditipu? Dikhianati? Ya, ia memang bukan satu perasaan yang baik dan anda tidak patut memberi sebarang alasan untuk tidak membayar balik hutang apabila anda telah berjanji untuk melakukannya. Prinsip 6: Segera dapatkan bantuan Jika anda menghadapi kesukaran untuk membayar balik pinjaman, berbincanglah dengan pemberi pinjaman agar anda dapat membuat pelan bayaran balik yang munasabah, tetapi jangan sesekali berdiam diri atau lari daripada membayar hutang. 10 | RINGGIT Telekomunikasi Tidak dapat dinafikan bahawa kemajuan teknologi pada masa kini dilihat semakin berkembang pesat di Malaysia. Malaysia juga merupakan antara negara yang mencatatkan jumlah penduduk yang memiliki telefon pintar tertinggi dengan menduduki tempat ke-10 di dunia yang merangkumi semua lapisan masyarakat. Aduan telekomunikasi merupakan aduan yang ketiga tertinggi dicatatkan oleh Pusat Khidmat Aduan Pengguna Nasional (NCCC). Bukan sahaja di NCCC, malah di Suruhanjaya Komunikasi dan Multimedia Malaysia (SKMM) aduan telekomunikasi merupakan aduan yang paling banyak diterima. Jumlah aduan yang diterima oleh NCCC pada tahun 2017 adalah sebanyak 5,590 kes dengan nilai kerugian berjumlah RM15,870,010 berbanding dengan tahun 2016, jumlah aduan yang diterima adalah sebanyak 5,681 kes dengan nilai kerugian berjumlah RM16,118,284. Walaupun terdapat sedikit penurunan aduan yang diterima pada tahun 2017, aduan telekomunikasi masih berada di tempat ketiga tertinggi yang dicatatkan pada tahun 2016 dan juga 2017. Aduan tertinggi yang direkodkan ialah mengenai pertikaian bil. Pengadu berasa kecewa apabila perlu membayar bil untuk perkhidmatan yang tiada liputan rangkaian dan juga capaian internet yang perlahan. Yang kedua tertinggi ialah khidmat pelanggan (customer service) yang mengambil masa yang agak lama untuk diselesaikan malah pengadu tidak menerima sebarang maklum balas mengenai kes mereka. Aduan ketiga yang tertinggi pula ialah kualiti rangkaian internet. Pengadu tidak berpuas hati apabila kelajuan internet tidak dapat dicapai mengikut pakej yang diberikan. Selain itu, terdapat juga aduan daripada pengguna mengenai kontrak yang ditandatangani tanpa pengetahuan mereka. Ejen khidmat pelanggan menghubungi pengadu melalui panggilan telefon untuk menawarkan perkhidmatan naik taraf internet atau pakej perkhidmatan. Namun tanpa pengetahuan pengguna, tawaran tersebut telah membuatkan mereka terikat dengan kontrak selama dua tahun. Perkara ini hanya diketahui oleh pengguna apabila mereka ingin bertukar ke perkhidmatan telekomunikasi lain. Jika kontrak dibatalkan, mereka perlu membayar sejumlah wang penalti untuk pembatalan kontrak (penamatan awal). Mengikut garis panduan kod amalan pengguna, penyedia perkhidmatan mesti menyediakan informasi secukupnya tentang perkhidmatan dalam bahasa yang mudah difahami dan mengelakkan penggunaan terma-terma teknikal, kecuali yang mempunyai keperluan. Atas permintaan pengguna, penyedia perkhidmatan wajib, setakat yang diketahui oleh penyedia perkhidmatan, memaklumkan kepada pengguna tentang produk-produk dan perkhidmatan-perkhidmatan lain yang pengguna ingin dapatkan daripada penyedia perkhidmatan. Setiap aduan yang diterima oleh NCCC akan disalurkan kepada penyedia perkhidmatan telekomunikasi tersebut untuk mendapatkan penyelesaian. Tetapi, jika jawapan atau justifikasi yang diberikan tidak memuaskan hati atau tempoh penyelesaian masalah mengambil masa yang terlalu lama, aduan tersebut akan disalurkan kepada SKMM. Sebagai pengawal selia bagi industri komunikasi dan multimedia, SKMM memainkan peranan utama untuk memastikan pengguna menikmati tahap perkhidmatan dan pilihan yang memuaskan dengan harga yang berpatutan, supaya pengguna mendapat faedah melalui penyediaan perkhidmatan tersebut. SKMM juga perlu memastikan aduan pengguna perlu ditangani secara adil dan efisien, di samping memantau dan memudahkan penyelesaian aduan pengguna, selaras dengan peruntukan seksyen 195 dan 196 Akta Komunikasi dan Multimedia. Sehubungan dengan itu, jika pengguna tidak mendapat maklum balas daripada syarikat perkhidmatan atau tidak berpuas hati dengan perkhidmatan yang ditawarkan, pengguna boleh membuat aduan secara terus kepada NCCC melalui talian 03-7803 6000 / 03-7877 9000 atau melalui e-mel myaduan@nccc.org.my. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 3/2019 | 11 imSMEAd_BMA5OL (bleed).pdf 1 26/3/2019 2:54:45 PM

Public Notice

18 Jul 2019

Islamic Finance Rendezvous Series 2019

https://www.bnm.gov.my/-/islamic-finance-rendezvous-series-2019-02

https://www.bnm.gov.my/documents/20124/761679/IFRS+ENGLISH.pdf, https://www.bnm.gov.my/documents/20124/761679/IFRS+JB+Agenda+Public.pdf

Reading: Islamic Finance Rendezvous Series 2019 Share: Islamic Finance Rendezvous Series 2019 Release Date: 18 Jul 2019   Bank Negara Malaysia, Association of Islamic Banking and Financial Institutions Malaysia (AIBIM) and Malaysian Takaful Association (MTA), in collaboration with various agencies and business associations will be organising a business engagement programme entitled “Islamic Finance Rendezvous Series” on 1 October 2019 at Grand Paragon Hotel, Johor Bahru. This programme aims to provide insights to businesses on the variety of financial products and services offered by Islamic financial institutions and how these offerings can meet the needs of businesses. CEOs of Small Medium Enterprises (SMEs) and Multinational Companies (MNCs) are highly encouraged to join the programme. Details are as follows: Date : 1 October 2019 (Tuesday) Time : 8:30 a.m. – 5:00 p.m. Venue : Grand Paragon Hotel, Johor Bahru Key highlights: CEO forum on Islamic finance solutions Inspiring conversation with successful businesses that utilise Islamic finance solutions Knowledge sharing on Islamic financial solutions, SME ecosystem and imSME Dialogue with financial industry leaders Business matching session with participating Islamic finance institutions (pre-registration is required) No admission fee. Seats are limited. Please register via bit.ly/IFRendJB now! For further queries, please email Encik Zamir Azfar at zamir@aibim.com or Puan Siti Nor Kamariah at siti@malaysiantakaful.com.my. Please refer attachments for more information. Programme Poster © 2024 Bank Negara Malaysia. All rights reserved.

ENGLISH 500.3490.2318 Rendezvous Series Islamic Finance ISLAMIC FINANCE FOR ALL Open to all businesses Please contact islamic�nancers@gmail.com for further information. Information on available solutions for your business Free advisory (on your �nancing needs) by �nancial institutions One-to-one business matching session (pre-registration is required) On-site CCRIS checking Scan QR code or visit weblink bit.ly/IFRendJB Opening remarks by: YAB Dato’ Dr. Sahruddin bin Jamal, Menteri Besar Johor Grand Paragon Hotel, Johor Bahru (1 October 2019) Closing date for registration27 September 2019 One-stop centre catering to your business �nancing and protection needs Jointly organised by: In support of: BUSINESS ENGAGEMENT PROGRAMME Why should I attend? . R A K A N K E W A N G A N A N D A B I L . 4/2019 Penipuan Seminar Pelaburan Cara Melabur RM10,000 Dengan Bijak PERCUMA | PP 16897/05/2013 (032581) Akibat Meminjam Dengan Pemberi Pinjaman Wang Tidak Berlesen Pengurusan Kewangan Secara Bij ak Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Pengurusan Kewangan Secara Bij ak Kalau anda tidak merancang, maka anda merancang untuk gagal. Kemahiran menguruskan wang adalah ilmu yang semakin penting. Ramai orang berlumba- lumba ingin mempelajarinya. Ada individu yang pandai menjana pendapatan yang tinggi, tetapi tidak pandai pula menguruskan duit gaji dan kekayaan yang diperoleh. Ini adalah lumrah kehidupan di bandar yang masyarakatnya sibuk dengan kerjaya masing- masing, sehingga lupa untuk menguruskan kewangan sendiri dan keluarga. Sebagai panduan untuk menguruskan kewangan dengan bijak dan sistematik, berikut adalah beberapa langkah yang boleh diamalkan: 1. Mempunyai Matlamat Kewangan Anda mesti tahu a p a y a n g a n d a mahukan da lam hidup. Misalnya, apa yang anda mahu pada usia persaraan? Apakah simpanan untuk persaraan nanti adalah mencukupi jika mengambil kira faktor-faktor kenaikan kos sara hidup, inflasi yang berlaku saban tahun? Benar, barangkali persaraan itu hanya akan berlaku lagi 10, 20, 30 tahun akan datang, namun pengurusan kewangan yang baik membabitkan matlamat kewangan jangka pendek, sederhana, dan panjang. Mulakan dengan matlamat paling jauh. Apabila kita mempunyai satu pandangan jauh, kita telah menetapkan langkah yang betul untuk berjaya. 2. Mempunyai Sumber Pendapatan yang Mencukupi Sama ada anda makan gaji atau bekerja sendiri, anda p e r l u b e n a r - b e n a r berjaya (termasuklah m e m p e r o l e h g a j i tinggi) dalam bidang yang anda ceburi. Jika anda tidak mempunyai p e n d a p a t a n y a n g m e n c u k u p i , m a k a sukar untuk mempunyai simpanan yang sewajarnya kerana kos sara hidup yang semakin meningkat. Pada masa kini, mempunyai satu sumber pendapatan sahaja adalah tidak mencukupi. Sekurang-kurangnya setiap individu mesti mempunyai pendapatan kedua, iaitu daripada sumber pelaburan. 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Maizatul Aqira Ishak Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. 3. Simpan Sebelum Belanja Sekiranya anda membelanjakan semua pendapatan terlebih dahulu, dan jika ada lebih, baharu ingin menyimpan, maka itulah langkah paling berkesan untuk mencipta masalah kewangan yang kronik pada masa akan datang. Jadi, gunakan formula ini: Gaji – Simpanan = Belanja 4. Berbelanja Dengan Bijak Anda perlu menyusun keutamaan perbelanjaan. Bermula dengan keperluan- keperluan asas hidup, iaitu untuk makan, minum, pakaian, tempat tinggal, pendidikan dan kesihatan. Disusuli dengan kehendak-kehendak, kemudian baharulah kemewahan. Dalam hal ini, penyata kewangan memainkan peranan penting sebagai langkah pertama untuk bermula. Angka-angka dalam penyata kewangan adalah data terbaik yang anda ada, sama ada selama ini anda sebenarnya banyak berbelanja untuk harta ataupun liabiliti. Berdasarkan penyata kewangan, ianya juga dapat menentukan sama ada anda perlu memperbaiki aliran tunai, menyelesaikan hutang atau dapat terus memulakan pelaburan secara serius. 5. Mengurus Risiko Kewangan Risiko kewangan adalah sesuatu yang tidak dapat dihapuskan sepenuhnya. Apa yang anda boleh lakukan adalah mengurus risiko tersebut dengan efektif. Bagi kebanyakan individu, cara paling mudah mengurus risiko kewangan adalah dengan mengambil produk-produk insurans/takaful. Untuk menjadi seorang yang betul-betul berjaya dalam pengurusan kewangan, ilmu adalah sangat penting kerana produk insurans/ takaful tidak mampu mengurus semua risiko kewangan anda. Tiada produk insurans/takaful yang dapat melindungi anda daripada inflasi, kejatuhan ekonomi atau kemerosotan perniagaan. bil. 4/2019 | 3 6. Membayar Zakat dan Cukai Zakat dan sedekah merupakan proses 3+1. Melalui zakat, kita dapat menyucikan harta, melindungi dan mengembangkan harta sekali gus. Harta-harta yang kita beri ini sama sekali tidak berkurangan, malah semakin bertambah dengan cara yang Allah sahaja yang mengetahuinya. Zakat hanya untuk harta halal, manakala harta daripada sumber haram perlulah dibersihkan 100%. Manakala cukai pula adalah kewajipan seorang rakyat ke p a d a s e s e b u a h negara. Duit cukai ya n g k i ta b aya r m e m b o l e h k a n k e r a j a a n m e n y e d i a k a n pelbagai infrastruktur asas seperti jalanraya, s e ko l a h , l o n g ka n g , hospital dan kemudahan- kemudahan yang lain. 7. Membuat Pelaburan yang Bijak Antara kegunaan simpanan yang telah dilakukan adalah untuk dijadikan modal pe laburan. Tu juan pelaburan adalah u n t u k ke g u n a a n menunaikan haji , tabung persaraan, tabung pendidikan anak-anak, tabung percutian dan segala matlamat kewangan yang lain. Kita perlu menyusun strategi pelaburan dengan bijak kerana ramai orang yang melabur tetapi berapa ramaikah yang telah melabur dengan bijak? 8. Membahagikan Harta Setelah anda berjaya mengumpul harta, jangan lupa menyediakan perancangan untuk pembahagian harta tersebut kerana kita semua pasti akan meninggal dunia suatu hari nanti. Pastikan harta-harta anda sudah ada penama dan jika perlu anda boleh menggunakan wasiat, hibah, wakaf, pengisytiharan h a r ta s e p e n ca r i a n d a n pemegang amanah untuk membahagikan harta tersebut, berdasarkan kemahuan anda sendiri. Sumber: www.majalahlabur.com “Jika anda tidak mempunyai pendapatan yang mencukupi, maka sukar untuk mempunyai simpanan yang sewajarnya kerana kos sara hidup yang semakin meningkat.” 4 | RINGGIT Akibat Meminjam Dengan Pemberi Pinjaman Wang Tidak Berlesen Anda mungkin pernah mendengar perkataan Pemberi Pinjaman Wang Tidak Berlesen atau sering dikenali sebagai ‘along’, akan terbayang simbahan cat merah di rumah/kereta, samseng dan iklan-iklan ditampal pada tiang lampu, pondok telefon dan sebagainya. Ini adalah modus operandi along yang terdahulu dan sekarang ia sudah bertukar modus operandi. Mereka mula menjalankan kegiatan haram melalui platform media sosial dengan taktik pinjaman ‘mudah lulus’. Walaupun ramai yang mengetahui akan pelbagai risiko apabila meminjam wang dengan along ini, namun masih ramai yang sanggup berurusan dengan mereka kerana terdesak untuk mendapatkan wang. Tambahan pula proses pinjaman oleh along ini mudah dan tidak memerlukan dokumen yang banyak seperti yang diperlukan oleh pihak bank. Mengikut laporan yang dikeluarkan oleh The Star pada Jun 2019, sebanyak 170,000 daripada 1.6 juta kakitangan kerajaan atau 11% daripada keseluruhan kakitangan kerajaan yang meminjam terbabit dengan penipuan pinjaman dengan jumlah kerugian sebanyak RM340 juta dengan alasan terbeban dengan kos sara hidup yang semakin meningkat. Jika kakitangan kerajaan terbeban, bagaimana dengan yang lain? Pinjaman yang diberi oleh pihak along adalah sangat mudah untuk mendapat kelulusan kerana ia akan diluluskan dalam masa sehari sahaja. Malahan, ia tidak perlu berurusan dengan Sistem Maklumat Rujukan Kredit Pusat (CCRIS) atau agensi pelaporan kredit yang lain seperti CTOS dan tiada sebarang dokumen yang diperlukan. Hal ini menunjukkan walaupun individu itu tidak mempunyai latar belakang kredit yang memuaskan, ia masih boleh mendapatkan pinjaman. Jika anda terfikir untuk meminjam daripada along, fikir seketika kerana terdapat banyak akibat yang bakal menimpa anda jika meminjam dengan along. 1. Adakah anda pernah mendengar ‘sepuluh tiga’? Maksud sepuluh tiga merujuk pada kadar faedah yang dikenakan oleh along iaitu kadar faedah yang dikenakan adalah sebanyak 3 sen daripada setiap 10 sen. Ia seolah- olah anda perlu membayar jumlah yang sedikit. Jangan terpedaya! 3 sen daripada setiap 10 sen bermaksud 30% kadar faedah yang sebenar. Kadar faedah yang dikenakan bukan mengikut tahun akan tetapi ia adalah untuk setiap bulan. Katakan anda ingin meminjam RM1,000, kadar faedah yang dikenakan pula adalah sebanyak RM300 setiap bulan. Jika kadar ‘sepuluh tiga’ tidak membuat anda cukup takut, terdapat juga kadar sepuluh empat dan sepuluh lima, bergantung pada amaun yang dipinjam dan status kredit peminjam. Tidak mustahillah kadar faedah yang tinggi ini akan mendatangkan huru-hara ke atas hidup peminjam. bil. 4/2019 | 5 2. Anda tidak dibenarkan untuk membuat bayaran penuh Jika anda fikir anda boleh menyelesaikan hutang along dengan mudah, anda silap! Baru-baru ini, terdapat berita berkenaan seorang lelaki yang masih diganggu oleh along walaupun telah membayar sebanyak RM120,000 untuk menjelaskan sebahagian hutangnya. Mengapa boleh jadi begini? Tidak kisahlah jika anda mempunyai sejumlah wang yang banyak untuk menyelesaikan hutang sekalipun, kebanyakan along tidak menerimanya kerana ia tidak membawa sebarang keuntungan kepada mereka. Seperti bank, along mendapatkan keuntungan daripada kadar faedah yang mereka kenakan. Realiti yang anda perlu tahu ialah along tidak peduli akan kesusahan hidup anda. Mereka hanya ingin mengambil kesempatan dalam kesempitan anda untuk mengaut keuntungan. 3. Barang peribadi anda akan dijadikan wang jaminan Bagi memastikan anda tidak lari dan sentiasa membayar hutang, along akan mengambil barang peribadi yang penting seperti pasport, kad bank, bahkan kad pengenalan untuk dijadikan wang jaminan atau cagaran. Mungkin ada yang bertanya, “Bolehkah mereka buat sedemikian?”. Mengikut undang-undang, mereka tidak boleh berbuat demikian. Namun memandangkan perniagaan mereka sendiri adalah tidak berlesen, mereka memang tidak peduli akan tindakan undang-undang dan akan memastikan anda sentiasa terikat dengan mereka. Ini boleh menimbulkan masalah lain dan ada kemungkinan bahawa along ini akan menyalahgunakan butiran peribadi anda tanpa pengetahuan anda. Sebagai contoh, along mungkin akan menggunakan maklumat anda untuk memohon pinjaman lain atau memanfaatkannya untuk kegunaan sindiket lain seperti kecurian identiti dan menjadikan akaun bank anda sebagai keldai akaun. 4. Terma dan syarat sering berubah Cara along melakukan kerjanya lain daripada cara operasi bank dan institusi kewangan yang lain. Pelbagai dokumen yang anda perlu sediakan jika berurusan dengan bank dan institusi kewangan. Tetapi jika berurusan dengan along, anda hanya perlu menelefon mereka dan menandatangani perjanjian tanpa terma dan syarat yang jelas dan terus boleh memperoleh wang! Along boleh menukar terma dan syarat perjanjian sesuka hati. Contohnya, mungkin hari ini mereka menawarkan 10% kadar faedah tetapi selepas dua bulan, mereka boleh mengenakan kadar faedah yang lebih tinggi dan memaksa peminjam untuk percaya bahawa ia termasuk dalam yuran pemprosesan. Bukan itu sahaja, peminjam yang lewat membuat bayaran akan dikenakan caj sebanyak RM500 bagi setiap 30 minit lewat bayaran. 5. Tidak mampu untuk membayar? Pinjam dengan along lain untuk menyelesaikan hutang Terdapat banyak tipu muslihat yang digunakan oleh along yang anda mungkin tidak sedar. Jika anda mempunyai alasan tidak mampu membayar hutang, mereka bukan sahaja akan mengacau dan mengugut secara fizikal dan mental, malah mereka akan memaksa anda untuk membuat pinjaman dengan along yang lain untuk anda membayar balik hutang mereka. Kaedah yang digunakan oleh pihak along tidak sama seperti kaedah penyatuan hutang dengan bank, sebaliknya anda perlu membayar lebih banyak kadar faedah. Pinjamlah daripada institusi kewangan yang berlesen Jangan menjadi mangsa dalam skim pinjaman mudah ini kerana ia akan memudaratkan anda. Anda dinasihatkan agar tidak membuat pinjaman daripada along dalam apa jua keadaan sekalipun. Sumber: www.loanstreet.com.my C O N T O H 6 | RINGGIT Anda tidak perlu menjadi seorang jutawan untuk mengaut keuntungan daripada pelaburan yang bijak. Dengan informasi dan pengetahuan yang betul, anda boleh memanfaatkan peluang pelaburan untuk mengubah kedudukan kewangan dan gaya hidup anda. Berikut adalah langkah yang membolehkan anda melabur RM10,000 secara bijak. 1. Fahami Risiko Pelaburan Bukan semua pelaburan sama. Terdapat pelbagai pilihan dan risiko yang tersedia untuk anda, daripada risiko rendah seperti sekuriti kerajaan dan simpanan tetap yang bersifat konservatif sehinggalah risiko yang lebih tinggi seperti dana ekuiti dan saham syarikat senaraian awam bermodal kecil. Secara kebiasaannya, pelaburan yang berisiko rendah memberikan pulangan yang rendah tetapi jaminan sekuritinya lebih tinggi. Manakala dengan pilihan yang lebih berisiko, anda berkemungkinan mendapat pulangan yang jauh lebih tinggi tetapi wujud kemungkinan yang anda mungkin tidak akan mendapat pulangan sama sekali. Oleh itu, ia terpulang kepada individu untuk memahami risiko yang sanggup diambil untuk mendapatkan pulangan ke atas pelaburan yang dilakukan. Anda dicadangkan supaya mewujudkan suatu jaring keselamatan, iaitu bersamaan jumlah enam bulan gaji sebelum memulakan pelaburan. Simpanan ini memberi ruang untuk mengejar pelaburan yang lebih berisiko tinggi agar ia dapat memberikan pulangan yang lumayan dalam jangka masa panjang. 2. Simpanan Tetap Menawarkan Pilihan Berisiko Rendah Kadar faedah bagi akaun simpanan bank masih kekal hampir 0% selama beberapa tahun kebelakangan ini. Namun begitu, jika anda meletakkan wang anda dalam simpanan tetap, anda akan lihat bahawa akaun tersebut menjana kadar faedah antara 3% dan 4%. Cara Melabur RM10,000 Dengan Bijak bil. 4/2019 | 7 Anda boleh mendapatkan pulangan ke atas simpanan tetap dengan pilihan yang mudah. Menurut Perbadanan Insurans Deposit Malaysia (PIDM), simpanan tetap di Malaysia dilindungi sehingga RM250,000 menjadikannya satu pilihan pelaburan berisiko rendah dengan pulangan yang stabil. Walau bagaimanapun harus diingat bahawa simpanan tetap masih beroperasi di bawah kadar inflasi, jadi jika anda berhasrat untuk meningkatkan aset anda berlipat kali ganda, ia mungkin bukan pilihan yang terbaik. 3. Jual Beli Saham Menawarkan Pulangan Yang Lebih Baik, Namun Berisiko Tinggi Membeli saham dan menjadi pemegang saham syarikat tersenarai merupakan antara perkara menjanjikan pulangan yang tinggi ke atas pelaburan yang dibuat. Caranya ialah dengan mencari syarikat yang berkualiti tetapi terkurang nilai (undervalued). Ia mungkin syarikat pemula (start-up) yang baru beroperasi atau perniagaan yang sedang bergelut, namun mempunyai ruang untuk kembali menjadi lebih besar dan kukuh. Walau bagaimanapun, semua pelaburan ini tidak bersifat ‘selamat’, jadi anda perlu melakukan kajian yang lebih sempurna untuk memilih pelaburan terbaik yang mampu memberikan pulangan tinggi. 4. Komoditi Sebagai Pilihan Pelaburan Komoditi seperti emas dan perak adalah satu lagi pilihan pelaburan yang anda boleh pertimbangkan dengan modal RM10,000. Sejak dahulu lagi, harga emas memberikan para pelabur keuntungan yang bagus. Namun, harga komoditi ini tidak stabil semenjak beberapa tahun kebelakangan ini menjadikannya suatu pelaburan yang semakin berisiko. 5. Pelbagaikan Jenis Pelaburan Jika wujud hanya satu peraturan yang perlu dipatuhi dalam dunia pelaburan, tentu ia mengatakan bahawa anda perlu mempelbagaikan sumber pelaburan agar anda tidak bergantung sepenuhnya hanya pada satu sumber sahaja. Prinsip ini juga boleh diguna pakai untuk modal RM10,000 anda. Cuba imbangkan antara pelaburan berisiko rendah dan tinggi supaya anda dapat manfaat daripada kedua- dua jenis pelaburan tersebut. Dengan menggabungkan pelaburan berisiko rendah dan tinggi dalam portfolio tersebut, anda tidak akan kehilangan wang sekali gus, jika salah satu pelaburan itu tidak mendatangkan keuntungan. Sumber: www.aia.com.my 8 | RINGGIT Bantuan Kerajaan Untuk Golongan B40 4) Dana Rumah Mampu Milik 2019 BNM Kerajaan juga telah memperkenalkan bantuan pembiayaan pemilikan rumah pertama untuk golongan yang berpendapatan rendah yang dikenali sebagai Dana Rumah Mampu Milik Bank Negara Malaysia (BNM). Dana Rumah Mampu Milik BNM merupakan dana berjumlah RM1 bilion, iaitu warganegara Malaysia yang mempunyai isi pendapatan rumah tidak lebih dari RM2,300 dan tiada rekod pembayaran terjejas untuk tempoh 12 bulan kebelakang, layak memohon untuk membeli kediaman yang berharga RM150,000 ke bawah. Kadar faedah maksimum ditetapkan pada 3.5 peratus setahun untuk tempoh pembiayaan 40 tahun atau sehingga berumur 70 tahun, yang mana terdahulu. 5) Bantuan Awal Persekolahan (BAP) Bantuan ini tidak perlu dimohon tetapi akan diberikan secara automatik dengan melihat pendapatan kasar bulanan seisi rumah ibu bapa atau penjaga pelajar iaitu tidak melebihi RM3,000. Bantuan yang akan diberikan adalah seperti berikut: • RM 100 kepada setiap seorang pelajar tahun satu sehingga tingkatan lima 6) i-Suri KWSP Bagi golongan suri rumah, ibu tunggal dan balu, kerajaan juga menyediakan sebuah insentif khas kerajaan bagi yang telah berjaya mendaftar dalam Pengkalan Data Kemiskinan Nasional (eKasih). Bagi program ini penerima akan mendapat manfaat seperti ahli KWSP yang lain. Seperti dividen tahunan ke atas simpanan persaraan, bantuan hilang upaya, bantuan kematian serta pengeluaran ketika berumur 50, 55 dan 60 tahun. 7) Skim Peduli Kesihatan PeKa B40 Skim Peduli Kesihatan untuk Kumpulan B40 (PeKa B40) adalah satu inisiatif atau senarai bantuan Kerajaan melalui Kementerian Kesihatan Malaysia (KKM) yang bertujuan untuk menampung keperluan kesihatan golongan berpendapatan rendah memberi fokus terhadap penyakit tidak berjangkit (NCD). Untuk makluman, PeKa B40 ditawarkan kepada rakyat Malaysia yang berada dalam lingkungan pendapatan isi rumah 40% terendah, yang dikenali sebagai kumpulan B40. Penerima bantuan Sara Hidup (BSH) dan pasangan mereka, yang berumur 50 tahun dan ke atas, secara automatik layak menyertai PeKa B40. Sumber: www.Permohonan.my 1) Bantuan Sara Hidup Rakyat (BSH) 2019 Untuk makluman anda, terdapat 4 kategori penerima BSH. Keempat-empat kategori itu adalah seperti berikut: • I s i r u m a h b e r p e n - d a p a t a n b u l a n a n RM2,000 dan ke bawah akan menerima bantuan berjumlah RM1,000. • Isi rumah berpendapatan bulanan dari RM2,001 hingga RM3,000 ke bawah akan menerima bantuan berjumlah RM750. • Isi rumah berpendapatan bulanan dari RM3,001 hingga RM4,000 akan menerima bantuan berjumlah RM500. • Kadar tambahan sebanyak RM120 untuk setiap anak berumur 18 tahun ke bawah tetapi terhad kepada 4 orang, kecuali anak kurang upaya yang tidak dihadkan umur. 2) Dana Perlindungan Kesihatan Nasional (Skim MySalam) Bermula 1 Januari 2019, kerajaan telah mengimplementasikan Skim Perlindungan Nasional B40 yang dikenali sebagai Skim MySalam untuk mewujudkan jaringan keselamatan sosial secara percuma kepada yang berkelayakan. Penerima yang terdiri daripada golongan B40 berumur antara 18 hingga 55 tahun dan menghidap salah satu daripada 36 jenis penyakit kritikal. 3) Rebat Bil Elektrik RM40 Bil Elektrik RM40 adalah program khusus kepada kumpulan sasar misk in tegar dan miskin selaras dengan hasrat Kerajaan untuk mengurangkan beban kewangan rakyat. Penerima yang layak adalah Ketua Isi Rumah yang tersenarai dan disahkan di bawah kategori miskin tegar dan miskin dalam Sistem eKasih Unit Penyelarasan Pelaksanaan, Jabatan Perdana Menteri ICU JPM. Penerima bantuan hanya perlu membayar baki bil elektrik yang melebihi RM40 dan sekiranya bil tersebut di bawah RM40 maka ianya adalah percuma. bil. 4/2019 | 9 Sejak kebelakangan ini, Pusat Khidmat Aduan Pengguna Nasional (NCCC) sering menerima aduan berkaitan aktiviti pemasaran pakej, dalam bentuk seminar produk ‘pelaburan’. Aktiviti pemasaran ini bertujuan untuk mengumpan bakal pelanggan dengan menawarkan pelbagai peluang pelaburan yang lumayan. Modus operandi aktiviti ini ialah mengadakan seminar pelaburan di hotel-hotel mewah. Anda akan dihubungi oleh wakil syarikat ini supaya datang ke hotel tersebut pada tarikh dan masa yang ditetapkan. Peserta disyaratkan supaya hadir bersama-sama suami atau isteri masing- masing. Anda akan dijanjikan ganjaran dalam bentuk baucar penginapan hotel sekiranya menghadiri seminar berkenaan. Semasa seminar, anda akan dimaklumkan mengenai strategi pelaburan yang akan membolehkan anda mendapat ganjaran lumayan secara cepat dan mudah. Penceramah seminar menggunakan kenyataan yang mengelirukan untuk menarik bakal pelabur untuk membeli produk mereka yang berharga mahal atau menyertai pelaburan dalam syarikat tertentu. Anda akan diminta untuk membuat pembelian atau pelaburan pada masa itu juga dengan membayar menggunakan kad kredit. Apabila anda pulang ke rumah, baru anda menyedari bahawa anda sebenarnya terjebak dengan pelaburan yang meragukan. Anda perlu mengenali dan mengelakkan daripada bentuk tawaran yang berunsur penipuan seperti seminar pelaburan yang dinyatakan di atas. Terdapat tiga jenis penipuan pelaburan yang utama: 1. Pelaburan rekaan yang tidak wujud. 2. Pelaburan itu mungkin wujud tetapi penipu mengambil wang itu untuk kegunaan diri sendiri dan bukannya digunakan untuk pelaburan. 3. Penipu mendakwa mewakili syarikat pelaburan tertentu yang sah dan dipercayai. Tanda-tanda Penipuan Seminar Pelaburan: • Wakil syarikat menghubungi anda secara mengejut melalui panggilan telefon, khidmat pesanan segera, mesej di media sosial, e-mel dan sebagainya. Penipu juga menggunakan platform media sosial seperti Facebook, Instagram dan Twitter untuk menarik orang ramai menghadiri pelaburan tentang matawang kripto, pertukaran mata wang asing dan pilihan binari. Penipu sering mempunyai profil media sosial atau laman sesawang yang meyakinkan dengan testimoni palsu. • Penganjur akan mendesak anda membuat keputusan dengan segera. Mereka akan mempengaruhi anda dengan mengatakan bahawa tempoh tawaran pelaburan adalah terhad, anda mendapat bonus atau diskaun jika mendaftar pada hari tersebut. • Mereka akan menghubungi anda atau menghantar e-mel secara berulang kali yang bertujuan untuk memberi tekanan kepada anda supaya membuat keputusan dengan segera. • Pelaburan tersebut dikatakan memberi pulangan yang lumayan, yang seolah-olah adalah terlalu bagus untuk dipercayai (too good to be true). Pelaburan mempunyai beberapa tahap risiko yang tertentu. Tahap risiko ini biasanya berkait rapat Penipuan Seminar Pelaburan 10 | RINGGIT dengan pulangan yang akan diterima oleh pelabur. Jika risikonya rendah, bermakna hasil pulangan yang rendah. Begitu juga sekiranya hasil pulangan adalah tinggi, ia melibatkan risiko yang lebih tinggi juga. Penganjur akan cuba meyakinkan para peserta seminar bahawa pulangan pelaburan adalah ‘terjamin’ dan mereka akan mengalami kerugian jika tidak menyertai pelaburan tersebut. • Mereka meminta anda supaya tidak memberitahu sesiapa berkenaan pelaburan ini. Penipu mungkin memberitahu anda bahawa peluang pelaburan ini hanya untuk anda dan meminta anda supaya tidak memberitahu sesiapa. Cara-cara Menghindari Penipuan Seminar Pelaburan • Anda perlu mendapatkan maklumat sebelum menghadiri seminar. Sebelum menghadiri mana- mana seminar mengenai strategi pelaburan, anda harus meneliti individu atau syarikat yang menganjurkan seminar pelaburan. • Anda perlu bertanya soalan mengenai strategi pelaburan. Antara soalan tersebut ialah: o Berapakah kos untuk mempelajari strategi pelaburan? Peserta perlu menentukan kos pendahuluan dan kos-kos lain yang berkaitan dengan pembelajaran dan melaksanakan strategi pelaburan. o Apakah risiko strategi pelaburan ini? Setiap pelaburan mempunyai risiko tertentu. Pelabur perlu berwaspada terhadap sebarang strategi pelaburan yang tidak mempunyai risiko atau dikatakan berisiko rendah. • Berwaspada dengan dakwaan kejayaan pelaburan pada masa lalu. Sesetengah penganjur akan cuba untuk mengesahkan keberkesanan strategi pelaburan mereka dengan menekankan tentang kejayaan pelaburan yang diperolehi oleh bekas pelabur sebelum ini, yang menggunakan strategi pelaburan mereka. Terdapat juga penganjur yang membawa ‘bekas pelabur’’ untuk muncul di seminar pelaburan itu untuk berkongsi kejayaan pelaburan mereka. Penganjur turut memberikan rekod pelaburan palsu atau mengelirukan untuk menunjukkan kejayaan pelaburan mereka. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) “Penipu mungkin memberitahu anda bahawa peluang pelaburan ini hanya untuk anda dan meminta anda supaya tidak memberitahu sesiapa.” bil. 4/2019 | 11 TIPU A NJAMA Tanpa penjamin! Blacklist bank boleh mohon! Berhati-hati dengan tawaran pinjaman atas talian yang mudah dan cepat. Jangan terpedaya dengan bayaran proses, guaman, insurans dll yang diminta oleh saspek. TAHUKAH ANDA ?? Pemberi Pinjam Wang yang sah hanya boleh menjalankan urusan pinjaman di alamat operasi (pejabat) yang diluluskan sahaja. Setiap premis yang menjalankan perniagaan sebagai Pemberi Pinjam Wang yang sah perlu mempamerkan lesen mereka di tempat yang mudah dilihat. j/:3:::u~:'éa::::m aesmm Pous DIRAJA MALAYSIA http:lIccid.rmp.gov.my ‘-1 A; V‘ ~ “"7 !{riu_n. 9%‘-"'

Public Notice

28 May 2019

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-28052019

https://www.bnm.gov.my/documents/20124/761679/FCA_20190527_EN.pdf

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 28 May 2019 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 438 companies/entities. The following company was added to the list: Dana BPIP Dana Heritage Skim Pelaburan SMMG Skim Pelaburan ROP CFAF Wakala M & FI Enterprise The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

No Name of unauthorised entities/individual Website Date Added to Alert List 1 1globalcash 13/07/2012 2 1Gold.com.my www.1gold.com.my  13/07/2012 3 3Sixty Venture Capital PLC www.empire3sixty.com http://forum.putera.com/tanya/index.php?/topic/92929-3sixty- ventureanda-mahu-income-pasif-rm1500-setiap-hari/ 30/12/2014 4 A.A.M Global Corporation Sdn Bhd 17/05/2017 5 Ace Global Sales & Services 02/05/2013 6 Ace Dimension Network Sdn Bhd 10/04/2015 7 AE Group Holding Pte. Ltd. (201322498-D) http://www.aevfc.com 14/05/2015 8 Agarwood Venture (002273031-A) 19/02/2014 9 Agar Wood Chamber of Commerce Malaysia 21/05/2015 10 Ahmad Zulkhairi Associates PLT (LLP0009065) http://www.fx10capital.com 22/06/2017 11 Ajuwah Realty Sdn Bhd (966604-D) 25/07/2014 12 Ajuwah Agencies Sdn Bhd (966604-D) 25/07/2014 13 Ajuwah Consultancy 21/05/2015 14 Alpari (Asian) Ltd 21/05/2014 15 Al-Saliha Worlwide Sdn. Bhd. (628267-M) 13/07/2012 16 ArkianFX 18/03/2019 17 Amazing Yields Sdn Bhd (891529-V) 23/01/2013 18 Amethyst Gold Creation Sdn Bhd (951063-K) www.powergoldclub.com www.powergold999.com www.powergold.biz 12/11/2013 19 Applikasi Duit http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 20 APS Asia Plantation Sdn Bhd (984575-T) 28/03/2013 21 Arba Emas Perak (SA0280035-A) http://www.arbaemasperak.com 14/05/2015 22 ARS Ultimate Sdn Bhd (1268778 - A) 06/08/2018 23 Aruna Travel 25/09/2013 24 Arribhu Suci Enterpise http://www.premierfxmarket.com 28/08/2017 25 Asas Seroja Sdn Bhd (357014A) 23/12/2015 26 Ascada Kiraana Sdn Bhd (1225011A) 06/12/2017 27 Asia Equity Ventures (002576131V) www.asian-equity.com 10/10/2018 28 Ashnik Holdings (M) Sdn Bhd (1124601D) 23/12/2015 29 Ashnik Trading (002369914-W) 23/12/2015 30 AsiaLink Globe Capital www.com-agc.com 25/07/2014 31 Astral Progress Sdn Bhd (989294-K) 13/10/2015 32 Asset Growth Solution Enterprise (002552148 - K) http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 33 Atlantic Global Asset Management (AGAM) https://atlanticgam.es https://private.atlanticgam.es/#/signup/partner=P09201446202971 28/08/2017 34 AU Niaga Sdn Bhd (907806-W) 13/07/2012 35 AU79 International 13/07/2012 36 Auto Trading Management https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 37 Aurawave Marketing Sdn. Bhd http://www.aurawave2u.com 14/05/2015 38 Axis Capital Corporation Ltd www.axiscapitalcorp.com 19/02/2014 39 Aziera Gold Enterprise (NS0133976-K) 25/02/2016 40 BC Academy Sdn Bhd 17/05/2017 41 BC Bullion Sdn Bhd 17/05/2017 42 BDIG Investment Scheme https://www.facebook.com/BDIGroupMalaysia/ https://www.facebook.com/TeamDoubleProfit/ https://www.facebook.com/smartBDIG/ https://www.facebook.com/BdiGroups-Malaysia-1937078139955774/ 11/07/2018 43 Berkat FD Sdn Bhd 17/05/2017 44 BFS Markets Ltd www.bfsforex.com 25/07/2014 45 Binary Indulgence Sdn Bhd (963258-W) 25/07/2014 46 Bitclub Network https://bitclubnetwork.com/opportunity.html https://www.facebook.com/bitclubnetwork.BCN/ 28/08/2017 47 BitKingdom www.bitkingdom.org 24/02/2017 48 BSG- Buat.Simpan.Ganda www.bsg.my www.bsg.my/arib www.bsg.my/atsproject https://www.facebook.com/atsproject 06/12/2017 49 Build Rich Mining Group Bhd (1006586-T) www.buildrich.us 28/03/2013 50 Build Rich Investment Group Ltd 19/02/2014 51 Build Rich Group Holding 19/02/2014 52 Build Rich Agrotech Berhad 19/02/2014 53 Build Rich Enterprise 19/02/2014 54 Bumi Klasik Warisan Enterprise 13/07/2012 55 Capital Asia Group (M) Sdn Bhd www.capitalasiagroup.com 14/05/2015 56 Carbon Cash Bhd (1218702-K) http://carbontoken.com/ http://goalgreen2u.com 31/07/2017 57 Carousell Capital (0000140783T) 14/01/2019 58 Cash Deal Sdn Bhd (Boss Venture) www.bossventure.com 19/02/2014 59 Century Dynasty Asia Pacific Sdn Bhd 28/08/2017 60 Century Dynasty Group Berhad 28/08/2017 61 Century Dynasty Group LTD 28/08/2017 62 Century Dynasty Resources Sdn Bhd (980031-K) 28/08/2017 63 Celik Emas Enterprise (0021517795-K) 14/05/2015 64 CFAF Islamic www.cfaf-islamic.com 14/01/2019 65 CFWA Capital Business (002665083V) www.cfaf-islamic.com 14/01/2019 66 CFAF Wakala Wakala.biz 27/05/2019 67 Changkat Agro Resources (IP 0353991V) 14/05/2015 68 CG International 31/07/2017 69 CGC Aquaculture Sdn Bhd (1044976P) 06/12/2017 70 CGF Fine Metal Sdn Bhd 27/09/2012 71 Classic Worldwide Corporation (M) Sdn Bhd (773082M) www.cwc.com.my programarba.blogspot.my 27/05/2016 72 Climate Protectors Sdn. Bhd 23/06/2017 73 Coin Enterprise Ltd Livecoin.net 23/06/2017 Based on information received by BNM, below is the list of known companies and websites which are not authorised nor approved under the relevant laws and regulations administered by BNM: www.bookcoinsmalaysia.com http://www.aevfc.com/ http://www.fx10capital.com/ http://www.aplikasiduit.com/ http://www.aplikasiduit.com/ http://www.arbaemasperak.com/ http://www.premierfxmarket.com/ http://www.asian-equity.com/ http://www.com-agc.com/ http://www.aplikasiduit.com/ http://www.aplikasiduit.com/ https://atlanticgam.es/ https://atlanticgam.es/ https://www.facebook.com/simplyfxmalaysia/ http://www.aurawave2u.com/ http://www.axiscapitalcorp.com/ http://www.bfsforex.com/ http://www.bitkingdom.org/ http://www.bsg.my/ http://www.bsg.my/ http://www.bsg.my/ http://www.bsg.my/ http://www.buildrich.us/ http://www.capitalasiagroup.com/ http://www.bossventure.com/ http://www.cfaf-islamic.com/ http://www.cfaf-islamic.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 74 CryptoDaily Investment Packages https://cryptodaily.io https://www.facebook.com/pg/Cryptodailyio-323902771374164/reviews/ 19/09/2017 75 CTK Network http://CTK2U.com 16/10/2012 76 Classic FX Venture https://www.facebook.com/Classic-FX-Venture-92977800446648/ 31/07/2017 77 CybertrustFX 22/07/2013 78 CYL Asia Enterprise 29/06/2017 79 CYL4U Resources www.cyl4u.com 29/06/2017 80 CYL Peoria Enterprise 29/06/2017 81 CYL Prospect Trading 29/06/2017 82 Dana BPIP 27/05/2019 83 Danatama Millennium Sdn Bhd (819082-U) 02/05/2013 84 Dana Haji Jasman 13/07/2012 85 Dana Heritage 27/05/2019 86 Darul Emas Perak Bhd 19/02/2014 87 DBB Star Sdn Bhd (1110055-M) 25/02/2016 88 Degold Empire Sdn Bhd (882335-M) 13/07/2012 89 Delta Wealth Services (002194713-K) 25/07/2014 90 Destiny Resources Services 25/07/2014 91 Dgreat Network http://info.simplebisnes.com 02/05/2013 www.dinardirham.com www.dinardirham.online 93 DM Rise Enterprise (PG 0262929-H) 20/10/2014 94 DNA Profile Sdn Bhd (245435-W) 13/07/2012 95 Dream Success International Sdn Bhd (1002002-P) www.Surewin4u.com 25/09/2013 96 Dynamic Wira Marketing Sdn Bhd - Skim Beras 1 Malaysia 23/01/2013 www.dynasty-worldwide-net www.dynastymf.com 98 Eagle Aeronautics (M) Sdn Bhd (796603-A) 27/09/2012 99 East Cape Mining Corp 13/07/2012 100 Ecobit 23/06/2017 101 Ecofuturefund www.ecofuturefund.biz 25/09/2013 102 Efzinitus Capital Pte Ltd www.efzinitus.com 09/05/2017 103 Emgoldex (Emirates Gold Exchange) 10/04/2015 104 Empire Five Trading www.mikadofx.com 04/04/2014 105 Empires Making Money For You (EMM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 106 Energetic Gateway Sdn Bhd (511826-X) 23/01/2013 107 Epic Palms Bhd http://epicpalmsberhad.com/ 28/03/2013 108 Ethtrade Limited https://ethtrade.org 22/06/2017 109 Ethtrade Malaysia 22/06/2017 110 Everise Fumigation Sdn Bhd (861654-K) 25/07/2014 111 Exorbitance Influence Sdn Bhd (1191499-U) www.krubal.com 09/01/2017 112 Exquisite Bottle Index Sdn Bhd (1060843T) www.xbi.com.my 23/12/2015 113 Exness Executive Management 28/08/2017 114 Exness Malaysia 28/08/2017 115 Extra Capital Programme http://extracapitalprogram.com 13/07/2012 116 Ezey Marketing 13/07/2012 117 Ezy Save Trading (PG0216560 - V) 19/09/2017 118 EZYFX Berhad (1213734P) www.ezyfx4u.com https://ezfx4u.wordpress.com 14/01/2019 119 E-Qirad Sdn Bhd (595699-D) 28/03/2013 120 FA Markets 02/05/2013 121 Family Wealth Resources (SA0310508-M) 13/10/2015 122 Fari Group Global Resources (SA0319984-M) 23/12/2015 123 FBS Malaysia http://fbsmy.com 31/07/2017 124 FE Brands (M) Sdn Bhd (1000656-H) 13/07/2012 125 Financial.org Malaysia https://www.facebook.com/financial.org.malaysia/ 09/04/2018 126 Flexsy Enterprise & Barrilorne Corp 13/07/2012 127 FNZ Capital Limited www.intelfx.com 13/07/2012 128 Fruits LT Ventures 28/08/2017 129 Fruits LT Ventures Investment Scheme 28/08/2017 130 Fortrend International Sdn Bhd (876619-X) 01/09/2015 131 Forex4you http://www.forex4you.com/en/about https://www.facebook.com/forex4you.malaysia/ 28/08/2017 132 Forexnova http://www.facebook.com/forexnovamalaysia/ https://www.forexbrokerz.com/brokers/ForexNova-review 31/07/2017 133 Futurebarrel.com http://futurebarrel.com 12/11/2013 http://ftindojaya.blogspot.com www.ft-indojaya.com 135 FXBITLab Holdings Sdn Bhd (1212832-T) https://www.fxbitlab.com 31/07/2017 136 FxUnited Malaysia (myfxunited) 10/04/2015 137 FXUnited Power Sdn Bhd (1146795-M) http://www.fxunitedpowerinternational.com/ 27/05/2016 138 FXZN Zenith Limited http://www.fxzn.com 30/12/2014 139 FXZN Investment Limited 30/12/2014 140 FXZN Zenith Management Limited 30/12/2014 141 FX Primus Ltd https://trivfx.com 23/12/2015 142 Gain FX Capital Sdn Bhd www.gainfxcapital.org 13/07/2012 143 Gan Patt Services 13/07/2012 144 Ganding Wawasan Trading (TR0133766-A) 25/07/2014 145 GCMAsia https://www.gcmasia.com/my/ https://www.facebook.com/GCMAsia-902721186484854/ https://www.instagram.com/gcmasia/ https://twitter.com/GcmAsia 17/01/2018 146 Gemilang Jalur Pintar Enterprise http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 147 GGC Aquaculture Sdn Bhd (1044976P) 23/12/2015 148 GGF Golden House Sdn Bhd (803753-W) 13/07/2012 149 GGT Golds Sdn Bhd (547290-D) 25/02/2016 150 Global Creation Trading 13/07/2012 151 Global Golds Trading (JM0518201-W) 25/02/2016 152 Global Peace Loving Family www.globalpeacelf.com 27/09/2012 153 Global Tijari Holdings Berhad 31/07/2017 https://exnesmalaya.com https://www.facebook.com/Fruits-LT-Ventures-161191244419863 134 Future Trade Indojaya Sdn Bhd (1003327-P) 27/09/2012 92 Dinar Dirham Global 09/01/2017 97 Dynasty Worldwide Sdn Bhd (800311-D) 25/09/2013 https://cryptodaily.io/ https://cryptodaily.io/ http://ctk2u.com/ https://www.facebook.com/Classic-FX-Venture-92977800446648/ http://www.cyl4u.com/ http://info.simplebisnes.com/ http://www.dinardirham.com/ http://www.dinardirham.online/ http://www.surewin4u.com/ http://www.dynasty-worldwide-net/ http://www.dynastymf.com/ http://www.ecofuturefund.biz/ http://www.efzinitus.com/ http://www.mikadofx.com/ http://epicpalmsberhad.com/ https://ethtrade.org/ http://www.krubal.com/ http://www.xbi.com.my/ http://fbsmy.com/ https://www.facebook.com/financial.org.malaysia/ http://www.intelfx.com/ http://www.forex4you.com/en/about http://www.forex4you.com/en/about http://futurebarrel.com/ http://ftindojaya.blogspot.com/ http://www.ft-indojaya.com/ https://www.fxbitlab.com/ http://www.fxunitedpowerinternational.com/ http://www.fxzn.com/ https://trivfx.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ http://www.globalpeacelf.com/ https://exnesmalaya.com/ https://www.facebook.com/Fruits-LT-Ventures-161191244419863 No Name of unauthorised entities/individual Website Date Added to Alert List 154 Global Tijari Industries Sdn Bhd 31/07/2017 155 Global Venture Financing http://globalventurefinancing.com 13/07/2012 https://globalwavegold.com http://gwgfx.com 157 Globamas Trading https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 158 GM Trader http://www.gmtraderteam.com https://www.facebook.com/GmTrader-859208567506294/ 28/08/2017 159 Gold Bullion World Sdn Bhd (1018604-A) http://goldenworld.com.my 22/07/2013 160 Gorgeous Chain Sdn Bhd (841928-P) 13/07/2012 161 Grand View Golden Success Sdn Bhd (638186-X) - Golden Maximum 22/07/2013 162 Golden Speed Trading (002252254-K) 28/08/2017 163 Great Access Sdn Bhd (517965-X) 13/07/2012 164 Green Buck Resources Sdn Bhd (851115-A) 02/05/2013 165 Greenmillion Agrosolution Enterprise http://greenmillionagrisolution.blogspot.com 27/09/2012 166 Green Forest Global Sdn Bhd (987049-P) 22/07/2013 167 Grow Asia Capital Holdings (0000151641T) 14/01/2019 168 Grow Asia Capital Ventures (0000151635T) 14/01/2019 169 GTGVIP www.gtgvip.biz www.gtgvip.net 31/07/2017 170 HAFX Global Venture Sdn Bhd 13/10/2015 171 Harvest Reliance Consultancy Sdn Bhd (965589-W) 02/05/2013 172 HEA Teguh 25/09/2013 173 Hexa Commerce Sdn Bhd (645798-X) 13/07/2012 174 HG Resources Sdn Bhd http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/02/2016 175 HiFX Asia (HiFX) www.hifx2rich.com 25/02/2016 176 Highway Group Resources http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/02/2016 177 Hin Huat Auto Sparts (TR0005484-X) 25/07/2014 178 HotForex Malaysia https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/hfmarketsmalaysia http://hotforexpro.blogspot.my/ 28/08/2017 179 Holiday Express Asia 25/09/2013 180 Honest Group Ltd 13/07/2012 181 Hupro International Inc 13/10/2015 182 I & A Global Community Network 15/09/2016 183 Iconhill Holding Sdn Bhd (810775-P) 13/07/2012 184 IGC Diamond 13/07/2012 185 IGOFX https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf 31/07/2017 186 Infinity Star International Sdn Bhd (851864-T) 25/09/2013 187 Instaforex 13/07/2012 188 Instagroup Resources (JM0531870-X) 27/05/2016 189 INint Global Solution - (IGS) http://www.igsvc.biz/igs1 https://www.facebook.com/igs.biz/?hc_ref=SEARCH&fref=nf 28/08/2017 190 Inter Pasicfic Soyy Enterprise 10/04/2015 191 IPG Capital 24/04/2018 192 Iridian Ventures PLT (LLP0002569-LGN): 13/10/2015 193 IronFX Solid Trading 13/10/2015 194 Isothree Gold Sdn Bhd (906561-K) 13/07/2012 195 Itradex www.itradexsystem.com 17/05/2017 196 Jalatama Management Sdn Bhd (929594-W) www.jalatama.com 13/07/2012 197 Jalur Gemilang Maju Enterprise (SA 0412058 - U) http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 198 Jazlaan Enterprise 13/07/2012 199 Jihadfarisha Ventures www.dpkingfx.weebly.com 17/05/2017 200 JJ Commerce Trading (SA0399365P) 29/06/2017 201 JJ Global Network www.jjptr.com 24/02/2017 202 JJ Online Enterprise (SA0399360K) 29/06/2017 203 JJ Poor To Rich www.jjptr.com 24/02/2017 204 JJPTR www.jjptr.com 24/02/2017 205 JM Communications & Technology Sdn Bhd (702054-V) 13/07/2012 206 JMI Global 13/07/2012 207 JTGold 13/07/2012 208 Jutawan Apps http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 209 Kazuki Coin www.kazukicoin.net https://www.facebook.com/kzkcSamuraiNetwork/ https://www.facebook.com/kazukicoinHQ/ https://www.facebook.com/billionaireislandclub/ https://www.facebook.com/kazukimalaysia/ http://kongsikazukicoin.blogspot.my/2017/09/kongsikazukicoin.html 30/05/2018 210 Kelab Kebajikan dan Sosial Tun Teja Malaysia http://yds2u.com 02/05/2013 211 Kelab Kebajikan Sosial Malaysia (VVIP88) 04/04/2014 www.kcgtraders.com www.keenonlinefx.com 213 Keenan Prestige Services (002095851-P) 25/07/2014 214 Keenan Brilliant Services (002021597-V) 25/07/2014 215 Kembara Jutawan Crypto https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/07/2017 216 Khaira Sakinah Resources (CT0018249-R) 20/10/2014 217 Kilauan Padu Services Sdn Bhd (KPSSB) (657711-X) 22/06/2017 218 KL FxUnited Club 10/04/2015 219 Kris Plus Enterprise (IP0238424-A) 13/07/2012 220 Kudaemas www.kudaemas.com 20/10/2014 221 L & L Property Ventures SB (1186992T) 29/06/2017 222 Lestari2U www.lestari2u.com 13/07/2012 212 Keenan Capital Group 25/07/2014 156 Global Wave Gold Corporation 12/11/2013 http://globalventurefinancing.com/ https://globalwavegold.com/ http://gwgfx.com/ https://www.empiresmm4u.com/ https://www.empiresmm4u.com/ http://greenmillionagrisolution.blogspot.com/ http://www.hifx2rich.com/ https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf http://www.igsvc.biz/igs1 http://www.igsvc.biz/igs1 http://www.itradexsystem.com/ http://www.jalatama.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ http://www.dpkingfx.weebly.com/ http://www.jjptr.com/ http://www.jjptr.com/ http://www.jjptr.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ http://yds2u.com/ http://www.kcgtraders.com/ http://www.keenonlinefx.com/ https://www.facebook.com/svdmalaysia https://www.facebook.com/svdmalaysia http://www.lestari2u.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 223 LetDuit Scheme www.letduit.com Let Duit Boss (Facebook page) LetDuit Plan 30 Hari (Facebook page) 28/08/2017 224 Liberty Reserve www.libertyreserve.com 13/07/2012 225 Life Time Holidays Sdn Bhd (727129-U) 13/07/2012 226 Live Coin Express 23/06/2017 227 LocalAdClick http://localadclick.net 13/07/2012 http://locusnetwork4u.com http://carigold.com/portal/forums/showthread.php?t=548206 229 LS Gold Bullion Sdn Bhd (235435-H) 28/03/2013 230 M&FI Enterprise 27/05/2019 231 Making Money For You (MM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 232 Mama Captain International http://www.mamacaptain.com http://www.barrel2u.com https://www.mamaharbour.com 29/06/2017 233 Marco Robinson Sdn Bhd www.marcorobinson.com 17/05/2017 234 Mari Wholesale (M) Sdn Bhd (556117-T) 13/07/2012 235 Mateen Acquisition Global (002693981K) www.asia-equity.com 10/10/2018 236 Maxim Capital Ltd www.maximtrader.com 25/09/2013 237 Mayuni Enterprise https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 238 Maza Network Sdn Bhd (1006389-H) 12/11/2013 239 MBI International Sdn Bhd (873323-V) http://www.mbiv2u.com/ 22/05/2017 240 McRen Oceanus Sdn Bhd (908484-X) 22/07/2013 241 MD Venture Group Sdn Bhd (1058936U) 23/12/2015 242 Meccafund Family Malaysia www.meccafundfamilymalaysia.blogspot.com 04/04/2014 243 Mecca Fund Global (MFG) http://meccafundglobal.com https://makkahislamichotel.com mekahalsafwah.blogspot.my 25/02/2016 244 Mega Dynasty Sdn Bhd (931589-V) 13/07/2012 245 Megaherbs Bioextreme (001946380-K) 13/07/2012 246 Megah Mewah Trading (SA0295909-A) 20/10/2014 247 Mface International Sdn Bhd (978203-V) http://www.mbiv2u.com/ 22/05/2017 248 MGCfx www.mgcforex.com 06/06/2016 249 MGC Capital Sdn Bhd www.morgagecapitals.com 06/06/2016 250 MGSB Holding Sdn Bhd www.mgsb.org.my 16/11/2015 251 MH Secret Wealth Enterprise (NS0122059A) 14/05/2015 252 Mi1 Global Sdn Bhd (1145697-X) http://mymi1millionaire.org 09/01/2017 253 Million Jade Sdn Bhd http://www.millionjade.com 14/05/2015 254 Miracle Day Trading (JR0047390-V) 01/09/2015 255 Mohamad World Enterprise 10/04/2015 256 MonSpace (M) Sdn Bhd http://www.monspacea.com 09/05/2017 257 MMM Malaysia https://malaysia-mmm.net https://www.facebook.com/MMM.Malaysia.Official 28/08/2017 258 MOP Consultant Sdn. Bhd (101867-W) 13/10/2015 259 Mughniwave International Sdn. Bhd. (1163697-W) http://mughniglobal.com 15/09/2016 260 MX3 World Wide http://mx3worldwide.com 27/05/2016 261 My Cameron Hills Sdn Bhd 21/05/2015 262 Myrezki http://myrezki.com https://www.facebook.com/bizmeletop2017 28/08/2017 263 MyHowk Ling https://www.facebook.com/profile.php?id=100013203109581 31/07/2017 264 Nahana Golbal Resources (00211411-M) 29/06/2017 265 New Gen Food Sdn Bhd (1186962X) 29/06/2017 266 Nexgain Malaysia Sdn Bhd (773854-D) 28/03/2013 267 Next Generation mall 15/09/2016 268 NGR Asia Group Sdn Bhd (1138129-M) http://www.ngrasia.com 29/06/2017 269 NGR Global Sdn Bhd (UT0004411-H) 29/06/2017 270 NIKPROFIT TRADING http://www.premierfxmarket.com 28/08/2017 271 Nory Motor (TR0023237-H) 25/07/2014 272 Norry Setia Ent (TR0103958-M) 25/07/2014 273 NTB Agencies Sdn Bhd (1039052-M) 25/07/2014 274 O2 Only One 22/06/2017 275 Ocean Century International Limited 23/12/2015 276 OCI Management Sdn Bhd (1042036X) 23/12/2015 277 OCI Venture Sdn Bhd (1039926H) 23/12/2015 278 ODFX http://www.ODFX.com 14/05/2015 279 OG1 Asean 22/06/2017 280 Overseas Commercial Futures (OCFX) 28/08/2017 281 OLTA Capital Management Inc. 13/07/2012 282 Omega Pinnacle Ltd (Labuan) 28/08/2017 www.clubautocash.com www.1autocash.com 284 Only One International Sdn Bhd (1195288W) 22/06/2017 285 Orion Healthcare Management Services Sdn Bhd 10/04/2015 286 Orion Prokasih (M) Sdn Bhd 10/04/2015 287 Ostim Academy (002443002-A) www.ostimint.com 25/02/2016 288 Overseas Delight Sdn Bhd (614245-W) www.arawana2u.com 25/07/2014 289 Pancar Mayang Sdn Bhd (527196-H) 13/07/2012 290 Pars Pay Sdn Bhd (813378-V) 13/07/2012 291 Pegasus Bullion www.pegasusbullion.com 04/04/2014 292 Perfway Traders Sdn Bhd (918583-V) http://www.perfway.com 30/12/2014 293 Perniagaan Jatidana Wawasan (M) Sdn Bhd 30/12/2014 294 Perubatan Islam Seiring Syariat Al-Ikhlas 22/07/2013 295 Pioneer Forest Sdn Bhd (1069104M) www.abunur.com rezekipasif.blogspot.my 27/05/2016 296 Pertubuhan Kebajikan Komuniti Malaysia (PKKM) https://www.pkkm.my 24/02/2017 297 Pok Din Consultant & Services www.pokdinempire.com 27/05/2016 298 Pok Din Empire Sdn Bhd (1130978-D) www.pokdinempire.com 27/05/2016 283 One AutoCash 13/07/2012 228 LocusNetwork4u.com 14/05/2015 http://www.letduit.com/ http://www.letduit.com/ http://www.letduit.com/ http://www.libertyreserve.com/ http://locusnetwork4u.com/ http://carigold.com/portal/forums/showthread.php?t=548206 http://www.mamacaptain.com/ http://www.mamacaptain.com/ http://www.mamacaptain.com/ http://www.marcorobinson.com/ http://www.asia-equity.com/ http://www.maximtrader.com/ http://www.meccafundfamilymalaysia.blogspot.com/ http://www.mgcforex.com/ http://www.morgagecapitals.com/ http://www.mgsb.org.my/ http://mymi1millionaire.org/ http://www.millionjade.com/ http://www.monspacea.com/ https://malaysia-mmm.net/ https://malaysia-mmm.net/ http://mughniglobal.com/ http://mx3worldwide.com/ http://myrezki.com/ http://myrezki.com/ https://www.facebook.com/profile.php?id=100013203109581 http://www.ngrasia.com/ http://www.premierfxmarket.com/ http://www.odfx.com/ http://www.clubautocash.com/ http://www.ostimint.com/ http://www.arawana2u.com/ http://www.pegasusbullion.com/ http://www.perfway.com/ https://www.pkkm.my/ http://www.pokdinempire.com/ http://www.pokdinempire.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 299 Pollywood Scheme http://www.pollywood.asia/index.html http://www.polly.academy/ http://www.facebook.com/pollywoodhq/ https://www.facebook.com/Pollywood-Pte-Ltd-2747462042880450/ 28/08/2017 300 Power Trade Asia Sdn Bhd (933528-T) www.kuasaforex.com.my 12/11/2013 301 PPC Storm http://ppcstorm.com 04/04/2014 302 Preferred Credentials Sdn Bhd 23/01/2013 303 Premier FX Malaysia 28/08/2017 304 Premier Point Market Sdn Bhd (1166245-K) 28/08/2017 305 Premier Point Market LLC 28/08/2017 306 Premier Ventures Gold 28/03/2013 307 Prestige Dairy Farm (M) Berhad (832757-A) 13/07/2012 308 Proficiency Management and Services (002532706X) 22/06/2017 309 Profit Web Sdn Bhd 19/02/2014 310 Program 10 Bulan Forex Trading 13/07/2012 311 Program I-Rich 13/07/2012 312 Pro Infinity Ltd http://proinfinity.com 25/07/2014 313 Projek Duit 2012 13/07/2012 314 Project Tebus Nilai IQD Investment Scheme 06/08/2018 315 Provisio Multimedia 13/07/2012 316 Pruton Mega Holding Limited 24/02/2017 317 PTFX https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia765053533643113/?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia-765053533643113/ https://www.facebook.com/PTFXCopyTrade/ 28/08/2017 318 PTM4U http://passport2u.com 31/07/2017 319 Public Golden House Sdn Bhd (806825-M) 19/02/2014 320 Puncak Hartawan Resources (0000097980-T) 25/07/2014 321 Quantum Capital Program www.quantumcapitalprogram.com www.berjayaforex.com 30/12/2014 322 Questra World (QW) https://questraworld.es https://www.facebook.com/QuestraWorld.Malaysia.1/ 28/08/2017 323 Qinur Enterprise http://www.premierfxmarket.com 28/08/2017 324 Ram Kris Venture (0024165647-K) 23/12/2015 325 RCFX 07/03/2016 326 RC Group 07/03/2016 327 RC Group Sdn Bhd 07/03/2016 328 Real Biz Pasif 12/11/2013 329 Real Ingenious Sdn Bhd (926598-U) www.worldfocus.co 13/07/2012 330 Relax Green Enterprise (PG0415537X) 29/06/2017 331 Rejab Trading (TR0115248-A) 25/07/2014 332 Rejabwealth Sdn Bhd (1005424-X) 25/07/2014 333 Reza Anuar Seven 20/10/2014 334 Retro Titan Sdn Bhd 19/02/2014 335 Rex Russel Capital Investment Group 28/08/2017 336 RGCX Trading Corp http://www.goldrgcx.com/richman8 www.rapidgcx.com 13/07/2012 337 Richway Global Venture www.richwayventure.com www.richwayventure.info 17/05/2017 338 Richway Green Venture (PG0406414M) 29/06/2017 339 Rich World Revolution (RWR) http://richworldrevolution.com/rwr/ https://www.facebook.com/richworldrevolution/ 28/08/2017 340 Rimbun Tekad Realty Sdn Bhd (966604-D) 25/07/2014 341 Rimbun Tekad Consultancy Sdn Bhd (966620-V) 25/07/2014 342 Rising Premium Sdn Bhd (285572-P) 14/05/2015 343 RMMUDAH.COM 13/07/2012 344 RM20segera.com www.rm20segera.com 25/07/2014 345 RN Corporate Services Sdn Bhd 19/02/2014 346 Rowther Technologies MSC Sdn Bhd (727979-T) 13/07/2012 347 Royal Gold Sdn Bhd (1005830-X) http://royalgolds.com 27/09/2012 348 Royale Team Groups www.royaleteaminfo.blogspot.com 02/05/2013 349 RS Capital Holdings Bhd (819833-P) 13/07/2012 350 Safeena Gold Gallery (IP0386035-U) 25/02/2016 351 Sanabil Investment www.sanabil.com 31/07/2017 352 Sejati Agarwood Enterprise 21/05/2014 353 Sera Land Mangement & Enterprise (JM0503206-P) 23/01/2013 354 SFX Management (KT0339697-V) http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/08/2017 355 SGFM Trading Sdn Bhd (936419-V) 27/09/2012 356 SGV Premier Plan Scheme 28/08/2017 357 SimplyFX Malaysia https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 358 Slimberry Extreme Team http://zatslimberry.blogspot.com slimberryxtreme.com 13/07/2012 359 Skim Pelaburan ROP 27/05/2019 360 Skim Pelaburan SMMG 27/05/2019 361 Smarthink Trading (001973331 - M) 19/09/2017 362 Smart Trade Entrepreneur (002459702D ) 22/06/2017 363 Smart Trade Resources Sdn Bhd (1180992A) 22/06/2017 364 SMCI Corporation www.smci.co 31/07/2017 365 Solor Bond Capital Sdn Bhd (1163697-W) www.mysolarbond.com http://solarbond-malaysia.blogspot.my 15/09/2016 366 Speedline www.speedline-inc.com 13/07/2012 367 Spot Gold Scheme 24/04/2018 368 Srgold Exchange Bhd (1033164-V) www.srgold.com.my 12/11/2013 369 Sri Perkasa Emas Trading 13/07/2012 370 Sri Chempaka Emas Enterprise (SA0293336-P) 25/07/2014 371 Steady Dynasty Sdn Bhd (782270-H) 22/07/2013 372 Steady Global Network Sdn Bhd 22/07/2013 373 Strategic Solution (Goldex Group International Limited) 19/09/2017 374 Superbinvest Group https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/ 28/08/2017 375 Suliz Pearl Mines 13/07/2012 http://www.premierfxmarket.com http://www.kuasaforex.com.my/ http://ppcstorm.com/ http://proinfinity.com/ https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH http://passport2u.com/ http://www.quantumcapitalprogram.com/ http://www.quantumcapitalprogram.com/ https://questraworld.es/ https://questraworld.es/ http://www.premierfxmarket.com/ http://www.goldrgcx.com/richman8 http://richworldrevolution.com/rwr/ http://richworldrevolution.com/rwr/ http://www.rm20segera.com/ http://royalgolds.com/ http://www.royaleteaminfo.blogspot.com/ http://www.sanabil.com/ http://www.topprofx.com/about.php http://www.topprofx.com/about.php https://www.facebook.com/simplyfxmalaysia/ http://www.smci.co/ http://www.speedline-inc.com/ http://www.srgold.com.my/ https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH http://www.premierfxmarket.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 376 Suisse Coins Sdn Bhd www.suissecoins.com 10/04/2015 377 Sweblink Global Network Sdn Bhd (209952-H) 22/07/2013 378 Swiss Capital Venture 13/07/2012 379 SVD Malaysia https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/07/2017 380 SV International Scheme 28/08/2017 381 SV International Sdn Bhd (1169355-K) 28/08/2017 382 Syarikat Azza Motor Network Sdn Bhd (104795-P) www.rajakeretaweebly.com www.rajakereta.com 30/12/2014 383 Syarikat GECS Ltd 13/07/2012 384 Syarikat Sri Alam 13/07/2012 385 Tabung Dana Ehsan 13/07/2012 386 Tanjung Trading ((TR0123942-W) 25/07/2014 387 Tenaga Setia Services (107239-P) 25/07/2014 388 TF International Group 22/06/2017 389 TF International Group (MY) 22/06/2017 390 TF International W1212 KL Team 22/06/2017 391 TG Reliance Sdn Bhd (1086255-A) 01/09/2015 392 The Gold Guarantee 29/11/2012 393 Times Travel & Explorer Sdn Bhd (1041742-H) 09/04/2018 394 Titan Group Sdn. Bhd (823732-U) 13/07/2012 395 TP Eagle Venture Sdn Bhd (1114378-M) www.tpeagles.com 12/07/2016 396 Trillion Venture https://trivfx.com 23/12/2015 397 Triple One Management Pte Ltd ( T1FX) http://www.t1fx.com 25/02/2016 398 Tü-E Capital Berhad (806096-H) https://tu-e.capital/ http://www.tu-e.com.my/ 13/03/2018 399 TukarGold.net www.tukargold.net 13/07/2012 400 Toga Capital Sdn Bhd (1132072-MD) 28/08/2017 401 Toga Company Limited 28/08/2017 402 TopproFX http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/08/2017 403 UER Gold https://uergold.com/profitsharing.php-inaccessible 25/07/2014 www.jutawanufunclub.com ufunclub2me.bolgspot.com 405 Ultimate Power Profits www.ultimatepowerprofits.yolasite.com 16/10/2012 406 United American Traders Council www.uatconline.com 12/11/2013 www.argrow.biz www.unicapasia.net 408 Uncang Teguh Resources (0000102116-T) 25/07/2014 409 Urustabil Sdn Bhd (545426-X) 27/09/2012 410 VC Gold Sdn Bhd (722295-T) 13/07/2012 411 Virgin Gold Mining Corporation 13/07/2012 412 VenusFX www.venusfx.com 06/06/2016 413 V Save FX Trading (002482098 - K) 19/09/2017 414 V Sim Marketing (002283635 - U) 19/09/2017 415 Verger Management Services 25/07/2014 416 VI Profit Galaxy (DSV Cryptoclub & LUX Galaxies) https://luxgalaxies.com/ https://www.lavidacoin.com/ 29/08/2018 417 Wadiah Trading www.wadiahtrading.com 23/12/2015 418 Water Beaute World Berhad https://wbwglobal.wordpress.com/ http://wbwig.blogspot.my/ 09/05/2017 419 Water World Marketing (CA0177161-P) 25/07/2014 420 Webster Trade Consulting Sdn Bhd (1171420D) www.wtcpro.com http://wtcprolimited.blogspot.my 24/02/2017 421 Westrank Equity Sdn Bhd (1046449-A) 25/09/2013 422 Windsor Fragrance Sdn Bhd (599208-H) 20/10/2014 423 WMS Capital Ltd (Labuan) 28/08/2017 424 WMS Global Services (PG0402301-M) 28/08/2017 425 World Dirham Berhad (970807-X) 22/07/2013 426 Worldwide Community Programme https://wcp2u.com/ 15/09/2016 427 WSL Merchants Pte Ltd www.worldshopperslink.com www.click4dollar.com 16/10/2012 428 Xcelent Job Trading (001971755P) 09/01/2017 429 XIG Limited www.xiglimitedmalaysia.com https://my.xiglimited.com https://www.facebook.com/xiglimitedofficial https://www.facebook.com/myduitcom 28/08/2017 430 XM Forex Malaysia https://www.xm.com/my 06/12/2017 431 XOC7 13/07/2012 432 YDS Corporate Line Sdn Bhd (877697-P) http://yds2u.com 02/05/2013 433 YDS Holding Groups Bhd (987797-T) http://yds2u.com 02/05/2013 434 ZEMC Sdn Bhd (1216874-A) 22/06/2017 435 Zenith Gold International Limited (ZGI) http://www.zenithgolds.com http://zenithgoldrocks.wordpress.com http://zenithgoldpowerteam.blogspot.my 25/02/2016 436 Zeta Capital Management 13/07/2012 437 Zill Akasha Gemilang Enterprise 10/04/2015 438 Zness.com http://zness.com 25/09/2013 404 UFUNCLUB 25/07/2014 407 Uni Argrow (Cambodia) Co. Ltd 30/12/2014 SV International Investment Malaysia (Facebook page) SV International (Facebook page) http://togacapital.com.my/ https://www.facebook.com/TogaCapitalLimited/ http://www.suissecoins.com/ https://www.facebook.com/svdmalaysia https://www.facebook.com/svdmalaysia http://www.rajakeretaweeblycom/ http://www.rajakeretaweeblycom/ http://www.tpeagles.com/ https://trivfx.com/ http://www.t1fx.com/ https://tu-e.capital/ https://tu-e.capital/ http://www.tukargold.net/ http://www.topprofx.com/about.php http://www.topprofx.com/about.php https://uergold.com/profitsharing.php-inaccessible http://www.jutawanufunclub.com/ http://www.ultimatepowerprofits.yolasite.com/ http://www.uatconline.com/ http://www.argrow.biz/ http://www.unicapasia.net/ http://www.venusfx.com/ https://luxgalaxies.com/ https://luxgalaxies.com/ http://www.wadiahtrading.com/ https://wcp2u.com/ http://www.worldshopperslink.com/ http://www.worldshopperslink.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ https://www.xm.com/my http://yds2u.com/ http://yds2u.com/ http://zness.com/ http://togacapital.com.my/ http://togacapital.com.my/

Public Notice

27 May 2019

Requirements for Installation of Closed-Circuit Television (CCTV) System at Business Premises for the Conduct of Money Services Business (MSB)

https://www.bnm.gov.my/-/req-for-cctv-installation-at-business-premises

https://www.bnm.gov.my/documents/20124/761679/pd_cctv_May2019.pdf

Reading: Requirements for Installation of Closed-Circuit Television (CCTV) System at Business Premises for the Conduct of Money Services Business (MSB) Share: Requirements for Installation of Closed-Circuit Television (CCTV) System at Business Premises for the Conduct of Money Services Business (MSB) Release Date: 27 May 2019 This circular requires MSB licensees to have in place a robust CCTV system within each of their business premises that carry out MSB, with the objectives of enhancing operational risk management and strengthening the protection of MSB operations against risks of being abused for money laundering, terrorism financing or other illicit purposes. Further details can be found in the following documents: Requirements for Installation of Closed-Circuit Television (CCTV) System at Business Premises for the Conduct of Money Services Business (MSB) © 2024 Bank Negara Malaysia. All rights reserved.

JPPPW/POL/2400/02 27 May 2019 Pemegang Lesen Perniagaan Perkhidmatan Wang Tuan/Puan Requirements for Installation of Closed-Circuit Television (CCTV) System at Business Premises for the Conduct of Money Services Business (MSB) This circular is issued pursuant to section 74 of the Money Services Business Act 2011 (MSBA), and supersedes paragraph 7.10 of the “Guidelines on Risk Management and Internal Controls for Conduct of Money Services Business” issued by Bank Negara Malaysia effective on 6 December 2012. 2. As part of the continuous efforts to enhance operational risk management and strengthen the protection of MSB operations against risks of being abused for money laundering, terrorism financing or other illicit purposes, with effect from 1 July 2019, all licensees are required to have in place a robust CCTV system within each of their business premises that carry out MSB. The business premises refer to the head office and branches that provide MSB services to the customers. 3. In ensuring the CCTV system installed is effective to enable proper surveillance and monitoring of the business operations, all licensees are required to set up a fit for purpose system with proper processes and controls, which shall at a minimum include the following: (A) Placement of CCTV cameras Licensees shall ensure that CCTV cameras are installed at appropriate locations, in a manner that the camera is able to clearly capture, monitor and record the relevant areas where MSB activities take place. This shall include the business counters, customer areas, safe/vault and other cash handling areas as well as the entrance/exit of the business premises. Licensees shall also ensure that all images captured and recorded by the CCTV cameras are visible and clear. (B) Functions of CCTV system I) The CCTV system shall at a minimum be equipped with the following functions to: i) view, replay and retrieve all information contained in the CCTV system; and ii) enable information recorded in the CCTV system to be: a) copied or exported from the above-mentioned system to any common external data storage devices, including external hard drive, pendrive, digital video disc (DVD) and compact disc (CD); and b) played on common media players, including the Windows Media Player to allow viewing of the CCTV records on any electronic apparatus, such as computers or mobile devices. II) The CCTV system shall also be equipped with the relevant features and functions to enable licensees to implement control measures that will prevent such system from being manipulated or misused by any unauthorised parties. (C) Maintenance of records I) Licensees shall maintain all information captured in the CCTV system for a minimum period of 60 days to enable an audit trail on the operations and conduct of MSB. II) To ensure credibility of the CCTV records, licensees shall also ensure the timing of CCTV recording is properly set, synchronised and is consistent with the time and date of the MSB activities that take place at the business premises. (D) System administration and maintenance I) Licensees shall ensure that the CCTV system deployed is properly maintained and operates under good working condition to ensure effective surveillance and monitoring of their business operations. In relation to this, all licensees are required to operate their CCTV systems throughout business operating hours. Notwithstanding this, licensees are also expected to deploy the CCTV system as and when any activities relating to MSB are taking place within their business premises. II) In addition, licensees are required to ensure that: i) adequate controls are in place to prevent unauthorised alterations of records and access by unauthorised parties, by limiting system access only to relevant personnel to ensure proper accountability for the assigned functions; and ii) all activities relating to the maintenance and recalibration of the CCTV system, including system upgrading or reformatting are clearly recorded in the system’s maintenance log and reported to the Chief Executive Officer. III) For the purpose of II (i) and (ii), all licensees shall allocate adequate resources and ensure that staff are sufficiently trained to administer and operate the CCTV system. 4. Licensees are required to ensure that all information in the CCTV system is made available upon request by the Bank. 5. Any non-compliance with the requirements in this circular will be subject to appropriate actions as provided under the MSBA.

Public Notice

08 May 2019

Enforcement Action Against Illegal Money Services Business Operators in Sibu, Sarawak

https://www.bnm.gov.my/-/enforcement-action-illegal-msb-08052019

Reading: Enforcement Action Against Illegal Money Services Business Operators in Sibu, Sarawak Share: Enforcement Action Against Illegal Money Services Business Operators in Sibu, Sarawak Release Date: 08 May 2019 On 3 May 2019, Bank Negara Malaysia (BNM) charged five individuals at the Sibu Sessions Courts for conducting illegal remittance activities without a license under section 7(1) of Money Services Business Act 2011 (MSBA), an offence under section 4(1) of MSBA and the usage of the words “money services business” without approval, which contravened section 23(1) of MSBA. All of the accused claimed trial and the Court set bail as follows: Hu Peng Hing (NRIC: 851008-13-6531) claimed trial to two charges against him and the Court set bail at RM10,000 for each charge with one surety and ordered him to surrender his international passport to the Court. An additional bail of RM80,000 shall be imposed and Warrant of Arrest will be issued if the accused fails to appear in Court during case management. Tiong Kung Ing (NRIC: 741031-13-5169), owner of Add Me Telecommunication Trading, claimed trial to two charges against him and the Court set bail at RM5,000 for each charge with one surety and ordered him to surrender his international passport to the Court. An additional bail of RM80,000 shall be imposed and Warrant of Arrest will be issued if the accused fails to appear in Court during case management. Maria Linda Antoni (Passport No: AT854566), claimed trial to two charges against her and the Court set bail at RM5,000 for each charge with one surety and ordered her to surrender her international passport to the Court. An additional bail of RM80,000 shall be imposed and Warrant of Arrest will be issued if the accused fails to appear in Court during case management. Ting Ling Ling (NRIC: 890728-13-5854), owner of Liang Liang Mobile Trading Co and Liang Mobile, claimed trial to two charges against her and the Court set bail at RM50,000 with one surety and ordered her to surrender her international passport to the Court. Matthew Ngu Yew Mieng (NRIC: 940207-13-5587) claimed trial to two charges against him and the Court set bail at RM50,000 with one surety and ordered him to surrender his international passport to the Court. The Court fixed 21 June 2019 for case management on all cases. Foreign currencies found in the premises were also seized for further investigation under Section 4(1) of Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. Earlier on 29 April 2019, BNM in collaboration with the Royal Malaysia Police, raided eight illegal remittance operators at various locations in Sibu, Sarawak. The raiding exercise is part of the continuous enforcement actions undertaken by BNM to protect members of the public against potential financial losses when dealing with unlicensed entities. As such, members of the public are advised not to deal with or conduct any money changing or remittance transactions with illegal money services business operators and their agents. Any person who conducts transactions with an illegal money services business operator does so at his own risk, and appropriate legal action can be taken against him by the relevant authorities. Members of the public are advised to refer to the list of licensed money services business operators on BNM's website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

03 May 2019

Policy Document on Trade Credit Insurance and Trade Credit Takaful

https://www.bnm.gov.my/-/policy-doc-tradecredit-insurance-takaful-03052019

https://www.bnm.gov.my/documents/20124/761679/PD+TCIT.pdf, https://www.bnm.gov.my/documents/20124/761679/CAFIB+%28RWA%29+PD_TCIT.pdf, https://www.bnm.gov.my/documents/20124/761679/PD+032-5+CAF+%28Basel+II-RWA%29+PD+20190503.pdf

Reading: Policy Document on Trade Credit Insurance and Trade Credit Takaful Share: Policy Document on Trade Credit Insurance and Trade Credit Takaful Release Date: 03 May 2019 This policy document sets out the Bank’s proposed requirements on the offering of trade credit insurance and trade credit takaful by licensed insurers and takaful operators. The requirements for the recognition of trade credit insurance and trade credit takaful as credit risk mitigation are also outlined under the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) and Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) respectively. These requirements seek to position insurance and takaful products to better meet the protection needs of businesses. Further details can be found in the following documents: Trade Credit Insurance and Trade Credit Takaful Capital Adequacy Framework (Basel II - Risk-Weighted Assets) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 3 May 2019 BNM/RH/PD 029-37 Trade Credit Insurance and Trade Credit Takaful Applicable to: 1. Licensed insurers carrying on general business 2. Licensed takaful operators carrying on general takaful business 3. Licensed banks 4. Licensed Islamic banks 5. Licensed banks carrying on Islamic banking business 6. Financial holding companies Trade Credit Insurance and Trade Credit Takaful Issued on: 3 May 2019 TABLE OF CONTENTS PART A OVERVIEW ............................................................................................. 1 1. Introduction.......................................................................................... 1 2. Applicability ......................................................................................... 1 3. Legal provisions .................................................................................. 1 4. Effective date ....................................................................................... 1 5. Interpretation ....................................................................................... 1 6. Related legal instruments and policy documents ................................ 2 7. Policy documents superseded ............................................................. 2 PART B POLICY REQUIREMENTS ..................................................................... 3 8. Offering of trade credit insurance and trade credit takaful ................... 3 9. Treatment of trade credit insurance and trade credit takaful by banking institutions ........................................................................................... 4 APPENDICES ............................................................................................................ 5 Appendix 1 Submission requirements on trade credit insurance and trade credit takaful business ................................................................................... 5 Appendix 2 Illustration on the computation of business limit on the size of trade credit insurance or trade credit takaful business ................................. 6 Trade Credit Insurance and Trade Credit Takaful 1 of 8 Issued on: 3 May 2019 PART A OVERVIEW 1. Introduction 1.1 Trade credit insurance and trade credit takaful protect businesses against the risk of non-payment of goods and services by buyers. For cross-border transactions, such protection also helps businesses manage country risk, thus opening up access to new markets. For banking institutions, trade credit insurance and trade credit takaful can also be used to manage non-payment risk associated with trade financing portfolio. 1.2 This policy document sets out– (a) the approval process and requirements on the offering of trade credit insurance by a licensed insurer and trade credit takaful by a licensed takaful operator; and (b) the treatment of trade credit insurance or trade credit takaful as credit risk mitigation (CRM) by a banking institution under the Capital Adequacy Framework applicable to it. 2. Applicability 2.1 This policy document is applicable to licensed insurers and licensed takaful operators, and in the case of banking institutions, as defined in paragraph 5.2. 3. Legal provisions 3.1 The requirements in this policy document are issued pursuant to– (a) sections 14(3), 47(1), 115(3) and 143(2) of the Financial Services Act 2013 (FSA); and (b) sections 15(3), 57(1), 127(3) and 155(2) of the Islamic Financial Services Act 2013 (IFSA). 3.2 The guidance in this policy document is issued pursuant to section 266 of FSA and section 277 of IFSA. 4. Effective date 4.1 This policy document comes into effect on 3 May 2019. 5. Interpretation 5.1 The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and the IFSA, as the case may be, unless otherwise defined in this policy document. 5.2 For the purpose of this policy document– Trade Credit Insurance and Trade Credit Takaful 2 of 6 Issued on: 3 May 2019 “S” denotes a standard, an obligation, a requirement, specification, direction, condition and any interpretative, supplemental and transitional provisions that must be complied with. Non-compliance may result in enforcement action; “G” denotes guidance which may consist of statements or information intended to promote common understanding and advice or recommendations that are encouraged to be adopted; “Capital Adequacy Framework” refers to the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) or Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets), as the case may be; “banking institutions” refers to– (a) a licensed bank; (b) a licensed Islamic bank, except for a licensed international Islamic bank; (c) a licensed bank under the FSA approved under section 15(1)(a) of the FSA to carry on Islamic banking business in accordance with the Guidelines on Skim Perbankan Islam; and (d) a financial holding company approved pursuant to section 112(3) of the FSA or section 124(3) of the IFSA and holds investments directly or indirectly in corporations that are engaged predominantly in banking business. “trade credit insurance or trade credit takaful” refers to insurance or takaful cover that protects– (a) sellers against the risk of non-payment of goods and services by buyers; or (b) banking institutions against risk of non-payment associated with their trade financing portfolio. 6. Related legal instruments and policy documents 6.1 This policy document must be read together with other relevant legal instruments and policy documents that have been issued by the Bank, in particular– (a) Capital Adequacy Framework (Basel II – Risk-Weighted Assets); (b) Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets); (c) Introduction of New Products by Insurers and Takaful Operators; (d) Risk Governance; and (e) Credit Risk. 7. Policy documents superseded 7.1 This policy document supersedes paragraph 3 of Part B of the circular on Pengeluaran Bon/Jaminan Kewangan oleh Penanggung Insurans (BNM/RH/CIR/003-7) issued on 11 August 2007. Trade Credit Insurance and Trade Credit Takaful 3 of 6 Issued on: 3 May 2019 PART B POLICY REQUIREMENTS 8. Offering of trade credit insurance and trade credit takaful 8.1 Section 14(3) of the FSA and section 15(3) of the IFSA stipulate that except with the prior written approval of the Bank, a licensed insurer or takaful operator must not carry on trade credit insurance business or trade credit takaful business1. S 8.2 For purposes of obtaining the Bank’s prior written approval referred to in paragraph 8.1, a licensed insurer or takaful operator shall apply in writing to the Bank for such approval and submit in its application the information required in Appendix 1. S 8.3 To offer trade credit insurance or trade credit takaful, as the case may be, a licensed insurer or takaful operator must have adequate technical capability to underwrite credit risk. This capability will be assessed by the Bank before the licensed insurer or takaful operator is allowed to carry on such business. S 8.4 In relation to paragraph 8.3, where a licensed insurer or takaful operator enters into a collaboration2 with a foreign financial institution to offer trade credit insurance or trade credit takaful, as the case may be, the licensed insurer or takaful operator must ensure that there is a clear and structured plan to develop its own underwriting expertise. S 8.5 A licensed takaful operator must ensure that it offers trade credit takaful in a Shariah compliant manner. S 8.6 Unless otherwise specified by the Bank, the annual gross premium of trade credit insurance business or contribution of trade credit takaful business, as the case may be, shall not exceed 10% of a licensed insurer or takaful operator’s total gross premiums or contributions of the preceding calendar year as illustrated in Appendix 2. S 8.7 A licensed insurer which was approved to carry on trade credit insurance business pursuant to the circular entitled “Pengeluaran Bon/Jaminan Kewangan oleh Penanggung Insurans” shall be deemed to be approved under section 14(3) of the FSA. For the avoidance of doubt, such a licenced insurer need not apply to the Bank for any further approval under section 14(3) of the FSA nor submit the information required under paragraph 8.2. 1 On the basis that credit guarantee insurance business or credit guarantee takaful business includes trade credit insurance business or trade credit takaful business. 2 For the purpose of tapping into expertise and support in specialised areas where the licensed insurers or takaful operators may have little or no experience. This may include, but not limited to, provision of technical expertise, underwriting and claims assistance. Trade Credit Insurance and Trade Credit Takaful 4 of 6 Issued on: 3 May 2019 9. Treatment of trade credit insurance and trade credit takaful by banking institutions G 9.1 A banking institution may recognise trade credit insurance or trade credit takaful, as the case may be, as CRM under the Capital Adequacy Framework applicable to it. S 9.2 Where a banking institution recognises trade credit insurance or trade credit takaful as CRM under the Capital Adequacy Framework applicable to it, the banking institution must ensure that the trade credit insurance or trade credit takaful satisfies the qualifying criteria for guarantees as stipulated in that Capital Adequacy Framework. Trade Credit Insurance and Trade Credit Takaful 5 of 6 Issued on: 3 May 2019 APPENDICES Appendix 1 Submission requirements on trade credit insurance and trade credit takaful business 1. Product name and description; 2. Product benefits; 3. Target product launch date; 4. Proposed distribution channel(s) and target market; 5. Premium or takaful contribution and charges; 6. Targeted yearly business volume; 7. Risk appetite for underwriting e.g. obligor with rating A or equivalent, exposure to specific industry/sector etc.; 8. Underwriting criteria and tools for credit assessment e.g. use of internal rating system and determination of premiums or contributions based on expected credit loss etc.; 9. Plans to enhance internal underwriting expertise; 10. Impact to reserving and capital position, including capital required, capital available and capital adequacy ratio; 11. Proposed risk monitoring and control of key product risks identified; 12. Details of proposed reinsurance/retakaful arrangement; 13. Description on the collaboration with foreign insurers/takaful providers (if applicable) including the areas of support which the providers will be providing e.g. human resource, systems software etc.; and 14. In the case of a takaful operator– (a) product structure, including diagrams or transaction flows; (b) type(s) of Shariah contract used; (c) deliberation by the Shariah committee, including– (i) Shariah issues arising from the product (if any); (ii) issues on takyif fiqhi (fiqh adaption) and relevant documents presented for deliberation of the Shariah committee which include fiqh literature, evidence and reasoning supporting the Shariah compliance of the product; (iii) the appropriate current Shariah ruling and/or recognised Shariah standard (if any); and (iv) minutes of the Shariah committee’s meeting in respect of the product; and (d) verification statement by the Shariah committee that the product structure does not attract any Shariah issue that has not been deliberated by the SAC. The statement must be signed off by the Chairman of the Shariah committee. In addition, the statement must include any dissenting views from any member of the Shariah committee and the Shariah committee’s deliberation and conclusions reached on such views; and (e) relevant resolution by the Shariah Advisory Council of Bank Negara Malaysia (SAC) that approved the product structure3. 3 For products that are subject to the SAC’s prior approval or resolution, submission of information for such products shall be made after obtaining approval or resolution of the SAC. Trade Credit Insurance and Trade Credit Takaful 6 of 6 Issued on: 3 May 2019 Appendix 2 Illustration on the computation of business limit on the size of trade credit insurance or trade credit takaful business Business Limit of Trade Credit Insurance or Trade Credit Takaful Business, for current year n Total Gross Premiums or Contributions, for year (n-1) = 10% X PART A OVERVIEW 1. Introduction 2. Applicability 3. Legal provisions 4. Effective date 5. Interpretation 6. Related legal instruments and policy documents 7. Policy documents superseded PART B POLICY REQUIREMENTS 8. Offering of trade credit insurance and trade credit takaful 9. Treatment of trade credit insurance and trade credit takaful by banking institutions APPENDICES Appendix 1 Submission requirements on trade credit insurance and trade credit takaful business Appendix 2 Illustration on the computation of business limit on the size of trade credit insurance or trade credit takaful business PREFACE Issued on: 3 May 2019 Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 PART A OVERVIEW ................................................................................ 1 A.1 EXECUTIVE SUMMARY ............................................................ 1 A.2 APPLICABILITY ........................................................................ 3 A.3 LEGAL PROVISION .................................................................. 3 A.4 LEVEL OF APPLICABILITY ...................................................... 3 PART B CREDIT RISK ............................................................................ 5 B.1 INTRODUCTION ........................................................................ 5 B.2 THE STANDARDISED APPROACH FOR CREDIT RISK ......... 7 B.2.1 EXTERNAL CREDIT ASSESSMENTS ...................................... 7 B.2.2 DEFINITION OF EXPOSURES ................................................ 11 Exposures to Sovereigns and Central Banking institutions ...... 11 Exposures to Non-Federal Government Public Sector Entities (PSEs) ...................................................................................... 13 Exposures to Multilateral Development Banking institutions (MDBs) ..................................................................................... 14 Exposures to Banking Institutions and Corporates ................... 14 Exposures to Takaful Companies, Securities Firms and Fund Managers ................................................................................. 18 Exposures Included in the Regulatory Retail Portfolio .............. 18 Financing Secured by Residential Real Estate (RRE) Properties ................................................................................................. 20 Exposures Secured by Commercial Real Estate (CRE) ........... 22 Defaulted Exposures ................................................................ 22 Higher Risk Assets ................................................................... 23 Other Assets ............................................................................. 24 B.2.3 TREATMENT FOR THE COMPUTATION OF CREDIT RISK- WEIGHTED ASSETS FOR ISLAMIC CONTRACTS ............... 25 MURĀBAHAH .......................................................................... 26 BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH ........................... 28 IJĀRAH ..................................................................................... 28 SALAM ..................................................................................... 31 ISTISNĀ` .................................................................................. 33 MUSHĀRAKAH ........................................................................ 35 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 MUDĀRABAH .......................................................................... 38 QARDH .................................................................................... 41 SUKŪK ..................................................................................... 41 B.2.4 OFF-BALANCE SHEET ITEMS ............................................... 42 B.2.5 CREDIT RISK MITIGATION .................................................... 45 Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques ............................................................................... 46 Credit Risk Mitigation Techniques ............................................ 47 Other Aspects of Credit Risk Mitigation .................................... 66 B.3 THE INTERNAL RATINGS BASED APPROACH ................... 67 B.3.1 ADOPTION OF THE IRB APPROACH .................................... 67 Adoption of IRB Across Asset Classes ..................................... 67 Implementation Timelines and Transition Period ...................... 71 Determination of Capital Requirements under the IRB approach ................................................................................................. 73 B.3.2 CATEGORIES OF EXPOSURES............................................. 76 Definition of Corporate Exposures, including Specialised Financing .................................................................................. 76 Definition of Bank Exposures ................................................... 80 Definition of Retail Exposures .................................................. 80 Definition of Equity Exposures .................................................. 83 Definition of Purchased Receivables Exposures ...................... 85 B.3.3 RISK COMPONENTS .............................................................. 87 Risk Components for Corporate, Sovereign and Bank Exposures ................................................................................ 87 Risk Components for Retail Exposures .................................... 99 Risk Components for Equity Exposures ................................. 101 B.3.4 CREDIT RISK MITIGATION (CRM) ....................................... 103 Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques ............................................................................. 103 Collateralised Transactions .................................................... 104 Guarantees ............................................................................. 117 On-Balance Sheet Netting ...................................................... 125 Other Aspects of Credit Risk Mitigation .................................. 126 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 B.3.5 RISK-WEIGHTED ASSETS ................................................... 128 Risk-Weighted Assets for Corporate, Sovereign and Bank Exposures .............................................................................. 128 Risk-Weighted Assets for Retail Exposures ........................... 132 Risk-Weighted Assets for Equity Exposures .......................... 134 Risk-Weighted Assets for Purchased Receivables ................. 139 Risk-Weighted Assets for Leasing .......................................... 145 B.3.6 CALCULATION OF MINIMUM CAPITAL REQUIREMENT ... 146 Regulatory Capital .................................................................. 146 Calculation of Expected Losses ............................................. 147 Calculation of Provisions ........................................................ 150 Risk-Weighted Assets ............................................................ 150 Parallel Calculation ................................................................. 151 Prudential Capital Floor .......................................................... 151 B.3.7 MINIMUM REQUIREMENTS FOR THE IRB APPROACH .... 153 Rating System Design ............................................................ 154 Rating System Operation ....................................................... 167 Risk Estimation ....................................................................... 174 Governance, Oversight and Use of Internal Ratings .............. 205 Validation of Rating Systems and Internal Estimates ............. 211 B.3.8 QUALIFICATION ................................................................... 220 Overview of Approval and Review Process ............................ 220 General Qualification Process ................................................ 220 Home-Host Supervisory Issues .............................................. 222 Changes to IRB Implementation and Adoption ....................... 223 PART C OPERATIONAL RISK ............................................................ 225 C.1 INTRODUCTION .................................................................... 225 C.1.1 SOUND PRACTICES FOR OPERATIONAL RISK MANAGEMENT ..................................................................... 225 C.2 THE BASIC INDICATOR APPROACH (BIA) ........................ 226 C.3 THE STANDARDISED APPROACH AND ALTERNATIVE STANDARDISED APPROACH.............................................. 229 C.3.1 THE STANDARDISED APPROACH (TSA) ........................... 229 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 C.3.2 THE ALTERNATIVE STANDARDISED APPROACH (ASA) 233 PART D MARKET RISK....................................................................... 237 D.1 INTRODUCTION .................................................................... 237 Scope of the Capital Charges ................................................. 237 Approaches of Measuring Market Risks ................................. 238 Standardised Approach .......................................................... 238 Internal Models Approach ....................................................... 238 D.1.1 PRUDENT VALUATION GUIDANCE .................................... 239 Systems and Controls ............................................................ 239 Valuation Methodologies ........................................................ 240 Independent Price Verification ................................................ 241 Valuation Adjustments ............................................................ 242 D.1.2 CLASSIFICATION OF FINANCIAL INSTRUMENTS ............ 242 Trading Book Policy Statement .............................................. 243 Definition of Trading Book ...................................................... 244 Classification of Specific Financial Instruments ...................... 246 D.1.3 TREATMENT OF MONEY MARKET INSTRUMENTS IN TRADING BOOK ................................................................... 247 Controls to Prevent Regulatory Capital Arbitrage ................... 247 Treatment of Hedging Positions ............................................. 248 D.1.4 TREATMENT OF COUNTERPARTY CREDIT RISK IN THE TRADING BOOK ................................................................... 250 D.2 THE STANDARDISED MARKET RISK APPROACH ............ 251 D.2.1 BENCHMARK RATE RISKS ................................................. 251 Specific Risk ........................................................................... 252 Specific Risk Capital Charges for Issuer Risk ........................ 252 General Benchmark Rate Risk ............................................... 254 Offsetting of Matched Positions .............................................. 255 Maturity Method ...................................................................... 256 Vertical Disallowance ............................................................. 257 Horizontal Disallowance ......................................................... 257 Duration Method ..................................................................... 259 Treatment of Profit Rate Derivatives, Sell and Buy Back Agreement (SBBA) and Reverse SBBA Transactions ............ 261 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 Example 1: Calculation of General Risk (Maturity Method) for Benchmark Rate Related Financial Instruments .................... 267 D.2.2 EQUITY POSITION RISK ...................................................... 270 Specific and General Risk ...................................................... 270 Specific Risk ........................................................................... 270 General Risk ........................................................................... 271 D.2.3 FOREIGN EXCHANGE RISK (INCLUDING GOLD AND SILVER POSITIONS) ............................................................. 273 The Treatment of Structural Positions .................................... 273 Measuring the Exposure in a Single Currency ....................... 274 The Treatment of Profit, Other Income and Expenses in Foreign Currency ................................................................................. 275 Measuring the Foreign Exchange Risk in a Portfolio of Foreign Currency Positions ................................................................. 276 D.2.4 COMMODITIES RISK ............................................................ 277 Simplified Approach ................................................................ 279 Maturity Ladder Approach ...................................................... 279 Models for Measuring Commodities Risk ............................... 282 D.2.5 INVENTORY RISK ................................................................. 286 Murabahah and Murabahah for Purchase Order (MPO) ........ 286 Istisna’ .................................................................................... 287 Ijarah and Ijarah Muntahia Bittamleek (IMB) .......................... 288 Operating Ijarah ...................................................................... 290 Ijarah Muntahia Bittamleek (IMB) ........................................... 290 D.2.6 TREATMENT OF OPTIONS .................................................. 292 Underlying Position Approach ................................................ 292 Simplified Approach ................................................................ 294 Delta-Plus Method .................................................................. 296 Scenario Approach ................................................................. 299 Example 4: Delta-Plus Methods for Options ........................... 300 Example 5: The Scenario Approach for Options .................... 306 D.3 INTERNAL MODELS APPROACH ........................................ 311 D.3.1 COMBINATION OF INTERNAL MODELS AND THE STANDARDISED MARKET RISK MEASUREMENT APPROACH ........................................................................... 311 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 D.3.2 QUALITATIVE STANDARDS ................................................ 314 D.3.3 QUANTITATIVE STANDARDS ............................................. 317 D.3.4 SPECIFICATION OF MARKET RISK FACTORS .................. 319 D.3.5 MODELLING OF SPECIFIC RISK ......................................... 323 D.3.6 STRESS TESTING ................................................................. 327 D.3.7 MODEL VALIDATION STANDARDS .................................... 329 D.3.8 MODEL REVIEW ................................................................... 331 D.3.9 FRAMEWORK FOR THE USE OF BACK TESTING ............. 332 PART E LARGE EXPOSURE RISK REQUIREMENTS ....................... 341 E.1 LERR FOR ISLAMIC BANKING INSTITUTIONS .................. 341 PART F SECURITISATION FRAMEWORK ........................................ 342 F.1 INTRODUCTION .................................................................... 342 F.2 REQUIREMENTS FOR CAPITAL RELIEF ............................... 342 F.3 STANDARDISED APPROACH FOR SECURITISATION EXPOSURES ......................................................................... 345 F.3.1 REQUIREMENTS OF USE OF EXTERNAL RATINGS ......... 345 F.3.2 TREATMENT OF ON-BALANCE SHEET SECURITISATION EXPOSURES ......................................................................... 347 F.3.3 TREATMENT OF OFF-BALANCE SHEET SECURITISATION EXPOSURES ......................................................................... 349 F.3.4 TREATMENT OF OVERLAPPING EXPOSURES ................. 350 F.3.5 TREATMENT OF COUNTERPARTY CREDIT RISK FOR SECURITISATION EXPOSURES .......................................... 351 F.3.6 TREATMENT OF SECURITISATION OF REVOLVING UNDERLYING EXPOSURES WITH EARLY AMORTISATION PROVISIONS ......................................................................... 351 F.3.7 TREATMENT OF CREDIT RISK MITIGATION FOR SECURITISATION EXPOSURES .......................................... 352 F.3.8 TREATMENT OF CLEAN-UP CALLS ................................... 353 F.3.9 TREATMENT FOR IMPLICIT SUPPORT............................... 354 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 PART G REQUIREMENTS FOR APPROVED FINANCIAL HOLDING COMPANIES .......................................................................... 355 G.1 GENERAL REQUIREMENTS ................................................ 355 G.2 Regulatory approval process for the adoption of an advanced approach .............................................................. 355 Appendix I Eligibility Criteria for External Credit Assessment Institution (ECAI) Recognition ................................................................. 358 Appendix II Summary of Risk Weights for Financing Secured by Residential Real Estate (RRE) Properties .............................. 364 Appendix III Definition of Default ...................................................... 365 Appendix IIIa Diagrammatic Illustration of Re-ageing via Restructuring 369 Appendix IV Illustration on Risk-Weighted asset (RWA) Calculation for Defaulted Exposures and Exposures Risk-Weighted at 150% 370 Appendix V Minimum Requirements on Supervisory Slotting Criteria Method ................................................................................... 372 Appendix Va Supervisory Slotting Criteria for Specialised Financing Exposures .............................................................................. 377 Appendix VI Counterparty Credit Risk and Current Exposure Method 397 Appendix VIa Sample Computation of Risk-Weighted Capital Requirement and Exposure at Default (EAD) for a Portfolio of Derivative Contracts ............................................................... 404 Appendix VIb “Add-on” Factors for Derivatives Contracts ............... 406 Appendix VIc Example for Calculation of Residual Maturity............. 409 Appendix VId Discount Factor and Range of Residual Maturity ....... 410 Appendix VII Capital Treatment for Failed Trades and Non-DvP Transactions ........................................................................... 411 Appendix VIII List of Recognised Exchanges* ................................. 416 Appendix IX Recognition Criteria for Physical Collateral Used For Credit Risk Mitigation Purposes of Islamic Banking Exposures 418 Appendix X Summary Table of Gross Income Computation ............ 425 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 Appendix XI Mapping of Business Lines .......................................... 426 Appendix XII Illustration of the Offsetting Rules Between Negative and Positive OR Capital Charge in Any Business Lines ................ 427 Appendix XIII Detailed Loss Event Type Classification .................... 428 Appendix XIV Illustration of Computation of Exposures with Credit Risk Mitigation Effects .................................................................... 430 Appendix XV Information Requirements for Application to Adopt the Internal Ratings Based Approach for Credit Risk ................... 433 Appendix XVI Information Requirements for Application to Adopt the Internal Models Approach for Market Risk .............................. 436 Appendix XVII Illustration of Computation of Large Exposure Risk Requirement ........................................................................... 442 Appendix XVIII Capital Treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA Transactions .................................... 445 Appendix XIX IRB Coverage ............................................................ 448 Appendix XX Assessment of Credit Risk based on Shariah Contracts 450 Appendix XXI Capital treatment for Investment Accounts ................ 464 Appendix XXII Transitional Arrangements and Approval Process .... 467 Appendix XXIII Credit Conversion Factors for Off-Balance Sheet Items under the IRB Approach ......................................................... 473 Appendix XXIV Illustrative IRB Risk Weights ................................... 475 Appendix XXV Potential Evidence of Likely Compliance with the Use Test 478 Appendix XXVI Data-Enhancing and Benchmarking Tools .............. 479 Appendix XXVI Illustration on the treatment of underwriting exposures 483 Appendix XXVII Definitions and General Terminologies .................. 485 Appendix XXVIII Legal Requirements and Regulatory Process ....... 488 Appendix XXIX Methods of Legal Transfer ...................................... 493 Appendix XXX Comparison of Asset-based Sukūk and Asset-backed Sukūk 495 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Issued on: 3 May 2019 Appendix XXXI Eligibility Criteria for Off-Balance Sheet Securitisation Exposures .............................................................................. 496 Appendix XXXII Securitisation with Early Amortisation Provisions ... 498 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 1 / 517 Issued on: 3 May 2019 PART A OVERVIEW A.1 EXECUTIVE SUMMARY 1.1 The Capital Adequacy Framework for Islamic Banking institutions (Risk- Weighted Assets) (the Framework) specifies the measurement methodologies for the purpose of calculating Risk-Weighted Assets (RWA) for credit risk, market risk and operational risk as follows: Risk Type Available Approaches 1. Credit Risk  Standardised Approach  Internal Rating Based (IRB) Approach* 2. Market Risk  Standardised Approach  Internal Models Approach (IMA)* 3. Operational Risk  Basic Indicator Approach (BIA)  Standardised Approach (TSA)*  Alternative Standardised Approach (ASA)* * Subject to explicit approval by Bank Negara Malaysia (the Bank). For IRB Approach, only applicable for adoption from 1 January 2010. 1.2 The Framework should be read together with the Capital Adequacy Framework for Islamic Banking institutions (Capital Components) and shall form the basis for the computation of the capital adequacy ratios. 1.3 The formulation of the Framework is consistent with the Capital Adequacy Standard for Institutions other than Insurance Institutions offering only Islamic Financial Services (CAS) issued by the Islamic Financial Services Board (IFSB) and the Capital Adequacy Framework (Basel II – Risk-Weighted Assets) issued by the Bank for banking institutions licensed under Financial Services Act 2013 (FSA). 1.4 Some customisations have been effected to the requirements set out in CAS to ensure suitability of the Framework in the local environment and apply consistent treatment across banking industry for common risk exposure in order to prevent any potential regulatory arbitrage. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 2 / 517 Issued on: 3 May 2019 1.5 While the Bank believes that such customisation could be justified, a pragmatic approach is adopted for implementation. Higher prudential requirements and risk management standards would be introduced gradually taking into consideration industry feedback during the consultation process. Similarly, prioritisation and timing for the introduction of additional adjustments or customisation would be determined based on the long-term benefits of promoting prudent practices within the industry. 1.6 As we gain more reliable data and experience over time, a more thorough assessment would also be undertaken to consider the introduction of other adjustments as deemed necessary by the Bank. In view of these potential future developments, it is important that Islamic banking institutions make well- informed decisions are made with respect to the adoption of the approaches specified under the Framework having considered the appropriateness to cater for the complexity of their current business models, as well as future business and risk management strategies. It is also important to emphasise that the Bank may also exercise its discretion under the Supervisory Review Process, or Pillar 2 to impose higher capital requirements or prudential standards on individual institutions if the Bank is of the view that the actual risk profiles of these institutions are significantly underestimated by the Framework or the internal capital allocation processes are not satisfactory. 1.7 Notwithstanding the requirements under the Framework, a fundamental supervisory expectation is for all Islamic banking institutions to have in place comprehensive risk management policies and processes that effectively identify, measure, monitor and control risks exposures of the institution and is subjected to appropriate board and senior management oversight. This supervisory expectation is further detailed in the ‘Risk Management Guidelines’ and other relevant risk management standards and requirements set by the Bank. The assessment on the adherence to the standards and requirements set by the Bank would be a key component of the overall supervisory review process in determining appropriate supervisory actions on Islamic banking institutions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 3 / 517 Issued on: 3 May 2019 A.2 APPLICABILITY 1.8 The framework is applicable to; i. all Islamic banking institutions (excluding international Islamic banks) licensed under Islamic Financial Services Act 2013; ii. all banking institutions licensed under the Financial Services Act 2013 (FSA) approved under section 15(1)(a) of the FSA to carry on Islamic banking business in accordance with the Guidelines on Skim Perbankan Islam (SPI); and iii. all financial holding companies (FHCs) approved under the Islamic Financial Services Act 2013 (IFSA) which are engaged predominantly in banking activities. The requirements for FHCs are set forth in part G. For the purpose of this framework, the institutions referred in paragraphs 1.8(i) and (ii) are hereafter referred to as “Islamic banking institutions”. A.3 LEGAL PROVISION 1.9 The Framework is issued pursuant to section 57(2), section 127 and section 155(2) of IFSA. A.4 LEVEL OF APPLICABILITY 1.10 An Islamic banking institution is required to comply with the Framework at the following levels: (i) Entity level1, referring to the global operations of the Islamic banking institution (i.e. including its overseas branch operations) on a standalone basis, and including its Labuan banking subsidiary; and (ii) Consolidated level, which includes entities covered under the entity level requirement, and the consolidation2 of all subsidiaries3, except 1 Also referred to as the “solo” or “stand-alone” level. 2 In accordance with Malaysian Financial Reporting Standards (MFRS). 3 Financial and non-financial subsidiaries. A financial entity refers to any entity, whether incorporated in Malaysia or otherwise, engaged substantively in, or acquiring holdings in other entities engaged substantively in, any of the following activities: banking, provision of credit, securities broking, fund BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 4 / 517 Issued on: 3 May 2019 takaful subsidiaries which shall be deducted in the calculation of Common Equity Tier 1 Capital4. 1.11 In addition, a banking institution carrying on SPI shall comply with the Framework at the level of an SPI, as if the SPI is a stand-alone Islamic banking institution. management, asset management, leasing and factoring and similar activities that are ancillary to the conduct of these activities. 4 In accordance with paragraph 32 of the Capital Adequacy Framework for Islamic Banks (Capital Components). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 5 / 517 Issued on: 3 May 2019 PART B CREDIT RISK B.1 INTRODUCTION 2.1 This part outlines the two approaches available for the computation of the capital requirements for credit risk, namely the standardised approach and the IRB approach. 2.2 The capital requirements under the Standardised Approach for Credit Risk is determined based on an approach that links predefined sets of exposures or classes of assets to a predefined risk weights as prescribed in the Framework. In principle, Islamic banking institutions shall determine the appropriate risk weight for the exposures based on recognised rating of an external credit assessment institution (ECAI), preferential risk weight for the regulatory retail and residential real estate portfolios, or specific rating prescribed by the Bank for specifically identified exposures. In addition, the Framework also recognises wider range of credit risk mitigation techniques. 2.3 Whilst the standardised approach specifies the applicable risk weight for a particular exposure, as a general rule under Pillar 2, the Bank reserves the right to exercise its discretion to apply a different risk weight to a particular Islamic banking institution or group of Islamic banking institutions, (which may be higher) from that specified under the Framework in certain circumstances such as in situations where there is enough evidence to suggest that loss experience in a particular band or asset class had increased or that overall asset quality of such institutions have been deteriorating. 2.4 For the IRB approach, the capital requirements are derived using the Islamic banking institution’s internal rating systems. Islamic banking institutions that wish to adopt the IRB approach are required to obtain explicit approval from the Bank prior to implementation. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 6 / 517 Issued on: 3 May 2019 2.5 The IRB approach is based largely on the value-at-risk (VaR) methodology to measuring credit risk and is therefore more risk-sensitive compared to the standardised approach. Under this approach, the capital requirement is determined using certain supervisory parameters and Islamic banking institution’s own estimates that are calibrated to a predetermined risk weight function. 2.6 The flexibility given to Islamic banking institutions to use own estimates are premised on employment of sound risk management practices and strong risk management capabilities and infrastructure. Only Islamic banking institutions that meet these supervisory requirements and expectations would be allowed to adopt the IRB approach. 2.7 The IRB approach is developed based on the following principles: (i) Differentiation between the foundation and advanced approach. The foundation approach relies on Islamic banking institution’s internal estimates of probabilities of default (PD) and applies supervisory estimates of loss given default (LGD) and exposure at default (EAD), while the advanced approach, relies on mostly internal estimates; (ii) Islamic banking institutions being allowed to adopt a wider range of credit risk mitigation techniques, subject to requirements set by the Bank. Under the foundation approach, in addition to the financial collateral available under the standardised approach, non-financial collateral including commercial and residential real estate, financial receivables and other physical collateral are also available as risk mitigants, subject to meeting specific operational requirements. More flexibility is allowed under the advanced approach as there is no limit to the type of collateral recognised; (iii) The determination of capital requirement is based on the unexpected losses (UL) approach. The risk weight formulas used to calculate capital requirement for UL are derived from a specific model developed by the BCBS. The UL approach is based on the concept that capital is only required to cover UL which are peak losses that BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 7 / 517 Issued on: 3 May 2019 occur infrequently over a long economic cycle. The expected losses (EL) are the average anticipated credit losses over time that in most cases would have been covered by provisions. Based on this premise, any excess of provisioning over the EL would be recognised as part of the Islamic banking institution’s eligible Tier 2 Capital; and (iv) Standard capital computation formula being applied for each exposure class on the premise that Islamic banking institutions have complementing internal rating systems that meet high standards of integrity and rigour based on minimum requirements specified by the Bank. The requirements also necessitate the integration of the IRB measures into the day-to-day risk management processes, forming the foundation for a sound credit culture. Islamic banking institution’s adherence to the minimum requirements will be monitored by the Bank through its supervisory processes. B.2 THE STANDARDISED APPROACH FOR CREDIT RISK B.2.1 EXTERNAL CREDIT ASSESSMENTS 2.8 External credit assessments (or external ratings) on the obligor (the issuer) or specific securities issued by the issuer (the issue) form as a basis for the determination of risk weights under the Standardised Approach for exposures to sovereigns, central banking institutions, public sector entities, banking institutions, corporates as well as certain other specific portfolios. Nevertheless, the external ratings are not applicable to regulatory retail portfolios, residential real estate (RRE) financing, non-performing financing, equity-based exposures under Musharakah and Mudarabah contracts, high risk exposures, specifically identified obligors as specified in paragraph 2.51 and any other assets not specified as mentioned in paragraph 2.52. 2.9 In general, an exposure shall be deemed to have an external rating if a recognised ECAI5 provides a rating to the issuer or the issue. Otherwise, 5 The eligibility criteria for ECAI recognition is provided in Appendix I. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 8 / 517 Issued on: 3 May 2019 the exposure shall be deemed to be unrated and accorded the risk weight for unrated exposures based on their respective exposure category. However, there may be instances where an unrated exposure can be risk- weighted based on the rating of an equivalent exposure to a particular obligor. The treatment for these unrated exposures is subject to conditions specified in paragraph 2.13. General Requirements on the Use of External Ratings 2.10 The use of external ratings provided by recognised ECAIs for capital adequacy purposes must be applied on a consistent basis6. Islamic banking institutions must ensure that: (i) external rating announcement of their obligors are closely monitored, especially for obligors which are placed under ‘watch’ by the ECAIs; (ii) risk weights of their exposures are revised promptly following any changes in external ratings assessment; and (iii) all reports on the capital adequacy position under the Framework that are submitted to the Bank reflect the latest ratings assigned to the issuers or issues. The use of external ratings for risk weighting of exposures would also be subject to the disclosure requirements under Pillar 3, failing which the external ratings shall not be used for purposes of capital adequacy computation. In this event, all exposures shall be treated as being unrated. Level of Application of the Assessment 2.11 External ratings of one entity within a corporate group shall not be used to assign a risk weight to other entities within the same group. Single and Multiple Assessments 6 Islamic banking institutions shall not ‘cherry pick’ external ratings for capital adequacy purposes. For example, Islamic banking institutions should not use external ratings only when the ratings attached to the exposure provide a favourable risk weight compared to an unrated exposure and ignore the external ratings in situations where the risk weight is unfavourable. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 9 / 517 Issued on: 3 May 2019 2.12 Islamic banking institutions are required to capture all available external ratings of an obligor or issues in the event that the rating assessment is provided by more than one ECAI. Nevertheless, the rating assessment that is applicable for the purpose of capital adequacy requirement shall be subject to the following condition: (i) Where two recognised external ratings are available, the lower rating is to be applied; or (ii) Where three or more recognised external ratings are available, the lower of the highest two ratings will be used. Issuer and Issues Assessment 2.13 Islamic banking institutions are expected to assign the appropriate risk weight that is equivalent to an issue-specific rating of particular Islamic securities in the event that the Islamic banking institutions have an exposure on these securities. However, Islamic banking institutions shall apply the following principles to determine the applicable risk weight to the investment exposures that do not have an issue-specific rating: (i) Islamic banking institutions are allowed to utilise the available debt security rating of counterparty in the event that this counterparty does not have an issuer rating. This rating shall be applicable for the purpose of determining the relevant risk weight that is to be applied on the bank’s exposure to the same counterparty, irrespective of the fact that the Islamic banking institutions may not have an investment in that particular debt security. Nevertheless, this treatment is subject to the condition that the bank’s unrated exposure ranks pari passu or senior in all respects to the debt security and the debt security rating has not taken into account any effects of collateral/guarantee arrangements. Otherwise, the unrated exposure will attract the risk weight for unrated exposures; (ii) In view that the issuer rating typically reflects the assessment of the senior unsecured exposures of counterparty, thus, this rating assessment shall be applicable only to senior exposures of a BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 10 / 517 Issued on: 3 May 2019 particular counterparty. Other exposures will be treated as unrated; and (iii) In the event that either the counterparty or a single security has a low quality rating which maps to a risk weight equal to or higher (e.g. 150% risk weight) than that applicable to unrated exposures (100% risk weight), thus the low quality rating (instead of the risk weight for unrated exposures) shall be assigned to the unrated counterparty. 2.14 No supervisory recognition of credit risk mitigation techniques will be taken into account if credit enhancements have already been reflected in the rating specific to a particular debt security (to avoid double counting of credit enhancement factors). For example, if an external rating for a specific issue has already taken into account the effects of a guarantee attached to the issuance, the guarantee cannot be subsequently be taken into consideration for purposes of credit risk mitigation. Domestic Currency and Foreign Currency Assessments 2.15 The general rule is that the Islamic banking institutions should use foreign currency ratings to assess the foreign currency exposures and domestic currency ratings be used to assign risk weight to the exposures that are denominated in domestic currency. Unsolicited Ratings 2.16 Islamic banking institutions should use solicited ratings from recognised ECAIs for purposes of the capital adequacy computation under the Standardised Approach. This, however, does not preclude Islamic banking institutions from using unsolicited ratings for other internal risk management purposes. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 11 / 517 Issued on: 3 May 2019 B.2.2 DEFINITION OF EXPOSURES 2.17 The following part defines further the various categories of exposures and the appropriate risk weights for each category under the Standardised Approach. These categories of exposures shall be applicable to the credit risk exposures arising from the application of Shariah contracts that are categorised under the asset based transactions. These exposures are mainly based on the credit risk of the counterparty or obligor. In the case of equity base contract, the exposure will be determined based on the specific structure of the Shariah contracts. The detailed descriptions of Shariah contracts are provided under Part B.2.3 of this document. These risk weights are also applicable to all on-balance sheet and off-balance sheet exposures in the banking book of Islamic banking institutions. The treatment for exposures in the trading book is stipulated under the market risk component of the Framework. 2.18 On-balance sheet exposures shall be multiplied by the appropriate risk weight to determine the risk-weighted asset amount, while off-balance sheet exposures shall be multiplied by the appropriate credit conversion factor (under Part B.2.4) before applying the respective risk weights. 2.19 For purpose of capital adequacy computation, exposures are defined as the assets and contingent assets under the applicable Financial Reporting Standards, net of specific provisions7. Exposures to Sovereigns and Central Banking institutions 2.20 Islamic banking institutions are allowed to apply the preferential risk weight of 0% on exposures to the Federal Government of Malaysia and the Bank8 that are denominated and funded9 in Ringgit Malaysia (RM). Exposures in 7 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. 8 Including securities issued through special purpose vehicles established by the Bank e.g. Bank Negara Malaysia Sukuk Ijarah and BNMNi-Murabahah issued through BNM Sukuk Berhad. However, Islamic banking institutions shall apply the look-through approach as specified under Appendix XXI for BNM Mudarabah certificate (BMC). 9 This means that the Islamic bank has corresponding liabilities denominated in RM. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 12 / 517 Issued on: 3 May 2019 RM with an explicit guarantee provided by the Federal Government of Malaysia or the Bank shall also be accorded a 0% risk weight. 2.21 For exposures to another sovereign or central banking institutions, Islamic banking institutions are allowed to apply the preferential risk weights (i.e. 0% or 20%) of that accorded by the national supervisory authorities. The exposures to these sovereigns or central banking institutions shall be denominated and funded in the domestic currency of the respective jurisdictions. The preferential risk weight can also be applied in the case where an explicit guarantee has been provided by these sovereigns or central banking institutions. However, the risk-weight may be assigned based on the sovereign’s external rating in the event that the Bank deems that it is not appropriate to apply the preferential risk weight to a particular sovereign. 2.22 Exposures to sovereigns or central banking institutions that do not qualify for the categories set out in paragraphs 2.20 and 2.2110, shall be risk- weighted based on the external credit rating of the sovereigns as follows: Rating Agency Rating of Sovereigns Standard & Poor’s Rating Services (S&P) AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Moody’s Investors Service (Moody’s) Aaa toAa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Fitch Ratings (Fitch) AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D 10 This includes all sukuks issued by Federal Government of Malaysia which are denominated in foreign currencies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 13 / 517 Issued on: 3 May 2019 Rating and Investment, Inc. (R&I)11 AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C Risk Weight 0% 20% 50% 100% 150% 100% Exposures to Non-Federal Government Public Sector Entities (PSEs) 2.23 In line with the recommendation under CAS, the exposures on domestic PSEs will be accorded a preferential risk weight of 20%. Nevertheless, this preferential treatment shall only be accorded to PSE that satisfy the following criteria: (i) The PSE has been established under its own statutory act; (ii) The PSE and its subsidiaries are not involved in any commercial undertakings; (iii) A declaration of bankruptcy against the PSE is not possible; and (iv) The source of funding for the PSE is mostly provided by the federal government and any financing facilities received by this entity are subject to strict internal rules by the PSE. 2.24 In general, domestic PSEs shall include the administrative bodies of the federal government as well as state governments, local governments and administrative bodies of these entities. 2.25 The exposures to PSEs12 that do not fulfil all criteria in paragraph 2.23 shall be risk-weighted based on their external ratings as per corporate entities. 2.26 The exposures to foreign PSEs shall be eligible for preferential risk weight provided that the national supervisors of these foreign entities have accorded the preferential treatment to their domestic PSEs. In this regard, Islamic banking institutions are allowed to apply preferential risk weight on 11 External credit assessment produced by Rating and Investment, Inc. on Islamic debt securities are not recognised by the Bank in determining the risk weights for exposures in the Framework. 12 This would include quasi-government agencies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 14 / 517 Issued on: 3 May 2019 their exposures that are denominated and funded in domestic currency of these foreign PSEs. Nevertheless, the eligibility criteria established by the national supervisor to accord the preferential risk weight to the PSEs shall be aligned with the criteria specified above for domestic PSEs in Malaysia. The Bank reserves the right to require exposures to foreign PSE to be risk- weighted based on its external rating under the circumstances where the preferential risk weight is deemed to be inappropriate. Exposures to Multilateral Development Banking institutions (MDBs) 2.27 In general, the exposures on MDBs shall receive similar treatment to banking institutions. However, highly-rated MDBs13 which meet certain criteria that have been specified by Basel II will be eligible for a preferential risk weight of 0%. Exposures to Banking Institutions and Corporates 2.28 The risk weights for exposures on banking institutions and corporates shall be accorded based on their external ratings, which can be in the form of either short-term or long-term ratings. However, any exposure arising from investment account placements made with Islamic banking institutions shall be subject to the ‘look-through’ approach as described in Appendix XXI. As a general rule, exposures to an unrated banking institution or corporate shall not be given a risk weight preferential14 to that assigned to its sovereign of incorporation. 13 MDBs currently eligible for a 0% risk weight are: the World Bank Group which comprises the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), the Asian Development Bank (ADB), the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IADB), the European Investment Bank (EIB), the European Investment Fund (EIF), the Nordic Investment Bank (NIB), the Caribbean Development Bank (CDB), the Islamic Development Bank (IDB), and the Council of Europe Development Bank (CEDB) and the International Finance Facility for Immunisation (IFFIm). 14 For example, if the sovereign rating for a particular country was BBB, any exposures to the sovereign would be accorded a risk weight of 50% and any unrated exposures to corporates incorporated in that sovereign would be assigned a risk weight of 50% or higher. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 15 / 517 Issued on: 3 May 2019 Short-term Ratings 2.29 Short-term ratings15 are deemed to be facility-specific, thus can only be used to determine risk weights for exposures specific to a rated facility. In addition, short-term ratings cannot be used to the risk weight of an unrated long-term exposure. In addition, the application of short-term ratings shall be guided by the following requirements: (i) Where an Islamic banking institution has multiple short-term exposures to a particular obligor and only one of these facilities has a short-term facility rating which attracts a 50% risk weight, hence other unrated short-term exposures on the obligor cannot be accorded a risk weight lower than 100%; (ii) Where an issuer is accorded a risk weight of 150% for one short-term facility, all unrated exposures of the issuer, include both long term and short term, shall also be accorded 150% risk weight, unless a recognised credit risk mitigant is available; and (iii) Islamic banking institution shall ensure the ECAI that provides the short-term rating assessment has met all of the eligibility criteria specified by the Bank in terms of its short-term rating. (i.e. the Bank has not communicated the withdrawal of such recognition). All other exposures shall use the long term ratings or be treated as unrated exposures. 2.30 The treatment for specific short-term facilities, such as a particular issuance of a commercial paper is provided in the following table: Rating Agency Short-Term Rating of Banking Institutions and Corporates S&P A-1 A-2 A-3 Others Moody’s P-1 P-2 P-3 Others Fitch F1+, F1 F2 F3 B to D 15 In general, short-term ratings assessments refer to ratings for facilities with an original maturity of 1 year or less. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 16 / 517 Issued on: 3 May 2019 R&I a-1+, a-1 a-2 a-3 b, c Rating Agency Malaysia (RAM) P-1 P-2 P-3 NP Malaysia Rating Corporation Berhad (MARC) MARC-1 MARC-2 MARC-3 MARC-4 Risk Weight 20% 50% 100% 150% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 17 / 517 Issued on: 3 May 2019 Long-term Ratings 2.31 The applicable risk weight for long term exposures on banking institutions and corporates shall be subject to their respective long term rating. In the case of exposures to banking institutions, the following specific treatment shall apply: (i) Claims with original16 maturity of six (6) months or less on both rated and unrated banking institutions shall apply a risk weight that is one category more favourable, but subject to a floor of 20% risk weight. However, banking institutions that is accorded a risk weight of 150% shall not be eligible for this treatment; and (ii) Exposures to other banking institutions with original maturity of three (3) months or less that are denominated and funded in RM shall be eligible for a risk weight of 20%. 2.32 Summary of applicable risk weights for long-term exposures on banking institutions is as follows: Rating Agency Rating of Banking Institutions S&P AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D Unrated Moody’s Aaa to Aa3 A1 to A3 Baa1 to Baa3 Ba1 to B3 Caa1 to C Fitch AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to D R&I AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- CCC+ to C RAM AAA to AA3 A1 to A3 BBB1 to BBB3 BB1 to B3 C1 to D MARC AAA to AA- A+ to A- BBB+ to BBB- BB+ to B- C+ to D Risk Weight 20% 50% 50% 100% 150% 50% Risk weight (original maturity of 6 months or less)17 20% 50% 150% 20% Risk weight (original maturity of 3 months or less)18 20% 16 Islamic banking institutions must ensure that exposures which are expected to be rolled-over beyond their original maturity do not qualify for more favourable treatment. This is based on the view that Islamic banking institutions that rolls-over their facilities would be having difficulty to source for alternative funding. This shall also be applicable for the automatic 20% risk weight. 17 Short-term exposures on banking institutions are defined as exposures with an original maturity of six months or less. The preferential treatment is available for exposures to both rated and unrated banking institutions, but not for banking institutions rated below B-. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 18 / 517 Issued on: 3 May 2019 2.33 Exposures on development financial institutions (DFIs)19 shall also be treated similar to exposures on banking institutions. 2.34 Exposures on corporates shall be assigned the risk weights based on their external ratings as follows: Rating Agency Rating of Corporates S&P AAA to AA- A+ to A- BBB+ to BB- B+ to D Unrated Moody’s Aaa to Aa3 A1 to A3 Baa1 to Ba3 B1 to C Fitch AAA to AA- A+ to A- BBB+ to BB- B+ to D R&I AAA to AA- A+ to A- BBB+ to BB- B+ to D RAM AAA to AA3 A1 to A3 BBB1 to BB3 B1 to D MARC AAA to AA- A+ to A- BBB+ to BB- B+ to D Risk Weight 20% 50% 100% 150% 100% Exposures to Takaful Companies, Securities Firms and Fund Managers 2.35 Exposures to Takaful companies, securities firms, unit trust companies and other asset management companies shall be treated as exposures on corporates. Exposures Included in the Regulatory Retail Portfolio 2.36 Exposures that are qualified as the regulatory retail portfolio (excluding exposures to qualifying RRE or real estate financing and defaulted regulatory retail) shall be risk-weighted at 75% provided that the following criteria are met: 18 This preferential risk weight is accorded to all interbank exposures with an original maturity of three months or less denominated and funded in RM. 19 DFIs are referred to specialised financial institutions established by the Government as part of an overall strategy to develop and promote specific strategic sectors, such as agriculture, small and medium enterprises (SMEs), infrastructure development, shipping and capital-intensive and high- technology industries for the social and economic development of the country. This is in line with the definition under Section 3 of Development Financial Institutions Act 2002 (DAFIA). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 19 / 517 Issued on: 3 May 2019 (i) Orientation criterion Exposure to individual person/s or small business, which include sole-proprietorships, partnerships or small and medium-sized enterprise (SMEs20); (ii) Product criterion The exposure includes revolving financing facilities (including credit cards and cash lines), personal term financing and other term financing (e.g. instalment financing, vehicle financing, student and educational financing and personal financing) and financing facilities to small business. However, investment in debt and equity securities that are listed or not listed shall be excluded from this portfolio. Qualifying residential real estate (RRE) exposures shall be subject to the treatment under paragraphs 2.38 to 2.43; (iii) Granularity criterion The aggregate exposure21 to a counterparty22 (excluding qualifying RRE financing) shall not exceed 0.2% of the overall regulatory retail portfolio; (iv) Low value of individual exposures The aggregate exposure23 to one counterparty (excluding qualifying RRE financing) cannot exceed RM5 million; and (v) Applicable Shariah contract The exposure to regulatory retail may be undertaken based on either the Murabahah or Ijarah contracts24. 20 Small and medium-sized enterprises (SMEs) in the agriculture and services sector are defined as having annual sales of up to RM5 million or 50 full-time employees. For the manufacturing sector, SMEs have been defined as having annual sales of up to RM25 million or 150 full-time employees. 21 Aggregated exposure means gross amount (excluding defaulted exposures and credit risk mitigation effects) of all forms of financing exposures (including off-balance sheet exposures) that individually satisfy the three other criteria. 22 “Counterparty” as defined under Single Counterparty Exposure Limit. 23 Aggregated exposure means gross amount (inclusive of defaulted exposures but without taking into account credit risk mitigation effects) of all forms of financing exposures (including off-balance sheet exposures) that individually satisfy the other three criteria. 24 Use of the risk weight under the regulatory retail portfolio for exposures based on other Islamic contracts may be allowed, provided that the credit risk profile of such exposures is similar to Murabahah or Ijarah contract. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 20 / 517 Issued on: 3 May 2019 2.37 An exposure shall be treated as exposure to corporates in the event that it does not fulfil the criteria as specified above. Any term financing for personal use with an original maturity of more than 5 years approved and disbursed by Islamic banking institutions on or after 1 February 2011, shall be risk-weighted at 100%. Financing Secured by Residential Real Estate (RRE) Properties 2.38 Financing that are fully secured by the underlying RRE or mortgages on residential property25, which are or will be occupied by the obligor, or is rented, shall be treated as qualifying RRE and carved-out from the regulatory retail portfolio provided that the following criteria are met: (i) The obligor is an individual person; (ii) The financing is secured by the first legal charge, assignment or strata title on the property or legal ownership of the RRE belong to the Islamic banking institutions; (iii) The Islamic banking institution has in place a sound valuation methodology to appraise and monitor the valuation of the property; (iv) The re-computation26 of the financing-to-value ratio (FTV) must be undertaken at least on an annual basis. Islamic banking institutions can also consider credit protection extended by Cagamas SRP 25 Residential property includes property which is zoned for single-family homes, multi-family apartments, townhouses and condominiums. It excludes shop houses which can be eligible for the regulatory retail portfolio as per paragraph 2.36. 26 The computation of FTV ratio for regulatory capital purpose shall be subject to the following: • As a general principle, Islamic banking institutions should ensure that the financing amount is reflective of the Islamic bank's potential or outstanding exposure to the borrower. As such, where the Islamic bank has also offered to extend the financing facility for other additional costs to be incurred by the borrower in conjunction with the home financing (e.g. for fire takaful, stamp duty fees, legal fees, Mortgage Reducing Term Takaful, etc.), these amounts should also be included in the computation. • At origination, the value of the house will be based on the value stated on the Sales and Purchase Agreement. Subsequently, to qualify for concessionary risk weight, Islamic banking institutions have to demonstrate ability to comply with the valuation rules and annual recomputation of the financing-to-value ratio. Islamic banking institutions should have in place internal policies and procedures to verify the robustness of the properly values used in the FTV computation, including where appropriate, requirements for independent valuations to be carried out to confirm the veracity of values stipulated in the Sales and Purchase Agreement. In computing the FTV ratio, Islamic banking institutions are not expected to conduct a formal valuation on each property annually. Islamic banking institutions may use credible secondary information such as property market reports or house indices. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 21 / 517 Issued on: 3 May 2019 Berhad when computing the financing-to-value ratio, by reducing the value of the financing by the amount protected. This is however, subject to Islamic banking institutions fulfilling the operational and legal certainty requirements for the recognition of credit risk mitigation set out in Part B.2.5; (v) Upon default, the property must be valued by a qualified independent valuer. Defaulted qualifying RRE financing shall be treated differently from other defaulted financing. The treatment is specified under paragraph 2.48; (vi) The property has been completed and Certificate of Fitness has been issued by relevant authority; and (vii) The applicable Shariah contracts for the financing of the RRE shall be based on Murabahah or Ijarah27. 2.39 Qualifying RRE exposures shall be risk-weighted28 based on the following table: Financing-to-value Ratio (FTV)29 <80% 80%-90% Risk Weight 35% 50% 2.40 Residential mortgages which do not meet the criteria in paragraphs 2.38 and 2.39 will be treated as regulatory retail portfolio as per paragraph 2.36. 2.40(i) Notwithstanding paragraphs 2.38 to 2.40, all residential mortgages with a financing-to-value ratio of more than 90% approved and disbursed by Islamic banking institutions on or after 1 February 2011 shall be risk- weighted at 100%. 27 The risk weights of qualifying RRE financing may be applicable to exposures based on other contracts (including Mushārakah Mutanaqisah undertaken with or without Waad), provided that the credit risk profile of such exposures is similar to Murābahah or Ijārah contract. Nevertheless, the Bank expects banking institutions to monitor the risk characteristics of such contracts in comparison against other similar types of exposures, particularly in relation to the recovery profile. 28 Where the RRE financing is protected by Cagamas SRP Berhad (under Cagamas MGP, Skim Rumah Pertamaku, and Skim Perumahan Belia), a risk weight of 20% shall apply on the protected portion while the remaining portion shall be risk-weighted based on the post protection financing-to- value ratios. 29 The financing-to-value ratios are post-protection where applicable. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 22 / 517 Issued on: 3 May 2019 2.41 Personal financing facilities that are combined with RRE may be treated as RRE provided that the personal financing facility is secured with the first legal charge. Otherwise, the personal financing facility shall be classified under regulatory retail portfolio. 2.42 For residential mortgage financing extended to the priority sector as per requirements specified by the Bank, the financing shall be subjected to a risk weight of 50%, or 35% if the FTV ratio is below 80%30. However, any financing with an FTV of more than 90% approved and disbursed by Islamic banking institutions on or after 1 February 2011, shall be risk- weighted at 75%. 2.43 A summary of the risk weights for all exposures to RRE is provided in Appendix II. Exposures Secured by Commercial Real Estate (CRE) 2.44 Exposures to counterparty that are secured by CRE shall be treated based on the appropriate definition under paragraphs 2.20 to 2.37. The CRE may be eligible for credit risk mitigant as defined under Part B.2.5. Defaulted Exposures 2.45 This part specifies the treatment for exposures that are classified as being in default. The definition of defaulted exposures is attached in Appendix III. 2.46 Islamic banking institutions are allowed to account for the eligible collaterals and guarantees to determine the secured portion of defaulted exposures. 2.47 The risk weight for the unsecured portion31 of defaulted exposures other than defaulted qualifying RRE financing (refer to paragraph 2.48) and 30 Refer to footnote 28 31 Unsecured portion of defaulted exposure refers to the portion that are not collateralised or guaranteed by an eligible credit risk mitigant. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 23 / 517 Issued on: 3 May 2019 higher risk assets (refer to paragraphs 2.49 and 2.50), net of specific provisions32 (including partial write-offs) are as follows: (i) 150% risk weight where the specific provisions are less than 20% of the outstanding amount of the exposure; (ii) 100% risk weight where the specific provisions are at least 20% of the outstanding amount of the exposure; and (iii) 50% risk weight where the specific provisions are at least 50% of the outstanding amount of the exposure. 2.48 Qualifying RRE financing that are in default, net of specific provisions (including partial write-offs), shall be riskweighted as follows: (i) 100% where specific provisions are less than 20% of the outstanding amount of the exposure; and (ii) 50% where specific provisions are at least 20% of the outstanding amount of the exposure. An illustration on the computation of the risk-weighted assets for defaulted exposures is provided in Appendix IV. Higher Risk Assets 2.49 The following exposures have been identified as high risk assets and are accorded specific risk weights as follows: (i) Investment in equity financial instruments that are non-publicly traded (inclusive of investments/financing structured based on Musharakah and Mudarabah contracts) shall be risk-weighted at 150%; (ii) The exposures on an abandoned33 housing development or construction project will be risk-weighted at 150%; and 32 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. 33 For the purpose of the Framework, abandoned project or construction is defined as follows: (i) A housing development project in which construction has continuously stopped for 6 months or more within or outside the completion period as per the Sales and Purchase Agreement (ii) The developer has no ability to proceed and complete the project due to financial insolvency BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 24 / 517 Issued on: 3 May 2019 (iii) venture capital investments will be risk-weighted at 150%.34 2.50 In addition, the treatment for defaulted and non-defaulted exposures of these higher risk assets shall be the same. Other Assets 2.51 Specific treatment for other assets that are not covered in the above shall be as follows: (i) Cash and gold35 will be risk-weighted at 0%; (ii) Exposures on the Bank for International Settlements, International Monetary Fund, European Central Bank and European Community shall be accorded a 0% risk weight; (iii) Exposures (excluding equity investment specified in (v)(c) below) to CGC shall be accorded a 20% risk weight; (iv) Exposures to local stock exchanges36 and clearing houses shall be accorded a 20% risk weight; (v) The following exposures shall be accorded a risk weight of 100%: (a) Investments in unit trust funds and property trust funds37. (b) Publicly traded equity investments held in the banking book (inclusive of investments structured based on Musharakah and Mudarabah contracts). (c) Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or the Malaysian Investment Banking Association38; (iii) The Ministry qualifies that the developer is no longer able to continue its responsibility as the developer. 34 The Bank may decide to impose more stringent capital treatment including capital deduction. 35 Refers to holding of gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities. 36 Refers to Bursa Malaysia Securities Berhad and Labuan Financial Exchange. 37 Includes Real Estate Investment Trusts. 38 Such as Cagamas Berhad and Credit Guarantee Corporation Malaysia Berhad. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 25 / 517 Issued on: 3 May 2019 (vi) Investment in equity of non-financial commercial subsidiaries will be accorded a 1250% risk weight; (vii) Investment in International Islamic Liquidity Management Corporation (IILM) Sukuk shall be risk-weighted in accordance with paragraph paragraph 2.30; and (viii) Right-of-use (ROU) assets where the underlying asset being leased is a tangible asset will be accorded a 100% risk weight. 2.52 Any other assets not specified shall receive a standard risk weight of 100%. B.2.3 TREATMENT FOR THE COMPUTATION OF CREDIT RISK-WEIGHTED ASSETS FOR ISLAMIC CONTRACTS 2.53 This part sets out the following: (i) Specificities of the Shariah contracts; (ii) Identification of the credit risk exposures; and (iii) Appropriate treatment in terms of risk measurement of credit risk- weighted assets associated with Islamic financial products or transactions that are undertaken based on specific Shariah contracts. 2.54 Islamic financial transactions can generally be classified into four main categories as follows: (i) Asset-based transactions, which comprise of Murābahah, Salam and Istisnā` contracts, that are mainly structured or created based on the purchase or sale of assets; (ii) Lease-based transactions, which comprise of Ijārah contracts; (iii) Equity-based transactions, which comprise of Mushārakah and Mudārabah contracts, that are undertaken mainly based on equity participation in a joint venture or business enterprise; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 26 / 517 Issued on: 3 May 2019 (iv) Loan-based transactions, which are primarily undertaken through the Qardh contract. 2.55 The innovation in Islamic banking products and financial instruments has resulted in the development of varied product structures which are differentiated by a unique product name. For example, some products are structured using a combination of Shariah permissible terms. For capital adequacy computation purposes, the capital treatments on these financial instruments shall be assessed based on the analysis of the risk profile embedded within these transactions rather than the product name, unless specifically required by the Bank. MURĀBAHAH Murābahah 2.56 A Murābahah contract refers to an agreement whereby an Islamic banking institution sells to an obligor an asset that it has acquired at an agreed selling price between both parties. The agreed selling price is based on the acquisition cost (purchase price plus other direct costs) of the asset incurred by the Islamic banking institution and a profit margin agreed between the Islamic banking institution and its obligor. The Murābahah contract shall include the agreed repayment terms where the obligor is obliged to pay the selling price after taking delivery of the asset. 2.57 Islamic banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the Murābahah contract. Hence, Islamic banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. Murābahah for Purchase Orderer (MPO) 2.58 A Murābahah for Purchase Orderer (MPO) contract refers to an agreement whereby an Islamic banking institution sells to an obligor at an agreed selling price, a specified type of asset that has been acquired by BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 27 / 517 Issued on: 3 May 2019 the Islamic banking institution based on an agreement to purchase (AP) by the obligor which can be binding or non-binding. The relevant legal recourse provided under the AP that requires the obligor to perform their obligation to purchase the underlying asset from the Islamic banking institution shall be a key determinant for the AP to be recognised as binding or non-binding. Thus, it is pertinent for Islamic banking institutions to ensure the adequacy and enforceability of the legal documentation under the MPO contract. The MPO contract shall include the agreed repayment terms where the obligor is obliged to pay the selling price after taking delivery of the asset. 2.59 The difference between a Murābahah transaction and an MPO transaction is that under a Murābahah contract, the Islamic banking institution sells an asset which is already in its possession, whilst in an MPO, the Islamic banking institution acquires an asset in anticipation that the asset will be purchased by the obligor. 2.60 Islamic banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the MPO contracts. Hence, Islamic banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. 2.61 For MPO with binding AP, Islamic banking institutions are exposed to credit risk in the event that the obligor (purchase orderer) defaults on its binding obligation to purchase the assets under the contract. In view of the adequate legal recourse that requires the obligor to purchase the asset at an agreed price, the credit risk exposure commences once the Islamic banking institution acquires the underlying asset. For non-binding MPO, the effect is similar to a Murābahah transaction. 2.62 The following table summarises the treatment for the determination of risk weights of Murābahah and MPO contracts: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 28 / 517 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When Islamic banking institutions start providing for capital) Determination of Risk Weight Murābahah and MPO with non- binding AP When sale of asset is completed and payment is due from the obligor Note: Exposure is based on outstanding amount Based on type of exposure as per Part B.2.2 Definition of Exposures. MPO with binding AP When asset is acquired by Islamic banking institution and available for sale (asset on balance sheet)39 Note: Exposure is equivalent to the asset acquisition cost. BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH 2.63 For the purpose of the Framework, the Bai` Bithaman Ajil (BBA) and Bai` Inah contracts are deemed to have similar transaction characteristics and financing effect as the Murābahah and MPO contract. The BBA involves the selling of an asset with deferred payment terms while Bai’ Inah involves a sell and buy back agreement. An example of Bai’ Inah is where an obligor sells to the Islamic banking institution an asset at a selling price that will be repaid on cash basis for the first leg of the agreement. On the second leg, the Islamic banking institution sells back the asset to the obligor on deferred payment terms to enable the financing transaction. IJĀRAH Ijārah 2.64 Ijārah contracts refer to a lease agreement whereby the lessor transfers the right to use (or usufruct) of the leased asset to the lessee, for an agreed period and at an agreed consideration, in the form of lease rental. The lessor maintains ownership of the leased asset during the lease period under these contracts. 2.65 As the owner of the leased asset, Islamic banking institutions therefore assume all liabilities and risks pertaining to the leased asset including the 39 Includes assets which are in possession due to cancellation of AP by customers. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 29 / 517 Issued on: 3 May 2019 obligation to restore any impairment and damage to the leased asset arising from wear and tear, as well as natural causes which are not due to the lessee’s misconduct or negligence. 2.66 As a lessor, Islamic banking institutions may acquire the asset to be leased based on the lessee’s specifications as stipulated under the agreement to lease (AL), prior to entering into the Ijārah contract with the lessee. The AL can be binding or non-binding on the lessee depending on the legal recourse in the AL, which states the obligation for the lessee to lease the specified asset from the lessor. 2.67 Islamic banking institutions as the lessor under the Ijārah contracts are exposed to the credit risk of the lessee in the event that the lessee fails to pay the rental amount as per the agreed terms. 2.68 In addition, under a binding AL, Islamic banking institutions are exposed to credit risk in the event that the lessee (lease orderer) defaulting on its binding obligation to execute the Ijārah contract. In this situation, the Islamic banking institution may lease or dispose off the asset to another party. However, the Islamic banking institution is also exposed to the credit risk of the lessee if the lessee is not able to compensate for the losses incurred arising from the disposal of the asset. 2.69 Under a non-binding AL, the Islamic banking institution is not exposed to the risk of non-performance by the lease orderer given that the Islamic banking institution does not have legal recourse to the lease orderer. In this regard, credit risk exposure arises upon the commencement of rental agreement. Ijārah Muntahia Bittamleek 2.70 Ijārah Muntahia Bittamleek (IMB) contract refers to a lease agreement similar to Ijārah contracts. However, in addition to paragraphs 2.64 to 2.69, the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 30 / 517 Issued on: 3 May 2019 lessor has an option to transfer ownership of the leased asset to the lessee in the form of a gift or a sale transaction at the end of IMB. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 31 / 517 Issued on: 3 May 2019 Al-Ijārah Thumma Al-Bai` 2.71 Al-Ijārah Thumma Al-Bai` (AITAB) contract is a type of IMB contract that ends with a transfer of ownership to the lessee by way of a sale transaction and shall be treated similarly to the IMB contract for purposes of capital adequacy requirements. In line with the applicable accounting treatment, where Islamic financial products apply the AITAB contract for the purpose of creating financing facilities, the outstanding rental amount refers to the total outstanding principal amount plus accrued profit due from obligor. 2.72 The following table summarises the treatment for the determination of risk weights of Ijārah/IMB contracts for the lessee: Type of AL Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk Weight Upon signing an AL and asset is in balance sheet available for lease Upon signing an LC and the lease rental payments are due from the lessee Binding Exposure to credit risk Note: Exposure is equivalent to asset acquisition cost Exposure to credit risk Note: Exposure is based on outstanding rental amount Risk weight is based on obligor’s (prospective lessee’s) external rating Non-binding / Without AL No credit risk Exposure to credit risk Note: Exposure is based on outstanding rental amount Risk weight is based on lessee’s external rating SALAM 2.73 A Salam contract refers to an agreement whereby an Islamic banking institution purchases from an obligor a specified type of commodity, at a predetermined price, which is to be delivered on a specified future date in a specified quantity and quality. Islamic banking institution as the purchaser of the commodity makes full payment of the purchase price upon execution of the Salam contract. Islamic banking institutions are exposed to credit risk in BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 32 / 517 Issued on: 3 May 2019 the event that the obligor (commodity seller) fails to deliver40 the paid commodity as per the agreed terms. 2.74 In addition, an Islamic banking institution may also enter into a parallel Salam contract, which is a back-to-back contract to sell the commodity purchased under the initial Salam contract to another counterparty. This arrangement enables the Islamic banking institution to mitigate the risk of holding the commodity. 2.75 Islamic banking institutions undertaking the parallel Salam transaction are exposed to credit risk in the event that the purchaser fails to pay for the commodity it had agreed to purchase from the Islamic banking institution. Nevertheless, in the event of non-delivery of the commodity by the seller under the initial Salam contract, the Islamic banking institution is not discharged of its obligation to deliver the commodity to the purchaser under the parallel Salam contract. 2.76 For the purpose of computing the credit risk-weighted asset, the purchase price paid by Islamic banking institution to the seller of commodity in a Salam contract shall be assigned a risk weight based on the seller’s external rating. 2.77 The following table summarises the treatment for the determination of credit risk weights of Salam contracts: Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk Weight Salam Islamic banking institution is expecting delivery of the commodity after purchase price has been paid to seller Note: Exposure amount is equivalent to the payment made by Islamic banking institution Based on type of exposure as per Part B.2.2 Definition of Exposures. Salam with Parallel Salam Similar to the above (The Parallel Salam does not extinguish requirement for capital from Based on type of exposure as per Part B.2.2 Definition of Exposures. 40 Delivery risk in a Salam contract is measured based on the commodity seller’s credit risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 33 / 517 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk Weight the first Salam contract) ISTISNĀ` 2.78 An Istisnā` contract refers to an agreement to sell to or buy from an obligor an asset which has yet to be manufactured or constructed. The completed asset shall be delivered according to the buyer’s specifications on a specified future date and at an agreed selling price as per the agreed terms. 2.79 As a seller of the under the Istisnā` contract, the Islamic banking institution is exposed to credit risk in the event that the obligor fails to pay the agreed selling price, either during the manufacturing or construction stage, or upon full completion of the asset. 2.80 As a seller, the Islamic banking institution has the option to manufacture or construct the asset on its own or to enter into a parallel Istisnā` contract to procure the asset from another party or, to engage the services of another party to manufacture or construct the asset. Under the parallel Istisnā` contract, as the purchaser of the asset, the Islamic banking institution is exposed to credit risk in the event that the seller fails to deliver the specified asset at the agreed time and in accordance with the initial Istisnā` ultimate buyer’s specifications. The failure of delivery of completed asset by the parallel Istisnā` seller does not discharge the Islamic banking institution from its obligations to deliver the asset ordered by the obligor under the initial Istisnā` contract. Thus, the Islamic banking institution is additionally exposed to the potential loss of making good the shortcomings or acquiring the specified assets elsewhere. 2.81 The following table specifies the treatment for the determination of risk weights of Istisnā` contracts: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 34 / 517 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk Weight Istisnā`and Parallel Istisnā Unbilled and unpaid billed work- in-progress Based on type of exposure as per Part B.2.2 Definition of Exposures; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix V. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 35 / 517 Issued on: 3 May 2019 MUSHĀRAKAH 2.82 A Mushārakah contract is an agreement between an Islamic banking institution and its obligor to contribute an agreed proportion of capital funds to an enterprise or to acquire ownership of an asset/real estate. The proportion of the capital investment may be on a permanent basis or, on a diminishing basis where the obligor progressively buys out the share of the Islamic banking institution (thus, this contract is named Diminishing Mushārakah, which is categorized under Mushārakah contract for the purpose of the Framework). Profits generated by the enterprise or an asset/real estate are shared in accordance to the terms of the Mushārakah agreement, while losses are shared based on the capital contribution proportion. 2.83 In general, Mushārakah contracts can broadly be classified into two categories as follows: (i) Equity participation in a private commercial enterprise to undertake business ventures or financing of specific projects; and (ii) Joint ownership in an asset or real estate I. EQUITY PARTICIPATION IN A PRIVATE COMMERCIAL ENTERPRISE TO UNDERTAKE BUSINESS VENTURES OR FINANCING OF SPECIFIC PROJECTS 2.84 An Islamic banking institution may enter into a Mushārakah contract with their obligor to provide an agreed amount of capital for the purpose of participating in the equity ownership of an enterprise. In this arrangement, the Islamic banking institution is exposed to capital impairment risk in the event that the business activities undertaken by the enterprise incur losses. The Mushārakah agreement may provide an agreed ‘exit mechanism’ which allows partners to divest their interest in the enterprise at a specified tenor or at the completion of the specified project. In this regard, the Islamic banking institution must ensure that the contract clearly stipulates the exit mechanism for partners to redeem their investment in this entity. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 36 / 517 Issued on: 3 May 2019 2.85 Islamic banking institutions that enter into this type of Mushārakah contract are exposed to the risk similar to an equity holder or a joint venture arrangement where the losses arising from the business venture are to be borne by the partners. As an equity investor, the Islamic banking institution serves as the first loss absorber and its rights and entitlements are subordinated to the claims of creditors. In terms of risk measurement, the risk exposure to an enterprise may be assessed based on the performance of the specific business activities undertaken by the joint venture as stipulated under the agreement. II. JOINT OWNERSHIP IN AN ASSET OR REAL ESTATE 2.86 Mushārakah contracts that are undertaken for the purpose of joint ownership in an asset or real estate may generally be classified into the two categories as follows: i) Mushārakah contract with an Ijārah sub-contract Partners that jointly own an asset or real estate may undertake to lease the asset to third parties or to one of the partners under an Ijārah contract and therefore generate rental income to the partnership. In this case, the risk profile of the Mushārakah arrangement is essentially determined by the underlying Ijārah contract. Islamic banking institutions are exposed to credit risk in the event that the lessee fails to service the lease rentals. ii) Mushārakah contract with a Murābahah sub-contract As a joint owner of the underlying asset, Islamic banking institutions are entitled to a share of the revenue generated from the sale of asset to a third party under a Murābahah contract. Islamic banking institutions are exposed to credit risk in the event the buyer or counterparty fails to pay for the asset sold under the Murābahah contract. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 37 / 517 Issued on: 3 May 2019 iii) Diminishing Mushārakah (a) An Islamic banking institution may enter into a Diminishing Mushārakah contract with an obligor for the purpose of providing financing based on a joint ownership of an asset, with the final objective of transferring the ownership of the asset to the obligor in the contract. (b) The contract allows the obligor to gradually purchase the Islamic banking institution’s share of ownership in an asset/real estate or equity in an enterprise over the life of the contract under an agreed repayment terms and conditions which reflect the purchase consideration payable by the obligor to acquire the Islamic banking institution’s share of ownership. (c) As part of the mechanism to allow the obligor to acquire the Islamic banking institution’s share of ownership, the Islamic banking institution and obligor may agree to lease the asset/real estate to the obligor. The agreed amount of rental payable can be structured to reflect the progressive acquisition of the Islamic banking institution’s share of ownership by the obligor. Eventually, the full ownership of the asset will be transferred to the obligor as it continues to service the rental payment. In this regard, the Islamic banking institution is exposed to credit risk similar to an exposure under the Mushārakah with Ijārah contract. (d) However, if the exposure under the Diminishing Mushārakah contract consists of share equity in an enterprise, the Islamic banking institution shall measure its risk exposure using the treatment for equity risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 38 / 517 Issued on: 3 May 2019 2.87 The following table specifies the treatment for the determination of credit risk weights of Mushārakah contracts: Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk Weight Mushārakah for equity holding in banking book Holding of equity 100% risk weight for publicly traded equity and 150% risk weight for non- publicly traded equity; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix V. Mushārakah for project financing Funds advanced to joint venture 150% risk weight41; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix V. Mushārakah with sub- contract Exposure to credit risk As set out under the sub- contract. MUDĀRABAH 2.88 A Mudārabah contract is an agreement between an Islamic banking institution and an obligor whereby the Islamic banking institution contributes a specified amount of capital funds to an enterprise or business activity that is to be managed by the obligor as the entrepreneur (Mudārib). As the capital provider, the Islamic banking institution is at risk of losing its capital investment (capital impairment risk) disbursed to the Mudārib. Profits generated by the enterprise or business activity are shared in accordance with the terms of the Mudārabah agreement whilst losses are borne solely by the Islamic banking institution (capital provider)42. However, losses due to 41 The Bank reserves the right to increase the risk weight if the risk profile of the exposure is deemed higher. 42 Losses borne by the capital provider would be limited to the amount of capital invested. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 39 / 517 Issued on: 3 May 2019 misconduct, negligence or breach of contracted terms43 by the entrepreneur, shall be borne solely by the Mudārib. In this regard, the amount of capital invested by the Islamic banking institution under the Mudārabah contract shall be treated similar to an equity exposure. 2.89 Mudārabah transactions can be carried out: (i) on a restricted basis, where the capital provider authorises the Mudārib to make investments based on a specified criteria or restrictions such as types of instrument, sector or country exposures; or (ii) on an unrestricted basis, where the capital provider authorises the Mudārib to exercise its discretion in business matters to invest funds and undertake business activities based on the latter’s skills and expertise. 2.90 In addition, transactions involving Mudārabah contracts may generally be sub-divided into two categories as follows. I. EQUITY PARTICIPATION IN AN ENTITY TO UNDERTAKE BUSINESS VENTURES 2.91 This type of Mudārabah contract exposes the Islamic banking institution to risks akin to an equity investment, which is similar to the risk assumed by an equity holder in a venture capital or a joint-venture investment. As an equity investor, the Islamic banking institution assumes the first loss position and its rights and entitlements are subordinated to the claims of creditors. II. INVESTMENT IN PROJECT FINANCE 2.92 The Islamic banking institution’s investment in the Mudārabah contract with a Mudārib is for the purpose of providing bridging finance to a specific project. This type of contract exposes the Islamic banking institution to capital 43 Banking institutions are encouraged to establish and adopt stringent criteria for definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 40 / 517 Issued on: 3 May 2019 impairment risk in the event that the project suffers losses. Under this arrangement, the Islamic banking institution as an investor provides the funds to the construction company or Mudārib that manages the construction project and is entitled to share the profit of the project in accordance to the agreed terms of the contract and must bear the full losses (if any) arising from the project. 2.93 There may be situations where the risk profile of money market instruments based on Mudārabah contracts may not be similar to an equity exposure given the market structure and regulatory infrastructure governing the conduct of the market. In particular, Mudārabah interbank investments in the domestic Islamic money market would attract the credit risk of the Islamic banking institution instead of equity risk despite having similarities in the contractual structure. 2.94 The following table summarises the treatment for the determination of risk weights for Mudārabah contracts: Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk weight Mudārabah for equity holding in banking book Holding of equity 100% risk weight for publicly traded equity and 150% risk weight for non-publicly traded equity; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix V. Mudārabah for project financing Amount receivable from Mudārib in respect of progress payments due from ultimate obligors If a binding agreement exists for ultimate obligors to pay directly to Islamic banking institution: Based on external rating of ultimate obligor (Type of obligor as per Part B.2.2 Definition of Exposures) Remaining balance of funds advanced to the Mudārib. 150% risk weight44; or Supervisory slotting criteria method subject to fulfilling 44 The Bank reserves the right to increase the risk weight if the risk profile of the exposure is deemed higher. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 41 / 517 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When Islamic banking institutions start providing capital) Determination of Risk weight minimum requirements as per Appendix V. QARDH 2.95 Qardh is a loan given by an Islamic banking institution for a fixed period, where the borrower is contractually obliged to repay only the principal amount borrowed. In this contract, the borrower is not obligated to pay an extra amount (in addition to the principal amount borrowed) at his absolute discretion as a token of appreciation to the Islamic banking institution. Islamic banking institutions are exposed to credit risk in the event that the borrower fails to repay the principal loan amount in accordance to the agreed repayment terms. Hence, the credit risk exposure commences upon the execution of the Qardh contract between the Islamic banking institution and the borrower. The following table summarises the treatment for the determination of credit risk weight for Qardh contract: Applicable Stage of the Contract Determination of Risk Weight Upon execution of the contract Based on type of exposure as per Part B.2.2 Definition of Exposure SUKŪK 2.96 Regulatory capital treatment must be applied based on the economic substance or actual risk profile of a particular Sukūk45 exposure rather than its legal form to ensure that capital provided commensurates with the underlying risk borne by Islamic banking institutions. For purposes of this Framework, Sukūk can be broadly categorised into: (i) asset-based Sukūk, where risk and reward are dependent on the obligor that originates/issues the instrument. The economic substance or actual risk profile of such Sukūk resembles that of the originator/issuer46 and is 45 Sukūk are certificates that represent the holder’s proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such assets 46 Although Sukūk represent the holder’s proportionate ownership in an underlying asset which enables the generation of cash flow, there are clauses within the terms and conditions of the Sukūk that causes the risk and rewards to ultimately depend on the originator BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 42 / 517 Issued on: 3 May 2019 therefore subject to the requirements in Part B.2.2 Definition of Exposures of CAFIB; and (ii) asset-backed Sukūk, where risk and reward are dependent on the underlying asset and is therefore subject to the requirements in Part F of this Framework. 2.97 Islamic banking institutions are required to assess characteristics of Sukūk, including the Shariah contract used and transaction structure in order to differentiate between asset-based and asset-backed Sukūk and to determine the application of appropriate regulatory capital requirements. These may include assessment of the actual source of cash flow, the ability for investors to have recourse to the originator as well as the existence of repurchase terms. Examples of asset-based Sukūk include sukūk with legally binding repurchase undertaking by originators or sukūk with recourse to originators. Examples of asset-based and asset-backed Sukūk transactions are illustrated in Appendix XXX. 2.98 Islamic banking institutions are required to consult the Bank when there are doubts about the appropriate regulatory capital treatment of a particular exposure. B.2.4 OFF-BALANCE SHEET ITEMS 2.99 Off-balance sheet items shall be treated similar to the existing capital framework that is based on the Risk-Weighted Capital Adequacy Framework (Basel 1) as an addition to CAS issued by the IFSB. In this regard, the inherent credit risk exposure under off-balance sheet item is translated into an on-balance sheet exposure by multiplying the nominal principal amount with a credit conversion factor (CCF). The converted exposure is then being risk-weighted according to the risk weight of the counterparty. 2.100 In addition, counterparty risk weights for over-the-counter (OTC) derivative transactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 43 / 517 Issued on: 3 May 2019 2.101 The CCFs for the various types of off-balance sheet instruments are as follows: Instrument CCF a. Direct credit substitutes, such as general guarantees of receivables including standby letters of credit serving as financial guarantees for financing and Islamic securities and acceptances (including endorsements with the character of acceptances). 100% b. Assets47 sold with recourse, where the credit risk remains with the selling institution c. Forward asset purchases, and partly-paid shares and securities, which represent commitments with certain drawdown. d. Commitment to buy back Islamic securities under Sell and Buy Back agreement transactions e. Certain transaction-related contingent items, such as performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions. 50% f. Obligations under an on-going underwriting agreement (including underwriting of shares/ securities issue) and revolving underwriting facilities g. Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year. 47 Item (b), which includes house financing sold to Cagamas Bhd, and (c), should be weighted based on the type of asset (house financing) instead of counterparty (i.e. Cagamas) with whom the transaction has been entered into. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 44 / 517 Issued on: 3 May 2019 h. Short-term self-liquidating trade-related contingencies, such as documentary credits collateralised by the underlying shipments. The credit conversion factor shall be applied to both the issuing and confirming Islamic banking institution. 20% i. Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year. j. Unutilised credit cards48 lines k. Any commitments that are unconditionally cancelled at any time by the Islamic banking institution without prior notice or that effectively provide for automatic cancellation due to deterioration in an obligor’s creditworthiness. 0% Refer to paragraph 2.101(i) l. Derivatives contracts. Credit equivalent to be derived using current exposure method49 as given in Appendix VI. 2.101(i) Any commitments that are unconditionally and immediately cancellable and revocable by the Islamic banking institutions or that effectively provide for automatic cancellation due to deterioration in an obligor’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice, will be subject to 0% CCF. To utilise the 0% CCF, the Islamic banking institution must demonstrate that legally, it has the ability to cancel these facilities and that its internal control systems and monitoring practices are adequate to support timely cancellations which the Islamic banking institution does effect in practice upon evidence of deterioration in an obligor’s creditworthiness. Islamic banking institutions should also be able to demonstrate that such cancellations have not exposed the Islamic banking institution to legal actions, or where such 48 Charge cards with similar risk profile to credit card will be subject to a common CCF. 49 Credit equivalent exposure is based on the sum of positive mark-to-market replacement cost of the contract and potential future exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 45 / 517 Issued on: 3 May 2019 actions have been taken, the courts have decided in favour of the Islamic banking institution. 2.102 Islamic banking institutions are allowed to apply the lower of the two applicable credit conversion factors in the event where there is an undertaking to provide a commitment on an off-balance sheet item50. 2.103 In addition to the computation under item (l) above, counterparty credit risk may arise from unsettled securities, commodities, and foreign exchange transactions from the trade date, irrespective of the booking or accounting transaction. Islamic banking institutions are encouraged to develop, implement and improve systems for tracking and monitoring the credit risk exposures arising from unsettled transactions to enable appropriate action to be undertaken on a timely basis. These transactions are subject to a capital charge as calculated in Appendix VII if it is not processed via a delivery-versus-payment system (DvP) or a payment-versus-payment (PvP) mechanism. 2.104 Islamic banking institutions must closely monitor failed transactions with respect to securities, commodities, and foreign exchange transactions and calculate capital requirements on this transactions based on Appendix VII. B.2.5 CREDIT RISK MITIGATION 2.105 This section outlines general requirements for the use of credit risk mitigation and eligibility criteria, detailed methodologies and specific requirements with respect to the following CRM techniques: (i) Collateralised transactions; (ii) On-balance sheet netting; and 50 Such as commitments to provide letters of credit or guarantees for trade purposes. For example, if an Islamic banking institution provides the customer a committed limit on the amount of letters of credit they can issue over a one-year period, with the customer drawing on this committed limit over time. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 46 / 517 Issued on: 3 May 2019 (iii) Guarantee and credit derivatives. 2.106 CRM will not be recognised for capital adequacy purposes in the event where the rating assessment of particular Islamic securities has taken into consideration the effect of the CRM (to avoid double counting of credit enhancement factors). For example, if an external rating for a specific issue has taken into account the effects of a guarantee attached to the issuance, this guarantee shall not be eligible for the purposes of CRM. 2.107 While the use of CRM techniques reduces or transfers credit risk, it may introduce or increase other risks such as legal, operational, liquidity and market risk. Therefore, it is imperative that Islamic banking institutions control these risks by employing robust policies, procedures and processes including strategies to manage these risks, valuation, systems, monitoring and internal controls. Islamic banking institutions must able to demonstrate to the Bank that it has adequate risk management policies and procedures in place to control these risks arising from the use of CRM techniques. In any case, the Bank reserves the right to take supervisory action under Pillar 2 should the Islamic banking institution’s risk management in relation to the application of CRM techniques be insufficient. In addition, Islamic banking institutions will also be expected to observe Pillar 3 requirements51 in order to obtain capital relief in respect of any CRM techniques. Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques 2.108 Islamic banking institutions must satisfy the minimum conditions for use of any CRM technique to obtain capital relief as follows: (i) The collateral used under the CRM techniques must comply with Shariah requirements; (ii) All documentation for CRM must be binding on all parties and legally enforceable in all relevant jurisdictions; 51 Please refer Capital Adequacy Framework for Islamic Banks (CAFIB) – Disclosure Requirements (Pillar 3). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 47 / 517 Issued on: 3 May 2019 (iii) Sufficient assurance from legal counsel has been obtained with respect to the legal enforceability of the documentation; and (iv) Islamic banking institutions are expected to undertake periodic review to confirm the ongoing enforceability of the documentation. 2.109 In general, only collateral and/or guarantees that are actually posted and/or provided under a legally enforceable agreement are eligible for CRM purposes. However, RRE exposures that meet the qualifying criteria in paragraphs 2.38 to 2.43 shall not be eligible as CRM. A commitment to provide collateral or a guarantee is not recognised as an eligible CRM technique for capital adequacy purposes until the commitment to do so is actually fulfilled. Credit Risk Mitigation Techniques Collateralised Transactions 2.110 A collateralised transaction is one in which: (i) Islamic banking institutions have credit exposures or potential credit exposure; and (ii) That credit exposures are hedged in whole or in part by eligible collateral provided by a counterparty or by a third party on behalf of the counterparty. 2.111 Islamic banking institutions may apply either the simple approach (paragraphs 2.122 to 2.126) or the comprehensive approach (paragraphs 2.129 to 2.138) for the purpose of calculating the capital requirement arising from the collateralised transactions. The comprehensive approach shall also be applied to calculate counterparty risk charges for over-the- counter (OTC) derivatives in the trading book. 2.112 Under the simple approach, the collateralised portion of the credit risk exposure to counterparty is substituted with the risk weight of the eligible collateral under the collateralised transaction. In the case of BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 48 / 517 Issued on: 3 May 2019 comprehensive approach, Islamic banking institutions are allowed to apply the value ascribed from the collateral to offset or effectively reduce the credit risk exposure to counterparty. Partial collateralisation is recognised in both approaches. 2.113 Islamic banking institutions shall adopt any of the two approaches to calculate capital requirement for credit risk exposures in the banking book and its application must be applied consistently within the banking book. Nevertheless, Islamic banking institutions are expected to apply the comprehensive approach for physical asset that is accepted as collateral irrespective of the approach adopted for exposures collateralised by non- physical assets. Only the comprehensive approach is allowed for the trading book. Mismatches in the maturity of the underlying exposure and the collateral are allowed only under the comprehensive approach. 2.114 Islamic banking institutions are required to inform the Bank on the approach that it intends to adopt for CRM purposes. Any subsequent migration to a different approach shall also be communicated to the Bank. Minimum Requirements for Collateralised Transactions 2.115 In addition to the general requirements specified under paragraphs 2.108 and 2.109, the legal mechanism by which collateral is pledged or transferred must ensure that the Islamic banking institution has the right to liquidate or take legal possession of the collateral in a timely manner in the event of default, insolvency or bankruptcy of the counterparty. Furthermore, Islamic banking institutions must take all steps necessary to fulfill those requirements under the law to protect their interest in the collateral. 2.116 For collateral to provide effective cover, the credit quality of the counterparty and the value of collateral must not have a material positive correlation. For example, securities issued by the counterparty or a related BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 49 / 517 Issued on: 3 May 2019 counterparty52 as a form of collateral against a financing would generally be materially correlated, thus providing little cover and therefore would not be recognised as eligible collateral. 2.117 Islamic banking institutions must have clear and robust procedures for timely liquidation of collateral. Hence, Islamic banking institutions must ensure that legal requirements in declaring the default of the counterparty are observed and therefore facilitate prompt liquidation of the collateral. 2.118 For the purpose of recognising physical collateral as eligible CRM, Islamic banking institutions are required to: (i) Fulfil the scope of application whereby only assets that are completed for their intended use and fulfil the following conditions may be recognised as physical collateral: (a) Assets are legally owned by the Islamic banking institution. For Ijarah contracts, these are restricted to operating Ijarah only, where related costs of asset ownership are borne by the Islamic banking institution 53; or (b) The physical assets attract capital charges other than credit risk prior to/and throughout the financing period (e.g. operating Ijarah and inventories54 under Murabahah). (ii) Conduct an independent review55 to ascertain compliance with minimum and operational requirements prior to using physical collateral as CRM, and subsequently perform an annual independent 52 As defined under Single Counterparty Exposure Limit. 53 Shariah requires that the lessor/ owner bears the costs related to the ownership of or any other costs as agreed between the lessor and the lessee. In this regard, CRM would not be applicable if the lessee agrees to absorb material costs related to asset ownership or in an arrangement where ownership costs would be transferred to the lessee. 54 This excludes inventories which are merely used as a ‘pass-through’ mechanism such as in Commodity Murabahah transactions or if the inventories carry no risk due to the existence of binding agreements with the obligor for them to purchase the inventory. 55 Validation must be performed by a unit that is independent from risk taking/business units and must not contain individuals who would benefit directly from lower risk weight derived from the recognition of physical collateral as CRM. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 50 / 517 Issued on: 3 May 2019 assessment to validate fulfilment of all criteria and operational requirements specified in the Framework; (iii) Obtain approval from the Board or relevant board committees on the recognition; (iv) Provide 2 months prior notification to the Bank on the recognition; and (v) Have at least 2 years empirical evidence on data such as recovery rate and value of physical collateral prior to the recognition of physical collateral as CRM for Regulatory Retail Portfolio. 2.119 Islamic banking institutions must take reasonable measures to ensure that the collateral is in good custody in the event that the collateral is held by a custodian, and also ensure that the custodian segregates the collateral from its own assets. 2.120 Securities under Sell and Buy Back Agreement (SBBA) are not collateralised transaction given that it is undertaken based on outright purchase and sale transaction. Positions held under SBBA as well as reverse SBBA shall be subject to capital requirement according to the risk profile incurred by the parties involved as given in Appendix XVIII. Eligible Collateral 2.121 The following collateral instruments are eligible for recognition under the simple and comprehensive approach for the purpose of calculating capital adequacy requirements provided that the above minimum conditions are being met: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 51 / 517 Issued on: 3 May 2019 Type of Approach Collateral Recognised Simple Approach (i) Hamish jiddiyyah (security deposit held as collateral); (ii) Urbun (or earnest money held after a contract is established as collateral to guarantee contract performance); (iii) Investment account or deposit56 (including Islamic negotiable instrument of deposits or comparable instruments) with Islamic banking institution which is incurring the exposure; (iv) Gold; (v) Islamic securities/Sukūk rated by ECAIs where the risk weight attached to the debt securities is lower than that of the obligor; (vi) Islamic securities/Sukūk that is unrated by a recognised ECAI but fulfil the following conditions: (a) Issued by a banking institution; (b) Listed on recognised exchange; (c) Classified as senior debt; (d) All rated issue of the same seniority by the issuing bank that are rated at least BBB- or A-3/P-3 or any equivalent rating; and (e) The Bank is sufficiently confident about the market liquidity of the debt security/Sukūk. (vii) Equities (including convertible bonds/Sukūk) that are included in the main index (refer to Appendix VIII); (viii) Funds (e.g. collective investment schemes, unit trust funds, mutual funds, etc) where: (a) A price for the units is publicly quoted daily; and (b) The investment portfolio is limited to investing in the instruments listed in this table. (The use or potential use by a fund of derivative instruments solely to hedge investments listed in this table shall not prevent units in that fund from being a collateral.) 56 Structured deposits and Restricted Investment Account would not qualify as eligible financial collateral. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 52 / 517 Issued on: 3 May 2019 Comprehensive Approach (i) All of the above; (ii) Physical assets (either underlying assets or any other assets owned by the counterparty or by third party on behalf of counterparty which are pledged or leased assets) that fulfil the minimum requirement specified under the comprehensive approach as well as additional criteria57 specified in Appendix IX; (iii) Equities (including convertible Islamic securities/Sukūk) which are not included in a main index that is Composite Index of Bursa Malaysia but are listed on a recognised exchange (refer to Appendix 9); and (iv) Funds (e.g. collective investment schemes, unit trust funds, mutual funds, etc) which include equities that are not included in a main index i.e. Composite Index of Bursa Malaysia but which are listed on a recognised exchange (refer to Appendix VIII) Simple Approach 2.122 Under this approach, where an exposure on counterparty is secured against eligible collateral, the secured portion of the exposure must be weighted according to the risk weight appropriate to the collateral. The unsecured portion of the exposure must be weighted according to the risk weight applicable to the original counterparty. 2.123 Collateral used under the simple approach must be pledged for at least the entire life of the exposure and collateral revaluation shall be based on marked-to-market methodology at a minimum frequency of 6 months. The portion of exposures collateralised by the market value of the recognised collateral shall receive the risk weight applicable to the collateral instrument. The risk weight on the collateralised portion shall be subject to a floor of 20% except under the conditions specified in paragraphs 2.125 and 2.126. The original risk weight accorded to the counterparty shall be assigned to the residual risk exposure. 2.124 Islamic banking institutions shall refer to risk weight tables specified under Part B.2.2 for the purpose of determining the appropriate risk weight to be 57 The minimum criteria for recognition of additional collateral as credit risk mitigation under the comprehensive approach have been adopted from the Basel II minimum requirements for Internal Rating Based (IRB) approach. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 53 / 517 Issued on: 3 May 2019 assigned on collateral pledged by the counterparty. Collateral that is denominated in local currency or foreign currency shall be subject to the risk weight linked to domestic currency ratings or foreign currency ratings respectively. Exceptions to the 20% Risk Weight Floor 2.125 A 0% risk weight may be accorded to the collateralised transaction in the event where the exposure and the collateral are denominated in the same currency, and the type of collateral is either: (i) hamish jiddiyyah, urbun, investment account or deposit as defined in paragraph 2.121; or (ii) Islamic securities that are eligible for a 0% risk weight and its market value have been discounted by 20%. 2.126 OTC derivative transactions that are subject to daily mark-to-market revaluation and do not have any currency mismatch shall be accorded the following risk weight: (i) 0% risk weight where it is collateralised by cash; or (ii) 10% risk weight where it is collateralised by Islamic securities issued by sovereign or PSE that eligible for a 0% risk weight. In addition, the calculation of counterparty credit risk under the OTC derivative transactions is specified under Appendix VI. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 54 / 517 Issued on: 3 May 2019 Collateralised OTC Derivatives Transactions58 2.127 As specified in Appendix VI, the calculation of the counterparty credit risk charge for an individual contract will be as follows: Counterparty Charge = [(RC + add-on) – CA] x r x 8% Where: RC = The replacement cost add-on = the amount for potential future exposure calculated according to Appendix VI. CA = The volatility adjusted collateral amount under the comprehensive approach R = The risk weight of the counterparty 2.128 When effective bilateral netting contracts are in place, RC will be the net replacement cost and the add-on will be ANet59 as calculated according to Appendix VI. The haircut for currency risk (Hfx) should be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where there are more than two currencies involved in the exposure, collateral and settlement currency, a single haircut assuming a 10-business day holding period scaled up as necessary depending on the frequency of mark-to-market will be applied. Comprehensive Approach 2.129 Under the comprehensive approach, when taking collateral, Islamic banking institutions must calculate an adjusted exposure amount to a counterparty after risk mitigation, E*. This is done by applying volatility adjustments to both the collateral and the exposure60 , taking into account possible future price fluctuations. Unless either side of the transaction is cash, the volatility adjusted amount for the exposure shall be higher than the actual exposure and lower than the collateral. 58 For example, collateralised interest rate swap transactions. 59 Add-on for netted transactions. 60 Exposure amounts may vary where, for example, securities are being lent. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 55 / 517 Issued on: 3 May 2019 2.130 The adjusted exposure amount after risk mitigation shall be accorded the risk weight of the counterparty for the purpose of calculating the risk- weighted asset for the collateralised transaction. 2.131 When the exposure and collateral are held in different currencies, an additional downward adjustment must be made to the volatility adjusted collateral to take account of possible future fluctuations in exchange rates. Calculation of Capital Requirement 2.132 Under the comprehensive approach, the adjusted exposure amount after risk mitigation for collateralised transactions is calculated as follows: ( ) ( )[ ]{ }FXCE HHCHEE* −−×−+×= 110,max where: E* = The exposure value after risk mitigation E = current value of the exposure He = haircut appropriate to the exposure C = The current value of the collateral received Hc = haircut appropriate to the collateral Hfx = haircut appropriate for currency mismatch between the collateral and exposure Standard Supervisory Haircuts 2.133 For purposes of applying the comprehensive approach for collateralised transactions, the standard supervisory haircuts61 (H), expressed as percentage, are as follows: 61 Assuming daily mark-to-market, daily remargining and 10-business day holding period, except for physical assets that are subjected to minimum annual revaluation as per Appendix IX. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 56 / 517 Issued on: 3 May 2019 Types of collateral Haircuts (%) Issue rating for debt securities/Sukūk Residual maturity Sovereign Other issues AAA to AA-/A-1 ≤ 1 year 0.5 1 > 1 year, ≤ years 5 2 4 > 5 years 4 8 A+ to BBB-/A-2 to A- 3/P-3 and unrated bank securities/Sukūk ≤ 1 year 1 2 > 1 year, ≤ years 5 3 6 > 5 years 6 12 BB+ to BB- All 15 Main index equities (including convertible bonds/Sukūk) and Gold 15 Other equities (including convertible bonds/ Sukūk) listed on a recognised exchange 25 Funds (e.g. collective investment schemes, unit trust funds and mutual funds) Highest haircut applicable to any security in which the fund can invest at any one time. Cash in the same currency 0 CRE/RRE/Other physical collaterals62 (subject to minimum criteria specified in Appendix IX) 30 Currency mismatch 8 2.134 For transactions in which an Islamic banking institution finances non- eligible instruments (e.g. non-investment grade corporate debt securities/sukūk), the haircut to be applied on the exposure should be the same as that for other equities, i.e. 25%. Adjustment to standard supervisory haircuts for different holding periods and non-daily mark-to-market or re-margining 2.135 For some transactions, depending on the nature and frequency of revaluation and re-margining provisions, different holding periods are appropriate. In this regard, the framework for collateral haircuts distinguishes between capital market transactions other than sell and buy 62 Whilst the Bank has provided a minimum 30% haircut on other types of physical collateral, Islamic banking institutions should exercise conservatism in applying haircuts on the value of physical assets used as CRM for capital requirement purposes. In this regard, Islamic banking institutions are expected to use a more stringent haircut should their internal historical data on the disposal of physical assets reveal loss amounts which reflect a haircut of higher than 30%. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 57 / 517 Issued on: 3 May 2019 back agreement transactions (OTC derivatives transaction and margin financing) and secured financing. 2.136 The minimum holding period for the various products is summarised in the following table: Transaction type Minimum holding period Condition Capital market transaction (other than sell and buy back transactions) Ten business days Daily re-margining Secured financing Twenty business days Daily revaluation 2.137 When the frequency of re-margining or revaluation is longer than the minimum holding period, the minimum haircut numbers will be scaled up depending on the actual number of business days between re-margining or on the revaluation using the square root of time formula below: ( ) M MR M T 1TNHH −+ = Where: H = Haircut HM = Haircut under the minimum holding period TM = Minimum holding period for the type of transaction NR = Actual number of business days between re-margining for capital market transactions or revaluations for secured transactions When an Islamic banking institution calculates the volatility on a TN day holding period which is different from the specified minimum holding period TM, the HM will be calculated using the square root of time formula: N M NM T THH = Where: TN = Holding period used by the Islamic banking institution for deriving HN BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 58 / 517 Issued on: 3 May 2019 HN = Haircut based on the holding period TN 2.138 For Islamic banking institutions using the standard supervisory haircuts, the 10-business day haircuts provided in paragraph 2.133 will be the basis and this haircut will be scaled up or down depending on the type of transactions and the frequency of re-margining or revaluation using the formula below: ( ) 10 1TNHH MR 10 −+ = Where: H = Haircut H10 = 10-business day standard supervisory haircut for instrument NR = Actual number of business days between re-margining for capital market transactions or revaluation for secured transactions TM = Minimum holding period for the type of transaction Floor for Exposures Collateralised by Physical Assets 2.139 Exposures collateralised by physical assets shall be accorded the risk- weighted assets (RWA) which is the higher of: (i) RWA calculated using the CRM method; or (ii) 50% risk weight applied on gross exposure amount (i.e. before deducting the value of collateral) On-Balance Sheet Netting 2.140 Islamic banking institutions are allowed to compute credit exposures on a net basis for capital requirements where Islamic banking institutions have legally enforceable netting arrangements for financing and deposits63. 2.141 Prior to applying the on-balance sheet netting on any of its exposure, an Islamic banking institution must: 63 Structured deposits and Restricted Investment Account would not be recognised for on-balance sheet netting. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 59 / 517 Issued on: 3 May 2019 (i) ensure that it has a strong legal basis for concluding that the netting or off-setting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is in default, insolvent or bankrupt; (ii) be able to determine at any time all assets and liabilities with the same counterparty that are subject to netting agreement; (iii) be able to monitor and control its’ roll-off risks64; and (iv) be able to monitor and control the relevant exposure on a net basis. 2.142 The computation of the net exposure to counterparty for capital adequacy computation purposes is similar to that specified for collateralised transactions under paragraph 2.132 where assets (financing) will be treated as exposures and liabilities (deposits) will be treated as collateral. For on-balance sheet netting, the haircut will be zero except where there is a currency mismatch. A 10-business day holding period shall apply when daily mark-to-market is conducted and all the requirements contained in paragraphs 2.133, 2.138, and 2.153 to 2.156 shall apply. 2.143 The net exposure amount will be multiplied by the risk weight of the counterparty to calculate the risk-weighted assets of the exposure following the on-balance sheet netting. Guarantees 2.144 For a guarantee to be eligible for CRM, the following conditions must be satisfied: (i) The guarantee must represent a direct claim on the guarantor and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and cannot be disputed; (ii) The guarantee must be irrevocable. The guarantor must not have the right to unilaterally cancel the guarantee or increase the effective cost 64 Roll-off risks relate to the sudden increases in exposure which may happen when short dated obligations (for example deposit) which are used to net long dated claims (for example financing) mature. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 60 / 517 Issued on: 3 May 2019 of cover as a result of deteriorating credit quality in the hedged exposure; (iii) The contract must not have any clause or provision outside the direct control of the Islamic banking institution that prevents the guarantor from being obliged to pay out in a timely manner in the event that the original counterparty fails to make the payment(s) due; and (iv) In addition to the requirements on legal certainty of the guarantee specified in paragraphs 2.108 and 2.109, recognition of guarantee shall be subject to the following conditions: (a) On the default/non-payment of the counterparty, the Islamic banking institution may in a timely manner pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor may pay at once all monies under such documentation to the Islamic banking institution, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee; (b) The guarantee undertaking is explicitly documented; and (c) The guarantee covers all types of payments that is expected from the underlying obligor under the documentation governing the transaction, such as principal amount, profit payments etc.; and (v) Except as noted in the following sentence, the guarantee covers all types of payments the obligor is expected to make under the documentation governing the transaction, such as notional amount, margin payments etc. Where a guarantee covers payment of principal only, profits and other uncovered payments should be treated as an unsecured amounts in line with the treatment for proportionally covered exposures under paragraph 2.149. 2.145 The substitution approach will be applied in determining capital relief for exposures protected by guarantees. Where an exposure on a counterparty BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 61 / 517 Issued on: 3 May 2019 is secured by a guarantee from an eligible guarantor, the portion of the exposure that is supported by the guarantee is to be weighted according to the risk weight appropriate to the guarantor (unless the risk weight appropriate to the original counterparty is lower). The unsecured portion of the exposure must be weighted according to the risk weight applicable to the original obligor. 2.145(i) In addition, for an Islamic banking institution to recognise trade credit takaful as CRM, the Islamic banking institution must– (a) be both the takaful participant and the person covered; (b) not be the assignee, or assign the benefits of the takaful certificate to another party; (c) establish, at minimum, the following policies and procedures: (i) a process to determine and verify the completeness and appropriateness of documentation and information required for submission to the licensed takaful operator; (ii) a mechanism to monitor specified deadlines and credit standing of obligors (i.e. buyer of trade goods); and (iii) a process for timely and regular communication between the Islamic banking institution and the licensed takaful operator; and (d) obtain a legal opinion65 confirming that the takaful certificate is unconditional66 and irrevocable67 as required for CRM recognition under this policy document. Range of Eligible Guarantors 2.146 Guarantee given by the following entities will be recognised: 65 An Islamic banking institution may rely on in-house legal expertise or obtain opinion from an external legal firm. 66 The conditions for a takaful certificate to qualify as “unconditional” are stipulated in paragraph 2.144(iii). Exclusionary clauses relating to fraudulent, criminal acts and insolvency of Islamic banks and losses caused by nuclear or harmful substance contamination and war between major countries would not cause the trade credit takaful to be deemed as conditional. 67 The conditions for a takaful certificate to qualify as “irrevocable” are stipulated in paragraph 2.144(ii). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 62 / 517 Issued on: 3 May 2019 (i) sovereign entities68, PSEs, banking institutions and securities firms with a lower risk weight than the counterparty; and (ii) other entities rated BBB- or better. This shall include guarantee provided by parent, subsidiary and affiliate companies when they have a lower risk weight than the obligor. 2.146(i) An Islamic banking institution shall only recognise trade credit takaful as CRM if obtained from a licensed takaful operator69 or a prescribed development financial institution70 with a minimum rating of BBB-. 2.146(ii) For trade credit takaful ceded to a retakaful operator, an Islamic banking institution shall only recognise this as CRM if the retakaful operator is rated at least BBB-, and the retakaful contract– (a) fulfils the guarantee requirements under this policy document; (b) provides an equally robust level of protection71 as the trade credit takaful certificate between the Islamic banking institution and the licensed takaful operator or prescribed development financial institution; and (c) includes a specific clause in the legal documentation that enables the Islamic banking institution to pursue claim payments directly from the retakaful operator when there is a default in payment of claims by the licensed takaful operator or prescribed development financial institution. Risk Weights 2.147 The guaranteed portion is assigned the risk weight of the protection provider. The uncovered portion of the exposure is assigned the risk weight associated with the obligor. 68 This includes the Bank for International Settlement, the International Monetary Fund, the European Central Bank and the European Community, as well as those MDBs referred to in footnote 13. 69 Refers to licensed takaful operators under IFSA. 70 Refers to licensed takaful operators under the IFSA and prescribed development financial institutions under the Development Financial Institutions Act 2002 offering trade credit takaful. 71 To the extent possible, similar terms as per the trade credit takaful certificate between the Islamic banking institution and the takaful operator or a prescribed development financial institution must be included. For example, the retakaful contract must give similar effect to the risks covered, exclusions and claims payment timeline as the takaful certificate. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 63 / 517 Issued on: 3 May 2019 2.148 Any amount for which the Islamic banking institution will not be compensated for in the event of loss, shall be recognised as first loss positions and risk-weighted at 1250% by the Islamic banking institution purchasing the credit protection. Proportional and Tranched Cover 2.149 Where partial coverage exists, or where there is a currency mismatch between the underlying obligation and the credit protection, the exposure must be split into covered and uncovered amount. The treatment is outlined below: Proportional Cover Where the amount guaranteed is less than the amount of the exposure, and the secured and unsecured portions are equal in seniority, i.e. the Islamic banking institution and guarantor share losses on a pro-rata basis, capital relief will be accorded on a proportional basis with the remainder being treated as unsecured. Tranched Cover Where: (i) An Islamic banking institution transfers a portion of the risk of an exposure in one or more tranches to a protection seller(s) and retains some level of risk of the exposure; and (ii) the portion of risk transferred and retained are of different seniority, the Islamic banking institution may obtain credit protection for either the senior tranches (e.g. second loss portion) or the junior tranche (e.g. first loss portion). In this case, the rules as set out in the securitisation component of the Framework will apply. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 64 / 517 Issued on: 3 May 2019 Currency Mismatches 2.150 Where the guarantee is denominated in a currency different from that in which the exposure is denominated, the guaranteed amount (GA) of the exposure will be reduced by the application of a haircut arising from a currency mismatch, as follows: ( )FXHGGA −×= 1 where: G = Nominal amount of the credit protection HFX = Haircut appropriate for currency mismatch between the credit protection and underlying obligation. 2.151 The supervisory haircut will be 8%. The haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the guarantee as described in paragraph 2.137. Sovereign Guarantees and Counter-Guarantees 2.152 As specified in paragraph 2.20, a lower risk weight may be accorded to exposures on sovereign or central banking institution where the bank is incorporated and where the exposure is denominated in domestic currency and funded in that currency. This treatment is also extended to the portions of exposures guaranteed by the sovereign or central banking institution, where the guarantee is denominated in the domestic currency and the exposure is funded in that currency. An exposure may be covered by a guarantee that is indirectly counter-guaranteed by a sovereign. Such an exposure may be treated as covered by a sovereign guarantee provided that: (i) the sovereign counter-guarantee covers all credit risk elements of the exposure; (ii) both original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter- guarantee need not be direct and explicit to the original exposure; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 65 / 517 Issued on: 3 May 2019 (iii) the Bank is satisfied that the cover is robust and that no historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct sovereign guarantee. Maturity Mismatches 2.153 For the purposes of calculating risk-weighted assets, a maturity mismatch occurs when the residual maturity of a hedge is less than that of the underlying exposure. (i) Definition of Maturity 2.154 The maturity of the underlying exposure and the maturity of the hedge should both be defined conservatively. The effective maturity of the underlying should be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, after taking into account any applicable grace period. For the hedge, embedded options which may reduce the term of the hedge should be taken into account so that the shortest possible effective maturity is used. Where a call is at the discretion of the protection provider, the maturity will always be at the first call date. If the call is at the discretion of the protection buying Islamic banking institution but the terms of the arrangement at origination of the hedge contain a positive incentive for the Islamic banking institution to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the effective maturity. For example, where there is a step-up in cost in conjunction with a call feature or where the effective cost of cover increases over time even if credit quality remains the same or increases, the effective maturity will be the remaining time to the first call. (ii) Risk weights for Maturity Mismatches 2.155 Hedges with maturity mismatches are only recognised when their original maturities are greater than or equal to one year. As a result, the maturity of hedges for exposure with original maturities of less than one year must be matched to be recognised. In all cases, hedges with maturity mismatches BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 66 / 517 Issued on: 3 May 2019 will no longer be recognised in the event that the residual maturity of three months or less. 2.156 When there is a maturity mismatch with recognised credit risk mitigants (collateral, on-balance sheet netting, guarantees and credit derivatives) the following adjustment will be applied: ( ) ( )25.0 25.0 − − ×= T tPPa where: Pa = Value of the credit protection adjusted for maturity mismatch P = Credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = Min (T, residual maturity of the credit protection arrangement) expressed in years T = Min (5, residual maturity of the exposure) expressed in years Other Aspects of Credit Risk Mitigation Treatment of Pools of Credit Risk Mitigation Techniques 2.157 When multiple credit risk mitigation techniques are used to cover a single exposure, the exposure should be divided into portions which are covered by each type of credit risk mitigation technique. The risk-weighted assets of each portion must be calculated separately. Where credit protection provided by a single guarantor with a different maturities, must be divided into separate portions. 2.158 In addition, where a single transaction is attached to multiple forms of credit risk mitigants, Islamic banking institutions are able to obtain the largest capital relief possible from the risk mitigants. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 67 / 517 Issued on: 3 May 2019 B.3 THE INTERNAL RATINGS BASED APPROACH B.3.1 ADOPTION OF THE IRB APPROACH Adoption of IRB Across Asset Classes 3.1 Once an Islamic banking institution within a banking group adopts the IRB approach, the entire banking group would be expected to adopt a similar approach, except for those permanently exempted asset classes in paragraph 3.4. This is to avoid cherry-picking of assets to be put under the IRB approach. A phased rollout of the IRB approach across the banking group is allowed based on the following: (i) Adoption of IRB approach across individual asset class72/sub-classes73 within the same business unit; (ii) Adoption of IRB approach across business units in the same banking group; and (iii) Move from the foundation IRB approach to advanced IRB approach for certain risk components. However, when an Islamic banking institution adopts the IRB approach for an asset class within a particular business unit (or in the case of retail exposures across an individual sub-class), it must apply the IRB approach to all exposures within that asset class (or sub-class) in that particular unit. 3.2 Islamic banking institutions should produce an implementation plan, specifying the intended roll out of the IRB approaches across significant asset classes (or sub-classes in the case of retail) and business units within the group over time. The plan should be exacting yet realistic, and must be agreed with the Bank. It should be driven by the practicality of operations and the feasibility of moving towards adopting the more advanced approaches, and should not be dictated by the desire to minimise any capital charges. In this respect, during the roll-out period, no capital relief shall be allowed for any intra-group transactions that are 72 Generally, at entity level, conventional and Islamic assets can be combined as one asset class for IRB purposes. 73 For example, RRE financing is a sub-class of retail asset class. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 68 / 517 Issued on: 3 May 2019 designed to reduce banking group’s aggregate capital charges by transferring credit risks among entities on either the standardised, foundation or advanced IRB approaches. This includes, but is not limited to, asset sales or cross guarantees . 3.3 In general, the Bank would expect that all exposure classes or portfolios that represent material parts of an Islamic banking institution’s businesses in terms of size or in terms of risk are covered by the IRB approach. 3.4 Permanent exemptions from the requirements set under paragraphs 3.1 to 3.3 may be granted at both entity and group level for the following exposures: (i) Exposures74 to sovereigns, central banking institutions, Islamic banking institutions and public sector entities (PSE)75; (ii) Equity holdings in entities whose debt qualifies for 0% risk weight under the standardised approach; (iii) Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association76, subject to a limit of 10% of the Islamic banking institution’s Total Capital; (iv) Immaterial77 equity holdings, as determined on a case-by-case basis; and (v) Entities and asset classes (or sub-classes in the case of retail) that are immaterial in terms of size and perceived risk profile. These exposures would be deemed immaterial if the aggregate credit RWA (computed using the standardised approach) of these exposures cumulatively account for less than or equal to 15% of total credit RWA of the Islamic banking 74 Exemption may be applied where the number of material counterparties is limited and it would be unduly burdensome for the Islamic banking institution to implement a rating system for these counterparties. 75 Refer to Part B.2.2 for the definition of PSEs. 76 Such as Cagamas Berhad and Credit Guarantee Corporation Malaysia Berhad . 77 Deemed material if the aggregate value, excluding those identified under paragraph 3.4(iii), exceeds on average over the prior year, 10% of Islamic banking institution’s Total Capital. This threshold is lowered to 5% if the equity portfolio consists of less than 10 individual holdings. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 69 / 517 Issued on: 3 May 2019 institution at the group and entity level (not at asset class level). The RWA shall be determined net of credit risk mitigation. 3.5 Capital requirements for assets under permanent exemption will be determined according to the standardised approach. These exposures may attract additional capital under Pillar 2 if the Bank perceives that the regulatory capital calculated using the standardised approach is deemed insufficient vis-à-vis the level of risk. The Bank may also require Islamic banking institutions to adopt the IRB approach for these exposures if the approach is considered to be more appropriate to capture the risk levels78. 3.6 Refer to the diagrammatic illustration and formulae to compute permanent and temporary exposures in Appendix XIX. For avoidance of doubt, investment in equities of non-financial commercial subsidiaries which are accorded a 1250% risk weight will not be included in the IRB coverage ratio computation. 3.7 For equity exposures, the Bank may require Islamic banking institutions to employ the PD/LGD or the internal models approach instead of the simple risk weight approach if a particular Islamic banking institution’s equity exposures are a significant part of its business. These approaches are described in detail in Part B.3.5. 3.8 Once an Islamic banking institution has adopted the IRB approach for corporate exposures, it will be required to adopt the IRB approach for the Specialised Financing (SF) sub-classes within the corporate exposure class. However, a phased roll-out for SF sub-classes is allowed provided that the Islamic banking institution can prove that the SF exposures do not represent a disproportionately high level of credit risk79. 78 For example, a small portfolio of exposures to high risk obligors. 79 This can be demonstrated by providing sufficient representative evidence that the SF exposures are generally of strong to satisfactory rating, based on the SSC in the Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 70 / 517 Issued on: 3 May 2019 3.9 Given the data limitations associated with SF exposures, Islamic banking institutions may remain on the supervisory slotting criteria (SSC) approach for one or more of the SF sub-classes and move to the foundation or advanced approach for other sub-classes within the corporate asset class. However, an Islamic banking institution can only move the high volatility commercial real estate sub-class to the advanced approach only if it has done so for material income-producing real estate exposures. The approaches for SF exposures are described in detail in Part B.3.5. 3.10 The IRB principles and methodologies outlined in the Framework are applicable to Islamic banking assets subject to adherence to Shariah rules and principles. However, in determining the capital requirement for Islamic banking assets, it is important for Islamic banking institutions to understand the specificities of the products and the related risk profile based on the different Shariah contracts as described in Appendix XX. This includes the risk profile arising from the application of the ‘look-through’ approach for investment account placements made with Islamic banking institutions. The ‘look-through’ approach is described in Appendix XXI. 3.11 Islamic banking institutions that apply an IRB model for conventional banking assets on Islamic banking assets (within an entity or banking group) shall ensure that the models or approach adopted are representative of the risk profile of the Islamic banking assets. In this regard, Islamic banking institutions are required to: (i) Provide empirical analysis to support the case for using the conventional IRB model and its parameters for the Islamic banking assets prior to obtaining the Bank’s approval for IRB migration; (ii) Perform periodic back-testing using Islamic banking asset data; and (iii) Collect data on Islamic banking assets by each Shariah contract for the purpose of future modelling requirements. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 71 / 517 Issued on: 3 May 2019 3.12 The possibility of Islamic banking institutions leveraging on readily available IRB infrastructure at the group level does not absolve the Islamic banking institutions from the requirement to implement effective oversight arrangements at the entity level. Islamic banking institutions shall have in place an internal process in the bank and a formal avenue at the group level to ensure that any outcome or decisions made at the group level is suitable and relevant for application at the entity level. Implementation Timelines and Transition Period 3.13 Islamic banking institutions may adopt the IRB framework from 1 January 2010. The transition period will be applicable to certain Islamic banking institutions depending on the implementation timeline for migration to the IRB approach as described in Appendix XXII. Islamic banking institutions are required to obtain prior written approval from the Bank before adopting the IRB framework. 3.14 During the transition period, in relation to the permanent exemption under paragraph 3.4(v), Islamic banking institutions may deem exposures to be immaterial if the aggregate credit RWA (computed using the standardised approach) of these exposures cumulatively account for less than or equal to 25% of total credit RWA of the Islamic banking institutions at the group and entity level (not at asset class level). The RWA shall be determined net of credit risk mitigation. Islamic banking institutions are required to revert to the threshold specified in paragraph 3.4(v) by the end of the transition period. Refer to the diagrammatic illustration and formulae for the computation of temporary exemption in Appendix XIX. 3.15 As most Islamic banking institutions intending to adopt the IRB approach are still in the process of strengthening their overall risk management capabilities involving data quality and risk measurement system enhancements and embedding the use of ratings into the day-to-day business processes in order to comply with the requirements set under the Framework, full and immediate adherence to certain minimum requirements may not be possible at the time of implementation of the Framework. As such, the Bank will allow certain flexibility BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 72 / 517 Issued on: 3 May 2019 during the transition period for certain minimum requirements relating to historical data observation period for risk estimation and use test: Risk Estimation (i) At the start of the transition period, the minimum length of the underlying historical data observation period is two years for at least one data source. This flexibility applies to: (a) PD estimation under foundation IRB for corporate, sovereign, and bank exposures; (b) estimating loss characteristics (EAD, and either EL or PD and LGD) for retail exposures; and (c) PD/LGD approach for equity. This requirement will increase by one year for each of the three years of transition in a manner that the required minimum historical data of five years is achieved by the end of the transition period. (ii) Despite the flexibility allowed on the requirement of historical data, Islamic banking institutions are expected to use additional information which are relevant and of longer history80 to reflect the following requirements: (a) PD estimates must be representative of long-term average; (b) LGD estimates for retail exposures must reflect downturn conditions; and (c) EAD estimates for volatile retail exposures must also reflect downturn conditions Governance, Oversight and Use of Internal Ratings (iii) Islamic banking institutions are only required to demonstrate that the rating systems that have been used, are broadly in line with the minimum requirements for at least one year prior to the start of the transition period for corporate, sovereign, bank, and retail exposures. A credible track 80 Examples of such information include historical write-offs, historical provisions, historical NPF/ impairment classifications, published bankruptcy rates, published default studies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 73 / 517 Issued on: 3 May 2019 record is required in all areas except for capital management and strategy which will only be required at the end of the transition period. By its very nature, the use of internal ratings is likely to improve as more experience and knowledge are gained by Islamic banking institutions. Therefore, Islamic banking institutions should utilise the transition period as an opportunity to continually enhance the use of internal ratings. 3.16 Despite the flexibility given during the transition period, Islamic banking institutions would be required to demonstrate steady progress towards compliance with the full set of minimum requirements by the end of the transition period. 3.17 Islamic banking institutions with shorter than three-year transition period should be mindful that full compliance with data and use test requirements must be achieved by the end of the transition period. 3.18 No transitional arrangement will be made available for Islamic banking institutions adopting the advanced IRB approach, other than for retail exposures. Adherence to all applicable minimum requirements from the outset is necessary given the increased reliance on Islamic banking institutions’ internal assessments and the greater risk sensitivity of the advanced IRB approach. Determination of Capital Requirements under the IRB approach 3.19 The determination of capital requirement under the IRB approach involves six critical segments as follows: (i) Categories of exposures – categorisation of assets into six classes; (ii) Risk components – estimates of risk drivers or parameters namely PD, LGD, EAD and effective maturity (M); (iii) Credit risk mitigation; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 74 / 517 Issued on: 3 May 2019 (iv) Risk-weight functions – the means by which the risk components are transformed into RWA to compute capital requirements for UL; (v) The treatment of EL; and (vi) Minimum requirements – the specific minimum standards for the use of the IRB approach for a given asset class. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 75 / 517 Issued on: 3 May 2019 3.20 There are six asset classes under the IRB approach. For many of the asset classes, there are two broad approaches - a foundation and an advanced approach as outlined below: Asset Class Available Approaches Estimates Corporate (including SF) Sovereign Bank Foundation Own PD, supervisory LGD, EAD and M Advanced Own PD, LGD, EAD and M SSC (for SF, where requirements for estimation of PD, LGD and EAD are not met) Supervisory risk weights Retail Advanced only Own PD, LGD, EAD and M Equity in the banking book Market based - simple risk weight Supervisory risk weights Market based - internal models Own value-at-risk measure PD/LGD Own PD and supervisory LGD Purchased receivables Foundation (not available for retail receivables) Own PD, supervisory LGD, EAD and M Advanced Own PD, LGD, EAD and M 3.21 Under the foundation approach, Islamic banking institutions provide internal estimates of PD and rely on supervisory estimates for other risk components. Under the advanced approach, Islamic banking institutions provide internal estimates of PD, LGD, EAD, and M. 3.22 For both the foundation and advanced approaches, Islamic banking institutions are expected to use risk weight functions provided under the Framework for the purpose of deriving capital requirements. In the event that there is no specified IRB treatment for a particular exposure (and this exposure is not accorded 0% risk weight under the standardised approach), that exposure should be subject to 100% risk weight. The resulting RWA for such exposure is assumed to represent UL only81. 81 Islamic banking institutions will not be required to compute EL for these exposures as elaborated under paragraph 3.205. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 76 / 517 Issued on: 3 May 2019 B.3.2 CATEGORIES OF EXPOSURES 3.23 Under the IRB approach, Islamic banking institutions must categorise banking book exposures into broad classes of assets with different underlying risk characteristics, consistent with the definitions set out below. Definition of Corporate Exposures, including Specialised Financing 3.24 In general, a corporate exposure is defined as a debt obligation of a corporation, partnership, or proprietorship. Islamic banking institutions may distinguish separately exposures to small and medium-sized corporates82 from those to large corporates. 3.25 Exposures to securities firms, Takaful companies, unit trust and asset management companies shall also be treated as exposures to corporates. 3.26 Within the corporate asset class, five sub-classes of SF are identified. Such financing would possess all of the following characteristics, either in legal form or economic substance: (i) The exposure is typically to a special purpose vehicle (SPV) created specifically to finance and/or operate physical assets; (ii) The borrowing entity has little or no other material assets or activities, and therefore little or no independent capacity to repay the obligation, apart from the income from the asset(s) being financed; (iii) The terms of the obligation give the Islamic banking institution a substantial degree of control over the asset(s) and the income that it generates; and (iv) Due to the factors in (i) to (iii) above, the primary source of repayment of the obligation is the income generated by the asset(s), rather than the independent capacity of a broader commercial enterprise. 82 Defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 77 / 517 Issued on: 3 May 2019 3.27 The five sub-classes of SF are project finance, object finance, commodities finance, income-producing real estate, and high-volatility commercial real estate. Each of these sub-classes is defined below. Project Finance (i) Project finance (PF) is a method of funding in which the Islamic banking institution looks primarily to the revenues generated by a single project, both as the source of repayment and security for the exposure. This type of financing is usually for large, complex and expensive installations that might include power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure (mainly immovable assets). Project finance may also take the form of financing for the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. (ii) In such transactions, Islamic banking institutions are normally paid solely or almost exclusively from the proceeds generated by the project being financed, such as electricity sold by a power plant. The obligor is usually an SPV that is not permitted to perform any function other than developing, owning, and operating the installation. In contrast, if repayment of the exposure depends primarily on a well established, diversified, credit-worthy, contractually obligated corporate end user for repayment, it is considered a collateralised claim on the corporate. Object Finance (i) Object finance (OF) refers to a method of funding the acquisition of physical assets (not of the manufacturing of such physical assets type, which should be deemed as normal corporate or PF if it qualifies) that might include ships, aircraft, satellites, railcars, fleet of cars and trucks (mainly movable assets), where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 78 / 517 Issued on: 3 May 2019 been financed and pledged or assigned to the Islamic banking institution. A primary source of these cash flows might be rental or lease contracts with one or several third parties (hence a ring-fencing requirement). In contrast, if the exposure is to an obligor whose financial condition and debt-servicing capacity enables it to repay the debt without undue reliance on the specifically pledged assets, the exposure should be treated as a collateralised corporate exposure. Commodities Finance (i) Commodities finance (CF) refers to structured short-term financing to finance reserves, inventories, or receivables of exchange-traded commodities (e.g. crude oil, metals, or crops), where the exposure will be repaid from the proceeds of the sale of the commodity and the obligor has no independent capacity to repay the exposure. The structured nature of the financing is also designed to compensate for potential concerns relating to credit quality of the obligor. The exposure’s rating reflects its self-liquidating nature and the Islamic banking institution’s skill in structuring the transaction rather than the credit quality of the obligor. (ii) The Bank expects for CF to be distinguished from exposures financing the reserves, inventories, or receivables of other more diversified corporate obligors. Islamic banking institutions should rate the credit quality of the latter type of obligors based on their broader ongoing operations. In such cases, the value of the commodity serves as a risk mitigant rather than as the primary source of repayment. Income-Producing Real Estate (i) Income-producing real estate (IPRE) refers to a method of providing funding to real estate such as office buildings for rental, retail space, residential houses, multifamily residential buildings, industrial or warehouse space, and hotels, where the prospects for repayment and recovery (in the event of default) depend primarily on the cash flows generated by the asset/property. The primary source of these cash flows BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 79 / 517 Issued on: 3 May 2019 would generally be lease or rental payments or the sale of the asset. The obligor may be an SPV, an operating company focused on real estate construction or holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property. High-Volatility Commercial Real Estate (i) High-volatility commercial real estate (HVCRE) financing refers to financing of commercial real estate that exhibits higher loss rate volatility (i.e. higher asset correlation) compared to other types of SF. HVCRE includes: (a) Financing funding any of the land acquisition, development and construction (ADC) phases for such properties (excluding residential- related development); and (b) Financing funding ADC for any other properties where, unless the obligor has substantial equity at risk, the source of repayment at origination of the exposure is either: i. the future uncertain sale of the property; or ii. cash flows whose source of repayment is substantially uncertain (e.g. the property has not yet been leased up to the occupancy rate normally prevailing in that geographic market for that type of commercial real estate83). Commercial ADC financing exempted from treatment as HVCRE financing on the basis of certainty of repayment of obligor equity are, however, ineligible for the preferential risk weights for SF exposures described in paragraph 3.152. 83 Where only booking fee has been obtained, instead of the signing of sales and purchase agreement or rental/lease agreement, which would cause this exposure to be classified as IPRE. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 80 / 517 Issued on: 3 May 2019 (c) Commercial real estate exposures secured by other properties that are specifically categorised by the Bank from time to time as sharing higher volatilities in portfolio default rates. Definition of Sovereign Exposures 3.28 This asset class covers exposures to sovereigns and central banking institutions. It also includes exposures to Multilateral Development Banking institutions (MDBs) that meet the criteria for a 0% risk weight84 under the standardised approach, the Bank for International Settlements, the International Monetary Fund, the European Central Bank and the European Community. Definition of Bank Exposures 3.29 This asset class mainly covers exposures to other Islamic banking institutions. It also includes the following: (i) Claims on domestic non-federal government PSEs that are eligible for 20% risk weight under the standardised approach; and (ii) Claims on MDBs that do not meet the criteria for 0% risk weight under the standardised approach. Definition of Retail Exposures 3.30 Retail exposures are exposures that meet all the following criteria85: (i) Exposures to individuals86; or (ii) Financing extended to small businesses and managed as retail exposures, provided that the total exposure of the banking group to the small business obligor (on a consolidated basis, where applicable) is less than RM5.0 84 Refer to Part B.2.2 for the definition of MDBs. 85 The retail exposures shall be based on contracts that create a similar credit risk profile to those commonly structured using the Murābahah or Ijārah/Ijārah Muntahia Bittamleek contracts. The specificities of these Shariah contracts are elaborated in Appendix XX. 86 Includes RRE financing, revolving credits and lines of credit (e.g. credit cards, overdrafts and retail facilities secured by financial instruments) as well as personal term financing and leases (e.g. instalment financing, auto financing and leases, student and educational financing, personal financing) and other exposures with similar characteristics. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 81 / 517 Issued on: 3 May 2019 million. Small business financing extended through or guaranteed by an individual are subject to the same exposure threshold. Small businesses may include sole proprietorships, partnerships or small and medium-sized enterprises (SMEs)87; and (iii) The specific exposure must be part of a large group of exposures, which are managed by the Islamic banking institution on a pooled basis. 3.31 Small business exposures below RM5 million may be treated as retail exposures if the Islamic banking institution treats such exposures in its internal risk management systems consistently over time and in the same manner as other retail exposures. This requires for such exposures to be originated in a similar manner to other retail exposures. Furthermore, it must not be managed individually in a way comparable to corporate exposures, but rather as part of a portfolio segment or pool of exposures with similar risk characteristics for purposes of risk assessment and quantification88. 3.32 Notwithstanding paragraphs 3.30 and 3.31, Islamic banking institutions implementing the IRB approach are required to have in place and effectively implement policies and procedures which outline triggers for closer monitoring with corresponding actions (e.g. re-rating using a different scorecard) that should be taken in respect of larger exposures. This applies to both exposures to individuals as well as exposures to small businesses below the prescribed regulatory threshold. 3.33 Within the retail asset class, Islamic banking institutions are required to identify separately three sub-classes of exposures: (i) exposures secured by residential properties; (ii) qualifying revolving retail exposures; and 87 SMEs in the agriculture and services sector are defined as having annual sales of up to RM5 million or 50 full-time employees. For the manufacturing sector, SMEs have been defined as having annual sales of up to RM25 million or 150 full-time employees. 88 The fact that an exposure is rated individually does not by itself deny its eligibility as a retail exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 82 / 517 Issued on: 3 May 2019 (iii) all other retail exposures. I. Exposures Secured by RRE Properties 3.34 Exposures are defined as secured by the underlying RRE or mortgages on residential properties89 if the following criteria are met90: (i) the obligor is an individual person/s; (ii) the residential properties are or will be occupied by the obligor, or is rented; (iii) the financing is secured by first and subsequent legal charges, deeds of assignment or strata titles on the property or legal ownership of the RRE belong to the Islamic banking institutions; and (iv) the property has been completed and a certificate of fitness has been issued by the relevant authority. Such exposures include term financing and revolving home equity lines of credit. Qualifying Revolving Retail Exposures 3.35 Qualifying revolving retail exposures (QRRE) generally include revolving credits and lines of credit such as credit cards and overdrafts. All the following criteria must be satisfied for a sub-portfolio to qualify as QRRE. These criteria must be applied at the sub-portfolio level, consistent with the Islamic banking institution’s retail segmentation approach: (i) The exposures are revolving91, unsecured, and uncommitted (both contractually and in practice); (ii) The exposures are to individuals; 89 Residential property means property which is zoned for single-family homes, multi-family apartments, townhouses and condominiums. It excludes shophouses which is categorised under other retail exposures. 90 Also applicable to financing structured under the Diminishing Mushārakah contracts where the exposures are secured by residential properties. 91 Revolving exposures are defined as those where customers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the Islamic banking institution. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 83 / 517 Issued on: 3 May 2019 (iii) The maximum exposure to a single individual in the sub-portfolio is RM500,000 or less; (iv) Given the asset correlation assumptions for the QRRE risk weight function are markedly below those for the other retail risk weight function at low PD values, the Islamic banking institution must demonstrate that exposures identified as QRRE correspond to portfolios with low volatility of loss rates, relative to the average volatility of loss rates of portfolios within the low PD bands; (v) Data on loss rates or the sub-portfolio must be retained in order to allow analysis of the volatility of loss rates; and (vi) The treatment as a qualifying revolving retail exposure is consistent with the underlying risk characteristics of the sub-portfolio. II. Other Retail Exposures 3.36 Exposures that do not meet the criteria under paragraphs 3.34 or 3.35 will be categorised as other retail exposures. Definition of Equity Exposures 3.37 In general, equity exposures are defined on the basis of the economic substance of the instrument. It would include both direct and indirect ownership interests92, whether voting or non-voting, in an entity that is not consolidated or deducted pursuant to the Capital Adequacy Framework for Islamic Banking institutions (Capital Components)93. An instrument is considered to be an equity exposure if it meets all of the following requirements: 92 Indirect equity interests include holdings of derivative instruments tied to equity interests, and holdings in corporations, partnerships, limited liability companies or other types of enterprises that issue ownership interests and are engaged principally in the business of investing in equity instruments. 93 Where other countries retain their existing treatment as an exception to the deduction approach, such equity investments by IRB banks are to be considered eligible for inclusion in their IRB equity portfolios. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 84 / 517 Issued on: 3 May 2019 (i) it is irredeemable in the sense that the return of invested funds can be achieved only by the sale of the investment or the sale of the rights to the investment or by the liquidation of the issuer; (ii) it is not an obligation of the issuer; and (iii) it conveys a residual claim on the assets or income of the issuer. 3.38 Additionally, any of the following instruments should be categorised as an equity exposure: (i) an instrument with features similar to those which qualify as Tier 1 Capital for Islamic banking institutions; or (ii) an instrument that is an obligation on the part of the issuer and meets any of the following conditions: (a) the issuer may defer the settlement of the obligation indefinitely; (b) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a fixed number of the issuer’s equity shares; (c) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a variable number of the issuer’s equity shares and where changes in the value of the obligation is attributable and comparable to the change in the value of a fixed number of the issuer’s equity shares94; or (d) the holder has the option to require settlement in equity shares, unless the Islamic banking institution is able to demonstrate to the Bank that the instrument merits to be treated as a debt95. In such 94 For certain obligations that require or permit settlement by issuance of a variable number of the issuer’s equity shares, the change in the value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor. Those obligations meet this condition if both the factor and the referenced number of shares are fixed. For example, an issuer may be required to settle an obligation by issuing shares with a value equal to three times the appreciation in the fair value of 1,000 equity shares. That obligation is considered to be the same as an obligation that requires settlement by issuance of shares equal to the appreciation in the fair value of 3,000 equity shares. 95 For example, where the instrument trades more like a debt of the issuer than its equity. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 85 / 517 Issued on: 3 May 2019 cases, the Islamic banking institution may decompose the risks for regulatory purposes, with the consent of the Bank. 3.39 Debt obligations and other securities, partnerships, investments in funds96 (e.g. collective investment schemes and unit trusts), derivatives or other vehicles structured with the intent of conveying the economic substance of equity ownership are considered an equity holding97. This includes liabilities from which the return is linked to that of equities98. Conversely, instruments that are structured with the intent of conveying the economic substance of debt holdings (e.g. investments in funds which solely contain non-equity type of instruments) or securitisation exposures would not be considered an equity holding. 3.40 The Bank reserves the right to re-categorise debt holdings as equities for regulatory purposes to ensure consistent and appropriate treatment of holdings. Definition of Purchased Receivables Exposures 3.41 Purchased receivables refers to exposures from refinancing, factoring or discounting facilities granted by an Islamic banking institution based on the security of the debt agreements assigned from the original financier/seller. The facilities may or may not be with recourse to the seller. Transactions for financing originated by one Islamic banking institution and subsequently bought by another to hold on its books are excluded from this definition. Eligible purchased receivables are divided into retail and corporate receivables as defined below. I. Retail Receivables 96 Investments in funds will normally be treated as equity exposures subject to paragraphs 3.90 and 3.91. 97 Equities that arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt are included in the definition of equity holdings. 98 The Bank may decide not to require that such liabilities be included where they are directly hedged by an equity holding, such that the net position does not involve material risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 86 / 517 Issued on: 3 May 2019 3.42 Purchased retail receivables, provided the purchasing Islamic banking institution complies with the IRB rules for retail exposures, are eligible for the top-down approach as permitted for retail exposures under paragraphs 3.81 to 3.87. Under the top-down approach, the risk weight for the receivables pool is based on pool-level estimates of PD, LGD, or EL. The Islamic banking institution must also apply the minimum requirements as set forth in paragraphs 3.330 to 3.332. II. Corporate Receivables 3.43 In general, for purchased corporate receivables, Islamic banking institutions are expected to assess the default risk of individual receivables obligors as specified in Part B.3.5 consistent with the treatment of other corporate exposures. For purchased corporate receivables, this will be referred to as the bottom-up approach. However, the top-down approach may be permitted by the Bank, provided that the purchasing Islamic banking institution’s programme for corporate receivables complies with both the criteria for eligible receivables and the minimum requirements of the top-down approach. The use of the top-down purchased receivables treatment is limited to situations where it would be an undue burden to apply the minimum requirements under the IRB approach that would otherwise apply to corporate exposures. Primarily, it is intended for receivables that are purchased for inclusion in asset-backed securities, but Islamic banking institutions may use this approach, with the Bank’s approval, for appropriate on-balance sheet exposures that share the same features. 3.44 To be eligible for the ‘top-down’ treatment, purchased corporate receivables must satisfy the following conditions: (i) The receivables are purchased from unrelated, third party sellers, and the Islamic banking institution has not originated the receivables either directly or indirectly; (ii) The receivables must be generated on an arm’s-length basis between the seller and the receivables obligor. (Consequently, inter-company accounts BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 87 / 517 Issued on: 3 May 2019 receivable and receivables that are subjected to contra-accounts99 between firms are excluded); (iii) The purchasing Islamic banking institution has a claim on all proceeds from the pool of receivables or on a pro-rata interest in the proceeds100; and (iv) The receivables do not exceed any of the following concentration limits: (a) The size of the purchased corporate receivables pool do not exceed 10% of the Islamic banking institution’s Total Capital; (b) The size of one individual exposure relative to the total pool does not exceed 0.2%. If the concentration limits are exceeded, capital charges must be calculated using the minimum requirements for the bottom-up approach for corporate exposures. 3.45 The existence of full or partial recourse to the seller does not automatically disqualify Islamic banking institution from adopting this top-down approach provided the cash flows from the purchased corporate receivables are the primary protection against default risk, as determined by the rules in paragraphs 3.184 to 3.187. In addition, the Islamic banking institution must fulfil the eligibility criteria and minimum requirements. B.3.3 RISK COMPONENTS Risk Components for Corporate, Sovereign and Bank Exposures 3.46 There are two approaches that could be used under the IRB approaches for corporate, sovereign and bank exposures, namely the foundation and advanced approaches. For SF exposures, where Islamic banking institutions do not meet 99 Contra-accounts involve a customer buying from and selling to the same firm. The risk is that debts may be settled through payments in kind rather than cash. Invoices between the companies may be offset against each other instead of being paid. This practice can defeat a security interest when challenged in court. 100 Claims on tranches of the proceeds (first loss position, second loss position, etc.) would fall under the securitisation treatment. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 88 / 517 Issued on: 3 May 2019 the minimum requirements for the estimation of PD, the Islamic banking institution must apply the SSC approach (outlined in paragraphs 3.150 to 3.153). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 89 / 517 Issued on: 3 May 2019 Risk Components under the Foundation IRB Approach I. Probability of Default (PD) 3.47 PD for corporate, sovereign and bank exposures is defined as a one-year PD associated with the internal obligor grade to which that exposure is assigned to, subject to a floor of 0.03% in the case of corporate and bank exposures. The PD assigned to a default grade is 100%. The minimum requirements for the derivation of the PD estimates are outlined in paragraphs 3.299 to 3.301. II. Loss Given Default (LGD) 3.48 An estimate of LGD must be applied for each corporate, sovereign and bank exposure. Under the foundation approach, LGD estimates are determined by the Bank separately for: (i) unsecured exposures; (ii) exposures secured by eligible financial and non-financial collateral (including specified commercial and residential real estate (CRE/RRE), financial receivables and other physical collateral subject to the requirements in paragraphs 3.116 to 3.119); and (iii) exposures secured by guarantees. The eligible collateral, detailed methodology and minimum requirements for the use of supervisory LGD estimates for (ii) and (iii) are detailed in Part B.3.4 as well as in paragraphs 3.322 to 3.329. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 90 / 517 Issued on: 3 May 2019 Treatment of Unsecured Claims 3.49 Under the foundation approach, unsecured senior claims on corporates, sovereigns, banking institutions and those not secured by a recognised collateral will be assigned LGD of 45%. 3.50 All subordinated claims on corporates, sovereigns and banking institutions will be assigned LGD of 75%. A subordinated claim is a facility that is expressly subordinated (having a lower priority or claim against the obligor) to another facility. 3.51 Islamic banking assets structured using Mushārakah or Mudārabah contracts are required to apply LGD of 90%101. Treatment of Claims Secured by Eligible Financial and Non-Financial Collateral 3.52 Islamic banking institutions that adopt the foundation approach are allowed to recognise eligible financial and non-financial collateral as prescribed under paragraphs 3.96 to 3.101, subject to compliance with specific requirements under paragraphs 3.111 to 3.119. 3.53 There are two methodologies for incorporating the effects of eligible collateral in calculating the LGD: (i) For eligible financial collateral, the effective LGD will be calculated by weighting down the LGD with the percentage of exposure after risk mitigation (E*/E), where E* will be based on the comprehensive approach; and (ii) For eligible non-financial collateral, the effective LGD will be determined based on the level of over-collateralisation of the exposure. 101 This refers to Mushārakah and Mudārabah exposures that have characteristics similar to a debt. Mushārakah and Mudārabah exposures with characteristics similar to equities will be subject to the requirements under paragraphs 3.162 to 3.180. However, for Mudārabah interbank transactions, the treatment in paragraphs 3.49 or 3.50 shall apply. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 91 / 517 Issued on: 3 May 2019 These methodologies are explained further in paragraphs 3.102 to 3.110. Treatment of Claims Secured by Guarantees 3.54 Islamic banking institutions adopting the foundation approach are only allowed to recognise eligible guarantors as prescribed in paragraph 3.120, subject to meeting specific requirements under paragraphs 3.130 to 3.133. 3.55 There are two methodologies for treating guarantees: (i) The substitution method, closely similar to that adopted under the standardised approach; and (ii) The double default method, for exposures hedged by certain instruments. The methodologies are explained further in paragraphs 3.121 to 3.129. III. Exposure at Default (EAD) 3.56 All exposures are measured gross of specific provisions102 or partial write-offs. The EAD on drawn amounts should not be less than the sum of: (i) the amount by which an Islamic banking institution’s regulatory capital would be reduced if the exposure were written-off fully; and (ii) any specific provisions and partial write-offs. 3.57 The calculation of RWA is independent of any discount which is defined as the instrument’s EAD that exceeds the sum of (i) and (ii). Under the limited circumstances described in paragraph 3.211, discounts may be included in the measurement of total eligible provisions for purposes of the EL-provision calculation set out in Part B.3.6. Exposure Measurement for On-Balance Sheet Items 102 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 92 / 517 Issued on: 3 May 2019 3.58 On-balance sheet netting of financing and deposits will be recognised subject to the requirements under paragraphs 3.134 to 3.136. Where currency or maturity mismatched on-balance sheet netting exists, the treatment is set out in paragraphs 3.125 and 3.139 to 3.142. Exposure Measurement for Off-Balance Sheet Items (with the exception of FX, Profit- Rate, Equity, and Commodity-Related Derivatives) 3.59 For off-balance sheet items, exposure is calculated as the committed but undrawn amount multiplied by a credit conversion factor (CCF). For the foundation approach, the CCF is determined by the Bank and would be the basis for calculating the off-balance sheet exposure. 3.60 The types of instruments and the applicable CCFs are outlined in Appendix XXIII. The CCFs are essentially the same as those under the standardised approach, with the exception of commitments, Note Issuance Facilities (NIFs) and Revolving Underwriting Facilities (RUFs). 3.61 A CCF of 75% will be applied to commitments, NIFs and RUFs regardless of the maturity of the underlying facility, except in cases where paragraph 3.62 applies. 3.62 Any commitments that are unconditionally and immediately cancellable and revocable by the Islamic banking institution or that effectively provide for automatic cancellation due to deterioration in a obligor’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice, will be subject to 0% CCF. To utilise the 0% CCF, the Islamic banking institution must demonstrate that legally, it has the ability to cancel these facilities and that its internal control systems and monitoring practices are adequate to support timely cancellations which the Islamic banking institution does effect in practice upon evidence of a deterioration in an obligor’s creditworthiness. Islamic banking institutions should also be able to BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 93 / 517 Issued on: 3 May 2019 demonstrate that such cancellations have not exposed the Islamic banking institution to legal actions, or where such actions have been taken, the courts have decided in favour of the Islamic banking institution. 3.63 The amount to which the CCF is applied is the lower of: (i) the value of the unused committed credit line; and (ii) the value corresponding to possible constraints on the availability of the facility, such as a ceiling imposed on the potential financing amount which is related to an obligor’s reported cash flow. For such facilities, Islamic banking institutions must have adequate credit line monitoring and management procedures in place to administer the constraints in a consistent, timely and effective manner. Islamic banking institutions must be able to demonstrate that breaches of internal controls or exceptions granted for such facilities in the past, if any, are rare and appropriately justified. 3.64 Where a commitment is obtained on another off-balance sheet exposure103, Islamic banking institutions are to apply the lower of the applicable CCFs. Exposure Measurement for Transactions with Counterparty Credit Risk Exposures 3.65 Measures of counterparty credit risk exposure arising from over-the-counter (OTC) derivative positions and Sell and Buy Back Agreements (SBBA) under the IRB approach are based on the rules set forth in Part B.3.4, Appendix XXIII and Appendix XVIII. IV. Effective Maturity (M) 3.66 Under the foundation approach, an Islamic banking institution- 103 Such as commitments to provide letters of credit or guarantees for trade purposes. An example is where an Islamic banking institutions provides the customer with a committed limit on the amount of letters of credit they can issue over a one-year period, with the customer drawing on this committed limit over time. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 94 / 517 Issued on: 3 May 2019 (a) must adopt a fixed M of 2.5 years; or (b) upon notifying the Bank, may internally estimate the M based on the requirements under paragraph 3.74, except for SBBA transactions where the M will be 6 months. However, if in the opinion of the Bank there is significant risk of underestimation of capital using this fixed M, the Bank may require institutions to adopt the internal estimate of M as defined in paragraph 3.74. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 95 / 517 Issued on: 3 May 2019 Risk Components under the Advanced IRB Approach I. Probability of Default (PD) 3.67 Treatment of PD under the advanced approach is similar to the foundation approach as specified in paragraph 3.47. II. Loss Given Default (LGD) 3.68 Under the advanced approach, Islamic banking institutions are allowed to use internal estimates of LGD for corporate, sovereign and bank exposures. The methodology used in arriving at the LGD estimates is subject to additional minimum requirements specified in paragraphs 3.306 to 3.310 and 3.314. LGD must be measured as a percentage of the EAD. 3.69 When the claims are secured by collateral, Islamic banking institutions must also establish internal requirements for collateral that are generally consistent with the general requirements for recognition of credit risk mitigation and the specific requirements for transactions secured by eligible financial collateral, eligible CRE/RRE, financial receivables and other physical collateral (set out in Part B.3.4). Treatment of Claims Secured by Guarantees 3.70 The risk mitigating effect of guarantees may be reflected through the following: (i) by adopting the substitution method or the double default method specified under the foundation IRB approach; or (ii) either adjusting PD or LGD estimates. Whether adjustments are done through PD or LGD, they must be done in a consistent manner for a given guarantee type. In doing so, Islamic banking institutions must not include the effect of double default in such adjustments. Thus, the adjusted risk weight must not be less than that of a comparable direct exposure to the protection provider. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 96 / 517 Issued on: 3 May 2019 3.71 Except as specified in the double default method, there are no limits to the range of eligible guarantors although the minimum requirements for guarantees must be satisfied as set out in paragraphs 3.322 to 3.329. III. Exposure at Default (EAD) 3.72 Under the advanced approach, the general definition and the treatment for on- balance sheet items are similar to the foundation approach as specified in paragraphs 3.56 to 3.58. 3.73 For off-balance sheet items, Islamic banking institutions are allowed to use internal estimates of EAD across different product types, provided that the minimum requirements for own estimates of EAD from paragraphs 3.316 to 3.320 are met and the exposure is not subject to a CCF of 100% in the foundation approach as specified in Appendix XXIII. For transactions that expose Islamic banking institutions to counterparty credit risk, the requirement stipulated in paragraph 3.65 applies. IV. Effective Maturity (M) 3.74 Under the advanced IRB approach, M is measured for each facility as defined below (except as noted in paragraph 3.75): (i) For an instrument subject to a determined cash flow schedule, remaining M is defined as: M ∑ ∑ × = t t t t CF CFt where CFt denotes the cash flows (principal, profit payments and fees) contractually payable by the obligor in period t; (ii) The estimated M must be performed on a pooled basis for exposures that are sufficiently homogenous. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 97 / 517 Issued on: 3 May 2019 (iii) If an Islamic banking institution is unable to calculate the M of the contracted payments using the formula above, the nominal maturity of the instrument under the terms of the financing agreement may be used104. (iv) For derivatives subject to a master netting agreement, the weighted average maturity of the transactions should be used when applying the explicit maturity adjustment. Further, the notional amount of each transaction should be used for weighting the maturity. (v) For revolving exposures, M must be determined using the maximum contractual termination date of the facility. Islamic banking institution must not use the repayment date of the current drawing. (vi) Notwithstanding paragraph 3.74(v), an Islamic banking institution must build in a sufficient level of conservatism in the computation of M for facilities which are “rolled over” beyond the maximum contractual tenure. (vii) In all cases, M will be greater than one year but no greater than five years. 3.75 The one-year floor does not apply to certain short-term exposures, comprising fully or nearly-fully collateralised105 capital market-driven transactions (i.e. OTC derivatives transactions and margin financing) with an original maturity of less than one year, where the documentation contains daily remargining clauses and SBBA transactions with an original maturity of less than one year. For all eligible transactions, the documentation must require daily revaluation, and must include provisions that must allow for the prompt liquidation or setoff of the underlying asset or collateral in the event of default or failure to re-margin. The maturity of such transactions must be calculated as the greater of one-day, and the M. 104 Normally, this would equate to the maximum remaining time (in years) that the obligor is permitted to take to fully discharge its contractual obligation (principal, profit, and fees) under the terms of financing agreement. 105 The intention is to include both parties of a transaction meeting these conditions where neither of the parties is systematically under-collateralised. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 98 / 517 Issued on: 3 May 2019 3.76 In addition to the transactions considered in paragraph 3.75 above, other short- term exposures with an original maturity of less than three months that are not part of an Islamic banking institution’s ongoing financing of an obligor may be eligible for exemption from the one-year floor. The types of short-term exposures that might be considered eligible for this treatment include transactions such as: (i) Some capital market-driven transactions and SBBA transactions that might not fall within the scope of paragraph 3.75; (ii) Some short-term self-liquidating trade transactions. Import and export letters of credit and similar transactions could be accounted for at the actual remaining maturity; (iii) Some exposures arising from settling securities purchases and sales. This could also include overdrafts arising from failed securities settlements provided that such overdrafts do not continue for more than a short, fixed number of business days; (iv) Some exposures arising from cash settlements by wire transfer, including overdrafts arising from failed transfers provided that such overdrafts do not continue for more than a short, fixed number of business days; (v) Some exposures to banking institutions arising from foreign exchange settlements; and (vi) Some short-term financing and deposits. 3.77 For transactions within the scope of paragraph 3.75 subject to a master netting agreement, the weighted average maturity of the transactions should be used when applying the explicit maturity adjustment. A floor equal to the minimum holding period for the transaction type set out in paragraph 2.136 will apply to the average. Where more than one transaction type is contained in the master netting agreement a floor equal to the highest holding period will apply to the average. Further, the notional amount of each transaction should be used for weighting maturity. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 99 / 517 Issued on: 3 May 2019 3.78 Where there is no explicit adjustment, the M assigned to all exposures will be similar to the foundation approach as specified in paragraph 3.66 except for SBBA transactions where the M will be 6 months. 3.79 Notwithstanding the flexibility given to Islamic banking institutions, the Bank reserves the right to require institutions that adopt the foundation approach to measure M using the definition contained in paragraph 3.74. Treatment of Maturity Mismatches 3.80 The treatment for maturity mismatches under IRB is provided in paragraphs 3.139 to 3.142. Risk Components for Retail Exposures I. Probability of Default (PD) and Loss Given Default (LGD) 3.81 For each identified pool of retail exposures, Islamic banking institutions must provide an estimate of the PD and LGD associated with the pool, subject to the minimum requirements as set out in Part B.3.7. Additionally, the PD for retail exposures is the greater of the one year PD associated with the internal obligor grade to which the pool of retail exposures is assigned or 0.03%. Recognition of Guarantees 3.82 Islamic banking institutions may reflect the risk-mitigating effects of guarantees in support of an individual exposure or a pool of exposures, through an adjustment to either the PD or LGD estimate, subject to the minimum requirements in paragraphs 3.322 to 3.329. Whether adjustments are done through PD or LGD, it must be done in a consistent manner for a given guarantee type. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 100 / 517 Issued on: 3 May 2019 3.83 Islamic banking institutions must not include the effect of double default in such adjustments106. The adjusted risk weight must not be less than a comparable direct exposure to the protection provider. II. Exposure at Default (EAD) 3.84 For the purpose of measuring EAD, both on and off-balance sheet retail exposures are measured gross of specific provisions or partial write-offs. The EAD on drawn amounts should not be less than the sum of: (i) the amount by which an Islamic banking institution’s regulatory capital would be reduced if the exposure were fully written-off; and (ii) any specific provisions and partial write-offs. When the difference between the instrument’s EAD and the sum of (i) and (ii) is positive, this amount is termed a discount. The calculation of RWA is independent of any discounts. Under the limited circumstances described in paragraph 3.211 discounts may be included in the measurement of total eligible provisions for purposes of the EL-provision calculation set out in Part B.3.6. 3.85 On-balance sheet netting of financing and deposits of an Islamic banking institution to or from a retail obligor is permitted subject to the same conditions in paragraphs 3.134 to 3.136. For retail off-balance sheet items, Islamic banking institutions could use internal CCF estimates provided the relevant minimum requirements in paragraphs 3.316 to 3.319 and 3.321 are met. 106 The recognition of double default implies that the risk of both the obligor and the guarantor/protection provider defaulting on the same obligation may be substantially lower than the risk of only one of the parties defaulting. In the substitution approach, the maximum capital benefit that may be obtained is only up to the reduction in the capital requirement through replacing the exposure to the obligor with one to the protection provider. This assumes perfect correlation between the obligors with the protection provider and will not fully reflect the lower risk that both the obligor and guarantor must default for a loss to be incurred. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 101 / 517 Issued on: 3 May 2019 3.86 For retail exposures with uncertain future drawdown such as credit cards, Islamic banking institutions must take into account credit history and/or expectation of additional drawings prior to default in the overall calibration of loss estimates. In particular, where conversion factors for undrawn lines are not reflected in EAD estimates, the likelihood of additional drawings prior to default must be reflected in the LGD estimates. Conversely, if Islamic banking institutions do not incorporate the possibility of additional drawings in its LGD estimates, they must do so in its EAD estimates. 3.87 When only the drawn balances of retail facilities have been securitised, Islamic banking institutions must continue to hold the required capital against the share (i.e. seller’s interest) of undrawn balances related to the securitised exposures, using the IRB approach to credit risk. This means that for such facilities, Islamic banking institutions must reflect the impact of CCFs in the EAD estimates rather than in the LGD estimates. For determining the EAD associated with the seller’s interest in the undrawn lines, the undrawn balances of securitised exposures would be allocated between the seller’s and investor’s interests107 on a pro rata basis, based on the proportions of the seller’s and investor’s shares of the securitised drawn balances. 3.88 To the extent that foreign exchange and profit rate commitments exist within Islamic banking institutions’ retail portfolio for IRB purposes, Islamic banking institutions are not permitted to use internal assessments of credit equivalent amounts. Instead, the rules for the standardised approach would apply. Risk Components for Equity Exposures 3.89 In general, the value of an equity exposure on which capital requirements is based is defined under the applicable Financial Reporting Standards as follows: 107 The investor’s share of undrawn balances related to the securitised exposures shall be subject to the treatment specified in the securitisation component of the Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 102 / 517 Issued on: 3 May 2019 (i) For investments held at fair value with changes in the value flowing directly through income and into regulatory capital, exposure is equal to the fair value presented in the balance sheet. (ii) For investments held at fair value with changes in the value not flowing through income but into a tax-adjusted separate component of equity, exposure is equal to the fair value presented in the balance sheet. (iii) For investments held at cost, exposure is equal to the cost presented in the balance sheet. 3.90 Investments in funds (e.g. collective investment schemes and unit trusts) containing both equity investments and other non-equity types of investments can be treated either as a single investment based on the majority of the fund’s holdings or as separate and distinct investments in the fund’s component holdings based on a look-through approach. Islamic banking institutions must demonstrate to the Bank that the chosen treatment is appropriate for the portfolio (for example, that regulatory arbitrage considerations have not influenced their choice) and applied in a consistent manner. The Bank reserves the right to require Islamic banking institutions to compute capital using the more appropriate treatment where the Bank is satisfied that the exposures are or are likely to become significant and the particular treatment used by the Islamic banking institution would lead to consistent underestimation of risk of that portfolio. 3.91 Where only the investment mandate of the fund is known, the fund can still be treated as a single investment. For calculating capital requirement, it is assumed that the fund first invests, to the maximum extent allowed under its mandate, in the asset classes that attract the highest capital charge and followed by, in descending order, the next highest requirement until the maximum total investment level is reached. The same approach can also be used for the look-through approach, but only where Islamic banking institutions have rated all the potential underlying assets of the fund. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 103 / 517 Issued on: 3 May 2019 B.3.4 CREDIT RISK MITIGATION (CRM) 3.92 This section outlines general requirements for the use of credit risk mitigation and eligibility criteria, detailed methodologies and specific requirements with respect to the following CRM techniques: (i) Collateralised transactions; (ii) Guarantee; and (iii) On-balance sheet netting. 3.93 While the use of CRM techniques reduces or transfers credit risk, it may introduce or increase other risks such as legal, operational, liquidity and market risk. Therefore, it is imperative that Islamic banking institutions control these risks by employing robust policies, procedures and processes including strategies to manage these risks, valuation, systems, monitoring and internal controls. Islamic banking institutions must be able to demonstrate to the Bank that it has adequate risk management policies and procedures in place to control risks arising from the use of CRM techniques. In any case, the Bank reserves the right to take supervisory action under Pillar 2 should the Islamic banking institution’s risk management in relation to the application of CRM techniques be deemed insufficient. In addition, Islamic banking institutions will also be expected to observe the Pillar 3 requirements in order to obtain capital relief in respect of any CRM techniques. Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques 3.94 To obtain capital relief for use of any CRM technique, the following general requirements must be fulfilled: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 104 / 517 Issued on: 3 May 2019 (i) All documentation used in collateralised transactions and for documenting on-balance sheet netting and guarantees must be binding on all parties and legally enforceable in all relevant jurisdictions; (ii) Sufficient assurance from legal counsel with respect to the legal enforceability of the documentation; (iii) Periodic review is undertaken to confirm the ongoing enforceability of the documentation; and (iv) The collateral must be Shariah-compliant. 3.95 In general, only collateral and/or guarantees that are actually posted and/or provided under a legally enforceable agreement are eligible for CRM purposes. A commitment to provide collateral or a guarantee is not recognised as an eligible CRM technique until the commitment to do so is actually fulfilled108. Collateralised Transactions I. Eligible Collateral 3.96 Under the foundation IRB approach, there are four categories of eligible collateral recognised, namely financial collateral, commercial and residential real estate (CRE and RRE) collateral, financial receivables and other physical collateral. Eligible Financial Collateral 3.97 The following financial instruments are recognised as eligible financial collateral: Eligible Financial Collateral 108 However, under the foundation IRB, in accordance with paragraphs 3.2655, forms of group support may be reflected via PD but not LGD. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 105 / 517 Issued on: 3 May 2019 Eligible Financial Collateral  Cash109 (including certificate of deposits or comparable instruments issued by the financing Islamic banking institution) on deposit110 with the Islamic banking institution which is incurring the counterparty exposure  Gold  Debt securities/Sukūk rated by recognised ECAIs where the risk weight attached to the debt securities is lower than that of the obligor  Debt securities/Sukūk unrated by a recognised ECAI but fulfil the following conditions:  Issued by a banking institution;  Listed on a recognised exchange;  Classified as senior debt;  All rated issues of the same seniority by the issuing banking institution that are rated at least BBB- or A-3/P-3; and  The Bank is sufficiently confident about the market liquidity of the debt security/sukūk.  Equities (including convertible bonds/sukūk) that are listed on a recognised exchange (refer to Appendix VIII)  Funds (e.g. collective investment schemes, unit trust funds, mutual funds etc) where:  A price for the units is publicly quoted daily, and  The funds are limited to investing in financial instruments recognised as eligible financial collateral.111 109 Cash pledged includes `urbūn (or earnest money held after a contract is established as collateral to guarantee contract performance) and hamish jiddiyyah (or security deposit held as collateral) in Islamic banking contracts (e.g. Ijārah). 110 Structured deposits and Restricted Investment Account would not qualify as eligible financial collateral. 111 The use or potential use by a fund of derivative instruments solely to hedge investments listed in this table shall not prevent units in that fund from being an eligible financial collateral. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 106 / 517 Issued on: 3 May 2019 Eligible CRE and RRE Collateral 3.98 Eligible CRE and RRE collateral for corporate, sovereign and bank exposures are defined as: (i) Collateral where the risk of the obligor is not materially dependent upon the performance of the underlying property or project, but rather on the underlying capacity of the obligor to repay the debt from other sources. As such, facility repayment is not materially dependent on the cash flow from the underlying CRE/RRE serving as collateral; and (ii) Additionally, the value of the collateral pledged must not be materially dependent on the performance of the obligor112. 3.99 However, in light of the generic description above and the definition of corporate exposures, income producing real estate that falls under the SF asset class is specifically excluded from recognition as collateral for corporate exposures. Eligible Financial Receivables 3.100 Eligible financial receivables are claims with an original maturity of less than or equal to one year where repayment will occur through the commercial or financial flow related to the underlying assets of the obligor. This includes both self-liquidation debt arising from the sale of goods or services linked to a commercial transaction and general amounts owed by buyers, suppliers, renters, national and local governmental authorities or other non-affiliated parties not related to the sale of goods or services linked to a commercial transaction. Eligible receivables do not include those associated with securitisations or sub-participations. 112 This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the obligor. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 107 / 517 Issued on: 3 May 2019 Other Eligible Physical Collateral 3.101 Islamic banking institutions may also recognise other physical collateral subject to conditions specified in paragraphs 3.119 being fulfilled. II. Methodology Methodology for Transactions Secured by Eligible Financial Collateral 3.102 Islamic banking institutions adopting the foundation approach must calculate the effective loss given default (LGD*) applicable to a transaction secured by eligible financial collateral, which is expressed as: E ELGDLGD ** ×= where: (i) LGD is that of the senior unsecured exposure before recognition of collateral (45%); (ii) E is the current value of the exposure; (iii) E* is the adjusted exposure value after risk mitigation as determined under the comprehensive approach as specified in paragraphs 3.103 to 3.108113. Calculation of Adjusted Exposure (E*) Using Comprehensive Approach 3.103 Islamic banking institutions must calculate an adjusted exposure amount after risk mitigation, E*. This is done by applying volatility adjustments to both the collateral and the exposure, taking into account possible future price fluctuations. 113 Under the foundation approach, E* is used only as input to calculate LGD*. Islamic banking institutions must continue to calculate EAD without taking into account the presence of any collateral, unless otherwise specified. This is unlike in the standardised approach where E* is used directly to calculate risk-weighted assets by multiplying it with the counterparty risk weight. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 108 / 517 Issued on: 3 May 2019 3.104 When the exposure and collateral are held in different currencies, an additional downward adjustment must be made to the volatility-adjusted collateral to take account of possible future fluctuations in exchange rates. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 109 / 517 Issued on: 3 May 2019 3.105 The formula is as follows: ( ) ( )[ ]{ }FXCE HHCHEE* −−×−+×= 110,max where: E* = The exposure value after risk mitigation E = Current value of the exposure HE = Haircut appropriate to the exposure C = The current value of the collateral received HC = Haircut appropriate to the collateral HFX = Haircut for currency mismatch between the collateral and exposure 3.106 Where the collateral is a basket of assets, the haircut on the basket will be i i i HaH ∑= where ai is the weight of the asset (as measured by units of currency) in the basket and Hi the haircut applicable to that asset. 3.107 Partial collateralisation and mismatches in the maturity of the underlying exposure and the collateral is allowed under the comprehensive approach. 3.108 There are two approaches in determining the appropriate haircut to be applied on the exposure amount and collateral, namely: (i) Standard supervisory haircuts (paragraphs 2.133 to 2.137); and (ii) VaR modelling, subject to the Bank’s prior approval. Calculation of LGD for Senior Claims Secured by Eligible Non-Financial Collateral 3.109 The LGD* for cases where Islamic banking institutions have taken eligible non- financial collateral to secure a corporate exposure is determined as follows: (i) The level of collateralisation of the exposure, C/E, must be calculated by dividing the current value of the collateral, C, to the current value of the exposure, E. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 110 / 517 Issued on: 3 May 2019 (ii) Exposures where the level of collateralisation is below the required minimum collateralisation level of C* would receive the LGD of 45% for senior unsecured exposures. (iii) Where the level of collateralisation equals or exceeds the over- collateralisation level of C**, full LGD recognition can be applied to the exposure based on the following table: LGD* for Secured Portion of Senior Exposures Required Minimum Collateralisation Level (C*) LGD* if C/E < C* Required Minimum Over- collateralisation Level (C**) LGD* if C/E ≥ C** Receivables 0% 45% 125% 35% CRE/RRE 30% 140% 35% Other physical collateral (excludes physical assets acquired by the Islamic banking institution as result of obligor default) 30% 140% 40% (iv) Where the level of collateralisation is between the threshold levels C* and C**, the exposures are to be divided into fully collateralised and uncollateralised portions: (a) The part of the exposure considered as fully collateralised, C/C**, receives the LGD associated with the type of collateral as per the above table; (b) The remaining part of the exposure, 1-C/C**, is regarded as unsecured and receives an LGD of 45%114. 114 For example, if an exposure of RM100 is covered by RM110 worth of CRE, only RM110/140 = RM78.6 is considered fully covered. The remaining exposure, RM100 – RM78.6 = RM21.4 is regarded as unsecured. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 111 / 517 Issued on: 3 May 2019 Treatment for Pools of Collateral 3.110 The LGD* of a transaction where Islamic banking institutions have taken both eligible financial and non-financial collateral is based on the following. (i) Islamic banking institutions must subdivide the adjusted value of the exposure (after haircut for eligible financial collateral) into portions each covered by only one CRM type. That is, Islamic banking institutions must divide the exposure into portions covered by the eligible financial collateral, receivables, CRE/RRE collateral and any other collateral and the unsecured portion, if any. (ii) Where the ratio of the sum of CRE/RRE value and other collateral to the reduced exposure (after recognising the eligible financial collateral and receivables collateral) is below the minimum level of collateralisation, the exposure would receive the unsecured LGD value of 45%. (iii) The risk-weighted assets for each fully secured portion of exposure must be calculated separately. III. Specific Requirements Specific Requirements for Transactions Secured by Eligible Financial Collateral 3.111 In addition to the general requirements specified under paragraphs 3.94 and 3.95, the legal mechanism by which collateral is pledged or transferred must ensure that Islamic banking institutions have the right to liquidate or take legal possession of the collateral in a timely manner in the event of default, insolvency or bankruptcy of the counterparty. Furthermore, Islamic banking institutions must take all steps necessary to fulfil those requirements under the law to protect their interest in the collateral. 3.112 For collateral to provide effective cover, the credit quality of the counterparty and the value of collateral must not have a material positive correlation. For example, securities issued by the counterparty or a related counterparty115 as a 115 As defined under Single Counterparty Exposure Limit. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 112 / 517 Issued on: 3 May 2019 form of collateral against a financing would generally be materially correlated, thus providing little cover and therefore would not be recognised as eligible collateral. 3.113 Islamic banking institutions must have clear and robust procedures for timely liquidation of collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed and that collateral can be liquidated promptly. 3.114 Where an Islamic banking institution is acting as an agent, arranges a SBBA transaction between an obligor and a third party and provides a guarantee to the obligor that the third party will perform its obligations, then the risk to the Islamic banking institution is the same as if the Islamic banking institution had entered into the transaction as a principal. Under such circumstances, the Islamic banking institution will be required to allocate capital as if it were itself acting as the principal. 3.115 Where collateral is held by a custodian, Islamic banking institutions must take reasonable steps to ensure good custody of that collateral and take reasonable steps to ensure that the custodian segregates the collateral from its own assets. Specific Requirements for Eligible CRE and RRE Collateral 3.116 Subject to meeting the definition above, CRE and RRE will be eligible for recognition as collateral only if the following operational requirements are met: (i) Legal Enforceability: Any claim on collateral taken must be legally enforceable in all relevant jurisdictions and any claim on collateral must be properly filed on a timely basis. Collateral interests must reflect a perfected charge116 (i.e. the legal collateral agreement and the legal process underpinning it would enable Islamic banking institutions to realise the value of the collateral within a reasonable timeframe); 116 Deeds of assignment and strata titles on the property are also recognised. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 113 / 517 Issued on: 3 May 2019 (ii) Objective Market Value of Collateral: The collateral must be valued at or less than the current fair value under which the property could be sold under private contract between a willing seller and an arm’s-length buyer on the date of valuation; (iii) Frequent Revaluation: Islamic banking institutions are expected to monitor the value of collateral at least once a year. More frequent monitoring may be appropriate where market conditions are subject to significant changes. Statistical methods of valuation (e.g. references to house price indices, sampling) may be used to update estimates or to identify collaterals that have declined in value and that require reappraisal. An engagement of a qualified professional might become necessary to evaluate property which value may have declined materially relative to general market prices or when a credit event, such as default, occurs; and (iv) Recognition only for First Charge Collateral: Subsequent charges can be recognised only if all earlier charges were made by the same Islamic banking institution. In instances where the subsequent charges are recognised, Islamic banking institutions must be able to demonstrate that such charges are enforceable and there have been precedent cases where the Islamic banking institution has been able to recoup the residual values. 3.117 Additional collateral management requirements are as follows: (i) The types of CRE and RRE collateral accepted and the financing policies (advance rates) when this type of collateral is taken must be clearly documented; (ii) The property taken as collateral is sufficiently insured against any deterioration and damages; (iii) The extent of any permissible prior claims (e.g. tax) on the property is assessed and monitored on an ongoing basis; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 114 / 517 Issued on: 3 May 2019 (iv) The risk of environmental liability arising in respect of the collateral, such as the presence of toxic material on a property is appropriately assessed and monitored. Specific Requirements for Eligible Financial Receivables 3.118 Financial receivables will be eligible for recognition as collateral for corporate claims only if all of the following operational requirements are met: Legal Certainty (i) The legal mechanism by which collateral is given must be robust and ensure that the Islamic banking institution has clear rights over the proceeds from the collateral; (ii) Islamic banking institutions must take all steps necessary to fulfil local requirements in respect of the enforceability of security interest, e.g. by registering a security interest with a registrar. There should be a process to ensure the Islamic banking institution have a perfected first priority claim over the collateral; (iii) All documentation used in collateralised transactions must be binding on all parties and legally enforceable in all relevant jurisdictions. Islamic banking institutions must conduct a legal review at the onset of the transaction and periodically to ensure the continuing enforceability of collaterals pledged to them; and (iv) The collateral arrangements must be properly documented with clearly written procedures on the timely collection of collateral proceeds. Islamic banking institutions should ensure that any legal conditions required to declare an obligor’s default and timely collection of collateral are observed strictly. In the event of the obligor’s financial distress or default, Islamic banking institutions should have the legal authority to sell or assign the receivables to other parties without the consent of the receivables’ obligors. Risk Management BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 115 / 517 Issued on: 3 May 2019 (i) Islamic banking institutions must institute a sound process for determining the credit risk in receivables. Such process should include among other things, analyses of the obligor’s business and industry (e.g. effects of the business cycle) and the types of obligors with whom the obligor does business. Where Islamic banking institutions rely on the obligor to ascertain the credit risk of the obligors’ customers, Islamic banking institutions must review and assess the obligor’s credit policy to ascertain its soundness and credibility; (ii) The margin between the amount of the exposure and the value of the receivables must incorporate relevant factors such as the cost of collection, concentration within the receivables pool pledged by an individual obligor and potential concentration risk within Islamic banking institutions’ total exposures; (iii) In ensuring ongoing appropriateness of the collateral as a risk mitigant, Islamic banking institutions must maintain a continuous monitoring process that is commensurate with the specific exposures (either immediate or contingent) attributable to the collateral to be utilised as a risk mitigant. This process may include, where appropriate and relevant, ageing reports, control of trade documents, borrowing base certificates, frequent audits of collateral, confirmation of accounts, control of the proceeds of accounts paid, analysis of dilution (credits given by the obligor to the receivables obligors) and regular financial analysis of both the obligor and the receivables obligors, especially in the case when a small number of large sized receivables are taken as collateral. Overall concentration limits should be monitored strictly by Islamic banking institutions. Additionally, any compliance with financing covenants, environmental restrictions and other legal requirements should be monitored on a regular basis; (iv) Receivables pledged by a obligor should be diversified and not be unduly correlated with the obligor. Where the correlation is high, e.g. where some receivables obligors are reliant on the obligor’s viability or where the obligor and the receivables obligors belong to a common industry, the attendant risks should be taken into account in the setting of margins for the collateral pool as a whole. Receivables from affiliates of the obligor BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 116 / 517 Issued on: 3 May 2019 (including subsidiaries and employees) will not be recognised as a risk mitigant; and (v) Islamic banking institutions should document the process relating to collecting receivable payments in distressed situations. The necessary processes for collection should be in place, even when Islamic banking institutions normally look to the obligor for collections. Specific Requirements for Recognition of Other Eligible Physical Collateral 3.119 The Bank may allow other physical collateral to be recognised as a credit risk mitigant provided that the Islamic banking institution can demonstrate to the Bank that such physical collateral meets the following standards: (i) Existence of liquid markets for disposal of collateral in an expeditious and economically efficient manner; (ii) Existence of well established, publicly available market prices for the collateral; and (iii) The amount Islamic banking institutions receive when collateral is realised does not deviate significantly from market prices. In addition, the requirements in paragraphs 3.116 and 3.117 must be met, subject to the following modification: (iv) Islamic banking institutions must have priority of claims over all other lenders to the realised proceeds of the collateral. Only first charges over the collateral are permissible; (v) The financing agreement must include detailed descriptions of the collateral plus detailed specifications of the manner and frequency of revaluation; (vi) The types of physical collateral accepted by Islamic banking institutions and policies and practices in respect of the appropriate amount of each type of collateral relative to the exposure amount must be clearly documented in internal credit policies and procedures and available for examination by the Bank and/or audit review; (vii) Islamic banking institutions’ credit policies must contain appropriate collateral requirements. This includes requirements on the exposure BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 117 / 517 Issued on: 3 May 2019 amount, the ability for timely liquidation of the collateral, determining market value (including the frequency of revaluation) and volatility of the market value. The periodic revaluation process must pay particular attention to collaterals whose values depend on the current trend in the market (i.e. fashion sensitive collaterals). This is to ensure that valuations are appropriately adjusted downward for model year, obsolescence or deterioration; and (viii) In cases of inventories (e.g. raw material, finished goods, dealers’ inventories of autos) and equipment, the periodic revaluation process must include physical inspection of the collateral. Guarantees I. Eligible Guarantors 3.120 The range of eligible guarantors are the same as those under the standardised approach. In addition, companies that are internally rated and associated with a PD equivalent of BBB-117 rating or better, may also be recognised under the foundation approach. The requirements outlined in paragraphs 3.130 to 3.131(i) must also be met to qualify for this recognition. II. Methodology The Substitution Method 3.121 Under the substitution method, guarantees will be recognised as follows: (i) Risk weight for the covered portion of the exposure is derived by using: (a) The risk weight function appropriate to the type of guarantor; and (b) The PD appropriate to the guarantor’s obligor grade, or some grade between the underlying obligor and the guarantor’s obligor grade if the Islamic banking institution deems a full substitution treatment is not warranted. 117 This may be done by mapping the internal rating and associated PD of the protection provider to the Islamic banking institution’s PD masterscale to ascertain that it approximates a rating of BBB- or better by an eligible ECAI. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 118 / 517 Issued on: 3 May 2019 (ii) The LGD of the underlying transaction may be replaced with the LGD applicable to the guarantee taking into account seniority and any collateralisation of a guaranteed commitment. 3.122 The uncovered portion of the exposure is assigned the risk weight associated with the obligor. 3.123 CRM from guarantees must not reflect the effect of double default118. To the extent that the CRM is recognised, the adjusted risk weight must not be less than a comparable direct exposure to the protection provider. 3.124 Any amount for which the Islamic banking institution will not be compensated for in the event of loss, shall be recognised as retained first loss positions and risk- weighted at 1250% by the Islamic banking institution purchasing the credit protection. 3.125 Where partial coverage exists, or where there is a currency mismatch between the underlying obligation and the credit protection, the exposure must be split into covered and uncovered amount. The treatment is outlined below: Proportional Cover (i) Where the amount guaranteed, or against which credit protection is held, is less than the amount of the exposure, and the secured and unsecured portions are equal in seniority, i.e. the Islamic banking institution and guarantor share losses on a pro-rata basis, capital relief will be accorded on a proportional basis with the remainder being treated as unsecured. Tranched Cover (ii) Where: 118 Refer to footnote 106. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 119 / 517 Issued on: 3 May 2019 (a) an Islamic banking institution transfers a portion of the risk of an exposure in one or more tranches to a protection seller(s) and retains some level of risk of the exposure; and (b) the portion of risk transferred and retained are of different seniority, Islamic banking institutions may obtain credit protection for either the senior tranches (e.g. second loss portion) or the junior tranche (e.g. first loss portion). In this case, the rules as set out in the securitisation component of the Framework will apply. Currency Mismatches (iii) A haircut, HFX, shall be applied on the exposure protected if its credit protection is denominated in a different currency, as follows: ( )FXHGGA −×= 1 where: G = Nominal amount of the credit protection HFX = Haircut appropriate for currency mismatch between the credit protection and underlying obligation. The supervisory haircut is 8%. The haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the credit protection as described in paragraph 2.138 3.126 For exposures where the obligor is part of a portfolio on the IRB approach while the guarantor or credit protection provider is part of a portfolio which is not under the IRB approach (i.e. standardised approach)119, Islamic banking institutions must ensure that these obligors also fulfill the expectations under the IRB approach (e.g. annually reviewed etc) on an ongoing basis. The appropriate treatment based on the standardised approach shall be applied to the guaranteed/protected portion of the exposure. The Double Default Method 119 For example, a financing granted to a small medium enterprise (under the IRB approach) is guaranteed by CGC (under the standardised approach). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 120 / 517 Issued on: 3 May 2019 3.127 Islamic banking institutions also can apply the double default method instead of the substitution method where exposures are hedged by single-name guarantees. 3.128 The entity providing the above instruments must be an Islamic banking institution120 or an insurance/takaful company (but only those that are in the business of providing credit protection, including mono-lines, professional re- insurers/re-takaful companies, and non-sovereign credit export agencies121) that: (i) is regulated in a manner broadly equivalent to the Framework (where there is appropriate supervisory oversight and transparency/market discipline), or externally rated as at least investment grade by an approved ECAI for purposes of the capital framework; (ii) had an internal rating with a PD equivalent to or lower than that associated with an external BBB- rating at the time the credit protection for an exposure was first provided; and (iii) continues to maintain an internal rating with a PD equivalent to or lower than that associated with an external BBB- rating. 3.129 Islamic banking institutions using the double default method for the hedged exposure would apply the risk weight formula described under paragraphs 3.154 to 3.155 in determining the capital requirement. III. Specific Requirements Specific Requirements Common for Guarantees 3.130 For a guarantee to be eligible for CRM, the following conditions must be met: 120 This does not include PSEs and MDBs, even though claims on these may be treated as claims on banking institutions according to Part B.3.2. 121 By non-sovereign it is meant that the credit protection in question does not benefit from any explicit sovereign counter-guarantee. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 121 / 517 Issued on: 3 May 2019 (i) The guarantee must represent a direct claim on the protection provider and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and could not be disputed; (ii) The credit protection contract must be irrevocable except where the credit protection purchaser has not made the payment due to the protection provider. The protection provider must also not have the right to unilaterally cancel the credit cover or increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure; (iii) The contract must not have any clause or provision outside the direct control of the Islamic banking institution that prevents the protection provider from being obliged to pay in a timely manner in the event that the original counterparty fails to make the payment(s) due. However, for advanced IRB exposures, conditional guarantees may also be recognised as eligible CRM as per paragraph 3.326; and (iv) Additional operational requirements specific for guarantees specified in paragraph 3.131 must be met. Additional Specific Requirements for Guarantees 3.131 In addition to the requirements on legal certainty of the guarantee specified in paragraph 3.94, all the following conditions must also be satisfied: (i) On the default/non-payment of the counterparty, an Islamic banking institution may in a timely manner pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor may pay at once all monies outstanding under such documentation to the Islamic banking institution, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee; (ii) The guarantee undertaking is explicitly documented; and (iii) Except as noted in the following sentence, the guarantee covers all types of payments the obligor is expected to make under the documentation BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 122 / 517 Issued on: 3 May 2019 governing the transaction, such as notional amount and margin payments. Where a guarantee covers payment of principal only, profits and other uncovered payments should be treated as unsecured amounts in line with the treatment for proportionally covered exposures under paragraph 3.125. 3.131(i) An Islamic banking institution shall only recognise trade credit takaful as CRM when the requirements under paragraphs 2.145(i), 2.146(i), 2.146(ii), 3.93, 3.94, 3.95, 3.130 and 3.131 are satisfied. Additional Requirements for Recognition of Double Default 3.132 For each eligible exposure, Islamic banking institutions need to determine whether either the double default or the substitution method is to be applied. 3.133 In addition to the conditions specified in paragraphs 3.127 and 3.128, the double default method is only applicable if the following conditions have also been met. (i) The risk weight that is associated with the exposure prior to the application of the double default treatment does not already factor in any aspect of the credit protection. (ii) The underlying obligation is: (a) a corporate exposure as defined in paragraphs 3.24 to 3.27 (excluding SF exposures for which the SSC approach described in paragraphs 3.150 to 3.153 is being used); or (b) a claim on a PSE that is not a sovereign exposure as defined in paragraph 3.28; or (c) a financing extended to a small business and classified as a retail exposure as defined in paragraph 3.30. (iii) The obligor is not: (a) a financial firm as defined in paragraph 3.128; or (b) a member of the same group as the protection provider. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 123 / 517 Issued on: 3 May 2019 (iv) Credit protection meets the minimum operational requirements for such instruments as outlined in paragraphs 3.130 to 3.131. (v) Consistent with paragraph 3.131 for any recognition of double default that affects guarantees, Islamic banking institutions must have the right and expectation to receive payment from the credit protection provider without having to take legal action to pursue the counterparty for payment. If a credit event should occur, steps should be taken to ensure that the protection provider is willing to pay promptly. (vi) The purchased credit protection absorbs all credit losses incurred on the hedged portion of an exposure that arises due to credit events outlined in the contract. (vii) If the payout structure provides for physical settlement, then there must be legal certainty with respect to the deliverability of a financing, bond, or contingent liability. If an Islamic banking institution intends to deliver an obligation other than the underlying exposure, it must ensure that the deliverable obligation is sufficiently liquid so that the Islamic banking institution would have the ability to purchase it for delivery in accordance with the contract. (viii) The terms and conditions of credit protection arrangements must be legally confirmed in writing by both the credit protection provider and the Islamic banking institution. (ix) In the case of protection against dilution risk, the seller of purchased receivables must not be a member of the same group as the protection provider. (x) There is no excessive correlation between the creditworthiness of a protection provider and the obligor of the underlying exposure due to performance being dependent on common factors beyond the systematic risk factor. Islamic banking institutions should establish a mechanism to detect the existence of such excessive correlation. An example of excessive correlation is where a protection provider guarantees the debt of a supplier of goods or services and the supplier derives a high proportion of its income or revenue from the protection provider. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 124 / 517 Issued on: 3 May 2019 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 125 / 517 Issued on: 3 May 2019 On-Balance Sheet Netting122 I. Specific Requirements for On-Balance Sheet Netting 3.134 Islamic banking institutions are allowed to compute credit exposures on a net basis for capital requirements where Islamic banking institutions have legally enforceable netting arrangements for financing and deposits123. In addition, Islamic banking institutions can only apply on-balance sheet netting on any exposure if the following conditions have been met: (i) Strong legal basis that the netting or off-setting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is in default, insolvent or bankrupt; (ii) Able to determine at any time the assets and liabilities of the counterparty that are subject to the netting agreement; (iii) Monitors and controls roll-off risks124; and (iv) Monitors and controls the relevant exposure on a net basis. II. Methodology 3.135 The computation of the net exposure to a counterparty for capital adequacy computation purposes is similar to that specified for collateralised transactions under paragraph 3.105, where assets (financing) are treated as exposures and liabilities (deposits) as collateral. For on-balance sheet netting, the haircut will be zero except where there is a currency mismatch. A 10-business day holding period will apply when daily mark-to-market is conducted and all the requirements contained in paragraphs 3.139 to 3.142 and paragraphs 2.133 and 2.138 are fulfilled. 122 As opposed to other CRM techniques that mostly affect the LGD component, the effects of on- balance sheet netting are incorporated in the EAD component. 123 Structured deposits and Restricted Investment Account would not be recognised for on-balance sheet netting. 124 Roll-off risks relate to the sudden increases in exposure which can happen when short dated obligations used to net long dated claims mature. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 126 / 517 Issued on: 3 May 2019 3.136 For the purpose of calculating RWA for the exposure following the on-balance sheet netting, the relevant PD and LGD or risk weight for the counterparty and transaction shall be applied to the net exposure amount. Other Aspects of Credit Risk Mitigation Treatment of Pools of Credit Risk Mitigation Techniques 3.137 When multiple credit risk mitigation techniques are used to cover a single exposure, the exposure should be divided into portions which are covered by each type of credit risk mitigation technique. The risk-weighted assets of each portion must be calculated separately. Where credit protection provided by a single guarantor has different maturities, these must also be divided into separate portions. 3.138 In addition, where a single transaction is attached to multiple forms of credit risk mitigants, Islamic banking institutions are able to obtain the largest capital relief possible from the risk mitigants. Maturity Mismatches 3.139 For calculating RWA, a maturity mismatch occurs when the residual maturity of a hedge is less than that of the underlying exposure. Definition of Maturity 3.140 The maturity of the underlying exposure and the maturity of the hedge should both be defined conservatively. The M of the underlying should be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, taking into account any applicable grace period. For a hedge, embedded options which may reduce the term of the hedge should be taken into account so that the shortest possible M is used. Where a call is at the discretion of the protection seller, the maturity will always be at the first call date. If the call is at the discretion of the protection-buying Islamic banking BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 127 / 517 Issued on: 3 May 2019 institution but the terms of the arrangement at origination of the hedge contain a positive incentive for the Islamic banking institution to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the M. For example, where there is a step-up in cost in conjunction with a call feature or where the effective cost of cover increases over time even if credit quality remains the same or increases, the M will be the remaining time to the first call. Risk Weights for Maturity Mismatches 3.141 Hedges with maturity mismatches are only recognised when the original maturities are greater than or equal to one year. As a result, the maturity of hedges for exposures with original maturities of less than one year must be matched to be recognised. In all cases, hedges with maturity mismatches will no longer be recognised when the residual maturity of the hedge is three months or less. 3.142 When there is a maturity mismatch with recognised credit risk mitigant (collateral, on-balance sheet netting and guarantees) the following adjustment will be applied. ( ) ( )25.0 25.0 − − ×= T tPPa where: Pa = Value of the credit protection adjusted for maturity mismatch P = Credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = Min (T, residual maturity of the credit protection arrangement) expressed in years T = Min (5, residual maturity of the exposure) expressed in years BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 128 / 517 Issued on: 3 May 2019 B.3.5 RISK-WEIGHTED ASSETS Risk-Weighted Assets for Corporate, Sovereign and Bank Exposures I. Formula for Derivation of Risk-Weighted Assets 3.143 The derivation of RWA is dependent on estimates of the PD, LGD, EAD and, M for a given exposure. 3.144 The computation of RWA for exposures not in default, is125: Capital requirement126 (K) = ( ) ( )     − −+ ⋅         ⋅−         ⋅ − +⋅ − ⋅ −− b bMLGDPDN R RPDN R NLGD 5.11 )5.2(1999.0 11 1 11 RWA = K x 12.5 x EAD where: Maturity adjustment, b = ( )[ ]2ln05478.011852.0 PD⋅− Correlation, R = ( ) ( ) ( ) ( )       −− ⋅−− −+      −− ⋅−− 501 501124.0 501 50112.0 EXP PDEXP EXP PDEXP Illustrative IRB risk weights are shown in Appendix XXIV. 3.145 The formula above and the requirement for foundation IRB Islamic banking institutions to establish its own PD estimates127 for all obligors within their corporate portfolio shall also apply to corporate exposures guaranteed by the Credit Guarantee Corporation (CGC). However, the effective risk weight for 125 Ln denotes the natural logarithm. N(x) denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x). N-1(z) denotes the inverse cumulative distribution function for a standard normal random variable (i.e. the value of x such that N(x) = z). The normal cumulative distribution function and the inverse of the normal cumulative distribution function are, for example, available in Excel as the functions NORMSDIST and NORMSINV. EXP denotes the exponential function. 126 If this calculation results in a negative capital charge for any individual sovereign exposure, banking institutions should apply a zero capital charge for that exposure. 127 Advanced IRB banks would also have to estimate LGD and EAD. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 129 / 517 Issued on: 3 May 2019 corporate exposures guaranteed by CGC which are not in default, shall be capped at 20%128. 3.146 The capital requirement (K) for a defaulted exposure is the greater of: (i) zero, and (ii) the difference between its LGD (described in paragraph 3.306) and the Islamic banking institution’s best estimate of expected loss (described in paragraph 3.310). The RWA amount for the defaulted exposure is the product of K, 12.5, and EAD. 3.147 Islamic banking institutions that meet the requirements for the estimation of PD for SF exposures may use the formula in paragraph 3.144 to derive the risk- weighted assets, except for HVCRE where the following asset correlation formula will apply: Correlation (R) = ( ) ( ) ( ) ( )             −− ⋅−− −+      −− ⋅−− 501 50110.30 501 5010.12 EXP PDEXP EXP PDEXP Islamic banking institutions that do not meet the requirements for the estimation of PD for SF exposures are required to use the SSC approach from paragraphs 3.150 to 3.153. II. Firm-size Adjustment for Small and Medium-sized Corporates 3.148 Islamic banking institutions may separately distinguish exposures to small and medium-sized corporates129 from those to large corporates. A firm-size adjustment (S) is made to the asset correlation formula. S is expressed as total annual sales in RM millions with values of S falling between RM25 million to RM250 million. Reported sales of less than RM25 million will be treated as equal to RM25 million for the purpose of this paragraph. 128 Only applicable on guaranteed portion of the exposures. 129 Defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 130 / 517 Issued on: 3 May 2019 Correlation (R) = ( ) ( ) ( ) ( )       − −−      −− ⋅−− −+      −− ⋅−− 225 25104.0 501 501124.0 501 50112.0 S EXP PDEXP EXP PDEXP 3.149 When total sales is not a meaningful indicator of a firm’s size, the Bank may allow Islamic banking institutions to use total assets of the consolidated group as a basis to calculate the small and medium-sized corporate threshold and the firm-size adjustment. III. Risk Weights for Sub-classes of SF - PF, OF, CF, IPRE and HVCRE 3.150 For Islamic banking institutions adopting the SSC approach130 for their SF portfolio, Islamic banking institutions should map the internal grades to five supervisory categories based on the slotting criteria provided in Appendix Va. 3.151 The risk weights associated with each supervisory category for PF, OF, CF and IPRE are: Strong Good Satisfactory Weak Default 70% 90% 115% 250% 0% 3.152 Islamic banking institutions may apply preferential risk weights of 50% to “strong” exposures, and 70% to “good” exposures as per the table below, subject to meeting either of the following conditions: (i) Remaining maturity of the current SF exposure is less than 2.5 years; or (ii) Project construction is completed. 130 Islamic banking institutions that meet the requirements for the estimation of PD will be able to use the general foundation approach for the corporate asset class to derive risk weights for SF sub- classes. Islamic banking institutions that meet the requirements for the estimation of PD and LGD and/or EAD will be able to use the general advanced approach for the corporate asset class to derive risk weights for SF sub-classes. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 131 / 517 Issued on: 3 May 2019 Strong Good Satisfactory Weak Default 50% 70% 115% 250% 0% 3.153 The risk weights for HVCRE exposures associated with each supervisory category are: Strong Good Satisfactory Weak Default 95% 120% 140% 250% 0% IV. Risk-Weighted Assets for Exposures subject to the Double Default Framework 3.154 The capital requirement for a hedged exposure subject to the double default treatment (KDD) is calculated by multiplying K0 as defined below by a multiplier depending on the PD of the protection provider (PDg): ( )gDD PDKK ⋅+⋅= 16015.00 K0 is calculated in the same way as a capital requirement for an unhedged corporate exposure (as defined in paragraphs 3.144 to 3.146 and 3.148), but using different parameters for LGD and the maturity adjustment. ( ) ( ) ( ) b bMPD NPDN NLGDK o os oso g ⋅− ⋅−+ ⋅         −        − ⋅+ ⋅= −− 5.11 5.21 1 999.011 0 ρ ρ PDo and PDg are the probabilities of default of the obligor and guarantor, respectively, both subject to the PD floor set out in paragraph 3.47. The correlation ρos is calculated according to the formula for correlation (R) in paragraph 3.144 or 3.148, with PD being equal to PDo, and LGDg is the LGD of a comparable direct exposure to the guarantor131. There shall be no 131 Consistent with paragraph 3.123, the LGD associated with an unhedged facility to the guarantor or the unhedged facility to the obligor, depending upon whether, in the event both the guarantor and the obligor default during the life of the hedged transaction, available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial condition of the guarantor or obligor, respectively; in estimating either of these LGDs, an Islamic banking institution may recognise collateral posted exclusively against the exposure or credit protection, respectively, in a manner consistent with paragraph 3.121, 3.150, 3.306 to 3.310, 3.314 and 3.315, as applicable. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 132 / 517 Issued on: 3 May 2019 consideration of double recovery in the LGD estimate132. The maturity adjustment coefficient, b, is calculated according to the formula for maturity adjustment in paragraph 3.144, with PD being the lower of PDo and PDg. M is the effective maturity of the credit protection, which must not be below the one- year floor if the double default framework is to be applied. 3.155 The RWA amount is calculated in the same way as for unhedged exposures, as follows: gDDDD EADKRWA ⋅⋅= 5.12 Risk-Weighted Assets for Retail Exposures 3.156 There are three separate risk-weight functions for retail exposures, as defined below. Risk weights for retail exposures are based on separate assessments of PD and LGD as inputs to the risk-weight functions. None of the three retail risk- weight functions contain an explicit maturity adjustment. Illustrative risk weights are shown in Appendix XXIV. I. Exposures Secured by Residential Real Estate (RRE) Properties 3.157 For exposures defined in paragraph 3.34 that are not in default and are secured or partly secured133 by RRE, risk weights will be assigned based on the following formula: Correlation (R) = 0.15 Capital requirement (K) = ( ) ( ) LGDPDN R RPDN R NLGD ⋅−         ⋅ − +⋅ − ⋅ −− 999.0 11 1 11 132 Only recoveries from the guarantor are taken into consideration and no recognition is given for recoveries from obligor. 133 This means that risk weights for RRE financing also apply to the unsecured portion of such RRE financing. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 133 / 517 Issued on: 3 May 2019 ( ) ( ) LGDPDN R RPDN R NLGD ⋅−         ⋅ − +⋅ − ⋅ −− 999.0 11 1 11 RWA = K x 12.5 x EAD II. Qualifying Revolving Retail Exposures 3.158 For QRRE as defined in paragraph 3.35 that are not in default, risk weights are defined based on the following formula: Correlation (R) = 0.04 Capital requirement (K) = ( ) ( ) LGDPDN R RPDN R NLGD ⋅−         ⋅ − +⋅ − ⋅ −− 999.0 11 1 11 RWA = K x 12.5 x EAD III. Other Retail Exposures 3.159 For all other retail exposures that are not in default, risk weights are defined based on the following formula, which allows correlation to vary with PD: Correlation (R) = ( ) ( ) ( ) ( )       −− ⋅−− −+      −− ⋅−− 351 351116.0 351 35103.0 EXP PDEXP EXP PDEXP Capital requirement (K) = ( ) ( ) LGDPDN R RPDN R NLGD ⋅−         ⋅ − +⋅ − ⋅ −− 999.0 11 1 11 ( ) ( ) LGDPDN R RPDN R NLGD ⋅−         ⋅ − +⋅ − ⋅ −− 999.0 11 1 11 RWA = K x 12.5 x EAD BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 134 / 517 Issued on: 3 May 2019 3.160 The formulas above and the requirement to establish PD, LGD and EAD estimates shall also apply to priority sector RRE financing and any retail exposures guaranteed by CGC. However, the effective risk weight for: (i) Priority sector RRE financing, which are not in default, shall be capped at 50%. However, the effective risk weight cap for any financing with a financing-to-value ratio of more than 90% approved and disbursed by Islamic banking institutions on or after 1 February 2011 is 75%; and (ii) Any retail exposures guaranteed by CGC, which are not in default, shall be capped at 20%134. 3.161 The capital requirement (K) for a defaulted exposure (for all three types of retail exposures) is equal to the greater of : (i) zero; and (ii) the difference between its LGD and the Islamic banking institution’s best estimate of expected loss. The RWA amount for the defaulted exposure is the product of K, 12.5, and EAD. Risk-Weighted Assets for Equity Exposures 3.162 There are two approaches to calculate RWA for equity exposures held in the banking book: (i) Market-based approach (which is subdivided into the simple risk weight method and the internal models method); and (ii) PD/LGD approach. Certain equity holdings as defined in paragraphs 3.178 and 3.179 are excluded from these approaches. 3.163 Islamic banking institutions’ choices must be applied consistently and not determined by regulatory arbitrage considerations. The method used should be consistent with the amount and complexity of the Islamic banking institution’s 134 Only applicable on guaranteed portion of the exposures. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 135 / 517 Issued on: 3 May 2019 equity holdings and commensurate with the overall size and sophistication of the institution. 3.164 Notwithstanding the above, the Bank may require an Islamic banking institution to employ the PD/LGD or the internal models approach instead of the simple risk weight approach if equity exposures constitute a significant part of its business. I. Market-Based Approach 3.165 Under the market-based approach, Islamic banking institutions are permitted to use one or both of the methods below. Simple Risk Weight Method 3.166 Under the simple risk weight method, a 300% risk weight is applied to equity holdings that are publicly traded and a 400% risk weight to all other equity holdings. A publicly traded holding is defined as any equity security traded on a recognised securities exchange (please refer to Appendix VIII). 3.167 Short cash positions and derivative instruments held in the banking book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity holdings with remaining maturities of at least one year. Other short positions should be treated as if they are long positions with the relevant risk weight applied to the absolute value of each position. In the context of maturity mismatched positions, the methodology is similar to that for corporate exposures. Internal Models Method 3.168 Islamic banking institutions may use, or may be required by the Bank to use, internal risk measurement models to calculate the capital requirement, subject to the minimum requirements set out in Part B.3.7 of the Framework. Under this BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 136 / 517 Issued on: 3 May 2019 method, Islamic banking institutions must hold capital equal to the potential loss on equity holdings as derived using internal value-at-risk (VaR) models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term135 sample period. The capital charge would be incorporated into Islamic banking institutions’ capital adequacy computation through the calculation of risk- weighted equivalent assets. 3.169 The risk weight used to convert holdings into risk-weighted equivalent assets would be calculated by multiplying the derived capital charge by 12.5 (i.e. the inverse of the minimum 8% risk-based capital requirement). 3.170 Capital charges calculated under the internal models method should not be less than the capital charges that would be calculated under the simple risk weight method using a 200% risk weight for publicly traded equity holdings and a 300% risk weight for all other equity holdings. Further, these minimum risk weights are to apply at the individual exposure level rather than at the portfolio level. 3.171 Subject to approval by the Bank, Islamic banking institutions may be allowed to use different market-based approaches to different portfolios if they are already adopting these approaches internally, subject to proper justifications. 3.172 Islamic banking institutions adopting the market-based approach for equity exposures are permitted to recognise guarantees but not the collateral obtained on that equity exposure. II. PD/LGD Approach 3.173 Islamic banking institutions wishing to adopt the PD/LGD approach to calculate the equivalent credit risk-weighted assets of equity exposures (including equity 135 The Bank would expect Islamic banking institutions to have data covering at least five years or 20 data points of quarterly returns. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 137 / 517 Issued on: 3 May 2019 of companies that are included in the retail asset class) are required to fulfil the minimum requirements and methodology for the IRB foundation approach136 for corporate exposures, subject to the following specifications: (i) The Islamic banking institution’s estimate of the PD of a corporate entity in which it holds an equity position must satisfy the same requirements as its estimate of the PD of a corporate entity where it holds debt137, except in the following instances: (a) Where an Islamic banking institution does not hold a debt in the company in which it holds equity, and does not have sufficient information on the position of that company to be able to use the applicable definition of default in practice but meets the other minimum requirements, a 1.5 scaling factor will be applied to the risk weights derived from the corporate risk-weight function, given the PD set by the Islamic banking institution. (b) If, however, the Islamic banking institution’s equity holdings are material138 and it is permitted to use the PD/LGD approach for regulatory purposes but the Islamic banking institution has not yet met the relevant standards, the simple risk-weight method under the market-based approach will apply. (ii) An LGD of 90% would be assumed in deriving the risk weight for equity exposures. (iii) The risk weight is subject to a five-year maturity adjustment whether or not the Islamic banking institution is using the explicit approach to maturity elsewhere in its IRB portfolio. 3.174 Under the PD/LGD approach, minimum risk weights as set out in paragraphs 3.175 and 3.176 apply. When the sum of UL and EL associated with the equity exposure results in less capital than would be required from application of one 136 There is no advanced approach for equity exposures, given the 90% LGD assumption. 137 In practice, if there is both an equity exposure and an IRB credit exposure to the same counterparty, a default on the credit exposure would thus trigger a simultaneous default for regulatory purposes on the equity exposure. 138 Materiality threshold is defined similar to materiality threshold used to determine equity holdings that are exempted from the IRB scope. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 138 / 517 Issued on: 3 May 2019 of the minimum risk weights, the minimum risk weights must be used. In other words, the minimum risk weights must be applied, if the risk weights calculated according to paragraph 3.173 plus the EL associated with the equity exposure multiplied by 12.5 are smaller than the applicable minimum risk weights. 3.175 A minimum risk weight of 100% applies for the following types of equities for as long as the portfolio is managed in the manner outlined below: (i) Public equities where the investment is part of a long-term customer- banker relationship and no capital gains are expected to be realised in the short term and where there is no anticipation of (above trend) capital gains in the long term. It is expected that in almost all cases, the Islamic banking institution will have financing and/or general banking relationships with the portfolio company so that the estimated PD is readily available. In general, the Islamic banking institution is expected to hold the equity over a long term period (at least five years). (ii) Private equities, where the returns on the investment are based on regular and periodic cash flows not derived from capital gains and there is no expectation of future (above trend) capital gain or of realising existing gain. 3.176 For all other equity positions, including net short positions (as defined in paragraph 3.167), capital charges calculated under the PD/LGD approach may be no less than the capital charges that would be calculated under a simple risk weight method using a 200% risk weight for publicly traded equity holdings and a 300% risk weight for all other equity holdings. 3.177 The maximum risk weight for the PD/LGD approach for equity exposures is 1250%. This maximum risk weight can be applied, if risk weights calculated according to paragraph 3.173 plus the EL associated with the equity exposure multiplied by 12.5 exceed the 1250% risk weight. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 139 / 517 Issued on: 3 May 2019 III. Exclusions to the Market-Based and PD/LGD Approaches 3.178 Equity holdings in entities whose debt obligations qualify for a 0% risk weight under the standardised approach can be excluded from the IRB approaches for equities. These equity exposures will attract a risk weight of 20%. 3.179 Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association shall receive a risk weight of 100% (subject to a cap of 10% of the Islamic banking institution’s Total Capital). 3.180 Investments in the equity of non-financial commercial subsidiaries will apply the same treatment as per paragraph 2.51. Risk-Weighted Assets for Purchased Receivables Default Risk 3.181 For receivables categorised under one asset class, the IRB risk weight for default risk is based on the risk-weight function applicable to that particular exposure type. 3.182 The treatment above is applicable as long as the Islamic banking institution can meet the qualification standards for this particular risk-weight function. For example, if an Islamic banking institution cannot comply with the standards for QRRE, it should use the risk-weight function for other retail exposures. 3.183 For hybrid pools containing mixtures of exposure types, if the purchasing Islamic banking institution cannot separate the exposures by type, the risk- weight function producing the highest capital requirements for the exposure types in the receivable pool applies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 140 / 517 Issued on: 3 May 2019 I. Purchased Retail Receivables 3.184 For purchased retail receivables, Islamic banking institutions must meet the risk quantification standards for retail exposures but can utilise external and internal reference data to estimate the PDs and LGDs. The estimates for PD and LGD (or EL) must be calculated for the receivables on a stand-alone basis; that is, without regard to any assumption of recourse or guarantees from the seller or other parties. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 141 / 517 Issued on: 3 May 2019 II. Purchased Corporate Receivables 3.185 For purchased corporate receivables, the purchasing Islamic banking institution is expected to apply the existing IRB risk quantification standards for the bottom-up approach. However, for eligible purchased corporate receivables, and subject to the Bank’s approval, Islamic banking institutions may employ the following top-down procedure to calculate the IRB risk weights for default risk: (i) The purchasing Islamic banking institution will estimate the pool’s one-year EL for default risk, expressed in percentage of the exposure amount (i.e. the total EAD amount to the Islamic banking institution by all receivables obligors in the receivables pool). The estimated EL on the receivables should be calculated on a stand-alone basis without any assumption of recourse or guarantees from the seller or other parties. The treatment of recourse or guarantees covering default risk (and/or dilution risk) is elaborated separately below. (ii) Given the EL estimate for the pool’s default losses, the risk weight for default risk is determined by the risk-weight function for corporate exposures139. As described below, the precise calculation of risk weights for default risk depends on the Islamic banking institution’s ability to decompose EL into its PD and LGD components in a reliable manner. Islamic banking institutions can utilise external and internal data to estimate PDs and LGDs. However, the advanced approach cannot be adopted by Islamic banking institutions that use the foundation approach for corporate exposures. Foundation IRB treatment 3.186 If the purchasing Islamic banking institution is unable to decompose EL into its PD and LGD components in a reliable manner, the risk weight is determined from the corporate risk-weight function using the following specifications: 139 The firm-size adjustment for small and medium-sized corporates will be the weighted average by individual exposure of the pool of purchased corporate receivables. If the Islamic banking institution does not have the information to calculate the average size of the pool, the firm-size adjustment will not apply. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 142 / 517 Issued on: 3 May 2019 (i) If Islamic banking institution can demonstrate that the exposures are exclusively senior claims to corporate obligors, an LGD of 45% can be used. PD will be calculated by dividing the EL using this LGD. EAD will be calculated as the outstanding amount minus the capital charge for dilution prior to credit risk mitigation (KDilution). (ii) Otherwise, PD is the Islamic banking institution’s estimate of EL; LGD will be 100%; and EAD is the amount outstanding minus KDilution. (iii) EAD for a revolving purchase facility is the sum of the current amount of receivables purchased plus 75% of any undrawn purchase commitments minus KDilution. (iv) If the purchasing Islamic banking institution is able to estimate PD in a reliable manner, the risk weight is determined from the corporate risk- weight functions according to the specifications for LGD and M under the foundation approach as given in paragraphs 3.49 to 3.55 and 3.66. Advanced IRB treatment 3.187 If the purchasing Islamic banking institution can estimate either the pool’s default-weighted average loss rates given default (as defined in paragraph 3.306) or average PD in a reliable manner, Islamic banking institution may estimate the other parameter based on an estimate of the expected long-run loss rate as follows: (i) using an appropriate PD estimate to infer the long-run default-weighted average loss rate given default; or (ii) using a long-run default-weighted average loss rate given default to infer the appropriate PD. In either case, it is important to recognise that the LGD used for the IRB capital calculation for purchased receivables cannot be less than the long-run default- weighted average loss rate given default and must be consistent with the concepts defined in paragraph 3.306. The risk weight for the purchased receivables will be determined using the Islamic banking institution’s estimated PD and LGD as inputs to the corporate risk-weight function. Similar to the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 143 / 517 Issued on: 3 May 2019 foundation IRB treatment, EAD will be the amount outstanding minus KDilution. EAD for a revolving purchase facility will be the sum of the current amount of receivables purchased plus 75% of any undrawn purchase commitments minus KDilution (thus, Islamic banking institutions using the advanced IRB approach will not be permitted to use internal EAD estimates for undrawn purchase commitments). 3.188 For drawn amounts, M will equal the pool’s exposure-weighted average M (as defined in paragraphs 3.74 to 3.79). This same value of M will also be used for undrawn amounts under a committed purchase facility provided the facility contains effective covenants, early amortisation triggers, or other features that protect the purchasing Islamic banking institution against a significant deterioration in the quality of the future receivables it is required to purchase over the facility’s term. In the absence of such effective protections, the M for undrawn amounts will be calculated as the sum of: (i) the longest-dated potential receivable under the purchase agreement; and (ii) the remaining maturity of the purchase facility. For purchased receivables, such as factoring and similar transactions, which are deemed short term self liquidating trade transactions, M could be accounted for using the actual remaining maturity. However, M must be at least 90 days. Dilution Risk 3.189 Dilution refers to the possibility that the receivable amount is reduced through cash or non-cash credits to the receivable’s obligor140. For both corporate and retail receivables, unless the Islamic banking institution can demonstrate to the Bank that the dilution risk for the purchasing Islamic banking institution is immaterial, the treatment of dilution risk must be the following: (i) At the level of either the pool as a whole (top-down approach) or the individual receivables making up the pool (bottom-up approach), the 140 Examples include offsets or allowances arising from returns of goods sold, disputes regarding product quality, possible debts of the obligor to a receivables obligor, and any payment or promotional discounts offered by the obligor (e.g. a credit for cash payments within 30 days). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 144 / 517 Issued on: 3 May 2019 purchasing Islamic banking institution will estimate the one-year EL for dilution risk, also expressed in percentage of the receivables amount. Islamic banking institutions can utilise external and internal data to estimate EL. As with the treatment of default risk, this estimate must be computed on a stand-alone basis; that is, under the assumption of no recourse or other support from the seller or third-party guarantors. (ii) For the purpose of calculating risk weights for dilution risk, the corporate risk-weight function must be used with the PD set equal to the estimated EL, and the LGD set at 100%. An appropriate maturity treatment applies when determining the capital requirement for dilution risk. If an Islamic banking institution can demonstrate that the dilution risk is appropriately monitored and managed to be resolved within one year, the Bank may allow the Islamic banking institution to apply a one-year maturity. 3.190 This treatment will be applied regardless of whether the underlying receivables are corporate or retail exposures, and regardless of whether the risk weights for default risk are computed using the standard IRB treatments or, for corporate receivables, the top-down treatment described above. Recognition of credit risk mitigants 3.191 Credit risk mitigants will be recognised generally using the same framework as set forth in paragraphs 3.120 to 3.126141 In particular, a guarantee provided by the seller or a third party will be treated using the existing IRB rules for guarantees, regardless of whether the guarantee covers default risk, dilution risk, or both. (i) If the guarantee covers both the pool’s default risk and dilution risk, the pool’s total risk weight for default and dilution risk is substituted with the risk weight for an exposure to the guarantor. 141 Islamic banking institutions may recognise guarantors that are internally rated and associated with a PD equivalent to BBB- or better under the foundation IRB approach for purposes of determining the capital requirements for dilution risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 145 / 517 Issued on: 3 May 2019 (ii) If the guarantee covers only default risk or dilution risk, but not both, the pool’s risk weight for the corresponding risk component (default or dilution) is substituted with the risk weight for an exposure to the guarantor. The capital requirement for the other component will then be added. (iii) If a guarantee covers only a portion of the default and/or dilution risk, the uncovered portion of the default and/or dilution risk will be treated as per the existing credit risk mitigation rules for proportional or tranched coverage (i.e. the risk weights of the uncovered risk components will be added to the risk weights of the covered risk components). 3.192 If protection against dilution risk has been purchased, and the conditions of paragraphs 3.127, 3.128 and 3.133 are met, the double default framework may be used for the calculation of the RWA amount for dilution risk. In this case, paragraphs 3.154 and 3.155 apply with PDo being equal to the estimated EL, LGDg being equal to 100%, and M being set according to paragraph 3.188. Risk-Weighted Assets for Leasing 3.193 Leases other than those that expose Islamic banking institutions to residual value risk (refer below) will be accorded the same treatment as if the exposures were collateralised by the underlying leased asset. Islamic banking institutions must ensure that the minimum requirements for the collateral type must be met (CRE/RRE or other collateral). In addition, the following standards should be met: (i) Robust risk management on the part of the lessor with respect to the location of the asset, the use to which it is put, its age and planned obsolescence; (ii) A robust legal framework establishing the lessor’s legal ownership of the asset and its ability to exercise its rights as owner in a timely fashion; and (iii) The difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments must not be so large as to overstate the CRM attributed to the leased assets. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 146 / 517 Issued on: 3 May 2019 3.194 Leases that expose Islamic banking institutions to residual value risk142 will be treated in the following manner: (i) The discounted lease payment stream will receive a risk weight appropriate for the lessee’s financial strength (PD) and supervisory or own-estimate of LGD, whichever is appropriate; and (ii) The residual value will be risk-weighted at 100%. B.3.6 CALCULATION OF MINIMUM CAPITAL REQUIREMENT Regulatory Capital 3.195 [Deleted]. 3.196 However, Islamic banking institutions using the IRB approach (other than for equity under PD/LGD approach) are required to compare: (i) the total EL amount as calculated within the IRB approach, with (ii) the amount of total eligible provisions, defined in this section. 3.197 Where the total EL amount exceeds total eligible provisions, Islamic banking institutions must deduct the difference in the calculation of CET1 Capital. 3.198 Where the total EL amount is less than total eligible provisions, Islamic banking institutions may recognise the difference in Tier 2 Capital up to a maximum of 0.6% of credit RWA. 142 Residual value risk is the Islamic bank institution’s exposure to potential loss due to the fair value of equipment declining below its residual estimate at lease inception. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 147 / 517 Issued on: 3 May 2019 3.199 Islamic banking institutions using the PD/LGD approach for equity exposures must calculate the EL for equity exposures separately from the EL for other exposures. The EL amount for equity exposures under the PD/LGD approach shall be risk-weighted at 1250%. 3.200 For residual exposures that will remain under the standardised approach to credit risk, general provisions143 as explained in paragraphs 3.212 and 3.213 can be included in the calculation of Tier 2 Capital. Calculation of Expected Losses 3.201 This section outlines the method by which the difference between provisions and EL may be included in or must be deducted in the calculation of CET1 Capital. 3.202 In general, an Islamic banking institution must add up the EL amount (defined as EL multiplied by EAD) associated with its exposures (excluding the EL amount associated with equity exposures under the PD/LGD approach) to obtain a total EL amount. 3.203 Islamic banking institutions must calculate an EL as PD x LGD for corporate, sovereign, bank, and retail exposures, both not in default and not treated as hedged exposures under the double default treatment. 3.204 For corporate, sovereign, bank and retail exposures that are in default, Islamic banking institutions must use the best estimate of EL as defined in paragraph 3.310. Those under the foundation approach must use the supervisory LGD. 143 General provisions refer to– (i) loss allowance measured at an amount equal to 12-month and lifetime expected credit losses as defined under the Malaysian Financial Reporting Standards 9 (these provisions are commonly known as Stage 1 and Stage 2 provisions); and (ii) regulatory reserves, to the extent they are ascribed to non-credit-impaired exposures. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 148 / 517 Issued on: 3 May 2019 3.205 For equity exposures subject to the PD/LGD approach, the EL is calculated as PD x LGD, except where the minimum and maximum risk weights in paragraphs 3.175 to 3.177 apply. In these cases, the minimum and maximum risk weights are already regarded as UL, thereby rendering any EL-provision calculation unnecessary. 3.206 Islamic banking institutions will not be required to calculate EL for the portion of exposures which have been applied a risk weight cap (i.e. exposures guaranteed by CGC and priority sector RRE financing) and exposures subject to a 100% risk weight as per paragraph 3.22. 3.207 For all other exposures, including hedged exposures under the double default treatment, the EL is zero. 3.208 For SF exposures subject to the SSC, the EL amount is determined by multiplying 8% by the RWA produced from the appropriate risk weights, as specified below, multiplied by EAD. Supervisory Categories and EL Risk Weights for Other SF Exposures 3.209 The EL risk weights for SF, other than HVCRE, are as follows: Strong Good Satisfactory Weak Default 5% 10% 35% 100% 625% 3.210 Islamic banking institutions meeting the requirements under paragraph 3.152 are allowed to assign preferential EL risk weights falling into the “strong” and “good” supervisory categories as follows: Strong Good Satisfactory Weak Default 0% 5% 35% 100% 625% Supervisory Categories and EL Risk Weights for HVCRE BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 149 / 517 Issued on: 3 May 2019 3.211 The EL risk weights for HVCRE are as follows: Strong Good Satisfactory Weak Default 5% 5% 35% 100% 625% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 150 / 517 Issued on: 3 May 2019 Calculation of Provisions Exposures Subject to IRB Approach 3.212 Total eligible provisions are defined as the sum of all provisions144 that are attributed to exposures treated under the IRB approach. In addition, total eligible provisions may include any discounts on defaulted assets. Portion of Exposures Subject to the Standardised Approach to Credit Risk 3.213 Islamic banking institutions applying the standardised approach for the portion of credit risk exposures exempted from the IRB approach (including exposures which have been applied a risk weight cap), either on a permanent or temporary basis as per paragraph 3.4 to 3.6, must determine the portion of general provisions attributed to the standardised or IRB treatment of provisions (see paragraph 3.199), according to the methods outlined in paragraph 3.213. 3.214 Islamic banking institutions should generally attribute total general provisions on a pro rata basis according to the proportion of credit RWA subject to the standardised and IRB approaches. However, when one approach is used to determine credit RWA (i.e. standardised or IRB approach) exclusively within an entity, general provisions booked within the entity using the standardised approach may be attributed to the standardised treatment. Similarly, general provisions booked within entities using the IRB approach may be attributed to the total eligible provisions as defined in paragraph 3.211. Risk-Weighted Assets 3.215 The Bank reserves the right to require Islamic banking institutions to apply a scaling factor145 to the credit RWA with a view for Islamic banking institutions to 144 Provisions include all loss allowance as defined under the Malaysian Financial Reporting Standards 9 (and regulatory reserves, if any), partial write-offs and any discounts on defaulted assets. 145 At this juncture, the Bank proposes to adopt a scaling factor of 1.06 as adopted by the BCBS. This factor was designed to offset the expected decrease in the capital requirement resulting from the change in the capital formula from a EL plus UL orientation, to a UL-only orientation. The size of the scaling factor was derived based on the results of the third Quantitative Impact Study conducted by the BCBS. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 151 / 517 Issued on: 3 May 2019 maintain the aggregate level of minimum capital requirements, while also providing incentives for Islamic banking institutions to adopt the more advanced risk-sensitive approaches of the framework. Parallel Calculation 3.216 Islamic banking institutions migrating to the IRB approaches for credit risk will be subjected to a one-year parallel calculation prior to actual implementation, whereby Islamic banking institutions are required to calculate the credit RWA using the approach under the Framework concurrently with the approach the Islamic banking institution is currently using (i.e. either the current accord or the standardised approach). During the parallel run period, Islamic banking institutions are required to submit to the Bank the computation of their capital adequacy ratio based on the templates provided by the Bank on a quarterly basis. Please refer to the reporting manual for IRB approach for further details on the reporting requirements. Prudential Capital Floor 3.217 For Islamic banking institutions using the IRB approach, there will be a capital floor following implementation of the Framework. Islamic banking institutions must calculate the difference between: (i) The capital floor, which is based on application of the current accord, or standardised approach. The capital floor is derived by applying an adjustment factor to the following amount: (a) 8% of the RWA under the current requirement, plus (b) Tier 1 and Tier 2 Capital deductions, less (c) General provisions that are recognised in Tier 2 Capital; and (ii) The capital derived from: (a) 8% of total RWA calculated under the IRB framework, plus (or less) BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 152 / 517 Issued on: 3 May 2019 (b) Negative (or positive) regulatory adjustments, as specified in Part E of the Capital Adequacy Framework for Islamic Banking institutions (Capital Components). Where a Islamic banking institution uses the standardised approach for credit risk for any portion of its exposures, it also needs to exclude general provisions that may be recognised in Tier 2 Capital for that portion from the amount calculated under item (ii) above. If the floor amount is larger than the capital derived under the Framework, Islamic banking institutions are required to add 12.5 times the difference between the floor and the capital derived under the Framework to the RWA. 3.218 The following table sets out the application of the adjustment factors: 3.219 The Bank may continue to impose the prudential floors beyond the transitional period to provide time to ensure that individual Islamic banking institution’s implementation of the IRB approaches are sound. Such floors may be based on the approach the institution was using before adoption of the IRB approach, subject to full disclosure of the floors adopted (in terms of adjustment factors and the duration). One year before implementation From first year of implementation From second year of implementation From third year of implementation Foundation and advanced IRB approaches for credit risk Parallel calculation 95% 90% 80% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 153 / 517 Issued on: 3 May 2019 B.3.7 MINIMUM REQUIREMENTS FOR THE IRB APPROACH Overview of Minimum Requirements 3.220 To adopt the IRB approach, Islamic banking institutions must demonstrate to the Bank that it has in place a comprehensive framework146 for model implementation that meets all minimum requirements in this section at the outset and on an ongoing basis. These requirements focus on the ability to rank order and quantify risk in a consistent, reliable and valid manner. Credit risk management standards and practices must also meet the expectations set by the Bank in its risk management policy documents. 3.221 The rationale behind these requirements is that rating and risk estimation systems and processes in place should provide for a meaningful assessment of obligor and transaction characteristics; a meaningful differentiation of risks; and reasonably accurate and consistent quantitative estimates of risks. Furthermore, the systems and processes established must be consistent with internal use of these estimates. The Bank does not intend to prescribe the form or operational details of banking institutions’ risk management policies and practices, but will exercise its right to perform detailed review procedures to ensure that systems and controls are adequate to serve as the basis for the IRB approach. 3.222 The minimum requirements set out in this document shall apply to all asset classes unless noted otherwise. The standards related to the process of assigning exposures to obligor or facility grades (and the related oversight, validation, etc.) apply equally to the process of assigning retail exposures to pools of homogenous exposures, unless noted otherwise. 3.223 The minimum requirements set out in this document shall apply to both foundation and advanced approaches unless noted otherwise. Generally, all IRB institutions must produce internal estimates of PD and must adhere to the 146 The framework shall cover the entire policies, process and procedures required for the effective implementation of rating systems within the Islamic banking institution. Minimum requirements outlined in this section specify the Bank’s expectation on various parts of the framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 154 / 517 Issued on: 3 May 2019 overall requirements for rating system design, operations, governance and the requisite requirements for estimation and validation of PD measures. Islamic banking institutions wishing to use internal estimates of LGD and EAD must also meet the incremental minimum requirements for these risk factors included in paragraphs 3.306 to 3.310 and 3.316 to 3.322. 3.224 In circumstances where an Islamic banking institution is not in full compliance with all the minimum requirements, the institution shall explain the reason for the non-compliance and: (i) Produce a plan for the timely return to full compliance, and seek the Bank’s approval thereof; or (ii) Demonstrate to the Bank that the effect of such non-compliance is temporary and immaterial in terms of the risk posed to the Islamic banking institution. Failure to perform either of the above may affect the Islamic banking institution’s eligibility for the IRB approach. For the duration of any non- compliance, the Bank may require additional capital under Pillar 2 or take other appropriate supervisory action. Rating System Design 3.225 A rating system comprises all of the methods, processes, controls, and data collection and IT systems that support the assessment of credit risk, the assignment of internal risk ratings, and the quantification of default and loss estimates. 3.226 Within each asset class, an Islamic banking institution may utilise multiple rating methodologies/systems. For example, it may have customised rating systems for specific industries or market segments (e.g. middle market, and large corporate). However, Islamic banking institutions must not allocate obligors across rating systems inappropriately to minimise regulatory capital requirements (i.e. cherry-picking by choice of rating system). If multiple rating BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 155 / 517 Issued on: 3 May 2019 systems are used, the policies to assign an obligor to a particular rating system must be clear and applied in a consistent manner that best reflects the level of risk of the obligor. I. Rating System Dimension Standards for Corporate, Sovereign, and Bank Exposures 3.227 A qualifying IRB system must have two separate and distinct dimensions: (i) the risk of obligor default; and (ii) transaction-specific factors. 3.228 The first dimension must be oriented to the risk of obligor default. Separate exposures to the same obligor must be assigned to the same obligor grade, irrespective of any differences in the nature of each specific transaction. There are two exceptions to this: (i) Firstly, in the case of country transfer risk, where an Islamic banking institution may assign different obligor grades depending on whether the facility is denominated in a local or foreign currency. (ii) Secondly, when the treatment of associated guarantees to a facility may be reflected in an adjusted obligor grade. In either case, separate exposures may result in multiple grades for the same obligor. An Islamic banking institution must articulate in its credit policy the various obligor grades and the associated risks of obligors in a particular credit grade. Perceived and measured risk must increase as credit quality declines from one grade to the next. The policy must also articulate the risk of each grade in terms of both the description of the probability of default risk typical for obligors with an assigned grade and the criteria used to distinguish that level of credit risk. 3.229 The second dimension must reflect transaction-specific factors, such as collateral, seniority, product type, etc and is applicable for Islamic banking institutions adopting both the foundation and advanced IRB approaches. Under BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 156 / 517 Issued on: 3 May 2019 the foundation IRB approach, this requirement can be fulfilled by the existence of a facility dimension, which reflects both obligor and transaction-specific factors. For example, a rating dimension that reflects EL by incorporating both obligor strength (PD) and loss severity (LGD) considerations would qualify. Likewise a rating system that exclusively reflects LGD would also qualify. Where a rating dimension reflects EL and does not separately quantify LGD, the supervisory estimates of LGD must be used in the capital computation. 3.230 For Islamic banking institutions using the advanced approach, facility ratings must reflect exclusively LGD. These ratings can reflect any and all factors that can influence LGD including, but not limited to, the type of collateral, product, industry, and purpose. Obligor characteristics may be included as LGD rating criteria only to the extent that the characteristics are predictive of LGD. Islamic banking institutions may alter the factors that influence facility grades across segments of the portfolio as long as the factors satisfy the Bank that it further improves the relevance and precision of estimates. 3.231 Islamic banking institutions using the SSC for exposures under the SF sub- class are exempted from this two-dimensional requirement for such exposures. Given the interdependence between obligor/transaction characteristics in SF, Islamic banking institutions may satisfy the requirements under this heading through a single rating dimension that reflects EL by incorporating both obligor strength (PD) and loss severity (LGD) considerations. This exemption does not apply to Islamic banking institutions using either the corporate foundation or advanced approach for the SF subclass. Standards for Retail Exposures 3.232 Rating systems for retail exposures must be oriented to both obligor and transaction risk, and must capture all relevant obligor and transaction characteristics. Islamic banking institutions must assign each exposure that falls within the definition of retail into a particular pool. Islamic banking institutions must demonstrate that this process provides for a meaningful differentiation of BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 157 / 517 Issued on: 3 May 2019 risk, provides for a grouping of sufficiently homogenous exposures, and allows for accurate and consistent estimations of loss characteristics at the pool level. 3.233 For each pool, Islamic banking institutions must estimate PD, LGD, and EAD. Multiple pools may share identical PD, LGD and EAD estimates, even though these are influenced by different risk drivers. At a minimum, the following risk drivers should be considered when assigning exposures to a pool: (i) Obligor risk characteristics (e.g. obligor type, demographics such as age/occupation); (ii) Transaction risk characteristics, including product and/or collateral types (e.g. financing-to-value measures, seasoning, guarantees, and seniority such as first vs. second charge). Islamic banking institutions must explicitly address cross-collateral provisions where present147; and (iii) Delinquency of exposure: Islamic banking institutions are expected to separately identify exposures that are delinquent and those that are not. 3.234 Islamic banking institutions may also allocate or segment exposures to pools based on scores or PD, LGD and EAD, provided requirements under paragraph 3.231 are met. II. Rating Structure Standards for Corporate, Sovereign, and Bank Exposures 3.235 Islamic banking institutions must have a meaningful distribution of exposures across grades with no excessive concentrations, on both its obligor-rating and its facility-rating scales. 3.236 An obligor grade is defined as an assessment of obligor risk on the basis of a specified and distinct set of rating criteria, from which estimates of PD are 147 In cases where single or multiple collateral(s) is used to secure multiple exposures, Islamic banking institution must have a methodology of apportioning the collateral to the appropriate exposures according to seniority and other factors. This should be reflected in assigning exposures to the proper pools. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 158 / 517 Issued on: 3 May 2019 derived. The grade definition must include both a description of the degree of default risk typical for obligors assigned the grade and the criteria used to distinguish that level of credit risk. Furthermore, “+” or “-” modifiers to alphabetical or numerical grades will only qualify as distinct grades if the Islamic banking institution has developed complete rating descriptions and criteria for assignment, and separately quantifies PDs for these modified grades. 3.237 Islamic banking institutions must have a minimum of seven obligor grades for non-defaulted obligors and one for those that have defaulted. However, the Bank may require Islamic banking institutions to have a greater number of obligor grades if the following characteristics apply: (i) Financing activities are spread over obligors of diverse credit quality or concentrated in a particular segment; or (ii) Undue concentrations of obligors in specific grades which are not supported by sufficient empirical evidence that the grades cover reasonably narrow PD bands and that the default risk posed by all obligors in a grade fall within that band148. 3.238 There is no specific minimum number of facility grades for Islamic banking institutions using the advanced approach for estimating LGD. Islamic banking institutions must have a sufficient number of facility grades to avoid grouping facilities with widely varying LGDs into a single grade. The criteria used to define facility grades must be grounded in empirical evidence. 3.239 Islamic banking institutions using the SSC for the SF asset classes must have at least four internal grades for non-defaulted obligors, and one for defaulted obligors. The requirements for SF exposures that qualify for the corporate foundation and advanced approaches are the same as those for corporate exposures. 148 Undue concentration also includes cases where bunching is evident in the lower grades from the application of policy grades (e.g. in instances where exposures are moved to a certain obligor grade as a result of the Islamic banking institution’s internal policy trigger) or downgrades overtime. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 159 / 517 Issued on: 3 May 2019 Standards for Retail Exposures 3.240 For each pool identified, the Islamic banking institution must be able to provide quantitative measures of loss characteristics (PD, LGD, and EAD) for that pool. The level of differentiation must ensure that the number of exposures in a given pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the pool level. There must be a meaningful distribution of obligors and exposures across pools. Undue concentration of total retail exposure within a single pool must also be avoided. III. Rating Criteria 3.241 Islamic banking institutions must have specific rating definitions, processes and criteria for assigning exposures to grades within a rating system. Rating definitions and criteria must be both plausible and intuitive and must result in a meaningful differentiation of risks. (i) The grade descriptions and criteria must be sufficiently detailed to allow those responsible for assigning ratings to consistently assign the same grade to obligors or facilities with similar risk. This consistency should exist across lines of business, departments and geographic locations. If rating criteria and procedures differ for different types of obligors or facilities, Islamic banking institutions must monitor for possible inconsistency149, and shall alter rating criteria to improve consistency, when appropriate. (ii) Rating definitions should be written clearly and with sufficient detail to allow third parties (such as internal audit or other independent functions) to understand and replicate rating assignments and evaluate the appropriateness of the grade/pool assignments. (iii) The criteria must also be consistent with the Islamic banking institution’s internal financing standards and policies for handling troubled obligors and facilities. 149 This can be achieved through back-testing or by having a controlled, independent group to rate a sample of the obligors. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 160 / 517 Issued on: 3 May 2019 3.242 To ensure relevance, Islamic banking institutions are required to consistently take into account available information that is material and current when assigning ratings to obligors and facilities. As a general rule, the less information an Islamic banking institution has, the more conservative the rating assigned to a obligor and facility grades or pools (for retail exposures). While an external rating can be used as primary factor in determining an internal rating assignment, an Islamic banking institution must ensure that it takes into consideration other relevant information. 3.243 Rating criteria and procedures must be periodically reviewed to ensure relevance and resulting ratings are reflective of the current portfolio and reflect external conditions. SF Product Lines Within the Corporate Asset Class 3.244 Islamic banking institutions using the SSC for SF exposures must assign exposures to internal rating grades based on internal criteria, systems and processes and in compliance with minimum requirements outlined in the framework. The internal rating grades must then be mapped into five supervisory rating categories using the SSC provided in Appendix Va. The mapping must be conducted for each sub-class of SF exposures. 3.245 The Bank recognises that the criteria Islamic banking institutions use to assign exposures to internal grades will not perfectly align with the criteria that define supervisory categories. However, Islamic banking institutions must demonstrate that the mapping process has resulted in an alignment of grades which is consistent with the preponderance of the characteristics in the respective supervisory category. Special care must be taken to ensure that any overrides other than internal criteria do not render the mapping process ineffective. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 161 / 517 Issued on: 3 May 2019 3.246 In cases where the internal grade definition results in an asset being slotted into two possible supervisory categories, the exposures should be assigned to the riskier category. For example, if the internal rating system had one rating that described both the supervisory “strong” and “satisfactory” categories, the exposures should be slotted into the “satisfactory” category. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 162 / 517 Issued on: 3 May 2019 IV. Rating Philosophy and Assignment Horizon 3.247 Islamic banking institutions whose ratings are used primarily for underwriting purposes are likely to adopt a “through-the-cycle” (TTC) rating philosophy. TTC systems usually assign ratings based on the likelihood of an obligor’s survival in a specific macroeconomic stress scenario. Hence, TTC ratings will tend to remain relatively constant as current macroeconomic conditions change over time. On the other hand, Islamic banking institutions whose ratings are used for pricing purposes or to track the current portfolio risk are more likely to adopt a “point-in-time” (PIT) rating philosophy. PIT ratings will tend to adjust quickly to changes in the economic environment. In practice, Islamic banking institutions usually adopt a ‘hybrid’ rating approach that embodies characteristics of both the PIT and TTC rating philosophies. For capital computation purposes, Islamic banking institutions are free to adopt the rating philosophy suitable to its own business processes and strategy. 3.248 In any case, Islamic banking institutions must document and articulate to the Bank the philosophy of the rating assignment for each of their rating systems. In addition, Islamic banking institutions must document how the movements in the economic cycle affect the migration of obligors across rating grades, and conduct adequate stress tests on Islamic banking institutions’ portfolio as specified under paragraphs 3.335 to 3.340. Islamic banking institutions must understand the effects of ratings migration on capital requirement and ensure that sufficient capital is maintained during all phases of the economic cycle. 3.249 Although the time horizon used in PD estimation is one year (as described in paragraph 3.281), Islamic banking institutions must use a longer time horizon in assigning ratings. An obligor credit rating must represent the Islamic banking institution’s assessment of the obligor’s ability and willingness to contractually perform despite adverse economic conditions or the occurrence of unexpected events. For example, Islamic banking institutions may base rating assignments on specific, appropriate stress scenarios. Alternatively, Islamic banking institutions may take into account obligor characteristics that are reflective of the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 163 / 517 Issued on: 3 May 2019 obligor’s vulnerability to adverse economic conditions or unexpected events, without explicitly specifying a stress scenario. The range of economic conditions that are considered when making assessments must be consistent with current conditions that are most likely to occur over a business cycle within the respective industry/geographic region. 3.250 Given the difficulties in forecasting future events and the influence the events may have on obligor’s financial condition, Islamic banking institutions must take a conservative view of projected information. Furthermore, where limited data are available, Islamic banking institutions must adopt a conservative bias in its analysis. V. Use of Models in Rating Assignment 3.251 Credit scoring models and other mechanical procedures are permissible as the primary or partial basis of rating assignments. However, these models and procedures are generally developed based on a subset of available information. Although mechanical rating procedures may sometimes avoid some of the idiosyncratic errors made by rating systems in which human judgement plays a large role, the mechanical use of limited information can also be a source of rating errors. Appropriate and experienced judgment and oversight is necessary to ensure that all relevant and material information, including those outside the scope of the model, is taken into consideration. 3.252 The burden is on the Islamic banking institution to satisfy the Bank that a model or procedure has good predictive power and that regulatory capital requirements will not be distorted as a result of its use. The variables representing inputs to the model must form a reasonable set of predictors. The model must be accurate on average across the range of obligors or facilities to which the Islamic banking institution is exposed and there must be no known material biases. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 164 / 517 Issued on: 3 May 2019 3.253 Islamic banking institutions must have in place a process for vetting data inputs into a statistical default or loss prediction model which includes an assessment of the accuracy, completeness and appropriateness of the data specific to the assignment of an approved rating. In addition, Islamic banking institutions must demonstrate that the data used to build the model are representative of the population of the Islamic banking institution’s actual obligors or facilities. 3.254 When combining model results with experienced judgment, the Islamic banking institution must take into account all relevant and material information not considered by the model. There must be written guidance describing how judgment and model results are to be combined. 3.255 Islamic banking institutions must establish procedures for the review of model- based rating assignments. Such procedures should focus on identifying and limiting errors associated with known model weaknesses and must also include credible ongoing efforts to improve the model’s performance. 3.256 Islamic banking institutions must have a regular cycle of model validation that includes monitoring of model performance and stability, review of model relationships and testing of model outputs against outcomes. VI. Documentation of Rating System Design Standards for All Asset Classes 3.257 Islamic banking institutions must document in writing its rating systems’ design and operational details, including, at a minimum, the following: (i) a detailed outline of the theory, assumptions and/or mathematical and empirical basis for the assignment of estimates to grades, individual obligors, exposures, pools, parameters, variables and source of data used in estimation; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 165 / 517 Issued on: 3 May 2019 (ii) an explanation on the treatment of historical data used, including any limitations, during development to ensure depth, scope, reliability, accuracy and completeness; (iii) an articulation of any circumstances under which the rating system does not work effectively; (iv) evidence of compliance with the minimum standards, including appropriate elaborations on portfolio differentiation, rating criteria, responsibilities of parties that rate obligors and facilities, policies on rating exceptions, parties that have authority to approve exceptions, frequency of rating reviews, and management oversight of the rating process; (v) rationale for choice of specific definitions of default and loss used internally and the assessment of consistency with the reference definitions set out in paragraphs 3.287 to 3.298; (vi) rationale for choice of internal rating criteria and the analyses demonstrating that rating criteria and procedures are likely to result in ratings that meaningfully differentiate risk; (vii) history of major changes in the risk rating process that identifies changes made to the risk rating process subsequent to the last review by the Bank; and (viii) the organisation of rating assignments, including the internal control structure. Additional Standards for Internal Models Approach for Equity 3.258 The documentation should address the following points: (i) The rationale for the choice of internal modelling methodology and the analysis that the model and modelling procedures adopted are likely to result in meaningful estimates of the risk of equity holdings; (ii) Where proxies and mapping are used, these are supported by rigorous analysis performed by the Islamic banking institution that demonstrates that all chosen proxies and mappings are sufficiently representative of the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 166 / 517 Issued on: 3 May 2019 risks of the equity holding to which they correspond. The documentation should show, for instance, relevant and material factors (e.g. business lines, balance sheet characteristics, geographic location, company age, industry sector and sub-sector, operating characteristics) used in mapping individual investments to proxies. In summary, Islamic banking institutions should be able to prove that the proxies and mappings employed are: (a) adequately comparable to the underlying holding or portfolio; (b) derived based on relevant and material historical economic and market conditions that are consistent to the underlying holdings or, where inconsistent, the necessary adjustments have been made; and (c) robust estimates of the potential risk of the underlying holding. VII. Use of External (Vendor) Models 3.259 As a general rule, there should not be a separate set of rules for the use of models obtained from a third-party vendor (hereinafter referred to as external models) nor should the external models be exempted from any of the requirements under the Framework. The use of an external model obtained from a third-party vendor that claims proprietary technology is not sufficient justification for exemption from documentation or any other requirements for adoption of internal rating systems. The burden is on the model’s vendor and the Islamic banking institution to satisfy the Bank that the model and its use comply with the requirements set out under the Framework. For example, the Islamic banking institution needs to ensure that models and calibrations are tested at least annually, and that necessary changes to the model are made promptly if necessary. Over reliance on external models might be a threat to the Islamic banking institution’s ability to fulfil these requirements. 3.260 Islamic banking institutions must also document and be able to explain to the Bank the role of external models and the extent to which they are used within the institution’s processes and how risk estimates are derived and validated. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 167 / 517 Issued on: 3 May 2019 Islamic banking institutions must be able to explain the underlying rationale for choosing external models over internally developed models and data. The Bank also expects Islamic banking institutions to explain alternative solutions that were considered and how the results compare with the output of the external models. 3.261 Islamic banking institutions must retain in-house expertise on the external models for as long as the models are used for IRB purposes in order to be able to demonstrate a thorough understanding of external models. This includes: (i) Methodological underpinnings and the basic construction of the external models, including an understanding of the models’ capabilities, limitations and appropriateness for use in developing IRB risk estimates for the Islamic banking institution’s own portfolio of exposures; (ii) Effect and significance of the proprietary elements in the external models; and (iii) Rationale behind any adjustment made to the external model’s input data sets as well as output. 3.262 Islamic banking institutions must be able to demonstrate the appropriateness of the external models used under the IRB approach. There must be clear linkages and a reasonable degree of consistency and comparability between the external model inputs, data sets and estimates and Islamic banking institutions’ own portfolio characteristics and risk rating methodologies. Islamic banking institutions must also ensure that external models are consistent with the requirements for IRB, particularly in relation to data history, definitions of default and validation. Rating System Operation I. Rating Coverage 3.263 Islamic banking institutions must ensure that each exposure is assigned to the right rating system, particularly where multiple rating systems are being used. In addition, Islamic banking institutions must demonstrate to the Bank that the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 168 / 517 Issued on: 3 May 2019 methodology for assigning exposures to different classes within the corporate asset class is appropriate and consistent over time. In this regard, comprehensive policies and procedures to facilitate differentiation between each asset sub-class within the corporate asset class must be put in place. 3.264 For exposures in the corporate, sovereign and bank asset classes, each obligor and eligible guarantor must be assigned an obligor rating and each exposure must be associated with a facility rating as part of the financing approval process. Similarly, for the retail IRB asset class, each exposure must be assigned to a pool as part of the financing approval process. 3.265 For obligors belonging to a group, group support may be allowed in assigning ratings subject to: (i) Islamic banking institutions having in place policies regarding the treatment of individual entities in a connected group, including the circumstances under which the same rating may or may not be assigned to some or all connected entities; and (ii) Established governance and control procedures surrounding the adjustments made to the ratings as a result of group support. 3.266 Where group support is taken into account in the assignment of ratings, Islamic banking institutions should at a minimum consider the following factors150: (i) The obligor must be an integral part of the group; and (ii) The support provider is able to demonstrate the willingness and capacity to support the obligor. For example, a parent company may have a past history of providing material support to the obligor in the form of financing facilities or cash placements. 150 Group support that has been provided via verbal communication or letters of comfort will not be recognised by the Bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 169 / 517 Issued on: 3 May 2019 II. Integrity of the Rating Process Standards for Corporate, Sovereign, and Bank Exposures 3.267 Rating assignments and periodic rating reviews must be completed or approved by a party that does not directly stand to benefit from the extension of credit. Independence of the rating assignment process can be achieved through a range of practices. These operational practices must be documented in Islamic banking institutions’ policies and procedure manuals. Credit policies and underwriting procedures must contain and reinforce the independence of the rating process. 3.268 Obligor ratings and facility ratings must be reviewed at least on an annual basis and not later than six months after the publication of the obligor’s financial statement. Certain exposures, especially higher risk obligors or problem exposures must be subject to more frequent rating reviews. More frequent reviews of high risk obligors or problem exposures may be satisfied not only through a more frequent, full re-rating, but also through analysis of interim financial statements, analysis of account behaviour and other measures. In addition, a new rating review must be initiated when material information on the obligor or facility comes to light. 3.269 Islamic banking institutions must have an established process to obtain and update relevant and material information on the obligor’s financial condition and other characteristics that affect assigned estimates of PD, LGD, and EAD. Upon receipt of such information, Islamic banking institutions must have a mechanism to update the obligor’s ratings in a timely manner. In addition, Islamic banking institutions must also establish policies to address stale or outdated ratings. 3.270 The requirement to conduct an annual rating review may be exempted in the following circumstances: (i) Where the exposures are fully collateralised by cash or fixed deposits; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 170 / 517 Issued on: 3 May 2019 (ii) Where the exposures are part of a portfolio which the Islamic banking institution is downsizing due to the withdrawal from a business line or a discontinued business relationship151, subject to these exposures being immaterial. 151 Exposures arising from a discontinued business relationship shall be considered on a collective basis to determine materiality. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 171 / 517 Issued on: 3 May 2019 Standards for Retail Exposures 3.271 Islamic banking institutions must review the loss characteristics and delinquency status of each identified pool at least on an annual basis. There should also be an ongoing review of the status of individual obligors within each pool as a means of ensuring that exposures continue to be assigned to the correct pool. This requirement may be satisfied by review of a representative sample of exposures in the pool. III. Overrides 3.272 For rating systems based on expert judgment, the circumstances in which officers may override the outputs of the rating process, including how and to what extent such overrides can be made and by whom, should be clearly documented. For model-based ratings, Islamic banking institutions must have guidelines and processes in place for monitoring cases where model ratings have been overridden, including the review of variables that were excluded or inputs that were altered. These guidelines must include identifying personnel that are responsible for approving these overrides. The nature of the overrides must be identified and tracked for performance. It should be demonstrated in back-testing that overrides improve the overall predictive power of the rating system. Islamic banking institutions should clearly specify a threshold expressed in terms of a percentage of ratings overridden, above which an automatic review of the rating model and process would be triggered. IV. Integrity of Data Input 3.273 In the process of assigning ratings, Islamic banking institutions must have in place a process for vetting data inputs which includes an assessment of the accuracy, completeness and appropriateness of the data. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 172 / 517 Issued on: 3 May 2019 V. Data Maintenance 3.274 Islamic banking institutions must collect and store data on key obligor and facility characteristics to provide effective support to its internal credit risk measurement and management processes, to enable Islamic banking institutions to meet the requirements set out under the Framework, and to serve as a basis for regulatory reporting. These data should be sufficiently detailed to allow retrospective reallocation of obligors and facilities to grades, for example if the increasing sophistication of the internal rating system suggests that finer segregation of portfolios can be achieved. The data collected on various aspects of the internal ratings should also facilititate Pillar 3 reporting requirements. 3.275 For Islamic banking assets, the data captured should allow Islamic banking institutions to assess the performance of the model on the Islamic portfolio. For example, data on the type of underlying Shariah contract is necessary to enable an assessment of the loss characteristics of exposures under a particular Shariah contract and establish if the exposures exhibit risk profiles that are comparable to the portfolio as a whole. Standards for Corporate, Sovereign, and Bank Exposures 3.276 Islamic banking institutions must maintain at least the following information: (i) Rating histories on obligors and eligible guarantors, including the rating since the obligor or guarantor was assigned an internal rating; (ii) Dates the ratings were assigned; (iii) Methodology and key data used to derive the rating; (iv) Officer responsible for the most recent rating; (v) Identity of obligors and facilities that default and the timing and circumstances of such defaults; (vi) Data used to derive PD estimates; (vii) Ratings migration; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 173 / 517 Issued on: 3 May 2019 (viii) Realised default rates associated with obligor grades in order to track the predictive power of the obligor rating system. 3.277 Islamic banking institutions using the advanced IRB approach must also maintain the following information: (i) Complete history of data on the LGD and EAD estimates associated with each facility; (ii) Methodology and key data used to derive the estimate; (iii) Officer responsible for the most recent rating; (iv) Data used to derive LGD and EAD estimates; and (v) The realised rates associated with each defaulted facility. 3.278 Islamic banking institutions that reflect the credit risk mitigating effects of guarantees or credit derivatives through its LGD estimates must retain the following information: (i) Data on the LGD of the facility before and after evaluation of the effects of the guarantee; (ii) Information about the components of loss and recovery for each defaulted exposure including: (a) amounts and source of recoveries (e.g. collateral, liquidation proceeds and guarantees); and (b) timing of cash flows and administrative costs including date and circumstances of default and exposures in arrears. 3.279 Islamic banking institutions using supervisory estimates (including SSC under the foundation IRB approach) must also collect and retain the relevant data as specified in paragraphs 3.276 and 3.277 to enable the institution to make a comparison between the actual loss experience and the supervisory estimates prescribed by the Bank. Examples of relevant data include data on loss and recovery experience for corporate exposures under the foundation approach and data on realised losses for banking institutions using the SSC for SF. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 174 / 517 Issued on: 3 May 2019 Standards for Retail Exposures 3.280 Islamic banking institutions must retain the following information: (i) Data used in the process of allocating retail exposures to pools. This includes the following: (a) Data on obligor and transaction risk characteristics used either directly or through the use of a model; and (b) Data on delinquency; (ii) Data on PD, LGD and EAD estimates associated with pools of retail exposures; (iii) For defaulted exposures: (a) Data on the pools to which the retail exposure was assigned over the year prior to default; (b) Identity of obligors and facilities that default; (c) Information about the components of loss and recovery for each defaulted exposure, including information relating to amounts and source of recoveries (e.g. collateral, liquidation process and guarantees), timing of cash flows and administrative costs; and (d) Data on realised EAD. Risk Estimation I. Overall Requirements for Estimation 3.281 This section addresses the broad standards for internal estimates of PD, LGD, and EAD. Generally, all Islamic banking institutions using the IRB approaches must estimate a PD for each internal obligor grade for corporate, sovereign and bank exposures or for each pool in the case of retail exposures. 3.282 PD estimates must be a long-run average of one-year default rates for obligors in a particular grade, or retail pool. Requirements specific to PD estimation are provided in paragraphs 3.299 to 3.305. Islamic banking institutions adopting the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 175 / 517 Issued on: 3 May 2019 advanced approach must estimate an appropriate downturn LGD (as defined in paragraphs 3.306 to 3.315) for each of its facilities or retail pools. Islamic banking institutions on this approach must also estimate an appropriate long- run default-weighted average EAD for each of its facilities. Requirements specific to EAD estimation are outlined in paragraphs 3.316 to 3.321. 3.283 For corporate, sovereign and bank exposures, Islamic banking institutions that do not meet the requirements for own estimates of EAD or LGD above must use the estimates of these parameters determined by the Bank. Standards for use of such estimates are set out in Part B.3.4. 3.284 Internal estimates of PD, LGD, and EAD must incorporate all relevant, material and available data, information and methods. Islamic banking institutions may utilise internal data and data from external sources (including pooled data). Where internal or external data is used, Islamic banking institutions must demonstrate that the estimates are representative of its long run experience. 3.285 Estimates must be based on empirical evidence, including own historical experience, and not based purely on subjective or judgmental considerations. Any changes in financing practice or the process for pursuing recoveries over the observation period must be taken into account. Estimates must promptly reflect the implications of technical advances and new data and other information, as it becomes available. Islamic banking institutions must review these estimates on a yearly basis or more frequently. 3.286 The population of exposures represented in the data used for estimation, and financing standards in use when the data were generated, and other relevant characteristics should be closely matched to or at least comparable with those of the Islamic banking institution’s exposures and standards. Islamic banking institutions must also demonstrate that economic or market conditions that underlie the data are relevant to current and foreseeable conditions. The BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 176 / 517 Issued on: 3 May 2019 number of exposures in the sample and the data period used for quantification must be sufficient to provide the Islamic banking institution with confidence in the accuracy and robustness of its estimates. The estimation technique must also perform well in out-of-sample tests. 3.287 In general, estimates of PDs, LGDs, and EADs are likely to involve unpredictable errors. In order to avoid over-optimism, Islamic banking institutions must add to its estimates a margin of conservatism related to the likely range of errors. Where methods and data reliability are less satisfactory and the likely range of errors is wide, the margin of conservatism must be larger. The Bank may allow some flexibility in application of the required standards for data that are collected prior to the date of implementation of the Framework. However, in such cases, Islamic banking institutions must demonstrate to the Bank that appropriate adjustments have been made to achieve broad equivalence to the required standards. Data collected after the date of implementation must conform to the minimum standards. II. Definition of Default 3.288 A default is considered to have occurred when: (i) The Islamic banking institution considers that an obligor is “unlikely to repay” in full its credit obligations to the banking group, without recourse by the Islamic banking institution to actions such as realising security; or (ii) The obligor has breached its contractual repayment schedule and is past due for more than 90 days on any material credit obligation to the banking group, or as provided below: (a) Under national discretion, the Bank has elected to apply the following: i. for financing governed under the Hire-Purchase Act 1967, a default occurs when the obligor is past due for more than 120 days; and ii. for RRE financing, a default occurs when the obligor is past due for more than 180 days. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 177 / 517 Issued on: 3 May 2019 (b) For securities, a default occurs immediately upon breach of contractual repayment schedule. (c) For overdrafts, a default occurs when the obligor has breached the approved limits (consecutively) for more than 90 days. (d) For obligations with repayments schedule of three months or longer, a default occurs immediately upon breach of contractual repayment schedule. Where Islamic banking institutions have internally adopted a more stringent definition than that prescribed above, the more stringent definition must be applied for purposes of risk estimation under the IRB approach. 3.289 Indicative elements of unlikeliness to pay include but are not limited to the following: (i) Islamic banking institution is uncertain about the collectability of a credit obligation which has already been recognised as revenue and then treats the uncollectible amount as an expense. (ii) Islamic banking institution makes a charge off or an account-specific provision or impairment resulting from a significant decline in credit quality subsequent to taking on the exposure (impairment provisions on equity exposures set aside for price risk do not signal default). (iii) Islamic banking institution sells the credit obligation at a material credit related economic loss. (For securities financing, the facility should not be recorded as a default if the collateral is liquidated not due to the deterioration of an obligor’s creditworthiness but to restore an agreed collateral coverage ratio given a fall in the value of collateral and this has been disclosed to the customer in writing at the granting of this facility). (iv) Islamic banking institution consents to a restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement of principal, profit BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 178 / 517 Issued on: 3 May 2019 or (where relevant) fees152. This constitutes a granting of a concession that the Islamic banking institution would not otherwise consider. (v) Default of a related obligor. Islamic banking institutions must review all related obligors in the same group to determine if that default is an indication of unlikeliness to pay by any other related obligor. Islamic banking institutions must judge the degree of economic interdependence between the obligor and its related entities. (vi) Acceleration of an obligation. (vii) An obligor is in significant financial difficulty. An indication could be a significant downgrade of an obligor’s credit rating. (viii) Default by the obligor on credit obligations to other financial creditors, e.g. other Islamic banking institutions or bondholders. (ix) Islamic banking institution has filed for the obligor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the banking group. (x) The obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the banking group. 3.290 The default definition under paragraphs 3.287 and 3.288 also applies to Mushārakah and Mudārabah contracts for capital computation purposes153. However, it should be clarified that pure negligence or misconduct on the part of the partner acting as an agent or Mudārib in discharging their roles and responsibilities in a Mushārakah and Mudārabah contract with Islamic banking institutions (i.e. capital provider or rabbumal), on its own, will not automatically constitute a default for capital computation purposes. 152 Including in the case of equity holdings assessed under a PD/LGD approach, such distressed restructuring of the equity itself. 153 Islamic banking institutions are required to monitor and maintain data on the default rate and default events under Mushārakah and Mudārabah contracts including the occurrence of negligence and misconduct by the Mudārib for the Bank’s supervisory assessment purposes moving forward. In addition, Islamic banking institutions are encouraged to establish and adopt stringent criteria for the definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 179 / 517 Issued on: 3 May 2019 Default at Facility Level 3.291 For retail exposures, Islamic banking institutions are allowed to apply the definition of default at facility level, rather than at obligor level. For example, an obligor might default on a credit card obligation and not on other retail obligations. However, Islamic banking institutions should be vigilant and consider an obligor’s cross-default of facilities if a default on one facility is representative of his incapacity to fulfil other obligations. 3.292 Islamic banking institutions must record actual defaults on IRB exposure classes using this reference definition. Islamic banking institutions must also use the reference definition for its estimation of PDs, and (where relevant) LGDs and EADs. In arriving at these estimations, Islamic banking institutions may use available external data which may not be fully consistent with the definition of default subject to the requirements set out in paragraph 3.300. However, in such cases, Islamic banking institutions must demonstrate to the Bank that appropriate adjustments to the data have been made to achieve broad equivalence with the reference definition. This same condition would apply to any internal data used prior to the implementation of the Framework. Internal data (including that pooled by Islamic banking institutions) used in such estimates after the date of implementation of the Framework must be consistent with the reference definition. 3.293 If an Islamic banking institution considers that a previously defaulted exposure is no longer in default, the PD and LGD for that exposure must be rated as if it is a non-defaulted facility. Should the reference definition subsequently be triggered, a second default would be deemed to have occurred. Administrative Default 3.294 Administrative defaults include cases where exposures become overdue because of oversight on the part of the obligor and/or the Islamic banking institution. Instances of administrative defaults may be excluded from the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 180 / 517 Issued on: 3 May 2019 historical default count, subject to appropriate policies and procedures established by the Islamic banking institution to evaluate and approve such cases. Re-ageing 3.295 Re-ageing is a process by which Islamic banking institutions adjust the delinquency status of exposures based on subsequent repayment of arrears or restructuring. This is done when all or some of the arrears under the original repayment schedule have been paid off or repackaged into a new repayment structure. 3.296 Islamic banking institutions must have clearly articulated and documented policies in respect of the counting of days past due, in particular respect of the re-ageing of the facilities and the granting of extension, deferrals, renewals and rewrites to existing accounts. At a minimum, the re-ageing policy must include: (i) appropriate approving authority and reporting requirements; (ii) minimum age of a facility before it is eligible for re-ageing; (iii) delinquency levels of facilities that are eligible for re-ageing; (iv) maximum number of re-ageing per facility; and (v) reassessment of the obligor’s capacity to repay. 3.297 Re-ageing is allowed for both defaulted and delinquent exposures. However, the exposure shall not be immediately ‘re-aged’ if the restructuring causes a diminished financial obligation or material economic loss, or it is assessed that the obligor does not have the capacity to repay under the new repayment structure. For defaulted exposures, re-ageing is permitted after the obligation has been serviced promptly for six months consecutively. For exposures with repayments scheduled at three months or longer, re-aging is only permitted after the obligation has been serviced promptly for two consecutive payments. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 181 / 517 Issued on: 3 May 2019 More than One Default Count in a Year 3.298 For quantification purposes, only the first of two or more defaults occurring within twelve months will be counted as default. Hence, for PD measurement, only one default event should be recorded. Accordingly, for advanced IRB, the EAD measure should be defined with reference to the first default event, and the LGD measure should express the economic loss in reference to the first default event, but including losses incurred at any time after this default event until the exposure is reduced to zero or cured. Treatment of Overdrafts 3.299 Overdrafts must be subject to a credit limit and brought to the knowledge of the obligor. Breaches of the limit must be monitored. If the account was not brought under the limit after 90 to 180 days (subject to the applicable past-due trigger), it would be considered as defaulted. Non-authorised overdrafts will be associated with a zero limit for IRB purposes. Thus, days past due commence once any credit is granted to an unauthorised customer; if such credit was not repaid within 90 to 180 days, the exposure would be considered in default. Rigorous internal policies must be in place to assess the creditworthiness of customers who are offered overdraft accounts. III. Requirements Specific to PD Estimation Standards for Corporate, Sovereign, and Bank Exposures 3.300 Islamic banking institutions must use information and techniques that take appropriate account of its long-run experience when estimating the average PD for each rating grade. Islamic banking institutions may use one or more of the three specific techniques set out below: internal default experience, mapping to external data, and statistical default models. 3.301 Islamic banking institutions may have a primary technique and use others as a point of comparison and to support potential adjustments. The mechanical application of a technique without supporting analysis would not be deemed as BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 182 / 517 Issued on: 3 May 2019 sufficient by the Bank. Islamic banking institutions must recognise the importance of experienced judgements in combining results of techniques and making adjustments for limitations of techniques and information. Internal Default Experience i) Islamic banking institutions may use data on internal default experience for the estimation of PD. Islamic banking institutions must demonstrate in its analysis that the estimates are reflective of underwriting standards and highlight the differences between the rating system that generated the data and the current rating system, if any. Where only limited data are available, or where underwriting standards or rating systems have changed, the Islamic banking institution must add a greater margin of conservatism in its estimate of PD. The use of pooled data across institutions may also be recognised. In such cases, Islamic banking institutions must demonstrate that the internal rating systems and criteria of other Islamic banking institutions in the pool are comparable with its own. Mapping to External Data ii) Islamic banking institutions may associate or map internal grades to the scale used by an external credit assessment institution or similar institution and then attribute the default rate observed for the external institution’s grades to the Islamic banking institution’s grades. Mappings must be based on a comparison of internal rating criteria to the criteria used by the external institution and on a comparison of the internal and external ratings of any common obligors. Biases or inconsistencies in the mapping approach or underlying data must be avoided. The external institution’s criteria underlying the data used for quantification must be oriented to the risk of the obligor and not reflect transaction characteristics. Islamic banking institutions’ analysis must include a comparison of the default definitions used, subject to the requirements in paragraphs 3.287 to 3.293. The basis for the mapping must be documented. Statistical Default Models BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 183 / 517 Issued on: 3 May 2019 iii) Islamic banking institutions are allowed to use a simple average of default-probability estimates for individual obligors in a given grade, where such estimates are drawn from statistical default prediction models. Islamic banking institutions’ use of default probability models for this purpose must meet the standards specified in paragraphs 3.250 to 3.255. 3.302 Irrespective of whether an Islamic banking institution is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used must be at least five years from at least one source (except during the transition period). If the available observation period spans a longer period for any source, and this data is relevant and material, the longer period must be used. Standards for Retail Exposures 3.303 Given the bank-specific basis of assigning exposures to pools, Islamic banking institutions must regard internal data as the primary source of information for estimating loss characteristics. Islamic banking institutions are permitted to use external data or statistical models for quantification provided a strong link can be demonstrated between (a) the Islamic banking institution’s process of assigning exposures to a pool and the process used by the external data source, and (b) between its internal risk profile and the composition of the external data. In all cases, Islamic banking institutions must use all relevant and material data sources as points of comparison. 3.304 One method for deriving long-run average estimates of PD and default- weighted average loss rates given default (as defined in paragraphs 3.306) for retail would be based on an estimate of the expected long-run loss rate. The following may be used: i) an appropriate PD estimate to infer the long-run default-weighted average loss rate given default; or BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 184 / 517 Issued on: 3 May 2019 ii) a long-run default-weighted average loss rate given default to infer the appropriate PD. In either case, it is important to recognise that the LGD used for the IRB capital calculation cannot be less than the long-run default-weighted average loss rate given default and must be consistent with the concepts defined in paragraphs 3.306 to 3.313 and 3.315. 3.305 Irrespective of whether Islamic banking institutions are using external, internal, pooled data sources, or a combination of the three, for estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years (except during the transition period). If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. Islamic banking institutions need not give equal importance to historical data if it can convince the Bank that more recent data are a better predictor of loss rates. 3.306 Seasoning154 can be quite material for some long-term retail exposures characterised by its effects that peak several years after origination. Islamic banking institutions should anticipate the implications of rapid exposure growth and take steps to ensure that estimation techniques are accurate, and that current capital level and earnings and funding prospects are adequate to cover future capital needs. To minimise volatility in capital positions arising from short- term PD horizons, all Islamic banking institutions are required to adjust PD estimates upward in a consistent manner to capture the potential seasoning effects. Subject to the Bank’s approval, Islamic banking institutions may disregard such seasoning adjustments if it can be proven that such adjustments are immaterial and do not result in an underestimation of risk for the particular portfolio. IV. Requirements Specific to Own-LGD Estimates Under the Advanced Approach Standards for All Asset Classes 154 Seasoning is defined as the potential change of risk parameters over the life of a credit exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 185 / 517 Issued on: 3 May 2019 3.307 Islamic banking institutions must estimate an LGD for each facility that aims to reflect economic downturn conditions where necessary to prevent the possibility of underestimation of capital required during times of higher defaults and losses. This downturn LGD must not be less than the long-run ‘default-weighted average loss rate given default’ calculated based on the average economic loss of all observed default within the data source for that type of facility. In addition, Islamic banking institutions must take into account the potential for the LGD of the facility to be higher than the default-weighted average during a period when credit losses are substantially higher than average. For certain types of exposures, loss severities may not exhibit such cyclical variability and LGD estimates may not differ materially (or possibly at all) from the long-run default- weighted average. However, for other exposures, this cyclical variability in loss severities may be important and Islamic banking institutions will need to incorporate it into their LGD estimates. For this purpose, Islamic banking institutions may use averages of loss severities observed during periods of high credit losses, forecasts based on appropriately conservative assumptions, or other similar methods. Appropriate estimates of LGD during periods of high credit losses might be formed using either internal and/or external data. 3.308 As a general rule, consecutive or prolonged periods of negative GDP growth and high unemployment rates may be indicative of an economic downturn for Islamic banking institutions with a well-diversified wholesale portfolio. Islamic banking institutions should also be aware of periods in which observed historical default rates have been elevated for a portfolio of exposures that is representative of the current portfolio. For exposures where common risk drivers (e.g. collateral values) influence the default rates and the recovery rates, Islamic banking institutions should refer to periods where those drivers are expected to be distressed when estimating downturn LGD155. 3.309 In its analysis, Islamic banking institutions must also consider the extent of any dependence between the risk of the obligor and that of the collateral or 155 The Bank will continue to monitor and review the development of appropriate approaches to estimate downturn LGD by Islamic banking institutions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 186 / 517 Issued on: 3 May 2019 collateral provider. In cases where there is a significant degree of dependence, the issue must be addressed in a conservative manner. Any currency mismatch between the underlying obligation and the collateral must also be considered and treated conservatively in the Islamic banking institution’s assessment of LGD. 3.310 LGD estimates must be based on historical recovery rates and, when applicable, must not solely be predicated on the collateral’s estimated market value. This requirement is premised on the potential inability of Islamic banking institutions to gain both control of the collateral and to liquidate it expeditiously. To the extent that LGD estimates take into account the existence of collateral, Islamic banking institutions must establish internal requirements for collateral management, operational procedures, assurance of legal certainty and effective risk management as described in Part B.3.4. 3.311 Recognising the principle that realised losses can at times systematically exceed expected levels, the LGD assigned to a defaulted asset should reflect the possibility that Islamic banking institutions would have to recognise additional, unexpected losses during the recovery period. For each defaulted asset, Islamic banking institutions must also construct its best estimate of the EL on that asset based on current economic circumstances and the facility status. The amount, if any, by which the LGD on a defaulted asset exceeds the best estimate of EL on the asset represents the capital requirement for that asset, and should be set by the Islamic banking institution on a risk-sensitive basis in accordance with paragraphs 3.144 to 3.147 and 3.157 to 3.161. In general, the best estimate of EL on a defaulted asset should not be less than the sum of loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9 (commonly known as Stage 3 provisions) and partial charge-offs on that asset. Any deviation from this will attract the Bank’s scrutiny and must be justified by the Islamic banking institution. V. Definition of Loss for All Asset Classes BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 187 / 517 Issued on: 3 May 2019 3.312 The definition of loss used in estimating LGD is economic loss. When measuring economic loss, all relevant factors should be taken into account. This must include material discount effects and material direct and indirect costs associated with collecting on the exposure. Islamic banking institutions must not simply measure the loss recorded in accounting records but must be able to compare accounting and economic losses. Internal workout and collection expertise would significantly influence recovery rates and must be reflected in the LGD estimates, but adjustments to estimates for such expertise must be on a conservative basis until sufficient internal empirical evidence of the impact is available. Rate for Discounting Recoveries 3.313 Most approaches to quantifying LGDs either implicitly or explicitly involve the discounting of streams of recoveries received after a facility goes into default in order to compare the net present value (NPV) of recovery streams as of a default date with a measure of exposure at default. For the estimation of LGDs, measures of recovery rates should reflect the costs of holding defaulted assets over the workout period, including an appropriate risk premium. When recovery streams are uncertain and involve risk that cannot be diversified away, NPV calculations must reflect the time value of money and a risk premium appropriate to the undiversifiable risk. In establishing appropriate risk premiums for the estimation of LGDs consistent with economic downturn conditions, Islamic banking institutions should focus on the uncertainties in recovery cash flows associated with defaults that arise during the economic downturn conditions. When there is no uncertainty in recovery streams (e.g., recoveries derived from cash collateral), NPV calculations need only reflect the time value of money, and a risk-free discount rate is appropriate. These measures of recovery rates can be computed in several ways, for example: (i) By discounting the stream of recoveries and the stream of workout costs by a risk adjusted discount rate which is the sum of the risk free rate and a spread appropriate for the risk of the recovery and cost cash flows; or BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 188 / 517 Issued on: 3 May 2019 (ii) By converting the stream of recoveries and the stream of workout costs to certainty equivalent cash flows and discounting these by the risk free rate; or (iii) By a combination of adjustments to the discount rate, the stream of recoveries and the stream of workout costs that are consistent with the principle of reflecting the costs of holding defaulted assets over the workout period156 ; or (iv) Other methods for recovery estimation/LGD estimates include observed market value of defaulted bonds, implied value of defaulted bonds, implied LGD based on EL and PD. 3.314 Islamic banking institutions may use cost of capital157 as a proxy for the funding cost of defaulted assets, which itself is not observable in the absence of a liquid market for such assets. Different discount rates per asset type would not be required if the Islamic banking institution uses the cost of capital, as the cost of capital is a sufficiently conservative measure. If an Islamic banking institution decides against using the cost of capital, the Bank may be satisfied if it uses a discount rate higher than the contractual or effective profit rate, for exposures other than those that are secured by low risk collateral (for such lower risk exposures, a lower discount rate may be used, e.g. the risk free rate for cash- collateralised exposures is acceptable). Additional Standards for Corporate, Sovereign, and Bank Exposures 3.315 Estimates of LGD must be based on a minimum data observation period that should ideally cover at least one complete economic cycle but must in any case be no shorter than a period of seven years for at least one source. If the available observation period spans a longer period for any source, and the data are relevant, this longer period must be used. 156 Islamic banking institutions using the “effective profit rate” in accordance with MFRS 9 as the discount rate must adjust the stream of net recoveries in a manner consistent with this principle. 157 Islamic banking institutions may use the weighted average cost of capital (WACC) incurred for funding defaulted assets provided that the Islamic banking institution is able to demonstrate to the Bank that the method of computation and the inputs used to derive the WACC are robust. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 189 / 517 Issued on: 3 May 2019 Additional Standards for Retail Exposures 3.316 The minimum data observation period for LGD estimates for retail exposures is five years (except during the transition period). The less data an Islamic banking institution has, the more conservative it must be in its estimation. It is not necessary to give equal importance to historic data if it can be demonstrated that more recent data are a better predictor of loss rates. VI. Requirements Specific to Own-EAD Estimates Under the Advanced Approach Standards for All Asset Classes 3.317 EAD for an on-balance sheet or off-balance sheet item is defined as the expected gross exposure of the facility upon default of the obligor. For on- balance sheet items, Islamic banking institution must estimate EAD at no less than the current drawn amount, subject to recognising the effects of on-balance sheet netting as specified in the foundation approach. The minimum requirements for the recognition of netting are the same as those under the foundation approach. The additional minimum requirements for internal estimation of EAD under the advanced approach, therefore, focus on the estimation of EAD for off-balance sheet items (excluding derivatives). Islamic banking institutions under the advanced IRB must have established procedures in place for the estimation of EAD for off-balance sheet items. These procedures must specify the estimates of EAD used for each facility type. Internal estimates of EAD should reflect the possibility of additional drawings by the obligor up to and after the time a default event is triggered. Where estimates of EAD differ by facility type, the delineation of these facilities must be clear and unambiguous. 3.318 Islamic banking institutions under the advanced approach must assign an estimate of EAD for each facility. It must be an estimate of the long-run default- weighted average EAD for similar facilities and obligors over a sufficiently long period of time, but with a margin of conservatism appropriate to the likely range BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 190 / 517 Issued on: 3 May 2019 of errors in the estimate. If a positive correlation can reasonably be expected between the default frequency and the magnitude of EAD, the EAD estimate must incorporate a larger margin of conservatism. Moreover, for exposures for which EAD estimates are volatile over the economic cycle, Islamic banking institutions must use EAD estimates that are appropriate for an economic downturn, if these are more conservative than the long-run average. For Islamic banking institutions that have been able to develop their own EAD models, this could be achieved by considering the cyclical nature, if any, of the drivers of such models. Others may have sufficient internal data to examine the impact of previous recession(s). However, some Islamic banking institutions may only have the option of making conservative use of external data. 3.319 The criteria by which estimates of EAD are derived must be plausible and intuitive, and represent what the Islamic banking institution believes are the material drivers of EAD. The choices must be supported by credible internal analysis. Islamic banking institutions must be able to provide a breakdown of its EAD experience by the factors it sees as the drivers of EAD. All relevant and material information must be used in the derivation of EAD estimates. Across facility types, Islamic banking institutions must review its estimates of EAD when material new information comes to light and at least on an annual basis. 3.320 Due consideration must be given to specific policies and strategies adopted in respect of account monitoring and payment processing. Islamic banking institutions must consider its ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events. Adequate systems and procedures should be in place to monitor facility amounts, current outstanding against committed lines and changes in outstanding per obligor and per grade. Outstanding balances must be monitored on a daily basis. Additional Standards for Corporate, Sovereign, and Bank Exposures BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 191 / 517 Issued on: 3 May 2019 3.321 Estimates of EAD must be based on a time period that ideally should cover a complete economic cycle but in any case be no shorter than a period of seven years. If the available observation period spans a longer period for any source, and the data are relevant, this longer period should be used. EAD estimates must be calculated using a default-weighted average and not on a time- weighted average. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 192 / 517 Issued on: 3 May 2019 Additional Standards for Retail Exposures 3.322 The minimum data observation period for EAD estimates for retail exposures is five years. The less data an Islamic banking institution has available, the more conservative estimates should be used. Equal importance given to historical data is not necessary if the more recent data is demonstrated as a better predictor of draw downs. VII. Requirements for Assessing Effect of Guarantees Standards for Corporate, Sovereign, and Bank Exposures where Own Estimates of LGD are used and Standards for Retail Exposures Guarantees 3.323 When an Islamic banking institution uses its own estimates of LGD, it may reflect the risk-mitigating effect of guarantees through an adjustment to PD or LGD estimates. The option to adjust LGDs is available only to those Islamic banking institutions that have been approved to use their own internal estimates of LGD. For retail exposures, where guarantees exist, either in support of an individual obligation or a pool of exposures, an Islamic banking institution may reflect the risk-reducing effect either through its estimates of PD or LGD, provided this is done consistently. In adopting one or the other technique, an Islamic banking institution must adopt a consistent approach, both across types of guarantees and over time. 3.324 In all cases, both the obligor and all recognised guarantors must be assigned an obligor rating at the outset and on an ongoing basis. Islamic banking institutions must follow all minimum requirements set out in this document for assigning obligor ratings to guarantors, including the regular monitoring of the guarantor’s condition and ability and willingness to honour its obligations. Consistent with the requirements in paragraphs 3.275 to 3.277, Islamic banking institutions must retain all relevant information on the obligor on a standalone basis excluding the guarantee and the guarantor. In the case of retail guarantees, BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 193 / 517 Issued on: 3 May 2019 these requirements also apply to the assignment of an exposure to a pool, and the estimation of PD. 3.325 In no case can an Islamic banking institution assign the guaranteed exposure an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor. The rating processes must not consider possible favourable effects of lower correlation between default events for the obligor and guarantor, for purposes of regulatory minimum capital requirements. As such, the adjusted risk weight must not reflect the risk mitigation of double default. Eligible Guarantors and Guarantees 3.326 There are no restrictions on the types of eligible guarantors. Islamic banking institutions must, however, have clear internal criteria for the types of guarantors recognised for regulatory capital purposes. 3.327 The guarantee must be evidenced in writing, non-cancellable by the guarantor, in force until the debt is satisfied in full (to the extent of the amount and tenor of the guarantee) and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach to the guarantee and where the judgment against the guarantor can be enforced. In contrast to the foundation approach to corporate, bank, and sovereign exposures, conditional guarantees158 may be recognised under certain conditions. Specifically, the onus falls on the Islamic banking institution to demonstrate that the rating assignment criteria adequately address any potential reduction in the risk mitigation effect. Adjustment Criteria 3.328 An Islamic banking institution must have clearly specified criteria for adjusting obligor grades or LGD estimates (or in the case of retail and eligible purchased receivables, the process of allocating exposures to pools) to reflect the impact 158 Guarantees prescribing conditions under which the guarantor may not be obliged to perform. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 194 / 517 Issued on: 3 May 2019 of guarantees for regulatory capital purposes. These criteria must be as detailed as the criteria for assigning exposures to grades under paragraphs 3.240 to 3.242, and must follow all minimum requirements for assigning obligor or facility ratings in the Framework. 3.329 The criteria must be plausible and intuitive, and must address the guarantor’s ability and willingness to perform under the guarantee. The criteria must also address the likely timing of any payments and the degree to which the guarantor’s ability to perform under the guarantee is correlated with the obligor’s ability to repay. The criteria must also consider the extent to which residual risk to the obligor remains, for example a currency mismatch between the guarantee and the underlying exposure. 3.330 In adjusting obligor grades or LGD estimates (or in the case of retail and eligible purchased receivables, the process of allocating exposures to pools), all relevant available information must be taken into account. VIII. Requirements Specific to PD and LGD (or EL) Estimation for Purchased Receivables 3.331 The following minimum requirements for risk quantification must be satisfied for any purchased receivables (corporate or retail) making use of the top-down treatment of default risk and/or the IRB treatments of dilution risk. 3.332 The purchasing Islamic banking institution will be required to group the receivables into sufficiently homogeneous pools so that accurate and consistent estimates of PD and LGD (or EL) for default losses and EL estimates of dilution losses can be determined. In general, the risk bucketing process will reflect the seller’s underwriting practices and the heterogeneity of its customers. In addition, the methods and data for estimating PD, LGD, and EL must comply with the existing risk quantification standards for retail exposures. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 195 / 517 Issued on: 3 May 2019 (i) In particular, quantification should reflect all information available to the purchasing Islamic banking institution regarding the quality of the underlying receivables, including data for similar pools provided by the seller, by the purchasing Islamic banking institution, or by external sources. (ii) The purchasing Islamic banking institution must determine whether the data provided by the seller are consistent with expectations agreed upon by both parties concerning, for example, the type, volume and ongoing quality of receivables purchased. Where this is not the case, the purchasing Islamic banking institution is expected to obtain and rely upon more relevant data. Minimum Operational Requirements for Purchased Receivables 3.333 An Islamic banking institution purchasing receivables has to demonstrate its confidence that current and future advances can be repaid from the liquidation of (or collections against) the receivables pool. To qualify for the top-down treatment of default risk, the receivable pool and overall financing relationship should be closely monitored and controlled. Specifically, an Islamic banking institution must demonstrate the following: (i) Legal Certainty: The structure of the facility must ensure that under all foreseeable circumstances, Islamic banking institutions have effective ownership and control of the cash remittances from the receivables, including incidences of seller or servicer distress and bankruptcy. When the receivables obligor makes payments directly to a seller or servicer, Islamic banking institutions must verify regularly that payments are forwarded completely and within the contractually agreed terms. Ownership over the receivables and cash receipts should also be protected against bankruptcy ‘stays’ or legal challenges that could materially delay the Islamic banking institution’s ability to liquidate/assign the receivables or retain control over cash receipts. (ii) Effective Monitoring Systems: An Islamic banking institution must ensure that: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 196 / 517 Issued on: 3 May 2019 (a) It assesses and reviews the default risk correlation of the receivables and the financial conditions of both the seller and servicer; (b) Internal policies and procedures are in place to ensure that the receivables, seller and servicer are of high quality. This includes the assignment of an internal risk rating for each seller and servicer; (c) Clear and effective policies and procedures are in place to assess the eligibility of the seller and servicer. Periodic reviews of seller and servicer must be conducted either by the Islamic banking institution or its agent in order to: i. verify the accuracy of reports from the seller/servicer; ii. detect fraud or operational weaknesses; and iii. verify the quality of the seller’s credit policies and servicer’s collection policies and procedures. Findings of these reviews must be well documented; (d) It has the ability to assess the characteristics and performance of the receivables in the pool, including over-advances, history of the seller’s arrears, bad debts, bad debt allowances, payment terms, and potential contra accounts; (e) Effective policies and procedures are in place to monitor on an aggregate basis concentrations to a single- receivables obligor both within and across receivables pools; and (f) Sufficiently detailed reports on ageing and dilutions of the receivables are received on timely basis to: i. ensure compliance with the Islamic banking institution’s eligibility criteria and policies on advances governing purchased receivables; and ii. facilitate effective monitoring and confirmation of the seller’s terms of sale (e.g. invoice date ageing) and dilution. (iii) Effective Work-Out Systems: An effective programme requires systems and procedures not only for detecting deterioration in the seller’s financial BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 197 / 517 Issued on: 3 May 2019 condition and deterioration in the quality of the receivables at an early stage, but also for addressing emerging problems pro-actively. This relates to the need for: (a) Clear and effective policies, procedures, and information systems to monitor compliance with all contractual terms of the facility (including covenants, advancing formulas, concentration limits, early amortisation triggers, etc.) and internal policies governing advance rates and receivables eligibility. The systems established should be able to track covenant violations and waivers as well as exceptions to established policies and procedures. (b) Limiting inappropriate draw downs, including having in place effective policies and procedures for detecting, approving, monitoring, and correcting over-advances; and (c) Effective policies and procedures to deal with sellers or servicers who have been observed to be in distress and/or where the quality of receivable pools has deteriorated. These include, but are not limited to: i. early termination triggers in revolving facilities and other protective covenants; ii. a structured and effective approach to deal with covenant violations; and iii. clear and effective policies and procedures for initiating legal actions and dealing with problem receivables. (iv) Effective Systems for Controlling Collateral, Credit Availability, and Cash: Islamic banking institutions must have clear and effective policies and procedures governing the control of receivables, credit, and cash. In particular: (a) Written internal policies that specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and how cash receipts are to be handled. These elements should BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 198 / 517 Issued on: 3 May 2019 take appropriate account of all relevant and material factors, including the seller’s/servicer’s financial condition, risk concentrations, and trends in the quality of the receivables and the seller’s customer base. (b) Internal systems must ensure that funds are advanced only against specified supporting collateral and documentation (such as servicer attestations, invoices, shipping documents, etc.) (v) Compliance with Internal Policies and Procedures: Given the reliance on monitoring and control systems to limit credit risk, Islamic banking institutions should have an effective internal process for assessing compliance with all critical policies and procedures, including: (a) regular internal and/or external audits of all critical phases of the Islamic banking institution’s receivables purchase programme; and (b) verification of the separation of duties (i) between the assessment of the seller/servicer and the assessment of the receivables obligor and (ii) between the assessment of the seller/servicer and the field audit of the seller/servicer. An effective internal process for assessing compliance with all critical policies and procedures should also include evaluations of back office operations, with particular focus on qualifications and experience of staff, staffing levels, and supporting systems. IX. Requirements Specific to Internal Models Approach for Equity Capital Charge and Risk Quantification 3.334 The following minimum quantitative standards apply for the purpose of calculating minimum capital charges under the internal models approach for equity: (i) The capital charge is equivalent to the potential loss on the institution’s equity portfolio arising from an assumed instantaneous shock equivalent to the 99th percentile, one-tailed confidence interval of the difference between BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 199 / 517 Issued on: 3 May 2019 quarterly returns and an appropriate risk-free rate computed over a long- term sample period. (ii) The estimated losses should be robust to adverse market movements relevant to the long-term risk profile of the institution’s specific holdings. The data used to represent return distributions should reflect the longest sample period for which data are available and be meaningful in representing the risk profile of the specific equity holdings. The data used should be sufficient to provide conservative, statistically reliable and robust loss estimates that are objectively determined and not based purely on subjective or judgmental considerations. Islamic banking institutions must demonstrate to the Bank that the ‘shock’ employed provides a conservative estimate of potential losses over a relevant long-term market or business cycle. Models adopted using data that do not reflect realistic ranges of long-run experience, including a period of reasonably severe declines in equity market values relevant to an Islamic banking institution’s holdings, are presumed to produce optimistic results unless there is credible evidence of appropriate adjustments built into the model. In the absence of built-in adjustments, Islamic banking institution must combine empirical analysis of available data with adjustments based on a variety of factors to attain model outputs that are realistic and conservative. In constructing VaR models to estimate potential quarterly losses, Islamic banking institutions may use quarterly data or convert shorter horizon period data to a quarterly equivalent using an analytically appropriate method supported by empirical evidence. Such adjustments must be applied through a well-developed and documented thought process and analysis. In general, adjustments must be applied conservatively and consistently over time. Furthermore, where only limited data are available, or where technical limitations are such that estimates from any single method will be of uncertain quality, appropriate margins of conservatism must be added to avoid over-optimism. (iii) Any particular type of VaR model that is used (e.g. variance-covariance, historical simulation, or Monte Carlo) must be able to adequately capture all of the material risks inherent in equity returns including both the general BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 200 / 517 Issued on: 3 May 2019 market risk and specific risk exposure of the Islamic banking institution’s equity portfolio. Internal models must adequately explain historical price variation, capture both the magnitude and changes in the composition of potential concentrations, and be sufficiently robust under adverse market conditions. The population of risk exposures represented in the data used for estimation must be closely matched to or at least comparable with equity exposures of the Islamic banking institution. (iv) Modelling techniques such as historical scenario analysis may also be used to determine minimum capital requirements for banking book equity holdings. However, the use of such models is conditioned upon the demonstration to the Bank that the methodology and its output can be quantified in the form of the loss percentile specified under (i). (v) Islamic banking institutions must use an internal model which is most appropriate for its risk profile and complexity of the equity portfolio. Those with material holdings of instruments with values that are highly non-linear in nature (e.g. equity derivatives, convertibles) must employ an internal model designed to appropriately capture the risks associated with such instruments. (vi) Subject to the Bank’s review, equity portfolio correlations can be integrated into an Islamic banking institution’s internal risk measures. The use of explicit correlations (e.g. utilisation of a variance/covariance VaR model) must be fully documented and supported using empirical analysis. The appropriateness of implicit correlation assumptions will be evaluated by the Bank during the review of model documentation and estimation techniques. (vii) Mapping of individual positions to proxies, market indices, and risk factors should be plausible, intuitive, and conceptually sound. Mapping techniques and processes should be fully documented, and demonstrated with both theoretical and empirical evidence to be appropriate for the specific holdings. Where professional judgement is combined with quantitative techniques in estimating a holding’s return volatility, the judgement must take into account the relevant and material information not considered by the quantitative techniques utilised. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 201 / 517 Issued on: 3 May 2019 (viii) Where factor models are used, either single or multi-factor models are acceptable depending upon the nature of an institution’s holdings. Islamic banking institutions are expected to ensure that the factors are sufficient to capture the risks inherent in the equity portfolio. Risk factors should correspond to the appropriate equity market characteristics (for example, public, private, market capitalisation, industry sectors and sub-sectors, operational characteristics) in which the Islamic banking institution holds significant positions. While Islamic banking institutions have discretion to choose the factors, the appropriateness of those factors including its ability to cover both general and specific risk must be demonstrated through empirical evidence. (ix) Estimates of the return volatility of equity investments must incorporate relevant and material available data, information, and methods. Islamic banking institutions may use independently reviewed internal data or data from external sources (including pooled data). The number of risk exposures in the sample, and the data period used for quantification should be sufficient to provide confidence that the estimates used are accurate and robust. Islamic banking institutions should take appropriate measures to limit the potential of sampling or ‘survivorship’ bias in estimating return volatilities. (x) A rigorous and comprehensive stress testing programme should be established. Islamic banking institutions are expected to subject its internal model and estimation procedures, including volatility computations, to either hypothetical or historical scenarios that reflect worst-case losses given underlying positions in both public and private equities. At a minimum, stress tests should be employed to provide information about the effect of tail events beyond the level of confidence assumed in the internal models approach. Risk Management Process and Controls 3.335 Islamic banking institutions must establish policies, procedures, and controls to ensure the integrity of the model and modelling process used to derive BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 202 / 517 Issued on: 3 May 2019 regulatory capital. Policies, procedures, and controls should include the following: (i) Full integration of the internal model into the Islamic banking institution’s overall management information systems, including the management of the banking book equity portfolio. Internal models should be fully integrated into the risk management infrastructure including use in: (a) establishing investment hurdle rates and evaluating alternative investments; (b) measuring and assessing equity portfolio performance (including the risk-adjusted performance); and (c) allocating economic capital to equity holdings and evaluating overall capital adequacy as required under Pillar 2. Islamic banking institutions should be able to demonstrate, through for example, investment guidelines and investment committee minutes, that the internal model output plays an essential role in the investment management process. (ii) Established management systems, procedures, and control functions for ensuring periodic and independent review of all elements of the internal modelling process, including approval of model revisions, vetting of model inputs, and review of model results, such as direct verification of risk computations. Proxy and mapping techniques and other critical model components should receive special attention. These reviews should assess the accuracy, completeness, and appropriateness of model inputs and results and focus on both identifying and limiting potential errors associated with known weaknesses and be aware of unknown model weaknesses. Such reviews may be conducted as part of internal or external audit programmes, by an independent risk control unit, or by an external third party. (iii) Adequate systems and procedures for monitoring investment limits and the risk exposures of equity investments. Senior management should be actively involved in the risk control process and ensure that adequate resources and authority are assigned to risk control as an essential aspect BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 203 / 517 Issued on: 3 May 2019 of the business. Daily reports prepared by the independent risk control unit must be reviewed by responsible persons within senior management with sufficient seniority and authority to enforce remedial actions where appropriate to reduce the Islamic banking institution’s overall risk exposure. (iv) The units responsible for the design and application of the model must be functionally independent from the units responsible for managing individual investments. The former should produce and analyse daily reports on the output of the risk measurement model, including an evaluation of limit utilisation. This unit must also be independent from trading and other risk taking units and should report directly to senior management with responsibility for risk management. (v) Parties responsible for any aspect of the modelling process must be adequately qualified. Management must allocate sufficient skilled and competent resources to the modelling function. X. Stress Test in Assessment of Capital Adequacy 3.336 Islamic banking institutions must establish sound stress testing processes for the assessment of capital adequacy. Stress testing must involve identifying possible events or future changes in economic conditions that might have unfavourable effects on an Islamic banking institution’s credit exposures and credit risk components (PD, LGD and EAD), and an assessment of the Islamic banking institution’s ability to withstand such changes. For more guidance on stress testing approaches and methodologies, banking institutions should be guided by the Bank’s Stress Testing159. 3.337 3.338 In addition, Islamic banking institutions must perform credit risk stress tests to assess the effect of certain specific conditions on the IRB regulatory capital requirements. The test to be employed is chosen by the Islamic banking 159 Refer to paragraph 21 of Stress Testing. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 204 / 517 Issued on: 3 May 2019 institution, subject to the Bank’s review. The test employed must be meaningful, reasonably conservative and relevant to the Islamic banking institution’s circumstances, and consider at least the effect of mild recession scenarios. For example, the use of two consecutive quarters of zero growth to assess the effect on the Islamic banking institution’s PDs, LGDs and EADs. 3.339 Islamic banking institutions using the double default framework must consider, as part of the stress testing framework, the impact of a deterioration in the credit quality of protection providers (particularly those falling outside the eligibility criteria due to rating changes). Islamic banking institutions should also consider the impact of the default of one but not both of the obligor and protection provider, and the consequent increase in risk and capital requirements at the time of default. 3.340 Whatever method is used, the following sources of information must be considered: (i) Islamic banking institution’s own data supporting the estimation of the ratings migration of its exposures; (ii) information about the impact of smaller deterioration in the credit environment on an Islamic banking institution’s ratings, giving some information on the likely effect of more severe stress circumstances; and (iii) evidence of ratings migration in external ratings. This would entail the Islamic banking institution broadly matching its buckets to the external rating categories. 3.341 The stress test results may indicate no difference in the capital calculated under the IRB rules if the estimates used as input to the IRB calculation have already considered information from stressed circumstances described above. Where there is a shortfall between the results of the stress test and those calculated under the IRB rules, Islamic banking institutions must undertake necessary actions to address the differences. Where an Islamic banking institution BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 205 / 517 Issued on: 3 May 2019 operates in several markets, stress testing on portfolios representing the vast majority of its total exposures should be carried out (in other words, Islamic banking institutions need not stress test all the portfolios in all the markets it operates in). 3.342 In addition to the above requirements, Islamic banking institutions are required to specifically incorporate the following factors into stress tests under Pillar 2 for purposes of setting internal capital targets: (i) The effect of not recognising the firm-size adjustment for small and medium-sized corporates under paragraphs 3.148 and 3.149; (ii) The effect of not recognising any group support which is allowed under paragraphs 3.264 and 3.265; (iii) The effect of removing the risk weight cap applied to exposures to priority sector RRE financing and exposures guaranteed by CGC; and (iv) The effect of incorporating seasoning adjustment as required under paragraph 3.305, which have been deemed to be immaterial. Governance, Oversight and Use of Internal Ratings I. Governance 3.343 The board of directors remains principally responsible for ensuring that a comprehensive framework is in place for the use of internal models. In particular, the framework should address the governance of the IRB systems employed by the Islamic banking institution. This responsibility includes approval of high-level issues, major policies and all other material aspects of the IRB systems. The board may delegate certain functions to a designated board committee, but remains accountable for the decisions of such a committee. 3.344 The board must have an adequate understanding of the key principles and features of the Islamic banking institution’s IRB systems to make well-informed, high-level decisions in relation to its responsibilities (for example, specifying acceptable risk tolerance levels using IRB results and approving risk management strategies). The requisite information or knowledge may include: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 206 / 517 Issued on: 3 May 2019 (i) Basic information about the rating system (for example, objective, coverage, broad rating structure and definitions); (ii) Uses of rating systems in the Islamic banking institution; (iii) Overall results of validation and back-testing performed on the rating systems and corresponding actions taken; (iv) Information on the rating systems’ compliance with the Bank’s guideline; and (v) Stress test design, assumptions and results. 3.345 Senior management is responsible for informing and obtaining approval from the board of directors or its designated committee on the material aspects of the internal rating system. At a minimum, these include the following: (i) Major rating system policies, including but not limited to ownership, uses of rating systems and the exception framework; (ii) Material changes or replacement of rating systems (including recalibration, reselection of factors, reweighting, master scale rebanding, change of approach or any adjustment that would significantly impact the output); and (iii) Changes or exceptions from established policies, and the resulting impact on the Islamic banking institution’s IRB systems. 3.346 Senior management is responsible to ensure on an ongoing basis that the system is operating as intended and sufficient resources, including qualified and skilled personnel, are assigned to critical aspects of the rating system. Regular communications between management and credit risk management personnel regarding the performance of the rating process, areas needing improvement, and the status of efforts to improve previously identified deficiencies should be an important part of this process. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 207 / 517 Issued on: 3 May 2019 3.347 Senior management must have a good understanding of the rating system which reflects detailed knowledge of the components of the rating system. The following section illustrates areas of detailed knowledge expected of senior management according to their functional responsibilities: Heads/Officers of Risk Management in-charge of Active Oversight of Rating Systems: (i) Design, estimation (including parameterisation, rating philosophy and horizon), performance monitoring process and assessments, validation process and results and continuing appropriateness of rating systems; (ii) Underwriting standards, financing practices, collection and recovery practices, and how these factors affect estimation; (iii) Stress testing processes, including portfolio coverage, design, assumptions, frequency, results, implications and reporting processes; (iv) Policies, procedures and the control process surrounding the rating system (including segregation of duties, access control, security, and confidentiality of model documentation); and (v) Uses of the rating system. Key Business Heads (the Primary Operator and User of Ratings): (i) Approach, objective, purpose and coverage of the rating system; (ii) Policies and procedures relating to the following: (a) Rating system design, such as rating dimension (obligor vs facility, retail segments), rating structure (modules, number of grades, distribution), rating criteria/definition, philosophy/horizon and documentation; and (b) Rating system operation, namely the means by which the integrity of the system is assured, procedures for overrides and data maintenance; (iii) Uses of the rating system; (iv) Stress testing processes, including portfolio coverage, business input on assumptions, results and required management actions; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 208 / 517 Issued on: 3 May 2019 (v) Results of validation/back-testing, identified weaknesses (e.g. data quality) and implications for the use of the rating system, and relevant actions. Internal Audit: (i) Understanding of the Bank’s policy documents, especially the minimum requirements for rating systems; (ii) Good understanding of the critical aspects of the rating systems, including the design, operation, estimation, validation and use of the systems; and (iii) The level of consistency and compliance of the Islamic banking institution’s rating systems to the Bank’s policy documents and internal policies. 3.348 Internal ratings must be an essential part of reporting to the board and senior management. The emphasis is on presenting meaningful analyses which should include, at a minimum, assessments of the following: (i) Distribution of credit/sectoral exposures by grades; (ii) Rating migration; (iii) Estimation of the relevant parameters per grade; and (iv) Model performance and back-testing. Reporting frequencies may vary with the significance and type of information as well as the specific roles expected of the recipients. II. Credit Risk Management Function 3.349 Islamic banking institutions must have an independent credit risk management equivalent function responsible for the development (design or selection), implementation and performance of internal rating systems. The function must be operationally independent160 from the business lines or risk taking functions. Areas of responsibility should include: 160 The Bank does not dictate which unit within the Islamic banking institution that is required to perform the independent function. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 209 / 517 Issued on: 3 May 2019 (i) Testing and monitoring internal grades; (ii) Production and analysis of summary reports from the Islamic banking institution’s rating system, including historical default data sorted by rating at the time of default and one year prior to default, grade migration analyses, and monitoring of trends in key rating criteria; (iii) Implementing procedures to verify that rating definitions are consistently applied across functions and geographic areas; (iv) Reviewing and documenting changes to the rating process, including the rationale for such changes; and (v) Reviewing the rating criteria to ensure it remains predictive of risk. Changes to the rating process, criteria or individual rating parameters must be documented and retained for review by internal or external audit and the Bank. 3.350 The credit risk management function must actively participate in the development, selection, implementation and validation of rating models. This includes the effective oversight of any model used in the rating process. The credit risk management function is also primarily responsible for the ongoing review and control of alterations to rating models. III. Internal and External Audit 3.351 Internal audit or an appropriately independent function must review at least annually the Islamic banking institution’s compliance with all applicable minimum requirements for the IRB approach as described in the Framework. The result of the review should be reported to the Audit Committee. 3.352 The parties performing this function must possess the necessary skill set and a good understanding of the internal rating system, to provide an effective check and balance within the institution. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 210 / 517 Issued on: 3 May 2019 3.353 Islamic banking institutions should consider engaging an external party to undertake the review, at least during the initial period, pending the development of requisite internal audit capabilities. However, the Bank expects such capacity to exist within the institution within a reasonable period to support the internal audit’s responsibility to conduct independent reviews. In any case, the Bank reserves the right to require an external auditor to review the Islamic banking institution’s internal rating systems where reviews by internal audit are found to be inadequate. Any costs associated with the reviews shall be borne by the Islamic banking institution. IV. Use of Internal Ratings 3.354 As a general rule, internal ratings and loss estimates must play an important role in the day to day running of the Islamic banking institution’s business. This includes its application in credit approval, risk governance and management, and internal capital allocation. The Bank will not accept ratings systems and estimates designed and implemented exclusively for the purpose of qualifying for the IRB approach and used only to provide inputs for regulatory capital adequacy purposes. 3.355 Islamic banking institutions must demonstrate the use of internal ratings and loss estimates in the following areas161: (i) Essential areas: where internal ratings and loss estimates are directly used as input in credit approval, capital management (including internal capital allocations), credit policies, reporting, pricing and limit setting; and (ii) Areas for consideration: where internal ratings and loss estimates are indirectly used as input in provisioning decisions, profitability measures, the performance and compensation framework, other elements of the credit process (not only credit approval) and strategy. 161 Regardless of any exemption from IRB application granted to a business unit or asset class under paragraph 3.4 to 3.6, although the degree of reliance on internal ratings and loss estimates in these circumstances may differ. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 211 / 517 Issued on: 3 May 2019 3.356 The demonstration of the use of internal ratings does not automatically imply that the estimates must have an exclusive or primary role in all of the above functions. It is recognised that Islamic banking institutions may not necessarily apply exactly the same estimates used for capital computation under the IRB, for other internal purposes. For example, pricing models are likely to use PDs and LGDs relevant to the life of the asset. The emphasis is on ensuring the relevance of these estimates for decision making. Where there are adjustments made to the estimates for different business purposes, Islamic banking institutions must document and be able to demonstrate its reasonableness to the Bank. 3.357 Rating systems should also form an integral part of an Islamic banking institution’s risk culture. Although this can only be demonstrated over time, Islamic banking institutions should be able to provide evidence of compliance with the essential areas described in Appendix XXV. 3.358 Islamic banking institutions must have a credible track record in the use of internal ratings information. Rating systems that are in compliance with the minimum requirements under this document should be in use for at least 3 years prior to full implementation. Similar requirements are also applied to the estimation and use of own LGDs and EADs under the advanced IRB approach. Ongoing enhancements to Islamic banking institutions’ rating systems will not render it non-compliant under this requirement. Validation of Rating Systems and Internal Estimates 3.359 Validation should encompass a range of processes and activities that evaluate and examine the rating system and the estimation process and methods for deriving the risk components, namely PD, LGD and EAD. Validation should be designed to assess the ability of ratings to adequately differentiate risk and the extent to which PD, LGD and EAD appropriately characterise the relevant aspects of risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 212 / 517 Issued on: 3 May 2019 3.360 Islamic banking institutions must establish a robust framework to validate the consistency of rating systems, processes, and accuracy of the estimation of all relevant risk components. Islamic banking institutions must demonstrate to the Bank that the internal validation process allows for a consistent and meaningful assessment of the performance of internal rating and risk estimation systems. The validation framework, the results of validation and the subsequent review or changes made to the framework, must be fully documented. 3.361 An appropriate design of a validation framework should cover at least the following: (i) Authorised roles and responsibilities for validation; (ii) Scope and methodology of validation; (iii) Reporting and approval procedures; (iv) Frequency of validation; and (v) Management actions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 213 / 517 Issued on: 3 May 2019 I. Authorised Roles and Responsibilities for Validation 3.362 Validation must be performed by a unit that is independent from the risk taking units and the development team. Functions responsible for validation must not include individuals who would benefit directly from any adjustments made to the rating system. 3.363 In addition, the validation process should also be subjected to review by internal audit or an appropriately independent party as outlined in paragraph 3.349 to 3.351. II. Scope and Methodology 3.364 The scope of validation should cover both the quantitative and qualitative aspects of the rating system. The quantitative aspect includes review of developmental evidence, outcome analysis and back-testing: Review of Developmental Evidence 3.365 The review of developmental evidence should include evaluating the conceptual soundness and the logic of the rating system’s theory and methodology. The validation unit should review documentation and empirical evidence supporting the methods used. 3.366 The review conducted should encompass the evaluation of the analysis and statistical tests made during the development phase to assess representativeness of internal data and other available information including external data, against the Islamic banking institution’s own portfolio. The design of the rating system must be appropriate for its intended use and have no known material biases, either towards a particular customer segment, asset size or economic cycle. The review must demonstrate that the data used to build the model are representative of the population of actual obligors or facilities. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 214 / 517 Issued on: 3 May 2019 3.367 The review must also demonstrate that the use of statistical techniques (e.g. sampling, smoothing and sample truncation to remove outliers) in the preparation of development data sets and in the operations of internal rating systems is justified and based on sound scientific methods. The review should demonstrate that the properties and limitations of the statistical techniques used, and the applicability of these techniques to different types of data are fully understood by key personnel of the Islamic banking institution. 3.368 The review must evaluate and demonstrate that the occurrences of missing data are random and do not have systematic relationships with default events or credit losses. Where it is necessary to remove observations with missing data, it should be accompanied with sound justification, as these observations may contain important information on default events or credit losses. Removal of a large number of observations with missing data should be evaluated and justified thoroughly in the review. 3.369 The review must also assess the variables selected in the design and estimation of the rating systems, to verify that variables used as inputs to the system form a reasonable set of predictors. Statistical process or tests conducted to evaluate the performance of individual variables selected and the overall performance during development must also be evaluated. 3.370 The review must also assess the adequacy and efficacy of documentation outlining judgemental decisions or expert opinions engaged in the determination and selection of methods, criteria and characteristics. Outcomes Analysis and Back-Testing 3.371 Subsequent to development and implementation, the rating system must be reviewed to verify its performance beyond the development stage and to assess how well the rating system works on both existing and new customers (i.e. works well out-of-time). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 215 / 517 Issued on: 3 May 2019 3.372 An outcome analysis involves ex-post evaluation of the discriminatory power or relative risk-ranking ability of the internal rating system on a regular basis and over time in order to monitor trends and stability. The evaluation must be done at the overall rating system level, going down to the detailed component level depending on the results of the initial evaluation. At a minimum, all Islamic banking institutions should use the Accuracy Ratio (AR) as a common test for discriminatory power. However, Islamic banking institutions are expected to also use other measures in addition to AR. 3.373 A comparison between realised default rates and estimated PDs should be performed for each grade to demonstrate that the realised default rates are within the expected range for that grade. At a minimum, this comparison should be done at the overall portfolio level to assess the PD calibration or the anchor point of the model. Islamic banking institutions using the advanced IRB approach must complete analyses on estimates of LGDs and EADs. Such comparisons must make use of historical data over a reasonable period. The methods and data used in such comparisons must be clearly documented. 3.374 To supplement the analysis, a benchmarking of the internal estimates with relevant external (whether public or non-public) data sources should be conducted. The benchmarking must be based on data that are appropriate to the portfolio, updated regularly, and cover a relevant observation period. 3.375 Regardless of the method chosen, Islamic banking institutions must be able to explain the rationale and the appropriateness of the chosen validation techniques to the Bank. Islamic banking institutions should also understand the limitations, if any, of such techniques. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 216 / 517 Issued on: 3 May 2019 Additional Considerations for Quantitative Review 3.376 In addition, Islamic banking institutions need to demonstrate to the Bank that the underlying philosophy of the rating system is well understood and properly considered when determining which validation tools and techniques are applied. This applies to both the choice of validation methods for assessing the accuracy and stability of a rating system, and the choice of methods for assessing the appropriateness of the stress tests applied. 3.377 If an outcome of a validation method on a particular portfolio or segment is unreliable because of the lack or total absence of internal default data, other methods and techniques should be considered. Islamic banking institutions should always ensure that relevant additional information is taken into account and adequate margins of conservatism are applied. 3.378 Islamic banking institutions should periodically assess the performance of any external models used in its IRB processes to ensure the models continue to function as intended. Since external model parameters and weights may have been calibrated using external data, it is critical for Islamic banking institutions to test the performance of the external models against its own portfolio of exposures. In addition, Islamic banking institutions should also undertake procedures to verify the accuracy and consistency of any external data used within its IRB risk quantification processes. This can be done, among other ways, by comparing the results obtained using the external data to the results obtained using its own portfolio data in the same risk rating, segmentation, or parameter estimation models or methods. 3.379 In cases where transparency of the model’s development is inadequate and where there is scarcity of internal performance data, Islamic banking institutions could also rely on alternative validation approaches. For further guidance on the appropriate treatments, please refer to Appendix XXVI. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 217 / 517 Issued on: 3 May 2019 3.380 Internal assessments of rating systems performance must be based on long data histories, covering a range of economic conditions, and ideally one or more complete business cycles. 3.381 Quantitative testing methods and other validation methods must not vary systematically with the economic cycle. Changes in methods and data (both data sources and periods covered) must be justified and clearly documented. 3.382 Islamic banking institutions should review and improve validation techniques in response to changing markets and practices in the industry as more data becomes available. Qualitative Review 3.383 Apart from the more technical and quantitative review of the rating system components (data, models, etc), Islamic banking institutions should also review the adequacy and effectiveness of rating system processes, the oversight structure and control procedures to ensure the forward-looking accuracy of the IRB estimates. At a minimum, the review should cover rating system documentation, rating operations (including rating coverage, assignment, reviews, overrides and data maintenance), the governance (including level of understanding and training of personnel in key oversight roles) and control (including independence) framework and internal use of ratings. Specific Requirements for Validation of Internal Models Approach to Equity 3.384 Islamic banking institutions must establish model review standards, especially where actual results deviate significantly from expectations and the validity of the internal model is called into question. These standards must take into account business cycles and similar systematic variability in equity returns. Adjustments made to internal models in response to model reviews must be well documented and consistent with the model review standards. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 218 / 517 Issued on: 3 May 2019 3.385 To facilitate model validation through back-testing on an ongoing basis, Islamic banking institutions must construct and maintain appropriate databases on the actual quarterly performance of its equity investments and estimates derived from internal models. Islamic banking institutions should also back-test the volatility estimates used within the internal models and the appropriateness of the proxies used in the model. 3.386 Where the Bank deems necessary, Islamic banking institutions may be required to adjust quarterly forecasts to shorter time horizons, store performance data for such time horizons and use this for back-testing. III. Reporting and Approval Process 3.387 Validation results should be deliberated with the development team and business units and brought before the board or its designated board-level committee for deliberation and approval. IV. Frequency of Validation 3.388 Islamic banking institutions’ internal policies must establish the frequency or cycle of the validation exercise and the scope of validation for each cycle. The internal policies should also address situations that may call for validation outside the normal cycle. 3.389 Validation of internal estimates must be conducted prior to the adoption and implementation of IRB and thereafter at least annually. Developmental evidence must be reviewed whenever the Islamic banking institution makes material changes to its rating systems. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 219 / 517 Issued on: 3 May 2019 V. Management Actions 3.390 Islamic banking institutions must have clearly written and properly documented internal standards for the following: (i) to determine if the test results conducted to assess the discriminatory power of the rating system are below expectation, leading to a more detailed analysis of the discriminatory power of the model drivers, or to conclude that the power of the rating system has in fact diminished. (ii) to determine situations in back-testing where deviations in realised PDs, LGDs and EADs from expectations become significant enough to call into question the validity of the estimates. These standards must take account of business cycles and similar systematic variability in default experiences. Where realised values continue to be higher than expected values, Islamic banking institutions must revise estimates upward to reflect higher default and loss experience; and (iii) to determine, based on the results of the tests of discriminatory power and back-testing, that the estimates or the model itself needs to be redesigned, recalibrated, or replaced in its entirety. 3.391 Where supervisory estimates of risk parameters, rather than internal ones are being used, Islamic banking institutions are expected to compare the realised LGDs and EADs to the supervisory estimates set by the Bank. The information on realised LGDs and EADs should form part of the Islamic banking institutions’ assessment of internal capital. 3.392 When benchmarking is conducted, Islamic banking institutions should investigate the sources of substantial discrepancies between internal estimates and benchmarking sources. 3.393 The Bank recognises that relatively sparse data might require increased reliance on alternative data sources and data-enhancing tools for quantification and alternative techniques for validation. Several of these tools and techniques, BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 220 / 517 Issued on: 3 May 2019 most of which are especially relevant for low default portfolios (LDPs) (and for PDs in particular), are described in Appendix XXVI. The Bank also recognises that there are circumstances in which Islamic banking institutions will legitimately lack sufficient default history to compare realised default rates with parameter estimates that may be based in part on historical data. In such cases, greater reliance must be placed on other validation techniques, including those described in Appendix XXVI. VI. Supervisory Approach to Validation 3.394 The validation of models adopted by banking institutions is ultimately the The validation of models adopted by Islamic banking institutions is ultimately the Islamic banking institutions’ responsibility. The burden is therefore on the Islamic banking institution to satisfy the Bank that a model has good predictive power and that regulatory capital will not be under-estimated as a result of its adoption. 3.395 The Bank will review the results of the validation and independent reviews conducted by Islamic banking institutions. The Bank reserves the right to also carry out its own statistical tests on Islamic banking institutions’ data where necessary. B.3.8 QUALIFICATION Overview of Approval and Review Process 3.396 Islamic banking institutions intending to adopt the IRB approach in determining regulatory capital for its conventional and Islamic exposures would be required to seek the Bank’s approval. General Qualification Process 3.397 In general, the qualification process would consist of: (i) Submission of information by the IRB candidate to the Bank; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 221 / 517 Issued on: 3 May 2019 (ii) Review of the submitted information by the Bank within a stipulated period (between three to six months); and (iii) Communication of the outcome of the review to the IRB candidate. 3.398 The approval process conducted by the Bank would cover an offsite assessment of application documents and a detailed on-site examination of Islamic banking institutions’ operations to assess compliance with the minimum requirements described in the Framework. 3.399 The information requirements and minimum expectations of the Bank are outlined in Appendix XV. 3.400 Based on the information requirements, Islamic banking institutions must submit to the Bank internal documentation or evidence that it considers relevant for the approval process, such as policies, procedures, technical documents and internal or external audit reports. The Bank reserves the right to request for more detailed information at any point in time during and after the submission of an application is made. Such documents have to be made available upon request without delay to facilitate the timely assessment of the application. 3.401 To facilitate the approval of the IRB approach by the Bank, Islamic banking institutions should conduct a self-assessment of its compliance with the minimum requirements described in the Framework. Gaps identified from the self assessment exercise should be documented and reported to the board and the necessary rectification measures taken promptly. 3.402 The IRB implementation program would differ from one IRB candidate to another. Therefore, the review process and approval granted would be specific to the particular circumstances of each Islamic banking institution, taking into account its nature, size of operations and implementation progress. In some cases, the approval may be conditional. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 222 / 517 Issued on: 3 May 2019 3.403 In cases where an Islamic banking institution departs from full compliance with all the minimum requirements of this document subsequent to the approval, the requirements in paragraph 3.223 shall apply. The Bank reserves the right to reconsider the Islamic banking institution’s eligibility for the IRB approach and would consider appropriate supervisory actions. 3.404 Further details on the qualification process are given in Appendix XXII. Home-Host Supervisory Issues 3.405 Locally-incorporated foreign Islamic banking institutions may be intending to use or are currently using systems, processes or models that have been developed and adopted by their parent institutions. These centrally-developed systems, processes or models (herein referred to as global/regional models) can be characterised as follows: (i) Ownership by either the regional or global risk management committee (in terms of model commission, development and approval); (ii) Adapted (e.g. in terms of calibration to PD) to the Malaysian market using Malaysian customer/market data either as part of a larger data set, or on its own; and (iii) Processes and usage of model are largely standardised globally, but may incorporate Malaysian-specific practices. 3.406 Due to the centralisation of the development of the global/regional IRB models, the review process could have already been initiated by the home regulator due to an earlier implementation timeframe adopted by the home regulator. 3.407 Under these circumstances, the Bank would be supportive of coordination with the home regulator in the review of global/regional IRB models in the spirit of home-host cooperation. To assist the Bank, locally-incorporated foreign Islamic BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 223 / 517 Issued on: 3 May 2019 banking institutions with the intention of adopting global/regional models should submit the following information162 to the Bank: (i) Number of models developed or to be developed outside Malaysia; (ii) The asset classes covered by the models; (iii) Estimated coverage in terms of RWA percentage; (iv) Date rolled out or estimated date for roll out; (v) The extent to which documents (development, independent validation) are available locally; (vi) Whether the home regulator has reviewed or has plans to review the model; (vii) Where available, detailed assessments by the home regulator, for the purpose of the Bank’s review for initial adoption as well as on an ongoing basis; and (viii) Date of last review by the home regulator and the results of the review. 3.408 In general, the Bank’s principles and expectations for recognising global/regional models are similar to those applied to locally-developed models. In cases where there are differences between the rules and regulations adopted by the Bank and the home regulator, Islamic banking institutions are expected to adopt the more stringent rules. Changes to IRB Implementation and Adoption 3.409 Changes to the IRB implementation and ongoing adoption may be allowed by the Bank when significant changes occur in the institution’s business environment. However, this should be well justified by the institution. Two examples that could justify altering an Islamic banking institution’s rollout policy are fundamental changes in strategy or mergers and acquisitions. 162 If not readily included in the IRB submission as per Appendix XV. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 224 / 517 Issued on: 3 May 2019 3.410 A change in strategy could result from changes in shareholders or management, or from a new business orientation. In either case, the broad time horizon for rollout should remain the same, but the rollout sequence may change. 3.411 A merger or an acquisition is considered a significant event that is likely to result in a modification to the Islamic banking institution’s IRB implementation plans. Whether an IRB bank acquires a standardised approach bank or vice versa, the acquiring Islamic banking institution must submit a new plan detailing the CAFIB implementation of the acquired Islamic banking institution, including the effects of the acquisition on the consolidated capital position of the group. In an acquisition, the acquiring Islamic banking institution is responsible to seek appropriate approval from the Bank for adoption of the IRB approach. 3.412 Islamic banking institutions adopting either the advanced or foundation IRB approach are expected to continue to employ the same approach, unless otherwise permitted by the Bank. A voluntary return from foundation IRB to the standardised approach, or from advanced IRB to the foundation approach, is permitted only under extraordinary circumstances, such as disposal of a large fraction of the credit related business. 3.413 The Bank reserves the right to revoke the IRB status if Islamic banking institutions are unable to ensure ongoing compliance with the minimum requirements under the Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 225 / 517 Issued on: 3 May 2019 PART C OPERATIONAL RISK C.1 INTRODUCTION 4.1 Operational risk is defined as the risk of losses resulting from inadequate or failed internal processes, people and systems or from external events, which includes legal risk and Shariah compliance risk but excludes strategic and reputational risks. Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements163. 4.2 The following methods are available for the purpose of calculating capital charges against operational risk of Islamic banking institutions in a continuum of increasing sophistication and risk sensitivity: (i) The Basic Indicator Approach (BIA); and (ii) The Standardised Approach (TSA) or the Alternative Standardised Approach (ASA). 4.3 Islamic banking institutions that have adopted TSA or ASA are not allowed to revert to a simpler approach without the approval of the Bank. However, if the Bank is not satisfied with an Islamic banking institution that has adopted TSA or ASA on meeting the qualifying criteria for that approach, the Bank may require the Islamic banking institution to use a simpler approach for some or all of its operations. Thereafter, the Islamic banking institution shall not revert to the more advanced approach without the approval of the Bank. C.1.1 SOUND PRACTICES FOR OPERATIONAL RISK MANAGEMENT 4.4 Regardless of the approach adopted for the operational risk capital charge computation, Islamic banking institutions shall have in place internal operational risk management framework that commensurate with the nature, complexity and sophistication of their business activities. 163 Islamic banking institutions that have different internal definition must be able to explain the impact of the difference to the measurement and management of operational risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 226 / 517 Issued on: 3 May 2019 4.5 Islamic banking institutions shall adopt the principles set out in the Bank’s Operational Risk164. 4.6 Islamic banking institutions are encouraged to collect operational risk loss data given that the information would enable management to identify potential areas of vulnerability, improve overall risk profile and support decision making. Loss data is also an essential prerequisite to the development and functioning of a credible operational risk measurement system. C.2 THE BASIC INDICATOR APPROACH (BIA) 4.7 The operational risk capital charge for Islamic banking institutions using BIA is equal to the average of a fixed percentage [denoted (α)] of positive annual gross income over the previous three years. 4.8 The formula for calculating the operational risk capital charge under BIA is as follows: KBIA = [Σ(GI 1…n x α)]/n Where KBIA = capital charge under the BIA GI = positive annual gross income of the Islamic banking institutions over the preceding three years165 as set out in paragraph 4.10 n = number of the preceding three years where annual gross income is positive α = 15% 4.9 Islamic banking institutions shall calculate the gross income as the sum of: (i) Net income from financing activities; 164 The principles in the paper are generally consistent with the “Sound Practices for the Management and Supervision of Operational Risk” issued by the BCBS in February 2003. 165 If the annual gross income for any given year is negative or zero, the figure shall not be included for the purposes of calculating the operational risk capital charge. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 227 / 517 Issued on: 3 May 2019 (ii) Net income from investment activities; and (iii) Other income166 gross of: (i) Any provisions (e.g. for unpaid income); and (ii) Any operating expenses, including fees paid to outsourcing service provider and depreciation of Ijarah assets but does not include (i) Any realised or unrealised profits/losses from sales or impairment of securities in banking book167; (ii) Any income or expense from extraordinary or irregular items; and (iii) Any income derived from Takaful recoveries. Less: Income attributable to the investment account holders and depositors. A summary table of the gross income computation is provided in Appendix X. 4.10 Under the BIA, gross income figures are categorised into 12 quarters (equivalent to three years). Islamic banking institutions shall calculate the current year’s annual gross income by aggregating the gross income of the last four financial quarters. Similar computation methodology shall be applied to calculate the annual gross income for the two years preceding the current year. Example For Islamic banking institutions calculating operational risk capital charge as at end of April 2008, the annual gross income shall be calculated as follows: 166 Includes income from non-Shariah compliant sources, if any. 167 Refers to profits/losses from securities measured at amortised cost and fair value through other comprehensive income in accordance with Malaysian Financial Reporting Standards 9. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 228 / 517 Issued on: 3 May 2019 Year 3 Year 2 Year 1 Gross Income for financial quarter ending March 08 (GI3a) March 07(GI2a) March 06 (GI1a) Dec 07 (GI3b) Dec 06(GI2b) Dec 05 (GI1b) Sept 07 (GI3c) Sept 06(GI2c) Sept 05(GI1c) June 07 (GI3d) June 06(GI2d) June 05 (GI1d) Total GI3 = GI3a + GI3b + GI3c + GI3d GI2 = GI2a + GI2b + GI2c + GI2d GI1 = GI1a + GI1b + GI1c + GI1d 4.11 If the annual gross income in any of the given years is negative or zero, this figure is excluded from both the numerator and denominator when calculating the three years average. Example Using the above example, the operational risk capital charge as at April 2008 is calculated as follows: Year 3 Year 2 Year 1 Gross Income for financial quarter ending March 08 (+10) March 07 (+10) March 06 (+10) Dec 07 (+20) Dec 06 (-30) Dec 05 (+10) Sept 07 (-10) Sept 06 (-20) Sept 05 (+10) June 07 (+30) June 06 (+10) June 05 (+10) Total GI3 = 10 + 20 - 10 + 30 = 50 GI2 = 10 - 30 - 20 + 10 = (30) GI1 = 10 + 10 + 10 + 10 = 40 Operational risk capital charge {Σ[(GI3 x α) + (GI1 x α)]} / 2 = 6.75 Newly established Islamic banking institutions that do not have a complete three years data shall only take into account the actual gross income earned to date for purposes of deriving the average gross income, while leaving the gross income for any remaining quarters as zero. In the case of new Islamic subsidiaries, the income earned during previous Islamic window operation shall be accounted for by the parent banking institutions BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 229 / 517 Issued on: 3 May 2019 and would not form part of the gross income computation for the new entity C.3 THE STANDARDISED APPROACH AND ALTERNATIVE STANDARDISED APPROACH C.3.1 THE STANDARDISED APPROACH (TSA) 4.12 Subject to the Bank’s prior approval, Islamic banking institutions may use TSA to calculate its operational risk capital charges. The Bank’s approval may be given upon its review on the Islamic banking institution’s compliance with all requirements listed in paragraph 4.15 and 4.16. 4.13 Islamic banking institutions adopting TSA shall classify their business activities into eight business lines, namely, corporate finance, trading and sales, retail banking, commercial banking, payment and settlement, agency services, asset management and retail brokerage. The definition of these business lines are provided in detail in Appendix XI. 4.14 Specific policies shall be put in place covering amongst others the criteria for mapping the gross income of its current business activities into the specified eight business lines. Islamic banking institutions shall review and adjust these policies and criteria for new or changing business activities as appropriate. 4.15 Islamic banking institutions shall adopt the following principles for the purposes of mapping the business activities to the appropriate business lines: (i) All activities must be mapped into the eight business lines (at minimum, to level 1 business lines as described in Appendix XI) in a mutually exclusive and jointly exhaustive manner; (ii) Any business or non-banking activity which cannot be readily mapped into any of the business lines in paragraph 4.13 and which is an ancillary function to and supports a business line in paragraph 4.13, must be allocated to the business line it supports. If the ancillary BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 230 / 517 Issued on: 3 May 2019 activity supports more than one business line, an objective mapping criteria must be used to allocate the annual gross income derived from that ancillary activity to the relevant business lines; (iii) If an activity cannot be mapped into a particular business line in paragraph 4.13 and is not an ancillary activity to a business line, then the activity shall be mapped into one of the business lines with the highest associated beta factor (that is 18%). Any associated ancillary activity to that activity will follow the same business line treatment; (iv) Islamic banking institutions may use internal pricing methods or allocation keys168 to allocate gross income between business lines provided that the total gross income of the Islamic banking institution (as calculated under BIA) equals the sum of gross income for the eight business lines; (v) The mapping of activities into business lines for operational risk capital purposes must be consistent with the definitions of business lines used for regulatory capital calculations for credit and market risks. Any deviations from this principle and the reason(s) must be clearly documented; (vi) The mapping process used must be clearly documented. In particular, the definition of the business lines must be outlined with sufficient detail to allow third parties to replicate the business line mapping. The documentation must also identify specific circumstances for exceptions and the requirement for recording and approval to address the exceptions in the event that it is occurred; (vii) Processes must be put in place to define the mapping of any new activities or products; (viii) Senior management is responsible for the mapping policy (which is subject to the approval by the board); and (ix) The mapping process into business lines must be subject to regular independent reviews by internal and/or external auditors. 168 Examples of allocation keys are number of headcounts/ human resource cost, similar basis used to allocate Head Office expenses to business lines, floor space occupied and customer group. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 231 / 517 Issued on: 3 May 2019 4.16 Islamic banking institutions adopting TSA, are also required to assess their compliance to the qualitative requirements specified in the Operational Risk169, particularly, with respect to the following requirements: (i) The board and senior management, are actively involved in the oversight of the operational risk management; (ii) Islamic banking institution must have an operational risk management system with clear responsibilities assigned to an operational risk management function. The operational risk management function is responsible for developing strategies to identify, assess, monitor and control/mitigate operational risk; codifying bank-level policies and procedures concerning operational risk management and controls; designing and implementing the operational risk assessment methodology; and for the design and implementation of a operational risk-reporting system of the Islamic banking institution; (iii) As part of the internal operational risk assessment system, the Islamic banking institution must systematically track relevant operational risk data including material losses by business line. The operational risk assessment system must be closely integrated170 into its risk management processes; (iv) There must be regular reporting of operational risk exposures, including material operational losses, to business unit management, senior management and to the board of which appropriate action/s can be taken accordingly; (v) Islamic banking institutions’ operational risk management system must be well documented. It must have a routine in place for ensuring compliance with a documented set of internal policies, controls and procedures concerning the operational risk management system, 169 The principles in the paper are generally consistent with the “Sound Practices for the Management and Supervision of Operational Risk” issued by the BCBS in February 2003. 170 The output must be an integral part of the process of monitoring and controlling the operational risk profile of the Islamic banking institution. For instance, this information must play a prominent role in risk reporting, management reporting, and risk analysis. Islamic banking institution must have techniques for creating incentives to improve the management of operational risk throughout the Islamic banking institution. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 232 / 517 Issued on: 3 May 2019 which must include policies for the treatment of non-compliance issues; (vi) The operational risk management processes and assessment system must be subject to validation and regular independent review. These reviews must include both the activities of the business units and of the operational risk management function; and (vii) The operational risk assessment system (including the internal validation processes) must be subject to regular review by internal and/or external auditors. 4.17 The operational risk capital charge for Islamic banking institutions using TSA is calculated as the three-year average of the simple summation of the regulatory capital charges across the eight business lines in each year. The capital charge for each business line is calculated by multiplying the annual gross income by a factor (denoted β) assigned to that business line. 4.18 The formula for calculating the operational risk capital charge under TSA is as follows: KTSA = {Σyears 1-3 max [Σ(GI1-8 x β1-8), 0]}/3 Where KTSA = capital charge under TSA GI1-8 = annual gross income in a given year for each of the eight business lines β1-8 = a fixed beta factor as detailed below Business Lines Beta Factors Corporate Finance (β1) 18% Trading and Sales (β2) 18% Retail Banking (β3) 12% Commercial Banking (β4) 15% Payment and Settlement (β5) 18% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 233 / 517 Issued on: 3 May 2019 Agency Services (β6) 15% Asset Management (β7) 12% Retail Brokerage (β8) 12% 4.19 In any given year, negative operational risk capital charges (resulting from negative gross income) in any business line may offset positive operational risk capital charges in other business lines. However, where the aggregate operational risk capital charge across the eight business lines in a given year is negative, then the operational risk capital charge for that year would be set to zero. An illustration of the offsetting rules is provided in Appendix XII. 4.20 Once the Islamic banking institution is allowed to use TSA, it is not allowed to adopt BIA without the approval of the Bank. C.3.2 THE ALTERNATIVE STANDARDISED APPROACH (ASA) 4.21 Subject to the Bank’s approval, Islamic banking institutions may use ASA to calculate its operational risk capital charge provided that all requirements as listed in paragraphs 4.15 and 4.16 are met and that the Bank is satisfied that ASA provides an improved basis over TSA, for example in avoiding double counting of risks. 4.22 Once the Islamic banking institution is allowed to use ASA, it is not allowed to revert to TSA without the approval of the Bank. 4.23 The approach in the computation of operational risk capital charge under ASA is similar to that of TSA with the exception for retail banking and commercial banking business lines. The operational risk capital charge for these two business lines is calculated by multiplying the amount of financing and advances by a fixed factor ‘m’. Nevertheless, the betas for both retail and commercial banking remain unchanged as per TSA. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 234 / 517 Issued on: 3 May 2019 4.24 The formula for calculating the operational risk capital charge under ASA is as follows: KASA = {Σyears 1-3 max [Σ(GI1-6 x β1-6), 0]} / 3 + (βr x m x LAr) + (βc x m x LAc) Where KASA = capital charge under ASA βr = the beta for the retail banking (β3) business line (where β3 = 12%) βc = the beta for the commercial banking (β4) business line (where β4 = 15%) m = fixed factor of 0.035 LAr = the total outstanding financing and advances of the retail banking171 business line (non-risk-weighted and gross of provision172), averaged over the past three years173 LAc = the total outstanding financing and advances of the commercial banking174 business line (non-risk-weighted and gross of provision), averaged over the past three years 171 Total financing and advances in the retail banking business line consists of the total drawn amounts in the following credit portfolios: retail, SMEs treated as retail, and purchased retail receivables, including NPLs and financing sold to Cagamas. 172 Covers both general and specific provisions. 173 Simple average of total drawn amount of retail or commercial banking business lines over the 12 most recent quarters. 174 For commercial banking, total loans and advances consists of the drawn amounts in the following credit portfolios: corporate, sovereign, bank, specialised lending, SMEs treated as corporate and purchased corporate receivables, including NPLs. The book value of securities held in the banking book should also be included. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 235 / 517 Issued on: 3 May 2019 4.25 The exposure indicator and the relevant beta factor for ASA can be depicted in the following table: Business Line Exposure Indicator Beta Factor (%) Corporate Finance GI 18 Trading and Sales GI 18 Retail Banking LAr x m 12 Commercial Banking LAc x m 15 Payment and Settlement GI 18 Agency Services GI 15 Asset Management GI 12 Retail Brokerage GI 12 4.26 Under ASA, Islamic banking institutions may choose to adopt one of the following options, depending on the capability to identify and disaggregate the exposure into 8 business lines: (i) Option 1 - Total gross income for retail and commercial banking shall be aggregated by assigning a beta of 15%. All other business lines shall be disaggregated and assigned the respective beta factor. (ii) Option 2 – Gross income for retail and commercial banking shall be disaggregated and assigned the respective beta factor. Total gross income of the other six business lines shall be aggregated by assigning a beta of 18%. (iii) Option 3 - Total gross income for retail and commercial banking shall be aggregated by using a beta of 15%. The total gross income of the other six business lines shall be aggregated by assigning a beta of 18%. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 236 / 517 Issued on: 3 May 2019 These options can be summarised in the following table: Option I Option II Option III Business Line Exposure Indicator Beta Factor (%) Exposure Indicator Beta Factor (%) Exposure Indicator Beta Factor (%) Retail Banking LArc x m 15 LAr x m 12 LArc x m 15 Commercial Banking LAc x m 15 Corporate Finance GI 18 GI 18 GI 18 Trading and Sales GI 18 Payment and Settlement GI 18 Agency Services GI 15 Asset Management GI 12 Retail Brokerage GI 12 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 237 / 517 Issued on: 3 May 2019 PART D MARKET RISK D.1 INTRODUCTION 5.1 Market risk is defined broadly as the risk of losses in on- and off-balance sheet positions arising from movements in market prices. This part outlines the applicable approaches to determine the level of capital to be held by an Islamic banking institution against the market risk in its trading book, which comprises of: (i) Benchmark rate risk175 and equity risk pertaining to financial instruments in the trading book; (ii) Foreign exchange risk and commodities risk in the trading and banking books; and (iii) Inventory risk arising from Islamic banking institutions’ business activities. 5.2 In determining the consolidated minimum capital requirement, market risk positions in each subsidiary can be netted against positions in the remainder of the group if: (i) the risk positions of the group are centrally managed; and (ii) there are no obstacles to quick repatriation of profits from a foreign subsidiary or legal and procedural difficulties in operationalising timely risk management on a consolidated basis. Scope of the Capital Charges 5.3 The market risk capital charge in the Framework is divided into benchmark rate risk, equity risk, foreign exchange risk, commodities risk and inventory risk charges. Islamic banking institutions that have any exposure arising from investment account placements made with Islamic banking institutions or Islamic banking operations shall be subject to the ‘look- through’ approach as described in Appendix XXI. 175 Also known as profit rate risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 238 / 517 Issued on: 3 May 2019 5.4 The capital charges for benchmark rate risk and equity risk are applied to the current market value of benchmark rate and equity related financial instruments or positions in the trading book. The capital charge for foreign exchange risk, commodities risk and inventory risk however are applied to all foreign currency176, commodities positions and inventories. Some of the foreign exchange and commodities positions will be reported and hence evaluated at market value, while some may be reported and evaluated at book value. Approaches of Measuring Market Risks 5.5 In measuring capital charge for market risk, Islamic banking institutions may adopt one of the following approaches: (i) the standardised approach; or (ii) the internal models approach. 5.6 The Bank expects Islamic banking institutions involved in the trading of complex financial instruments to adopt advanced approaches in measuring market risk exposure. Standardised Approach 5.7 The first option in measuring market risk capital charge is the standardised approach, described in Part D.2 The Standardised Market Risk Approach. This is based on a building block approach where standardised supervisory capital charge is applied separately to each risk category. Internal Models Approach 5.8 The second option in measuring market risks capital charge is the internal models approach described in Part D.3 The Internal Models Approach. 176 However, Islamic banking institutions are given some discretion to exclude structural foreign currency exchange positions from the computation. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 239 / 517 Issued on: 3 May 2019 The adoption of this approach is permitted only upon receipt of written approval from the Bank. 5.9 The approach allows Islamic banking institutions to use risk measures derived from internal risk management models. Islamic banking institutions would need to submit the information set out in Appendix XVI of the Framework to initiate the recognition process of this approach. 5.10 Since the focus of most internal models is only on the general market risk exposure, Islamic banking institutions employing internal models are expected to measure the specific risk (that is, exposures to specific issuers of debt securities/sukūk or equities) through separate credit risk measurement systems. A separate capital charge for specific risk based on the standardised market risk approach will apply to all Islamic banking institutions employing internal models, unless the models capture the specific risk and meet the requirements set out in Part D.3.5 Modelling of Specific Risk. D.1.1 PRUDENT VALUATION GUIDANCE 5.11 This part provides Islamic banking institutions with guidance on prudent valuation for positions in the trading book. This guidance is especially important for less liquid positions which, although not excluded from the trading book solely on grounds of lesser liquidity, would raise issues relating to valuation. 5.12 A framework for prudent valuation practices should at a minimum adhere to the requirements specified in paragraph 5.13 to 5.19, covering systems and controls, valuation methodologies, independent price verification, valuation adjustments/reserves. Systems and Controls 5.13 Islamic banking institutions must establish and maintain adequate systems and controls sufficient to give the management and the Bank’s supervisors BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 240 / 517 Issued on: 3 May 2019 the confidence that valuation estimates are prudent and reliable. These systems must be integrated with other risk management systems within the organisation (such as credit analysis). Such systems must be supported by: (i) Board-approved policies and procedures on valuation process. This includes clearly defined responsibilities of the various parties involved in the valuation process, sources of market information and review of their appropriateness, frequency of independent valuation, method of determining closing prices, procedures for adjusting valuations, end of the month and ad-hoc verification procedures; and (ii) Clear and independent (i.e. independent of front office) reporting lines for the department accountable for the valuation process. Valuation Methodologies 5.14 Islamic banking institutions should mark-to-market portfolio positions, at least on daily basis, based on close out prices that are sourced independently. Examples of readily available close out prices include exchange prices, screen prices, or quotes from several independent reputable brokers. The more prudent side of bid/offer must be used unless the Islamic banking institution is a significant market maker in a particular position type and it can close out at mid-market. 5.15 Where mark-to-market is not possible, Islamic banking institutions may mark-to-model, provided that this can be demonstrated to be prudent. Marking-to-model is defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input. When marking to model, an extra degree of conservatism is appropriate. The Bank will consider the following in assessing whether a mark-to-model valuation is prudent: (i) Senior management awareness on the assumptions used in constructing the model and their understanding on the materiality of the assumptions used and its impacts in the reporting of the risk/performance of the business; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 241 / 517 Issued on: 3 May 2019 (ii) Regular review of the appropriateness of the market inputs for the particular positions. Market input for instance, should reflect market prices to the nearest extent possible. (iii) Consistent adoption of generally accepted valuation methodologies for particular products, where available and appropriate; (iv) Use of appropriate assumptions, which have been assessed and challenged by suitably qualified parties independent of the development process. In cases where the models are internally developed, the model should be developed or approved independently of the front office. It should be independently tested. This includes validating the mathematics, the assumptions and the software implementation; (v) Formal change control procedures in place to govern any changes made to the model and a secure copy of the model should be held and periodically used to check valuations; (vi) Risk managers awareness of the weaknesses of the models used and how best to reflect those in the valuation output; (vii) Periodic review to determine the accuracy of the model’s performance (for example, assessing continued appropriateness of the assumptions, analysis of profit and loss (P&L) versus risk factors, comparison of actual close out values to model outputs); and (viii) Formal valuation adjustments in place where appropriate, for example, to cover the uncertainty of the model valuation. Independent Price Verification 5.16 In addition, Islamic banking institutions should also conduct regular independent verification of market prices or model inputs for accuracy. Verification of market prices or model inputs should be performed by a unit independent of the dealing room, at least monthly (or, depending on the nature of the market/trading activity, more frequently). It need not be performed as frequently as daily mark-to-market, since the objective is to BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 242 / 517 Issued on: 3 May 2019 reveal any error or bias in pricing, which should result in the elimination of inaccurate daily marking. 5.17 Independent price verification should be subjected to a higher standard of accuracy since the market prices or model inputs would be used to determine profit and loss figures, whereas daily markings are used primarily for management reporting in between reporting dates. For independent price verification, where pricing sources are more subjective, for example, only one available broker quote, prudent measures such as valuation adjustments may be appropriate. Valuation Adjustments 5.18 Islamic banking institutions must establish and maintain procedures for considering valuation adjustments which should be deducted in the calculation of CET1 Capital. The following valuation adjustments shall be formally considered where relevant: unearned credit spreads, close-out costs, operational risks, early termination, investing and funding costs, future administrative costs and, if appropriate, model risk. 5.19 In addition, Islamic banking institutions shall consider the need for establishing reserves for less liquid positions. The appropriateness of the reserves shall be subjected to an ongoing review. Reduced liquidity could arise from structural and/or market events. In addition, close-out prices for concentrated positions and/or stale positions are more likely to be adverse. Islamic banking institutions shall, at the minimum, consider several factors when determining whether valuation reserve is necessary for less liquid items. These factors include the amount of time it would take to hedge out the risks within the position, the average volatility of bid/offer spreads, the availability of market quotes (number and identity of market makers), and the average and volatility of trading volumes. D.1.2 CLASSIFICATION OF FINANCIAL INSTRUMENTS BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 243 / 517 Issued on: 3 May 2019 Trading Book Policy Statement 5.20 Islamic banking institutions must have a trading book policy statement with clearly defined policies and procedures for determining which exposures to include in, and to exclude from, the trading book for purposes of calculating regulatory capital. Board and senior management of Islamic banking institutions should ensure compliance with the criteria for trading book set forth in this part taking into account the Islamic banking institution’s risk management capabilities and practices. In addition, compliance with these policies and procedures must be fully documented and subject to periodic internal audit. This policy statement and material changes to it would be subject to the Bank’s review. 5.21 These policies and procedures should, at a minimum, address the following general considerations: (i) Activities Islamic banking institutions consider as trading and what constitute part of the trading book for regulatory capital purposes; (ii) The extent to which an exposure can be marked-to-market daily by reference to an active, liquid two-way market; (iii) For exposures that are marked-to-model, the extent to which the Islamic banking institutions can: (a) identify the material risks of the exposure; (b) hedge the material risks of the exposure and the extent to which hedging instruments would have an active, liquid two-way market; and (c) derive reliable estimates used in the model based on reasonable assumptions and acceptable parameters. (iv) The extent to which banking institution can and is required to generate valuations for exposure that can be validated externally in a consistent manner; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 244 / 517 Issued on: 3 May 2019 (v) The extent to which legal restrictions or other operational requirements would impede Islamic banking institution’s ability to effect an immediate liquidation of the exposure; (vi) The extent to which the Islamic banking institutions are required to, and can, actively risk manage the exposure within its trading operation; and (vii) The extent to which the Islamic banking institutions may transfer risk or exposures between the banking and trading books and criteria for such transfers. 5.22 The above considerations, however, should not be treated as an exhaustive and rigid set of tests that a product or group of related products must pass for eligibility in the trading book. Rather, the list should serve as minimum or most fundamental areas for considerations for overall management of an Islamic banking institution’s trading book. It should also be supported by detailed policies and procedures. Definition of Trading Book 5.23 The trading book consists of positions in financial instruments and commodities held either with trading intent or to hedge other elements of the trading book. To be eligible for trading book capital treatment, financial instruments must either: (i) be free of any restrictive covenants on tradability; or (ii) be able to be hedged. In addition, (i) positions should be frequently and reliably valued; and (ii) portfolio is actively managed. 5.24 Positions held with trading intent are those held intentionally for short-term resale and/or with the intent of benefiting from actual or expected short- term price movements or to lock in arbitrage profits. These positions may BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 245 / 517 Issued on: 3 May 2019 include for example, proprietary positions, positions arising from client servicing and market making. Financial Instruments A financial instrument is a contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments include both primary financial instruments (or cash instruments) and derivative financial instruments. A financial asset is any asset that is cash, the right to receive cash or another financial asset; or the contractual right to exchange financial assets on potentially favourable terms; or an equity instrument. A financial liability is the contractual obligation to deliver cash or another financial asset or to exchange financial liabilities under conditions that are potentially unfavourable. 5.25 The following are the basic eligibility requirements for positions to receive trading book capital treatment: (i) Clearly documented overall trading strategy for positions/portfolios contained within the trading book as approved by senior management (which would include expected holding horizon etc.). (ii) Clearly defined policies and procedures for active management of the positions, which must include requirements for: (a) management of positions by a trading desk; (b) setting and monitoring of position limits to ensure appropriateness; (c) dealers to be given the autonomy to enter into or manage the position within agreed limits and according to the agreed strategy; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 246 / 517 Issued on: 3 May 2019 (d) marking-to-market of positions at least daily and when marking- to-model, relevant parameters (for example volatility inputs, market risk factors, etc.) to be assessed on a regular basis; (e) reporting of positions to senior management as an integral part of the Islamic banking institution’s risk management process; and (f) actively monitoring of positions with references to market information sources (assessment should be made of market liquidity or the ability to hedge positions or the portfolio risk profiles). This would include assessing the quality and availability of market inputs for the valuation process, level of market turnover, size of positions traded in the market, etc. (iii) Clearly defined policies and procedures to monitor the positions against Islamic banking institution’s trading strategy including the monitoring of turnover and stale position in the trading book. 5.26 All other exposures that are not defined as trading book positions should be classified as exposures in the banking book. This will include both on- and off-balance sheet positions. Classification of Specific Financial Instruments 5.27 Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association shall be treated as banking book positions where the capital requirement is set forth in paragraph 2.51, 3.4(iii) and 3.179. 5.28 All defaulted financial instruments will be treated as banking book positions and hence are subjected to the capital requirement of the Framework. 5.29 In general, all derivative instruments should be classified under the trading book except for derivatives that qualify as hedges for banking book positions. However, certain derivative instruments and structured BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 247 / 517 Issued on: 3 May 2019 investments may be classified as banking book positions particularly those that are held for long term investments which are illiquid and/or has significant credit risk elements. 5.30 The classification of the SBBA and reverse SBBA transactions shall be assessed based on the trading book definition outlined in paragraphs 5.23 to 5.26. D.1.3 TREATMENT OF MONEY MARKET INSTRUMENTS IN TRADING BOOK 5.31 Money market transactions such as the issuance and acquisition of Islamic negotiable instruments, Islamic treasury bills, Islamic accepted bills, Islamic commercial papers and Islamic interbank acceptances and investments that fulfil the requirements set forth in paragraphs 5.23 to 5.26 may be recognised under the trading book position. In addition, these transactions should be undertaken based on market price and appropriately identified177 by the trading desk at deal inception as a transaction undertaken with trading intent consistent with the definition in paragraph 5.24. Customer deposits, investments and financing do not qualify for this treatment since these products fall outside the definition of money market instruments. Controls to Prevent Regulatory Capital Arbitrage 5.32 Regulatory capital arbitrage arises when a position attracts different regulatory capital requirements depending on its classification. Therefore, the Bank expects Islamic banking institutions’ compliance officers, risk manager and/or internal auditors to ensure that proper procedures are followed through and adhered to when the items are classified into either the trading or banking books. 177 The identified money market transactions may be entered with either a third party or with the banking book desk (internal deals). In addition to the requirements set in paragraph 5.35 internal deals must be institutionalised and documented in banking institutions’ policies and procedures and should be supported by a robust fund transfer pricing (FTP) system. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 248 / 517 Issued on: 3 May 2019 5.33 Islamic banking institutions must ensure that classification of financial instruments are determined up front and clear audit trails are created at the time transactions are entered into, to facilitate monitoring of compliance. These audit trails and documentation should be made available to the Bank’s supervisors upon request. 5.34 To ensure that financial instruments held for trading are not included in the banking book, financial instruments in the banking book shall not be sold without prior approval of the Board. In this regard, the Board shall ensure that the selling of banking book positions shall not be based on the intention to trade. Each Islamic banking institution shall include this requirement in their trading book policy statement. 5.35 Authority to sell banking book instruments may be delegated to Asset and Liability Committee (ALCO) or Risk Management Committee (RMC) or any Board-appointed signatories provided that the Board spells out the specific policies under which such delegation may be applicable. The policy should include at a minimum the following parameters: (i) The sale does not tantamount to a trading position; and (ii) The Board be informed of the sale of the banking book instruments soonest possible. 5.36 Supervisory intervention involving remedial actions will be instituted if there is evidence that Islamic banking institutions undermined the capital adequacy requirements through improper classification of financial instruments between their trading and banking books. The Bank may, for instance, require Islamic banking institutions to reclassify banking book positions into the trading book in the event that a regular trading pattern is observed on the former classification and vice versa. Treatment of Hedging Positions 5.37 In general, a hedge can be defined as a position that materially or entirely offsets the component risk elements of another position or portfolio. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 249 / 517 Issued on: 3 May 2019 5.38 Islamic banking institutions are required to have board-approved written policies which document the criteria of a hedge position and its effectiveness178. Islamic banking institutions are required to identify hedge positions at the time the hedging positions are created and to monitor and document the subsequent performance of the positions with clear audit trails. 5.39 Trading book positions entered with a third party to hedge banking book positions are carved out and not subject to market risk capital charge provided the following conditions are satisfied: (i) Approval of ALCO/RMC or any authorities delegated by the board is obtained with endorsement that the positions comply with internal hedge policies; (ii) At the inception of the hedge, there is proper documentation of the hedge relationship and the Islamic banking institution’s risk management objectives and strategy for undertaking the hedge. This documentation should include: (a) the description of the hedge and financial instruments designated as hedging instruments and their values; (b) the nature of the risk being hedged and demonstrate how the risk is being reduced by the hedge; (c) the definition of an acceptable level of hedging effectiveness and requirement to conduct periodical assessment on the effectiveness of hedging instrument’s in offsetting the risk of the underlying exposure; and (d) the treatment of the hedging instrument and underlying exposure in the event that the hedge ceases to be effective. (iii) The identification and tagging of the underlying hedged portfolio/ transaction and hedge instrument are done upfront; and 178 The Bank does not expect the standards for hedging requirements for purpose of the Framework to be identical to that required under the accounting standards. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 250 / 517 Issued on: 3 May 2019 (iv) The hedge shall be materially effective in offsetting the risk element of the hedged exposure. Hence, the actual performance of the hedge should be back tested against the expected performance as documented at the inception. The hedging relationship should be derecognised and the hedge instrument is reclassified as trading book positions in the event that the hedge position ceases to be effective or when the underlying banking book position ceases. 5.40 When internal hedging transactions are entered into between the trading and banking book to hedge banking book market risk exposures, the trading book leg of the transaction shall be subject to market risk capital charge provided that the internal hedging transaction complies with the requirements set in paragraph 5.39. D.1.4 TREATMENT OF COUNTERPARTY CREDIT RISK IN THE TRADING BOOK 5.41 Islamic banking institutions will be required to calculate the counterparty credit risk charge for over the counter (OTC) derivatives, SBBA and other transactions classified in the trading book, in addition to capital charge for general market risk and specific risk.179 The calculation of the counterparty credit risk charge will be based on the approaches as prescribed in the credit component of the Framework. Islamic banking institutions using the standardised approach in the banking book will use the standardised approach risk weights in the trading book, and Islamic banking institutions using the IRB approach in the banking book will use the IRB risk weights in the trading book in a manner consistent with the IRB roll out plan for portfolio in the banking book. 179 The treatment for unsettled FX and securities trades are set forth in the credit risk component of this framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 251 / 517 Issued on: 3 May 2019 D.2 THE STANDARDISED MARKET RISK APPROACH D.2.1 BENCHMARK RATE RISKS 5.42 This part describes the standardised framework for measuring the risk of holding or taking positions in Islamic securities/Sukūk and other benchmark rate related financial instruments under the trading book, which includes the followings: (i) Fixed and floating rate Sukūk and instruments that have similar characteristics as Islamic debt securities/Sukūk, which includes non-convertible preference shares; (ii) Benchmark rate risk exposures arising from forward foreign exchange transactions, derivatives and forward sales and purchases of securities.180; and (iii) Convertible sukūk, that is debt issues or preference shares that are convertible into common shares of the issuer, will be treated as debt securities/sukūk if the instruments trade like debt securities/sukūk or as equities. 5.43 The market price of financial instruments is normally affected by general changes in the market benchmark rate and factors related to a specific issuer, especially issuer’s credit quality. These risks are also known as general risk and specific risk respectively. 5.44 The summation of capital charges arising from exposure to the following risks shall represent minimum capital requirement to cover the benchmark rate risk: (i) Specific risk of each security/Sukūk, whether it is a short or a long position; and (ii) General market risk where long and short positions in different securities/Sukūk or instruments may be offset. 180 This includes primary issuance or underwriting of debt securities where rates have been fixed upfront for which the position would be treated as a bond forward or bond option transaction. Refer to Treatment of Options – Underlying Position Approach for capital charge calculation BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 252 / 517 Issued on: 3 May 2019 Specific Risk 5.45 The capital requirement for specific risk is designed to protect against adverse movements in the price of an individual security due to the factors with respect to the issuer. In measuring the risk, offsetting will be restricted to matched positions in the identical issue. Offsetting is not permitted between different issues even for the same issuer given that the prices of the Sukūk may diverge in the short run due to the differences in the profit rates, liquidity, call features, etc. Specific Risk Capital Charges for Issuer Risk 5.46 Table 2 provides the applicable capital charges in respect of specific risk associated with the issuers of the benchmark rate related financial instruments from G10181 and non-G10 countries. 5.47 The specific risk charges arising from the holding of benchmark rate related financial instruments issued by banking institutions shall be based on the external ratings182 of the banking institutions while the specific risk charges for the holding of benchmark rate related financial instruments issued by foreign sovereigns will be based on the external ratings of the foreign sovereigns. For example, the specific risk charge will be 1.6% as provided in Table 2 in the event the Islamic banking institution holds a 5- year sovereign Sukūk which has a sovereign rating of A. In the case of benchmark rate related financial instruments issued by corporations, the country of establishment (i.e. G10 or non-G10) is also a factor that determines the measurement of specific risk charges as an addition to maturity and ratings. For example, the holding of AA rated Malaysian corporate Sukuk with a maturity of 3 years will attract a specific risk charge of 2.0%. 181 The Group of Ten (G10) is made up of eleven industrial countries namely Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. 182 As illustrated in Table 2 or the equivalent standard rating category as specified in the credit component of the Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 253 / 517 Issued on: 3 May 2019 Table 2: Specific Risk Charges for Benchmark Rate Related Financial Instruments Remaining Maturity <= 6 mths > 6m to 1 yr > 1 to 2 yrs > 2 to 5 yrs > 5 yrs G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) Corporates & Securitisations Ω P1 à to P3 0.25 0.25 1.00 1.00 AAA to A- 0.25 0.25 1.00 1.00 1.00 2.00 1.60 2.00 1.60 3.00 BBB+ to BBB- 0.25 0.25 1.00 1.00 1.00 2.00 1.60 3.50 1.60 4.50 BB+ to B- 8.00 Below B- 12.00 Unrated 8.00 Banking Institutions^ AAA to A- 0.25 1.00 1.00 1.60 1.60 BBB+ to BBB- 0.25 1.00 2.00 2.00 3.00 BB+ to B- 8.00 Below B- 12.00 Unrated 0.25 1.00 2.00 2.00 3.00 Public Sector Entities (PSE)* 0.25 1.00 1.00 1.60 1.60 Malaysian Government# 0 Foreign Sovereigns AAA to AA- § 0 A+ to BBB- 0.25 1.00 1.00 1.60 1.60 BB+ to B- 8.00 Below B- 12.00 Unrated 8.00 Ω A specific risk charge of 100% would apply for securitisation exposures held in the trading book if that exposure is subject to a 1250% risk weight in the banking book. ^ Including benchmark rate related financial instruments issued and guaranteed by licensed banking institutions and licensed development financial institutions as well as Multilateral Development Banking institutions (MDBs) which do not qualify for preferential risk weight described in paragraph 2.27. * Refer to the credit risk component of the Framework for the criteria of PSE. # Including benchmark rate related financial instruments issued or guaranteed by the Malaysian Government or the Bank, as well as securities issued through special purpose vehicles established by BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 254 / 517 Issued on: 3 May 2019 the Bank e.g. Bank Negara Malaysia Sukuk Ijarah and BNMNi-Murabahah issued through BNM Sukuk Berhad. However, banking institutions shall apply the look-through approach as specified under Appendix XXI for BNM Mudarabah certificate (BMC). § Including exposures to highly-rated Multilateral Development Banking institutions (MDBs) that qualify for the preferential risk weight as described in paragraph 2.27, and ringgit-denominated bonds issued by non-resident quasi-sovereign agencies described in paragraph 2.52(viii). à Also applicable for exposures to IILM Sukuk. 5.48 There may be certain cases where specific risk is considerably underestimated for Sukuk which have a high yield to redemption relative to government Sukuk. In this instance, the Bank may: (i) require Islamic banking institutions to apply a higher specific risk charge to such instruments; and/or (ii) disallow the offsetting between such instruments and other financial instruments for the purpose of determining the capital charge due to general market risk. 5.49 Securitisation exposures held in the trading book shall be subject to the capital requirements in the market risk component of the Framework. The specific risk charges for securitisation exposures shall be treated as exposures to corporates as per Table 2. Securitisation exposures subjected to a risk weight of 1250% under Part F of the Framework must similarly be subjected to a 100% capital charge if they are held in the trading book. As an exception, the treatment specified in paragraph 7.11 need not apply for such securitisation exposures retained in the trading book during the first 90 days from the date of issuance. General Benchmark Rate Risk 5.50 The capital requirements for general risk are designed to capture the risk of losses arising from changes in market benchmark rates. Under the standardised approach, Islamic banking institutions are given the options to apply either the ‘maturity’ method or ‘duration’ method. Upon adoption of a method, Islamic banking institutions are not allowed to switch between methods without prior approval from the Bank. Under both methods, positions are allocated across a maturity ladder template of time bands BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 255 / 517 Issued on: 3 May 2019 and the capital charge is then calculated based on the summation of the following components: (i) the net short or long weighted position across the entire time bands183; (ii) the smaller proportion of the matched positions in each time band to capture basis risk (the ‘vertical disallowance’); (iii) the larger proportion of the matched positions across different time bands to capture yield curve risk (the ‘horizontal disallowance’); and (iv) a net charge for positions in options, where appropriate (refer to Part D.2.6 Treatment of Options). 5.51 Separate maturity ladder templates should be used for positions that are exposed to different currency benchmark rate risk. Non-Ringgit positions must be translated into Ringgit equivalent based on spot foreign exchange rates of the reporting date. Capital charges for general risk should be calculated separately for each currency and then aggregated with no offsetting between positions of different currencies. Two sets of risk weights (Table 3) and changes in yields (Table 5) shall be applicable to measure the exposures associated with the profit rate related financial instruments to a G10 or non-G10 currency. Zero-coupon sukuk and deep- discount sukuk (defined as sukuk with a coupon less than 3%) should be slotted according to the time bands set out in the third column of Table 3. Offsetting of Matched Positions 5.52 In calculating general risk, Islamic banking institutions may exclude all long and short positions (both actual and notional) of identical instruments with the same issuer, profit rate, currency and maturity. No offsetting will be allowed between positions in different currencies; the separate legs of cross-currency swaps or forward foreign exchange deals are to be treated 183 Positions include delta-weighted option position in the case where the institution decides to use the Delta-plus Method for the treatment of options. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 256 / 517 Issued on: 3 May 2019 as notional positions and to be included in the appropriate calculation for each currency benchmark rate risk. Maturity Method 5.53 Under the maturity method, the market value of long or short positions in Sukuk and other financial instruments that are exposed to risk of profit rate, including derivative instruments, are slotted into the relevant time bands as specified in Table 3. Fixed-rate instruments shall be allocated according to the residual term to maturity and floating-rate instruments according to the residual term to the next repricing date. 5.54 The first step in the calculation of the capital charge is to weight the positions in each time band based on the risk weight that is formulated to reflect the price sensitivity of those positions given the changes in benchmark rates. For each time band, different risk weights shall be assigned to the instruments denominated in currencies of either G10 or non-G10 countries as set out in Table 3. The net short or long position arising from the offsetting of the long and short position under each time band is then multiplied with the respective risk weight to arrive at the net short or long weighted position. Table 3: General Benchmark Rate Risk Weights for Financial Instruments Exposed to G10 or Non-G10 Currency Zone Time Bands (Profit rate 3% or more) Time Bands (Profit rate less than 3%) G10 Risk Weight (%) Non-G10 Risk Weight (%) 1 1 month or less 1 month or less 0.00 0.00 >1 month and up to 3 months >1 month and up to 3 months 0.20 0.20 >3 month and up to 6 months >3 months and up to 6 months 0.40 0.50 >6 month and up to 12 months >6 months and up to 12 months 0.70 0.80 2 >1 year and up to 2 years >1.0 year and up to 1.9 years 1.25 1.30 >2 years and up to 3 years >1.9 years and up to 2.8 years 1.75 1.90 >3 years and up to 4 years >2.8 years and up to 3.6 years 2.25 2.70 3 >4 years and up to 5 years >3.6 years and up to 4.3 years 2.75 3.20 >5 years and up to 7 years >4.3 years and up to 5.7 years 3.25 4.10 >7 years and up to 10 years > 5.7 years and up to 7.3 years 3.75 4.60 >10 years and up to 15 years > 7.3 years and up to 9.3 years 4.50 6.00 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 257 / 517 Issued on: 3 May 2019 >15 years and up to 20 years >9.3 years and up to 10.6 years 5.25 7.00 > 20 years > 10.6 years and up to 12 years 6.00 8.00 >12 years and up to 20 years 8.00 10.40 >20 years 12.50 16.40 Vertical Disallowance 5.55 The next step in the calculation is to offset the weighted long and short positions within each time band that will result in a single short or long position for each band. 5.56 In view that each band would include different instruments and maturities, hence a 10% capital charge will be levied on the smaller of the resultant offsetting positions (i.e. the matched position), be it long or short, under each time band to reflect basis risk and gap risk. For instance, if the sum of the weighted longs in a time band is RM100 million and the sum of the weighted shorts is RM90 million, the so-called ‘vertical disallowance’ for that time band shall be 10% of RM90 million (i.e. RM9 million). Horizontal Disallowance 5.57 Two sets of net long or short weighted positions under each time band shall be produced as a consequence to the above calculation. The maturity ladder is then divided into three zones. Zone one, two and three covers the maturity time band of less than a year, more than one year to four years and more than four years respectively. Islamic banking institutions will then have to conduct two further rounds of offsetting, firstly between the net time band positions within each zone and secondly between the net positions across the three different zones (i.e. between adjacent zones and non-adjacent zones). The residual net position in each zone may be carried over and offset against opposite positions in other zones when calculating net positions between zones 2 and 3, and 1 and 3. The offsetting will be subject to a scale of disallowances expressed as a fraction of the matched positions, as set out in Table 4. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 258 / 517 Issued on: 3 May 2019 Table 4: Horizontal Disallowances Zones Time Band Within the Zone Between Adjacent Zones Between Zones 1 and 3 0 – 1 month Zone 1 >1 – 3 months 40% >3 – 6 months >6 – 12 months 40% >1 – 2 years Zone 2 >2 – 3 years 30% 100% >3 – 4 years 40% >4 – 5 years >5 – 7 years Zone 3 >7 – 10 years >10 – 15 years 30% >15 – 20 years > 20 years 5.58 The general risk capital requirement will be the sum of: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 259 / 517 Issued on: 3 May 2019 Net Position Net Short or Long Weighted Positions × 100% Vertical Disallowances Matched Weighted Positions184 in all Maturity Bands × 10% Matched Weighted Positions within Zone 1 × 40% Matched Weighted Positions within Zone 2 × 30% Horizontal Disallowances Matched Weighted Positions within Zone 3 × 30% Matched Weighted Positions Between Zones 1 & 2 × 40% Matched Weighted Positions Between Zones 2 & 3 × 40% Matched Weighted Positions Between Zones 1 & 3 × 100% An example of the calculation of general benchmark rate risk using maturity method is set out in Example 1. Duration Method 5.59 Islamic banking institutions may adopt the duration method if they have the necessary capability to measure their general risk by calculating the price sensitivity of each position separately. This method should be consistently used upon adoption. The mechanics of this method are as follows: (i) Calculate the price sensitivity of each instrument in terms of a change in benchmark rates of between 0.8 and 1.5 percentage points for instruments denominated in non G10 countries’ currencies and between 0.6 and 1.0 percentage point for instruments denominated in G10 countries’ currencies (refer to Table 5) depending on the maturity of the instrument; (ii) Slot the resulting sensitivity measures into a duration-based ladder in the thirteen time bands as set out in the second column of Table 5 and obtain the net position; (iii) long and short positions in each time band are subjected to a 5% vertical disallowance to capture basis risk in the same manner as per paragraph 5.56; and 184 The smaller of the absolute value of the short and long positions within each time band. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 260 / 517 Issued on: 3 May 2019 (iv) carry forward the net positions in each time band for horizontal offsetting subject to the disallowances set out in Table 4 in the same manner as per paragraph 5.57. The market risk capital charge will be the aggregation of the three charges described in paragraph 5.58. Table 5: Changes in Yield for Financial Instruments Exposed to G10 and Non-G10 Currency Benchmark Rate Risk Zone Time Bands (Profit rate 3% or more) Time Bands (Profit rate less than 3%) G10 Changes in Yield (%) Non-G10 Changes in Yield (%) 1 1 month or less 1 month or less 1.00 1.50 >1 month and up to 3 months >1 month and up to 3 months 1.00 1.50 >3 months and up to 6 months >3 months and up to 6 months 1.00 1.40 >6 months and up to 12 months >6 months and up to 12 months 1.00 1.20 2 >1 year and up to 2 years >1.0 year and up to 1.9 years 0.90 1.00 >2 years and up to 3 years >1.9 years and up to 2.8 years 0.80 0.90 > 3 years and up to 4 years >2.8 years and up to 3.6 years 0.75 0.90 3 >4 years and up to 5 years > 3.6 years and up to 4.3 years 0.75 0.90 >5 years and up to 7 years >4.3 years and up to 5.7 years 0.70 0.90 > 7 years and up to 10 years > 5.7 years and up to 7.3 years 0.65 0.80 >10 years and up to 15 years >7.3 years and up to 9.3 years 0.60 0.80 >15 years and up to 20 years >9.3 years and up to 10.6 years 0.60 0.80 >20 years >10.6 years and up to 12 years 0.60 0.80 >12 years and up to 20 years 0.60 0.80 >20 years 0.60 0.80 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 261 / 517 Issued on: 3 May 2019 Treatment of Profit Rate Derivatives, Sell and Buy Back Agreement (SBBA) and Reverse SBBA Transactions 5.60 The measurement system should include all profit rate derivatives, off- balance sheet instruments, SBBA and reverse SBBA transactions in the trading book which would react to changes in benchmark rates (for example forward rate agreements (FRAs), other forward contracts, profit rate and cross currency swaps and forward foreign exchange positions). Options can be treated in a variety of ways as described in Part D.2.6 Treatment of Options. 5.61 Derivatives should be converted into positions under the relevant underlying and subject to general risk charges. To determine the capital charge under the standardised method described above, the amount reported should be the market value of the principal amount of the underlying or of the notional underlying. Treatment of the benchmark rate derivative positions by product class is described in Box 1. A summary on the treatment for profit rate derivatives is set out in Table 6. Table 6: Summary of Treatment of Benchmark Rate Derivatives, SBBA and Reverse SBBAs under the Standardised Market Risk Approach Instrument Specific Risk* General Risk OTC Forwards - Malaysian Government debt security No Yes, as two positions + - Foreign sovereigns debt security Yes^ Yes, as two positions + - Corporate debt security Yes Yes, as two positions + - Index on benchmark rates No Yes, as two positions + FRAs, Swaps No Yes, as two positions + Forward Foreign Exchange No Yes, as one position in each currency + BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 262 / 517 Issued on: 3 May 2019 Options - Malaysian Government debt security - Foreign sovereigns debt security - Corporate debt security - Index on benchmark rates - FRAs, Swaps No Yes^ Yes No No Either (a) Simplified Approach: Carve out together with the associated hedging positions for general risk only and reflect under Part D.2.6; or (b) Delta-Plus Method: Include the delta weighted option position into the respective time bands according to its underlying. (Gamma and Vega risk should each receive a separate capital charge and calculated under Part D.2.6); or (c) Scenario Approach: Carve out together with the associated hedging positions for general risk only and reflect under Part D.2.6; or (d) Internal Models Approach (Part D.3) SBBA No Yes, as 1 position + Reverse SBBA No Yes, as 1 position + * This refers to the specific risk charge relating to the issuer of the financial instrument. There remains a separate risk charge for counterparty credit risk which is set forth in the credit risk component of the Framework. ^ The specific risk capital charge only applies to foreign sovereign debt securities that are rated below AA- + Refer to Box 1 for more details on method of recording the position 5.62 Profit rate swaps, cross currency swaps, FRAs and forward foreign exchange contracts will not be subject to a specific risk charge. They are, however, subject to the counterparty credit risk which is set forth in the credit risk component of the Framework. A specific risk charge will apply in the case where the underlying of a contract is represented by a specific Sukuk, or an index representing a basket of Sukuks. 5.63 General risk applies to all positions in derivative products in the same manner as cash positions, with the exception of fully matched positions in identical instruments. The various categories of instruments should be slotted into the maturity ladder and treated according to the rules identified earlier. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 263 / 517 Issued on: 3 May 2019 BOX 1 Forward Contracts In the case of foreign currency forward contracts, either a long or a short position in the market value of each underlying currency leg shall be recorded in the respective maturity ladder templates capturing the relevant currency benchmark rate risk. Swaps Swaps will be treated as two underlying positions in government securities with relevant maturities. For example, a profit rate swap under which an Islamic banking institution is receiving variable profit rate and paying fixed profit rate will be treated as a long position in a variable profit rate instrument of maturity equivalent to the period until the next profit fixing date and a short position in a fixed-rate instrument of maturity equivalent to the residual life of the swap. For swaps that pay or receive a fixed or variable profit rate against some other reference price, for example an equity index, the profit rate component should be slotted into the appropriate repricing maturity category, with the equity component being included in the equity framework. The separate legs of cross-currency swaps are to be reported at market value in the relevant maturity ladders for the currencies concerned. SBBA Transactions185 The risk exposure under SBBA transactions arises from selling of securities and receiving cash with a promise to repurchase securities or repayment of cash at the agreed future date. The classification of SBBA transactions should be determined based on the trading book definition; hence it can be classified either as a trading book SBBA (for example SBBA to fund trading book positions) or banking book SBBA (for example SBBA to fund banking book positions). 185 Capital treatment for SBBA and reverse SBBA transaction is summarised in Appendix XVIII. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 264 / 517 Issued on: 3 May 2019 Trading Book SBBA General Risk • Arising from short cash position • Recording: short the value of the SBBA (cash leg) based on the remaining maturity of the SBBA Counterparty Credit Risk • The net exposure arising from the swapping of securities and cash with the SBBA counterparty at maturity of the SBBA. • Recording: Treated as a credit risk under the credit risk component of the Framework. Risk of the Underlying Securities • Irrespective of whether the underlying security is from the banking or trading book, its respective credit or market risk shall remain. Banking Book SBBA Counterparty Credit Risk • The net exposure arising from the selling of securities in exchange for cash. • Recording: Treated as a banking book credit risk charge under the credit risk component of the Framework for SBBA transactions Risk of the Underlying Securities • Irrespective of whether the underlying security is from the banking or trading book, its respective credit or market risk shall remain. Reverse SBBA Transactions The risk exposure under reverse SBBA transactions arises from buying of securities in exchange for cash with a promise to resell securities or receive cash at the agreed future date. The classification of reverse SBBA transactions BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 265 / 517 Issued on: 3 May 2019 should be based on the trading book definition; hence it can be classified either as a trading or banking book position. Trading Book Reverse SBBA General Risk • Arising from long cash position • Recording: long the value of the reverse SBBA based on the remaining maturity of the reverse SBBA Counterparty Credit Risk • The net exposure arising from the purchase of securities in exchange for cash with the reverse SBBA counterparty at maturity of the reverse SBBA. • Recording: Treated as a credit risk under the credit risk component of the Framework. Banking Book Reverse SBBA Counterparty Credit Risk • The net exposure arising from the exchange of cash for the purchase of securities. Recording: Treated as a banking book credit risk charge under the credit risk component of the Framework for reverse SBBA style transactions. Options Three methods (Simplified Approach, Scenario Approach and Delta-Plus Method) are available under Part D.2.6 Treatment of Options. Profit rate option positions and the underlying transactions will be carved out and capital is provided separately for general risk if Islamic banking institutions choose to use the simplified and scenario approach. However, if the delta-plus method is selected, the delta-weighted option position will be slotted into the respective time bands according to its underlying together with the other profit rate related BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 266 / 517 Issued on: 3 May 2019 instruments. Nevertheless, under the delta-plus method, the Gamma and Vega risks will be separately calculated as described in Part D.2.6 Treatment of Options. Islamic banking institutions are also allowed to use internal model approach under Part D.3 subject to written approval from the Bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 267 / 517 Issued on: 3 May 2019 Example 1: Calculation of General Risk (Maturity Method) for Benchmark Rate Related Financial Instruments 1. Assume that an Islamic banking institution has the following positions in its trading book: (i) A Malaysian fixed rate corporate Sukuk of RM13.33 million market value, residual maturity 8 years; (ii) A Malaysian government investment issues (GII) of RM75 million market value, residual maturity 2 months; (iii) An Islamic profit rate swap (IPRS) of RM150 million186, where the Islamic banking institution receives floating profit rate and pays fixed, the next profit fixing occurs after 9 months, residual life of the IPRS 8 years; (iv) A GII of RM60 million market value with residual maturity of 3.5 years, sold under SBBA for six months; and (v) A Malaysian fixed profit rate trading book corporate Sukuk, RM50 million market value, residual maturity of 5 years, sold under SBBA for 3 months. 2. Table A shows how these positions are slotted into the time bands and are weighted according to the weights given in column 5 of Table 3 (Risk weight for Non-G10 countries currency) of Part D.2.1 Benchmark Rate Risk. After weighting the positions, the calculation should proceed as follows: (i) The overall net position is -2.12 million (0.05-0.30+1.20+1.62+1.60-6.29 million) leading to a capital charge of RM2.12 million. (ii) The vertical disallowance in time bands 1-3 months and 7-10 years has to be calculated and the matched position in these time-bands (the lesser of the absolute values of the added weighted long and added weighted short positions in the same time-band) are 0.10 and 0.61 million respectively resulting in a capital charge of 10% of 0.71 million = RM0.07million. (iii) The horizontal disallowances within the zones have to be calculated. As there are more than one position in zones 1 and 3, a horizontal disallowance need only be calculated in these zones. In doing this, the matched position is calculated as the lesser of the absolute values of the added long and short positions in the same zone and is 0.30 and 1.60 million in zones 1 and 3 respectively. The capital charge for the horizontal disallowance within zone 1 is 40% of 0.30 million = RM0.12 million and 186 The position should be reported as the market value of the notional underlying. Depending on the current benchmark rate, the market value of each leg of the swap (that is the 8 year Sukuk and the 9 month floater) can be either higher or lower than the notional amount. For simplicity, the example assumes that the current benchmark rate is identical with the one the swap is based on, hence, the market value for both legs are identical. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 268 / 517 Issued on: 3 May 2019 30% of 1.60 million = RM0.48 million in zone 3. The remaining net weighted positions in zones 1 and 3 are +0.95 and -4.69 million respectively. (iv) The horizontal disallowances between adjacent zones have to be calculated. After calculating the net position within each zone the following positions remain: zone 1: +0.95 million; zone 2: +1.62 million and zone 3: -4.69 million. The matched position between zones 2 and 3 is 1.62 million (the lesser of the absolute values of the long and short positions between adjacent zones). The capital charge in this case is 40% of 1.62 million = RM0.65 million. (v) The horizontal disallowance between zones 1 and 3 has to be calculated. The matched position between zones 1 and 3 is 0.95 million (the lesser of the absolute values of the long and short positions between zones 1 and 3). The horizontal disallowance between the two zones is 100% of the lower of the matched position which leads to a capital charge of 100% of 0.95 million = RM0.95 million. 3. The total capital charge (RM million) in this example is: - overall net open position 2.12 - vertical disallowance 0.07 - horizontal disallowance in zone 1 0.12 - horizontal disallowance in zone 3 0.48 - horizontal disallowance between adjacent zones 0.65 - horizontal disallowance between zones 1 and 3 0.95 Total RM4.39 million BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 269 / 517 Issued on: 3 May 2019 Table A: Maturity Method of Calculating General Risk of Profit Rate Related Financial Instruments (RM million) Time-Band Zone 1 (months) Zone 2 (years) Zone 3 (years) (Coupon 3% or more) Up to 1 > 1-3 > 3-6 > 6-12 > 1- 2 > 2- 3 > 3- 4 > 4- 5 > 5- 7 > 7- 10 > 10- 15 > 15 - 20 Over 20 Total charges (Coupon less than 3% > 1- 1.9 > 1.9- 2.8 >2.8- 3.6 >3.6- 4.3 >4.3- 5.7 >5.7- 7.3 >7.3 - 9.3 > 9.3 -10.6 > 10.6- 12 > 12- 20 Over 20 Long position 75 GII (ii) 150 IPRS (iii) 60 GII (iv) 50 corporate Sukuk* (v) 13.33 corporate Sukuk (i) Short position 50 SBBA (Cash) (v) 60 SBBA (Cash) (iv) 150 IPRS (iii) Assigned Weight (%) 0.00 0.20 0.50 0.80 1.30 1.90 2.70 3.20 4.10 4.60 6.00 7.00 8.00 10.40 16.40 Overall Net Open Position +0.05 -0.30 +1.20 +1.62 +1.60 -6.29 2.12 Vertical Disallowance 0.10 x 10%= 0.01 0.61 x 10% = 0.06 0.07 Horizontal Disallowance 1 0.30 x 40% = 0.12 1.60 X 30% = 0.48 0.60 Horizontal Disallowance 2 1.62 x 40% = 0.65 0.65 Horizontal Disallowance 3 0.95x 100% = 0.95 0.95 Total General Risk Charge 4.39 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 270 / 517 Issued on: 3 May 2019 D.2.2 EQUITY POSITION RISK 5.64 This part sets out the minimum capital requirement to cover the risk of equity positions in the trading book. It applies to long and short positions in all instruments that exhibit market behaviour similar to equities. The instruments include ordinary shares, whether voting or non-voting, convertible securities that behave like equities, and commitments to buy or sell equity securities. Non-convertible preference shares are to be excluded from these calculations as they are covered under benchmark rate risk requirement described in Part D.2.1 Benchmark Rate Risks. Equity derivatives and off-balance sheet positions such as swaps and options on individual equity or equity indices are also included. Underwriting of equities187 should be included and regarded as an option instrument. Specific and General Risk 5.65 The minimum capital requirement for equities is expressed in terms of two separate charges that represent the calculation for the specific and general risk charges for holding a long or short equity position. The equity positions must be calculated based on a market by market basis where a separate calculation has to be carried out for each national market in which the equities are traded. Specific Risk 5.66 Specific risk is defined as a proportion of the Islamic banking institution’s sum of the absolute value of all net positions in each individual equity188. Matching opposite position for the same equity issuer may be netted off. The capital charge for specific risk is listed in Table 7189. The Bank however, reserves the right to 187 The underwriter is obliged to purchase equities at the issue price for unsubscribed equities which in effect is equivalent to writing a put option and the issuer as the holder of the put option has the right but not the obligation to sell the equities to the underwriter at the issue price. 188 Net position in each individual equity refers to the net of short and long exposure to an individual company. 189 If the Delta-plus method or the Scenario approach is selected to estimate the general risk of equity options, the specific risk of these positions will be calculated within this part as the multiplication of the delta weighted option underlying position and the risk weight for specific risk as provided in Table 7. However, if the Underlying Position approach is adopted, both specific risk and general risk BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 271 / 517 Issued on: 3 May 2019 assign different risk weights to specific exposure in order to better reflect the risk characteristics of the exposure. General Risk 5.67 General risk will be assessed on the overall net equity positions (i.e. the difference between the sum of the long positions and the sum of the short positions of all equity position) in an equity market. The general risk capital charge is as provided in Table 7. of the equity option will be carved out and provided under paragraphs 5.122 and 5.123 of Part D.2.6 Treatment of Options. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 272 / 517 Issued on: 3 May 2019 Table 7: Specific Risk and General Risk Charges for Equities and Equity Derivatives Instrument Specific risk General risk Equity and/or Equity Derivative (except Options) Positions with the following as Underlying: • KLCI equities • Equities of G10 countries market indices • Non-index equities of G10 stock exchanges • All other equities • Trust funds and Exchange Traded Funds • Shariah equities indices • Other market indices 8% 4% 8% 14% 8% 2% 2% 8% 8% 8% 8% 8% 8% 8% Underwriting of Equity Underlying Position Approach: General and specific risk for underwriting initial public offering (IPO) and rights issue are calculated by carving out the positions and reporting them based on the underlying position approach under Part D.2.6 Treatment of Options Equity Options 1. Simplified Approach: i. This approach applies to limited range of purchase options only. ii. Equity options and associated underlying cash positions are ‘carved-out’ and subject to separately calculated capital charges that incorporate both general market risk and specific risk under Part D.2.6 Treatment of Options; or 2. Delta-Plus Method: i. For both specific risk and general risk charge, the delta weighted option position is multiplied with the relevant specific risk and general risk charge as provided above. ii. Gamma and Vega risk should each receive a separate capital charge calculated as per Part D.2.6 Treatment of Options; or 3. Scenario Approach: i. Specific risk is calculated by multiplying the delta weighted position of the option’s underlying by the specific risk charge as provided above. ii. General risk is calculated by carving out the options position together with its associated hedging positions and reflected under Part D.2.6 Treatment of Options; or 4. Internal Models Approach: Subject to the Bank’s approval upon compliance with Part D.3 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 273 / 517 Issued on: 3 May 2019 D.2.3 FOREIGN EXCHANGE RISK (INCLUDING GOLD AND SILVER POSITIONS) 5.68 This sets out the minimum capital requirement to cover the risk of holding or taking positions in foreign currencies including gold and silver. Taking on foreign exchange positions may also expose an Islamic banking institution to benchmark rate risk (for example, in forward foreign exchange contracts). In this regard, the relevant benchmark rate positions should be included in the calculation of benchmark rate risk described in Part D.2.1 Benchmark Rate Risks. 5.69 Two steps are needed to calculate the capital requirement for foreign exchange risk under the standardised approach. The first is to measure the exposure in a single currency position (i.e. the net open position of a single currency). The second is to measure the risks inherent in an Islamic banking institution's mix of net long and short positions in different currencies (i.e. the total net long and total net short position in foreign currencies). 5.70 The 8% capital charge will be applied on the higher amount of the total net long or total net short foreign currency position. For exposures in gold and silver, the respective net position will be treated on a stand alone basis and applied a capital charge of 8%. 5.71 An additional capital charge of 3% will be applied on the total gross long and short position to account for execution risk, in the event that gold and/or silver are physically traded. The Treatment of Structural Positions 5.72 While matched foreign currency asset and liability positions will protect an Islamic banking institution against loss from movements in exchange rates, this will not necessarily protect its capital adequacy ratios. This is due to higher RWA for its foreign assets arising from appreciation of foreign exchange rate. By maintaining a structural net long position in the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 274 / 517 Issued on: 3 May 2019 foreign currency, the gain arising from revaluation of the net long position will buffer the increase in RWA resulting from the rise in the value of foreign currency assets. 5.73 Any structural foreign currency positions which was deliberately undertaken by an Islamic banking institution to hedge partially or totally the adverse effect of the exchange rate on its capital adequacy ratios may be excluded from the calculation of net open currency positions, provided that the following conditions are satisfied: (i) the ‘structural positions’ must be of non-dealing nature; (ii) the ‘structural positions’ do no more than protect the Islamic banking institution’s capital adequacy ratio; and (iii) the exclusion of the positions are approved by ALCO/Risk Committee, or other approving authority delegated by the board, and must be applied consistently throughout the life of the assets. Measuring the Exposure in a Single Currency 5.74 Islamic banking institutions’ net open position in each currency (excluding gold and silver) shall be calculated by aggregating the following positions: (i) the net on-balance sheet position190 (i.e. all foreign currency asset items less all foreign currency liability items. For example, currency and notes, trade bills, government and private debt papers, financing and deposits, foreign currency accounts and accrued profit, denominated in the foreign currency in question)191; (ii) the net forward position (i.e. present value of all amounts to be received less present value of all amounts to be paid under unsettled spot transactions, forward foreign exchange transactions, the 190 Structural positions which fulfil conditions set out in Part D.2.3 Foreign Exchange Risk would be excluded from the computation. 191 Profit, other income and expenses accrued (that is earned/expensed but not yet received/paid) should be included as a position. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 275 / 517 Issued on: 3 May 2019 principal on currency swaps position and profit rate transaction such as profit rate swap denominated in a foreign currency)192; (iii) guarantees and contingencies (exclude underwriting of equity IPOs which are captured as options and treated under Part D.2.6 Treatment of Options) that are certain to be called and are likely to be irrecoverable; (iv) any other item representing a profit or loss in foreign currencies; and (v) the net delta-based equivalent of the total book of foreign currency options193. 5.75 Currency pairs which are subject to a binding inter-governmental agreement linking the two currencies may be treated as one currency194. 5.76 Positions in gold and silver are measured in terms of the standard unit of measurement which is then converted into Ringgit195 based on spot exchange rate at reporting date. The Treatment of Profit, Other Income and Expenses in Foreign Currency 5.77 Accrued profit and accrued expenses should be included as a position. Unearned but expected future profit and anticipated expenses may be excluded unless the amounts are certain and Islamic banking institutions have taken the opportunity to hedge them. Any inclusion of future 192 Forward currency positions could be valued in the following ways: (i) Present values of each forward foreign currency position using the benchmark rate of the foreign currency and translated at current spot exchange rates to get the Ringgit equivalent; or (ii) Use forward exchange rate to translate the forward currency leg into Ringgit equivalent before discounting it by Ringgit benchmark rates; or (iii) Multiply the foreign currency forward leg by current spot exchange rate without present valuing. Treatment (i) and (ii) are preferred. Nevertheless, treatment (iii) which is a simplified but relatively inaccurate method may be used by Islamic banking institutions with small foreign exchange positions and do not possess the systems to conduct present value calculations. 193 Applicable to institutions which uses the Delta-plus method of treating options position. Subject to separately calculated capital charges for Gamma and Vega as described in Part D.2.6 Treatment of Options. Alternatively, options and their associated underlying may be subject to one of the other methods described in Part D.2.6 Treatment of Options. 194 For example, inter-governmental agreements apply to Singapore and Brunei dollars. 195 Where gold/silver is part of a forward contract (the quantity of gold/silver to be received or to be delivered), any benchmark rate or foreign currency exposure from the other leg of the contract should be reported as set out in Part D.2.1 Benchmark Rate Risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 276 / 517 Issued on: 3 May 2019 income/expenses should be treated consistently, and should not be restricted to select only those expected future flows that would reduce their position. Measuring the Foreign Exchange Risk in a Portfolio of Foreign Currency Positions 5.78 Under the standardised method, the net position of the combined trading and banking book in each foreign currency is converted into reporting currencies (Malaysian Ringgit) at spot rates of the reporting dates. The overall net open position is measured by aggregating: (i) the sum of the net short positions or the sum of the net long positions, whichever is the greater; with (ii) the net position (short or long) in gold and silver, regardless of whether it is positive or negative. 5.79 The capital charge will be 8% of the overall net open position (refer to the example below). Example of the Standard Measure of Foreign Exchange Risk JPY HKD GBP SGD USD GOLD Step 1 +50 +100 +150 -20 -180 -35 Step 2 +300 -200 35 The capital charge of 8% for foreign exchange risk shall be calculated based on either the net long currency positions or the net short currency positions (300) and the net position in gold (35) as follows: Capital charge = (300 + 35) x 8% = RM26.8. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 277 / 517 Issued on: 3 May 2019 D.2.4 COMMODITIES RISK 5.80 This part establishes a minimum capital requirement to cover the price risk of holding or taking positions in commodities196, that includes precious metals. However, the capital requirement does not apply to gold and silver which are treated as a foreign currency according to the methodology set out in Part D.2.3 Foreign Exchange Risk. A commodity is defined as a physical product which is or traded on a secondary market, for example agricultural products, minerals (including oil) and precious metals. 5.81 The price risk in commodities is often more complex and volatile than that associated with currencies and profit rates. Commodity markets may also be less liquid than those of profit rates and currencies. Hence, changes in supply and demand may have a significant effect on price and volatility197. These market characteristics signify the challenges to enable price transparency and to effectively hedge the commodities risk. 5.82 Islamic banking institutions involved in commodity derivative contracts are exposed to the following risks: (i) directional risk (the risk arising from a change in the spot price); (ii) basis risk (the risk that the relationship between the prices of similar commodities be adjusted through time); (iii) benchmark rate risk (the risk of a change in the carrying cost for forward positions and options); and (iv) forward gap risk (the risk that the forward price may change for reasons other than a change in benchmark rates). 5.83 In addition Islamic banking institutions are exposed to counterparty credit risk on over-the-counter derivatives, but this is captured by the credit risk 196 All commodity derivatives and off-balance-sheet positions which are affected by changes in commodity prices should be included. This includes commodity risk arising from Salam contracts. 197 Islamic banking institutions also need to guard against the risk that arises when the short position falls due before the long position. Owing to a shortage of liquidity in some markets it might be difficult to close the short position and the Islamic banking institution might be squeezed by the market.. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 278 / 517 Issued on: 3 May 2019 component of the Framework. The funding of commodities positions may expose Islamic banking institution to benchmark rate or foreign exchange risks, whereby the relevant positions should be included in the measurement of benchmark rate and foreign exchange risk as stipulated under Part D.2.1 Benchmark Rate Risk and D.2.3 Foreign Exchange Risk.198 5.84 Under the standardised approach, commodities position risk is measured based on either one of the following approaches: (i) Simplified approach; or (ii) Maturity ladder approach Both the Simplified Approach and the Maturity Ladder Approach are appropriate only for Islamic banking institutions, which in relative terms, conduct only a limited amount of commodities business. Major traders would be expected over time to adopt the internal model approach subject to the requirements set out in the Part D.3 Internal Models Approach. 5.85 Under the Simplified Approach and the Maturity Ladder Approach, long and short positions in each commodity may be reported on a net basis where the long and short positions in identical underlying commodity may be excluded for the purpose of calculating the open positions. However, positions in different types of commodities shall not be offset against each other with the exception if that commodities: (i) similar199 in nature; and (ii) have exhibit minimum correlation of 0.9 between price movements over a minimum period of one year. 198 Where a commodity is part of a forward contract (quantity of commodities to be received or to be delivered), any benchmark rate or foreign currency exposure from the other leg of the contract should be reported as set out in Part D.2.1 Benchmark Rate Risk and Part D.2.3 Foreign Exchange Risk (Including Gold and Silver Positions). Positions which are purely stock financing (that is a physical stock has been sold forward and the cost of funding has been locked in until the date of the forward sale) may be omitted from the commodities risk calculation although they will be subject to benchmark and counterparty risk requirements. 199 For example, CBOT Mini-sized Gold vs. 100oz Gold; but not Mini-sized Silver vs. Mini-sized Gold. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 279 / 517 Issued on: 3 May 2019 5.86 Islamic banking institutions that wish to apply the correlation factor as a basis for the computation of capital charges are required to justify the accuracy of the proposed methodology and to obtain prior approval from the Bank. Simplified Approach 5.87 For the purpose of calculating the capital charges for directional risk, Islamic banking institutions are required to measure each commodity position (spot plus forward) in terms of the standard unit of measurement (barrels, kilos, grams etc.). The net position in each commodity will then be converted at the current spot rates into Malaysian Ringgit. The capital charge of 15% is imposed on net commodity position that is long or short in each commodity. 5.88 Islamic banking institutions will also be subject to additional capital charge of 3% of the gross commodity positions, long plus short in each commodity, to cover the exposures against basis risk, benchmark rate risk and forward gap risk for each type of commodity. The current spot price should be used for the purpose of valuing the gross positions in commodity derivatives. Maturity Ladder Approach 5.89 Islamic banking institutions are required to measure each commodity position (spot plus forward) in terms of the standard unit of measurement (barrels, kilos, grams etc.) for the purpose of calculating the capital charges for directional risk under this approach. The net position in each commodity will then be converted at the current spot rates into Malaysian Ringgit. 5.90 Subsequently for the purpose of capturing the forward gap and benchmark rate risk within a time-band, (which together, are sometimes referred to as curvature/ spread risk) the matched long and short positions in each time- band will carry a capital charge. The methodology will be similar to that BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 280 / 517 Issued on: 3 May 2019 used for profit rate related instruments as set out in Part D.2.1 Benchmark Rate Risk. 5.91 The calculation of the capital charge under the maturity ladder approach is undertaken based on the following sequence: (i) Firstly, the position in the separate commodities shall be measured based on the standard unit of measurement and will be entered into a maturity ladder while physical transactions should be allocated to the first time-band. A separate maturity ladder will be used for each type of commodity as defined in paragraph 5.85.200 For each time-band, the sum of short and long total positions which are matched will be multiplied by the appropriate spread rate (as set out in Table 8); Table 8: Time-Bands and Spread Rates Time-Band Spread Rate 0-1 month 1.5% >1-3 months 1.5% >3-6 months 1.5% >6-12 months 1.5% >1-2 years 1.5% >2-3 years 1.5% Over 3 years 1.5% (ii) The residual net positions from nearer time-bands may then be carried forward to offset exposures in time-bands that are further out. However, recognising that such hedging of positions among different time-bands is imperfect, a surcharge equal to 0.6% of the net position carried forward will be added in respect of each time-band that the net position is carried forward. The capital charge for each matched amount created by carrying forward net positions is calculated in accordance with sub paragraph 5.91; and 200 For markets which have daily delivery dates, any contracts maturing within ten days of one another may be offset. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 281 / 517 Issued on: 3 May 2019 (iii) Finally, Islamic banking institution will have either a residual long or short position only, to which a capital charge of 15% will apply. 5.92 All commodity derivatives and off-balance-sheet positions which are affected by changes in commodity prices should be included under the Framework. This includes commodity futures, commodity swaps, and options where the ‘delta plus’ method201 is used (see Part D.2.6 Treatment of Options). In order to calculate the risk, commodity derivatives should be converted into notional commodities positions and assigned to maturities as follows: (i) futures and forward contracts relating to individual commodities should be incorporated in the measurement system as notional amounts of barrels, kilos, etc. and should be assigned maturity with reference to expiry date; (ii) commodity swaps where one leg is undertaken based on a fixed price and the other on the current market price should be accounted as a series of positions equal to the notional amount of the contract, with one position corresponding with each payment on the swap and slotted into the maturity ladder accordingly. Islamic banking institution shall be in a long positions if the Islamic banking institution is paying fixed and receiving variable price, and short positions if it is receiving fixed and paying variable price202; and (iii) commodity swaps where the legs are in different commodities are incorporated in the relevant maturity ladder. 5.93 An example on the application of maturity ladder approach for commodity risk is provided in Example 3. 201 For Islamic banking institutions using other approaches to measure options risk, all options and the associated underlyings should be excluded from both the maturity ladder approach and the simplified approach. 202 If one of the legs involves receiving/paying a fixed or variable profit rate, that exposure should be slotted into the appropriate repricing maturity band in the maturity ladder covering benchmark rate related instruments. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 282 / 517 Issued on: 3 May 2019 Models for Measuring Commodities Risk 5.94 Subject to the Bank’s written approval, Islamic banking institutions may adopt the Internal Models Approach as set out in Part D.3. It is essential that the models used capture material risks identified in paragraph 5.82. It is also particularly important that models take into account of the market characteristics – notably delivery dates and the scope provided to traders to close out positions. 5.95 Under the models approach Islamic banking institutions may offset long and short positions in different commodities to a degree which is determined by empirical correlations, in the same way as a limited degree of offsetting is allowed, for instance, between profit rates in different currencies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 283 / 517 Issued on: 3 May 2019 Example 3: Maturity Ladder Approach for Commodities Risk 1. To provide examples on maturity ladder approach for commodities risk, all positions are assumed to be in the same commodity as defined under paragraph 5.85 and converted at current spot rates into Malaysian Ringgit. Table B Time Band Position (RM) Spread Rate Capital Calculation Capital Charge (RM) 0-1 month 1.5% >1-3 months 1.5% >3-6 months Long 800 Short 1000 1.5% 800 long + 800 short (matched) x 1.5% = 24.0 200 short carried forward to 1-2 years, capital charge: 200 x 2 x 0.6% = 2.4 >6-12 months 1.5% * >1-2 years Long 600 1.5% 200 long + 200 short (matched) x 1.5% = 6.0 400 long carried forward to over 3 years, capital charge: 400 x 2 x 0.6% = 4.8 >2-3 years 1.5% * >3 years Short 600 1.5% 400 long + 400 short (matched) x 1.5% = 12.0 Net position: 200, Capital charge: 200 x 15% = 30.0 Total Capital Charge 79.2 * The net position in the previous bucket is carried forward to the next bucket since no offsetting could be done in this bucket. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 284 / 517 Issued on: 3 May 2019 2. Assume all positions are in crude palm oil (CPO): (a) A short position on 10,000 tonne notional amount of CPO maturing in six months’ time (b) Swap position on 10,000 tonne notional amount of CPO, the Islamic banking institution receives spot price and pays fixed price. The next repayment date occurs in 2 months’ time (quarterly settlement) with residual life of 11 months. First Step: Convert the positions at current spot rates (assuming current spot rate is RM2,500 per tonne). (i) 15,000 tonne X RM2,500 = RM37.5 million (ii) 10,000 tonne X RM2,500 = RM25.0 million Second Step: Slot the position in Malaysian Ringgit into the maturity ladder accordingly: (i) Forward contract in “3-6 months” time-band as short position. (ii) Swap position in several time-bands reflecting series of positions equal to notional amount of the contract. Since the Islamic banking institution is paying fixed and receiving spot, the position would be reported as a long position. The payments occur (and is slotted accordingly in the respective time-bands) as follows: (a) First payment: month 2 (next payment date) (b) Second payment: month 5 (c) Third payment : month 8 (d) Final payment : month 11 (end of life of the swap) BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 285 / 517 Issued on: 3 May 2019 Table C Time Band Position (RM’000) Spread Rate Capital Calculation Capital Charge (RM’000) 0-1 month 1.5% 1-3 months Long 25,000 1.5% 25,000 long carried forward to ‘1-3 months’, capital charge: 25,000 x 0.6% 1,500 3-6 months Long 25,000 Short 37,500 1.5% 37,500 long + 37,500 short (matched) x 1.5% = 1,125 Balance of 12,500 capital charge: 12,500 x 15% = 1,875 6-12 months Long 25,000 Short 37,500 1.5% Capital charge: 50,000 x 15% = 7,500 Total Capital Charge 12,000 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 286 / 517 Issued on: 3 May 2019 D.2.5 INVENTORY RISK 5.96 This part sets out the inventory risk capital charge arising from the exposure associated with the holding of the assets as inventories that are held for resale under the Murabahah contract, unbilled work-in-progress under Istisna` contract or leases under the Ijarah contract Murabahah and Murabahah for Purchase Order (MPO) 5.97 A Murabahah contract refers to an agreement where Islamic banking institution sells a specified asset that is in its possession to the obligor at a mark-up price that represent the acquisition cost (purchase price plus other direct costs) plus an agreed profit margin. 5.98 A Murabahah for Purchase Order (MPO) contract refers to an agreement where the Islamic banking institution sells a specified asset that has been purchased or acquired based on an agreement to purchase (AP) by the obligor at a mark-up price. The AP can be structured based on a binding or non-binding agreement. Under the MPO transaction, Islamic banking institution anticipates that the orderer/obligor will subsequently purchase the acquired asset. 5.99 An asset shall be treated as an inventory of the Islamic banking institution in the event that it is acquired under a non-binding MPO transaction and held for resale to the obligor. Therefore, Islamic banking institution is exposed to the risk of changes in asset price. In terms of risk measurement, the capital charge for a market risk exposure arising from the holding of the inventory shall be 15% of the carrying value. 5.100 Assets in possession on a ‘sale or return’ basis are treated as accounts receivable from the vendor and as such shall be offset against the related accounts payable to the vendor. If these accounts payable have been settled, the assets shall attract a capital charge of 8%, subject to: (i) the availability of documentation evidencing such an arrangement with the vendor; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 287 / 517 Issued on: 3 May 2019 (ii) the period for returning the assets to the vendor have not been exceeded. 5.101 The obligor is obliged to undertake the delivery of an asset sold under the binding MPO contract. Therefore, Islamic banking institution is not exposed to price risk and is not subject to market risk capital charge. 5.102 The following table set out the capital charges arising from the holding of asset as inventory under the Murabahah contract: Islamic Contract Applicable Stage of the Contract Market Risk Capital Charge Murabahah and Non-binding MPO Asset held for sale (asset on balance sheet)* 15% capital charge Binding MPO All stages Not applicable * Includes asset that is held arising from the cancellation of AP by an obligor Istisna’ 5.103 An Istisna` contract refers to an agreement to sell to or buy from an obligor a non-existent asset which is to be manufactured or built based on the specifications outlined by the ultimate buyer’s at an agreed predetermined selling price and to be delivered on a specified future date. Islamic banking institution that is the seller of the asset under an Istisna` contract has the option to manufacture or build the asset on its own or to engage the services of another supplier or subcontractor that is other than the Istisna` ultimate buyer, by entering into a Parallel Istisna` contract. 5.104 In terms of exposure to market risk, Islamic banking institution that undertakes to sell the underlying asset under an Istisna` contract is expose to the price risk of the unbilled work-in-progress. Hence, Islamic banking institution is required to set aside a capital charge of 1.6% to cater for the market risk that it incurs from the date that the Istisna` contract is BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 288 / 517 Issued on: 3 May 2019 entered. The market risk capital charge on the unbilled work-in-progress is applicable throughout the period of the Istisna` contract. 5.105 Islamic banking institution may enter into a Parallel Istisna` with another party to mitigate the exposure to price risk, particularly in respect of input material or manufacturing costs. Hence, Istisna` with Parallel Istisna` contract is not subject to a market risk capital charge. Any variation in a Parallel Istisna` contract, which effectively transfer the whole price risk to Istisna` obligor, is also eligible for this treatment. 5.106 The following table sets out the applicable type and stages of the contract that attract market risk capital charges. Islamic Contract Applicable Stage of the contract Market Risk Capital Charge Istisna` * Unbilled work-in-progress 1.6% capital charge on work-in-progress inventory * There is no market risk capital charge for Istisna` with Parallel Istisna`, provided that there is no provision under the Parallel Istisna` contract that allows the seller to increase or vary the selling price. Ijarah and Ijarah Muntahia Bittamleek (IMB) 5.107 Islamic banking institution that is the lessor under the Ijarah contract (either operating Ijarah or IMB) maintains the ownership on the leased asset. As an owner of the asset, the lessor assumes the liabilities and risks pertaining to the leased asset. The lessor is exposed to the price risk of the asset held under its possession prior entering into the lease contract, except where the asset is acquired based on a binding agreement to lease as described in paragraph (ii). In the case of IMB, the lessee however bears the residual value risk of the leased assets at the term of the contract. 5.108 Under an IMB contract, the lessor promises to transfer its ownership in the leased asset to the lessee at the end of the contract as a gift or at a specified consideration as stipulated under the contract. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 289 / 517 Issued on: 3 May 2019 5.109 Islamic banking institution that undertake to acquire or held an asset based on the agreement to lease (AL) under the operating Ijarah and IMB, may be considered to have entered into a binding AL provided that the terms are clearly stipulated under the AL. Hence, an asset that is acquired and held for the purpose of either operating Ijarah or IMB may be categorised as follows: (i) Non-binding AL The asset acquired and held for the purpose of leasing will be treated as inventory of the Islamic banking institution and therefore is exposed to market risk. In this regard, the market risk exposure shall be measured based on the simplified approach where the capital charge of 15% is imposed on the market value of the asset. (ii) Binding AL Islamic banking institution that is the lessor under a binding AL is exposed to risk that the lease orderer’s may default on its obligation to lease the asset from the lessor. In the event that the lease orderer defaulted on its AL, the lessor may either lease or dispose the asset to a third party. In this regard the Islamic banking institution may have recourse to the security deposit or collateral provided by the obligor, and: (a) may have the right to recoup any losses arising from the AL or disposal of the asset after taking into account the security deposit or collateral provided by the obligor; or (b) may not have such right, depending on the agreed terms under the AL. 5.110 In view of that the Islamic banking institution that is a lessor may have the right to recoup any losses from the obligor as provided under paragraph (ii)(a), thus the Islamic banking institution would not have the exposure to BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 290 / 517 Issued on: 3 May 2019 price risk. On the contrary, Islamic banking institution that is the lessor will have an exposure to market risk under the second case as stipulated under paragraph (ii)(b) where the market risk exposure (similar to the case on a non-binding AL) shall be calculated based on the cost of the asset to the Islamic banking institution. However, this risk exposure may be reduced by the amount of security deposit or collateral provided by the obligor to the Islamic banking institution. Operating Ijarah 5.111 The leased asset held under the operating Ijarah is also exposed to market risk and therefore be subject to capital charges in accordance to the stages of the contract as follows: (i) The capital charge of 8% of the residual value203 of the asset is imposed during the lease period; and (ii) Upon expiry of the lease contract, the carrying value of the leased assets attracts a capital charge of 15% until the asset is leased or disposed. Ijarah Muntahia Bittamleek (IMB) 5.112 The lessor will be exposed to the price risk in terms residual value of the leased asset after taking into consideration the refund of payments due to the lessee in the event where the lessee exercises its right to cancel the lease. However, the price risk shall have been reflected as a ‘haircut’ that is to be applied to the leased asset as the collateral value for the credit risk. Therefore, the price risk, if any, is not applicable in the context of the IMB. 203 Residual value of the leased asset under operating Ijarah is as per used for accounting purposes. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 291 / 517 Issued on: 3 May 2019 5.113 The following tables set out the applicable period of the contract that attracts market capital charges. Islamic Contract Applicable Stage of the Contract Market Risk Capital Charge Operating Ijarah * Asset available for lease (prior to signing a lease contact) 15% capital charge until lessee undertake their right under the leasing contract Upon consigning a leasing contract and the lease rental payments are due from the lessee 8% capital charge based on the residual value of the leased asset Maturity of contract term and the leased asset is returned to the Islamic banking institution 15% capital charge of the carrying value of the asset IMB* Asset available for lease (prior to signing a lease contract) 15% capital charge until lessee undertakes their right under the IMB contract Upon consigning a leasing contract and subsequent transfer of ownership of the leased assets or sale to lessee Not applicable * Binding AL where Islamic banking institutions have the right to recoup any losses from the obligor will not attract any capital charge BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 292 / 517 Issued on: 3 May 2019 D.2.6 TREATMENT OF OPTIONS 5.114 Options risk that are derived from the underwriting business of the Islamic banking institution shall be subject to options treatment under the Underlying Positions Approach as detailed in this Part. Under this approach, underwriting of equity and Sukuk are subject to separate calculation of capital charges that incorporate both specific risk and general risk. The amount of capital charges are then added to the capital charges of other risk categories. 5.115 For activities involving options other than underwriting, there are four approaches available for measuring options related risks as follows: (i) simplified approach; (ii) delta-plus approach; (iii) scenario approach; and (iv) Internal model approach 5.116 Islamic banking institutions which are exposed to a limited range of purchased options are allowed to use the simplified approach. Islamic banking institutions which also write options will be expected to use either the delta-plus approach or scenario approach. The use of internal model approaches would require Islamic banking institutions to obtain prior approval from the Bank. Islamic banking institutions with significant options trading activities will be expected to use a more sophisticated approach. Underlying Position Approach 5.117 Islamic banking institutions may use the underlying position approach to estimate the required capital charge for the option risk arising from the underwriting of equity IPO, rights issues and Sukuks. The capital charges for these transactions shall be estimated on a trade-by-trade basis, as described in the following table: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 293 / 517 Issued on: 3 May 2019 Table 9: Underlying Position Approach: Capital Charges Position Treatment Underwriting of equity type instrument; IPO and rights issue The capital charge will be calculated based on the committed amount of the equity as agreed under the underwriting agreement and multiplied by the sum of specific risk and general risk weights as defined in Table 7 of Part D.2.2 Equity Position Risk. The resultant amount is then multiplied by 50% that is the conversion factor which reflect the estimated pick-up probability. The recognition period for the underwriting equity risk shall commence from the date when the underwriting agreement is signed until the date of issuance. Equity positions held post-issuance date shall be treated as per Part D.2.2 Equity Position Risk. Underwriting of sukūk The amount of Sukuk to be raised in the underwriting agreement in which the Islamic banking institution is committed to underwrite204, multiplied by 50%, the conversion factor which estimates the pick-up probability. The resultant figure will be incorporated into Part D.2.1 Benchmark Rate Risk to calculate the capital charge for general risk. For specific risk charge, the same resultant figure is multiplied by the specific risk charge stipulated in Table 2 in Part D.2.1 Benchmark Rate Risk. The recognition period for the underwriting of Sukuks commences from the date the underwriting agreement is signed until the date of issuance205. Sukuk positions held post-issuance date shall be treated as per Benchmark Rate Risk described in Part D.2.1. 204 Underwriting commitments can be netted off against sell down (back-to-back) arrangements established with unrelated parties, where the arrangement is unconditional, legally binding and irrevocable, and where the Islamic banking institutions has no residual obligation to pick up the purported sell down portion. 205 In most cases of underwriting of short-term Sukuk such as Islamic commercial papers, given that the returns are is usually based on the cost of funds/ expected returns to investors plus profit, where the cost of funds/ expected returns to investor is determined one or two days before issuance, the real exposure to the institutions arising from the underwriting agreement is more of the credit risk of the issuer rather than on the fluctuation of the benchmark rate. As such, for specific risk, the recognition period for underwriting of Islamic commercial paper/ Sukuks commence from the date when the underwriting agreement is signed until the date of issuance. Whilst for general risk, the recognition period for underwriting of Islamic commercial papers/ Sukuks commence from the date a price is fixed until the date of issuance. In the event that market practice changes or in the case of underwriting of Sukuks which assumes characteristics of profit rate options, these positions should be reflected accordingly. An illustration on the treatment for such underwriting exposures is provided in Appendix XXVI. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 294 / 517 Issued on: 3 May 2019 5.118 As an illustration to the calculation of the capital charges, assume that an Islamic banking institution agreed to underwrite RM2 million in shares of a non KLCI equity at issue price of RM2.00 each. The aggregate capital requirement for a non KLCI equity is 22% of which 14% for specific risk and 8% for general risk. Thus, the capital charge shall be RM 220,000 (RM 2 million x 22% x 50%). Simplified Approach 5.119 Only Islamic banking institution that undertakes a limited range of purchased options are allowed to apply the simplified approach as set out in Table 10. As an example, assume a holder of 100 shares that is currently valued at RM10 each holds an equivalent put option with a strike price of RM11. The capital charge for KLCI equity shall be 16% (i.e. 8% specific risk plus 8% general market risk) of the market value of the shares or RM1,000, which is amounted to RM160, less the amount the option that is in the money totalling to RM100 [(RM11 - RM10) x 100]. Hence, the capital charge for the position of the options would be RM60. A similar methodology applies for options where the underlying is a foreign currency, a profit rate related instrument or a commodity. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 295 / 517 Issued on: 3 May 2019 Table 10: Simplified Approach : Capital Charges Position Treatment Long cash and Long put Or Short cash and Long call The capital charge will be the market value of the underlying security206 multiplied by the sum of specific and general market risk charges207 for the underlying less the amount the option is in the money (if any) bounded at zero208 Long call Or Long put The capital charge will be the lesser of: i) the market value of the underlying security multiplied by the sum of specific and general market risk charges for the underlying; or ii) the market value of the option209 206 In some cases such as foreign exchange, it may be unclear which side is the ‘underlying security’; this should be taken to be the asset which would be received if the option were exercised. In addition the nominal value should be used for items where the market value of the underlying instrument could be zero, for example caps and floors, swaptions etc. 207 Some options (e.g. where the underlying is a currency or a commodity) bear no specific risk but specific risk will be present in the case of options on certain benchmark rate related instruments (e.g. options on a corporate Sukuk; see Table 2, Part D.2.1 Benchmark Rate Risk for the relevant capital charges) and for options on equities (see Table 7, Part D.2.2 Equity Position Risk). The capital charge for currency options will be 8% and for options on commodities will be 15%. 208 For options with a residual maturity of more than six months the strike price should be compared with the forward, not current, price. An Islamic banking institution which is unable to do this must take in the money amount to be zero. 209 Where the position does not fall within the trading book (i.e. options on certain foreign exchange or commodities positions not belonging to the trading book), it may be acceptable to use the book value instead. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 296 / 517 Issued on: 3 May 2019 Delta-Plus Method 5.120 Islamic banking institution that write options may be allowed to include delta-weighted option positions within the standard method set out in Part D.2210. Such options should be reported as a position equal to the sum of the market values of the underlying multiplied by the sum of the absolute values of the deltas. However, since delta does not cover all risks associated with option positions, Islamic banking institution is also required to measure Gamma (which measures the rate of change of delta) and Vega (which measures the sensitivity of the value of an option with respect to a change in volatility) in order to calculate the total capital charge. 5.121 Delta-weighted positions which the underlying financial instrument is Sukuk or profit rate will be slotted into the profit rate time bands, as set out in Part D.2.1 Benchmark Rate Risk. A two-legged approach that is similar to other derivative transactions should be used where the first entry shall be undertaken at the time the underlying contract takes effect and second entry, at the time the underlying contract matures. For instance, a bought call option on a June three month profit rate future will in April be considered, on the basis of its delta-equivalent value, to be a long position with a maturity of five months and a short position with a maturity of two months211. The written option will be similarly slotted as a long position with a maturity of two months and a short position with a maturity of five months. Variable rate instruments with caps or floors will be treated as a combination of variable rate securities and a series of European-style options. For example, the holder of a three-year variable rate Sukuks indexed to 6-month KLIBOR with a cap of 15 per cent will be treated as: (i) Sukuks that reprices in six months; and (ii) a series of five written call options on a FRA with a reference rate of 15%, each with a negative sign at the time the underlying FRA takes effect and a positive sign at the time the underlying FRA matures 210 Delta measures the sensitivity of an option’s value to a change in the price of the underlying asset. 211 A two month call option on a bond future where delivery of the bond takes place in September would be considered in April as being a long position in the bond and a short position in the five months deposit, both positions being delta-weighted. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 297 / 517 Issued on: 3 May 2019 5.122 The capital charge for options with equities as the underlying assets are based on the delta-weighted positions which will incorporate the measure of market risk described in Part D.2.2 Equity Position Risk. 5.123 The capital charge for options on foreign exchange that is based on the delta-weighted position which will incorporate the measurement of the exposure for the respective currency position as described in Part D.2.3 Foreign Exchange Risk. 5.124 The capital charge for options on commodities that is based on the simplified or the maturity ladder approach set out in D.2.4 Commodities Risk. The delta-weighted positions will be incorporated in one of the measures described in that part. 5.125 In addition to the above capital charge arising from delta risk, there will be further capital charges for Gamma and for Vega risk. Islamic banking institutions using the delta-plus method will be required to calculate the Gamma and Vega for each option position separately. 5.126 The capital charges for Gamma risk should be calculated in the following way: Gamma impact = ½ x Gamma × (VU)2 where VU denotes the variation in the price of the underlying of the option. VU will be calculated as follows: (i) for profit rate options, the market value of the underlying should be multiplied by the risk weights set out in Table 3 of D.2.1 Benchmark Rate Risk; (ii) for options on equities and equity indices, the market value of the underlying should be multiplied by the equity general risk charge set out in Table 7 of Part D.2.2 Equity Position Risk; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 298 / 517 Issued on: 3 May 2019 (iii) for options on foreign exchange, the market value of the underlying multiplied by 8%; and (iv) for options on commodities, the market value of the underlying should be multiplied by 15%. 5.127 For the purpose of calculating the Gamma impact the following should be treated as the same underlying: (i) for profit rates212, each time band as set out in Table 3 of Part D.2.1 Benchmark Rate Risk; (ii) for equities and equity indices, each national market; (iii) for foreign currencies, each currency pair; and (iv) for commodities, each individual commodities. 5.128 Each option on the same underlying will have a Gamma impact that is either positive or negative. These individual Gamma impacts will be aggregated, resulting in a net Gamma impact for each underlying which is either positive or negative. Only net Gamma impacts that are negative will be included in the capital calculation. 5.129 The total Gamma capital charge will be the sum of the absolute value of the net negative Gamma impacts as calculated above. 5.130 To calculate Vega risk, Islamic banking institutions must multiply the Vega for each option by a 25% proportional shift of the option's current volatility. The results are then summed across each underlying. The total capital charge for Vega risk is calculated as the sum of the absolute value of Vega across each underlying. 5.131 An illustration of the use of the Delta-plus method is provided in Example 4. 212 Positions have to be slotted into separate maturity ladders by currency. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 299 / 517 Issued on: 3 May 2019 Scenario Approach 5.132 Islamic banking institution may also measure the market risk capital charge for options portfolios and associated hedging positions based on the scenario matrix analysis. This approach will be accomplished by specifying a fixed range of changes in the option portfolio's risk factors (i.e. underlying price/rate and volatility) and calculating changes in the value of the option portfolio and its associated hedging positions at various points along this matrix. To calculate the capital charge, the Islamic banking institution has to revalue the option portfolio using matrices for simultaneous changes in the underlying price and volatility of the option price. A different matrix will be set up for each individual underlying position. In the case of profit rate options, an alternative method is permitted for Islamic banking institutions to base the calculation on a minimum of six sets of time bands. When using this method, not more than three of the time bands (as defined in Table 5, Part D.2.1 Benchmark Rate Risk) should be combined into any one set. 5.133 The options and related hedging positions will be evaluated over a specified range of above and below the current value of the underlying that defines the first dimension of the matrix. The range for changes in benchmark rate is consistent with the assumed changes in yield in Table 5 of Part D.2.1 Benchmark Rate Risk. Islamic banking institution that use the alternative method for profit rate options set out in the previous paragraph should use the highest of the assumed changes in yield for each set of the time bands that is applicable to the group to which the time bands belong213. The other ranges for equity general risk charge as stipulated in Table 7 for equities, and ±8% for foreign exchange, gold and silver, and ±15% for commodities. For all risk categories, at least seven price shifts (including the current observation) should be used to divide the range into equally spaced intervals. 213 If, for example, in the case of options involving G10 currency benchmark rate risk, where the time- bands “>3 to 4 years”, “>4 to 5 years” and “>5 to 7 years” are combined, the highest assumed change in yield of these three bands would be 0.75 percentage point. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 300 / 517 Issued on: 3 May 2019 5.134 The second dimension of the matrix entails a change in the volatility of the underlying rate or price. A single change in the volatility of the underlying rate or price equal to a proportional shift in volatility of ±25% is expected to be sufficient in most cases. As circumstances warrant, however, the Bank may require that a different change in volatility be used and/or that intermediate points on the matrix be calculated. 5.135 After calculating the matrix, each cell should contain the net profit or loss of the option and the underlying hedge instrument. The capital charge for each underlying will then be calculated as the largest loss contained in the matrix. 5.136 The application of the scenario approach by an Islamic banking institution will be subject to supervisory consent, particularly with regard to the accuracy of the analysis is constructed. 5.137 An illustration of the use of the Scenario Approach is provided in Example 5. Example 4: Delta-Plus Methods for Options A. A Single Stock Option 1. Assume an Islamic banking institution has a European short call option to sell 1000 units of a KLCI stock with an exercise price of RM45 and a market value (spot price) of the underlying 12 months from the expiration of the option at RM50; a risk-free profit rate at 8% per annum, and volatility at 20%. The current unit delta for this position is according to the Black-Scholes formula -0.848 (that is the price of the option changes by -0.848 if the price of the underlying moves by RM1). The unit Gamma is -0.0235 (that is the delta changes by -0.0235, from -0.848 to -0.872, if the price of the underlying moves by RM1). The Gamma is (-0.0235 x 1,000) = -23.55. The current value of the option is RM9.328 x 1,000 = RM9,328. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 301 / 517 Issued on: 3 May 2019 2. The market risk capital charge for the single stock option is the summation of: (i) Specific Risk and General Risk on delta-weighted position incorporated in Part D.2.2 Equity Position Risk; and (ii) Gamma and Vega risks charge provided under Part D.2.6 Treatment of Options. Specific Risk and General Risk on delta-weighted position of equity options which will be incorporated in Part D.2.2 Equity Position Risk 3. To compute the specific risk and general risk on delta-weighted position of the stock option position, the following steps should be taken: a) The first step under the delta-plus method is to calculate the delta- weighted option position. This is accomplished by multiplying the market value of 1 unit of underlying or spot price, the number of units to be sold and the value of the delta: RM50 × 1,000 x (-0.848) = RM42, 400 The delta-weighted position then has to be incorporated into the framework described in Part D.2.2 Equity Position Risk. b) The specific risk for the stock option will be the multiplication of the delta- weighted position and the specific risk weight of the underlying equity (KLCI stock specific risk weight = 8%, refer to Table 7 of Part D.2.2 Equity Position Risk). Hence, the capital charge for specific risk will be: -RM42,400 x 0.08 = RM3,392 c) The delta risk charge will be calculated by incorporating the delta- weighted option position together with the other net equity positions generated in Part D.2.2 Equity Position Risk. Assuming that no other positions exist, the delta risk of the stock option is calculated as the multiplication of the delta-weighted position and the 8% general risk BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 302 / 517 Issued on: 3 May 2019 weight accorded to equities. Hence, the capital charge for general risk is calculated as: -RM42,400 × 0.08 = RM3,392 The total capital charge for specific risk and general risk on delta- weighted position which should be reflected in Part D.2.2 Equity Position Risk will be: RM6,784 (that is 3,392 + 3,392). Gamma and Vega Risks carved out to be provided under Part D.2.5 Treatment of Options 4. Under the delta-plus method, the capital charges for Gamma and Vega risk will be calculated as follows: a) The capital charge for Gamma, only negative gamma impact should be included and has to be calculated according to the formula set out in paragraph 5.126 in Part D.2.6 Treatment of Options: ½ × Gamma x (market value of 1 unit of the underlying or spot price × 0.08)2 ½ x (23.55) x (RM50 x 0.08) 2 = RM188 b) The capital charge for Vega has to be calculated separately. The assumed current (implied) volatility is 20%. As an increase in volatility carries a risk of loss for a short call option, the volatility has to be increased by a relative shift of 25%. This means that the Vega capital charge has to be calculated on the basis of a change in volatility of 5 percentage points from 20% to 25% in this example. According to the Black-Scholes formula used here the Unit Vega equals 11.77. Thus a 1% or 0.01 increase in volatility increases the value of the option by 0.1177. Accordingly, a change in volatility of 5 percentage points would increase the value by: 5 × 0.1177 x 1,000 = RM589 which is the capital charge for Vega risk. The total capital charge for Gamma and Vega risk which should be disclosed in Part D.2.6 Treatment of Options under the Delta-plus method will be RM777 (that is 188 + 589). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 303 / 517 Issued on: 3 May 2019 5. The total market risk capital charge for 1,000 units of a single stock call option sold, with the stock price of RM45, is RM7,561 (that is 6,784 + 777). B. A portfolio of Foreign Exchange Options 6. Assume an Islamic banking institution has a portfolio of options with the following characteristics: Option Currency Pair Nominal amount Market Value of 1 unit of Underlying (Spot Price) Market Value of 1 unit of Underlying (RM) Market Value of Underlying (RM) 1 USD/RM USD100,000 3.132 RM3.132 313,200 2 USD/RM USD600,000 3.132 RM3.132 1,879,200 3 USD/RM USD200,000 3.132 RM3.132 626,400 4 USD/RM USD300,000 3.132 RM3.132 939,600 5 GBP/JPY GBP100,000 131.806 GBP1 = JPY131.806 * 0.0374586968 = RM4.937 493,700 6 GBP/JPY GBP50,000 131.806 RM4.937 246,850 7 GBP/JPY GBP75,000 131.806 RM4.937 370,275 Option Currency Pair Market Value of Underlying (RM) Delta Gamma Ringgit Gamma Vega Assumed volatility (%) 1 USD/RM 313,200 -0.803 0.18 56,376 0.0184 5 2 USD/RM 1,879,200 -0.519 -0.45 -845,640 -0.0387 20 3 USD/RM 626,400 0.182 -0.49 -306,936 -0.031 20 4 USD/RM 939,600 0.375 0.61 573,156 -0.0497 10 5 GBP/JPY 493,700 -0.425 0.0065 3,209 5.21 10 6 GBP/JPY 246,850 0.639 -0.0016 -395 -4.16 7 7 GBP/JPY 370,275 0.912 0.0068 2,518 3.15 5 7. The market risk capital charge for the portfolio of foreign exchange options is the summation of: (i) General Risk on delta-weighted position incorporated in Part D.2.3 Foreign Exchange Risk; and (ii) Gamma and Vega risks charge provided under Part D.2.6 Treatment of Options. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 304 / 517 Issued on: 3 May 2019 General Risk on delta-weighted position of currency options which will be incorporated in Part D.2.3 Foreign Exchange Risk 8. To compute the general risk on delta-weighted position of the foreign exchange option portfolio, the following steps should be taken: (i) The first step under the delta-plus method is to calculate the delta- weighted option position. This is accomplished by multiplying the value of each option's delta by the market value of the underlying currency position (see Table C, column 3). This leads to the following net delta- weighted position in each currency: Table C Option Currency Pair Delta × Market Value of Underlying 1 USD/RM -251,500 2 USD/RM -975,305 3 USD/RM 114,005 4 USD/RM 352,350 5 GBP/JPY -209,823 6 GBP/JPY 157,737 7 GBP/JPY 337,691 (ii) Assuming that the Islamic banking institution holds no other foreign currency positions, inclusion of these positions into the framework set out in Part A.3 Foreign Exchange Risk yields a net open delta-weighted position of 1,046,055 (the larger of either the sum of the net short positions or the sum of the net long positions across currency pairs) and a capital charge of RM83,684 (1,046,055 × 0.08). GBP USD JPY + 285,605 - 760,450 - 285,605 + 285,605 - 1,046,055 Hence, the capital charge for general risk on delta-weighted position of the foreign exchange option which should be reflected in Part D.2.3 Foreign Exchange Risk will be RM83,684. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 305 / 517 Issued on: 3 May 2019 Gamma and Vega Risks carved out to be provided under Part D.2.6 Treatment of Options 9. Under the delta-plus method, the capital charges for Gamma and Vega risk will be calculated as follows: (i) The Gamma impact (see Table D, column 3) for each option is calculated as: ½ × Gamma (RM) × (market value of 1 unit of underlying (RM) × 0.08)2 For each underlying, in this case currency pair, a net Gamma impact is obtained: USD/RM -164.18 GBP/JPY +415.92 Only the negative Gamma impacts are included in the capital calculation, hence the Gamma charge here is RM164. Table D Option Currency Pair Gamma Impact (RM) Net Gamma Impact (RM) 1 USD/RM 17.70 -164.18 2 USD/RM -265.45 3 USD/RM -96.35 4 USD/RM 179.91 5 GBP/JPY 250.32 +415.92 6 GBP/JPY -30.81 7 GBP/JPY 196.41 (ii) The Vega capital charge is based on the assumed implied volatilities for each option which are shown in Table E column 3. The 25 per cent volatility shifts are shown in Table E column 5. Multiplying these shifts with each option's Vega and the market value of underlying in RM, yields the assumed price changes (shown in Table E column 6). These are then summed up for each currency pair. The net Vega impact for each currency pair is: USD/RM -27,757.35 GBP/JPY +33,895.59 Since no netting of Vegas is permitted across currency pairs, the capital charge is calculated as the sum of the absolute values obtained for each currency pair: RM27,757 + RM33,896 = RM61,653 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 306 / 517 Issued on: 3 May 2019 Table E Option Currency Pair Assumed Volatility (%) Vega Volatility Shift (Percentage Points) Change in Value (RM) Net Vega Impact (RM) 1 USD/RM 5 1.84 1.25 7,203.60 -27,757.35 2 USD/RM 20 -3.87 5.00 -90,906.30 3 USD/RM 20 -0.31 5.00 -2,427.30 4 USD/RM 10 4.97 2.50 58,372.65 5 GBP/JPY 10 5.21 2.50 32,152.21 33,895.59 6 GBP/JPY 7 -4.16 1.75 -12,836.20 7 GBP/JPY 5 3.15 1.25 14,579.58 The total capital charge for Gamma and Vega risk arising from the options portfolio which should be disclosed in Part D.2.6 Treatment of Options under the Delta-plus method is RM61,817 (that is RM164 + RM61,653) 10. The total market risk capital charge for the portfolio of foreign currency options is RM145.501 (that is RM83,684.34 + RM61, 817) Example 5: The Scenario Approach for Options 1. Consider an Islamic banking institution holding a portfolio of two KLCI equities and two options on the same equities as set out below: Equity No of Shares Current Price (RM) Long ABC 100 19.09 Short XYZ -50 1.79 Option No. of Shares Option Type Delta Time to Expiry (yrs) Strike Price (RM) Current Volatility (%) Long ABC 50 Call 0.43 0.45 20.00 15.0 Short XYZ 20 Put -0.76 0.36 2.25 42.0 (Assumed risk free rate: 5%) 2. The market risk capital charge for the portfolio is the summation of the: (i) Specific Risk of the equities and delta-weighted positions of underlying equities. This specific risk is incorporated in Part D.2.2 Equity Position Risk of the framework; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 307 / 517 Issued on: 3 May 2019 (ii) General Risk of the portfolio, which is carved out and subjected to Scenario Approach in Part D.2.6 Treatment of Options of the framework. Specific Risk of the equities and delta-weighted positions of the underlying equities to be incorporated in Part D.2.2 Equity Position Risk 3. To compute the specific risk for the equities and equity options, the following steps should be taken: (i) Calculate the delta-weighted positions of the underlying equities – the delta weighted option is calculated by multiplying the value of each option's delta by the market value of the underlying equity (see Table F, column 2). This leads to the following net delta-weighted position in each equity: Table F Options Position Delta × Market Value of Underlying (RM) Number of Shares Total Position (RM) Option on ABC 8.115 50 405.75 Option on XYZ -1.363 20 -27.25 Equity Position Market Value (RM) Number of Shares Total Position (RM) ABC 19.09 100 1,909.00 XYZ 1.79 - 50 -89.50 Assuming that the Islamic banking institution does not hold other equity positions, the delta weighted positions of the options will be added to the respective value of equities (ABC and XYZ) held. The net position for each equity will be incorporated in Part D.2.2 Equity Position Risk of the Framework and the values are as follows: ABC = + 2,314.75 [405.75 + 1,909.00] XYZ = - 116.75 [-27.25 - 89.50] (ii) Calculate the specific risk charge by multiplying the specific risk weight of the equities as listed in Table 7 of Part D.2.2 Equity Position Risk. In this example, the specific risk weight is 8% for KLCI equities. Hence, BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 308 / 517 Issued on: 3 May 2019 the total capital charge for specific risk to be reflected in Part D.2.2 Equity Position Risk will be RM194.52 [(2,314.75 x 0.08) + (116.75 x 0.08)]. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 309 / 517 Issued on: 3 May 2019 General Risk is carved out and be subjected to the Scenario Approach in Part D.2.6 Treatment of Options 4. To compute the general risk under the Scenario Approach, the following procedures are taken: (i) Apply the price movements over the range ±8% to the equity positions. The change in portfolio values is shown below: Change in Value of Equity Positions Assumed Price Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 ABC -152.72 -101.81 -50.91 0.00 50.97 101.74 152.72 XYZ 7.16 4.77 2.39 0.00 -2.39 -4.77 -7.16 (ii) Apply the matrix of price and volatility movements to the ABC call options and the changes in the value of the options are shown below: ABC Options - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 -15.57 -9.21 -0.92 9.46 21.98 36.58 53.15 0 -21.46 -16.58 -9.53 0.00 12.17 26.95 44.15 -25 -25.82 -22.84 -17.58 -9.32 2.36 17.51 35.78 (iii) Holding of XYZ put options will be subjected to the same treatment as per (b) above and the changes in the value of the options are shown below: XYZ Options - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 +2.82 +2.20 +1.46 +0.75 +0.07 -0.58 -1.08 0 +2.26 +1.59 +0.78 0.00 -0.74 -1.45 -1.99 -25 +1.87 +1.13 +0.24 -0.63 -1.45 -2.24 -2.84 (iv) Summing the changes in the value for ABC and XYZ equities and the equity options to arrive at the contingent loss matrix for the total portfolio as shown below: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 310 / 517 Issued on: 3 May 2019 Total Portfolio - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 -158.31 -104.05 -47.98 10.21 70.56 133.04 197.63 0 -164.76 -112.03 -57.27 0.00 59.95 122.54 187.72 -25 -169.52 -118.75 -65.86 -9.95 49.43 112.30 178.50 The general risk capital charge for the portfolio will be the largest loss arising from changes in the price of the equities and volatility of the options as shown in the matrix above - in this case is 169.52. This capital charge will be reflected in Part D.2.6 Treatment of Option under the Scenario approach. 5. The total market risk capital charge for the portfolio is 364.04 (that is 169.52 +194.52). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 311 / 517 Issued on: 3 May 2019 D.3 INTERNAL MODELS APPROACH Introduction 5.138 This part sets out the minimum standards and criteria that the Bank will use in assessing the eligibility for Islamic banking institutions to adopt the internal model approach in measuring market risk for the purpose of capital adequacy. The internal model approach specified in this guideline is based on the use of value-at-risk (VaR) technique. 5.139 The use of an internal model will be conditional upon explicit written approval from the Bank. The Bank will recognise Islamic banking institution’s internal model for capital adequacy if all the standards set forth in this part are met. Any approval will be conditional on continued compliance with the requirements under the Framework, as modified from time to time. 5.140 Further to the Bank’s initial recognition, Islamic banking institutions should inform the Bank of any subsequent material change to the models, including material change in methodology or scope to cover new products and instruments. Islamic banking institutions are required to demonstrate to the Bank that the models remain relevant for the purpose of ascertaining market risk capital charge. D.3.1 COMBINATION OF INTERNAL MODELS AND THE STANDARDISED MARKET RISK MEASUREMENT APPROACH 5.141 Islamic banking institutions have the option to use a combination of the standardised market risk measurement approach and the internal models approach to measure market risks across broad risk categories (i.e. profit rates, exchange rates, equity prices, commodity and inventory prices, with related options volatilities being included in each risk factor category). In doing so, Islamic banking institution should ensure no element of market risk shall escape measurement. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 312 / 517 Issued on: 3 May 2019 5.142 Depending on the significance and complexity of the Islamic banking institution’s trading activities, the Bank may require Islamic banking institution to adopt an internal model approach that is sufficiently comprehensive to capture all broad risk categories. 5.143 Notwithstanding paragraph 5.141, as a general rule, a combination of the standardised market risk measurement approach and internal models approach will not be permitted within the same risk category or across Islamic banking institutions’ different entities for the same risk category214. However, Islamic banking institutions may incur risks in positions which are not captured by the adopted models, for example, in minor currencies, negligible business areas or exposures in risk types that are not easily modelled such as underwriting risk. Such risks may be separately measured according to the standardised market risk measurement approach, subject to the Bank’s approval. Table 11 and Table 12 illustrate examples of situations where the combination of the standardised market risk measurement approach and internal model approach are permitted. Table 11: Combination of Internal Models and the Standardised Market Risk Approach Combinations of Approaches Broad Risk Categories (that is benchmark rates, exchange rates, equity prices and commodities prices, with related options volatilities included in their respective risk factor category) Within a Risk Category Across Risk Categories Combination of different internal models Permitted Permitted Combination of SMRA and IMA Not Permitted Permitted 214 With the exception of specific risk when capital requirement will be assessed based on the standardised market risk measurement approach, unless it meets the modelling requirement in Part D.3. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 313 / 517 Issued on: 3 May 2019 Table 12: Examples on the Combination of Approaches Combinations of Approaches Broad Risk Categories Are the combinations of approaches permitted? Benchmark Rate Equity Foreign Exchange Commodity SMRA and IMA across broad risk categories IMA IMA SMRA SMRA Yes SMRA and IMA within a broad risk category IMA IMA Spot, forwards and swaps: IMA Options: SMRA SMRA The use of a combination of IMA and SMRA approaches is not permitted within foreign exchange risk category. FX risk should be measured in its entirety using IMA or SMRA Different IMA approaches within and across broad risk categories IMA (Historical simulation) IMA (Monte Carlo) Spot, forwards and swap: IMA (Variance- covariance) Options: IMA (Monte Carlo) IMA (Historical simulation) Yes SMRA – Standardised Market Risk Approach IMA – Internal Models Approach 5.144 In addition, Islamic banking institutions may use a combination of different internal models within a risk category, or across broad risk categories. 5.145 Islamic banking institutions that have had their internal models approved by the Bank, are not allowed to revert to measuring risks using the standardised market risk measurement approach unless the Bank withdraws approval for the internal model or with specific permission from the Bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 314 / 517 Issued on: 3 May 2019 5.146 Where capital charges are assessed under the standardised market risk measurement approach and the models approach within a same broad risk category, the applicable capital charges should be aggregated according to the simple aggregation method. Similarly, capital charges assessed using different models within and across each broad risk category should also be aggregated using the simple aggregation method. 5.147 In principle, Islamic banking institutions which adopt the modelling alternative for any single risk category will be expected over time to move towards a comprehensive model (that is one that captures all market risk categories). D.3.2 QUALITATIVE STANDARDS 5.148 Islamic banking institutions must ensure that models adopted are supported by market risk management systems that are conceptually sound. Islamic banking institution must satisfy certain criteria before adoption of model-based approach for the purpose of regulatory capital adequacy calculation. The adherence to the qualitative criteria will determine the multiplication factor in paragraph 5.149((x). (i) Islamic banking institution should have an independent risk control unit that is responsible for the design and implementation of the Islamic banking institution’s risk management system. The unit is responsible for producing and analysing daily reports on the output of Islamic banking institution’s risk measurement model, including evaluation of limit utilisation. This unit must be independent from business trading and other risk taking units and should report directly to senior management of the Islamic banking institution. (ii) The unit should conduct a regular (at least on a quarterly basis) back testing program, that is an ex-post comparison of the risk measure generated by the model against actual daily changes in portfolio value over longer periods of time, as well as hypothetical changes BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 315 / 517 Issued on: 3 May 2019 based on static positions. Detailed discussion of back testing is provided in Part D.3.9 Framework for the Use of Back Testing. (iii) The unit should also conduct the initial and ongoing validation of the internal model215. (iv) While the board retains oversight role, senior management are expected to be actively involved in the risk control process and regard risk control as an essential aspect of the business to which significant resources need to be devoted. In this regard, the daily reports prepared by the independent risk control unit must be reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual traders and reductions in the Islamic banking institution’s overall risk exposure. (v) The internal risk measurement model must be closely integrated into the day-to-day risk management process of the Islamic banking institution. Accordingly, the output of the model should be an integral part of the process of planning, monitoring and controlling of the Islamic banking institution’s market risk profile. (vi) The risk measurement system should be used in conjunction with internal trading and exposure limits. Trading limits should be related to the Islamic banking institution’s VaR measurement model in a manner that is consistent over time and that is well understood by both traders and senior management. (vii) A routine and rigorous program of stress testing should be in place as a supplement to the risk analysis based on the day-to-day output of the Islamic banking institution’s risk measurement model. The results of stress testing exercises should be reflected in the policies and limits set by management and the board. The results of stress testing should be routinely communicated to senior management and, periodically, to the Islamic banking institution’s board. (viii) Islamic banking institutions should establish a process to ensure continuous compliance with internal policies, controls and procedures 215 Further guidance regarding the standards found in Part D.3.7 Model Validation Standards. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 316 / 517 Issued on: 3 May 2019 relating to the operation of the risk measurement system. Islamic banking institution’s risk measurement system must be well documented, for example, through a risk management manual that describes the basic principles of the risk management system and provides an explanation of the empirical techniques used to measure market risk. (ix) An independent review of the risk measurement system should be carried out on a regular basis as part of the Islamic banking institution’s own internal process. This review should include both the activities of the business trading units and the independent risk control unit. A review of the overall risk management process should take place at regular intervals (ideally not less than once a year) and should specifically address, at a minimum: (a) The adequacy of the documentation of the risk management system and process; (b) The organisation of the risk control unit; (c) The approval process for risk pricing models and valuation systems used by front and back-office personnel; (d) The validation of any significant change in the risk measurement process; (e) The scope of market risks captured by the risk measurement model; (f) The integrity of the management information system; (g) The accuracy and completeness of position data; (h) The verification of the consistency, timeliness and reliability of data sources used to run internal models, including the independence of such data sources; (i) The accuracy and appropriateness of volatility and correlation assumptions; (j) The accuracy of valuation and risk transformation calculations; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 317 / 517 Issued on: 3 May 2019 (k) The verification of the model’s accuracy through frequent back testing as described in paragraph 5.148((ii) and in Part D.3.9 Framework for the Use of Back Testing. D.3.3 QUANTITATIVE STANDARDS 5.149 Islamic banking institutions are given the flexibility to devise an internal model, but the following minimum standards will apply for the purpose of calculating their capital charge: (i) VaR should be computed on a daily basis at the close of the trading day. (ii) In calculating the VaR, a 99th percentile, one-tailed confidence interval should be used. (iii) In calculating VaR, an instantaneous price shock equivalent to a ten- day movement in prices should be used (since the minimum holding period is ten trading days). Islamic banking institutions with illiquid trading exposure should make appropriate adjustments to the holding period. For positions that display linear price characteristics (but not options), Islamic banking institutions may use VaR numbers calculated according to shorter holding periods, scaled up to the requisite holding period by the square root of time (for the treatment of options, also see (h) below). (iv) The historical observation period (sample period) for calculating VaR will be constrained to a minimum length of one year. For Islamic banking institutions that use a weighting scheme or other methods for the historical observation period, the ‘effective’ observation period must be at least one year that is the weighted average time lag of individual observations should be no less than 6 months. (v) Islamic banking institutions should update data sets no less frequently than once every three months and should also reassess the data whenever market prices are subject to material changes. The Bank may also require Islamic banking institution to calculate its BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 318 / 517 Issued on: 3 May 2019 VaR using a shorter observation period if, in the Bank’s judgement, is justifiable because of a significant upsurge in price volatility. (vi) No particular type of model is prescribed. Islamic banking institutions are free to use models based on variance-covariance matrices, historical simulations, or Monte Carlo simulations, so long as each model used captures all the material risks run by the institution as set out in Part D.3.4 Specification of Market Risk Factors. (vii) Islamic banking institutions are given the discretion to recognise empirical correlations within broad risk categories (for example benchmark rates, exchange rates, equity prices and commodity prices, including related options volatilities in each risk factor category). The Bank may also recognise empirical correlations across broad risk factor categories, provided the Bank is satisfied that the institution's system for measuring correlations is sound and implemented with integrity. (viii) Islamic banking institutions’ models must accurately capture the unique risks associated with options within each of the broad risk categories. The following criteria apply to the measurement of options risks: (a) Islamic banking institutions’ models must capture the non-linear price characteristics of options positions; (b) Islamic banking institutions are expected to ultimately move towards the application of a full 10-day price shock to options positions or positions that display option-like characteristics. In the interim, the Bank may require Islamic banking institutions to adjust their capital measure for options risk through other methods for example, periodic simulation or stress testing; and (c) Each Islamic banking institution's risk measurement system must have a set of risk factors that captures the volatilities of the rates and prices underlying option positions, that is, vega risk. Islamic banking institutions with relatively large and/or complex options portfolios should have detailed specifications of the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 319 / 517 Issued on: 3 May 2019 relevant volatilities. This means that institutions should measure the volatilities of the options positions broken down by different maturities. (ix) Each Islamic banking institution must meet, on a daily basis, a capital requirement expressed as the higher of: (a) the previous day's VaR number measured according to the parameters specified in this part; or (b) an average of the daily VaR measures on each of the preceding 60 business days multiplied by the multiplication factor. (x) The minimum multiplication factor is set at 3. The Bank reserve the right to increase the multiplier by an add-on based on any shortcomings in the qualitative criteria. In addition, the Bank will require Islamic banking institutions to add to this factor a ‘plus’ directly related to the ex-post performance of the model. The ‘plus’ will range from 0 to 1 based on the outcome of ‘back testing’. The Part D.3.9 Framework for the Use of Back Testing presents in detail the approach to be applied for back testing. Islamic banking institutions should perform backtesting on both hypothetical trading outcomes (that is using changes in portfolio value that would occur if end-of-day positions were to remain unchanged) and actual trading outcomes (that is excluding fees, commissions, net profit income and other income not attributable to outright position taking). (xi) Islamic banking institutions using models will be subjected to a separate capital charge to cover the specific risk of profit rate related instruments and equity securities, as defined under the standardised approach for market risk. The options for calculating the specific risk capital charge are set out in Part D.3.5 Modelling of Specific Risk. D.3.4 SPECIFICATION OF MARKET RISK FACTORS 5.150 An important part of a Islamic banking institution’s internal market risk measurement system is the specification of an appropriate set of market risk factors, that is the market rates and prices that affect the value of the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 320 / 517 Issued on: 3 May 2019 Islamic banking institution’s market-related positions. The risk factors contained in a market risk measurement system should be sufficient to capture the risks inherent in the Islamic banking institution’s portfolio of on- and off-balance sheet trading positions. Although Islamic banking institutions are given discretion in specifying the risk factors for internal models, all requirements under this part (paragraphs 5.151 to 5.159) should be met. Benchmark Rates216 5.151 There must be a set of risk factors corresponding to profit rates in each currency in which the Islamic banking institution has benchmark rate sensitive on- or off-balance sheet trading book positions. 5.152 The risk measurement system should model the yield curve using one of a number of generally accepted approaches, for example, by estimating zero-coupon yields. The yield curve should be divided into various maturity segments in order to capture variation in the volatility of rates along the yield curve; there will typically be one risk factor corresponding to each maturity segment. For material exposures to benchmark rate movements in the major currencies and markets, Islamic banking institution must model the yield curve using a minimum of six risk factors. Ultimately, the number of risk factors used should be driven by the nature of the Islamic banking institution trading strategies. For instance, Islamic banking institution with a portfolio of various types of securities across many points of the yield curve, and that engages in complex arbitrage strategies, would require a greater number of risk factors to capture benchmark rate risk accurately. 5.153 The risk measurement system should incorporate separate risk factors to capture basis risk (for example, between sukūk and swaps). A variety of approaches may be used to capture the basis risk arising from less than 216 Measurement of risks for Islamic principle-based instruments such as sukūk that are exposed to benchmark rate risk would be subjected to the same requirements described in paragraphs 5.152 to 5.153. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 321 / 517 Issued on: 3 May 2019 perfectly correlated movements between government and other fixed- income profit rates, such as specifying a completely separate yield curve for non-government fixed income instruments (for example, swaps or municipal securities) or estimating the spread over government rates at various points along the yield curve. For countries where benchmark rates may be less responsive to market forces, Islamic banking institutions should appropriately reflect in their internal models the effects on benchmark rate conditions as a result of actual or anticipated benchmark rate management regime shifts, where relevant. Equity Prices 5.154 There should be risk factors corresponding to each of the equity markets to which Islamic banking institution holds significant exposure. (i) At a minimum, there should be a risk factor designed to capture market-wide movements in equity prices (for example, a market index). Positions in individual securities or in sector indices could be expressed in ‘beta-equivalents217 relative to the market-wide index. (ii) Another detailed approach is to incorporate risk factors corresponding to various sectors of the overall equity market (for example, industry sectors or cyclical and non-cyclical sectors). As above, positions in individual shares within each sector could be expressed in beta- equivalents relative to the sector index. (iii) The most extensive approach would be to incorporate risk factors corresponding to the volatility of individual equity issue. 5.155 The sophistication and nature of the modelling technique for a given market should correspond to the Islamic banking institution’s exposure to the overall market and as its concentration in individual equity issues in that market. 217 A ‘beta-equivalent’ position would be calculated from a market model of equity price returns (such as the CAPM model) by regressing the return on the individual stock or sector index on the risk-free rate of return and the return on the market index. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 322 / 517 Issued on: 3 May 2019 Exchange Rates (including Gold and Silver) 5.156 The risk measurement system should incorporate risk factors corresponding to the individual foreign currencies in which Islamic banking institution’s positions are denominated. Since the VaR figure calculated by the risk measurement system will be expressed in Malaysian ringgit, any net position denominated in a foreign currency will introduce a foreign exchange risk. Thus, there must be risk factors corresponding to the exchange rate between the domestic currency and each foreign currency in which Islamic banking institution has significant exposure. For currencies where the exchange rate regime may be fixed, pegged, or otherwise constrained, Islamic banking institutions should appropriately reflect actual or expected effects of exchange rate regime shifts in the internal models through adjustments of a currency’s volatilities and correlations, where relevant. Commodity/Inventory Prices 5.157 There should be risk factors corresponding to each of the commodity markets in which Islamic banking institution holds significant positions. 5.158 For Islamic banking institutions with relatively limited positions in commodity-based instruments, a straightforward specification of risk factors would be acceptable. Such specification would likely entail one risk factor for each commodity price to which the Islamic banking institution is exposed. In cases where the aggregate positions are quite small, it might be acceptable to use a single risk factor for a relatively broad sub-category of commodities (for instance, a single risk factor for all types of oil). 5.159 The model must also take into account variation in the ‘convenience yield’218 between derivatives positions, such as forwards and swaps, and cash positions in the commodity. 218 The convenience yield reflects the benefits from direct ownership of the physical commodity (for example, the ability to profit from temporary market shortages) and is affected both by market conditions and by factors such as physical storage costs. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 323 / 517 Issued on: 3 May 2019 D.3.5 MODELLING OF SPECIFIC RISK 5.160 Islamic banking institutions using internal models are permitted to base specific risk capital charge on modelled estimates if the VaR measure incorporates specific risk and meet all qualitative and quantitative requirements for general market risk models as detailed in Part D.3.2 Qualitative Standards and Part D.3.3 Quantitative Standards and the additional criteria set out in this part. 5.161 Islamic banking institutions which are unable to meet these additional criteria are required to calculate the full amount of specific risk capital charge based on the standardised market risk approach. 5.162 The criteria for supervisory recognition of Islamic banking institutions’ modelling of specific risk requires that Islamic banking institution’s model must capture all material components of price risk and be responsive to changes in market conditions and composition of portfolios. In particular, the model should: (i) Explain the historical price variation within the portfolio219; (ii) Capture concentrations (magnitude and changes in composition)220; (iii) Robust to an adverse environment221; (iv) Capture name-related basis risk222; 219 The key ex-ante measures of model quality are ‘goodness-of-fit’ measures which address the question of how much of the historical variation in price value is explained by the risk factors included within the model. One measure of this type which can often be used is an R-squared measure from regression methodology. If this measure is to be used, the risk factors included in the Islamic banking institution’s model would be expected to be able to explain a high percentage, such as 90%, of the historical price variation or the model should explicitly include estimates of the residual variability not captured in the factors included in this regression. For some types of models, it may not be feasible to calculate a goodness-of-fit measure. In such instance, an Islamic banking institution is expected to work with the Bank to define an acceptable alternative measure which would meet this regulatory objective. 220 Islamic banking institutions would be expected to demonstrate that the model is sensitive to changes in portfolio construction and that higher capital charges are attracted for portfolios that have increasing concentrations in particular names or sectors. 221 Islamic banking institutions should be able to demonstrate that the model will signal rising risk in an adverse environment. This could be achieved by incorporating in the historical estimation period of the model at least one full credit cycle and ensuring that the model would not have been inaccurate in the downward portion of the cycle. Another approach for demonstrating this is through simulation of historical or plausible worst-case environments. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 324 / 517 Issued on: 3 May 2019 (v) Capture event risk223; and (vi) Validated through back-testing aimed at assessing whether specific risk is being captured adequately. 5.163 Where an Islamic banking institution is subjected to event risk that is not reflected in its VaR measure because it is beyond the ten-day holding period and 99th percentile confidence interval (i.e. low probability and high severity events), the impact of such events must be factored into its internal capital assessment, for example, through stress testing. 5.164 An Islamic banking institution’s model should conservatively assess the risk arising from less liquid positions and positions with limited price transparency under realistic market scenarios. In addition, the model should meet the minimum data standards set out under paragraph 5.149(iv). Proxies may be used only where available data are insufficient or not reflective of the true volatility of a particular position or portfolio, and should be conservatively used. 5.165 As techniques and best practices evolve, Islamic banking institutions should keep abreast of these advances. 5.166 Islamic banking institutions should also have an approach in place to capture in their regulatory capital the default risk of the trading book positions that is incremental to the risk captured by the VaR-based calculation as specified in paragraph 5.162. To avoid double counting, an Islamic banking institution may, when calculating incremental charge for default risk, take into account the extent to which the default risk has already been incorporated into the VaR calculation, especially for risk positions that could be closed within ten days in the event of adverse 222 Islamic banking institutions should be able to demonstrate that the model is sensitive to material idiosyncratic differences between similar but not identical positions, for example debt positions with different levels of subordination, maturity mismatches, or credit derivatives with different default events. 223 For debt positions, this should include migration risk. For equity positions, events that are reflected in large changes or jumps in prices must be captured, for example merger break-ups/takeovers. In particular, firms must consider issues related to survivorship bias. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 325 / 517 Issued on: 3 May 2019 market conditions or other indications of deterioration in the credit environment. 5.167 No specific approach for capturing incremental default risk is prescribed. The approach may be part of an Islamic banking institution’s internal model or a surcharge from a separate calculation. Where an Islamic banking institution captures its incremental risk through a surcharge, the surcharge will not be subjected to a multiplication factor or regulatory back-testing, although Islamic banking institution should be able to demonstrate that the surcharge meets its objectives (i.e. providing sufficient capital to cover default risk). 5.168 Whichever approach is used, an Islamic banking institution should demonstrate that it meets the standards of soundness comparable to those of internal-ratings based (IRB) approach for credit risk as set forth under the credit risk component of the Framework, based on the assumption of constant level of risk, and adjusted where appropriate to reflect the impact of liquidity, concentrations, hedging and optionality. An Islamic banking institution that does not capture the incremental default risk through an internally developed approach must use the fallback of calculating the surcharge through an approach consistent with that for credit risk as set forth in the credit risk component of the Framework224. 5.169 Whichever approach is used, exposures that are subjected to a 1250% risk weight, are subjected to a capital treatment that is no less than that set forth under the credit risk component of the Framework. 5.170 An exception to this treatment could be afforded to an Islamic banking institution that is a dealer in the above exposures where it can demonstrate, in addition to trading intent that a liquid two-way market exists for the securitisation exposures or, for the securitisation exposures themselves or all the constituents risk components. For the purposes of 224 Approaches premised upon internal-rating based models will not be allowed for specific risk measurement unless explicitly approved by the Bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 326 / 517 Issued on: 3 May 2019 this part, a two-way market is deemed to exist where there are independent bona fide offers to buy and sell with prices being reasonably related to the last sale price or where current bona fide competitive bid and offer quotations can be determined within one day and settled at such price within a relatively short time for the trade to be confirmed. In addition, for an Islamic banking institution to apply this exception, it must have sufficient market data to ensure that it fully captures the concentrated default risk of these exposures in its internal approach for measuring the incremental default risk in accordance with the standards set forth above. 5.171 Islamic banking institutions which apply modelled estimates of specific risk are required to conduct back testing aimed at assessing whether specific risk is being accurately captured. The methodology that an Islamic banking institution should use to validate its specific risk estimates is to perform separate back tests on sub-portfolios, using daily data on sub-portfolios subject to specific risk. The key sub-portfolios for this purpose are traded- debt and equity positions. However, if Islamic banking institution decomposes its trading portfolio into finer categories (for example emerging markets, traded corporate debt, etc.), it is appropriate to keep these distinctions for sub-portfolio back testing purposes. Islamic banking institutions are required to commit to a sub-portfolio structure and continuously apply it unless it can be demonstrated to the Bank that it is reasonable to change the structure. 5.172 Islamic banking institutions are required to have in place a process to analyse exceptions identified through the back testing of specific risk. This process is intended to serve as the fundamental way in which Islamic banking institutions correct internal models of specific risk in the event it becomes inaccurate. There will be a presumption where models that incorporate specific risk are ‘unacceptable’ if the results at the sub-portfolio level produce a number of exceptions commensurate with the Red Zone as defined in Part D.3.9 Framework for the Use of Back Testing. Islamic banking institutions with ‘unacceptable’ specific risk models are expected BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 327 / 517 Issued on: 3 May 2019 to take immediate remedial action to correct the model and ensure sufficient capital buffer to absorb the risk identified by the back test. D.3.6 STRESS TESTING 5.173 Islamic banking institutions that use the internal models approach for meeting market risk capital requirements must have in place a rigorous and comprehensive stress testing program. Stress testing to identify events or influences that could greatly impact Islamic banking institutions is a key component of an institution's assessment of its capital position. 5.174 Islamic banking institutions' stress scenarios need to cover a range of factors that can create extraordinary losses or gains in the trading books, or make the control of risk in those books very difficult. These factors include low-probability events in all major types of risks, including the various components of market, credit, and operational risks. Stress scenarios need to shed light on the impact of such events on positions that display both linear and non-linear price characteristics (i.e. options and instruments that have options-like characteristics). 5.175 Islamic banking institutions' stress tests should be both of a quantitative and qualitative in nature, incorporating both market risk and liquidity aspects of market disturbances. Quantitative criteria should identify plausible stress scenarios to which institutions could be exposed. Qualitative criteria should emphasise on two aspects of stress testing; to evaluate the capacity of the institution's capital to absorb potential large losses and to identify steps the institution can take to reduce risk and conserve capital. This assessment is integral to setting and evaluating the institution's management strategy and the results of stress testing should be routinely communicated to senior management and, periodically, to the Islamic banking institution's board. 5.176 Islamic banking institutions should combine the use of supervisory stress scenarios with internal stress tests developed by institutions to reflect BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 328 / 517 Issued on: 3 May 2019 specific risk characteristics. In particular, the Bank will require Islamic banking institutions to provide information on stress testing in three broad areas as part of the monthly statistical submission to the Bank: (i) Supervisory scenarios requiring no simulations by the institution Islamic banking institutions should provide information on five largest daily losses experienced during the reporting period. The loss information could be compared to the level of capital that results from an institution's internal measurement system. This would provide a picture of how many days of peak day losses could be covered by the reported capital, based on the Islamic banking institution’s value-at- risk estimate. (ii) Scenarios requiring a simulation by Islamic banking institution Portfolios of Islamic banking institutions are subjected to a series of simulated stress scenarios. (a) These scenarios should include testing the current portfolio against past periods of significant disturbance, for example the 1987 equity crash, the ERM crisis of 1992 and 1993 or the fall in bond markets in the first quarter of 1994, or the Asian financial crisis of 1997 and 1998, incorporating both large price movements and the sharp reduction in liquidity associated with these events. (b) A second type of scenario would evaluate the sensitivity of the Islamic banking institution's market risk exposure to changes in the assumptions about volatilities and correlations. Applying this test would require an evaluation of the historical range of variation for volatilities and correlations and evaluation of the institution's current positions against the extreme values of the historical range. Due consideration should be given to sharp variation that at times occurred in a matter of days in periods of market disturbance. Several of the historical examples BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 329 / 517 Issued on: 3 May 2019 highlighted in paragraph 5.176(ii)(a) above involved correlations within risk factors approaching the extreme values of 1 or -1 for several days at the height of the disturbance. (c) The Bank will normally not prescribe the simulated scenarios for use in stress testing, although it may do so in the event of a particular market circumstances. (iii) Scenarios developed by the institution itself to capture the specific characteristics of its portfolio In addition to the scenarios described in paragraph 5.176(i) and (ii) above, Islamic banking institution should also develop its own stress tests which it identifies as the most adverse based on the characteristics of its portfolio (for example, problems in a key region of the world combined with a sharp move in oil prices). Islamic banking institutions should provide the Bank with a description of the methodology used to identify and carry out the scenarios as well as a description of the results derived from these scenarios. 5.177 The stress test results should be reviewed periodically by senior management and reflected in the policies and limits set by the board. Moreover, if the testing reveals a particular vulnerability to a given set of circumstances, the Bank would expect the institution concerned to take prompt steps to remedy those risks appropriately (for example, by hedging against the adverse outcome or reducing the size of exposures). D.3.7 MODEL VALIDATION STANDARDS 5.178 Islamic banking institutions should have processes in place to ensure that internal models have been suitably validated by qualified and independent parties with relevant and sufficient expertise and experience, separate from the development process to ensure that models are conceptually sound and capture all material risks. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 330 / 517 Issued on: 3 May 2019 5.179 Model validation should be independent of model development to the extent feasible. Where complete independence is not achievable, risk policies should provide for effective reporting of validation party to an independent management and board risk committees. This internal model validation process and its results should also be reviewed by internal and external auditors. 5.180 The validation should be conducted when the model is initially developed and when significant changes are made to the model. The validation should also be conducted on a periodic basis especially when there are significant structural changes in the market or changes to the composition of the portfolio which might lead to the model no longer being relevant 5.181 Where specific risk is also modelled, it is important for Islamic banking institutions to conduct more extensive model validation and demonstrate that the models satisfy the criteria for specific risk modelling as set out in Part D.3.5 Modelling of Specific Risk. 5.182 Model validation should not be limited to back-testing, but should, at a minimum, also include the following: (i) Tests to demonstrate that any assumptions made within the internal model are appropriate and do not underestimate risk. This may include assumption of normal distribution, the use of square root of time to scale from a one-day holding period to a ten-day holding period or where extrapolation or interpolation techniques are used, or pricing models. (ii) Further to the regulatory back-testing programmes, testing for model validation should be carried out using additional tests, which may include, for instance: (a) Testing carried out for longer periods than required for the regular back-testing programme (for example three years), except where the VaR model or market conditions have changed to the extent that historical data are no longer relevant; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 331 / 517 Issued on: 3 May 2019 (b) Testing carried out using confidence intervals other than the 99% interval required under the quantitative standards; (c) Testing of sub-portfolios; and (d) Comparing predicted trading outcomes against actual and hypothetical profit and loss. (iii) The use of hypothetical portfolios to ensure that the model is able to account for particular structural features that may arise, for example: (a) Where the data history for a particular instrument does not meet the quantitative standards in paragraph 5.149(iv) of Part D.3. Quantitative Standards and where the Islamic banking institution has to map these positions to proxies, Islamic banking institution should ensure that proxies used produce conservative results under relevant market scenarios; (b) Islamic banking institution should ensure that material basis risks are adequately captured. This may include mismatches between long and short positions by maturity or by issuer; and (c) Islamic banking institution should also ensure that the model adopted captures concentration risk that may arise in a portfolio that is not diversified. D.3.8 MODEL REVIEW 5.183 In reviewing Islamic banking institution's internal model, the Bank will also require assurance that: (i) The internal validation processes described in Part D.3.7 Model Validation Standards are operating in a satisfactory manner. (ii) The formulae used in the calculation process and for pricing of options and other complex instruments are validated by a qualified unit, which in all cases should be independent from the trading area. (iii) The structure of internal models is adequate with respect to the institution's activities and geographical coverage. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 332 / 517 Issued on: 3 May 2019 (iv) The results of the institutions' back-testing of its internal measurement system (i.e. comparing VaR estimates with actual profits and losses) ensure that the model provides a reliable measure of potential losses over time. The results and the underlying inputs to the VaR calculations should be available to the Bank and external auditors on request. (v) Data flows and processes associated with the risk measurement system are transparent and accessible. In particular, it is necessary that auditors or the Bank have easy access to data and information, whenever it is necessary and reasonable under appropriate procedures, to the models' specifications and parameters. D.3.9 FRAMEWORK FOR THE USE OF BACK TESTING 5.184 This part presents the framework for incorporating back testing into the internal model approach to market risk capital requirements. It represents an elaboration of paragraph 5.148(ii). 5.185 Back testing programs consist of a periodic comparison of Islamic banking institution’s daily VaR measure with its daily profit or loss (trading outcome), to gauge the quality and accuracy of an Islamic banking institution’s risk measurement systems. The VaR measures are intended to be larger than all but a certain fraction of the trading losses, where that fraction is determined by the confidence level of the VaR measurement. Comparing the risk measures with the trading outcomes simply means that Islamic banking institution counts the number of times that trading losses were larger than the risk measures. The fraction of greater than expected losses to total outcomes can then be compared with the intended level of coverage to gauge the performance of the Islamic banking institution’s risk model. If the comparison yields close results, the back test raises no issues regarding the quality of the risk measurement model. In some cases, however, the comparison may uncover sufficient differences to indicate that problems almost certainly exist, either with the model or with BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 333 / 517 Issued on: 3 May 2019 the assumptions of the back test. In between these two cases is a grey area where the test results are, on their own, inconclusive. Back Testing for Capital Adequacy Purposes 5.186 The back tests carried out for capital adequacy purposes compare whether the observed percentage of outcomes covered by the VaR measure is consistent with a 99 per cent level of confidence. That is, the tests attempt to determine if Islamic banking institution’s 99th percentile risk-measures truly measure 99 per cent of the Islamic banking institution’s trading outcomes. 5.187 In addition, the back testing framework requires the comparison of daily trading outcomes with a VaR measurement based on a one day holding period. This requirement is to reduce the contamination arising from changes in portfolio composition during the holding period which is reflected in actual profit and loss outcomes but not in VaR numbers which are calculated on a static end-of-day portfolio. 5.188 The same concerns about ‘contamination’ of the trading outcomes continue to be relevant, even for one day trading outcomes. The back test against an overall one day actual profit or loss on its own may not be adequate because it might reflect the effects of fee income and other income not attributable to outright position taking. A more sophisticated approach would involve a detailed attribution of income by source, including fees, spreads and market movements. In such a case the VaR results can be compared with the actual trading outcomes arising from market movements alone (i.e. back test is performed using a measure of actual profit and loss adjusted for fees, commissions and other income not attributable to outright position taking. 5.189 In addition, the back test most closely aligned to the VaR calculation would be the one based on the hypothetical changes in portfolio value that might occur if end-of-day positions were to remain unchanged. That is, instead of looking at a day’s actual profit or loss, the hypothetical profit or loss BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 334 / 517 Issued on: 3 May 2019 obtained from applying the day’s price movements to the previous day’s end-of-day portfolio is calculated. This hypothetical profit or loss result can then be compared against the VaR based on the same, static, end-of-day portfolio. 5.190 Islamic banking institutions are expected to perform back tests using both hypothetical and actual trading outcomes. In combination, the two approaches are likely to provide a strong understanding of the relation between calculated risk measures and trading outcomes. 5.191 The back testing framework entails a formal testing and evaluation of exceptions on a quarterly basis using the most recent twelve months (or 250 trading days) of VaR and profit data. Islamic banking institution must calculate the number of times that the trading outcomes are not covered by the risk measures (termed ‘exceptions’) using the most recent twelve months of data yields approximately 250 daily observations. The Bank will use the higher of the number of exceptions (out of 250 observations) based on the hypothetical and actual trading outcomes generated by an Islamic banking institution’s model as the basis for a supervisory response. Based on the back testing results, the Bank may initiate a dialogue with Islamic banking institution to determine possible problem with Islamic banking institution’s model. In more serious cases, the Bank may impose an increase in an Islamic banking institution’s capital requirement or disallow use of internal model (see paragraphs 5.207 to 5.209 for more details). 5.192 The formal implementation of the back testing programme should begin on the date the internal models for measuring became effective. Notwithstanding this, Islamic banking institution applying to the Bank for recognition of an internal model should provide evidence that the model’s back test results are based on the standards described in this part falls into the ‘green zone’ as described in paragraph 5.195 at the time of application. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 335 / 517 Issued on: 3 May 2019 Interpretation of Back Testing Results 5.193 With the statistical limitations of back testing in mind, supervisory interpretation of back testing results encompasses a range of possible responses, depending on the strength of the signals generated from the back test. These responses are classified into three zones, distinguished by colours into hierarchy of responses. (i) The green zone corresponds to back testing results that do not themselves suggest a problem with the quality or accuracy of Islamic banking institution’s model. (ii) The yellow zone encompasses results that do raise questions, but whose conclusion is not definitive. The back testing results could be consistent with either accurate or inaccurate models, and the Bank will require Islamic banking institution to present additional information about its model before any action is taken. (iii) The red zone indicates a back testing result that almost certainly indicates a problem with Islamic banking institution’s risk model and the Bank will require some remedial actions to be initiated. 5.194 Table 13 below sets out the boundaries for these zones and the presumptive supervisory response for each back testing outcome, based on a sample of 250 observations. Where back testing indicates weaknesses in Islamic banking institution’s model, a ‘plus’ factor will be added to the multiplication factor mentioned in paragraph 5.149(x). Table 13: ‘Plus’ factor applicable to the internal models capital requirement resulting from backtesting results Zones No of Exceptions Out of 250 Daily Observations ‘Plus’ Factor Green Zone 4 or less 0.00 Yellow Zone 5 0.40 6 0.50 7 0.65 8 0.75 9 0.85 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 336 / 517 Issued on: 3 May 2019 Red Zone 10+ 1.00 5.195 Islamic banking institutions must apply the ‘plus’ factor indicated in Table 13 in determining its capital charge for market risk until it obtains the next quarter’s back testing results, unless the Bank determines that a different adjustment or other action is appropriate. The Green Zone 5.196 Since a model that truly provides 99 per cent coverage would be quite likely to produce as many as four exceptions in a sample of 250 outcomes, there is little reason for concern raised by back testing results that fall in this range. In such a case, the multiplication factor will not be increased (the plus factor will be zero), and no further action from Islamic banking institution is required. The Yellow Zone 5.197 The range from five to nine exceptions constitutes the yellow zone. Outcomes in this range are plausible for both accurate and inaccurate models, although generally more likely for inaccurate than for accurate models. Moreover, the presumption that the model is inaccurate should grow as the number of exceptions increases in the range from five to nine. 5.198 Within the yellow zone, the number of exceptions should generally guide the size of potential supervisory increases in an Islamic banking institution’s capital requirement. Table 13 sets out the plus factors applicable to the internal models capital requirement, resulting from back testing results in the yellow zone. 5.199 It is important to emphasise that these increases are not meant to be purely automatic. Back testing results in the yellow zone should generally be presumed to imply an increase in the multiplication factor unless Islamic banking institution can demonstrate that such increase is not warranted. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 337 / 517 Issued on: 3 May 2019 5.200 There are many different types of additional information that might be relevant to assess Islamic banking institution’s model. For example, it would be particularly valuable to see the results of back tests covering disaggregated subsets of Islamic banking institution’s overall trading activities. Many Islamic banking institutions that engage in regular back testing programs break up the overall trading portfolio into trading units organised around risk factors or product categories. Disaggregating risks into categories could allow the tracking of problems that surfaced at the aggregate level back to its source either at the level of specific trading unit or risk model. 5.201 Islamic banking institutions should also document all exceptions generated from on-going back testing program, including an explanation for the exceptions. This documentation is important in determining an appropriate supervisory response to a back testing that resulted in yellow zone. Islamic banking institutions may also implement back testing for confidence intervals other than the 99th percentile, or may perform other statistical tests not considered here. 5.202 In practice, there are several possible explanations for a back testing exception, some of which might lead to the basic integrity of the model, an under-specified or low-quality model, or poor intra-day trading results. Each of these problems is considered below. Classifying the exceptions generated by Islamic banking institution’s model into the following categories can be a useful exercise. (i) Basic integrity of the model (a) Islamic banking institution’s systems simply are not capturing the risk of the positions themselves (for example, the positions of an overseas office are being reported incorrectly). (b) Model volatilities and correlations are calculated incorrectly. (ii) Defects on model’s accuracy BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 338 / 517 Issued on: 3 May 2019 (a) The risk measurement model is not assessing the risk of some instruments with sufficient precision (for example, too few maturity buckets or an omitted spread). (iii) Abnormal markets movements unanticipated by the model (a) Random chance (a very low-probability event). (b) Markets move more than the model predicted (that is, volatility was significantly higher than expected). (c) Markets did not move together as expected (that is, correlations were significantly different than what was assumed by the model). (iv) Intra-day trading (a) Large (and money-losing) and unusual change in Islamic banking institution’s positions or some other income event between the end of the first day (when the risk estimate was calculated) and the end of the second day (when trading results were tabulated). 5.203 The first category of problems highlighted in paragraph 5.202(i) relating to the basic integrity of the risk measurement model is potentially the most serious. If there are exceptions attributed to this category for a particular trading unit, the plus factor set out in Table 13 will apply. . In addition, the model may necessitate review and/or adjustment, and the Bank will require the Islamic banking institution to make the appropriate corrections. 5.204 The second category of problem highlighted in paragraph 5.202(ii) is one that can be expected to occur at least some of the time with most risk measurement models. All models involve some amount of approximation. If, however, a particular Islamic banking institution’s model appears more prone to this type of problem than others, the Bank may impose the plus factor and require the Islamic banking institution to improve its risk measurement techniques. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 339 / 517 Issued on: 3 May 2019 5.205 The third category of problem highlighted in paragraph 5.202(iii) should also be expected to occur at least some of the time with VaR models. The behaviour of the markets may shift so that previous estimates of volatility and correlation are less appropriate. No VaR model will be immune to this type of problem; it is inherent in the reliance on past market behaviour as a means of gauging the risk of future market movements. Exceptions for such reasons do not suggest a problem. However, if the shifts in volatilities and/or correlations are deemed to be permanent, the Bank may require Islamic banking institution to recalculate its VaR using volatilities and correlations based on a shorter historical observation period. 5.206 Finally, depending on the definition of trading outcomes employed for the purpose of back testing, exceptions could also be generated by intra-day trading results or an unusual event in trading income other than from positioning. Although exceptions for these reasons would not necessarily suggest problem with Islamic banking institution’s VaR model, it could still be a cause for concern and the imposition of the plus factor might be considered. 5.207 The extent to which trading outcome exceeds the risk measure is another relevant piece of information. Exceptions generated by trading outcomes far in excess of the risk measure are a matter of greater concern, than outcomes slightly larger than the risk measure. The Red Zone 5.208 In contrast to the yellow zone, where the Bank may exercise judgement in interpreting the back testing results, outcomes in the red zone (ten or more exceptions) will generally lead to an automatic presumption that a problem exists with Islamic banking institution’s model. This is because it is extremely unlikely that an accurate model would independently generate ten or more exceptions from a sample of 250 trading outcomes. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 340 / 517 Issued on: 3 May 2019 5.209 In general, therefore, if an Islamic banking institution’s model falls into the red zone, the Bank will automatically increase the scaling factor applicable to the model by one. The Bank will also investigate the reasons why Islamic banking institution’s model produced such a large number of exceptions, and will require the Islamic banking institution to begin work on improving its internal model immediately. Finally, in the case of severe problems with the basic integrity of the model, the Bank may disallow the use of the Islamic banking institution’s model for capital adequacy purposes. 5.210 Although ten exceptions is a very high number for 250 observations, there may, on very rare occasions, be a valid reason why an accurate model will produce so many exceptions. In particular, when financial markets are subjected to a major regime shift, much volatility and correlations can be expected to shift as well, perhaps substantially. Such a regime shift could generate a number of exceptions in a short period of time. One possible response in this instance may be to simply require Islamic banking institution’s model to take account of the regime shift as quickly as it can while maintaining the integrity of its procedures for updating the model. This exception will be allowed only under the most extraordinary circumstances. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 341 / 517 Issued on: 3 May 2019 PART E LARGE EXPOSURE RISK REQUIREMENTS E.1 LERR FOR ISLAMIC BANKING INSTITUTIONS 6.1 An Islamic banking institution shall compute its Large Exposure Risk Requirement (LERR) in relation to its holding of equities (excluding the holdings of units of unit trust funds). 6.2 The LERR for a single equity capital charge will be imposed on an ongoing basis if an exposure to a single equity exceeds the threshold of 15% of the Islamic banking institution’s Total Capital or 10% of the issuer’s paid-up capital, whichever is lower. For equity positions held in the trading book, the capital charge is determined by multiplying the market value of the equity position in excess of the threshold, with the sum of the corresponding general and specific risk weights outlined in the market risk component of the Framework. For positions held in the banking book, the capital charge is determined by multiplying the value in excess of the threshold with the corresponding risk weight (i.e. 100%). For trading book exposures, the LERR capital charge shall be multiplied by a factor of 12.5 to arrive at a risk- weighted asset equivalent. An illustration for the calculation of LERR is given in Appendix XVII. 6.3 Shares and interest-in-shares that are acquired as a result of underwriting commitments, debt satisfaction and debt-equity conversions shall be subject to the LERR capital charge only if the shares and interest-in-shares remain with the Islamic banking institution after 12 months from the date of acquisition or conversion. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 342 / 517 Issued on: 3 May 2019 PART F SECURITISATION FRAMEWORK F.1 INTRODUCTION 7.1 The Securitisation Framework outlines: (a) the approaches in determining regulatory capital requirements on exposures arising from traditional securitisations held in the banking book; and (b) the operational requirements for allowing regulatory capital relief for originating Islamic banking institutions. 7.2 All Islamic banking institutions, whether acting as originators or as third-party investors, must hold regulatory capital against all securitisation exposures (on- or off-balance sheet) in the banking book225 arising from traditional securitisations, hereinafter referred to as ‘securitisation exposures’. Such securitisation exposures may arise from an Islamic bank’s: (a) investments in any securitisation issue, including retention or repurchase of one or more own securitisation positions; (b) provision of credit risk mitigants or credit enhancement to parties to securitisation transactions; (c) provision of liquidity facilities or other similar facilities; (d) obligations due to early amortisation features in a securitisation; or (e) entitlements to future income generated by a securitisation through various forms of arrangements such as deferred purchase price, excess servicing income, gain-on-sale, future margin income, cash collateral accounts or other similar arrangements. 7.3 General descriptions of terms used in the Securitisation Framework are provided in Appendix XXVII. F.2 OPERATIONAL REQUIREMENTS FOR CAPITAL RELIEF 225 Securitisation exposures held in the trading book are subject to benchmark rate risk charges (specific and general risks) as outlined in the market risk component of this Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 343 / 517 Issued on: 3 May 2019 7.4 Regulatory capital relief is granted based on the assessment of whether risks under a securitisation transaction have been effectively and significantly transferred. The extent to which securitisation exposures are retained through arrangements during the life of the transaction such as the provision of unconditional liquidity facilities will also be considered. The operational requirements for such capital relief are detailed in paragraph 7.7. An originating Islamic bank may, upon receiving written approval for capital relief from the Bank226, exclude the underlying assets that have been securitised (securitised exposures), whether from the banking book or trading book, from the calculation of risk-weighted assets. Originating Islamic banking institutions must still hold regulatory capital for any securitisation exposures retained. 7.5 Islamic banking institutions must hold regulatory capital for all of the underlying securitised exposures in the case of failure to meet any of the operational requirements referred to in paragraph 7.7, as if the underlying exposures had not been securitised. In this case, originating Islamic banking institutions need not hold additional regulatory capital for the securitisation exposures retained. 7.6 Notwithstanding any capital relief granted, an originating Islamic bank is required to monitor and control risks arising from the continued retention of the securitised exposures (e.g. as provider of liquidity facility). This should include the continuing assessment of any change in the risk profile of the transaction and the resulting impact on capital arising from the Islamic bank’s role in the transaction. Corresponding contingency plans to deal with the risk and capital impact must be put in place. 7.7 An originating Islamic banking institution may exclude an underlying pool of exposures from the calculation of capital requirements, if all of the following requirements are met on an ongoing basis: 226 Applications for capital relief should be submitted to the Bank in accordance with the requirements outlined in Appendix XXVIII “Application for Capital Relief”. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 344 / 517 Issued on: 3 May 2019 (a) significant credit risk associated with the securitised exposures has been transferred to third parties227; (b) the originating Islamic banking institution does not maintain effective or indirect control over the transferred exposures. The assets are legally isolated228 from the originating Islamic banking institution in a manner (e.g. through the sale of assets or through sub-participation) that the exposures are beyond the reach of the originating Islamic banking institution and its creditors, even in bankruptcy or receivership. These conditions must be supported by an opinion provided by a qualified legal counsel229. The originating Islamic banking institution is deemed to have maintained effective or indirect control over the transferred credit risk exposures if it is: i. able to repurchase from the transferee (i.e. SPV) the previously transferred exposures in order to realise their benefits; or ii. obligated to retain the risk of the transferred exposures. The originating Islamic banking institution’s retention of servicing rights to the exposures will not necessarily constitute indirect control of the exposures; (c) the sukuk issued are not obligations of the originating Islamic banking institution. Thus, investors who purchase the securities have recourse only to the underlying pool of exposures; (d) the transferee is a special purpose vehicle (SPV) and the holders of the beneficial interests in that entity have the right to pledge or exchange the interests without restriction; (e) the securitisation does not contain clauses that: i. require the originating Islamic banking institution to alter systematically the underlying exposures to improve the credit quality of the pool; 227 For the purpose of the Securitisation Framework, with the exception of SPVs, entities in which the consolidated treatment is applied for capital adequacy purposes, as outlined in Capital Adequacy Framework for Islamic Banks (General Requirements and Capital Components) are not included within the definition of a third-party. 228 Examples of methods of legal transfer normally adopted in traditional securitisation transaction are provided in Appendix XXIX. 229 For this purpose, both internal and external legal counsels are acceptable. Nevertheless, the Bank may, at its discretion require an additional legal opinion from an independent counsel where a second opinion is appropriate. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 345 / 517 Issued on: 3 May 2019 ii. allow for increases in a retained first loss position or credit enhancement provided by the originating Islamic banking institution after the inception of the transaction; or iii. increase the yield payable to parties other than the originating Islamic banking institution, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the underlying pool; and (f) clean-up calls, if any, satisfy the conditions set out in paragraph 7.27. F.3 STANDARDISED APPROACH FOR SECURITISATION EXPOSURES F.3.1 REQUIREMENTS OF USE OF EXTERNAL RATINGS 7.8 For risk-weighting of rated securitisation exposures, Islamic banking institutions are only allowed to use external ratings provided by External Credit Assessment Institutions (ECAI) recognised by the Bank. In addition, Islamic banking institutions must ensure that the use of external ratings for risk-weighted capital adequacy purposes meets the following conditions: (a) the external rating shall incorporate features of underlying Shariah contract that give rise to different risk profile in its credit assessment; (b) the external rating is made publicly available i.e. a rating must be published in an accessible form. Credit ratings that are made available only to the parties to a securitisation transaction (e.g. rating on a particular securitisation exposure made available upon request by parties to the transaction) are not considered as a public rating for purposes of the Securitisation Framework; (c) the external rating is reflective of the entire amount of the Islamic banking institution’s credit risk exposure with regard to all payments owed to it. For example, if an Islamic banking institution is owed both principal and profit, the assessment must fully take into account and reflect the credit risk associated with timely repayment of both principal and profit; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 346 / 517 Issued on: 3 May 2019 (d) external ratings provided by the ECAIs are applied consistently across a given type of securitisation exposure. In particular, Islamic banking institutions are not allowed to use an ECAI’s credit rating for one or more tranches and another ECAI’s rating for other tranches within the same securitisation structure that may or may not be rated by the first ECAI. In cases where a securitisation exposure is rated by more than one ECAI, the requirements in paragraph 2.12 of the credit risk component of CAFIB shall apply; (e) if credit risk mitigation (CRM) is provided directly to an SPV by an eligible guarantor (i.e. eligible credit protection) and is reflected in the external rating assigned to a securitisation exposure, the risk weight associated with that external rating should be used. However, if the CRM provider is not an eligible guarantor, the rating for the ‘guaranteed’ securitisation exposure should not be recognised and the exposure should be treated as unrated (except for securitisation exposures mentioned in paragraph 7.13); and (f) in the situation where CRM is applied to a specific securitisation exposure within a given structure (e.g. hedging a senior tranche exposure), Islamic banking institution shall disregard the rating attached to the exposure and use the CRM treatment instead, as outlined in Part B.2.5 of the credit risk component of CAFIB in order to recognise the hedge. However, if the CRM becomes ineligible, the rating attached to the securitisation exposure should be used for risk-weighting purposes230. 7.9 While CAFIB primarily relies on external credit assessments, Islamic banking institutions must exercise prudence to ensure that the external credit assessments do not substitute for the Islamic bank’s own due diligence in the credit assessment process. In order to use external ratings under the 230 For example, when an Islamic bank is investing in a BBB- rated securitisation tranche and subsequently hedges the investment using a guarantee with an eligible guarantor under the framework, the rating-based risk weight for the securitisation tranche shall be disapplied and the CRM treatment shall be used instead. However, if the CRM provider is ineligible under the framework, the Islamic bank shall fall back to the rating-based capital treatment. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 347 / 517 Issued on: 3 May 2019 Securitisation Framework, an Islamic banking institution must have the following: (a) a comprehensive understanding of the risk characteristics of its individual securitisation exposures, whether on balance sheet or off- balance sheet, as well as the risk characteristics of the pools underlying the securitisation exposures. As part of their investment due diligence process, Islamic banking institution should also consider the extent to which the originator or sponsor of the securitisation shares a similar economic interest as that of investors (for example, as indicated by the proportion of underlying exposures retained by the originator); (b) a thorough understanding of all structural features of a securitisation transaction that would materially impact the nature of the Islamic banking institution’s exposures to the transaction, such as the contractual waterfall and waterfall-related triggers, credit enhancements, the Shariah contract applied, liquidity enhancements, market value triggers, and deal-specific definitions of default; and (c) access to performance information on the underlying pools on an ongoing basis in a timely manner. Such information may include, as appropriate: exposure type; percentage of financing 30, 60 and 90 days past due; default rates; prepayment rates; financings in foreclosure; property type; occupancy; average credit score or other measures of credit worthiness; progress of underlying project, average financing-to- value ratio; and industry and geographic diversification. For re- securitisations, Islamic banking institutions should have information not only on the underlying securitisation tranches, such as the issuer name and credit quality, but also on the characteristics and performance of the pools underlying the securitisation tranches. F.3.2 TREATMENT OF ON-BALANCE SHEET SECURITISATION EXPOSURES 7.10 The risk-weighted asset amount of an on-balance sheet securitisation exposure is computed by multiplying the amount of the securitisation exposure by the appropriate risk weight provided in tables ‘Securitisation (Long Term Ratings)’ and ‘Securitisation (Short term ratings)’ below. Some BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 348 / 517 Issued on: 3 May 2019 exposures, as indicated in the following tables, would require capital deduction. Securitisation (Long Term Ratings) Rating Category S&P Moody’s Fitch RAM MARC Risk Weight 1 AAA to AA- Aaa to A AAA to AA- AAA to AA3 AAA to AA- 20% 2 A+ to A- A1 to A3 A+ to A- A1 to A3 A+ to A- 50% 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB1 to BBB3 BBB+ to BBB- 100% 4 BB+ to BB- Ba1 to Ba3 BB+ to BB- BB1 to BB3 BB+ to BB- 350% 5 B+ and below B1 and below B+ and below B1 and below B+ and below 1250% Unrated 1250% Securitisation (Short Term Ratings) Rating Category S&P Moody’s Fitch RAM MARC Risk Weight 1 A-1 P-1 F1+, F1 P-1 MARC-1 20% 2 A-2 P-2 F2 P-2 MARC-2 50% 3 A-3 P-3 F3 P-3 MARC-3 100% 4 Others or unrated Others or unrated Others or unrated NP MARC-4 1250% 7.11 Originating Islamic banking institutions that retain their own-originated securitisation positions rated below investment grade must apply a 1250% risk weight on all of such exposures. Holdings of non-investment grade securitisation exposures, however, will not be subject to the 1250% risk weight if the originating Islamic banking institution does not also retain the first loss position (in whole or in part) of its own securitisation. In this case, the corresponding risk weight as provided in the tables mentioned in paragraph 7.11 shall be used. 7.12 The 1250% risk weighting imposed on unrated securitisation exposures will not apply in the following circumstances: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 349 / 517 Issued on: 3 May 2019 (a) Unrated most senior securitisation exposures Where an Islamic banking institution that holds or guarantees the most senior exposure in a securitisation applies the ‘look-through’ approach in determining the average risk weight of the underlying exposure, the unrated exposures should be subject to the average risk weight231. However, if the resulting weighted average risk weight is higher than the risk weight of the securitisation exposure below it, then the risk weight of the latter shall apply. (b) Unrated securitisation exposures in a second loss or better position under an Asset-backed Commercial Papers (ABCP) programme Unrated securitisation exposures held by an Islamic banking institution to an ABCP programme will be subject to a risk weight which is the higher of 100% or the highest risk weight assigned to any of the underlying individual exposures covered by the facility, subject to the following requirements: i. the exposure is economically in a second loss position or better and the first loss position provides significant credit protection232 to the second loss position; ii. the associated credit risk is the equivalent of investment grade or better233; and iii. the Islamic banking institution holding such unrated securitisation exposure does not also retain the first loss position in the ABCP program. F.3.3 TREATMENT OF OFF-BALANCE SHEET SECURITISATION EXPOSURES 7.13 Off-balance sheet securitisation exposures must be translated into an on- balance sheet exposure equivalent amount by multiplying the exposure with 231 Islamic banking institutions must be able to demonstrate that the composition of the underlying pool and the relevant risk weight of each individual exposure within the pool are quantifiable at all times. 232 As may be demonstrated by models and simulation techniques. 233 As may be evidenced by an indicative rating provided by an internal model. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 350 / 517 Issued on: 3 May 2019 a credit conversion factor (CCF). The resulting amount is then weighted according to the relevant risk weights. 7.14 The CCFs, which are determined based on whether the off-balance sheet securitisation exposure qualifies as an ‘eligible liquidity facility’, an ‘eligible servicer cash advance facility’ or ‘eligible underwriting facility’ according to the eligibility criteria specified in Appendix XXXI, are as follows: CCF Risk Weight Treatment of Eligible Liquidity Facilities a) Externally rated eligible liquidity facility that meets the requirements for use of external rating in paragraph 7.9. 100% Rating-based risk weight in paragraph 7.11 b) Non-externally rated eligible liquidity facility with an original maturity of more than 1 year. 50% Highest risk weight assigned to any of the underlying individual exposures covered by the facility. c) Non-externally rated eligible liquidity facility with an original maturity of 1 year or less. 20% Treatment of Eligible Servicer Cash Advance Facilities a) Eligible servicer cash advance facility that meets the operational requirements in paragraph 2 of Appendix XXXI. 0% Not applicable Treatment of Eligible Underwriting Facility a) Eligible underwriting facility that meets the operational requirements in paragraph 3 of Appendix XXXI. 50% Highest risk weight assigned to any tranche of the securitisation exposure underwritten Others a) All other off-balance sheet securitisation exposures (including ineligible facilities), unless otherwise specified by the Bank. 100% Highest risk weight assigned to any tranche of the securitisation exposure F.3.4 TREATMENT OF OVERLAPPING EXPOSURES 7.15 An Islamic banking institution may provide several types of facilities (e.g. provision of a liquidity facility and a credit enhancement) in a securitisation transaction that can be drawn under various terms and conditions which may BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 351 / 517 Issued on: 3 May 2019 overlap with each other. Under circumstances where there is an explicit limit on the draw of more than one facility at a time for the overlapping exposure, capital should be provided as though the institution had only provided one facility for the overlapping exposures234. If the overlapping facilities are subject to different capital treatments, the treatment that results in the highest capital charge should be applied on the overlapping portion. 7.16 The treatment above does not apply in cases where the overlapping facilities are provided by two different Islamic banking institutions and capital is allocated by each individual institution. F.3.5 TREATMENT OF COUNTERPARTY CREDIT RISK FOR SECURITISATION EXPOSURES 7.17 When a profit rate swap or currency swap is provided to a securitisation transaction and where the counterparty is an SPV, the credit equivalent amount is computed based on the current exposure method specified in Appendix VI of CAFIB on counterparty credit risk and current exposure method. The highest risk weight of the underlying assets in the pool shall be applied to the resultant exposure amount in determining the counterparty credit risk. F.3.6 TREATMENT OF SECURITISATION OF REVOLVING UNDERLYING EXPOSURES235 WITH EARLY AMORTISATION PROVISIONS 7.18 Early amortisation provisions are mechanisms that, once triggered, allow investors to be paid out prior to the maturity of the sukuk subject to the terms of the securitisation transaction. Generally, early amortisation provisions are triggered based upon the performance or selected risk indicators of the 234 For example, if an Islamic bank provides a credit enhancement covering 10% of the underlying asset pool in an ABCP programme and a liquidity facility covering 100% of the same underlying asset pool, the Islamic bank would be required to hold capital against 10% of the underlying asset pool for the credit enhancement it is providing and 90% of the liquidity facility provided to the underlying asset pool. Effectively, the overlapping portion between the credit enhancement portion and the liquidity facility portion would be subject to a capital treatment which results in the highest capital charges. 235 Revolving exposures refer to credit exposures where the borrower is permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e.g. credit card receivables and corporate financing commitments). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 352 / 517 Issued on: 3 May 2019 underlying exposures, such as the excess spread level. The existence of an early amortisation feature236 in a securitisation transaction exposes an originating Islamic banking institution to liquidity risk if the sukuk issued are required to be prepaid early, for example where there is a significant reliance on securitisation to meet funding requirements. 7.19 Accordingly, originating Islamic banking institutions must hold capital against the risk exposure arising from the securitisation of revolving underlying exposures that contains an early amortisation feature. The specific capital treatment varies according to the type of early amortisation provision (i.e. controlled or non-controlled early amortisation) and type of underlying securitised exposures (i.e. committed or non-committed and retail or non- retail) as provided in Appendix XXXII. F.3.7 TREATMENT OF CREDIT RISK MITIGATION FOR SECURITISATION EXPOSURES 7.20 The requirements outlined in this section provide the treatment for Islamic banking institutions that: (a) obtain credit risk mitigants such as guarantees, collateral and on- balance sheet netting to cover the credit risk of a securitisation exposure (e.g. an asset-backed sukuk tranche); and (b) provide such credit risk mitigation to a securitisation exposure. 7.21 When an Islamic banking institution other than an originating Islamic banking institution provides credit protection to a securitisation exposure, it must calculate the capital requirement on the covered exposure as if it were an investor in that securitisation. For example, if protection is provided to an unrated first loss position, a capital deduction shall be applied accordingly to such credit protection. 236 A clean-up call feature is distinguished from an early amortisation feature in this framework, where a clean-up call is exercised only under the conditions specified in paragraph 7.27. This supports the differentiated capital treatment for early amortisation and clean-up call features. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 353 / 517 Issued on: 3 May 2019 Guarantees 7.22 Where guarantees are provided by eligible entities237, Islamic banking institutions may take into account such credit protection in calculating capital requirements for their securitisation exposures in accordance to CRM treatments specified in paragraphs 2.144 to 2.152 of the credit risk component of CAFIB. Eligible collateral 7.23 Eligible collateral is limited to those recognised under paragraph 2.121 in the credit risk component of CAFIB, including collateral that may be pledged by an SPV. Maturity Mismatches 7.24 Where a maturity mismatch exists in any credit risk mitigation for securitisation exposures, the capital requirement for the maturity mismatch as outlined in paragraphs 2.153 to 2.156 of the credit risk component of CAFIB shall be applied. When the exposures being hedged have different maturities, the longest maturity must be used. F.3.8 OPERATIONAL REQUIREMENTS AND TREATMENT OF CLEAN-UP CALLS 7.25 Certain securitisation transactions may incorporate a clean-up call feature. A clean-up call is an option that permits the securitisation exposures to be called before all of the underlying exposures or securitisation exposures have been repaid. In the case of traditional securitisation, this is generally accomplished by repurchasing the remaining securitisation exposures once the pool balance or outstanding sukuk have fallen below some specified level that renders the securitisation uneconomical to continue. 237 Eligible guarantors are defined in paragraph 2.146 of the credit risk component of the CAFIB. Islamic banking institutions may not recognise SPVs as eligible guarantors in the securitisation framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 354 / 517 Issued on: 3 May 2019 7.26 In general, originating Islamic banking institutions are not required to set aside regulatory capital for the existence of a clean-up call, provided that all the following conditions are fully met: (a) the exercise of the clean-up call is not mandatory, in form or in substance, but rather is at the sole discretion of the originating Islamic banking institution; (b) the clean-up call is not structured to avoid allocating losses to credit enhancements or positions held by investors, or otherwise structured to provide a credit enhancement; and (c) the clean-up call is only exercisable when 10% or less of the original underlying portfolio or securities issued remains. 7.27 For clean-up call that does not meet all of the requirements above, hereinafter referred to as ‘non-eligible clean-up call’, the underlying exposures must be treated as if the exposures were not securitised. Islamic banking institutions must not recognise any gain-on-sale as regulatory capital. F.3.9 TREATMENT FOR IMPLICIT SUPPORT 7.28 Implicit support arises when an Islamic banking institution provides support to a securitisation beyond its predetermined contractual obligations. This implicit support increases market expectations that the Islamic banking institution might continue to provide future support to the securitisation, thereby understating the degree of risk transfer and the required level of regulatory capital by the Islamic banking institution. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 355 / 517 Issued on: 3 May 2019 PART G REQUIREMENTS FOR APPROVED FINANCIAL HOLDING COMPANIES G.1 GENERAL REQUIREMENTS 8.1 Except for the requirements in paragraph 1.10(i), all other requirements in this policy document238 shall be applicable to financial holding companies that hold investment directly or indirectly in corporations that are engaged predominantly in banking business. 8.2 References to Islamic banking institution(s) in this document shall also refer to approved financial holding company (-ies), as the case may be. G.2 Regulatory approval process for the adoption of an advanced approach 8.3 A financial holding company is required to obtain the Bank’s written approval prior to adopting any of the following advanced approaches: i) Internal Ratings-based Approach for credit risk; ii) Internal Model Approach for market risk; and iii) The Standardised Approach or Alternative Standardised Approach for operational risk. 8.4 Where a Malaysian licensed Islamic banking institution within a financial group adopts an advanced approach for the computation of risk-weighted assets of a risk type, the financial holding company shall apply a similar approach for the computation of the group risk-weighted assets of that risk type239,240. This will ensure a consistent measurement approach applied for similar exposures across the group. 8.5 For the purpose of submitting an application to adopt the Internal Ratings- Based Approach for credit risk: 238 This includes the reporting templates and reporting manual. 239 For credit risk, the adoption of the advanced approach can be done based on an asset class or a sub-class, and for market risk, the adoption of the advanced approach can be done based on a broad risk category. 240 For clarity, the other banking subsidiaries do not necessarily have to adopt the similar approach for their entity level reporting. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 356 / 517 Issued on: 3 May 2019 i) for a financial group where the Malaysian licensed Islamic banking institution within the group has adopted the Internal Ratings-Based Approach prior to 23 October 2014241: a. the group must fully comply with all minimum requirements of the approach on a consolidated basis by 1 January 2019; b. the group must submit the application, accompanied by all required information, to the Bank by 1 January 2017242; c. the Bank will inform its decision on the application and the commencement of observation period243 by 31 December 2017; and d. the Bank will inform its final decision on the migration to the approach before 1 January 2019. ii) for a financial group where the Malaysian licensed Islamic banking institution within the group is planning to migrate to the Internal Rating- Based Approach for credit risk after 23 October 2014: a. the group shall formally notify the Bank of its intention to migrate at least 3 years before the intended implementation date; b. the group must submit the application, accompanied by all required information, to the Bank at least 2 years before the intended implementation date; c. the group shall comply with all minimum requirements of the approach except in relation to the use of internal ratings, at the time of submission to the Bank under (b) above. In the case of the requirements on the use of internal ratings, the group shall demonstrate a credible track record showing that the rating systems which comply with the minimum requirements have been used for at least 1 year prior to the submission. The group may utilise the time allocated for the review period by the Bank and the 241 Discussion paper on Capital Adequacy Framework for Financial Holding Companies (Banking groups) issued on 23 October 2014. 242 For clarity, compliance with the minimum requirements of the approach is not required at the time of submission of the required information to the Bank. The group may utilise the time allocated for the review period by the Bank and the observation period to fully meet the minimum requirements by 1 January 2019. 243 The observation period is intended to ensure that the models developed comply with the minimum requirements. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 357 / 517 Issued on: 3 May 2019 observation period to fully meet the use of internal ratings requirements244; d. the Bank will inform its decision on the application and whether the group can commence observation period within 1 year from the receipt of the submission of the required information under (b) above; and e. in the case where the Bank has agreed for the group to commence observation period, the Bank will inform its final decision on the migration to the approach by the end of the observation period. 244 As required in paragraph 3.357. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 358 / 517 Issued on: 3 May 2019 APPENDICES Appendix I Eligibility Criteria for External Credit Assessment Institution (ECAI) Recognition Criterion 1: Objectivity of credit assessment methodology and process The methodology and process for assigning credit ratings must be rigorous and systematic. Before being recognised by the Bank, an assessment methodology for the broad asset class for which recognition is sought must have been established for at least one year and preferably three years. 1. The objectivity of an ECAI’s credit assessment methodology can be assessed on the following parameters: (i) Any credit assessment methodology adopted by an ECAI must produce an informed and sound opinion of the creditworthiness of rated entities. The credit assessments must be based on all relevant information that is available at the time the assessments are issued; (ii) All qualitative and quantitative factors known to be relevant in determining the creditworthiness of the rated entities must be incorporated in the methodology; (iii) The ECAI’s credit assessment methodologies and processes should provide a sufficient level of consistency and discrimination to provide the basis for capital requirements under the Standardised Approach for credit risk; and (iv) Processes to ensure that consistent application of any credit assessment methodology should be in place such that equivalent credit assessments are given to identical rated entities or issuances, and that different analysts or rating committees working independently within the ECAI shall assign equivalent credit ratings to a particular entity or issuance. 2. With regard to Islamic debt securities, the Bank expects that the ECAI has a documented methodology to identify and assess the inherent risk drivers peculiar to Islamic debt securities. Processes should also be in place to ensure BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 359 / 517 Issued on: 3 May 2019 consistency in the application of credit assessment methodologies of Islamic entities and issuances. Criterion 2: Ongoing review of credit assessment methodology The methodology for assigning credit ratings must be validated by the ECAI based on its historical experience. Before being recognised by the Bank, rigorous backtesting must have been established for at least one year and preferably three years. 3. The review process of the credit assessment methodology can be assessed on the following parameters: (i) The process of validating the methodologies is based on historical experience. Quantitative validation will need to be based on the ECAI's credit assessments (the outputs of the methodology) rather than on the methodology itself; (ii) The quantitative assessment should confirm the stability of credit assessments as well as the discriminatory power and the stability of discriminatory power of credit assessments over time; (iii) Procedures should be in place to ensure that systematic rating errors highlighted by backtesting will be incorporated into credit assessment methodologies and rectified; and (iv) If sufficient data is available, the ECAI should undertake separate backtesting for each of the broad asset classes for which an ECAI is seeking recognition. Criterion 3: Ongoing review of individual credit assessments ECAIs are expected to conduct an ongoing review of the credit assessments. Such reviews shall take place after any material event in a rated entity or at least annually. 4. The ECAI must ensure that credit assessments remain consistent and robust over time and market conditions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 360 / 517 Issued on: 3 May 2019 5. The ECAI must ensure that reliable processes that are able to detect changes in conditions surrounding a rated entity that are sufficiently material to alter its credit assessments are in place. 6. The ECAI must ensure that a credit assessment is indeed revised when the change in operating conditions is material enough to warrant a revision. Notwithstanding this, individual credit assessments must be reviewed at least annually. Criterion 4: Independence The ECAI should be independent and should not be subject to any pressures that may influence the rating. The assessment process should be as free as possible from any constraints that could arise in situations where the composition of the board or the shareholder structure of the assessment institution may be seen as creating a conflict of interest. 7. The rating methodologies and process of an ECAI must be free from any influence, which may affect its ability to conduct credit assessments. 8. There must also be procedures to ensure that its methodologies are free from any influences or constraints that may influence the credit assessments. 9. The ECAI must ensure that: (i) it has adopted, monitored, and successfully applied internal procedures to ensure that all credit assessments are formulated in a consistent and objective manner, particularly in situations where conflicts of interest may arise and could threaten its objectivity; and (ii) it has mechanisms in place to identify actual and potential conflicts of interest and take reasonable measures to prevent, manage and eliminate them, so that they do not impair the production of independent, objective and high quality credit assessments. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 361 / 517 Issued on: 3 May 2019 10. Where an ECAI has additional business with rated entities (for example advisory services, data services, consulting services), the ECAI should also disclose to the Bank the nature of the services and the general nature of the compensation arrangements for the provision of these services. 11. The ECAI should maintain and document strict fire-walls on information sharing between their rating assignment teams and other business lines. 12. ECAIs should disclose any significant business relationships between ECAI employees and the rated entities. Criterion 5: International access and transparency The individual assessments should be available to both domestic and foreign institutions with legitimate interests and at equivalent terms. In addition, the general methodology used by the ECAI should be publicly available to allow all potential users to decide whether they are derived in a reasonable way. 13. This criterion is intended to create a level playing field by ensuring that all institutions having a ‘legitimate interest’ in an ECAI's credit assessments, in whatever jurisdiction, have equal and timely access to them. 14. ECAIs that wish to be recognised as eligible must make their credit assessments accessible at least to all institutions having a ‘legitimate interest’. Institutions having a ‘legitimate interest’ are those institutions that need to calculate their regulatory capital requirements, and that intend to use the credit assessments of the respective ECAI for risk weighting purposes. 15. ‘At equivalent terms’ means that under the same economic circumstances, access to credit assessments should be provided on identical terms, without any undue price discrimination. Criterion 6: Disclosure BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 362 / 517 Issued on: 3 May 2019 An ECAI should use appropriate methods of disclosure to ensure public access to all material information. This is to allow all potential users to decide whether the assessments are derived in a reasonable way. 16. At a minimum, ECAIs should disclose the following to the public: (i) the methodologies (these include the definition of default, the time horizon and the meaning of each rating); (ii) as promptly as possible, any material changes in methodology referred; (iii) the validation results on their methodology (these include the actual default rates experienced in each assessment category and the transitions of the assessments); and (iv) whether a credit assessment is unsolicited. 17. An ECAI should use appropriate methods of disclosure to ensure public access to the abovementioned information. Criterion 7: Resources An ECAI should have sufficient resources to carry out high quality credit assessments. These resources should allow for substantial ongoing contact with senior and operational levels within the entities assessed in order to add value to the credit assessments. Such assessments should be based on methodologies combining qualitative and quantitative approaches. 18. In terms of staffing and expertise, an ECAI should ensure that its staff has the levels of skills and experience necessary to perform the tasks required of them, competently and thoroughly. 19. The ECAI should also have sufficient resources to carry out consistent assessments and have frequent contacts with the rated companies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 363 / 517 Issued on: 3 May 2019 20. In addition, analysts at ECAIs that rate Islamic issues need to have undergone sufficient training to develop the requisite understanding in rating Islamic issues and the specific risks contained in these issues. Criterion 8: Credibility The Bank shall verify that the ECAI's individual credit assessments are recognised in the market as credible and reliable by the users of such credit assessments. 21. The Bank shall assess the ECAI’s credibility according to factors such as the following: (i) the extent to which it meets the overall recognition criteria; (ii) the extent to which independent parties (investors, insurers, trading partners) rely on ECAI's assessment; and (iii) the extent to which market prices of rated securities are differentiated according to the ECAI’s ratings. BNM/RH/GL 007-21 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk- Weighted Assets) Page 364 / 469 Appendix II Summary of Risk Weights for Financing Secured by Residential Real Estate (RRE) Properties Criteria Risk Weight Performing Non-Performing* Subject to meeting the criteria under paragraph 2.38 and:  FTV Ratio < 80% 35% 100%  FTV Ratio 80% - 90% 50% 100% Does not meet criteria in paragraph 2.38 or FTV Ratio > 90% (approved and disbursed before 1 February 2011 ) Treated as per paragraph 2.36 150% All financings with financing-to- value > 90% approved and disbursed on or after 1 February 2011 100% 150% Financing to priority sector245:  FTV Ratio < 80% 35% 100%  FTV Ratio ≥ 80% 50% 100%  FTV ratio > 90% approved and disbursed on or after 1 February 2011 75% 150% RRE financing combined with overdraft facilities:  RRE financing Based on the specified criteria & FTV Ratio  Personal financing facility# 75% subject to meeting retail portfolio criteria 150% RRE financing on abandoned projects 150% * Risk weights could be lower depending on level of provisioning as per paragraphs 2.47 and 2.48. # Refer to paragraph 2.41. 245 As per the Bank’s Guidelines on Lending/Financing to Priority Sectors. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 365 / 517 Issued on: 3 May 2019 Appendix III Definition of Default 1. A default is considered to have occurred when: (i) The Islamic banking institution considers that an obligor is “unlikely to repay” in full its credit obligations, without recourse by the Islamic banking institution to actions such as realising security; or (ii) The obligor has breached its contractual repayment schedule and is past due for more than 90 days246 on any material credit obligation to the Islamic banking group. (a) The Framework will apply the definition of default on obligors that are past due for more than 120 days under the Hire-Purchase Act 1967 and default for RRE financing past due for more than 180 days. (b) A default for securities is recognised immediately upon the breach of contractual repayment schedule. (c) For overdrafts, a default occurs when the obligor has breached the approved limits for more than 90 days. (d) Where periodic repayments are scheduled on three months or longer, a default occurs immediately upon the breach of contractual repayment schedule. However, Islamic banking institutions which adopt a more stringent definition of default internally are required to apply such internal definition for regulatory capital purposes. 2. Elements to be taken as an indication of unlikeliness to repay: (i) The Islamic banking institution ceases to accrue all or partially, revenue due from a credit obligation in accordance with the terms of the contract. 246 Islamic banking institutions may apply a more stringent definition of default based on their own internal policies. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 366 / 517 Issued on: 3 May 2019 (ii) The Islamic banking institution is uncertain about the collectability of a credit obligation which has already been recognised as revenue and then treats the uncollectible amount as an expense. (iii) The Islamic banking institution makes a charge off or an account-specific provision or impairment resulting from a significant perceived decline in credit quality subsequent to the Islamic banking institution taking on the exposure. (Provisions on equity exposures set aside for price risk does not signal default). (iv) The Islamic banking institution sells the credit obligation at a material credit related economic loss. (For securities financing, when collateral is liquidated not due to the deterioration of an obligor’s creditworthiness but due to a fall in the value of collateral to restore an agreed collateral coverage ratio and has been disclosed to the obligor in writing at the inception of the facility should not be recorded as a default). (v) The Islamic banking institution consents to a restructuring247 of the credit obligation where this is likely to reduce the financial obligation due to the material forgiveness or postponement of principal, profit or (where relevant) fees. This constitutes a granting of a concession that the Islamic banking institution shall not otherwise consider (vi) The default of a related obligor. Islamic banking institution must review all related obligors in the same group to determine if that default is an indication of unlikeliness to repay by any other related obligor. Islamic banking institution must judge the degree of economic interdependence of the obligor towards its related entities. (vii) Acceleration of an obligation. (viii) An obligor is in significant financial difficulty. The financial difficulty may be indicated by a significant downgrade of an obligor’s credit rating. (ix) Default by the obligor on credit obligations to other financial creditors, e.g. financial institutions or sukuk holders. 247 Shall also include rescheduling of facilities. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 367 / 517 Issued on: 3 May 2019 (x) The Islamic banking institution has filed for the obligor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the Islamic banking group. (xi) The obligor has sought or has been placed in bankruptcy or similar protection where this shall avoid or delay repayment of the credit obligation to the Islamic banking group. Default at Facility Level 3. For retail exposures, Islamic banking institutions are allowed to apply the definition of default at facility level, rather than at obligor level. For example, an obligor might default on a credit card obligation and not on other retail obligations. However, Islamic banking institutions should be vigilant and consider cross-default of facilities of an obligor if it is representative of his incapacity to fulfill other obligations. 4. A default by a corporate obligor shall trigger a default on all of its other exposures. Re-Ageing 5. Re-ageing is a process by which Islamic banking institutions adjust the delinquency status of exposures based on subsequent repayment of arrears or restructuring. This is done when all or some of the arrears under the original repayment schedule have been paid off or repackaged into a new repayment structure. 6. At a minimum, the re-ageing policy of Islamic banking institutions must include: (i) appropriate approving authority and reporting requirements; (ii) minimum age of a facility before it is eligible for re-ageing; (iii) delinquency levels of facilities that are eligible for re-ageing (iv) maximum number of re-ageing per facility; and BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 368 / 517 Issued on: 3 May 2019 (v) re-assessment of the obligor’s capacity to repay. 7. Re-ageing is allowed for both defaulted and delinquent exposures. However, the exposure shall not be immediately re-aged if the restructuring causes a diminished financial obligation or material economic loss or it is assessed that the obligor does not have the capacity to repay under the new repayment structure. In the case of defaulted exposures, re-ageing is permitted after the obligation has been serviced promptly for 6 consecutive months. For exposures with repayments scheduled at three months or longer, re-ageing is only permitted after the obligation has been serviced promptly for two consecutive payments. A diagrammatic illustration of re-ageing is given in Appendix IIIa. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 369 / 517 Issued on: 3 May 2019 Appendix IIIa Diagrammatic Illustration of Re-ageing via Restructuring Re-ageing Before default Restructuring Material Economic Loss Not re-aged. No reduction of month in arrears and exposure defaults. After default No Re-aged. Month in arrears reduced. Restructuring Re-aged. Month in arrears reduced. No Not re-aged. Month in arrears not reduced. Yes Subsequent payment of 6 months consecutively? No Yes Subsequent payment of 6 months consecutively? Yes BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 370 / 517 Issued on: 3 May 2019 Appendix IV Illustration on Risk-Weighted asset (RWA) Calculation for Defaulted Exposures and Exposures Risk-Weighted at 150% Example 1: Term financing Defaulted financing to unrated corporate amounting to RM1,000,000 secured by eligible collateral (Haircut: 25%). The Islamic banking institution has already set aside specific provisions of RM50,000 for this financing. Since specific provisions is only 5% of outstanding financing amount [i.e. RM50,000/RM1,000,000], the applicable risk weight charge is 150%. The computation of the RWA is as follows: Collateral amount = RM500,000 x (100%-25%) = RM375,000 RWA = 150% x unsecured portion of outstanding financing net of specific provisions = 150% x (RM1,000,000 – RM375,000 – RM50,000) = 150% x RM575,000 = RM862,500 Example 2: Qualifying and non-qualifying RRE financing RRE financing A amounting to RM95,000, with current value of property at RM100,000. The Islamic banking institution has already set aside specific provisions of RM10,000 for this financing. RRE financing B amounting to RM75,000, with current value of property at RM100,000. The Islamic banking institution has already set aside specific provisions amounting to RM20,000 for this financing. For financing A, the FTV ratio is 95%, thus would be deemed as non-qualifying. For financing B, as the FTV ratio is 75%, this category would fall under the qualifying RRE financing category. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 371 / 517 Issued on: 3 May 2019 For qualifying RRE financing portion: As specific provisions over total outstanding financing amount exceeds 20% (20,000/75,000 = 26.67%), the exposure would be eligible for the preferential risk weight of 50%. RWA = 50% x outstanding amount net of specific provisions = 50% x (RM75,000 –RM20,000) = 50% x RM55,000 = RM27,500 For non-qualifying RRE financing portion: As specific provisions over total outstanding financing amount is less than 20% (10,000/95,000 = 10.53%, the exposure would be accorded a risk weight of 150%. RWA = 150% x outstanding amount net of specific provisions = 150% x (RM95,000 –RM10,000) = 150% x RM85,000 = RM127,500 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 372 / 517 Issued on: 3 May 2019 Appendix V Minimum Requirements on Supervisory Slotting Criteria Method Introduction 1. For the purpose of Istisna`, Musharakah and Mudarabah contracts in the structuring of specialised financing and investment, Islamic banking institutions are allowed to adopt the supervisory slotting criteria method as an alternative to calculate the credit risk-weighted assets for these Islamic contracts instead of assigning 100% or 150% risk weights. Under the supervisory slotting criteria method, Islamic banking institutions are required to map their internal rating to a set of supervisory criteria outlined in Appendix Va in order to determine the appropriate risk weight associated with the respective supervisory category. Once the supervisory slotting criteria method is adopted to compute credit risk-weighted asset for any or all of sub-classes under specialised financing, the method must be applied throughout, Istisna`, Musharakah and Mudarabah contracts consistently. 2. Islamic banking institutions are required to fulfill the minimum requirements as set out in the following parts before they can adopt the supervisory slotting criteria method to derive credit risk-weighted assets for Istisna`, Musharakah and Mudarabah contracts. Definition of Specialised Financing and Investment 3. Specialised financing under the, Istisna` Musharakah and/or Mudarabah contracts shall be divided into five sub-classes, namely project finance (PF), object finance (OF), commodities finance (CF) and income-producing real estate (IPRE). To be classified as specialised financing, the exposures must meet the following general and specific criteria: General Criteria 4. All specialised financing and investment shall possess the following characteristics, either in legal form or economic substance: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 373 / 517 Issued on: 3 May 2019 (iii) The exposure is typically to an entity (often a special purpose entity (SPE)) which was created specifically to finance and/or operate physical assets. In specific, the SPE must have legal ownership of the assets; (iv) The obligor has little or no other material assets or activities, and therefore little or no independent capacity to repay the obligation, apart from the income that it receives from the asset(s) being financed; (v) The terms of the obligation give the lender a substantial degree of control over the asset(s) and the income that it generates; and (vi) As a result of the preceding factors, the primary source of repayment of the obligation is the income generated by the asset(s), rather than the independent capacity of a broader commercial enterprise. Specific Criteria 5. In addition to the four general criteria, Islamic banking institutions are required to classify their exposures into one of the five sub-classes of specialised financing based on the following broadly defined criteria: (i) Project finance (a) Project finance (PF) is a method of funding in which Islamic banking institutions as the financier look primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 374 / 517 Issued on: 3 May 2019 (b) In such transactions, the financier are usually paid solely or almost exclusively out of the money generated by the contracts for the facility’s output, such as the electricity sold by a power plant. The obligor is usually an SPE that is not permitted to perform any function other than developing, owning, and operating the installation. (ii) Object finance Object finance (OF) refers to a method of funding the acquisition of physical assets (for example ships, aircraft, satellites, railcars and fleets) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the financiers. A primary source of these cash flows might be rental or lease contracts with one or several third parties. (iii) Commodities finance Commodities finance (CF) refers to structured short-term financing of reserves, inventories, or receivables of exchange-traded commodities (for example crude oil, metals, or crops), where the exposure will be repaid from the proceeds of the sale of the commodity and the obligor has no independent capacity to repay the exposure. This is the case when the obligor has no other activities and no other material assets on its balance sheet. The structured nature of the financing is designed to compensate for the weak credit quality of the obligor. The exposure’s rating reflects its self-liquidating nature and the financier’s skill in structuring the transaction rather than the credit quality of the obligor. (iv) Income-producing real estate Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as, office buildings to let, retail space, residential houses, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 375 / 517 Issued on: 3 May 2019 generally be lease or rental payments or the sale of the asset. The obligor may be, but is not required to be, an SPE, an operating company focused on real estate construction or holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property. 6. Islamic banking institutions are required to put in place comprehensive policies and procedures to facilitate the differentiation process and ensure the consistent classification of specialised financing and its sub-classes. Minimum Requirements for the Use of Supervisory Slotting Criteria 7. Islamic banking institutions intending to adopt the supervisory slotting criteria for the computation of capital requirements for specialised financing must also fulfill the following requirements: (i) Rating system and dimension Islamic banking institutions must use at least single rating dimension that reflects obligor strength and loss severity considerations. (ii) Rating structure The rating system must have at least four internal grades for non- defaulted obligors, and one for defaulted obligors. (iii) Rating criteria (a) Specialised financing and investment exposures must be assigned to internal rating grades based on the banking institutions own criteria, systems and processes. The internal rating grades must then be mapped into five supervisory categories (“Strong” to “Default”) using the supervisory slotting criteria provided in Appendix Va. The mapping must be BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 376 / 517 Issued on: 3 May 2019 conducted separately for each sub-class of specialised financing exposures. (b) The Bank recognises that the criteria used by Islamic banking institutions to assign exposures to their internal rating grades may not be perfectly aligned with criteria that are used to define the supervisory categories. However, the mapping process must result in an alignment of the internal rating grades consistent with the predominant characteristics in the respective supervisory category. Banking institutions should ensure that any overrides of their internal criteria do not result in the mapping process being ineffective. (c) Specifically, if an Islamic banking institution’s internal rating grade maps specialised financing exposure into two supervisory categories, the exposure should be assigned to the riskier supervisory category. For example, if the internal rating system produces one rating that describes criteria than can be slotted into both the supervisory “strong” and “fair” categories, the exposures should be slotted into the “fair” category. (iv) Re-rating frequency and policy Islamic banking institutions must conduct re-rating of exposures on a frequent basis and at minimum once per year. For this purpose, Islamic banking institutions must establish written policies and procedures on re-rating, including the trigger criteria for re-rating and its frequency. (v) Data maintenance Islamic banking institutions are expected to collect and retain the relevant data used to derive the internal rating grades, for example, data on realised losses to facilitate the future review of the specialised financing portfolio. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 377 / 517 Issued on: 3 May 2019 Appendix Va Supervisory Slotting Criteria for Specialised Financing Exposures Project Finance Exposure No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions Few competing suppliers or substantial and durable advantage in location, cost, or technology. Demand is strong and growing Few competing suppliers or better than average location, cost, or technology but this situation may not last. Demand is strong and stable Project has no advantage in location, cost, or technology. Demand is adequate and stable Project has worsened than average location, cost, or technology. Demand is weak and declining b. Financial ratios (for example debt service coverage ratio (DSCR), financing life coverage ratio (FLCR), project life coverage ratio (PLCR), and debt-to equity ratio) Strong financial ratios considering the level of project risk; very robust economic assumptions Strong to acceptable financial ratios considering the level of project risk; robust project economic assumptions Standard financial ratios considering the level of project risk Aggressive financial ratios considering the level of project risk c. Stress analysis The project can meet its financial obligations under sustained, severely stressed economic or sectoral conditions The project can meet its financial obligations under normal stressed economic or sectoral conditions. The project is only likely to default under severe The project is vulnerable to stresses that are not uncommon through an economic cycle, and may default in a normal downturn The project is likely to default unless conditions improve soon BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 378 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak economic conditions d. Financial structure Duration of the credit compared to the duration of the project Useful life of the project significantly exceeds tenor of the financing Useful life of the project exceeds tenor of the financing Useful life of the project exceeds tenor of the financing Useful life of the project may not exceed tenor of the financing e. Financial structure Financing repayment / investment amortisation schedule Amortising exposure Amortising exposure Amortising repayments with limited bullet payment Bullet repayment or amortising repayments with high bullet repayment 2. Political and legal environment a. Political risk, including transfer risk, considering project type and mitigants Very low exposure; strong mitigation instruments, if needed Low exposure; satisfactory mitigation instruments, if needed Moderate exposure; fair mitigation instruments High exposure; no or weak mitigation instruments b. Force majeure risk (war, civil unrest, etc.), Low exposure Acceptable exposure Standard protection Significant risks, not fully mitigated c. Government support and project’s importance for the country over the long-term Project of strategic importance for the country (preferably export-oriented). Strong support from Government Project considered important for the country. Good level of support from Government Project may not be strategic but brings unquestionable benefits for the country. Support from Government may not be explicit Project not key to the country. No or weak support from Government BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 379 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak d. Stability of legal and regulatory environment (risk of change in law) Favourable and stable regulatory environment over the long-term Favourable and stable regulatory environment over the medium-term Regulatory changes can be predicted with a fair level of certainty Current or future regulatory issues may affect the project e. Acquisition of all necessary supports and approvals for such relief from local content laws Strong Satisfactory Fair Weak f. Enforceability of contracts, collateral and security Contracts, collateral and security are enforceable Contracts, collateral and security are enforceable Contracts, collateral and security are considered enforceable even if certain non-key issues may exist There are unresolved key issues in respect if actual enforcement of contracts, collateral and security 3. Transaction characteristics a. Design and technology risk Fully proven technology and design Fully proven technology and design Proven technology and design – start- up issues are mitigated by a strong completion package Unproven technology and design; technology issues exist and/or complex design b. Construction risk Permitting and siting All permits have been obtained Some permits are still outstanding but their receipt is considered very likely Some permits are still outstanding but the permitting process is well defined and they Key permits still need to be obtained and are not considered routine. Significant BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 380 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak are considered routine conditions may be attached c. Construction risk Type of construction contract Fixed-price date- certain turnkey construction EPC (engineering and procurement contract) Fixed-price date- certain turnkey construction EPC Fixed-price date- certain turnkey construction contract with one or several contractors No or partial fixed- price turnkey contract and/or interfacing issues with multiple contractors d. Completion guarantees Substantial liquidated damages supported by financial substance and/or strong completion guarantee from sponsors with excellent financial standing Significant liquidated damages supported by financial substance and/or completion guarantee from sponsors with good financial standing Adequate liquidated damages supported by financial substance and/or completion guarantee from sponsors with good financial standing Inadequate liquidated damages or not supported by financial substance or weak completion guarantees e. Track record and financial strength of contractor in constructing similar projects. Strong Good Satisfactory Weak f. Operating risk Scope and nature of operations and maintenance (O & M) contracts Strong long-term O&M contract, preferably with contractual performance incentives, and/or Long-term O&M contract, and/or O&M reserve accounts Limited O&M contract or O&M reserve account No O&M contract: risk of high operational cost overruns beyond mitigants BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 381 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak O&M reserve accounts g. Operating risk Operator’s expertise, track record, and financial strength Very strong, or committed technical assistance of the sponsors Strong Acceptable Limited/weak, or local operator dependent on local authorities h. Off-take risk If there is a take-or-pay or fixed- price off-take contract: Excellent creditworthiness of offtaker; strong termination clauses; tenor of contract comfortably exceeds the maturity of the debt Good creditworthiness of off-taker; strong termination clauses; tenor of contract exceeds the maturity of the debt Acceptable financial standing of off- taker; normal termination clauses; tenor of contract generally matches the maturity of the debt Weak off-taker; weak termination clauses; tenor of contract does not exceed the maturity of the debt i. Off-take risk If there is no take-or-pay or fixed- price off-take contract: Project produces essential services or a commodity sold widely on a world market; output can readily be absorbed at projected prices even at lower than historic market growth rates Project produces essential services or a commodity sold widely on a regional market that will absorb it at projected prices at historical growth rates Commodity is sold on a limited market that may absorb it only at lower than projected prices Project output is demanded by only one or a few buyers or is not generally sold on an organised market j. Supply risk Price, volume and transportation risk of feed-stocks; supplier’s track record and financial strength Long-term supply contract with supplier of excellent financial standing Long-term supply contract with supplier of good financial standing Long-term supply contract with supplier of good financial standing – a degree of price Short-term supply contract or long- term supply contract with financially weak BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 382 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak risk may remain supplier – a degree of price risk definitely remains k. Supply risk Reserve risks (for example natural resource development) Independently audited, proven and developed reserves well in excess of requirements over lifetime of the project Independently audited, proven and developed reserves in excess of requirements over lifetime of the project Proven reserves can supply the project adequately through the maturity of the debt Project relies to some extent on potential and undeveloped reserves 4. Strength of Sponsor a. Sponsor’s track record, financial strength, and country/sector experience Strong sponsor with excellent track record and high financial standing Good sponsor with satisfactory track record and good financial standing Adequate sponsor with adequate track record and good financial standing Weak sponsor with no or questionable track record and/or financial weaknesses b. Sponsor support, as evidenced by equity, ownership clause and incentive to inject additional cash if necessary Strong. Project is highly strategic for the sponsor (core business – long- term strategy) Good. Project is strategic for the sponsor (core business – long- term strategy) Acceptable. Project is considered important for the sponsor (core business) Limited. Project is not key to sponsor’s long-term strategy or core business 5. Security Package a. Assignment of contracts and accounts Fully comprehensive Comprehensive Satisfactory Weak b. Pledge of assets, taking into account quality, value and liquidity of assets First perfected security interest in all project assets, Perfected security interest in all project assets, contracts, Acceptable security interest in all project assets, contracts, Little security or collateral for lenders; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 383 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak contracts, permits and accounts necessary to run the project permits and accounts necessary to run the project permits and accounts necessary to run the project weak negative pledge clause c. Lender’s control over cash flow (for example cash sweeps, independent escrow accounts) Strong Satisfactory Fair Weak d. Strength of the covenant package (mandatory prepayments, payment deferrals, payment cascade, dividend restrictions) Covenant package is strong for this type of project. Project may issue no additional debt Covenant package is satisfactory for this type of project. Project may issue extremely limited additional debt Covenant package is fair for this type of project. Project may issue limited additional debt Covenant package is Insufficient for this type of project. Project may issue unlimited additional debt e. Reserve funds (debt service, O&M, renewal and replacement, unforeseen events, etc) Longer than average coverage period, all reserve funds fully funded in cash or letters of credit from highly rated bank Average coverage period, all reserve funds fully funded Average coverage period, all reserve funds fully funded Shorter than average coverage period, reserve funds funded from operating cash flows Income-Producing Real Estate No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions The supply and demand for the project’s type and location are The supply and demand for the project’s type and location are Market conditions are roughly in equilibrium. Competitive Market conditions are weak. It is uncertain when conditions will BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 384 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak currently in equilibrium. The number of competitive properties coming to market is equal or lower than forecasted demand currently in equilibrium. The number of competitive properties coming to market is roughly equal to forecasted demand properties are coming on the market and others are in the planning stages. The project’s design and capabilities may not be state of the art compared to new projects improve and return to equilibrium. The project is losing tenants at lease expiration. New lease terms are less favourable compared to those expiring b. Financial ratios and advance rate The property’s debt service coverage ratio (DSCR) is considered strong (DSCR is not relevant for the construction phase) and its financing-to- value ratio is considered low given its property type. Where a secondary market exists, the transaction is underwritten to market standards The DSCR (not relevant for development real estate) and financing-to-value are satisfactory. Where a secondary market exists, the transaction is underwritten to market standards The property’s DSCR has deteriorated and its value has fallen, increasing its financing-to-value The property’s DSCR has deteriorated significantly and its financing-to-value is well above underwriting standards for new financing c. Stress analysis The property’s resources, contingencies and The property can meet its financial obligations under a During an economic downturn, the property would The property’s financial condition is strained and is BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 385 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak liability structure allow it to meet its financial obligations during a period of severe financial stress (for example benchmark rates, economic growth) sustained period of financial stress (for example benchmark rates, economic growth). The property is likely to default only under severe economic conditions suffer a decline in revenue that would limit its ability to fund capital expenditures and significantly increase the risk of default likely to default unless conditions improve in the near term d. Cash-flow predictability (a) For complete and stabilised property. The property’s leases are long- term with creditworthy tenants and their maturity dates are scattered. The property has a track record of tenant retention upon lease expiration. Its vacancy rate is low. Expenses (maintenance, insurance, security, and property taxes) are predictable Most of the property’s leases are long-term, with tenants that range in creditworthiness. The property experiences a normal level of tenant turnover upon lease expiration. Its vacancy rate is low. Expenses are predictable Most of the property’s leases are medium rather than long-term with tenants that range in creditworthiness. The property experiences a moderate level of tenant turnover upon lease expiration. Its vacancy rate is moderate. Expenses are relatively predictable but vary in relation to revenue The property’s leases are of various terms with tenants that range in creditworthiness. The property experiences a very high level of tenant turnover upon lease expiration. Its vacancy rate is high. Significant expenses are incurred preparing space for new tenants BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 386 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak e. Cash-flow predictability (b) For complete but not stabilised property Leasing activity meets or exceeds projections. The project should achieve stabilisation in the near future Leasing activity meets or exceeds projections. The project should achieve stabilisation in the near future Most leasing activity is within projections; however, stabilisation will not occur for some time Market rents do not meet expectations. Despite achieving target occupancy rate, cash flow coverage is tight due to disappointing revenue f. Cash-flow predictability (c) For construction phase The property is entirely pre-leased through the financing tenor or pre-sold to an investment grade tenant or buyer, or the bank has a binding commitment for take-out financing from an investment grade lender The property is entirely pre-leased or pre-sold to a creditworthy tenant or buyer, or the bank has a binding commitment for permanent financing from a creditworthy lender Leasing activity is within projections but the building may not be pre- leased and there may not exist a takeout financing. The bank may be the permanent lender The property is deteriorating due to cost overruns, market deterioration, tenant cancellations or other factors. There may be a dispute with the party providing the permanent financing 2. Asset characteristics a. Location Property is located in highly desirable location that is convenient to services that tenants desire Property is located in desirable location that is convenient to services that tenants desire The property location lacks a competitive advantage The property’s location, configuration, design and maintenance have contributed to the property’s difficulties BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 387 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak b. Design and condition Property is favoured due to its design, configuration, and maintenance, and is highly competitive with new properties Property is appropriate in terms of its design, configuration and maintenance. The property’s design and capabilities are competitive with new properties Property is adequate in terms of its configuration, design and maintenance Weaknesses exist in the property’s configuration, design or maintenance c. Property is under construction Construction budget is conservative and technical hazards are limited. Contractors are highly qualified Construction budget is conservative and technical hazards are limited. Contractors are highly qualified Construction budget is adequate and contractors are ordinarily qualified Project is over budget or unrealistic given its technical hazards. Contractors may be under qualified 3. Strength of Sponsor/Developer a. Financial capacity and willingness to support the property. The sponsor /developer made a substantial cash contribution to the construction or purchase of the property. The sponsor/developer has substantial resources and limited direct and contingent liabilities. The The sponsor /developer made a material cash contribution to the construction or purchase of the property. The sponsor/developer’s financial condition allows it to support the property in the event of a cash flow shortfall. The The sponsor /developer’s contribution may be immaterial or non- cash. The sponsor/developer is average to below average in financial resources The sponsor /developer lacks capacity or willingness to support the property BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 388 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak sponsor/developer’s properties are diversified geographically and by property type sponsor/developer’s properties are located in several geographic regions b. Reputation and track record with similar properties. Experienced management and high sponsors’ quality. Strong reputation and lengthy and successful record with similar properties Appropriate management and sponsors’ quality. The sponsor or management has a successful record with similar properties Moderate management and sponsors’ quality. Management or sponsor track record does not raise serious concerns Ineffective management and substandard sponsors’ quality. Management and sponsor difficulties have contributed to difficulties in managing properties in the past c. Relationships with relevant real estate actors Strong relationships with leading actors such as leasing agents Proven relationships with leading actors such as leasing agents Adequate relationships with leasing agents and other parties providing important real estate services Poor relationships with leasing agents and/or other parties providing important real estate services 4. Security Package a. Nature of lien Perfected first lien Perfected first lien Perfected first lien Ability of lender to foreclose is constrained b. Assignment of rents (for projects leased to long-term tenants) The lender has obtained an The lender has obtained an The lender has obtained an The lender has not obtained an BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 389 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak assignment. They maintain current tenant information that would facilitate providing notice to remit rents directly to the lender, such as a current rent roll and copies of the project’s leases assignment. They maintain current tenant information that would facilitate providing notice to the tenants to remit rents directly to the lender, such as current rent roll and copies of the project’s leases assignment. They maintain current tenant information that would facilitate providing notice to the tenants to remit rents directly to the lender, such as current rent roll and copies of the project’s leases assignment of the leases or has not maintained the information necessary to readily provide notice to the building’s tenants c. Quality of the insurance coverage Appropriate Appropriate Appropriate Substandard Object Finance Exposure No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions Demand is strong and growing, strong entry barriers, low sensitivity to changes in technology and economic outlook Demand is strong and stable. Some entry barriers, some sensitivity to changes in technology and economic outlook Demand is adequate and stable, limited entry barriers, significant sensitivity to changes in technology and economic outlook Demand is weak and declining, vulnerable to changes in technology and economic outlook, highly uncertain environment b. Financial ratios (debt service coverage ratio and financing-to- value ratio) Strong financial ratios considering the type of asset. Very robust economic Strong / acceptable financial ratios considering the type of asset. Robust project Standard financial ratios for the asset type Aggressive financial ratios considering the type of asset BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 390 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak assumptions economic assumptions c. Stress analysis Stable long-term revenues, capable of withstanding severely stressed conditions through an economic cycle Satisfactory short- term revenues. Financing can withstand some financial adversity. Default is only likely under severe economic conditions Uncertain short-term revenues. Cash flows are vulnerable to stresses that are not uncommon through an economic cycle. The financing may default in a normal downturn Revenues subject to strong uncertainties; even in normal economic conditions the asset may default, unless conditions improve d. Market liquidity Market is structured on a worldwide basis; assets are highly liquid Market is worldwide or regional; assets are relatively liquid Market is regional with limited prospects in the short term, implying lower liquidity Local market and/or poor visibility. Low or no liquidity, particularly on niche markets 2. Political and legal environment a. Political risk, including transfer risk Very low; strong mitigation instruments, if needed Low; satisfactory mitigation instruments, if needed Moderate; fair mitigation instruments High; no or weak mitigation instruments b. Legal and regulatory risks Jurisdiction is favourable to repossession and enforcement of contracts Jurisdiction is favourable to repossession and enforcement of contracts Jurisdiction is generally favourable to repossession and enforcement of contracts, even if Poor or unstable legal and regulatory environment. Jurisdiction may BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 391 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak repossession might be long and/or difficult make repossession and enforcement of contracts lengthy or impossible 3. Transaction characteristics a. Financing term compared to the economic life of the asset Full payout profile/minimum balloon. No grace period Balloon more significant, but still at satisfactory levels Important balloon with potentially grace periods Repayment in fine or high balloon 4. Operating risk a. Permits / licensing All permits have been obtained; asset meets current and foreseeable safety regulations All permits obtained or in the process of being obtained; asset meets current and foreseeable safety regulations Most permits obtained or in process of being obtained, outstanding ones considered routine, asset meets current safety regulations Problems in obtaining all required permits, part of the planned configuration and/or planned operations might need to be revised b. Scope and nature of O & M contracts Strong long-term O&M contract, preferably with contractual performance incentives, and/or O&M reserve accounts (if needed) Long-term O&M contract, and/or O&M reserve accounts (if needed) Limited O&M contract or O&M reserve account (if needed) No O&M contract: risk of high operational cost overruns beyond mitigants BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 392 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak c. Operator’s financial strength, track record in managing the asset type and capability to re-market asset when it comes off-lease Excellent track record and strong re-marketing capability Satisfactory track record and re- marketing capability Weak or short track record and uncertain re-marketing capability No or unknown track record and inability to re- market the asset 5. Asset characteristics a. Configuration, size, design and maintenance (i.e. age, size for a plane) compared to other assets on the same market Strong advantage in design and maintenance. Configuration is standard such that the object meets a liquid market Above average design and maintenance. Standard configuration, maybe with very limited exceptions - such that the object meets a liquid market Average design and maintenance. Configuration is somewhat specific, and thus might cause a narrower market for the object Below average design and maintenance. Asset is near the end of its economic life. Configuration is very specific; the market for the object is very narrow b. Resale value Current resale value is well above debt value Resale value is moderately above debt value Resale value is slightly above debt value Resale value is below debt value c. Sensitivity of the asset value and liquidity to economic cycles Asset value and liquidity are relatively insensitive to economic cycles Asset value and liquidity are sensitive to economic cycles Asset value and liquidity are quite sensitive to economic cycles Asset value and liquidity are highly sensitive to economic cycles 6. Strength of sponsor a. Operator’s financial strength, track record in managing the asset type and capability to re-market asset Excellent track record and strong re-marketing Satisfactory track record and re- marketing capability Weak or short track record and uncertain re-marketing No or unknown track record and inability to BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 393 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak when it comes off-lease capability capability remarket the asset b. Sponsors’ track record and financial strength Sponsors with excellent track record and high financial standing Sponsors with good track record and good financial standing Sponsors with adequate track record and good financial standing Sponsors with no or questionable track record and/or financial weaknesses 7. Security Package a. Asset control Legal documentation provides the lender effective control (for example a first perfected security interest, or a leasing structure including such security) on the asset, or on the company owning it Legal documentation provides the lender effective control (for example a perfected security interest, or a leasing structure including such security) on the asset, or on the company owning it Legal documentation provides the lender effective control (for example a perfected security interest, or a leasing structure including such security) on the asset, or on the company owning it The contract provides little security to the lender and leaves room to some risk of losing control on the asset b. Rights and means at the lender's disposal to monitor the location and condition of the asset The lender is able to monitor the location and condition of the asset, at any time and place (regular reports, possibility to lead inspections) The lender is able to monitor the location and condition of the asset, almost at any time and place The lender is able to monitor the location and condition of the asset, almost at any time and place The lender is able to monitor the location and condition of the asset are limited BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 394 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak c. Insurance against damages Strong insurance coverage including collateral damages with top quality insurance companies Satisfactory insurance coverage (not including collateral damages) with good quality insurance companies Fair insurance coverage (not including collateral damages) with acceptable quality insurance companies Weak insurance coverage (not including collateral damages) or with weak quality insurance companies Commodities Finance Exposures No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Degree of over collateralisation of trade Strong Good Satisfactory Weak 2. Political and legal environment a. Country risk No country risk Limited exposure to country risk (in particular, offshore location of reserves in an emerging country) Exposure to country risk (in particular, offshore location of reserves in an emerging country) Strong exposure to country risk (in particular, inland reserves in an emerging country) b. Mitigation of country risks Very strong mitigation: Strong offshore mechanisms, strategic commodity buyer Strong mitigation: Offshore mechanisms, strategic commodity, strong buyer Acceptable mitigation: Offshore mechanisms, less strategic commodity, acceptable buyer Only partial mitigation: No offshore mechanisms, non-strategic commodity, weak buyer 3. Asset characteristics a. Liquidity and susceptibility to Commodity is Commodity is Commodity is not Commodity is not BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 395 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak damage quoted and can be hedged through futures or OTC instruments. Commodity is not susceptible to damage quoted and can be hedged through OTC instruments. Commodity is not susceptible to damage quoted but is liquid. There is uncertainty about the possibility of hedging. Commodity is not susceptible to damage quoted. Liquidity is limited given the size and depth of the market. No appropriate hedging instruments. Commodity is susceptible to damage 4. Strength of Sponsor a. Financial strength of trader Very strong, relative to trading philosophy and risks Strong Adequate Weak b. Track record, including ability to manage the logistic process Extensive experience with the type of transaction in question. Strong record of operating success and cost efficiency Sufficient experience with the type of transaction in question. Above average record of operating success and cost efficiency Limited experience with the type of transaction in question. Average record of operating success and cost efficiency Limited or uncertain track record in general. Volatile costs and profits c. Trading controls and hedging policies Strong standards for counterparty selection, hedging, and monitoring Adequate standards for counterparty selection, hedging, and monitoring Past deals have experienced no or minor problems Trader has experienced significant losses on past deals d. Quality of financial disclosure Excellent Good Satisfactory Financial disclosure contains some uncertainties or is insufficient BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 396 / 517 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 5. Security Package a. Asset control First perfected security interest provides the lender legal control of the assets at any time if needed First perfected security interest provides the lender legal control of the assets at any time if needed At some point in the process, there is a rupture in the control of the assets by the lender. The rupture is mitigated by knowledge of the trade process or a third party undertaking as the case may be Contract leaves room for some risk of losing control over the assets. Recovery could be jeopardised b. Insurance against damages Strong insurance coverage including collateral damages with top quality insurance companies Satisfactory insurance coverage (not including collateral damages) with good quality insurance companies Fair insurance coverage (not including collateral damages) with acceptable quality insurance companies Weak insurance coverage (not including collateral damages) or with weak quality insurance companies BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 397 / 517 Issued on: 3 May 2019 Appendix VI Counterparty Credit Risk and Current Exposure Method Counterparty Credit Risk 1. Counterparty Credit Risk (CCR) is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. Unlike an exposure to credit risk through a financing, where the exposure to credit risk is unilateral and only the financier faces the risk of loss, CCR creates a bilateral risk of loss: the market value of the transaction can be positive or negative to either counterparty to the transaction. The market value is uncertain and can vary over time with the movement of underlying market factors. 2. The methods for computing the exposure amount under the standardised approach for credit risk or the EAD under the IRB approach to credit risk described in this appendix are applicable to over-the-counter (OTC) derivatives as well as to the securities financing transactions (SFTs). Such positions or transactions would generally exhibit the following characteristics: (i) Undertaken with an identified counterparty against which a unique probability of default can be determined; (ii) Generate an exchange of payments or an exchange of a financial instrument (including commodities) against payment; (iii) Generate a current exposure or market value; and (iv) Have an associated random future market value based on market variables. 3. Other common characteristics of these transactions may include the following: (i) Short-term financing may be a primary objective in that the transactions mostly consist of an exchange of one asset for another (cash or securities) for a relatively short period of time, usually for the business purpose of financing. The two sides of the transactions BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 398 / 517 Issued on: 3 May 2019 are not the result of separate decisions but form an indivisible whole to accomplish a defined objective; (ii) Positions are frequently valued (most commonly on a daily basis), according to market variables; and (iii) Uses of credit risk mitigant such as collateralisation248, netting and re-margining to mitigate risk. 4. An exposure value (or EAD) of zero for counterparty credit risk can be attributed to derivative contracts or SFTs that are outstanding with a central counterparty (for example a clearing house). This does not apply to counterparty credit risk exposures from derivative transactions and SFTs that have been rejected by the central counterparty. Furthermore, an exposure value (EAD) of zero can be attributed to Islamic banking institutions’ credit risk exposures249 to central counterparties that result from the derivative transactions, SFTs or spot transactions that the Islamic banking institution has outstanding with the central counterparty. Assets held by a central counterparty as a custodian on the Islamic banking institution’s behalf would not be subject to a capital requirement for counterparty credit risk exposures. 5. A central counterparty is an entity that interposes itself between counterparties to contracts traded within one or more financial markets, becoming the legal counterparty such that it is the buyer to every seller and the seller to every buyer. In order to qualify for the above exemptions, the central counterparty CCR exposures with all participants in its arrangements must be fully collateralised on a daily basis, thereby providing protection for the central counterparty’s CCR exposures. 6. Under the current exposure method, the exposure amount for a given counterparty is equal to the sum of the exposure amounts calculated for 248 Collateralisation may be inherent in the nature of some transactions. 249 Example, from clearing deposits and collateral posted with the central counterparty. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 399 / 517 Issued on: 3 May 2019 each netting set250 with that counterparty. The Current Exposure Method 7. The current exposure method is to be applied to OTC derivative positions only, to determine the credit equivalent amount (EAD) for these transactions for purposes of the capital adequacy calculation. SFTs (which include transactions such as security financing and borrowing and margin financing transactions, where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements), shall be subject to the treatment set out under Part B.2.5 and Part B.3.4: of the Framework; 8. For the OTC derivatives contracts, Islamic banking institutions are not exposed to credit risk for the full face value of the derivatives contracts, but only to the potential cost of replacing the cash-flow if the counterparty defaults. As such, the credit equivalent amount will depend, inter alia, on the maturity of the contract and on the volatility of the rates underlying that type of instrument. 9. Under the current exposure method, the computation of the credit equivalent exposure for derivatives contracts is based on the summation of the following two elements :- (i) The replacement costs (obtained by marking-to-market) of all contracts with positive value (zero for contracts with negative replacement costs); and (ii) The amount of potential future exposure is calculated by multiplying the notional value of each contract by an “add-on” factor. Credit exposure = positive MTM + (NP x “add-on” factor (%)) Where: MTM = Mark-to-Market 250 A netting set is a group of transactions with a single counterparty that are subject to a legally enforceable bilateral netting arrangement and for which netting is recognised for regulatory capital purposes under the provisions of paragraphs 19 to 24 of this appendix and Part B.3.4. Each transaction not subject to a legally enforceable bilateral netting arrangement that is recognised for regulatory capital purposes should be treated as its own netting set (separate from those whose bilateral netting arrangement is recognised for regulatory capital purposes). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 400 / 517 Issued on: 3 May 2019 NP = Notional principal Add-on factor = As per Appendix VIb (An illustration of the calculation under the current exposure method is given in Appendix VIa) 10. The “add-on” factors in computing the potential future exposure is determined based on the type of exposure and the residual maturity of each contracts. The “add-on” factors for derivatives contracts are listed in Appendix VIb. 11. The credit equivalent amounts of exchange rate and profit rate contracts are to be risk-weighted according to the category of the counterparty, including the use of concessionary weightings in respect of exposures backed by eligible guarantees and collateral. Nevertheless, the Bank reserves the right to raise the risk weights if the average credit quality deteriorates or if loss experience increases. 12. Islamic banking institutions can obtain capital relief for collateral eligible as defined under the comprehensive approach of the Framework subject to the same operational requirements. 13. The calculation of the exposure for an individual contract for a collateralised OTC derivatives transaction251 will be as follows: Credit exposure= positive MTM + (NP x “add-on factor”(%))- CA Where: MTM = Mark-to-Market NP = Notional principal Add-on factor = As per Appendix VIb CA = Volatility-adjusted collateral amount under the comprehensive approach 251 For example, collateralised profit rate swap transactions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 401 / 517 Issued on: 3 May 2019 14. When effective bilateral netting contracts are in place in a collateralised OTC derivative transaction, MTM will be the net replacement cost and the add-on will be ANet as calculated above. The haircut for currency risk (HFX) should be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where there are more than two currencies involved in the exposure, collateral and settlement currency, a single haircut assuming a 10-business day holding period scaled up as necessary depending on the frequency of mark-to- market will be applied. Bilateral Netting 15. Bilateral netting involves weighting of the net rather than the gross claims with the same counterparties arising out of the full range of forwards, swaps, options and similar derivative contracts. Careful consideration needs to be given to ensure that there is no reduction in counterparty risk, especially in cases if a liquidator of a failed counterparty has (or may have) the right to unbundle netted contracts, demanding performance on those contracts favourable to the failed counterparty and defaulting on unfavourable contracts. 16. Therefore, for capital adequacy purposes, bilateral netting252 may be conducted only under the following circumstances: (i) Islamic banking institutions may net transactions subject to novation under which any obligation between an Islamic banking institution and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations; or (ii) Islamic banking institutions may also net transactions subject to any legally valid form of bilateral netting not covered above, including other 252 Payments netting, which is designed to reduce the operational costs of daily settlements, will not be recognised in the Framework since the counterparty’s gross obligations are not in any way affected. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 402 / 517 Issued on: 3 May 2019 forms of novation. 17. In both cases above, an Islamic banking institution will need to satisfy the Bank that it has: (i) A netting contract or agreement with the counterparty which creates a single legal obligation, covering all included transactions, such that the Islamic banking institution would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark to market values of included individual transactions in the event a counterparty fails to perform due to any of the following: default, bankruptcy, liquidation or similar circumstances; (ii) Written and reasoned legal opinions that, in the event of a legal challenge, the relevant courts and administrative authorities would find the Islamic banking institution’s exposure to be such a net amount under: (i) The law of the jurisdiction in which the counterparty is chartered and, if the foreign branch of a counterparty is involved, then also under the law of the jurisdiction in which the branch is located; (ii) The law that governs the individual transactions; and (iii) The law that governs any contract or agreement necessary to effect the netting. The Bank will have to be satisfied that the netting is enforceable under the laws of each of the relevant jurisdictions253; and (iii) Procedures in place to ensure that the legal characteristics of netting arrangements are kept under review in the light of possible changes in relevant law. 18. Contracts containing walkaway clauses will not be eligible for netting for the purpose of calculating capital requirements. A walkaway clause is a provision which permits a non defaulting counterparty to make only limited 253 If the Bank and other national supervisors are dissatisfied about the enforceability under the laws, the netting contract or agreement will not meet this condition and neither counterparty could obtain supervisory benefit. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 403 / 517 Issued on: 3 May 2019 payments or no payment at all to the estate of a defaulter, even if the defaulter is a net creditor. 19. Credit exposure on bilaterally netted forward transactions will be calculated as the sum of the net mark to market replacement cost, if positive, plus an “add-on” based on the notional underlying principal. The “add-on” for netted transactions (ANet) will equal the weighted average of the gross “add-on” (AGross)254 and the gross “add-on” adjusted by the ratio of net current replacement cost to gross current replacement cost (NGR). This is expressed through the following formula: ANet = 0.4*AGross+0.6*NGR*AGross Where: NGR = level of net replacement cost/level of gross replacement cost for transactions subject to legally enforceable netting agreements255 20. The scale of the gross “add-ons” to apply in this formula will be the same as those for non netted transactions as set out in paragraphs 9 to 18 of this appendix. The Bank will continue to review the scale of “add-ons” to make sure they are appropriate. For purposes of calculating potential future credit exposure to a netting counterparty for forward foreign exchange contracts and other similar contracts in which notional principal is equivalent to cash flows, notional principal is defined as the net receipts falling due on each value date in each currency. The reason for this is that offsetting contracts in the same currency maturing on the same date will have lower potential future exposure as well as lower current exposure. 254 AGross equals the sum of individual add on amounts (calculated by multiplying the notional principal amount by the appropriate add on factors set out in paragraph 11 of this appendix) of all transactions subject to legally enforceable netting agreements with one counterparty. 255 AGross equals the sum of individual add-on amounts (calculated by multiplying the notional principal amount by the appropriate add-on factors). BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 404 / 517 Issued on: 3 May 2019 Appendix VIa Sample Computation of Risk-Weighted Capital Requirement and Exposure at Default (EAD) for a Portfolio of Derivative Contracts Transaction I Type of instrument : 8 Year Fixed-to-floating Cross Currency Profit Rate Swap (CCPRS) Notional principal amount : RM1,000,000 Current date of report : 31 December 1997 Maturity date : 31 December 2000 Remaining maturity : 3 years Replacement cost : RM350,000 (+ve) Transaction II Type of instrument : 6 Year Fixed-to-floating Islamic Profit Rate Swap (IPRS) Notional principal amount : RM1,000,000 Current date of report : 31 December 1997 Maturity date : 31 December 2002 Remaining maturity : 5 years Replacement cost : RM200,000 (-ve) Type of instrument CCPRS IPRS Total Credit equivalent exposure = positive replacement cost + potential future exposure 350,000 + {1,000,000 x (2% + 7%)} =350,000 + 90,000 =440,000 0 + {1,000,000 x (4%)} = 0 + 40,000 = 40,000 480,000 Risk-weighted asset (assume risk weight of 50%) 440,000 x 50% = 220,000 40,000 x 50% = 20,000 240,000 Capital requirement (8%) 220,000 x 8% =17,600 20,000 x 8% =1,600 19,200 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 405 / 517 Issued on: 3 May 2019 Exposure at Default: Type of instrument CCCRS IPRS Total EAD = positive replacement cost + potential future exposure 350,000 + {1,000,000 x (2% + 7%)} =350,000 + 90,000 =440,000 0 + {1,000,000 x (4%)} = 0 + 40,000 = 40,000 480,000 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 406 / 517 Issued on: 3 May 2019 Appendix VIb “Add-on” Factors for Derivatives Contracts Schedule 1 “Add-on” factors for derivative contracts with profit rate exposures Residual maturity Factor (%) < 14 calendar days Nil > 14 calendar days and < 6 months 0.10% >6 months and < 1 year 0.25% > I year and < 2 years 1.0% > 2 year and < years 2.0% > 3 year and < 4 years 3.0% > 4 year and < 5 years 4.0% > 5 year and < 6 years 5.0% > 6 year and < 7 years 6.0% for each additional year add 1.0% Schedule 2 “Add-on” factors for derivative contracts with foreign exchange exposures Residual maturity Factor (%) < 14 calendar days Nil > 14 calendar days and < 6 months 1.5% > 6 months and < 1 year 3.0% > I year and < 2 years 5.0% > 2 year and <3 years 7.0% > 3 year and < 4 years 8.0% > 4 year and < 5 years 9.0% > 5 year and <6 years 10.0% > 6 year and < 10 years 11.0% > 10 years 12.0% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 407 / 517 Issued on: 3 May 2019 Schedule 3 “Add-on” factors for other types of contracts Gold Equities Precious Metals Except Gold Other Commodities One year or less 1.0% 6.0% 7.0% 10.0% Over one year to five years 5.0% 8.0% 7.0% 12.0% Over five years 7.5% 10.0% 8.0% 15.0% Notes: Forwards, swaps, purchased options and similar derivative contracts not covered by any of the columns of this matrix are to be treated as ‘other commodities’ Additional notes “add-on” factors: (i) For derivative contracts which are sensitive to movements in more than one type of rates, the “add-on” factors used will be the summation of the “add-on” factors for the various types of exposures according to the relevant residual maturity bucket; (ii) For contracts with multiple exchanges of principal, the notional principal amount is the sum of the remaining exchanges of principal. This shall represent the amount to be multiplied with the “add-on” factors; (iii) For both forward rate agreements and over-the-counter profit rate contracts of similar nature which are settled in cash on start date, residual maturity is measured as the sum of the remaining contract period and the underlying tenor of the contract (An illustration is provided in Appendix VIc). Institutions may choose to apply discounts to the “add-on” factors if the remaining contract period, as a fraction of residual maturity, falls within a certain range (please refer to Appendix VId) for the discount factor and range of residual maturity; (iv) For single currency floating-to-floating profit rate swaps, the “add-on” factor is zero. Thus, the credit exposure for such contracts will comprise only the positive mark-to-market value; (v) For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date. In the case of profit rate contracts with remaining maturities of more than one year that meet the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 408 / 517 Issued on: 3 May 2019 above criteria, the “add-on” factor is subject to a floor of 0.5%; and (vi) The “add-ons” should be based on effective rather than notional amounts. In the event that the stated notional amount is leveraged or enhanced by the structure of the transaction, Islamic banking institutions must use the effective notional amount when determining potential future exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 409 / 517 Issued on: 3 May 2019 Appendix VIc Example for Calculation of Residual Maturity For Forward Rate Agreements and Over-The-Counter Profit Rate Contracts of Similar Nature which are Settled in Cash on Start Date. A 3-month forward rate agreement for delivery in June 2008 01/01/2008 (transaction date) start date +---------+---------+---------+---------+---------+---------+---------+---------+--------+------> months 0---------1---------2---------3---------4---------5----_----6---------7---------8---------9 remaining contract period underlying tenor residual maturity for purpose of Appendix VId BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 410 / 517 Issued on: 3 May 2019 Appendix VId Discount Factor and Range of Residual Maturity t = Remaining contract period Residual maturity Discount to “Add-on” Factor t < 0.01 75% 0.01 < t < 0.05 50% 0.05 < t < 0.10 25% 0.10 < t < 0.65 no discount 0.65 < t < 0.80 25% 0.80 < t < 0.90 50% t ≥ 0.90 75% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 411 / 517 Issued on: 3 May 2019 Appendix VII Capital Treatment for Failed Trades and Non-DvP Transactions 1. The capital treatment specified in this appendix is applicable to all transactions256 on securities, foreign exchange instruments and commodities that give rise to a risk of delayed settlement or delivery. This may include transactions through recognised clearing houses that are subject to daily mark-to-market and payment of daily variation margins and that involve a mismatched trade. 2. Transactions on securities, foreign exchange contracts or commodities may be settled via the following: (i) delivery-versus-payment system (DvP)257, which provides simultaneous exchanges of securities for cash, hence exposing Islamic banking institutions to a risk of loss on the difference between the transaction valued at the agreed settlement price and the transaction valued at current market price (i.e. positive current exposure); or (ii) non-DvP or free-delivery system, whereby cash is paid without receipt of the corresponding receivable (securities, foreign currencies, gold, or commodities) or, conversely, deliverables were delivered without receipt of the corresponding cash payment, hence exposing Islamic banking institutions to a risk of loss on the full amount of cash paid or deliverables delivered. 3. The Bank may use its discretion to waive capital charges in cases of a system wide failure of a settlement or clearing system, until the situation is rectified. Failure by a counterparty to settle a trade in itself will not be deemed a default for purposes of credit risk under the Framework. 256 All securities financing and borrowing, including those that have failed to settle, are treated in accordance with the parts on credit risk mitigation of the Framework. 257 For the purpose of the Framework, DvP transactions include payment-versus-payment (PvP) transactions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 412 / 517 Issued on: 3 May 2019 4. In applying the risk weight to failed free-delivery exposures, Islamic banking institutions using the IRB approach may assign PDs to counterparties for which they have no other banking book exposure on the basis of the counterparty’s external rating. Islamic banking institutions using the Advanced IRB approach may use a 45% LGD in lieu of estimating LGDs so long as they apply it to all failed trade exposures. Alternatively, Islamic banking institutions using the IRB approach may opt to apply the standardised approach risk weight or a 100% risk weight, subject to the exposures being immaterial. Capital Requirements 5. For DvP transactions, if the payments have not yet taken place five business days after the settlement date, Islamic banking institutions must calculate a capital charge by multiplying the positive current exposure of the transaction by the appropriate corresponding risk multiplier. The corresponding risk multiplied and risk weights are given in the table below: Number of working days after the agreed settlement date Corresponding risk multiplier Corresponding risk weight From 5 to 15 8% 100% From 16 to 30 50% 625% From 31 to 45 75% 937.5% 46 or more 100% 1250% 6. Islamic banking institutions are allowed a reasonable transition period to upgrade their information systems to track the number of days after the agreed settlement date and calculate the corresponding capital charge. 7. For non-DvP transactions (i.e. free deliveries), after the first contractual payment/delivery leg, Islamic banking institution that has made the payment will treat its exposure as a financing if the second leg has not BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 413 / 517 Issued on: 3 May 2019 been received by the end of the business day258. Islamic banking institutions shall use the standardised risk weights or the appropriate IRB formula, respectively set forth in the Framework for the exposure to the counterparty, in the same way as it does for all other banking book exposures. However, when exposures are not material, banking institutions may choose to apply a uniform 100% risk weight to these exposures, in order to avoid the burden of a full credit assessment. If five business days after the second contractual payment/delivery date the second leg has not yet effectively taken place, the Islamic banking institution that has made the first payment leg must apply a 1250% risk weight to the full amount of the value transferred plus replacement cost, if any. This treatment will apply until the second payment/delivery leg is effectively made. Counterparty Risk Requirement 8. The counterparty risk requirement (CRR) aims to measure the amount necessary to accommodate a given level of a counterparty risk259 specifically for unsettled trades260 and free deliveries with respect to an equity business. The CRR capital charge (as given in the table below) will be multiplied by a factor of 12.5 to arrive at the CRR risk-weighted asset amount. Agency Trade Transactions Time Period CRR Sales contract Day, T to T+2 CRR = 0 T+3 to T+30 CRR = 8% of market value (MV) of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract CRR = 0, if current MV of contract <= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract 258 If the dates when two payment legs are made are the same according to the time zones where each payment is made, it is deemed that they are settled on the same day. For example, if a bank in Tokyo transfers Yen on day X (Japan Standard Time) and receives corresponding US Dollar via CHIPS on day X (US Eastern Standard Time), the settlement is deemed to take place on the same value date. 259 Counterparty risk means the risk of a counterparty defaulting on its financial obligation to the Islamic bank. 260 An unsettled agency purchase/sale or an unsettled principal sale/purchase. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 414 / 517 Issued on: 3 May 2019 Agency Trade Transactions Time Period CRR CRR = 0, if MV of contract <= transaction value of contract Purchase contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Principal Trade Transactions Time Period CRR Sales contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Purchase contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract CRR = 0, if MV of contract <= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract CRR = 0, if MV of contract <= transaction value of contract Free Deliveries261 Time Period CRR 261 Where an investment bank delivers equities without receiving payment, or pays for equities without receiving the equities. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 415 / 517 Issued on: 3 May 2019 Day, D262 to D+1 CRR = 8% of Transaction value of contract X Counterparty Risk weight Beyond D+1 CRR = Transaction value of contract 262 Due date where the investment bank delivers equities without receiving payment shall be the date of such delivery, and where the investment bank pays for equities without receiving the equities, shall be the date of such payment. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 416 / 517 Issued on: 3 May 2019 Appendix VIII List of Recognised Exchanges* 1. American Stock Exchange (USA) 2. Athens Stock Exchange (Greece) 3. Australian Stock Exchange (Australia) 4. Bermuda Stock Exchange (Bermuda) 5. BME Spanish Exchanges (Spain) 6. Bolsa de Comercio de Buenos Aires (Argentina) 7. Bolsa de Comercio de Santiago (Chile) 8. Bolsa de Valores de Colombia (Colombia) 9. Bolsa de Valores de Lima (Peru) 10. Bolsa de Valores do Sao Paulo (Brazil) 11. Bolsa Mexicana de Valores (Mexico) 12. Bolsa Italiana SPA (Italy) 13. Bourse de Luxembourg (Luxembourg) 14. Bourse de Montreal (Canada) 15. BSE The Stock Exchange, Mumbai (India) 16. Budapest Stock Exchange Ltd (Hungary) 17. Bursa Malaysia Bhd (Malaysia) 18. Chicago Board Options Exchange (USA) 19. Colombo Stock Exchange (Sri Lanka) 20. Copenhagen Stock Exchange (Denmark) 21. Deutsche Borse AG (Germany) 22. Euronext Amsterdam (Netherlands) 23. Euronext Brussels (Belgium) 24. Euronext Lisbon (Portugal) 25. Euronext Paris (France) 26. Hong Kong Exchanges and Clearing (Hong Kong) 27. Irish Stock Exchange (Ireland) 28. Istanbul Stock Exchange (Turkey) 29. Jakarta Stock Exchange (Indonesia) 30. JSE Ltd. (South Africa) 31. Korea Exchange (South Korea) 32. Ljubljana Stock Exchange (Slovenia) 33. London Stock Exchange (United Kingdom) BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 417 / 517 Issued on: 3 May 2019 34. Malta Stock Exchange (Malta) 35. NASD (USA) 36. National Stock Exchange of India Limited (India) 37. New York Stock Exchange (USA) 38. New Zealand Stock Exchange Ltd (New Zealand) 39. OMX Exchanges Ltd (Finland & Sweden) 40. Osaka Securities Exchange (Japan) 41. Oslo Bors (Norway) 42. Philippine Stock Exchange (Philippines) 43. Shanghai Stock Exchange (China) 44. Shenzhen Stock Exchange (China) 45. Singapore Exchange (Singapore) 46. Stock Exchange of Tehran (Iran) 47. Stock Exchange of Thailand (Thailand) 48. SWX Swiss Exchange (Switzerland) 49. Taiwan Stock Exchange Corp (Taiwan) 50. Tokyo Stock Exchange (Japan) 51. TSX Group (Canada) 52. Warsaw Stock Exchange (Poland) 53. Wiener Bourse (Austria) * To be updated as and when changes occur. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 418 / 517 Issued on: 3 May 2019 Appendix IX Recognition Criteria for Physical Collateral Used For Credit Risk Mitigation Purposes of Islamic Banking Exposures General Criteria 1. Islamic banking institutions are allowed to recognise physical assets as eligible collateral for credit risk mitigation purposes for Islamic banking exposures, subject to fulfilling all the minimum requirements specified in the Framework and obtaining prior approval from the Board or relevant board committees on the recognition. In addition, Islamic banking institutions are required to notify the Bank two months in advance of any recognition. 2. Any physical assets must be completed for their intended use and must fulfil the following minimum conditions for recognition as eligible collateral: (i) The assets are legally owned by the Islamic banking institution. For Ijarah contracts, these are restricted to operating Ijarah only, where related costs of asset ownership are borne by the Islamic banking institution263; or (ii) The physical assets attract capital charges other than credit risk prior to/ and throughout the financing period (e.g. operating Ijarah and inventories264 under Murabahah). Specific Criteria Commercial real estate (CRE) and residential real estate (RRE) 3. Eligible CRE or RRE collateral are defined as: (i) Collateral where risk of the obligor is not materially dependent upon the performance of the underlying property or project, but rather on the underlying capacity of the obligor to repay the debt from other 263 Shariah requires that the lessor/ owner bears the costs related to the ownership of or any other costs as agreed between the lessor and the lessee. In this regard, CRM would not be applicable if the lessee agrees to absorb material costs related to asset ownership or in an arrangement where ownership costs would be transferred to the lessee. 264 This excludes inventories which are merely used as a ‘pass-through’ mechanism such as in Commodity Murabahah transactions or if the inventories carry no risk due to the existence of binding agreements with the obligor for them to purchase the inventory. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 419 / 517 Issued on: 3 May 2019 sources. As such, repayment of the facility is not materially dependent on any cash flow generated by the underlying CRE/RRE serving as collateral; and (ii) The value of the collateral pledged must not be materially dependent on the performance of the obligor. This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the obligor. 4. Subject to meeting the definition above, CRE and RRE will be eligible for recognition as credit risk mitigation under the comprehensive approach only if all of the following operational requirements are met: (i) Legal enforceability: any claim on collateral taken must be legally enforceable in all relevant jurisdictions, and any claim on collateral must be properly filed on a timely basis. Collateral profits must reflect a perfected lien (i.e. all legal requirements for establishing the claim has been fulfilled). Furthermore, the collateral agreement and the legal process underpinning it must be such that they provide for the reporting institution to realise the value of the collateral within a reasonable timeframe; (ii) Objective market value of collateral: the collateral must be valued at or less than the current fair value under which the property could be sold under private contract between a willing seller and an arm’s- length buyer on the date of valuation; (iii) Frequent revaluation: an Islamic banking institution is expected to monitor the value of the collateral on a frequent basis and at a minimum once every year. More frequent monitoring is suggested where the market is subject to significant changes in conditions. Acceptable statistical methods of evaluation (for example reference to house price indices, sampling) may be used to update estimates or to identify collateral that may have declined in value and that may need re-appraisal. A qualified professional must evaluate the property BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 420 / 517 Issued on: 3 May 2019 when information indicates that the value of the collateral may have declined materially relative to general market prices or when a credit event, such as default, occurs; (iv) Junior liens: Junior liens or junior legal charges may be taken into account where there is no doubt that the claim for collateral is legally enforceable and constitutes an efficient credit risk mitigant. Islamic banking institutions could only use the residual value after taking into account collateral haircut. In this case, residual value is derived after deducting exposures with other pledgees, using approved limits or total outstanding amount of the exposures with other pledgees whichever is higher; (v) Collateral management: Islamic banking institutions are also expected to meet the following requirements: (a) The types of CRE and RRE collateral accepted by the Islamic banking institution and financing policies when this type of collateral is taken must be clearly documented; (b) The Islamic banking institution must take steps to ensure that the property taken as collateral is adequately insured against damage or deterioration; (c) The Islamic banking institution must monitor on an ongoing basis the extent of any permissible prior claims (for example tax) on the property; and (vi) The Islamic banking institution must appropriately monitor the risk of environmental liability arising in respect of the collateral, such as the presence of toxic material on a property. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 421 / 517 Issued on: 3 May 2019 Other physical assets265 5. Physical collateral other than CRE and RRE may be recognised as eligible collateral under the comprehensive approach if the following standards are met: (i) Existence of liquid markets for disposal of collateral in an expeditious and economically efficient manner; and (ii) Existence of well established, publicly available market prices for the collateral. The amount an Islamic banking institution receives when collateral is realised should not deviate significantly from these market prices. 6. Subject to meeting the above definition standards, other physical assets will be recognised as credit risk mitigation under the comprehensive approach only if it meets the operational requirements set out for CRE/RRE as well as the following criteria: (i) First claim: only Islamic banking institutions having the first liens on, or charges over, collateral are permitted to recognise this type of collateral as credit risk mitigation. In this regard, the Islamic banking institution must have priority over all other lenders to the realised proceeds of the collateral; (ii) The financing agreement must include detailed descriptions of the collateral plus detailed specifications of the manner and frequency of revaluation; (iii) The types of physical collateral accepted by the Islamic banking institution and policies and practices in respect of the appropriate amount of each type of collateral relative to the exposure amount must be clearly documented in internal credit policies and procedures and available for examination and/or audit review; (iv) Islamic banking institution’s credit policies with regard to the transaction structure must address appropriate collateral 265 Physical collateral in this context is defined as non-financial instruments collateral. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 422 / 517 Issued on: 3 May 2019 requirements relative to the exposure amount, the ability to liquidate the collateral readily, the ability to establish objectively a price or market value, the frequency with which the value can readily be obtained (including a professional appraisal or valuation), and the volatility of the value of the collateral. The periodic revaluation process must pay particular attention to “fashion-sensitive” collateral to ensure that valuations are appropriately adjusted downward for fashion, or model-year, obsolescence as well as physical obsolescence or deterioration; and (v) In cases of inventories (for example raw materials, finished goods, dealers’ inventories of autos) and equipment, the periodic revaluation process must include physical inspection of the collateral. Leased assets 7. Assets used in operating Ijārah and Ijārah Muntahia Bittamleek (IMB) (leased assets) may be recognised as eligible collateral and used as credit risk mitigation under the comprehensive approach for collateralised transactions. 8. The leased assets must fulfill a function similar to that of collateral, and recognition of leased assets would be subject to reporting institutions fulfilling all minimum requirements under CRE/RRE or other physical collateral, depending on the type of leased assets, as well as the following additional standards: (i) Robust risk management on the part of the Islamic banking institutions acting as the lessors with respect to the location of the asset, the use to which it is put, its age, and planned obsolescence; (ii) A robust legal framework establishing the lessor’s legal ownership of the asset and its ability to exercise its rights as owner in a timely manner; and (iii) There is no huge difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments, BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 423 / 517 Issued on: 3 May 2019 which may overstate the credit risk mitigation attributed to the leased assets. Other Additional Criteria Data maintenance 9. Islamic banking institutions are expected to collect and retain the relevant data pertaining to revaluation and disposal of physical assets as a means to recover from delinquent or defaulted exposures, particularly data on disposal (i.e., selling) amount and timeline of disposal of the physical assets as well as the relevant costs incurred for the disposal. 10. Islamic banking institutions are expected to use the relevant data to verify the appropriateness of the minimum 30% haircut on physical assets particularly non-CRE and non-RRE collateral at least on an annual basis. Islamic banking institutions should use a more stringent haircut if their internal historical data on disposal of these physical assets reveal loss amounts that exceed the 30% haircut. 11. In addition, for the regulatory retail portfolio, Islamic banking institutions are required to have at least two years of empirical evidence on data such as recovery rates and value of physical collateral prior to its recognition as a credit risk mitigant. Independent review 12. Islamic banking institutions are required to conduct an independent review266 to ascertain compliance with all minimum requirements specified in the Framework for the purpose of recognising physical collateral as a credit risk mitigant. The review should be performed prior to the recognition of the physical collateral as a credit risk mitigant and at least annually thereafter to ensure on-going fulfilment of all criteria and operational requirements. 266 Validation must be performed by a unit that is independent from risk taking/ business units and must not contain individuals who would benefit directly from lower risk weight derived from the recognition of physical collateral as CRM. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 424 / 517 Issued on: 3 May 2019 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 425 / 517 Issued on: 3 May 2019 Appendix X Summary Table of Gross Income Computation Net income from financing activities A Net income from investment activities B Other income: Realised/unrealised gains/losses from sales or fair value changes of trading book securities Net commission/fees receivables Intra-group income Dividend income from investment in securities Income from non-Shariah compliant sources Others Excluding: Dividend Income from subsidiaries and associated companies Realised or unrealised profits/losses from sales or impairment of securities in banking book Income from extra-ordinary or irregular item Income from takaful recoveries Bad debt recovered C Less: Income attributable to investment account holders and other depositors D Total Gross Income A + B + C - D BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 426 / 517 Issued on: 3 May 2019 Appendix XI Mapping of Business Lines Level 1 Level 2 Activity Groups Corporate Finance Corporate Finance Mergers and acquisitions, underwriting, privatisations, securitisation, research, debt (government, high yield), equity, syndications, initial public offering (IPO), secondary private placements Municipal/Government Finance Merchant Banking Advisory Services Trading & Sales Sales Fixed income, equity, foreign exchanges, commodities, credit, funding, own position securities, sell and buy back agreement, brokerage, debt, prime brokerage, acquisition of vehicles prior to selling or leasing, property development, property investment and direct equity participation in companies Market Making Proprietary Positions Treasury Retail Banking Retail Banking Retail financing and deposits, banking services, trust and estates Private Banking Private financing and deposits, banking services, trust and estates, investment advice Card Services Merchant/commercial/corporate cards, private labels and retail Commercial Banking Commercial Banking Project finance, real estate, export finance, trade finance, factoring, leasing, financing, guarantees, bills of exchange Payment and Settlement External Clients Payments and collections, funds transfer, clearing and settlement Agency Services Custody Escrow, depository receipts Corporate Agency Issuer and paying agents Corporate Trust Asset Management Discretionary Fund Management Pooled, segregated, retail, institutional, closed, open, private equity Non-Discretionary Fund Management Pooled, segregated, retail, institutional, closed, open Retail Brokerage Retail Brokerage Execution and full service BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 427 / 517 Issued on: 3 May 2019 Appendix XII Illustration of the Offsetting Rules Between Negative and Positive OR Capital Charge in Any Business Lines Business Line Beta (β) % Gross Income Gross Income x β OR Capital Charge March 08 Dec 07 Sept 07 June 07 March 08 Dec 07 Sept 07 June 07 Year 3 Corporate Finance 18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Trading and Sales 18 -9.00 5.00 -12.00 9.00 -1.62 0.90 -2.16 1.62 Retail Banking 12 5.00 6.00 5.00 5.00 0.60 0.72 0.60 0.60 Commercial Banking 15 10.00 5.00 -8.00 7.00 1.50 0.75 -1.20 1.05 Payment and Settlement 18 2.00 2.00 1.00 2.00 0.36 0.36 0.18 0.36 Agency Services 15 2.00 2.00 2.00 3.00 0.30 0.30 0.30 0.45 Asset Management 12 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Retail Brokerage 12 0.00 0.00 2.00 4.00 0.00 0.00 0.24 0.48 Total 10.00 20.00 -10.00 30.00 1.14 3.03 -2.04 4.56 6.69 A similar manner of computation is required for the calculation of the annual gross income for the two years proceeding the most recent year. The aggregate operational risk capital charge is equivalent to the three year average of the simple summation of the regulatory capital charges. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 428 / 517 Issued on: 3 May 2019 Appendix XIII Detailed Loss Event Type Classification Event-type Category (Level 1) Definition Categories (Level 2) Activity Examples (Level 3) Internal Fraud Losses due to acts of a type intended to defraud, misappropriate property or circumvent regulations, the law or company policy, excluding diversity / discrimination events, which involves at least one internal party Unauthorized Activity Transactions not reported (intentional) Transaction type unauthorised (w/monetary loss) Mismarking of position (intentional) Theft and Fraud Fraud / credit fraud / worthless deposits Theft / extortion / embezzlement / robbery Misappropriation of assets Malicious destruction of assets Forgery Check kiting Smuggling Account take-over / impersonation / etc. Tax non-compliance / evasion (wilful) Bribes / kickbacks Insider trading (not on firm’s account) External fraud Losses due to acts of a type intended to defraud, misappropriate property or circumvent the law, by a third party Theft and Fraud Theft/Robbery Forgery Check kiting Systems Security Hacking damage Theft of information (w/monetary loss) Employment Practices and Workplace Safety Losses arising from acts inconsistent with employment, health or safety laws or agreements, from payment of personal injury claims, or from diversity / discrimination events Employee Relations Compensation, benefit, termination issues Organised labour activity Safe Environment General liability (slip and fall, etc.) Employee health & safety rules events Workers compensation Diversity & Discrimination All discrimination types Clients, Products & Business Practices Losses arising from an unintentional or negligent failure to meet a professional obligation to specific clients (including fiduciary and suitability requirements), or from the nature or design of a product. Suitability, Disclosure & Fiduciary Fiduciary breaches / guideline violations Suitability / disclosure issues (KYC, etc.) Retail customer disclosure violations Breach of privacy Aggressive sales Account churning Misuse of confidential information Lender liability Non-compliance of Shariah requirements BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 429 / 517 Issued on: 3 May 2019 Event-type Category (Level 1) Definition Categories (Level 2) Activity Examples (Level 3) Improper Business or Market Practices Antitrust Improper trade / market practices Market manipulation Insider trading (on firm’s account) Unlicensed activity Money laundering Product Flaws Product defects (unauthorised, etc.) Model errors Selection, Sponsorship & Exposure Failure to investigate client per guidelines Exceeding client exposure limits Advisory Activities Disputes over performance of advisory activities Damage to Physical Assets Losses arising from loss or damage to physical assets from natural disaster or other events. Disasters and other events Natural disaster losses Human losses from external sources (terrorism, vandalism) Business disruption and system failures Losses arising from disruption of business or system failures. Systems Hardware Software Telecommunications Utility outage / disruptions Execution, Delivery & Process Management Losses from failed transaction processing or process management, from relations with trade counterparties and vendors Transaction Capture, Execution & Maintenance Miscommunication Data entry, maintenance or loading error Missed deadline or responsibility Model / system misoperation Accounting error / entity attribution error Other task misperformance Delivery failures Collateral management failure Reference Data Maintenance Monitoring and Reporting Failed mandatory reporting obligation Inaccurate external report (loss incurred) Customer Intake and Documentation Client permissions / disclaimers missing Legal documents missing / incomplete Customer / Client Account Management Unapproved access given to accounts Incorrect client records (loss incurred) Negligent loss or damage of client assets Trade Counterparties Non-client counterparty misperformance Misc. non-client counterparty disputes Vendors & Suppliers Outsourcing Vendor disputes BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 430 / 517 Appendix XIV Illustration of Computation of Exposures with Credit Risk Mitigation Effects Example 1 Financing of RM1,000 with 5 years residual maturity to a BBB-rated corporate. The full amount of the financing is guaranteed by a corporate with an external rating (RAM) of AAA. Solution (Simple approach): Obligor’s risk weight (RW) Guarantor’s RW 100% 20% Using RW substitution: RWA = 1000 × 20% = RM200 Example 2 Financing of RM1,000 to BBB-rated corporate. Half of the amount of the financing is secured by an AAA-rated MGS with a residual maturity of 3 years. Solution (Comprehensive approach): Variables Supervisory haircut He No haircut applied as exposure in the form of cash Hc 0.02267 Hfx No maturity mismatch Adjusted exposure (E*) = Max {0, [E × (1 + He) – C × (1 – Hc - Hfx)]} = [1000 × (1 + 0) – 500 × (1 – 0.02 – 0)]} = RM510 Risk-weighted assets (RWA)268 = = RM510 × 100% RM510 Example 3 Financing of RM1,000 to a small business with a residual maturity of 5 years. The financing is secured by receivables (the ratio of collateral value to nominal exposure is 125%). 267 Refer to paragraph 2.122 on standard supervisory haircuts table. 268 Refer to paragraph 2.34 for risk weight table for corporate exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 431 / 517 Solution: No recognition for receivables as risk mitigation under the standardization approach. Thus, the appropriate RW to be applied is 75%, regulatory retail (financing to small business) RWA = RM1,000 × 75% = RM750 Example 4 Financing of RM1,000 to a B-rated corporate with a 3-year residual maturity. Half of the exposure, RM500, is guaranteed by an A-rated bank. Solution: RWA = (Exposure covered by guarantee, GA) + (exposure not covered) = (500 × 50%269) + [(1000 – 500) × 125%] = 250 + 625 = RM875 Example 5 Bank X provide financing of RM1000 to Bank Z (A rated) for a period of 5 years. Bank Z places a 2 year deposit of RM800 in Bank X. Solution: Step 1 – Calculate value of credit protection adjusted for maturity mismatch Ca = C × (1 – Hc – Hfx) × ( t – 0.25) / ( T – 0.25) = 800 × ( 1 – 0 - 0) × ( 2 – 0.25) / (5 – 0.25) = 800 × 0.37 = RM296 Step 2 – Calculate adjusted exposure E* = max {0, [E × (1 + He) – Ca ]} = 1000 × (1 + 0) - 296 269 Refer to paragraphs 2.30 and 2.32 on risk weight table for banking institutions exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 432 / 517 = RM704 RWA = E* × RWA = 704 × 50%270 = RM352 Example 8: Proportional Cover Financing to a BBB corporate of RM1,000 with a 3 year residual maturity. A guarantee of RM500 from a bank (A rated) with a remaining maturity of 3 years serves as collateral. The secured and unsecured portions are equal in seniority. Solution: RWA = (GA X RWguarantor) + [(E – GA) X RWobligor] = (500 x 50%) + [(1000 – 500) x 100%] = 250 + 500 = RM750 Example 9: Treatment of Pools of Credit Risk Mitigation Techniques Financing to a BBB corporate of RM1,000 with a 3 year residual maturity. The financing is secured by Guarantee of RM1,000 from a bank (A rated). Half of the guarantee has residual maturity of 3 years and the other half, a residual maturity of 2 years. In addition, the financing is also secured by an AAA rated MGS of RM500 with a residual maturity of 3 years. The bank opts to obtain the largest capital relief possible from the various risk mitigants. Solution: RWA = (GA X RWMGS) + [(E – GA) X RWguarantor] = (500 x 0%) + [(1000 – 500) x 50%] = RM250 270 Refer to paragraphs 2.30 and 2.32 for risk weight table for banking institutions exposure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 433 / 517 Appendix XV Information Requirements for Application to Adopt the Internal Ratings Based Approach for Credit Risk Islamic banking institutions intending to adopt the IRB approach are required to submit the relevant information271 in the following table: 1. Overall Implementation i) Objective, goal and rationale for applying for IRB status Articulate the objectives, goals and rationale as approved by the board. ii) Governance structure of the implementation project Insert name, designation and responsibilities. Append chart if available. Explain the role of external parties, if applicable. iii) Scope and timeline of the rollout of IRB • across asset class272 Insert class name Insert commencement date273 Insert completion date274 • across entity Insert entity name Insert commencement date Insert completion date • exposures falling under temporary and permanent exemption, if any (as defined in paragraph 3.4 to 3.6 and 3.14) and the plan to migrate the temporary portfolio to IRB. Insert class name Insert commencement date Insert completion date iv) Detailed timeline (describe for each model to be adopted for each asset class and entity. For example, behavioural model for QRRE class in ABC entity) Insert work step (e.g. data collection, IT implementation) Insert commencement date Insert completion date 271 Information required is applicable to both internal and external models. 272 Include those already covered and to be covered in the future. 273 Date of commencement of 1st deliverable. 274 Date of completion of final deliverable. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 434 / 517 v) Detailed approved budget and committed resources for implementation Insert overall amount committed, estimate of personnel involved (breakdown where external parties are involved), vi) Cost-Benefits Analysis Provide a detailed estimate of cost in completing the entire IRB implementation project and explain the benefits gained from IRB adoption as compared to SA. 2. Gap Analysis/ Validation/ Self-Assessment vii) Overview of gap analysis/ validation/ self-assessment process Explain the process and personnel involved in conducting the assessment, clarifying the skills and independence of the reviewer, where applicable. Explain the baseline/ benchmark used (BCBS guideline, or the Bank’s policy documents). viii) Outcome of assessment List all gaps identified. Evaluate the impact of the gaps or non-compliances to the overall implementation of IRB. ix) Detailed plan for achieving compliance For each gap, explain the remedial actions taken, the time needed to bridge the gap and the person responsible. Alternatively, submit the detailed action plan. 3. Information with regard to the IRB systems (append one for each rating system): Islamic banking institutions should submit information (in the form of policies, reports and technical documentation) that describes its compliance with the relevant paragraphs on the IRB minimum requirements in the Framework. The remarks that follow in this section are meant only as a guide. x) Overview or general description of internal rating systems Describe the rating system in terms of the rating/ modeling approach, the time horizon and the segment of the portfolio, asset class or product type for which the rating system will be used. xi) Rating system design Elaborate on the existence of obligor and facility dimensions for each major portfolio. Explain the structural design of the rating system. Append any rating criteria, definition and assignment process adopted. xii) Rating system operations Describe how the rating assignment process ensures appropriate and consistent rating coverage. Elaborate on the controls put in place to ensure integrity of the process, including the process of reviewing and overriding ratings and loss estimates. Explain the process put in place to verify and assess data input for rating assignment. Explain (append if possible) the structure or framework for data maintenance and documentation. xiii) Rating system estimation (covering development and Explain the conceptual and technical features of the process undertaken to estimate the relevant parameters (PD, LGD, EAD etc), inclusive of reasons BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 435 / 517 calibration) (appropriateness, strength and weaknesses) and further enhancements to be taken. Explain and justify the differences, if any, in the definition of default adopted. Provide empirical analysis to justify the appropriateness of using the conventional IRB model and its parameters on the Islamic banking assets Describe the stress testing processes in place (including the scenarios adopted and the sources of information) in relation to capital adequacy. xiv) Rating system validation Include the measurement of performance especially on accuracy, calibration, stability and consistency. Islamic banking institutions which leverages on a same model as the conventional assets within the banking group are expected to assess the performance of the model specifically on the Islamic asset portfolio as well. xv) Overview of the internal governance structure of the rating system Append chart if available. • role of board (and its committees) Insert name and responsibilities specific to the governance of rating system (if any). • role of senior management (and its committees) Insert name and responsibilities specific to the governance of rating system as well as other critical responsibilities. • role of credit risk management unit (or its equivalent) Insert name and responsibilities specific to the design, selection, implementation and performance of rating system. • role of internal audit (or other relevant assurance function) Insert name and responsibilities specific to the review of rating system. xvi) Use of ratings Explain how the ratings will support internal business decisions. Explain any adjustments made if ratings are not used directly. xvii) Logical data model and the surrounding IT infrastructure Append the logical data fields used and their dependencies. xviii) Data extraction and cleansing processes Explain and attach the tests undertaken to verify the integrity of data. xix) IRB training conducted to relevant officers, senior management personnel and board members. List all relevant training (especially on the operations and use of ratings) conducted in the immediate past. Include areas covered, instructor’s name, departments affected and date conducted. If possible, include training plans for the future. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 436 / 517 Appendix XVI Information Requirements for Application to Adopt the Internal Models Approach for Market Risk Islamic banking institutions intending to adopt the internal models approach for the computation of the market risk capital charge in the trading book are required to submit to Bank Negara Malaysia the following information: A. General Information Organisational Structure 1. The latest organisational chart showing the names and reporting lines of key personnel in charge of the front office, middle office, back office, finance and risk management functions. 2. Terms of reference or description of function for the following: (i) Treasury Department; (ii) Middle Office; (iii) Back Office/Processing Unit; (iv) Finance / Account Department; and (v) Market Risk Management Unit. 3. Terms of reference of Board Risk Management Committee and Market Risk Management Committee. Among others should include: (i) role and composition of committees; (ii) frequency of meetings; and (iii) information received. 4. Information pack and minutes of the committees’ meetings (described in 3 above) for the past 12 months including: (i) discussion reports; BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 437 / 517 (ii) recommendations to the committee; and (iii) communication of decision. 5. Background, experience and qualification of key treasury front office and market risk management personnel. 6. Number of staff in treasury front office and market risk management and their responsibilities. Policies and Operational Manuals 7. Please provide the following policies and procedures (if maintained separately from documents required in 2 above: (i) Treasury Front Office; (ii) Trading and Investment; (iii) Middle Office; (iv) Back Office/Processing Unit; (v) Finance/Account Department; and (vi) Trading Book Policy Statement. Treasury Portfolio Data and Profit and Loss 8. List of treasury products and activities (please also specify products and activities that will be included in risk models). 9. Monthly detailed outstanding treasury transactions for the last 12 months. 10. Monthly detailed Treasury P&L for the last 12 months. Internal Controls (with regards to treasury and market risk management) 11. Validation policy and programme. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 438 / 517 12. Latest independent review reports. 13. Recent internal and external (if any) audits’ reports. 14. Exception reports for the last 12 months. Front office and Market Risk Management Information System (MIS) infrastructure 15. Structure of source systems (position capture) and risk measurement system. 16. System manuals. 17. Control structure surrounding risk measurement system. B. Valuation Model Information (by risk categories) 18. Description of portfolio valuation model specifying whether model was purchased or developed in house. Description among others should include: (i) mark-to-market/model methodology for all products; (ii) cash flow mapping process; and (iii) detail products decomposition. 19. For a purchased valuation model, description of adjustments made on the model. 20. Procedures on zero yield curve generation. Among others should include: (i) source of rates; and (ii) interpolation methodology. 21. Description of valuation adjustments made to cater for illiquidity, concentration etc. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 439 / 517 C. Value-at-Risk (VaR) Measurement Information Risk system 22. The scope of application for which approval is requested. 23. Description of units, portfolio or entity not covered by the model and reason(s) for exclusion. 24. Future developments and implementation schedule to incorporate any areas excluded from the scope of the model. 25. Future developments and implementation schedule of any planned changes or any future plans that have a bearing on the model. 26. Description and the flow chart of the individual risk supporting systems. 27. Description and the flow chart of the main risk measurement systems/engine. Measurement methodology by risk categories (profit rate, equity, foreign exchange and commodities risks) 28. Overall description of VaR measurement approach (variance/covariance, Monte Carlo simulation, historical simulation). This should among others, includes: (i) confidence interval used; (ii) holding period; (iii) description of historical data used to calculate volatility and correlation parameters and any weighting methodology used in the calculation specifying the “effective” observation period; and (iv) any scaling factors used 29. Description of the underlying assumptions. 30. Description of historical data update process and frequency. 31. Description of underlying parameters. Among others, include: BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 440 / 517 (i) number of yield curves by currency; (ii) number of risk factors by currency; (iii) equity risk factors; and (iv) commodity risk factors. 32. Description of how the models capture: (i) non-linear effects particularly, options products; (ii) correlations within and across broad risk categories; and (iii) specific risk, if any. 33. Time taken to generate VaR numbers and availability of VaR for distribution particularly to front office. Stress testing 34. Description of the methodology used. 35. Stress test results for the past 12 months. 36. Stress test limits. Back testing 37. Description of the methodology used. 38. Back testing results for the past 12 months. D. Risk Appetite and Limit Structure 39. Overall limits structure imposed on trading book risk taking activities (VaR limits, notional limits etc). 40. Policy and procedures governing limits allocation process. 41. Policy and procedures on discretionary powers (e.g. granting exception, temporary excesses etc). 42. Escalation policy on exceptions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 441 / 517 E. Risk Management & Control 43. Please provide the policies and procedures for market risk management function. 44. List/summary of reports prepared by risk management on a daily basis. Description of timeline these reports available for senior management. 45. Description of future developments of risk measurement methodology, products and activities related to market risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 442 / 517 Appendix XVII Illustration of Computation of Large Exposure Risk Requirement Scenario A An Islamic banking institution holds exposures consisting of shares and in- the-money call warrants with market value amounting to RM20 million in a corporation listed on G10 stock exchange. The Islamic banking institution’s Total Capital is currently RM500 million and the total issued paid-up capital of the corporation is RM100 million. All exposures are held in the trading book. Step 1 Determine the amount in excess of threshold. The LERR computation will be based on exposures to a single equity exceeding 15% of the Islamic banking institution’s Total Capital or 10% of the issuer’s paid-up capital, whichever is lower. LERR threshold (RM million) Applicable threshold level (RM million) Amount in excess of threshold level (RM million) Total exposures (RM million) Based on Islamic banking institution’s Total Capital 500 x 15% = 75 Not applicable. Based on issuer’s paid-up capital 100 x 10% = 10 10 10 20 Step 2 Calculate the LERR capital charge by multiplying the market value of the equity position in excess of the threshold, with the sum of the corresponding general and specific risk weights as per the market risk component of the Framework. The LERR capital requirement is incurred in addition to the market risk capital charge for large exposures to a single equity. Market risk capital charge RM20 million x (8% + 8%) = RM3.2 million LERR capital charge RM10 million x (8% + 8%) = RM1.6 million Step 3 Calculate the LERR risk-weighted asset. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 443 / 517 LERR risk-weighted asset RM1.6 million x 12.5 = RM20 million BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 444 / 517 Scenario 2 An Islamic banking institution holds preference shares with market value amounting to RM80 million in an unlisted corporation. The Islamic banking institution’s Total Capital is currently RM500 million and the total issued paid- up capital of the corporation is RM1 billion. All exposures are held in the banking book. Step 1 Determine the amount in excess of the applicable threshold level. LERR threshold (RM million) Applicable threshold level (RM million) Amount in excess of threshold level (RM million) Total exposures (RM million) Based on Islamic banking institution’s Total Capital 500 x 15% = 75 75 5 80 Based on issuer’s paid- up capital 1000 x 10% = 100 Not applicable Step 2 Calculate the LERR risk-weighted asset by multiplying the market value of the equity exposure (banking book position) in excess of the applicable threshold with the corresponding risk weight. Credit risk-weighted asset RM80 million x 100% =RM80 million LERR risk-weighted asset RM5 million x 100% = RM5 million BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 445 / 517 Appendix XVIII Capital Treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA Transactions The capital treatment for exposures from SBBA and reverse SBBA transactions under the banking book and trading book is provided below: SBBA Reverse SBBA275 Trading book transaction 1) Market risk in the forward purchase transaction • For cash position: a. General risk for the short cash position b. There is no specific risk charge for the cash position • For the underlying asset of the forward purchase transaction a. General risk for the underlying asset b. Specific risk for the underlying asset 2) Counterparty credit risk (as per the banking book treatment below). 1) Market risk in the forward sale transaction • General risk for the long cash position 2) Counterparty credit risk (as per the banking book treatment below) 275 In addition to the capital charge applied here, if an arrangement that could effectively transfer the risk back to the SBBA seller is not legally binding, the SBBA buyer is required to provide for credit risk charge of the underlying asset. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 446 / 517 SBBA Reverse SBBA Banking book transaction Standardised Approach for Credit Risk 1) Credit risk in the underlying asset in the forward purchase transaction • Credit RWA = Underlying asset value x CCF of forward asset purchase (i.e. 100%) x risk weight based on recognised issue / issuer rating of the asset. 2) Counterparty credit risk in the forward purchase transaction • Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward purchase transaction value, where the underlying asset market value > the forward purchase transaction value. 1) Counterparty credit risk in the forward purchase transaction • Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward sale transaction value, where the underlying asset market value < the forward sale transaction value. Internal Ratings-Based Approach for Credit Risk 1) Credit risk in the underlying asset in the forward purchase transaction • EAD = Underlying asset value x CCF of forward asset purchase (i.e., 100%). EAD is to be used in capital formula to obtain the capital charge. 2) Counterparty credit risk in the forward purchase transaction • EAD = Credit equivalent amount (derived from the Current Exposure Method). EAD is to be used in capital formula to obtain the capital 1) Counterparty credit risk in the forward sale transaction EAD = Credit equivalent amount (derived from the Current Exposure Method). EAD is to be used in capital formula to obtain the capital charge. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward sale transaction value, where the forward sale transaction value > the underlying asset market BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 447 / 517 charge. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward purchase transaction value, where the underlying asset market value > the forward purchase transaction value. value. The underpinning basis for the capital treatment for SBBA and reverse SBBA transactions is the risk profile of the underlying transactions, i.e., outright sale/buy contract as well as forward transactions as wa’d (promise) to buyback/sellback and is therefore not a collateralised transaction. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 448 / 517 Appendix XIX IRB Coverage • Exposures to sovereigns, central banking institutions, banking institutions and public sector entities; • Equity holdings in entities whose debt qualifies for 0% risk weight under the standardised approach • Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banking institutions in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association, subject to a limit of 10% of Total Capital; and • Immaterial equity holdings on a case- by-case basis. Entities and asset classes (or sub- classes in the case of retail) that are immaterial in terms of size and perceived risk profile which cumulatively account for less than or equal to 15% of total credit RWA. Additional exposures with aggregate credit RWA (computed using the standardised approach) which cumulatively account for less than or equal to 10% of total credit RWA. Exposures to be covered by IRB approach The next section provides an illustration on how Islamic banking institutions should compute “A” and “B” for purposes of the IRB coverage requirement. Permanent exemption (Capital requirements for these exposures to be computed using the standardised approach from the start of the transitional period) Temporary exemption (Applicable only during the transitional period for banking institutions migrating to IRB approach) A B C BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 449 / 517 The computation for the IRB coverage requirement is as follows: “A” Cumulative Immaterial Exposures = ----------- ≤ 15% “C” Or “A” + ”B” Cumulative Immaterial Exposures = ------------- ≤ 25% “C” BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 450 / 517 Appendix XX Assessment of Credit Risk based on Shariah Contracts 1. This appendix sets out the specificities of Islamic financial products or transactions that are undertaken based on specific Shariah contracts and stages for identification of the credit risk exposure. 2. Islamic transactions can generally be classified into four main categories as follows: (i) Asset-based transactions, which comprise of Murābahah, Salam and Istisnā` contracts, that are mainly structured or created based on the purchase or sale of assets; (ii) Lease-based transactions, which comprise of Ijārah contracts; (iii) Equity-based transactions, which comprise of Mushārakah and Mudārabah contracts, that are undertaken mainly based on equity participation in a joint venture or business enterprise; and (iv) Loan-based transactions, which are primarily undertaken through the Qardh contract. 3. The innovation in Islamic banking products and financial instruments has resulted in the development of varied product structures which are differentiated by a unique product name. For example, some products are structured using a combination of Shariah permissible terms. For capital adequacy computation purposes, the capital treatments on these financial instruments shall be assessed based on the analysis of the risk profile embedded within these transactions rather than the product name, unless specifically required by the Bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 451 / 517 MURĀBAHAH Murābahah 4. A Murābahah contract refers to an agreement whereby an Islamic banking institution sells to an obligor an asset that it has acquired at an agreed selling price between both parties. The agreed selling price is based on the acquisition cost (purchase price plus other direct costs) of the asset incurred by the Islamic banking institution and a profit margin agreed between the Islamic banking institution and its obligor. The Murābahah contract shall include the agreed repayment terms where the obligor is obliged to pay the selling price after taking delivery of the asset. 5. Islamic banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the Murābahah contract. Hence, Islamic banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. Murābahah for Purchase Orderer (MPO) 6. A Murābahah for Purchase Orderer (MPO) contract refers to an agreement whereby an Islamic banking institution sells to an obligor at an agreed selling price, a specified type of asset that has been acquired by the Islamic banking institution based on an agreement to purchase (AP) by the obligor which can be binding or non-binding. The relevant legal recourse provided under the AP that requires the obligor to perform their obligation to purchase the underlying asset from the Islamic banking institution shall be a key determinant for the AP to be recognised as binding or non-binding. Thus, it is pertinent for Islamic banking institutions to ensure the adequacy and enforceability of the legal documentation under the MPO contract. The MPO contract shall include the agreed repayment BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 452 / 517 terms where the obligor is obliged to pay the selling price after taking delivery of the asset. 7. The difference between a Murābahah transaction and an MPO transaction is that under a Murābahah contract, the Islamic banking institution sells an asset which is already in its possession, whilst in an MPO, the Islamic banking institution acquires an asset in anticipation that the asset will be purchased by the obligor. 8. Islamic banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the MPO contracts. Hence, Islamic banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. 9. For MPO with binding AP, Islamic banking institutions are exposed to credit risk in the event that the obligor (purchase orderer) defaults on its binding obligation to purchase the assets under the contract. In view of the adequate legal recourse that requires the obligor to purchase the asset at an agreed price, the credit risk exposure commences once the Islamic banking institution acquires the underlying asset. For non-binding MPO, the effect is similar to a Murābahah transaction. BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH 10. For the purpose of the Framework, the Bai` Bithaman Ajil (BBA) and Bai` Inah contracts are deemed to have similar transaction characteristics and financing effects as the Murābahah and MPO contract. The BBA involves the selling of an asset with deferred payment terms while Bai’ Inah involves a sell and buy back agreement. An example of Bai’ Inah is where an obligor sells to the Islamic banking institution an asset at a selling price that will be repaid on cash basis for BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 453 / 517 the first leg of the agreement. On the second leg, the Islamic banking institution sells back the asset to the obligor on deferred payment terms to enable the financing transaction. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 454 / 517 IJĀRAH Ijārah 11. Ijārah contracts refer to a lease agreement whereby the lessor transfers the right to use (or usufruct) of the leased asset to the lessee, for an agreed period and at an agreed consideration, in the form of lease rental. The lessor maintains ownership of the leased asset during the lease period under these contracts. 12. As the owner of the leased asset, Islamic banking institutions therefore assume all liabilities and risks pertaining to the leased asset including the obligation to restore any impairment and damage to the leased asset arising from wear and tear, as well as natural causes which are not due to the lessee’s misconduct or negligence. 13. As a lessor, Islamic banking institutions may acquire the asset to be leased based on the lessee’s specifications as stipulated under the agreement to lease (AL), prior to entering into the Ijārah contract with the lessee. The AL can be binding or non-binding on the lessee depending on the legal recourse in the AL, which states the obligation for the lessee to lease the specified asset from the lessor. 14. Islamic banking institutions as the lessor under the Ijārah contracts are exposed to the credit risk of the lessee in the event that the lessee fails to pay the rental amount as per the agreed terms. 15. In addition, under a binding AL, Islamic banking institutions are exposed to credit risk in the event that the lessee (lease orderer) defaulting on its binding obligation to execute the Ijārah contract. In this situation, the Islamic banking institution may lease or dispose off the asset to another party. However, the Islamic banking BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 455 / 517 institution is also exposed to the credit risk of the lessee if the lessee is not able to compensate for the losses incurred arising from the disposal of the asset. 16. Under a non-binding AL, the Islamic banking institution is not exposed to the risk of non-performance by the lease orderer given that the Islamic banking institution does not have legal recourse to the lease orderer. In this regard, credit risk exposure arises upon the commencement of rental agreement. Ijārah Muntahia Bittamleek 17. Ijārah Muntahia Bittamleek (IMB) contract refers to a lease agreement similar to Ijārah contracts. However, in addition to paragraphs 11 to 16, the lessor has an option to transfer ownership of the leased asset to the lessee in the form of a gift or a sale transaction at the end of IMB. Al-Ijārah Thumma Al-Bai’ 18. Al-Ijārah Thumma Al-Bai` (AITAB) contract is a type of IMB contract that ends with a transfer of ownership to the lessee by way of a sale transaction and shall be treated similarly to the IMB contract for purposes of capital adequacy requirements. SALAM 19. A Salam contract refers to an agreement whereby an Islamic banking institution purchases from an obligor a specified type of commodity, at a predetermined price, which is to be delivered on a specified future date in a specified quantity and quality. Islamic banking institution as the purchaser of the commodity makes full payment of the purchase price upon execution of the Salam contract. Islamic banking institutions are exposed to credit risk in the event that the obligor (commodity seller) fails to deliver276 the paid commodity as per the agreed terms. 276 Delivery risk in a Salam contract is measured based on the commodity seller’s credit risk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 456 / 517 20. In addition, an Islamic banking institution may also enter into a parallel Salam contract, which is a back-to-back contract to sell the commodity purchased under the initial Salam contract to another counterparty. This arrangement enables the Islamic banking institution to mitigate the risk of holding the commodity. 21. Islamic banking institutions undertaking the parallel Salam transaction are exposed to credit risk in the event that the purchaser fails to pay for the commodity it had agreed to purchase from the Islamic banking institution. Nevertheless, in the event of non-delivery of the commodity by the seller under the initial Salam contract, the Islamic banking institution is not discharged of its obligation to deliver the commodity to the purchaser under the parallel Salam contract. ISTISNĀ` 22. An Istisnā` contract refers to an agreement to sell to or buy from an obligor an asset which has yet to be manufactured or constructed. The completed asset shall be delivered according to the buyer’s specifications on a specified future date and at an agreed selling price as per the agreed terms. 23. As a seller of the under the Istisnā` contract, the Islamic banking institution is exposed to credit risk in the event that the obligor fails to pay the agreed selling price, either during the manufacturing or construction stage, or upon full completion of the asset. 24. As a seller, the Islamic banking institution has the option to manufacture or construct the asset on its own or to enter into a parallel Istisnā` contract to procure the asset from another party or, to engage the services of another party to manufacture or construct the asset. Under the parallel Istisnā` contract, as the purchaser of the asset, the Islamic banking institution is exposed to credit risk in BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 457 / 517 the event that the seller fails to deliver the specified asset at the agreed time and in accordance with the initial Istisnā` ultimate buyer’s specifications. The failure of delivery of completed asset by the parallel Istisnā` seller does not discharge the Islamic banking institution from its obligations to deliver the asset ordered by the obligor under the initial Istisnā` contract. Thus, the Islamic banking institution is additionally exposed to the potential loss of making good the shortcomings or acquiring the specified assets elsewhere. MUSHĀRAKAH 25. A Mushārakah contract is an agreement between an Islamic banking institution and its obligor to contribute an agreed proportion of capital funds to an enterprise or to acquire ownership of an asset/real estate. The proportion of the capital investment may be on a permanent basis or, on a diminishing basis where the obligor progressively buys out the share of the Islamic banking institution (thus, this contract is named Diminishing Mushārakah, which is categorized under Mushārakah contract for the purpose of the Framework). Profits generated by the enterprise or an asset/real estate are shared in accordance to the terms of the Mushārakah agreement, while losses are shared based on the capital contribution proportion. 26. In general, Mushārakah contracts can broadly be classified into two categories as follows: (i) Equity participation in a private commercial enterprise to undertake business ventures or financing of specific projects; and (ii) Joint ownership in an asset or real estate. I. EQUITY PARTICIPATION IN A PRIVATE COMMERCIAL ENTERPRISE TO UNDERTAKE BUSINESS VENTURES OR FINANCING OF SPECIFIC PROJECTS BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 458 / 517 27. An Islamic banking institution may enter into a Mushārakah contract with their obligor to provide an agreed amount of capital for the purpose of participating in the equity ownership of an enterprise. In this arrangement, the Islamic banking institution is exposed to capital impairment risk in the event that the business activities undertaken by the enterprise incur losses. The Mushārakah agreement may provide an agreed ‘exit mechanism’ which allows partners to divest their interest in the enterprise at a specified tenor or at the completion of the specified project. In this regard, the Islamic banking institution must ensure that the contract clearly stipulates the exit mechanism for partners to redeem their investment in this entity. 28. Islamic banking institutions that enter into this type of Mushārakah contract are exposed to the risk similar to an equity holder or a joint venture arrangement where the losses arising from the business venture are to be borne by the partners. As an equity investor, the Islamic banking institution serves as the first loss absorber and its rights and entitlements are subordinated to the claims of creditors. In terms of risk measurement, the risk exposure to an enterprise may be assessed based on the performance of the specific business activities undertaken by the joint venture as stipulated under the agreement. II. JOINT OWNERSHIP IN AN ASSET OR REAL ESTATE 29. Mushārakah contracts that are undertaken for the purpose of joint ownership in an asset or real estate may generally be classified into the two categories as follows: i) Mushārakah contract with an Ijārah sub-contract Partners that jointly own an asset or real estate may undertake to lease the asset to third parties or to one of the partners under an Ijārah contract and therefore generate rental income to the partnership. In this case, the risk profile of the Mushārakah arrangement is essentially determined by the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 459 / 517 underlying Ijārah contract. Islamic banking institutions are exposed to credit risk in the event that the lessee fails to service the lease rentals. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 460 / 517 ii) Mushārakah contract with a Murābahah sub-contract As a joint owner of the underlying asset, Islamic banking institutions are entitled to a share of the revenue generated from the sale of asset to a third party under a Murābahah contract. Islamic banking institutions are exposed to credit risk in the event the buyer or counterparty fails to pay for the asset sold under the Murābahah contract. iii) Diminishing Mushārakah (a) An Islamic banking institution may enter into a Diminishing Mushārakah contract with an obligor for the purpose of providing financing based on a joint ownership of an asset, with the final objective of transferring the ownership of the asset to the obligor in the contract. (b) The contract allows the obligor to gradually purchase the Islamic banking institution’s share of ownership in an asset/real estate or equity in an enterprise over the life of the contract under an agreed repayment terms and conditions which reflect the purchase consideration payable by the obligor to acquire the Islamic banking institution’s share of ownership. (c) As part of the mechanism to allow the obligor to acquire the Islamic banking institution’s share of ownership, the Islamic banking institution and obligor may agree to lease the asset/real estate to the obligor. The agreed amount of rental payable can be structured to reflect the progressive acquisition of the Islamic banking institution’s share of ownership by the obligor. Eventually, the full ownership of the asset will be transferred to the obligor as it continues to service the rental payment. In this regard, the Islamic banking institution is exposed to credit risk similar to an exposure under the Mushārakah with Ijārah contract. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 461 / 517 (d) However, if the exposure under the Diminishing Mushārakah contract consists of share equity in an enterprise, the Islamic banking institution shall measure its risk exposure using the treatment for equity risk. MUDĀRABAH 30. A Mudārabah contract is an agreement between an Islamic banking institution and an obligor whereby the Islamic banking institution contributes a specified amount of capital funds to an enterprise or business activity that is to be managed by the obligor as the entrepreneur (Mudārib). As the capital provider, the Islamic banking institution is at risk of losing its capital investment (capital impairment risk) disbursed to the Mudārib. Profits generated by the enterprise or business activity are shared in accordance with the terms of the Mudārabah agreement whilst losses are borne solely by the Islamic banking institution (capital provider)277. However, losses due to misconduct, negligence or breach of contracted terms278 by the entrepreneur, shall be borne solely by the Mudārib. In this regard, the amount of capital invested by the Islamic banking institution under the Mudārabah contract shall be treated similar to an equity exposure. 31. Mudārabah transactions can be carried out: (i) on a restricted basis, where the capital provider authorises the Mudārib to make investments based on a specified criteria or restrictions such as types of instrument, sector or country exposures; or (ii) on an unrestricted basis, where the capital provider authorises the Mudārib to exercise its discretion in business matters to invest funds and undertake business activities based on the latter’s skills and expertise. 277 Losses borne by the capital provider would be limited to the amount of capital invested. 278 Islamic banking institutions are encouraged to establish and adopt stringent criteria for definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 462 / 517 32. In addition, transactions involving Mudārabah contracts may generally be sub- divided into two categories as follows: I. EQUITY PARTICIPATION IN AN ENTITY TO UNDERTAKE BUSINESS VENTURES 33. This type of Mudārabah contract exposes the Islamic banking institution to risks akin to an equity investment, which is similar to the risk assumed by an equity holder in a venture capital or a joint-venture investment. As an equity investor, the Islamic banking institution assumes the first loss position and its rights and entitlements are subordinated to the claims of creditors. II. INVESTMENT IN PROJECT FINANCE 34. The Islamic banking institution’s investment in the Mudārabah contract with a Mudārib is for the purpose of providing bridging finance to a specific project. This type of contract exposes the Islamic banking institution to capital impairment risk in the event that the project suffers losses. Under this arrangement, the Islamic banking institution as an investor provides the funds to the construction company or Mudārib that manages the construction project and is entitled to share the profit of the project in accordance to the agreed terms of the contract and must bear the full losses (if any) arising from the project. 35. There may be situations where the risk profile of money market instruments based on Mudārabah contracts may not be similar to an equity exposure given the market structure and regulatory infrastructure governing the conduct of the market. In particular, Mudārabah interbank investments in the domestic Islamic money market would attract the credit risk of the Islamic banking institution instead of equity risk despite having similarities in the contractual structure. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 463 / 517 QARDH 36. Qardh is a loan given by an Islamic banking institution for a fixed period, where the borrower is contractually obliged to repay only the principal amount borrowed. In this contract, the borrower is not obligated to pay an extra amount (in addition to the principal amount borrowed) at his absolute discretion as a token of appreciation to the Islamic banking institution. 37. Islamic banking institutions are exposed to credit risk in the event that the borrower fails to repay the principal loan amount in accordance to the agreed repayment terms. Hence, the credit risk exposure commences upon the execution of the Qardh contract between the Islamic banking institution and the borrower. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 464 / 517 Appendix XXI Capital treatment for Investment Accounts The “Look-Through” Approach (LTA) 1. The “look-through” approach refers to the calculation of credit and market risk capital requirements based on the underlying assets funded by an investment account, as illustrated below: 2. Where a banking institution is an Investment Account Holder (IAH), the banking institution shall apply the LTA only when the following conditions are met: a) the financial information about the underlying assets is maintained at a sufficiently granular level to enable the calculation of the corresponding risk weights279; and 279 The IAH may specify the information required and time period for such disclosure in the investment account agreement with the mudarib/wakeel. Investment account fund Look-through approach Banking institution as IAH (rabbul mal) Banking institution as entrepreneur/agent (mudarib/wakeel) Investment account placement Underlying assets Capital requirement is based on the underlying asset BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 465 / 517 b) the financial reports of the investment account funds are prepared at least at the same reporting interval as that of the IAH272. 3. Under the LTA, the IAH shall calculate the credit and market risk capital requirements of the investment account, as if it directly holds the underlying assets using similar approach applied by the IAH on its own assets 280. Credit risk a) Under the standardised approach, the IAH shall calculate the capital requirements based on the risk weight applicable to the obligor of the underlying assets. b) Under the IRB approach, the IAH shall calculate the IRB risk components (i.e. the probability of default (PD) and, where applicable, loss given default (LGD) and exposure at default (EAD)) of the underlying assets. For the avoidance of doubt, the IAH shall use the standardised approach for exposures of the underlying assets that are under the permanent exemptions from the IRB approach. c) The IAH may take into account the effect of any CRM only when the CRM used by the mudarib/wakeel fulfils the relevant CRM technique requirements and there is a clear and enforceable legal documentation that ensures the benefit of CRM can be effectively passed to the IAH. Market risk (i) Under the standardised approach, the IAH shall apply the specific risk and general risk capital charges applicable to the underlying assets. (ii) Under the IMA, the IAH shall calculate the capital requirements of the underlying assets using the internal models approved by the Bank. (iii) The IAH may offset its own position against positions arising from the underlying assets provided that the conditions specified in this policy 280 For example, if the IAH adopts the IRB approach for an asset class, the IAH should apply similar approach for that asset class which is funded by an investment account. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 466 / 517 documents are met and that there are no obstacles to timely recoverability of funds from the mudarib/wakeel 281. The alternative approach when the LTA’s conditions are not met 4. When the conditions in paragraph 2 are not met, the IAH shall treat the investment account as exposure to equities. Credit risk a) For the standardised approach, apply a risk-weight of 150%; b) For the IRB approach, apply a risk weight of 400%; and Market risk (i) For the standardised approach, apply a specific risk charge of 14%, in addition to the general risk charge; (ii) For the IMA, calculate the capital requirements according to internal models for equities. 281 Consequently, the mudarib/wakeel is not allowed to recognise such position arising from the underlying assets to offset against its own positions. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 467 / 517 Appendix XXII Transitional Arrangements and Approval Process Transitional Arrangements 1. Islamic banking institutions adopting the IRB approach before 31 December 2015 will be eligible for a transition period from the date of implementation, as follows: Implementation Date Available Transition Period Between 1 January 2010 to 31 December 2012 3 years Between 1 January 2013 to 31 December 2015 Less than 3 years commencing from the date of implementation until 31 December 2015 After 31 December 2015 None BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 468 / 517 2. The following chart provides an illustration of the transitional arrangements applicable for Islamic banking institutions implementing the IRB approach based on various timelines: 2009 2010 2011 2012 2013 2014 2015 2016 Adoption within 2010 (e.g. Implementation on Jan 2010) Adoption between 2011 to 2012 (e.g. Implementation on June 2012) Adoption between 2013 to 2015 (e.g. Implementation on June 2014) Adoption after 2015 (e.g. Implementation on June 2016) Approval Process Approval for Direct Migration from Current Accord 3. For Islamic banking institutions granted approval for direct migration, the Bank’s assessment focuses mainly on the review of the board-approved detailed overall implementation plan, to ensure that it is adequate, comprehensive, credible and feasible with regard to initial coverage and pace of rollout. In particular: i) Governance and Sustainability of Implementation  Islamic banking institutions must demonstrate to the Bank that the implementation of IRB can be sustained. This should include the support of the board, including the allocation of sufficient resources that ensures smooth progress of the IRB implementation. Standardised approach IRB approach 3-year transition period 1.5-year transition period 3-year transition period Current approach IRB approach Standardised approach IRB approach IRB approach Standardised approach BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 469 / 517  Islamic banking institutions must demonstrate that all the necessary capabilities required for the IRB approach are covered in the implementation plan. In other words, the IRB implementation should not be conditional or significantly dependent on capabilities that are implemented outside the IRB implementation plan. ii) Discipline in Implementation and IRB Coverage Requirement  Islamic banking institutions are also expected to demonstrate a good track record of adherence to the implementation plan submitted, as well as strict discipline in implementing current initiatives. They need to demonstrate to the Bank that substantive results have been achieved within the scheduled timeframe.  Islamic banking institutions must ensure that the IRB coverage requirement as stipulated in Appendix XIX is adhered to at all times. iii) Risk Management Capabilities  Islamic banking institutions with adequate overall risk management282 would be viewed favourably as the basic building blocks and capabilities would have already been in place. For example, Islamic banking institutions that have been using internal ratings in critical decision-making for some time would have less difficulty in meeting the use test requirements of the IRB approach. Approval for Migration to IRB Approach from the Standardised Approach 4. Islamic banking institutions intending to migrate to the IRB approach from the standardised approach must notify the Bank its intention to migrate at least 3 years before the intended IRB implementation date. 282 Ratings based on supervisory assessments may be used as a benchmark. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 470 / 517 5. Full submission of the information requirements as specified in Appendix XV must reach the Bank at least 2 years before the intended IRB implementation date. For Implementation before 31 December 2015 6. For these Islamic banking institutions, the scope of the Bank’s assessment will be wider than that outlined in paragraph 43 of this appendix. The Bank will conduct a full assessment of the implemented IRB systems in the majority of the Islamic banking institution’s portfolio. In addition, the Bank will also be assessing the Islamic banking institution’s ability to complete the implementation of IRB over the remainder of its portfolio (i.e. those under temporary exemption) during the transition period. 7. Islamic banking institutions also need to ensure that the IRB coverage requirement should be achieved by 1 January 2016 regardless of when the Islamic banking institution migrates to the IRB approach. Details of the transition period and the relaxations are elaborated in paragraphs 3.14 to 3.17 of the Framework. 8. The decision for the approval of the migration to the IRB approach will be made within six months of the receipt of the full submission. For Implementation After the Transition Period (From 1 January 2016 onwards) 9. From this date onwards, all applications must be accompanied by a full submission of documentation that shows the Islamic banking institutions meet all the minimum requirements except for the use of internal rating requirements where the Islamic banking institution shall demonstrate a credible track record showing that the rating systems which comply with the minimum requirements BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 471 / 517 have been used for at least 1 year. The Islamic banking institution may utilise the time allocated for the review period by the Bank and parallel run period to fully meet the use of internal ratings requirements283.. 10. The scope of the Bank’s assessment will exceed those outlined in paragraphs 43 and 6 of this appendix and will cover the full assessment of all the IRB systems that cover its entire portfolio (except those under permanent exemption). 11. The decision for the approval of the migration to the IRB approach will be made within 1 year upon receipt of the full application from the Islamic banking institution. 283 As required in paragraph 3.375 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 472 / 517 Important Milestones for IRB Adoption Direct migration from current accord Submission as per Appendix XVI Approval for direct migration Full submission Approval to enter transition period Parallel run 3 years Implementation under transition period Full implementation At least 1 year before implementation under transition period Within 6 months after full submission Review by the Bank Formal notification to the Bank Full submission Approval to enter transition period Parallel run Implementation under transition period Full implementation Review by the Bank At least 18 months intended IRB adoption date At least 2 years before intended IRB adoption date Within 6 months after full submission At least 1 year before implementation under transition period Formal notification to the Bank Full submission Approval for migration Parallel run At least 2 years before intended IRB adoption date Islamic banking institutions are expected to periodically update the Bank on their implementation progress following approval for direct migration and approval to enter into the transition period until full IRB implementation. Frequency of updates will be determined on a case-by- case basis. At least 18 months intended IRB adoption date At least 1 year before full implementation Within 6 months after full submission Review by the Bank Migration from standardised approach (where transition period is available) Migration from standardised approach (where transition period is not available) Maximum of 3 years BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 473 / 517 Appendix XXIII Credit Conversion Factors for Off-Balance Sheet Items under the IRB Approach 1. Exposure measurement for off-balance sheet items (EAD) under the foundation IRB approach shall be treated similarly to the standardised approach, where the credit risk inherent in each off-balance sheet instrument is translated into an on-balance sheet equivalent (credit equivalent) by multiplying the nominal principal amount with a CCF; and the resulting amount then being weighted according to the risk weight of the counterparty. 2. The CCFs for the various types of off-balance sheet instruments are as follows: Instrument CCF a. Direct credit substitutes, such as general guarantees of indebtedness including standby letters of credit serving as financial guarantees for financings and securities, acceptances (including endorsements with the characteristics of acceptances). 100% b. Certain transaction-related contingent items, such as performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions. 50% c. Short-term self-liquidating trade-related contingencies, such as documentary credits collateralised by the underlying shipments. The credit conversion factor shall be applied to both the issuing and confirming Islamic banking institution. 20% d. Assets284 sold with recourse, where the credit risk remains with the selling Islamic banking institution. 100% e. Forward asset purchases, and partly-paid shares and securities, which represent commitments with certain drawdown. 100% f. Commitment to buy back Islamic securities SBBA transactions. 100% g. Derivatives contracts. Credit equivalent to be derived using current exposure method as given in Appendix VI. 284 Item (d), which includes housing loans sold to Cagamas Bhd, and (e) should be weighted according to the type of asset (e.g. housing loan) and not according to the counterparty (i.e. Cagamas) with whom the transaction has been entered into. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 474 / 517 Instrument CCF h. Commitments (e.g. formal standby credit facilities), notes issuance facilities (NIFs) and revolving underwriting facilities (RUFs), regardless of maturity. 75% i. Any facilities under (h) that are unconditionally and immediately cancellable and revocable by the Islamic banking institution or that effectively provide for automatic cancellation due to deterioration in a obligor’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice. 0%, subject to the requirements in paragraphs 3.62 to 3.64 and 3.74. 3. In addition to the computation under item (g) above, counterparty credit risk can also arise from unsettled securities, commodities and foreign exchange transactions from the trade date irrespective of the booking or accounting transaction. Islamic banking institutions are encouraged to develop, implement and improve systems for tracking and monitoring credit risk exposures arising from such unsettled transactions as appropriate for producing management information that facilitates action on a timely basis. When these transactions are not processed via a delivery-versus-payment system (DvP) or a payment-versus-payment (PvP) mechanism, these transactions are subject to a capital charge as calculated in Appendix VII. 4. Islamic banking institutions must closely monitor securities, commodities, and foreign exchange transactions that have failed, starting the first day they fail. A capital charge for failed transactions shall be calculated as per Appendix VII. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 475 / 517 Appendix XXIV Illustrative IRB Risk Weights 1. The following tables provide illustrative risk weights calculated for four asset class types under the IRB approach to credit risk. Each set of risk weights for UL was produced using the appropriate risk-weight function of the risk weight functions set out in various parts of Part B.3.5. The inputs used to calculate the illustrative risk weights include measures of the PD, LGD, and an assumed effective maturity (M) of 2.5 years. 2. A firm-size adjustment applies to exposures made to small and medium-sized entity (SME) obligors (defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million). Accordingly, the firm size adjustment was made in determining the second set of risk weights provided in column two given that the turnover of the firm receiving the exposure is assumed to be RM25 million. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 476 / 517 Illustrative IRB Risk Weights for UL Asset Class Corporate Exposures RRE Financing Other Retail Exposures Qualifying Revolving Retail Exposures LGD: Maturity: 2.5 years 45% 45% 45% 25% 45% 85% 45% 85% Turnover (RM million) 250 25 PD: 0.03% 14.44% 11.30% 4.15% 2.30% 4.45% 8.41% 0.98% 1.85% 0.05% 19.65% 15.39% 6.23% 3.46% 6.63% 12.52% 1.51% 2.86% 0.10% 29.65% 23.30% 10.69% 5.94% 11.16% 21.08% 2.71% 5.12% 0.25% 49.47% 39.01% 21.30% 11.83% 21.15% 39.96% 5.76% 10.88% 0.40% 62.72% 49.49% 29.94% 16.64% 28.42% 53.69% 8.41% 15.88% 0.50% 69.61% 54.91% 35.08% 19.49% 32.36% 61.13% 10.04% 18.97% 0.75% 82.78% 65.14% 46.46% 25.81% 40.10% 75.74% 13.80% 26.06% 1.00% 92.32% 72.40% 56.40% 31.33% 45.77% 86.46% 17.22% 32.53% 1.30% 100.95% 78.77% 67.00% 37.22% 50.80% 95.95% 21.02% 39.70% 1.50% 105.59% 82.11% 73.45% 40.80% 53.37% 100.81% 23.40% 44.19% 2.00% 114.86% 88.55% 87.94% 48.85% 57.99% 109.53% 28.92% 54.63% 2.50% 122.16% 93.43% 100.64% 55.91% 60.90% 115.03% 33.98% 64.18% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 477 / 517 Asset Class Corporate Exposures RRE Financing Other Retail Exposures Qualifying Revolving Retail Exposures LGD: Maturity: 2.5 years 45% 45% 45% 25% 45% 85% 45% 85% Turnover (RM million) 250 25 3.00% 128.44% 97.58% 111.99% 62.22% 62.79% 118.61% 38.66% 73.03% 4.00% 139.58% 105.04% 131.63% 73.13% 65.01% 122.80% 47.16% 89.08% 5.00% 149.86% 112.27% 148.22% 82.35% 66.42% 125.45% 54.75% 103.41% 6.00% 159.61% 119.48% 162.52% 90.29% 67.73% 127.94% 61.61% 116.37% 10.00% 193.09% 146.51% 204.41% 113.56% 75.54% 142.69% 83.89% 158.47% 15.00% 221.54% 171.91% 235.72% 130.96% 88.60% 167.36% 103.89% 196.23% 20.00% 238.23% 188.42% 253.12% 140.62% 100.28% 189.41% % 117.99% 222.86% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 478 / 517 Appendix XXV Potential Evidence of Likely Compliance with the Use Test Essential Areas Evidence of Likely Compliance 1. Credit approval  Ratings assignment is part of credit analysis and decision, and  Authority level for approval depends on rating 2. Policy  Rating system, estimates, processes and organisational guidelines are all consistent 3. Reporting  Internal ratings, default and loss estimates are used in all reports relating to credit and profitability information at all levels within the organisation, including senior management 4. Capital management  Internal ratings, default and loss estimates are used in internal capital allocation, and in Pillar 2 capital assessment. 5. Risk governance  Individual and portfolio limits are set with reference to internal ratings, default and loss estimates. 6. Pricing decisions  Estimates for regulatory purposes and those derived for risk- based pricing, are produced for senior management’s information. However, for actual pricing purposes, Islamic banking institution may use estimates which have been aligned with the actual life of the facility. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 479 / 517 Appendix XXVI Data-Enhancing and Benchmarking Tools 1. While industry and supervisory practices are still emerging, the Bank views that the preliminary range of data-enhancing and validation tools and techniques summarised below might be useful to facilitate efforts undertaken by Islamic banking institutions. Nevertheless, these tools are more applicable to estimation of PDs rather than LGDs or EADs. Additional techniques that are more relevant to LGD and EAD are only expected to emerge over time. Islamic banking institutions are encouraged to consider the list below and to utilise the tools and techniques that are most appropriate to their particular circumstances. Data-Enhancing Tools for Quantification and Validation 2. While a relative lack of loss data may make it more difficult to use quantitative methods to assess risk parameters, there are tools that could be used to enhance data richness or to determine the degree of uncertainty that could be addressed through conservatism. Among these possible tools are the following: (i) Pooling of data with other banking institutions or market participants, the use of other external data sources, and the use of market measures of risk can be effective methods to complement internal loss data. While an Islamic banking institution would need to satisfy itself and the Bank that these sources of data are relevant to its own situation, the Bank nevertheless believes that in principle, data pooling, external data and market measures can be an effective means to augment internal data in appropriate circumstances. This can be especially relevant for small portfolios or for portfolios where an Islamic banking institution is a recent market entrant; (ii) Internal portfolio segments with similar risk characteristics might be combined. For example, an Islamic banking institution might BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 480 / 517 have a broad portfolio with adequate default history that, if narrowly segmented, could result in the creation of a number of low-default portfolios. While such segmentation might be appropriate from the standpoint of internal use (e.g. pricing), for purposes of assigning risk parameters for regulatory capital purposes it might be more appropriate to combine sub-portfolios; (iii) In some circumstances, different rating categories might be combined and PDs analysed for the combined category. Islamic banking institutions using rating systems that map to rating agency categories might find it useful, for example, to combine AAA, AA and A-rated credits, provided this is done in a manner that is consistent with paragraphs 3.251 and 3.252 of the Framework. This could enhance default data without necessarily sacrificing the predictiveness or risk-sensitivity of the rating system; (iv) The upper bound of the PD estimate can be used as an input to the RWA formula for those portfolios where the PD estimate itself is deemed to be too unreliable to warrant direct inclusion in capital adequacy calculations; (v) Islamic banking institutions may derive PD estimates from data with a horizon that is different from one year. Where defaults are spread out over several years, an Islamic banking institution may calculate a multi-year cumulative PD and then annualise the resulting figure. Where intra-year rating migrations contain additional information, these migrations could be analysed as separate rating movements in order to infer PDs, which may be especially useful for the higher-quality rating grades; and (vi) If low default rates in a particular portfolio are the result of credit support, the lowest non-default rating could be used as a proxy for default (e.g. banking institutions, investment firms, thrifts, pension funds, insurance/takaful firms) in order to develop ratings that differentiate risks. When such an approach is taken, calibration of BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 481 / 517 such ratings to a PD consistent with IRB definition of default would still be necessary. 3. While Islamic banking institutions would not be expected to utilise all of these tools, the suitability and most appropriate combination of individual tools and techniques will depend on the nature of the Islamic banking institution and the characteristics of the specific portfolio. Benchmarking tools for validation 4. In addition, where a scarcity of internal historical data makes it difficult to meaningfully back-test risk rating predictions against realised defaults, it may be possible to make greater use of various benchmarking tools for validation. Among the tools that could potentially be used are the following: (i) Internal ratings and migration matrices could be compared with the ratings and migrations of third parties such as rating agencies or data pools, or with the ratings and migrations resulting from other internal models; (ii) Internal ratings could be benchmarked against internal or external expert judgements, for example where a portfolio has not experienced recent losses but where historical experience suggests the risk of loss is greater than zero; (iii) Internal ratings could be compared with market-based proxies for credit quality, such as equity prices, bond spreads, or premiums for credit derivatives; (iv) An analysis of the rating characteristics of similarly rated exposures could be undertaken; and (v) The average rating output for the portfolio as a whole could be compared with actual experience for the portfolio rather than focusing on back-testing estimates for more narrowly defined segments of the portfolio. Similarly, rating grades can be combined in order to make back-testing more meaningful. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 482 / 517 5. This list is not intended to be exhaustive, but rather serve as a useful guide of some benchmarking tools that might be useful in the case of scarce internal loss data. It is important that Islamic banking institutions utilise as many tools and techniques, as necessary to build confidence and demonstrate the predictive ability of the credit risk rating systems. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 483 / 517 Appendix XXVI Illustration on the treatment of underwriting exposures Example Bank A (applying the Standardised Approach for Credit Risk) extends a 5-year underwriting Commercial Paper (CP) facility of RM5 million to Company ABC on 1 September 2010. On 28 September 2010, Company ABC decides to utilise the facility with a CP issuance of RM2 million. Nominal amount of CP underwriting facility granted RM5 million Nominal amount of underwriting (drawn portion) RM2 million Rating and tenor P1 rated CP, 3 months tenor Date of fixing the rate (drawn portion) 28 September 2010 Date of issuance 1 October 2010 On 1 October 2010, the CP was issued where: • RM1.5 million was subscribed; and • RM0.5 million was unsubscribed, hence remained with Bank A. a) Undrawn amount = RM5m [Reported in the banking book] b) Undrawn amount = RM3m [Reported in the banking book] c) Drawn amount = RM2m [Reported in the trading book] d) Undrawn amount = RM3m [Reported in the banking book] e) Unsubscribed portion of RM0.5 mil [Reported in the trading book] Underwriting facility extended 1 Aug 2010 Profit fixing date 28 Sept 2010 Issuance date 1 Oct 2010 Reporting date 30 Sept 2010 Reporting date 31 Oct 2010 Reporting date 31 Aug 2010 BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 484 / 517 At the reporting date 31 August 2010, where it falls between the profit fixing date and issue date: a) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM5m x 50% x 8% At the reporting date 30 September 2010, where it falls between the profit fixing date and issue date: b) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM3m x 50% x 8% c) The drawn amount is deemed as a trading book position and is subject to the market risk capital charge based on the maturity and rating of the CP issued: The general risk: RM2m x 50% x 0.2% The specific risk: RM2m x 50% x 0.25% At the reporting date 31 October 2010, where the CP has been issued and Bank A holds RM0.5m of the unsubscribed portion: d) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM3 mil x 50% x 8% e) The unsubscribed portion is deemed as a trading book position (with intention to sell down) and is subject to the market risk capital charge based on the maturity and rating of the CP purchased: The general risk: RM0.5m x 0.2% The specific risk: RM0.5m x 0.25% BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 485 / 517 Appendix XXVII Definitions and General Terminologies Asset-backed commercial paper (ABCP) programme An ABCP programme predominantly issues commercial paper with an original maturity of one year or less that is backed by assets or other exposures held in a bankruptcy-remote SPV. Credit enhancement A credit enhancement is a contractual arrangement in which an Islamic banking institution retains or assumes a securitisation exposure and, in substance, provides some degree of added protection to other parties to the transaction. Credit-enhancing profit-only strip A credit-enhancing profit-only strip is an on-balance sheet asset that represents a valuation of cash flows related to future margin income and is subordinated. Excess spread Excess spread is generally defined as gross finance charge collections and other income received by the trust or SPV minus certificate profit, servicing fees, charge-offs, and other senior SPV expenses. Future margin income (FMI) The amount of income anticipated to be generated by the relevant exposures over a certain period of time that can reasonably be assumed to be available to cover potential credit losses on the exposures (i.e. after covering normal business expenses). FMI usually does not include income anticipated from new accounts. Gain-on-sale Gain-on-sale is any residual interest retained by the originating Islamic banking institution that is, an on-balance sheet asset that represents a retained beneficial interest in a securitisation accounted for as a sale, and that BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 486 / 517 exposes the originating Islamic banking institution to any credit risk directly or indirectly associated with the transferred asset, that exceeds a pro rata share of that originating Islamic banking institution’s claim on the asset. Investment grade A securitisation exposure is deemed to be of investment grade if an ECAI recognised by the Bank has assigned it a rating within long-term rating categories 1 to 3, or short-term rating categories 1 to 3 (as defined in paragraph 7.11). Originating Islamic banking institution An Islamic banking institution is considered to be an originator in a securitisation transaction if it meets either of the following conditions: – the Islamic banking institution originates directly or indirectly (e.g. an Islamic banking institution purchases a third party financial instrument via its balance sheet or acquires credit risk through credit derivatives and subsequently sells or transfers to an SPV) the underlying exposures included in the securitisation; or – the Islamic banking institution serves as a sponsor of an ABCP conduit or similar programme that acquires exposures from third-party entities. In the context of such a program, an Islamic banking institution would generally be considered a sponsor and, in turn, an originator if it, in fact or in substance, manages or advises the programme, places sukuk into the market, or provides liquidity and/or credit enhancements. Residual interest Residual interest can take several forms such as credit-enhancing profit-only strips, spread accounts, cash collateral/reserve accounts, retained subordinated interests and other forms of over-collateralisation, accrued but uncollected returns on transferred assets (presumably in credit card securitisations) that when collected, will be available to serve in a credit- enhancing capacity. Residual interest generally does not include profit purchased from a third party other than the purchased credit-enhancing profit- only strips. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 487 / 517 Servicer A servicer is one (typically the originating Islamic banking institution) that manages the underlying credit exposures of a securitisation on a day-to-day basis in terms of collection of principal and profit, which is then forwarded to investors in the securitisation transaction. Special purpose vehicle (SPV) An SPV is an entity set up for a specific purpose, the activities of which are limited to those necessary to accomplish the purpose of the SPV, and the structure of which is intended to isolate the SPV from the credit risk of an originator or seller of the exposures. SPVs are commonly used as financing vehicles in which exposures are sold to a SPV or similar entity in exchange for cash or other assets funded by sukuk issued by the SPV. Traditional securitisation Sukūk structured under traditional securitisation involves the following: i) a transfer of an underlying pool of exposures to a SPV which issues asset-backed Sukūk to capital market investors; ii) the cash flow generated from the underlying pool of exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk. This would involve any structures with stratified risk position or tranches resulting in the junior positions absorbing losses for the more senior positions which can be achieved via credit rating tranches as well as credit enhancements (e.g. overcollateralisation, reserves account in the SPV); and iii) investors are exposed to the risk and performance of the specified underlying exposures rather than the performance of the originator of the underlying exposures. Where investors are exposed to the risk and performance of both the underlying exposure and the originator, investors shall apply the requirements in the Securitisation Framework. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 488 / 517 Appendix XXVIII Legal Requirements and Regulatory Process Sale/ Transfer of assets While Islamic banking institutions may adopt various methods of legal transfer (please refer to Appendix XXIX for examples of methods of legal transfer), the method employed should seek to minimise legal risks285 to the originating Islamic banking institution. Regardless of the method to be adopted for the transfer, all potential legal risks must be identified and adequately disclosed, when and where appropriate (for example, in the information memorandum for investors). Secrecy requirements – Section 34 of IBA Pursuant to subsection 34(3) of the IBA, an Islamic banking institution is not permitted to disclose to any person, information or documents relating to the accounts of its customers. Prior approval of the Bank must be obtained under subsection 34(3) of the IBA for the disclosure of customer-related information, to third parties to facilitate the necessary procedures to effect securitisation transactions such as due diligence and credit rating assessments. In cases where financing documentation already provides for customers’ permission for the disclosure of his information, the Bank’s consent pursuant to subsection 34(3) of the IBA is not required. The Bank gives its consent, on a case-by-case basis, pursuant to subsection 34(3) of the IBA, to legal counsel, reporting accountants, and any other parties as the case may require, specifically appointed to facilitate the conduct of due diligence processes or credit rating assessments. Applications for the Bank’s consent under subsection 34(3) of the IBA should include the following information: 285 Islamic banking institutions shall assess the relevance of legal requirements including Section 22(1)(a)(i) of IBA, where Islamic bank is required to obtain the prior approval of the Minister of Finance (MOF) for the sale or disposal of its shares or business which will result in a change in the control or management of the Islamic bank. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 489 / 517 – time period required by the legal counsel and accountants to conduct the due diligence (for revolving securitisation schemes, the Bank may grant such approval for the entire ‘revolving period’); – names of legal and accounting firms including names and identity card numbers of individual staff involved in the exercise; and – justification for the need to disclose customer information to the identified parties. In the case where the Bank’s consent is obtained under subsection 34(3) of the IBA, Islamic banking institutions must incorporate in the sale and purchase agreement, the requirement for the buyer/SPV to preserve the confidentiality of customers’ information. Should due diligence become necessary in the case of an asset replenishment, a separate application for the Bank’s consent under subsection 34(3) of the IBA should be sought unless the customers’ consent has already been obtained earlier. Disclosure requirements for financing disposed under the Debt Management Programme Islamic banking institutions that dispose financing which are under the Debt Management Programme (DMP) of the Credit Counselling and Debt Management Agency are required to take appropriate actions to secure the commitment of buyers of the financings to continue to abide by the terms and conditions of the DMP, as long as the borrower continues to comply with the DMP. Islamic banking institutions should also ensure that borrowers are informed of the disposal of their financing to third parties, irrespective of whether prior consent has been obtained from the borrower for the sale or transfer of their financing. Application for Capital Relief Originating Islamic banking institutions applying for capital relief for their securitisation transactions are required to submit the following to the Bank: – a confirmation of compliance by senior management against the operational requirements for traditional securitisation, as outlined in Part F.2. The statement should be supported by relevant information e.g. legal BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 490 / 517 opinion confirming the legality of the sale of assets or enforceability of the contracts. – a risk management self assessment, in line with the requirements of paragraph 20.2 of Part C of this framework, which details information regarding:  the role(s) of the Islamic banking institution in the securitisation transaction describing the purpose, nature, extent and risk implications arising from the role(s); and  risk management policies and procedures that will be implemented to address any potential risk issues. The above submission to the Bank should be validated and signed-off by an appropriate level of authority within senior management of the Islamic banking institution. Regulatory process and submission of applications to Bank Negara Malaysia Regardless of whether capital relief is being sought or not, the following transaction information should be maintained by originating Islamic banking institutions upon the completion of the transaction (issuance of notes), and made available to the Bank upon request: – Final rating report – Principle terms and conditions of transaction – Information memorandum – Legal opinion of true sale – Opinion of accounting treatment – The latest risk management self assessment in accordance with paragraph 7.2 of Prudential Standards on Securitisation Transaction for Islamic Banks, which details information regarding: o the role(s) of the Islamic banking institution in the securitisation transaction describing the purpose, nature, extent and risk implications arising from the role(s); and o risk management policies and procedures that will be implemented to address any potential risk issues BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 491 / 517 The above submission to the Bank should be validated and signed-off by an appropriate level of authority within senior management of the Islamic banking institution. Regulatory process and submission of applications to Bank Negara Malaysia Regardless of whether capital relief is being sought or not, the following transaction information should be maintained by originating Islamic banking institutions upon the completion of the transaction (issuance of notes), and made available to the Bank upon request: – Final rating report – Principle terms and conditions of transaction – Information memorandum – Legal opinion of true sale – Opinion of accounting treatment – The latest risk management self assessment in accordance with paragraph 7.2 of Prudential Standards on Securitisation Transaction for Islamic Banks. Where relevant, regulatory applications should be directed to: Pengarah Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Konglomerat Kewangan (as applicable) Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Where section 225 or 227 of IFSA applies to securitisation transactions, Islamic banking institutions shall ensure that the necessary approvals, if any, on such matters are sought from: Pengarah Jabatan Pentadbiran Pertukaran Asing Bank Negara Malaysia BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 492 / 517 Jalan Dato’ Onn 50480 Kuala Lumpur Note: The above list of legal and regulatory requirements is non-exhaustive. Hence, Islamic banking institutions are also required to ensure compliance with all other relevant requirements, if any. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 493 / 517 Appendix XXIX Methods of Legal Transfer Novation The transfer involves a tripartite arrangement whereby the two parties to the original contract, the originator and the borrower, agree with the SPV that the SPV shall become a substitute for the originator thus assuming the originator’s rights and obligations under the original contract. This method is considered the cleanest transfer. However, it may involve legal procedures and requirements such as obtaining the signature of borrowers as a party to the novation agreement effecting the transfer of assets and titles, legal fees, stamp duty, etc. Assignment An assignment may also achieve an effective transfer of the seller’s rights to the principal sum and profit, usually with the exclusion of certain obligations. However, there is potential risk that some rights may not be effectively assigned, thus resulting in the impairment of the buyer’s entitlements to certain rights accrued between the borrower and the seller, such as the late payment fee, prepayment charges, late payment charges, repossession of collateral, and set-off arrangements (for example, netting of obligations). Another constraint is the restriction on the assignability of financing that may be imposed in financing agreements prohibiting any assignment to third parties without the consent of the parties to the agreement. In the case of a legal assignment, the seller will notify the borrower that the rights to the assets are being assigned to the buyer. This notification will ensure that the buyer’s rights are not impaired by other intervening rights, or at the minimum, the seller should provide a warranty that all rights to the principal sum and profit are being assigned and no other right exists. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 494 / 517 In the case of an equitable assignment where notice of the transfer is not given to the borrowers (due to impracticality, etc), the SPV buyer and consequently the investors are exposed to potential legal risks (where the transfer is not perfected). For example, investors may lose priority to the holder of a legal assignment that may be created subsequently by the seller/originator. Another legal risk concerns the fact that the buyer or investor may not have direct rights against the obligor and needs to join the seller/originator in any legal action initiated against the obligor with respect to the receivables. Similarly, in cases where obligor’s obligation is offset with its deposit (that is, enforceable on-balance sheet netting), unless the SPV’s claim is perfected, there is a risk that the SPV may not be entitled to the full amount due from the obligor. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 495 / 517 Appendix XXX Comparison of Asset-based Sukūk and Asset-backed Sukūk Example of Asset-based Sukūk Ijarah (sale & lease-back) Example of Asset-backed Sukūk Ijarah Originator/ Lessee Sukūk holders 3 (b) Profit distributions 3 (a) SPV/Sukukholders leases property back to originator. SPV receives rental proceeds from originator (who is now also the lessee). 4. Upon maturity, originator is obligated to repurchase property for redemption of the principal amount 1. Originator sells property to SPV and receives proceeds from Sukūk issuance 2. Issues Sukūk SPV SPV Tenants/ Lessee Sukūk holders 3 (b) Profit distributions 4. Upon maturity, since there is no repurchase undertaking of underlying asset from originator, sukūk holders may obtain the principal amount via disposal of underlying asset to 3rd party 1. Originator sells property to SPV & receives proceeds from Sukūk issuance Originator 2. Issue Sukūk 3 (a) SPV leases the property to tenants and receives rental proceeds from tenants (i.e. lesses) BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 496 / 517 Appendix XXXI Eligibility Criteria for Off-Balance Sheet Securitisation Exposures Eligible liquidity facilities 1. An off-balance sheet securitisation exposure can be classified as an eligible liquidity facility, if the following conditions are met: a. The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any credit enhancements provided by parties other than the Islamic banking institutions providing the liquidity facility. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws); b. The facility must be subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are in default as defined in Appendix III of CAFIB. In addition, if the exposures that a liquidity facility is required to fund are externally rated sukuk, the facility can only be used to fund such sukuk that are rated at least investment grade at the time of funding; c. The facility cannot be drawn after all applicable (e.g. transaction- specific and programme-wide) credit enhancements from which the liquidity would benefit have been exhausted; and d. Repayment of draws on the facility (e.g. cash flow generated from underlying assets acquired by the SPV) must not be subordinated to any interests of any note holder in the programme (e.g. ABCP programme) or subject to any deferral or waiver. Eligible services cash advance facilities 2. Undrawn cash advances extended by an Islamic banking institutions acting as a servicer of a securitisation, to facilitate an uninterrupted flow BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 497 / 517 of payments to investors, can be classified as an eligible servicer cash advance facility, if the following conditions are met: a. the provision of such facilities must be contracted; b. the undrawn cash advances or facilities must be unconditionally cancellable at the discretion of the servicer without prior notice; c. the servicer is entitled to full reimbursement and this right is senior to other claims on cash flows from the underlying pool of exposures; and d. such cash advances should not act as a credit enhancement to the securitisation. Eligible underwriting facilities 3. An off-balance sheet securitisation exposure can be classified as an eligible underwriting facility, if the following conditions are met: a. the underwriting facility must be clearly documented with the specified amount and time period of the facility stipulated. The facility should be separated from any other facility provided by the Islamic banking institution; b. the facility is cancellable at the discretion of the Islamic banking institution within a reasonable period of notice; and c. a market exists for the type of underwritten sukuk. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 498 / 517 Appendix XXXII Securitisation with Early Amortisation Provisions 1. An originating Islamic banking institution is required to hold capital against all or a portion of the investors’ interest (i.e. against both the drawn and undrawn balances related to the securitised exposures) when it sells revolving exposures into a structure that contains an early amortisation feature in the following manner: Capital requirement for originating Islamic banking institutions = (Investors’ interest286) x CCF x (Risk weight of underlying exposures) 2. The total capital charge for all of its positions will be subject to a maximum capital requirement equal to the greater of: a. the capital required for retained securitisation exposures; or b. the capital requirement that would apply had the exposures not been securitised. 3. The specific credit conversion factors (CCFs) to be applied depend upon whether the early amortisation repays investors through a controlled or non-controlled mechanism. 4. For the purpose of the Securitisation Framework, a controlled early amortisation provision must meet all of the following conditions: a. an appropriate capital or liquidity plan is in place to ensure that sufficient capital and liquidity is available in the event of an early amortisation; b. returns, principal, expenses, losses and recoveries are shared on a pro-rata basis according to the Islamic banking institution’s and investors’ relative shares of the receivables outstanding at the beginning of each month. The same pro-rata share should be 286 Investor’s interest refers to the share of investors in the principal amount of drawn balances and the credit equivalent amount of the undrawn balances, relating to the securitised exposures. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 499 / 517 applied throughout the duration of the transaction, including the amortisation period; c. a period for amortisation has been set, which should be sufficient for at least 90% of the total debt outstanding at the beginning of the early amortisation period to have been repaid or recognised as in default; and d. the pace of repayment should not be any more rapid than would be allowed by straight-line amortisation over the period set out in criterion (c). 5. An early amortisation provision that does not satisfy the conditions above will be treated as a non-controlled early amortisation. 6. The CCFs to be applied depends on whether the securitised exposures are uncommitted retail credit lines (e.g. credit card receivables) or other credit lines (e.g. revolving corporate facilities). A credit line is considered uncommitted if it is unconditionally cancellable without prior notice. 7. The capital requirement outlined in this Appendix does not apply under the following circumstances: a. where the securitisation transaction includes a replenishment structure under which the replenished exposures are not revolving in nature and the early amortisation ends the ability of the originating Islamic banking institutions to add new exposures; b. where the transaction has features that mirror a term structure (i.e. where the risk on the underlying exposures does not return to the originating Islamic banking institution); c. a structure where investors remain fully exposed to future drawings by borrowers in respect of the revolving underlying exposures even after an early amortisation event has occurred; and d. the early amortisation clause is solely triggered by events not related to the performance of the securitised assets or the BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 500 / 517 originating Islamic banking institution, such as material changes in tax laws or regulations. Determination of CCFs for controlled early amortisation features Uncommitted retail exposures 8. For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing controlled early amortisation features, Islamic banking institutions must compare the three-month average excess spread to the point at which the originating Islamic banking institution is required to trap excess spread as stipulated under the terms of the securitisation structure (i.e. excess spread trapping point). 9. In cases where such a transaction does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points. 10. Islamic banking institutions must divide the excess spread level by the transaction’s excess spread trapping point, to determine the appropriate segments and apply the corresponding CCF, as outlined in the following table. Controlled early amortisation features Uncommitted Committed Retail credit lines 3-month average excess spread Credit Conversion Factor (CCF) 90% CCF 133.33% of trapping point or more 0% CCF less than 133.33% to 100% of trapping point 1% CCF less than 100% to 75% of trapping point 2% CCF less than 75% to 50% of trapping point 10% CCF less than 50% to 25% of trapping point 20% CCF BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 501 / 517 Uncommitted Committed Less than 25% of trapping point 40% CCF Non-retail credit lines 90% CCF 90% CCF Other exposures 11. All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with controlled early amortisation features will be subject to a CCF of 90% against the off-balance sheet exposures. Determination of CCF for non-controlled early amortisation features 12. Early amortisation features that do not satisfy the definition of a controlled early amortisation will be considered non-controlled and treated as follows: Uncommitted retail exposures 13. For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing non-controlled early amortisation features, Islamic banking institutions must compare the three-month average excess spread to the point at which the Islamic banking institution is required to trap excess spread under the terms of the securitisation structure (i.e. excess spread trapping point). In cases where such a transaction does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points. The excess spread level shall be divided by the transaction’s excess spread trapping point to determine the appropriate segments and apply the corresponding credit conversion factors, as outlined in the following table. BNM/RH/PD 029-3 Islamic Banking and Takaful Department Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) Page 502 / 517 Non-controlled early amortisation features Uncommitted Committed Retail credit lines 3-month average excess spread Credit Conversion Factor (CCF) 100% CCF 133.33% of trapping point or more 0% CCF less than 133.33% to 100% of trapping point 5% CCF Less than 100% to 75% of trapping point 15% CCF less than 75% to 50% of trapping point 50% CCF less than 50% of trapping point 100% CCF Non-retail credit lines 100% CCF 100% CCF Other exposures 14. All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with non-controlled early amortisation features will be subject to a CCF of 100% against the off-balance sheet exposures. Pools comprising both revolving and term exposures 15. For securitisation structures wherein the underlying pool comprises both revolving and term exposures, the originating Islamic banking institution must apply the relevant early amortisation treatment to that portion of the underlying pool containing revolving exposures. PART A OVERVIEW A.1 eXECUTIVE SUMMARY A.2 APPLICABILITY A.3 Legal provision A.4 Level of applicability PART B CREDIT RISK b.1 Introduction b.2 The Standardised Approach for Credit Risk B.2.1 EXTERNAL Credit Assessments b.2.2 Definition of Exposures Exposures to Sovereigns and Central Banking institutions Exposures to Non-Federal Government Public Sector Entities (PSEs) Exposures to Multilateral Development Banking institutions (MDBs) Exposures to Banking Institutions and Corporates Exposures to Takaful Companies, Securities Firms and Fund Managers Exposures Included in the Regulatory Retail Portfolio Financing Secured by Residential Real Estate (RRE) Properties Exposures Secured by Commercial Real Estate (CRE) Defaulted Exposures Higher Risk Assets Other Assets b.2.3 Treatment For The Computation of Credit Risk-weighted Assets for Islamic Contracts MURĀBAHAH BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH IJĀRAH SALAM Istisnā` Mushārakah Mudārabah QARDH Sukūk b.2.4 Off-balance Sheet Items B.2.5 Credit Risk Mitigation Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques Credit Risk Mitigation Techniques Collateralised Transactions Minimum Requirements for Collateralised Transactions Eligible Collateral Simple Approach Exceptions to the 20% Risk Weight Floor Collateralised OTC Derivatives Transactions57F Comprehensive Approach Calculation of Capital Requirement Standard Supervisory Haircuts Adjustment to standard supervisory haircuts for different holding periods and non-daily mark-to-market or re-margining Floor for Exposures Collateralised by Physical Assets On-Balance Sheet Netting Guarantees Range of Eligible Guarantors Risk Weights Proportional and Tranched Cover Currency Mismatches Sovereign Guarantees and Counter-Guarantees Maturity Mismatches Other Aspects of Credit Risk Mitigation Treatment of Pools of Credit Risk Mitigation Techniques b.3 The INTERNAL RATINGS BASED APPROACH B.3.1 ADOPTION OF THE IRB APPROACH Adoption of IRB Across Asset Classes Implementation Timelines and Transition Period (a) PD estimation under foundation IRB for corporate, sovereign, and bank exposures; (b) estimating loss characteristics (EAD, and either EL or PD and LGD) for retail exposures; and (c) PD/LGD approach for equity. This requirement will increase by one year for each of the three years of transition in a manner that the required minimum historical data of five years is achieved by the end of the transition period. (a) PD estimates must be representative of long-term average; (b) LGD estimates for retail exposures must reflect downturn conditions; and (c) EAD estimates for volatile retail exposures must also reflect downturn conditions Determination of Capital Requirements under the IRB approach B.3.2 CATEGORIES OF EXPOSURES Definition of Corporate Exposures, including Specialised Financing Project Finance Object Finance Commodities Finance Income-Producing Real Estate High-Volatility Commercial Real Estate i. the future uncertain sale of the property; or ii. cash flows whose source of repayment is substantially uncertain (e.g. the property has not yet been leased up to the occupancy rate normally prevailing in that geographic market for that type of commercial real estate82F ). Commercial ADC financing exempted from treatment as HVCRE financing on the basis of certainty of repayment of obligor equity are, however, ineligible for the preferential risk weights for SF exposures described in paragraph 3.152. Definition of Bank Exposures Definition of Retail Exposures Definition of Equity Exposures (a) the issuer may defer the settlement of the obligation indefinitely; (b) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a fixed number of the issuer’s equity shares; (c) the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a variable number of the issuer’s equity shares and where changes in the value of the obligation is attributable and comparable to the change in the value of... (d) the holder has the option to require settlement in equity shares, unless the Islamic banking institution is able to demonstrate to the Bank that the instrument merits to be treated as a debt94F . In such cases, the Islamic banking institution may ... Definition of Purchased Receivables Exposures B.3.3 RISK COMPONENTS Risk Components for Corporate, Sovereign and Bank Exposures Risk Components for Retail Exposures Risk Components for Equity Exposures B.3.4 CREDIT RISK MITIGATION (CRM) Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques Collateralised Transactions Guarantees On-Balance Sheet Netting121F Other Aspects of Credit Risk Mitigation B.3.5 RISK-WEIGHTED ASSETS Risk-Weighted Assets for Corporate, Sovereign and Bank Exposures Risk-Weighted Assets for Retail Exposures Risk-Weighted Assets for Equity Exposures Risk-Weighted Assets for Purchased Receivables Dilution Risk Recognition of credit risk mitigants Risk-Weighted Assets for Leasing B.3.6 CALCULATION OF MINIMUM CAPITAL REQUIREMENT Regulatory Capital Calculation of Expected Losses Calculation of Provisions Risk-Weighted Assets Parallel Calculation Prudential Capital Floor B.3.7 MINIMUM REQUIREMENTS FOR THE IRB APPROACH Rating System Design Additional Standards for Internal Models Approach for Equity Rating System Operation Risk Estimation Capital Charge and Risk Quantification Risk Management Process and Controls Governance, Oversight and Use of Internal Ratings Heads/Officers of Risk Management in-charge of Active Oversight of Rating Systems: Key Business Heads (the Primary Operator and User of Ratings): Internal Audit: Validation of Rating Systems and Internal Estimates B.3.8 QUALIFICATION Overview of Approval and Review Process General Qualification Process Home-Host Supervisory Issues Changes to IRB Implementation and Adoption PART C OPERATIONAL RISK C.1 Introduction c.1.1 Sound Practices For Operational Risk Management c.2 The Basic Indicator Approach (BIA) c.3 The Standardised Approach and alternative standardised approach c.3.1 The Standardised Approach (TSA) c.3.2 The Alternative Standardised Approach (ASA) PART D MARKET RISK D.1 INTRODUCTION Scope of the Capital Charges Approaches of Measuring Market Risks Standardised Approach Internal Models Approach D.1.1 Prudent Valuation Guidance Systems and Controls Valuation Methodologies Independent Price Verification Valuation Adjustments D.1.2 CLASSIFICATION of Financial Instruments Trading Book Policy Statement Definition of Trading Book Classification of Specific Financial Instruments D.1.3 Treatment of Money Market Instruments in Trading Book Controls to Prevent Regulatory Capital Arbitrage Treatment of Hedging Positions D.1.4 TREATMENT of counterparty credit risk in the trading book D.2 The StandardISED MARKET RISK Approach D.2.1 benchmark Rate Risks Specific Risk Specific Risk Capital Charges for Issuer Risk General Benchmark Rate Risk Offsetting of Matched Positions Maturity Method Vertical Disallowance Horizontal Disallowance Duration Method Treatment of Profit Rate Derivatives, Sell and Buy Back Agreement (SBBA) and Reverse SBBA Transactions Example 1: Calculation of General Risk (Maturity Method) for Benchmark Rate Related Financial Instruments D.2.2 Equity Position Risk Specific and General Risk Specific Risk General Risk D.2.3 Foreign Exchange Risk (Including Gold and Silver Positions) The Treatment of Structural Positions Measuring the Exposure in a Single Currency The Treatment of Profit, Other Income and Expenses in Foreign Currency Measuring the Foreign Exchange Risk in a Portfolio of Foreign Currency Positions D.2.4 Commodities Risk Simplified Approach Maturity Ladder Approach Models for Measuring Commodities Risk D.2.5 INVENTORY RISK Murabahah and Murabahah for Purchase Order (MPO) Istisna’ Ijarah and Ijarah Muntahia Bittamleek (IMB) Operating Ijarah Ijarah Muntahia Bittamleek (IMB) D.2.6 Treatment of Options Underlying Position Approach Simplified Approach Delta-Plus Method Scenario Approach Example 4: Delta-Plus Methods for Options A. A Single Stock Option Specific Risk and General Risk on delta-weighted position of equity options which will be incorporated in Part D.2.2 Equity Position Risk Gamma and Vega Risks carved out to be provided under Part D.2.5 Treatment of Options B. A portfolio of Foreign Exchange Options General Risk on delta-weighted position of currency options which will be incorporated in Part D.2.3 Foreign Exchange Risk Gamma and Vega Risks carved out to be provided under Part D.2.6 Treatment of Options Example 5: The Scenario Approach for Options Specific Risk of the equities and delta-weighted positions of the underlying equities to be incorporated in Part D.2.2 Equity Position Risk D.3 INTERNAL MODELS Approach D.3.1 Combination of Internal Models and the Standardised Market Risk Measurement Approach D.3.2 Qualitative Standards D.3.3 Quantitative Standards D.3.4 Specification of Market Risk Factors D.3.5 Modelling of Specific Risk D.3.6 Stress Testing D.3.7 Model Validation Standards D.3.8 Model Review D.3.9 Framework for the Use of Back Testing Broad Risk Categories Combinations of Approaches Across Risk Categories Within a Risk Category Combination of different internal models Permitted Permitted Permitted Not Permitted Combination of SMRA and IMA Broad Risk Categories Are the combinations of approaches permitted? Combinations of Approaches Foreign Exchange Benchmark Rate Equity Commodity SMRA and IMA across broad risk categories Yes SMRA IMA IMA SMRA The use of a combination of IMA and SMRA approaches is not permitted within foreign exchange risk category. Spot, forwards and swaps: IMA SMRA and IMA within a broad risk category IMA IMA SMRA FX risk should be measured in its entirety using IMA or SMRA Spot, forwards and swap: IMA (Variance-covariance) Different IMA approaches within and across broad risk categories IMA (Historical simulation) IMA (Historical simulation) IMA (Monte Carlo) Yes IMA – Internal Models Approach PART E LARGE EXPOSURE RISK REQUIREMENTS E.1 LERR FOR ISLAMIC BANKING INSTITUTIONS PART F SECURITISATION FRAMEWORK F.1 INTRODUCTION f.2 Operational rEQUIREMENTS FOR CAPITAL RELIEF F.3 Standardised Approach for Securitisation Exposures f.3.1 REQUIREMENTS OF USE OF EXTERNAL RATINGS f.3.2 TREATMENT OF ON-BALANCE SHEET SECURITISATION EXPOSURES f.3.3 TREATMENT OF OFF-BALANCE SHEET SECURITISATION EXPOSURES F.3.4 TREATMENT OF OVERLAPPING EXPOSURES F.3.5 TREATMENT OF counterparty credit risk for securitisation exposures F.3.6 TREATMENT OF securitisation of revolving underlying EXPOSURES234F with early amortisation provisions F.3.7 TREATMENT OF CREDIT RISK MITIGATION FOR SECURITISATION EXPOSURES F.3.8 OPERATIONAL REQUIREMENTS AND TREATMENT OF CLEAN-UP CALLS F.3.9 TREATMENT FOR IMPLICIT SUPPORT PART G REQUIREMENTS FOR APPROVED FINANCIAL HOLDING COMPANIES G.1 GENERAL REQUIREMENTS G.2 Regulatory approval process for the adoption of an advanced approach Appendix I Eligibility Criteria for External Credit Assessment Institution (ECAI) Recognition Appendix II Summary of Risk Weights for Financing Secured by Residential Real Estate (RRE) Properties Appendix III Definition of Default Appendix IIIa Diagrammatic Illustration of Re-ageing via Restructuring Appendix IV Illustration on Risk-Weighted asset (RWA) Calculation for Defaulted Exposures and Exposures Risk-Weighted at 150% Appendix V Minimum Requirements on Supervisory Slotting Criteria Method Appendix Va Supervisory Slotting Criteria for Specialised Financing Exposures Appendix VI Counterparty Credit Risk and Current Exposure Method Appendix VIa Sample Computation of Risk-Weighted Capital Requirement and Exposure at Default (EAD) for a Portfolio of Derivative Contracts Appendix VIb “Add-on” Factors for Derivatives Contracts Appendix VIc Example for Calculation of Residual Maturity Appendix VId Discount Factor and Range of Residual Maturity Appendix VII Capital Treatment for Failed Trades and Non-DvP Transactions Appendix VIII List of Recognised Exchanges* Appendix IX Recognition Criteria for Physical Collateral Used For Credit Risk Mitigation Purposes of Islamic Banking Exposures Appendix X Summary Table of Gross Income Computation Appendix XI Mapping of Business Lines Appendix XII Illustration of the Offsetting Rules Between Negative and Positive OR Capital Charge in Any Business Lines Appendix XIII Detailed Loss Event Type Classification Appendix XIV Illustration of Computation of Exposures with Credit Risk Mitigation Effects Appendix XV Information Requirements for Application to Adopt the Internal Ratings Based Approach for Credit Risk Appendix XVI Information Requirements for Application to Adopt the Internal Models Approach for Market Risk Appendix XVII Illustration of Computation of Large Exposure Risk Requirement Scenario A Scenario 2 Appendix XVIII Capital Treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA Transactions Appendix XIX IRB Coverage Appendix XX Assessment of Credit Risk based on Shariah Contracts Appendix XXI Capital treatment for Investment Accounts Appendix XXII Transitional Arrangements and Approval Process Appendix XXIII Credit Conversion Factors for Off-Balance Sheet Items under the IRB Approach Appendix XXIV Illustrative IRB Risk Weights Appendix XXV Potential Evidence of Likely Compliance with the Use Test Appendix XXVI Data-Enhancing and Benchmarking Tools Appendix XXVI Illustration on the treatment of underwriting exposures Appendix XXVII Definitions and General Terminologies Appendix XXVIII Legal Requirements and Regulatory Process Appendix XXIX Methods of Legal Transfer Appendix XXX Comparison of Asset-based Sukūk and Asset-backed Sukūk Appendix XXXI Eligibility Criteria for Off-Balance Sheet Securitisation Exposures Appendix XXXII Securitisation with Early Amortisation Provisions Issued on: 3 May 2019 Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Issued on: 3 May 2019 PART A OVERVIEW ........................................................................ 1 A.1 EXECUTIVE SUMMARY.................................................... 1 A.2 APPLICABILITY ................................................................ 3 A.3 LEGAL PROVISION .......................................................... 3 A.4 LEVEL OF APPLICABILITY .............................................. 3 PART B CREDIT RISK .................................................................... 5 B.1 INTRODUCTION ................................................................ 5 B.2 THE STANDARDISED APPROACH FOR CREDIT RISK . 8 B.2.1 EXTERNAL CREDIT ASSESSMENTS .............................. 8 B.2.2 DEFINITION OF EXPOSURES ........................................ 11 Exposures to Sovereigns and Central Banks ................... 12 Exposures to Non-Federal Government Public Sector Entities (PSEs) ................................................................. 13 Exposures to Multilateral Development Banks (MDBs) .... 14 Exposures to Banking Institutions and Corporates ........... 14 Exposures to Insurance Companies, Securities Firms and Fund Managers ................................................................ 16 Exposures Included in the Regulatory Retail Portfolio ...... 16 Loans Secured by Residential Properties......................... 17 Defaulted Exposures ........................................................ 20 Higher Risk Assets ........................................................... 21 Other Assets ..................................................................... 21 B.2.3 TREATMENT FOR THE COMPUTATION OF CREDIT RISK-WEIGHTED ASSETS FOR ISLAMIC CONTRACTS . ......................................................................................... 22 MURĀBAHAH .................................................................. 23 BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH ................... 25 SALAM ............................................................................. 25 ISTISNĀ` .......................................................................... 27 IJĀRAH ............................................................................. 28 MUSHĀRAKAH ................................................................ 30 MUDĀRABAH .................................................................. 34 SUKŪK ............................................................................. 36 Issued on: 3 May 2019 QARDH ............................................................................ 37 B.2.4 OFF-BALANCE SHEET ITEMS ....................................... 38 B.2.5 CREDIT RISK MITIGATION ............................................ 40 Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques....................................................... 41 Credit Risk Mitigation Techniques .................................... 42 Other Aspects of Credit Risk Mitigation ............................ 66 B.3 THE INTERNAL RATINGS BASED APPROACH ........... 69 B.3.1 ADOPTION OF THE IRB APPROACH ............................ 69 Adoption of IRB Across Asset Classes ............................. 69 Adoption of IRB for Islamic Banking Assets ..................... 72 Implementation Timelines and Transition Period .............. 73 Determination of Capital Requirements under the IRB approach .......................................................................... 75 B.3.2 CATEGORIES OF EXPOSURES .................................... 77 Definition of Corporate Exposures, including Specialised Lending ............................................................................. 77 Definition of Bank Exposures ........................................... 81 Definition of Retail Exposures .......................................... 81 Definition of Equity Exposures .......................................... 84 Definition of Purchased Receivables Exposures .............. 85 B.3.3 RISK COMPONENTS ...................................................... 88 Risk Components for Corporate, Sovereign and Bank Exposures ........................................................................ 88 Risk Components for Retail Exposures ............................ 97 Risk Components for Equity Exposures ........................... 99 B.3.4 CREDIT RISK MITIGATION (CRM) ............................... 100 Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques..................................................... 101 Collateralised Transactions ............................................ 102 Guarantees and Credit Derivatives ................................ 115 On-Balance Sheet Netting .............................................. 124 Other Aspects of Credit Risk Mitigation .......................... 125 B.3.5 RISK-WEIGHTED ASSETS ........................................... 128 Issued on: 3 May 2019 Risk-Weighted Assets for Corporate, Sovereign and Bank Exposures ...................................................................... 128 Risk-Weighted Assets for Retail Exposures ................... 132 Risk-Weighted Assets for Equity Exposures .................. 134 Risk-Weighted Assets for Purchased Receivables ......... 139 Risk-Weighted Assets for Leasing .................................. 143 B.3.6 CALCULATION OF MINIMUM CAPITAL REQUIREMENT . ....................................................................................... 144 Regulatory Capital .......................................................... 144 Calculation of Expected Losses ..................................... 145 Calculation of Provisions ................................................ 147 Risk-Weighted Assets .................................................... 147 Parallel Calculation ......................................................... 148 Prudential Capital Floor .................................................. 148 B.3.7 MINIMUM REQUIREMENTS FOR THE IRB APPROACH .. ....................................................................................... 149 Rating System Design .................................................... 151 Rating System Operation ............................................... 163 Risk Estimation ............................................................... 168 Governance, Oversight and Use of Internal Ratings ...... 197 Validation of Rating Systems and Internal Estimates ..... 203 B.3.8 QUALIFICATION ........................................................... 211 Overview of Approval and Review Process .................... 211 General Qualification Process ........................................ 211 Home-Host Supervisory Issues ...................................... 212 Changes to IRB Implementation and Adoption ............... 213 PART C OPERATIONAL RISK .................................................... 215 C.1 INTRODUCTION ............................................................ 215 C.1.1 SOUND PRACTICES FOR OPERATIONAL RISK MANAGEMENT ............................................................. 215 C.1.2 TOTAL OPERATIONAL RISK CAPITAL CHARGE ...... 216 C.2 THE BASIC INDICATOR APPROACH (BIA) ................ 217 C.3 THE STANDARDISED APPROACH AND ALTERNATIVE STANDARDISED APPROACH ..................................... 220 Issued on: 3 May 2019 C.3.1 THE STANDARDISED APPROACH (TSA) ................... 220 C.3.2 THE ALTERNATIVE STANDARDISED APPROACH (ASA) ............................................................................. 224 PART D MARKET RISK .............................................................. 227 D.1 INTRODUCTION ............................................................ 227 Scope of the Capital Charges ......................................... 227 Approaches of Measuring Market Risks ......................... 228 Standardised Approach .................................................. 228 Internal Models Approach ............................................... 228 D.1.1 PRUDENT VALUATION GUIDANCE ............................ 229 Systems and Controls .................................................... 229 Valuation Methodologies ................................................ 230 Independent Price Verification ........................................ 231 Valuation Adjustments .................................................... 232 D.1.2 CLASSIFICATION OF FINANCIAL INSTRUMENTS .... 232 Trading Book Policy Statement ...................................... 232 Definition of Trading Book .............................................. 234 Classification of Specific Financial Instruments .............. 236 D.1.3 TREATMENT OF MONEY MARKET INSTRUMENTS IN TRADING BOOK ........................................................... 236 Controls to Prevent Regulatory Capital Arbitrage ........... 237 Treatment of Hedging Positions ..................................... 238 D.1.4 TREATMENT OF COUNTERPARTY CREDIT RISK IN THE TRADING BOOK ................................................... 240 Credit Derivatives ........................................................... 240 D.2 THE STANDARDISED MARKET RISK APPROACH ... 242 D.2.1 INTEREST/PROFIT RATE RISKS ................................. 242 Specific Risk ................................................................... 243 Specific Risk Capital Charges for Issuer Risk ................ 243 Specific Risk Capital Charges for Positions Hedged by Credit Derivatives ........................................................... 245 General Interest/Profit Rate Risk .................................... 247 Offsetting of Matched Positions ...................................... 248 Issued on: 3 May 2019 Maturity Method .............................................................. 248 Vertical Disallowance ..................................................... 249 Horizontal Disallowance ................................................. 250 Duration Method ............................................................. 251 Treatment of Interest/Profit Rate Derivatives, Repo and Reverse Repo Transactions ........................................... 252 Example 1: Calculation of General Risk (Maturity Method) for Interest/Profit Rate Related Financial Instruments .... 259 D.2.2 EQUITY POSITION RISK .............................................. 262 Specific and General Risk .............................................. 262 Specific Risk ................................................................... 262 General Risk ................................................................... 263 Treatment of Equity Derivatives ..................................... 265 Offsetting of Matched Equity Derivative Positions .......... 265 Arbitrage ......................................................................... 266 Example 2: Calculation of Equity Risk for Equity Arbitrage Strategies ....................................................................... 267 D.2.3 FOREIGN EXCHANGE RISK (INCLUDING GOLD AND SILVER POSITIONS) ..................................................... 269 The Treatment of Structural Positions ............................ 269 Measuring the Exposure in a Single Currency ............... 270 The Treatment of Interest/Profit, Other Income and Expenses in Foreign Currency ....................................... 271 Measuring the Foreign Exchange Risk in a Portfolio of Foreign Currency Positions ............................................ 272 D.2.4 COMMODITIES RISK .................................................... 273 Simplified Approach........................................................ 275 Maturity Ladder Approach .............................................. 275 Models for Measuring Commodities Risk ....................... 277 Example 3: Maturity Ladder Approach for Commodities Risk ................................................................................ 278 D.2.5 TREATMENT OF OPTIONS .......................................... 281 Underlying Position Approach ........................................ 281 Simplified Approach........................................................ 283 Delta-Plus Method .......................................................... 284 Scenario Approach ......................................................... 287 Issued on: 3 May 2019 Example 4: Delta-Plus Methods for Options ................... 289 Example 5: The Scenario Approach for Options ............ 296 D.3 INTERNAL MODELS APPROACH ............................... 300 D.3.1 COMBINATION OF INTERNAL MODELS AND THE STANDARDISED MARKET RISK MEASUREMENT APPROACH ................................................................... 301 D.3.2 QUALITATIVE STANDARDS ........................................ 303 D.3.3 QUANTITATIVE STANDARDS ..................................... 306 D.3.4 SPECIFICATION OF MARKET RISK FACTORS .......... 308 D.3.5 MODELLING OF SPECIFIC RISK ................................. 311 D.3.6 STRESS TESTING ........................................................ 316 D.3.7 MODEL VALIDATION STANDARDS ............................ 318 D.3.8 MODEL REVIEW ........................................................... 320 D.3.9 FRAMEWORK FOR THE USE OF BACK TESTING .... 321 PART E LARGE EXPOSURE RISK REQUIREMENTS ............... 330 E.1 LERR FOR BANKING INSTITUTIONS ......................... 330 E.2 LERR FOR INVESTMENT BANKS ............................... 331 PART F SECURITISATION FRAMEWORK ................................ 332 F.1 INTRODUCTION ............................................................ 332 F.2 OPERATIONAL REQUIREMENTS FOR CAPITAL RELIEF .......................................................................... 334 F.2.1 Operational Requirements for Traditional Securitisations .............................................................. 335 F.2.2 Operational Requirements for Synthetic Securitisations ....................................................................................... 336 F.3 STANDARDISED APPROACH FOR SECURITISATION EXPOSURES ................................................................. 338 F.3.1 TREATMENT OF ON-BALANCE SHEET SECURITISATION EXPOSURES .................................. 338 F.3.2 TREATMENT OF OFF-BALANCE SHEET SECURITISATION EXPOSURES .................................. 340 Issued on: 3 May 2019 F.3.3 TREATMENT OF OVERLAPPING EXPOSURES ......... 341 F.3.4 TREATMENT OF COUNTERPARTY CREDIT RISK FOR SECURITISATION EXPOSURES .................................. 341 F.3.5 TREATMENT OF SECURITISATION OF REVOLVING UNDERLYING EXPOSURES WITH EARLY AMORTISATION PROVISIONS .................................... 342 F.3.6 TREATMENT OF CREDIT RISK MITIGATION FOR SECURITISATION EXPOSURES .................................. 347 F.4 INTERNAL RATINGS-BASED APPROACH FOR SECURITISATION EXPOSURES .................................. 348 F.5 OTHER OPERATIONAL REQUIREMENTS .................. 349 F.5.1 OPERATIONAL REQUIREMENTS AND TREATMENT OF CLEAN-UP CALLS ........................................................ 349 F.5.2 TREATMENT FOR IMPLICIT SUPPORT ...................... 350 F.5.3 ELIGIBLE OFF-BALANCE SHEET SECURITISATION EXPOSURES ................................................................. 352 F.5.4 REQUIREMENTS FOR USE OF EXTERNAL RATINGS .... ....................................................................................... 354 PART G REQUIREMENTS FOR APPROVED FINANCIAL HOLDING COMPANIES ................................................ 357 G.1 GENERAL REQUIREMENTS ........................................ 357 G.2 Regulatory approval process for the adoption of an advanced approach ...................................................... 357 Appendix I Areas of National Discretion ....................................... 360 Appendix II Eligibility Criteria for External Credit Assessment Institution (ECAI) Recognition .................................... 367 Appendix III Risk Weights and Rating Categories .......................... 373 Appendix IV Summary of Risk Weights for Loans Secured by Residential Mortgages ................................................. 377 Appendix V Definition of Default ..................................................... 378 Appendix Va Diagrammatic Illustration of Re-ageing via Restructuring ................................................................ 381 Issued on: 3 May 2019 Appendix VI Illustration on Risk-Weighted Asset (RWA) Calculation for Defaulted Exposures and Exposures Risk-Weighted at 150% .......................................................................... 382 Appendix VII Minimum Requirements on Supervisory Slotting Criteria Method ............................................................. 384 Appendix VIIa Supervisory Slotting Criteria for Specialised Lending/Financing Exposures .................................... 389 Appendix VIII Counterparty Credit Risk and Current Exposure Method........................................................................... 411 Appendix VIIIa Sample Computation of the Capital Requirement and Exposure at Default (EAD) for a Portfolio of Derivative Contracts....................................................................... 419 Appendix VIIIb “Add-on” Factors for Derivatives Contracts ............. 420 Appendix VIIIc Example for Calculation of Residual Maturity (for Forward Rate Agreements and Over-The-Counter Interest Rate Contracts of Similar Nature which are Settled in Cash on Start Date) ..................................... 423 Appendix VIIId Discount Factor and Range of Residual Maturity ...... 424 Appendix IX Capital Treatment for Failed Trades and Non-DvP Transactions ................................................................. 425 Appendix X List of Recognised Exchanges* .................................. 430 Appendix XI Recognition Criteria for Physical Collateral Used For Credit Risk Mitigation Purposes of Islamic Banking Exposures ..................................................................... 432 Appendix XII Summary Table of Gross Income Computation ........ 438 Appendix XIII Mapping of Business Lines ......................................... 440 Appendix XIV Illustration of the Offsetting Rules Between Negative and Positive OR Capital Charge in Any Business Lines. ....................................................................................... 441 Appendix XV Illustration of Computation of Exposures with Credit Risk Mitigation Effects ................................................. 442 Appendix XVI Information Requirements for Application to Adopt the Internal Ratings Based Approach for Credit Risk ..... 447 Appendix XVII Information Requirements for Application to Adopt the Internal Models Approach for Market Risk................. 450 Issued on: 3 May 2019 Appendix XVIII Illustration of Computation of Large Exposure Risk Requirement ................................................................. 456 Appendix XIX Capital Treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA Transactions ........................ 458 Appendix XX Securitisation Framework – Definitions and General Terminology .................................................................. 461 Appendix XXI Legal and Regulatory Requirements .......................... 466 Appendix XXII IRB Coverage ................................................................ 470 Appendix XXIII Assessment of Credit Risk based on Shariah Contracts ....................................................................................... 472 Appendix XXIV Capital Treatment for Investment Accounts .............. 484 Appendix XXV Transitional Arrangements and Approval Process ... 487 Appendix XXVI Credit Conversion Factors for Off-Balance Sheet Items under the IRB Approach .............................................. 492 Appendix XXVII Illustrative IRB Risk Weights ....................................... 494 Appendix XXVIII Potential Evidence of Likely Compliance with the Use Test ................................................................................ 497 Appendix XXIX Data-Enhancing and Benchmarking Tools ................ 498 Appendix XXX Illustration on the Treatment of Underwriting Exposures ..................................................................... 502 Appendix XXXI Treatment of Credit Derivatives in the Trading Book 504 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 1 / 506 Issued on: 3 May 2019 PART A OVERVIEW A.1 EXECUTIVE SUMMARY 1.1 This document is part of the Capital Adequacy Framework that specify the approaches for quantifying the Risk-Weighted Assets (RWA) for credit risk, market risk and operational risk, as follows: Risk Type Available Approaches 1. Credit  Standardised Approach  Internal Ratings Based Approach*(IRB) 2. Market  Standardised Approach  Internal Models Approach* (IMA) 3. Operational  Basic Indicator Approach (BIA)  Standardised Approach* (TSA)  Alternative Standardised Approach* (ASA) * Subject to explicit approval by Bank Negara Malaysia (the Bank). For IRB Approach, only applicable for adoption from 1 January 2010. It should be read together with Capital Adequacy Framework (Capital Components). 1.2 The computation of the risk-weighted assets is consistent with Pillar 1 requirements set out by the Basel Committee on Banking Supervision (BCBS) and the Islamic Financial Services Board (IFSB) in their respective documents - “International Convergence of Capital Measurement and Capital Standards: A Revised Framework” issued in June 2006 and the “Capital Adequacy Standard (CAS)” issued in December 2005. Appendix I summarises the options exercised by the Bank in areas where national discretion is provided by the BCBS to the national supervisory authority. 1.3 The requirements set out by the BCBS are intended to improve the overall risk sensitivity of the capital adequacy framework. However, they may not be sufficient to reflect the actual risk profile of banking institutions operating in emerging markets. As such, the Bank had proposed some customisations to the BCBS specification in an effort to avoid under estimation of risk within the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 2 / 506 Issued on: 3 May 2019 industry as well as to ensure suitability of the framework in the local environment. 1.4 While the Bank believes that such customisation could be justified, a pragmatic approach is adopted for implementation. Higher prudential requirements and risk management standards would be introduced gradually taking into consideration industry feedback during the consultation process. Similarly, prioritisation and timing for the introduction of additional adjustments or customisation would be determined based on the long-term benefits of promoting prudent practices within the industry. 1.5 As we gain more reliable data and experience over time, a more thorough assessment would also be undertaken to consider the introduction of other adjustments as deemed necessary by the Bank. In view of these potential future developments, it is important that banking institutions make well- informed decisions with respect to the adoption of the approaches specified under this framework having considered the appropriateness to cater for the complexity of their current business models, as well as future business and risk management strategies. It is also important to emphasise that the Bank may also exercise its discretion under the Supervisory Review Process, or Pillar 2 to impose higher capital requirements or prudential standards on individual institutions if the Bank is of the view that the actual risk profiles of these institutions are significantly underestimated by the framework or the internal capital allocation processes are not satisfactory. 1.6 Notwithstanding the requirements under the capital adequacy framework, a fundamental supervisory expectation is for all banking institutions to have in place comprehensive risk management policies and processes that effectively identify, measure, monitor and control risks exposures of the institution and is subjected to appropriate board and senior management oversight. This supervisory expectation is further detailed in the ‘Risk Management Guidelines’ and other relevant risk management standards and requirements set by the Bank. The assessment on the adherence to the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 3 / 506 Issued on: 3 May 2019 standards and requirements set by the Bank would be a key component of the overall supervisory review process in determining appropriate supervisory actions against banking institutions. A.2 APPLICABILITY 1.7 The framework is applicable to i) all banking institutions licensed under the Financial Services Act 2013 (FSA). These institutions will hereafter be referred to as “banking institutions”; and ii) all financial holding companies (FHCs) approved under the FSA which are engaged predominantly in banking activities. The requirements for FHCs are set out in part G. A.3 LEGAL PROVISION 1.8 The framework is issued pursuant to section 47(2), section 115 and section 143(2) of the FSA. A.4 LEVEL OF APPLICABILITY 1.9 A banking institution is required to comply with the Capital Adequacy Framework at the following levels: i) Entity level1, referring to the global operations of the banking institution (i.e. including its overseas branch operations) on a standalone basis, and including its Labuan banking subsidiary; and ii) Consolidated level, which includes entities covered under the entity level requirement, and the consolidation2 of all subsidiaries3, except 1 Also referred to as the “solo” or “stand-alone” level. 2 In accordance with Malaysian Financial Reporting Standards (MFRS). 3 Financial and non-financial subsidiaries. A financial entity refers to any entity, whether incorporated in Malaysia or otherwise, engaged substantively in, or acquiring holdings in other entities engaged substantively in, any of the following activities: banking, provision of credit, securities broking, fund management, asset management, leasing and factoring and similar activities that are ancillary to the conduct of these activities. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 4 / 506 Issued on: 3 May 2019 insurance and takaful subsidiaries which shall be deducted in the calculation of Common Equity Tier 1 Capital4. 1.10 In addition, a banking institution carrying on Skim Perbankan Islam5 (hereafter referred to as an SPI), shall comply with the requirements under the Capital Adequacy Framework for Islamic Banks (Risk-Weighted Assets) at the level of an SPI, as if the SPI is a stand-alone Islamic banking institution. 4 In accordance with paragraph 30 of Capital Adequacy Framework (Capital Components). 5 In accordance with section 15 of the FSA and the Guidelines on Skim Perbankan Islam. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 5 / 506 Issued on: 3 May 2019 PART B CREDIT RISK B.1 INTRODUCTION 2.1 This part outlines the two approaches available for the computation of the capital requirements for credit risk, namely the standardised approach and the IRB approach. 2.2 Under the standardised approach for credit risk, the determination of the capital requirements is based on an approach that links predefined risk weights to predefined sets or classes of assets as defined from paragraph 2.13 to 2.45 of this framework. Significant differences to the current framework are in the following areas:  The use of external ratings issued by recognised external credit assessment institutions (ECAIs) in determining the risk weights of the banking institutions’ exposures to certain types of borrowers/ counterparties, such as corporates and banking institutions. The use of such ratings are subject to specific rules set out from paragraphs 2.3 to 2.12;  Greater recognition of credit risk mitigation in the form of on-balance sheet netting arrangements, credit protection through financial collateral as well as guarantees and credit derivatives; and  The introduction of new portfolio segments and risk weights. A retail portfolio segment with a risk weight of 75% has been introduced under the standardised approach. In addition, the residential mortgage portfolio has also been divided into three as compared to only one risk weight available under the current framework. Nevertheless, the application of these risk weights will be subject to the banking institutions fulfilling all the specified operational requirements. Whilst the standardised approach specifies the applicable risk weight for a particular exposure, as a general rule under Pillar 2, the Bank reserves the right to exercise its discretion to apply a different risk weight to a particular banking institution or group of banking institutions, (which may be higher) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 6 / 506 Issued on: 3 May 2019 from that specified under this framework in certain circumstances such as in situations where there is enough evidence to suggest that loss experience in a particular band or asset class had increased or that overall asset quality of such institutions have been deteriorating. 2.3 For the IRB approach, the capital requirements are derived using banking institution’s internal rating systems. Banking institutions that wish to adopt the IRB approach are required to obtain explicit approval from the Bank prior to implementation. 2.3(i) The IRB approach is based largely on the value-at-risk (VaR) methodology to measuring credit risk and is therefore more risk-sensitive compared to the standardised approach. Under this approach, the capital requirement is determined using certain supervisory parameters and banking institutions’ own estimates that are calibrated to a predetermined risk weight function. 2.3(ii) The flexibility given to banking institutions to use own estimates is premised on employment of sound risk management practices and strong risk management capabilities and infrastructure. Only banking institutions that meet these supervisory requirements and expectations would be allowed to adopt the IRB approach. 2.3(iii) The IRB approach is developed based on the following principles: i) Differentiation between the foundation and advanced approach. The foundation approach relies on banking institutions’ internal estimates of probabilities of default (PD) and applies supervisory estimates of loss given default (LGD) and exposure at default (EAD), while the advanced approach, relies on mostly internal estimates. ii) Banking institutions being allowed to adopt a wider range of credit risk mitigation techniques, subject to requirements set by the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 7 / 506 Issued on: 3 May 2019 Under the foundation approach, in addition to the financial collateral available under the standardised approach, non-financial collateral including commercial and residential real estate, financial receivables and other physical collateral are also available as risk mitigants, subject to meeting specific operational requirements. More flexibility is allowed under the advanced approach as there is no limit to the type of collateral recognised. iii) The determination of capital requirement is based on the unexpected losses (UL) approach. The risk weight formulas used to calculate capital requirement for UL are derived from a specific model developed by the BCBS. The UL approach is based on the concept that capital is only required to cover UL which are peak losses that occur infrequently over a long economic cycle. The expected losses (EL) are the average anticipated credit losses over time that in most cases would have been covered by provisions. Based on this premise, any excess of provisioning over the EL would be recognised as part of the banking institution’s Tier 2 Capital. iv) Standard capital computation formula being applied for each exposure class on the premise that banking institutions have complementing internal rating systems that meet high standards of integrity and rigour based on minimum requirements specified by the Bank. The requirements also necessitate the integration of the IRB measures into the day-to-day risk management processes, forming the foundation for a sound credit culture. Banking institutions’ adherence to the minimum requirements will be monitored by the Bank through its supervisory processes. 2.3(iv) The treatment to be adopted in areas where national discretion is provided by the BCBS to the national supervisory authority is summarised in Appendix I. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 8 / 506 Issued on: 3 May 2019 B.2 THE STANDARDISED APPROACH FOR CREDIT RISK B.2.1 EXTERNAL CREDIT ASSESSMENTS 2.4 External credit assessments (or external ratings) on the borrower (the issuer) or specific securities issued by the borrower (the issue) are the basis for the determination of risk weights under the standardised approach for exposures to sovereigns, central banks, public sector entities, banks, corporates as well as certain other specific portfolios. For this purpose, banking institutions are only allowed to use external ratings provided by ECAIs that have been recognised by the Bank6 based on the eligibility criteria as stipulated in Appendix II. External ratings are not used for determining the risk weights for residential mortgages, regulatory retail portfolios, non-performing loans, high risk exposures as well as specifically identified borrowers/transactions as specified in paragraph 2.44 and any other assets not specified as mentioned in paragraph 2.45. 2.5 Under this framework, an exposure would be deemed to have an external rating if the issuer or the issue has a rating provided by an external credit assessment institution (ECAI) that has been recognised by the Bank. In cases where an exposure does not have an issuer or issue rating, the exposure shall be deemed unrated and shall be accorded a risk weight appropriate for unrated exposures in their respective exposure category. However, there may be instances where an unrated exposure can be risk- weighted based on the rating of an equivalent exposure to the particular borrower. The treatment of these unrated exposures will be subject to conditions specified in paragraph 2.9. 6 A list of recognised ECAIs, including the mapping of the rating categories of different ECAIs to the risk weights, is provided in Appendix III and shall be updated from time to time. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 9 / 506 Issued on: 3 May 2019 General Requirements on the Use of External Ratings 2.6 The use of external ratings for capital adequacy purposes must be applied on a consistent basis. In addition, there should not be ‘cherry picking7’ of external ratings. Banking institutions must ensure that:  external rating announcements are closely monitored (especially for borrowers which are placed under ‘watch’ by the ECAIs);  risk weights are revised promptly following any changes in external ratings; and  all reports on the capital adequacy position under this framework that are submitted to the Bank reflect the latest ratings assigned to the issuers or issues. The use of external ratings for risk weighting of exposures would also be subject to the disclosure requirements under Pillar 3, failing which the external ratings shall not be used for purposes of capital adequacy computation. In this event, all exposures shall be treated as being unrated. Level of Application of the Assessment 2.7 External ratings for one entity within a corporate group cannot be used to risk weight other entities within the same group. Single and Multiple Assessments 2.8 There are cases where a borrower/securities issuer or securities are rated by more than one ECAI. In such cases, all available external ratings of a borrower or an issue from recognised ECAIs must be captured and the following rules must be observed:  Where 2 recognised external ratings are available, the lower rating is to be applied; or 7 Banking institutions shall not ‘cherry pick’ external ratings for capital adequacy purposes. For example, banking institutions should not use external ratings only when the ratings provide a favourable risk weight compared to an unrated exposure and ignore the external ratings in situations where the risk weight is unfavourable. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 10 / 506 Issued on: 3 May 2019  Where 3 or more recognised external ratings are available, the lower of the highest 2 ratings will be used for the capital adequacy calculation purposes. Issuer and Issues Assessment 2.9 Where a banking institution invests in a particular security which has an issue-specific rating, the risk weight for this exposure will be based on this rating assessment. Where the banking institution has an investment which does not have an issue-specific rating, the following principles shall apply:  In the event where the banking institutions’ exposure is to a counterparty which does not have its own issuer rating, but the same counterparty has a rating on other obligations such as a debt security which the banking institution is not exposed to, the banking institution is able to use that debt security rating in determining the appropriate risk weight for their exposure to the counterparty. However, this is subject to the condition that the banking institution’s unrated exposure ranks pari passu or senior in all respects to the debt security which has a rating and the debt security rating has not taken into account any effects of collateral/guarantee arrangements. Otherwise, the unrated exposure will receive the risk weight for unrated exposures;  Where a counterparty has its own issuer rating, this assessment typically applies to senior unsecured exposures on that counterparty. Thus, only senior exposures on that counterparty will be able to utilise this rating. Other exposures will be treated as unrated; and  In the event that either the counterparty or a single security has a low quality rating which maps into a risk weight equal to or higher (for example 150%) than that which applies to unrated exposures (100%), an unrated exposure on the same counterparty will be assigned the same risk weight as is applicable to the low quality rating (instead of the risk weight for unrated exposures). 2.10 No supervisory recognition of credit risk mitigation techniques will be taken into account if credit enhancements have already been reflected in the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 11 / 506 Issued on: 3 May 2019 rating specific to a particular debt security (to avoid double counting of credit enhancement factors). For example, if an external rating for a specific issue has already taken into account the effects of a guarantee attached to the issuance, the guarantee cannot be subsequently be taken into consideration for purposes of credit risk mitigation. Domestic Currency and Foreign Currency Assessments 2.11 Where unrated exposures are risk-weighted based on the rating of an equivalent exposure to a particular borrower, foreign currency ratings would be used for exposures in foreign currency. Domestic currency ratings would only be used to risk weight unrated exposures denominated in domestic currency. Unsolicited Ratings 2.12 Banking institutions should only use solicited ratings from recognised ECAIs for purposes of the capital adequacy computation under the standardised approach. This, however, does not preclude banking institutions from using unsolicited ratings for other internal risk management purposes. B.2.2 DEFINITION OF EXPOSURES 2.13 The following part defines the various categories of exposures and their corresponding risk weights under the standardised approach. The risk weights would be applicable to all on-balance sheet and off-balance sheet exposures in the banking book of banking institutions. Exposures in the trading book shall be subject to the requirements under the market risk component of this framework. For exposures undertaken through the Islamic banking contracts, the treatment for the computation of the risk- weighted assets is provided in Part B.2.3 Treatment for the Computation of Credit Risk-weighted Assets for Islamic Contracts. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 12 / 506 Issued on: 3 May 2019 2.14 On-balance sheet exposures shall be multiplied by the appropriate risk weight to determine the risk-weighted asset amount, while off-balance sheet exposures shall be multiplied by the appropriate credit conversion factor (Part B.2.4 Off-Balance Sheet Items) before applying the respective risk weights. 2.15 For purposes of capital adequacy computation, exposures are defined as assets and contingent assets under the applicable Financial Reporting Standards, net of specific provisions8. Exposures to Sovereigns and Central Banks 2.16 Exposures to the Federal Government of Malaysia and the Bank9, denominated and funded10 in ringgit Malaysia (RM) shall be accorded a preferential risk weight of 0%. Any exposures in RM where there is an explicit guarantee provided by the Federal Government of Malaysia or the Bank shall also be accorded a 0% risk weight. 2.17 Where another national supervisor has accorded a preferential risk weight (that is 0% or 20%) for exposures to their sovereign (or central bank), denominated and funded in their domestic currency, banking institutions can also apply the preferential risk weight on these exposures. Similarly, where an explicit guarantee has been provided by these sovereigns (or central banks), the preferential risk weight can also be applied. However, in circumstances where the Bank deems the preferential risk weight to be inappropriate, the Bank reserves the right to require these sovereign exposures to be risk-weighted based on the sovereign’s external rating. 8 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. 9 Including securities issued through special purpose vehicles established by the Bank e.g. Bank Negara Malaysia Sukuk Ijarah and BNMNi-Murabahah issued through BNM Sukuk Berhad. However, banking institutions shall apply the look-through approach as Appendix XXIV for BNM Mudarabah certificate (BMC). 10 This means that the banking institution has corresponding liabilities denominated in RM. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 13 / 506 Issued on: 3 May 2019 2.18 Exposures to sovereigns (or central banks) not falling under the categories set out in paragraphs 2.16 and 2.1711, shall be risk-weighted based on the external credit rating of the sovereigns as given in Appendix III. Exposures to Non-Federal Government Public Sector Entities (PSEs) 2.19 Exposures to domestic PSEs will be risk-weighted at 20% if all of the following criteria are met:  the PSE has been established under its own statutory act;  the PSE and its subsidiaries are not involved in any commercial undertakings;  a declaration of bankruptcy against the PSE is not possible; and  the PSE is mostly funded by the federal government and any lending facilities obtained by the PSE are subjected to strict internal lending rules by the PSE. 2.20 In general, domestic PSEs would include administrative bodies of the federal government as well as state governments, local governments and administrative bodies of these entities. 2.21 PSEs12 that do not fulfill all criteria in paragraph 2.19 shall be risk-weighted based on their external ratings as per corporates (Refer to paragraph 2.24). 2.22 In cases where other national supervisors have accorded a preferential risk weight to their domestic PSEs, banking institutions can also apply the preferential risk weight on their exposures to these foreign PSEs provided these exposures are denominated and funded in their domestic currency. In addition, the criteria established by the national supervisor in determining the eligible PSEs for the preferential risk weight should also be aligned with the criteria specified above for domestic PSEs in Malaysia. However, in circumstances where the preferential risk weight to a foreign 11 Such as bonds issued by Federal Government of Malaysia denominated in USD. 12 This would include quasi-government agencies. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 14 / 506 Issued on: 3 May 2019 PSE is deemed inappropriate, the Bank reserves the right to require exposures to the PSE to be risk-weighted based on its external rating. Exposures to Multilateral Development Banks (MDBs) 2.23 Exposures to MDBs shall in general be treated similar to exposures to banking institutions. However, highly-rated MDBs which meet certain criteria that have been specified by the BCBS will be eligible for a preferential risk weight of 0%13. Exposures to Banking Institutions and Corporates 2.24 Exposures to banking institutions and corporates shall be accorded risk weights based on their external ratings which can be in the form of either long-term or short-term ratings. However, any exposure arising from investment account placements made with Islamic banking institutions shall be subject to the ‘look-through’ approach as described in Appendix XXIV. As a general rule, no exposures to an unrated banking institution or corporate shall be given a risk weight preferential14 to that assigned to its sovereign of incorporation. Short-term Ratings 2.25 Short-term ratings15 are deemed to be facility-specific, thus can only be used to determine risk weights for exposures specific to a rated facility. In addition, short-term ratings cannot be used to risk weight an unrated long- term exposure. The treatment for specific short-term facilities, such as a 13 MDBs currently eligible for a 0% risk weight are the World Bank Group, which comprises the International Bank for Reconstruction and Development (IBRD) and the International Finance Corporation (IFC), the Asian Development Bank (ADB), the African Development Bank (AfDB), the European Bank for Reconstruction and Development (EBRD), the Inter-American Development Bank (IADB), the European Investment Bank (EIB), the European Investment Fund (EIF), the Nordic Investment Bank (NIB), the Caribbean Development Bank (CDB), the Islamic Development Bank (IDB), the Council of Europe Development Bank (CEDB), and the International Finance Facility for Immunisation (IFFIm). 14 For example, if the sovereign rating for a particular country was BBB, any exposures to the sovereign would be accorded a risk weight of 50% and any unrated exposures to corporates incorporated in that sovereign would be assigned a risk weight of 50% or higher. 15 In general, short-term ratings assessments refer to ratings for facilities with an original maturity of 1 year or less. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 15 / 506 Issued on: 3 May 2019 particular issuance of a commercial paper is given in Appendix III. In addition, the application of short-term ratings shall be guided by the following requirements:  where a banking institution has multiple short-term exposures to a particular borrower and only one of these facilities has a short-term facility rating which attracts a 50% risk weight, other unrated short-term exposures on the borrower cannot attract a risk weight lower than 100%;  where an issuer is accorded a risk weight of 150% for one short-term facility, all unrated exposures of the issuer, whether long-term or short term, shall also attract a 150% risk weight, unless a recognised credit risk mitigant is available; and  the banking institution ensures that when a short-term rating is used, the ECAI making the assessment has met all of the eligibility criteria specified by the Bank in terms of its short-term rating. (i.e. the Bank has not communicated the withdrawal of such recognition). All other exposures shall use the long-term ratings or be treated as unrated exposures. Long-term Ratings 2.26 The applicable risk weights for long-term ratings for exposures to banking institutions and corporates are provided in Appendix III. The following treatment are specifically provided for exposures to banking institutions:  a risk weight that is one category more favourable is applied to claims on banking institutions with an original16 maturity of six (6) months or less, subject to a floor of 20%. This treatment is available to both rated and unrated exposures, but not to banking institutions risk-weighted at 150%; and 16 Banking institutions must ensure that exposures which are expected to be rolled-over beyond their original maturity do not qualify for this more favourable treatment. This is based on the view that banking institutions rolling-over their facilities are having difficulty to source for alternative funding. This shall also be applicable for exposures that have been accorded the automatic 20% risk weight. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 16 / 506 Issued on: 3 May 2019  a risk weight of 20% shall be applied to exposures to other banking institutions with an original maturity of three (3) months or less denominated and funded in RM. 2.27 Exposures on development financial institutions (DFIs) shall be treated similar to the exposures to banking institutions. Exposures to Insurance Companies, Securities Firms and Fund Managers 2.28 Exposures to insurance companies, securities firms, unit trust companies and other asset management companies shall be treated as exposures to corporates. Exposures Included in the Regulatory Retail Portfolio 2.29 Exposures included in the regulatory retail portfolio (excluding qualifying residential mortgage loans and defaulted regulatory retail exposures) shall be risk-weighted at 75% only when the following criteria are met:  orientation criterion - exposure is to an individual person or persons or to a small business. (Small businesses may include sole- proprietorships, partnerships or small and medium-sized enterprises (SMEs17));  product criterion - the exposure takes the form of any of the following: revolving credits and lines of credit (including credit cards and overdrafts), personal term loans and other term loans (for example installment loans, auto financing loans, student and educational loans, personal finance) and small business facilities. Investment in debt and equity securities, whether listed or not, are excluded from this portfolio. Qualifying residential mortgage loans would be treated separately under paragraphs 2.31 to 2.36. 17 Small and medium-sized enterprises (SMEs) in the agriculture and services sector are defined as having annual sales of up to RM5 million or 50 full-time employees. For the manufacturing sector, SMEs have been defined as having annual sales of up to RM25 million or 150 full-time employees. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 17 / 506 Issued on: 3 May 2019  granularity criterion18 - the aggregate exposure19 to a counterparty20 (excluding qualifying residential mortgage loans) cannot exceed 0.2% of the overall regulatory retail portfolio;  low value of individual exposures - the aggregate exposure21 to one counterparty (excluding qualifying residential mortgage loans) cannot exceed RM5 million; and  for Islamic banking assets, in addition to the above four criteria, regulatory retail exposures must be based on either Murābahah or Ijārah contracts22. 2.29(i) Any term loans for personal use with an original maturity of more than 5 years approved and disbursed by banking institutions on or after 1 February 2011, shall be risk-weighted at 100%. 2.30 Where an exposure does not fulfill the criteria above, the exposure shall be treated as exposures to corporates. Loans Secured by Residential Properties 2.31 Loans fully secured by mortgages on residential property23, which are or will be occupied by the borrower, or is rented, shall be carved-out from the 18 At minimum, banking institutions must undertake a one-off computation on a monthly basis to fulfil this requirement. The computation requires banking institutions to aggregate all retail exposures which have fulfilled all other operational requirements for regulatory retail portfolio and ascertain whether all these exposures do not exceed the granularity threshold of 0.2%. If there are exposures which exceed this threshold, they would not be eligible for the 75% risk weight and shall be treated as a corporate exposure. However, banking institutions may wish to consider undertaking an iterative computation on an annual basis. 19 Aggregate exposure means gross amount (excluding defaulted exposures and without taking into account credit risk mitigation effects) of all forms of debt exposures (including off-balance sheet exposures) that individually satisfy the other three criteria. 20 “Counterparty” as defined under Single Counterparty Exposure Limit. 21 Aggregate exposure means gross amount (inclusive of defaulted exposures but without taking into account credit risk mitigation effects) of all forms of debt exposures (including off-balance sheet exposures) that individually satisfy the other three criteria. 22 Use of the risk weight under the regulatory retail portfolio for exposures based on other Islamic contracts may be allowed, provided that the credit risk profile of such exposures is similar to Murābahah or Ijārah contract. 23 Residential property means property which is zoned for single-family homes, multi-family apartments, townhouses and condominiums. It excludes shop houses which can be eligible for the regulatory retail portfolio as per paragraph 2.29. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 18 / 506 Issued on: 3 May 2019 regulatory retail portfolio and defined as qualifying residential mortgage loans, if the following criteria are met:  the borrower is an individual person;  the loan is secured by the first legal charge, assignment or strata title on the property;  the banking institution has in place a sound valuation methodology to appraise and monitor the valuation of the property;  the re-computation24 of the loan-to-value ratio must be undertaken at least on an annual basis. Banking institutions can also consider credit protection extended by Cagamas SRP Berhad when computing the loan-to-value ratio, by reducing the value of the loan by the amount protected. This is however, subject to banking institutions fulfilling the operational and legal certainty requirements for the recognition of credit risk mitigation set out in Part B.2.5;  upon default, the property must be valued by a qualified independent valuer. (Defaulted qualifying residential mortgage loans would be treated differently from other defaulted loans. The treatment is specified under paragraph 2.40);  the property has been completed and a certificate of fitness has been issued by the relevant authority ; and  for Islamic banking assets, the exposures must be based on either Murābahah or Ijārah contract25. 24 The computation of LTV ratio for regulatory capital purpose shall be subject to the following:  Banking institutions ensure that the loan amount is reflective of the banking instituion's potential or outstanding exposure to the borrower. Where the banking instituion for instance, has offered to extend the lending facility to cover additional costs to be incurred by the borrower in connection to the housing loan (e.g. for fire insurance, stamp duty fees, legal fees, Mortgage Reducing Term Assurance, etc.), these amounts should also be included in the loan amount.  At origination, the value of the house will be based on the value stated on the Sales and Purchase Agreement. Subsequently, to qualify for concessionary risk weight, banking institutions have to demonstrate ability to comply with the valuation rules and annual recomputation of the loan-to-value ratio. Banking institutions should have in place internal policies and procedures to verify the robustness of the properly values used in the LTV computation, including where appropriate, requirements for independent valuations to be carried out to confirm the veracity of values stipulated in the Sales and Purchase Agreement. In computing the LTV ratio, banking institutions are not expected to conduct a formal valuation on each property annually. Banking institutions may use credible secondary information such as property market reports or house indices. 25 The risk weights of qualifying residential mortgages may be applicable to exposures based on other contracts (including Mushārakah Mutanaqisah contracts undertaken with and without Waad), BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 19 / 506 Issued on: 3 May 2019 2.32 Qualifying residential mortgage loans shall be risk-weighted26 based on the following table: Loan-to-value Ratio27 <80% 80%-90% Risk weight 35% 50% 2.33 Residential mortgages which do not meet the criteria in paragraphs 2.31 and 2.32 will be treated as regulatory retail portfolio as per paragraph 2.29. 2.33(i) Notwithstanding paragraphs 2.31 to 2.33, all residential mortgages with a loan-to-value ratio of more than 90% approved and disbursed by banking institutions on or after 1 February 2011 shall be risk-weighted at 100%. 2.34 For residential mortgages which are combined with overdraft facilities, the overdraft facility shall be classified under the residential mortgage if the overdraft facility is secured with the first legal charge. Otherwise, the overdraft facility shall be classified under regulatory retail portfolio. 2.35 For residential mortgage loans extended to the priority sector as per requirements specified by the Bank, the loan shall be subjected to a risk weight of 50%, or 35% if the loan-to-value ratio is below 80%28. However, any loans with a loan-to-value ratio of more than 90% approved and disbursed by banking institutions on or after 1 February 2011, shall be risk- weighted at 75%. 2.36 A summary of the risk weights for all residential mortgage exposures is provided in Appendix IV. provided that the credit risk profile of such exposures is similar to Murābahah or Ijārah contracts. Nevertheless, the Bank expects banking institutions to monitor the risk characteristics of such contracts in comparison against other similar types of exposures, particularly in relation to the recovery profile. 26 Where the residential mortgage loan is protected by Cagamas SRP Berhad (under Cagamas MGP, Skim Rumah Pertamaku, and Skim Perumahan Belia), a risk weight of 20% shall apply on the protected portion while the remaining portion shall be risk-weighted based on the post protection loan-to-value ratios. 27 The loan-to-value ratios are post-protection where applicable. 28 Refer to footnote 26. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 20 / 506 Issued on: 3 May 2019 Defaulted Exposures 2.37 This part specifies the treatment for exposures classified as being in default. The definition of defaulted exposures is attached in Appendix V. 2.38 The risk weights for the unsecured portion of defaulted exposures (other than defaulted qualifying residential mortgage loans (refer to paragraph 2.40) and higher risk assets (refer paragraph 2.42)), net of specific provisions29 (including partial write-offs) are as follows:  150% risk weight when specific provisions are less than 20% of the outstanding amount of the exposure;  100% risk weight when specific provisions are no less than 20% of the outstanding amount of the exposure; and  50% risk weight when specific provisions are no less than 50% of the outstanding amount of the exposure. 2.39 For defaulted exposures, similar eligible collateral and guarantees as non- defaulted exposures will be allowed for the purposes of determining the secured portion of defaulted exposures. 2.40 Qualifying residential mortgage loans that are in default shall be risk- weighted, net of specific provisions (including partial write-offs) as follows:  100% when specific provisions are less than 20% of the outstanding amount of the exposure; and  50% when specific provisions are 20% or more of the outstanding amount of the exposure. 2.41 An illustration on the computation of the risk-weighted assets for defaulted exposures is provided in Appendix VI. 29 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 21 / 506 Issued on: 3 May 2019 Higher Risk Assets 2.42 The following exposures have been identified as high risk assets and are accorded specific risk weights as follows:  non-publicly traded equity investments (includes investments structured based on Mushārakah or Mudārabah contracts) will be risk-weighted at 150%;  residential mortgage loans for abandoned30 housing development project or construction will be risk-weighted at 150%; and  venture capital investments will be risk-weighted at 150%.31 2.43 In addition, the treatment for defaulted and non-defaulted exposures of these higher risk assets shall be the same. Other Assets 2.44 Following are specific treatment for other assets not specified above: i) Cash and gold32 will be risk-weighted at 0%; ii) Investments in the ABF Malaysia Bond Index Fund shall be risk- weighted at 0%; iii) Exposures on the Bank for International Settlements, the International Monetary Fund, the European Central Bank and the European Community shall be accorded a 0% risk weight; iv) Exposures (excluding equity investment specified in (vii) below) to CGC shall be accorded a 20% risk weight; v) Exposures to local stock exchanges33 and clearing houses shall be accorded a 20% risk weight; vi) Investments in unit trust funds and property trusts funds34 shall be risk-weighted at 100%; 30 For this purpose, abandoned housing project or construction is defined as follows: (i) A housing development project in which construction has continuously stopped for 6 months or more within or outside the completion period as per the Sales and Purchase Agreement (ii) The developer has no ability to proceed and complete the project due to financial insolvency (iii) the Ministry qualifies that the developer is no longer able to continues its responsibility as the developer. 31 The Bank may decide to impose more stringent capital treatment including capital deduction. 32 Refers to holding of gold bullion held in own vaults or on an allocated basis to the extent backed by bullion liabilities. 33 Refers to Bursa Malaysia Securities Berhad and Labuan Financial Exchange. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 22 / 506 Issued on: 3 May 2019 vii) Publicly traded equity investments held in the banking book shall be risk-weighted at 100%. In addition, equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association35 shall also receive a risk weight of 100%; viii) Investment in equity of non-financial commercial subsidiaries will be accorded a 1250% risk weight; ix) Investment in sukuk issued by the International Islamic Liquidity Management Corporation (IILM) will be risk-weighted in accordance with paragraph 2.25; and x) Right-of-use (ROU) assets where the underlying asset being leased is a tangible asset will be accorded a 100% risk weight. 2.45 Any other assets not specified shall receive a standard risk weight of 100%. B.2.3 TREATMENT FOR THE COMPUTATION OF CREDIT RISK-WEIGHTED ASSETS FOR ISLAMIC CONTRACTS 2.46 This part sets out the specific treatment for the computation of credit risk- weighted assets for seven classes of Islamic contracts undertaken by banking institutions. Some Islamic banking products may carry different titles and are structured with a certain degree of variations in terms of the contracts. As such, for the purpose of computing the risk-weighted asset amount, banking institutions are advised to focus on the risk structure and exposure of the products rather than the title and form. 34 Includes Real Estate Investment Trusts. 35 Such as Cagamas Berhad and Credit Guarantee Corporation Malaysia Berhad. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 23 / 506 Issued on: 3 May 2019 MURĀBAHAH Murābahah 2.47 A Murābahah contract refers to an agreement whereby a banking institution sells to an obligor an asset that it has acquired at an agreed selling price between both parties. The agreed selling price is based on the acquisition cost (purchase price plus other direct costs) of the asset incurred by the banking institution and a profit margin agreed between the banking institution and its obligor. The Murābahah contract shall include the agreed repayment terms where the obligor is obliged to pay the selling price after taking delivery of the asset. 2.48 Banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the Murābahah contract. Hence, banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the banking institution. Murābahah for Purchase Orderer (MPO) 2.49 A Murābahah for Purchase Orderer (MPO) contract refers to an agreement whereby a banking institution sells to an obligor at an agreed selling price, a specified type of asset that has been acquired by the banking institution based on an agreement to purchase (AP) by the obligor which can be binding or non-binding. The relevant legal recourse provided under the AP that requires the obligor to perform their obligation to purchase the underlying asset from the banking institution shall be a key determinant for the AP to be recognised as binding or non-binding. Thus, it is pertinent for banking institutions to ensure the adequacy and enforceability of the legal documentation under the MPO contract. The MPO contract shall include the agreed repayment terms where the obligor is obliged to pay the selling price after taking delivery of the asset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 24 / 506 Issued on: 3 May 2019 2.50 The difference between a Murābahah transaction and an MPO transaction is that under a Murābahah contract, the banking institution sells an asset which is already in its possession, whilst in an MPO, the banking institution acquires an asset in anticipation that the asset will be purchased by the obligor. 2.51 Banking institutions are exposed to credit risk in the event that the obligor fails to pay the agreed selling price in accordance with the agreed repayment terms under the MPO contracts. Hence, banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the banking institution. 2.51(i) For MPO with binding AP, banking institutions are exposed to credit risk in the event that the obligor (purchase orderer) defaults on its binding obligation to purchase the assets under the contract. In view of the adequate legal recourse that requires the obligor to purchase the asset at an agreed price, the credit risk exposure commences once the banking institution acquires the underlying asset. For non-binding MPO, the effect is similar to a Murābahah transaction. 2.51(ii) The following table summarises the treatment for the determination of risk weights of Murābahah and MPO contracts Contract Applicable Stage of the Contract (When banking institutions start providing for capital) Determination of Risk Weight Murābahah and MPO with non- binding AP When sale of asset is completed and payment is due from the customer Note: Exposure is based on outstanding amount Based on type of exposure as per Part B.2.2 Definition of Exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 25 / 506 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When banking institutions start providing for capital) Determination of Risk Weight MPO with binding AP When asset is acquired by banking institution and available for sale (asset on balance sheet)36 Note: Exposure is equivalent to the asset acquisition cost. BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH 2.52 For the purpose of this framework, the Bai` Bithaman Ajil (BBA) and Bai` Inah contracts are deemed to have similar transaction characteristics and financing effect as the Murābahah and MPO contract. The BBA involves the selling of an asset with deferred payment terms while Bai’ Inah involves a sell and buy back agreement. An example of Bai’ Inah is where an obligor sells to the banking institution an asset at a selling price that will be repaid on cash basis for the first leg of the agreement. On the second leg, the banking institution sells back the asset to the obligor on deferred payment terms to enable the financing transaction SALAM 2.53 A Salam contract refers to an agreement whereby a banking institution purchases from an obligor a specified type of commodity, at a predetermined price, which is to be delivered on a specified future date in a specified quantity and quality. Banking institution as the purchaser of the commodity makes full payment of the purchase price upon execution of the Salam contract. Banking institutions are exposed to credit risk in the event that the obligor (commodity seller) fails to deliver37 the paid commodity as per the agreed terms. 36 Includes assets which are in possession due to cancellation of AP by customers. 37 Delivery risk in a Salam contract is measured based on the commodity seller’s credit risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 26 / 506 Issued on: 3 May 2019 2.54 In addition, a banking institution may also enter into a parallel Salam contract, which is a back-to-back contract to sell the commodity purchased under the initial Salam contract to another counterparty. This arrangement enables the banking institution to mitigate the risk of holding the commodity. 2.55 Islamic banking institutions undertaking the parallel Salam transaction are exposed to credit risk in the event that the purchaser fails to pay for the commodity it had agreed to purchase from the Islamic banking institution. Nevertheless, in the event of non-delivery of the commodity by the seller under the initial Salam contract, the Islamic banking institution is not discharged of its obligation to deliver the commodity to the purchaser under the parallel Salam contract. 2.55(i) For the purpose of computing the credit risk-weighted asset, the purchase price paid by banking institution to the seller of commodity in a Salam contract shall be assigned a risk weight based on the seller’s external rating. 2.55(ii) The following table summarises the treatment for the determination of credit risk weights of Salam contracts: Contract Applicable Stage of the Contract (When banking institutions start providing capital) Determination of Risk Weight Salam Banking institution is expecting delivery of the commodity after purchase price has been paid to seller Note: Exposure amount is equivalent to the payment made by banking institution Based on type of exposure as per Part B.2.2 Definition of Exposures. Salam with Parallel Salam Similar to the above (The Parallel Salam does not extinguish requirement for capital from the first Salam contract) Based on type of exposure as per Part B.2.2 Definition of Exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 27 / 506 Issued on: 3 May 2019 ISTISNĀ` 2.56 An Istisnā` contract refers to an agreement to sell to or buy from an obligor an asset which has yet to be manufactured or constructed. The completed asset shall be delivered according to the buyer’s specifications on a specified future date and at an agreed selling price as per the agreed terms. 2.57 As a seller of the under the Istisnā` contract, the banking institution is exposed to credit risk in the event that the obligor fails to pay the agreed selling price, either during the manufacturing or construction stage, or upon full completion of the asset. 2.58 As a seller, the banking institution has the option to manufacture or construct the asset on its own or to enter into a parallel Istisnā` contract to procure the asset from another party or, to engage the services of another party to manufacture or construct the asset. Under the parallel Istisnā` contract, as the purchaser of the asset, the banking institution is exposed to credit risk in the event that the seller fails to deliver the specified asset at the agreed time and in accordance with the initial Istisnā` ultimate buyer’s specifications. The failure of delivery of completed asset by the parallel Istisnā` seller does not discharge the banking institution from its obligations to deliver the asset ordered by the obligor under the initial Istisnā` contract. Thus, the banking institution is additionally exposed to the potential loss of making good the shortcomings or acquiring the specified assets elsewhere. 2.59 The following table specifies the treatment for the determination of risk weights of Istisnā` contracts: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 28 / 506 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When banking institutions start providing capital) Determination of Risk Weight Istisnā`and Parallel Istisnā Unbilled and unpaid billed work- in-progress Based on type of exposure as per Part B.2.2 Definition of Exposures; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix VII. IJĀRAH Ijārah 2.60 Ijārah contracts refer to a lease agreement whereby the lessor transfers the right to use (or usufruct) of the leased asset to the lessee, for an agreed period and at an agreed consideration, in the form of lease rental. The lessor maintains ownership of the leased asset during the lease period under these contracts. 2.61 As the owner of the leased asset, banking institutions therefore assume all liabilities and risks pertaining to the leased asset including the obligation to restore any impairment and damage to the leased asset arising from wear and tear, as well as natural causes which are not due to the lessee’s misconduct or negligence. 2.62 As a lessor, banking institutions may acquire the asset to be leased based on the lessee’s specifications as stipulated under the agreement to lease (AL), prior to entering into the Ijārah contract with the lessee. The AL can be binding or non-binding on the lessee depending on the legal recourse in the AL, which states the obligation for the lessee to lease the specified asset from the lessor. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 29 / 506 Issued on: 3 May 2019 2.63 Banking institutions as the lessor under the Ijārah contracts are exposed to the credit risk of the lessee in the event that the lessee fails to pay the rental amount as per the agreed terms. 2.64 In addition, under a binding AL, banking institutions are exposed to credit risk in the event that the lessee (lease orderer) defaulting on its binding obligation to execute the Ijārah contract. In this situation, the banking institution may lease or dispose off the asset to another party. However, the banking institution is also exposed to the credit risk of the lessee if the lessee is not able to compensate for the losses incurred arising from the disposal of the asset. 2.65 Under a non-binding AL, the banking institution is not exposed to the risk of non-performance by the lease orderer given that the banking institution does not have legal recourse to the lease orderer. In this regard, credit risk exposure arises upon the commencement of rental agreement. Ijārah Muntahia Bittamleek 2.66 Ijārah Muntahia Bittamleek (IMB) contract refers to a lease agreement similar to Ijārah contracts. However, in addition to paragraphs 2.53 to 2.58, the lessor has an option to transfer ownership of the leased asset to the lessee in the form of a gift or a sale transaction at the end of IMB. Al-Ijārah Thumma Al-Bai` 2.67 Al-Ijārah Thumma Al-Bai` (AITAB) contract is a type of IMB contract that ends with a transfer of ownership to the lessee by way of a sale transaction and shall be treated similarly to the IMB contract for purposes of capital adequacy requirements. In line with the applicable accounting treatment, where Islamic financial products apply the AITAB contract for the purpose of creating financing facilities, the outstanding rental amount refers to the total outstanding principal amount plus accrued profit due from obligor. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 30 / 506 Issued on: 3 May 2019 2.67(i) The following table summarises the treatment for the determination of risk weights of Ijārah/IMB contracts for the lessee: Type of AL Applicable Stage of the Contract (When banking institutions start providing capital) Determination of Risk Weight Upon signing an AL and asset is in balance sheet available for lease Upon signing an LC and the lease rental payments are due from the lessee Binding Exposure to credit risk Note: Exposure is equivalent to asset acquisition cost Exposure to credit risk Note: Exposure is based on outstanding rental amount Risk weight is based on customer’s (prospective lessee’s) external rating Non-binding / Without AL No credit risk Exposure to credit risk Note: Exposure is based on outstanding rental amount Risk weight is based on lessee’s external rating MUSHĀRAKAH 2.68 A Mushārakah contract is an agreement between a banking institution and its obligor to contribute an agreed proportion of capital funds to an enterprise or to acquire ownership of an asset/real estate. The proportion of the capital investment may be on a permanent basis or, on a diminishing basis where the obligor progressively buys out the share of the banking institution (thus, this contract is named Diminishing Mushārakah, which is categorised under Mushārakah contract for the purpose of this framework). Profits generated by the enterprise or an asset/real estate are shared in accordance to the terms of the Mushārakah agreement, while losses are shared based on the capital contribution proportion. 2.69 In general, Mushārakah contracts can broadly be classified into two categories as follows:  Equity participation in a private commercial enterprise to undertake business ventures or financing of specific projects; and  Joint ownership in an asset or real estate. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 31 / 506 Issued on: 3 May 2019 I. EQUITY PARTICIPATION IN A PRIVATE COMMERCIAL ENTERPRISE TO UNDERTAKE BUSINESS VENTURES OR FINANCING OF SPECIFIC PROJECTS 2.70 A banking institution may enter into a Mushārakah contract with their obligor to provide an agreed amount of capital for the purpose of participating in the equity ownership of an enterprise. In this arrangement, the banking institution is exposed to capital impairment risk in the event that the business activities undertaken by the enterprise incur losses. The Mushārakah agreement may provide an agreed ‘exit mechanism’ which allows partners to divest their interest in the enterprise at a specified tenor or at the completion of the specified project. In this regard, the banking institution must ensure that the contract clearly stipulates the exit mechanism for partners to redeem their investment in this entity. 2.70(i) Banking institutions that enter into this type of Mushārakah contract are exposed to the risk similar to an equity holder or a joint venture arrangement where the losses arising from the business venture are to be borne by the partners. As an equity investor, the banking institution serves as the first loss absorber and its rights and entitlements are subordinated to the claims of creditors. In terms of risk measurement, the risk exposure to an enterprise may be assessed based on the performance of the specific business activities undertaken by the joint venture as stipulated under the agreement. II. JOINT OWNERSHIP IN AN ASSET OR REAL ESTATE 2.71 Mushārakah contracts that are undertaken for the purpose of joint ownership in an asset or real estate may generally be classified into the two categories as follows: i) Mushārakah contract with an Ijārah sub-contract (a) Partners that jointly own an asset or real estate may undertake to lease the asset to third parties or to one of the partners under BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 32 / 506 Issued on: 3 May 2019 an Ijārah contract and therefore generate rental income to the partnership. In this case, the risk profile of the Mushārakah arrangement is essentially determined by the underlying Ijārah contract. Banking institutions are exposed to credit risk in the event that the lessee fails to service the lease rentals. ii) Mushārakah contract with a Murābahah sub-contract (a) As a joint owner of the underlying asset, banking institutions are entitled to a share of the revenue generated from the sale of asset to a third party under a Murābahah contract. Banking institutions are exposed to credit risk in the event the buyer or counterparty fails to pay for the asset sold under the Murābahah contract. iii) Diminishing Mushārakah (a) A banking institution may enter into a Diminishing Mushārakah contract with an obligor for the purpose of providing financing based on a joint ownership of an asset, with the final objective of transferring the ownership of the asset to the obligor in the contract. (b) The contract allows the obligor to gradually purchase the banking institution’s share of ownership in an asset/real estate or equity in an enterprise over the life of the contract under an agreed repayment terms and conditions which reflect the purchase consideration payable by the obligor to acquire the banking institution’s share of ownership. (c) As part of the mechanism to allow the obligor to acquire the banking institution’s share of ownership, the banking institution and obligor may agree to lease the asset/real estate to the obligor. The agreed amount of rental payable can be structured to reflect the progressive acquisition of the banking institution’s share of ownership by the obligor. Eventually, the full ownership BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 33 / 506 Issued on: 3 May 2019 of the asset will be transferred to the obligor as it continues to service the rental payment. In this regard, the banking institution is exposed to credit risk similar to an exposure under the Mushārakah with Ijārah contract. (d) However, if the exposure under the Diminishing Mushārakah contract consists of share equity in an enterprise, the banking institution shall measure its risk exposure using the treatment for equity risk. 2.71(i) The following table specifies the treatment for the determination of credit risk weights of Mushārakah contracts: Contract Applicable Stage of the Contract (When banking institutions start providing capital) Determination of Risk Weight Mushārakah for equity holding in banking book Holding of equity 100% risk weight for publicly traded equity and 150% risk weight for non- publicly traded equity; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix VII. Mushārakah for project financing Funds advanced to joint venture 150% risk weight38; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix VII. Mushārakah with sub- contract Exposure to credit risk As set out under the sub- contract. 38 The Bank reserves the right to increase the risk weight if the risk profile of the exposure is deemed higher. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 34 / 506 Issued on: 3 May 2019 MUDĀRABAH 2.72 A Mudārabah contract is an agreement between a banking institution and an obligor whereby the banking institution contributes a specified amount of capital funds to an enterprise or business activity that is to be managed by the obligor as the entrepreneur (Mudārib). As the capital provider, the banking institution is at risk of losing its capital investment (capital impairment risk) disbursed to the Mudārib. Profits generated by the enterprise or business activity are shared in accordance with the terms of the Mudārabah agreement whilst losses are borne solely by the banking institution (capital provider)39. However, losses due to misconduct, negligence or breach of contracted terms40 by the entrepreneur, shall be borne solely by the Mudārib. In this regard, the amount of capital invested by the banking institution under the Mudārabah contract shall be treated similar to an equity exposure. 2.73 Mudārabah transactions can be carried out:  on a restricted basis, where the capital provider authorises the Mudārib to make investments based on a specified criteria or restrictions such as types of instrument, sector or country exposures; or  on an unrestricted basis, where the capital provider authorises the Mudārib to exercise its discretion in business matters to invest funds and undertake business activities based on the latter’s skills and expertise. 2.74 In addition, transactions involving Mudārabah contracts may generally be sub-divided into two categories as follows: 39 Losses borne by the capital provider would be limited to the amount of capital invested. 40 Banking institutions are encouraged to establish and adopt stringent criteria for definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 35 / 506 Issued on: 3 May 2019 I. EQUITY PARTICIPATION IN AN ENTITY TO UNDERTAKE BUSINESS VENTURES 2.75 This type of Mudārabah contract exposes the banking institution to risks akin to an equity investment, which is similar to the risk assumed by an equity holder in a venture capital or a joint-venture investment. As an equity investor, the banking institution assumes the first loss position and its rights and entitlements are subordinated to the claims of creditors. II. INVESTMENT IN PROJECT FINANCE 2.76 The banking institution’s investment in the Mudārabah contract with a Mudārib is for the purpose of providing bridging finance to a specific project. This type of contract exposes the banking institution to capital impairment risk in the event that the project suffers losses. Under this arrangement, the banking institution as an investor provides the funds to the construction company or Mudārib that manages the construction project and is entitled to share the profit of the project in accordance to the agreed terms of the contract and must bear the full losses (if any) arising from the project. 2.77 There may be situations where the risk profile of money market instruments based on Mudārabah contracts may not be similar to an equity exposure given the market structure and regulatory infrastructure governing the conduct of the market. In particular, Mudārabah interbank investments in the domestic Islamic money market would attract the credit risk of the banking institution instead of equity risk despite having similarities in the contractual structure. 2.77(i) The following table summarises the treatment for the determination of risk weights for Mudārabah contracts: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 36 / 506 Issued on: 3 May 2019 Contract Applicable Stage of the Contract (When banking institutions start providing capital) Determination of Risk Weight Mudārabah for equity holding in banking book Holding of equity 100% risk weight for publicly traded equity and 150% risk weight for non- publicly traded equity; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix VII. Mudārabah for project financing Amount receivable from Mudārib in respect of progress payments due from ultimate customers If a binding agreement exists for ultimate customers to pay directly to banking institution: Based on external rating of ultimate customer (Type of customer as per Part B.2.2 Definition of Exposures Remaining balance of funds advanced to the Mudārib. 150% risk weight41; or Supervisory slotting criteria method subject to fulfilling minimum requirements as per Appendix VII. SUKŪK 2.78 Sukūk contracts are certificates that represent the holder’s proportionate ownership in an undivided part of an underlying asset where the holder assumes all rights and obligations to such assets. 2.79 Sukūk contracts can be broadly categorised into:  asset-based sukūk, such as in the case of Salam, Istisnā` and Ijārah; and  equity-based sukūk, such as in the case of Mushārakah or Mudārabah. 41 The Bank reserves the right to increase the risk weight if the risk profile of the exposure is deemed higher. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 37 / 506 Issued on: 3 May 2019 2.80 This part sets out the treatment for Sukūk held in the banking book. The treatment for Sukūk held in trading book is addressed in the market risk component of this framework. 2.81 The risk weight for sukūk that are rated by a recognised ECAI is determined based on the ECAI’s external credit assessment as per Part B.2.2 Definition of Exposures. In the case of unrated sukūk, the risk weight is determined based on the underlying contract of the sukūk. QARDH 2.81(i) Qardh is a loan given by a banking institution for a fixed period, where the borrower is contractually obliged to repay only the principal amount borrowed. In this contract, the borrower is not obligated to pay an extra amount (in addition to the principal amount borrowed) at his absolute discretion as a token of appreciation to the banking institution. 2.81(ii) Banking institutions are exposed to credit risk in the event that the borrower fails to repay the principal loan amount in accordance to the agreed repayment terms. Hence, the credit risk exposure commences upon the execution of the Qardh contract between the banking institution and the borrower. 2.82(iii) The risk weight for Qardh is determined based on the type of exposure as per Part B.2.2 Definition of Exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 38 / 506 Issued on: 3 May 2019 B.2.4 OFF-BALANCE SHEET ITEMS 2.82 Off-balance sheet items shall be treated similarly to the Basel 1 framework, where the credit risk inherent in each off-balance sheet instrument is translated into an on-balance sheet exposure equivalent (credit equivalent) by multiplying the nominal principal amount with a credit conversion factor (CCF); and the resulting amount then being weighted according to the risk weight of the counterparty. 2.83 In addition, counterparty risk weights for over-the-counter (OTC) derivative transactions will be determined based on the external rating of the counterparty and will not be subject to any specific ceiling. 2.84 The CCFs for the various types of off-balance sheet instruments are as follows: Instrument CCF a. Direct credit substitutes, such as general guarantees of indebtedness including standby letters of credit serving as financial guarantees for loans and securities), acceptances (including endorsements with the character of acceptances) and credit derivatives (if the banking institution is the protection seller). 100% b. Certain transaction-related contingent items, such as performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions. 50% c. Short-term self-liquidating trade-related contingencies, such as documentary credits collateralised by the underlying shipments. The credit conversion factor shall be applied to both the issuing and confirming banks. 20% d. Assets42 sold with recourse, where the credit risk remains with the selling institution. 100% e. Forward asset purchases, and partly-paid shares and securities, which represent commitments with certain drawdown. 100% f. Obligations under an on-going underwriting 50% 42 Item (d), which includes housing loans sold to Cagamas Bhd, and (e), should be risk-weighted according to the type of asset (housing loan) and not according to the counterparty (i.e. Cagamas) with whom the transaction has been entered into. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 39 / 506 Issued on: 3 May 2019 Instrument CCF agreement (including underwriting of shares/ securities issue) and revolving underwriting facilities. g. Lending of banking institutions’ securities or the posting of securities as collateral by banking institutions, including instances where these arise out of repo-style transactions. (i.e. repurchase / reverse repurchase and securities lending / borrowing transactions. 100% h. Derivatives contracts. Credit equivalent to be derived using current exposure method43 as given in Appendix VIII. i. Other commitments, such as formal standby facilities and credit lines, with an original maturity of over one year. 50% j. Other commitments, such as formal standby facilities and credit lines, with an original maturity of up to one year. 20% k. Any commitments that are unconditionally cancelled at any time by the banking institution without prior notice or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness. 0% Refer to paragraph 2.84(i) l. Unutilised credit cards lines. 20% 2.84 (i) Any commitments that are unconditionally and immediately cancellable and revocable by the banking institution or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice, will be subject to 0% CCF. To utilise the 0% CCF, the banking institution must demonstrate that legally, it has the ability to cancel these facilities and that its internal control systems and monitoring practices are adequate to support timely cancellations which the banking institution does effect in practice upon evidence of a deterioration in a borrower’s creditworthiness. Banking institutions should also be able to demonstrate that such cancellations have not exposed the 43 The credit equivalent exposure is based on the sum of the positive mark-to-market replacement cost of the contract and the potential future exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 40 / 506 Issued on: 3 May 2019 banking institution to legal actions, or where such actions have been taken, the courts have decided in favour of the banking institution. 2.85 Where there is an undertaking to provide a commitment on an off-balance sheet item44, banking institutions can apply the lower of the two applicable credit conversion factors. 2.86 In addition to the computation under item (h) above, counterparty credit risk may also arise from unsettled securities, commodities, and foreign exchange transactions from the trade date, irrespective of the booking or accounting transaction. Banking institutions are encouraged to develop, implement and improve systems for tracking and monitoring the credit risk exposures arising from unsettled transactions as appropriate for producing management information that facilitates action on a timely basis. When these transactions are not processed via a delivery-versus-payment system (DvP) or a payment-versus-payment (PvP) mechanism, these transactions are subject to a capital charge as calculated in Appendix IX. 2.87 Banking institutions must also closely monitor securities, commodities, and foreign exchange transactions that have failed, starting from the first day they fail. The capital treatment for these failed transactions is also calculated based on Appendix IX. B.2.5 CREDIT RISK MITIGATION 2.88 This section outlines general requirements for the use of credit risk mitigation and eligibility criteria, detailed methodologies and specific requirements with respect to the following CRM techniques: i) Collateralised transactions; ii) On-balance sheet netting; and iii) Guarantee and credit derivatives. 44 Such as commitments to provide letters of credit or guarantees for trade purposes. For example, if a banking institution provides the customer a committed limit on the amount of letters of credit they can issue over a one-year period, with the customer drawing on this committed limit over time. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 41 / 506 Issued on: 3 May 2019 2.89 No additional CRM will be recognised for capital adequacy purposes on exposures where the risk weight is mapped from a rating specific to a debt security where that rating already reflects CRM. For example, if the rating has already taken into account a guarantee pledged by the parent of the borrower, then the guarantee shall not be considered again for credit risk mitigation purposes. 2.90 While the use of CRM techniques reduces or transfers credit risk, it may introduce or increase other risks such as legal, operational, liquidity and market risk. Therefore, it is imperative that banking institutions control these risks by employing robust policies, procedures and processes including strategies to manage these risks, valuation, systems, monitoring and internal controls. Banking institutions must be able to demonstrate to the Bank that it has adequate risk management policies and procedures in place to control these risks arising from the use of CRM techniques. In any case, the Bank reserves the right to take supervisory action under Pillar 2 should the banking institution’s risk management in relation to the application of CRM techniques be insufficient. In addition, banking institutions will also be expected to observe Pillar 3 requirements45 in order to obtain capital relief in respect of any CRM techniques. Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques 2.91 In order to obtain capital relief for use of any CRM technique, the following minimum conditions must be fulfilled: i) all documentation used in collateralised transactions and for documenting on-balance sheet netting, guarantees and credit derivatives must be binding on all parties and legally enforceable in all relevant jurisdictions; ii) sufficient assurance from legal counsel has been obtained with respect to the legal enforceability of the documentation; and 45 Please refer to Guidelines on Risk-Weighted Capital Adequacy Framework (Basel II) – Disclosure Requirements (Pillar 3) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 42 / 506 Issued on: 3 May 2019 iii) periodic review is undertaken to confirm the ongoing enforceability of the documentation. 2.92 In addition to the above, for banking institutions operating with an Islamic banking operations, where the CRM technique is applied on Islamic banking exposures to obtain capital relief, the collateral used in the CRM computation must be fully Sharī`ah-compliant. 2.93 In general, only collateral and/or guarantees that are actually posted and/or provided under a legally enforceable agreement are eligible for CRM purposes. A commitment to provide collateral or a guarantee is not recognised as an eligible CRM technique for capital adequacy purposes until the commitment to do so is actually fulfilled. Credit Risk Mitigation Techniques Collateralised Transactions 2.94 A collateralised transaction is one in which: i) banking institutions have a credit exposure or potential credit exposure; and ii) that credit exposure or potential credit exposure is hedged in whole or in part by collateral posted by a counterparty or by a third party on behalf of the counterparty. 2.95 For collateralised transactions, banking institutions may opt for either the simple approach (paragraphs 2.107 to 2.114), which, similar to the Basel I framework, substitutes the risk weight of the collateral for the risk weight of the counterparty for the collateralised portion of the exposure, or the comprehensive approach (from paragraph 2.115 to 2.137), which allows greater offset of collateral against exposures, by effectively reducing the exposure amount by the value ascribed to the collateral. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 43 / 506 Issued on: 3 May 2019 2.96 The comprehensive approach for the treatment of collateral will also be applied to calculate counterparty risk charges for over-the-counter (OTC) derivatives and repo-style transactions in the trading book. 2.97 Banking institutions shall adopt any of the two approaches for exposures in the banking book and this approach must be applied consistently within the banking book. (This rule however, does not apply to Islamic banking exposure, whereby the banking institutions are allowed to use simple approach for recognition of non-physical asset collateral and the comprehensive approach for physical asset collateral concurrently). For the trading book, only the comprehensive approach is allowed. Partial collateralisation is recognised in both approaches. Mismatches in the maturity of the underlying exposure and the collateral will only be allowed under the comprehensive approach. 2.98 Banking institutions shall indicate upfront to the Bank which approach it intends to adopt for CRM purposes. Any subsequent migration to a different approach shall also be communicated to the Bank. Minimum Requirements for Collateralised Transactions 2.99 In addition to the general requirements specified under paragraphs 2.91 to 2.93, the legal mechanism by which collateral is pledged or transferred must ensure that the banking institution has the right to liquidate or take legal possession of the collateral in a timely manner in the event of default, insolvency or bankruptcy of the counterparty. Furthermore, banking institutions must take all steps necessary to fulfill those requirements under the law to protect their interest in the collateral. 2.100 For collateral to provide effective cover, the credit quality of the counterparty and the value of collateral must not have a material positive correlation. For example, securities issued by the counterparty or a related BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 44 / 506 Issued on: 3 May 2019 counterparty46 as a form of collateral against a loan would generally be materially correlated, thus providing little cover and therefore would not be recognised as eligible collateral. 2.101 Banking institutions must have clear and robust procedures for timely liquidation of collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed and that collateral can be liquidated promptly. 2.102 A capital requirement will be applied on either side of a collateralised transaction. For example, both repurchase and reverse repurchase agreements will be subject to capital requirements. Likewise, both sides of securities lending and borrowing transactions will be subject to explicit capital charges, as will the posting of securities in connection with a derivative exposure or other borrowing. However, sale and buyback agreement (SBBA) and reverse SBBA transactions will not be deemed as collateralised transactions given that they involve outright purchase and sale transactions. Please refer to Appendix XIX for the capital treatment for these transactions. 2.103 Where banking institutions are acting as an agent, arranges a repo-style transaction (i.e. repurchase/reverse repurchase and securities lending/ borrowing transactions) between a customer and a third party and provides a guarantee to the customer that the third party will perform its obligations, then the risk to the banking institution is the same as if the banking institution had entered into the transaction as a principal. In such circumstances, a banking institution will be required to allocate capital requirement as if it were itself the principal. 2.104 Where collateral is held by a custodian, banking institutions must take reasonable steps to ensure good custody of that collateral and take 46 As defined under Single Counterparty Exposure Limit. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 45 / 506 Issued on: 3 May 2019 reasonable steps to ensure that the custodian segregates the collateral from its own assets. Eligible Collateral 2.105 In the computation of capital adequacy requirements for collateralised transactions, the following collateral instruments are eligible for recognition under the simple and comprehensive approach subject to the minimum conditions specified above being met: Approach Collateral Recognised Simple Approach  Cash47 (including certificate of deposits or comparable instruments issued by the lending banking institution) on deposit48 with the bank which is incurring the counterparty exposure49  Gold  Debt securities/Sukūk rated by ECAIs where the risk weight attached to the debt securities is lower than that of the borrower  Debt securities/Sukūk unrated by a recognised ECAI but fulfil the following conditions:  Issued by a banking institution;  Listed on recognised exchange;  Classified as senior debt;  All rated issue of the same seniority by the issuing bank that are rated at least BBB- or A-3/P-3 or any equivalent rating; and  The Bank is sufficiently confident about the market liquidity of the debt security/sukūk.  Equities (including convertible bonds/sukūk) that are included in the main index (refer to Appendix X)  Funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) where  A price for the units is publicly quoted daily, and  The unit trust funds/mutual fund is limited to investing in the financial instruments listed in this table. (The use or potential use by a fund of derivative instruments solely to hedge investments listed in this table shall not prevent units in that fund from being an eligible financial collateral.) Comprehensive Approach  All of the above, and:  Equities (including convertible bonds/sukūk) which are not included in a main index i.e. Composite Index of Bursa Malaysia but which 47 Cash pledged includes `urbūn (or earnest money held after a contract is established as collateral to guarantee contract performance) and hamish jiddiyyah (or security deposit held as collateral) in Islamic banking contracts (for example, Ijārah) 48 Structured deposits and Restricted Investment Accounts would not qualify as eligible financial collateral. 49 Cash funded credit linked notes issued by the banking instituion against exposures in the banking book which fulfil the criteria for credit derivatives will be treated as cash collateralised transactions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 46 / 506 Issued on: 3 May 2019 Approach Collateral Recognised are listed on a recognised exchange (refer to Appendix X)  Funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) which include equities that are not included in a main index i.e. Composite Index of Bursa Malaysia but which are listed on a recognised exchange. (refer to Appendix X) 2.106 Under certain Islamic banking transactions such as Murābahah, Salam, Istisna’ and Ijārah, underlying physical assets, namely commercial and residential real estate50 as well as plant and machinery are recognised as collateral or risk mitigant. These physical assets could be recognised as eligible collateral subject to fulfilling the minimum requirements specified under the comprehensive approach as well as additional criteria specified in Appendix XI. Simple Approach 2.107 Under this approach, where an exposure on a counterparty is secured against eligible collateral, the secured portion of the exposure must be weighted according to the risk weight appropriate to the collateral. The unsecured portion of the exposure must be weighted according to the risk weight applicable to the original counterparty. 2.108 For collateral used under the simple approach, the collateral must be pledged for at least the entire life of the exposure, it must be marked-to- market and re-valued at a minimum frequency of 6 months. The portion of exposure collateralised by the market value of the recognised collateral will receive the risk weight applicable to the collateral instrument. The risk weight on the collateralised portion will be subject to a floor of 20% except under the conditions specified in paragraphs 2.110 to 2.112. The 50 Exposures that fulfil the criteria of loans secured by residential properties and hence, are entitled to receive the qualifying residential mortgage risk weight are not allowed to use the underlying residential real estate as a credit risk mitigant. This also applies to exposures which do not meet the criteria for loans secured by residential properties but meet the criteria for exposures classified under the regulatory retail portfolio. In addition, banking institutions do not have the option to classify exposures secured by residential properties or the regulatory retail portfolio as exposures to corporate specifically to enjoy the benefits of credit risk mitigation. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 47 / 506 Issued on: 3 May 2019 remainder of the exposure shall be assigned the original risk weight accorded to the counterparty. 2.109 In determining the appropriate risk weight to be assigned on collateral pledged by the counterparty, banking institutions should refer to risk weight tables specified under Appendix III. For collateral denominated in local currency, banking institutions must use the risk weight linked to domestic currency ratings. Similarly, the risk weight linked to foreign currency ratings should be used if collateral pledged is denominated in foreign currency. Exceptions to the Risk Weight Floor 2.110 Transactions which fulfill the criteria outlined in paragraph 2.125 and are done with a core market participant, as defined in paragraph 2.127, will receive a risk weight of 0%. If the counterparty to the transaction is not a core market participant but fulfill all condition on paragraph 2.130, the transaction should receive a risk weight of 10%. 2.111 A 0% risk weight can also be applied where the exposure and the collateral are denominated in the same currency, and either:  the collateral is cash on deposit as defined in paragraph 2.105; or  the collateral is in the form of securities eligible for a 0% risk weight, and its market value has been discounted by 20%. 2.112 OTC derivative transactions subject to daily mark-to-market, collateralised by cash and where there is no currency mismatch should also receive a 0% risk weight. Such transactions collateralised by sovereign or PSE securities qualifying for a 0% risk weight can also receive a 10% risk weight. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 48 / 506 Issued on: 3 May 2019 Collateralised OTC Derivatives Transactions51 2.113 As specified in Appendix VIII, the calculation of the counterparty credit risk charge for an individual contract will be as follows: Counterparty Charge = [(RC + add-on) – CA] x r x 8% Where: RC = the replacement cost add-on = the amount for potential future exposure calculated according to Appendix VIII. CA = the volatility adjusted collateral amount under the comprehensive approach R = the risk weight of the counterparty 2.114 When effective bilateral netting contracts are in place, RC will be the net replacement cost and the add-on will be ANet 52 as calculated according to Appendix VIII. The haircut for currency risk (Hfx) should be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where there are more than two currencies involved in the exposure, collateral and settlement currency, a single haircut assuming a 10-business day holding period scaled up as necessary depending on the frequency of mark-to-market will be applied. Comprehensive Approach 2.115 Under the comprehensive approach, when taking collateral, banking institutions must calculate an adjusted exposure amount to a counterparty after risk mitigation, E*. This is done by applying volatility adjustments to both the collateral and the exposure53 , taking into account possible future price fluctuations. Unless either side of the transaction is cash, the volatility adjusted amount for the exposure shall be higher than the actual exposure and lower than the collateral. 51 For example, collateralised interest rate swap transactions. 52 Add-on for netted transactions. 53 Exposure amounts may vary where, for example, securities are being lent. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 49 / 506 Issued on: 3 May 2019 2.116 The adjusted exposure amount after risk mitigation shall be weighted according to the risk weight of the counterparty to obtain the risk-weighted asset amount for the collateralised transaction. 2.117 When the exposure and collateral are held in different currencies, an additional downward adjustment must be made to the volatility adjusted collateral to take account of possible future fluctuations in exchange rates. Calculation of Capital Requirement 2.118 Under the comprehensive approach, the adjusted exposure amount after risk mitigation for collateralised transactions is calculated as follows:      FXCE HHCHEE*  110,max where: E* = The exposure value after risk mitigation E = Current value of the exposure HE = Haircut appropriate to the exposure C = The current value of the collateral received HC = Haircut appropriate to the collateral HFX = Haircut for currency mismatch between the collateral and exposure Standard Supervisory Haircuts 2.119 For purposes of applying the comprehensive approach for collateralised transactions, the standard supervisory haircuts54 (H), expressed as percentage, are as follows: Issue Rating for Debt Securities/Sukūk Residual Maturity Sovereign Other Issues AAA to AA-/A-1 < 1 year 0.5 1 > 1 year, < years 5 2 4 > 5 years 4 8 A+ to BBB-/A-2 to A- 3/P-3 and unrated bank securities/sukūk < 1 year 1 2 > 1 year, < years 5 3 6 >5 years 6 12 BB+ to BB- All 15 Main index equities (including convertible bonds/sukūk) and Gold 15 Other equities (including convertible bonds/sukūk) listed on a recognised exchange 25 54 Assuming daily mark-to-market, daily remargining and 10-business day holding period, except for physical assets that are subjected to minimum annual revaluation as per Appendix XI. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 50 / 506 Issued on: 3 May 2019 Issue Rating for Debt Securities/Sukūk Residual Maturity Sovereign Other Issues Funds (e.g. collective investment schemes, unit trust funds, mutual funds) Highest haircut applicable to any security in which the fund can invest at any one time. Cash in the same currency 0 CRE/RRE/Other physical collaterals (only available as credit risk mitigants for Islamic banking exposures)55 30 Currency mismatch 8 2.120 For transactions in which a banking institution lends non-eligible instruments (e.g. non-investment grade corporate debt securities/sukūk), the haircut to be applied on the exposure should be the same as that for other equities, i.e. 25% Adjustment to standard supervisory haircuts for different holding periods and non-daily mark-to-market or re-margining 2.121 For some transactions, depending on the nature and frequency of revaluation and re-margining provisions, different holding periods are appropriate. In this regard, the framework for collateral haircuts distinguishes between repo-style transactions (repurchase/reverse repurchase agreement and securities lending/borrowing), other capital market transactions (OTC derivatives transaction and margin lending) and secured lending. 2.122 The minimum holding period for the various products is summarised in the following table: Transaction Type Minimum Holding Period Condition Repo-style transaction Five business days Daily re-margining Other capital market transaction Ten business days Daily re-margining Secured lending Twenty business days Daily revaluation 55 While the Bank has provided a minimum 30% haircut on other types of physical collateral, banking institutions should exercise conservatism in applying haircuts on physical assets’ value used as CRM for capital requirement purposes. In this regard, banking institutions are expected to use a more stringent haircut should their internal historical data on the disposal of physical assets reveal loss amounts which reflect a haircut of higher than 30%. Please refer to Appendix XIX for additional requirements for recognition of other physical collateral. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 51 / 506 Issued on: 3 May 2019 2.123 When the frequency of re-margining or revaluation is longer than the minimum, the minimum haircut numbers will be scaled up depending on the actual number of business days between re-margining or on the revaluation using the square root of time formula below:   M MR M T 1TN HH   Where: H = Haircut HM = Haircut under the minimum holding period TM = Minimum holding period for the type of transaction NR = Actual number of business days between re-margining for capital market transactions or revaluations for secured transactions When a banking institution calculates the volatility on a TN day holding period which is different from the specified minimum holding period TM, the HM will be calculated using the square root of time formula: N M NM T T HH  Where: TN = Holding period used by the banking institution for deriving HN HN = Haircut based on the holding period TN 2.124 For banking institutions using the standard supervisory haircuts, the 10- business day haircuts provided in paragraph 2.119 will be the basis and this haircut will be scaled up or down depending on the type of transactions and the frequency of re-margining or revaluation using the formula below:   10 1TN HH MR 10   Where: H = Haircut H10 = 10-business day standard supervisory haircut for instrument BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 52 / 506 Issued on: 3 May 2019 NR = Actual number of business days between re-margining for capital market transactions or revaluation for secured transactions TM = Minimum holding period for the type of transaction Conditions for Zero Haircut 2.125 For repo-style transactions, a banking institution may apply a zero haircut instead of the supervisory haircuts specified under the comprehensive approach for CRM purposes where the following conditions are satisfied and the counterparty is a core market participant.  Both the exposure and the collateral are cash or a sovereign security qualifying for a 0% risk weight in the standardised approach;  Both the exposure and collateral are denominated in the same currency;  Either the transaction is overnight or both the exposure and the collateral are marked-to-market daily and are subject to daily re- margining;  Following a counterparty’s failure to re-margin, the time that is required between the last mark-to-market before the failure to re-margin and the liquidation of the collateral is considered to be no more than four business days;  The transaction is settled across a settlement system proven for that type of transaction;  The documentation covering the agreement is standard market documentation for repurchase/reverse repurchase agreements and securities/lending borrowing transactions in the securities concerned;  The transaction is governed by documentation specifying that if the counterparty fails to satisfy an obligation to deliver cash or securities or to deliver margin or otherwise defaults, then the transaction is immediately terminable; and  Upon any default event, regardless of whether the counterparty is insolvent or bankrupt, the banking institution has the unfettered, legally enforceable right to immediately seize and liquidate the collateral for its benefit. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 53 / 506 Issued on: 3 May 2019 2.126 However, this carve-out will not be made available for banking institutions using the VaR modelling approach as described in paragraphs 2.133 to 2.137. 2.127 For the purpose of applying the zero haircut, the following entities are considered core market participants: i) The Federal Government of Malaysia; ii) Bank Negara Malaysia; and iii) Licensed banking institutions and Islamic banking institutions in Malaysia. 2.128 Where other national supervisors have accorded a similar treatment to core market participants of their jurisdictions, banking institutions can also apply a similar treatment to these exposures. However, the Bank reserves the right to review the treatment for these transactions if the treatment is deemed to be inappropriate. Treatment of repo-style transactions covered under master netting agreement 2.129 The effects of bilateral netting agreements covering repo-style transactions will be recognised on a counterparty-by-counterparty basis if the agreements are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of whether the counterparty is insolvent or bankrupt. In addition, the netting agreement must: i) provide the non-defaulting party the right to terminate and close-out in a timely manner all transactions under the agreement upon event of default, including in the event of insolvency or bankruptcy of the counterparty; ii) provide for the netting of gains and losses in transactions (including the value of any collateral) terminated and closed out under it so that single net amount is owed by one party to the other; iii) allow for the prompt liquidation or setoff of collateral upon the event of default; and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 54 / 506 Issued on: 3 May 2019 iv) be legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of the counterparty’s insolvency or bankruptcy, together with the rights arising from the provisions required above. 2.130 In addition, all repo-style transactions should be subjected to the Global Master Repurchase Agreement (GMRA) with its relevant annexes that specify all terms of the transaction, duties and obligations between the parties concerned. Banking institutions must also ensure that other requirements specified under the Bank’s current guidelines on repo-style transactions have also been met. 2.131 Netting across positions in the banking and trading book will only be recognised when the netted transactions fulfill the following conditions: i) all transaction are marked to market daily; and ii) the collateral instruments used in the transactions are recognised as eligible financial collateral in the banking book. 2.132 The following formula will be applied to take into account the impact of master netting agreements:            FXFXSS HEHECEE ,0max* 56 where E* = The exposure value after risk mitigation E = Current value of the exposure C = The value of the collateral received ES = Absolute value of the net position in given security HS = Haircut appropriate to Es EFX = Absolute value of the net position in a currency different from the settlement currency HFX = Haircut appropriate for currency mismatch 56 The starting point for this formula is the formula in paragraph 2.118 which can also be presented as the following: E* = max {0, [(E -C) + (E x He) + (C x Hc) + (C x Hfx)]}. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 55 / 506 Issued on: 3 May 2019 Use of VaR Models 2.133 As an alternative to the use of standard supervisory haircuts for eligible collateral under the comprehensive approach, banking institutions also may be allowed to use a VaR models approach to reflect the price volatility of the exposure and collateral for repo-style transactions, taking into account correlation effects between security positions. This approach would apply to repo-style transactions covered by bilateral netting agreements on a counterparty-by-counterparty basis as well as other similar transactions (like prime brokerage), that meet the requirements for repo-style transactions. 2.134 The VaR models approach is available to banking institutions that have received the Bank’s approval to use internal market risk models for purposes of calculating the market risk component of this framework. Banking institutions which have yet to receive approval to use the internal market risk models can separately apply to use internal VaR models for calculating price volatility for repo-style transactions. These internal models will only be accepted when a banking institution can prove to the Bank the quality of the model through the backtesting of its output using one year of historical data. 2.135 In this regard, the Bank would expect that static, historical backtesting on representative counterparty portfolios be part of the model validation process. In addition, these representative portfolios must be chosen based on their sensitivity to the material risk factors and correlations to which the banking institution is exposed. 2.136 The quantitative and qualitative criteria for the recognition of internal market risk models for repo-style transactions and other similar transactions are in principle the same as under the market risk component of this framework. With regard to the holding period, the minimum will be 5-business days, rather than the 10-business days under market risk component of this framework. For other transactions eligible for the VaR BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 56 / 506 Issued on: 3 May 2019 models approach, the 10-business days holding period will be retained. The minimum holding period should be adjusted upwards for market instruments where such holding period would be inappropriate given the liquidity of the instrument concerned. 2.137 The calculations of the exposure E* for banking institutions using their internal market risk model will be the following:    VaRCEE   ,0max* Where E* = The exposure value after risk mitigation E = Current value of the exposure C = The value of the collateral received VaR = VaR output from internal market risk model On-Balance Sheet Netting 2.138 Banking institutions are allowed to compute credit exposures on a net basis for capital requirements where banking institutions have legally enforceable netting arrangements for loans and deposits57. 2.139 In addition, banking institution can only apply on-balance sheet netting on any exposure if the following conditions have be met: strong legal basis that the netting or off-setting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is in default, insolvent or bankrupt,  able to determine at any time all assets and liabilities with the same counterparty that are subject to netting agreement,  monitors and controls roll-off risks58, and  monitors and controls the relevant exposure on a net basis. 57 Structured deposits and Restricted Investment Account would not be recognised for on-balance sheet netting. 58 Roll-off risks relate to the sudden increases in exposure which can happen when short dated obligations (for example deposits) used to net long dated claims (for example loans) mature. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 57 / 506 Issued on: 3 May 2019 2.140 The computation of net exposure to a particular counterparty for capital adequacy computation purposes is similar to that specified for collateralised transactions under paragraph 2.118, where assets (loans) will be treated as exposures and liabilities (deposits) as collateral. For on- balance sheet netting, the haircut will be zero except where there is a currency mismatch. A 10-business day holding period will apply when daily mark-to-market is conducted and all the requirements contained in paragraphs 2.119, 2.124, and 2.155 to 2.158 will apply. 2.141 The net exposure amount will be multiplied by the risk weight of the counterparty to obtain risk-weighted assets for the exposure following the on-balance sheet netting. Guarantees and Credit Derivatives 2.142 For a guarantee or credit derivative to be eligible for CRM, the following conditions must be met: i) the guarantee or credit derivative must represent a direct claim on the protection provider and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and cannot be disputed; ii) the credit protection contract must be irrevocable except where the credit protection purchaser has not made the payment due to their protection provider. The protection provider must also not have the right to unilaterally cancel the credit cover or increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure; and iii) The contract must not have any clause or provision outside the direct control of the banking institution that prevents the protection provider from being obliged to pay in a timely manner in the event that the original counterparty fails to make the payment(s) due. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 58 / 506 Issued on: 3 May 2019 Additional operational requirements specific for guarantees and credit derivatives as specified in paragraphs 2.144 and 2.145 respectively must be met. 2.143 The substitution approach will be applied in determining capital relief for exposures protected by guarantees or credit derivatives. Where an exposure on a counterparty is secured by a guarantee from an eligible guarantor, the portion of the exposure that is supported by the guarantee is to be weighted according to the risk weight appropriate to the guarantor (unless the risk weight appropriate to the original counterparty is lower). The unsecured portion of the exposure must be weighted according to the risk weight applicable to the original obligor. Additional Operational Requirements for Guarantees 2.144 In addition to the requirements on legal certainty of the guarantee specified in paragraphs 2.91 to 2.93, all the following conditions must also be satisfied: i) On the default/non-payment of the counterparty, the banking institution may in a timely manner pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor may pay at once all monies under such documentation to the banking institution, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee; ii) The guarantee undertaking is explicitly documented; and iii) Except as noted in the following sentence, the guarantee covers all types of payments the borrower is expected to make under the documentation governing the transaction, such as notional amount, margin payments etc. Where a guarantee covers payment of principal only, interests and other uncovered payments should be treated as unsecured amounts in line with the treatment for proportionally covered exposures under paragraph 2.151. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 59 / 506 Issued on: 3 May 2019 2.144 (i) For a banking institution to recognise trade credit insurance or trade credit takaful as CRM, the banking institution must: i) be both the policy owner or takaful participant and the person covered, as the case may be; ii) not be the assignee, or assign the benefits of the policy or takaful certificate to another party; iii) establish, at minimum, the following policies and procedures:  a process to determine and verify the completeness and appropriateness of documentation, and information required for submission to the licensed insurer or licensed takaful operator;  a mechanism to monitor specified deadlines and credit standing of obligors (i.e. the buyer of trade goods); and  a process for timely and regular communication between the banking institution and the licensed insurer or licensed takaful operator; and iv) obtain a legal opinion59 confirming that the policy or takaful certificate is unconditional60 and irrevocable61 as required for CRM recognition under this policy document. Additional Operational Requirement for Credit Derivatives 2.145 For a credit derivative contract to be recognised, the following conditions must be satisfied: i) Credit events specified by the contracting parties must at least cover:  Failure to pay the amounts due under terms of the underlying obligation at the time of such failure; 59 Banking institutions may rely on in-house legal expertise or obtain opinion from an external legal firm. 60 The conditions for a policy or takaful certificate to qualify as “unconditional” are stipulated in paragraph 2.142 iii). Exclusionary clauses relating to fraudulent, criminal acts, and insolvency of banks and losses caused by nuclear or harmful substance contamination and war between major countries would not cause the trade credit insurance or trade credit takaful to be deemed as conditional. 61 The conditions for a policy or takaful certificate to qualify as “irrevocable” are stipulated in paragraph 2.142 ii). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 60 / 506 Issued on: 3 May 2019  Bankruptcy, insolvency and inability of the borrower to pay its debts, or its failure or admission in writing of its inability generally to pay its debt as they become due, and analogous events; and  Restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that results in a credit loss event (i.e. charge off, provision or other similar debt to the profit and loss account). However, when restructuring is not specified as a credit event but the other requirements in this paragraph are met, partial recognition of the credit derivatives will be allowed, as follows: – If the amount of credit derivatives is less than or equal to the amount of underlying obligation, 60% of the amount of the hedge can be recognised as covered. – If the amount of the credit derivative is larger than that of the underlying obligation, then the amount of eligible hedge is capped at 60% of the amount of the underlying obligation. ii) The credit derivatives shall not terminate prior to expiration of any grace period required for a default on the underlying obligation to occur as a result of a failure to pay, subject to the provision of paragraph 2.156; iii) Credit derivatives allowing for cash settlement are recognised for capital purpose insofar as a robust valuation process is in place in order to estimate loss reliably. There must be a clearly specified period for obtaining post-credit-event valuation of the underlying obligation; iv) If the contract requires the protection purchaser to transfer the underlying obligation to the protection provider at settlement, the terms of the underlying obligation must provide that consent to such transfer should not be unreasonably withheld; v) The identity of the parties responsible for determining whether a credit event has occurred must be clearly defined. This determination must not be the sole responsibility of the protection seller. The protection BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 61 / 506 Issued on: 3 May 2019 buyer must have the right/ability to inform the protection provider of the occurrence of a credit event; vi) A mismatch between the underlying obligation and the obligation used for purposes of determining whether a credit event has occurred is permissible if  the latter obligation ranks pari passu with or is junior to the underlying obligation, and  the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross acceleration clauses are in place; and vii) If the credit derivatives cover obligations that do not include the underlying obligation, a mismatch between the underlying and the reference obligation for the credit derivative (i.e. the obligation used for purposes of determining cash settlement value of the deliverable obligation) is permissible if  the reference obligation ranks pari passu with or is junior to the underlying obligation, and  the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross-acceleration clauses are in place. 2.146 For credit derivatives, only credit default swaps and total return swaps that provide credit protection equivalent to guarantees will be eligible for recognition. No recognition is given where banking institutions buy credit protection through a total return swap and record the net payments received on the swap as net income, but does not record offsetting deterioration in the value of the asset that is protected (either through reductions in fair value or by an addition to reserve). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 62 / 506 Issued on: 3 May 2019 2.147 Banking institutions also have to demonstrate to the supervisors that any additional minimum requirements of risk management practices outlined in the Bank’s current guidelines are met62. Range of Eligible Guarantors/Credit Protection Providers 2.148 Credit protection given by the following entities will be recognised: i) sovereign entities63, PSEs, banks and securities firms with a lower risk weight than the counterparty; and ii) other entities rated BBB- or better. This would include credit protection provided by parent, subsidiary and affiliate companies when they have a lower risk weight than the obligor. 2.148(i) Banking institutions shall only recognise trade credit insurance or trade credit takaful as CRM if obtained from a licensed insurer, licensed takaful operator64 or prescribed development financial institution with a minimum rating of BBB-. 2.148(ii) For trade credit insurance or trade credit takaful ceded to a reinsurer or retakaful operator, banking institutions shall only recognise these as CRM if the reinsurer or retakaful operator is rated at least BBB-, and the reinsurance or retakaful contract– i) fulfils the requirements of a guarantee in this policy document; ii) provides an equally robust level of protection65 as the trade credit policy or takaful certificate between the banking institution and the licensed insurer, licensed takaful operator or prescribed development financial institution; and 62 [Deleted] 63 This includes the Bank for International Settlement, the International Monetary Fund, the European Central Bank and the European Community, as well as those MDBs referred to in footnote 13. 64 Refers to licensed insurers under FSA or licensed takaful operators under IFSA. 65 To the extent possible, similar terms as per the trade credit insurance policy or takaful certificate between the banking institution and the licensed insurer, licensed takaful operator or a prescribed development financial institution must be included. For example, the reinsurance contract must give similar effect to the risks covered, exclusions and claims payment timeline as the insurance policy/takaful certificate. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 63 / 506 Issued on: 3 May 2019 iii) includes a specific clause in the legal documentation that enables the banking institution to pursue claim payments directly from the reinsurer or retakaful operator when there is a default in payment of claims by the licensed insurer, licensed takaful operator or prescribed development financial institution. Risk Weights 2.149 The protected portion is assigned the risk weight of the protection provider. The uncovered portion of the exposure is assigned the risk weight associated with the borrower. 2.150 Any amount for which the banking institution will not be compensated for in the event of loss shall be recognised as first loss positions and risk- weighted at 1250% by the banking institution purchasing the credit protection. Proportional and Tranched Cover 2.151 Where partial coverage exists, or where there is a currency mismatch between the underlying obligation and the credit protection, the exposure must be split into covered and uncovered amount. The treatment is outlined below: Proportional Cover  Where the amount guaranteed, or against which credit protection is held, is less than the amount of the exposure, and the secured and unsecured portions are equal in seniority, i.e. the banking institution and guarantor share losses on a pro-rata basis, capital relief will be accorded on a proportional basis with the remainder being treated as unsecured. Tranched Cover  Where: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 64 / 506 Issued on: 3 May 2019 ­ a banking institution transfers a portion of the risk of an exposure in one or more tranches to a protection seller(s) and retains some level of risk of the exposure; and ­ the portion of risk transferred and retained are of different seniority, the banking institution may obtain credit protection for either the senior tranche (e.g. second loss portion) or the junior tranche (e.g. first loss portion). In this case, the rules as set out in the securitisation component of this framework will apply. Currency Mismatches 2.152 Where the credit protection is denominated in a currency different from that in which the exposure is denominated, a haircut, HFX, shall be applied on the exposure protected, as follows  FXHGGA  1 where: G = Nominal amount of the credit protection HFX = Haircut appropriate for currency mismatch between the credit protection and underlying obligation. 2.153 The supervisory haircut will be 8%. The haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the credit protection as described in paragraph 2.123. Sovereign Guarantees and Counter-Guarantees 2.154 As specified in paragraph 2.16, a lower risk weight may be applied to banking institution’s exposures to sovereign or central bank, where the banking institution is incorporated and where the exposure is denominated in domestic currency and funded in that currency. This treatment is also extended to portions of exposures guaranteed by the sovereign or central bank, where the guarantee is denominated in the domestic currency and the exposure is funded in that currency. An exposure may be covered by a guarantee that is indirectly counter-guaranteed by a sovereign. Such an BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 65 / 506 Issued on: 3 May 2019 exposure may be treated as covered by a sovereign guarantee provided that:  the sovereign counter-guarantee covers all credit risk elements of the exposure;  both the original guarantee and the counter-guarantee meet all operational requirements for guarantees, except that the counter- guarantee need not be direct and explicit to the original exposure; and  The Bank is satisfied that the cover is robust and that no historical evidence suggests that the coverage of the counter-guarantee is less than effectively equivalent to that of a direct sovereign guarantee. Maturity Mismatches 2.155 For calculating RWA, a maturity mismatch occurs when the residual maturity of a hedge is less than that of the underlying exposure. (i) Definition of Maturity 2.156 The maturity of the underlying exposure and the maturity of the hedge should both be defined conservatively. The effective maturity of the underlying should be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, taking into account any applicable grace period. For the hedge, embedded options which may reduce the term of the hedge should be taken into account so that the shortest possible effective maturity is used. Where a call is at the discretion of the protection seller, the maturity will always be at the first call date. If the call is at the discretion of the protection buying banking institution but the terms of the arrangement at origination of the hedge contain a positive incentive for the banking institution to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the effective maturity. For example, where there is a step-up in cost in conjunction with a call feature or where the effective cost of cover increases over time even if credit quality remains the same or increases, the effective maturity will be the remaining time to the first call. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 66 / 506 Issued on: 3 May 2019 (ii) Risk weights for Maturity Mismatches 2.157 Hedges with maturity mismatches are only recognised when their original maturities are greater than or equal to one year. As a result, the maturity of hedges for exposure with original maturities of less than one year must be matched to be recognised. In all cases, hedges with maturity mismatches will no longer be recognised when the have a residual maturity of the three months or less. 2.158 When there is a maturity mismatch with recognised credit risk mitigants (collateral, on-balance sheet netting, guarantees and credit derivatives) the following adjustment will be applied:    25.0 25.0    T t PPa where: Pa = Value of the credit protection adjusted for maturity mismatch P = Credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = Min (T, residual maturity of the credit protection arrangement) expressed in years T = Min (5, residual maturity of the exposure) expressed in years Other Aspects of Credit Risk Mitigation Treatment of Pools of Credit Risk Mitigation Techniques 2.159 When multiple credit risk mitigation techniques are used to cover a single exposure, the exposure should be divided into portions which are covered by each type of credit risk mitigation technique. The risk-weighted assets of each portion must be calculated separately. Where credit protection provided by a single guarantor has different maturities, these must also be divided into separate portions. 2.160 In addition, where a single transaction is attached to multiple forms of credit risk mitigants, banking institutions are able to obtain the largest capital relief possible from the risk mitigants. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 67 / 506 Issued on: 3 May 2019 First to Default Credit Derivatives 2.161 There are cases where a banking institution obtains protection for a basket of reference names and where the first default among the reference names triggers the credit protection and the credit event also terminates the contract. In this case, the banking institution may recognise regulatory capital relief for the asset within the basket with the lowest risk-weighted amount, but only if the notional amount is less than or equal to the notional amount of the credit derivative. 2.162 The following is an example of the computation based on a basket of three assets: Asset Amount Risk Weight Risk-weighted Exposure A RM 100 100% RM100 B RM 100 100% RM100 C RM 100 50% RM 50 Total RM250 Asset C has the lowest risk-weighted exposure and therefore is protected. Assuming the risk weight of the protection seller is 20%, the risk-weighted exposure after credit risk mitigation is RM100 (for Asset A) + RM100 (for Asset B) + RM20 (for Asset C) (being RM100 X 20%) giving a total of RM220. 2.163 With regard to the banking institution providing credit protection through such an instrument, if the product has an external credit assessment from an eligible ECAI, the risk weight as specified under the Securitisation Framework66 will be applied. If the product is not rated by an eligible external credit assessment institution, the risk weights of the assets included in the basket will be aggregated up to a maximum of 1250% and 66 Refer to Part F. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 68 / 506 Issued on: 3 May 2019 multiplied by the nominal amount of the protection provided by the credit derivative to obtain the risk-weighted asset amount. Second to Default Credit Derivatives 2.164 In the case where the second to default among the assets within the basket triggers the credit protection, the banking institution obtaining credit protection through such a product will only be able to recognise any capital relief if first default protection has also been obtained or when one of the assets within the basket has already defaulted. 2.165 For banking institutions providing credit protection through such a product, the capital treatment is the same as in paragraph 2.161 above with one exception. The exception is that, in aggregating the risk weights, the asset with the lowest risk-weighted amount can be excluded from the calculation. Floor for Exposures Collateralised by Physical Assets 2.166 For banking institutions with Islamic banking operations, the RWA for exposures collateralised by physical assets shall be the higher of: i) RWA calculated using the CRM method; or ii) 50% risk weight applied on the gross exposure amount (i.e. before any CRM effects). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 69 / 506 Issued on: 3 May 2019 B.3 THE INTERNAL RATINGS BASED APPROACH B.3.1 ADOPTION OF THE IRB APPROACH Adoption of IRB Across Asset Classes 3.1 Once a banking institution within a banking group adopts the IRB approach, the entire banking group would be expected to adopt a similar approach, except for those permanently exempted asset classes in paragraph 3.4. This is to avoid cherry-picking of assets to be put under the IRB approach. A phased rollout of the IRB approach across the banking group is allowed based on the following: i) Adoption of IRB approach across individual asset class67/sub-classes68 within the same business unit; ii) Adoption of IRB approach across business units in the same banking group; and iii) Move from the foundation IRB approach to advanced IRB approach for certain risk components. However, when a banking institution adopts the IRB approach for an asset class within a particular business unit (or in the case of retail exposures across an individual sub-class), it must apply the IRB approach to all exposures within that asset class (or sub-class) in that particular unit. 3.2 Banking institutions should produce an implementation plan, specifying the intended roll out of the IRB approaches across significant asset classes (or sub- classes in the case of retail) and business units within the group over time. The plan should be exacting yet realistic, and must be agreed with the Bank. It should be driven by the practicality of operations and the feasibility of moving towards adopting the more advanced approaches, and should not be dictated by the desire to minimise any capital charges. In this respect, during the roll-out period, no capital relief shall be allowed for any intra-group transactions that are designed to reduce banking group’s aggregate capital charges by transferring credit risks among entities on either the standardised, foundation or advanced 67 Generally, at entity level, conventional and Islamic assets can be combined as one asset class for IRB purposes. 68 For example, residential mortgage is a sub-class of retail asset class. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 70 / 506 Issued on: 3 May 2019 IRB approaches. This includes, but is not limited to, asset sales or cross guarantees. 3.3 In general, the Bank would expect that all exposure classes or portfolios that represent material parts of a banking institution’s businesses in terms of size or in terms of risk are covered by the IRB approach. 3.4 Permanent exemptions from the requirements set under paragraphs 3.1 to 3.3 may be granted at both entity and group level for the following exposures: i) Exposures69 to sovereigns, central banks, banking institutions and public sector entities (PSE)70; ii) Equity holdings in entities whose debt qualifies for 0% risk weight under the standardised approach; iii) Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association71 subject to a limit of 10% of the banking institution’s Total Capital; iv) Immaterial72 equity holdings, as determined on a case-by-case basis; and v) Entities and asset classes (or sub-classes in the case of retail) that are immaterial in terms of size and perceived risk profile. These exposures would be deemed immaterial if the aggregate credit RWA (computed using the standardised approach) of these exposures cumulatively account for less than or equal to 15% of total credit RWA of the banking institution at the group and entity level (not at asset class level). The RWA shall be determined net of credit risk mitigation. 69 Exemption may be applied where the number of material counterparties is limited and it would be unduly burdensome for the banking institution to implement a rating system for these counterparties. 70 Refer to Part B.2.2 for the definition of PSEs. 71 Such as Cagamas Berhad and Credit Guarantee Corporation Malaysia Berhad. 72 Deemed material if the aggregate value, excluding those identified under paragraph 3.4(iii), exceeds on average over the prior year, 10% of banking institution’s Total Capital. This threshold is lowered to 5% if the equity portfolio consists of less than 10 individual holdings. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 71 / 506 Issued on: 3 May 2019 3.5 Capital requirements for assets under permanent exemption will be determined according to the standardised approach. These exposures may attract additional capital under Pillar 2 if the Bank perceives that the regulatory capital calculated using the standardised approach is deemed insufficient vis-à-vis the level of risk. The Bank may also require banking institutions to adopt the IRB approach for these exposures if the approach is considered to be more appropriate to capture the risk levels 73. 3.6 Refer to the diagrammatic illustration and formulae for the computation of permanent exemption in Appendix XXII. For avoidance of doubt, investment in equities of non-financial commercial subsidiaries which are accorded a 1250% risk weight will not be included in the IRB coverage ratio computation. 3.7 For equity exposures, the Bank may require banking institutions to employ the PD/LGD or the internal models approach instead of the simple risk weight approach if a particular banking institution’s equity exposures are a significant part of its business. These approaches are described in detail in Part B.3.5. 3.8 Once a banking institution has adopted the IRB approach for corporate exposures, it will be required to adopt the IRB approach for the Specialised Lending (SL) sub-classes within the corporate exposure class. However, a phased roll-out for SL sub-classes is allowed provided the banking institution can prove that the SL exposures do not represent a disproportionately high level of credit risk74. 3.9 Given the data limitations associated with SL exposures, banking institutions may remain on the supervisory slotting criteria (SSC) approach for one or more of the SL sub-classes and move to the foundation or advanced approach for other sub-classes within the corporate asset class. However, banking institutions can only move the high volatility commercial real estate sub-class to 73 For example, a small portfolio of exposures to high risk borrowers. 74 This can be demonstrated by providing sufficient representative evidence that the SL exposures are generally of strong to satisfactory rating, based on the SSC in this framework. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 72 / 506 Issued on: 3 May 2019 the advanced approach only if it has done so for material income-producing real estate exposures. The approaches for SL exposures are described in detail in Part 3.5. Adoption of IRB for Islamic Banking Assets 3.10 The IRB principles and methodologies outlined in this framework are also applicable to Islamic banking assets, subject to adherence to Shariah rules and principles. However, in determining the capital requirement for Islamic banking assets, it is important for banking institutions to understand the specificities of the products and the related risk profile based on the different Shariah contracts as described in Appendix XXIII. This includes the risk profile arising from the application of the ‘look-through’ approach for investment account placements made with Islamic banking institutions. The ‘look-through’ approach is described in Appendix XXIV. 3.11 Banking institutions that extend the application of an IRB model for conventional banking assets to the Islamic banking assets (within an entity or banking group) shall ensure that the models or approach adopted are representative of the risk profile of the Islamic banking assets. In this regard, banking institutions are required to: i) Provide empirical analysis to support the case for using the conventional IRB model and its parameters for the Islamic banking assets prior to obtaining the Bank’s approval for IRB migration; ii) Perform periodic back-testing using Islamic banking asset data; and iii) Collect data on Islamic banking assets by each Shariah contract for the purpose of future modelling requirements. 3.12 The possibility of Islamic banking institutions leveraging on the IRB infrastructure at the group level does not absolve Islamic banking institutions from the requirement to implement effective oversight arrangements at the entity level. Islamic banking institutions shall have in place an internal process in the bank and a formal avenue at group level to ensure that any outcome or decisions made at the group level is suitable and relevant for application at the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 73 / 506 Issued on: 3 May 2019 entity level. Similarly, banking institutions licensed under FSA with Islamic banking operations adopting the IRB approach across both its conventional and Islamic banking assets should also ensure the relevance and consistency of the application of the IRB approach for the Islamic banking assets. Implementation Timelines and Transition Period 3.13 Banking institutions may adopt the IRB framework from 1 January 2010. The transition period will be applicable to certain banking institutions depending on the implementation timeline for migration to the IRB approach as described in Appendix XXV. Banking institutions are required to obtain prior written approval from the Bank before adopting the IRB framework. 3.14 During the transition period, in relation to the permanent exemption under paragraph 3.4(v), banking institutions may deem exposures to be immaterial if the aggregate credit RWA (computed using the standardised approach) of these exposures cumulatively account for less than or equal to 25% of total credit RWA of the banking institution at the group and entity level (not at asset class level). The RWA shall be determined net of credit risk mitigation. Banking institutions are required to revert to the threshold specified in paragraph 3.4(v) by the end of the transition period. Refer to the diagrammatic illustration and formulae for the computation of temporary exemption in Appendix XXII. 3.15 As most banking institutions intending to adopt the IRB approach are still in the process of strengthening their overall risk management capabilities involving data quality and risk measurement system enhancements and embedding the use of ratings into the day-to-day business processes in order to comply with the requirements set under this framework, full and immediate adherence to certain minimum requirements may not be possible at the time of implementation of this framework. As such, the Bank will allow certain flexibility during the transition period for certain minimum requirements relating to historical data observation period for risk estimation and use test: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 74 / 506 Issued on: 3 May 2019 Risk Estimation i) At the start of the transition period, the minimum length of the underlying historical data observation period is two years for at least one data source. This flexibility applies to: ­ PD estimation under foundation IRB for corporate, sovereign, and bank exposures; ­ estimating loss characteristics (EAD, and either EL or PD and LGD) for retail exposures; and ­ PD/LGD approach for equity. This requirement will increase by one year for each of the three years of transition in a manner that the required minimum historical data of five years is achieved by the end of the transition period. ii) Despite the flexibility allowed on the requirement of historical data, banking institutions are expected to use additional information which are relevant and of longer history75 to reflect the following requirements: ­ PD estimates must be representative of long-term average; ­ LGD estimates for retail exposures must reflect downturn conditions; and ­ EAD estimates for volatile retail exposures must also reflect downturn conditions. Governance, Oversight and Use of Internal Ratings iii) Banking institutions are only required to demonstrate that the rating systems that have been used, are broadly in line with the minimum requirements for at least one year prior to the start of the transition period for corporate, sovereign, bank, and retail exposures. A credible track record is required in all areas except for capital management and strategy which will only be required at the end of the transition period. By its very nature, the use of internal ratings is likely to improve as more experience and knowledge are gained by banking institutions. Therefore, 75 Examples of such information include historical write-offs, historical provisions, historical NPL/impairment classifications, published bankruptcy rates, published default studies. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 75 / 506 Issued on: 3 May 2019 banking institutions should utilise the transition period as an opportunity to continually enhance the use of internal ratings. 3.16 Despite the flexibility given during the transition period, banking institutions would be required to demonstrate steady progress towards compliance with the full set of minimum requirements by the end of the transition period. 3.17 Banking institutions with shorter than three-year transition period should be mindful that full compliance with data and use test requirements must be achieved by the end of the transition period. 3.18 No transitional arrangement will be made available for banking institutions adopting the advanced IRB approach, other than for retail exposures. Adherence to all applicable minimum requirements from the outset is necessary given the increased reliance on banking institutions’ internal assessments and the greater risk sensitivity of the advanced IRB approach. Determination of Capital Requirements under the IRB approach 3.19 The determination of capital requirement under the IRB approach involves six critical segments as follows:  Categories of exposures - categorisation of assets into six classes;  Risk components - estimates of risk drivers or parameters namely PD, LGD, EAD and effective maturity (M);  Credit risk mitigation;  Risk weight functions - the means by which the risk components are transformed into RWA to compute capital requirements for UL;  The treatment of EL; and  Minimum requirements - the specific minimum standards for the use of the IRB approach for a given asset class. 3.20 There are six asset classes under the IRB approach. For many of the asset classes, there are two broad approaches - a foundation and an advanced approach as outlined below: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 76 / 506 Issued on: 3 May 2019 Asset Class Available Approaches Estimates Corporate (including SL) Sovereign Bank Foundation Own PD, supervisory LGD, EAD and M Advanced Own PD, LGD, EAD and M SSC (for SL, where requirements for estimation of PD, LGD and EAD are not met) Supervisory risk weights Retail Advanced only Own PD, LGD, EAD and M Equity in the banking book Market based - simple risk weight Supervisory risk weights Market based - internal models Own value-at-risk measure PD/LGD Own PD and supervisory LGD Purchased receivables Foundation (not available for retail receivables) Own PD, supervisory LGD, EAD and M Advanced Own PD, LGD, EAD and M 3.21 Under the foundation approach, banking institutions provide internal estimates of PD and rely on supervisory estimates for other risk components. Under the advanced approach, banking institutions provide internal estimates of PD, LGD, EAD, and M. 3.22 For both the foundation and advanced approaches, banking institutions are expected to use risk weight functions provided under this framework for the purpose of deriving capital requirements. In the event that there is no specified IRB treatment for a particular exposure (and this exposure is not accorded 0% risk weight under the standardised approach), that exposure should be subject to 100% risk weight. The resulting RWA for such exposure is assumed to represent UL only76. 76 Banking institutions will not be required to compute EL for these exposures as elaborated under paragraph 3.221. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 77 / 506 Issued on: 3 May 2019 B.3.2 CATEGORIES OF EXPOSURES 3.23 Under the IRB approach, banking institutions must categorise banking book exposures into broad classes of assets with different underlying risk characteristics, consistent with the definitions set out below. Definition of Corporate Exposures, including Specialised Lending 3.24 In general, a corporate exposure is defined as a debt obligation of a corporation, partnership, or proprietorship. Banking institutions may distinguish separately exposures to small and medium-sized corporates77 from those to large corporates. 3.25 Exposures to securities firms, insurance companies, unit trust and asset management companies shall also be treated as exposures to corporates. 3.26 Within the corporate asset class, five sub-classes of SL are identified. Such lending would possess all of the following characteristics, either in legal form or economic substance: i) The exposure is typically to a special purpose vehicle (SPV) created specifically to finance and/or operate physical assets; ii) The borrowing entity has little or no other material assets or activities, and therefore little or no independent capacity to repay the obligation, apart from the income from the asset(s) being financed; iii) The terms of the obligation give the banking institution a substantial degree of control over the asset(s) and the income that it generates; and iv) Due to the factors in (i) to (iii) above, the primary source of repayment of the obligation is the income generated by the asset(s), rather than the independent capacity of a broader commercial enterprise. 77 Defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 78 / 506 Issued on: 3 May 2019 3.27 The five sub-classes of SL are project finance, object finance, commodities finance, income-producing real estate, and high-volatility commercial real estate. Each of these sub-classes is defined below. Project Finance i) Project finance (PF) is a method of funding in which the banking institution looks primarily to the revenues generated by a single project, both as the source of repayment and security for the exposure. This type of financing is usually for large, complex and expensive installations that might include power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure (mainly immovable assets). Project finance may also take the form of financing for the construction of a new capital installation, or refinancing of an existing installation, with or without improvements. ii) In such transactions, the banking institutions are normally paid solely or almost exclusively from the proceeds generated by the project being financed, such as electricity sold by a power plant. The borrower is usually an SPV that is not permitted to perform any function other than developing, owning, and operating the installation. In contrast, if repayment of the exposure depends primarily on a well-established, diversified, credit-worthy, contractually obligated corporate end user for repayment, it is considered a collateralised claim on the corporate. Object Finance i) Object finance (OF) refers to a method of funding the acquisition of physical assets (not of the manufacturing of such physical assets type, which should be deemed as normal corporate or PF if it qualifies) that might include ships, aircraft, satellites, railcars, fleet of cars and trucks (mainly movable assets), where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the banking institution. A primary source of these cash flows might be rental or lease contracts with one or several third parties (hence a ring-fencing requirement). In contrast, if the exposure is to a borrower whose financial condition and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 79 / 506 Issued on: 3 May 2019 debt-servicing capacity enables it to repay the debt without undue reliance on the specifically pledged assets, the exposure should be treated as a collateralised corporate exposure. Commodities Finance i) Commodities finance (CF) refers to structured short-term lending to finance reserves, inventories, or receivables of exchange-traded commodities (e.g. crude oil, metals, or crops), where the exposure will be repaid from the proceeds of the sale of the commodity and the borrower has no independent capacity to repay the exposure. The structured nature of the financing is also designed to compensate for potential concerns relating to credit quality of the borrower. The exposure’s rating reflects its self-liquidating nature and the banking institution’s skill in structuring the transaction rather than the credit quality of the borrower. ii) The Bank expects for CF to be distinguished from exposures financing the reserves, inventories, or receivables of other more diversified corporate borrowers. Banking institutions should rate the credit quality of the latter type of borrowers based on their broader ongoing operations. In such cases, the value of the commodity serves as a risk mitigant rather than as the primary source of repayment. Income-Producing Real Estate i) Income-producing real estate (IPRE) refers to a method of providing funding to real estate such as office buildings for rental, retail space, residential houses, multifamily residential buildings, industrial or warehouse space, and hotels, where the prospects for repayment and recovery (in the event of default) depend primarily on the cash flows generated by the asset/property. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset. The borrower may be an SPV, an operating company focused on real estate construction or holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 80 / 506 Issued on: 3 May 2019 the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property. High-Volatility Commercial Real Estate i) High-volatility commercial real estate (HVCRE) lending refers to financing of commercial real estate that exhibits higher loss rate volatility (i.e. higher asset correlation) compared to other types of SL. HVCRE includes:  Loans financing any of the land acquisition, development and construction (ADC) phases for such properties (excluding residential- related development); and  Loans financing ADC for any other properties where, unless the borrower has substantial equity at risk, the source of repayment at origination of the exposure is either: ­ the future uncertain sale of the property; or ­ cash flows whose source of repayment is substantially uncertain (e.g. the property has not yet been leased up to the occupancy rate normally prevailing in that geographic market for that type of commercial real estate78). Commercial ADC loans exempted from treatment as HVCRE loans on the basis of certainty of repayment of borrower equity are, however, ineligible for the preferential risk weights for SL exposures described in paragraph 3.168.  Commercial real estate exposures secured by other properties that are specifically categorised by the Bank from time to time as sharing higher volatilities in portfolio default rates. Definition of Sovereign Exposures 3.28 This asset class covers exposures to sovereigns and central banks. It also includes exposures to Multilateral Development Banks (MDBs) that meet the 78 Where only booking fee has been obtained, instead of the signing of sales and purchase agreement or rental/lease agreement, which would cause this exposure to be classified as IPRE. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 81 / 506 Issued on: 3 May 2019 criteria for a 0% risk weight79 under the standardised approach, the Bank for International Settlements, the International Monetary Fund, the European Central Bank and the European Community. Definition of Bank Exposures 3.29 This asset class mainly covers exposures to other banking institutions. It also includes the following:  Claims on domestic non-federal government PSEs that are eligible for 20% risk weight under the standardised approach; and  Claims on MDBs that do not meet the criteria for 0% risk weight under the standardised approach. Definition of Retail Exposures 3.30 Retail exposures are exposures that meet all the following criteria80:  Exposures to individuals81; or  Loans extended to small businesses and managed as retail exposures, provided that the total exposure of the banking group to the small business borrower (on a consolidated basis, where applicable) is less than RM5 million. Small business loans extended through or guaranteed by an individual are subject to the same exposure threshold. Small businesses may include sole proprietorships, partnerships or small and medium-sized enterprises (SMEs)82; and  The specific exposure must be part of a large group of exposures, which are managed by the banking institution on a pooled basis. 79 Refer to Part B.2.2 for the definition of MDBs. 80 For Islamic banking assets, the retail exposures shall be based on contracts that create a similar credit risk profile to those commonly structured using the Murābahah or Ijārah/Ijārah Muntahia Bittamleek contract. The specificities of these Shariah contracts are elaborated in Appendix III. 81 Includes residential mortgages, revolving credits and lines of credit (e.g. credit cards, overdrafts and retail facilities secured by financial instruments) as well as personal term loans and leases (e.g. instalment loans, auto loans and leases, student and educational loans, personal finance) and other exposures with similar characteristics. 82 SMEs in the agriculture and services sector are defined as having annual sales of up to RM5 million or 50 full-time employees. For the manufacturing sector, SMEs have been defined as having annual sales of up to RM25 million or 150 full-time employees. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 82 / 506 Issued on: 3 May 2019 3.31 Small business exposures below RM5 million may be treated as retail exposures if the banking institution treats such exposures in its internal risk management systems consistently over time and in the same manner as other retail exposures. This requires for such exposures to be originated in a similar manner to other retail exposures. Furthermore, it must not be managed individually in a way comparable to corporate exposures, but rather as part of a portfolio segment or pool of exposures with similar risk characteristics for purposes of risk assessment and quantification83. 3.32 Notwithstanding paragraphs 3.30 and 3.31, banking institutions implementing the IRB approach are required to have in place and effectively implement policies and procedures which outline triggers for closer monitoring with corresponding actions (e.g. re-rating using a different scorecard) that should be taken in respect of larger exposures. This applies to both exposures to individuals as well as exposures to small businesses below the prescribed regulatory threshold. 3.33 Within the retail asset class, banking institutions are required to identify separately three sub-classes of exposures:  exposures secured by residential properties;  qualifying revolving retail exposures; and  all other retail exposures. I. Exposures Secured by Residential Properties 3.34 Exposures are defined as secured by residential properties84 if the following criteria are met85: i) the borrower is an individual person/s; 83 The fact that an exposure is rated individually does not by itself deny its eligibility as a retail exposure. 84 Residential property means property which is zoned for single-family homes, multi-family apartments, townhouses and condominiums. It excludes shophouses which is categorised under other retail exposures. 85 Also applicable to financing structured under the Diminishing Mushārakah contract where the exposures are secured by residential properties. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 83 / 506 Issued on: 3 May 2019 ii) the residential properties are or will be occupied by the borrower, or is rented; iii) the loan is secured by first and subsequent legal charges, deeds of assignment or strata titles on the property; and iv) the property has been completed and a certificate of fitness has been issued by the relevant authority. Such exposures include term loans and revolving home equity lines of credit. II. Qualifying Revolving Retail Exposures 3.35 Qualifying revolving retail exposures (QRRE) generally include revolving credits and lines of credit such as credit cards and overdrafts. All the following criteria must be satisfied for a sub-portfolio to qualify as QRRE. These criteria must be applied at the sub-portfolio level, consistent with the banking institution’s retail segmentation approach: i) The exposures are revolving86, unsecured, and uncommitted (both contractually and in practice); ii) The exposures are to individuals; iii) The maximum exposure to a single individual in the sub-portfolio is RM500,000 or less; iv) Given the asset correlation assumptions for the QRRE risk weight function are markedly below those for the other retail risk weight function at low PD values, the banking institution must demonstrate that exposures identified as QRRE correspond to portfolios with low volatility of loss rates, relative to the average volatility of loss rates of portfolios within the low PD bands; v) Data on loss rates for the sub-portfolio must be retained in order to allow analysis of the volatility of loss rates; and vi) The treatment as a QRRE is consistent with the underlying risk characteristics of the sub-portfolio. 86 Revolving exposures are defined as those where customers’ outstanding balances are permitted to fluctuate based on their decisions to borrow and repay, up to a limit established by the banking institution. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 84 / 506 Issued on: 3 May 2019 III. Other Retail Exposures 3.36 Exposures that do not meet the criteria under paragraphs 3.34 or 3.35 will be categorised as other retail exposures. Definition of Equity Exposures 3.37 In general, equity exposures are defined on the basis of the economic substance of the instrument. It would include both direct and indirect ownership interests87, whether voting or non-voting, in an entity that is not consolidated or deducted pursuant to the Capital Adequacy Framework (Capital Components)88. An instrument is considered to be an equity exposure if it meets all of the following requirements:  it is irredeemable in the sense that the return of invested funds can be achieved only by the sale of the investment or the sale of the rights to the investment or by the liquidation of the issuer;  it is not an obligation of the issuer; and  it conveys a residual claim on the assets or income of the issuer. 3.38 Additionally, any of the following instruments should be categorised as an equity exposure:  an instrument with features similar to those which qualify as Tier 1 Capital for banking institutions; or  an instrument that is an obligation on the part of the issuer and meets any of the following conditions: - the issuer may defer the settlement of the obligation indefinitely; - the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a fixed number of the issuer’s equity shares; - the obligation requires (or permits at the issuer’s discretion) settlement by issuance of a variable number of the issuer’s equity shares and where 87 Indirect equity interests include holdings of derivative instruments tied to equity interests, and holdings in corporations, partnerships, limited liability companies or other types of enterprises that issue ownership interests and are engaged principally in the business of investing in equity instruments. 88 Where other countries retain their existing treatment as an exception to the deduction approach, such equity investments by IRB banking institutions are to be considered eligible for inclusion in their IRB equity portfolios. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 85 / 506 Issued on: 3 May 2019 changes in the value of the obligation is attributable and comparable to the change in the value of a fixed number of the issuer’s equity shares89; or, - the holder has the option to require settlement in equity shares, unless the banking institution is able to demonstrate to the Bank that the instrument merits to be treated as a debt90. In such cases, the banking institution may decompose the risks for regulatory purposes, with the consent of the Bank. 3.39 Debt obligations and other securities, partnerships, investments in funds91 (e.g. collective investment schemes, unit trusts), derivatives or other vehicles structured with the intent of conveying the economic substance of equity ownership are considered an equity holding92. This includes liabilities from which the return is linked to that of equities93. Conversely, instruments that are structured with the intent of conveying the economic substance of debt holdings (e.g. investments in funds which solely contain non-equity type of instruments) or securitisation exposures would not be considered an equity holding. 3.40 The Bank reserves the right to re-categorise debt holdings as equities for regulatory purposes to ensure consistent and appropriate treatment of holdings. Definition of Purchased Receivables Exposures 3.41 Purchased receivables refers to exposures from refinancing, factoring or discounting facilities granted by a banking institution based on the security of the debt agreements assigned from the original financier/seller. The facilities 89 For certain obligations that require or permit settlement by issuance of a variable number of the issuer’s equity shares, the change in the value of the obligation is equal to the change in the fair value of a fixed number of equity shares multiplied by a specified factor. Those obligations meet this condition if both the factor and the referenced number of shares are fixed. For example, an issuer may be required to settle an obligation by issuing shares with a value equal to three times the appreciation in the fair value of 1,000 equity shares. That obligation is considered to be the same as an obligation that requires settlement by issuance of shares equal to the appreciation in the fair value of 3,000 equity shares. 90 For example, where the instrument trades more like a debt of the issuer than its equity. 91 Investments in funds will normally be treated as equity exposures subject to paragraphs 3.91 and 3.92. 92 Equities that arise from a debt/equity swap made as part of the orderly realisation or restructuring of the debt are included in the definition of equity holdings. 93 The Bank may decide not to require that such liabilities be included where they are directly hedged by an equity holding, such that the net position does not involve material risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 86 / 506 Issued on: 3 May 2019 may or may not be with recourse to the seller. Transactions for loans originated by one banking institution and subsequently bought by another to hold on its books are excluded from this definition. Eligible purchased receivables are divided into retail and corporate receivables as defined below. I. Retail Receivables 3.42 Purchased retail receivables, provided the purchasing banking institution complies with the IRB rules for retail exposures, are eligible for the top-down approach as permitted for retail exposures under paragraphs 3.82 to 3.88. Under the top-down approach, the risk weight for the receivables pool is based on pool-level estimates of PD, LGD, or EL. The banking institution must also apply the minimum requirements as set forth in paragraphs 3.349 to 3.351. II. Corporate Receivables 3.43 In general, for purchased corporate receivables, banking institutions are expected to assess the default risk of individual receivables obligors as specified in Part B.3.5 consistent with the treatment of other corporate exposures. For purchased corporate receivables, this will be referred to as the bottom-up approach. However, the top-down approach may be permitted by the Bank, provided that the purchasing banking institution’s programme for corporate receivables complies with both the criteria for eligible receivables and the minimum requirements of the top-down approach. The use of the top-down purchased receivables treatment is limited to situations where it would be an undue burden to apply the minimum requirements under the IRB approach that would otherwise apply to corporate exposures. Primarily, it is intended for receivables that are purchased for inclusion in asset-backed securities, but banking institutions may use this approach, with the Bank’s approval, for appropriate on-balance sheet exposures that share the same features. 3.44 To be eligible for the ‘top-down’ treatment, purchased corporate receivables must satisfy the following conditions: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 87 / 506 Issued on: 3 May 2019  The receivables are purchased from unrelated, third party sellers, and the banking institution has not originated the receivables either directly or indirectly;  The receivables must be generated on an arm’s-length basis between the seller and the receivables obligor. (Consequently, inter-company accounts receivable and receivables that are subjected to contra-accounts94 between firms are excluded);  The purchasing banking institution has a claim on all proceeds from the pool of receivables or on a pro-rata interest in the proceeds95; and  The receivables do not exceed any of the following concentration limits: - The size of the purchased corporate receivables pool do not exceed 10% of the banking institution’s Total Capital; - The size of one individual exposure relative to the total pool does not exceed 0.2%. If the concentration limits are exceeded, capital charges must be calculated using the minimum requirements for the bottom-up approach for corporate exposures. 3.45 The existence of full or partial recourse to the seller does not automatically disqualify banking institution from adopting this top-down approach provided the cash flows from the purchased corporate receivables are the primary protection against default risk, as determined by the rules in paragraphs 3.200 to 3.203. In addition, the banking institution must fulfil the eligibility criteria and minimum requirements. 94 Contra-accounts involve a customer buying from and selling to the same firm. The risk is that debts may be settled through payments in kind rather than cash. Invoices between the companies may be offset against each other instead of being paid. This practice can defeat a security interest when challenged in court. 95 Claims on tranches of the proceeds (first loss position, second loss position, etc.) would fall under the securitisation treatment. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 88 / 506 Issued on: 3 May 2019 B.3.3 RISK COMPONENTS Risk Components for Corporate, Sovereign and Bank Exposures 3.46 There are two approaches that could be used under the IRB approaches for corporate, sovereign and bank exposures, namely the foundation and advanced approaches. For SL exposures, where banking institutions do not meet the minimum requirements for the estimation of PD, the banking institution must apply the SSC approach (outlined in paragraphs 3.166 to 3.169). Risk Components under the Foundation IRB Approach I. Probability of Default (PD) 3.47 PD for corporate, sovereign and bank exposures is defined as a one-year PD associated with the internal borrower grade to which that exposure is assigned to, subject to a floor of 0.03% in the case of corporate and bank exposures. The PD assigned to a default grade is 100%. The minimum requirements for the derivation of the PD estimates are outlined in paragraphs 3.315 to 3.317. II. Loss Given Default (LGD) 3.48 An estimate of LGD must be applied for each corporate, sovereign and bank exposure. Under the foundation approach, LGD estimates are determined by the Bank separately for: i) unsecured exposures; ii) exposures secured by eligible financial and non-financial collateral (including specified commercial and residential real estate (CRE/RRE), financial receivables and other physical collateral subject to the requirements in paragraphs 3.124 to 3.127); and iii) exposures secured by guarantees and credit derivatives. The eligible collateral, detailed methodology and minimum requirements for the use of supervisory LGD estimates for (ii) and (iii) are detailed in Part B.3.4 as well as in paragraphs 3.338 to 3.348. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 89 / 506 Issued on: 3 May 2019 Treatment of Unsecured Claims 3.49 Under the foundation approach, unsecured senior claims on corporates, sovereigns, banks and those not secured by a recognised collateral will be assigned LGD of 45%. 3.50 All subordinated claims on corporates, sovereigns and banks will be assigned LGD of 75%. A subordinated claim is a facility that is expressly subordinated (having a lower priority or claim against the borrower) to another facility. 3.51 Islamic banking assets structured using Mushārakah or Mudārabah contracts are required to apply LGD of 90%96. Treatment of Claims Secured by Eligible Financial and Non-Financial Collateral 3.52 Banking institutions that adopt the foundation approach are allowed to recognise eligible financial and non-financial collateral as prescribed under paragraphs 3.97 to 3.102, subject to compliance with specific requirements under paragraphs 3.118 to 3.127. 3.53 There are two methodologies for incorporating the effects of eligible collateral in calculating the LGD: i) For eligible financial collateral, the effective LGD will be calculated by weighting down the LGD with the percentage of exposure after risk mitigation (E*/E), where E* will be based on the comprehensive approach; and ii) For eligible non-financial collateral, the effective LGD will be determined based on the level of over-collateralisation of the exposure. These methodologies are explained further in paragraphs 3.103 to 3.117. 96 This refers to Mushārakah and Mudārabah exposures that have characteristics similar to a debt. Mushārakah and Mudārabah exposures with characteristics similar to equities will be subject to the requirements under paragraphs 3.178 to 3.196. However, for Mudārabah interbank transactions, the treatment in paragraphs 3.49 or 3.50 shall apply. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 90 / 506 Issued on: 3 May 2019 Treatment of Claims Secured by Guarantees and Credit Derivatives 3.54 Banking institutions adopting the foundation approach are only allowed to recognise eligible guarantors and protection providers as prescribed in paragraphs 3.128 to 3.129, subject to meeting specific requirements under paragraphs 3.139 to 3.144. 3.55 There are two methodologies for treating guarantees and credit derivatives: i) The substitution method, closely similar to that adopted under the standardised approach; and ii) The double default method, for exposures hedged by certain instruments. The methodologies are explained further in paragraphs 3.130 to 3.138. III. Exposure at Default (EAD) 3.56 All exposures are measured gross of specific provisions97 or partial write-offs. The EAD on drawn amounts should not be less than the sum of: i) the amount by which a banking institution’s regulatory capital would be reduced if the exposure were written-off fully; and ii) any specific provisions and partial write-offs. 3.57 The calculation of RWA is independent of any discount which is defined as the instrument’s EAD that exceeds the sum of (i) and (ii). Under the limited circumstances described in paragraph 3.227, discounts may be included in the measurement of total eligible provisions for purposes of the EL-provision calculation set out in Part B.3.6. Exposure Measurement for On-Balance Sheet Items 3.58 On-balance sheet netting of loans and deposits will be recognised subject to the requirements under paragraphs 3.145 to 3.147. Where currency or maturity 97 Specific provisions refer to loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9. These provisions are commonly known as Stage 3 provisions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 91 / 506 Issued on: 3 May 2019 mismatched on-balance sheet netting exists, the treatment is set out in paragraphs 3.134 and 3.155 to 3.158. Exposure Measurement for Off-Balance Sheet Items (with the exception of FX, Interest-Rate, Equity, and Commodity-Related Derivatives) 3.59 For off-balance sheet items, exposure is calculated as the committed but undrawn amount multiplied by a credit conversion factor (CCF). For the foundation approach, the CCF is determined by the Bank and would be the basis for calculating the off-balance sheet exposure. 3.60 The types of instruments and the applicable CCFs are outlined in Appendix XXVI. The CCFs are essentially the same as those under the standardised approach, with the exception of commitments, Note Issuance Facilities (NIFs) and Revolving Underwriting Facilities (RUFs). 3.61 A CCF of 75% will be applied to commitments, NIFs and RUFs regardless of the maturity of the underlying facility, except in cases where paragraph 3.62 applies. 3.62 Any commitments that are unconditionally and immediately cancellable and revocable by the banking institution or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice, will be subject to 0% CCF. To utilise the 0% CCF, the banking institution must demonstrate that legally, it has the ability to cancel these facilities and that its internal control systems and monitoring practices are adequate to support timely cancellations which the banking institution does effect in practice upon evidence of a deterioration in a borrower’s creditworthiness. Banking institutions should also be able to demonstrate that such cancellations have not exposed the banking institution to legal actions, or where such actions have been taken, the courts have decided in favour of the banking institution. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 92 / 506 Issued on: 3 May 2019 3.63 The amount to which the CCF is applied is the lower of: i) the value of the unused committed credit line, and ii) the value corresponding to possible constraints on the availability of the facility, such as a ceiling imposed on the potential lending amount which is related to a borrower’s reported cash flow. For such facilities, banking institutions must have adequate credit line monitoring and management procedures in place to administer the constraints in a consistent, timely and effective manner. Banking institutions must be able to demonstrate that breaches of internal controls or exceptions granted for such facilities in the past, if any, are rare and appropriately justified. 3.64 Where a commitment is obtained on another off-balance sheet exposure98, banking institutions are to apply the lower of the applicable CCFs. Exposure Measurement for Transactions with Counterparty Credit Risk Exposures 3.65 Measures of counterparty credit risk exposure arising from over-the-counter (OTC) derivative positions, securities financing transactions (SFT)99 and Sell and Buy Back Agreements (SBBA) under the IRB approach are based on the rules set forth in Part B.3.4, Appendix VIII, and Appendix XIX. IV. Effective Maturity (M) 3.66 Under the foundation approach, a banking institution- (a) must adopt a fixed M of 2.5 years; or (b) upon notifying the Bank, may internally estimate the M based on the requirements under paragraph 3.75, except for repo-style transactions where the M shall be 6 months. However, if in the opinion of the Bank there is a significant risk of underestimation of capital 98 Such as commitments to provide letters of credit or guarantees for trade purposes. An example is where a banking institution provides the customer with a committed limit on the amount of letters of credit they can issue over a one-year period, with the customer drawing on this committed limit over time. 99 Securities financing transactions are transactions such as repurchase agreements, reverse repurchase agreements, securities lending and borrowing, and margin lending transactions, where the value of the transactions are often subject to margin agreements. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 93 / 506 Issued on: 3 May 2019 using the fixed M, the Bank may require institutions to adopt the internal estimate method of M as defined in paragraph 3.75. In addition, if the banking institution lacks internal capability to adopt the internal estimate method, the Bank may require the institution to adopt the fixed method of M. Risk Components under the Advanced IRB Approach I. Probability of Default (PD) 3.67 Treatment of PD under the advanced approach is similar to the foundation approach as specified in paragraph 3.47. II. Loss Given Default (LGD) 3.68 Under the advanced approach, banking institutions are allowed to use internal estimates of LGD for corporate, sovereign and bank exposures. The methodology used in arriving at the LGD estimates is subject to additional minimum requirements specified in paragraphs 3.322 to 3.326, 3.330. LGD must be measured as a percentage of the EAD. 3.69 When the claims are secured by collateral, banking institutions must also establish internal requirements for collateral that are generally consistent with the general requirements for recognition of credit risk mitigation and the specific requirements for transactions secured by eligible financial collateral, eligible CRE/RRE, financial receivables and other physical collateral (set out in Part B.3.4). Treatment of Claims Secured by Guarantees and Credit Derivatives 3.70 The risk mitigating effect of guarantees and credit derivatives may be reflected through the following: i) by adopting the substitution method or the double default method specified under the foundation IRB approach; or ii) either adjusting PD or LGD estimates. Whether adjustments are done through PD or LGD, they must be done in a consistent manner for a given guarantee or credit derivative type. In doing so, banking institutions must not include the effect of double default in such adjustments. Thus, BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 94 / 506 Issued on: 3 May 2019 the adjusted risk weight must not be less than that of a comparable direct exposure to the protection provider. 3.71 Except as specified in the double default method, there are no limits to the range of eligible guarantors although the minimum requirements for guarantees and requirements for credit derivatives must be satisfied as set out in paragraphs 3.338 to 3.348. Treatment of Certain Repo-style Transactions 3.72 In addition to the methodology specified in paragraph 3.104, own LGD estimates would be permitted for the unsecured equivalent amount (E*). III. Exposure at Default (EAD) 3.73 Under the advanced approach, the general definition and the treatment for on- balance sheet items are similar to the foundation approach as specified in paragraphs 3.56 to 3.58. 3.74 For off-balance sheet items, banking institutions are allowed to use internal estimates of EAD across different product types, provided that the minimum requirements for own estimates of EAD from paragraphs 3.332 to 3.336 are met and the exposure is not subject to a CCF of 100% in the foundation approach as specified in Appendix XXVI. For transactions that expose banking institutions to counterparty credit risk, the requirement stipulated in paragraph 3.65 applies. IV. Effective Maturity (M) 3.75 Under the advanced IRB approach, M is measured for each facility as defined below (except as noted in paragraph 3.76): i) For an instrument subject to a determined cash flow schedule, remaining M is defined as: M     t t t t CF CFt BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 95 / 506 Issued on: 3 May 2019 where CFt denotes the cash flows (principal, interest payments and fees) contractually payable by the borrower in period t; ii) The estimated M must be performed on a pooled basis for exposures that are sufficiently homogenous. iii) If a banking institution is unable to calculate the M of the contracted payments using the formula above, the nominal maturity of the instrument under the terms of the loan agreement may be used100. iv) For derivatives subject to a master netting agreement, the weighted average maturity of the transactions should be used when applying the explicit maturity adjustment. Further, the notional amount of each transaction should be used for weighting the maturity. v) For revolving exposures, M must be determined using the maximum contractual termination date of the facility. Banks must not use the repayment date of the current drawing. vi) Notwithstanding paragraph 3.75(v), a banking institution must build in a sufficient level of conservatism in the computation of M for facilities which are “rolled over” beyond the maximum contractual tenure. vii) In all cases, M will be greater than one year but no greater than five years. 3.76 The one-year floor does not apply to certain short-term exposures, comprising fully or nearly-fully collateralised101 capital market-driven transactions (i.e. OTC derivatives transactions and margin lending) and repo-style transactions (i.e. repos/reverse repos and securities lending/borrowing) with an original maturity of less than one year, where the documentation contains daily remargining clauses. For all eligible transactions, the documentation must require daily revaluation, and must include provisions that must allow for the prompt liquidation or setoff of the collateral in the event of default or failure to re-margin. 100 Normally, this would equate to the maximum remaining time (in years) that the borrower is permitted to take to fully discharge its contractual obligation (principal, interest, and fees) under the terms of loan agreement. 101 The intention is to include both parties of a transaction meeting these conditions where neither of the parties is systematically under-collateralised. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 96 / 506 Issued on: 3 May 2019 The maturity of such transactions must be calculated as the greater of one-day, and the M. 3.77 In addition to the transactions considered in paragraph 3.76 above, other short- term exposures with an original maturity of less than three months that are not part of a banking institution’s ongoing financing of an obligor may be eligible for exemption from the one-year floor. The types of short-term exposures that might be considered eligible for this treatment include transactions such as:  Some capital market-driven transactions and repo-style transactions that might not fall within the scope of paragraph 3.76;  Some short-term self-liquidating trade transactions. Import and export letters of credit and similar transactions could be accounted for at the actual remaining maturity;  Some exposures arising from settling securities purchases and sales. This could also include overdrafts arising from failed securities settlements provided that such overdrafts do not continue for more than a short, fixed number of business days;  Some exposures arising from cash settlements by wire transfer, including overdrafts arising from failed transfers provided that such overdrafts do not continue for more than a short, fixed number of business days;  Some exposures to banks arising from foreign exchange settlements; and  Some short-term loans and deposits. 3.78 For transactions within the scope of paragraph 3.76 subject to a master netting agreement, the weighted average maturity of the transactions should be used when applying the explicit maturity adjustment. A floor equal to the minimum holding period for the transaction type set out in paragraph 2.122 will apply to the average. Where more than one transaction type is contained in the master netting agreement a floor equal to the highest holding period will apply to the average. Further, the notional amount of each transaction should be used for weighting maturity. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 97 / 506 Issued on: 3 May 2019 3.79 Where there is no explicit adjustment, the M assigned to all exposures will be similar to the foundation approach as specified in paragraph 3.66 except for repo-style transactions where the M will be 6 months. 3.80 Notwithstanding the flexibility given to banking institutions, the Bank reserves the right to require institutions that adopt the foundation approach to measure M using the definition contained in paragraph 3.75. Treatment of Maturity Mismatches 3.81 The treatment for maturity mismatches under IRB is provided in paragraphs 3.155 to 3.158. Risk Components for Retail Exposures I. Probability of Default (PD) and Loss Given Default (LGD) 3.82 For each identified pool of retail exposures, banking institutions must provide an estimate of the PD and LGD associated with the pool, subject to the minimum requirements as set out in Part B.3.7. Additionally, the PD for retail exposures is the greater of the one year PD associated with the internal borrower grade to which the pool of retail exposures is assigned or 0.03%. Recognition of Guarantees and Credit Derivatives 3.83 Banking institutions may reflect the risk-mitigating effects of guarantees and credit derivatives in support of an individual exposure or a pool of exposures, through an adjustment to either the PD or LGD estimate, subject to the minimum requirements in paragraphs 3.338 to 3.348. Whether adjustments are done through PD or LGD, it must be done in a consistent manner for a given guarantee or credit derivative type. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 98 / 506 Issued on: 3 May 2019 3.84 Banking institutions must not include the effect of double default in such adjustments102. The adjusted risk weight must not be less than a comparable direct exposure to the protection provider. II. Exposure at Default (EAD) 3.85 For the purpose of measuring EAD, both on and off-balance sheet retail exposures are measured gross of specific provisions or partial write-offs. The EAD on drawn amounts should not be less than the sum of: i) the amount by which a banking institution’s regulatory capital would be reduced if the exposure were fully written-off, and ii) any specific provisions and partial write-offs. When the difference between the instrument’s EAD and the sum of (i) and (ii) is positive, this amount is termed a discount. The calculation of RWA is independent of any discounts. Under the limited circumstances described in paragraph 3.227 discounts may be included in the measurement of total eligible provisions for purposes of the EL-provision calculation set out in Part B.3.6. 3.86 On-balance sheet netting of loans and deposits of a banking institution to or from a retail customer is permitted subject to the same conditions in paragraphs 3.145 to 3.147. For retail off-balance sheet items, banking institutions could use internal CCF estimates provided the relevant minimum requirements in paragraphs 3.332 to 3.335 and 3.337 are met. 3.87 For retail exposures with uncertain future drawdown such as credit cards, banking institutions must take into account credit history and/or expectation of additional drawings prior to default in the overall calibration of loss estimates. In particular, where conversion factors for undrawn lines are not reflected in EAD 102 The recognition of double default implies that the risk of both the borrower and the guarantor/protection provider defaulting on the same obligation may be substantially lower than the risk of only one of the parties defaulting. In the substitution approach, the maximum capital benefit that may be obtained is only up to the reduction in the capital requirement through replacing the exposure to the borrower with one to the protection provider. This assumes perfect correlation between the borrowers with the protection provider and will not fully reflect the lower risk that both the borrower and guarantor must default for a loss to be incurred. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 99 / 506 Issued on: 3 May 2019 estimates, the likelihood of additional drawings prior to default must be reflected in the LGD estimates. Conversely, if banking institutions do not incorporate the possibility of additional drawings in its LGD estimates, they must do so in its EAD estimates. 3.88 When only the drawn balances of retail facilities have been securitised, banking institutions must continue to hold the required capital against the share (i.e. seller’s interest) of undrawn balances related to the securitised exposures, using the IRB approach to credit risk. This means that for such facilities, banking institutions must reflect the impact of CCFs in the EAD estimates rather than in the LGD estimates. For determining the EAD associated with the seller’s interest in the undrawn lines, the undrawn balances of securitised exposures would be allocated between the seller’s and investor’s interests103 on a pro rata basis, based on the proportions of the seller’s and investor’s shares of the securitised drawn balances. 3.89 To the extent that foreign exchange and interest rate commitments exist within banking institutions’ retail portfolio for IRB purposes, banking institutions are not permitted to use internal assessments of credit equivalent amounts. Instead, the rules for the standardised approach would apply. Risk Components for Equity Exposures 3.90 In general, the value of an equity exposure on which capital requirements is based is defined under the applicable Financial Reporting Standards as follows:  For investments held at fair value with changes in the value flowing directly through income and into regulatory capital, exposure is equal to the fair value presented in the balance sheet.  For investments held at fair value with changes in the value not flowing through income but into a tax-adjusted separate component of equity, exposure is equal to the fair value presented in the balance sheet. 103 The investor’s share of undrawn balances related to the securitised exposures shall be subject to the treatment specified in the securitisation component of this framework. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 100 / 506 Issued on: 3 May 2019  For investments held at cost, exposure is equal to the cost presented in the balance sheet. 3.91 Investments in funds (e.g. collective investment schemes, unit trusts) containing both equity investments and other non-equity types of investments can be treated either as a single investment based on the majority of the fund’s holdings or as separate and distinct investments in the fund’s component holdings based on a look-through approach. Banking institutions must demonstrate to the Bank that the chosen treatment is appropriate for the portfolio (for example, that regulatory arbitrage considerations have not influenced their choice) and applied in a consistent manner. The Bank reserves the right to require banking institutions to compute capital using the more appropriate treatment where the Bank is satisfied that the exposures are or are likely to become significant and the particular treatment used by the banking institution would lead to consistent underestimation of risk of that portfolio. 3.92 Where only the investment mandate of the fund is known, the fund can still be treated as a single investment. For calculating capital requirement, it is assumed that the fund first invests, to the maximum extent allowed under its mandate, in the asset classes that attract the highest capital charge and followed by, in descending order, the next highest requirement until the maximum total investment level is reached. The same approach can also be used for the look-through approach, but only where banking institutions have rated all the potential underlying assets of the fund. B.3.4 CREDIT RISK MITIGATION (CRM) 3.93 This section outlines general requirements for the use of credit risk mitigation and eligibility criteria, detailed methodologies and specific requirements with respect to the following CRM techniques: i) Collateralised transactions (refer to paragraphs 3.97 to 3.127) ii) Guarantee and credit derivatives (refer to paragraphs 3.128 to 3.144) iii) On-balance sheet netting (refer to paragraphs 3.145 to 3.147) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 101 / 506 Issued on: 3 May 2019 3.94 While the use of CRM techniques reduces or transfers credit risk, it may introduce or increase other risks such as legal, operational, liquidity and market risk. Therefore, it is imperative that banking institutions control these risks by employing robust policies, procedures and processes including strategies to manage these risks, valuation, systems, monitoring and internal controls. Banking institutions must be able to demonstrate to the Bank that it has adequate risk management policies and procedures in place to control risks arising from the use of CRM techniques. In any case, the Bank reserves the right to take supervisory action under Pillar 2 should the banking institution’s risk management in relation to the application of CRM techniques be deemed insufficient. In addition, banking institutions will also be expected to observe the Pillar 3 requirements in order to obtain capital relief in respect of any CRM techniques. Minimum Conditions for the Recognition of Credit Risk Mitigation Techniques 3.95 To obtain capital relief for use of any CRM technique, the following general requirements must be fulfilled:  All documentation used in collateralised transactions and for documenting on-balance sheet netting, guarantees and credit derivatives must be binding on all parties and legally enforceable in all relevant jurisdictions;  Sufficient assurance from legal counsel with respect to the legal enforceability of the documentation;  Periodic review is undertaken to confirm the ongoing enforceability of the documentation; and  For Islamic banking assets, the collateral must be Shariah-compliant. 3.96 In general, only collateral and/or guarantees that are actually posted and/or provided under a legally enforceable agreement are eligible for CRM purposes. A commitment to provide collateral or a guarantee is not recognised as an eligible CRM technique until the commitment to do so is actually fulfilled104. 104 However, under the foundation IRB, in accordance with paragraph 3.280 and 3.281, forms of group support may be reflected via PD but not LGD. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 102 / 506 Issued on: 3 May 2019 Collateralised Transactions I. Eligible Collateral 3.97 Under the foundation IRB approach, there are four categories of eligible collateral recognised, namely financial collateral, commercial and residential real estate (CRE and RRE) collateral, financial receivables and other physical collateral. Eligible Financial Collateral 3.98 The following financial instruments are recognised as eligible financial collateral: Eligible Financial Collateral  Cash105 (including certificate of deposits or comparable instruments issued by the lending banking institution) on deposit106 with the banking institution which is incurring the counterparty exposure107  Gold  Debt securities/Sukūk rated by recognised ECAIs where the risk weight attached to the debt securities is lower than that of the borrower  Debt securities/Sukūk unrated by a recognised ECAI but fulfil the following conditions:  Issued by a banking institution;  Listed on a recognised exchange;  Classified as senior debt;  All rated issues of the same seniority by the issuing banking institution that are rated at least BBB- or A-3/P-3; and  The Bank is sufficiently confident about the market liquidity of the debt security/sukūk.  Equities (including convertible bonds/sukūk) that are listed on a recognised exchange (refer to Appendix X)  Funds (e.g. collective investment schemes, unit trust funds, mutual funds etc.) where:  A price for the units is publicly quoted daily, and  The funds are limited to investing in financial instruments recognised as eligible financial collateral.108 105 Cash pledged includes `urbūn (or earnest money held after a contract is established as collateral to guarantee contract performance) and hamish jiddiyyah (or security deposit held as collateral) in Islamic banking contracts (e.g. Ijārah). 106 Structured deposits and Restricted Investment Accounts would not qualify as eligible financial collateral. 107 Cash funded credit linked notes issued by the banking institution against exposures in the banking book which fulfil the criteria for credit derivatives will be treated as cash collateralised transactions. 108 The use or potential use by a fund of derivative instruments solely to hedge investments listed in this table shall not prevent units in that fund from being an eligible financial collateral. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 103 / 506 Issued on: 3 May 2019 Eligible CRE and RRE Collateral 3.99 Eligible CRE and RRE collateral for corporate, sovereign and bank exposures are defined as:  Collateral where the risk of the borrower is not materially dependent upon the performance of the underlying property or project, but rather on the underlying capacity of the borrower to repay the debt from other sources. As such, facility repayment is not materially dependent on the cash flow from the underlying CRE/RRE serving as collateral, and  Additionally, the value of the collateral pledged must not be materially dependent on the performance of the borrower109. 3.100 However, in light of the generic description above and the definition of corporate exposures, income producing real estate that falls under the SL asset class is specifically excluded from recognition as collateral for corporate exposures. Eligible Financial Receivables 3.101 Eligible financial receivables are claims with an original maturity of less than or equal to one year where repayment will occur through the commercial or financial flow related to the underlying assets of the borrower. This includes both self-liquidation debt arising from the sale of goods or services linked to a commercial transaction and general amounts owed by buyers, suppliers, renters, national and local governmental authorities or other non-affiliated parties not related to the sale of goods or services linked to a commercial transaction. Eligible receivables do not include those associated with securitisations, sub-participations or credit derivatives. Other Eligible Physical Collateral 3.102 Banking institutions may also recognise other physical collateral subject to conditions specified in paragraphs 3.127 being fulfilled. 109 This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the borrower. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 104 / 506 Issued on: 3 May 2019 II. Methodology Methodology for Transactions Secured by Eligible Financial Collateral 3.103 Banking institutions adopting the foundation approach must calculate the effective loss given default (LGD*) applicable to a transaction secured by eligible financial collateral, which is expressed as: E E LGDLGD * *  where: i) LGD is that of the senior unsecured exposure before recognition of collateral (45%); ii) E is the current value of the exposure (cash or securities lent or posted); iii) E* is the adjusted exposure value after risk mitigation as determined under the comprehensive approach as specified in paragraphs 3.106 to 3.111110. 3.104 Where repo-style transactions are subject to a master netting agreement, banking institutions may choose to recognise the netting effects in calculating capital requirement if the criteria provided in paragraphs 3.112 to 3.114 can be met. In such cases, banking institutions must calculate E* in accordance with paragraphs 3.115 or the use of VAR modelling (refer to paragraphs 2.133 to 2.136) and equate this to EAD. The impact of collateral on these transactions cannot be reflected through adjustment to LGD. 3.105 A zero haircut may be applied for transactions where the conditions for zero haircut are met and the counterparty is a core market participant (refer to paragraphs 2.125 to 2.128). 110 Under the foundation approach, E* is used only as input to calculate LGD*. Banking institutions must continue to calculate EAD without taking into account the presence of any collateral, unless otherwise specified. This is unlike in the standardised approach where E* is used directly to calculate risk-weighted assets by multiplying it with the counterparty risk weight. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 105 / 506 Issued on: 3 May 2019 Calculation of Adjusted Exposure (E*) Using Comprehensive Approach 3.106 Banking institutions must calculate an adjusted exposure amount after risk mitigation, E*. This is done by applying volatility adjustments to both the collateral and the exposure, taking into account possible future price fluctuations. 3.107 When the exposure and collateral are held in different currencies, an additional downward adjustment must be made to the volatility-adjusted collateral to take account of possible future fluctuations in exchange rates. 3.108 The formula is as follows:      FXCE HHCHEE*  110,max where: E* = The exposure value after risk mitigation E = Current value of the exposure HE = Haircut appropriate to the exposure C = The current value of the collateral received HC = Haircut appropriate to the collateral HFX = Haircut for currency mismatch between the collateral and exposure 3.109 Where the collateral is a basket of assets, the haircut on the basket will be i i i HaH  where ai is the weight of the asset (as measured by units of currency) in the basket and Hi the haircut applicable to that asset. 3.110 Partial collateralisation and mismatches in the maturity of the underlying exposure and the collateral is allowed under the comprehensive approach. 3.111 There are two approaches in determining the appropriate haircut to be applied on the exposure amount and collateral, namely:  Standard supervisory haircuts; and  VaR modelling, subject to the Bank’s prior approval. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 106 / 506 Issued on: 3 May 2019 Please refer to paragraphs 2.119 to 2.128 and 2.133 to 2.137 for further details. Treatment of Repo-style Transactions Covered Under Master Netting Agreement 3.112 The effects of bilateral netting agreements covering repo-style transactions will be recognised on a counterparty-by-counterparty basis if the agreements are legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of whether the counterparty is insolvent or bankrupt. In addition, the netting agreement must:  provide the non-defaulting party the right to terminate and close-out in a timely manner all transactions under the agreement upon event of default, including in the event of insolvency or bankruptcy of the counterparty;  provide for the netting of gains and losses in transactions (including the value of any collateral) terminated and closed out under it, so that single net amount is owed by one party to the other;  allow for the prompt liquidation or setoff of collateral upon the event of default; and  be legally enforceable in each relevant jurisdiction upon the occurrence of an event of default and regardless of the counterparty’s insolvency or bankruptcy, together with the rights arising from the provisions required above. 3.113 In addition, all repo-style transactions should be subjected to the Global Master Repurchase Agreement (GMRA) with its relevant annexes that specify all terms of the transaction, duties and obligations between the parties concerned. Banking institutions must also ensure that other requirements specified under the Bank’s current guidelines on repo-style transactions have also been met. 3.114 Netting across positions in the banking and trading book will only be recognised when the netted transactions fulfil the following conditions:  All transaction are marked to market daily; and  The collateral instruments used in the transactions are recognised as eligible financial collateral in the banking book. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 107 / 506 Issued on: 3 May 2019 3.115 The following formula will apply to account for the impact of master netting agreements:            FXFXSS HEHECEE ,0max* where E* = The exposure value after risk mitigation E = Current value of the exposure C = The value of the collateral received ES = Absolute value of the net position in given security HS = Haircut appropriate to Es EFX = Absolute value of the net position in a currency different from the settlement currency HFX = Haircut appropriate for currency mismatch Calculation of LGD for Senior Claims Secured by Eligible Non-Financial Collateral 3.116 The LGD* for cases where banking institutions have taken eligible non-financial collateral to secure a corporate exposure is determined as follows: i) The level of collateralisation of the exposure, C/E, must be calculated by dividing the current value of the collateral, C, to the current value of the exposure, E. ii) Exposures where the level of collateralisation is below the required minimum collateralisation level of C* would receive the LGD of 45% for senior unsecured exposures. iii) Where the level of collateralisation equals or exceeds the over- collateralisation level of C**, full LGD recognition can be applied to the exposure based on the following table: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 108 / 506 Issued on: 3 May 2019 LGD* for Secured Portion of Senior Exposures Required Minimum Collateralisation Level (C*) LGD* if C/E < C* Required Minimum Over- collateralisation Level (C**) LGD* if C/E ≥ C** Receivables 0% 45% 125% 35% CRE/RRE 30% 140% 35% Other physical collateral (excludes physical assets acquired by the banking institution as result of borrower default) 30% 140% 40% iv) Where the level of collateralisation is between the threshold levels C* and C**, the exposures are to be divided into fully collateralised and uncollateralised portions:  The part of the exposure considered as fully collateralised, C/C**, receives the LGD associated with the type of collateral as per the above table;  The remaining part of the exposure, 1-C/C**, is regarded as unsecured and receives an LGD of 45%111. Treatment for Pools of Collateral 3.117 The LGD* of a transaction where banking institutions have taken both eligible financial and non-financial collateral is based on the following: i) Banking institutions must subdivide the adjusted value of the exposure (after haircut for eligible financial collateral) into portions each covered by only one CRM type. That is, banking institutions must divide the exposure into portions covered by the eligible financial collateral, receivables, CRE/RRE collateral and any other collateral and the unsecured portion, if any. 111 For example, if an exposure of RM100 is covered by RM110 worth of CRE, only RM110/140 = RM78.6 is considered fully covered. The remaining exposure, RM100 – RM78.6 = RM21.4 is regarded as unsecured. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 109 / 506 Issued on: 3 May 2019 ii) Where the ratio of the sum of CRE/RRE value and other collateral to the reduced exposure (after recognising the eligible financial collateral and receivables collateral) is below the minimum level of collateralisation, the exposure would receive the unsecured LGD value of 45%. iii) The risk-weighted assets for each fully secured portion of exposure must be calculated separately. III. Specific Requirements Specific Requirements for Transactions Secured by Eligible Financial Collateral 3.118 In addition to the general requirements specified under paragraphs 3.95 and 3.96, the legal mechanism by which collateral is pledged or transferred must ensure that banking institutions have the right to liquidate or take legal possession of the collateral in a timely manner in the event of default, insolvency or bankruptcy of the counterparty. Furthermore, banking institutions must take all steps necessary to fulfil those requirements under the law to protect their interest in the collateral. 3.119 For collateral to provide effective cover, the credit quality of the counterparty and the value of collateral must not have a material positive correlation. For example, securities issued by the counterparty or a related counterparty112 as a form of collateral against a loan would generally be materially correlated, thus providing little cover and therefore would not be recognised as eligible collateral. 3.120 Banking institutions must have clear and robust procedures for timely liquidation of collateral to ensure that any legal conditions required for declaring the default of the counterparty and liquidating the collateral are observed and that collateral can be liquidated promptly. 3.121 A capital requirement will be applied on either side of a collateralised transaction. For example, both repurchase and reverse repurchase agreements 112 As defined under Single Counterparty Exposure Limit. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 110 / 506 Issued on: 3 May 2019 will be subject to capital requirements113. Likewise, both sides of securities lending and borrowing transactions will be subject to explicit capital charges, as will the posting of securities in connection with a derivative exposure or other borrowing. 3.122 Where a banking institution is acting as an agent, arranges a repo-style transaction (i.e. repurchase/reverse repurchase and securities lending/borrowing transactions) between a customer and a third party and provides a guarantee to the customer that the third party will perform its obligations, then the risk to the banking institution is the same as if the banking institution had entered into the transaction as a principal. Under such circumstances, the banking institution will be required to allocate capital as if it were itself acting as the principal. 3.123 Where collateral is held by a custodian, banking institutions must take reasonable steps to ensure good custody of that collateral and take reasonable steps to ensure that the custodian segregates the collateral from its own assets. Specific Requirements for Eligible CRE and RRE Collateral 3.124 Subject to meeting the definition above, CRE and RRE will be eligible for recognition as collateral only if the following operational requirements are met: i) Legal Enforceability: Any claim on collateral taken must be legally enforceable in all relevant jurisdictions and any claim on collateral must be properly filed on a timely basis. Collateral interests must reflect a perfected charge114 (i.e. the legal collateral agreement and the legal process underpinning it would enable banking institutions to realise the value of the collateral within a reasonable timeframe); ii) Objective Market Value of Collateral: The collateral must be valued at or less than the current fair value under which the property could be sold 113 Unlike repurchase and reverse repurchase agreements, sale and buy back agreements (SBBA) of securities are not deemed as collateralised transactions, hence a capital charge is required on the individual position for both parties according to the risk profile. 114 Deeds of assignment and strata titles on the property are also recognised. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 111 / 506 Issued on: 3 May 2019 under private contract between a willing seller and an arm’s-length buyer on the date of valuation; iii) Frequent Revaluation: Banking institutions are expected to monitor the value of collateral at least once a year. More frequent monitoring may be appropriate where market conditions are subject to significant changes. Statistical methods of valuation (e.g. references to house price indices, sampling) may be used to update estimates or to identify collaterals that have declined in value and that require reappraisal. An engagement of a qualified professional might become necessary to evaluate property which value may have declined materially relative to general market prices or when a credit event, such as default, occurs; and iv) Recognition only for First Charge Collateral: Subsequent charges can be recognised only if all earlier charges were made by the same banking institution. In instances where the subsequent charges are recognised, banking institutions must be able to demonstrate that such charges are enforceable and there have been precedent cases where the banking institution has been able to recoup the residual values. 3.125 Additional collateral management requirements are as follows: i) The types of CRE and RRE collateral accepted and the lending policies (advance rates) when this type of collateral is taken must be clearly documented; ii) The property taken as collateral is sufficiently insured against any deterioration and damages; iii) The extent of any permissible prior claims (e.g. tax) on the property is assessed and monitored on an ongoing basis; and iv) The risk of environmental liability arising in respect of the collateral, such as the presence of toxic material on a property is appropriately assessed and monitored. Specific Requirements for Eligible Financial Receivables 3.126 Financial receivables will be eligible for recognition as collateral for corporate claims only if all of the following operational requirements are met: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 112 / 506 Issued on: 3 May 2019 Legal Certainty i) The legal mechanism by which collateral is given must be robust and ensure that the banking institution has clear rights over the proceeds from the collateral; ii) Banking institutions must take all steps necessary to fulfil local requirements in respect of the enforceability of security interest, e.g. by registering a security interest with a registrar. There should be a process to ensure the banking institution have a perfected first priority claim over the collateral; iii) All documentation used in collateralised transactions must be binding on all parties and legally enforceable in all relevant jurisdictions. Banking institutions must conduct a legal review at the onset of the transaction and periodically to ensure the continuing enforceability of collaterals pledged to them; and iv) The collateral arrangements must be properly documented with clearly written procedures on the timely collection of collateral proceeds. Banking institutions should ensure that any legal conditions required to declare a customer’s default and timely collection of collateral are observed strictly. In the event of the borrower’s financial distress or default, banking institutions should have the legal authority to sell or assign the receivables to other parties without the consent of the receivables’ obligors. Risk Management i) Banking institutions must institute a sound process for determining the credit risk in receivables. Such process should include among other things, analyses of the borrower’s business and industry (e.g. effects of the business cycle) and the types of customers with whom the borrower does business. Where banking institutions rely on the borrower to ascertain the credit risk of the borrowers’ customers, banking institutions must review and assess the borrower’s credit policy to ascertain its soundness and credibility; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 113 / 506 Issued on: 3 May 2019 ii) The margin between the amount of the exposure and the value of the receivables must incorporate relevant factors such as the cost of collection, concentration within the receivables pool pledged by an individual borrower and potential concentration risk within banking institutions’ total exposures; iii) In ensuring ongoing appropriateness of the collateral as a risk mitigant, banking institutions must maintain a continuous monitoring process that is commensurate with the specific exposures (either immediate or contingent) attributable to the collateral to be utilised as a risk mitigant. This process may include, where appropriate and relevant, ageing reports, control of trade documents, borrowing base certificates, frequent audits of collateral, confirmation of accounts, control of the proceeds of accounts paid, analysis of dilution (credits given by the borrower to the receivables obligors) and regular financial analysis of both the borrower and the receivables obligors, especially in the case when a small number of large sized receivables are taken as collateral. Overall concentration limits should be monitored strictly by banking institutions. Additionally, any compliance with loan covenants, environmental restrictions and other legal requirements should be monitored on a regular basis; iv) Receivables pledged by a borrower should be diversified and not be unduly correlated with the borrower. Where the correlation is high, e.g. where some receivables obligors are reliant on the borrower’s viability or where the borrower and the receivables obligors belong to a common industry, the attendant risks should be taken into account in the setting of margins for the collateral pool as a whole. Receivables from affiliates of the borrower (including subsidiaries and employees) will not be recognised as a risk mitigant; and v) Banking institutions should document the process relating to collecting receivable payments in distressed situations. The necessary processes for collection should be in place, even when banking institutions normally look to the borrower for collections. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 114 / 506 Issued on: 3 May 2019 Specific Requirements for Recognition of Other Eligible Physical Collateral 3.127 The Bank may allow other physical collateral to be recognised as a credit risk mitigant provided that the banking institution can demonstrate to the Bank that such physical collateral meets the following standards: i) Existence of liquid markets for disposal of collateral in an expeditious and economically efficient manner; ii) Existence of well established, publicly available market prices for the collateral; and iii) The amount banking institutions receive when collateral is realised does not deviate significantly from market prices. In addition, the requirements in paragraphs 3.124 and 3.125 must be met, subject to the following modification: iv) Banking institutions must have priority of claims over all other lenders to the realised proceeds of the collateral. Only first charges over the collateral are permissible; v) The loan agreement must include detailed descriptions of the collateral plus detailed specifications of the manner and frequency of revaluation; vi) The types of physical collateral accepted by banking institutions and policies and practices in respect of the appropriate amount of each type of collateral relative to the exposure amount must be clearly documented in internal credit policies and procedures and available for examination by the Bank and/or audit review; vii) Banking institutions’ credit policies must contain appropriate collateral requirements. This includes requirements on the exposure amount, the ability for timely liquidation of the collateral, determining market value (including the frequency of revaluation) and volatility of the market value. The periodic revaluation process must pay particular attention to collaterals whose values depend on the current trend in the market (i.e. fashion sensitive collaterals). This is to ensure that valuations are appropriately adjusted downward for model year, obsolescence or deterioration; and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 115 / 506 Issued on: 3 May 2019 viii) In cases of inventories (e.g. raw material, finished goods, dealers’ inventories of autos) and equipment, the periodic revaluation process must include physical inspection of the collateral. Guarantees and Credit Derivatives I. Eligible Guarantors/Credit Protection Providers 3.128 The range of eligible guarantors/credit protection providers are the same as those under the standardised approach. In addition, companies that are internally rated and associated with a PD equivalent to BBB-115 rating or better, may also be recognised under the foundation approach. The requirements outlined in paragraphs 3.139 to 3.142 must also be met to qualify for this recognition. 3.129 For credit derivatives, only credit default swaps and total return swaps that provide credit protection which is equivalent to a guarantee are eligible for recognition. No recognition is given where banking institutions buy credit protection through a total return swap and record the net payments received on the swap as net income, but does not record offsetting deterioration in the value of the asset that is protected (either through reductions in fair value or by an addition to reserve). 115 This may be done by mapping the internal rating and associated PD of the protection provider to the banking institution’s PD masterscale to ascertain that it approximates a rating of BBB- or better by an eligible ECAI. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 116 / 506 Issued on: 3 May 2019 II. Methodology The Substitution Method 3.130 Under the substitution method, guarantees and credit derivatives will be recognised as follows: i) Risk weight for the covered portion of the exposure is derived by using:  The risk weight function appropriate to the type of guarantor, and  The PD appropriate to the guarantor’s borrower grade, or some grade between the underlying obligor and the guarantor’s borrower grade if the banking institution deems a full substitution treatment is not warranted. ii) The LGD of the underlying transaction may be replaced with the LGD applicable to the guarantee taking into account seniority and any collateralisation of a guaranteed commitment. 3.131 The uncovered portion of the exposure is assigned the risk weight associated with the borrower. 3.132 CRM from guarantees and credit derivatives must not reflect the effect of double default116. To the extent that the CRM is recognised, the adjusted risk weight must not be less than a comparable direct exposure to the protection provider. 3.133 Any amount for which the banking institution will not be compensated for in the event of loss, shall be recognised as retained first loss positions and risk- weighted at 1250% by the banking institution purchasing the credit protection. 3.134 Where partial coverage exists, or where there is a currency mismatch between the underlying obligation and the credit protection, the exposure must be split into covered and uncovered amount. The treatment is outlined below: 116 Refer to footnote 102. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 117 / 506 Issued on: 3 May 2019 Proportional Cover  Where the amount guaranteed, or against which credit protection is held, is less than the amount of the exposure, and the secured and unsecured portions are equal in seniority, i.e. the banking institution and guarantor share losses on a pro-rata basis, capital relief will be accorded on a proportional basis with the remainder being treated as unsecured. Tranched Cover  Where: ­ a banking institution transfers a portion of the risk of an exposure in one or more tranches to a protection seller(s) and retains some level of risk of the exposure; and ­ the portion of risk transferred and retained are of different seniority, the banking institution may obtain credit protection for either the senior tranches (e.g. second loss portion) or the junior tranche (e.g. first loss portion). In this case, the rules as set out in the securitisation component of this framework will apply. Currency Mismatches  A haircut, HFX, shall be applied on the exposure protected if its credit protection is denominated in a different currency, as follows:  FXHGGA  1 where: G = Nominal amount of the credit protection HFX = Haircut appropriate for currency mismatch between the credit protection and underlying obligation. The supervisory haircut is 8%. The haircut must be scaled up using the square root of time formula, depending on the frequency of revaluation of the credit protection as described in paragraph 2.123. 3.135 For exposures where the borrower is part of a portfolio on the IRB approach while the guarantor or credit protection provider is part of a portfolio which is not BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 118 / 506 Issued on: 3 May 2019 under the IRB approach (i.e. standardised approach)117, banking institutions must ensure that these borrowers also fulfill the expectations under the IRB approach (e.g. annually reviewed etc.) on an ongoing basis. The appropriate treatment based on the standardised approach shall be applied to the guaranteed/protected portion of the exposure. The Double Default Method 3.136 Banking institutions also can apply the double default method instead of the substitution method where exposures are hedged by the following eligible instruments: i) Single-name, unfunded credit derivatives (e.g. credit default swaps) or single-name guarantees. ii) First-to-default basket products — the double default treatment will be applied to the asset within the basket with the lowest risk-weighted amount. iii) Nth-to-default basket products — the protection obtained is only eligible for consideration under the double default framework if eligible (n–1)th default protection has also been obtained or where (n–1) of the assets within the basket have already defaulted. 3.137 The entity providing the above instruments must be a banking institution118 or an insurance company (but only those that are in the business of providing credit protection, including mono-lines, professional re-insurers, and non- sovereign credit export agencies119) that: i) is regulated in a manner broadly equivalent to this framework (where there is appropriate supervisory oversight and transparency/market discipline), or externally rated as at least investment grade by an approved ECAI for purposes of the capital framework; 117 For example, a loan granted to a corporate (under the IRB approach) is guaranteed by a banking institution (under the standardised approach). 118 This does not include PSEs and MDBs, even though claims on these may be treated as claims on banks according to Part B.3.2. 119 By non-sovereign it is meant that the credit protection in question does not benefit from any explicit sovereign counter-guarantee. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 119 / 506 Issued on: 3 May 2019 ii) had an internal rating with a PD equivalent to or lower than that associated with an external BBB- rating at the time the credit protection for an exposure was first provided; and iii) continues to maintain an internal rating with a PD equivalent to or lower than that associated with an external BBB- rating. 3.138 Banking institutions using the double default method for the hedged exposure would apply the risk weight formula described under paragraphs 3.170 to 3.171 in determining the capital requirement. III. Specific Requirements Specific Requirements Common for Guarantees and Credit Derivatives 3.139 For a guarantee or credit derivative to be eligible for CRM, the following conditions must be met: i) The guarantee or credit derivative must represent a direct claim on the protection provider and must be explicitly referenced to specific exposures or a pool of exposures, so that the extent of the cover is clearly defined and could not be disputed; ii) The credit protection contract must be irrevocable except where the credit protection purchaser has not made the payment due to the protection provider. The protection provider must also not have the right to unilaterally cancel the credit cover or increase the effective cost of cover as a result of deteriorating credit quality in the hedged exposure; iii) The contract must not have any clause or provision outside the direct control of the banking institution that prevents the protection provider from being obliged to pay in a timely manner in the event that the original counterparty fails to make the payment(s) due. However, for advanced IRB exposures, conditional guarantees may also be recognised as eligible CRM as per paragraph 3.342; and iv) Additional operational requirements specific for guarantees and credit derivatives specified in paragraphs 3.140 to 3.142 must be met. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 120 / 506 Issued on: 3 May 2019 Additional Specific Requirements for Guarantees 3.140 In addition to the requirements on legal certainty of the guarantee specified in paragraph 3.95 and 3.96, all the following conditions must also be satisfied: i) On the default/non-payment of the counterparty, a banking institution may in a timely manner pursue the guarantor for any monies outstanding under the documentation governing the transaction. The guarantor may pay at once all monies outstanding under such documentation to the banking institution, or the guarantor may assume the future payment obligations of the counterparty covered by the guarantee; ii) The guarantee undertaking is explicitly documented; and iii) Except as noted in the following sentence, the guarantee covers all types of payments the borrower is expected to make under the documentation governing the transaction, such as notional amount and margin payments. Where a guarantee covers payment of principal only, interests and other uncovered payments should be treated as unsecured amounts in line with the treatment for proportionally covered exposures under paragraph 3.134. 3.140(i) Banking institutions shall only recognise trade credit insurance or trade credit takaful as CRM when the requirements under paragraphs 2.144(i), 2.148(i), 2.148(ii), 3.94, 3.95, 3.96, 3.139 and 3.140 are satisfied. Additional Specific Requirement for Credit Derivatives 3.141 For a credit derivative contract to be recognised, the following conditions must be satisfied: i) Credit events specified by the contracting parties must at least cover:  Failure to pay the amounts due under terms of the underlying obligation on the occurrence of a credit event;  Bankruptcy, insolvency and inability of the borrower to pay its debts, or its failure or admission in writing of its inability generally to pay its debts as they become due, and analogous events; and  Restructuring of the underlying obligation involving forgiveness or postponement of principal, interest or fees that results in a credit loss BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 121 / 506 Issued on: 3 May 2019 event (i.e. charge off, provision or other similar debit to the profit and loss account). However, when restructuring is not specified as a credit event but the other requirements in this paragraph are met, partial recognition of the credit derivatives will be allowed as follows: ­ If the amount of credit derivatives is less than or equal to the amount of underlying obligation, 60% of the amount of the hedging instrument can be recognised as covered. ­ If the amount of the credit derivative is larger than that of the underlying obligation, then the amount of eligible hedge is capped at 60% of the amount of the underlying obligation. ii) The credit derivatives shall not be terminated prior to expiration of any grace period required for a default on the underlying obligation to occur as a result of a failure to pay, subject to the provision of paragraph 3.156; iii) Credit derivatives allowing for cash settlement are recognised for capital purpose as long as a robust valuation process is in place to estimate loss reliably. There must be a clearly specified period for obtaining post- credit-event valuation of the underlying obligation; iv) If the contract requires the protection purchaser to transfer the underlying obligation to the protection provider at settlement, the terms of the underlying obligation must provide that consent to such transfer should not be unreasonably withheld; v) The identity of the parties responsible to determine whether a credit event has occurred must be clearly defined. This determination must not be the sole responsibility of the protection seller. The protection buyer must have the right/ability to inform the protection provider of the occurrence of a credit event; vi) If the credit derivatives cover obligations that do not include the underlying obligation, a mismatch between the underlying and the reference obligation for the credit derivative (i.e. the obligation used for purposes of determining cash settlement value of the deliverable obligation) is permissible if: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 122 / 506 Issued on: 3 May 2019  The reference obligation ranks pari passu with or is junior to the underlying obligation, and  the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross acceleration clauses are in place; and vii) A mismatch between the underlying obligation and the obligation used for purposes of determining whether a credit event has occurred is permissible if:  the latter obligation ranks pari passu with or is junior to the underlying obligation, and  the underlying obligation and reference obligation share the same obligor (i.e. the same legal entity) and legally enforceable cross- default or cross-acceleration clauses are in place. 3.142 Banking institutions also have to demonstrate to the Bank that any additional requirements outlined in the Bank’s current guidelines are met120. Additional Requirements for Recognition of Double Default 3.143 For each eligible exposure, banking institutions need to determine whether the double default or the substitution method is to be applied. 3.144 In addition to the conditions specified in paragraphs 3.136 and 3.137, the double default method is only applicable if the following conditions have also been met. i) The risk weight that is associated with the exposure prior to the application of the double default treatment does not already factor in any aspect of the credit protection. ii) The underlying obligation is:  a corporate exposure as defined in paragraphs 3.24 to 3.27 (excluding SL exposures for which the SSC approach described in paragraphs 3.166 to 3.169 is being used); or 120 [Deleted] BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 123 / 506 Issued on: 3 May 2019  a claim on a PSE that is not a sovereign exposure as defined in paragraph 3.28; or  a loan extended to a small business and classified as a retail exposure as defined in paragraph 3.30. iii) The borrower is not:  a financial firm as defined in paragraph 3.137; or  a member of the same group as the protection provider. iv) Credit protection meets the minimum operational requirements for such instruments as outlined in paragraphs 3.129 and 3.139 to 3.142. v) Consistent with paragraph 3.140 for any recognition of double default that affects both guarantees and credit derivatives, banking institutions must have the right and expectation to receive payment from the credit protection provider without having to take legal action to pursue the counterparty for payment. If a credit event should occur, steps should be taken to ensure that the protection provider is willing to pay promptly. vi) The purchased credit protection absorbs all credit losses incurred on the hedged portion of an exposure that arises due to credit events outlined in the contract. vii) If the payout structure provides for physical settlement, then there must be legal certainty with respect to the deliverability of a loan, bond, or contingent liability. If a banking institution intends to deliver an obligation other than the underlying exposure, it must ensure that the deliverable obligation is sufficiently liquid so that the banking institution would have the ability to purchase it for delivery in accordance with the contract. viii) The terms and conditions of credit protection arrangements must be legally confirmed in writing by both the credit protection provider and the banking institution. ix) In the case of protection against dilution risk, the seller of purchased receivables must not be a member of the same group as the protection provider. x) There is no excessive correlation between the creditworthiness of a protection provider and the borrower of the underlying exposure due to performance being dependent on common factors beyond the systematic BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 124 / 506 Issued on: 3 May 2019 risk factor. Banking institutions should establish a mechanism to detect the existence of such excessive correlation. An example of excessive correlation is where a protection provider guarantees the debt of a supplier of goods or services and the supplier derives a high proportion of its income or revenue from the protection provider. On-Balance Sheet Netting121 I. Specific Requirements for On-Balance Sheet Netting 3.145 Banking institutions are allowed to compute credit exposures on a net basis for capital requirements where banking institutions have legally enforceable netting arrangements for loans and deposits122. In addition, banking institutions can only apply on-balance sheet netting on any exposure if the following conditions have been met: i) Strong legal basis that the netting or off-setting agreement is enforceable in each relevant jurisdiction regardless of whether the counterparty is in default, insolvent or bankrupt; ii) Able to determine at any time the assets and liabilities of the counterparty that are subject to the netting agreement; iii) Monitors and controls roll-off risks123; and iv) Monitors and controls the relevant exposure on a net basis. II. Methodology 3.146 The computation of the net exposure to a counterparty for capital adequacy computation purposes is similar to that specified for collateralised transactions under paragraph 3.108, where assets (loans) are treated as exposures and liabilities (deposits) as collateral. For on-balance sheet netting, the haircut will be zero except where there is a currency mismatch. A 10-business day holding period will apply when daily mark-to-market is conducted and all the 121 As opposed to other CRM techniques that mostly affect the LGD component, the effects of on- balance sheet netting are incorporated in the EAD component. 122 Structured deposits and Restricted Investment Account would not be recognised for on-balance sheet netting. 123 Roll-off risks relate to the sudden increases in exposure which can happen when short dated obligations used to net long dated claims mature. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 125 / 506 Issued on: 3 May 2019 requirements contained in paragraphs 3.155 to 3.158 and paragraphs 2.119 to 2.124 will apply. 3.147 For the purpose of calculating RWA for the exposure following the on-balance sheet netting, the relevant PD and LGD or risk weight for the counterparty and transaction shall be applied to the net exposure amount. . Other Aspects of Credit Risk Mitigation Treatment of Pools of Credit Risk Mitigation Techniques 3.148 When multiple credit risk mitigation techniques are used to cover a single exposure, the exposure should be divided into portions which are covered by each type of credit risk mitigation technique. The risk-weighted assets of each portion must be calculated separately. Where credit protection provided by a single guarantor has different maturities, these must also be divided into separate portions. 3.149 In addition, where a single transaction is attached to multiple forms of credit risk mitigants, banking institutions are able to obtain the largest capital relief possible from the risk mitigants. First to Default Credit Derivatives 3.150 There are cases where a banking institution obtains protection for a basket of reference names and where the first default among the reference names triggers the credit protection and the credit event also terminates the contract. 3.151 In this case, a banking institution may recognise regulatory capital relief for the asset within the basket with the lowest risk-weighted amount, but only if the notional amount is less than or equal to the notional amount of the credit derivative. 3.152 With regard to a banking institution providing credit protection through such an instrument, the risk-weighted asset as specified under the securitisation component of the Revised Capital Framework will be applied. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 126 / 506 Issued on: 3 May 2019 Second to Default Credit Derivatives 3.153 In the case where the second default among the assets within the basket triggers the credit protection, the banking institution obtaining credit protection through such a product will only be able to recognise any capital relief if first default protection has also been obtained or when one of the assets within the basket has already defaulted. 3.154 For banking institutions providing credit protection through such a product, the capital treatment is the same as paragraph 3.151 with the exception that, in aggregating the risk-weighted assets amount, the asset with the lowest risk- weighted amount can be excluded from the calculation. Maturity Mismatches 3.155 For calculating RWA, a maturity mismatch occurs when the residual maturity of a hedge is less than that of the underlying exposure. Definition of Maturity 3.156 The maturity of the underlying exposure and the maturity of the hedge should both be defined conservatively. The M of the underlying should be gauged as the longest possible remaining time before the counterparty is scheduled to fulfil its obligation, taking into account any applicable grace period. For a hedge, embedded options which may reduce the term of the hedge should be taken into account so that the shortest possible M is used. Where a call is at the discretion of the protection seller, the maturity will always be at the first call date. If the call is at the discretion of the protection-buying banking institution but the terms of the arrangement at origination of the hedge contain a positive incentive for the banking institution to call the transaction before contractual maturity, the remaining time to the first call date will be deemed to be the M. For example, where there is a step-up in cost in conjunction with a call feature or where the effective cost of cover increases over time even if credit quality remains the same or increases, the M will be the remaining time to the first call. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 127 / 506 Issued on: 3 May 2019 Risk Weights for Maturity Mismatches 3.157 Hedges with maturity mismatches are only recognised when the original maturities are greater than or equal to one year. As a result, the maturity of hedges for exposures with original maturities of less than one year must be matched to be recognised. In all cases, hedges with maturity mismatches will no longer be recognised when the residual maturity of the hedge is three months or less. 3.158 When there is a maturity mismatch with recognised credit risk mitigant (collateral, on-balance sheet netting, guarantees and credit derivatives) the following adjustment will be applied.    25.0 25.0    T t PPa where: Pa = Value of the credit protection adjusted for maturity mismatch P = Credit protection (e.g. collateral amount, guarantee amount) adjusted for any haircuts t = Min (T, residual maturity of the credit protection arrangement) expressed in years T = Min (5, residual maturity of the exposure) expressed in years BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 128 / 506 Issued on: 3 May 2019 B.3.5 RISK-WEIGHTED ASSETS Risk-Weighted Assets for Corporate, Sovereign and Bank Exposures I. Formula for Derivation of Risk-Weighted Assets 3.159 The derivation of RWA is dependent on estimates of the PD, LGD, EAD and, M for a given exposure. 3.160 The computation of RWA for exposures not in default, is124: Capital requirement125 (K) =                                     b bM LGDPDN R R PDN R NLGD 5.11 )5.2(1 999.0 11 1 11 RWA = K x 12.5 x EAD where: Maturity adjustment, b =   2ln05478.011852.0 PD Correlation, R =                         501 501 124.0 501 501 12.0 EXP PDEXP EXP PDEXP Illustrative IRB risk weights are shown in Appendix XXVII. 3.161 The formula above and the requirement for foundation IRB banking institutions to establish its own PD estimates126 for all borrowers within their corporate portfolio shall also apply to corporate exposures guaranteed by the Credit Guarantee Corporation (CGC). However, the effective risk weight for corporate exposures guaranteed by the CGC which are not in default, shall be capped at 20%127. 124 Ln denotes the natural logarithm. N(x) denotes the cumulative distribution function for a standard normal random variable (i.e. the probability that a normal random variable with mean zero and variance of one is less than or equal to x). N-1(z) denotes the inverse cumulative distribution function for a standard normal random variable (i.e. the value of x such that N(x) = z). The normal cumulative distribution function and the inverse of the normal cumulative distribution function are, for example, available in Excel as the functions NORMSDIST and NORMSINV. EXP denotes the exponential function. 125 If this calculation results in a negative capital charge for any individual sovereign exposure, banking institutions should apply a zero capital charge for that exposure. 126 Advanced IRB banking institutions would also have to estimate LGD and EAD. 127 Only applicable on the guaranteed portion of the exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 129 / 506 Issued on: 3 May 2019 3.162 The capital requirement (K) for a defaulted exposure is the greater of: i) zero, and ii) the difference between its LGD (described in paragraph 3.322) and the banking institution’s best estimate of expected loss (described in paragraph 3.326). The RWA amount for the defaulted exposure is the product of K, 12.5, and EAD. 3.163 Banking institutions that meet the requirements for the estimation of PD for SL exposures may use the formula in paragraph 3.160 to derive the risk-weighted assets, except for HVCRE where the following asset correlation formula will apply: Correlation (R) =                               501 501 10.30 501 501 0.12 EXP PDEXP EXP PDEXP Banking institutions that do not meet the requirements for the estimation of PD for SL exposures are required to use the SSC approach from paragraphs 3.166 to 3.169. II. Firm-size Adjustment for Small and Medium-sized Corporates 3.164 Banking institutions may separately distinguish exposures to small and medium- sized corporates128 from those to large corporates. A firm-size adjustment (S) is made to the asset correlation formula. S is expressed as total annual sales in RM millions with values of S falling between RM25 million to RM250 million. Reported sales of less than RM25 million will be treated as equal to RM25 million for the purpose of this paragraph. Correlation (R) =                                225 25S 10.04 50EXP1 PD50EXP1 10.24 50EXP1 PD50EXP1 0.12 128 Defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 130 / 506 Issued on: 3 May 2019 3.165 When total sales is not a meaningful indicator of a firm’s size, the Bank may allow banking institutions to use total assets of the consolidated group as a basis to calculate the small and medium-sized corporate threshold and the firm- size adjustment. III. Risk Weights for Sub-classes of SL - PF, OF, CF, IPRE and HVCRE 3.166 For banking institutions adopting the SSC approach129 for their SL portfolio, banking institutions should map the internal grades to five supervisory categories based on the slotting criteria provided in Appendix VII(a). 3.167 The risk weights associated with each supervisory category for PF, OF, CF and IPRE are: Strong Good Satisfactory Weak Default 70% 90% 115% 250% 0% 3.168 Banking institutions may apply preferential risk weights of 50% to “strong” exposures, and 70% to “good” exposures as per the table below, subject to meeting either of the following conditions:  Remaining maturity of the current SL exposure is less than 2.5 years; or  Project construction is completed. Strong Good Satisfactory Weak Default 50% 70% 115% 250% 0% 3.169 The risk weights for HVCRE exposures associated with each supervisory category are: Strong Good Satisfactory Weak Default 95% 120% 140% 250% 0% 129 Banking institutions that meet the requirements for the estimation of PD will be able to use the general foundation approach for the corporate asset class to derive risk weights for SL sub-classes. Banking institutions that meet the requirements for the estimation of PD and LGD and/or EAD will be able to use the general advanced approach for the corporate asset class to derive risk weights for SL sub-classes. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 131 / 506 Issued on: 3 May 2019 IV. Risk-Weighted Assets for Exposures subject to the Double Default Framework 3.170 The capital requirement for a hedged exposure subject to the double default treatment (KDD) is calculated by multiplying K0 as defined below by a multiplier depending on the PD of the protection provider (PDg):  gDD PDKK  16015.00 K0 is calculated in the same way as a capital requirement for an unhedged corporate exposure (as defined in paragraph 3.160 to 3.162 and 3.164), but using different parameters for LGD and the maturity adjustment.       b bM PD NPDN NLGDK o os oso g                         5.11 5.21 1 999.011 0   PDo and PDg are the probabilities of default of the obligor and guarantor, respectively, both subject to the PD floor set out in paragraph 3.47. The correlation os is calculated according to the formula for correlation (R) in paragraph 3.160 or 3.164, with PD being equal to PDo, and LGDg is the LGD of a comparable direct exposure to the guarantor130. There shall be no consideration of double recovery in the LGD estimate131. The maturity adjustment coefficient, b, is calculated according to the formula for maturity adjustment in paragraph 3.160, with PD being the lower of PDo and PDg. M is the effective maturity of the credit protection, which must not be below the one- year floor if the double default framework is to be applied. 130 Consistent with paragraph 3.132, the LGD associated with an unhedged facility to the guarantor or the unhedged facility to the obligor, depending upon whether, in the event both the guarantor and the obligor default during the life of the hedged transaction, available evidence and the structure of the guarantee indicate that the amount recovered would depend on the financial condition of the guarantor or obligor, respectively; in estimating either of these LGDs, a banking institution may recognise collateral posted exclusively against the exposure or credit protection, respectively, in a manner consistent with paragraph 3.130, 3.166, 3.322 to 3.326, 3.330 and 3.331, as applicable. 131 Only recoveries from the guarantor are taken into consideration and no recognition is given for recoveries from obligor. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 132 / 506 Issued on: 3 May 2019 3.171 The RWA amount is calculated in the same way as for unhedged exposures, as follows: gDDDD EADKRWA  5.12 Risk-Weighted Assets for Retail Exposures 3.172 There are three separate risk weight functions for retail exposures as defined below. Risk weights for retail exposures are based on separate assessments of PD and LGD as inputs to the risk weight functions. None of the three retail risk weight functions contain an explicit maturity adjustment. Illustrative risk weights are shown in Appendix XXVII. I. Exposures Secured by Residential Properties 3.173 For exposures defined in paragraph 3.34 that are not in default and are secured or partly secured132 by residential mortgages, risk weights will be assigned based on the following formula: Correlation (R) = 0.15 Capital requirement (K) =     LGDPDN R R PDN R NLGD                999.0 11 1 11 RWA = K x 12.5 x EAD 132 This means that risk weights for residential mortgages also apply to the unsecured portion of such residential mortgages. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 133 / 506 Issued on: 3 May 2019 II. Qualifying Revolving Retail Exposures 3.174 For QRRE as defined in paragraph 3.35 that are not in default, risk weights are defined based on the following formula: Correlation (R) = 0.04 Capital requirement (K) =     LGDPDN R R PDN R NLGD                999.0 11 1 11 RWA = K x 12.5 x EAD III. Other Retail Exposures 3.175 For all other retail exposures that are not in default, risk weights are defined based on the following formula, which allows correlation to vary with PD: Correlation (R) =                         351 351 116.0 351 351 03.0 EXP PDEXP EXP PDEXP Capital requirement (K) =     LGDPDN R R PDN R NLGD                999.0 11 1 11 RWA = K x 12.5 x EAD 3.176 The formulas above and the requirement to establish PD, LGD and EAD estimates shall also apply to priority sector residential mortgages and any retail exposures guaranteed by CGC. However, the effective risk weight for: i) Priority sector residential mortgages, which are not in default, shall be capped at 50%. However, the effective risk weight cap for any loans with a loan-to-value ratio of more than 90% approved and disbursed by banking institutions on or after 1 February 2011 is 75%; and ii) Any retail exposures guaranteed by CGC, which are not in default, shall be capped at 20%133. 133 Only applicable on guaranteed portion of the exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 134 / 506 Issued on: 3 May 2019 3.177 The capital requirement (K) for a defaulted exposure (for all three types of retail exposures) is equal to the greater of : i) zero; and ii) the difference between its LGD and the banking institution’s best estimate of expected loss. The RWA amount for the defaulted exposure is the product of K, 12.5, and EAD. Risk-Weighted Assets for Equity Exposures 3.178 There are two approaches to calculate RWA for equity exposures held in the banking book: i) Market-based approach (which is subdivided into the simple risk weight method and the internal models method); and ii) PD/LGD approach. Certain equity holdings as defined in paragraphs 3.194 to 3.196 are excluded from these approaches. 3.179 Banking institutions’ choices must be applied consistently and not determined by regulatory arbitrage considerations. The method used should be consistent with the amount and complexity of the banking institution’s equity holdings and commensurate with the overall size and sophistication of the institution. 3.180 Notwithstanding the above, the Bank may require a banking institution to employ the PD/LGD or the internal models approach instead of the simple risk weight approach if equity exposures constitute a significant part of its business. I. Market-Based Approach 3.181 Under the market-based approach, banking institutions are permitted to use one or both of the methods below. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 135 / 506 Issued on: 3 May 2019 Simple Risk Weight Method 3.182 Under the simple risk weight method, a 300% risk weight is applied to equity holdings that are publicly traded and a 400% risk weight to all other equity holdings. A publicly traded holding is defined as any equity security traded on a recognised securities exchange (please refer to Appendix X). 3.183 Short cash positions and derivative instruments held in the banking book are permitted to offset long positions in the same individual stocks provided that these instruments have been explicitly designated as hedges of specific equity holdings with remaining maturities of at least one year. Other short positions should be treated as if they are long positions with the relevant risk weight applied to the absolute value of each position. In the context of maturity mismatched positions, the methodology is similar to that for corporate exposures. Internal Models Method 3.184 Banking institutions may use, or may be required by the Bank to use, internal risk measurement models to calculate the capital requirement, subject to the minimum requirements set out in Part B.3.7 of this framework. Under this method, banking institutions must hold capital equal to the potential loss on equity holdings as derived using internal value-at-risk (VaR) models subject to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term134 sample period. The capital charge would be incorporated into banking institutions’ capital adequacy computation. 3.185 The risk weight used to convert holdings into risk-weighted equivalent assets would be calculated by multiplying the derived capital charge by 12.5 (i.e. the inverse of the minimum 8% risk-based capital requirement). 134 The Bank would expect banking institutions to have data covering at least five years or 20 data points of quarterly returns. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 136 / 506 Issued on: 3 May 2019 3.186 Capital charges calculated under the internal models method should not be less than the capital charges that would be calculated under the simple risk weight method using a 200% risk weight for publicly traded equity holdings and a 300% risk weight for all other equity holdings. Further, these minimum risk weights are to apply at the individual exposure level rather than at the portfolio level. 3.187 Subject to approval by the Bank, banking institutions may be allowed to use different market-based approaches to different portfolios if they are already adopting these approaches internally, subject to proper justifications. 3.188 Banking institutions adopting the market-based approach for equity exposures are permitted to recognise guarantees but not the collateral obtained on that equity exposure. II. PD/LGD Approach 3.189 Banking institutions wishing to adopt the PD/LGD approach to calculate the equivalent credit risk-weighted assets of equity exposures (including equity of companies that are included in the retail asset class) are required to fulfil the minimum requirements and methodology for the IRB foundation approach135 for corporate exposures, subject to the following specifications: i) The banking institution’s estimate of the PD of a corporate entity in which it holds an equity position must satisfy the same requirements as its estimate of the PD of a corporate entity where it holds debt136, except in the following instances:  Where a banking institution does not hold a debt in the company in which it holds equity, and does not have sufficient information on the position of that company to be able to use the applicable definition of default in practice but meets the other minimum requirements, a 1.5 scaling factor will be applied to the risk weights derived from the 135 There is no advanced approach for equity exposures, given the 90% LGD assumption. 136 In practice, if there is both an equity exposure and an IRB credit exposure to the same counterparty, a default on the credit exposure would thus trigger a simultaneous default for regulatory purposes on the equity exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 137 / 506 Issued on: 3 May 2019 corporate risk weight function, given the PD set by the banking institution.  If, however, the banking institution’s equity holdings are material137 and it is permitted to use the PD/LGD approach for regulatory purposes but the banking institution has not yet met the relevant standards, the simple risk weight method under the market-based approach will apply. ii) An LGD of 90% would be assumed in deriving the risk weight for equity exposures. iii) The risk weight is subject to a five-year maturity adjustment whether or not the banking institution is using the explicit approach to maturity elsewhere in its IRB portfolio. 3.190 Under the PD/LGD approach, minimum risk weights as set out in paragraphs 3.191 and 3.192 apply. When the sum of UL and EL associated with the equity exposure results in less capital than would be required from application of one of the minimum risk weights, the minimum risk weights must be used. In other words, the minimum risk weights must be applied, if the risk weights calculated according to paragraph 3.189 plus the EL associated with the equity exposure multiplied by 12.5 are smaller than the applicable minimum risk weights. 3.191 A minimum risk weight of 100% applies for the following types of equities for as long as the portfolio is managed in the manner outlined below:  Public equities where the investment is part of a long-term customer-banker relationship and no capital gains are expected to be realised in the short term and where there is no anticipation of (above trend) capital gains in the long term. It is expected that in almost all cases, the banking institution will have lending and/or general banking relationships with the portfolio company so that the estimated PD is readily available. In general, the banking institution is expected to hold the equity over a long term period (at least five years). 137 Materiality threshold is defined similar to materiality threshold used to determine equity holdings that are exempted from the IRB scope. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 138 / 506 Issued on: 3 May 2019  Private equities, where the returns on the investment are based on regular and periodic cash flows not derived from capital gains and there is no expectation of future (above trend) capital gain or of realising existing gain. 3.192 For all other equity positions, including net short positions (as defined in paragraph 3.183), capital charges calculated under the PD/LGD approach may be no less than the capital charges that would be calculated under a simple risk weight method using a 200% risk weight for publicly traded equity holdings and a 300% risk weight for all other equity holdings. 3.193 The maximum risk weight for the PD/LGD approach for equity exposures is 1250%. This maximum risk weight can be applied, if risk weights calculated according to paragraph 3.189 plus the EL associated with the equity exposure multiplied by 12.5 exceed the 1250% risk weight. III. Exclusions to the Market-Based and PD/LGD Approaches 3.194 Equity holdings in entities whose debt obligations qualify for a 0% risk weight under the standardised approach can be excluded from the IRB approaches for equities. These equity exposures will attract a risk weight of 20%. 3.195 Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association shall receive a risk weight of 100% (subject to a cap of 10% of the banking institution’s Total Capital). 3.196 Investments in the ABF Malaysia Bond Index Fund and investments in equity of non-financial commercial subsidiaries will apply the same treatment as per paragraph 2.44. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 139 / 506 Issued on: 3 May 2019 Risk-Weighted Assets for Purchased Receivables Default Risk 3.197 For receivables categorised under one asset class, the IRB risk weight for default risk is based on the risk weight function applicable to that particular exposure type, as long as a banking institution can meet the qualification standards for this particular risk weight function. For example, if a banking institution cannot comply with the standards for QRRE, it should use the risk weight function for other retail exposures. 3.198 For hybrid pools containing mixtures of exposure types, if the purchasing banking institution cannot separate the exposures by type, the risk weight function producing the highest capital requirements for the exposure types in the receivable pool applies. I. Purchased Retail Receivables 3.199 For purchased retail receivables, banking institutions must meet the risk quantification standards for retail exposures but can utilise external and internal reference data to estimate the PDs and LGDs. The estimates for PD and LGD (or EL) must be calculated for the receivables on a stand-alone basis; that is, without regard to any assumption of recourse or guarantees from the seller or other parties. II. Purchased Corporate Receivables 3.200 For purchased corporate receivables, the purchasing banking institution is expected to apply the existing IRB risk quantification standards for the bottom- up approach. However, for eligible purchased corporate receivables, and subject to the Bank’s approval, banking institutions may employ the following top-down procedure to calculate the IRB risk weights for default risk:  The purchasing banking institution will estimate the pool’s one-year EL for default risk, expressed in percentage of the exposure amount (i.e. the total EAD amount to the banking institution by all receivables obligors in the receivables pool). The estimated EL on the receivables should be calculated on a stand-alone basis without any assumption of recourse or guarantees BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 140 / 506 Issued on: 3 May 2019 from the seller or other parties. The treatment of recourse or guarantees covering default risk (and/or dilution risk) is elaborated separately below.  Given the EL estimate for the pool’s default losses, the risk weight for default risk is determined by the risk weight function for corporate exposures138. As described below, the precise calculation of risk weights for default risk depends on the banking institution’s ability to decompose EL into its PD and LGD components in a reliable manner. Banking institutions can utilise external and internal data to estimate PDs and LGDs. However, the advanced approach cannot be adopted by banking institutions that use the foundation approach for corporate exposures. Foundation IRB treatment 3.201 If the purchasing banking institution is unable to decompose EL into its PD and LGD components in a reliable manner, the risk weight is determined from the corporate risk weight function using the following specifications:  If banking institution can demonstrate that the exposures are exclusively senior claims to corporate borrowers, an LGD of 45% can be used. PD will be calculated by dividing the EL using this LGD. EAD will be calculated as the outstanding amount minus the capital charge for dilution prior to credit risk mitigation (KDilution).  Otherwise, PD is the banking institution’s estimate of EL; LGD will be 100%; and EAD is the amount outstanding minus KDilution.  EAD for a revolving purchase facility is the sum of the current amount of receivables purchased plus 75% of any undrawn purchase commitments minus KDilution.  If the purchasing banking institution is able to estimate PD in a reliable manner, the risk weight is determined from the corporate risk weight functions according to the specifications for LGD and M under the foundation approach as given in paragraphs 3.49 to 3.55 and 3.66. 138 The firm-size adjustment for small and medium-sized corporates will be the weighted average by individual exposure of the pool of purchased corporate receivables. If the banking institution does not have the information to calculate the average size of the pool, the firm-size adjustment will not apply. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 141 / 506 Issued on: 3 May 2019 Advanced IRB treatment 3.202 If the purchasing banking institution can estimate either the pool’s default- weighted average loss rates given default (as defined in paragraph 3.322) or average PD in a reliable manner, banking institution may estimate the other parameter based on an estimate of the expected long-run loss rate as follows: i) using an appropriate PD estimate to infer the long-run default-weighted average loss rate given default, or ii) using a long-run default-weighted average loss rate given default to infer the appropriate PD. In either case, it is important to recognise that the LGD used for the IRB capital calculation for purchased receivables cannot be less than the long-run default- weighted average loss rate given default and must be consistent with the concepts defined in paragraph 3.322. The risk weight for the purchased receivables will be determined using the banking institution’s estimated PD and LGD as inputs to the corporate risk weight function. Similar to the foundation IRB treatment, EAD will be the amount outstanding minus KDilution. EAD for a revolving purchase facility will be the sum of the current amount of receivables purchased plus 75% of any undrawn purchase commitments minus KDilution (thus, banking institutions using the advanced IRB approach will not be permitted to use internal EAD estimates for undrawn purchase commitments). 3.203 For drawn amounts, M will equal the pool’s exposure-weighted average M (as defined in paragraphs 3.75 to 3.80). This same value of M will also be used for undrawn amounts under a committed purchase facility provided the facility contains effective covenants, early amortisation triggers, or other features that protect the purchasing banking institution against a significant deterioration in the quality of the future receivables it is required to purchase over the facility’s term. In the absence of such effective protections, the M for undrawn amounts will be calculated as the sum of: i) the longest-dated potential receivable under the purchase agreement; and ii) the remaining maturity of the purchase facility. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 142 / 506 Issued on: 3 May 2019 For purchased receivables, such as factoring and similar transactions, which are deemed short term self liquidating trade transactions, M could be accounted for using the actual remaining maturity. However, M must be at least 90 days. Dilution Risk 3.204 Dilution refers to the possibility that the receivable amount is reduced through cash or non-cash credits to the receivable’s obligor139. For both corporate and retail receivables, unless the banking institution can demonstrate to the Bank that the dilution risk for the purchasing banking institution is immaterial, the treatment of dilution risk must be the following: i) At the level of either the pool as a whole (top-down approach) or the individual receivables making up the pool (bottom-up approach), the purchasing banking institution will estimate the one-year EL for dilution risk, also expressed in percentage of the receivables amount. Banking institutions can utilise external and internal data to estimate EL. As with the treatment of default risk, this estimate must be computed on a stand- alone basis; that is, under the assumption of no recourse or other support from the seller or third-party guarantors. ii) For the purpose of calculating risk weights for dilution risk, the corporate risk weight function must be used with the PD set equal to the estimated EL, and the LGD set at 100%. An appropriate maturity treatment applies when determining the capital requirement for dilution risk. If a banking institution can demonstrate that the dilution risk is appropriately monitored and managed to be resolved within one year, the Bank may allow the banking institution to apply a one-year maturity. 3.205 This treatment will be applied regardless of whether the underlying receivables are corporate or retail exposures, and regardless of whether the risk weights for default risk are computed using the standard IRB treatments or, for corporate receivables, the top-down treatment described above. 139 Examples include offsets or allowances arising from returns of goods sold, disputes regarding product quality, possible debts of the borrower to a receivables obligor, and any payment or promotional discounts offered by the borrower (e.g. a credit for cash payments within 30 days). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 143 / 506 Issued on: 3 May 2019 Recognition of credit risk mitigants 3.206 Credit risk mitigants will be recognised generally using the same framework as set forth in paragraphs 3.128 to 3.135.140 In particular, a guarantee provided by the seller or a third party will be treated using the existing IRB rules for guarantees, regardless of whether the guarantee covers default risk, dilution risk, or both.  If the guarantee covers both the pool’s default risk and dilution risk, the pool’s total risk weight for default and dilution risk is substituted with the risk weight for an exposure to the guarantor.  If the guarantee covers only default risk or dilution risk, but not both, the pool’s risk weight for the corresponding risk component (default or dilution) is substituted with the risk weight for an exposure to the guarantor. The capital requirement for the other component will then be added.  If a guarantee covers only a portion of the default and/or dilution risk, the uncovered portion of the default and/or dilution risk will be treated as per the existing credit risk mitigation rules for proportional or tranched coverage (i.e. the risk weights of the uncovered risk components will be added to the risk weights of the covered risk components). 3.207 If protection against dilution risk has been purchased, and the conditions of paragraphs 3.136, 3.137 and 3.144 are met, the double default framework may be used for the calculation of the RWA amount for dilution risk. In this case, paragraphs 3.170 and 3.171 apply with PDo being equal to the estimated EL, LGDg being equal to 100%, and M being set according to paragraph 3.204. Risk-Weighted Assets for Leasing 3.208 Leases other than those that expose banking institutions to residual value risk (refer below) will be accorded the same treatment as if the exposures were collateralised by the underlying leased asset. Banking institutions must ensure 140 Banking institutions may recognise guarantors that are internally rated and associated with a PD equivalent to BBB- or better under the foundation IRB approach for purposes of determining the capital requirements for dilution risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 144 / 506 Issued on: 3 May 2019 that the minimum requirements for the collateral type must be met (CRE/RRE or other collateral). In addition, the following standards should be met:  Robust risk management on the part of the lessor with respect to the location of the asset, the use to which it is put, its age and planned obsolescence;  A robust legal framework establishing the lessor’s legal ownership of the asset and its ability to exercise its rights as owner in a timely fashion; and  The difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments must not be so large as to overstate the CRM attributed to the leased assets. 3.209 Leases that expose banking institutions to residual value risk141 will be treated in the following manner:  The discounted lease payment stream will receive a risk weight appropriate for the lessee’s financial strength (PD) and supervisory or own-estimate of LGD, whichever is appropriate.  The residual value will be risk-weighted at 100%. B.3.6 CALCULATION OF MINIMUM CAPITAL REQUIREMENT Regulatory Capital 3.210 [Deleted]. 3.211 However, banking institutions using the IRB approach (other than for equity under PD/LGD approach) are required to compare: i) the total EL amount as calculated within the IRB approach, with ii) the amount of total eligible provisions, defined in this section. 3.212 Where the total EL amount exceeds total eligible provisions, banking institutions must deduct the difference in the calculation of CET1 Capital. 141 Residual value risk is the banking institution’s exposure to potential loss due to the fair value of equipment declining below its residual estimate at lease inception. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 145 / 506 Issued on: 3 May 2019 3.213 Where the total EL amount is less than total eligible provisions, banking institutions may recognise the difference in Tier 2 Capital up to a maximum of 0.6% of credit RWA. 3.214 Banking institutions using the PD/LGD approach for equity exposures must calculate the EL for equity exposures separately from the EL for other exposures. The EL amount for equity exposures under the PD/LGD approach shall be risk-weighted at 1250%. 3.215 For residual exposures that will remain under the standardised approach to credit risk, general provisions142 as explained in paragraphs 3.228 and 3.229 can be included in the calculation of Tier 2 Capital. Calculation of Expected Losses 3.216 This section outlines the method by which the difference between provisions and EL may be included in or must be deducted in the calculation of CET1 Capital. 3.217 In general, a banking institution must add up the EL amount (defined as EL multiplied by EAD) associated with its exposures (excluding the EL amount associated with equity exposures under the PD/LGD approach) to obtain a total EL amount. 3.218 Banking institutions must calculate an EL as PD x LGD for corporate, sovereign, bank, and retail exposures, both not in default and not treated as hedged exposures under the double default treatment. 142 General provisions refer to– (i) loss allowance measured at an amount equal to 12-month and lifetime expected credit losses as defined under the Malaysian Financial Reporting Standards 9 (these provisions are commonly known as Stage 1 and Stage 2 provisions); and (ii) regulatory reserves, to the extent they are ascribed to non-credit-impaired exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 146 / 506 Issued on: 3 May 2019 3.219 For corporate, sovereign, bank and retail exposures that are in default, banking institutions must use the best estimate of EL as defined in paragraph 3.326. Those under the foundation approach must use the supervisory LGD. 3.220 For equity exposures subject to the PD/LGD approach, the EL is calculated as PD x LGD, except where the minimum and maximum risk weights in paragraphs 3.191 to 3.193 apply. In these cases, the minimum and maximum risk weights are already regarded as UL, thereby rendering any EL-provision calculation unnecessary. 3.221 Banking institutions will not be required to calculate EL for the portion of exposures which have been applied a risk weight cap (i.e. exposures guaranteed by CGC and priority sector housing loans) and exposures subject to a 100% risk weight as per paragraph 3.22. 3.222 For all other exposures, including hedged exposures under the double default treatment, the EL is zero. 3.223 For SL exposures subject to the SSC, the EL amount is determined by multiplying 8% by the RWA produced from the appropriate risk weights, as specified below, multiplied by EAD. Supervisory Categories and EL Risk Weights for Other SL Exposures 3.224 The EL risk weights for SL, other than HVCRE, are as follows: Strong Good Satisfactory Weak Default 5% 10% 35% 100% 625% 3.225 Banking institutions meeting the requirements under paragraph 3.168 are allowed to assign preferential EL risk weights falling into the “strong” and “good” supervisory categories as follows: Strong Good Satisfactory Weak Default 0% 5% 35% 100% 625% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 147 / 506 Issued on: 3 May 2019 Supervisory Categories and EL Risk Weights for HVCRE 3.226 The EL risk weights for HVCRE are as follows: Strong Good Satisfactory Weak Default 5% 5% 35% 100% 625% Calculation of Provisions Exposures Subject to IRB Approach 3.227 Total eligible provisions are defined as the sum of all provisions143 that are attributed to exposures treated under the IRB approach. In addition, total eligible provisions may include any discounts on defaulted assets. Portion of Exposures Subject to the Standardised Approach to Credit Risk 3.228 Banking institutions applying the standardised approach for the portion of credit risk exposures exempted from the IRB approach (including exposures which have been applied a risk weight cap), either on a permanent or temporary basis as per paragraph 3.4 to 3.6 and 3.14, must determine the portion of general provisions attributed to the standardised or IRB treatment of provisions (see paragraph 3.215), according to the methods outlined in paragraph 3.229. 3.229 Banking institutions should generally attribute total general provisions on a pro rata basis according to the proportion of credit RWA subject to the standardised and IRB approaches. However, when one approach is used to determine credit RWA (i.e. standardised or IRB approach) exclusively within an entity, general provisions booked within the entity using the standardised approach may be attributed to the standardised treatment. Similarly, general provisions booked within entities using the IRB approach may be attributed to the total eligible provisions as defined in paragraph 3.227. Risk-Weighted Assets 3.230 The Bank reserves the right to require banking institutions to apply a scaling factor144 to the credit RWA with a view for banking institutions to maintain the 143 Provisions include all loss allowance as defined under the Malaysian Financial Reporting Standards 9 (and regulatory reserves, if any), partial write-offs and any discounts on defaulted assets. 144 At this juncture, the Bank proposes to adopt a scaling factor of 1.06 as adopted by the BCBS. This factor was designed to offset the expected decrease in the capital requirement resulting from the change in the capital formula from a EL plus UL orientation, to a UL-only orientation. The size of the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 148 / 506 Issued on: 3 May 2019 aggregate level of minimum capital requirements, while also providing incentives for banking institutions to adopt the more advanced risk-sensitive approaches of the framework. Parallel Calculation 3.231 Banking institutions migrating to the IRB approaches for credit risk will be subjected to a one-year parallel calculation prior to actual implementation, whereby banking institutions are required to calculate the credit RWA using the approach under this framework concurrently with the approach the banking institution is currently using (i.e. either the current accord or the standardised approach). During the parallel run period, banking institutions are required to submit to the Bank the computation of their capital adequacy ratio based on the templates provided by the Bank on a quarterly basis. Please refer to the reporting manual for further details on the reporting requirements. Prudential Capital Floor 3.232 For banking institutions using the IRB approach, there will be a capital floor following implementation of this framework. Banking institutions must calculate the difference between: i) The capital floor, which is based on application of the current accord145, or standardised approach. The capital floor is derived by applying an adjustment factor to the following amount:  8% of the RWA under the current requirement, plus  Tier 1 and Tier 2 Capital deductions, less  General provisions that are recognised in Tier 2 Capital; and ii) The capital derived from:  8% of total RWA calculated under the IRB framework, plus (or less)  Negative (or positive) regulatory adjustments, as specified in Part E of the Capital Adequacy Framework (Capital Components). scaling factor was derived based on the results of the third Quantitative Impact Study conducted by the BCBS. 145 Refers to the Risk-Weighted Capital Adequacy Framework (Basel I). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 149 / 506 Issued on: 3 May 2019 Where a banking institution uses the standardised approach for credit risk for any portion of its exposures, it also needs to exclude general provisions that may be recognised in Tier 2 Capital for that portion from the amount calculated under item (ii) above. If the floor amount is larger than the capital derived under this framework, banking institutions are required to add 12.5 times the difference between the floor and the capital derived under this framework to the RWA. 3.233 The following table sets out the application of the adjustment factors: 3.234 The Bank may continue to impose the prudential floors beyond the transitional period to provide time to ensure that individual banking institution’s implementation of the IRB approaches are sound. Such floors may be based on the approach the institution was using before adoption of the IRB approach, subject to full disclosure of the floors adopted (in terms of adjustment factors and the duration). B.3.7 MINIMUM REQUIREMENTS FOR THE IRB APPROACH Overview of Minimum Requirements 3.235 To adopt the IRB approach, banking institutions must demonstrate to the Bank that it has in place a comprehensive framework146 for model implementation that meets all minimum requirements in this section at the outset and on an 146 The framework shall cover the entire policies, process and procedures required for the effective implementation of rating systems within the banking institution. Minimum requirements outlined in this section specify the Bank’s expectation on various parts of the framework. One year before implementation From first year of implementation From second year of implementation From third year of implementation Foundation and advanced IRB approaches for credit risk Parallel calculation 95% 90% 80% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 150 / 506 Issued on: 3 May 2019 ongoing basis. These requirements focus on the ability to rank order and quantify risk in a consistent, reliable and valid manner. Credit risk management standards and practices must also meet the expectations set by the Bank in its risk management guidelines. 3.236 The rationale behind these requirements is that rating and risk estimation systems and processes in place should provide for a meaningful assessment of borrower and transaction characteristics; a meaningful differentiation of risks; and reasonably accurate and consistent quantitative estimates of risks. Furthermore, the systems and processes established must be consistent with internal use of these estimates. The Bank does not intend to prescribe the form or operational details of banking institutions’ risk management policies and practices, but will exercise its right to perform detailed review procedures to ensure that systems and controls are adequate to serve as the basis for the IRB approach. 3.237 The minimum requirements set out in this document shall apply to all asset classes unless noted otherwise. The standards related to the process of assigning exposures to borrower or facility grades (and the related oversight, validation, etc.) apply equally to the process of assigning retail exposures to pools of homogenous exposures, unless noted otherwise. 3.238 The minimum requirements set out in this document shall apply to both foundation and advanced approaches unless noted otherwise. Generally, all IRB institutions must produce internal estimates of PD and must adhere to the overall requirements for rating system design, operations, governance and the requisite requirements for estimation and validation of PD measures. Banking institutions wishing to use internal estimates of LGD and EAD must also meet the incremental minimum requirements for these risk factors included in paragraphs 3.322 to 3.326 and 3.330 to 3.347. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 151 / 506 Issued on: 3 May 2019 3.239 In circumstances where a banking institution is not in full compliance with all the minimum requirements, the institution shall explain the reason for the non- compliance and: i) Produce a plan for the timely return to full compliance, and seek the Bank’s approval thereof; or ii) Demonstrate to the Bank that the effect of such non-compliance is temporary and immaterial in terms of the risk posed to the banking institution. Failure to perform either of the above may affect the banking institution’s eligibility for the IRB approach. For the duration of any non-compliance, the Bank may require additional capital under Pillar 2 or take other appropriate supervisory action. Rating System Design 3.240 A rating system comprises all of the methods, processes, controls, and data collection and IT systems that support the assessment of credit risk, the assignment of internal risk ratings, and the quantification of default and loss estimates. 3.241 Within each asset class, a banking institution may utilise multiple rating methodologies/systems. For example, it may have customised rating systems for specific industries or market segments (e.g. middle market, and large corporate). However, banking institutions must not allocate borrowers across rating systems inappropriately to minimise regulatory capital requirements (i.e. cherry-picking by choice of rating system). If multiple rating systems are used, the policies to assign a borrower to a particular rating system must be clear and applied in a consistent manner that best reflects the level of risk of the borrower. I. Rating System Dimension Standards for Corporate, Sovereign, and Bank Exposures 3.242 A qualifying IRB system must have two separate and distinct dimensions: i) the risk of borrower default, and ii) transaction-specific factors. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 152 / 506 Issued on: 3 May 2019 3.243 The first dimension must be oriented to the risk of borrower default. Separate exposures to the same borrower must be assigned to the same borrower grade, irrespective of any differences in the nature of each specific transaction. There are two exceptions to this: i) Firstly, in the case of country transfer risk, where a banking institution may assign different borrower grades depending on whether the facility is denominated in a local or foreign currency. ii) Secondly, when the treatment of associated guarantees to a facility may be reflected in an adjusted borrower grade. In either case, separate exposures may result in multiple grades for the same borrower. A banking institution must articulate in its credit policy the various borrower grades and the associated risks of borrowers in a particular credit grade. Perceived and measured risk must increase as credit quality declines from one grade to the next. The policy must also articulate the risk of each grade in terms of both the description of the probability of default risk typical for borrowers with an assigned grade and the criteria used to distinguish that level of credit risk. 3.244 The second dimension must reflect transaction-specific factors, such as collateral, seniority, product type, etc. and is applicable for banking institutions adopting both the foundation and advanced IRB approaches. Under the foundation IRB approach, this requirement can be fulfilled by the existence of a facility dimension, which reflects both borrower and transaction-specific factors. For example, a rating dimension that reflects EL by incorporating both borrower strength (PD) and loss severity (LGD) considerations would qualify. Likewise a rating system that exclusively reflects LGD would also qualify. Where a rating dimension reflects EL and does not separately quantify LGD, the supervisory estimates of LGD must be used in the capital computation. 3.245 For banking institutions using the advanced approach, facility ratings must reflect exclusively LGD. These ratings can reflect any and all factors that can influence LGD including, but not limited to, the type of collateral, product, industry, and purpose. Borrower characteristics may be included as LGD rating BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 153 / 506 Issued on: 3 May 2019 criteria only to the extent that the characteristics are predictive of LGD. Banking institutions may alter the factors that influence facility grades across segments of the portfolio as long as the factors satisfy the Bank that it further improves the relevance and precision of estimates. 3.246 Banking institutions using the SSC for exposures under the SL sub-class are exempted from this two-dimensional requirement for such exposures. Given the interdependence between borrower/transaction characteristics in SL, banking institutions may satisfy the requirements under this heading through a single rating dimension that reflects EL by incorporating both borrower strength (PD) and loss severity (LGD) considerations. This exemption does not apply to banking institutions using either the corporate foundation or advanced approach for the SL subclass. Standards for Retail Exposures 3.247 Rating systems for retail exposures must be oriented to both borrower and transaction risk, and must capture all relevant borrower and transaction characteristics. Banking institutions must assign each exposure that falls within the definition of retail into a particular pool. Banking institutions must demonstrate that this process provides for a meaningful differentiation of risk, provides for a grouping of sufficiently homogenous exposures, and allows for accurate and consistent estimations of loss characteristics at the pool level. 3.248 For each pool, banking institutions must estimate PD, LGD, and EAD. Multiple pools may share identical PD, LGD and EAD estimates, even though these are influenced by different risk drivers. At a minimum, the following risk drivers should be considered when assigning exposures to a pool: i) Borrower risk characteristics (e.g. borrower type, demographics such as age/occupation); ii) Transaction risk characteristics, including product and/or collateral types (e.g. loan-to-value measures, seasoning, guarantees, and seniority such BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 154 / 506 Issued on: 3 May 2019 as first vs. second charge). Banking institutions must explicitly address cross-collateral provisions where present147. iii) Delinquency of exposure: Banking institutions are expected to separately identify exposures that are delinquent and those that are not. 3.249 Banking institutions may also allocate or segment exposures to pools based on scores or PD, LGD and EAD, provided requirements under paragraph 3.247 are met. II. Rating Structure Standards for Corporate, Sovereign, and Bank Exposures 3.250 Banking institutions must have a meaningful distribution of exposures across grades with no excessive concentrations, on both its borrower-rating and its facility-rating scales. 3.251 A borrower grade is defined as an assessment of borrower risk on the basis of a specified and distinct set of rating criteria, from which estimates of PD are derived. The grade definition must include both a description of the degree of default risk typical for borrowers assigned the grade and the criteria used to distinguish that level of credit risk. Furthermore, “+” or “-” modifiers to alphabetical or numerical grades will only qualify as distinct grades if the banking institution has developed complete rating descriptions and criteria for assignment, and separately quantifies PDs for these modified grades. 3.252 Banking institutions must have a minimum of seven borrower grades for non- defaulted borrowers and one for those that have defaulted. However, the Bank may require banking institutions to have a greater number of borrower grades if the following characteristics apply: i) Lending activities are spread over borrowers of diverse credit quality or concentrated in a particular segment; or 147 In cases where single or multiple collateral(s) is used to secure multiple exposures, banking institution must have a methodology of apportioning the collateral to the appropriate exposures according to seniority and other factors. This should be reflected in assigning exposures to the proper pools. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 155 / 506 Issued on: 3 May 2019 ii) Undue concentrations of borrowers in specific grades which are not supported by sufficient empirical evidence that the grades cover reasonably narrow PD bands and that the default risk posed by all borrowers in a grade fall within that band148. 3.253 There is no specific minimum number of facility grades for banking institutions using the advanced approach for estimating LGD. Banking institutions must have a sufficient number of facility grades to avoid grouping facilities with widely varying LGDs into a single grade. The criteria used to define facility grades must be grounded in empirical evidence. 3.254 Banking institutions using the SSC for the SL asset classes must have at least four internal grades for non-defaulted borrowers, and one for defaulted borrowers. The requirements for SL exposures that qualify for the corporate foundation and advanced approaches are the same as those for corporate exposures. Standards for Retail Exposures 3.255 For each pool identified, the banking institution must be able to provide quantitative measures of loss characteristics (PD, LGD, and EAD) for that pool. The level of differentiation must ensure that the number of exposures in a given pool is sufficient to allow for meaningful quantification and validation of the loss characteristics at the pool level. There must be a meaningful distribution of borrowers and exposures across pools. Undue concentration of total retail exposure within a single pool must also be avoided. III. Rating Criteria 3.256 Banking institutions must have specific rating definitions, processes and criteria for assigning exposures to grades within a rating system. Rating definitions and 148 Undue concentration also includes cases where bunching is evident in the lower grades from the application of policy grades (e.g. in instances where exposures are moved to a certain borrower grade as a result of the banking institution’s internal policy trigger) or downgrades overtime. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 156 / 506 Issued on: 3 May 2019 criteria must be both plausible and intuitive and must result in a meaningful differentiation of risks. i) The grade descriptions and criteria must be sufficiently detailed to allow those responsible for assigning ratings to consistently assign the same grade to borrowers or facilities with similar risk. This consistency should exist across lines of business, departments and geographic locations. If rating criteria and procedures differ for different types of borrowers or facilities, banking institutions must monitor for possible inconsistency149, and shall alter rating criteria to improve consistency, when appropriate. ii) Rating definitions should be written clearly and with sufficient detail to allow third parties (such as internal audit or other independent functions) to understand and replicate rating assignments and evaluate the appropriateness of the grade/pool assignments. iii) The criteria must also be consistent with the banking institution’s internal lending standards and policies for handling troubled borrowers and facilities. 3.257 To ensure relevance, banking institutions are required to consistently take into account available information that is material and current when assigning ratings to borrowers and facilities. As a general rule, the less information a banking institution has, the more conservative the rating assigned to a borrower and facility grades or pools (for retail exposures). While an external rating can be used as primary factor in determining an internal rating assignment, a banking institution must ensure that it takes into consideration other relevant information. 3.258 Rating criteria and procedures must be periodically reviewed to ensure relevance and resulting ratings are reflective of the current portfolio and reflect external conditions. 149 This can be achieved through back-testing or by having a controlled, independent group to rate a sample of the borrowers. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 157 / 506 Issued on: 3 May 2019 SL Product Lines Within the Corporate Asset Class 3.259 Banking institutions using the SSC for SL exposures must assign exposures to internal rating grades based on internal criteria, systems and processes and in compliance with minimum requirements outlined in the framework. The internal rating grades must then be mapped into five supervisory rating categories using the SSC provided in Appendix VIIa. The mapping must be conducted for each sub-class of SL exposures. 3.260 The Bank recognises that the criteria banking institutions use to assign exposures to internal grades will not perfectly align with the criteria that define supervisory categories. However, banking institutions must demonstrate that the mapping process has resulted in an alignment of grades which is consistent with the preponderance of the characteristics in the respective supervisory category. Special care must be taken to ensure that any overrides other than internal criteria do not render the mapping process ineffective. 3.261 In cases where the internal grade definition results in an asset being slotted into two possible supervisory categories, the exposures should be assigned to the riskier category. For example, if the internal rating system had one rating that described both the supervisory “strong” and “satisfactory” categories, the exposures should be slotted into the “satisfactory” category. IV. Rating Philosophy and Assignment Horizon 3.262 Banking institutions whose ratings are used primarily for underwriting purposes are likely to adopt a “through-the-cycle” (TTC) rating philosophy. TTC systems usually assign ratings based on the likelihood of a borrower’s survival in a specific macroeconomic stress scenario. Hence, TTC ratings will tend to remain relatively constant as current macroeconomic conditions change over time. On the other hand, banking institutions whose ratings are used for pricing purposes or to track the current portfolio risk are more likely to adopt a “point-in-time” (PIT) rating philosophy. PIT ratings will tend to adjust quickly to changes in the economic environment. In practice, banking institutions usually adopt a ‘hybrid’ rating approach that embodies characteristics of both the PIT and TTC rating BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 158 / 506 Issued on: 3 May 2019 philosophies. For capital computation purposes, banking institutions are free to adopt the rating philosophy suitable to its own business processes and strategy. 3.263 In any case, banking institutions must document and articulate to the Bank the philosophy of the rating assignment for each of their rating systems. In addition, banking institutions must document how the movements in the economic cycle affect the migration of borrowers across rating grades, and conduct adequate stress tests on banking institutions’ portfolio as specified under paragraphs 3.354 to 3.359. Banking institutions must understand the effects of ratings migration on capital requirements and ensure that sufficient capital is maintained during all phases of the economic cycle. 3.264 Although the time horizon used in PD estimation is one year (as described in paragraph 3.297), banking institutions must use a longer time horizon in assigning ratings. A borrower credit rating must represent the banking institution’s assessment of the borrower’s ability and willingness to contractually perform despite adverse economic conditions or the occurrence of unexpected events. For example, banking institutions may base rating assignments on specific, appropriate stress scenarios. Alternatively, banking institutions may take into account borrower characteristics that are reflective of the borrower’s vulnerability to adverse economic conditions or unexpected events, without explicitly specifying a stress scenario. The range of economic conditions that are considered when making assessments must be consistent with current conditions that are most likely to occur over a business cycle within the respective industry/geographic region. 3.265 Given the difficulties in forecasting future events and the influence the events may have on borrower’s financial condition, banking institutions must take a conservative view of projected information. Furthermore, where limited data are available, banking institutions must adopt a conservative bias in its analysis. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 159 / 506 Issued on: 3 May 2019 V. Use of Models in Rating Assignment 3.266 Credit scoring models and other mechanical procedures are permissible as the primary or partial basis of rating assignments. However, these models and procedures are generally developed based on a subset of available information. Although mechanical rating procedures may sometimes avoid some of the idiosyncratic errors made by rating systems in which human judgement plays a large role, the mechanical use of limited information can also be a source of rating errors. Appropriate and experienced judgment and oversight is necessary to ensure that all relevant and material information, including those outside the scope of the model, is taken into consideration. 3.267 The burden is on the banking institution to satisfy the Bank that a model or procedure has good predictive power and that regulatory capital requirements will not be distorted as a result of its use. The variables representing inputs to the model must form a reasonable set of predictors. The model must be accurate on average across the range of borrowers or facilities to which the banking institution is exposed and there must be no known material biases. 3.268 Banking institutions must have in place a process for vetting data inputs into a statistical default or loss prediction model which includes an assessment of the accuracy, completeness and appropriateness of the data specific to the assignment of an approved rating. In addition, banking institutions must demonstrate that the data used to build the model are representative of the population of the banking institution’s actual borrowers or facilities. 3.269 When combining model results with experienced judgment, the banking institution must take into account all relevant and material information not considered by the model. There must be written guidance describing how judgment and model results are to be combined. 3.270 Banking institutions must establish procedures for the review of model-based rating assignments. Such procedures should focus on identifying and limiting BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 160 / 506 Issued on: 3 May 2019 errors associated with known model weaknesses and must also include credible ongoing efforts to improve the model’s performance. 3.271 Banking institutions must have a regular cycle of model validation that includes monitoring of model performance and stability, review of model relationships and testing of model outputs against outcomes. VI. Documentation of Rating System Design Standards for All Asset Classes 3.272 Banking institutions must document in writing its rating systems’ design and operational details, including, at a minimum, the following: i) a detailed outline of the theory, assumptions and/or mathematical and empirical basis for the assignment of estimates to grades, individual obligors, exposures, pools, parameters, variables and source of data used in estimation; ii) an explanation on the treatment of historical data used, including any limitations, during development to ensure depth, scope, reliability, accuracy and completeness; iii) an articulation of any circumstances under which the rating system does not work effectively; iv) evidence of compliance with the minimum standards, including appropriate elaborations on portfolio differentiation, rating criteria, responsibilities of parties that rate borrowers and facilities, policies on rating exceptions, parties that have authority to approve exceptions, frequency of rating reviews, and management oversight of the rating process; v) rationale for choice of specific definitions of default and loss used internally and the assessment of consistency with the reference definitions set out in paragraphs 3.303 to 3.314; vi) rationale for choice of internal rating criteria and the analyses demonstrating that rating criteria and procedures are likely to result in ratings that meaningfully differentiate risk; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 161 / 506 Issued on: 3 May 2019 vii) history of major changes in the risk rating process that identifies changes made to the risk rating process subsequent to the last review by the Bank; viii) the organisation of rating assignments, including the internal control structure. Additional Standards for Internal Models Approach for Equity 3.273 The documentation should address the following points: i) The rationale for the choice of internal modelling methodology and the analysis that the model and modelling procedures adopted are likely to result in meaningful estimates of the risk of equity holdings; ii) Where proxies and mapping are used, these are supported by rigorous analysis performed by the banking institution that demonstrates that all chosen proxies and mappings are sufficiently representative of the risks of the equity holding to which they correspond. The documentation should show, for instance, relevant and material factors (e.g. business lines, balance sheet characteristics, geographic location, company age, industry sector and sub-sector, operating characteristics) used in mapping individual investments to proxies. In summary, banking institutions should be able to prove that the proxies and mappings employed are :  adequately comparable to the underlying holding or portfolio;  derived based on relevant and material historical economic and market conditions that are consistent to the underlying holdings or, where inconsistent, the necessary adjustments have been made; and,  robust estimates of the potential risk of the underlying holding. VII. Use of External (Vendor) Models 3.274 As a general rule, there should not be a separate set of rules for the use of models obtained from a third-party vendor (hereinafter referred to as external models) nor should the external models be exempted from any of the requirements under this framework. The use of an external model obtained from BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 162 / 506 Issued on: 3 May 2019 a third-party vendor that claims proprietary technology is not sufficient justification for exemption from documentation or any other requirements for adoption of internal rating systems. The burden is on the model’s vendor and the banking institution to satisfy the Bank that the model and its use comply with the requirements set out under this framework. For example, the banking institution needs to ensure that models and calibrations are tested at least annually, and that necessary changes to the model are made promptly if necessary. Over reliance on external models might be a threat to the banking institution’s ability to fulfil these requirements. 3.275 Banking institutions must also document and be able to explain to the Bank the role of external models and the extent to which they are used within the institution’s processes and how risk estimates are derived and validated. Banking institutions must be able to explain the underlying rationale for choosing external models over internally developed models and data. The Bank also expects banking institutions to explain alternative solutions that were considered and how the results compare with the output of the external models. 3.276 Banking institutions must retain in-house expertise on the external models for as long as the models are used for IRB purposes in order to be able to demonstrate a thorough understanding of external models. This includes: i) Methodological underpinnings and the basic construction of the external models, including an understanding of the models’ capabilities, limitations and appropriateness for use in developing IRB risk estimates for the banking institution’s own portfolio of exposures; ii) Effect and significance of the proprietary elements in the external models; and iii) Rationale behind any adjustment made to the external model’s input data sets as well as output. 3.277 Banking institutions must be able to demonstrate the appropriateness of the external models used under the IRB approach. There must be clear linkages and a reasonable degree of consistency and comparability between the external BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 163 / 506 Issued on: 3 May 2019 model inputs, data sets and estimates and banking institutions’ own portfolio characteristics and risk rating methodologies. Banking institutions must also ensure that external models are consistent with the requirements for IRB, particularly in relation to data history, definitions of default and validation. Rating System Operation I. Rating Coverage 3.278 Banking institutions must ensure that each exposure is assigned to the right rating system, particularly where multiple rating systems are being used. In addition, banking institutions must demonstrate to the Bank that the methodology for assigning exposures to different classes within the corporate asset class is appropriate and consistent over time. In this regard, comprehensive policies and procedures to facilitate differentiation between each asset sub-class within the corporate asset class must be put in place. 3.279 For exposures in the corporate, sovereign and bank asset classes, each obligor and eligible guarantor must be assigned a borrower rating and each exposure must be associated with a facility rating as part of the loan approval process. Similarly, for the retail IRB asset class, each exposure must be assigned to a pool as part of the loan approval process. 3.280 For borrowers belonging to a group, group support may be allowed in assigning ratings subject to:  Banking institutions having in place policies regarding the treatment of individual entities in a connected group, including the circumstances under which the same rating may or may not be assigned to some or all connected entities; and  Established governance and control procedures surrounding the adjustments made to the ratings as a result of group support. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 164 / 506 Issued on: 3 May 2019 3.281 Where group support is taken into account in the assignment of ratings, banking institutions should at a minimum consider the following factors150:  The borrower must be an integral part of the group; and  The support provider is able to demonstrate the willingness and capacity to support the borrower. For example, a parent company may have a past history of providing material support to the borrower in the form of lending facilities or cash placements. II. Integrity of the Rating Process Standards for Corporate, Sovereign, and Bank Exposures 3.282 Rating assignments and periodic rating reviews must be completed or approved by a party that does not directly stand to benefit from the extension of credit. Independence of the rating assignment process can be achieved through a range of practices. These operational practices must be documented in banking institutions’ policies and procedure manuals. Credit policies and underwriting procedures must contain and reinforce the independence of the rating process. 3.283 Borrower ratings and facility ratings must be reviewed at least on an annual basis and not later than six months after the publication of the borrower’s financial statement. Certain exposures, especially higher risk obligors or problem exposures must be subject to more frequent rating reviews. More frequent reviews of high risk borrowers or problem exposures may be satisfied not only through a more frequent, full re-rating, but also through analysis of interim financial statements, analysis of account behaviour and other measures. In addition, a new rating review must be initiated when material information on the obligor or facility comes to light. 3.284 Banking institutions must have an established process to obtain and update relevant and material information on the obligor’s financial condition and other characteristics that affect assigned estimates of PD, LGD, and EAD. Upon receipt of such information, banking institutions must have a mechanism to 150 Group support that has been provided via verbal communication or letters of comfort will not be recognised by the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 165 / 506 Issued on: 3 May 2019 update the borrower’s ratings in a timely manner. In addition, banking institutions must also establish policies to address stale or outdated ratings. 3.285 The requirement to conduct an annual rating review may be exempted in the following circumstances:  Where the exposures are fully collateralised by cash or fixed deposits; and  Where the exposures are part of a portfolio which the banking institution is downsizing due to the withdrawal from a business line or a discontinued business relationship151, subject to these exposures being immaterial. Standards for Retail Exposures 3.286 Banking institutions must review the loss characteristics and delinquency status of each identified pool at least on an annual basis. There should also be an ongoing review of the status of individual obligors within each pool as a means of ensuring that exposures continue to be assigned to the correct pool. This requirement may be satisfied by review of a representative sample of exposures in the pool. III. Overrides 3.287 For rating systems based on expert judgment, the circumstances in which officers may override the outputs of the rating process, including how and to what extent such overrides can be made and by whom, should be clearly documented. For model-based ratings, banking institutions must have guidelines and processes in place for monitoring cases where model ratings have been overridden, including the review of variables that were excluded or inputs that were altered. These guidelines must include identifying personnel that are responsible for approving these overrides. The nature of the overrides must be identified and tracked for performance. It should be demonstrated in back-testing that overrides improve the overall predictive power of the rating system. Banking institutions should clearly specify a threshold expressed in 151 Exposures arising from a discontinued business relationship shall be considered on a collective basis to determine materiality. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 166 / 506 Issued on: 3 May 2019 terms of a percentage of ratings overridden, above which an automatic review of the rating model and process would be triggered. IV. Integrity of Data Input 3.288 In the process of assigning ratings, banking institutions must have in place a process for vetting data inputs which includes an assessment of the accuracy, completeness and appropriateness of the data. V. Data Maintenance 3.289 Banking institutions must collect and store data on key obligor and facility characteristics to provide effective support to its internal credit risk measurement and management processes, to enable banking institutions to meet the requirements set out under this framework, and to serve as a basis for regulatory reporting. These data should be sufficiently detailed to allow retrospective reallocation of obligors and facilities to grades, for example if the increasing sophistication of the internal rating system suggests that finer segregation of portfolios can be achieved. The data collected on various aspects of the internal ratings should also facilitate Pillar 3 reporting requirements. 3.290 For Islamic banking assets, the data captured should allow banking institutions to assess the performance of the model on the Islamic portfolio. For example, data on the type of underlying Shariah contract is necessary to enable an assessment of the loss characteristics of exposures under a particular Shariah contract and establish if the exposures exhibit risk profiles that are comparable to the portfolio as a whole. Standards for Corporate, Sovereign, and Bank Exposures 3.291 Banking institutions must maintain at least the following information: i) Rating histories on borrowers and eligible guarantors, including the rating since the borrower or guarantor was assigned an internal rating; ii) Dates the ratings were assigned; iii) Methodology and key data used to derive the rating; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 167 / 506 Issued on: 3 May 2019 iv) Officer responsible for the most recent rating; v) Identity of obligors and facilities that default and the timing and circumstances of such defaults; vi) Data used to derive PD estimates; vii) Ratings migration; and viii) Realised default rates associated with borrower grades in order to track the predictive power of the borrower rating system. 3.292 Banking institutions using the advanced IRB approach must also maintain the following information: i) Complete history of data on the LGD and EAD estimates associated with each facility; ii) Methodology and key data used to derive the estimate; iii) Officer responsible for the most recent rating; iv) Data used to derive LGD and EAD estimates; and v) The realised rates associated with each defaulted facility. 3.293 Banking institutions that reflect the credit risk mitigating effects of guarantees or credit derivatives through its LGD estimates must retain the following information: i) Data on the LGD of the facility before and after evaluation of the effects of the guarantee or credit derivative; ii) Information about the components of loss and recovery for each defaulted exposure including:  amounts and source of recoveries (e.g. collateral, liquidation proceeds and guarantees); and  timing of cash flows and administrative costs including date and circumstances of default and exposures in arrears. 3.294 Banking institutions using supervisory estimates (including SSC under the foundation IRB approach) must also collect and retain the relevant data as specified in paragraphs 3.292 and 3.293 to enable the institution to make a comparison between the actual loss experience and the supervisory estimates BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 168 / 506 Issued on: 3 May 2019 prescribed by the Bank. Examples of relevant data include data on loss and recovery experience for corporate exposures under the foundation approach and data on realised losses for banking institutions using the SSC for SL. Standards for Retail Exposures 3.295 Banking institutions must retain the following information: i) Data used in the process of allocating retail exposures to pools. This includes the following:  Data on obligor and transaction risk characteristics used either directly or through the use of a model;  Data on delinquency; ii) Data on PD, LGD and EAD estimates associated with pools of retail exposures; iii) For defaulted exposures:  Data on the pools to which the retail exposure was assigned over the year prior to default;  Identity of obligors and facilities that default;  Information about the components of loss and recovery for each defaulted exposure, including information relating to amounts and source of recoveries (e.g. collateral, liquidation process and guarantees), timing of cash flows and administrative costs; and  Data on realised EAD. Risk Estimation I. Overall Requirements for Estimation 3.296 This section addresses the broad standards for internal estimates of PD, LGD, and EAD. Generally, all banking institutions using the IRB approaches must estimate a PD for each internal borrower grade for corporate, sovereign and bank exposures or for each pool in the case of retail exposures. 3.297 PD estimates must be a long-run average of one-year default rates for borrowers in a particular grade, or retail pool. Requirements specific to PD estimation are provided in paragraphs 3.315 to 3.321. Banking institutions BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 169 / 506 Issued on: 3 May 2019 adopting the advanced approach must estimate an appropriate downturn LGD (as defined in paragraphs 3.322 to 3.331) for each of its facilities or retail pools. Banking institutions on this approach must also estimate an appropriate long- run default-weighted average EAD for each of its facilities. Requirements specific to EAD estimation are outlined in paragraphs 3.332 to 3.337. 3.298 For corporate, sovereign and bank exposures, banking institutions that do not meet the requirements for own estimates of EAD or LGD above must use the estimates of these parameters determined by the Bank. Standards for use of such estimates are set out in Part B.3.4. 3.299 Internal estimates of PD, LGD, and EAD must incorporate all relevant, material and available data, information and methods. Banking institutions may utilise internal data and data from external sources (including pooled data). Where internal or external data is used, banking institutions must demonstrate that the estimates are representative of its long run experience. 3.300 Estimates must be based on empirical evidence, including own historical experience, and not based purely on subjective or judgmental considerations. Any changes in lending practice or the process for pursuing recoveries over the observation period must be taken into account. Estimates must promptly reflect the implications of technical advances and new data and other information, as it becomes available. Banking institutions must review these estimates on a yearly basis or more frequently. 3.301 The population of exposures represented in the data used for estimation, and lending standards in use when the data were generated, and other relevant characteristics should be closely matched to or at least comparable with those of the banking institution’s exposures and standards. Banking institutions must also demonstrate that economic or market conditions that underlie the data are relevant to current and foreseeable conditions. The number of exposures in the sample and the data period used for quantification must be sufficient to provide the banking institution with confidence in the accuracy and robustness of its BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 170 / 506 Issued on: 3 May 2019 estimates. The estimation technique must also perform well in out-of-sample tests. 3.302 In general, estimates of PDs, LGDs, and EADs are likely to involve unpredictable errors. In order to avoid over-optimism, banking institutions must add to its estimates a margin of conservatism related to the likely range of errors. Where methods and data reliability are less satisfactory and the likely range of errors is wide, the margin of conservatism must be larger. The Bank may allow some flexibility in application of the required standards for data that are collected prior to the date of implementation of this framework. However, in such cases, banking institutions must demonstrate to the Bank that appropriate adjustments have been made to achieve broad equivalence to the required standards. Data collected after the date of implementation must conform to the minimum standards. II. Definition of Default 3.303 A default is considered to have occurred when: i) The banking institution considers that an obligor is “unlikely to repay” in full its credit obligations to the banking group, without recourse by the banking institution to actions such as realising security; or ii) The obligor has breached its contractual repayment schedule and is past due for more than 90 days on any material credit obligation to the banking group, or as provided below:  Under national discretion, the Bank has elected to apply the following: ­ for loans governed under the Hire-Purchase Act 1967, a default occurs when the borrower is past due for more than 120 days; and ­ for residential mortgages, a default occurs when the borrower is past due for more than 180 days.  For securities, a default occurs immediately upon breach of contractual repayment schedule.  For overdrafts, a default occurs when the obligor has breached the approved limits (consecutively) for more than 90 days. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 171 / 506 Issued on: 3 May 2019  For obligations with repayments schedule of three months or longer, a default occurs immediately upon breach of contractual repayment schedule. Where banking institutions have internally adopted a more stringent definition than that prescribed above, the more stringent definition must be applied for purposes of risk estimation under the IRB approach. 3.304 Indicative elements of unlikeliness to pay include but are not limited to the following: i) Banking institution is uncertain about the collectability of a credit obligation which has already been recognised as revenue and then treats the uncollectible amount as an expense. ii) Banking institution makes a charge off or an account-specific provision or impairment resulting from a significant decline in credit quality subsequent to taking on the exposure (impairment provisions on equity exposures set aside for price risk do not signal default). iii) Banking institution sells the credit obligation at a material credit related economic loss. (For securities financing, the facility should not be recorded as a default if the collateral is liquidated not due to the deterioration of an obligor’s creditworthiness but to restore an agreed collateral coverage ratio given a fall in the value of collateral and this has been disclosed to the customer in writing at the granting of this facility). iv) Banking institution consents to a restructuring of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement of principal, interest or (where relevant) fees152. This constitutes a granting of a concession that the banking institution would not otherwise consider. v) Default of a related obligor. Banking institutions must review all related obligors in the same group to determine if that default is an indication of unlikeliness to pay by any other related obligor. Banking institutions must 152 Including in the case of equity holdings assessed under a PD/LGD approach, such distressed restructuring of the equity itself BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 172 / 506 Issued on: 3 May 2019 judge the degree of economic interdependence between the obligor and its related entities. vi) Acceleration of an obligation. vii) An obligor is in significant financial difficulty. An indication could be a significant downgrade of a borrower’s credit rating. viii) Default by the obligor on credit obligations to other financial creditors, e.g. other banking institutions or bondholders. ix) Banking institution has filed for the obligor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the banking group. x) The obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the banking group. 3.305 The default definition under paragraphs 3.303 and 3.304 also applies to Mushārakah and Mudārabah contracts for capital computation purposes153. However, it should be clarified that pure negligence or misconduct on the part of the partner acting as an agent or Mudārib in discharging their roles and responsibilities in a Mushārakah and Mudārabah contract with banking institutions (i.e. capital provider or rabbumal), on its own, will not automatically constitute a default for capital computation purposes. Default at Facility Level 3.306 For retail exposures, banking institutions are allowed to apply the definition of default at facility level, rather than at borrower level. For example, a borrower might default on a credit card obligation and not on other retail obligations. However, banking institutions should be vigilant and consider a borrower’s cross-default of facilities if a default on one facility is representative of his incapacity to fulfil other obligations. 153 Islamic banking institutions are required to monitor and maintain data on the default rate and default events under Mushārakah and Mudārabah contracts including the occurrence of negligence and misconduct by the Mudārib for the Bank’s supervisory assessment purposes moving forward. In addition, banking institutions are encouraged to establish and adopt stringent criteria for the definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 173 / 506 Issued on: 3 May 2019 3.307 Banking institutions must record actual defaults on IRB exposure classes using this reference definition. Banking institutions must also use the reference definition for its estimation of PDs, and (where relevant) LGDs and EADs. In arriving at these estimations, banking institutions may use available external data which may not be fully consistent with the definition of default subject to the requirements set out in paragraph 3.316. However, in such cases, banking institutions must demonstrate to the Bank that appropriate adjustments to the data have been made to achieve broad equivalence with the reference definition. This same condition would apply to any internal data used prior to the implementation of this framework. Internal data (including that pooled by banking institutions) used in such estimates after the date of implementation of this framework must be consistent with the reference definition. 3.308 If a banking institution considers that a previously defaulted exposure is no longer in default, the PD and LGD for that exposure must be rated as if it is a non-defaulted facility. Should the reference definition subsequently be triggered, a second default would be deemed to have occurred. Administrative Default 3.309 Administrative defaults include cases where exposures become overdue because of oversight on the part of the obligor and/or the banking institution. Instances of administrative defaults may be excluded from the historical default count, subject to appropriate policies and procedures established by the banking institution to evaluate and approve such cases. Re-ageing 3.310 Re-ageing is a process by which banking institutions adjust the delinquency status of exposures based on subsequent repayment of arrears or restructuring. This is done when all or some of the arrears under the original repayment schedule have been paid off or repackaged into a new repayment structure. 3.311 Banking institutions must have clearly articulated and documented policies in respect of the counting of days past due, in particular respect of the re-ageing of BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 174 / 506 Issued on: 3 May 2019 the facilities and the granting of extension, deferrals, renewals and rewrites to existing accounts. At a minimum, the re-ageing policy must include: i) appropriate approving authority and reporting requirements; ii) minimum age of a facility before it is eligible for re-ageing; iii) delinquency levels of facilities that are eligible for re-ageing; iv) maximum number of re-ageing per facility; and v) reassessment of the borrower’s capacity to repay. 3.312 Re-ageing is allowed for both defaulted and delinquent exposures. However, the exposure shall not be immediately ‘re-aged’ if the restructuring causes a diminished financial obligation or material economic loss, or it is assessed that the borrower does not have the capacity to repay under the new repayment structure. For defaulted exposures, re-ageing is permitted after the obligation has been serviced promptly for six months consecutively. For exposures with repayments scheduled at three months or longer, re-ageing is only permitted after the obligation has been serviced promptly for two consecutive payments. More than One Default Count in a Year 3.313 For quantification purposes, only the first of two or more defaults occurring within twelve months will be counted as default. Hence, for PD measurement, only one default event should be recorded. Accordingly, for advanced IRB, the EAD measure should be defined with reference to the first default event, and the LGD measure should express the economic loss in reference to the first default event, but including losses incurred at any time after this default event until the exposure is reduced to zero or cured. Treatment of Overdrafts 3.314 Overdrafts must be subject to a credit limit and brought to the knowledge of the borrower. Breaches of the limit must be monitored. If the account was not brought under the limit after 90 to 180 days (subject to the applicable past-due trigger), it would be considered as defaulted. Non-authorised overdrafts will be associated with a zero limit for IRB purposes. Thus, days past due commence once any credit is granted to an unauthorised customer; if such credit was not BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 175 / 506 Issued on: 3 May 2019 repaid within 90 to 180 days, the exposure would be considered in default. Rigorous internal policies must be in place to assess the creditworthiness of customers who are offered overdraft accounts. III. Requirements Specific to PD Estimation Standards for Corporate, Sovereign, and Bank Exposures 3.315 Banking institutions must use information and techniques that take appropriate account of its long-run experience when estimating the average PD for each rating grade. Banking institutions may use one or more of the three specific techniques set out below: internal default experience, mapping to external data, and statistical default models. 3.316 Banking institutions may have a primary technique and use others as a point of comparison and to support potential adjustments. The mechanical application of a technique without supporting analysis would not be deemed as sufficient by the Bank. Banking institutions must recognise the importance of experienced judgements in combining results of techniques and making adjustments for limitations of techniques and information. Internal Default Experience i) Banking institutions may use data on internal default experience for the estimation of PD. Banking institutions must demonstrate in its analysis that the estimates are reflective of underwriting standards and highlight the differences between the rating system that generated the data and the current rating system, if any. Where only limited data are available, or where underwriting standards or rating systems have changed, the banking institution must add a greater margin of conservatism in its estimate of PD. The use of pooled data across institutions may also be recognised. In such cases, banking institutions must demonstrate that the internal rating systems and criteria of other banking institutions in the pool are comparable with its own. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 176 / 506 Issued on: 3 May 2019 Mapping to External Data ii) Banking institutions may associate or map internal grades to the scale used by an external credit assessment institution or similar institution and then attribute the default rate observed for the external institution’s grades to the banking institution’s grades. Mappings must be based on a comparison of internal rating criteria to the criteria used by the external institution and on a comparison of the internal and external ratings of any common borrowers. Biases or inconsistencies in the mapping approach or underlying data must be avoided. The external institution’s criteria underlying the data used for quantification must be oriented to the risk of the borrower and not reflect transaction characteristics. Banking institutions’ analysis must include a comparison of the default definitions used, subject to the requirements in paragraphs 3.303 to 3.309. The basis for the mapping must be documented. Statistical Default Models iii) Banking institutions are allowed to use a simple average of default- probability estimates for individual borrowers in a given grade, where such estimates are drawn from statistical default prediction models. Banking institutions’ use of default probability models for this purpose must meet the standards specified in paragraphs 3.266 to 3.271. 3.317 Irrespective of whether a banking institution is using external, internal, or pooled data sources, or a combination of the three, for its PD estimation, the length of the underlying historical observation period used must be at least five years from at least one source (except during the transition period). If the available observation period spans a longer period for any source, and this data is relevant and material, the longer period must be used. Standards for Retail Exposures 3.318 Given the bank-specific basis of assigning exposures to pools, banking institutions must regard internal data as the primary source of information for estimating loss characteristics. Banking institutions are permitted to use BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 177 / 506 Issued on: 3 May 2019 external data or statistical models for quantification provided a strong link can be demonstrated between (a) the banking institution’s process of assigning exposures to a pool and the process used by the external data source, and (b) between its internal risk profile and the composition of the external data. In all cases, banking institutions must use all relevant and material data sources as points of comparison. 3.319 One method for deriving long-run average estimates of PD and default- weighted average loss rates given default (as defined in paragraphs 3.322) for retail would be based on an estimate of the expected long-run loss rate. The following may be used: i) an appropriate PD estimate to infer the long-run default-weighted average loss rate given default, or ii) a long-run default-weighted average loss rate given default to infer the appropriate PD. In either case, it is important to recognise that the LGD used for the IRB capital calculation cannot be less than the long-run default-weighted average loss rate given default and must be consistent with the concepts defined in paragraphs 3.322 to 3.329 and 3.331. 3.320 Irrespective of whether banking institutions are using external, internal, pooled data sources, or a combination of the three, for estimation of loss characteristics, the length of the underlying historical observation period used must be at least five years (except during the transition period). If the available observation spans a longer period for any source, and these data are relevant, this longer period must be used. Banking institutions need not give equal importance to historical data if it can convince the Bank that more recent data are a better predictor of loss rates. 3.321 Seasoning154 can be quite material for some long-term retail exposures characterised by its effects that peak several years after origination. Banking institutions should anticipate the implications of rapid exposure growth and take 154 Seasoning is defined as the potential change of risk parameters over the life of a credit exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 178 / 506 Issued on: 3 May 2019 steps to ensure that estimation techniques are accurate, and that current capital level and earnings and funding prospects are adequate to cover future capital needs. To minimise volatility in capital positions arising from short-term PD horizons, all banking institutions are required to adjust PD estimates upward in a consistent manner to capture the potential seasoning effects. Subject to the Bank’s approval, banking institutions may disregard such seasoning adjustments if it can be proven that such adjustments are immaterial and do not result in an underestimation of risk for the particular portfolio. IV. Requirements Specific to Own-LGD Estimates Under the Advanced Approach Standards for All Asset Classes 3.322 Banking institutions must estimate an LGD for each facility that aims to reflect economic downturn conditions where necessary to prevent the possibility of underestimation of capital required during times of higher defaults and losses. This downturn LGD must not be less than the long-run ‘default-weighted average loss rate given default’ calculated based on the average economic loss of all observed default within the data source for that type of facility. In addition, banking institutions must take into account the potential for the LGD of the facility to be higher than the default-weighted average during a period when credit losses are substantially higher than average. For certain types of exposures, loss severities may not exhibit such cyclical variability and LGD estimates may not differ materially (or possibly at all) from the long-run default- weighted average. However, for other exposures, this cyclical variability in loss severities may be important and banking institutions will need to incorporate it into their LGD estimates. For this purpose, banking institutions may use averages of loss severities observed during periods of high credit losses, forecasts based on appropriately conservative assumptions, or other similar methods. Appropriate estimates of LGD during periods of high credit losses might be formed using either internal and/or external data. 3.323 As a general rule, consecutive or prolonged periods of negative GDP growth and high unemployment rates may be indicative of an economic downturn for BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 179 / 506 Issued on: 3 May 2019 banking institutions with a well-diversified wholesale portfolio. Banking institutions should also be aware of periods in which observed historical default rates have been elevated for a portfolio of exposures that is representative of the current portfolio. For exposures where common risk drivers (e.g. collateral values) influence the default rates and the recovery rates, banking institutions should refer to periods where those drivers are expected to be distressed when estimating downturn LGD155. 3.324 In its analysis, banking institutions must also consider the extent of any dependence between the risk of the borrower and that of the collateral or collateral provider. In cases where there is a significant degree of dependence, the issue must be addressed in a conservative manner. Any currency mismatch between the underlying obligation and the collateral must also be considered and treated conservatively in the banking institution’s assessment of LGD. 3.325 LGD estimates must be based on historical recovery rates and, when applicable, must not solely be predicated on the collateral’s estimated market value. This requirement is premised on the potential inability of banking institutions to gain both control of the collateral and to liquidate it expeditiously. To the extent that LGD estimates take into account the existence of collateral, banking institutions must establish internal requirements for collateral management, operational procedures, assurance of legal certainty and effective risk management as described in Part B.3.4. 3.326 Recognising the principle that realised losses can at times systematically exceed expected levels, the LGD assigned to a defaulted asset should reflect the possibility that banking institutions would have to recognise additional, unexpected losses during the recovery period. For each defaulted asset, banking institutions must also construct its best estimate of the EL on that asset based on current economic circumstances and the facility status. The amount, if any, by which the LGD on a defaulted asset exceeds the best estimate of EL on 155 The Bank will continue to monitor and review the development of appropriate approaches to estimate downturn LGD by banking institutions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 180 / 506 Issued on: 3 May 2019 the asset represents the capital requirement for that asset, and should be set by the banking institution on a risk-sensitive basis in accordance with paragraphs 3.160 to 3.163 and 3.173 to 3.177. In general, the best estimate of EL on a defaulted asset should not be less than the sum of loss allowance measured at an amount equal to lifetime expected credit losses for credit-impaired exposures as defined under the Malaysian Financial Reporting Standards 9 (commonly known as Stage 3 provisions) and partial charge-offs on that asset. Any deviation from this will attract the Bank’s scrutiny and must be justified by the banking institution. V. Definition of Loss for All Asset Classes 3.327 The definition of loss used in estimating LGD is economic loss. When measuring economic loss, all relevant factors should be taken into account. This must include material discount effects and material direct and indirect costs associated with collecting on the exposure. Banking institutions must not simply measure the loss recorded in accounting records but must be able to compare accounting and economic losses. Internal workout and collection expertise would significantly influence recovery rates and must be reflected in the LGD estimates, but adjustments to estimates for such expertise must be on a conservative basis until sufficient internal empirical evidence of the impact is available. Rate for Discounting Recoveries 3.328 Most approaches to quantifying LGDs either implicitly or explicitly involve the discounting of streams of recoveries received after a facility goes into default in order to compare the net present value (NPV) of recovery streams as of a default date with a measure of exposure at default. For the estimation of LGDs, measures of recovery rates should reflect the costs of holding defaulted assets over the workout period, including an appropriate risk premium. When recovery streams are uncertain and involve risk that cannot be diversified away, NPV calculations must reflect the time value of money and a risk premium appropriate to the undiversifiable risk. In establishing appropriate risk premiums for the estimation of LGDs consistent with economic downturn conditions, BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 181 / 506 Issued on: 3 May 2019 banking institutions should focus on the uncertainties in recovery cash flows associated with defaults that arise during the economic downturn conditions. When there is no uncertainty in recovery streams (e.g., recoveries derived from cash collateral), NPV calculations need only reflect the time value of money, and a risk-free discount rate is appropriate. These measures of recovery rates can be computed in several ways, for example: i) By discounting the stream of recoveries and the stream of workout costs by a risk adjusted discount rate which is the sum of the risk free rate and a spread appropriate for the risk of the recovery and cost cash flows; or ii) By converting the stream of recoveries and the stream of workout costs to certainty equivalent cash flows and discounting these by the risk free rate; or iii) By a combination of adjustments to the discount rate, the stream of recoveries and the stream of workout costs that are consistent with the principle of reflecting the costs of holding defaulted assets over the workout period156 ; or iv) Other methods for recovery estimation/LGD estimates include observed market value of defaulted bonds, implied value of defaulted bonds, implied LGD based on EL and PD. 3.329 Banking institutions may use cost of capital157 as a proxy for the funding cost of defaulted assets, which itself is not observable in the absence of a liquid market for such assets. Different discount rates per asset type would not be required if the banking institution uses the cost of capital, as the cost of capital is a sufficiently conservative measure. If a banking institution decides against using the cost of capital, the Bank may be satisfied if it uses a discount rate higher than the contractual or effective interest rate, for exposures other than those that are secured by low risk collateral (for such lower risk exposures, a lower 156 Banking institutions using the “effective interest rate” in accordance with MFRS 9 as the discount rate must adjust the stream of net recoveries in a manner consistent with this principle. 157 Banking institutions may use the weighted average cost of capital (WACC) incurred for funding defaulted assets provided that the banking institution is able to demonstrate to the Bank that the method of computation and the inputs used to derive the WACC are robust. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 182 / 506 Issued on: 3 May 2019 discount rate may be used, e.g. the risk free rate for cash-collateralised exposures is acceptable). Additional Standards for Corporate, Sovereign, and Bank Exposures 3.330 Estimates of LGD must be based on a minimum data observation period that should ideally cover at least one complete economic cycle but must in any case be no shorter than a period of seven years for at least one source. If the available observation period spans a longer period for any source, and the data are relevant, this longer period must be used. Additional Standards for Retail Exposures 3.331 The minimum data observation period for LGD estimates for retail exposures is five years (except during the transition period). The less data a banking institution has, the more conservative it must be in its estimation. It is not necessary to give equal importance to historic data if it can be demonstrated that more recent data are a better predictor of loss rates. VI. Requirements Specific to Own-EAD Estimates Under the Advanced Approach Standards for All Asset Classes 3.332 EAD for an on-balance sheet or off-balance sheet item is defined as the expected gross exposure of the facility upon default of the obligor. For on- balance sheet items, banking institution must estimate EAD at no less than the current drawn amount, subject to recognising the effects of on-balance sheet netting as specified in the foundation approach. The minimum requirements for the recognition of netting are the same as those under the foundation approach. The additional minimum requirements for internal estimation of EAD under the advanced approach, therefore, focus on the estimation of EAD for off-balance sheet items (excluding derivatives). Banking institutions under the advanced IRB must have established procedures in place for the estimation of EAD for off-balance sheet items. These procedures must specify the estimates of EAD used for each facility type. Internal estimates of EAD should reflect the possibility of additional drawings by the borrower up to and after the time a BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 183 / 506 Issued on: 3 May 2019 default event is triggered. Where estimates of EAD differ by facility type, the delineation of these facilities must be clear and unambiguous. 3.333 Banking institutions under the advanced approach must assign an estimate of EAD for each facility. It must be an estimate of the long-run default-weighted average EAD for similar facilities and borrowers over a sufficiently long period of time, but with a margin of conservatism appropriate to the likely range of errors in the estimate. If a positive correlation can reasonably be expected between the default frequency and the magnitude of EAD, the EAD estimate must incorporate a larger margin of conservatism. Moreover, for exposures for which EAD estimates are volatile over the economic cycle, banking institutions must use EAD estimates that are appropriate for an economic downturn, if these are more conservative than the long-run average. For banking institutions that have been able to develop their own EAD models, this could be achieved by considering the cyclical nature, if any, of the drivers of such models. Others may have sufficient internal data to examine the impact of previous recession(s). However, some banking institutions may only have the option of making conservative use of external data. 3.334 The criteria by which estimates of EAD are derived must be plausible and intuitive, and represent what the banking institution believes are the material drivers of EAD. The choices must be supported by credible internal analysis. Banking institutions must be able to provide a breakdown of its EAD experience by the factors it sees as the drivers of EAD. All relevant and material information must be used in the derivation of EAD estimates. Across facility types, banking institutions must review its estimates of EAD when material new information comes to light and at least on an annual basis. 3.335 Due consideration must be given to specific policies and strategies adopted in respect of account monitoring and payment processing. Banking institutions must consider its ability and willingness to prevent further drawings in circumstances short of payment default, such as covenant violations or other technical default events. Adequate systems and procedures should be in place BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 184 / 506 Issued on: 3 May 2019 to monitor facility amounts, current outstanding against committed lines and changes in outstanding per borrower and per grade. Outstanding balances must be monitored on a daily basis. Additional Standards for Corporate, Sovereign, and Bank Exposures 3.336 Estimates of EAD must be based on a time period that ideally should cover a complete economic cycle but in any case be no shorter than a period of seven years. If the available observation period spans a longer period for any source, and the data are relevant, this longer period should be used. EAD estimates must be calculated using a default-weighted average and not on a time- weighted average. Additional Standards for Retail Exposures 3.337 The minimum data observation period for EAD estimates for retail exposures is five years. The less data a banking institution has available, the more conservative estimates should be used. Equal importance given to historical data is not necessary if the more recent data is demonstrated as a better predictor of draw downs. VII. Requirements for Assessing Effect of Guarantees and Credit Derivatives Standards for Corporate, Sovereign, and Bank Exposures where Own Estimates of LGD are used and Standards for Retail Exposures Guarantees 3.338 When a banking institution uses its own estimates of LGD, it may reflect the risk-mitigating effect of guarantees through an adjustment to PD or LGD estimates. The option to adjust LGDs is available only to those banking institutions that have been approved to use their own internal estimates of LGD. For retail exposures, where guarantees exist, either in support of an individual obligation or a pool of exposures, a banking institution may reflect the risk- reducing effect either through its estimates of PD or LGD, provided this is done consistently. In adopting one or the other technique, a banking institution must adopt a consistent approach, both across types of guarantees and over time. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 185 / 506 Issued on: 3 May 2019 3.339 In all cases, both the borrower and all recognised guarantors must be assigned a borrower rating at the outset and on an ongoing basis. Banking institutions must follow all minimum requirements set out in this document for assigning borrower ratings to guarantors, including the regular monitoring of the guarantor’s condition and ability and willingness to honour its obligations. Consistent with the requirements in paragraphs 3.291 to 3.293, banking institutions must retain all relevant information on the borrower on a standalone basis excluding the guarantee and the guarantor. In the case of retail guarantees, these requirements also apply to the assignment of an exposure to a pool, and the estimation of PD. 3.340 In no case can a banking institution assign the guaranteed exposure an adjusted PD or LGD such that the adjusted risk weight would be lower than that of a comparable, direct exposure to the guarantor. The rating processes must not consider possible favourable effects of lower correlation between default events for the borrower and guarantor, for purposes of regulatory minimum capital requirements. As such, the adjusted risk weight must not reflect the risk mitigation of double default. Eligible Guarantors and Guarantees 3.341 There are no restrictions on the types of eligible guarantors. Banking institutions must, however, have clear internal criteria for the types of guarantors recognised for regulatory capital purposes. 3.342 The guarantee must be evidenced in writing, non-cancellable by the guarantor, in force until the debt is satisfied in full (to the extent of the amount and tenor of the guarantee) and legally enforceable against the guarantor in a jurisdiction where the guarantor has assets to attach to the guarantee and where the judgment against the guarantor can be enforced. In contrast to the foundation approach to corporate, bank, and sovereign exposures, conditional guarantees158 may be recognised under certain conditions. Specifically, the 158 Guarantees prescribing conditions under which the guarantor may not be obliged to perform. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 186 / 506 Issued on: 3 May 2019 onus falls on the banking institution to demonstrate that the rating assignment criteria adequately address any potential reduction in the risk mitigation effect. Adjustment Criteria 3.343 A banking institution must have clearly specified criteria for adjusting borrower grades or LGD estimates (or in the case of retail and eligible purchased receivables, the process of allocating exposures to pools) to reflect the impact of guarantees for regulatory capital purposes. These criteria must be as detailed as the criteria for assigning exposures to grades under paragraphs 3.256 to 3.258, and must follow all minimum requirements for assigning borrower or facility ratings in this framework. 3.344 The criteria must be plausible and intuitive, and must address the guarantor’s ability and willingness to perform under the guarantee. The criteria must also address the likely timing of any payments and the degree to which the guarantor’s ability to perform under the guarantee is correlated with the borrower’s ability to repay. The criteria must also consider the extent to which residual risk to the borrower remains, for example a currency mismatch between the guarantee and the underlying exposure. 3.345 In adjusting borrower grades or LGD estimates (or in the case of retail and eligible purchased receivables, the process of allocating exposures to pools), all relevant available information must be taken into account. Credit Derivatives 3.346 The minimum requirements for guarantees above are also relevant for single- name credit derivatives. Additional considerations arise in respect of asset mismatches. In particular, the criteria used for assigning adjusted borrower grades or LGD estimates (or pools) for exposures hedged with credit derivatives must require that the asset on which the protection is based (the reference asset) cannot be different from the underlying asset, unless the conditions outlined in paragraph 3.141 and 3.142 are met. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 187 / 506 Issued on: 3 May 2019 3.347 In addition, the criteria must address the payout structure of the credit derivative and conservatively assess the impact it has on the level and timing of recoveries. The banking institution must also consider the extent to which other forms of residual risk remain. 3.348 For banking institutions using foundation LGD estimates, the requirements outlined in paragraphs 3.338 to 3.347 apply with the exception that the ‘LGD- adjustment’ option cannot be used. VIII. Requirements Specific to PD and LGD (or EL) Estimation for Purchased Receivables 3.349 The following minimum requirements for risk quantification must be satisfied for any purchased receivables (corporate or retail) making use of the top-down treatment of default risk and/or the IRB treatments of dilution risk. 3.350 The purchasing banking institution will be required to group the receivables into sufficiently homogeneous pools so that accurate and consistent estimates of PD and LGD (or EL) for default losses and EL estimates of dilution losses can be determined. In general, the risk bucketing process will reflect the seller’s underwriting practices and the heterogeneity of its customers. In addition, the methods and data for estimating PD, LGD, and EL must comply with the existing risk quantification standards for retail exposures.  In particular, quantification should reflect all information available to the purchasing banking institution regarding the quality of the underlying receivables, including data for similar pools provided by the seller, by the purchasing banking institution, or by external sources.  The purchasing banking institution must determine whether the data provided by the seller are consistent with expectations agreed upon by both parties concerning, for example, the type, volume and ongoing quality of receivables purchased. Where this is not the case, the purchasing banking institution is expected to obtain and rely upon more relevant data. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 188 / 506 Issued on: 3 May 2019 Minimum Operational Requirements for Purchased Receivables 3.351 A banking institution purchasing receivables has to demonstrate its confidence that current and future advances can be repaid from the liquidation of (or collections against) the receivables pool. To qualify for the top-down treatment of default risk, the receivable pool and overall lending relationship should be closely monitored and controlled. Specifically, a banking institution must demonstrate the following: i) Legal Certainty: The structure of the facility must ensure that under all foreseeable circumstances, banking institutions have effective ownership and control of the cash remittances from the receivables, including incidences of seller or servicer distress and bankruptcy. When the receivables obligor makes payments directly to a seller or servicer, banking institutions must verify regularly that payments are forwarded completely and within the contractually agreed terms. Ownership over the receivables and cash receipts should also be protected against bankruptcy ‘stays’ or legal challenges that could materially delay the banking institution’s ability to liquidate/assign the receivables or retain control over cash receipts. ii) Effective Monitoring Systems: A banking institution must ensure that:  It assesses and reviews the default risk correlation of the receivables and the financial conditions of both the seller and servicer;  Internal policies and procedures are in place to ensure that the receivables, seller and servicer are of high quality. This includes the assignment of an internal risk rating for each seller and servicer;  Clear and effective policies and procedures are in place to assess the eligibility of the seller and servicer. Periodic reviews of seller and servicer must be conducted either by the banking institution or its agent in order to: ­ verify the accuracy of reports from the seller/servicer; ­ detect fraud or operational weaknesses; and ­ verify the quality of the seller’s credit policies and servicer’s collection policies and procedures. Findings of these reviews must be well documented; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 189 / 506 Issued on: 3 May 2019  It has the ability to assess the characteristics and performance of the receivables in the pool, including over-advances, history of the seller’s arrears, bad debts, bad debt allowances, payment terms, and potential contra accounts;  Effective policies and procedures are in place to monitor on an aggregate basis concentrations to a single-receivables obligor both within and across receivables pools; and  Sufficiently detailed reports on ageing and dilutions of the receivables are received on timely basis to: ­ ensure compliance with the banking institution’s eligibility criteria and policies on advances governing purchased receivables; and ­ to facilitate effective monitoring and confirmation of the seller’s terms of sale (e.g. invoice date ageing) and dilution. iii) Effective Work-Out Systems: An effective programme requires systems and procedures not only for detecting deterioration in the seller’s financial condition and deterioration in the quality of the receivables at an early stage, but also for addressing emerging problems pro-actively. This relates to the need for:  Clear and effective policies, procedures, and information systems to monitor compliance with all contractual terms of the facility (including covenants, advancing formulas, concentration limits, early amortisation triggers, etc.) and internal policies governing advance rates and receivables eligibility. Systems established should be able to track covenant violations and waivers as well as exceptions to established policies and procedures.  Limiting inappropriate draw downs, including having in place effective policies and procedures for detecting, approving, monitoring, and correcting over-advances; and  Effective policies and procedures to deal with sellers or servicers who have been observed to be in distress and/or where the quality of receivable pools has deteriorated. These include, but are not limited to: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 190 / 506 Issued on: 3 May 2019 ­ early termination triggers in revolving facilities and other protective covenants; ­ a structured and effective approach to deal with covenant violations; and ­ clear and effective policies and procedures for initiating legal actions and dealing with problem receivables. iv) Effective Systems for Controlling Collateral, Credit Availability, and Cash: Banking institutions must have clear and effective policies and procedures governing the control of receivables, credit, and cash. In particular:  Written internal policies that specify all material elements of the receivables purchase programme, including the advancing rates, eligible collateral, necessary documentation, concentration limits, and how cash receipts are to be handled. These elements should take appropriate account of all relevant and material factors, including the seller’s/servicer’s financial condition, risk concentrations, and trends in the quality of the receivables and the seller’s customer base.  Internal systems must ensure that funds are advanced only against specified supporting collateral and documentation (such as servicer attestations, invoices, shipping documents, etc.) v) Compliance with Internal Policies and Procedures: Given the reliance on monitoring and control systems to limit credit risk, banking institutions should have an effective internal process for assessing compliance with all critical policies and procedures, including:  regular internal and/or external audits of all critical phases of the banking institution’s receivables purchase programme.  verification of the separation of duties (i) between the assessment of the seller/servicer and the assessment of the receivables obligor and (ii) between the assessment of the seller/servicer and the field audit of the seller/servicer. An effective internal process for assessing compliance with all critical policies and procedures should also include evaluations of back office BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 191 / 506 Issued on: 3 May 2019 operations, with particular focus on qualifications and experience of staff, staffing levels, and supporting systems. IX. Requirements Specific to Internal Models Approach for Equity Capital Charge and Risk Quantification 3.352 The following minimum quantitative standards apply for the purpose of calculating minimum capital charges under the internal models approach for equity: i) The capital charge is equivalent to the potential loss on the institution’s equity portfolio arising from an assumed instantaneous shock equivalent to the 99th percentile, one-tailed confidence interval of the difference between quarterly returns and an appropriate risk-free rate computed over a long-term sample period. ii) The estimated losses should be robust to adverse market movements relevant to the long-term risk profile of the institution’s specific holdings. The data used to represent return distributions should reflect the longest sample period for which data are available and be meaningful in representing the risk profile of the specific equity holdings. The data used should be sufficient to provide conservative, statistically reliable and robust loss estimates that are objectively determined and not based purely on subjective or judgmental considerations. Banking institutions must demonstrate to the Bank that the ‘shock’ employed provides a conservative estimate of potential losses over relevant long-term market or business cycle. Models adopted using data that do not reflect realistic ranges of long-run experience, including a period of reasonably severe declines in equity market values relevant to a banking institution’s holdings, are presumed to produce optimistic results unless there is credible evidence of appropriate adjustments built into the model. In the absence of built-in adjustments, banking institution must combine empirical analysis of available data with adjustments based on a variety of factors to attain model outputs that are realistic and conservative. In constructing VaR models to estimate potential quarterly losses, banking institutions may use quarterly data or convert shorter horizon period data BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 192 / 506 Issued on: 3 May 2019 to a quarterly equivalent using an analytically appropriate method supported by empirical evidence. Such adjustments must be applied through a well-developed and documented thought process and analysis. In general, adjustments must be applied conservatively and consistently over time. Furthermore, where only limited data are available, or where technical limitations are such that estimates from any single method will be of uncertain quality, appropriate margins of conservatism must be added to avoid over-optimism. iii) Any particular type of VaR model that is used (e.g. variance-covariance, historical simulation, or Monte Carlo) must be able to adequately capture all of the material risks inherent in equity returns including both the general market risk and specific risk exposure of the banking institution’s equity portfolio. Internal models must adequately explain historical price variation, capture both the magnitude and changes in the composition of potential concentrations, and be sufficiently robust under adverse market conditions. The population of risk exposures represented in the data used for estimation must be closely matched to or at least comparable with equity exposures of the banking institution. iv) Modelling techniques such as historical scenario analysis may also be used to determine minimum capital requirements for banking book equity holdings. However, the use of such models is conditioned upon the demonstration to the Bank that the methodology and its output can be quantified in the form of the loss percentile specified under (i). v) Banking institutions must use an internal model which is most appropriate for its risk profile and complexity of the equity portfolio. Those with material holdings of instruments with values that are highly non-linear in nature (e.g. equity derivatives, convertibles) must employ an internal model designed to appropriately capture the risks associated with such instruments. vi) Subject to the Bank’s review, equity portfolio correlations can be integrated into a banking institution’s internal risk measures. The use of explicit correlations (e.g. utilisation of a variance/covariance VaR model) must be fully documented and supported using empirical analysis. The BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 193 / 506 Issued on: 3 May 2019 appropriateness of implicit correlation assumptions will be evaluated by the Bank during the review of model documentation and estimation techniques. vii) Mapping of individual positions to proxies, market indices, and risk factors should be plausible, intuitive, and conceptually sound. Mapping techniques and processes should be fully documented, and demonstrated with both theoretical and empirical evidence to be appropriate for the specific holdings. Where professional judgement is combined with quantitative techniques in estimating a holding’s return volatility, the judgement must take into account the relevant and material information not considered by the quantitative techniques utilised. viii) Where factor models are used, either single or multi-factor models are acceptable depending upon the nature of an institution’s holdings. Banking institutions are expected to ensure that the factors are sufficient to capture the risks inherent in the equity portfolio. Risk factors should correspond to the appropriate equity market characteristics (for example, public, private, market capitalisation, industry sectors and sub-sectors, operational characteristics) in which the banking institution holds significant positions. While banking institutions have discretion to choose the factors, the appropriateness of those factors including its ability to cover both general and specific risk must be demonstrated through empirical evidence. ix) Estimates of the return volatility of equity investments must incorporate relevant and material available data, information, and methods. Banking institutions may use independently reviewed internal data or data from external sources (including pooled data). The number of risk exposures in the sample, and the data period used for quantification should be sufficient to provide confidence that the estimates used are accurate and robust. Banking institutions should take appropriate measures to limit the potential of sampling or ‘survivorship’ bias in estimating return volatilities. x) A rigorous and comprehensive stress testing programme should be established. Banking institutions are expected to subject its internal models and estimation procedures, including volatility computations, to BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 194 / 506 Issued on: 3 May 2019 either hypothetical or historical scenarios that reflect worst-case losses given underlying positions in both public and private equities. At a minimum, stress tests should be employed to provide information about the effect of tail events beyond the level of confidence assumed in the internal models approach. Risk Management Process and Controls 3.353 Banking institutions must establish policies, procedures, and controls to ensure the integrity of the model and modelling process used to derive regulatory capital. Policies, procedures, and controls should include the following: i) Full integration of the internal model into the banking institution’s overall management information systems, including the management of the banking book equity portfolio. Internal models should be fully integrated into the risk management infrastructure including use in:  establishing investment hurdle rates and evaluating alternative investments;  measuring and assessing equity portfolio performance (including the risk-adjusted performance); and  allocating economic capital to equity holdings and evaluating overall capital adequacy as required under Pillar 2. Banking institutions should be able to demonstrate, through for example, investment guidelines and investment committee minutes, that the internal model output plays an essential role in the investment management process. ii) Established management systems, procedures, and control functions for ensuring periodic and independent review of all elements of the internal modelling process, including approval of model revisions, vetting of model inputs, and review of model results, such as direct verification of risk computations. Proxy and mapping techniques and other critical model components should receive special attention. These reviews should assess the accuracy, completeness, and appropriateness of model inputs and results and focus on both identifying and limiting potential errors associated with known weaknesses and be aware of BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 195 / 506 Issued on: 3 May 2019 unknown model weaknesses. Such reviews may be conducted as part of internal or external audit programmes, by an independent risk control unit, or by an external third party. iii) Adequate systems and procedures for monitoring investment limits and the risk exposures of equity investments. Senior management should be actively involved in the risk control process and ensure that adequate resources and authority are assigned to risk control as an essential aspect of the business. Daily reports prepared by the independent risk control unit must be reviewed by responsible persons within senior management with sufficient seniority and authority to enforce remedial actions where appropriate to reduce the banking institution’s overall risk exposure. iv) The units responsible for the design and application of the model must be functionally independent from the units responsible for managing individual investments. The former should produce and analyse daily reports on the output of the risk measurement model, including an evaluation of limit utilisation. This unit must also be independent from trading and other risk taking units and should report directly to senior management with responsibility for risk management. v) Parties responsible for any aspect of the modelling process must be adequately qualified. Management must allocate sufficient skilled and competent resources to the modelling function. X. Stress Test in Assessment of Capital Adequacy 3.354 Banking institutions must establish sound stress testing processes for the assessment of capital adequacy. Stress testing must involve identifying possible events or future changes in economic conditions that might have unfavourable effects on a banking institution’s credit exposures and credit risk components (PD, LGD and EAD), and an assessment of the banking institution’s ability to withstand such changes. For more guidance on stress testing approaches and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 196 / 506 Issued on: 3 May 2019 methodologies, banking institutions should be guided by the Bank’s Stress Testing159. 3.355 In addition, banking institutions must perform credit risk stress tests to assess the effect of certain specific conditions on the IRB regulatory capital requirements. The test to be employed is chosen by the banking institution, subject to the Bank’s review. The test employed must be meaningful, reasonably conservative and relevant to the banking institution’s circumstances, and consider at least the effect of mild recession scenarios. For example, the use of two consecutive quarters of zero growth to assess the effect on the banking institution’s PDs, LGDs and EADs. 3.356 Banking institutions using the double default framework must consider, as part of the stress testing framework, the impact of a deterioration in the credit quality of protection providers (particularly those falling outside the eligibility criteria due to rating changes). Banking institutions should also consider the impact of the default of one but not both of the borrower and protection provider, and the consequent increase in risk and capital requirements at the time of default. 3.357 Whatever method is used, the following sources of information must be considered: i) banking institution’s own data supporting the estimation of the ratings migration of its exposures; ii) information about the impact of smaller deterioration in the credit environment on a banking institution’s ratings, giving some information on the likely effect of more severe stress circumstances; and iii) evidence of ratings migration in external ratings. This would entail the banking institution broadly matching its buckets to the external rating categories. 3.358 The stress test results may indicate no difference in the capital calculated under the IRB rules if the estimates used as input to the IRB calculation have already 159 Refer to paragraph 21 of Stress Testing. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 197 / 506 Issued on: 3 May 2019 considered information from stressed circumstances described above. Where there is a shortfall between the results of the stress test and those calculated under the IRB rules, banking institutions must undertake necessary actions to address the differences. Where a banking institution operates in several markets, stress testing on portfolios representing the vast majority of its total exposures should be carried out (in other words, banking institutions need not stress test all the portfolios in all the markets it operates in). 3.359 In addition to the above requirements, banking institutions are required to specifically incorporate the following factors into stress tests under Pillar 2 for purposes of setting internal capital targets:  The effect of not recognising the firm-size adjustment for small and medium- sized corporates under paragraphs 3.164 and 3.165;  The effect of not recognising any group support which is allowed under paragraphs 3.280 and 3.281;  The effect of removing the risk weight cap applied to exposures to priority sector residential mortgages and exposures guaranteed by CGC; and  The effect of incorporating seasoning adjustment as required under paragraph 3.321, which have been deemed to be immaterial. Governance, Oversight and Use of Internal Ratings I. Governance 3.360 The board of directors remains principally responsible for ensuring that a comprehensive framework is in place for the use of internal models. In particular, the framework should address the governance of the IRB systems employed by the banking institution. This responsibility includes approval of high-level issues, major policies and all other material aspects of the IRB systems. The board may delegate certain functions to a designated board committee, but remains accountable for the decisions of such a committee. 3.361 The board must have an adequate understanding of the key principles and features of the banking institution’s IRB systems to make well-informed, high- level decisions in relation to its responsibilities (for example, specifying BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 198 / 506 Issued on: 3 May 2019 acceptable risk tolerance levels using IRB results and approving risk management strategies). The requisite information or knowledge may include:  Basic information about the rating system (for example, objective, coverage, broad rating structure and definitions);  Uses of rating systems in the banking institution;  Overall results of validation and back-testing performed on the rating systems and corresponding actions taken;  Information on the rating systems’ compliance with the Bank’s guideline; and  Stress test design, assumptions and results. 3.362 Senior management is responsible for informing and obtaining approval from the board of directors or its designated committee on the material aspects of the internal rating system. At a minimum, these include the following:  Major rating system policies, including but not limited to ownership, uses of rating systems and the exception framework;  Material changes or replacement of rating systems (including recalibration, reselection of factors, reweighting, master scale rebanding, change of approach or any adjustment that would significantly impact the output); and  Changes or exceptions from established policies, and the resulting impact on the banking institution’s IRB systems. 3.363 Senior management is responsible to ensure on an ongoing basis that the system is operating as intended and sufficient resources, including qualified and skilled personnel, are assigned to critical aspects of the rating system. Regular communications between management and credit risk management personnel regarding the performance of the rating process, areas needing improvement, and the status of efforts to improve previously identified deficiencies should be an important part of this process. 3.364 Senior management must have a good understanding of the rating system which reflects detailed knowledge of the components of the rating system. The following section illustrates areas of detailed knowledge expected of senior management according to their functional responsibilities: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 199 / 506 Issued on: 3 May 2019 Heads/Officers of Risk Management in-charge of Active Oversight of Rating Systems:  Design, estimation (including parameterisation, rating philosophy and horizon), performance monitoring process and assessments, validation process and results and continuing appropriateness of rating systems;  Underwriting standards, lending practices, collection and recovery practices, and how these factors affect estimation;  Stress testing processes, including portfolio coverage, design, assumptions, frequency, results, implications and reporting processes;  Policies, procedures and the control process surrounding the rating system (including segregation of duties, access control, security, and confidentiality of model documentation); and  Uses of the rating system. Key Business Heads (the Primary Operator and User of Ratings):  Approach, objective, purpose and coverage of the rating system;  Policies and procedures relating to the following: ­ Rating system design, such as rating dimension (borrower vs facility, retail segments), rating structure (modules, number of grades, distribution), rating criteria/definition, philosophy/horizon and documentation; and ­ Rating system operation, namely the means by which the integrity of the system is assured, procedures for overrides and data maintenance;  Uses of the rating system;  Stress testing processes, including portfolio coverage, business input on assumptions, results and required management actions; and  Results of validation/back-testing, identified weaknesses (e.g. data quality) and implications for the use of the rating system, and relevant actions. Internal Audit:  Understanding of the Bank’s guidelines, especially the minimum requirements for rating systems;  Good understanding of the critical aspects of the rating systems, including the design, operation, estimation, validation and use of the systems; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 200 / 506 Issued on: 3 May 2019  The level of consistency and compliance of the banking institution’s rating systems to the Bank’s guidelines and internal policies. 3.365 Internal ratings must be an essential part of reporting to the board and senior management. The emphasis is on presenting meaningful analyses which should include, at a minimum, assessments of the following: i) Distribution of credit/sectoral exposures by grades; ii) Rating migration; iii) Estimation of the relevant parameters per grade; and iv) Model performance and back-testing. Reporting frequencies may vary with the significance and type of information as well as the specific roles expected of the recipients. II. Credit Risk Management Function 3.366 Banking institutions must have an independent credit risk management function responsible for the development (design or selection), implementation and performance of internal rating systems. The function must be operationally independent160 from the business lines or risk taking functions. Areas of responsibility should include: i) Testing and monitoring internal grades; ii) Production and analysis of summary reports from the banking institution’s rating system, including historical default data sorted by rating at the time of default and one year prior to default, grade migration analyses, and monitoring of trends in key rating criteria; iii) Implementing procedures to verify that rating definitions are consistently applied across functions and geographic areas; iv) Reviewing and documenting changes to the rating process, including the rationale for such changes; and v) Reviewing the rating criteria to ensure it remains predictive of risk. Changes to the rating process, criteria or individual rating parameters 160 The Bank does not dictate which unit within the banking institution that is required to perform the independent function. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 201 / 506 Issued on: 3 May 2019 must be documented and retained for review by internal or external audit and the Bank. 3.367 The credit risk management function must actively participate in the development, selection, implementation and validation of rating models. This includes the effective oversight of any model used in the rating process. The credit risk management function is also primarily responsible for the ongoing review and control of alterations to rating models. III. Internal and External Audit 3.368 Internal audit or an appropriately independent function must review at least annually the banking institution’s compliance with all applicable minimum requirements for the IRB approach as described in this framework. The result of the review should be reported to the Audit Committee. 3.369 The parties performing this function must possess the necessary skill sets and a good understanding of the internal rating system, to provide an effective check and balance within the institution. 3.370 Banking institutions should consider engaging an external party to undertake the review, at least during the initial period, pending the development of requisite internal audit capabilities. However, the Bank expects such capacity to exist within the institution within a reasonable period to support the internal audit’s responsibility to conduct independent reviews. In any case, the Bank reserves the right to require an external auditor to review the banking institution’s internal rating systems where reviews by internal audit are found to be inadequate. Any costs associated with the reviews shall be borne by the banking institution. IV. Use of Internal Ratings 3.371 As a general rule, internal ratings and loss estimates must play an important role in the day to day running of the banking institution’s business. This includes its application in credit approval, risk governance and management, and internal BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 202 / 506 Issued on: 3 May 2019 capital allocation. The Bank will not accept ratings systems and estimates designed and implemented exclusively for the purpose of qualifying for the IRB approach and used only to provide inputs for regulatory capital adequacy purposes. 3.372 Banking institutions must demonstrate the use of internal ratings and loss estimates in the following areas161: i) Essential areas: where internal ratings and loss estimates are directly used as input in credit approval, capital management (including internal capital allocations), credit policies, reporting, pricing and limit setting; ii) Areas for consideration: where internal ratings and loss estimates are indirectly used as input in provisioning decisions, profitability measures, the performance and compensation framework, other elements of the credit process (not only credit approval) and strategy. 3.373 The demonstration of the use of internal ratings does not automatically imply that the estimates must have an exclusive or primary role in all of the above functions. It is recognised that banking institutions may not necessarily apply exactly the same estimates used for capital computation under the IRB, for other internal purposes. For example, pricing models are likely to use PDs and LGDs relevant to the life of the asset. The emphasis is on ensuring the relevance of these estimates for decision making. Where there are adjustments made to the estimates for different business purposes, banking institutions must document and be able to demonstrate its reasonableness to the Bank. 3.374 Rating systems should also form an integral part of a banking institution’s risk culture. Although this can only be demonstrated over time, banking institutions should be able to provide evidence of compliance with the essential areas described in Appendix XXVIII. 161 Regardless of any exemption from IRB application granted to a business unit or asset class under paragraph 3.4 to 3.6 and 3.14, although the degree of reliance on internal ratings and loss estimates in these circumstances may differ. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 203 / 506 Issued on: 3 May 2019 3.375 Banking institutions must have a credible track record in the use of internal ratings information. Rating systems that are in compliance with the minimum requirements under this document should be in use for at least 3 years prior to full implementation. Similar requirements are also applied to the estimation and use of own LGDs and EADs under the advanced IRB approach. Ongoing enhancements to banking institutions’ rating systems will not render it non- compliant under this requirement. Validation of Rating Systems and Internal Estimates 3.376 Validation should encompass a range of processes and activities that evaluate and examine the rating system and the estimation process and methods for deriving the risk components, namely PD, LGD and EAD. Validation should be designed to assess the ability of ratings to adequately differentiate risk and the extent to which PD, LGD and EAD appropriately characterise the relevant aspects of risk. 3.377 Banking institutions must establish a robust framework to validate the consistency of rating systems, processes, and accuracy of the estimation of all relevant risk components. Banking institutions must demonstrate to the Bank that the internal validation process allows for a consistent and meaningful assessment of the performance of internal rating and risk estimation systems. The validation framework, the results of validation and the subsequent review or changes made to the framework, must be fully documented. 3.378 An appropriate design of a validation framework should cover at least the following: i) Authorised roles and responsibilities for validation; ii) Scope and methodology of validation; iii) Reporting and approval procedures; iv) Frequency of validation; and v) Management actions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 204 / 506 Issued on: 3 May 2019 I. Authorised Roles and Responsibilities for Validation 3.379 Validation must be performed by a unit that is independent from the risk taking units and the development team. Functions responsible for validation must not include individuals who would benefit directly from any adjustments made to the rating system. 3.380 In addition, the validation process should also be subjected to review by internal audit or an appropriately independent party as outlined in paragraph 3.368 to 3.370. II. Scope and Methodology 3.381 The scope of validation should cover both the quantitative and qualitative aspects of the rating system. The quantitative aspect includes review of developmental evidence, outcome analysis and back-testing: Review of Developmental Evidence 3.382 The review of developmental evidence should include evaluating the conceptual soundness and the logic of the rating system’s theory and methodology. The validation unit should review documentation and empirical evidence supporting the methods used. 3.383 The review conducted should encompass the evaluation of the analysis and statistical tests made during the development phase to assess representativeness of internal data and other available information including external data, against the banking institution’s own portfolio. The design of the rating system must be appropriate for its intended use and have no known material biases, either towards a particular customer segment, asset size or economic cycle. The review must demonstrate that the data used to build the model are representative of the population of actual borrowers or facilities. 3.384 The review must also demonstrate that the use of statistical techniques (e.g. sampling, smoothing and sample truncation to remove outliers) in the preparation of development data sets and in the operations of internal rating BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 205 / 506 Issued on: 3 May 2019 systems is justified and based on sound scientific methods. The review should demonstrate that the properties and limitations of the statistical techniques used, and the applicability of these techniques to different types of data are fully understood by key personnel of the banking institution. 3.385 The review must evaluate and demonstrate that the occurrences of missing data are random and do not have systematic relationships with default events or credit losses. Where it is necessary to remove observations with missing data, it should be accompanied with sound justification, as these observations may contain important information on default events or credit losses. Removal of a large number of observations with missing data should be evaluated and justified thoroughly in the review. 3.386 The review must also assess the variables selected in the design and estimation of the rating systems, to verify that variables used as inputs to the system form a reasonable set of predictors. Statistical process or tests conducted to evaluate the performance of individual variables selected and the overall performance during development must also be evaluated. 3.387 The review must also assess the adequacy and efficacy of documentation outlining judgemental decisions or expert opinions engaged in the determination and selection of methods, criteria and characteristics. Outcomes Analysis and Back-Testing 3.388 Subsequent to development and implementation, the rating system must be reviewed to verify its performance beyond the development stage and to assess how well the rating system works on both existing and new customers (i.e. works well out-of-time). 3.389 An outcome analysis involves ex-post evaluation of the discriminatory power or relative risk-ranking ability of the internal rating system on a regular basis and over time in order to monitor trends and stability. The evaluation must be done at the overall rating system level, going down to the detailed component level BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 206 / 506 Issued on: 3 May 2019 depending on the results of the initial evaluation. At a minimum, all banking institutions should use the Accuracy Ratio (AR) as a common test for discriminatory power. However, banking institutions are expected to also use other measures in addition to AR. 3.390 A comparison between realised default rates and estimated PDs should be performed for each grade to demonstrate that the realised default rates are within the expected range for that grade. At a minimum, this comparison should be done at the overall portfolio level to assess the PD calibration or the anchor point of the model. Banking institutions using the advanced IRB approach must complete analyses on estimates of LGDs and EADs. Such comparisons must make use of historical data over a reasonable period. The methods and data used in such comparisons must be clearly documented. 3.391 To supplement the analysis, a benchmarking of the internal estimates with relevant external (whether public or non-public) data sources should be conducted. The benchmarking must be based on data that are appropriate to the portfolio, updated regularly, and cover a relevant observation period. 3.392 Regardless of the method chosen, banking institutions must be able to explain the rationale and the appropriateness of the chosen validation techniques to the Bank. Banking institutions should also understand the limitations, if any, of such techniques. Additional Considerations for Quantitative Review 3.393 In addition, banking institutions need to demonstrate to the Bank that the underlying philosophy of the rating system is well understood and properly considered when determining which validation tools and techniques are applied. This applies to both the choice of validation methods for assessing the accuracy and stability of a rating system, and the choice of methods for assessing the appropriateness of the stress tests applied. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 207 / 506 Issued on: 3 May 2019 3.394 If an outcome of a validation method on a particular portfolio or segment is unreliable because of the lack or total absence of internal default data, other methods and techniques should be considered. Banking institutions should always ensure that relevant additional information is taken into account and adequate margins of conservatism are applied. 3.395 Banking institutions should periodically assess the performance of any external models used in its IRB processes to ensure the models continue to function as intended. Since external model parameters and weights may have been calibrated using external data, it is critical for banking institutions to test the performance of the external models against its own portfolio of exposures. In addition, banking institutions should also undertake procedures to verify the accuracy and consistency of any external data used within its IRB risk quantification processes. This can be done, among other ways, by comparing the results obtained using the external data to the results obtained using its own portfolio data in the same risk rating, segmentation, or parameter estimation models or methods. 3.396 In cases where transparency of the model’s development is inadequate and where there is scarcity of internal performance data, banking institutions could also rely on alternative validation approaches. For further guidance on the appropriate treatments, please refer to Appendix XXIX. 3.397 Internal assessments of rating systems performance must be based on long data histories, covering a range of economic conditions, and ideally one or more complete business cycles. 3.398 Quantitative testing methods and other validation methods must not vary systematically with the economic cycle. Changes in methods and data (both data sources and periods covered) must be justified and clearly documented. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 208 / 506 Issued on: 3 May 2019 3.399 Banking institutions should review and improve validation techniques in response to changing markets and practices in the industry as more data becomes available. Qualitative Review 3.400 Apart from the more technical and quantitative review of the rating system components (data, models, etc.), banking institutions should also review the adequacy and effectiveness of rating system processes, the oversight structure and control procedures to ensure the forward-looking accuracy of the IRB estimates. At a minimum, the review should cover rating system documentation, rating operations (including rating coverage, assignment, reviews, overrides and data maintenance), the governance (including level of understanding and training of personnel in key oversight roles) and control (including independence) framework and internal use of ratings. Specific Requirements for Validation of Internal Models Approach to Equity 3.401 Banking institutions must establish model review standards, especially where actual results deviate significantly from expectations and the validity of the internal model is called into question. These standards must take into account business cycles and similar systematic variability in equity returns. Adjustments made to internal models in response to model reviews must be well documented and consistent with the model review standards. 3.402 To facilitate model validation through back-testing on an ongoing basis, banking institutions must construct and maintain appropriate databases on the actual quarterly performance of its equity investments and estimates derived from internal models. Banking institutions should also back-test the volatility estimates used within the internal models and the appropriateness of the proxies used in the model. 3.403 Where the Bank deems necessary, banking institutions may be required to adjust quarterly forecasts to shorter time horizons, store performance data for such time horizons and use this for back-testing. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 209 / 506 Issued on: 3 May 2019 III. Reporting and Approval Process 3.404 Validation results should be deliberated with the development team and business units and brought before the board or its designated board-level committee for deliberation and approval. IV. Frequency of Validation 3.405 Banking institutions’ internal policies must establish the frequency or cycle of the validation exercise and the scope of validation for each cycle. The internal policies should also address situations that may call for validation outside the normal cycle. 3.406 Validation of internal estimates must be conducted prior to the adoption and implementation of IRB and thereafter at least annually. Developmental evidence must be reviewed whenever the banking institution makes material changes to its rating systems. V. Management Actions 3.407 Banking institutions must have clearly written and properly documented internal standards for the following:  to determine if the test results conducted to assess the discriminatory power of the rating system are below expectation, leading to a more detailed analysis of the discriminatory power of the model drivers, or to conclude that the power of the rating system has in fact diminished.  to determine situations in back-testing where deviations in realised PDs, LGDs and EADs from expectations become significant enough to call into question the validity of the estimates. These standards must take account of business cycles and similar systematic variability in default experiences. Where realised values continue to be higher than expected values, banking institutions must revise estimates upward to reflect higher default and loss experience.  to determine, based on the results of the tests of discriminatory power and back-testing, that the estimates or the model itself needs to be redesigned, recalibrated, or replaced in its entirety. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 210 / 506 Issued on: 3 May 2019 3.408 Where supervisory estimates of risk parameters, rather than internal ones are being used, banking institutions are expected to compare the realised LGDs and EADs to the supervisory estimates set by the Bank. The information on realised LGDs and EADs should form part of the banking institutions’ assessment of internal capital. 3.409 When benchmarking is conducted, banking institutions should investigate the sources of substantial discrepancies between internal estimates and benchmarking sources. 3.410 The Bank recognises that relatively sparse data might require increased reliance on alternative data sources and data-enhancing tools for quantification and alternative techniques for validation. Several of these tools and techniques, most of which are especially relevant for low default portfolios (LDPs) (and for PDs in particular), are described in Appendix XXIX. The Bank also recognises that there are circumstances in which banking institutions will legitimately lack sufficient default history to compare realised default rates with parameter estimates that may be based in part on historical data. In such cases, greater reliance must be placed on other validation techniques, including those described in Appendix XXIX. VI. Supervisory Approach to Validation 3.411 The validation of models adopted by banking institutions is ultimately the banking institutions’ responsibility. The burden is therefore on the banking institution to satisfy the Bank that a model has good predictive power and that regulatory capital will not be under-estimated as a result of its adoption. 3.412 The Bank will review the results of the validation and independent reviews conducted by banking institutions. The Bank reserves the right to also carry out its own statistical tests on banking institutions’ data where necessary. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 211 / 506 Issued on: 3 May 2019 B.3.8 QUALIFICATION Overview of Approval and Review Process 3.413 Banking institutions intending to adopt the IRB approach in determining regulatory capital for its conventional and Islamic exposures would be required to seek the Bank’s approval. General Qualification Process 3.414 In general, the qualification process would consist of: i) Submission of information by the IRB candidate to the Bank; ii) Review of the submitted information by the Bank within a stipulated period (between three to six months); and iii) Communication of the outcome of the review to the IRB candidate. 3.415 The approval process conducted by the Bank would cover an offsite assessment of application documents and a detailed on-site examination of banking institutions’ operations to assess compliance with the minimum requirements described in this framework. 3.416 The information requirements and minimum expectations of the Bank are outlined in Appendix XVI. 3.417 Based on the information requirements, banking institutions must submit to the Bank internal documentation or evidence that it considers relevant for the approval process, such as policies, procedures, technical documents and internal or external audit reports. The Bank reserves the right to request for more detailed information at any point in time during and after the submission of an application is made. Such documents have to be made available upon request without delay to facilitate the timely assessment of the application. 3.418 To facilitate the approval of the IRB approach by the Bank, banking institutions should conduct a self-assessment of its compliance with the minimum requirements described in this framework. Gaps identified from the self BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 212 / 506 Issued on: 3 May 2019 assessment exercise should be documented and reported to the board and the necessary rectification measures taken promptly. 3.419 The IRB implementation program would differ from one IRB candidate to another. Therefore, the review process and approval granted would be specific to the particular circumstances of each banking institution, taking into account its nature, size of operations and implementation progress. In some cases, the approval may be conditional. 3.420 In cases where a banking institution departs from full compliance with all the minimum requirements of this document subsequent to the approval, the requirements in paragraph 3.239 shall apply. The Bank reserves the right to reconsider the banking institution’s eligibility for the IRB approach and would consider appropriate supervisory actions. 3.421 Further details on the qualification process are given in Appendix XXV. Home-Host Supervisory Issues 3.422 Locally-incorporated foreign banking institutions may be intending to use or are currently using systems, processes or models that have been developed and adopted by their parent institutions. These centrally-developed systems, processes or models (herein referred to as global/regional models) can be characterised as follows:  Ownership by either the regional or global risk management committee (in terms of model commission, development and approval);  Adapted (e.g. in terms of calibration to PD) to the Malaysian market using Malaysian customer/market data either as part of a larger data set, or on its own; and  Processes and usage of model are largely standardised globally, but may incorporate Malaysian-specific practices. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 213 / 506 Issued on: 3 May 2019 3.423 Due to the centralisation of the development of the global/regional IRB models, the review process could have already been initiated by the home regulator due to an earlier implementation timeframe adopted by the home regulator. 3.424 Under these circumstances, the Bank would be supportive of coordination with the home regulator in the review of global/regional IRB models in the spirit of home-host cooperation. To assist the Bank, locally-incorporated foreign banking institutions with the intention of adopting global/regional models should submit the following information162 to the Bank:  Number of models developed or to be developed outside Malaysia;  The asset classes covered by the models;  Estimated coverage in terms of RWA percentage;  Date rolled out or estimated date for roll out;  The extent to which documents (development, independent validation) are available locally;  Whether the home regulator has reviewed or has plans to review the model;  Where available, detailed assessments by the home regulator, for the purpose of the Bank’s review for initial adoption as well as on an ongoing basis;  Date of last review by the home regulator and the results of the review. 3.425 In general, the Bank’s principles and expectations for recognising global/regional models are similar to those applied to locally-developed models. In cases where there are differences between the rules and regulations adopted by the Bank and the home regulator, banking institutions are expected to adopt the more stringent rules. Changes to IRB Implementation and Adoption 3.426 Changes to the IRB implementation and ongoing adoption may be allowed by the Bank when significant changes occur in the institution’s business environment. However, this should be well justified by the institution. Two 162 If not readily included in the IRB submission as per Appendix XVI. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 214 / 506 Issued on: 3 May 2019 examples that could justify altering a banking institution’s rollout policy are fundamental changes in strategy or mergers and acquisitions. 3.427 A change in strategy could result from changes in shareholders or management, or from a new business orientation. In either case, the broad time horizon for rollout should remain the same, but the rollout sequence may change. 3.428 A merger or an acquisition is considered a significant event that is likely to result in a modification to the banking institution’s IRB implementation plans. Whether an IRB banking institution acquires a standardised approach banking institution or vice versa, the acquiring banking institution must submit a new plan detailing the RWCAF implementation of the acquired banking institution, including the effects of the acquisition on the consolidated capital position of the group. In an acquisition, the acquiring banking institution is responsible to seek appropriate approval from the Bank for adoption of the IRB approach. 3.429 Banking institutions adopting either the advanced or foundation IRB approach are expected to continue to employ the same approach, unless otherwise permitted by the Bank. A voluntary return from foundation IRB to the standardised approach, or from advanced IRB to the foundation approach, is permitted only under extraordinary circumstances, such as disposal of a large fraction of the credit related business. 3.430 The Bank reserves the right to revoke the IRB status if banking institutions are unable to ensure ongoing compliance with the minimum requirements under this framework. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 215 / 506 Issued on: 3 May 2019 PART C OPERATIONAL RISK C.1 INTRODUCTION 4.1 Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal risk, but excludes strategic and reputational risk. Legal risk includes, but is not limited to, exposure to fines, penalties, or punitive damages resulting from supervisory actions, as well as private settlements. For banking institutions operating an Islamic banking operations, legal risk includes Sharī`ah-compliance risk163. 4.2 Two methods of calculating operational risk capital charges are provided here in a continuum of increasing sophistication and risk sensitivity, namely:  The Basic Indicator Approach (BIA); and  The Standardised Approach (TSA) or the Alternative Standardised Approach (ASA). 4.3 Banking institutions that have adopted TSA or ASA are not allowed to revert to a simpler approach without the approval of the Bank. However, if the Bank is not satisfied with a banking institution that has adopted TSA or ASA on meeting the qualifying criteria for that approach, the Bank may require the banking institution to use a simpler approach for some or all of its operations. Thereafter, the banking institution shall not revert to the more advanced approach without the approval of the Bank. C.1.1 SOUND PRACTICES FOR OPERATIONAL RISK MANAGEMENT 4.4 Regardless of the approach adopted for the operational risk capital charge computation, banking institutions shall have in place internal operational risk management framework that commensurate with the nature, complexity and sophistication of their business activities. 163 Banking institutions that have different internal definition must be able to explain the impact of the difference to the measurement and management of operational risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 216 / 506 Issued on: 3 May 2019 4.5 Banking institutions shall adopt the principles set out in the Bank’s Operational Risk164. 4.6 Banking institutions are encouraged to collect operational risk loss data given that the information would enable management to identify potential areas of vulnerability, improve overall risk profile and support decision making. Loss data is also an essential prerequisite to the development and functioning of a credible operational risk measurement system. C.1.2 TOTAL OPERATIONAL RISK CAPITAL CHARGE 4.7 A banking institution maintaining Islamic banking operation must calculate operational risk capital charge for its conventional and Islamic banking operation separately. The banking institution’s total operational risk capital charge will be the sum of: KTotal 165 = KC + Ki Where KTotal = Total operational risk capital charge Kc = Operational risk capital charge for conventional banking operations Ki = Operational risk capital charge for Islamic banking operations 164 The principles in the paper are generally consistent with the “Sound Practices for the Management and Supervision of Operational Risk” issued by the BCBS in February 2003. 165 For banking institutions that do not operate an Islamic banking operation, the total operational risk capital charge is equivalent to KC. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 217 / 506 Issued on: 3 May 2019 C.2 THE BASIC INDICATOR APPROACH (BIA) 4.8 The operational risk capital charge for banking institutions using BIA is equal to the average of a fixed percentage [denoted (α)] of positive annual gross income166 over the previous three years. 4.9 The formula for calculating the operational risk capital charge under BIA is: KBIA = {(GI 1…n x α)}/n Where KBIA = capital charge under BIA GI = annual gross income of the banking institution, where positive, over the preceding three years167 as set out in paragraph 4.12 n = number of the preceding three years where annual gross income is positive α = 15.0% 4.10 A banking institution shall calculate its gross income from its conventional banking operations as the sum of its:  Net interest income, and  Net non-interest income gross of:  any provisions (for example for unpaid interest), and  any operating expenses, including fees paid to outsourcing service provider168 but does not include  any realised or unrealised profits/losses from sales or impairment of securities in banking book169,  any income or expense from extraordinary or irregular items, and  any income derived from insurance recoveries. 166 Gross income figures are categorised into 12 quarters (equivalent to three years). Recent annual gross income is calculated by aggregating the gross income of the last four financial quarters. Similar manner of aggregation for the next two years preceding the most recent year. 167 If the annual gross income for any given year is negative or zero, the figure shall not be included for the purposes of calculating the operational risk capital charge. 168 In contrast to fees paid for services that are outsourced, fees received by banking institutions’ that provide outsourcing services shall be included in the definition of gross income. 169 Refers to profits/losses from securities measured at amortised cost and fair value through other comprehensive income in accordance with Malaysian Financial Reporting Standards 9. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 218 / 506 Issued on: 3 May 2019 A summary table of the gross income computation is provided in Appendix XII. 4.11 A banking institution shall calculate its gross income from its Islamic banking operations as the sum of its:  Net income from financing activities,  Net income from investment activities, and  Other income170 gross of:  any provisions (for example for unpaid income), and  any operating expenses, including fees paid to outsourcing service provider but does not include  any realised or unrealised profits/losses from sales or impairment of securities in banking book  any income or expense from extraordinary or irregular items, and  any income derived from insurance recoveries. Less:  Income attributable to investment account holders and other depositors. A summary table of the gross income computation is provided in Appendix XII. 4.12 A banking institution shall calculate its annual gross income, separately for both conventional and Islamic banking operations, for the most recent year by aggregating the gross income of the last four financial quarters. The calculation of the annual gross income for the two years preceding the most recent year shall be computed in a similar manner. 170 Includes income from non-Sharī`ah compliant sources. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 219 / 506 Issued on: 3 May 2019 Example For banking institutions calculating operational risk capital charge as at end of April 2008, the annual gross income shall be calculated as follows: Year 3 Year 2 Year 1 Gross Income for financial quarter ending March 08 (GI3a) March 07 (GI2a) March 06 (GI1a) Dec 07 (GI3b) Dec 06 (GI2b) Dec 05 (GI1b) Sept 07 (GI3c) Sept 06 (GI2c) Sept 05 (GI1c) June 07 (GI3d) June 06 (GI2d) June 05 (GI1d) Total GI3 = GI3a + GI3b + GI3c + GI3d GI2 = GI2a + GI2b + GI2c + GI2d GI1 = GI1a + GI1b + GI1c + GI1d 4.13 If the annual gross income in any of the given years is negative or zero, this figure is excluded from both the numerator and denominator when calculating the three years average. Example Using the above example, the operational risk capital charge as at April 2008 is calculated as follows: Year 3 Year 2 Year 1 Gross Income for financial quarter ending March 08 (+10) March 07 (+10) March 06 (+10) Dec 07 (+20) Dec 06 (-30) Dec 05 (+10) Sept 07 (-10) Sept 06 (-20) Sept 05 (+10) June 07 (+30) June 06 (+10) June 05 (+10) Total GI3 = 10 + 20 - 10 + 30 = 50 GI2 = 10 - 30 - 20 + 10 = (30) GI1 = 10 + 10 + 10 + 10 = 40 OR capital charge {[(GI3 x α) + (GI1 x α)]} / 2 = 6.75 For newly established banking institutions with less than three years data, the new entity shall use any actual gross income earned to date for purposes of deriving the average gross income, while leaving the gross income for any remaining quarters as zero. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 220 / 506 Issued on: 3 May 2019 C.3 THE STANDARDISED APPROACH AND ALTERNATIVE STANDARDISED APPROACH C.3.1 THE STANDARDISED APPROACH171 (TSA) 4.14 Subject to the Bank’s prior approval, banking institutions may use TSA to calculate its operational risk capital charges. The Bank’s approval may be given upon its review on the banking institution’s compliance with all requirements listed in paragraph 4.17 and 4.18. 4.15 Banking institutions adopting TSA shall classify their business activities into eight business lines, namely, corporate finance, trading and sales, retail banking, commercial banking, payment and settlement, agency services, asset management and retail brokerage. The definition of these business lines are provided in detail in Appendix XIII. 4.16 Specific policies shall be put in place covering amongst others the criteria for mapping the gross income of its current business activities into the specified eight business lines. Banking institutions shall review and adjust these policies and criteria for new or changing business activities as appropriate. 4.17 For purposes of mapping its business activities to the appropriate business lines, the following principles must be adhered to:  All activities must be mapped into the eight business lines (at minimum, to level 1 business lines as described in Appendix XIII) in a mutually exclusive and jointly exhaustive manner;  Any business or non-banking activity which cannot be readily mapped into any of the business lines in paragraph 4.15 and which is an ancillary function to and supports a business line in paragraph 4.15, must be allocated to the business line it supports. If the ancillary activity supports more than one business line, an objective mapping criteria 171 Applicable to both conventional and Islamic banking operations activities. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 221 / 506 Issued on: 3 May 2019 must be used to allocate the annual gross income derived from that ancillary activity to the relevant business lines;  If an activity cannot be mapped into a particular business line in paragraph 4.15 and is not an ancillary activity to a business line, then the activity shall be mapped into one of the business lines with the highest associated beta factor (that is 18%). Any associated ancillary activity to that activity will follow the same business line treatment;  Internal pricing methods or allocation keys172 may be used to allocate gross income between business lines provided that the total gross income for the banking institution (as would be recorded under BIA) equals the sum of gross income for the eight business lines;  The mapping of activities into business lines for operational risk capital purposes must be consistent with the definitions of business lines used for regulatory capital calculations for credit and market risks. Any deviations from this principle and the reason(s) must be clearly documented;  The mapping process used must be clearly documented. In particular, business line definitions must be clear and detailed enough to allow third parties to replicate the business line mapping. Documentation must, among other things, clearly specify circumstances for exceptions, approval required and any exceptions occurred must be kept on record;  Processes must be put in place to define the mapping of any new activities or products;  Senior management is responsible for the mapping policy (which is subject to the approval by the board); and  The mapping process into business lines must be subject to regular independent reviews by internal and/or external auditors. 172 Examples of allocation keys among others are number of headcounts/ human resource cost, similar basis used to allocate Head Office expenses to business lines, floor space occupied and customer group. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 222 / 506 Issued on: 3 May 2019 4.18 Banking institutions adopting TSA, are also required to assess their compliance to the qualitative requirements specified in Operational Risk173, particularly, with respect to the following requirements:  Active involvement of the board and senior management in the oversight of operational risk management;  Banking institutions must have an operational risk management system with clear responsibilities assigned to an operational risk management function. The operational risk management function is responsible for developing strategies to identify, assess, monitor and control/mitigate operational risk; for codifying bank-level policies and procedures concerning operational risk management and controls; for the design and implementation of the operational risk assessment methodology; and for the design and implementation of a operational risk-reporting system of the banking institution;  As part of the banking institution’s internal operational risk assessment system, the banking institution must systematically track relevant operational risk data including material losses by business line. Its operational risk assessment system must be closely integrated174 into its risk management processes;  There must be regular reporting of operational risk exposures, including material operational losses, to business unit management, senior management and to the board of which appropriate action/s can be taken accordingly;  Banking institutions’ operational risk management system must be well documented. It must have a routine in place for ensuring compliance with a documented set of internal policies, controls and procedures concerning the operational risk management system, which must include policies for the treatment of non-compliance issues; 173 The principles in the paper are generally consistent with the “Sound Practices for the Management and Supervision of Operational Risk” issued by the BCBS in February 2003. 174 The output must be an integral part of the process of monitoring and controlling the operational risk profile of the banking institution. For instance, this information must play a prominent role in risk reporting, management reporting, and risk analysis. Banking institutions must have techniques for creating incentives to improve the management of operational risk throughout the bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 223 / 506 Issued on: 3 May 2019  The operational risk management processes and assessment system must be subject to validation and regular independent review. These reviews must include both the activities of the business units and of the operational risk management function; and  The operational risk assessment system (including the internal validation processes) must be subject to regular review by internal and/or external auditors. 4.19 The operational risk capital charge for banking institutions using TSA is calculated as the three-year average of the simple summation of the regulatory capital charges across the eight business lines in each year. The capital charge for each business line is calculated by multiplying the annual gross income by a factor (denoted β) assigned to that business line. 4.20 The formula for calculating the operational risk capital charge under TSA is: KTSA = {years 1-3 max [(GI1-8 x β1-8), 0]}/3 Where KTSA = capital charge under TSA GI1-8 = annual gross income in a given year for each of the eight business lines β1-8 = a fixed beta factor as detailed below Business Lines Beta Factors (%) Corporate Finance (β1) 18 Trading and Sales (β2) 18 Retail Banking (β3) 12 Commercial Banking (β4) 15 Payment and Settlement (β5) 18 Agency Services (β6) 15 Asset Management (β7) 12 Retail Brokerage (β8) 12 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 224 / 506 Issued on: 3 May 2019 4.21 In any given year, negative operational risk capital charges (resulting from negative gross income) in any business line may offset positive operational risk capital charges in other business lines. However, where the aggregate operational risk capital charge across the eight business lines in a given year is negative, then the operational risk capital charge for that year would be set to zero. An illustration of the offsetting rules is provided in Appendix XIV. 4.22 Once the banking institution is allowed to use TSA, it is not allowed to adopt BIA without the approval of the Bank. C.3.2 THE ALTERNATIVE STANDARDISED APPROACH175 (ASA) 4.23 Subject to the Bank’s approval, banking institutions may use ASA to calculate its operational risk capital charge provided that all requirements as listed in paragraphs 4.17 and 4.18 are met and that the Bank is satisfied that ASA provides an improved basis over TSA, for example in avoiding double counting of risks. 4.24 Once the banking institution is allowed to use ASA, it is not allowed to revert to TSA without the approval of the Bank. 4.25 Under ASA, the operational risk capital charge for banking institutions is calculated in the same way as under TSA, except for the retail banking and commercial banking business lines. For these two business lines, the operational risk capital charge is calculated by multiplying the amount of loans and advances by a fixed factor ‘m’. The betas for retail and commercial banking are unchanged as under TSA. 175 Applicable to both conventional and Islamic banking operations. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 225 / 506 Issued on: 3 May 2019 4.26 The formula for calculating the operational risk capital charge under ASA is: KASA = {years 1-3 max [(GI1-6 x β1-6), 0]} / 3 + (βr x m x LAr) + (βc x m x LAc) Where KASA = capital charge under ASA βr = the beta for the retail banking (β3) business line (where β3 = 12%) βc = the beta for the commercial banking (β4) business line (where β4 = 15%) m = fixed factor of 0.035 LAr = the total outstanding loans and advances of the retail banking176 business line (non-risk-weighted and gross of provision177), averaged over the past three years178 LAc = the total outstanding loans and advances of the commercial banking179 business line (non-risk-weighted and gross of provision), averaged over the past three years71 4.27 The exposure indicator and the relevant beta factor for ASA can be depicted in the following table: Business Line Exposure Indicator Beta Factor (%) Corporate Finance GI 18 Trading and Sales GI 18 Retail Banking LAr x m 12 Commercial Banking LAc x m 15 Payment and Settlement GI 18 Agency Services GI 15 Asset Management GI 12 Retail Brokerage GI 12 176 Total loans and advances in the retail banking business line consists of the total drawn amounts in the following credit portfolios: retail, SMEs treated as retail, and purchased retail receivables, including NPLs and loans sold to Cagamas. 177 Covers both general and specific provisions. 178 Simple average of total drawn amount of retail or commercial banking business lines over the 12 most recent quarters. 179 For commercial banking, total loans and advances consists of the drawn amounts in the following credit portfolios: corporate, sovereign, bank, specialised lending, SMEs treated as corporate and purchased corporate receivables, including NPLs. The book value of securities held in the banking book should also be included. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 226 / 506 Issued on: 3 May 2019 4.28 Under ASA, banking institutions may choose to aggregate the retail and commercial banking by using a beta of 15%. Similarly, banking institutions may choose if they are unable to disaggregate the gross income into the other six business lines, to aggregate the total gross income of the other six business lines by using a beta of 18%. Please refer to the table on the next page. Option I Option II Option III Business Line Exposure Indicator Beta Factor (%) Exposure Indicator Beta Factor (%) Exposure Indicator Beta Factor (%) Retail Banking LArc x m 15 LAr x m 12 LArc x m 15 Commercial Banking LAc x m 15 Corporate Finance GI 18 GI 18 GI 18 Trading and Sales GI 18 Payment and Settlement GI 18 Agency Services GI 15 Asset Management GI 12 Retail Brokerage GI 12 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 227 / 506 Issued on: 3 May 2019 PART D MARKET RISK D.1 INTRODUCTION 5.1 This part outlines the approaches used in determining the level of capital held by a banking institution against market risk180 in its trading book, which comprises of:  the interest/profit rate and equity risks pertaining to financial instruments in the trading book; and  foreign exchange risk and commodities risk in the trading and banking books. 5.2 In determining the consolidated minimum capital requirement, market risk positions in each subsidiary can be netted against positions in the remainder of the group if:  the risk positions of the group are centrally managed; and  there are no obstacles to quick repatriation of profits from a foreign subsidiary or legal and procedural difficulties in operationalising timely risk management on a consolidated basis. Scope of the Capital Charges 5.3 The market risk capital charge in this framework is divided into interest/profit rate risk, equity risk, foreign exchange risk, and commodities risk charges. Banking institutions that have any exposure arising from investment account placements made with Islamic banking institutions shall be subject to the ‘look-through’ approach as described in Appendix XXIV. 5.4 The capital charges for interest/profit rate and equity are applied to the current market value of interest/profit rate and equity related financial instruments or positions in the trading book. The capital charge for foreign exchange risk and commodities risk however are applied to all foreign 180 Market risk is defined broadly as the risk of losses in on and off-balance sheet positions arising from movements in market prices. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 228 / 506 Issued on: 3 May 2019 currency181 and commodities positions. Some of the foreign exchange and commodity positions will be reported and hence evaluated at market value, while some may be reported and evaluated at book value. Approaches of Measuring Market Risks 5.5 In measuring capital charge for market risk, banking institutions have a choice between two broad approaches, namely, the standardised approach and the internal models approach. 5.6 The Bank expects banking institutions involved in the trading of complex financial instruments to adopt advanced approaches in measuring market risk exposure. Standardised Approach 5.7 The first option in measuring market risk capital charge is the standardised approach, described in Part D.2 The Standardised Market Risk Approach. This is based on a building block approach where standardised supervisory capital charge is applied separately to each risk category. Internal Models Approach 5.8 The second option in measuring market risks capital charge is the internal models approach described in Part D.3 The Internal Models Approach. The adoption of this approach is permitted only upon receipt of written approval from the Bank. 5.9 The approach allows banking institutions to use risk measures derived from internal risk management models. Banking institutions would need to submit the information set out in Appendix XVII of this framework to initiate the recognition process of this approach. 181 However, banking institutions are given some discretion to exclude structural foreign exchange positions from the computation. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 229 / 506 Issued on: 3 May 2019 5.10 Since the focus of most internal models is only on the general market risk exposure, banking institutions employing internal models are expected to measure the specific risk (that is, exposures to specific issuers of debt securities/sukūk or equities) through separate credit risk measurement systems. A separate capital charge for specific risk based on the standardised market risk approach will apply to all banking institution employing internal models, unless the models capture the specific risk and meet the requirements set out in Part D.3.5 Modelling of Specific Risk. 5.11 Banking institutions with Islamic banking operations may extend the application of internal models approach for the purpose of measuring market risks capital to the Islamic banking positions in the trading book, subject to the fulfilment of the conditions set out in this Part. D.1.1 PRUDENT VALUATION GUIDANCE 5.12 This part provides banking institutions with guidance on prudent valuation for positions in the trading book. This guidance is especially important for less liquid positions which, although not excluded from the trading book solely on grounds of lesser liquidity, would raise issues relating to valuation. 5.13 A framework for prudent valuation practices should at a minimum adhere to the requirements specified in paragraph 5.14 to 5.20, covering systems and controls, valuation methodologies, independent price verification, valuation adjustments/reserves. Systems and Controls 5.14 Banking institutions must establish and maintain adequate systems and controls sufficient to give the management and the Bank’s supervisors the confidence that valuation estimates are prudent and reliable. These systems must be integrated with other risk management systems within BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 230 / 506 Issued on: 3 May 2019 the organisation (such as credit analysis). Such systems must be supported by:  Board-approved policies and procedures on valuation process. This includes clearly defined responsibilities of the various parties involved in the valuation process, sources of market information and review of their appropriateness, frequency of independent valuation, method of determining closing prices, procedures for adjusting valuations, end of the month and ad-hoc verification procedures; and  Clear and independent (i.e. independent of front office) reporting lines for the department accountable for the valuation process. Valuation Methodologies 5.15 Banking institutions should mark-to-market portfolio positions, at least on daily basis, based on close out prices that are sourced independently. Examples of readily available close out prices include exchange prices, screen prices, or quotes from several independent reputable brokers. The more prudent side of bid/offer must be used unless the banking institution is a significant market maker in a particular position type and it can close out at mid-market. 5.16 Where mark-to-market is not possible, banking institutions may mark-to- model, where this can be demonstrated to be prudent. Marking-to-model is defined as any valuation which has to be benchmarked, extrapolated or otherwise calculated from a market input. When marking to model, an extra degree of conservatism is appropriate. The Bank will consider the following in assessing whether a mark-to-model valuation is prudent:  Senior management awareness on the assumptions used in constructing the model and their understanding on the materiality of the assumptions used and its impacts in the reporting of the risk/performance of the business;  Regular review of the appropriateness of the market inputs for the particular positions. Market input for instance, should reflect market prices to the extent possible. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 231 / 506 Issued on: 3 May 2019  Consistent adoption of generally accepted valuation methodologies for particular products, where available and appropriate;  Use of appropriate assumptions, which have been assessed and challenged by suitably qualified parties independent of the development process. In cases where the models are internally developed, the model should be developed or approved independently of the front office. It should be independently tested. This includes validating the mathematics, the assumptions and the software implementation;  Formal change control procedures in place to govern any changes made to the model and a secure copy of the model should be held and periodically used to check valuations;  Risk managers awareness of the weaknesses of the models used and how best to reflect those in the valuation output;  Periodic review to determine the accuracy of the model’s performance (for example, assessing continued appropriateness of the assumptions, analysis of P&L versus risk factors, comparison of actual close out values to model outputs); and  Formal valuation adjustments in place where appropriate, for example, to cover the uncertainty of the model valuation. Independent Price Verification 5.17 In addition, banking institutions should also conduct regular independent verification of market prices or model inputs for accuracy. Verification of market prices or model inputs should be performed by a unit independent of the dealing room, at least monthly (or, depending on the nature of the market/trading activity, more frequently). It need not be performed as frequently as daily mark-to-market, since the objective is to reveal any error or bias in pricing, which should result in the elimination of inaccurate daily marking. 5.18 Independent price verification should be subjected to a higher standard of accuracy since the market prices or model inputs would be used to determine profit and loss figures, whereas daily markings are used BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 232 / 506 Issued on: 3 May 2019 primarily for management reporting in between reporting dates. For independent price verification, where pricing sources are more subjective, for example, only one available broker quote, prudent measures such as valuation adjustments may be appropriate. Valuation Adjustments 5.19 Banking institutions must establish and maintain procedures for considering valuation adjustments which should be deducted in the calculation of CET1 Capital. The following valuation adjustments shall be formally considered where relevant: unearned credit spreads, close-out costs, operational risks, early termination, investing and funding costs, future administrative costs and, if appropriate, model risk. 5.20 In addition, banking institution shall consider the need for establishing an appropriate adjustment for less liquid positions. The appropriateness of the adjustments shall be subjected to an ongoing review. Reduced liquidity could arise from structural and/or market events. In addition, close-out prices for concentrated positions and/or stale positions are more likely to be adverse. Banking institutions shall, at the minimum, consider several factors when determining whether valuation adjustment is necessary for less liquid items. These factors include the amount of time it would take to hedge out the risks within the position, the average volatility of bid/offer spreads, the availability of market quotes (number and identity of market makers), and the average and volatility of trading volumes. D.1.2 CLASSIFICATION OF FINANCIAL INSTRUMENTS Trading Book Policy Statement 5.21 Banking institutions must have a trading book policy statement with clearly defined policies and procedures for determining which exposures to include in, and to exclude from, the trading book for purposes of calculating regulatory capital. Board and senior management of banking institutions should ensure compliance with the criteria for trading book set BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 233 / 506 Issued on: 3 May 2019 forth in this chapter taking into account the banking institution’s risk management capabilities and practices. In addition, compliance with these policies and procedures must be fully documented and subject to periodic internal audit. This policy statement and material changes to it would be subject to the Bank’s review. 5.22 These policies and procedures should, at a minimum, address the following general considerations:  Activities banking institution considers as trading and what constitute part of the trading book for regulatory capital purposes;  The extent to which an exposure can be marked-to-market daily by reference to an active, liquid two-way market;  For exposures that are marked-to-model, the extent to which the banking institution can: ­ identify the material risks of the exposure; ­ hedge the material risks of the exposure and the extent to which hedging instruments would have an active, liquid two-way market; ­ derive reliable estimates for the key assumptions and parameters used in the model.  The extent to which banking institution can and is required to generate valuations for exposure that can be validated externally in a consistent manner;  The extent to which legal restrictions or other operational requirements would impede banking institution’s ability to effect an immediate liquidation of the exposure;  The extent to which the banking institution is required to, and can, actively risk manage the exposure within its trading operations; and  The extent to which the banking institution may transfer risk or exposures between the banking and the trading books and criteria for such transfers. 5.23 The above considerations, however, should not be treated as an exhaustive and rigid set of tests that a product or group of related products BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 234 / 506 Issued on: 3 May 2019 must pass for eligibility in the trading book. Rather, the list should serve as minimum or most fundamental areas for considerations for overall management of a banking institution’s trading book. It should also be supported by detailed policies and procedures. Definition of Trading Book 5.24 The trading book consists of positions in financial instruments and commodities held either with trading intent or to hedge other elements of the trading book. To be eligible for trading book capital treatment, financial instruments must either:  be free of any restrictive covenants on tradability; or  be able to be hedged. In addition,  positions should be frequently and reliably valued; and  portfolio is actively managed. 5.25 Positions held with trading intent are those held intentionally for short-term resale and/or with the intent of benefiting from actual or expected short- term price movements or to lock in arbitrage profits. These positions may include for example, proprietary positions, positions arising from client servicing and market making. Financial Instruments A financial instrument is a contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity. Financial instruments include both primary financial instruments (or cash instruments) and derivative financial instruments. A financial asset is any asset that is cash, the right to receive cash or another financial asset; or the contractual right to exchange financial assets on potentially favourable terms; or an equity instrument. A financial liability is the contractual obligation to deliver cash or another financial asset or to exchange financial liabilities under conditions that are potentially unfavourable. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 235 / 506 Issued on: 3 May 2019 5.26 The following are the basic eligibility requirements for positions to receive trading book capital treatment:  Clearly documented overall trading strategy for positions/portfolios contained within the trading book as approved by senior management (which would include expected holding horizon etc.).  Clearly defined policies and procedures for active management of the positions, which must include requirements for: ­ management of positions by a trading desk; ­ setting and monitoring of position limits to ensure their appropriateness; ­ dealers to be given the autonomy to enter into/manage the position within agreed limits and according to the agreed strategy; ­ marking-to-market of positions at least daily and when marking-to- model, relevant parameters (for example volatility inputs, market risk factors, etc.) to be assessed on a regular basis; ­ reporting of positions to senior management as an integral part of the banking institution’s risk management process; and ­ actively monitoring of positions with references to market information sources (assessment should be made of the market liquidity or the ability to hedge positions or the portfolio risk profiles). This would include assessing the quality and availability of market inputs to the valuation process, level of market turnover, size of positions traded in the market, etc.  Clearly defined polices and procedures to monitor the positions against the banking institution’s trading strategy including the monitoring of turnover and stale position in the banking institution’s trading book. 5.27 All other exposures that are not defined as trading book positions should be classified as exposures in the banking book. This will include both on- and off-balance sheet positions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 236 / 506 Issued on: 3 May 2019 Classification of Specific Financial Instruments 5.28 Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association shall be treated as banking book positions where the capital requirement is set forth in paragraphs 2.44, 3.4(iii) and 3.195. 5.29 All defaulted financial instruments will be treated as banking book positions and will be subjected to the capital requirement of this framework. 5.30 Generally, all derivative instruments should be classified in the trading book except for derivatives which qualify as hedges for banking book positions. However, certain credit derivatives instruments and structured investments may be classified as banking book positions particularly for long-term investments which are illiquid and/or have significant credit risk elements. 5.31 Repo and reverse repo transactions shall be assessed based on the trading book definition outlined in paragraphs 5.24 to 5.27. D.1.3 TREATMENT OF MONEY MARKET INSTRUMENTS IN TRADING BOOK 5.32 Money market transactions such as the issuance and purchase of Negotiable Instrument of Deposits (NIDs), treasury bills, banker’s acceptances, commercial papers and interbank borrowings and lendings, may be recognised in the trading book provided they fulfil the requirements set in paragraphs 5.24 to 5.27. Such money market transactions identified for inclusion in the trading book should be committed at market rates, and appropriately identified182 by the trading desk at deal inception as 182 The identified money market transactions may be entered with either a third party or with the banking book desk (internal deals). In addition to the requirements set in paragraph 5.36, internal deals must be institutionalised and documented in banking institutions’ policies and procedures and should be supported by a robust fund transfer pricing (FTP) system. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 237 / 506 Issued on: 3 May 2019 transactions made with the trading intent consistent with the definition in paragraph 5.25. Customer deposits and loans/financing do not qualify for this treatment since these products fall outside the definition of money market instruments. Controls to Prevent Regulatory Capital Arbitrage 5.33 Regulatory capital arbitrage arises when a position attracts a different regulatory capital requirement depending on its classification. It is the responsibility of banking institutions’ compliance officers, risk manager and/or internal auditors to ensure that proper procedures are in place, and items are properly classified into either the trading or banking books. 5.34 Banking institutions must ensure that classification of financial instruments are determined up-front and clear audit trails are created at the time the transactions are entered into, to facilitate monitoring of compliance. These audit trails and documentation should be made available to the Bank’s supervisors upon request. 5.35 To ensure that financial instruments held for trading are not included in the banking book, financial instruments in the banking book shall not be sold unless prior approval of the board has been obtained. In turn, the board shall ensure that there is no element of intention to trade when selling banking book positions. Each banking institution shall include this requirement in the trading book policy statement. 5.36 Authority to sell banking book instruments may be delegated to Asset and Liability Management Committee (ALCO) or Risk Management Committee (RMC) or any board-appointed signatories provided that the board spells out the specific policies under which such delegation may be applied. The policy should include at the minimum the following parameters:  the sale does not tantamount to a trading position; and  the board be informed of the sale of the banking book instruments soonest possible. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 238 / 506 Issued on: 3 May 2019 5.37 Supervisory intervention involving remedial actions may be instituted if there is evidence that banking institutions undermine the capital adequacy requirements through improper classification of financial instruments between the trading and banking books. The Bank may, for instance, require banking institutions to reclassify banking book positions which exhibit patterns of regular trading to the trading book and vice versa. Treatment of Hedging Positions 5.38 In general, a hedge can be defined as a position that materially or entirely offsets the component risk elements of another position or portfolio. 5.39 Banking institutions are required to have board-approved written policies which document the criteria of a hedge position and its effectiveness183. Banking institutions are required to identify hedge positions at the time the hedging positions are created and to monitor and document with clear audit trails the subsequent performance of the positions. 5.40 Trading book positions entered with a third party to hedge banking book positions are carved out and not subject to market risk capital charge provided the following conditions are satisfied:  Approval of ALCO/RMC or any authorities delegated by the board is obtained with endorsement that the positions comply with internal hedge policies;  At the inception of the hedge, there is proper documentation of the hedge relationship and the banking institution’s risk management objectives and strategy for undertaking the hedge. Documentation should include: ­ the description of the hedge and the financial instruments designated as the hedging instruments and their values; ­ the nature of the risk being hedged and demonstrate how the risk is being reduced by the hedge; 183 The Bank does not expect the standards for hedging requirements for purpose of this framework to be identical to that required under the accounting standards. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 239 / 506 Issued on: 3 May 2019 ­ defining the acceptable level of hedging effectiveness and periodically assessing the hedging instrument’s effectiveness in offsetting the risk of the underlying exposure; and ­ the treatment of the hedging instrument and the underlying exposure when the hedge ceases to be effective.  The identification and tagging of the underlying hedged portfolio/ transaction and hedge instrument are done upfront; and  The hedge is materially effective in offsetting the risk element of the hedged exposure. The actual performance of the hedge should be back tested against the expected performance as documented at inception. When the hedge position ceases to be effective or when the underlying banking book position ceases, the hedging relationship should be derecognised. The derivatives should be reclassified as trading book transactions and be subject to market risk capital charge. 5.41 When internal hedging transactions are entered into between the trading and banking book to hedge banking book market risk exposures, the trading book leg of the transaction shall be subject to market risk capital charge provided that the internal hedging transaction complies with the requirements set in paragraph 5.40. 5.42 However, internal hedging transactions between the trading and banking book to hedge a banking book credit risk exposure using a credit derivative are not recognised for capital purposes unless the banking institution purchases a credit derivative meeting the requirements of the credit risk component of this framework from an eligible third party protection provider. Where such third party protection is purchased and is recognised as a hedge of a banking book exposure for regulatory capital purposes, the internal or external credit derivative hedge would be carved out from the trading book and would not be subject to the regulatory capital in this framework. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 240 / 506 Issued on: 3 May 2019 D.1.4 TREATMENT OF COUNTERPARTY CREDIT RISK IN THE TRADING BOOK 5.43 Banking institutions will be required to calculate the counterparty credit risk charge for over the counter (OTC) derivatives, repo-style and other transactions classified in the trading book, in addition to the capital charge for general market risk and specific risk.184 The calculation of the counterparty credit risk charge will be based on the approaches as prescribed in the credit component of this framework. Banking institutions using the standardised approach in the banking book will use the standardised approach risk weights in the trading book, and banking institutions using the IRB185 approach in the banking book will use the IRB risk weights in the trading book in a manner consistent with the IRB roll out plan for portfolio in the banking book. 5.44 Instruments in the trading book that are held under reverse repo transactions may be used as eligible collaterals. The haircut treatment for these eligible collaterals is prescribed in the credit risk component of this framework. Credit Derivatives 5.45 The counterparty credit risk charge for single name credit derivative transactions in the trading book will be calculated using the following potential future exposure add-on factors: 184 The treatment for unsettled FX and securities trades are set forth in the credit risk component of this framework. 185 Applicable when the IRB Guidelines are issued. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 241 / 506 Issued on: 3 May 2019 Protection Buyer Protection Seller Total Return Swap Investment grade reference obligation 5% 5% Non investment grade reference obligation 10% 10% Credit Default Swap Investment grade reference obligation 5% 5%* Non investment grade reference obligation 10% 10%* There will be no difference depending on residual maturity. Investment grade refers to securities with an external credit rating of BBB+ and above. * The protection seller of a credit default swap shall only be subject to the add-on factor where it is subject to closeout upon the insolvency of the protection buyer while the underlying is still solvent. Add-on should then be capped to the amount of unpaid premiums. 5.46 Where the credit derivative is a first to default transaction, the add-on will be determined by the lowest credit quality underlying in the basket that is if there are any non-qualifying items in the basket, the non-qualifying reference obligation add-on should be used. For second and subsequent to default transactions, underlying assets should continue to be allocated according to the credit quality that is the second lowest credit quality will determine the add-on for a second to default transaction etc. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 242 / 506 Issued on: 3 May 2019 D.2 THE STANDARDISED MARKET RISK APPROACH D.2.1 INTEREST/PROFIT RATE RISKS 5.47 This part describes the standard framework for measuring the risk of holding or taking positions in debt securities/sukūk186 and other interest/profit rate related financial instruments in the trading book. The financial instruments covered include all fixed-rate and floating-rate debt securities/sukūk and instruments that share similar characteristics as debt securities/sukūk, including non-convertible preference shares. Interest/profit rate exposures arising from forward foreign exchange transactions, derivatives and forward sales and purchases of securities187 are also included. Convertible bonds, that is debt issues or preference shares that are convertible into common shares of the issuer, will be treated as debt securities/sukūk if the instruments trade like debt securities/sukūk or as equities. 5.48 Interest/profit rate sensitive instruments are normally affected by general changes in market interest/profit rate, known as general risk, and changes in factors related to a specific issuer, in particular issuer’s credit quality, which would affect the instrument, known as specific risk. 5.49 The minimum capital requirement for interest/profit rate risk is the summation of the capital charges for: a) Specific risk of each security, whether it is a short or a long position; and b) General market risk where long and short positions in different securities or instruments may be offset. 186 Includes private commercial enterprise's sukūk trading activities where the Islamic banking operation has mushārakah and/or muḍārabah financing. 187 This includes primary issuance or underwriting of debt securities where rates have been fixed upfront for which the position would be treated as a bond forward or bond option transaction. Refer to Part D.1.4 Treatment of Options - Underlying Position Approach for capital charge calculation. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 243 / 506 Issued on: 3 May 2019 Specific Risk 5.50 The capital requirement for specific risk is designed to protect against adverse movements in the price of an individual security owing to factors related to the issuer. In measuring the risk, offsetting will be restricted to matched positions in the identical issue. Even if the issuer is the same, no offsetting is permitted between different issues since differences in coupon rates, liquidity, call features, etc. mean that prices may diverge in the short run. Specific Risk Capital Charges for Issuer Risk 5.51 Table 2 provides the applicable specific risk charges for interest/profit rate related financial instruments for issuers of G10188 and non-G10 countries. 5.52 The specific risk charges for the holding of interest/profit rate related financial instruments issued by banking institutions will be based on the external ratings189 of the banking institutions while the specific risk charges for the holding of interest/profit rate related financial instruments issued by foreign sovereigns will be based on the external ratings of the foreign sovereigns. For example, if a banking institution holds a 5-year sovereign debt paper which has a sovereign rating of A, the specific risk charge will be 1.6% as provided in Table 2. In the case of interest/profit rate related financial instruments issued by corporates, in addition to maturity and external ratings, the country of establishment (that is G10 or non-G10) is also a factor in determining the amount of specific risk weights. For example, the holding of a AA rated Malaysian corporate debt paper with maturity of 3 years will attract a specific risk charge of 2.0%. 188 The Group of Ten (G10) is made up of eleven industrial countries namely Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom and the United States. 189 As illustrated in Table 2 or the equivalent standard rating category as specified in the credit component of this framework BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 244 / 506 Issued on: 3 May 2019 Table 2: Specific Risk Charges for Interest/Profit Rate Related Financial Instruments Remaining Maturity <= 6 mths > 6m to 1 yr > 1 to 2 yrs > 2 to 5 yrs > 5 yrs G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) G10 (%) Non G10 (%) Corporates & SecuritisationsΩ P1 to P3θ 0.25 0.25 1.00 1.00 AAA to A- 0.25 0.25 1.00 1.00 1.00 2.00 1.60 2.00 1.60 3.00 BBB+ to BBB- 0.25 0.25 1.00 1.00 1.00 2.00 1.60 3.50 1.60 4.50 BB+ to B- 8.00 Below B- 12.00 Unrated 8.00 Banking Institutions^ AAA to A- 0.25 1.00 1.00 1.60 1.60 BBB+ to BBB- 0.25 1.00 2.00 2.00 3.00 BB+ to B- 8.00 Below B- 12.00 Unrated 0.25 1.00 2.00 2.00 3.00 Public Sector Entities (PSE)* 0.25 1.00 1.00 1.60 1.60 Malaysian Government# 0 Foreign Sovereigns AAA to AA- § 0 A+ to BBB- 0.25 1.00 1.00 1.60 1.60 BB+ to B- 8.00 Below B- 12.00 Unrated 8.00 θ Also applicable for exposures to IILM Sukuk. Ω A specific risk charge of 100 would apply for securitisation exposures held in the trading book if that exposure is subject to a 1250% risk weight if held in the banking book. ^ Including interest/profit rate related financial instruments issued and guaranteed by licensed banking institutions and licensed development financial institutions as well as MDBs which do not qualify for preferential risk weight described in paragraph 2.23. * Refer to the credit risk component of this framework for the criteria of PSE. # Including interest/profit rate related financial instruments issued or guaranteed by the Malaysian Government or the Bank, as well as securities issued through special purpose vehicles established by the Bank e.g. Bank Negara Malaysia Sukuk Ijarah and BNMNi-Murabahah issued through BNM Sukuk Berhad. However, banking institutions shall apply the look-through approach as specified under Appendix XXIV for BNM Mudarabah certificate (BMC). § Including exposures to highly-rated Multilateral Development Banks (MDBs) that qualify for the preferential risk weight as described in paragraph 2.23. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 245 / 506 Issued on: 3 May 2019 5.53 In cases where specific risk is considerably underestimated, often involving debt instruments/sukūk which have a high yield to redemption relative to government debt securities/sukūk, the Bank may:  require banking institutions to apply a higher specific risk charge to such instruments; and/or  disallow offsetting for the purposes of defining the extent of general market risk between such instruments and any other debt instruments. 5.54 Securitisation exposures held in the trading book shall be subject to the capital requirements in the market risk component of this framework, applying the specific risk charges applicable to corporates as per Table 2. However, exposures subjected to a risk weight of 1250% under the Part F should similarly be subjected to a 100% capital charge if they are held in the trading book. As an exception, the treatment specified in paragraph 7.14 need not apply for such securitisation exposures retained in the trading book during the first 90 days from the date of issuance. Specific Risk Capital Charges for Positions Hedged by Credit Derivatives 5.55 Full allowance will be recognised when the values of two legs (that is long and short) always move in the opposite direction and broadly to the same extent. This would be the case in the following situations: a) the two legs consist of completely identical instruments; or b) a long cash position is hedged by a total rate of return swap (or vice versa) and there is an exact match between the reference obligation and the underlying exposure (that is the cash position).190 In these cases, no specific risk capital requirement applies to both sides of the position. 5.56 An 80% offset will be recognised when the value of two legs (that is long and short) always moves in the opposite direction but not broadly to the same extent. This would be the case when a long cash position is hedged 190 The maturity of the swap itself may be different from that of the underlying exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 246 / 506 Issued on: 3 May 2019 by a credit default swap or a credit linked note (or vice versa) and there is an exact match in terms of the reference obligation, the maturity of both the reference obligation and the credit derivative, and the currency to the underlying exposure. In addition, key features of the credit derivative contract (for example credit event definitions, settlement mechanisms) should not cause the price movement of the credit derivative to materially deviate from the price movements of the cash position. To the extent that the transaction transfers risk (that is taking account of restrictive payout provisions such as fixed payouts and materiality thresholds), an 80% specific risk offset will be applied to the side of the transaction with the higher capital charge, while the specific risk requirement on the other side will be zero. 5.57 Partial allowance will be recognised when the values of the two legs (that is long and short) usually moves in the opposite direction. This would be the case in the following situations: a) the position is captured in paragraph 5.55 (b), but there is an asset mismatch between the reference obligation and the underlying exposure. Nonetheless, the position meets the requirements spelt out in the ‘Additional Operational Requirements for Credit Derivatives’ in the credit risk component of this framework. b) the position is captured in paragraphs 5.55 (a) or 5.56 but there is a currency or maturity mismatch191 between the credit protection and the underlying asset. c) the position is captured in paragraph 5.56 but there is an asset mismatch between the cash position and the credit derivative. However, the underlying asset is included in the (deliverable) obligations in the credit derivative documentation. 5.58 In cases outlined in paragraphs 5.55 to 5.57, rather than adding the specific risk capital requirements for each side of the transaction (that is 191 Currency mismatches should be reported under Part D.2.3 Foreign Exchange Risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 247 / 506 Issued on: 3 May 2019 the credit protection and the underlying asset) only the higher of the two capital requirements will apply. 5.59 In cases not captured in paragraphs 5.55 to 5.57, a specific risk capital charge will be applied against both sides of the positions. 5.60 With regard to banking institutions’ first-to-default and second-to-default products in the trading book, the basic concepts developed for the banking book will also apply. Banking institutions holding long positions in these products (for example buyers of basket credit linked notes) would be treated as if they are protection sellers and would be required to apply the specific risk charges on each of the underlying position based on the external192 rating of the respective underlying reference asset, if available. Issuers of these notes would be treated as if they are protection buyers and are therefore allowed to off-set specific risk for one of the underlyings, that is the asset with the lowest specific risk charge. General Interest/Profit Rate Risk 5.61 The capital requirements for general risk are designed to capture the risk of loss arising from changes in market interest/profit rates. Within the standardised approach, banking institution may choose to adopt either the ‘maturity’ method or the ‘duration’ method. Upon adoption of a method, banking institutions are not allowed to switch between methods without the consent of the Bank. Under each method, positions are allocated across a maturity ladder template of time bands and the capital charge is then calculated as the sum of four components:  the net short or long weighted position across the entire time bands193;  the smaller proportion of the matched positions in each time band to capture basis risk (the ‘vertical disallowance’); 192 As specified under the credit component of this framework. 193 Positions include delta-weighted option position in the case where the institution decides to use the Delta-plus Method for the treatment of options. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 248 / 506 Issued on: 3 May 2019  the larger proportion of the matched positions across different time bands to capture yield curve risk (the ‘horizontal disallowance’); and  a net charge for positions in options, where appropriate (refer to Part D.2.5 Treatment of Options). 5.62 Separate maturity ladder templates should be used for positions exposed to different currency interest/profit rate risk. Non-ringgit positions must be translated into ringgit equivalent based on reporting date spot foreign exchange rates. Capital charges for general interest/profit rate risk should be calculated for each currency separately and then aggregated with no offsetting between positions of different currencies. Two different sets of risk weights (Table 3) and yield changes (Table 5) would be applicable depending on whether the interest/profit rate related financial instrument is exposed to a G10 or non-G10 currency interest/profit rate risk. Zero- coupon bonds/sukūk and deep-discount bonds/sukūk (defined as bonds/sukūk with a coupon less than 3%) should be slotted according to the time-bands set out in the third column of Table 3. Offsetting of Matched Positions 5.63 In calculating general risk, banking institutions may exclude all long and short positions (both actual and notional) in identical instruments with the same issuer, coupon, currency and maturity, from the calculations. No offsetting will be allowed between positions in different currencies; the separate legs of cross-currency swaps or forward foreign exchange deals are treated as notional positions in the relevant instruments and included in the appropriate calculation for each currency interest/profit rate risk. Maturity Method 5.64 Under the maturity method, the market value of long or short positions in debt securities/sukūk and other sources of interest/profit rate exposures, including derivative instruments, are slotted into the relevant time bands as specified in Table 3. Fixed-rate instruments shall be allocated according to BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 249 / 506 Issued on: 3 May 2019 the residual term to maturity and floating-rate instruments according to the residual term to the next repricing date. 5.65 The first step in the calculation of the capital charge is to weight the positions in each time band by a risk weight designed to reflect the price sensitivity of those positions to assumed changes in interest/profit rates. The risk weights for each time band are set out in the fourth and fifth column of Table 3 below according to either G10 or non-G10 countries’ currencies. The net short or long weighted position is then obtained. Table 3: General Interest/Profit rate Risk weights for Financial Instruments Exposed to G10 or Non-G10 Currency Zone Time Bands (Coupon 3% or more) Time Bands (Coupon less than 3%) G10 Risk weight (%) Non-G10 Risk weight (%) 1 1 month or less 1 month or less 0.00 0.00 > 1 and up to 3 months > 1 and up to 3 months 0.20 0.20 > 3 and up to 6 months > 3 and up to 6 months 0.40 0.50 > 6 and up to 12 months > 6 and up to 12 months 0.70 0.80 2 > 1 and up to 2 years > 1.0 and up to 1.9 years 1.25 1.30 > 2 and up to 3 years > 1.9 and up to 2.8 years 1.75 1.90 > 3 and up to 4 years > 2.8 and up to 3.6 years 2.25 2.70 3 > 4 and up to 5 years > 3.6 and up to 4.3 years 2.75 3.20 > 5 and up to 7 years > 4.3 and up to 5.7 years 3.25 4.10 > 7 and up to 10 years > 5.7 and up to 7.3 years 3.75 4.60 > 10 and up to 15 years > 7.3 and up to 9.3 years 4.50 6.00 > 15 and up to 20 years > 9.3 and up to 10.6 years 5.25 7.00 > 20 years > 10.6 and up to 12 years 6.00 8.00 > 12 and up to 20 years 8.00 10.40 > 20 years 12.50 16.40 Vertical Disallowance 5.66 The next step in the calculation is to offset the weighted longs and shorts within each time band, resulting in a single short or long position for each band. 5.67 Since each band would include different instruments and different maturities, a 10% capital charge to reflect basis risk and gap risk will be levied on the smaller of the offsetting positions (that is the matched position), be it long or short, in each time band. Thus, if the sum of the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 250 / 506 Issued on: 3 May 2019 weighted longs in a time band is RM100 million and the sum of the weighted shorts is RM90 million, the so-called ‘vertical disallowance’ for that time band would be 10% of RM90 million (that is RM9 million). Horizontal Disallowance 5.68 From the results of the above calculations, two sets of weighted positions, the net long or short position in each time band, would be produced. The maturity ladder is then divided into three zones defined as zero to one year, more than one year to four years and more than four years. Banking institutions will then conduct two further rounds of offsetting, first between the net time band positions within each zone and secondly between the net positions across the three different zones (that is, between adjacent zones and non-adjacent zones). The residual net position in each zone may be carried over and offset against opposite positions in other zones when calculating net positions between zones 2 and 3, and 1 and 3. The offsetting will be subjected to a scale of disallowances expressed as a fraction of the matched positions, as set out in Table 4 when calculating subject to a second set of disallowance factors. Table 4: Horizontal Disallowances Zones Time Band Within the Zone Between Adjacent Zones Between Zones 1 and 3 0 – 1 month Zone 1 > 1 – 3 months 40% > 3 – 6 months > 6 – 12 months 40% > 1 – 2 years Zone 2 > 2 – 3 years 30% 100% > 3 – 4 years 40% > 4 – 5 years > 5 – 7 years Zone 3 > 7 – 10 years > 10 – 15 years 30% > 15 – 20 years > 20 years BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 251 / 506 Issued on: 3 May 2019 5.69 The general risk capital requirement will be the sum of: Net Position Net Short or Long Weighted Positions  100% Vertical Disallowances Matched Weighted Positions194 in all Maturity Bands  10% Matched Weighted Positions within Zone 1  40% Matched Weighted Positions within Zone 2  30% Horizontal Disallowances Matched Weighted Positions within Zone 3  30% Matched Weighted Positions Between Zones 1 & 2  40% Matched Weighted Positions Between Zones 2 & 3  40% Matched Weighted Positions Between Zones 1 & 3  100% An example of the calculation of general risk is set out in Example 1. Duration Method 5.70 Under the alternative duration method, banking institutions with the necessary capability may use a more accurate method of measuring all their general risk by calculating the price sensitivity of each position separately. Banking institutions which elect to use this method must do so consistently. The mechanics of this method are as follows:  calculate the price sensitivity of each instrument in terms of a change in interest/profit rates of between 0.8 and 1.5 percentage points for instruments denominated in non-G10 countries’ currencies and between 0.6 and 1.0 percentage point for instruments denominated in G10 countries’ currencies (refer to Table 5) depending on the maturity of the instrument;  slot the resulting sensitivity measures into a duration-based ladder in the thirteen time bands set out in the second column of Table 5 and obtain the net position; 194 The smaller of the absolute value of the short and long positions within each time band. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 252 / 506 Issued on: 3 May 2019  subject long and short positions in each time band to a 5% vertical disallowance to capture basis risk in the same manner as per paragraph 5.67; and  carry forward the net positions in each time band for horizontal offsetting subject to the disallowances set out in Table 4 in the same manner as per paragraph 5.68. The market risk capital charge will be the aggregation of the three charges described in paragraph 5.69. Table 5: Changes in Yield for Financial Instruments Exposed to G10 and Non-G10 Currency Interest/Profit Rate Risk Zone Time Bands (Coupon 3% or more) Time Bands (Coupon less than 3%) G10 Changes in Yield (%) Non-G10 Changes in Yield (%) 1 1 month or less 1 month or less 1.00 1.50 > 1 - 3 months > 1 - 3 months 1.00 1.50 > 3 - 6 months > 3 - 6 months 1.00 1.40 > 6 - 12 months > 6 - 12 months 1.00 1.20 2 > 1- 2 years > 1.0 - 1.9 years 0.90 1.00 > 2 - 3 years > 1.9 - 2.8 years 0.80 0.90 > 3 - 4 years > 2.8 - 3.6 years 0.75 0.90 3 > 4 - 5 years > 3.6 - 4.3 years 0.75 0.90 > 5 - 7 years > 4.3 - 5.7 years 0.70 0.90 > 7 - 10 years > 5.7 - 7.3 years 0.65 0.80 > 10 - 15 years > 7.3 - 9.3 years 0.60 0.80 > 15 - 20 years > 9.3 - 10.6 years 0.60 0.80 > 20 years >10.6 - 12 years 0.60 0.80 > 12 - 20 years 0.60 0.80 > 20 years 0.60 0.80 Treatment of Interest/Profit Rate Derivatives, Repo and Reverse Repo Transactions 5.71 The market risk measurement system should include all interest/profit rate derivatives, off-balance sheet instruments, repos and reverse repos in the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 253 / 506 Issued on: 3 May 2019 trading book which would react to changes in interest/profit rates (for example forward rate agreements (FRAs), other forward contracts, bond futures, interest/profit rate and cross-currency swaps and forward foreign exchange positions). Options can be treated in a variety of ways as described in Part D.2.5 Treatment of Options. 5.72 Derivatives should be converted into positions in the relevant underlying and subject to general risk charges. To determine the capital charge under any of the two standardised methods described above, the amounts reported should be the market value of the principal amount of the underlying or of the notional underlying. Treatment of the interest/profit rate derivative positions by product class is described in Box 1. A summary on the treatment for interest/profit rate derivatives is set out in Table 6. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 254 / 506 Issued on: 3 May 2019 Table 6: Summary of Treatment of Interest/Profit Rate Derivatives, Repo and Reverse Repos under the Standardised Market Risk Approach Instrument Specific Risk* General Risk Exchange-Traded Futures/OTC Forwards - Malaysian Government debt security No Yes, as two positions + - Foreign sovereigns debt security Yes^ Yes, as two positions + - Corporate debt security Yes Yes, as two positions + - Index on interest/profit rates No Yes, as two positions + FRAs, Swaps No Yes, as two positions + Forward Foreign Exchange No Yes, as one position in each currency + Options - Malaysian Government debt security - Foreign sovereigns debt security - Corporate debt security - Index on interest/profit rates - FRAs, Swaps No Yes^ Yes No No Either (a) Simplified Approach: Carve out together with the associated hedging positions for general risk only and reflect under Part D.2.5; Or (b) Delta-Plus Method: Include the delta weighted option position into the respective time bands according to its underlying. (Gamma and Vega risk should each receive a separate capital charge and calculated under Part D.2.5); Or (c) Scenario Approach: Carve out together with the associated hedging positions for general risk only and reflect under Part D.2.5; Or (d) Internal Models Approach (Part D.3) Repo No Yes, as 1 position + Reverse Repo No Yes, as 1 position + * This refers to the specific risk charge relating to the issuer of the financial instrument. There remains a separate risk charge for counterparty credit risk which is set forth in the credit risk component of this framework. ^ The specific risk capital charge only applies to foreign sovereign debt securities that are rated below AA- + Refer to Box 1 for more details on method of recording the position. 5.73 While interest/profit rate and cross-currency swaps, FRAs, forward foreign exchange contracts and interest/profit rate futures will not be subject to a specific risk charge, they are subjected to counterparty credit risk which is set forth in the credit risk component of this framework. Similar treatment BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 255 / 506 Issued on: 3 May 2019 also applies to futures on an interest rate index (for example 3-month KLIBOR). In the case of contracts where the underlying is a specific debt security/sukūk, or an index representing a basket of debt securities/sukūk, a specific risk charge will apply. 5.74 All derivative products are subject to general market risk in the same manner as cash positions, with the exception of fully matched positions in identical instruments. The various categories of instruments should be slotted into the maturity ladder and treated according to the rules identified earlier. 5.74(i) A summary of the treatment for credit derivatives in the trading book is set out in Appendix XXXI. BOX 1 Futures and Forward Contracts, including Forward Rate Agreements (FRAs) These instruments (with the exception of futures or forwards on corporate bonds, corporate bond indices or other corporate securities) are treated as a combination of a long and a short position in a notional government security. The maturity period of futures or FRAs will be the period until delivery or exercise of the contract, plus – where applicable – the life of the underlying instrument. For example, a long position in a June three month interest/profit rate future (taken in April) is to be regarded as a long position in a government security with a maturity of five months and a short position in a government security with a maturity of two months. In the case of a future or forward on a corporate bond or corporate bond index, positions will be included at the market value of the notional underlying security/portfolio of securities. In the case of foreign currency forward contracts, either a long or a short position in the market value of each underlying currency leg would be recorded in the respective maturity ladder templates capturing the relevant currency interest/profit rate risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 256 / 506 Issued on: 3 May 2019 Swaps Swaps will be treated as two underlying positions in government securities with relevant maturities. For example, an interest/profit rate swap under which a banking institution is receiving floating-rate interest/profit and paying fixed will be treated as a long position in a floating-rate instrument of maturity equivalent to the period until the next interest/profit fixing and a short position in a fixed-rate instrument of maturity equivalent to the residual life of the swap. For swaps that pay or receive a fixed or floating interest/profit rate against some other reference price, for example a stock index, the interest/profit rate component should be slotted into the appropriate repricing maturity category, with the equity component being included in the equity framework. The separate legs of cross-currency swaps are to be reported at market value in the relevant maturity ladders for the currencies concerned. Risk Arising from Repo Transactions Arising from pledging/selling of securities and receiving cash with an agreement to repurchase securities or repayment of cash at the agreed future date. The classification of repo transactions should be based on the trading book definition, hence it can be classified either as a trading (for example repo to fund trading book positions) or banking book position (for example repo to fund banking book positions). Trading Book Repo General Risk  Arising from short cash position.  Recording: short the value of the repo (cash leg) based on the remaining maturity of the repo. Counterparty Credit Risk  The net exposure arising from the swapping of securities and cash with BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 257 / 506 Issued on: 3 May 2019 the repo counterparty at maturity of the repo.  Recording: Treated as credit risk under the credit risk component of this framework. Risk of the Underlying Securities  Irrespective of whether the underlying security is from the banking or trading book, its respective credit risk or market risk shall remain. Banking Book Repo Counterparty Credit Risk  The net exposure arising from the lending of securities and borrowing cash.  Recording: Treated as a banking book counterparty credit risk charge under the credit risk component of this framework for repo style transactions. Risk of the Underlying Securities  Irrespective of whether the underlying security is from the banking or trading book, its respective credit risk or market risk shall remain. Risk Arising from Reverse Repo Transactions Arising from borrowing/buying of securities in exchange for cash with an agreement to resell securities or receive cash at the agreed future date. The classification of reverse repo transactions should be based on the trading book definition, hence it can be classified either as a trading or banking book position. Trading Book Reverse Repo General Risk  Arising from long cash position.  Recording: long the value of the reverse repo based on the remaining maturity of the reverse repo. Counterparty Credit Risk  The net exposure arising from the borrowing/buying of securities in exchange for cash with the reverse repo counterparty at maturity of the reverse repo. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 258 / 506 Issued on: 3 May 2019  Recording: Treated as credit risk under the credit risk component of this framework. Banking Book Reverse Repo Counterparty Credit Risk  The net exposure arising from the lending of cash collateralised by securities.  Recording: Treated as a banking book counterparty credit risk charge under the credit risk component of this framework for reverse repo style transactions. For the capital treatment for SBBA and reverse SBBA transactions, please refer to Appendix XIX. Options Three methods (Simplified Approach, Delta-Plus Method and Scenario Approach) are available under Part D.2.5 Treatment of Options, on the treatment of interest/profit rate related options. Interest/Profit rate option positions and the underlying transactions will be carved out and capital provided separately for general risk if banking institutions choose to use the simplified and scenario approach. However, if the delta-plus method is selected, the delta-weighted option position will be slotted into the respective time bands according to its underlying together with the other interest/profit rate related instruments. Nevertheless, under the delta-plus method, the Gamma and Vega risks will be separately calculated as described in Part D.2.5 Treatment of Options. Banking institutions are also allowed to use Internal Modes Approach under Part D.3 subject to written approval from the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 259 / 506 Issued on: 3 May 2019 Example 1: Calculation of General Risk (Maturity Method) for Interest/Profit Rate Related Financial Instruments 1. Assume that a banking institution has the following positions in its trading book: i) a Malaysian fixed rate corporate bond, RM13.33 million market value, residual maturity 8 years; ii) a Malaysian government securities (MGS), RM75 million market value, residual maturity 2 months; iii) an interest/profit rate swap, RM150 million195, the banking institution receives floating rate interest/profit and pays fixed, the next interest fixing occurs after 9 months, residual life of the swap 8 years; iv) a long position in MGS futures of RM60 million196, maturing in six months time, life of underlying government security 3.5 years; and v) a Malaysian fixed rate trading book corporate bond, RM50 million market value, residual maturity of 5 years, sold under repo for three months. 2. Table A shows how these positions are slotted into the time bands and are weighted according to the weights given in column 5 of Table 3 (Risk weight for Non-G10 countries currency) of Part D.2.1 Interest/Profit Rate Risk. After weighting the positions, the calculation should proceed as follows: a) The overall net position is -2.12 million (0.05-0.30+1.20+1.62+1.60-6.29 million) leading to a capital charge of RM2.12 million. b) The vertical disallowance in time bands 1-3 months and 7-10 years has to be calculated and the matched position in these time-bands (the lesser of the absolute values of the added weighted long and added weighted short positions 195 The position should be reported as the market value of the notional underlying. Depending on the current interest/profit rate, the market value of each leg of the swap (that is the 8 year bond and the 9 month floater) can be either higher or lower than the notional amount. For simplicity, the example assumes that the current interest/profit rate is identical with the one the swap is based on, hence, the market value for both legs are identical. 196 Similar to interest/profit rate swaps, the market value of each leg should be used. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 260 / 506 Issued on: 3 May 2019 in the same time-band) are 0.10 and 0.61 million respectively resulting in a capital charge of 10% of 0.71 million = RM0.07million. c) The horizontal disallowances within the zones have to be calculated. As there are more than one position in zones 1 and 3, a horizontal disallowance need only be calculated in these zones. In doing this, the matched position is calculated as the lesser of the absolute values of the added long and short positions in the same zone and is 0.30 and 1.60 million in zones 1 and 3 respectively. The capital charge for the horizontal disallowance within zone 1 is 40% of 0.30 million = RM0.12 million and 30% of 1.60 million = RM0.48 million in zone 3. The remaining net weighted positions in zones 1 and 3 are +0.95 and -4.69 million respectively. d) The horizontal disallowances between adjacent zones have to be calculated. After calculating the net position within each zones the following positions remain: zone 1: +0.95 million; zone 2: +1.62 million and zone 3: -4.69 million. The matched position between zones 2 and 3 is 1.62 million (the lesser of the absolute values of the long and short positions between adjacent zones). The capital charge in this case is 40% of 1.62 million = RM0.65 million. e) The horizontal disallowance between zones 1 and 3 has to be calculated. The matched position between zones 1 and 3 is 0.95 million (the lesser of the absolute values of the long and short positions between zones 1 and 3). The horizontal disallowance between the two zones is 100% of the lower of the matched position which leads to a capital charge of 100% of 0.95 million = RM0.95 million. 3. The total capital charge (RM million) in this example is: - overall net open position 2.12 - vertical disallowance 0.07 - horizontal disallowance in zone 1 0.12 - horizontal disallowance in zone 3 0.48 - horizontal disallowance between adjacent zones 0.65 - horizontal disallowance between zones 1 and 3 0.95 Total 4.39 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 261 / 506 Issued on: 3 May 2019 Table A: Maturity Method of Calculating General Risk of Interest/Profit Rate Related Financial Instruments (RM million) Time Bands Zone 1 Zone 2 Zone 3 Total Charge Months Years (Coupon 3% or more) up to 1 > 1 - 3 > 3 - 6 > 6 - 12 > 1 - 2 > 2 - 3 > 3 - 4 > 4 - 5 > 5 - 7 > 7 - 10 > 10 - 15 > 15 - 20 over 20 (Coupon less than 3%) > 1 - 1.9 > 1.9 - 2.8 > 2.8 - 3.6 > 3.6 - 4.3 > 4.3 - 5.7 > 5.7 - 7.3 > 7.3 - 9.3 > 9.3 - 10.6 > 10.6 - 12 > 12 - 20 over 20 Long Position 75 Govt Bond (ii) 150 Swap (iii) 60 Future s (iv) 50 corpo rate bond* (v) 13.33 corpo rate bond (i) Short Position 50 Repo (Cash) (v) 60 Future s (iv) 150 Swap (iii) Assigned Weights (%) 0.00 0.20 0.50 0.80 1.30 1.90 2.70 3.20 4.10 4.60 6.00 7.00 8.00 10.40 16.40 Overall Net Open Position +0.05 -0.30 +1.20 +1.62 +1.60 -6.29 2.12 Vertical Disallow. 0.10 x 10% = 0.01 0.61 x 10% = 0.06 0.07 Horizontal Disallow. 1 0.30 x 40% = 0.12 1.60 x 30% = 0.48 0.60 Horizontal Disallow. 2 1.62 x 40% = 0.65 0.65 Horizontal Disallow. 3 0.95 x 100% = 0.95 0.95 Total General Risk Charge 4.39 * General market risk for the underlying corporate bond remains in the trading book. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 262 / 506 Issued on: 3 May 2019 D.2.2 EQUITY POSITION RISK 5.75 This part sets out the minimum capital standard to cover the risk of equity197 positions in the trading book. It applies to long and short positions in all instruments that exhibit market behaviour similar to equities. The instruments covered include ordinary shares, whether voting or non-voting, convertible securities that behave like equities, and commitments to buy or sell equity securities. Non-convertible preference shares are to be excluded from these calculations as they are covered under the interest/profit rate risk requirements described in Part D.2.1 Interest/Profit Rate Risks. Equity derivatives and off-balance sheet positions such as futures, swaps and options on individual equity or stock indices are also included. Underwriting of equities198 should be included and regarded as an option instrument. Specific and General Risk 5.76 The minimum capital standard for equities is expressed in terms of two separately calculated charges for the specific risk of holding a long or short position in an individual equity and for the general risk of holding a long or short position in the market as a whole. The long or short position in the market must be calculated on a market-by-market basis. Hence, a separate calculation has to be carried out for each national market in which the banking institution holds equities. Specific Risk 5.77 Specific risk is defined as a proportion of the banking institution's sum of the absolute value of all net positions in each individual equity199 regardless of whether it is net long or net short. Matching opposite position for the same equity issuer may be netted-off. The charge for specific risk is 197 Includes private commercial enterprise's equity trading activities where the Islamic banking operation has mushārakah and/or muḍārabah financing. 198 The underwriter is obliged to purchase equities at the issue price for unsubscribed equities which in effect is equivalent to writing a put option and the issuer as the holder of the put option has the right but not the obligation to sell the equities to the underwriter at the issue price. 199 Net position in each individual equity refers to the net of short and long exposure to an individual company. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 263 / 506 Issued on: 3 May 2019 listed in Table 7200. The Bank however, reserves the right to assign different risk weights to specific exposure in order to better reflect the risk characteristics of the exposure. In this regard, a 0% specific risk weight is assigned to ABF Malaysia Bond Index Fund (ABFM). General Risk 5.78 General risk will be assessed on the difference between the sum of the longs and the sum of the shorts of all equity positions (that is the overall net position) in an equity market. The general risk charge is as provided in Table 7. 200 If the Delta-plus method or the Scenario approach is selected to estimate the general risk of equity options, the specific risk of these positions will be calculated within this part as the multiplication of the delta weighted option underlying position and the risk weight for specific risk as provided in Table 7. However, if the Underlying Position approach is adopted, both specific risk and general risk of the equity option will be carved out and provided under Part D.2.5 Treatment of Options of paragraphs 5.115 and 5.116. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 264 / 506 Issued on: 3 May 2019 Table 7: Specific Risk and General Risk Charges for Equities and Equity Derivatives Instrument Specific risk General risk Equity and/or Equity Derivative (except Options) Positions with the following as Underlying:  KLCI equities  Equities of G10 countries market indices  Non-index equities of G10 stock exchanges  All other equities  Trust funds and Exchange Traded Funds  KLCI and all market indices  G10 countries market indices  Other market indices 8% 4% 8% 14% 8% 2% 2% 2% 8% 8% 8% 8% 8% 8% 8% 8%  Arbitrage** (Execution Risk) 2% Underwriting of Equity Underlying Position Approach: General and specific risk for underwriting IPO and rights issue is calculated by carving out the positions and reporting them based on the underlying position approach under Part D.2.5 Treatment of Options Equity Options 1. Simplified Approach: This approach applies to limited range of purchase options only. Equity options and associated underlying cash positions are ‘carved-out’ and subject to separately calculated capital charges that incorporate both general market risk and specific risk under Part D.2.5 Treatment of Options; or 2. Delta-Plus Method: i. For both specific risk and general risk charge, the delta weighted option position is multiplied with the relevant specific risk and general risk charge as provided above. ii. Gamma and Vega risk should each receive a separate capital charge calculated as per Part D.2.5 Treatment of Options; or 3. Scenario Approach: i. Specific risk is calculated by multiplying the delta weighted position of the option’s underlying by the specific risk charge as provided above. ii. General risk is calculated by carving out the options position together with its associated hedging positions and reflected under Part D.2.5 Treatment of Options; or 4. Internal Models Approach: Subject to the Bank’s approval upon compliance with Part D.3 ** Refer to paragraphs 5.81 and 5.82. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 265 / 506 Issued on: 3 May 2019 Treatment of Equity Derivatives 5.79 Equity derivatives and off-balance sheet positions which are affected by changes in equity and equity index prices should be included in the measurement system201. The equity derivatives are to be converted into positions in the relevant underlying and subjected to the following requirements:  futures and forward contracts relating to individual equities are reported at current market prices;  futures relating to equity indices are reported either as the current index value times the monetary value of one index point set by the futures exchange (for example, Kuala Lumpur Composite Index Futures (FKLI) is set at RM 50 per index point) or market value of the notional underlying equity portfolio;  equity swaps are treated as two notional positions202;  underwriting of equity IPO position is carved out where capital charge for both specific risk and general risk are provided as described in Part D.2.5 Treatment of Options - Underlying Position Approach; and  equity options and stock index options are treated under one of the four proposed methods in Part D.2.5 Treatment of Options that is simplified approach, scenario approach, delta-plus approach or internal models. The treatment for equity derivatives is summarised in Table 7. Offsetting of Matched Equity Derivative Positions 5.80 Matching equity derivative positions with identical equity underlying position and matching positions in equity derivative contracts of identical 201 Where equities are part of a forward contract, a future or an option (quantity of equities to be received or to be delivered), any interest/profit rate or foreign currency exposure from the other leg of the contract should be reported as set out in Part D.2.1 Interest/Profit Rate Risk and Part D.2.3 Foreign Exchange Risk. 202 For example, an equity swap in which a banking institution is receiving an amount based on the change in value of one particular equity or stock index and paying a different index will be treated as a long position in the former and a short position in the latter. Where one of the legs involves receiving/paying a fixed or floating interest/profit rate, that exposure should be slotted into the appropriate repricing time band for interest/profit rate related instruments as set out in Part D.2.1 Interest/Profit Rate Risk. The stock index should be covered by the equity treatment. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 266 / 506 Issued on: 3 May 2019 underlying in each market may be fully offset, resulting in a single net short or long position to which the specific and general risk charges will apply. For example, a future in a given equity may be offset against an opposite physical position in the same equity203. Similarly, a long and short position of identical equity futures for a particular contract month can be netted off. Arbitrage 5.81 In the case of the futures-related arbitrage strategies described below, the additional 2% capital charge to reflect divergence and execution risks as described in Table 7 may be applied to only one index with the opposite position exempt from a capital charge. To qualify, banking institutions must clearly identify that the trade has been deliberately entered into and separately controlled. The strategies may be in the form of:  banking institution taking an opposite position in exactly the same index at different dates or in different market centres; and/or  banking institution having an opposite position in contracts at the same date in different but similar indices, subject to supervisory oversight that the two indices contain sufficient common components to justify offsetting. 5.82 Where a banking institution engages in a deliberate arbitrage strategy, in which a futures contract on a broadly-based index matches a basket of stocks, it will be allowed to carve out both positions from the standardised methodology on condition that:  the trade has been deliberately entered into and separately controlled;  the weighted composition of the basket of stocks represents at least 90% of the index when broken down into its notional components. However, in such cases, capital charge of 2% is applied on matching gross value of each side of the two positions. This applies even if all of the stocks comprising the index are held in identical proportions. Any excess 203 The interest/profit rate risk arising out of futures contract, however, should be reported as set out in Part D.2.1 Interest/Profit Rate Risk BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 267 / 506 Issued on: 3 May 2019 value of the stocks comprising the basket over the value of the futures contract or excess value of the futures contract over the value of the basket is treated as an open long or short position. An example of how the equity arbitrage works is set out in Example 2. 5.83 If a banking institution takes a position in depository receipts against an opposite position in the underlying equity or identical equities in different markets, it may offset the position (that is bear no capital charge) but only on condition that any costs on conversion are fully taken into account.204 Example 2: Calculation of Equity Risk for Equity Arbitrage Strategies Assume that a banking institution has the following equity arbitrage positions in its trading book: 1. Long five March 2008 Nikkei 225 Index Futures contracts at 16,000 traded at SGX (Singapore Exchange) and short five March 2008 Nikkei 225 Index Futures contracts at 16,500 traded at OSE (Osaka Securities Exchange). The positions are deliberately entered into and managed separately. Capital charge = Risk Charge for Arbitrage Strategies x Number of Contracts x ¥500 (per index point) x Index of March 08 Nikkei 225 contract = 2.0% x 5 x ¥500 x 16,500 = ¥825,000 = RM2,500 (RM/¥: RM3.30 per ¥100) Note: The foreign exchange rate risk is dealt with in accordance with the part on Foreign Exchange Rate Risk 2. Long five June 07 Kuala Lumpur Composite Index Futures (FKLI) contracts with index at 1000, and short five September 07 FKLI contracts. The positions are deliberately entered into and managed separately. 204 Any foreign exchange risk arising out of these positions has to be reported as set out in Part D.2.3 Foreign Exchange Risk BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 268 / 506 Issued on: 3 May 2019 Capital charge = Risk Charge for Arbitrage Strategies x Number of Contracts x RM50 (per index point) x Index of June 07 contract = 2.0% x 5 x RM50 x 1000 = RM5,000 3. Long a basket of KLCI equity worth RM1.1 million with weighted composition of 90% of the index broken down into notional components; and short ten June 07 FKLI contracts worth RM1.0 million. The transactions are deliberate entered into and separately controlled. Under this arbitrage strategy, there is an excess value (unmatched position) of RM100,000 over the value of the contracts. The excess value would be subjected to capital charge for both general and specific risks. Capital charge = [(2% of the gross value of basket of stocks and futures contract] + [Unmatched Position x (Specific + General Risk Charge)] = [(2.0% x RM2.1million)] + [(RM100,000) x (8%+8%)] = RM42,000 + RM16,000 = RM58,000 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 269 / 506 Issued on: 3 May 2019 D.2.3 FOREIGN EXCHANGE RISK (INCLUDING GOLD AND SILVER POSITIONS) 5.84 This part sets out the minimum capital standard to cover the risk of holding or taking positions in foreign currencies205 including gold and silver. Taking on foreign exchange positions may also expose a banking institution to interest/profit rate risk (for example, in forward foreign exchange contracts). In such a case, the relevant interest/profit rate positions should be included in the calculation of interest/profit rate risk described in Part D.2.1 Interest/Profit Rate Risks. 5.85 Under the standardised approach, two steps are needed to calculate the capital requirement for foreign exchange risk. The first is to measure the exposure in a single currency position (that is the net open position of a singe currency). The second is to measure the risks inherent in a banking institution's mix of net long and short positions in different currencies (that is the total net long and total net short position in foreign currencies). 5.86 The capital charge will be 8% of the higher of the total net long or total net short foreign currency position. The respective net position in gold and silver is treated on a stand alone basis and applied a capital charge of 8%. 5.87 Where there is physical trading of gold and silver, an additional capital charge of 3% is applied on the total gross long and short position respectively to account for execution risk. The Treatment of Structural Positions 5.88 While matched foreign currency asset and liability positions will protect a banking institution against loss from movements in exchange rates, this will not necessarily protect its capital adequacy ratios. This is due to higher RWA for its foreign assets arising from appreciation of foreign exchange rate. By maintaining a structural net long position in the foreign currency, 205 Includes private commercial enterprise's FX trading activities where the Islamic banking operation has mushārakah and/or muḍārabah asset exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 270 / 506 Issued on: 3 May 2019 the gain arising from revaluation of the net long position will buffer the increase in RWA resulting from the rise in the value of foreign currency assets. 5.89 Any structural foreign currency positions which a banking institution has deliberately taken to hedge partially or totally against the adverse effect of the exchange rate on its capital adequacy ratios may be excluded from the calculation of net open currency positions, subject to the following conditions :  the positions must be of non-dealing nature;  the positions do no more than protect the banking institution’s capital adequacy ratio; and  the exclusion of the positions are approved by ALCO/Risk Committee, or other approving authority delegated by the board, and must be applied consistently throughout the life of the assets. Measuring the Exposure in a Single Currency 5.90 Banking institution's net open position in each currency (excluding gold and silver) should be calculated by aggregating the following positions:  net on-balance sheet position206 (that is all foreign currency asset items less all foreign currency liability items, for example currency and notes, trade bills, government and corporate bonds, loans/financing and deposits, foreign currency accounts and accrued interest/income, denominated in the foreign currency in question)207;  net forward position (that is present value of all amounts to be received less present value of all amounts to be paid under unsettled spot transactions, forward foreign exchange transactions, including currency futures, the principal on currency swaps position and interest/profit rate 206 Structural positions which fulfil conditions set out in Part D.2.3 Foreign Exchange Risk would be excluded from the computation. 207 Interest/profit and other income accrued (that is earned but not yet received) should be included as a position. Accrued expenses should also be included. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 271 / 506 Issued on: 3 May 2019 transactions such as futures, swaps etc. denominated in a foreign currency)208;  guarantees and contingencies (exclude underwriting of equity IPOs which are captured as options and treated under Part D.2.5 Treatment of Options) that are certain to be called and are likely to be irrecoverable;  any other item representing a profit or loss in foreign currencies; and  the net delta-based equivalent of the total book of foreign currency options209. 5.91 Currency pairs subject to a binding inter-governmental agreement linking the two currencies may be treated as one currency210. 5.92 Positions in gold and silver are measured in terms of the standard unit of measurement which is then converted at reporting date spot exchange rate into ringgit211 . The Treatment of Interest/Profit, Other Income and Expenses in Foreign Currency 5.93 Interest/profit accrued (that is earned but not yet received) should be included as a position. Accrued expenses should also be included. Unearned but expected future interest/profit and anticipated expenses may be excluded except when the amounts are certain and banking institutions 208 Forward currency positions could be valued in the following ways: (a) Present values of each forward foreign currency position using the interest/profit rate of the foreign currency and translated at current spot exchange rate to get the ringgit equivalent; or (b) Use forward exchange rates to translate the forward foreign currency leg into ringgit equivalent before discounting it by ringgit interest/profit rates; or (c) Multiply the foreign currency forward leg by current spot exchange rate without present valuing. Treatments (a) and (b) are preferred. Nevertheless, treatment (c) which is a simplified but relatively inaccurate method may be used by banking institutions with small foreign exchange positions and do not possess the systems to conduct present value calculations. 209 Applicable to institutions which uses the Delta-plus method of treating options position. Subject to separately calculated capital charges for Gamma and Vega as described in Part D.2.5 Treatment Of Options; alternatively, options and their associated underlying may be subject to one of the other methods described in Part D.2.5 Treatment Of Options. 210 For example, inter-governmental agreements apply to Singapore and Brunei dollars. 211 Where gold/silver is part of a forward contract (the quantity of gold/silver to be received or to be delivered), any interest/profit rate or foreign currency exposure from the other leg of the contract should be reported as set out in Part D.2.1 Interest/Profit Rate Risks. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 272 / 506 Issued on: 3 May 2019 have taken the opportunity to hedge them. If banking institutions include future income/expenses, the treatment should apply on a consistent basis, and not restricted to those expected future flows that would reduce position. Measuring the Foreign Exchange Risk in a Portfolio of Foreign Currency Positions 5.94 The net position of the combined trading and banking book in each foreign currency is converted at spot rates (as at date of reporting) into the reporting currency (Malaysian ringgit). The overall net open position is measured by aggregating: a) the sum of the net short positions or the sum of the net long positions, whichever is the greater; with b) the net position (short or long) in gold and silver, regardless of whether it is positive or negative. 5.95 The capital charge will be 8% of the overall net open position (refer to the example below). Example of the Standard Measure of Foreign Exchange Risk JPY HKD GBP SGD USD GOLD Step 1 +50 +100 +150 -20 -180 -35 Step 2 +300 -200 -35 The capital charge for foreign exchange risk would be 8 per cent of the higher of either the net long currency positions or the net short currency positions (300) and of the net position in gold (35) = 335 x 8% = 26.8. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 273 / 506 Issued on: 3 May 2019 D.2.4 COMMODITIES RISK 5.96 This part establishes a minimum capital standard to cover the price risk of taking exposure in commodities212, including precious metals, but excluding gold and silver (which are treated as a foreign currency according to the methodology set out in Part D.2.3 Foreign Exchange Risk. A commodity is defined as a physical product which is or traded on a secondary market, for example agricultural products, minerals (including oil) and precious metals. 5.97 The price risk in commodities is often more complex and volatile than that associated with currencies and interest/profit rates. Commodity markets may also be less liquid than those for interest/profit rates and currencies and, as a result, changes in supply and demand can have a more dramatic effect on price and volatility.213 These market characteristics can make price transparency and the effective hedging of commodities risk more difficult. 5.98 Banking institutions involved in commodity derivatives are exposed to the following risks:  directional risk (the risk arising from a change in the spot price);  basis risk (the risk that the relationship between the prices of similar commodities alters through time);  interest/profit rate risk (the risk of a change in the cost of carry for forward positions and options); and  forward gap risk (the risk that the forward price may change for reasons other than a change in interest/profit rates). 212 All commodity derivatives and off-balance-sheet positions which are affected by changes in commodity prices should be included. This includes commodity risk arising from Salam contracts and private commercial enterprise's commodity trading activities where the Islamic banking operation has mushārakah and/or muḍārabah exposure. 213 Banking institutions need also to guard against the risk that arises when the short position falls due before the long position. Owing to a shortage of liquidity in some markets it might be difficult to close the short position and the banking institution might be squeezed by the market. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 274 / 506 Issued on: 3 May 2019 In addition banking institutions are exposed to counterparty credit risk on over-the-counter derivatives, but this is captured by the credit risk component of this framework. The funding of commodities positions may well expose a banking institution to interest/profit rate or foreign exchange risk and the relevant positions should be included in the measure of interest/profit rate and foreign exchange risk described in Part D.2.1 Interest/Profit Rate Risk and D.2.3 Foreign Exchange Risk.214 5.99 Under the standardised approach, commodities risk is measured using either Simplified Approach or Maturity Ladder Approach. Both the Simplified Approach and the Maturity Ladder Approach are appropriate only for banking institutions which, in relative terms, conduct only a limited amount of commodities business. Major traders would be expected over time to adopt the internal model approach subject to the requirements set out in the Part D.3 Internal Models Approach. 5.100 Under the Simplified Approach and the Maturity Ladder Approach, long and short positions in each commodity may be reported on a net basis215 for the purposes of calculating open positions. Positions in different commodities will not be offsettable in this manner. However, the commodities can be considered as offsettable if they are similar216 in nature and exhibit a minimum correlation of 0.9 between the price movements can be clearly established over a minimum period of one year. Banking institution wishing to base its calculation of capital charges for commodities on correlations would have to satisfy the Bank of the accuracy of the method which has been chosen and obtain its prior approval. 214 Where a commodity is part of a forward contract (quantity of commodities to be received or to be delivered), any interest/profit rate or foreign currency exposure from the other leg of the contract should be reported as set out in Part D.2.1 Interest/Profit rate Risk and Part D.2.3 Foreign Exchange Risk (Including Gold and Silver Positions). Positions which are purely stock financing (that is a physical stock has been sold forward and the cost of funding has been locked in until the date of the forward sale) may be omitted from the commodities risk calculation although they will be subject to interest/profit rate and counterparty risk requirements. 215 Banking institutions may exclude long and short positions in identical underlying commodities. 216 For example, CBOT Mini-sized Gold vs. 100oz gold; but not Mini-sized Silver vs. Mini-sized Gold. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 275 / 506 Issued on: 3 May 2019 Simplified Approach 5.101 In calculating the capital charges for directional risk, banking institutions must express each commodity position (spot plus forward) in terms of the standard unit of measurement (barrels, kilos, grams etc.). The net position in each commodity is then converted at current spot rates into Malaysian ringgit. The capital charge will equal 15% of the net position, long or short, in each commodity. 5.102 In order to protect banking institution against basis risk, interest/profit rate risk and forward gap risk, the capital charge for each commodity will be subjected to an additional capital charge equivalent to 3% of the banking institution’s gross positions, long plus short, in that particular commodity. In valuing the gross positions in commodity derivatives for this purpose, banking institutions should use the current spot price. Maturity Ladder Approach 5.103 In calculating the capital charge under this approach, banking institutions must express each commodity position (spot plus forward) in terms of the standard unit of measurement (barrels, kilos, grams etc.). The net position in each commodity will then be converted at current spot rates into Malaysian ringgit. 5.104 Subsequently, in order to capture forward gap and interest/profit rate risk within a time-band (which, together, are sometimes referred to as curvature/spread risk), matched long and short positions in each time- band will carry a capital charge. The methodology is similar to that used for interest/profit rate related instruments as set out in Part D.2.1 Interest/Profit Rate Risk. Positions in the separate commodities (expressed in terms of the standard unit of measurement) will first be entered into a maturity ladder while physical stocks should be allocated to the first time-band. A separate maturity ladder will be used for each BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 276 / 506 Issued on: 3 May 2019 commodity as defined in paragraph 5.100.217 For each time-band, the sum of short and long positions which are matched will be multiplied by the appropriate spread rate for that band (as set out in Table 8 below). Table 8: Time-Bands and Spread Rates Time-Band Spread Rate 0-1 month 1.5% > 1-3 months 1.5% > 3-6 months 1.5% > 6-12 months 1.5% > 1-2 years 1.5% > 2-3 years 1.5% > 3 years 1.5% 5.105 The residual net positions from nearer time-bands may then be carried forward to offset exposures in time-bands that are further out. However, recognising that such hedging of positions among different time-bands is imprecise, a surcharge equal to 0.6% of the net position carried forward will be added in respect of each time-band that the net position is carried forward. The capital charge for each matched amount created by carrying forward net positions is calculated in accordance with paragraph 5.104. At the end of this process, banking institution would either be in long or only short positions, to which a capital charge of 15% is used to account for directional risk. An example of how the maturity ladder approach works is set out in Example 3. 5.106 All commodity derivatives and off-balance-sheet positions which are affected by changes in commodity prices fall under this measurement framework. This includes commodity futures, commodity swaps, and 217 For markets which have daily delivery dates, any contracts maturing within ten days of one another may be offset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 277 / 506 Issued on: 3 May 2019 options where the ‘delta plus’ method218 is used (see Part D.2.5 Treatment of Options). To calculate the risk, commodity derivatives should be converted into notional commodities positions and assigned to maturities as follows:  futures and forward contracts relating to individual commodities should be incorporated in the measurement system as notional amounts of barrels, kilos etc. and should be assigned a maturity with reference to expiry date;  commodity swaps where one leg is a fixed price and the other the current market price should be incorporated as a series of positions equal to the notional amount of the contract, with one position corresponding with each payment on the swap and slotted into the maturity ladder accordingly. The positions would be long positions if the banking institution is paying fixed and receiving floating, and short positions if the banking institution is receiving fixed and paying floating;219 and  commodity swaps where the legs are in different commodities are incorporated in the relevant maturity ladder. Models for Measuring Commodities Risk 5.107 Subject to the Bank’s written approval, banking institutions may adopt the Internal Models Approach as set out in Part D.3. It is essential that models used capture material risks identified in paragraph 5.98. It is also particularly important that models take proper account of market characteristics – notably delivery dates and the scope provided to traders to close out positions. 5.108 Under the models approach banking institutions may offset long and short positions in different commodities to a degree which is determined by 218 For banking institutions using other approaches to measure options risk, all options and the associated underlyings should be excluded from both the maturity ladder approach and the simplified approach. 219 If one of the legs involves receiving/paying a fixed or floating interest/profit rate, that exposure should be slotted into the appropriate repricing maturity band in the maturity ladder covering interest/profit rate related instruments. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 278 / 506 Issued on: 3 May 2019 empirical correlations, in the same way as a limited degree of offsetting is allowed, for instance, between interest/profit rates in different currencies. Example 3: Maturity Ladder Approach for Commodities Risk 1. Assume all positions are in the same commodity as defined in paragraph 5.100 and converted at current spot rates into ringgit. Table B Time Band Position (RM) Spread Rate Capital Calculation RM 0-1 month 1.5% > 1-3 months 1.5% > 3-6 months Long 800 Short 1000 1.5% 800 long + 800 short (matched) x 1.5% = 24 200 short carried forward to 1-2 years, capital charge: 200 x 2 x 0.6% = 2.4 > 6-12 months 1.5% * > 1-2 years Long 600 1.5% 200 long + 200 short (matched) x 1.5% = 6 400 long carried forward to over 3 years, capital charge: 400 x 2 x 0.6% = 4.8 > 2-3 years 1.5% * > 3 years Short 600 1.5% 400 long + 400 short (matched) x 1.5% = 12 Net position: 200, Capital charge: 200 x 15% = 30 Total Capital Charge 79.2  The net position in the previous bucket is carried forward to the next bucket since no offset could be done in this bucket. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 279 / 506 Issued on: 3 May 2019 2. Assume all positions are in crude palm oil (CPO): (a) A short position in forward contract of 15,000 tonne of CPO maturing in six months’ time. (b) Swap position on 10,000 tonne notional amount of CPO, the banking institution receives spot price and pays fixed price. The next payment date occurs in 2 months’ time (quarterly settlement) with residual life of 11 months. First Step Convert the positions at current spot rates (assuming current spot rate is RM2,500 per tonne). (a) 15,000 tonne X RM2,500 = RM37.5 million (b) 10,000 tonne X RM2,500 = RM25.0 million Second Step Slot the position in Malaysian ringgit into the maturity ladder accordingly: (a) Forward contract in “3-6 months” time-band as short position. (b) Swap position in several time-bands reflecting series of positions equal to notional amount of the contract. Since the banking institution is paying fixed and receiving spot, the position would be reported as a long position. The payments occur (and is slotted accordingly in the respective time-bands) as follows:  First payment : month 2 (next payment date)  Second Payment : month 5  Third payment : month 8  Final payment : month 11 (end of life of the swap) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 280 / 506 Issued on: 3 May 2019 Table C Time Band Position (RM ‘000) Spread Rate Capital Calculation RM ‘000 0-1 month 1.5% 1-3 months Long 25,000 1.5% 25,000 long carried forward to ‘1-3 months’, capital charge: 25,000 x 0.6% = 1,500 3-6 months Long 25,000 Short 37,500 1.5% 37,500 long + 37,500 short (matched) x 1.5% = Balance of 12,500, capital charge: 12,500 x 15% = 1,125 1,875 6-12 months Long 25,000 Long 25,000 1.5% Capital charge: 50,000 x 15% = 7,500 Total Capital Charge 12,000 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 281 / 506 Issued on: 3 May 2019 D.2.5 TREATMENT OF OPTIONS 5.109 Options risks derived from banking institution’s underwriting business shall be subjected to options treatment under the Underlying Positions Approach as detailed in this Part. Under this approach, underwriting of equity and debt activities are subjected to separate capital charges that incorporate both specific and general risk. The capital charge numbers are then added to the capital charges of other risk categories. 5.110 For activities involving options other than underwriting, there are four approaches available for measuring options related risks namely; the simplified, delta-plus, scenario and internal models approaches. Banking institutions which are exposed to a limited range of purchased options are allowed to use the simplified approach. Banking institutions which also write options will be expected to use either the delta-plus approach or scenario approach. The use of internal model approaches would require banking institutions to obtain prior approval from the Bank. Banking institutions with significant options trading activities will be expected to use a more sophisticated approach. Underlying Position Approach 5.111 Banking institutions whose option risk is from underwriting of equity IPO, rights issues and debt securities/sukūk, may use the underlying position approach to estimate the required capital charge for these transactions on a trade-by-trade basis, as described below: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 282 / 506 Issued on: 3 May 2019 Table 9: Underlying Position Approach: Capital Charges Position Treatment Underwriting of equity type instrument; IPO and rights issue The capital charge will be the amount of equity in the underwriting agreement which the banking institution is committed to underwrite220 multiplied by the sum of specific risk and general risk weights as defined in Table 7 of Part D.2.2 Equity Position Risk. The resultant amount is then multiplied by 50%, the conversion factor which estimates the pick-up probability. The recognition period for the underwriting equity risk begins from the date when the underwriting agreement is signed until the date of issuance. Equity positions held post-issuance date would be treated as per Part D.2.2 Equity Position Risk. Underwriting of debt instruments/ sukūk The amount of debt/sukūk to be raised in the underwriting agreement in which the banking institution is committed to underwrite220, multiplied by 50%, the conversion factor which estimates the pick-up probability. The resultant figure will be incorporated into Part D.2.1 Interest/Profit Rate Risk to calculate the capital charge for general risk. For specific risk charge, the same resultant figure is multiplied by the specific risk charge stipulated in Table 2 in Part D.2.1 Interest/Profit Rate Risk of the framework. The recognition period for the underwriting of debt instruments/sukūk begins from the date when the underwriting agreement is signed until the date of issuance221. Debt/Sukūk positions held post-issuance date would be treated as per Interest/Profit Rate Risk described in Part D.2.1 220 Underwriting commitments can be netted off against sell down (back-to-back) arrangements established with unrelated parties, where the arrangement is unconditional, legally binding and irrevocable, and where the banking institution has no residual obligation to pick up the purported sell down portion. 221 In most cases of underwriting of short-term debt/sukūk such as commercial papers, given that the returns are usually based on cost of funds/expected returns to investors plus a spread, where the cost of funds/expected returns to investors is determined one or two days before issuance, the real exposure to the institutions arising from the underwriting agreement is more of the credit risk of the issuer rather than an interest/profit rate fluctuation risk. As such, for specific risk, the recognition period for underwriting of commercial papers/short term debts papers/sukūk begins from the date when the underwriting agreement is signed until the date of issuance whilst for general risk, the recognition period for underwriting of commercial papers/short term debts/sukūk begins from the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 283 / 506 Issued on: 3 May 2019 5.112 To illustrate how the calculation would work in the case of underwriting equities, assume an institution underwrites RM2 million in shares of a non KLCI equity at issue price of RM2.00 each. The capital charge for a non KLCI equity is 22% (that is 14% for specific risk and 8% for general risk). The capital charge would amount to RM 220,000 (RM 2 million x 22% x 50%). Simplified Approach 5.113 Only banking institutions which handle a limited range of purchased options are allowed to use the simplified approach set out in Table 10 for particular trades. As an example of how the calculation would work, if a holder of 100 KLCI shares currently valued at RM10 each holds an equivalent put option with a strike price of RM11, the capital charge would be: RM1,000 x 16% (that is 8% specific plus 8% general market risk) = RM160, less the amount the option is in the money (RM11 - RM10) x 100 = RM100, that is the capital charge would be RM60. A similar methodology applies for options whose underlying is a foreign currency, an interest rate related instrument or a commodity. date a rate is fixed (for example, sukūk murabahah) until the date of issuance. In the event that market practice changes or in the case of underwriting of debt instruments which assumes characteristics of interest/profit rate options, these positions should be reflected accordingly. An illustration on the treatment for such underwriting exposures is provided in Appendix XXX. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 284 / 506 Issued on: 3 May 2019 Table 10: Simplified Approach : Capital Charges Position Treatment Long cash and Long put Or Short cash and Long call The capital charge will be the market value of the underlying security222 multiplied by the sum of specific and general market risk charges223 for the underlying less the amount the option is in the money (if any) bounded at zero224 Long call Or Long put The capital charge will be the lesser of: (i) the market value of the underlying security multiplied by the sum of specific and general market risk charges208 for the underlying; or (ii) the market value of the option225 Delta-Plus Method 5.114 Banking institutions which write options may be allowed to include delta- weighted option positions within the standard method set out in Part D.2226. Such options should be reported as a position equal to the sum of the market values of the underlying multiplied by the sum of the values of the deltas. However, since delta does not cover all risks associated with option positions, banking institutions are also required to measure Gamma (which measures the rate of change of delta) and Vega (which measures the sensitivity of the value of an option with respect to a change in volatility) in order to calculate the total capital charge. 5.115 Delta-weighted positions with debt securities/sukūk or interest/profit rates as the underlying will be slotted into the interest rate time bands, as set out 222 In some cases such as foreign exchange, it may be unclear which side is the ‘underlying security’; this should be taken to be the asset which would be received if the option were exercised. In addition the nominal value should be used for items where the market value of the underlying instrument could be zero, for example, caps and floors, swaptions etc. 223 Some options (for example, where the underlying is an interest/profit rate, a currency or a commodity) bear no specific risk but specific risk will be present in the case of options on certain interest/profit rate related instruments (e.g. options on a corporate debt security or corporate bond index; see Table 2, Part D.2.1 Interest/Profit Rate Risk for the relevant capital charges) and for options on equities and stock indices (see Table 7, Part D 2.2 Equity Position Risk). The charge under this measure for currency options will be 8% and for options on commodities 15%. 224 For options with a residual maturity of more than six months the strike price should be compared with the forward, not current, price. A banking institution unable to do this must take the in the money amount to be zero. 225 Where the position does not fall within the trading book (that is options on certain foreign exchange or commodities positions not belonging to the trading book), it may be acceptable to use the book value instead. 226 Delta measures the sensitivity of an option’s value to a change in the price of the underlying asset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 285 / 506 Issued on: 3 May 2019 in Part D.2.1 Interest/Profit Rate Risk. Similar to other derivative transactions, a two-legged approach is used, which requires one entry at the time the underlying contract takes effect and a second entry, at the time the underlying contract matures. For instance, a bought call option on a June three month interest rate future will in April be considered, on the basis of its delta-equivalent value, a long position with a maturity of five months and a short position with a maturity of two months227. The written option will be similarly slotted as a long position with a maturity of two months and a short position with a maturity of five months. Floating-rate instruments with caps or floors will be treated as a combination of floating- rate securities and a series of European-style options. For example, the holder of a three-year floating-rate bond indexed to 6-month KLIBOR with a cap of 15% will be treated as:  a debt security that reprices in six months; and  a series of five written call options on a FRA with a reference rate of 15%, each with a negative sign at the time the underlying FRA takes effect and a positive sign at the time the underlying FRA matures. 5.116 The capital charge for options with equities as the underlying assets are based on the delta-weighted positions which will incorporate the measure of market risk described in Part D.2.2 Equity Position Risk. 5.117 The capital charge for options on foreign exchange is based on the delta- weighted position which will incorporate measurement of the exposure for the respective currency position as described in Part D.2.3 Foreign Exchange Risk. 5.118 The capital charge for options on commodities is based on simplified or the maturity ladder approach set out in D.2.4 Commodities Risk. The 227 A two month call option on a bond future where delivery of the bond takes place in September would be considered in April as being a long position in the bond and a short position in the five months deposit, both positions being delta-weighted. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 286 / 506 Issued on: 3 May 2019 delta-weighted positions will be incorporated in one of the measures described under that part. 5.119 In addition to the above capital charge arising from delta risk, there will be further capital charges for Gamma and for Vega risk. Banking institutions using the delta-plus method will be required to calculate the Gamma and Vega for each option position separately. 5.120 The capital charges for Gamma risk should be calculated in the following way: Gamma impact = ½ x Gamma  (VU) 2 where VU denotes the variation in the price of the underlying of the option. VU will be calculated as follows:  for interest/profit rate options, the market value of the underlying should be multiplied by the risk weights set out in Table 3 of D.2.1 Interest/Profit Rate Risk;  for options on equities and equity indices, the market value of the underlying should be multiplied by the equity general risk charge set out in Table 7 of Part D.2.2 Equity Position Risk;  for options on foreign exchange, the market value of the underlying multiplied by 8 per cent; and  for options on commodities, the market value of the underlying should be multiplied by 15%. 5.121 For the purpose of calculating the Gamma impact the following should be treated as the same underlying:  interest/profit rates228, each time band as set out in Table 3 of Part D.2.1 Interest/Profit Rate Risk;  equities and stock indices, each national market; and  foreign currencies, each currency pair. 228 Positions have to be slotted into separate maturity ladders by currency. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 287 / 506 Issued on: 3 May 2019  commodities, each individual commodities. 5.122 Each option on the same underlying will have a Gamma impact that is either positive or negative. These individual Gamma impacts are aggregated, resulting in a net Gamma impact for each underlying which is either positive or negative. Only net Gamma impacts that are negative will be included in the capital calculation. 5.123 The total Gamma capital charge will be the sum of the absolute value of the net negative Gamma impacts as calculated above. 5.124 To calculate Vega risk, banking institutions must multiply the Vega for each option by a 25% proportional shift of the option's current volatility. The results are then summed across each underlying. The total capital charge for Vega risk is calculated as the sum of the absolute value of Vega across each underlying. 5.125 An illustration of the use of the Delta-plus method is provided in Example 4. Scenario Approach 5.126 Banking institutions will also have the right to base the market risk capital charge for options portfolios and associated hedging positions using the scenario matrix analysis. This will be accomplished by specifying a fixed range of changes in the option portfolio's risk factors (that is underlying price/rate and volatility) and calculating changes in the value of the option portfolio and its associated hedging positions at various points along this matrix. To calculate the capital charge, banking institution has to revalue the option portfolio using matrices for simultaneous changes in the option's underlying rate or price and in the volatility of that rate or price. A different matrix will be set up for each individual underlying position. In the case of interest/profit rate options, an alternative method is permitted for banking institutions to base the calculation on a minimum of six sets of time bands. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 288 / 506 Issued on: 3 May 2019 When using this method, not more than three of the time bands (as defined in Table 5, Part D.2.1 Interest/Profit Rate Risk) should be combined into any one set. 5.127 The options and related hedging positions will be evaluated over a specified range above and below the current value of the underlying - this defines the first dimension of the matrix. The range for changes in interest/profit rates is consistent with the assumed changes in yield in Table 5 of Part D.2.1 Interest/Profit Rate Risk. Banking institutions using the alternative method for interest/profit rate options set out in the previous paragraph should use, for each set of the time bands, the highest of the assumed changes in yield, applicable to the group to which the time bands belong229. The other ranges are the equity general risk charge stipulated in Table 7 for equities, and ± 8 per cent for foreign exchange, gold and silver, and ± 15% for commodities. For all risk categories, at least seven price shifts (including the current observation) should be used to divide the range into equally spaced intervals. 5.128 The second dimension of the matrix entails a change in the volatility of the underlying rate or price. A single change in the volatility of the underlying rate or price equal to a proportional shift in volatility of ±25 per cent is expected to be sufficient in most cases. As circumstances warrant, however, the Bank may require that a different change in volatility be used and/or that intermediate points on the matrix be calculated. 5.129 After calculating the matrix, each cell should contain the net profit or loss of the option and the underlying hedge instrument. The capital charge for each underlying will then be calculated as the largest loss contained in the matrix. 229 If, for example, in the case of options involving G10 currency interest/profit rate risk, where the time bands “> 3 to 4” years, “> 4 to 5” years and “> 5 to 7” years are combined, the highest assumed change in yield of these three bands would be 0.75 percentage point. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 289 / 506 Issued on: 3 May 2019 5.130 The application of the scenario method by any specific banking institution will be subjected to supervisory consent, particularly with regard to the precise way that the analysis is constructed. 5.131 An illustration of the use of the Scenario Approach is provided in Example 5. Example 4: Delta-Plus Methods for Options A. A Single Stock Option 1. Assume a banking institution has a European short call option to sell 1000 units of a KLCI stock with an exercise price of RM45 and a market value (spot price) of the underlying 12 months from the expiration of the option at RM50; a risk-free interest rate at 8% per annum, and volatility at 20%. The current unit delta for this position is according to the Black-Scholes formula - 0.848 (that is the price of the option changes by -0.848 if the price of the underlying moves by RM1). The unit Gamma is -0.0235 (that is the delta changes by -0.0235, from -0.848 to -0.872, if the price of the underlying moves by RM1). The Gamma is (-0.0235 × 1,000) = -23.55. The current value of the option is RM9.328 × 1,000 = RM9,328. 2. The market risk capital charge for the single stock option is the summation of: (i) Specific Risk and General Risk on delta-weighted position incorporated in Part D.2.2 Equity Position Risk; and (ii) Gamma and Vega risks charge provided under Part D.2.5 Treatment of Options. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 290 / 506 Issued on: 3 May 2019 Specific Risk and General Risk on delta-weighted position of equity options which will be incorporated in Part D.2.2 Equity Position Risk 3. To compute the specific risk and general risk on delta-weighted position of the stock option position, the following steps should be taken: a) The first step under the delta-plus method is to calculate the delta- weighted option position. This is accomplished by multiplying the market value of 1 unit of underlying or spot price, the number of units to be sold and the value of the delta 50 × 1,000 × (-0.848) = -RM42,400. The delta-weighted position then has to be incorporated into the framework described in Part D.2.2 Equity Position Risk. b) The specific risk for the stock option will be the multiplication of the delta- weighted position and the specific risk weight of the underlying equity (KLCI stock specific risk weight = 8%, refer to Table 7 of Part D.2.2 Equity Position Risk). Hence, the capital charge for specific risk will be: -RM42,400 × 0.08 = RM3,392 c) The delta risk charge will be calculated by incorporating the delta- weighted option position together with the other net equity positions generated in Part D.2.2 Equity Position Risk. Assuming that no other positions exist, the delta risk of the stock option is calculated as the multiplication of the delta-weighted position and the 8% general risk weight accorded to equities. Hence, the capital charge for general risk is calculated as: -RM42,400 × 0.08 = RM3,392 The total capital charge for specific risk and general risk on delta- weighted position which should be reflected in Part D.2.2 Equity Position Risk will be: RM6,784 (that is 3,392 + 3,392). Gamma and Vega Risks carved out to be provided under Part D.2.5 Treatment of Options 4. Under the delta-plus method, the capital charges for Gamma and Vega risk will be calculated as follows: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 291 / 506 Issued on: 3 May 2019 a) The capital charge for Gamma, only negative gamma impact should be included and has to be calculated according to the formula set out in paragraph 5.120 in Part D.2.5 Treatment of Options: ½ × Gamma × (market value of 1 unit of the underlying or spot price × 0.08) 2 ½ × (23.55) × (50 × 0.08) 2 = RM188 b) The capital charge for Vega has to be calculated separately. The assumed current (implied) volatility is 20%. As an increase in volatility carries a risk of loss for a short call option, the volatility has to be increased by a relative shift of 25%. This means that the Vega capital charge has to be calculated on the basis of a change in volatility of 5 percentage points from 20% to 25% in this example. According to the Black-Scholes formula used here, the unit Vega equals 11.77. Thus a 1% or 0.01 increase in volatility increases the value of the option by 0.1177 Accordingly, a change in volatility of 5 percentage points would increase the value by: 5 × 0.1177 × 1,000 = RM589 which is the capital charge for Vega risk. The total capital charge for Gamma and Vega risk which should be disclosed in Part D.2.5 Treatment of Options under the Delta-plus method will be RM777 (that is 188 + 589). 5. The total market risk capital charge for 1,000 units of a single stock call option sold, with the stock price of RM50, is RM7,561 (that is 6,784 + 777). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 292 / 506 Issued on: 3 May 2019 B. A portfolio of Foreign Exchange Options 6. Assume a banking institution has a portfolio of options with the following characteristics: Option Currency Pair Nominal amount Market Value of 1 unit of Underlying (Spot Price) Market Value of 1 unit of Underlying (RM) Market Value of Underlying (RM) 1 USD/RM USD100,000 3.132 RM3.132 313,200 2 USD/RM USD600,000 3.132 RM3.132 1,879,200 3 USD/RM USD200,000 3.132 RM3.132 626,400 4 USD/RM USD300,000 3.132 RM3.132 939,600 5 GBP/JPY GBP100,000 131.806 GBP1 = JPY131.806 * 0.0374586968 = RM4.937 493,700 6 GBP/JPY GBP50,000 131.806 RM4.937 246,850 7 GBP/JPY GBP75,000 131.806 RM4.937 370,275 Option Currency Pair Market Value of Underlying (RM) Unit Delta Unit Gamma Gamma (RM) Unit Vega Assumed volatility (%) 1 USD/RM 313,200 -0.803 0.0018 564 1.84 5 2 USD/RM 1,879,200 -0.519 -0.0045 -8,456 -3.87 20 3 USD/RM 626,400 0.182 -0.0049 -3,069 -0.31 20 4 USD/RM 939,600 0.375 0.0061 5,732 -4.97 10 5 GBP/JPY 493,700 -0.425 0.0065 3,209 5.21 10 6 GBP/JPY 246,850 0.639 -0.0016 -395 -4.16 7 7 GBP/JPY 370,275 0.912 0.0068 2,518 3.15 5 7. The market risk capital charge for the portfolio of foreign exchange options is the summation of: (i) General Risk on delta-weighted position incorporated in Part D.2.3 Foreign Exchange Risk; and (ii) Gamma and Vega risks charge provided under Part D.2.5 Treatment of Options. General Risk on delta-weighted position of currency options which will be incorporated in Part D.2.3 Foreign Exchange Risk 8. To compute the general risk on delta-weighted position of the foreign exchange option portfolio, the following steps should be taken: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 293 / 506 Issued on: 3 May 2019 a) The first step under the delta-plus method is to calculate the delta- weighted option position. This is accomplished by multiplying the value of each option's delta by the market value of the underlying currency position (see Table C, column 3). This leads to the following net delta- weighted position in each currency: Table C Option Currency Pair Delta × Market Value of Underlying 1 USD/RM -251,500 2 USD/RM -975,305 3 USD/RM 114,005 4 USD/RM 352,350 5 GBP/JPY -209,823 6 GBP/JPY 157,737 7 GBP/JPY 337,691 b) Assuming that the banking institution holds no other foreign currency positions, inclusion of these positions into the framework set out in Part A.3 Foreign Exchange Risk yields a net open delta-weighted position of 1,046,055 (the larger of either the sum of the net short positions or the sum of the net long positions across currency pairs) and a capital charge of RM83,684 (1,046,055  0.08). GBP USD JPY + 285,605 - 760,450 - 285,605 + 285,605.45 - 1,046,055 Hence, the capital charge for general risk on delta-weighted position of the foreign exchange option which should be reflected in Part D.2.3 Foreign Exchange Risk will be RM83,684. Gamma and Vega Risks carved out to be provided under Part D.2.5 Treatment of Options 9. Under the delta-plus method, the capital charges for Gamma and Vega risk will be calculated as follows: a) The Gamma impact (see Table D, column 3) for each option is calculated as: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 294 / 506 Issued on: 3 May 2019 ½ × Gamma (RM) × (market value of 1 unit of underlying (RM) × 0.08) 2 For each underlying, in this case currency pair, a net Gamma impact is obtained: USD/RM -164.18 GBP/JPY +415.92 Only the negative Gamma impacts are included in the capital calculation, hence the Gamma charge here is RM164. Table D Option Currency Pair Gamma Impact (RM) Net Gamma Impact (RM) 1 USD/RM 17.70 -164.18 2 USD/RM -265.45 3 USD/RM -96.35 4 USD/RM 179.91 5 GBP/JPY 250.32 +415.92 6 GBP/JPY -30.81 7 GBP/JPY 196.41 b) The Vega capital charge is based on the assumed implied volatilities for each option which are shown in Table E column 3. The 25 per cent volatility shifts are shown in Table E column 5. Multiplying these shifts with each option's Vega and the market value of underlying in RM, yields the assumed price changes (shown in Table E column 6). These are then summed up for each currency pair. The net Vega impact for each currency pair is: USD/RM -27,757.35 GBP/JPY +33,895.59 Since no netting of Vegas is permitted across currency pairs, the capital charge is calculated as the sum of the absolute values obtained for each currency pair: 27,757 + 33,896 = RM61,653 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 295 / 506 Issued on: 3 May 2019 Table E Option Currency Pair Assumed Volatility (%) Vega Volatility Shift (Percentage Points) Change in Value (RM) Net Vega Impact (RM) 1 USD/RM 5 1.84 1.25 7,203.60 -27,757.35 2 USD/RM 20 -3.87 5.00 -90,906.30 3 USD/RM 20 -0.31 5.00 -2,427.30 4 USD/RM 10 4.97 2.50 58,372.65 5 GBP/JPY 10 5.21 2.50 32,152.21 +33,895.59 6 GBP/JPY 7 -4.16 1.75 -12,836.20 7 GBP/JPY 5 3.15 1.25 14,579.58 The total capital charge for Gamma and Vega risk arising from the options portfolio which should be disclosed in Part D.2.5 Treatment of Options under the Delta-plus method is RM61,817 (that is 164 + 61,653). 10. The total market risk capital charge for the portfolio of foreign currency options is RM145,501 (that is 83,684 + 61,817). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 296 / 506 Issued on: 3 May 2019 Example 5: The Scenario Approach for Options 1. Consider a banking institution holding a portfolio of two KLCI equities and two options on the same equities as set out below: Equity No of Shares Current Price (RM) Long ABC 100 19.09 Short XYZ -50 1.79 Option No. of Shares Option Type Delta Time to Expiry (yrs) Strike Price (RM) Current Volatility (%) Long ABC 50 Call 0.43 0.45 20.00 15.0 Short XYZ 20 Put -0.76 0.36 2.25 42.0 (Assumed risk free rate: 5%) 2. The market risk capital charge for the portfolio is the summation of the: i) Specific Risk of the equities and delta-weighted positions of underlying equities. This specific risk is incorporated in Part D.2.2 Equity Position Risk of the framework; and ii) General Risk of the portfolio, which is carved out and subjected to Scenario Approach in Part D.2.5 Treatment of Options of the framework. Specific Risk of the equities and delta-weighted positions of the underlying equities to be incorporated in Part D.2.2 Equity Position Risk 3. To compute the specific risk for the equities and equity options, the following steps should be taken: a) Calculate the delta-weighted positions of the underlying equities – the delta weighted option is calculated by multiplying the value of each option's delta by the market value of the underlying equity (see Table F, column 2). This leads to the following net delta-weighted position in each equity: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 297 / 506 Issued on: 3 May 2019 Table F Options Position Delta × Market Value of Underlying (RM) Number of Shares Total Position (RM) Option on ABC 8.115 50 405.75 Option on XYZ -1.363 20 -27.25 Equity Position Market Value (RM) Number of Shares Total Position (RM) ABC 19.09 100 1,909.00 XYZ 1.79 - 50 -89.50 Assuming that the banking institution does not hold other equity positions, the delta weighted positions of the options will be added to the respective value of equities (ABC and XYZ) held. The net position for each equity will be incorporated in Part D.2.2 Equity Position Risk of this framework and the values are as follows: ABC = + 2,314.75 [405.75 + 1,909.00] XYZ = - 116.75 [-27.25 - 89.50] b) Calculate the specific risk charge by multiplying the specific risk weight of the equities as listed in Table 7 of Part D.2.2 Equity Position Risk. In this example, the specific risk weight is 8% for KLCI equities. Hence, the total capital charge for specific risk to be reflected in Part D.2.2 Equity Position Risk will be RM194.52 [(2,314.75 x 0.08) + (116.75 x 0.08)]. General Risk is carved out and be subjected to the Scenario Approach in Part D.2.5 Treatment of Options 4. To compute the general risk under the Scenario Approach, the following procedures are taken: a) Apply the price movements over the range 8% to the equity positions. The change in portfolio values is shown below: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 298 / 506 Issued on: 3 May 2019 Change in Value of Equity Positions Assumed Price Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 ABC -152.72 -101.81 -50.91 0.00 50.97 101.74 152.72 XYZ 7.16 4.77 2.39 0.00 -2.39 -4.77 -7.16 b) Apply the matrix of price and volatility movements to the ABC call options and the changes in the value of the options are shown below: ABC Options - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 -15.57 -9.21 -0.92 9.46 21.98 36.58 53.15 0 -21.46 -16.58 -9.53 0.00 12.17 26.95 44.15 -25 -25.82 -22.84 -17.58 -9.32 2.36 17.51 35.78 c) Holding of XYZ put options will be subjected to the same treatment as per (b) above and the changes in the value of the options are shown below. XYZ Options - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 +2.82 +2.20 +1.46 +0.75 +0.07 -0.58 -1.08 0 +2.26 +1.59 +0.78 0.00 -0.74 -1.45 -1.99 -25 +1.87 +1.13 +0.24 -0.63 -1.45 -2.24 -2.84 d) Summing the changes in the value for ABC and XYZ equities and the equity options to arrive at the contingent loss matrix for the total portfolio as shown below: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 299 / 506 Issued on: 3 May 2019 Total Portfolio - Change in Value Assumed Volatility Assumed Price Change (%) Change (%) -8.00 -5.33 -2.67 0.00 2.67 5.33 8.00 +25 -158.31 -104.05 -47.98 10.21 70.56 133.04 197.63 0 -164.76 -112.03 -57.27 0.00 59.95 122.54 187.72 -25 -169.52 -118.75 -65.86 -9.95 49.43 112.30 178.50 The general risk capital charge for the portfolio will be the largest loss arising from changes in the price of the equities and volatility of the options as shown in the matrix above - in this case is 169.52. This capital charge will be reflected in Part D.2.5 Treatment of Option under the Scenario approach. 5. The total market risk capital charge for the portfolio is 364.04 (that is 169.52 +194.52). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 300 / 506 Issued on: 3 May 2019 D.3 INTERNAL MODELS APPROACH Introduction 5.132 This framework sets out the minimum standards and criteria that the Bank will use in assessing a banking institution’s eligibility for adopting the internal models approach in measuring market risk for the purpose of capital adequacy. The internal model approach specified in this guideline is based on the use of value-at-risk (VaR) technique. 5.133 The use of an internal model will be conditional upon explicit written approval from the Bank. The Bank will recognise a banking institution’s internal model for capital adequacy if all the standards set forth in this Part are met. Any approval will be conditional on continued compliance with the requirements under this framework, as modified from time to time. 5.134 Further to the Bank’s initial recognition, banking institutions should inform the Bank of any subsequent material change to the models, including material change in methodology or scope to cover new products and instruments. Banking institutions are required to demonstrate to the Bank that the models remain relevant for the purpose of ascertaining market risk capital charge. 5.135 For banking institutions with Islamic banking operations, the recognition of the internal models for the purpose of ascertaining market risk capital requirements will be applied on a bank-wide basis. Nevertheless, the capital requirements and back testing results for conventional and Islamic banking operations activities should be separately reported. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 301 / 506 Issued on: 3 May 2019 D.3.1 COMBINATION OF INTERNAL MODELS AND THE STANDARDISED MARKET RISK MEASUREMENT APPROACH 5.136 Banking institutions have the option to use a combination of the standardised market risk measurement approach and the internal models approach to measure market risks across broad risk categories (that is interest/profit rates, exchange rates, equity prices and commodity prices, with related options volatilities being included in each risk factor category). In doing so, banking institution should ensure no element of market risk shall escape measurement. 5.137 Depending on the significance and complexity of the banking institution’s trading activities, the Bank may require banking institution to adopt an internal model approach that is sufficiently comprehensive to capture all broad risk categories. 5.138 Notwithstanding paragraph 5.136, as a general rule, a combination of the standardised market risk measurement approach and internal models approach will not be permitted within the same risk category or across banking institutions’ different entities for the same risk category230. However, banking institutions may incur risks in positions which are not captured by the adopted models, for example, in minor currencies, negligible business areas or exposures in risk types that are not easily modelled such as underwriting risk. Such risks may be separately measured according to the standardised market risk measurement approach, subject to the Bank’s approval. Table 11 and Table 12 illustrate examples of situations where the combination of the standardised market risk measurement approach and internal model approach are permitted. 230 With the exception of specific risk when capital requirement will be assessed based on the standardised market risk measurement approach, unless it meets the modelling requirement in Part D.3 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 302 / 506 Issued on: 3 May 2019 Table 11: Combination of Internal Models and the Standardised Market Risk Approach Combinations of Approaches* Broad Risk Categories (that is interest/profit rates, exchange rates, equity prices and commodities prices, with related options volatilities included in their respective risk factor category) Within a Risk Category Across Risk Categories Combination of different internal models Permitted Permitted Combination of SMRA and IMA Not Permitted Permitted Table 12: Examples on the Combination of Approaches Combinations of Approaches Broad Risk Categories Are the combinations of approaches permitted? Interest/ Profit Rate Equity Foreign Exchange Commodity SMRA and IMA across broad risk categories IMA IMA SMRA SMRA Yes SMRA and IMA within a broad risk category IMA IMA Spot, forwards and swaps: IMA Options: SMRA SMRA The use of a combination of IMA and SMRA approaches is not permitted within foreign exchange risk category. FX risk should be measured in its entirety using IMA or SMRA Different IMA approaches within and across broad risk categories IMA (Historical simulation) IMA (Monte Carlo) Spot, forwards and swap: IMA (Variance- covariance) Options: IMA (Monte Carlo) IMA (Historical simulation) Yes SMRA – Standardised Market Risk Approach, IMA – Internal Models Approach BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 303 / 506 Issued on: 3 May 2019 5.139 In addition, banking institutions may use a combination of different internal models within a risk category, or across broad risk categories. 5.140 Banking institutions that have had their internal models approved by the Bank, are not allowed to revert to measuring risks using the standardised market risk measurement approach unless the Bank withdraws approval for the internal model or with specific permission from the Bank. 5.141 Where capital charges are assessed under the standardised market risk measurement approach and the models approach within a same broad risk category, the applicable capital charges should be aggregated according to the simple aggregation method. Similarly, capital charges assessed using different models within and across each broad risk category should also be aggregated using the simple aggregation method. 5.142 In principle, banking institutions which adopt the modelling alternative for any single risk category will be expected over time to move towards a comprehensive model (that is one that captures all market risk categories). D.3.2 QUALITATIVE STANDARDS 5.143 Banking institutions must ensure that models adopted are supported by market risk management systems that are conceptually sound. Banking institution must satisfy certain criteria before adoption of model-based approach for the purpose of regulatory capital adequacy calculation. The adherence to the qualitative criteria will determine the multiplication factor in paragraph 5.144(j). a) Banking institution should have an independent risk control unit that is responsible for the design and implementation of the banking institution’s risk management system. The unit is responsible for producing and analysing daily reports on the output of banking institution’s risk measurement model, including evaluation of limit utilisation. This unit must be independent from business trading and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 304 / 506 Issued on: 3 May 2019 other risk taking units and should report directly to senior management of the banking institution. b) The unit should conduct a regular (at least on a quarterly basis) back testing program, that is an ex-post comparison of the risk measure generated by the model against actual daily changes in portfolio value over longer periods of time, as well as hypothetical changes based on static positions. Detailed discussion of back testing is provided in Part D.3.9 Framework for the Use of Back Testing. c) The unit should also conduct the initial and ongoing validation of the internal model231 d) While the board retains oversight role, senior management are expected to be actively involved in the risk control process and regard risk control as an essential aspect of the business to which significant resources need to be devoted. In this regard, the daily reports prepared by the independent risk control unit must be reviewed by a level of management with sufficient seniority and authority to enforce both reductions of positions taken by individual traders and reductions in the banking institution’s overall risk exposure. e) The internal risk measurement model must be closely integrated into the day-to-day risk management process of the banking institution. Accordingly, the output of the model should be an integral part of the process of planning, monitoring and controlling of the banking institution’s market risk profile. f) The risk measurement system should be used in conjunction with internal trading and exposure limits. Trading limits should be related to the banking institution’s VaR measurement model in a manner that is consistent over time and that is well understood by both traders and senior management. g) A routine and rigorous program of stress testing should be in place as a supplement to the risk analysis based on the day-to-day output of the banking institution’s risk measurement model. The results of stress testing exercises should be reflected in the policies and limits set by 231 Further guidance regarding the standards found in Part D.3.7 Model Validation Standards. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 305 / 506 Issued on: 3 May 2019 management and the board. The results of stress testing should be routinely communicated to senior management and, periodically, to the banking institution’s board. h) Banking institutions should establish a process to ensure continuous compliance with internal policies, controls and procedures relating to the operation of the risk measurement system. Banking institution’s risk measurement system must be well documented, for example, through a risk management manual that describes the basic principles of the risk management system and provides an explanation of the empirical techniques used to measure market risk. i) An independent review of the risk measurement system should be carried out on a regular basis as part of the banking institution’s own internal process. This review should include both the activities of the business trading units and the independent risk control unit. A review of the overall risk management process should take place at regular intervals (ideally not less than once a year) and should specifically address, at a minimum: i) The adequacy of the documentation of the risk management system and process; ii) The organisation of the risk control unit; iii) The approval process for risk pricing models and valuation systems used by front and back-office personnel; iv) The validation of any significant change in the risk measurement process; v) The scope of market risks captured by the risk measurement model; vi) The integrity of the management information system; vii) The accuracy and completeness of position data; viii) The verification of the consistency, timeliness and reliability of data sources used to run internal models, including the independence of such data sources; ix) The accuracy and appropriateness of volatility and correlation assumptions; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 306 / 506 Issued on: 3 May 2019 x) The accuracy of valuation and risk transformation calculations; xi) The verification of the model’s accuracy through frequent back testing as described in paragraph 5.143(b) and in Part D.3.9 Framework for the Use of Back Testing. D.3.3 QUANTITATIVE STANDARDS 5.144 Banking institutions are given the flexibility to devise an internal model, but the following minimum standards will apply for the purpose of calculating their capital charge: a) VaR should be computed on a daily basis at the close of the trading day. b) In calculating the VaR, a 99th percentile, one-tailed confidence interval should be used. c) In calculating VaR, an instantaneous price shock equivalent to a ten- day movement in prices should be used (since the minimum holding period is ten trading days). Banking institutions with illiquid trading exposure should make appropriate adjustments to the holding period. For positions that display linear price characteristics (but not options), banking institutions may use VaR numbers calculated according to shorter holding periods, scaled up to the requisite holding period by the square root of time (for the treatment of options, also see (h) below). d) The historical observation period (sample period) for calculating VaR will be constrained to a minimum length of one year. For banking institutions that use a weighting scheme or other methods for the historical observation period, the ‘effective’ observation period must be at least one year that is the weighted average time lag of individual observations should be no less than 6 months. e) Banking institutions should update data sets no less frequently than once every three months and should also reassess the data whenever market prices are subject to material changes. The Bank may also require banking institution to calculate its VaR using a shorter BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 307 / 506 Issued on: 3 May 2019 observation period if, in the Bank’s judgement, is justifiable because of a significant upsurge in price volatility. f) No particular type of model is prescribed. Banking institutions are free to use models based on variance-covariance matrices, historical simulations, or Monte Carlo simulations, so long as each model used captures all the material risks run by the institution as set out in Part D.3.4 Specification of Market Risk Factors. g) Banking institutions are given the discretion to recognise empirical correlations within broad risk categories (for example interest/profit rates, exchange rates, equity prices and commodity prices, including related options volatilities in each risk factor category). The Bank may also recognise empirical correlations across broad risk factor categories, provided the Bank is satisfied that the institution's system for measuring correlations is sound and implemented with integrity. h) Banking institutions’ models must accurately capture the unique risks associated with options within each of the broad risk categories. The following criteria apply to the measurement of options risks: i) Banking institutions’ models must capture the non-linear price characteristics of options positions; ii) Banking institutions are expected to ultimately move towards the application of a full 10-day price shock to options positions or positions that display option-like characteristics. In the interim, the Bank may require banking institutions to adjust their capital measure for options risk through other methods for example, periodic simulation or stress testing; iii) Each banking institution's risk measurement system must have a set of risk factors that captures the volatilities of the rates and prices underlying option positions, that is, vega risk. Banking institutions with relatively large and/or complex options portfolios should have detailed specifications of the relevant volatilities. This means that institutions should measure the volatilities of the options positions broken down by different maturities. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 308 / 506 Issued on: 3 May 2019 i) Each banking institution must meet, on a daily basis, a capital requirement expressed as the higher of (a) the previous day's VaR number measured according to the parameters specified in this part or (b) an average of the daily VaR measures on each of the preceding 60 business days multiplied by the multiplication factor. j) The minimum multiplication factor is set at 3. The Bank reserve the right to increase the multiplier by an add-on based on any shortcomings in the qualitative criteria. In addition, the Bank will require banking institutions to add to this factor a ‘plus’ directly related to the ex-post performance of the model. The ‘plus’ will range from 0 to 1 based on the outcome of ‘back testing’. The Part D.3.9 Framework for the Use of Back Testing presents in detail the approach to be applied for back testing. Banking institutions should perform backtesting on both hypothetical trading outcomes (that is using changes in portfolio value that would occur if end-of-day positions were to remain unchanged) and actual trading outcomes (that is excluding fees, commissions, net interest income and other income not attributable to outright position taking). k) Banking institutions using models will be subjected to a separate capital charge to cover the specific risk of interest/profit rate related instruments and equity securities, as defined under the standardised approach for market risk. The options for calculating the specific risk capital charge are set out in Part D.3.5 Modelling of Specific Risk. D.3.4 SPECIFICATION OF MARKET RISK FACTORS 5.145 An important part of a banking institution’s internal market risk measurement system is the specification of an appropriate set of market risk factors, that is the market rates and prices that affect the value of the banking institution’s market-related positions. The risk factors contained in a market risk measurement system should be sufficient to capture the risks inherent in the banking institution’s portfolio of on- and off-balance sheet trading positions. Although banking institutions are given discretion BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 309 / 506 Issued on: 3 May 2019 in specifying the risk factors for internal models, all requirements under this part (paragraphs 5.156 to 5.154) should be met. Interest/Profit Rates232 5.146 There must be a set of risk factors corresponding to interest/profit rates in each currency in which the banking institution has interest/profit rate sensitive on- or off-balance sheet trading book positions. 5.147 The risk measurement system should model the yield curve using one of a number of generally accepted approaches, for example, by estimating zero-coupon yields. The yield curve should be divided into various maturity segments in order to capture variation in the volatility of rates along the yield curve; there will typically be one risk factor corresponding to each maturity segment. For material exposures to interest/profit rate movements in the major currencies and markets, banking institution must model the yield curve using a minimum of six risk factors. Ultimately, the number of risk factors used should be driven by the nature of the banking institution trading strategies. For instance, banking institution with a portfolio of various types of securities across many points of the yield curve, and that engages in complex arbitrage strategies, would require a greater number of risk factors to capture interest/profit rate risk accurately. 5.148 The risk measurement system should incorporate separate risk factors to capture basis risk (for example, between bonds/sukūk and swaps). A variety of approaches may be used to capture the basis risk arising from less than perfectly correlated movements between government and other fixed-income interest/profit rates, such as specifying a completely separate yield curve for non-government fixed income instruments (for example, swaps or municipal securities) or estimating the spread over government rates at various points along the yield curve. For countries where 232 Measurement of risks for Islamic principle-based instruments such as sukūk that are exposed to profit rate risk would be subjected to the same requirements described in paragraphs 5.146 to 5.148. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 310 / 506 Issued on: 3 May 2019 interest/profit rates may be less responsive to market forces, banking institutions should appropriately reflect in their internal models the effects on interest/profit rate conditions as a result of actual or anticipated interest/profit rate management regime shifts, where relevant. Equity Prices 5.149 There should be risk factors corresponding to each of the equity markets to which banking institution holds significant exposure. a) At a minimum, there should be a risk factor designed to capture market-wide movements in equity prices (for example, a market index). Positions in individual securities or in sector indices could be expressed in ‘beta-equivalents233 relative to the market-wide index. b) Another detailed approach is to incorporate risk factors corresponding to various sectors of the overall equity market (for example, industry sectors or cyclical and non-cyclical sectors). As above, positions in individual shares within each sector could be expressed in beta- equivalents relative to the sector index. c) The most extensive approach would be to incorporate risk factors corresponding to the volatility of individual equity issue. 5.150 The sophistication and nature of the modelling technique for a given market should correspond to the banking institution’s exposure to the overall market and as its concentration in individual equity issues in that market. Exchange Rates (including Gold and Silver) 5.151 The risk measurement system should incorporate risk factors corresponding to the individual foreign currencies in which banking institution’s positions are denominated. Since the VaR figure calculated by the risk measurement system will be expressed in Malaysian ringgit, any 233 A ‘beta-equivalent’ position would be calculated from a market model of equity price returns (such as the CAPM model) by regressing the return on the individual stock or sector index on the risk-free rate of return and the return on the market index. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 311 / 506 Issued on: 3 May 2019 net position denominated in a foreign currency will introduce a foreign exchange risk. Thus, there must be risk factors corresponding to the exchange rate between the domestic currency and each foreign currency in which banking institution has significant exposure. For currencies where the exchange rate regime may be fixed, pegged, or otherwise constrained, banking institutions should appropriately reflect actual or expected effects of exchange rate regime shifts in the internal models through adjustments of a currency’s volatilities and correlations, where relevant. Commodity Prices 5.152 There should be risk factors corresponding to each of the commodity markets in which banking institution holds significant positions. 5.153 For banking institutions with relatively limited positions in commodity- based instruments, a straightforward specification of risk factors would be acceptable. Such specification would likely entail one risk factor for each commodity price to which the banking institution is exposed. In cases where the aggregate positions are quite small, it might be acceptable to use a single risk factor for a relatively broad sub-category of commodities (for instance, a single risk factor for all types of oil). 5.154 The model must also take into account variation in the ‘convenience yield’234 between derivatives positions, such as forwards and swaps, and cash positions in the commodity. D.3.5 MODELLING OF SPECIFIC RISK 5.155 Banking institutions using internal models are permitted to base specific risk capital charge on modelled estimates if the VaR measure incorporates specific risk and meet all qualitative and quantitative requirements for 234 The convenience yield reflects the benefits from direct ownership of the physical commodity (for example, the ability to profit from temporary market shortages) and is affected both by market conditions and by factors such as physical storage costs. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 312 / 506 Issued on: 3 May 2019 general market risk models as detailed in Part D.3.2 Qualitative Standards and Part D.3.3 Quantitative Standards and the additional criteria set out in this part. 5.156 Banking institutions which are unable to meet these additional criteria are required to base specific risk capital charge on the full amount of such charge calculated under the standardised market risk approach. 5.157 The criteria for supervisory recognition of banking institutions’ modelling of specific risk requires that banking institution’s model must capture all material components of price risk and be responsive to changes in market conditions and composition of portfolios. In particular, the model should: a) Explain the historical price variation within the portfolio235; b) Capture concentrations (magnitude and changes in composition)236; c) Robust to an adverse environment237; d) Capture name-related basis risk238; e) Capture event risk239; 235 The key ex-ante measures of model quality are ‘goodness-of-fit’ measures which address the question of how much of the historical variation in price value is explained by the risk factors included within the model. One measure of this type which can often be used is an R-squared measure from regression methodology. If this measure is to be used, the risk factors included in the banking institution’s model would be expected to be able to explain a high percentage, such as 90%, of the historical price variation or the model should explicitly include estimates of the residual variability not captured in the factors included in this regression. For some types of models, it may not be feasible to calculate a goodness-of-fit measure. In such instance, a banking institution is expected to work with the Bank to define an acceptable alternative measure which would meet this regulatory objective. 236 The banking institution would be expected to demonstrate that the model is sensitive to changes in portfolio construction and that higher capital charges are attracted for portfolios that have increasing concentrations in particular names or sectors. 237 The banking institution should be able to demonstrate that the model will signal rising risk in an adverse environment. This could be achieved by incorporating in the historical estimation period of the model at least one full credit cycle and ensuring that the model would not have been inaccurate in the downward portion of the cycle. Another approach for demonstrating this is through simulation of historical or plausible worst-case environments. 238 Banking institutions should be able to demonstrate that the model is sensitive to material idiosyncratic differences between similar but not identical positions, for example debt positions with different levels of subordination, maturity mismatches, or credit derivatives with different default events. 239 For debt positions, this should include migration risk. For equity positions, events that are reflected in large changes or jumps in prices must be captured, for example merger break-ups/takeovers. In particular, firms must consider issues related to survivorship bias. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 313 / 506 Issued on: 3 May 2019 f) Validated through back-testing aimed at assessing whether specific risk is being captured adequately. 5.158 Where a banking institution is subjected to event risk that is not reflected in its VaR measure because it is beyond the ten-day holding period and 99th percentile confidence interval (that is low probability and high severity events), the impact of such events must be factored into its internal capital assessment, for example, through stress testing. 5.159 A banking institution’s model should conservatively assess the risk arising from less liquid positions and positions with limited price transparency under realistic market scenarios. In addition, the model should meet the minimum data standards set out under paragraph 5.144(d). Proxies may be used only where available data are insufficient or not reflective of the true volatility of a particular position or portfolio, and should be conservatively used. 5.160 As techniques and best practices evolve, banking institutions should keep abreast of these advances. 5.161 Banking institutions should also have an approach in place to capture in their regulatory capital the default risk of the trading book positions that is incremental to the risk captured by the VaR-based calculation as specified in paragraph 5.157. To avoid double counting, a banking institution may, when calculating incremental charge for default risk, take into account the extent to which the default risk has already been incorporated into the VaR calculation, especially for risk positions that could be closed within ten days in the event of adverse market conditions or other indications of deterioration in the credit environment. 5.162 No specific approach for capturing incremental default risk is prescribed. The approach may be part of a banking institution’s internal model or a surcharge from a separate calculation. Where a banking institution BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 314 / 506 Issued on: 3 May 2019 captures its incremental risk through a surcharge, the surcharge will not be subjected to a multiplication factor or regulatory back-testing, although banking institution should be able to demonstrate that the surcharge meets its objectives (that is providing sufficient capital to cover default risk). 5.163 Whichever approach is used, a banking institution should demonstrate that it meets the standards of soundness comparable to those of internal- ratings based (IRB) approach for credit risk as set forth under the credit risk component of this framework, based on the assumption of constant level of risk, and adjusted where appropriate to reflect the impact of liquidity, concentrations, hedging and optionality. A banking institution that does not capture the incremental default risk through an internally developed approach must use the fallback of calculating the surcharge through an approach consistent with that for credit risk as set forth in the credit risk component of this framework240. 5.164 Whichever approach is used, cash or synthetic exposures and securitisation exposures that are unrated liquidity lines or letters of credit, are subject to a capital charge that is no less than that set forth under the Securitisation Framework. 5.165 An exception to this treatment could be afforded to a banking institution that is a dealer in the above exposures where it can demonstrate, in addition to trading intent, that a liquid two-way market exists for the securitisation exposures or, in the case of synthetic securitisations that rely solely on credit derivatives, for the securitisation exposures themselves or all the constituents risk components. For the purposes of this part, a two- way market is deemed to exist where there are independent bona fide offers to buy and sell with prices being reasonably related to the last sale price or where current bona fide competitive bid and offer quotations can be determined within one day and settled at such price within a relatively 240 Approaches premised upon internal-rating based models will not be allowed for specific risk measurement unless explicitly approved by the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 315 / 506 Issued on: 3 May 2019 short time for the trade to be confirmed. In addition, for a banking institution to apply this exception, it must have sufficient market data to ensure that it fully captures the concentrated default risk of these exposures in its internal approach for measuring the incremental default risk in accordance with the standards set forth above. 5.166 Banking institutions which apply modelled estimates of specific risk are required to conduct back testing aimed at assessing whether specific risk is being accurately captured. The methodology that a banking institution should use to validate its specific risk estimates is to perform separate back tests on sub-portfolios, using daily data on sub-portfolios subject to specific risk. The key sub-portfolios for this purpose are traded-debt and equity positions. However, if banking institution decomposes its trading portfolio into finer categories (for example emerging markets, traded corporate debt, etc.), it is appropriate to keep these distinctions for sub- portfolio back testing purposes. Banking institutions are required to commit to a sub-portfolio structure and continuously apply it unless it can be demonstrated to the Bank that it is reasonable to change the structure. 5.167 Banking institutions are required to have in place a process to analyse exceptions identified through the back testing of specific risk. This process is intended to serve as the fundamental way in which banking institutions correct internal models of specific risk in the event it becomes inaccurate. There will be a presumption that models that incorporate specific risk are ‘unacceptable’ if the results at the sub-portfolio level produce a number of exceptions commensurate with the Red Zone as defined in Part D.3.9 Framework for the Use of Back Testing. Banking institutions with ‘unacceptable’ specific risk models are expected to take immediate remedial action to correct the model and ensure sufficient capital buffer to absorb the risk identified by the back test. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 316 / 506 Issued on: 3 May 2019 D.3.6 STRESS TESTING 5.168 Banking institutions that use the internal models approach for meeting market risk capital requirements must have in place a rigorous and comprehensive stress testing program. Stress testing to identify events or influences that could greatly impact banking institutions is a key component of an institution's assessment of its capital position. 5.169 Banking institutions' stress scenarios need to cover a range of factors that can create extraordinary losses or gains in the trading books, or make the control of risk in those books very difficult. These factors include low- probability events in all major types of risks, including the various components of market, credit, and operational risks. Stress scenarios need to shed light on the impact of such events on positions that display both linear and non-linear price characteristics (that is options and instruments that have options-like characteristics). 5.170 Banking institutions' stress tests should be both of a quantitative and qualitative in nature, incorporating both market risk and liquidity aspects of market disturbances. Quantitative criteria should identify plausible stress scenarios to which institutions could be exposed. Qualitative criteria should emphasise two aspects of stress testing; to evaluate the capacity of the institution's capital to absorb potential large losses and to identify steps the institution can take to reduce risk and conserve capital. This assessment is integral to setting and evaluating the institution's management strategy and the results of stress testing should be routinely communicated to senior management and, periodically, to the banking institution's board. 5.171 Banking institutions should combine the use of supervisory stress scenarios with internal stress tests developed by institutions to reflect specific risk characteristics. In particular, the Bank will require banking BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 317 / 506 Issued on: 3 May 2019 institutions to provide information on stress testing in three broad areas as part of the monthly statistical submission to the Bank: a) Supervisory scenarios requiring no simulations by the institution Banking institutions should provide information on five largest daily losses experienced during the reporting period. The loss information could be compared to the level of capital that results from an institution's internal measurement system. This would provide a picture of how many days of peak day losses could be covered by the reported capital, based on the banking institution’s value-at-risk estimate. b) Scenarios requiring a simulation by banking institution Portfolios of banking institutions are subjected to a series of simulated stress scenarios. i) These scenarios should include testing the current portfolio against past periods of significant disturbance, for example the 1987 equity crash, the ERM crisis of 1992 and 1993 or the fall in bond markets in the first quarter of 1994, or the Asian financial crisis of 1997 and 1998, incorporating both large price movements and the sharp reduction in liquidity associated with these events. ii) A second type of scenario would evaluate the sensitivity of the banking institution's market risk exposure to changes in the assumptions about volatilities and correlations. Applying this test would require an evaluation of the historical range of variation for volatilities and correlations and evaluation of the institution's current positions against the extreme values of the historical range. Due consideration should be given to sharp variation that at times occurred in a matter of days in periods of market disturbance. Several of the historical examples highlighted in (b)(i) above involved correlations within risk factors approaching the extreme values of 1 or -1 for several days at the height of the disturbance. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 318 / 506 Issued on: 3 May 2019 iii) The Bank will normally not prescribe the simulated scenarios for use in stress testing, although it may do so in the event of a particular market circumstances. c) Scenarios developed by the institution itself to capture the specific characteristics of its portfolio In addition to the scenarios described in paragraph (a) and (b) above, banking institution should also develop its own stress tests which it identifies as the most adverse based on the characteristics of its portfolio (for example, problems in a key region of the world combined with a sharp move in oil prices). Banking institutions should provide the Bank with a description of the methodology used to identify and carry out the scenarios as well as a description of the results derived from these scenarios. 5.172 The stress test results should be reviewed periodically by senior management and reflected in the policies and limits set by the board. Moreover, if the testing reveals a particular vulnerability to a given set of circumstances, the Bank would expect the institution concerned to take prompt steps to remedy those risks appropriately (for example, by hedging against the adverse outcome or reducing the size of exposures). D.3.7 MODEL VALIDATION STANDARDS 5.173 Banking institutions should have processes in place to ensure that internal models have been suitably validated by qualified and independent parties with relevant and sufficient expertise and experience, separate from the development process to ensure that models are conceptually sound and capture all material risks. 5.174 Model validation should be independent of model development to the extent feasible. Where complete independence is not achievable, risk policies should provide for effective reporting of validation party to an independent management and board risk committees. This internal model BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 319 / 506 Issued on: 3 May 2019 validation process and its results should also be reviewed by internal and external auditors. 5.175 The validation should be conducted when the model is initially developed and when significant changes are made to the model. The validation should also be conducted on a periodic basis especially when there are significant structural changes in the market or changes to the composition of the portfolio which might lead to the model no longer being relevant. 5.176 Where specific risk is also modelled, it is important for banking institutions to conduct more extensive model validation and demonstrate that the models satisfy the criteria for specific risk modelling as set out in Part D.3.5 Modelling of Specific Risk. 5.177 Model validation should not be limited to back-testing, but should, at a minimum, also include the following: a) Tests to demonstrate that any assumptions made within the internal model are appropriate and do not underestimate risk. This may include assumption of normal distribution, the use of square root of time to scale from a one-day holding period to a ten-day holding period or where extrapolation or interpolation techniques are used, or pricing models. b) Further to the regulatory back-testing programmes, testing for model validation should be carried out using additional tests, which may include, for instance: i) Testing carried out for longer periods than required for the regular back-testing programme (for example three years), except where the VaR model or market conditions have changed to the extent that historical data are no longer relevant; ii) Testing carried out using confidence intervals other than the 99% interval required under the quantitative standards; iii) Testing of sub-portfolios; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 320 / 506 Issued on: 3 May 2019 iv) Comparing predicted trading outcomes against actual and hypothetical profit and loss. c) The use of hypothetical portfolios to ensure that the model is able to account for particular structural features that may arise, for example: i) Where the data history for a particular instrument does not meet the quantitative standards in paragraphs 5.144 Part D.3.3 Quantitative Standards and where the banking institution has to map these positions to proxies, banking institution should ensure that proxies used produce conservative results under relevant market scenarios; ii) Banking institution should ensure that material basis risks are adequately captured. This may include mismatches between long and short positions by maturity or by issuer; iii) Banking institution should also ensure that the model adopted captures concentration risk that may arise in a portfolio that is not diversified. D.3.8 MODEL REVIEW 5.178 In reviewing banking institution's internal model, the Bank will also require assurance that: a) The internal validation processes described in Part D.3.7 Model Validation Standards are operating in a satisfactory manner. b) The formulae used in the calculation process and for pricing of options and other complex instruments are validated by a qualified unit, which in all cases should be independent from the trading area. c) The structure of internal models is adequate with respect to the institution's activities and geographical coverage. d) The results of the institutions' back-testing of its internal measurement system (that is comparing VaR estimates with actual profits and losses) ensure that the model provides a reliable measure of potential losses over time. The results and the underlying inputs to the VaR BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 321 / 506 Issued on: 3 May 2019 calculations should be available to the Bank and external auditors on request. e) Data flows and processes associated with the risk measurement system are transparent and accessible. In particular, it is necessary that auditors or the Bank have easy access to data and information, whenever it is necessary and and reasonable under appropriate procedures, to the models' specifications and parameters. D.3.9 FRAMEWORK FOR THE USE OF BACK TESTING 5.179 This part presents the framework for incorporating back testing into the internal model approach to market risk capital requirements. It represents an elaboration of paragraph 5.143(b). 5.180 Back testing programs consist of a periodic comparison of banking institution’s daily VaR measure with its daily profit or loss (trading outcome), to gauge the quality and accuracy of a banking institution’s risk measurement systems. The VaR measures are intended to be larger than all but a certain fraction of the trading losses, where that fraction is determined by the confidence level of the VaR measurement. Comparing the risk measures with the trading outcomes simply means that banking institution counts the number of times that trading losses were larger than the risk measures. The fraction of greater than expected losses to total outcomes can then be compared with the intended level of coverage to gauge the performance of the banking institution’s risk model. If the comparison yields close results, the back test raises no issues regarding the quality of the risk measurement model. In some cases, however, the comparison may uncover sufficient differences to indicate that problems almost certainly exist, either with the model or with the assumptions of the back test. In between these two cases is a grey area where the test results are, on their own, inconclusive. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 322 / 506 Issued on: 3 May 2019 Back Testing for Capital Adequacy Purposes 5.181 The back tests carried out for capital adequacy purposes compare whether the observed percentage of outcomes covered by the VaR measure is consistent with a 99 per cent level of confidence. That is, the tests attempt to determine if banking institution’s 99th percentile risk- measures truly measure 99 per cent of the banking institution’s trading outcomes. 5.182 In addition, the back testing framework requires the comparison of daily trading outcomes with a VaR measurement based on a one day holding period. This requirement is to reduce the contamination arising from changes in portfolio composition during the holding period which is reflected in actual profit and loss outcomes but not in VaR numbers which are calculated on a static end-of-day portfolio. 5.183 The same concerns about ‘contamination’ of the trading outcomes continue to be relevant, even for one day trading outcomes. The back test against an overall one day actual profit or loss on its own may not be adequate because it might reflect the effects of fee income and other income not attributable to outright position taking. A more sophisticated approach would involve a detailed attribution of income by source, including fees, spreads and market movements. In such a case the VaR results can be compared with the actual trading outcomes arising from market movements alone (that is back test is performed using a measure of actual profit and loss adjusted for fees, commissions and other income not attributable to outright position taking. 5.184 In addition, the back test most closely aligned to the VaR calculation would be the one based on the hypothetical changes in portfolio value that might occur if end-of-day positions were to remain unchanged. That is, instead of looking at a day’s actual profit or loss, the hypothetical profit or loss obtained from applying the day’s price movements to the previous day’s end-of-day portfolio is calculated. This hypothetical profit or loss result can BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 323 / 506 Issued on: 3 May 2019 then be compared against the VaR based on the same, static, end-of-day portfolio. 5.185 Banking institutions are expected to perform back tests using both hypothetical and actual trading outcomes. In combination, the two approaches are likely to provide a strong understanding of the relation between calculated risk measures and trading outcomes. 5.186 The back testing framework entails a formal testing and evaluation of exceptions on a quarterly basis using the most recent twelve months (or 250 trading days) of VaR and profit data. Banking institution must calculate the number of times that the trading outcomes are not covered by the risk measures (termed ‘exceptions’) using the most recent twelve months of data yields approximately 250 daily observations. The Bank will use the higher of the number of exceptions (out of 250 observations) based on the hypothetical and actual trading outcomes generated by a banking institution’s model as the basis for a supervisory response. Based on the back testing results, the Bank may initiate a dialogue with banking institution to determine possible problem with banking institution’s model. In more serious cases, the Bank may impose an increase in a banking institution’s capital requirement or disallow use of internal model (see paragraphs 5.203 to 5.205 for more details). 5.187 The formal implementation of the back testing programme should begin on the date the internal models for measuring became effective. Notwithstanding this, banking institution applying to the Bank for recognition of an internal model should provide evidence that the model’s back test results are based on the standards described in this part falls into the ‘green zone’ as described in paragraph 5.191 at the time of application. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 324 / 506 Issued on: 3 May 2019 Interpretation of Back Testing Results 5.188 With the statistical limitations of back testing in mind, supervisory interpretation of back testing results encompasses a range of possible responses, depending on the strength of the signals generated from the back test. These responses are classified into three zones, distinguished by colours into hierarchy of responses. a) The green zone corresponds to back testing results that do not themselves suggest a problem with the quality or accuracy of banking institution’s model. b) The yellow zone encompasses results that do raise questions, but whose conclusion is not definitive. The back testing results could be consistent with either accurate or inaccurate models, and the Bank will require banking institution to present additional information about its model before any action is taken. c) The red zone indicates a back testing result that almost certainly indicates a problem with banking institution’s risk model and the Bank will require some remedial actions to be initiated. 5.189 Table 13 below sets out the boundaries for these zones and the presumptive supervisory response for each back testing outcome, based on a sample of 250 observations. Where back testing indicates weaknesses in banking institution’s model, a ‘plus’ factor will be added to the multiplication factor mentioned in paragraph 5.144(j). Table 13: ‘Plus’ factor applicable to the internal models capital requirement resulting from backtesting results Zones No of Exceptions Out of 250 Daily Observations ‘Plus’ Factor Green Zone 4 or less 0.00 Yellow Zone 5 0.40 6 0.50 7 0.65 8 0.75 9 0.85 Red Zone 10+ 1.00 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 325 / 506 Issued on: 3 May 2019 5.190 Banking institutions must apply the ‘plus’ factor indicated in Table 13 in determining its capital charge for market risk until it obtains the next quarter’s back testing results, unless the Bank determines that a different adjustment or other action is appropriate. The Green Zone 5.191 Since a model that truly provides 99 per cent coverage would be quite likely to produce as many as four exceptions in a sample of 250 outcomes, there is little reason for concern raised by back testing results that fall in this range. In such a case, the multiplication factor will not be increased (the plus factor will be zero), and no further action from banking institution is required. The Yellow Zone 5.192 The range from five to nine exceptions constitutes the yellow zone. Outcomes in this range are plausible for both accurate and inaccurate models, although generally more likely for inaccurate than for accurate models. Moreover, the presumption that the model is inaccurate should grow as the number of exceptions increases in the range from five to nine. 5.193 Within the yellow zone, the number of exceptions should generally guide the size of potential supervisory increases in a banking institution’s capital requirement. Table 13 sets out the plus factors applicable to the internal models capital requirement, resulting from back testing results in the yellow zone. 5.194 It is important to emphasise that these increases are not meant to be purely automatic. Back testing results in the yellow zone should generally be presumed to imply an increase in the multiplication factor unless banking institution can demonstrate that such increase is not warranted. 5.195 There are many different types of additional information that might be relevant to assess banking institution’s model. For example, it would be BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 326 / 506 Issued on: 3 May 2019 particularly valuable to see the results of back tests covering disaggregated subsets of banking institution’s overall trading activities. Many banking institutions that engage in regular back testing programs break up the overall trading portfolio into trading units organised around risk factors or product categories. Disaggregating risks into categories could allow the tracking of problems that surfaced at the aggregate level back to its source either at the level of specific trading unit or risk model. 5.196 Banking institutions should also document all exceptions generated from on-going back testing program, including an explanation for the exceptions. This documentation is important in determining an appropriate supervisory response to a back testing that resulted in yellow zone. Banking institutions may also implement back testing for confidence intervals other than the 99th percentile, or may perform other statistical tests not considered here. 5.197 In practice, there are several possible explanations for a back testing exception, some of which might lead to the basic integrity of the model, an under-specified or low-quality model, or poor intra-day trading results. Each of these problems is considered below. Classifying the exceptions generated by banking institution’s model into the following categories can be a useful exercise. a) Basic integrity of the model i) Banking institution’s systems simply are not capturing the risk of the positions themselves (e.g. the positions of an overseas office are being reported incorrectly). ii) Model volatilities and correlations are calculated incorrectly. b) Defects on model’s accuracy  The risk measurement model is not assessing the risk of some instruments with sufficient precision (for example, too few maturity buckets or an omitted spread). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 327 / 506 Issued on: 3 May 2019 c) Abnormal markets movements unanticipated by the model i) Random chance (a very low-probability event). ii) Markets move more than the model predicted (that is, volatility was significantly higher than expected). iii) Markets did not move together as expected (that is, correlations were significantly different than what was assumed by the model). d) Intra-day trading  Large (and money-losing) and unusual change in banking institution’s positions or some other income event between the end of the first day (when the risk estimate was calculated) and the end of the second day (when trading results were tabulated). 5.198 The first category of problems highlighted in paragraph 5.199(a) relating to the basic integrity of the risk measurement model is potentially the most serious. If there are exceptions attributed to this category for a particular trading unit, the plus factor set out in Table 13 will apply. In addition, the model may necessitate review and/or adjustment, and the Bank will require the banking institution to make the appropriate corrections. 5.199 The second category of problem highlighted in paragraph 5.199(b) is one that can be expected to occur at least some of the time with most risk measurement models. All models involve some amount of approximation. If, however, a particular banking institution’s model appears more prone to this type of problem than others, the Bank may impose the plus factor and require the banking institution to improve its risk measurement techniques. 5.200 The third category of problem highlighted in paragraph 5.199(c) should also be expected to occur at least some of the time with VaR models. The behaviour of the markets may shift so that previous estimates of volatility and correlation are less appropriate. No VaR model will be immune to this type of problem; it is inherent in the reliance on past market behaviour as a BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 328 / 506 Issued on: 3 May 2019 means of gauging the risk of future market movements. Exceptions for such reasons do not suggest a problem. However, if the shifts in volatilities and/or correlations are deemed to be permanent, the Bank may require banking institution to recalculate its VaR using volatilities and correlations based on a shorter historical observation period. 5.201 Finally, depending on the definition of trading outcomes employed for the purpose of back testing, exceptions could also be generated by intra-day trading results or an unusual event in trading income other than from positioning. Although exceptions for these reasons would not necessarily suggest problem with banking institution’s VaR model, it could still be a cause for concern and the imposition of the plus factor might be considered. 5.202 The extent to which trading outcome exceeds the risk measure is another relevant piece of information. Exceptions generated by trading outcomes far in excess of the risk measure are a matter of greater concern, than outcomes slightly larger than the risk measure. The Red Zone 5.203 In contrast to the yellow zone, where the Bank may exercise judgement in interpreting the back testing results, outcomes in the red zone (ten or more exceptions) will generally lead to an automatic presumption that a problem exists with banking institution’s model. This is because it is extremely unlikely that an accurate model would independently generate ten or more exceptions from a sample of 250 trading outcomes. 5.204 In general, therefore, if a banking institution’s model falls into the red zone, the Bank will automatically increase the scaling factor applicable to the model by one. The Bank will also investigate the reasons why banking institution’s model produced such a large number of exceptions, and will require the banking institution to begin work on improving its internal model immediately. Finally, in the case of severe problems with the basic BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 329 / 506 Issued on: 3 May 2019 integrity of the model, the Bank may disallow the use of the banking institution’s model for capital adequacy purposes. 5.205 Although ten exceptions is a very high number for 250 observations, there may, on very rare occasions, be a valid reason why an accurate model will produce so many exceptions. In particular, when financial markets are subjected to a major regime shift, many volatilities and correlations can be expected to shift as well, perhaps substantially. Such a regime shift could generate a number of exceptions in a short period of time. One possible response in this instance may be to simply require banking institution’s model to take account of the regime shift as quickly as it can while maintaining the integrity of its procedures for updating the model. This exception will be allowed only under the most extraordinary circumstances. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 330 / 506 Issued on: 3 May 2019 PART E LARGE EXPOSURE RISK REQUIREMENTS E.1 LERR FOR BANKING INSTITUTIONS 6.1 A banking institution shall compute its Large Exposure Risk Requirement (LERR) in relation to its holding of equities (excluding the holdings of units of unit trust funds). 6.2 The LERR for a single equity capital charge shall be applied at all times on an exposure to a single equity that is greater than either the lower of 15% of the banking institution’s Total Capital or 10% of the issuer’s paid-up capital. For equity positions held in the trading book, the capital charge is determined by multiplying the market value of the equity position in excess of the threshold, with the sum of the corresponding general and specific risk weights outlined in the market risk component of the Capital Adequacy Framework. For positions held in the banking book, the capital charge is determined by multiplying the value in excess of the threshold with the corresponding risk weight (i.e. 100%). For trading book exposures, the LERR capital charge shall be multiplied by a factor of 12.5 to arrive at a risk- weighted asset equivalent. An illustration for the calculation of LERR is given in Appendix XVIII. 6.3 Shares and interest-in-shares that are acquired as a result of underwriting commitments, debt satisfaction and debt-equity conversions shall be subject to the LERR capital charge only if the shares and interest-in-shares remain with the banking institution after 12 months from the date of acquisition or conversion. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 331 / 506 Issued on: 3 May 2019 E.2 LERR FOR INVESTMENT BANKS 6.4 For an investment bank, the exposure to a single equity241 shall be computed by including the market value of the equity from the following positions: i) The investment banks’ own proprietary equity positions; and ii) Net purchase contract value of single equity underlying clients’ accounts arising from transactions either under a Ready or Immediate Basis Contract, to the extent that it has not been paid for on and subsequent to the settlement date due. 6.5 Therefore, in addition to the requirement in Part E.1, LERR shall also be computed in relation to an investment bank’s exposure to a single counterparty242 arising from unsettled trades and free deliveries in the normal course of trading in equity securities that are greater than 10% of the investment bank’s Total Capital. The LERR capital charge is equivalent to the corresponding counterparty risk requirement (CRR) calculated as per paragraph 8 of Appendix IX. 6.6 Equity exposures which have been deducted in the computation of regulatory capital or subjected to a risk weight of 1250% will not be included in the computation of LERR capital charge. 241 Shall also include an equity OTC option or equity warrant that is in the money at its full underlying value. 242 A single counterparty includes: i. Where a counterparty is an individual, the individual, spouse of the individual, the partnership of which he is a partner, any partner of the individual, the spouse of the partner and all companies/corporations over which the individual exercises control. For purposes of this framework, an individual is deemed to exercise ‘control’ over a company/corporation if the individual or the individual’s spouse, severally or jointly:  Holds, directly or indirectly, more than 50% of the shares of the corporation,  Has the power to appoint, or cause to be appointed, a majority of the directors of the company or corporation, or  Has the power to make, cause to be made, decisions in respect of the business or administration of the company or corporation, and to give effect to such decisions, or cause them to be given effect to. ii. Where a counterparty is a company or corporation, the company or corporation, its related company or corporation and its associated companies. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 332 / 506 Issued on: 3 May 2019 PART F SECURITISATION FRAMEWORK F.1 INTRODUCTION 7.1 The Securitisation Framework outlines: i) the approaches in determining regulatory capital requirements on exposures arising from traditional and synthetic securitisations243 held in the banking book; and ii) the operational requirements for allowing regulatory capital relief for originating banking institutions. 7.2 Under the Securitisation Framework, all banking institutions, whether acting as originators or as third-party investors, must hold regulatory capital against all securitisation exposures (on- or off-balance sheet) in the banking book244 arising from traditional and synthetic securitisations or structures that contain features similar to both245, hereinafter referred to as ‘securitisation exposures’. Such securitisation exposures may arise from a banking institution’s: i) investments in any securitisation issue, including retention or repurchase of one or more securitisation positions; ii) provision of credit risk mitigants or credit enhancement to parties to securitisation transactions; iii) provision of liquidity facilities or other similar facilities; iv) obligations due to early amortisation features in a securitisation; or v) entitlements to future income generated by a securitisation through various forms of arrangements such as deferred purchase price, excess servicing income, gain-on-sale, future margin income, cash collateral accounts or other similar arrangements. 243 Or similar structures that contain features common to both, including Islamic securitisations. Pending the development of a framework for Islamic securitisation transactions, this Securitisation Framework will similarly apply to Shariah-compliant securitisation exposures, where applicable. 244 Securitisation exposures held in the trading book are subject to interest/profit rate risk charges (specific and general risks) as outlined in the market risk component of the Capital Adequacy Framework (Basel II – Risk-Weighted Assets). 245 For example, a collateralised debt obligation (CDO) that includes a credit-linked note issued out of another synthetic securitisation transaction is considered a structure which contains features of both traditional and synthetic securitisations. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 333 / 506 Issued on: 3 May 2019 7.3 The Securitisation Framework outlines two approaches, namely for banking institutions adopting the Standardised Approach for credit risk (Part F.3) and for banking institutions adopting the IRB approach (Part F.4 – to be issued later). 7.4 As securitisations may be structured in different ways, capital treatments should be applied based on the economic substance or actual risk profile of a particular securitisation exposure rather than the legal form. This ensures that capital provided is commensurate with the underlying risk borne by banking institutions. The capital treatment under the Securitisation Framework shall apply to both conventional securitisation exposure and asset-backed sukuk held by banking institutions. For exposures where the economic substance or actual risk profile of a transaction is akin to a corporate exposure or exposures to asset-based sukuk, the capital treatment under the Standardised Approach for credit risk (Part B.2) shall apply. Definitions and general descriptions of terms used in the Securitisation Framework are provided in Appendix XX. 7.5 Where there are doubts about the appropriate treatment of a particular exposure for regulatory capital purposes, banking institutions should consult the Bank. For complex securitisation products such as CDO2 and single-tranche CDO, where the capital treatment under this framework may not be appropriate, the Bank may specify a separate treatment on a case-by-case basis. 7.6 In entering into any securitisation transactions, banking institutions are also expected to comply with the expectations set out in the Prudential Standards on Securitisation Transactions and other applicable regulatory requirements and guidelines. Specific legal requirements under BAFIA and regulatory processes relating to securitisation transactions are summarised in Appendix XXI. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 334 / 506 Issued on: 3 May 2019 F.2 OPERATIONAL REQUIREMENTS FOR CAPITAL RELIEF 7.7 Under the Securitisation Framework, regulatory capital relief is granted based on the assessment of whether risks under a securitisation transaction have been effectively and significantly transferred. The extent to which securitisation exposures are retained through arrangements during the life of the transaction such as the provision of unconditional liquidity facilities will also be considered. The operational requirements for such capital relief are detailed in paragraphs 7.10 and 7.11. An originating banking institution may, upon receiving written approval for capital relief from the Bank246, exclude the underlying assets that have been securitised (securitised exposures), whether from the banking book or trading book, from the calculation of risk-weighted assets or reduce the capital requirement using credit risk mitigation (CRM) techniques in accordance with Part B.2.5. Originating banking institutions must still hold regulatory capital for any securitisation exposures retained. 7.8 Failure to meet any of the operational requirements referred to in paragraphs 7.10 and 7.11 would result in originating banking institutions having to hold regulatory capital for all of the underlying securitised exposures, as if the underlying exposures had not been securitised. Should this apply, originating banking institutions need not hold additional regulatory capital for the securitisation exposures retained. 7.9 Notwithstanding any capital relief granted, an originating banking institution is expected to monitor and control risks arising from the continued retention of the securitised exposures (e.g. as provider of liquidity facility). This should include the continuing assessment of any change in the risk profile of the transaction and the resulting impact on capital arising from the banking institution’s role in the transaction. Corresponding contingency plans to deal with the risk and capital impact must be put in place. 246 Applications for capital relief should be submitted to the Bank in accordance with the requirements outlined in Appendix XXI “Application for Capital Relief”. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 335 / 506 Issued on: 3 May 2019 F.2.1 Operational Requirements for Traditional Securitisations 7.10 An originating banking institution may exclude an underlying pool of exposures from the calculation of capital requirements, if all the following requirements are met on an ongoing basis: a) Significant credit risk associated with the securitised exposures has been transferred to third parties247. b) The originating banking institution does not maintain effective or indirect control over the transferred exposures. The assets are legally isolated248 from the originating banking institution in a manner (e.g. through the sale of assets or through sub-participation) that the exposures are beyond the reach of the originating banking institution and its creditors, even in bankruptcy or receivership. These conditions must be supported by an opinion provided by a qualified legal counsel249. The originating banking institution is deemed to have maintained effective or indirect control over the transferred credit risk exposures if it is: i) able to repurchase from the transferee (i.e. SPV) the previously transferred exposures in order to realise their benefits; or ii) obligated to retain the risk of the transferred exposures. The originating banking institution’s retention of servicing rights to the exposures will not necessarily constitute indirect control of the exposures. c) The securities issued are not obligations of the originating banking institution. Thus, investors who purchase the securities have recourse only to the underlying pool of exposures. 247 For the purpose of the Securitisation Framework, with the exception of SPVs, entities in which the consolidated treatment is applied for capital adequacy purposes, as outlined in Capital Adequacy Framework (Capital Components) are not included within the definition of a third-party. 248 Examples of methods of legal transfer normally adopted in traditional securitisation transaction are provided in Appendix XX. 249 For this purpose, both internal and external legal counsels are acceptable. Nevertheless, the Bank may, at its discretion require an additional legal opinion from an independent counsel where a second opinion is appropriate. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 336 / 506 Issued on: 3 May 2019 d) The transferee is a special purpose vehicle (SPV) and the holders of the beneficial interests in that entity have the right to pledge or exchange the interests without restriction. e) The securitisation does not contain clauses that: i) require the originating banking institution to alter systematically the underlying exposures to improve the credit quality of the pool; ii) allow for increases in a retained first loss position or credit enhancement provided by the originating banking institution after the inception of the transaction; or iii) increase the yield payable to parties other than the originating banking institution, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the underlying pool. f) Clean-up calls, if any, satisfy the conditions set out in Part F.5.1. F.2.2 Operational Requirements for Synthetic Securitisations 7.11 An originating banking institution may recognise the use of CRM250 techniques such as collateral251, guarantees or credit derivatives252 in a synthetic securitisation for capital relief purpose, if all the following requirements are met on an ongoing basis: a) Significant credit risk associated with the underlying exposure has been transferred to third parties253. b) The instruments used to transfer credit risk do not contain terms or conditions that limit the amount of credit risk transferred. Such clauses might include the following: i) materially limiting the credit protection or credit risk transfer (e.g. pre-determined significant materiality thresholds where credit 250 Use of CRM techniques must comply with the requirements as set out in Part B.2.5. 251 Eligible collaterals are limited to that specified in paragraphs 2.105 and 2.106, including those that are pledged by SPVs. 252 Eligible guarantors are defined in paragraph 2.148. Banking institutions may not recognise SPVs as eligible guarantors or credit protection providers in the Securitisation Framework. 253 Refer to footnote 247. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 337 / 506 Issued on: 3 May 2019 protection is deemed not to be triggered even if a credit event occurs, or clauses that allow for the termination of the protection due to a deterioration in the credit quality of the underlying exposures); ii) requiring the originating banking institution to alter the underlying exposures to improve the credit quality of the reference pool; iii) increase in the banking institutions’ cost of credit protection in response to a deterioration in the quality of the reference pool; iv) increase in the yield payable to parties other than the originating banking institution, such as investors and third-party providers of credit enhancements, in response to a deterioration in the credit quality of the reference pool; and v) provide for increases in a retained first loss position or credit enhancement provided by the originating banking institution after the inception of the transaction. c) Securitisation structures that include a clean-up call feature must satisfy the conditions set out in Part F.5.1. d) A written opinion is obtained from a qualified legal counsel that confirms the enforceability of the contracts in all relevant jurisdictions254. 7.12 Part B.2.5 provides the capital treatment for banking institutions using CRM techniques to hedge underlying exposures and the treatment of any maturity mismatches255 arising from synthetic securitisations. In particular, the maturity mismatch treatment set forth in paragraphs 2.155 to 2.158 must be applied. In cases where the exposures in the underlying pool have different maturities, the longest maturity shall be taken as the maturity of the pool. 254 Refer to footnote 249. 255 Maturity mismatches may arise in the context of synthetic securitisations when for example, a banking institution uses credit derivatives to transfer part or all of the credit risk of a specific pool of assets to third parties. When the credit derivatives unwind, the transaction will terminate. This implies that the effective maturity of the tranches of the synthetic securitisation may differ from that of the underlying exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 338 / 506 Issued on: 3 May 2019 F.3 STANDARDISED APPROACH FOR SECURITISATION EXPOSURES F.3.1 TREATMENT OF ON-BALANCE SHEET SECURITISATION EXPOSURES 7.13 The risk-weighted asset amount of an on-balance sheet securitisation exposure is computed by multiplying the amount of the securitisation exposure by the appropriate risk weight provided in the tables “Securitisations” and “Securitisations (Short term ratings)” in Appendix III. 7.14 Originating banking institutions that retain their own-originated securitisation positions rated below investment grade must apply a 1250% risk weight on all of such exposures. Holdings of non-investment grade securitisation exposures, however, will not be subject to the 1250% risk weight if the originating banking institution does not also retain the first loss position (in whole or in part) of its own securitisation. In this case, the corresponding risk weight as provided in the tables mentioned in paragraph 7.13 shall be used. 7.15 The 1250% risk weighting imposed on unrated securitisation exposures, as indicated in Appendix III will not apply in the following circumstances: A. Unrated most senior securitisation exposures Where a banking institution that holds or guarantees the most senior exposure in a traditional or synthetic securitisation applies the ‘look-through’ approach in determining the average risk weight of the underlying exposure, the unrated exposures should be subject to the average risk weight256. However, if the resulting weighted average risk weight is higher than the risk weight of the securitisation exposure below it, then the risk weight of the latter shall apply. 256 Banking institutions must be able to demonstrate that the composition of the underlying pool and the relevant risk weight of each individual exposure within the pool are quantifiable at all times. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 339 / 506 Issued on: 3 May 2019 B. Unrated securitisation exposures in a second loss or better position under an ABCP programme Unrated securitisation exposures held by a banking institution to an ABCP programme will be subject to a risk weight which is the higher of 100% or the highest risk weight assigned to any of the underlying individual exposures covered by the facility, subject to the following requirements: i) the exposure is economically in a second loss position or better and the first loss position provides significant credit protection257 to the second loss position; ii) the associated credit risk is the equivalent of investment grade or better258; and iii) the banking institution holding such unrated securitisation exposure does not also retain the first loss position in the ABCP program. 257 As may be demonstrated by models and simulation techniques. 258 As may be evidenced by an indicative rating provided by an internal model. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 340 / 506 Issued on: 3 May 2019 F.3.2 TREATMENT OF OFF-BALANCE SHEET SECURITISATION EXPOSURES 7.16 Off-balance sheet securitisation exposures must be translated into an on- balance sheet exposure equivalent amount by multiplying the exposure with a credit conversion factor (CCF). The resulting amount is then weighted according to the relevant risk weights. 7.17 The CCFs, which are determined based on whether the off-balance sheet securitisation exposure qualifies as an ‘eligible liquidity facility’, an ‘eligible servicer cash advance facility’ or ‘eligible underwriting facility’ according to the eligibility criteria specified in Part F.5.3, are as follows: CCF Risk Weight Treatment of eligible liquidity facilities a) Externally rated eligible liquidity facility that meets the operational requirements in paragraph 7.107 and the requirements for use of external rating in Part F.5.4. 100% Rating-based risk weight in Appendix III. b) Non-externally rated eligible liquidity facility with an original maturity of more than 1 year. 50% Highest risk weight assigned to any of the underlying individual exposures covered by the facility. c) Non-externally rated eligible liquidity facility with an original maturity of 1 year or less. 20% Treatment of eligible servicer cash advance facilities a) Eligible servicer cash advance facility that meets the operational requirements in paragraph 7.108. 0% Not applicable Treatment of eligible underwriting facility a) Eligible underwriting facility that meets the operational requirements in paragraph 7.109. 50% Highest risk weight assigned to any tranche of the securitisation exposure underwritten Others a) All other off-balance sheet securitisation exposures (including ineligible facilities), unless otherwise specified by the Bank. 100% Highest risk weight assigned to any tranche of the securitisation exposure BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 341 / 506 Issued on: 3 May 2019 F.3.3 TREATMENT OF OVERLAPPING EXPOSURES 7.18 A banking institution may provide several types of facilities (e.g. provision of a liquidity facility and a credit enhancement) in a securitisation transaction that can be drawn under various terms and conditions which may overlap with each other. Under circumstances where there is an explicit limit on the draw of more than one facility at a time for the overlapping exposure, capital should be provided as though the institution had only provided one facility for the overlapping exposures259. If the overlapping facilities are subject to different capital treatments, the treatment that results in the highest capital charge should be applied on the overlapping portion. 7.19 The treatment above does not apply in cases where the overlapping facilities are provided by two different banking institutions and capital is allocated by each individual institution. F.3.4 TREATMENT OF COUNTERPARTY CREDIT RISK FOR SECURITISATION EXPOSURES 7.20 When an interest rate or currency swap is provided to a securitisation transaction and where the counterparty is an SPV, the credit equivalent amount is computed based on the current exposure method specified in Appendix VIII. The highest risk weight of the underlying assets in the pool shall be applied to the resultant exposure amount in determining the counterparty credit risk. 259 For example, if a banking institution provides a credit enhancement covering 10% of the underlying asset pool in an ABCP programme and a liquidity facility covering 100% of the same underlying asset pool, the banking institution would be required to hold capital against 10% of the underlying asset pool for the credit enhancement it is providing and 90% of the liquidity facility provided to the underlying asset pool. Effectively, the overlapping portion between the credit enhancement portion and the liquidity facility portion would be subject to a capital treatment which results in the highest capital charges. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 342 / 506 Issued on: 3 May 2019 F.3.5 TREATMENT OF SECURITISATION OF REVOLVING UNDERLYING EXPOSURES WITH EARLY AMORTISATION PROVISIONS 7.21 Early amortisation provisions are mechanisms that, once triggered, allow investors to be paid out prior to the maturity of the securities subject to the terms of the securitisation transaction. Generally, early amortisations are triggered based upon the performance or selected risk indicators of the underlying exposures, such as the excess spread level. The existence of an early amortisation feature260 in a securitisation transaction exposes an originating banking institution to liquidity risk if the securities issued are required to be prepaid early, for example where there is a significant reliance on securitisation to meet funding requirements. 7.22 Accordingly, originating banking institutions must hold capital against the risk exposure arising from the securitisation of revolving underlying exposures that contains an early amortisation feature. The specific capital treatment varies according to the type of early amortisation provision (i.e. controlled or non-controlled early amortisation) and type of underlying securitised exposures (i.e. committed or non-committed and retail or non- retail) as detailed below. 7.23 An originating banking institution is required to hold capital against all or a portion of the investors’ interest (i.e. against both the drawn and undrawn balances related to the securitised exposures) when it sells revolving exposures into a structure that contains an early amortisation feature in the following manner: Capital requirement for originating banking institutions = (Investors’ interest) x CCF x (Risk weight of underlying exposures) 260 A clean-up call feature is distinguished from an early amortisation feature in this framework, where a clean-up call is exercised only under the conditions specified in paragraph 7.102. This supports the differentiated capital treatment for early amortisation and clean-up call features. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 343 / 506 Issued on: 3 May 2019 7.24 The total capital charge for all of its positions will be subject to a maximum capital requirement equal to the greater of: a) the capital required for retained securitisation exposures; or b) the capital requirement that would apply had the exposures not been securitised. 7.25 The specific credit conversion factors (CCFs) to be applied depend upon whether the early amortisation repays investors through a controlled or non-controlled mechanism. 7.26 For the purpose of the Securitisation Framework, a controlled early amortisation provision must meet all of the following conditions: a) an appropriate capital or liquidity plan is in place to ensure that sufficient capital and liquidity is available in the event of an early amortisation; b) interest, principal, expenses, losses and recoveries are shared on a pro-rata basis according to the banking institution’s and investors’ relative shares of the receivables outstanding at the beginning of each month. The same pro-rata share should be applied throughout the duration of the transaction, including the amortisation period; c) a period for amortisation has been set, which should be sufficient for at least 90% of the total debt outstanding at the beginning of the early amortisation period to have been repaid or recognised as in default; and d) the pace of repayment should not be any more rapid than would be allowed by straight-line amortisation over the period set out in criterion (c). 7.27 An early amortisation provision that does not satisfy the conditions above will be treated as a non-controlled early amortisation. 7.28 The CCFs to be applied depends on whether the securitised exposures are uncommitted retail credit lines (e.g. credit card receivables) or other BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 344 / 506 Issued on: 3 May 2019 credit lines (e.g. revolving corporate facilities). A credit line is considered uncommitted if it is unconditionally cancellable without prior notice. 7.29 The capital requirement outlined in Part F.3.5 does not apply under the following circumstances: a) where the securitisation transaction includes a replenishment structure under which the replenished exposures are not revolving in nature and the early amortisation ends the ability of the originating banking institution to add new exposures; b) where the transaction has features that mirror a term structure (i.e. where the risk on the underlying exposures does not return to the originating banking institution); c) a structure where investors remain fully exposed to future drawings by borrowers in respect of the revolving underlying exposures even after an early amortisation event has occurred; and d) the early amortisation clause is solely triggered by events not related to the performance of the securitised assets or the originating banking institution, such as material changes in tax laws or regulations. Determination of CCFs for controlled early amortisation features Uncommitted retail exposures 7.30 For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing controlled early amortisation features, banking institutions must compare the three-month average excess spread to the point at which the originating banking institution is required to trap excess spread as stipulated under the terms of the securitisation structure (i.e. excess spread trapping point). 7.31 In cases where such a transaction does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 345 / 506 Issued on: 3 May 2019 7.32 Banking institutions must divide the excess spread level by the transaction’s excess spread trapping point, to determine the appropriate segments and apply the corresponding CCF, as outlined in the following table. Controlled early amortisation features Uncommitted Committed Retail credit lines 3-month average excess spread Credit Conversion Factor (CCF) 90% CCF 133.33% of trapping point or more 0% CCF less than 133.33% to 100% of trapping point 1% CCF less than 100% to 75% of trapping point 2% CCF less than 75% to 50% of trapping point 10% CCF less than 50% to 25% of trapping point 20% CCF less than 25% of trapping point 40% CCF Non-retail credit lines 90% CCF 90% CCF Other exposures 7.33 All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with controlled early amortisation features will be subject to a CCF of 90% against the off-balance sheet exposures. Determination of CCFs for non-controlled early amortisation features 7.34 Early amortisation features that do not satisfy the definition of a controlled early amortisation will be considered non-controlled and treated as follows: Uncommitted retail exposures 7.35 For uncommitted retail credit lines (e.g. credit card receivables) in securitisations containing non-controlled early amortisation features, banking institutions must compare the three-month average excess spread to the point at which the banking institution is required to trap excess spread under the terms of the securitisation structure (i.e. excess spread trapping point). In BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 346 / 506 Issued on: 3 May 2019 cases where such a transaction does not require excess spread to be trapped, the trapping point is deemed to be 4.5 percentage points. The excess spread level shall be divided by the transaction’s excess spread trapping point to determine the appropriate segments and apply the corresponding credit conversion factors, as outlined in the following table. Non-controlled early amortisation features Uncommitted Committed Retail credit lines 3-month average excess spread Credit Conversion Factor (CCF) 100% CCF 133.33% of trapping point or more 0% CCF less than 133.33% to 100% of trapping point 5% CCF less than 100% to 75% of trapping point 15% CCF less than 75% to 50% of trapping point 50% CCF less than 50% of trapping point 100% CCF Non-retail credit lines 100% CCF 100% CCF Other exposures 7.36 All other securitised revolving exposures (i.e. those that are committed and all non-retail exposures) with non-controlled early amortisation features will be subject to a CCF of 100% against the off-balance sheet exposures. Pools comprising both revolving and term exposures 7.37 For securitisation structures wherein the underlying pool comprises both revolving and term exposures, the originating banking institution must apply the relevant early amortisation treatment to that portion of the underlying pool containing revolving exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 347 / 506 Issued on: 3 May 2019 F.3.6 TREATMENT OF CREDIT RISK MITIGATION FOR SECURITISATION EXPOSURES 7.38 The requirements outlined in this section provide the treatment for banking institutions that: a) obtain credit risk mitigants such as guarantees, credit derivatives, collateral and on-balance sheet netting to cover the credit risk of a securitisation exposure (e.g. an asset-backed securities tranche); and b) provide such credit risk mitigation to a securitisation exposure. 7.39 When a banking institution other than an originating banking institution provides credit protection to a securitisation exposure, it must calculate the capital requirement on the covered exposure as if it were an investor in that securitisation. For example, if protection is provided to an unrated first loss position, a risk weight of 1250% shall be applied accordingly to such credit protection. Guarantees and credit derivatives 7.40 Where guarantees or credit derivatives are provided by eligible entities261, banking institutions may take into account such credit protection in calculating capital requirements for their securitisation exposures in accordance to CRM treatments specified in paragraphs 2.142 to 2.154. Eligible collateral 7.41 Eligible collateral is limited to those recognised under paragraphs 2.105 and 2.106, including collateral that may be pledged by an SPV. Maturity mismatches 7.42 Where a maturity mismatch exists in any credit risk mitigation for securitisation exposures, the capital requirement for the maturity mismatch as outlined in paragraphs 2.155 to 2.158 shall be applied. When the exposures being hedged have different maturities, the longest maturity must be used. 261 Refer to footnote 252. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 348 / 506 Issued on: 3 May 2019 F.4 INTERNAL RATINGS-BASED APPROACH FOR SECURITISATION EXPOSURES To be issued at a later date. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 349 / 506 Issued on: 3 May 2019 F.5 OTHER OPERATIONAL REQUIREMENTS F.5.1 OPERATIONAL REQUIREMENTS AND TREATMENT OF CLEAN-UP CALLS 7.101 Certain securitisation transactions may incorporate a clean-up call feature. A clean-up call is an option that permits the securitisation exposures (e.g. asset-backed securities) to be called before all of the underlying exposures or securitisation exposures have been repaid. In the case of traditional securitisations, this is generally accomplished by repurchasing the remaining securitisation exposures once the pool balance or outstanding securities have fallen below some specified level that renders the securitisation uneconomical to continue. In the case of a synthetic transaction, the clean-up call is a clause in the securitisation documentation that provides an option to extinguish the credit protection. 7.102 In general, originating banking institutions are not required to set aside regulatory capital for the existence of a clean-up call, provided that all the following conditions are fully met: a) The exercise of the clean-up call is not mandatory, in form or in substance, but rather is at the sole discretion of the originating banking institution; b) The clean-up call is not structured to avoid allocating losses to credit enhancements or positions held by investors, or otherwise structured to provide a credit enhancement; and c) The clean-up call is only exercisable when 10% or less of the original underlying portfolio or securities issued remains, or for synthetic securitisations, when 10% or less of the original reference portfolio value remains. 7.103 A clean-up call that does not meet all of the requirements above, hereinafter referred to as ‘non-eligible clean-up call’, shall be subject to the following treatment: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 350 / 506 Issued on: 3 May 2019 a) For a traditional securitisation, the underlying exposures must be treated as if the exposures were not securitised. Banking institutions should deduct in the calculation of CET1 Capital any income in equity capital resulting from a securitisation transaction, such as that associated with expected future margin income resulting in a gain-on-sale; and b) For synthetic securitisations, the purchaser of protection must hold capital against the entire amount of the synthetically securitised exposures as if it had not benefited from any credit protection. F.5.2 TREATMENT FOR IMPLICIT SUPPORT 7.104 Implicit support arises when a banking institution provides support to a securitisation beyond its predetermined contractual obligations. This implicit support increases market expectations that the banking institution might continue to provide future support to the securitisation, thereby understating the degree of risk transfer and the required level of regulatory capital by the banking institution. 7.105 Examples of implicit support include the purchase of deteriorating credit risk exposures from the underlying pool, the sale of discounted credit risk exposures into the pool of securitised credit risk exposures, the purchase of underlying exposures at above market price or an increase in the first loss position according to the deterioration of the underlying exposures. 7.106 Banking institutions should disclose to the Bank the nature of implicit support extended to a securitisation transaction. Where such implicit support is extended, the banking institution would be required to: a) hold capital against all of the exposures associated with the securitisation transaction as if the exposures had not been securitised or as if the transaction did not benefit from any credit protection (in the case of synthetic securitisation); b) deduct in the calculation of CET1 Capital any income in equity capital resulting from a securitisation transaction, such as that BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 351 / 506 Issued on: 3 May 2019 associated with expected future margin income resulting in a gain- on-sale; and c) disclose in the financial statement the details of the implicit support and its capital impact. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 352 / 506 Issued on: 3 May 2019 F.5.3 ELIGIBLE OFF-BALANCE SHEET SECURITISATION EXPOSURES Eligible liquidity facilities 7.107 An off-balance sheet securitisation exposure can be classified as an eligible liquidity facility, if the following conditions are met: a) The facility documentation must clearly identify and limit the circumstances under which it may be drawn. Draws under the facility must be limited to the amount that is likely to be repaid fully from the liquidation of the underlying exposures and any credit enhancements provided by parties other than the banking institution providing the liquidity facility. In addition, the facility must not cover any losses incurred in the underlying pool of exposures prior to a draw, or be structured such that draw-down is certain (as indicated by regular or continuous draws); b) The facility must be subject to an asset quality test that precludes it from being drawn to cover credit risk exposures that are in default as defined in Appendix V. In addition, if the exposures that a liquidity facility is required to fund are externally rated securities, the facility can only be used to fund such securities that are rated at least investment grade at the time of funding; c) The facility cannot be drawn after all applicable (e.g. transaction- specific and programme-wide) credit enhancements from which the liquidity would benefit have been exhausted; and d) Repayment of draws on the facility (e.g. cash flow generated from underlying assets acquired by the SPV) must not be subordinated to any interests of any note holder in the programme (e.g. ABCP programme) or subject to any deferral or waiver. Eligible servicer cash advance facilities 7.108 Undrawn cash advances extended by a banking institution acting as a servicer of a securitisation, to facilitate an uninterrupted flow of payments BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 353 / 506 Issued on: 3 May 2019 to investors, can be classified as an eligible servicer cash advance facility, if the following conditions are met: a) the provision of such facilities must be contracted; b) the undrawn cash advances or facilities must be unconditionally cancellable at the discretion of the servicer banking institution without prior notice; c) the servicer is entitled to full reimbursement and this right is senior to other claims on cash flows from the underlying pool of exposures; and d) such cash advances should not act as a credit enhancement to the securitisation. Eligible underwriting facilities 7.109 An off-balance sheet securitisation exposure can be classified as an eligible underwriting facility, if the following conditions are met: a) the underwriting facility must be clearly documented with the specified amount and time period of the facility stipulated. The facility should be separated from any other facility provided by the banking institution; b) the facility is cancellable at the discretion of the banking institution within a reasonable period of notice; and c) a market exists for the type of underwritten securities. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 354 / 506 Issued on: 3 May 2019 F.5.4 REQUIREMENTS FOR USE OF EXTERNAL RATINGS 7.110 For risk-weighting of rated securitisation exposures, banking institutions are only allowed to use external ratings provided by ECAIs recognised by the Bank, as listed in Appendix III. In addition, banking institutions must ensure that the use of external ratings for risk-weighted capital adequacy purposes meets the following conditions: a) The external rating is made publicly available i.e. a rating must be published in an accessible form. Credit ratings that are made available only to the parties to a securitisation transaction (e.g. rating on a particular securitisation exposure made available upon request by parties to the transaction) are not considered as a public rating for purposes of the Securitisation Framework; b) The external rating is reflective of the entire amount of the banking institution’s credit risk exposure with regard to all payments owed to it. For example, if a banking institution is owed both principal and interest, the assessment must fully take into account and reflect the credit risk associated with timely repayment of both principal and interest; c) External ratings provided by the ECAIs are applied consistently across a given type of securitisation exposure. In particular, banking institutions are not allowed to use an ECAI’s credit rating for one or more tranches and another ECAI’s rating for other tranches within the same securitisation structure that may or may not be rated by the first ECAI. In cases where a securitisation exposure is rated by more than one ECAI, the requirements in paragraph 2.8 shall apply; d) If CRM is provided directly to an SPV by an eligible guarantor262 (i.e. eligible credit protection) and is reflected in the external rating assigned to a securitisation exposure, the risk weight associated with that external rating should be used. However, if the CRM provider is not an eligible guarantor, the rating for the ‘guaranteed’ securitisation exposure should not be recognised and the exposure 262 Refer to footnote 252. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 355 / 506 Issued on: 3 May 2019 should be treated as unrated (except for securitisation exposures mentioned in paragraph 7.15); and e) In the situation where CRM is applied to a specific securitisation exposure within a given structure (e.g. hedging a senior tranche exposure), banking institutions shall disregard the rating attached to the exposure and use the CRM treatment instead, as outlined in Part B.2.5 to recognise the hedge. However, if the CRM becomes ineligible, the rating attached to the securitisation exposure should be used for risk-weighting purposes263. 7.111 While the Capital Adequacy Framework primarily relies on external credit assessments, banking institutions must exercise prudence to ensure that the external credit assessments do not substitute for the banking institution’s own due diligence in the credit assessment process. In order to use external ratings under the Securitisation Framework, a banking institution must have the following: a) A comprehensive understanding of the risk characteristics of its individual securitisation exposures, whether on balance sheet or off- balance sheet, as well as the risk characteristics of the pools underlying the securitisation exposures. As part of their investment due diligence process, banking institutions should also consider the extent to which the originator or sponsor of the securitisation shares a similar economic interest as that of investors (for example, as indicated by the proportion of underlying exposures retained by the originator); b) A thorough understanding of all structural features of a securitisation transaction that would materially impact the nature of the banking institution’s exposures to the transaction, such as the contractual waterfall and waterfall-related triggers, credit 263 For example, when a banking institution is investing in a BBB-rated ABS tranche and subsequently hedges the investment using CDS with an eligible counterparty under the framework, the rating- based risk weight for the ABS tranche shall be disapplied and the CRM treatment shall be used instead. However, if the CRM provider is ineligible under the framework, the banking institution shall fall back to the ratings-based capital treatment. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 356 / 506 Issued on: 3 May 2019 enhancements, liquidity enhancements, market value triggers, and deal-specific definitions of default; and c) Access to performance information on the underlying pools on an ongoing basis in a timely manner. Such information may include, as appropriate: exposure type; percentage of loans 30, 60 and 90 days past due; default rates; prepayment rates; loans in foreclosure; property type; occupancy; average credit score or other measures of credit worthiness; average loan-to-value ratio; and industry and geographic diversification. For re-securitisations, banking institutions should have information not only on the underlying securitisation tranches, such as the issuer name and credit quality, but also on the characteristics and performance of the pools underlying the securitisation tranches. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 357 / 506 Issued on: 3 May 2019 PART G REQUIREMENTS FOR APPROVED FINANCIAL HOLDING COMPANIES G.1 GENERAL REQUIREMENTS 8.1 Except for the requirements in paragraph 1.9(i), all other requirements in this policy document264 shall be applicable to financial holding companies that hold investment directly or indirectly in corporations that are engaged predominantly in banking business. 8.2 References to banking institution(s) in this document shall also refer to approved financial holding company (-ies), as the case may be. G.2 Regulatory approval process for the adoption of an advanced approach 8.3 A financial holding company is required to obtain the Bank’s written approval prior to adopting any of the following advanced approaches: i) Internal Ratings-based Approach for credit risk; ii) Internal Model Approach for market risk; and iii) The Standardised Approach or Alternative Standardised Approach for operational risk. 8.4 Where a Malaysian licensed bank within a financial group adopts an advanced approach for the computation of risk-weighted assets of a risk type, the financial holding company shall apply a similar approach for the computation of the group risk-weighted assets of that risk type265,266. This will ensure a consistent measurement approach applied for similar exposures across the group. 264 This includes the reporting templates and reporting manual. 265 For credit risk, the adoption of the advanced approach can be done based on an asset class or a sub-class, and for market risk, the adoption of the advanced approach can be done based on a broad risk category. 266 For clarity, the other banking subsidiaries do not necessarily have to adopt the similar approach for their entity level reporting. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 358 / 506 Issued on: 3 May 2019 8.5 For the purpose of submitting an application to adopt the Internal Ratings- Based Approach for credit risk: i) for a financial group where the Malaysian licensed bank within the group has adopted the Internal Ratings-Based Approach prior to 23 October 2014267: a. the group must fully comply with all minimum requirements of the approach on a consolidated basis by 1 January 2019; b. the group must submit the application, accompanied by all required information, to the Bank by 1 January 2017268; c. the Bank will inform its decision on the application and the commencement of observation period269 by 31 December 2017; and d. the Bank will inform its final decision on the migration to the approach before 1 January 2019. ii) for a financial group where the Malaysian licensed bank within the group is planning to migrate to the Internal Rating-Based Approach for credit risk after 23 October 2014: a. the group shall formally notify the Bank of its intention to migrate at least 3 years before the intended implementation date; b. the group must submit the application, accompanied by all required information, to the Bank at least 2 years before the intended implementation date; c. the group shall comply with all minimum requirements of the approach except in relation to the use of internal ratings, at the time of submission to the Bank under (b) above. In the case of the requirements on the use of internal ratings, the group shall demonstrate a credible track record showing that the rating 267 Discussion paper on Capital Adequacy Framework for Financial Holding Companies (Banking groups) issued on 23 October 2014. 268 For clarity, compliance with the minimum requirements of the approach is not required at the time of submission of the required information to the Bank. The group may utilise the time allocated for the review period by the Bank and the observation period to fully meet the minimum requirements by 1 January 2019. 269 The observation period is intended to ensure that the models developed comply with the minimum requirements. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 359 / 506 Issued on: 3 May 2019 systems which comply with the minimum requirements have been used for at least 1 year prior to the submission. The group may utilise the time allocated for the review period by the Bank and the observation period to fully meet the use of internal ratings requirements270; d. the Bank will inform its decision on the application and whether the group can commence observation period within 1 year from the receipt of the submission of the required information under (b) above; and e. in the case where the Bank has agreed for the group to commence observation period, the Bank will inform its final decision on the migration to the approach by the end of the observation period. 270 As required in paragraph 3.375. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 360 / 506 Issued on: 3 May 2019 APPENDICES Appendix I Areas of National Discretion Paragraph in Basel document Areas of National Discretion Treatment B.1. Standardised Approach for Credit Risk 54 Lower risk weight to claims on sovereign (or central bank) in domestic currency if funded in that currency (Treatment where other supervisors have accorded) Apply 0% risk weight for exposures to Malaysian government and the Bank. 55 Recognition of Export Credit Agencies’ assessments Not recognised 57 Claims on domestic PSEs as if banking institutions Domestic PSEs accorded 20% if criteria specified under paragraph 2.19 met. Else treated as corporates. 58 Claims on domestic PSEs as if sovereigns (Treatment if other regulators adopt preferential treatment) Not exercised. 60-64 Claims on banking institutions: Option 1, risk weight one category less than sovereign; Option 2, risk weight on the banking institution’s external credit assessment Option 2 applied. 64 Preferential risk weight treatment for claims on banking institutions with an original maturity of 3 months or less and denominated and funded in the domestic currency Exercised. 65 Allow securities firms to be treated similarly as banking institutions Not exercised. Securities firms to be treated as corporates. 67 Increase standard risk weight for unrated claims when a higher risk weight is warranted by the default experience in their jurisdiction The Bank has accorded a 100% risk weight for unrated corporates. 68 To risk weight all corporate claims at 100% without regard to external ratings Not exercised. 69 Definition of claims included in regulatory retail portfolio Definition provided under paragraph 2.29. 70 Granularity criterion for the retail portfolio, limit of 0.2% of the overall retail portfolio 0.2% threshold applied. 71 To increase risk weights for regulatory retail Risk weight BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 361 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment exposures maintained at 75%. 72 Definition of claims secured by residential mortgages Definition provided under paragraph 2.31. 72-73 To increase preferential risk weights for claims secured by residential properties Risk weights for residential mortgages subject to above criteria and dependent on exposure loan-to- value ratio. 74 (Footnote (FN) 25) Commercial real estate 50% risk weight only if strict conditions are met Not exercised. 75 & 78 Risk weight for the unsecured portion of a loan past due, net of specific provisions, reduced to 50% when specific provisions are more than 50% Exercised. 75 (FN 26) Past due treatment for non past due loans to counterparties subject to a 150% risk weight Exercised 76 (FN 27) Transitional period of three years for recognition of a wider range of collateral for higher risk categories (past due assets) Not exercised 77 If a past due loan is fully secured by other forms of collateral, a 100% risk weight may apply when provisions reach 15% of the outstanding amount Not exercised. 80 150% or higher risk weight to other assets List specified under paragraph 2.42. 81 (FN 28) Risk weight gold bullion at 0% Exercised. 92 Mapping External Credit Assessment Institutions’ assessments to the risk weights Not exercised. The Bank will undertake continuous monitoring of local ECAI’s default experience to assess appropriateness of risk weights. 102 (FN 31) Use a borrower's domestic currency rating for exposure in foreign exchange transactions when loan extended by a Multilateral Development Banks. Exercised. 108 Use of unsolicited ratings Not exercised. 201 Lower risk weight to claims guaranteed by the sovereign (or central bank), when denominated and funded in domestic Exercised. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 362 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment currency 711 Lower specific risk charge where government paper denominated in domestic currency is funded in same currency Exercised. 154 Banking institution's internal haircut (H) for each category of security when debt securities are rated BBB-/A-3 or higher Not exercised. 170 & 294 Banking institutions can apply a H=0 for certain types of repo-style transaction Exercised. 171 Definition of core market participants Sovereign, central banks and licensed banking institutions and Islamic banking institutions. 172 Follow other supervisors preferential treatments with regard to carve-out Exercised. 178 Supervisors may allow banking institutions to use VAR approach for repo-style transactions Exercised. B.2. Internal Ratings-Based Approach for Credit Risk 227-228 Definition of HVCRE Exercised. Refer to paragraph 3.27. 231-232 Threshold and number of borrowers to be classified as ‘retail’. Not exercised. 234 (c) Threshold for exposures to be included in qualifying revolving retail exposures Exercised. Threshold set at RM500,000 per individual or small business. 237 Exemption of certain hedged equity-like obligations where net position has little/no equity risk. Not exercised. 238 Re-characterise debt obligations as equity. Exercised on a case- by-case basis. 241-242 Allow use of top-down approach for purchased corporate receivables. Exercised. 250 For foundation IRB banking institutions, the use of a foundation approach for HVCRE (where banking institution sets PD), but with use of a separate risk weighting formula. Exercised. 251 For Advanced IRB banking institutions, the use of an advanced approach for HVCRE (where banking institution satisfies PD, LGD and EAD requirements), but with use of a Exercised. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 363 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment separate risk weighting formula. 257 Phased rollout of IRB across business units, across asset classes in the same business unit and moving from foundation to advanced IRB for certain components (e.g. EAD and not LGD) Exercised. 259 Permanent exemption of certain asset classes or units with immaterial exposures or risk profiles Exercised. Permanent exemption for:  Immaterial exposures (defined as aggregate credit RWA of less than or equal to 15% at group and entity level);  Sovereign, central banks, banking institutions and PSEs;  Equity holdings in institutions whose debt qualifies for 0% risk weight under standardised approach;  Immaterial equity holdings on a case-by-case basis;  Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 364 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment (subject to limit of 10% of Total Capital). Temporary exemption for:  Additional aggregate credit RWA up to 10% during the transition period. 264-265 Transitional arrangements Exercised. Flexibility is granted for the following requirements at the start of the transition period:  Five year data requirement, reduced to two years  Three years of use test requirement, reduced to one year. 267 Ten year exemption for equity holding at the point of implementation. Not exercised. 277 Preferential UL risk weights for ‘strong’ and ‘good’ SL exposures provided remaining maturity < 2.5 years or where internal underwriting standards more risk averse than the supervisory slotting criteria Exercised. 282 (and 379) Preferential UL and EL risk weights to HVCRE exposures falling into ‘strong’ and ‘good’ SSC categories. Not exercised. 288 Inclusion of ‘economic subordination’ in the definition of subordinated claims Not exercised. 294 Removal of hair-cut for core market participants in certain repo-style transactions. Exercised. 318 Foundation IRB banking institutions to measure effective maturity for each facility, as opposed to using the standard 2.5 years. Exercised on a case- by-case basis. 319 Exemption of exposures to smaller firms from the maturity framework Not exercised. 321-323 Exemption of certain short-term exposures from the maturity floor of one year Exercised. Exemption for facilities below BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 365 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment three months maturity. 341-343 Prescribe which approach, market-based or PD/LGD, will be used for equities exposure Exercised on a case by case basis. 348 Allow a banking institution to use different market based approaches for different portfolios, subject to the Bank’s approval Exercised. 356 Exclude from treatment equity holdings in institutions whose debt qualifies for a 0% risk weight Exercised. 357 Exclude equity investments made under legislated programmes intended to promote certain sectors, subject to cap of 10% of Tier 1 + Tier 2 Exercised for equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association. 358 Exclude equity exposures based on materiality (set at 10% of total Tier 1 + Tier 2, or 5% for very granular portfolios) Exercised on a case- by-case basis. 373 (FN 85) Allow recognition of guarantors that are internally rated and have PDs equivalent to BBB- or below (for the purposes of assessing dilution risk) Exercised. 378 Preferential ‘EL’ risk weights applied to ‘strong’ or ‘good’ SL exposures Exercised subject to conditions specified in paragraph 3.225. 383 Banks using both standardised approach and IRB approaches can use their own internal methods for allocating general provisions for recognition in capital. Not exercised. 443 Require external audit of banking institution’s rating systems and parameter estimation processes Exercised on case-by- case basis. 451 Flexibility in data standards relating to data, collected prior to implementation date. Exercised. 452 (FN 95) Definition of default for retail and PSE to be set to 180 days past due. Exercised for retail mortgages. 120 days for hire purchases under Hire Purchase BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 366 / 506 Issued on: 3 May 2019 Paragraph in Basel document Areas of National Discretion Treatment Act. Not exercised for PSEs. 458 Specific guidance regarding the ‘re-ageing’ of loans. Exercised. 467 Require adjustment to risk parameters to reflect seasoning, particularly for newer or rapidly growing portfolios Exercised. 508 (FN 92) Recognise mortgages on multi-family residential real estate as eligible collateral under foundation IRB. Exercised. 521 Under foundation IRB, recognition of certain other collateral (in addition to CRE/RRE, financial collateral, etc. already recognised) Exercised. Other collateral recognised albeit without specification of collateral type. C. Operational Risk 650 Definition of gross income Definition provided under paragraph 4.10 to 4.11. 652 (FN 97) Allow a banking institution to use the alternative standardised approach Yes. 654 (FN 98) Treatment of negative gross income Treatment provided under paragraph 4.13 663 (FN 101) Impose criteria in paragraph 624 or non- internationally active banks using standardised approach. Yes, required. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 367 / 506 Issued on: 3 May 2019 Appendix II Eligibility Criteria for External Credit Assessment Institution (ECAI) Recognition Criterion 1: Objectivity of credit assessment methodology and process The methodology and process for assigning credit ratings must be rigorous and systematic. Before being recognised by the Bank, an assessment methodology for the broad asset class for which recognition is sought must have been established for at least one year and preferably three years. 1. The objectivity of an ECAI’s credit assessment methodology can be assessed on the following parameters: a) Any credit assessment methodology adopted by an ECAI must produce an informed and sound opinion of the creditworthiness of rated entities. The credit assessments must be based on all relevant information that is available at the time the assessments are issued; b) All qualitative and quantitative factors known to be relevant in determining the creditworthiness of the rated entities must be incorporated in the methodology; c) The ECAI’s credit assessment methodologies and processes should provide a sufficient level of consistency and discriminate between different levels of risk to provide the basis for capital requirements under the Standardised Approach for credit risk; and d) Processes to ensure that consistent application of any credit assessment methodology should be in place such that equivalent credit assessments are given to identical rated entities or issuances, and that different analysts or rating committees working independently within the ECAI would assign equivalent credit ratings to a particular entity or issuance. 2. With regard to Islamic debt securities, the Bank expects that the ECAI has a documented methodology to identify and assess the inherent risk drivers peculiar to Islamic debt securities. Processes should also be in place to ensure consistency in the application of credit assessment methodologies of Islamic entities and issuances. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 368 / 506 Issued on: 3 May 2019 Criterion 2: Ongoing review of credit assessment methodology The methodology for assigning credit ratings must be validated by the ECAI based on its historical experience. Before being recognised by the Bank, rigorous backtesting must have been established for at least one year and preferably three years. 3. The review process of the credit assessment methodology can be assessed on the following parameters: a) The process of validating the methodologies is based on historical experience. Quantitative validation will need to be based on the ECAI's credit assessments (the outputs of the methodology) rather than on the methodology itself; b) The quantitative assessment should confirm the stability of credit assessments as well as the discriminatory power and the stability of discriminatory power of credit assessments over time; c) Procedures should be in place to ensure that systematic rating errors highlighted by backtesting will be incorporated into credit assessment methodologies and rectified; and d) If sufficient data is available, the ECAI should undertake separate backtesting for each of the broad asset classes for which an ECAI is seeking recognition. Criterion 3: Ongoing review of individual credit assessments ECAIs are expected to conduct an ongoing review of the credit assessments. Such reviews shall take place after any material event in a rated entity or at least annually. 4. The ECAI must ensure that credit assessments remain consistent and robust over time and market conditions. 5. The ECAI must ensure that reliable processes that are able to detect changes in conditions surrounding a rated entity that are sufficiently material to alter its credit assessments are in place. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 369 / 506 Issued on: 3 May 2019 6. The ECAI must ensure that a credit assessment is indeed revised when the change in operating conditions is material enough to warrant a revision. Notwithstanding this, individual credit assessments must be reviewed at least annually. Criterion 4: Independence The ECAI should be independent and should not be subject to any pressures that may influence the rating. The assessment process should be as free as possible from any constraints that could arise in situations where the composition of the board or the shareholder structure of the assessment institution may be seen as creating a conflict of interest. 7. The rating methodologies and process of an ECAI must be free from any influence, which may affect its ability to conduct credit assessments. 8. There must also be procedures to ensure that its methodologies are free from any influences or constraints that may influence the credit assessments. 9. The ECAI must ensure that: a) it has adopted, monitored, and successfully applied internal procedures to ensure that all credit assessments are formulated in a consistent and objective manner, particularly in situations where conflicts of interest may arise and could threaten its objectivity; and b) it has mechanisms in place to identify actual and potential conflicts of interest and take reasonable measures to prevent, manage and eliminate them, so that they do not impair the production of independent, objective and high quality credit assessments. 10. Where an ECAI has additional business with rated entities (for example advisory services, data services, consulting services), the ECAI should also disclose to the Bank the nature of the services and the general nature of the compensation arrangements for the provision of these services. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 370 / 506 Issued on: 3 May 2019 11. The ECAI should maintain and document strict fire-walls on information sharing between their rating assignment teams and other business lines. 12. ECAIs should disclose any significant business relationships between ECAI employees and the rated entities. Criterion 5: International access and transparency The individual assessments should be available to both domestic and foreign institutions with legitimate interests and at equivalent terms. In addition, the general methodology used by the ECAI should be publicly available to allow all potential users to decide whether they are derived in a reasonable way. 13. This criterion is intended to create a level playing field by ensuring that all institutions having a ‘legitimate interest’ in an ECAI's credit assessments, in whatever jurisdiction, have equal and timely access to them. 14. ECAIs that wish to be recognised as eligible must make their credit assessments accessible at least to all institutions having a ‘legitimate interest’. Institutions having a ‘legitimate interest’ are those institutions that need to calculate their regulatory capital requirements, and that intend to use the credit assessments of the respective ECAI for risk weighting purposes. 15. ‘At equivalent terms’ means that under the same economic circumstances, access to credit assessments should be provided on identical terms, without any undue price discrimination. Criterion 6: Disclosure An ECAI should use appropriate methods of disclosure to ensure public access to all material information. This is to allow all potential users to decide whether the assessments are derived in a reasonable way. 16. At a minimum, ECAIs should disclose the following to the public: BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 371 / 506 Issued on: 3 May 2019  the methodologies (these include the definition of default, the time horizon and the meaning of each rating);  as promptly as possible, any material changes in methodology referred;  the validation results on their methodology (these include the actual default rates experienced in each assessment category and the transitions of the assessments); and  whether a credit assessment is unsolicited. 17. An ECAI should use appropriate methods of disclosure to ensure public access to the abovementioned information. Criterion 7: Resources An ECAI should have sufficient resources to carry out high quality credit assessments. These resources should allow for substantial ongoing contact with senior and operational levels within the entities assessed in order to add value to the credit assessments. Such assessments should be based on methodologies combining qualitative and quantitative approaches. 18. In terms of staffing and expertise, an ECAI should ensure that its staff has the levels of skills and experience necessary to perform the tasks required of them, competently and thoroughly. 19. The ECAI should also have sufficient resources to carry out consistent assessments and have frequent contacts with the rated companies. 20. In addition, analysts at ECAIs that rate Islamic issues need to have undergone sufficient training to develop the requisite understanding in rating Islamic issues and the specific risks contained in these issues. Criterion 8: Credibility The Bank shall verify that the ECAI's individual credit assessments are recognised in the market as credible and reliable by the users of such credit assessments. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 372 / 506 Issued on: 3 May 2019 21. The Bank shall assess the ECAI’s credibility according to factors such as the following:  the extent to which it meets the overall recognition criteria;  the extent to which independent parties (investors, insurers, trading partners) rely on ECAI's assessment; and  the extent to which market prices of rated securities are differentiated according to the ECAI’s ratings. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 373 / 506 Issued on: 3 May 2019 Appendix III Risk Weights and Rating Categories Sovereigns and Central Banks Rating Category Standard & Poor’s Rating Services (S&P) Moody’s Investors Service (Moody’s) Fitch Ratings (Fitch) Rating and Investment Information, Inc. (R&I)271 Risk weight 1 AAA to AA- Aaa toAa3 AAA to AA- AAA to AA- 0% 2 A+ to A- A1 to A3 A+ to A- A+ to A- 20% 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- 50% 4 BB+ to B- Ba1 to B3 BB+ to B- BB+ to B- 100% 5 CCC+ to D Caa1 to C CCC+ to D CCC+ to C 150% Unrated 100% 271 External credit assessments produced by Rating and Investment Information, Inc. on Islamic debt securities are not recognised by the Bank in determining the risk weights for exposures to the asset classes listed in this Appendix. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 374 / 506 Issued on: 3 May 2019 Banking Institutions Rating Category S&P Moody’s Fitch R&I RAM Rating Services Berhad (RAM) Malaysian Rating Corporation Berhad (MARC) Risk weight Risk weight (original maturity of 6 months or less)272 Risk weight (original maturity of 3 months or less)273 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA3 AAA to AA- 20% 20% 20% 2 A+ to A- A1 to A3 A+ to A- A+ to A- A1 to A3 A+ to A- 50% 20% 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB1 to BBB3 BBB+ to BBB- 50% 20% 4 BB+ to B- Ba1 to B3 BB+ to B- BB+ to B- BB1 to B3 BB+ to B- 100% 50% 5 CCC+ to D Caa1 to C CCC+ to D CCC+ to C C1 to D C+ to D 150% 150% Unrated 50% 20% Corporate Rating Category S&P Moody’s Fitch R&I RAM MARC Risk weight 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA3 AAA to AA- 20% 2 A+ to A- A1 to A3 A+ to A- A+ to A- A1 to A3 A+ to A- 50% 3 BBB+ to BB- Baa1 to Ba3 BBB+ to BB- BBB+ to BB- BBB1 to BB3 BBB+ to BB- 100% 4 B+ to D B1 to C B+ to D B+ to D B1 to D B+ to D 150% Unrated 100% 272 Short-term exposures on banking institutions are defined as exposures with an original maturity of six months or less. The preferential treatment is available for exposures to both rated and unrated banking institutions, but not for banking institutions rated below B-. 273 This preferential risk weight is accorded to all interbank exposures with an original maturity of three months or less denominated and funded in RM. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 375 / 506 Issued on: 3 May 2019 Banking Institutions and Corporate (Short term ratings) Rating Category S&P Moody’s Fitch R&I RAM MARC Risk weight 1 A-1 P-1 F1+, F1 a-1+, a-1 P-1 MARC-1 20% 2 A-2 P-2 F2 a-2 P-2 MARC-2 50% 3 A-3 P-3 F3 a-3 P-3 MARC-3 100% 4 Others Others B to D b, c NP MARC-4 150% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 376 / 506 Issued on: 3 May 2019 Securitisations Rating Category S&P Moody’s Fitch R&I RAM MARC Risk weight 1 AAA to AA- Aaa to Aa3 AAA to AA- AAA to AA- AAA to AA3 AAA to AA- 20% 2 A+ to A- A1 to A3 A+ to A- A+ to A- A1 to A3 A+ to A- 50% 3 BBB+ to BBB- Baa1 to Baa3 BBB+ to BBB- BBB+ to BBB- BBB1 to BBB3 BBB+ to BBB- 100% 4 BB+ to BB- Ba1 to Ba3 BB+ to BB- BB+ to BB- BB1 to BB3 BB+ to BB- 350% 5 B+ and below B1 and below B+ and below B+ and below B1 and below B+ and below 1250% Unrated 1250% Securitisations (Short term ratings) Rating Category S&P Moody’s Fitch R&I RAM MARC Risk weight 1 A-1 P-1 F1+, F1 a-1+, a-1 P-1 MARC-1 20% 2 A-2 P-2 F2 a-2 P-2 MARC-2 50% 3 A-3 P-3 F3 a-3 P-3 MARC-3 100% 4 Others or unrated Others or unrated Others or unrated b, c NP MARC-4 1250% For the risk weights in the tables “Securitisations” and “Securitisations (Short term ratings)” to be eligible for use under this framework, banking institutions should ensure that external ratings produced by external credit assessment institutions (ECAIs) meet the operational requirements outlined in Part F.5.4. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 377 / 506 Issued on: 3 May 2019 Appendix IV Summary of Risk Weights for Loans Secured by Residential Mortgages Risk weight Performing Non-Performing* Meets criteria in paragraph 2.31 and: 1. loan-to-value ratio < 80% 35% 100% 2. loan-to-value ratio 80% - 90% 50% 100% Does not meet criteria in paragraph 2.31 or loan-to-value ratio > 90% (approved and disbursed before 1 February 2011) Treated as per paragraph 2.29 150% All loans with loan-to-value ratio> 90% approved and disbursed on or after 1 February 2011 100% 150% Priority sector lending:274 3. loan-to-value ratio < 80% 35% 100% 4. loan-to-value ratio = or > 80% 50% 100% 5. loan-to-value ratio > 90% approved and disbursed on or after 1 February 2011 75% 150% Residential mortgages combined with overdraft facilities: 6. Residential mortgage Dependent on criteria & loan-to-value ratio 7. Overdraft facility 75% subject to meeting retail portfolio criteria 150% Residential Mortgage loans on abandoned projects 150% *Risk weights could be lower depending on level of provisioning as per paragraphs 2.38 and 2.40 274 As per the requirements specified by the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 378 / 506 Issued on: 3 May 2019 Appendix V Definition of Default 1. A default is considered to have occurred when:  The banking institution considers that an obligor is “unlikely to repay” in full its credit obligations to the banking group, without recourse by the banking institution to actions such as realising security; or  The obligor has breached its contractual repayment schedule and is past due for more than 90 days on any material credit obligation to the banking group. a. Under national discretion, the Bank has elected to apply the definition of default on obligors that are past due for more than 120 days under the Hire-Purchase Act 1967 and default for residential mortgages past due for more than 180 days. b. For securities, a default occurs immediately upon breach of contractual repayment schedule. c. For overdrafts, a default occurs when the obligor has breached the approved limits for more than 90 days. d. Where repayments are scheduled on three months or longer, a default occurs immediately upon breach of contractual repayment schedule. However, banking institutions which adopt a more stringent definition of default internally are required to apply such internal definition for regulatory capital purposes. 2. Elements to be taken as an indication of unlikeliness to repay:  The banking institution ceases to accrue all or partially, revenue due from a credit obligation in accordance with the terms of the contract.  The banking institution is uncertain about the collectability of a credit obligation which has already been recognised as revenue and then treats the uncollectible amount as an expense.  The banking institution makes a charge off or an account-specific provision or impairment resulting from a significant perceived decline in credit quality subsequent to the banking institution taking on the BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 379 / 506 Issued on: 3 May 2019 exposure. (Provisions on equity exposures set aside for price risk does not signal default).  The banking institution sells the credit obligation at a material credit related economic loss. (For securities financing, when collateral is liquidated not due to the deterioration of an obligor’s creditworthiness but due to a fall in the value of collateral to restore an agreed collateral coverage ratio and has been disclosed to the customer in writing at the inception of the facility should not be recorded as a default).  The banking institution consents to a restructuring275 of the credit obligation where this is likely to result in a diminished financial obligation caused by the material forgiveness, or postponement of principal, interest or (where relevant) fees. This constitutes a granting of a concession that the banking institution would not otherwise consider.  The default of a related obligor. Banking institutions must review all related obligors in the same group to determine if that default is an indication of unlikeliness to repay by any other related obligor. Banking institutions must judge the degree of economic interdependence of the obligor towards its related entities.  Acceleration of an obligation.  An obligor is in significant financial difficulty. An indication could be a significant downgrade of an obligor’s credit rating.  Default by the obligor on credit obligations to other financial creditors, e.g., financial institutions or bondholders.  The banking institution has filed for the obligor’s bankruptcy or a similar order in respect of the obligor’s credit obligation to the banking group.  The obligor has sought or has been placed in bankruptcy or similar protection where this would avoid or delay repayment of the credit obligation to the banking group. 275 Shall also include rescheduling of facilities. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 380 / 506 Issued on: 3 May 2019 Default at Facility Level 3. For retail exposures, banking institutions are allowed to apply the definition of default at facility level, rather than at obligor level. For example, an obligor might default on a credit card obligation and not on other retail obligations. However, banking institutions should be vigilant and consider cross-default of facilities of an obligor if it is representative of his incapacity to fulfill other obligations. 4. A default by a corporate borrower shall trigger a default on all of its other exposures. Re-Ageing 5. Re-ageing is a process by which banking institutions adjust the delinquency status of exposures based on subsequent repayment of arrears or restructuring. This is done when all or some of the arrears under the original repayment schedule have been paid off or repackaged into a new repayment structure. 6. At a minimum, the re-ageing policy of banking institutions must include:  appropriate approving authority and reporting requirements;  minimum age of a facility before it is eligible for re-ageing;  delinquency levels of facilities that are eligible for re-ageing  maximum number of re-ageing per facility; and  re-assessment of the borrower’s capacity to repay. 7. Re-ageing is allowed for both defaulted and delinquent exposures. However, the exposure shall not be immediately re-aged if the restructuring causes a diminished financial obligation or material economic loss or it is assessed that the borrower does not have the capacity to repay under the new repayment structure. For defaulted exposures, re-ageing is permitted after the obligation has been serviced promptly for 6 months consecutively. For exposures with repayments scheduled at three months or longer, re-ageing is only permitted after the obligation has been serviced promptly for two consecutive payments. A diagrammatic illustration of re-ageing is given in Appendix Va. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 381 / 506 Issued on: 3 May 2019 Appendix Va Diagrammatic Illustration of Re-ageing via Restructuring Note: Loans are still subject to assessment based on these criteria even if there has been a reduction in the month in arrears or re-classification of the loan from credit-impaired to non-credit-impaired under Financial Reporting. Re-ageing Before default Restructuring Material Economic Loss Not re-aged. No reduction of month in arrears and exposure defaults. After default No Re-aged. Month in arrears reduced. Restructuring Re-aged. Month in arrears reduced. No Not re-aged. Month in arrears not reduced. Yes Subsequent payment of 6 months consecutively? No Yes Subsequent payment of 6 months consecutively? Yes BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 382 / 506 Issued on: 3 May 2019 Appendix VI Illustration on Risk-Weighted Asset (RWA) Calculation for Defaulted Exposures and Exposures Risk-Weighted at 150% Example 1: Term loan Defaulted loan to unrated corporate amounting to RM1,000,000 secured by eligible collateral (Haircut: 25%). The banking institution has already set aside specific provisions of RM50,000 for this loan. Since specific provisions is only 5% of outstanding loan amount [i.e. RM50,000/RM1,000,000], the applicable risk weight charge is 150%. The computation of the RWA is as follows: Collateral amount = RM500,000 x (100%-25%) = RM375,000 RWA = 150% x unsecured portion of outstanding loan net of specific provisions = 150% x (RM1,000,000 – RM375,000 – RM50,000) = 150% x RM575,000 = RM862,500 Example 2: Qualifying and non-qualifying residential mortgage loan Residential mortgage loan A amounting to RM95,000, with current value of property at RM100,000. The banking institution has already set aside specific provisions of RM10,000 for this loan. Residential mortgage loan B amounting to RM75,000, with current value of property at RM100,000. The banking institution has already set aside specific provisions amounting to RM20,000 for this loan. For loan A, the LTV ratio is 95%, thus would be deemed as non-qualifying. For loan B, as the LTV ratio is 75%, this category would fall under the qualifying residential mortgages loan category. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 383 / 506 Issued on: 3 May 2019 For qualifying residential mortgage loan portion: As specific provisions over total outstanding loan amount exceeds 20% (20,000/75,000 = 26.67%), the exposure would be eligible for the preferential risk weight of 50%. RWA = 50% x outstanding amount net of specific provisions = 50% x (RM75,000 –RM20,000) = 50% x RM55,000 = RM27,500 For non-qualifying residential mortgage loan portion: As specific provisions over total outstanding loan amount is less than 20% (10,000/95,000 = 10.53%, the exposure would be accorded a risk weight of 150%. RWA = 150% x outstanding amount net of specific provisions = 150% x (RM95,000 –RM10,000) = 150% x RM85,000 = RM127,500 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 384 / 506 Issued on: 3 May 2019 Appendix VII Minimum Requirements on Supervisory Slotting Criteria Method Introduction 1. The supervisory slotting criteria method requires banking institutions to map their internal rating to a set of supervisory criteria as per Appendix VIIa, in order to determine a supervisory category which is accorded with a specific risk weight. Once the supervisory slotting criteria method is adopted to compute credit risk-weighted asset for any or all of sub-classes under specialised lending/financing and investment, the method must be applied throughout Istisna’, Mushārakah and Mudārabah contracts consistently. 2. Banking institutions are required to fulfill the minimum requirements as set out in the following parts before they are qualified to use the supervisory slotting criteria method to derive credit risk-weighted assets for Istisna’, Mushārakah and Mudārabah contracts. Definition of Specialised Lending/Financing and Investment 3. Specialised lending/financing and investment under the Istisna’, Mushārakah and/or Mudārabah contracts shall be divided into five sub- classes, namely project finance (PF), object finance (OF), commodities finance (CF) and income-producing real estate (IPRE). In order for an exposure under these contracts to be classified as specialised lending/financing and investment, the exposures must meet the following general and specific criteria: General Criteria 4. All specialised lending/financing and investment shall possess the following characteristics, either in legal form or economic substance:  The exposure is typically to an entity (often a special purpose entity (SPE)) which was created specifically to finance and/or operate physical assets. In specific, the SPE must have legal ownership of the assets; BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 385 / 506 Issued on: 3 May 2019  The borrowing entity has little or no other material assets or activities, and therefore little or no independent capacity to repay the obligation, apart from the income that it receives from the asset(s) being financed;  The terms of the obligation give the lender a substantial degree of control over the asset(s) and the income that it generates; and  As a result of the preceding factors, the primary source of repayment of the obligation is the income generated by the asset(s), rather than the independent capacity of a broader commercial enterprise. Specific Criteria 5. In addition to the four general criteria, banking institutions are required to classify their exposures into one of the five sub-classes of specialised lending/financing based on the following broadly defined criteria: a. Project finance  Project finance (PF) is a method of funding in which banking institutions as the lenders look primarily to the revenues generated by a single project, both as the source of repayment and as security for the exposure. This type of lending/financing is usually for large, complex and expensive installations that might include, for example, power plants, chemical processing plants, mines, transportation infrastructure, environment, and telecommunications infrastructure. Project finance may take the form of lending/financing of the construction of a new capital installation, or refinancing of an existing installation, with or without improvements.  In such transactions, the lenders are usually paid solely or almost exclusively out of the money generated by the contracts for the facility’s output, such as the electricity sold by a power plant. The customer or borrower is usually an SPE that is not permitted to perform any function other than developing, owning, and operating the installation. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 386 / 506 Issued on: 3 May 2019 b. Object finance  Object finance (OF) refers to a method of funding the acquisition of physical assets (for example ships, aircraft, satellites, railcars and fleets) where the repayment of the exposure is dependent on the cash flows generated by the specific assets that have been financed and pledged or assigned to the lenders. A primary source of these cash flows might be rental or lease contracts with one or several third parties. c. Commodities finance  Commodities finance (CF) refers to structured short-term lending/financing of reserves, inventories, or receivables of exchange-traded commodities (for example crude oil, metals, or crops), where the exposure will be repaid from the proceeds of the sale of the commodity and the borrower has no independent capacity to repay the exposure. This is the case when the borrower has no other activities and no other material assets on its balance sheet. The structured nature of the lending/financing is designed to compensate for the weak credit quality of the borrower. The exposure’s rating reflects its self-liquidating nature and the lender’s skill in structuring the transaction rather than the credit quality of the borrower. d. Income-producing real estate  Income-producing real estate (IPRE) refers to a method of providing funding to real estate (such as, office buildings to let, retail space, residential houses, multifamily residential buildings, industrial or warehouse space, and hotels) where the prospects for repayment and recovery on the exposure depend primarily on the cash flows generated by the asset. The primary source of these cash flows would generally be lease or rental payments or the sale of the asset. The borrower may be, but is not required to be, an SPE, an operating company focused on real estate construction or BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 387 / 506 Issued on: 3 May 2019 holdings, or an operating company with sources of revenue other than real estate. The distinguishing characteristic of IPRE versus other corporate exposures that are collateralised by real estate is the strong positive correlation between the prospects for repayment of the exposure and the prospects for recovery in the event of default, with both depending primarily on the cash flows generated by a property. 6. Banking institutions are required to put in place comprehensive policies and procedures to facilitate the differentiation process and ensure the consistent classification of specialised lending/financing and its sub-classes. Minimum Requirements for the Use of Supervisory Slotting Criteria 7. Banking institutions intending to adopt the supervisory slotting criteria for the computation of capital requirements for specialised lending/financing must also fulfil the following requirements: a. Rating system and dimension  Banking institutions must use at least single rating dimension that reflects borrower strength and loss severity considerations. b. Rating structure  The rating system must have at least four internal grades for non- defaulted borrowers, and one for defaulted borrowers. c. Rating criteria  Specialised lending/financing and investment exposures must be assigned to internal rating grades based on the banking institutions’ own criteria, systems and processes. The internal rating grades must then be mapped into five supervisory categories (“Strong” to “Default”) using the supervisory slotting criteria provided in Appendix VIIa. The mapping must be BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 388 / 506 Issued on: 3 May 2019 conducted separately for each sub-class of specialised financing exposures.  The Bank recognises that the criteria used by banking institutions to assign exposures to their internal rating grades may not be perfectly aligned with criteria that are used to define the supervisory categories. However, the mapping process must result in an alignment of the internal rating grades consistent with the predominant characteristics in the respective supervisory category. Banks should ensure that any overrides of their internal criteria do not result in the mapping process being ineffective.  Specifically, if a banking institution’s internal rating grade maps specialised lending/financing exposure into two supervisory categories, the exposure should be assigned to the riskier supervisory category. For example, if the internal rating system produces one rating that describes criteria than can be slotted into both the supervisory “strong” and “fair” categories, the exposures should be slotted into the “fair” category. d. Re-rating frequency and policy  Banking institutions must conduct re-rating of exposures on a frequent basis and at minimum once per year. For this purpose, banking institutions must establish written policies and procedures on re-rating, including the trigger criteria for re-rating and its frequency. e. Data maintenance  Banking institutions are expected to collect and retain the relevant data used to derive the internal rating grades, for example, data on realised losses to facilitate the future review of the specialised lending/financing portfolio. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 389 / 506 Issued on: 3 May 2019 Appendix VIIa Supervisory Slotting Criteria for Specialised Lending/Financing Exposures Project Finance Exposure No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions Few competing suppliers or substantial and durable advantage in location, cost, or technology. Demand is strong and growing Few competing suppliers or better than average location, cost, or technology but this situation may not last. Demand is strong and stable Project has no advantage in location, cost, or technology. Demand is adequate and stable Project has worsened than average location, cost, or technology. Demand is weak and declining b. Financial ratios (for example debt service coverage ratio (DSCR), loan life coverage ratio (LLCR), project life coverage ratio (PLCR), and debt-to equity ratio) Strong financial ratios considering the level of project risk; very robust economic assumptions Strong to acceptable financial ratios considering the level of project risk; robust project economic assumptions Standard financial ratios considering the level of project risk Aggressive financial ratios considering the level of project risk BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 390 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak c. Stress analysis The project can meet its financial obligations under sustained, severely stressed economic or sectoral conditions The project can meet its financial obligations under normal stressed economic or sectoral conditions. The project is only likely to default under severe economic conditions The project is vulnerable to stresses that are not uncommon through an economic cycle, and may default in a normal downturn The project is likely to default unless conditions improve soon d. Financial structure Duration of the credit compared to the duration of the project Useful life of the project significantly exceeds tenor of the loan Useful life of the project exceeds tenor of the loan Useful life of the project exceeds tenor of the loan Useful life of the project may not exceed tenor of the loan e. Financial structure Financing repayment / investment amortisation schedule Amortising exposure Amortising exposure Amortising repayments with limited bullet payment Bullet repayment or amortising repayments with high bullet repayment 2. Political and legal environment a. Political risk, including transfer risk, considering project type and mitigants Very low exposure; strong mitigation instruments, if needed Low exposure; satisfactory mitigation instruments, if needed Moderate exposure; fair mitigation instruments High exposure; no or weak mitigation instruments BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 391 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak b. Force majeure risk (war, civil unrest, etc.), Low exposure Acceptable exposure Standard protection Significant risks, not fully mitigated c. Government support and project’s importance for the country over the long-term Project of strategic importance for the country (preferably export-oriented). Strong support from Government Project considered important for the country. Good level of support from Government Project may not be strategic but brings unquestionable benefits for the country. Support from Government may not be explicit Project not key to the country. No or weak support from Government d. Stability of legal and regulatory environment (risk of change in law) Favourable and stable regulatory environment over the long-term Favourable and stable regulatory environment over the medium-term Regulatory changes can be predicted with a fair level of certainty Current or future regulatory issues may affect the project e. Acquisition of all necessary supports and approvals for such relief from local content laws Strong Satisfactory Fair Weak f. Enforceability of contracts, collateral and security Contracts, collateral and security are enforceable Contracts, collateral and security are enforceable Contracts, collateral and security are considered enforceable even if certain non-key issues may exist There are unresolved key issues in respect if actual enforcement of contracts, collateral and security BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 392 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 3. Transaction characteristics a. Design and technology risk Fully proven technology and design Fully proven technology and design Proven technology and design – start- up issues are mitigated by a strong completion package Unproven technology and design; technology issues exist and/or complex design b. Construction risk Permitting and siting All permits have been obtained Some permits are still outstanding but their receipt is considered very likely Some permits are still outstanding but the permitting process is well defined and they are considered routine Key permits still need to be obtained and are not considered routine. Significant conditions may be attached c. Construction risk Type of construction contract Fixed-price date- certain turnkey construction EPC (engineering and procurement contract) Fixed-price date- certain turnkey construction EPC Fixed-price date- certain turnkey construction contract with one or several contractors No or partial fixed- price turnkey contract and/or interfacing issues with multiple contractors d. Completion guarantees Substantial liquidated damages supported by financial substance and/or strong completion guarantee from Significant liquidated damages supported by financial substance and/or completion guarantee from Adequate liquidated damages supported by financial substance and/or completion guarantee from sponsors with good Inadequate liquidated damages or not supported by financial substance or weak completion guarantees BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 393 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak sponsors with excellent financial standing sponsors with good financial standing financial standing e. Track record and financial strength of contractor in constructing similar projects. Strong Good Satisfactory Weak f. Operating risk Scope and nature of operations and maintenance (O & M) contracts Strong long-term O&M contract, preferably with contractual performance incentives, and/or O&M reserve accounts Long-term O&M contract, and/or O&M reserve accounts Limited O&M contract or O&M reserve account No O&M contract: risk of high operational cost overruns beyond mitigants g. Operating risk Operator’s expertise, track record, and financial strength Very strong, or committed technical assistance of the sponsors Strong Acceptable Limited/weak, or local operator dependent on local authorities h. Off-take risk If there is a take-or-pay or fixed- price off-take contract: Excellent creditworthiness of offtaker; strong termination clauses; tenor of contract comfortably exceeds the maturity of the debt Good creditworthiness of off-taker; strong termination clauses; tenor of contract exceeds the maturity of the debt Acceptable financial standing of off- taker; normal termination clauses; tenor of contract generally matches the maturity of the debt Weak off-taker; weak termination clauses; tenor of contract does not exceed the maturity of the debt BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 394 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak i. Off-take risk If there is no take-or-pay or fixed- price off-take contract: Project produces essential services or a commodity sold widely on a world market; output can readily be absorbed at projected prices even at lower than historic market growth rates Project produces essential services or a commodity sold widely on a regional market that will absorb it at projected prices at historical growth rates Commodity is sold on a limited market that may absorb it only at lower than projected prices Project output is demanded by only one or a few buyers or is not generally sold on an organised market j. Supply risk Price, volume and transportation risk of feed-stocks; supplier’s track record and financial strength Long-term supply contract with supplier of excellent financial standing Long-term supply contract with supplier of good financial standing Long-term supply contract with supplier of good financial standing – a degree of price risk may remain Short-term supply contract or long- term supply contract with financially weak supplier – a degree of price risk definitely remains k. Supply risk Reserve risks (for example natural resource development) Independently audited, proven and developed reserves well in excess of requirements over lifetime of the project Independently audited, proven and developed reserves in excess of requirements over lifetime of the project Proven reserves can supply the project adequately through the maturity of the debt Project relies to some extent on potential and undeveloped reserves BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 395 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 4. Strength of Sponsor a. Sponsor’s track record, financial strength, and country/sector experience Strong sponsor with excellent track record and high financial standing Good sponsor with satisfactory track record and good financial standing Adequate sponsor with adequate track record and good financial standing Weak sponsor with no or questionable track record and/or financial weaknesses b. Sponsor support, as evidenced by equity, ownership clause and incentive to inject additional cash if necessary Strong. Project is highly strategic for the sponsor (core business – long- term strategy) Good. Project is strategic for the sponsor (core business – long- term strategy) Acceptable. Project is considered important for the sponsor (core business) Limited. Project is not key to sponsor’s long-term strategy or core business 5. Security Package a. Assignment of contracts and accounts Fully comprehensive Comprehensive Satisfactory Weak b. Pledge of assets, taking into account quality, value and liquidity of assets First perfected security interest in all project assets, contracts, permits and accounts necessary to run the Project Perfected security interest in all project assets, contracts, permits and accounts necessary to run the project Acceptable security interest in all project assets, contracts, permits and accounts necessary to run the project Little security or collateral for lenders; weak negative pledge clause c. Lender’s control over cash flow (for example cash sweeps, independent escrow accounts) Strong Satisfactory Fair Weak BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 396 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak d. Strength of the covenant package (mandatory prepayments, payment deferrals, payment cascade, dividend restrictions) Covenant package is strong for this type of project. Project may issue no additional debt Covenant package is satisfactory for this type of project. Project may issue extremely limited additional debt Covenant package is fair for this type of project. Project may issue limited additional debt Covenant package is Insufficient for this type of project. Project may issue unlimited additional debt e. Reserve funds (debt service, O&M, renewal and replacement, unforeseen events, etc.) Longer than average coverage period, all reserve funds fully funded in cash or letters of credit from highly rated bank Average coverage period, all reserve funds fully funded Average coverage period, all reserve funds fully funded Shorter than average coverage period, reserve funds funded from operating cash flows Income-Producing Real Estate No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions The supply and demand for the project’s type and location are currently in equilibrium. The number of competitive properties coming to market is equal The supply and demand for the project’s type and location are currently in equilibrium. The number of competitive properties coming to market is roughly Market conditions are roughly in equilibrium. Competitive properties are coming on the market and others are in the planning stages. The project’s design and Market conditions are weak. It is uncertain when conditions will improve and return to equilibrium. The project is losing tenants at lease expiration. New lease terms are BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 397 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak or lower than forecasted demand equal to forecasted demand capabilities may not be state of the art compared to new projects less favourable compared to those expiring b. Financial ratios and advance rate The property’s debt service coverage ratio (DSCR) is considered strong (DSCR is not relevant for the construction phase) and its loan-to- value ratio is considered low given its property type. Where a secondary market exists, the transaction is underwritten to market standards The DSCR (not relevant for development real estate) and loan-to- value are satisfactory. Where a secondary market exists, the transaction is underwritten to market standards The property’s DSCR has deteriorated and its value has fallen, increasing its loan- to-value The property’s DSCR has deteriorated significantly and its loan-to-value is well above underwriting standards for new loans c. Stress analysis The property’s resources, contingencies and liability structure allow it to meet its financial obligations during a period of The property can meet its financial obligations under a sustained period of financial stress (for example interest rates, economic During an economic downturn, the property would suffer a decline in revenue that would limit its ability to fund The property’s financial condition is strained and is likely to default unless conditions improve in the near term BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 398 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak severe financial stress (for example interest rates, economic growth) growth). The property is likely to default only under severe economic conditions capital expenditures and significantly increase the risk of default d. Cash-flow predictability (a) For complete and stabilised property. The property’s leases are long- term with creditworthy tenants and their maturity dates are scattered. The property has a track record of tenant retention upon lease expiration. Its vacancy rate is low. Expenses (maintenance, insurance, security, and property taxes) are predictable Most of the property’s leases are long-term, with tenants that range in creditworthiness. The property experiences a normal level of tenant turnover upon lease expiration. Its vacancy rate is low. Expenses are predictable Most of the property’s leases are medium rather than long-term with tenants that range in creditworthiness. The property experiences a moderate level of tenant turnover upon lease expiration. Its vacancy rate is moderate. Expenses are relatively predictable but vary in relation to revenue The property’s leases are of various terms with tenants that range in creditworthiness. The property experiences a very high level of tenant turnover upon lease expiration. Its vacancy rate is high. Significant expenses are incurred preparing space for new tenants e. Cash-flow predictability (b) For complete but not stabilised property Leasing activity meets or exceeds projections. The project should Leasing activity meets or exceeds projections. The project should Most leasing activity is within projections; however, Market rents do not meet expectations. Despite achieving target occupancy BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 399 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak achieve stabilisation in the near future achieve stabilisation in the near future stabilisation will not occur for some time rate, cash flow coverage is tight due to disappointing revenue f. Cash-flow predictability (c) For construction phase The property is entirely pre-leased through the tenor of the loan or pre-sold to an investment grade tenant or buyer, or the banking institution has a binding commitment for take-out financing from an investment grade lender The property is entirely pre-leased or pre-sold to a creditworthy tenant or buyer, or the banking institution has a binding commitment for permanent financing from a creditworthy lender Leasing activity is within projections but the building may not be pre- leased and there may not exist a takeout financing. The banking institution may be the permanent lender The property is deteriorating due to cost overruns, market deterioration, tenant cancellations or other factors. There may be a dispute with the party providing the permanent financing 2. Asset characteristics a. Location Property is located in highly desirable location that is convenient to services that tenants desire Property is located in desirable location that is convenient to services that tenants desire The property location lacks a competitive advantage The property’s location, configuration, design and maintenance have contributed to the property’s difficulties BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 400 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak b. Design and condition Property is favoured due to its design, configuration, and maintenance, and is highly competitive with new properties Property is appropriate in terms of its design, configuration and maintenance. The property’s design and capabilities are competitive with new properties Property is adequate in terms of its configuration, design and maintenance Weaknesses exist in the property’s configuration, design or maintenance c. Property is under construction Construction budget is conservative and technical hazards are limited. Contractors are highly qualified Construction budget is conservative and technical hazards are limited. Contractors are highly qualified Construction budget is adequate and contractors are ordinarily qualified Project is over budget or unrealistic given its technical hazards. Contractors may be under qualified 3. Strength of Sponsor/Developer a. Financial capacity and willingness to support the property. The sponsor /developer made a substantial cash contribution to the construction or purchase of the property. The sponsor/developer has substantial resources and limited direct and The sponsor /developer made a material cash contribution to the construction or purchase of the property. The sponsor/developer’s financial condition allows it to support the property in the The sponsor /developer’s contribution may be immaterial or non- cash. The sponsor/developer is average to below average in financial resources The sponsor /developer lacks capacity or willingness to support the property BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 401 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak contingent liabilities. The sponsor/developer’s properties are diversified geographically and by property type event of a cash flow shortfall. The sponsor/developer’s properties are located in several geographic regions b. Reputation and track record with similar properties. Experienced management and high sponsors’ quality. Strong reputation and lengthy and successful record with similar properties Appropriate management and sponsors’ quality. The sponsor or management has a successful record with similar properties Moderate management and sponsors’ quality. Management or sponsor track record does not raise serious concerns Ineffective management and substandard sponsors’ quality. Management and sponsor difficulties have contributed to difficulties in managing properties in the past c. Relationships with relevant real estate actors Strong relationships with leading actors such as leasing agents Proven relationships with leading actors such as leasing agents Adequate relationships with leasing agents and other parties providing important real estate services Poor relationships with leasing agents and/or other parties providing important real estate services BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 402 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 4. Security Package a. Nature of lien Perfected first lien Perfected first lien Perfected first lien Ability of lender to foreclose is constrained b. Assignment of rents (for projects leased to long-term tenants) The lender has obtained an assignment. They maintain current tenant information that would facilitate providing notice to remit rents directly to the lender, such as a current rent roll and copies of the project’s leases The lender has obtained an assignment. They maintain current tenant information that would facilitate providing notice to the tenants to remit rents directly to the lender, such as current rent roll and copies of the project’s leases The lender has obtained an assignment. They maintain current tenant information that would facilitate providing notice to the tenants to remit rents directly to the lender, such as current rent roll and copies of the project’s leases The lender has not obtained an assignment of the leases or has not maintained the information necessary to readily provide notice to the building’s tenants c. Quality of the insurance coverage Appropriate Appropriate Appropriate Substandard Object Finance Exposure No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Market conditions Demand is strong and growing, strong entry barriers, low sensitivity to changes in technology and Demand is strong and stable. Some entry barriers, some sensitivity to changes in technology and Demand is adequate and stable, limited entry barriers, significant sensitivity to changes in technology and Demand is weak and declining, vulnerable to changes in technology and economic outlook, BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 403 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak economic outlook economic outlook economic outlook highly uncertain environment b. Financial ratios (debt service coverage ratio and loan-to-value ratio) Strong financial ratios considering the type of asset. Very robust economic assumptions Strong / acceptable financial ratios considering the type of asset. Robust project economic assumptions Standard financial ratios for the asset type Aggressive financial ratios considering the type of asset c. Stress analysis Stable long-term revenues, capable of withstanding severely stressed conditions through an economic cycle Satisfactory short- term revenues. Loan can withstand some financial adversity. Default is only likely under severe economic conditions Uncertain short-term revenues. Cash flows are vulnerable to stresses that are not uncommon through an economic cycle. The loan may default in a normal downturn Revenues subject to strong uncertainties; even in normal economic conditions the asset may default, unless conditions improve d. Market liquidity Market is structured on a worldwide basis; assets are highly liquid Market is worldwide or regional; assets are relatively liquid Market is regional with limited prospects in the short term, implying lower liquidity Local market and/or poor visibility. Low or no liquidity, particularly on niche markets BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 404 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 2. Political and legal environment a. Political risk, including transfer risk Very low; strong mitigation instruments, if needed Low; satisfactory mitigation instruments, if needed Moderate; fair mitigation instruments High; no or weak mitigation instruments b. Legal and regulatory risks Jurisdiction is favourable to repossession and enforcement of contracts Jurisdiction is favourable to repossession and enforcement of contracts Jurisdiction is generally favourable to repossession and enforcement of contracts, even if repossession might be long and/or difficult Poor or unstable legal and regulatory environment. Jurisdiction may make repossession and enforcement of contracts lengthy or impossible 3. Transaction characteristics a. Financing term compared to the economic life of the asset Full payout profile/minimum balloon. No grace period Balloon more significant, but still at satisfactory levels Important balloon with potentially grace periods Repayment in fine or high balloon 4. Operating risk a. Permits / licensing All permits have been obtained; asset meets current and foreseeable safety regulations All permits obtained or in the process of being obtained; asset meets current and foreseeable safety regulations Most permits obtained or in process of being obtained, outstanding ones considered routine, asset meets current Problems in obtaining all required permits, part of the planned configuration and/or planned BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 405 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak safety regulations operations might need to be revised b. Scope and nature of O & M contracts Strong long-term O&M contract, preferably with contractual performance incentives, and/or O&M reserve accounts (if needed) Long-term O&M contract, and/or O&M reserve accounts (if needed) Limited O&M contract or O&M reserve account (if needed) No O&M contract: risk of high operational cost overruns beyond mitigants c. Operator’s financial strength, track record in managing the asset type and capability to re-market asset when it comes off-lease Excellent track record and strong re-marketing capability Satisfactory track record and re- marketing capability Weak or short track record and uncertain re-marketing capability No or unknown track record and inability to re- market the asset 5. Asset characteristics a. Configuration, size, design and maintenance (i.e. age, size for a plane) compared to other assets on the same market Strong advantage in design and maintenance. Configuration is standard such that the object meets a liquid market Above average design and maintenance. Standard configuration, maybe with very limited exceptions - such that the object meets a liquid market Average design and maintenance. Configuration is somewhat specific, and thus might cause a narrower market for the object Below average design and maintenance. Asset is near the end of its economic life. Configuration is very specific; the market for the object is very narrow BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 406 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak b. Resale value Current resale value is well above debt value Resale value is moderately above debt value Resale value is slightly above debt value Resale value is below debt value c. Sensitivity of the asset value and liquidity to economic cycles Asset value and liquidity are relatively insensitive to economic cycles Asset value and liquidity are sensitive to economic cycles Asset value and liquidity are quite sensitive to economic cycles Asset value and liquidity are highly sensitive to economic cycles 6. Strength of sponsor a. Operator’s financial strength, track record in managing the asset type and capability to re-market asset when it comes off-lease Excellent track record and strong re-marketing capability Satisfactory track record and re- marketing capability Weak or short track record and uncertain re-marketing capability No or unknown track record and inability to remarket the asset b. Sponsors’ track record and financial strength Sponsors with excellent track record and high financial standing Sponsors with good track record and good financial standing Sponsors with adequate track record and good financial standing Sponsors with no or questionable track record and/or financial weaknesses 7. Security Package a. Asset control Legal documentation provides the lender effective control (for example a first perfected security interest, or a Legal documentation provides the lender effective control (for example a perfected security interest, or a Legal documentation provides the lender effective control (for example a perfected security interest, or a leasing structure including such The contract provides little security to the lender and leaves room to some risk of losing control on the asset BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 407 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak leasing structure including such security) on the asset, or on the company owning it leasing structure including such security) on the asset, or on the company owning it security) on the asset, or on the company owning it b. Rights and means at the lender's disposal to monitor the location and condition of the asset The lender is able to monitor the location and condition of the asset, at any time and place (regular reports, possibility to lead inspections) The lender is able to monitor the location and condition of the asset, almost at any time and place The lender is able to monitor the location and condition of the asset, almost at any time and place The lender is able to monitor the location and condition of the asset are limited c. Insurance against damages Strong insurance coverage including collateral damages with top quality insurance companies Satisfactory insurance coverage (not including collateral damages) with good quality insurance companies Fair insurance coverage (not including collateral damages) with acceptable quality insurance companies Weak insurance coverage (not including collateral damages) or with weak quality insurance companies BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 408 / 506 Issued on: 3 May 2019 Commodities Finance Exposures No. Criteria Strong Good Satisfactory Weak 1. Financial strength a. Degree of over collateralisation of trade Strong Good Satisfactory Weak 2. Political and legal environment a. Country risk No country risk Limited exposure to country risk (in particular, offshore location of reserves in an emerging country) Exposure to country risk (in particular, offshore location of reserves in an emerging country) Strong exposure to country risk (in particular, inland reserves in an emerging country) b. Mitigation of country risks Very strong mitigation: Strong offshore mechanisms, strategic commodity buyer Strong mitigation: Offshore mechanisms, strategic commodity, strong buyer Acceptable mitigation: Offshore mechanisms, less strategic commodity, acceptable buyer Only partial mitigation: No offshore mechanisms, non-strategic commodity, weak buyer 3. Asset characteristics a. Liquidity and susceptibility to damage Commodity is quoted and can be hedged through futures or OTC instruments. Commodity is not susceptible to damage Commodity is quoted and can be hedged through OTC instruments. Commodity is not susceptible to damage Commodity is not quoted but is liquid. There is uncertainty about the possibility of hedging. Commodity is not susceptible to damage Commodity is not quoted. Liquidity is limited given the size and depth of the market. No appropriate hedging instruments. Commodity is susceptible to damage BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 409 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak 4. Strength of Sponsor a. Financial strength of trader Very strong, relative to trading philosophy and risks Strong Adequate Weak b. Track record, including ability to manage the logistic process Extensive experience with the type of transaction in question. Strong record of operating success and cost efficiency Sufficient experience with the type of transaction in question. Above average record of operating success and cost efficiency Limited experience with the type of transaction in question. Average record of operating success and cost efficiency Limited or uncertain track record in general. Volatile costs and profits c. Trading controls and hedging policies Strong standards for counterparty selection, hedging, and monitoring Adequate standards for counterparty selection, hedging, and monitoring Past deals have experienced no or minor problems Trader has experienced significant losses on past deals d. Quality of financial disclosure Excellent Good Satisfactory Financial disclosure contains some uncertainties or is insufficient 5. Security Package a. Asset control First perfected security interest provides the lender legal control of the First perfected security interest provides the lender legal control of the At some point in the process, there is a rupture in the control of the Contract leaves room for some risk of losing control over the assets. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 410 / 506 Issued on: 3 May 2019 No. Criteria Strong Good Satisfactory Weak assets at any time if needed assets at any time if needed assets by the lender. The rupture is mitigated by knowledge of the trade process or a third party undertaking as the case may be Recovery could be jeopardised b. Insurance against damages Strong insurance coverage including collateral damages with top quality insurance companies Satisfactory insurance coverage (not including collateral damages) with good quality insurance companies Fair insurance coverage (not including collateral damages) with acceptable quality insurance companies Weak insurance coverage (not including collateral damages) or with weak quality insurance companies BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 411 / 506 Issued on: 3 May 2019 Appendix VIII Counterparty Credit Risk and Current Exposure Method Counterparty Credit Risk 1. Counterparty Credit Risk (CCR) is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. Unlike a firm’s exposure to credit risk through a loan, where the exposure to credit risk is unilateral and only the lending bank faces the risk of loss, CCR creates a bilateral risk of loss: the market value of the transaction can be positive or negative to either counterparty to the transaction. The market value is uncertain and can vary over time with the movement of underlying market factors. 2. The methods for computing the exposure amount under the standardised approach for credit risk or the EAD under the IRB approach to credit risk described in this appendix are applicable to over-the-counter (OTC) derivatives as well as to the securities financing transactions (SFTs). Such positions or transactions would generally exhibit the following characteristics:  Undertaken with an identified counterparty against which a unique probability of default can be determined.  Generate an exchange of payments or an exchange of a financial instrument (including commodities) against payment.  Generate a current exposure or market value.  Have an associated random future market value based on market variables. 3. Other common characteristics of these transactions may include the following:  Short-term financing may be a primary objective in that the transactions mostly consist of an exchange of one asset for another (cash or securities) for a relatively short period of time, usually for the business BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 412 / 506 Issued on: 3 May 2019 purpose of financing. The two sides of the transactions are not the result of separate decisions but form an indivisible whole to accomplish a defined objective.  Positions are frequently valued (most commonly on a daily basis), according to market variables.  Uses of credit risk mitigant such as collateralisation276, netting and re- margining to mitigate risk. 4. An exposure value (or EAD) of zero for counterparty credit risk can be attributed to derivative contracts or SFTs that are outstanding with a central counterparty (for example a clearing house). This does not apply to counterparty credit risk exposures from derivative transactions and SFTs that have been rejected by the central counterparty. Furthermore, an exposure value (EAD) of zero can be attributed to banking institutions’ credit risk exposures277 to central counterparties that result from the derivative transactions, SFTs or spot transactions that the banking institution has outstanding with the central counterparty. Assets held by a central counterparty as a custodian on the banking institution’s behalf would not be subject to a capital requirement for counterparty credit risk exposures. 5. A central counterparty is an entity that interposes itself between counterparties to contracts traded within one or more financial markets, becoming the legal counterparty such that it is the buyer to every seller and the seller to every buyer. In order to qualify for the above exemptions, the central counterparty CCR exposures with all participants in its arrangements must be fully collateralised on a daily basis, thereby providing protection for the central counterparty’s CCR exposures. 6. When a banking institution purchases credit derivative protection against a banking book exposure, or against a counterparty credit risk exposure, it 276 Collateralisation may be inherent in the nature of some transactions. 277 Example, from clearing deposits and collateral posted with the central counterparty. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 413 / 506 Issued on: 3 May 2019 will determine its capital requirement for the hedged exposure subject to the criteria and general rules for the recognition of credit derivatives as per the substitution rules in Part B.3.4. Where this rule applies, the exposure amount for counterparty credit risk from such transactions is zero. 7. The exposure amount for counterparty credit risk is zero for sold credit default swaps in the banking book where the exposures are treated in the guidelines as a guarantee provided by the banking institution and subject to a credit risk charge based on the full notional amount. 8. Under the current exposure method, the exposure amount for a given counterparty is equal to the sum of the exposure amounts calculated for each netting set278 with that counterparty. The Current Exposure Method 9. The current exposure method is to be applied to OTC derivative positions only, to determine the credit equivalent amount (or EAD) for these transactions for purposes of the capital adequacy calculation. SFTs (which include transactions such as repurchase agreements, reverse repurchase agreements, security lending and borrowing and margin lending transactions, where the value of the transactions depends on market valuations and the transactions are often subject to margin agreements), shall be subject to the treatment set out under Part B.2.5 and Part B.3.4 of this framework; 10. For the OTC derivatives contracts, banking institutions are not exposed to credit risk for the full face value of the derivatives contracts, but only to the potential cost of replacing the cash-flow if the counterparty defaults. As such, the credit equivalent amount will depend, inter alia, on the maturity of 278 A netting set is a group of transactions with a single counterparty that are subject to a legally enforceable bilateral netting arrangement and for which netting is recognised for regulatory capital purposes under the provisions of paragraphs 19 to 24 of this appendix and Part B.3.4. Each transaction not subject to a legally enforceable bilateral netting arrangement that is recognised for regulatory capital purposes should be treated as its own netting set (separate from those whose bilateral netting arrangement is recognised for regulatory capital purposes). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 414 / 506 Issued on: 3 May 2019 the contract and on the volatility of the rates underlying that type of instrument. 11. Under the current exposure method, the computation of the credit equivalent exposure for derivatives contracts is based on the summation of the following two elements :-  The replacement costs (obtained by marking-to-market) of all contracts with positive value (zero for contracts with negative replacement costs); and  The amount of potential future exposure is calculated by multiplying the notional value of each contract by an “add-on” factor. Credit exposure = positive MTM + (NP x “add-on” factor (%)) Where: MTM = Mark-to-Market NP = Notional principal Add-on factor = As per Appendix VIIIb (An illustration of the calculation under the current exposure method is given in Appendix VIIIa) 12. The “add-on” factors in computing the potential future exposure is determined based on the type of exposure and the residual maturity of each contracts. The “add-on” factors for derivatives contracts are listed in paragraphs 5.45 and 5.46 (for credit derivatives transactions), and Appendix VIIIb. 13. The credit equivalent amounts of exchange rate and interest rate contracts are to be risk-weighted according to the category of the counterparty, including the use of concessionary weightings in respect of exposures backed by eligible guarantees and collateral. Nevertheless, the Bank reserves the right to raise the risk weights if the average credit quality deteriorates or if loss experience increases. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 415 / 506 Issued on: 3 May 2019 14. Banking institutions can obtain capital relief for collateral eligible as defined under the comprehensive approach of this framework subject to the same operational requirements. 15. The calculation of the exposure for an individual contract for a collateralised OTC derivatives transaction279 will be as follows: Credit exposure= positive MTM + (NP x “add-on factor”(%))- CA Where: MTM = Mark-to-Market NP = Notional principal Add-on factor = As per Appendix VIIb CA = Volatility-adjusted collateral amount under the comprehensive approach 16. When effective bilateral netting contracts are in place in a collateralised OTC derivative transaction, MTM will be the net replacement cost and the add-on will be ANet as calculated above. The haircut for currency risk (HFX) should be applied when there is a mismatch between the collateral currency and the settlement currency. Even in the case where there are more than two currencies involved in the exposure, collateral and settlement currency, a single haircut assuming a 10-business day holding period scaled up as necessary depending on the frequency of mark-to- market will be applied. 17. Counterparty credit risk exposure amount for single name credit derivative transactions in the trading book will be calculated using the potential future exposure “add-on” factors set out in the market risk component of this framework. 18. Where a credit derivative is an Nth to default transaction (such as a first to default transaction) the treatment specified in market risk component of this 279 For example, collateralised interest rate swap transactions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 416 / 506 Issued on: 3 May 2019 framework applies. Bilateral Netting 19. Bilateral netting involves weighting of the net rather than the gross claims with the same counterparties arising out of the full range of forwards, swaps, options and similar derivative contracts. Careful consideration needs to be given to ensure that there is no reduction in counterparty risk, especially in cases if a liquidator of a failed counterparty has (or may have) the right to unbundle netted contracts, demanding performance on those contracts favourable to the failed counterparty and defaulting on unfavourable contracts. 20. Therefore, for capital adequacy purposes, bilateral netting280 may be conducted only under the following circumstances:  Banking institutions may net transactions subject to novation under which any obligation between a banking institution and its counterparty to deliver a given currency on a given value date is automatically amalgamated with all other obligations for the same currency and value date, legally substituting one single amount for the previous gross obligations; or  Banking institutions may also net transactions subject to any legally valid form of bilateral netting not covered above, including other forms of novation. 21. In both cases above, a banking institution will need to satisfy the Bank that it has:  A netting contract or agreement with the counterparty which creates a single legal obligation, covering all included transactions, such that the banking institution would have either a claim to receive or obligation to pay only the net sum of the positive and negative mark 280 Payments netting, whish is designed to reduce the operational costs of daily settlements, will not be recognised in this framework since the counterparty’s gross obligations are not in any way affected. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 417 / 506 Issued on: 3 May 2019 to market values of included individual transactions in the event a counterparty fails to perform due to any of the following: default, bankruptcy, liquidation or similar circumstances;  Written and reasoned legal opinions that, in the event of a legal challenge, the relevant courts and administrative authorities would find the banking institution’s exposure to be such a net amount under: a. The law of the jurisdiction in which the counterparty is chartered and, if the foreign branch of a counterparty is involved, then also under the law of the jurisdiction in which the branch is located; b. The law that governs the individual transactions; and c. The law that governs any contract or agreement necessary to effect the netting. The Bank will have to be satisfied that the netting is enforceable under the laws of each of the relevant jurisdictions281;  Procedures in place to ensure that the legal characteristics of netting arrangements are kept under review in the light of possible changes in relevant law. 22. Contracts containing walkaway clauses will not be eligible for netting for the purpose of calculating capital requirements. A walkaway clause is a provision which permits a non defaulting counterparty to make only limited payments or no payment at all to the estate of a defaulter, even if the defaulter is a net creditor. 23. Credit exposure on bilaterally netted forward transactions will be calculated as the sum of the net mark to market replacement cost, if positive, plus an “add-on” based on the notional underlying principal. The “add-on” for netted transactions (ANet) will equal the weighted average of the gross “add-on” 281 If the Bank and other national supervisors are dissatisfied about the enforceability under the laws, the netting contract or agreement will not meet this condition and neither counterparty could obtain supervisory benefit. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 418 / 506 Issued on: 3 May 2019 (AGross)282 and the gross “add-on” adjusted by the ratio of net current replacement cost to gross current replacement cost (NGR). This is expressed through the following formula: ANet = 0.4*AGross+0.6*NGR*AGross Where: NGR = level of net replacement cost/level of gross replacement cost for transactions subject to legally enforceable netting agreements283 24. The scale of the gross “add-ons” to apply in this formula will be the same as those for non netted transactions as set out in paragraphs 9 to 18 of this appendix. The Bank will continue to review the scale of “add-ons” to make sure they are appropriate. For purposes of calculating potential future credit exposure to a netting counterparty for forward foreign exchange contracts and other similar contracts in which notional principal is equivalent to cash flows, notional principal is defined as the net receipts falling due on each value date in each currency. The reason for this is that offsetting contracts in the same currency maturing on the same date will have lower potential future exposure as well as lower current exposure. 282 AGross equals the sum of individual add on amounts (calculated by multiplying the notional principal amount by the appropriate add on factors set out in paragraph 11 of this appendix) of all transactions subject to legally enforceable netting agreements with one counterparty. 283 AGross equals the sum of individual add-on amounts (calculated by multiplying the notional principal amount by the appropriate add-on factors) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 419 / 506 Issued on: 3 May 2019 Appendix VIIIa Sample Computation of the Capital Requirement and Exposure at Default (EAD) for a Portfolio of Derivative Contracts Transaction I Type of instrument : 8 Year Fixed-to-floating Cross Currency Interest Rate Swap (CCIRS) Notional principal amount : RM1,000,000 Current date of report : 31 December 1997 Maturity date : 31 December 2000 Remaining maturity : 3 years Replacement cost : RM350,000 (+ve) Transaction II Type of instrument : 6 Year Fixed-to-floating Interest Rate Swap (IRS) Notional principal amount : RM1,000,000 Current date of report : 31 December 1997 Maturity date : 31 December 2002 Remaining maturity : 5 years Replacement cost : RM200,000 (-ve) Type of instrument CCIRS IRS Total Credit equivalent exposure (exposure at default) = positive replacement cost + potential future exposure 350,000 + {1,000,000 x (2% + 7%)} =350,000 + 90,000 =440,000 0 + {1,000,000 x (4%)} = 0 + 40,000 = 40,000 480,000 Risk-weighted asset (assume risk weight of 50%) 440,000 x 50% = 220,000 40,000 x 50% = 20,000 240,000 Capital requirement (8%) 220,000 x 8% =17,600 20,000 x 8% =1,600 19,200 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 420 / 506 Issued on: 3 May 2019 Appendix VIIIb “Add-on” Factors for Derivatives Contracts Schedule 1 “Add-on” factors for derivative contracts with interest rate exposures Residual maturity Factor (%) < 14 calendar days Nil > 14 calendar days and < 6 months 0.10% >6 months and < 1 year 0.25% > I year and < 2 years 1.0% > 2 year and < years 2.0% > 3 year and < 4 years 3.0% > 4 year and < 5 years 4.0% > 5 year and < 6 years 5.0% > 6 year and < 7 years 6.0% for each additional year add 1.0% Schedule 2 “Add-on” factors for derivative contracts with foreign exchange exposures Residual maturity Factor (%) < 14 calendar days Nil > 14 calendar days and < 6 months 1.5% > 6 months and < 1 year 3.0% > I year and < 2 years 5.0% > 2 year and <3 years 7.0% > 3 year and < 4 years 8.0% > 4 year and < 5 years 9.0% > 5 year and <6 years 10.0% > 6 year and < 10 years 11.0% > 10 years 12.0% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 421 / 506 Issued on: 3 May 2019 Schedule 3 “Add-on” factors for other types of contracts Gold Equities Precious Metals Except Gold Other Commodities One year or less 1.0% 6.0% 7.0% 10.0% Over one year to five years 5.0% 8.0% 7.0% 12.0% Over five years 7.5% 10.0% 8.0% 15.0% Notes: Forwards, swaps, purchased options and similar derivative contracts not covered by any of the columns of this matrix are to be treated as ‘other commodities’ Additional notes “add-on” factors:  For derivative contracts which are sensitive to movements in more than one type of rates, the “add-on” factors used will be the summation of the “add-on” factors for the various types of exposures according to the relevant residual maturity bucket;  For contracts with multiple exchanges of principal, the notional principal amount is the sum of the remaining exchanges of principal. This shall represent the amount to be multiplied with the “add-on” factors;  For both forward rate agreements and over-the-counter interest rate contracts of similar nature which are settled in cash on start date, residual maturity is measured as the sum of the remaining contract period and the underlying tenor of the contract (An illustration is provided in Appendix VIIIc). Institutions may choose to apply discounts to the “add-on” factors if the remaining contract period, as a fraction of residual maturity, falls within a certain range (please refer to Appendix VIIId) for the discount factor and range of residual maturity.  For single currency floating-to-floating interest rate swaps, the “add-on” factor is zero. Thus, the credit exposure for such contracts will comprise only the positive mark-to-market value;  For contracts that are structured to settle outstanding exposure following specified payment dates and where the terms are reset such that the market value of the contract is zero on these specified dates, the residual maturity would be set equal to the time until the next reset date. In the case of interest rate contracts with remaining maturities of more than one year that meet the above criteria, the “add-on” factor is subject to a floor of 0.5%. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 422 / 506 Issued on: 3 May 2019  The “add-ons” should be based on effective rather than notional amounts. In the event that the stated notional amount is leveraged or enhanced by the structure of the transaction, banking institutions must use the effective notional amount when determining potential future exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 423 / 506 Issued on: 3 May 2019 Appendix VIIIc Example for Calculation of Residual Maturity (for Forward Rate Agreements and Over-The-Counter Interest Rate Contracts of Similar Nature which are Settled in Cash on Start Date) A 3-month forward rate agreement for delivery in June 1997 1/1/97 (transaction date) start date +---------+---------+---------+---------+---------+---------+---------+---------+--------+------> months 0---------1---------2---------3---------4---------5----_----6---------7---------8---------9 remaining contract period underlying tenor residual maturity for purpose of Appendix VIIId BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 424 / 506 Issued on: 3 May 2019 Appendix VIIId Discount Factor and Range of Residual Maturity t = Remaining contract period Residual maturity Discount to “Add-on” Factor t < 0.01 75% 0.01 < t < 0.05 50% 0.05 < t < 0.10 25% 0.10 < t < 0.65 no discount 0.65 < t < 0.80 25% 0.80 < t < 0.90 50% t ≥ 0.90 75% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 425 / 506 Issued on: 3 May 2019 Appendix IX Capital Treatment for Failed Trades and Non-DvP Transactions 1. The capital treatment specified in this appendix is applicable to all transactions284 on securities, foreign exchange instruments and commodities that give rise to a risk of delayed settlement or delivery. This may include transactions through recognised clearing houses that are subject to daily mark-to-market and payment of daily variation margins and that involve a mismatched trade. 2. Transactions on securities, foreign exchange contracts or commodities may be settled via the following:  delivery-versus-payment system (DvP)285, which provides simultaneous exchanges of securities for cash, hence exposing banking institutions to a risk of loss on the difference between the transaction valued at the agreed settlement price and the transaction valued at current market price (i.e. positive current exposure); or  non-DvP or free-delivery system, whereby cash is paid without receipt of the corresponding receivable (securities, foreign currencies, gold, or commodities) or, conversely, deliverables were delivered without receipt of the corresponding cash payment, hence exposing banking institutions to a risk of loss on the full amount of cash paid or deliverables delivered. 3. The Bank may use its discretion to waive capital charges in cases of a system wide failure of a settlement or clearing system, until the situation is rectified. Failure by a counterparty to settle a trade in itself will not be deemed a default for purposes of credit risk under this framework. 4. In applying the risk weight to failed free-delivery exposures, banking institutions using the IRB approach may assign PDs to counterparties for which they have no other banking book exposure on the basis of the 284 All repurchase and reverse-repurchase agreements as well as securities lending and borrowing, including those that have failed to settle, are treated in accordance with the parts on credit risk mitigation of this framework. 285 For the purpose of this framework, DvP transactions include payment-versus-payment (PvP) transactions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 426 / 506 Issued on: 3 May 2019 counterparty’s external rating. Banking institutions using the Advanced IRB approach may use a 45% LGD in lieu of estimating LGDs so long as they apply it to all failed trade exposures. Alternatively, banking institutions using the IRB approach may opt to apply the standardised approach risk weight or a 100% risk weight, subject to the exposures being immaterial. Capital Requirements (for other than equities for Investment Banks) 5. For DvP transactions, if the payments have not yet taken place five business days after the settlement date, banking institutions must calculate a capital charge by multiplying the positive current exposure of the transaction by the appropriate corresponding risk multiplier. The corresponding risk multiplied and risk weights are given in the table below: Number of working days after the agreed settlement date Corresponding risk multiplier Corresponding risk weight From 5 to 15 8% 100% From 16 to 30 50% 625% From 31 to 45 75% 937.5% 46 or more 100% 1250% 6. Banking institutions are allowed a reasonable transition period to upgrade their information systems to track the number of days after the agreed settlement date and calculate the corresponding capital charge. 7. For non-DvP transactions (i.e. free deliveries), after the first contractual payment/delivery leg, banking institution that has made the payment will treat its exposure as a loan if the second leg has not been received by the end of the business day286. Banking institutions shall use the standardised risk weights or the appropriate IRB formula, respectively set forth in this 286 If the dates when two payment legs are made are the same according to the time zones where each payment is made, it is deemed that they are settled on the same day. For example, if a bank in Tokyo transfers Yen on day X (Japan Standard Time) and receives corresponding US Dollar via CHIPS on day X (US Eastern Standard Time), the settlement is deemed to take place on the same value date. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 427 / 506 Issued on: 3 May 2019 framework for the exposure to the counterparty, in the same way as it does for all other banking book exposures. However, when exposures are not material, banking institutions may choose to apply a uniform 100% risk weight to these exposures, in order to avoid the burden of a full credit assessment. If five business days after the second contractual payment/delivery date the second leg has not yet effectively taken place, the banking institution that has made the first payment leg must apply a 1250% risk weight to the full amount of the value transferred plus replacement cost, if any. This treatment will apply until the second payment/delivery leg is effectively made. Counterparty Risk Requirement for Investment Banks 8. The counterparty risk requirement (CRR) aims to measure the amount necessary to accommodate a given level of a counterparty risk287 specifically for unsettled trades288 and free deliveries with respect to an investment bank’s equity business. The CRR capital charge (as given in the table below) will be multiplied by a factor of 12.5 to arrive at the CRR risk- weighted asset amount. Agency Trade Transactions Time Period CRR Sales contract Day, T to T+2 CRR = 0 T+3 to T+30 CRR = 8% of market value (MV) of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract CRR = 0, if current MV of contract <= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if current MV of contract > transaction value of contract CRR = 0, if MV of contract <= transaction value of contract Purchase contract Day, T to T+3 CRR = 0 287 Counterparty risk means the risk of a counterparty defaulting on its financial obligation to the banking institution. 288 An unsettled agency purchase/sale or an unsettled principal sale/purchase. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 428 / 506 Issued on: 3 May 2019 Agency Trade Transactions Time Period CRR T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Principal Trade Transactions Time Period CRR Sales contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract < transaction value of contract CRR = 0, if MV of contract >= transaction value of contract Purchase contract Day, T to T+3 CRR = 0 T+4 to T+30 CRR = 8% of MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract CRR = 0, if MV of contract <= transaction value of contract Beyond T+30 CRR = MV of contract X Counterparty Risk weight, if MV of contract > transaction value of contract CRR = 0, if MV of contract <= transaction value of contract BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 429 / 506 Issued on: 3 May 2019 Free Deliveries289 Time Period CRR Day, D290 to D+1 CRR = 8% of Transaction value of contract X Counterparty Risk weight Beyond D+1 CRR = Transaction value of contract 289 Where an investment bank delivers equities without receiving payment, or pays for equities without receiving the equities. 290 Due date where the investment bank delivers equities without receiving payment shall be the date of such delivery, and where the investment bank pays for equities without receiving the equities, shall be the date of such payment. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 430 / 506 Issued on: 3 May 2019 Appendix X List of Recognised Exchanges* 1. American Stock Exchange (USA) 2. Athens Stock Exchange (Greece) 3. Australian Stock Exchange (Australia) 4. Bermuda Stock Exchange (Bermuda) 5. BME Spanish Exchanges (Spain) 6. Bolsa de Comercio de Buenos Aires (Argentina) 7. Bolsa de Comercio de Santiago (Chile) 8. Bolsa de Valores de Colombia (Colombia) 9. Bolsa de Valores de Lima (Peru) 10. Bolsa de Valores do Sao Paulo (Brazil) 11. Bolsa Mexicana de Valores (Mexico) 12. Bolsa Italiana SPA (Italy) 13. Bourse de Luxembourg (Luxembourg) 14. Bourse de Montreal (Canada) 15. BSE The Stock Exchange, Mumbai (India) 16. Budapest Stock Exchange Ltd (Hungary) 17. Bursa Malaysia Bhd (Malaysia) 18. Chicago Board Options Exchange (USA) 19. Colombo Stock Exchange (Sri Lanka) 20. Copenhagen Stock Exchange (Denmark) 21. Deutsche Borse AG (Germany) 22. Euronext Amsterdam (Netherlands) 23. Euronext Brussels (Belgium) 24. Euronext Lisbon (Portugal) 25. Euronext Paris (France) 26. Hong Kong Exchanges and Clearing (Hong Kong) 27. Irish Stock Exchange (Ireland) 28. Istanbul Stock Exchange (Turkey) 29. Jakarta Stock Exchange (Indonesia) 30. JSE Ltd. (South Africa) 31. Korea Exchange (South Korea) 32. Ljubljana Stock Exchange (Slovenia) 33. London Stock Exchange (United Kingdom) 34. Malta Stock Exchange (Malta) 35. NASD (USA) 36. National Stock Exchange of India Limited (India) 37. New York Stock Exchange (USA) 38. New Zealand Stock Exchange Ltd (New Zealand) 39. OMX Exchanges Ltd (Finland & Sweden) 40. Osaka Securities Exchange (Japan) 41. Oslo Bors (Norway) 42. Philippine Stock Exchange (Philippines) 43. Shanghai Stock Exchange (China) 44. Shenzhen Stock Exchange (China) 45. Singapore Exchange (Singapore) 46. Stock Exchange of Tehran (Iran) BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 431 / 506 Issued on: 3 May 2019 47. Stock Exchange of Thailand (Thailand) 48. SWX Swiss Exchange (Switzerland) 49. Taiwan Stock Exchange Corp (Taiwan) 50. Tokyo Stock Exchange (Japan) 51. TSX Group (Canada) 52. Warsaw Stock Exchange (Poland) 53. Wiener Bourse (Austria) * To be updated as and when changes occur. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 432 / 506 Issued on: 3 May 2019 Appendix XI Recognition Criteria for Physical Collateral Used For Credit Risk Mitigation Purposes of Islamic Banking Exposures General Criteria 1. Banking institutions are allowed to recognise physical assets as eligible collateral for credit risk mitigation purposes for Islamic banking exposures, subject to fulfilling all the minimum requirements specified in this framework and obtaining prior approval from the Board. In addition, banking institutions are required to notify the Bank two months in advance of any recognition. 2. Any physical assets must be completed for their intended use and must fulfil the following minimum conditions for recognition as eligible collateral:  The assets are legally owned by the banking institution. For Ijarah contracts, these are restricted to operating Ijarah only, where related costs of asset ownership are borne by the banking institution291; or  The physical assets attract capital charges other than credit risk prior to/ and throughout the financing period (e.g. operating Ijarah and inventories292 under Murabahah). Specific Criteria Commercial real estate (CRE) and residential real estate (RRE) 3. Eligible CRE or RRE collateral are defined as:  Collateral where risk of the borrower is not materially dependent upon the performance of the underlying property or project, but rather on the underlying capacity of the borrower to repay the debt from other sources. As such, repayment of the facility is not materially dependent 291 Shariah requires that the lessor/ owner bears the costs related to the ownership of or any other costs as agreed between the lessor and the lessee. 292 This excludes inventories which are merely used as a ‘pass-through’ mechanism such as in Commodity Murabahah transactions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 433 / 506 Issued on: 3 May 2019 on any cash flow generated by the underlying CRE/RRE serving as collateral; and  The value of the collateral pledged must not be materially dependent on the performance of the borrower. This requirement is not intended to preclude situations where purely macro-economic factors affect both the value of the collateral and the performance of the borrower. 4. Subject to meeting the definition above, CRE and RRE will be eligible for recognition as credit risk mitigation under the comprehensive approach only if all of the following operational requirements are met: (i) Legal enforceability: any claim on collateral taken must be legally enforceable in all relevant jurisdictions, and any claim on collateral must be properly filed on a timely basis. Collateral interests must reflect a perfected lien (i.e. all legal requirements for establishing the claim has been fulfilled). Furthermore, the collateral agreement and the legal process underpinning it must be such that they provide for the reporting institution to realise the value of the collateral within a reasonable timeframe; (ii) Objective market value of collateral: the collateral must be valued at or less than the current fair value under which the property could be sold under private contract between a willing seller and an arm’s-length buyer on the date of valuation; (iii) Frequent revaluation: a banking institution is expected to monitor the value of the collateral on a frequent basis and at a minimum once every year. More frequent monitoring is suggested where the market is subject to significant changes in conditions. Acceptable statistical methods of evaluation (for example reference to house price indices, sampling) may be used to update estimates or to identify collateral that may have declined in value and that may need re-appraisal. A qualified professional must evaluate the property when information indicates that BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 434 / 506 Issued on: 3 May 2019 the value of the collateral may have declined materially relative to general market prices or when a credit event, such as default, occurs; (iv) Junior liens: Junior liens or junior legal charges may be taken into account where there is no doubt that the claim for collateral is legally enforceable and constitutes an efficient credit risk mitigant. Banking institutions could only use the residual value after taking into account collateral haircut. In this case, residual value is derived after deducting exposures with other pledgees, using approved limits or total outstanding amount of the exposures with other pledgees whichever is higher; and (v) Banking institutions are also expected to meet the following collateral management requirements: a. The types of CRE and RRE collateral accepted by the banking institution and lending policies when this type of collateral is taken must be clearly documented; b. The banking institution must take steps to ensure that the property taken as collateral is adequately insured against damage or deterioration; c. The banking institution must monitor on an ongoing basis the extent of any permissible prior claims (for example tax) on the property; and (vi) The banking institution must appropriately monitor the risk of environmental liability arising in respect of the collateral, such as the presence of toxic material on a property. Other physical assets293 5. Physical collateral other than CRE and RRE may be recognised as eligible collateral under the comprehensive approach if the following standards are met: 293 Physical collateral in this context is defined as non-financial instruments collateral. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 435 / 506 Issued on: 3 May 2019 (i) Existence of liquid markets for disposal of collateral in an expeditious and economically efficient manner; and (ii) Existence of well established, publicly available market prices for the collateral. The amount a banking institution receives when collateral is realised should not deviate significantly from these market prices. 6. Subject to meeting the above definition standards, other physical assets will be recognised as credit risk mitigation under the comprehensive approach only if it meets the operational requirements set out for CRE/RRE as well as the following criteria: (i) First claim: only banking institutions having the first liens on, or charges over, collateral are permitted to recognise this type of collateral as credit risk mitigation. In this regard, the banking institution must have priority over all other lenders to the realised proceeds of the collateral; (ii) The loan agreement must include detailed descriptions of the collateral plus detailed specifications of the manner and frequency of revaluation; (iii) The types of physical collateral accepted by the banking institution and policies and practices in respect of the appropriate amount of each type of collateral relative to the exposure amount must be clearly documented in internal credit policies and procedures and available for examination and/or audit review; (iv) Banking institution’s credit policies with regard to the transaction structure must address appropriate collateral requirements relative to the exposure amount, the ability to liquidate the collateral readily, the ability to establish objectively a price or market value, the frequency with which the value can readily be obtained (including a professional appraisal or valuation), and the volatility of the value of the collateral. The periodic revaluation process must pay particular attention to “fashion-sensitive” collateral to ensure that valuations are appropriately adjusted downward for fashion, or model-year, obsolescence as well as physical obsolescence or deterioration; and BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 436 / 506 Issued on: 3 May 2019 (v) In cases of inventories (for example raw materials, finished goods, dealers’ inventories of autos) and equipment, the periodic revaluation process must include physical inspection of the collateral. Leased assets 7. Assets used in operating Ijārah and Ijārah Muntahia Bittamleek (IMB) (leased assets) may be recognised as eligible collateral and used as credit risk mitigation under the comprehensive approach for collateralised transactions. 8. The leased assets must fulfill a function similar to that of collateral, and recognition of leased assets would be subject to reporting institutions fulfilling all minimum requirements under CRE/RRE or other physical collateral, depending on the type of leased assets, as well as the following additional standards: (i) Robust risk management on the part of the banking institutions acting as the lessors with respect to the location of the asset, the use to which it is put, its age, and planned obsolescence; (ii) A robust legal framework establishing the lessor’s legal ownership of the asset and its ability to exercise its rights as owner in a timely manner; and (iii) The difference between the rate of depreciation of the physical asset and the rate of amortisation of the lease payments must not be so large as to overstate the credit risk mitigation attributed to the leased assets. Other Additional Criteria Data maintenance 9. Banking institutions are expected to collect and retain the relevant data pertaining to revaluation and disposal of physical assets as a means to recover from delinquent or defaulted exposures, particularly data on disposal (i.e., selling) amount and timeline of disposal of the physical assets as well as the relevant costs incurred for the disposal. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 437 / 506 Issued on: 3 May 2019 10. Banking institutions are expected to use the relevant data to verify the appropriateness of the minimum 30% haircut on physical assets particularly non-CRE and non-RRE collateral at least on an annual basis. Banking institutions should use a more stringent haircut if their internal historical data on disposal of these physical assets reveal loss amounts that exceed the 30% haircut. 11. In addition, for the regulatory retail portfolio, banking institutions are required to have at least two years of empirical evidence on data such as recovery rates and value of physical collateral prior to its recognition as a credit risk mitigant. Independent review 12. Banking institutions are required to conduct an independent review294 to ascertain compliance with all minimum requirements specified in this framework for the purpose of recognising physical collateral as a credit risk mitigant. The review should be performed prior to the recognition of the physical collateral as a credit risk mitigant and at least annually thereafter to ensure on-going fulfilment of all criteria and operational requirements. 294 Validation must be performed by a unit that is independent from risk taking/ business units. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 438 / 506 Issued on: 3 May 2019 Appendix XII Summary Table of Gross Income Computation Conventional Banking and Islamic Banking Operations Net Interest Income A Comprising: All Interest income Excluding interest suspended and recoveries Less: Interest expense XXX (x) Net295 Non-Interest Income B Comprising: Net commissions/fees receivable Including outsourcing fees receivable, excluding outsourcing fees paid Net income from trading book securities: Including unrealised gains/losses from fair value changes of trading book securities Other operating income Including intra-group income Dividend income from investment in securities Others Excluding: Dividend income from subsidiaries and associated companies Realised or unrealised profits/losses from sales or impairment of securities in banking book Income from extra-ordinary or irregular item Income from insurance recoveries XX XX XX X X X Total Gross Income from Islamic Banking Operations C Total Gross Income A + B + C 295 Net only from any direct expenses associated with the income generated/received. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 439 / 506 Issued on: 3 May 2019 Islamic Banking Operations Net income from financing activities A Net income from investment activities B Other income: Realised/unrealised gains/losses from sales or fair value changes of trading book securities Net commission/fees receivables Intra-group income Dividend income from investment in securities Income from non-Sharī`ah compliant sources Others Excluding: Dividend income from subsidiaries and associated companies Realised or unrealised profits/losses from sales or impairment of securities in banking book Income from extra-ordinary or irregular item Income from insurance recoveries Bad debt recovered C Less: Income attributable to investment account holders and other depositors D Total Gross Income A + B + C - D BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 440 / 506 Issued on: 3 May 2019 Appendix XIII Mapping of Business Lines Level 1 Level 2 Activity Groups Corporate Finance Corporate Finance Mergers and acquisitions, underwriting, privatisations, securitisation, research, debt (government, high yield), equity, syndications, IPO, secondary private placements Municipal/Government Finance Merchant Banking Advisory Services Trading & Sales Sales Fixed income, equity, foreign exchanges, commodities, credit, funding, own position securities, lending and repos, brokerage, debt, prime brokerage Market Making Proprietary Positions Treasury Retail Banking Retail Banking Retail lending and deposits, banking services, trust and estates Private Banking Private lending and deposits, banking services, trust and estates, investment advice Card Services Merchant/commercial/corporate cards, private labels and retail Commercial Banking Commercial Banking Project finance, real estate, export finance, trade finance, factoring, leasing, lending, guarantees, bills of exchange Payment and Settlement External Clients Payments and collections, funds transfer, clearing and settlement Agency Services Custody Escrow, depository receipts, securities lending (customers) corporate actions Corporate Agency Issuer and paying agents Corporate Trust Asset Management Discretionary Fund Management Pooled, segregated, retail, institutional, closed, open, private equity Non-Discretionary Fund Management Pooled, segregated, retail, institutional, closed, open Retail Brokerage Retail Brokerage Execution and full service BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 441 / 506 Issued on: 3 May 2019 Appendix XIV Illustration of the Offsetting Rules Between Negative and Positive OR Capital Charge in Any Business Lines Business Line Beta (β) % Gross Income Gross Income x β OR Capital Charge March 08 Dec 07 Sept 07 June 07 March 08 Dec 07 Sept 07 June 07 Year 3 Corporate Finance 18 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Trading and Sales 18 -9.00 5.00 -12.00 9.00 -1.62 0.90 -2.16 1.62 Retail Banking 12 5.00 6.00 5.00 5.00 0.60 0.72 0.60 0.60 Commercial Banking 15 10.00 5.00 -8.00 7.00 1.50 0.75 -1.20 1.05 Payment and Settlement 18 2.00 2.00 1.00 2.00 0.36 0.36 0.18 0.36 Agency Services 15 2.00 2.00 2.00 3.00 0.30 0.30 0.30 0.45 Asset Management 12 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Retail Brokerage 12 0.00 0.00 2.00 4.00 0.00 0.00 0.24 0.48 Total 10.00 20.00 -10.00 30.00 1.14 3.03 -2.04 4.56 6.69 A similar manner of computation is required for the calculation of the annual gross income for the two years proceeding the most recent year. The aggregate operational risk capital charge is equivalent to the three year average of the simple summation of the regulatory capital charges. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 442 / 506 Issued on: 3 May 2019 Appendix XV Illustration of Computation of Exposures with Credit Risk Mitigation Effects Example 1 Loan of RM1,000 with 5 years residual maturity to a BBB-rated corporate. The full amount of the loan is fully guaranteed by a corporate with an external rating (RAM) of AAA. Solution (Simple approach) Obligor’s risk weight (RW) Guarantor’s RW 100% 20% Using RW of the substitution, the RWA: RWA = 1000 × 20% = RM200 Example 2 Loan of RM1,000 to BBB-rated corporate. Half of the amount of the loan is secured by a AAA-rated MGS. Solution (Comprehensive approach) Variables Supervisory haircut He No haircut applied as exposure is in the form of cash Hc 0.02296 Hfx No currency mismatch Adjusted exposure (E*) = Max {0, [E × (1 + He) – C × (1 – Hc - Hfx)]} = [1000 × (1 + 0) – 500 × (1 – 0.02 – 0)] = RM510 Risk-weighted assets (RWA)297 = = RM510 × 100% RM510 296 Refer to paragraph 2.119 standard supervisory haircuts table 297 Refer to Appendix III on risk weight table for corporate exposure. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 443 / 506 Issued on: 3 May 2019 Example 3 Loan of RM1,000 to a small business with a residual maturity of 5 years. The loan is secured by receivables (the ratio of collateral value to nominal exposure is 125%). Solution No recognition for receivables as risk mitigation under the standardisation approach. Thus, the appropriate RW to be applied is 75%, regulatory retail (loan to small business) RWA = RM1,000 × 75% = RM750 Example 4 Loan of RM1,000 to a B-rated corporate with a 3-year residual maturity. Half of the exposure, RM500, is guaranteed by an A-rated bank. Solution RWA = (Exposure covered by guarantee, GA) + (exposure not covered) = (500 × 50%298) + [(1000 – 500) × 125%] = 250 + 625 = RM875 Example 5 Bank A repos out cash of RM1,000 to a corporate with an external rating of AA. The corporate provides collateral in the form of debt securities issued by a bank with an external rating of AA. The debt securities have a remaining maturity of 7 years and a market value of RM990. Variables Supervisory haircuts Scaling factor Adjusted haircuts He Exposure in the form of cash, supervisory haircut = 0 0 Not applicable Hc 0.08 = 1)]/10 (TM [NR  = 1)]/10- (5 [1 7372  = 0.71+ (5299 – 1)]/10 = 0.08300 × 0.71 = 0.06 Hfx No currency 0 Not applicable 298 Refer to Appendix III on risk weight table for bank exposures. 299 5 business days holding period for repo style transaction, refer paragraph 2.122. 300 Refer to paragraph 2.119 for standard supervisory haircuts table. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 444 / 506 Issued on: 3 May 2019 Variables Supervisory haircuts Scaling factor Adjusted haircuts mismatch Solution E* = max {0, [E × (1 + He) – C × (1 – Hc - Hfx)]} = [1000 × ( 1+0) – 990 × (1 – 0.06 – 0)] = 1000 – 930.6 = RM69.40 RWA = E* × RW = 69.40 × 0.5 = RM34.70 Example 6 Bank A repos out RM1000 to Bank B (AA rated). It receives as collateral, 7-year BBB rated corporate bonds denominated in foreign currency with a value of RM800. Supervisory haircut Scaling factor Adjusted haircut He Exposure in the form of cash, haircut = 0. Not applicable Hc 0.06 = 1)]/10 - (TM + [NR = 1)]/10 - (51 7675  = 0.71301 – 1)]/10 = 0.06 × 0.71 = 0.04 Hfx 0.08 = 1)]/10 (5 [1 7877  = 0.71 + (5302 – 1)]/10 = 0.08 × 0.71 = 0.06 Solution E* = E* = max {0, [E × (1 + He) – C × (1 – Hc - Hfx)]} = [1000 × ( 1+0) – 800 × (1 - 0.04 – 0.06)] = 1000 – 720 E* = RM280 RWA = E* × RW = 280 × 0.5 = RM140 301 5 business days holding period for repo style transaction, refer paragraph 2.122. 302 5 business days holding period for repo style transaction, refer paragraph 2.122. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 445 / 506 Issued on: 3 May 2019 Example 7 Bank X lends cash of RM1000 to Bank Z (A rated) for a period of 5 years. Bank Z places a 2 year deposit of RM800 in Bank X. Solution Step 1. Calculate value of credit protection adjusted for maturity mismatch Ca = C × (1 – Hc – Hfx) × ( t – 0.25) / ( T – 0.25) = 800 × ( 1 – 0 - 0) × ( 2 – 0.25) / (5 – 0.25) = 800 × 0.37 = RM296 Step 2. Calculate adjusted exposure E* = max {0, [E × (1 + He) – Ca ]} = 1000 × (1 + 0) – 296 = RM704 RWA = E* × RWA = 704 × 50%303 = RM352 303 Refer to Appendix III on risk weight table for bank exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 446 / 506 Issued on: 3 May 2019 Example 8: Proportional Cover Loan to a BBB corporate of RM1,000 with a 3 year residual maturity. A guarantee of RM500 from a bank (A rated) with a remaining maturity of 3 years serves as collateral. The secured and unsecured portions are equal in seniority. Solution RWA = (GA X RW guarantor) + [(E – GA) X RW obligor] = (500 x 50%) + [(1000 – 500) x 100%] = 250 + 500 = RM750 Example 9: Treatment of Pools of Credit Risk Mitigation Techniques Loan to a BBB corporate of RM1,000 with a 3 year residual maturity. The loan is secured by Guarantee of RM1,000 from a bank (A rated). Half of the guarantee has residual maturity of 3 years and the other half, a residual maturity of 2 years. In addition, the loan is also secured by an AAA rated MGS of RM500 with a residual maturity of 3 years. The bank opts to obtain the largest capital relief possible from the various risk mitigants. Solution RWA = (GA X RW MGS) + [(E – GA) X RW guarantor] = (500 x 0%) + [(1000 – 500) x 50%] = RM250 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 447 / 506 Issued on: 3 May 2019 Appendix XVI Information Requirements for Application to Adopt the Internal Ratings Based Approach for Credit Risk Banking institutions intending to adopt the IRB approach are required to submit the relevant information304 in the following table: 1. Overall Implementation i) Objective, goal and rationale for applying for IRB status Articulate the objectives, goals and rationale as approved by the board. ii) Governance structure of the implementation project Insert name, designation and responsibilities. Append chart if available. Explain the role of external parties, if applicable. iii) Scope and timeline of the rollout of IRB  across asset class305 Insert class name Insert commencement date306 Insert completion date307  across entity Insert entity name Insert commencement date Insert completion date  exposures falling under temporary and permanent exemption, if any (as defined in paragraphs 3.4 to 3.6 and 3.14) and the plan to migrate the temporary portfolio to IRB. Insert class name Insert commencement date Insert completion date iv) Detailed timeline (describe for each model to be adopted for each asset class and entity. For example, behavioural model for QRRE class in ABC entity) Insert work step (e.g. data collection, IT implementation) Insert commencement date Insert completion date v) Detailed approved budget and committed resources for implementation Insert overall amount committed, estimate of personnel involved (breakdown where external parties are involved), 304 Information required is applicable to both internal and external models. 305 Include those already covered and to be covered in the future. 306 Date of commencement of 1st deliverable. 307 Date of completion of final deliverable. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 448 / 506 Issued on: 3 May 2019 vi) Cost-Benefits Analysis Provide a detailed estimate of cost in completing the entire IRB implementation project and explain the benefits gained from IRB adoption as compared to SA. 2. Gap Analysis/ Validation/ Self-Assessment vii) Overview of gap analysis/ validation/ self- assessment process Explain the process and personnel involved in conducting the assessment, clarifying the skills and independence of the reviewer, where applicable. Explain the baseline/ benchmark used (BCBS guideline, or the Bank’s guidelines). viii) Outcome of assessment List all gaps identified. Evaluate the impact of the gaps or non-compliances to the overall implementation of IRB. ix) Detailed plan for achieving compliance For each gap, explain the remedial actions taken, the time needed to bridge the gap and the person responsible. Alternatively, submit the detailed action plan. 3. Information with regard to the IRB systems (append one for each rating system): Banking institutions should submit information (in the form of policies, reports and technical documentation) that describes its compliance with the relevant paragraphs on the IRB minimum requirements in this framework. The remarks that follow in this section are meant only as a guide. x) Overview or general description of internal rating systems Describe the rating system in terms of the rating/ modeling approach, the time horizon and the segment of the portfolio, asset class or product type for which the rating system will be used. xi) Rating system design Elaborate on the existence of borrower and facility dimensions for each major portfolio. Explain the structural design of the rating system. Append any rating criteria, definition and assignment process adopted. xii) Rating system operations Describe how the rating assignment process ensures appropriate and consistent rating coverage. Elaborate on the controls put in place to ensure integrity of the process, including the process of reviewing and overriding ratings and loss estimates. Explain the process put in place to verify and assess data input for rating assignment. Explain (append if possible) the structure or framework for data maintenance and documentation. xiii) Rating system estimation (covering development and calibration) Explain the conceptual and technical features of the process undertaken to estimate the relevant parameters (PD, LGD, EAD etc.), inclusive of reasons (appropriateness, strength and weaknesses) and further enhancements to be taken. Explain and justify the differences, if any, in the definition of default adopted. Provide empirical analysis to justify the appropriateness of using the conventional IRB model and its parameters on the Islamic banking assets Describe the stress testing processes in place (including the scenarios adopted and the sources of information) in relation to capital adequacy. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 449 / 506 Issued on: 3 May 2019 xiv) Rating system validation Include the measurement of performance especially on accuracy, calibration, stability and consistency. For banking institutions with an Islamic asset portfolio which leverages on a same model as their conventional assets, banking institutions are expected to assess the performance of the model specifically on the Islamic asset portfolio as well. xv) Overview of the internal governance structure of the rating system Append chart if available.  role of board (and its committees) Insert name and responsibilities specific to the governance of rating system (if any).  role of senior management (and its committees) Insert name and responsibilities specific to the governance of rating system as well as other critical responsibilities.  role of credit risk management unit (or its equivalent) Insert name and responsibilities specific to the design, selection, implementation and performance of rating system.  role of internal audit (or other relevant assurance function) Insert name and responsibilities specific to the review of rating system. xvi) Use of ratings Explain how the ratings will support internal business decisions. Explain any adjustments made if ratings are not used directly. xvii) Logical data model and the surrounding IT infrastructure Append the logical data fields used and their dependencies. xviii) Data extraction and cleansing processes Explain and attach the tests undertaken to verify the integrity of data. xix) IRB training conducted to relevant officers, senior management personnel and board members. List all relevant training (especially on the operations and use of ratings) conducted in the immediate past. Include areas covered, instructor’s name, departments affected and date conducted. If possible, include training plans for the future. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 450 / 506 Issued on: 3 May 2019 Appendix XVII Information Requirements for Application to Adopt the Internal Models Approach for Market Risk Banking institutions intending to adopt the internal models approach for the computation of the market risk capital charge in the trading book are required to submit to Bank Negara Malaysia the following information: A. General Information Organisational Structure 1. The latest organisational chart showing the names and reporting lines of key personnel in charge of the front office, middle office, back office, finance and risk management functions. 2. Terms of reference or description of function for the following: a. Treasury Department b. Middle Office c. Back Office/Processing Unit d. Finance / Account Department e. Market Risk Management Unit 3. Terms of reference of Board Risk Management Committee and Market Risk Management Committee. Among others should include: a. role and composition of committees b. frequency of meetings c. information received 4. Information pack and minutes of the committees’ meetings (described in 3 above) for the past 12 months including: a. discussion reports b. recommendations to the committee c. communication of decision BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 451 / 506 Issued on: 3 May 2019 5. Background, experience and qualification of key treasury front office and market risk management personnel. 6. Number of staff in treasury front office and market risk management and their responsibilities. Policies and Operational Manuals 7. Please provide the following policies and procedures (if maintained separately from documents required in 2 above: a. Treasury Front Office b. Trading and Investment c. Middle Office d. Back Office/Processing Unit e. Finance/Account Department f. Trading Book Policy Statement Treasury Portfolio Data and Profit and Loss 8. List of treasury products and activities (please also specify products and activities that will be included in risk models). 9. Monthly detailed outstanding treasury transactions for the last 12 months. 10. Monthly detailed Treasury P&L for the last 12 months. Internal Controls (with regards to treasury and market risk management) 11. Validation policy and programme. 12. Latest independent review reports. 13. Recent internal and external (if any) audits’ reports. 14. Exception reports for the last 12 months. Front office and Market Risk Management Information System (MIS) infrastructure 15. Structure of source systems (position capture) and risk measurement system. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 452 / 506 Issued on: 3 May 2019 16. System manuals. 17. Control structure surrounding risk measurement system. B. Valuation Model Information (by risk categories) 18. Description of portfolio valuation model specifying whether model was purchased or developed in house. Description among others should include: a. mark-to-market/model methodology for all products b. cash flow mapping process c. detail products decomposition 19. For a purchased valuation model, description of adjustments made on the model. 20. Procedures on zero yield curve generation. Among others should include: a. source of rates b. interpolation methodology 21. Description of valuation adjustments made to cater for illiquidity, concentration etc. C. Value-at-Risk (VaR) Measurement Information Risk system 22. The scope of application for which approval is requested. 23. Description of units, portfolio or entity not covered by the model and reason(s) for exclusion. 24. Future developments and implementation schedule to incorporate any areas excluded from the scope of the model. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 453 / 506 Issued on: 3 May 2019 25. Future developments and implementation schedule of any planned changes or any future plans that have a bearing on the model. 26. Description and the flow chart of the individual risk supporting systems. 27. Description and the flow chart of the main risk measurement systems/engine. Measurement methodology by risk categories (interest rate, equity, foreign exchange and commodities risks) 28. Overall description of VaR measurement approach (variance/covariance, Monte Carlo simulation, historical simulation). This should among others, includes: a. confidence interval used; b. holding period; c. description of historical data used to calculate volatility and correlation parameters and any weighting methodology used in the calculation specifying the “effective” observation period; d. any scaling factors used 29. Description of the underlying assumptions. 30. Description of historical data update process and frequency. 31. Description of underlying parameters. Among others, include: a. number of yield curves by currency b. number of risk factors by currency c. equity risk factors d. commodity risk factors 32. Description of how the models capture: a. non-linear effects particularly, options products; b. correlations within and across broad risk categories; c. specific risk, if any. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 454 / 506 Issued on: 3 May 2019 33. Time taken to generate VaR numbers and availability of VaR for distribution particularly to front office. Stress testing 34. Description of the methodology used. 35. Stress test results for the past 12 months. 36. Stress test limits. Back testing 37. Description of the methodology used. 38. Back testing results for the past 12 months. D. Risk Appetite and Limit Structure 39. Overall limits structure imposed on trading book risk taking activities (VaR limits, notional limits etc.). 40. Policy and procedures governing limits allocation process. 41. Policy and procedures on discretionary powers (e.g. granting exception, temporary excesses etc.). 42. Escalation policy on exceptions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 455 / 506 Issued on: 3 May 2019 E. Risk Management & Control 43. Please provide the policies and procedures for market risk management function. 44. List/summary of reports prepared by risk management on a daily basis. Description of timeline these reports available for senior management. 45. Description of future developments of risk measurement methodology, products and activities related to market risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 456 / 506 Issued on: 3 May 2019 Appendix XVIII Illustration of Computation of Large Exposure Risk Requirement Scenario A A banking institution holds exposures consisting of shares and in-the-money call warrants with market value amounting to RM20 million in a corporation listed on G10 stock exchange. The banking institution’s Total Capital is currently RM500 million and the total issued paid-up capital of the corporation is RM100 million. All the exposures are held in the trading book. Step 1 Determine the amount in excess of threshold. The LERR computation will be based on exposures to a single equity exceeding 15% of the banking institution’s Total Capital or 10% of the issuer’s paid-up capital, whichever is lower. LERR threshold (RM million) Amount within threshold (RM million) Amount in excess of lowest threshold (RM million) Total exposures (RM million) Based on banking institution’s Total Capital 500 x 15% = 75 Not applicable. Based on issuer’s paid-up capital 100 x 10% = 10 10 10 20 Step 2 Calculate the LERR capital charge by multiplying the market value of the equity position in excess of the threshold, with the sum of the corresponding general and specific risk weights as per the market risk component of the Capital Adequacy Framework. The LERR capital requirement is incurred in addition to the market risk capital charge for large exposures to a single equity. Market risk capital charge RM20 million x (8% + 8%) = RM3.2 million LERR capital charge RM10 million x (8% + 8%) = RM1.6 million Step 3 Calculate the LERR risk-weighted asset. LERR risk-weighted asset RM1.6 million x 12.5 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 457 / 506 Issued on: 3 May 2019 = RM20 million Scenario B A banking institution holds preference shares with market value amounting to RM80 million in an unlisted corporation. The banking institution’s Total Capital is currently RM500 million and the total issued paid-up capital of the corporation is RM1 billion. All the exposures are held in the banking book. Step 1 Determine the amount in excess of the lowest threshold. LERR threshold (RM million) Amount within threshold (RM million) Amount in excess of lowest threshold (RM million) Total exposures (RM million) Based on banking institution’s Total Capital 500 x 15% = 75 75 5 80 Based on issuer’s paid- up capital 1000 x 10% = 100 Not applicable Step 2 Calculate the LERR risk-weighted asset by multiplying the market value of the equity exposure (banking book position) in excess of the threshold with the corresponding risk weight, i.e.100%. Credit risk-weighted asset RM80 million x 100% =RM80 million LERR risk-weighted asset RM5 million x 100% = RM5 million BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 458 / 506 Issued on: 3 May 2019 Appendix XIX Capital Treatment for Sell and Buyback Agreement (SBBA)/ Reverse SBBA Transactions The capital treatment for exposures from SBBA and reverse SBBA transactions under the banking book and trading book is provided below: SBBA Reverse SBBA308 Trading book transaction 1) Market risk in the forward purchase transaction  For cash position: a. General risk for the short cash position b. There is no specific risk charge for the cash position  For the underlying asset of the forward purchase transaction a. General risk for the underlying asset b. Specific risk for the underlying asset 2) Counterparty credit risk (as per the banking book treatment below). 1) Market risk in the forward sale transaction  General risk for the long cash position 2) Counterparty credit risk (as per the banking book treatment below) 308 In addition to the capital charge applied here, if an arrangement that could effectively transfer the risk back to the SBBA seller is not legally binding, the SBBA buyer is required to provide for credit risk charge of the underlying asset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 459 / 506 Issued on: 3 May 2019 SBBA Reverse SBBA292 Banking book transactions Standardised Approach for Credit Risk 1) Credit risk in the underlying asset in the forward purchase transaction  Credit RWA = Underlying asset value x CCF of forward asset purchase (i.e. 100%) x risk weight based on recognised issue / issuer rating of the asset. 2) Counterparty credit risk in the forward purchase transaction  Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward purchase transaction value, where the underlying asset market value > the forward purchase transaction value. 1) Counterparty credit risk in the forward purchase transaction  Credit RWA = Credit equivalent amount (derived from the Current Exposure Method) x risk weight of counterparty. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward sale transaction value, where the underlying asset market value < the forward sale transaction value. Internal Ratings-Based Approach for Credit Risk 1) Credit risk in the underlying asset in the forward purchase transaction  EAD = Underlying asset value x CCF of forward asset purchase (i.e., 100%). EAD is to be used in capital formula to obtain the capital charge. 2) Counterparty credit risk in the forward purchase transaction  EAD = Credit equivalent amount (derived from the Current Exposure Method). EAD is to be used in capital 1) Counterparty credit risk in the forward sale transaction EAD = Credit equivalent amount (derived from the Current Exposure Method). EAD is to be used in capital formula to obtain the capital charge. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward sale transaction value, where the forward sale transaction value > the underlying asset market BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 460 / 506 Issued on: 3 May 2019 formula to obtain the capital charge. Note: The ‘positive MTM’ amount refers to the difference between the underlying asset market value and forward purchase transaction value, where the underlying asset market value > the forward purchase transaction value. value. The underpinning basis for the capital treatment for SBBA and reverse SBBA transactions is the risk profile of the underlying transactions i.e. outright sale/ buy contract as well as forward transactions as waad (promise) to buyback/ sellback. Hence, while SBBA and reverse SBBA are not securities financing transactions, the treatment prescribed for securities financing transactions (e.g. requirements on maturity and floor) is also applicable to SBBA and reverse SBBA except for treatment on credit risk mitigation (Part B.2.5 and Part B.3.4 respectively). BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 461 / 506 Issued on: 3 May 2019 Appendix XX Securitisation Framework – Definitions and General Terminology Asset-backed commercial paper (ABCP) programme An ABCP programme predominately issues commercial paper with an original maturity of one year or less that is backed by assets or other exposures held in a bankruptcy-remote SPV. Asset-backed Sukuk Risk and reward are dependent on the underlying asset. Asset-based Sukuk Risk and reward are dependent on the obligor that originates/issues the instrument. Assignment An assignment may also achieve an effective transfer of the seller’s rights to the principal sum and interest, usually with the exclusion of certain obligations. However, there is potential risk that some rights may not be effectively assigned, thus resulting in the impairment of the buyer’s entitlements to certain rights accrued between the borrower and the seller, such as the late payment fee, prepayment charges, late interest charges, repossession of collateral, and set-off arrangements (for example, netting of obligations). Another constraint is the restriction on the assignability of loans that may be imposed in loan agreements prohibiting any assignment to third parties without the consent of the parties to the agreement. In the case of a legal assignment, the seller will notify the borrower that the rights to the assets are being assigned to the buyer. This notification will ensure that the buyer’s rights are not impaired by other intervening rights, or at the minimum, the seller should provide a warranty that all rights to the principal sum and interest are being assigned and no other right exists. In the case of an equitable assignment where notice of the transfer is not given to the borrowers (due to impracticality, etc.), the SPV buyer and consequently the investors are exposed to potential legal risks (where the transfer is not perfected). For example, BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 462 / 506 Issued on: 3 May 2019 investors may lose priority to the holder of a legal assignment that may be created subsequently by the seller/originator. Another legal risk concerns the fact that the buyer or investor may not have direct rights against the borrower and needs to join the seller/originator in any legal action initiated against the borrower with respect to the receivables. Similarly, in cases where a borrower’s obligation is offset with its deposit (that is, enforceable on-balance sheet netting), unless the SPV’s claim is perfected, there is a risk that the SPV may not be entitled to the full amount due from the borrower. Credit enhancement A credit enhancement is a contractual arrangement in which a banking institution retains or assumes a securitisation exposure and, in substance, provides some degree of added protection to other parties to the transaction. Credit-enhancing interest-only strip A credit-enhancing interest-only strip is an on-balance sheet asset that represents a valuation of cash flows related to future margin income and is subordinated. Excess spread Excess spread is generally defined as gross finance charge collections and other income received by the trust or SPV minus certificate interest, servicing fees, charge- offs, and other senior SPV expenses. Future margin income (FMI) The amount of income anticipated to be generated by the relevant exposures over a certain period of time that can reasonably be assumed to be available to cover potential credit losses on the exposures (i.e. after covering normal business expenses). FMI usually does not include income anticipated from new accounts. Gain-on-sale Gain-on-sale is any residual interest retained by the originating banking institution that is, an on-balance sheet asset that represents a retained beneficial interest in a securitisation accounted for as a sale, and that exposes the originating banking BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 463 / 506 Issued on: 3 May 2019 institution to any credit risk directly or indirectly associated with the transferred asset, that exceeds a pro rata share of that originating banking institution's claim on the asset. Investment grade A securitisation exposure is deemed to be of investment grade if an ECAI recognised by the Bank has assigned it a rating within long-term rating categories 1 to 3, or short- term rating categories 1 to 3 (as defined in Appendix III). Novation The transfer involves a tripartite arrangement whereby the two parties to the original contract, the originator and the borrower, agree with the SPV that the SPV shall become a substitute for the originator thus assuming the originator’s rights and obligations under the original contract. This method is considered the cleanest transfer. However, it may involve legal procedures and requirements such as obtaining the signature of borrowers as a party to the novation agreement effecting the transfer of assets and titles, legal fees, stamp duty, etc. Originating banking institution A banking institution is considered to be an originator in a securitisation transaction if it meets either of the following conditions: – The banking institution originates directly or indirectly (e.g. a banking institution purchases a third party financial instrument via its balance sheet or acquires credit risk through credit derivatives and subsequently sells or transfers to an SPV) the underlying exposures included in the securitisation; or – The banking institution serves as a sponsor of an ABCP conduit or similar programme that acquires exposures from third-party entities. In the context of such a program, a banking institution would generally be considered a sponsor and, in turn, an originator if it, in fact or in substance, manages or advises the programme, places securities into the market, or provides liquidity and/or credit enhancements. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 464 / 506 Issued on: 3 May 2019 Residual interest Residual interest can take several forms such as credit-enhancing interest-only strips, spread accounts, cash collateral/reserve accounts, retained subordinated interests and other forms of over-collateralisation, accrued but uncollected interest on transferred assets (presumably in credit card securitisations) that when collected, will be available to serve in a credit-enhancing capacity. Residual interests generally do not include interests purchased from a third party other than the purchased credit- enhancing interest-only strips. Revolving exposures Credit exposures where the borrower is permitted to vary the drawn amount and repayments within an agreed limit under a line of credit (e.g. credit card receivables and corporate loan commitments). Servicer A servicer is one (typically the originating banking institution) that manages the underlying credit exposures of a securitisation on a day-to-day basis in terms of collection of principal and interest, which is then forwarded to investors in the securitisation transaction. Special purpose vehicle (SPV) An SPV is an entity set up for a specific purpose, the activities of which are limited to those necessary to accomplish the purpose of the SPV, and the structure of which is intended to isolate the SPV from the credit risk of an originator or seller of the exposures. SPVs are commonly used as financing vehicles in which exposures are sold to a SPV or similar entity in exchange for cash or other assets funded by debt issued by the SPV. Such SPVs are used as a conduit for risk transfer purposes in the case of synthetic securitisation. Synthetic securitisation A synthetic securitisation is a structure with at least two different stratified risk positions or tranches that reflect different degrees of credit risk. The structure involves the transfer of credit risk of an underlying pool of exposures by the originator, in whole BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 465 / 506 Issued on: 3 May 2019 or in part, using CRM tools such as credit-linked notes, credit default swaps or guarantees to hedge the credit risk of the underlying exposures. Accordingly, the investors are exposed to the risk and performance of the underlying exposures. Traditional securitisation A traditional securitisation involves a transfer of an underlying pool of exposures to a SPV which issues asset-backed securities to capital market investors. The cash flow generated from the underlying pool of exposures is used to service at least two different stratified risk positions or tranches reflecting different degrees of credit risk. Investors are exposed to the risk and performance of the specified underlying exposures rather than the performance of the originator of the underlying exposures. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 466 / 506 Issued on: 3 May 2019 Appendix XXI Legal and Regulatory Requirements Specific legal and regulatory requirements Sale/transfer of assets – Section 49 of BAFIA Pursuant to Section 49(1)(b) of BAFIA, a banking institution is required to obtain the prior approval of the Minister of Finance (MOF) for the sale, disposal or transfer of the whole or any part of its business. However, for purposes of securitisations by banking institutions, the MOF has exempted licensed institutions from Section 49(1)(b) of BAFIA effective from 18 April 2002, subject to compliance with all regulatory requirements relating to securitisation and any other relevant conditions as may be specified by the Bank. While licensed institutions may adopt various methods of legal transfer (please refer to Appendix XX for examples of methods of legal transfer), the method employed should seek to minimise legal risks to the originating banking institution. Regardless of the method to be adopted for the transfer, all potential legal risks must be identified and adequately disclosed, when and where appropriate (for example, in the information memorandum for investors). Scheduled business – Section 19 of BAFIA An SPV that is established for the purpose of asset securitisation is not deemed to be carrying on a scheduled business under Section 19 of BAFIA, provided that the scheme has obtained all necessary approvals from relevant authorities and undertakes a ‘one-off’ transaction. An SPV that is not established to undertake a ‘one- off’ transaction is required to be registered with the Bank. Secrecy requirements – Sections 97 and Section 99 of BAFIA Pursuant to Section 97 of BAFIA, a licensed institution is not permitted to disclose to any person, information or documents relating to the affairs of its customers. Prior consent of the Bank must be obtained under Section 99(1)(i) of BAFIA for the disclosure of borrowers-related information, to third parties to facilitate the necessary procedures to effect securitisation transactions such as due diligence and credit rating assessments. In cases where loan documentation already provides for customers’ BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 467 / 506 Issued on: 3 May 2019 consent for the disclosure of his information, the Bank’s approval pursuant to Section 99(1)(i) of BAFIA is not required. The Bank may grant approval, on a case-by-case basis, pursuant to Section 99(1)(i) of BAFIA, to legal counsel, reporting accountants, and any other parties as the case may require, specifically appointed to facilitate the conduct of due diligence processes or credit rating assessments. Applications for approval should include the following information: – Time period required by the legal counsel and accountants to conduct the due diligence (for revolving securitisation schemes, the Bank may grant such approval for the entire ‘revolving period’); – Names of legal and accounting firms including names and identity card numbers of individual staff involved in the exercise; and – Justification for the need to disclose customer information to the identified parties. In the case where approval is obtained under Section 99(1)(i) of BAFIA, licensed institutions must incorporate in the sale and purchase agreement, the requirement for the buyer/SPV to preserve the confidentiality of customers’ information. Should due diligence become necessary in the case of an asset replenishment, a separate approval under Section 99(1)(i) of BAFIA should be sought unless the customers’ consent has already been obtained earlier. Disclosure requirements for loans disposed under the Debt Management Programme Banking institutions that dispose loans which are under the Debt Management Programme (DMP) of the Credit Counselling and Debt Management Agency are required to take appropriate actions to secure the commitment of buyers of the loans to continue to abide by the terms and conditions of the DMP, as long as the borrower continues to comply with the DMP. Banking institutions should also ensure that borrowers are informed of the disposal of their loan to third parties, irrespective of whether prior consent has been obtained from the borrower for the sale or transfer of their loan. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 468 / 506 Issued on: 3 May 2019 Regulatory capital relief Originating banking institutions applying for capital relief for their securitisation transactions are required to submit the following to the Bank: – A confirmation of compliance by senior management against the operational requirements for traditional or synthetic securitisation, as outlined in Part F.2. The statement should be supported by relevant information e.g. legal opinion confirming the legality of the sale of assets or enforceability of the contracts. – A risk management self assessment, in line with the requirements of paragraph 6.2 of the Prudential Standards on Securitisation Transactions, which details information regarding: o the role(s) of the banking institution in the securitisation transaction describing the purpose, nature, extent and risk implications arising from the role(s); and o risk management policies and procedures that will be implemented to address any potential risk issues. The above submission to the Bank should be validated and signed-off by an appropriate level of authority within senior management of the banking institution. Regulatory process and submission of applications to Bank Negara Malaysia Regardless of whether capital relief is being sought or not, the following transaction information should be maintained by originating banking institutions upon the completion of the transaction (issuance of notes), and made available to the Bank upon request: – Final rating report; – Principal terms and conditions of transaction; – Information memorandum; – Legal opinion of true sale; – Opinion of accounting treatment; – The latest risk management self assessment in accordance with paragraph 6.2 of the Prudential Standards on Securitisation Transactions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 469 / 506 Issued on: 3 May 2019 Where relevant, regulatory applications should be directed to: Pengarah Jabatan Penyeliaan Perbankan or Jabatan Penyeliaan Konglomerat Kewangan (as applicable) Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Where section 214 or 216 of the FSA applies to securitisation transactions, banking institutions shall ensure that the necessary approvals, if any, on such matters are sought from: Pengarah Jabatan Pentadbiran Pertukaran Asing Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 470 / 506 Issued on: 3 May 2019 Appendix XXII IRB Coverage  Exposures to sovereigns, central banks, banking institutions and public sector entities;  Equity holdings in entities whose debt qualifies for 0% risk weight under the standardised approach;  Equity investments called for by the Federal Government of Malaysia, Bank Negara Malaysia, Association of Banks in Malaysia, Association of Islamic Banking Institutions in Malaysia, or Malaysian Investment Banking Association, subject to a limit of 10% of Total Capital; and  Immaterial equity holdings on a case-by-case basis.  Entities and asset classes (or sub- classes in the case of retail) that are immaterial in terms of size and perceived risk profile which cumulatively account for less than or equal to 15% of total credit RWA. Additional exposures with aggregate credit RWA (computed using the standardised approach) which cumulatively account for less than or equal to 10% of total credit RWA. Exposures to be covered by IRB approach The next section provides an illustration on how banking institutions should compute “A” and “B” for purposes of the IRB coverage requirement Permanent exemption (Capital requirements for these exposures to be computed using the standardised approach from the start of the transitional period) Temporary exemption (Applicable only during the transitional period for banking institutions migrating to IRB approach) A B C BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 471 / 506 Issued on: 3 May 2019 The computation for the IRB coverage requirement is as follows: “A” Cumulative Immaterial Exposures = ----------- ≤ 15% “C” Or “A” + ”B” Cumulative Immaterial Exposures = ------------- ≤ 25% “C” BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 472 / 506 Issued on: 3 May 2019 Appendix XXIII Assessment of Credit Risk based on Shariah Contracts 1. This appendix sets out the specificities of Islamic financial products or transactions that are undertaken based on specific Shariah contracts and stages for identification of the credit risk exposure. 2. Islamic transactions can generally be classified into four main categories as follows: i) Asset-based transactions, which comprise of Murābahah, Salam and Istisnā` contracts, that are mainly structured or created based on the purchase or sale of assets; ii) Lease-based transactions, which comprise of Ijārah contracts; iii) Equity-based transactions, which comprise of Mushārakah and Mudārabah contracts, that are undertaken mainly based on equity participation in a joint venture or business enterprise; and iv) Loan-based transactions, which are primarily undertaken through the Qardh contract. 3. The innovation in Islamic banking products and financial instruments has resulted in the development of varied product structures which are differentiated by a unique product name. For example, some products are structured using a combination of Shariah permissible terms. For capital adequacy computation purposes, the capital treatments on these financial instruments shall be assessed based on the analysis of the risk profile embedded within these transactions rather than the product name, unless specifically required by the Bank. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 473 / 506 Issued on: 3 May 2019 MURĀBAHAH Murābahah 4. A Murābahah contract refers to an agreement whereby a banking institution sells to a customer an asset that it has acquired at an agreed selling price between both parties. The agreed selling price is based on the acquisition cost (purchase price plus other direct costs) of the asset incurred by the banking institution and a profit margin agreed between the banking institution and its customer. The Murābahah contract shall include the agreed repayment terms where the customer is obliged to pay the selling price after taking delivery of the asset. 5. Banking institutions are exposed to credit risk in the event that the customer fails to pay the agreed selling price in accordance with the agreed repayment terms under the Murābahah contract. Hence, banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. Murābahah for Purchase Orderer (MPO) 6. A Murābahah for Purchase Orderer (MPO) contract refers to an agreement whereby a banking institution sells to a customer at an agreed selling price, a specified type of asset that has been acquired by the banking institution based on an agreement to purchase (AP) by the customer which can be binding or non- binding. The relevant legal recourse provided under the AP that requires the customer to perform their obligation to purchase the underlying asset from the banking institution shall be a key determinant for the AP to be recognised as binding or non-binding. Thus, it is pertinent for banking institutions to ensure the adequacy and enforceability of the legal documentation under the MPO contract. The MPO contract shall include the agreed repayment terms where the customer is obliged to pay the selling price after taking delivery of the asset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 474 / 506 Issued on: 3 May 2019 7. The difference between a Murābahah transaction and an MPO transaction is that under a Murābahah contract, the Islamic banking institution sells an asset which is already in its possession, whilst in an MPO, the banking institution acquires an asset in anticipation that the asset will be purchased by the customer. 8. Banking institutions are exposed to credit risk in the event that the customer fails to pay the agreed selling price in accordance with the agreed repayment terms under the MPO contracts. Hence, banking institutions shall be subject to the capital charge for credit risk exposure once the asset is sold and payment is due to the Islamic banking institution. 9. For MPO with binding AP, banking institutions are exposed to credit risk in the event that the customer (purchase orderer) defaults on its binding obligation to purchase the assets under the contract. In view of the adequate legal recourse that requires the customer to purchase the asset at an agreed price, the credit risk exposure commences once the banking institution acquires the underlying asset. For non-binding MPO, the effect is similar to a Murābahah transaction. BAI’ BITHAMAN AJIL (BBA) AND BAI’ INAH 10. For the purpose of this framework, the Bai` Bithaman Ajil (BBA) and Bai` Inah contracts are deemed to have similar transaction characteristics and financing effects as the Murābahah and MPO contract. The BBA involves the selling of an asset with deferred payment terms while Bai’ Inah involves a sell and buy back agreement. An example of Bai’ Inah is where a customer sells to the banking institution an asset at a selling price that will be repaid on cash basis for the first leg of the agreement. On the second leg, the Islamic banking institution sells back the asset to the customer on deferred payment terms to enable the financing transaction. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 475 / 506 Issued on: 3 May 2019 IJĀRAH Ijārah 11. Ijārah contracts refer to a lease agreement whereby the lessor transfers the right to use (or usufruct) of the leased asset to the lessee, for an agreed period and at an agreed consideration, in the form of lease rental. The lessor maintains ownership of the leased asset during the lease period under these contracts. 12. As the owner of the leased asset, Banking institutions therefore assume all liabilities and risks pertaining to the leased asset including the obligation to restore any impairment and damage to the leased asset arising from wear and tear, as well as natural causes which are not due to the lessee’s misconduct or negligence. 13. As a lessor, banking institutions may acquire the asset to be leased based on the lessee’s specifications as stipulated under the agreement to lease (AL), prior to entering into the Ijārah contract with the lessee. The AL can be binding or non- binding on the lessee depending on the legal recourse in the AL, which states the obligation for the lessee to lease the specified asset from the lessor. 14. Banking institutions as the lessor under the Ijārah contracts are exposed to the credit risk of the lessee in the event that the lessee fails to pay the rental amount as per the agreed terms. 15. In addition, under a binding AL, Banking institutions are exposed to credit risk in the event that the lessee (lease orderer) defaulting on its binding obligation to execute the Ijārah contract. In this situation, the Banking institution may lease or dispose off the asset to another party. However, the Banking institution is also exposed to the credit risk of the lessee if the lessee is not able to compensate for the losses incurred arising from the disposal of the asset. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 476 / 506 Issued on: 3 May 2019 16. Under a non-binding AL, the Banking institution is not exposed to the risk of non- performance by the lease orderer given that the Banking institution does not have legal recourse to the lease orderer. In this regard, credit risk exposure arises upon the commencement of rental agreement. Ijārah Muntahia Bittamleek 17. Ijārah Muntahia Bittamleek (IMB) contract refers to a lease agreement similar to Ijārah contracts. However, in addition to paragraphs 11 to 16, the lessor has an option to transfer ownership of the leased asset to the lessee in the form of a gift or a sale transaction at the end of IMB. Al-Ijārah Thumma Al-Bai` 18. Al-Ijārah Thumma Al-Bai` (AITAB) contract is a type of IMB contract that ends with a transfer of ownership to the lessee by way of a sale transaction and shall be treated similarly to the IMB contract for purposes of capital adequacy requirements. SALAM 19. A Salam contract refers to an agreement whereby a banking institution purchases from a customer a specified type of commodity, at a predetermined price, which is to be delivered on a specified future date in a specified quantity and quality. Banking institution as the purchaser of the commodity makes full payment of the purchase price upon execution of the Salam contract. Banking institutions are exposed to credit risk in the event that the customer (commodity seller) fails to deliver309 the paid commodity as per the agreed terms. 20. In addition, a banking institution may also enter into a parallel Salam contract, which is a back-to-back contract to sell the commodity purchased under the initial 309 Delivery risk in a Salam contract is measured based on the commodity seller’s credit risk. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 477 / 506 Issued on: 3 May 2019 Salam contract to another counterparty. This arrangement enables the banking institution to mitigate the risk of holding the commodity. 21. Banking institutions undertaking the parallel Salam transaction are exposed to credit risk in the event that the purchaser fails to pay for the commodity it had agreed to purchase from the banking institution. Nevertheless, in the event of non-delivery of the commodity by the seller under the initial Salam contract, the banking institution is not discharged of its obligation to deliver the commodity to the purchaser under the parallel Salam contract. ISTISNĀ` 22. An Istisnā` contract refers to an agreement to sell to or buy from a customer an asset which has yet to be manufactured or constructed. The completed asset shall be delivered according to the buyer’s specifications on a specified future date and at an agreed selling price as per the agreed terms. 23. As a seller of the under the Istisnā` contract, the banking institution is exposed to credit risk in the event that the customer fails to pay the agreed selling price, either during the manufacturing or construction stage, or upon full completion of the asset. 24. As a seller, the banking institution has the option to manufacture or construct the asset on its own or to enter into a parallel Istisnā` contract to procure the asset from another party or, to engage the services of another party to manufacture or construct the asset. Under the parallel Istisnā` contract, as the purchaser of the asset, the banking institution is exposed to credit risk in the event that the seller fails to deliver the specified asset at the agreed time and in accordance with the initial Istisnā` ultimate buyer’s specifications. The failure of delivery of completed asset by the parallel Istisnā` seller does not discharge the banking institution from BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 478 / 506 Issued on: 3 May 2019 its obligations to deliver the asset ordered by the customer under the initial Istisnā` contract. Thus, the banking institution is additionally exposed to the potential loss of making good the shortcomings or acquiring the specified assets elsewhere. MUSHĀRAKAH 25. A Mushārakah contract is an agreement between a banking institution and its customer to contribute an agreed proportion of capital funds to an enterprise or to acquire ownership of an asset/real estate. The proportion of the capital investment may be on a permanent basis or, on a diminishing basis where the customer progressively buys out the share of the banking institution (thus, this contract is named Diminishing Mushārakah, which is categorized under Mushārakah contract for the purpose of this framework). Profits generated by the enterprise or an asset/real estate are shared in accordance to the terms of the Mushārakah agreement, while losses are shared based on the capital contribution proportion. 26. In general, Mushārakah contracts can broadly be classified into two categories as follows: i) Equity participation in a private commercial enterprise to undertake business ventures or financing of specific projects; and ii) Joint ownership in an asset or real estate. I. EQUITY PARTICIPATION IN A PRIVATE COMMERCIAL ENTERPRISE TO UNDERTAKE BUSINESS VENTURES OR FINANCING OF SPECIFIC PROJECTS 27. A banking institution may enter into a Mushārakah contract with their customer to provide an agreed amount of capital for the purpose of participating in the equity ownership of an enterprise. In this arrangement, the banking institution is BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 479 / 506 Issued on: 3 May 2019 exposed to capital impairment risk in the event that the business activities undertaken by the enterprise incur losses. The Mushārakah agreement may provide an agreed ‘exit mechanism’ which allows partners to divest their interest in the enterprise at a specified tenor or at the completion of the specified project. In this regard, the banking institution must ensure that the contract clearly stipulates the exit mechanism for partners to redeem their investment in this entity. 28. Banking institutions that enter into this type of Mushārakah contract are exposed to the risk similar to an equity holder or a joint venture arrangement where the losses arising from the business venture are to be borne by the partners. As an equity investor, the banking institution serves as the first loss absorber and its rights and entitlements are subordinated to the claims of creditors. In terms of risk measurement, the risk exposure to an enterprise may be assessed based on the performance of the specific business activities undertaken by the joint venture as stipulated under the agreement. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 480 / 506 Issued on: 3 May 2019 II. JOINT OWNERSHIP IN AN ASSET OR REAL ESTATE 29. Mushārakah contracts that are undertaken for the purpose of joint ownership in an asset or real estate may generally be classified into the two categories as follows: i) Mushārakah contract with an Ijārah sub-contract  Partners that jointly own an asset or real estate may undertake to lease the asset to third parties or to one of the partners under an Ijārah contract and therefore generate rental income to the partnership. In this case, the risk profile of the Mushārakah arrangement is essentially determined by the underlying Ijārah contract. Banking institutions are exposed to credit risk in the event that the lessee fails to service the lease rentals. ii) Mushārakah contract with a Murābahah sub-contract  As a joint owner of the underlying asset, banking institutions are entitled to a share of the revenue generated from the sale of asset to a third party under a Murābahah contract. Banking institutions are exposed to credit risk in the event the buyer or counterparty fails to pay for the asset sold under the Murābahah contract. iii) Diminishing Mushārakah  A banking institution may enter into a Diminishing Mushārakah contract with a customer for the purpose of providing financing based on a joint ownership of an asset, with the final objective of transferring the ownership of the asset to the customer in the contract.  The contract allows the customer to gradually purchase the banking institution’s share of ownership in an asset/real estate or equity in an enterprise over the life of the contract under an agreed repayment terms and conditions which reflect the purchase consideration payable by the customer to acquire the banking institution’s share of ownership. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 481 / 506 Issued on: 3 May 2019  As part of the mechanism to allow the customer to acquire the banking institution’s share of ownership, the banking institution and customer may agree to lease the asset/real estate to the customer. The agreed amount of rental payable can be structured to reflect the progressive acquisition of the banking institution’s share of ownership by the customer. Eventually, the full ownership of the asset will be transferred to the customer as it continues to service the rental payment. In this regard, the banking institution is exposed to credit risk similar to an exposure under the Mushārakah with Ijārah contract.  However, if the exposure under the Diminishing Mushārakah contract consists of share equity in an enterprise, the banking institution shall measure its risk exposure using the treatment for equity risk. MUDĀRABAH 30. A Mudārabah contract is an agreement between a banking institution and a customer whereby the banking institution contributes a specified amount of capital funds to an enterprise or business activity that is to be managed by the customer as the entrepreneur (Mudārib). As the capital provider, the banking institution is at risk of losing its capital investment (capital impairment risk) disbursed to the Mudārib. Profits generated by the enterprise or business activity are shared in accordance with the terms of the Mudārabah agreement whilst losses are borne solely by the banking institution (capital provider)310. However, losses due to misconduct, negligence or breach of contracted terms311 by the entrepreneur, shall be borne solely by the Mudārib. In this regard, the amount of capital invested by the banking institution under the Mudārabah contract shall be treated similar to an equity exposure. 310 Losses borne by the capital provider would be limited to the amount of capital invested. 311 Banking institutions are encouraged to establish and adopt stringent criteria for definition of misconduct, negligence or breach of contracted terms. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 482 / 506 Issued on: 3 May 2019 31. Mudārabah transactions can be carried out: i) on a restricted basis, where the capital provider authorises the Mudārib to make investments based on a specified criteria or restrictions such as types of instrument, sector or country exposures; or ii) on an unrestricted basis, where the capital provider authorises the Mudārib to exercise its discretion in business matters to invest funds and undertake business activities based on the latter’s skills and expertise. 32. In addition, transactions involving Mudārabah contracts may generally be sub- divided into two categories as follows: I. EQUITY PARTICIPATION IN AN ENTITY TO UNDERTAKE BUSINESS VENTURES This type of Mudārabah contract exposes the banking institution to risks akin to an equity investment, which is similar to the risk assumed by an equity holder in a venture capital or a joint-venture investment. As an equity investor, the banking institution assumes the first loss position and its rights and entitlements are subordinated to the claims of creditors. II. INVESTMENT IN PROJECT FINANCE The banking institution’s investment in the Mudārabah contract with a Mudārib is for the purpose of providing bridging finance to a specific project. This type of contract exposes the banking institution to capital impairment risk in the event that the project suffers losses. Under this arrangement, the banking institution as an investor provides the funds to the construction company or Mudārib that manages the construction project and is entitled to share the profit of the project in accordance to the agreed terms of the contract and must bear the full losses (if any) arising from the project. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 483 / 506 Issued on: 3 May 2019 33. There may be situations where the risk profile of money market instruments based on Mudārabah contracts may not be similar to an equity exposure given the market structure and regulatory infrastructure governing the conduct of the market. In particular, Mudārabah interbank investments in the domestic Islamic money market would attract the credit risk of the banking institution instead of equity risk despite having similarities in the contractual structure. QARDH 34. Qardh is a loan given by a banking institution for a fixed period, where the borrower is contractually obliged to repay only the principal amount borrowed. In this contract, the borrower is not obligated to pay an extra amount (in addition to the principal amount borrowed) at his absolute discretion as a token of appreciation to the banking institution. 35. Banking institutions are exposed to credit risk in the event that the borrower fails to repay the principal loan amount in accordance to the agreed repayment terms. Hence, the credit risk exposure commences upon the execution of the Qardh contract between the banking institution and the borrower. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 484 / 506 Issued on: 3 May 2019 Appendix XXIV Capital Treatment for Investment Accounts The “Look-Through” Approach (LTA) 1. The “look-through” approach refers to the calculation of credit and market risk capital requirements based on the underlying assets funded by an investment account, as illustrated below: 2. Where a banking institution is an Investment Account Holder (IAH), the banking institution shall apply the LTA only when the following conditions are met: (i) the financial information about the underlying assets is maintained at a sufficiently granular level to enable the calculation of the corresponding risk weights312; and 312 The IAH may specify the information required and time period for such disclosure in the investment account agreement with the mudarib/wakeel. Investment account fund Look-through approach Banking institution as IAH (rabbul mal) Banking institution as entrepreneur/agent (mudarib/wakeel) Investment account placement Underlying assets Capital requirement is based on the underlying asset BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 485 / 506 Issued on: 3 May 2019 (ii) the financial reports of the investment account funds are prepared at least at the same reporting interval as that of the IAH312. 3. Under the LTA, the IAH shall calculate the credit and market risk capital requirements of the investment account as if it directly holds the underlying assets using similar approach applied by the IAH on its own assets313. Credit risk (i) Under the standardised approach, the IAH shall calculate the capital requirements based on the risk weight applicable to the obligor of the underlying assets. (ii) Under the IRB approach, the IAH shall calculate the IRB risk components (i.e. the probability of default (PD) and, where applicable, loss given default (LGD) and exposure at default (EAD)) of the underlying assets. For the avoidance of doubt, the IAH shall use the standardised approach for exposures of the underlying assets that are under the permanent exemptions from the IRB approach. (iii) The IAH may take into account the effect of any CRM only when the CRM used by the mudarib/wakeel fulfils the relevant CRM technique requirements and there is a clear and enforceable legal documentation that ensures the benefit of CRM can be effectively passed to the IAH. Market risk (i) Under the standardised approach, the IAH shall apply the specific risk and general risk capital charges applicable to the underlying assets. (ii) Under the IMA, the IAH shall calculate the capital requirements of the underlying assets using the internal models approved by the Bank. 313 For example, if the IAH adopts the IRB approach for an asset class, the IAH should apply similar approach for that asset class arising funded by an investment account. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 486 / 506 Issued on: 3 May 2019 (iii) The IAH may offset its own position against positions arising from the underlying assets provided that the conditions specified in this policy documents are met and that there are no obstacles to timely recoverability of funds from the mudarib/wakeel 314. The alternative approach when the LTA’s conditions are not met 4. When the conditions in paragraph 2 are not met, the IAH shall treat the investment account as exposure to equities. Credit risk (i) For the standardised approach, apply a risk weight of 150%; (ii) For the IRB approach, apply a risk weight of 400%; and Market risk (i) For the standardised approach, apply a specific risk charge of 14%, in addition to the general risk charge; (ii) For the IMA, calculate the capital requirements according to internal models for equities. 314 Consequently, the mudarib/wakeel is not allowed to recognise such position arising from the underlying assets to offset against its own positions. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 487 / 506 Issued on: 3 May 2019 Appendix XXV Transitional Arrangements and Approval Process Transitional Arrangements 1. Banking institutions adopting the IRB approach before 31 December 2015 will be eligible for a transition period from the date of implementation, as follows: Implementation Date Available Transition Period Between 1 January 2010 to 31 December 2012 3 years Between 1 January 2013 to 31 December 2015 Less than 3 years commencing from the date of implementation until 31 December 2015 After 31 December 2015 None 2. The following chart provides an illustration of the transitional arrangements applicable for banking institutions implementing the IRB approach based on various timelines: 2009 2010 2011 2012 2013 2014 2015 2016 Adoption within 2010 (eg. Implementation on Jan 2010) Adoption between 2011 to 2012 (eg. Implementation on June 2012) Adoption between 2013 to 2015 (eg. Implementation on June 2014) Adoption after 2015 (eg. Implementation on June 2016) Standardised approach IRB approach 3-year transition period 1.5-year transition period 3-year transition period Current approach IRB approach Standardised approach IRB approach IRB approach Standardised approach BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 488 / 506 Issued on: 3 May 2019 Approval Process Approval for Direct Migration from Current Accord 3. For banking institutions granted approval for direct migration, the Bank’s assessment focuses mainly on the review of the board-approved detailed overall implementation plan, to ensure that it is adequate, comprehensive, credible and feasible with regard to initial coverage and pace of rollout. In particular: i) Governance and Sustainability of Implementation  Banking institutions must demonstrate to the Bank that the implementation of IRB can be sustained. This should include the support of the board, including the allocation of sufficient resources that ensures smooth progress of the IRB implementation.  Banking institutions must demonstrate that all the necessary capabilities required for the IRB approach are covered in the implementation plan. In other words, the IRB implementation should not be conditional or significantly dependent on capabilities that are implemented outside the IRB implementation plan. ii) Discipline in Implementation and IRB Coverage Requirement  Banking institutions are also expected to demonstrate a good track record of adherence to the implementation plan submitted, as well as strict discipline in implementing current initiatives. They need to demonstrate to the Bank that substantive results have been achieved within the scheduled timeframe.  Banking institutions must ensure that the IRB coverage requirement as stipulated in Appendix XXII is adhered to at all times. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 489 / 506 Issued on: 3 May 2019 iii) Risk Management Capabilities  Banking institutions with adequate overall risk management315 would be viewed favourably as the basic building blocks and capabilities would have already been in place. For example, banking institutions that have been using internal ratings in critical decision-making for some time would have less difficulty in meeting the use test requirements of the IRB approach. Approval for Migration to IRB Approach from the Standardised Approach 4. Banking institutions intending to migrate to the IRB approach from the standardised approach must notify the Bank its intention to migrate at least 3 years before the intended IRB implementation date. 5. Full submission of the information requirements as specified in Appendix XVI must reach the Bank at least 2 years before the intended IRB implementation date. For Implementation before 31 December 2015 6. For these banking institutions, the scope of the Bank’s assessment will be wider than that outlined in paragraph 3 of this appendix. The Bank will conduct a full assessment of the implemented IRB systems in the majority of the banking institution’s portfolio. In addition, the Bank will also be assessing the banking institution’s ability to complete the implementation of IRB over the remainder of its portfolio (i.e. those under temporary exemption) during the transition period. 7. Banking institutions also need to ensure that the IRB coverage requirement should be achieved by 1 January 2016 regardless of when the banking institution migrates to the IRB approach. Details of the transition period and the relaxations are elaborated in paragraphs 3.14 to 3.17 of this framework. 315 Ratings based on supervisory assessments may be used as a benchmark. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 490 / 506 Issued on: 3 May 2019 8. The decision for the approval of the migration to the IRB approach will be made within six months of the receipt of the full submission. For Implementation After the Transition Period (From 1 January 2016 onwards) 9. From this date onwards, all applications must be accompanied by a full submission of documentation that shows the banking institutions meet all the minimum requirements except for the use of internal rating requirements where the banking institution shall demonstrate a credible track record showing that the rating systems which comply with the minimum requirements have been used for at least 1 year. The banking institutions may utilise the time allocated for the review period by the Bank and parallel run period to fully meet the use of internal ratings requirements316. 10. The scope of the Bank’s assessment will exceed those outlined in paragraphs 3 and 6 of this appendix and will cover the full assessment of all the IRB systems that cover its entire portfolio (except those under permanent exemption). 11. The decision for the approval of the migration to the IRB approach will be made within 1 year upon receipt of the full application from the banking institution. 316 As required in paragraph 3.375. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 491 / 506 Issued on: 3 May 2019 Important Milestones for IRB Adoption Banking institutions are expected to periodically update the Bank on their implementation progress following approval for direct migration and approval to enter into the transition period until full IRB implementation. Frequency of updates will be determined on a case-by-case basis. Submission as per Appendix XVI Approval for direct migration Full submission Approval to enter transition period Parallel run 3 years Implementation under transition period Full implementation At least 1 year before implementation under transition period Within 6 months after full submission Review by the Bank Formal notification to the Bank Full submission Approval to enter transition period Parallel run Implementation under transition period Full implementation Review by the Bank At least 18 months intended IRB adoption date At least 2 years before intended IRB adoption date Within 6 months after full submission At least 1 year before implementation under transition period Formal notification to the Bank Full submission Approval for migration Parallel run At least 3 years before intended IRB adoption date At least 2 years intended IRB adoption date At least 1 year before full implementation Within 1 year after full submission Review by the Bank Direct migration from current accord Migration from standardised approach (where transition period is available) Migration from standardised approach (where transition period is not available) Maximum of 3 years BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 492 / 506 Issued on: 3 May 2019 Appendix XXVI Credit Conversion Factors for Off-Balance Sheet Items under the IRB Approach 1. Exposure measurement for off-balance sheet items (EAD) under the foundation IRB approach shall be treated similarly to the standardised approach, where the credit risk inherent in each off-balance sheet instrument is translated into an on- balance sheet equivalent (credit equivalent) by multiplying the nominal principal amount with a CCF; and the resulting amount then being weighted according to the risk weight of the counterparty. 2. The CCFs for the various types of off-balance sheet instruments are as follows: Instrument CCF a. Direct credit substitutes, such as general guarantees of indebtedness including standby letters of credit serving as financial guarantees for loans and securities, acceptances (including endorsements with the characteristics of acceptances) and credit derivatives (if the banking institution is the protection seller). 100% b. Certain transaction-related contingent items, such as performance bonds, bid bonds, warranties and standby letters of credit related to particular transactions. 50% c. Short-term self-liquidating trade-related contingencies, such as documentary credits collateralised by the underlying shipments. The credit conversion factor shall be applied to both the issuing and confirming banking institution. 20% d. Assets317 sold with recourse, where the credit risk remains with the selling banking institution. 100% e. Forward asset purchases, and partly-paid shares and securities, which represent commitments with certain drawdown. 100% f.  Lending of banks’ securities or the posting of securities as collateral by banks, including instances where these arise out of repo-style transactions. (i.e. repurchase/ reverse repurchase and securities lending/borrowing 100% 317 Item (d), which includes housing loans sold to Cagamas Bhd, and (e) should be weighted according to the type of asset (e.g. housing loan) and not according to the counterparty (i.e. Cagamas) with whom the transaction has been entered into. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 493 / 506 Issued on: 3 May 2019 Instrument CCF transactions.  Commitment to buy back Islamic securities SBBA transactions. g. Derivatives contracts. Credit equivalent to be derived using current exposure method as given in Appendix VIII. h. Commitments (e.g. formal standby credit facilities), notes issuance facilities (NIFs) and revolving underwriting facilities (RUFs), regardless of maturity. 75% i. Any facilities under (h) that are unconditionally and immediately cancellable and revocable by the banking institution or that effectively provide for automatic cancellation due to deterioration in a borrower’s creditworthiness (for example, corporate overdrafts and other facilities), at any time without prior notice. 0%, subject to the requirements in paragraphs 3.62 to 3.64 and 3.74. 3. In addition to the computation under item (g) above, counterparty credit risk can also arise from unsettled securities, commodities and foreign exchange transactions from the trade date irrespective of the booking or accounting transaction. Banking institutions are encouraged to develop, implement and improve systems for tracking and monitoring credit risk exposures arising from such unsettled transactions as appropriate for producing management information that facilitates action on a timely basis. When these transactions are not processed via a delivery-versus-payment system (DvP) or a payment-versus- payment (PvP) mechanism, these transactions are subject to a capital charge as calculated in Appendix IX. 4. Banking institutions must closely monitor securities, commodities, and foreign exchange transactions that have failed, starting the first day they fail. A capital charge for failed transactions shall be calculated as per Appendix IX. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 494 / 506 Issued on: 3 May 2019 Appendix XXVII Illustrative IRB Risk Weights 1. The following tables provide illustrative risk weights calculated for four asset class types under the IRB approach to credit risk. Each set of risk weights for UL was produced using the appropriate risk weight function of the risk weight functions set out in various parts of Part B.3.5. The inputs used to calculate the illustrative risk weights include measures of the PD, LGD, and an assumed effective maturity (M) of 2.5 years. 2. A firm-size adjustment applies to exposures made to small and medium-sized entity (SME) borrowers (defined as corporate exposures where the reported sales for the consolidated group of which the firm is a part is less than RM250 million). Accordingly, the firm size adjustment was made in determining the second set of risk weights provided in column two given that the turnover of the firm receiving the exposure is assumed to be RM25 million. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 495 / 506 Issued on: 3 May 2019 Illustrative IRB Risk Weights for UL Asset Class Corporate Exposures Residential Mortgages Other Retail Exposures Qualifying Revolving Retail Exposures LGD: Maturity: 2.5 years 45% 45% 45% 25% 45% 85% 45% 85% Turnover (RM million) 250 25 PD: 0.03% 14.44% 11.30% 4.15% 2.30% 4.45% 8.41% 0.98% 1.85% 0.05% 19.65% 15.39% 6.23% 3.46% 6.63% 12.52% 1.51% 2.86% 0.10% 29.65% 23.30% 10.69% 5.94% 11.16% 21.08% 2.71% 5.12% 0.25% 49.47% 39.01% 21.30% 11.83% 21.15% 39.96% 5.76% 10.88% 0.40% 62.72% 49.49% 29.94% 16.64% 28.42% 53.69% 8.41% 15.88% 0.50% 69.61% 54.91% 35.08% 19.49% 32.36% 61.13% 10.04% 18.97% 0.75% 82.78% 65.14% 46.46% 25.81% 40.10% 75.74% 13.80% 26.06% 1.00% 92.32% 72.40% 56.40% 31.33% 45.77% 86.46% 17.22% 32.53% 1.30% 100.95% 78.77% 67.00% 37.22% 50.80% 95.95% 21.02% 39.70% 1.50% 105.59% 82.11% 73.45% 40.80% 53.37% 100.81% 23.40% 44.19% 2.00% 114.86% 88.55% 87.94% 48.85% 57.99% 109.53% 28.92% 54.63% 2.50% 122.16% 93.43% 100.64% 55.91% 60.90% 115.03% 33.98% 64.18% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 496 / 506 Issued on: 3 May 2019 Asset Class Corporate Exposures Residential Mortgages Other Retail Exposures Qualifying Revolving Retail Exposures LGD: Maturity: 2.5 years 45% 45% 45% 25% 45% 85% 45% 85% Turnover (RM million) 250 25 3.00% 128.44% 97.58% 111.99% 62.22% 62.79% 118.61% 38.66% 73.03% 4.00% 139.58% 105.04% 131.63% 73.13% 65.01% 122.80% 47.16% 89.08% 5.00% 149.86% 112.27% 148.22% 82.35% 66.42% 125.45% 54.75% 103.41% 6.00% 159.61% 119.48% 162.52% 90.29% 67.73% 127.94% 61.61% 116.37% 10.00% 193.09% 146.51% 204.41% 113.56% 75.54% 142.69% 83.89% 158.47% 15.00% 221.54% 171.91% 235.72% 130.96% 88.60% 167.36% 103.89% 196.23% 20.00% 238.23% 188.42% 253.12% 140.62% 100.28% 189.41% % 117.99% 222.86% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 497 / 506 Issued on: 3 May 2019 Appendix XXVIII Potential Evidence of Likely Compliance with the Use Test Essential Areas Evidence of Likely Compliance 1. Credit approval  Ratings assignment is part of credit analysis and decision, and  Authority level for approval depends on rating 2. Policy  Rating system, estimates, processes and organisational guidelines are all consistent 3. Reporting  Internal ratings, default and loss estimates are used in all reports relating to credit and profitability information at all levels within the organisation, including senior management 4. Capital management  Internal ratings, default and loss estimates are used in internal capital allocation, and in Pillar 2 capital assessment. 5. Risk governance  Individual and portfolio limits are set with reference to internal ratings, default and loss estimates. 6. Pricing decisions  Estimates for regulatory purposes and those derived for risk- based pricing, are produced for senior management’s information. However, for actual pricing purposes, banking institution may use estimates which have been aligned with the actual life of the facility. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 498 / 506 Issued on: 3 May 2019 Appendix XXIX Data-Enhancing and Benchmarking Tools 1. While industry and supervisory practices are still emerging, the Bank views that the preliminary range of data-enhancing and validation tools and techniques summarised below might be useful to facilitate efforts undertaken by banking institutions. Nevertheless, these tools are more applicable to estimation of PDs rather than LGDs or EADs. Additional techniques that are more relevant to LGD and EAD are only expected to emerge over time. Banking institutions are encouraged to consider the list below and to utilise the tools and techniques that are most appropriate to their particular circumstances. Data-Enhancing Tools for Quantification and Validation 2. While a relative lack of loss data may make it more difficult to use quantitative methods to assess risk parameters, there are tools that could be used to enhance data richness or to determine the degree of uncertainty that could be addressed through conservatism. Among these possible tools are the following: i) Pooling of data with other banking institutions or market participants, the use of other external data sources, and the use of market measures of risk can be effective methods to complement internal loss data. While a banking institution would need to satisfy itself and the Bank that these sources of data are relevant to its own situation, the Bank nevertheless believes that in principle, data pooling, external data and market measures can be an effective means to augment internal data in appropriate circumstances. This can be especially relevant for small portfolios or for portfolios where a banking institution is a recent market entrant. ii) Internal portfolio segments with similar risk characteristics might be combined. For example, a banking institution might have a broad BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 499 / 506 Issued on: 3 May 2019 portfolio with adequate default history that, if narrowly segmented, could result in the creation of a number of low-default portfolios. While such segmentation might be appropriate from the standpoint of internal use (e.g. pricing), for purposes of assigning risk parameters for regulatory capital purposes it might be more appropriate to combine sub-portfolios. iii) In some circumstances, different rating categories might be combined and PDs analysed for the combined category. Banking institutions using rating systems that map to rating agency categories might find it useful, for example, to combine AAA, AA and A-rated credits, provided this is done in a manner that is consistent with paragraphs 3.251 and 3.252 of this framework. This could enhance default data without necessarily sacrificing the predictiveness or risk- sensitivity of the rating system. iv) The upper bound of the PD estimate can be used as an input to the RWA formula for those portfolios where the PD estimate itself is deemed to be too unreliable to warrant direct inclusion in capital adequacy calculations. v) Banking institutions may derive PD estimates from data with a horizon that is different from one year. Where defaults are spread out over several years, a banking institution may calculate a multi-year cumulative PD and then annualise the resulting figure. Where intra- year rating migrations contain additional information, these migrations could be analysed as separate rating movements in order to infer PDs, which may be especially useful for the higher-quality rating grades. vi) If low default rates in a particular portfolio are the result of credit support, the lowest non-default rating could be used as a proxy for default (e.g. banks, investment firms, thrifts, pension funds, BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 500 / 506 Issued on: 3 May 2019 insurance firms) in order to develop ratings that differentiate risks. When such an approach is taken, calibration of such ratings to a PD consistent with IRB definition of default would still be necessary. 3. While banking institutions would not be expected to utilise all of these tools, the suitability and most appropriate combination of individual tools and techniques will depend on the nature of the banking institution and the characteristics of the specific portfolio. Benchmarking tools for validation 4. In addition, where a scarcity of internal historical data makes it difficult to meaningfully back-test risk rating predictions against realised defaults, it may be possible to make greater use of various benchmarking tools for validation. Among the tools that could potentially be used are the following: i) Internal ratings and migration matrices could be compared with the ratings and migrations of third parties such as rating agencies or data pools, or with the ratings and migrations resulting from other internal models. ii) Internal ratings could be benchmarked against internal or external expert judgements, for example where a portfolio has not experienced recent losses but where historical experience suggests the risk of loss is greater than zero. iii) Internal ratings could be compared with market-based proxies for credit quality, such as equity prices, bond spreads, or premiums for credit derivatives. iv) An analysis of the rating characteristics of similarly rated exposures could be undertaken. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 501 / 506 Issued on: 3 May 2019 v) The average rating output for the portfolio as a whole could be compared with actual experience for the portfolio rather than focusing on back-testing estimates for more narrowly defined segments of the portfolio. Similarly, rating grades can be combined in order to make back-testing more meaningful. 5. This list is not intended to be exhaustive, but rather serve as a useful guide of some benchmarking tools that might be useful in the case of scarce internal loss data. It is important that banking institutions utilise as many tools and techniques, as necessary to build confidence and demonstrate the predictive ability of the credit risk rating systems. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 502 / 506 Issued on: 3 May 2019 Appendix XXX Illustration on the Treatment of Underwriting Exposures Example Bank A (applying the Standardised Approach for Credit Risk) extends a 5-year underwriting Commercial Paper (CP) facility of RM5 million to Company ABC on 1 September 2010. On 28 September 2010, Company ABC decides to utilise the facility with a CP issuance of RM2 million. Nominal amount of CP underwriting facility granted RM5 million Nominal amount of underwriting (drawn portion) RM2 million Rating and tenor P1 rated CP, 3 months tenor Date of fixing the rate (drawn portion) 28 September 2010 Date of issuance 1 October 2010 On 1 October 2010, the CP was issued where:  RM1.5 million was subscribed; and  RM0.5 million was unsubscribed, hence remained with Bank A. a) Undrawn amount = RM5m [Reported in the banking book] b) Undrawn amount = RM3m [Reported in the banking book] c) Drawn amount = RM2m [Reported in the trading book] d) Undrawn amount = RM3m [Reported in the banking book] e) Unsubscribed portion of RM0.5 mil [Reported in the trading book] Underwriting facility extended 1 Aug 2010 Interest fixing date 28 Sept 2010 Issuance date 1 Oct 2010 Reporting date 30 Sept 2010 Reporting date 31 Oct 2010 Reporting date 31 Aug 2010 BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 503 / 506 Issued on: 3 May 2019 At the reporting date 31 August 2010, where it falls between the interest fixing date and issue date: a) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM5m x 50% x 8% At the reporting date 30 September 2010, where it falls between the interest fixing date and issue date: b) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM3m x 50% x 8% c) The drawn amount is deemed as a trading book position and is subject to the market risk capital charge based on the maturity and rating of the CP issued: The general risk: RM2m x 50% x 0.2% The specific risk: RM2m x 50% x 0.25% At the reporting date 31 October 2010, where the CP has been issued and Bank A holds RM0.5m of the unsubscribed portion: d) The undrawn amount is deemed as a banking book position and is subject to the credit risk capital charge RM3 mil x 50% x 8% e) The unsubscribed portion is deemed as a trading book position (with intention to sell down) and is subject to the market risk capital charge based on the maturity and rating of the CP purchased: The general risk: RM0.5m x 0.2% The specific risk: RM0.5m x 0.25% BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 504 / 506 Issued on: 3 May 2019 Appendix XXXI Capital Treatment for Credit Derivatives in the Trading Book The following table summarises the capital treatment for credit derivatives in the trading book318: Transaction Risk Type Protection seller Protection buyer Credit Default Swaps General market risk A long position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be received. A short position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be paid. Specific risk A position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. A position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. An offset on the specific risk of the reference asset is allowed as prescribed in paragraphs 5.55 to 5.57. First-to- Default General market risk A long position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be received. A short position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be paid. Specific risk A position in all the reference assets in the basket based on the notional amount with a maturity equal to the expiry date of the protection319. A position in all the reference assets based on the notional amount with a maturity equal to the expiry date of the protection. 318 For the avoidance of doubt, banking institutions must also compute counterparty credit risk for these transactions. 319 If the credit protection product has an external credit assessment from an eligible ECAI, the risk weight as specified for securitisation in Part F will be applied. If the product is not rated by BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 505 / 506 Issued on: 3 May 2019 Transaction Risk Type Protection seller Protection buyer The total specific risk capital requirement is capped at the maximum payout possible under the derivative contract. An offset on the specific risk of the reference asset with the lowest specific risk charge is allowed as prescribed in paragraphs 5.55 to 5.57. Second-to- Default General market risk A long position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be received. A short position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be paid. Specific risk A position in all the reference assets in the basket based on the notional amount with a maturity equal to the expiry date of the protection319, except for the asset with the lowest specific risk charge, which can be excluded from the computation. The total specific risk capital requirement is capped at the maximum payout possible under the derivative contract. A position in all the reference assets based on the notional amount with a maturity equal to the expiry date of the protection. An offset on the specific risk of the reference asset with the second lowest specific risk charge is allowed as prescribed in paragraphs 5.55 to 5.57. However, this is only recognised when first-to- default protection has also been obtained or when one of the assets within the basket has already defaulted. Credit Linked Notes General market risk A long position in the note issued based on the notional amount with a maturity equal to the expiry date of the note or the date which the interest A short position in the note issued based on the notional amount with a maturity equal to the expiry date of the note or the date which the interest an eligible ECAI, the risk weights of the assets included in the basket will be as prescribed in Appendix III. BNM/RH/PD 032-5 Prudential Financial Policy Department Capital Adequacy Framework (Basel II – Risk-Weighted Assets) Page 506 / 506 Issued on: 3 May 2019 Transaction Risk Type Protection seller Protection buyer rate will be reset. rate will be reset. Specific risk A position in the reference asset based on the notional amount with a maturity equal to the expiry date of the note. Also, a position in the note issued based on the notional amount with a maturity equals to the expiry date of the note or the date which the interest rate will be reset. A position in the reference asset based on the notional amount with a maturity equal to expiry date of the note. An offset on the specific risk of the reference asset is allowed as prescribed in paragraphs 5.55 to 5.57. Total Return Swaps General market risk A long position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. Also, a short position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be paid. A short position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. Also, a long position in each premium or interest payment (each payment is treated as a zero coupon risk-free position) when there are any periodic premiums or interest payments to be received. Specific risk320 A position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. A position in the reference asset based on the notional amount with a maturity equal to the expiry date of the swap. An offset on the specific risk of the reference asset is allowed as prescribed in paragraphs 5.55 to 5.57. 320 The long or short position is based on the reference asset if cash settled, or based on the deliverable asset if physical delivery.

Public Notice

17 Apr 2019

Dynamic Hedging Programme for Institutional Investors

https://www.bnm.gov.my/-/dynamic-hedging-programme-for-institutional-investors-1

https://www.bnm.gov.my/documents/20124/761679/dynamic-hedging-programme.pdf

Reading: Dynamic Hedging Programme for Institutional Investors Share: Dynamic Hedging Programme for Institutional Investors Release Date: 17 Apr 2019 The dynamic hedging programme was first introduced in December 2016 as part of the Bank’s initiative to provide market access for institutional investors to actively manage their FX exposures of their invested assets. As at end of Q1 2019, the total assets under this programme amounted to USD31.2 billion under the management of 70 non-residents and 17 resident investors. The vibrant onshore FX market now records a robust daily average volume of USD12.3 billion, of which the FX forward and swap markets account for almost half the volume. Since the introduction of the programme, the FX forward market has also recorded a two-fold increase in volume. For more information, click here to view the FAQs on Dynamic Hedging Programme for Institutional Investors © 2024 Bank Negara Malaysia. All rights reserved.

Underlying RM asset FEA rules on dynamic hedging Up to 25% Up to 100% Dynamic Hedging Programme for Institutional Investors  The flexibility to actively manage FX risk exposure via forward hedging activities with onshore banks or Appointed Overseas Office (AOO) without the need to show documentation.  A non-resident institutional investor registered with the Bank is allowed to: i. Enter into forward contracts to sell ringgit up to 100% of invested underlying ringgit asset; ii. Enter into forward contracts to buy additional ringgit up to 25% of invested underlying ringgit asset; or iii. Unwind the forward contracts described in (i) and (ii) above.  A resident institutional investor registered  For non-resident institutional investors: i. Investment in ringgit-denominated debt securities on Real-time Electronic Transfer of Funds and Securities System (RENTAS); ii. Investment in ringgit-denominated equity securities on Bursa Malaysia; or iii. Temporary placement in ringgit deposits or deposit-like securities offered by licensed onshore banks using ringgit proceeds arising from the selling of existing ringgit-denominated securities as defined subparagraphs (i) and (ii) above pending reinvestment of such ringgit proceeds  For resident institutional investors: The dynamic hedging programme was first introduced in December 2016 as part of the Bank’s initiative to provide market access for institutional investors to actively manage their FX exposures of their invested assets. As at end of Q1 2019, total assets under this programme amounts to USD30.8 billion under the management of 71 non-residents and 17 resident investors. The vibrant onshore FX market now records a robust daily average volume of USD12.2 billion, of which the FX forward and swap market account for almost half the volume. Since the introduction of the programme, the FX forward market has also recorded a two-fold increase in volume. What is dynamic hedging What underlying assets are Can trust banks or global programme? eligible? custodians participate? • Trust banks and global custodians may also submit their application to undertake dynamic hedging on behalf of clients to Bank Negara Malaysia. • Upon approval, all trades must be conducted on a gross basis on behalf of clients with a licensed onshore bank or an appointed overseas office. • Trust banks and custodian banks can find the application form at the following link: Trust banks and custodian banks forward market participation form Who can investors approach to enter into dynamic hedging? with the Bank is allowed to: i. Investment in foreign currency- i. Enter into forward contracts to buy ringgit up to 100% of its invested underlying foreign currency asset; or ii. Unwind the forward contracts as described in (i) above How is it different from passive hedge?  Without the participation in the programme, investors can only undertake passive hedging whereby documentation is required.  Under passive hedging, investors can buy FX forward up to 100% of underlying but is unable to freely unwind its position if underlying still exists. * Resident investors can only sell USD/Buy MYR forward up to 100% of underlying asset Can investors settle the forward contracts on a net basis in USD?  Yes. Settlement of forward transactions can be on either gross or net basis What hedging instruments are permissible?  Buying or selling of FX/MYR forward denominated debt securities; ii. Investment in foreign currency- denominated equity securities; or iii. Temporary placement in foreign currency deposits or deposit-like securities offered by licensed onshore banks using foreign currency proceeds arising from the selling of existing foreign currency-denominated securities as defined in subparagraphs (i) and (ii) above pending reinvestment of such foreign currency proceeds How to register?  Institutional investors* can register under the dynamic hedging programme with Bank Negara Malaysia.  The registration for dynamic hedging is to be undertaken at firm level or fund level.  BNM shall notify the institutional investor in writing within 2 – 3 working days upon acceptance of the registration and receipt of complete documentation.  The forward market participation form can be found at the following link: Institutional investors forward market participation form Can investors apply for additional flexibility?  Registered institutional investors may apply to Bank Negara Malaysia to undertake dynamic hedging beyond the existing 25% threshold, justifying their need for additional position.  Applications may be submitted via email to investorregister@bnm.gov.my   Institutional investors can approach licensed onshore banks or an appointed overseas office*. The list of appointed overseas offices can be found at the following link: Financial institutions under the Appointed Overseas Office framework * For non-resident investors only For further information  Further details on Foreign Exchange Administration (FEA) rules can be found at the following link: https://www.bnm.gov.my/fep  You may also contact us at sou@bnm.gov.my Illustration of dynamic hedging programme for NR investors Note: Resident investors can only sell USD/Buy MYR forward up to 100% of underlying asset Updated as at 16 May 2019 BANK NEGARA MALAYSIA CENTRAL BANK OF MALAYSIA Bu y U SD /S el l M Y R fo rw ar d Se ll U SD /B uy M Y R fo rw ar d *excludes banks and securities companies mailto:investorregister@bnm.gov.my https://www.bnm.gov.my/documents/20124/65309/Forward_Market_Registration_Form_Trust_Banks_and_GC.pdf https://www.bnm.gov.my/documents/20124/761688/participation_forms_institutional_investor.pdf/ https://www.bnm.gov.my/-/fi-under-appointed-overseas-ofc-framework-23032018 https://www.bnm.gov.my/fep What is dynamic hedging programme? What underlying assets are Can trust banks or global custodians participate? Who can investors approach to enter into dynamic hedging? How is it different from passive hedge? Can investors settle the forward What hedging instruments are How to register? Can investors apply for additional flexibility? For further information Illustration of dynamic hedging programme for NR investors

Public Notice

16 Apr 2019

Auction of Ringgit Banknotes with Special Serial Numbers

https://www.bnm.gov.my/-/auction-of-ringgit-banknotes-with-special-serial-numbers

Reading: Auction of Ringgit Banknotes with Special Serial Numbers Share: Auction of Ringgit Banknotes with Special Serial Numbers Release Date: 16 Apr 2019 Bank Negara Malaysia will be holding an auction of Ringgit banknotes with special serial numbers on Saturday, 27 April 2019, 8.30 a.m. onwards at Auditorium Sasana Kijang, Bank Negara Malaysia. The auction will be conducted by the Bank’s appointed auctioneer, MNP Auctioneers (Central) Sdn. Bhd. (MNP).   Ringgit banknotes with special serial numbers, such as sets of the first 10 banknotes (e.g. CC0000001 - 0000010) and super solid numbers with repetitive prefix (e.g. BB2222222) will be auctioned.   The online bidding and registration can be completed at www.best2bid.com. Further information on the auction can be obtained via MNP’s website at www.mnp.com.my or MNP’s customer service hotline at 017-400 6611. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

05 Apr 2019

Exposure Draft on Universal Life Business

https://www.bnm.gov.my/-/exposure-draft-on-ul-business

Reading: Exposure Draft on Universal Life Business Share: Exposure Draft on Universal Life Business Release Date: 05 Apr 2019 The exposure draft sets out the Bank’s proposed prudential and conduct requirements that govern universal life business, while facilitating the orderly development of universal life business in Malaysia. The proposals seek to ensure that the licensed insurers put in place appropriate internal policies and procedures to uphold — high governance standards and professionalism in administration of the universal life business; and proper conduct on sales and marketing with adequate disclosures to facilitate informed decision-making by consumers and protection of policy owners’ interests. The Bank invites written feedback on the proposals in this exposure draft, including suggestions on areas to be clarified and alternative proposals that the Bank should consider. The written feedback should be supported with clear rationale, accompanying evidence or illustration, as appropriate, to facilitate an effective review of this exposure draft. Licensed insurers are also required to provide responses to the questions by the Bank on the exposure draft as set out in Attachment 1: UL Feedback Template.  See more: The Universal Life Business policy document UL Feedback Template © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

03 Apr 2019

Exposure Draft on Domestic Systemically Important Banks Framework

https://www.bnm.gov.my/-/ed-domestic-systematically-important-banks-frameworks

Reading: Exposure Draft on Domestic Systemically Important Banks Framework Share: Exposure Draft on Domestic Systemically Important Banks Framework Release Date: 03 Apr 2019 Bank Negara Malaysia today issued an Exposure Draft which sets out the Bank’s proposals on the Domestic Systemically Important Banks policy framework. The policy framework, which forms part of the Basel III regulatory reforms, aims to strengthen existing policy tools to address risks posed by domestic systemically important banks (D-SIBs). D-SIBs broadly refer to financial institutions whose distress or disorderly failure have the potential to cause significant disruption and result in spillovers to the domestic financial system and the wider economy. The Exposure Draft outlines the following: i.   the assessment methodology to identify D-SIBs in Malaysia; ii.  higher loss absorbency requirements applicable to D-SIBs; and iii. reporting requirements applicable to financial institutions in regard to the framework. The Bank invites written feedback on the proposed policy framework. In addition, financial institutions which are apex entities (as defined in the Exposure Draft) are required to prepare and submit information based on the reporting template provided for the period ending 31 December 2018. Responses including the completed reporting template must be submitted to the Bank to dsib@bnm.gov.my by 15 May 2019. See more:  Domestic Systemically Important Banks Framework Exposure Draft Reporting Template Specific Reporting Instructions © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

22 Mar 2019

Bank Negara Malaysia Rates and Statistics now available via Open API

https://www.bnm.gov.my/-/bnm-openapi

Reading: Bank Negara Malaysia Rates and Statistics now available via Open API Share: Bank Negara Malaysia Rates and Statistics now available via Open API Release Date: 22 Mar 2019 The Bank is pleased to inform that the following rates and statistics are now available in API format and can be accessed at https://api.bnm.gov.my  – Exchange Rate; Renminbi FX Forward Price; USD/MYR Interbank Intraday Rate; KL USD/MYR Reference Rate; Islamic Interbank Rates; Interest Rates and Volumes; Daily FX Turnover; Interbank Swaps; Base Rates; OPR; Kijang Emas Price; and Financial Consumer Alert Now, users can either view the data on Bank Negara Malaysia’s website, download it in CSV format or access it via API. Other statistics, including the ‘Monthly Highlights and Statistics’, will be published in API format soon. © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

21 Mar 2019

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-21032019

https://www.bnm.gov.my/documents/20124/761679/FCA_20190318_EN.pdf

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 21 Mar 2019 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 432 companies/entities. The following company was added to the list: ArkianFX The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

No Name of unauthorised entities/individual Website Date Added to Alert List 1 1globalcash 13/07/2012 2 1Gold.com.my www.1gold.com.my  13/07/2012 3 3Sixty Venture Capital PLC www.empire3sixty.com http://forum.putera.com/tanya/index.php?/topic/92929-3sixty- ventureanda-mahu-income-pasif-rm1500-setiap-hari/ 30/12/2014 4 A.A.M Global Corporation Sdn Bhd 17/05/2017 5 Ace Global Sales & Services 02/05/2013 6 Ace Dimension Network Sdn Bhd 10/04/2015 7 AE Group Holding Pte. Ltd. (201322498-D) http://www.aevfc.com 14/05/2015 8 Agarwood Venture (002273031-A) 19/02/2014 9 Agar Wood Chamber of Commerce Malaysia 21/05/2015 10 Ahmad Zulkhairi Associates PLT (LLP0009065) http://www.fx10capital.com 22/06/2017 11 Ajuwah Realty Sdn Bhd (966604-D) 25/07/2014 12 Ajuwah Agencies Sdn Bhd (966604-D) 25/07/2014 13 Ajuwah Consultancy 21/05/2015 14 Alpari (Asian) Ltd 21/05/2014 15 Al-Saliha Worlwide Sdn. Bhd. (628267-M) 13/07/2012 16 ArkianFX 18/03/2019 17 Amazing Yields Sdn Bhd (891529-V) 23/01/2013 18 Amethyst Gold Creation Sdn Bhd (951063-K) www.powergoldclub.com www.powergold999.com www.powergold.biz 12/11/2013 19 Applikasi Duit http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 20 APS Asia Plantation Sdn Bhd (984575-T) 28/03/2013 21 Arba Emas Perak (SA0280035-A) http://www.arbaemasperak.com 14/05/2015 22 ARS Ultimate Sdn Bhd (1268778 - A) 06/08/2018 23 Aruna Travel 25/09/2013 24 Arribhu Suci Enterpise http://www.premierfxmarket.com 28/08/2017 25 Asas Seroja Sdn Bhd (357014A) 23/12/2015 26 Ascada Kiraana Sdn Bhd (1225011A) 06/12/2017 27 Asia Equity Ventures (002576131V) www.asian-equity.com 10/10/2018 28 Ashnik Holdings (M) Sdn Bhd (1124601D) 23/12/2015 29 Ashnik Trading (002369914-W) 23/12/2015 30 AsiaLink Globe Capital www.com-agc.com 25/07/2014 31 Astral Progress Sdn Bhd (989294-K) 13/10/2015 32 Asset Growth Solution Enterprise (002552148 - K) http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/09/2017 33 Atlantic Global Asset Management (AGAM) https://atlanticgam.es https://private.atlanticgam.es/#/signup/partner=P09201446202971 28/08/2017 34 AU Niaga Sdn Bhd (907806-W) 13/07/2012 35 AU79 International 13/07/2012 36 Auto Trading Management https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 37 Aurawave Marketing Sdn. Bhd http://www.aurawave2u.com 14/05/2015 38 Axis Capital Corporation Ltd www.axiscapitalcorp.com 19/02/2014 39 Aziera Gold Enterprise (NS0133976-K) 25/02/2016 40 BC Academy Sdn Bhd 17/05/2017 41 BC Bullion Sdn Bhd 17/05/2017 42 BDIG Investment Scheme https://www.facebook.com/BDIGroupMalaysia/ https://www.facebook.com/TeamDoubleProfit/ https://www.facebook.com/smartBDIG/ https://www.facebook.com/BdiGroups-Malaysia-1937078139955774/ 11/07/2018 43 Berkat FD Sdn Bhd 17/05/2017 44 BFS Markets Ltd www.bfsforex.com 25/07/2014 45 Binary Indulgence Sdn Bhd (963258-W) 25/07/2014 46 Bitclub Network https://bitclubnetwork.com/opportunity.html https://www.facebook.com/bitclubnetwork.BCN/ 28/08/2017 47 BitKingdom www.bitkingdom.org 24/02/2017 48 BSG- Buat.Simpan.Ganda www.bsg.my www.bsg.my/arib www.bsg.my/atsproject https://www.facebook.com/atsproject 06/12/2017 49 Build Rich Mining Group Bhd (1006586-T) www.buildrich.us 28/03/2013 50 Build Rich Investment Group Ltd 19/02/2014 51 Build Rich Group Holding 19/02/2014 52 Build Rich Agrotech Berhad 19/02/2014 53 Build Rich Enterprise 19/02/2014 54 Bumi Klasik Warisan Enterprise 13/07/2012 55 Capital Asia Group (M) Sdn Bhd www.capitalasiagroup.com 14/05/2015 56 Carbon Cash Bhd (1218702-K) http://carbontoken.com/ http://goalgreen2u.com 31/07/2017 57 Carousell Capital (0000140783T) 14/01/2019 58 Cash Deal Sdn Bhd (Boss Venture) www.bossventure.com 19/02/2014 59 Century Dynasty Asia Pacific Sdn Bhd 28/08/2017 60 Century Dynasty Group Berhad 28/08/2017 61 Century Dynasty Group LTD 28/08/2017 62 Century Dynasty Resources Sdn Bhd (980031-K) 28/08/2017 63 Celik Emas Enterprise (0021517795-K) 14/05/2015 64 CFAF Islamic www.cfaf-islamic.com 14/01/2019 65 CFWA Capital Business (002665083V) www.cfaf-islamic.com 14/01/2019 66 Changkat Agro Resources (IP 0353991V) 14/05/2015 67 CG International 31/07/2017 68 CGC Aquaculture Sdn Bhd (1044976P) 06/12/2017 69 CGF Fine Metal Sdn Bhd 27/09/2012 70 Classic Worldwide Corporation (M) Sdn Bhd (773082M) www.cwc.com.my programarba.blogspot.my 27/05/2016 71 Climate Protectors Sdn. Bhd 23/06/2017 72 Coin Enterprise Ltd Livecoin.net 23/06/2017 www.bookcoinsmalaysia.com Based on information received by BNM, below is the list of known companies and websites which are not authorised nor approved under the relevant laws and regulations administered by BNM: http://www.aevfc.com/ http://www.fx10capital.com/ http://www.aplikasiduit.com/ http://www.aplikasiduit.com/ http://www.arbaemasperak.com/ http://www.premierfxmarket.com/ http://www.asian-equity.com/ http://www.com-agc.com/ http://www.aplikasiduit.com/ http://www.aplikasiduit.com/ https://atlanticgam.es/ https://atlanticgam.es/ https://www.facebook.com/simplyfxmalaysia/ http://www.aurawave2u.com/ http://www.axiscapitalcorp.com/ http://www.bfsforex.com/ http://www.bitkingdom.org/ http://www.bsg.my/ http://www.bsg.my/ http://www.bsg.my/ http://www.bsg.my/ http://www.buildrich.us/ http://www.capitalasiagroup.com/ http://www.bossventure.com/ http://www.cfaf-islamic.com/ http://www.cfaf-islamic.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 73 CryptoDaily Investment Packages https://cryptodaily.io https://www.facebook.com/pg/Cryptodailyio-323902771374164/reviews/ 19/09/2017 74 CTK Network http://CTK2U.com 16/10/2012 75 Classic FX Venture https://www.facebook.com/Classic-FX-Venture-92977800446648/ 31/07/2017 76 CybertrustFX 22/07/2013 77 CYL Asia Enterprise 29/06/2017 78 CYL4U Resources www.cyl4u.com 29/06/2017 79 CYL Peoria Enterprise 29/06/2017 80 CYL Prospect Trading 29/06/2017 81 Danatama Millennium Sdn Bhd (819082-U) 02/05/2013 82 Dana Haji Jasman 13/07/2012 83 Darul Emas Perak Bhd 19/02/2014 84 DBB Star Sdn Bhd (1110055-M) 25/02/2016 85 Degold Empire Sdn Bhd (882335-M) 13/07/2012 86 Delta Wealth Services (002194713-K) 25/07/2014 87 Destiny Resources Services 25/07/2014 88 Dgreat Network http://info.simplebisnes.com 02/05/2013 www.dinardirham.com www.dinardirham.online 90 DM Rise Enterprise (PG 0262929-H) 20/10/2014 91 DNA Profile Sdn Bhd (245435-W) 13/07/2012 92 Dream Success International Sdn Bhd (1002002-P) www.Surewin4u.com 25/09/2013 93 Dynamic Wira Marketing Sdn Bhd - Skim Beras 1 Malaysia 23/01/2013 www.dynasty-worldwide-net www.dynastymf.com 95 Eagle Aeronautics (M) Sdn Bhd (796603-A) 27/09/2012 96 East Cape Mining Corp 13/07/2012 97 Ecobit 23/06/2017 98 Ecofuturefund www.ecofuturefund.biz 25/09/2013 99 Efzinitus Capital Pte Ltd www.efzinitus.com 09/05/2017 100 Emgoldex (Emirates Gold Exchange) 10/04/2015 101 Empire Five Trading www.mikadofx.com 04/04/2014 102 Empires Making Money For You (EMM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 103 Energetic Gateway Sdn Bhd (511826-X) 23/01/2013 104 Epic Palms Bhd http://epicpalmsberhad.com/ 28/03/2013 105 Ethtrade Limited https://ethtrade.org 22/06/2017 106 Ethtrade Malaysia 22/06/2017 107 Everise Fumigation Sdn Bhd (861654-K) 25/07/2014 108 Exorbitance Influence Sdn Bhd (1191499-U) www.krubal.com 09/01/2017 109 Exquisite Bottle Index Sdn Bhd (1060843T) www.xbi.com.my 23/12/2015 110 Exness Executive Management 28/08/2017 111 Exness Malaysia 28/08/2017 112 Extra Capital Programme http://extracapitalprogram.com 13/07/2012 113 Ezey Marketing 13/07/2012 114 Ezy Save Trading (PG0216560 - V) 19/09/2017 115 EZYFX Berhad (1213734P) www.ezyfx4u.com https://ezfx4u.wordpress.com 14/01/2019 116 E-Qirad Sdn Bhd (595699-D) 28/03/2013 117 FA Markets 02/05/2013 118 Family Wealth Resources (SA0310508-M) 13/10/2015 119 Fari Group Global Resources (SA0319984-M) 23/12/2015 120 FBS Malaysia http://fbsmy.com 31/07/2017 121 FE Brands (M) Sdn Bhd (1000656-H) 13/07/2012 122 Financial.org Malaysia https://www.facebook.com/financial.org.malaysia/ 09/04/2018 123 Flexsy Enterprise & Barrilorne Corp 13/07/2012 124 FNZ Capital Limited www.intelfx.com 13/07/2012 125 Fruits LT Ventures 28/08/2017 126 Fruits LT Ventures Investment Scheme 28/08/2017 127 Fortrend International Sdn Bhd (876619-X) 01/09/2015 128 Forex4you http://www.forex4you.com/en/about https://www.facebook.com/forex4you.malaysia/ 28/08/2017 129 Forexnova http://www.facebook.com/forexnovamalaysia/ https://www.forexbrokerz.com/brokers/ForexNova-review 31/07/2017 130 Futurebarrel.com http://futurebarrel.com 12/11/2013 http://ftindojaya.blogspot.com www.ft-indojaya.com 132 FXBITLab Holdings Sdn Bhd (1212832-T) https://www.fxbitlab.com 31/07/2017 133 FxUnited Malaysia (myfxunited) 10/04/2015 134 FXUnited Power Sdn Bhd (1146795-M) http://www.fxunitedpowerinternational.com/ 27/05/2016 135 FXZN Zenith Limited http://www.fxzn.com 30/12/2014 136 FXZN Investment Limited 30/12/2014 137 FXZN Zenith Management Limited 30/12/2014 138 FX Primus Ltd https://trivfx.com 23/12/2015 139 Gain FX Capital Sdn Bhd www.gainfxcapital.org 13/07/2012 140 Gan Patt Services 13/07/2012 141 Ganding Wawasan Trading (TR0133766-A) 25/07/2014 142 GCMAsia https://www.gcmasia.com/my/ https://www.facebook.com/GCMAsia-902721186484854/ https://www.instagram.com/gcmasia/ https://twitter.com/GcmAsia 17/01/2018 143 Gemilang Jalur Pintar Enterprise http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 144 GGC Aquaculture Sdn Bhd (1044976P) 23/12/2015 145 GGF Golden House Sdn Bhd (803753-W) 13/07/2012 89 Dinar Dirham Global 09/01/2017 94 Dynasty Worldwide Sdn Bhd (800311-D) 25/09/2013 https://exnesmalaya.com https://www.facebook.com/Fruits-LT-Ventures-161191244419863 131 Future Trade Indojaya Sdn Bhd (1003327-P) 27/09/2012 https://cryptodaily.io/ https://cryptodaily.io/ http://ctk2u.com/ https://www.facebook.com/Classic-FX-Venture-92977800446648/ http://www.cyl4u.com/ http://info.simplebisnes.com/ http://www.dinardirham.com/ http://www.dinardirham.online/ http://www.surewin4u.com/ http://www.dynasty-worldwide-net/ http://www.dynastymf.com/ http://www.ecofuturefund.biz/ http://www.efzinitus.com/ http://www.mikadofx.com/ http://epicpalmsberhad.com/ https://ethtrade.org/ http://www.krubal.com/ http://www.xbi.com.my/ http://fbsmy.com/ https://www.facebook.com/financial.org.malaysia/ http://www.intelfx.com/ http://www.forex4you.com/en/about http://www.forex4you.com/en/about http://futurebarrel.com/ http://ftindojaya.blogspot.com/ http://www.ft-indojaya.com/ https://www.fxbitlab.com/ http://www.fxunitedpowerinternational.com/ http://www.fxzn.com/ https://trivfx.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ https://exnesmalaya.com/ https://www.facebook.com/Fruits-LT-Ventures-161191244419863 No Name of unauthorised entities/individual Website Date Added to Alert List 146 GGT Golds Sdn Bhd (547290-D) 25/02/2016 147 Global Creation Trading 13/07/2012 148 Global Golds Trading (JM0518201-W) 25/02/2016 149 Global Peace Loving Family www.globalpeacelf.com 27/09/2012 150 Global Tijari Holdings Berhad 31/07/2017 151 Global Tijari Industries Sdn Bhd 31/07/2017 152 Global Venture Financing http://globalventurefinancing.com 13/07/2012 https://globalwavegold.com http://gwgfx.com 154 Globamas Trading https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 155 GM Trader http://www.gmtraderteam.com https://www.facebook.com/GmTrader-859208567506294/ 28/08/2017 156 Gold Bullion World Sdn Bhd (1018604-A) http://goldenworld.com.my 22/07/2013 157 Gorgeous Chain Sdn Bhd (841928-P) 13/07/2012 158 Grand View Golden Success Sdn Bhd (638186-X) - Golden Maximum 22/07/2013 159 Golden Speed Trading (002252254-K) 28/08/2017 160 Great Access Sdn Bhd (517965-X) 13/07/2012 161 Green Buck Resources Sdn Bhd (851115-A) 02/05/2013 162 Greenmillion Agrosolution Enterprise http://greenmillionagrisolution.blogspot.com 27/09/2012 163 Green Forest Global Sdn Bhd (987049-P) 22/07/2013 164 Grow Asia Capital Holdings (0000151641T) 14/01/2019 165 Grow Asia Capital Ventures (0000151635T) 14/01/2019 166 GTGVIP www.gtgvip.biz www.gtgvip.net 31/07/2017 167 HAFX Global Venture Sdn Bhd 13/10/2015 168 Harvest Reliance Consultancy Sdn Bhd (965589-W) 02/05/2013 169 HEA Teguh 25/09/2013 170 Hexa Commerce Sdn Bhd (645798-X) 13/07/2012 171 HG Resources Sdn Bhd http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/02/2016 172 HiFX Asia (HiFX) www.hifx2rich.com 25/02/2016 173 Highway Group Resources http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/02/2016 174 Hin Huat Auto Sparts (TR0005484-X) 25/07/2014 175 HotForex Malaysia https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/hfmarketsmalaysia http://hotforexpro.blogspot.my/ 28/08/2017 176 Holiday Express Asia 25/09/2013 177 Honest Group Ltd 13/07/2012 178 Hupro International Inc 13/10/2015 179 I & A Global Community Network 15/09/2016 180 Iconhill Holding Sdn Bhd (810775-P) 13/07/2012 181 IGC Diamond 13/07/2012 182 IGOFX https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf 31/07/2017 183 Infinity Star International Sdn Bhd (851864-T) 25/09/2013 184 Instaforex 13/07/2012 185 Instagroup Resources (JM0531870-X) 27/05/2016 186 INint Global Solution - (IGS) http://www.igsvc.biz/igs1 https://www.facebook.com/igs.biz/?hc_ref=SEARCH&fref=nf 28/08/2017 187 Inter Pasicfic Soyy Enterprise 10/04/2015 188 IPG Capital 24/04/2018 189 Iridian Ventures PLT (LLP0002569-LGN): 13/10/2015 190 IronFX Solid Trading 13/10/2015 191 Isothree Gold Sdn Bhd (906561-K) 13/07/2012 192 Itradex www.itradexsystem.com 17/05/2017 193 Jalatama Management Sdn Bhd (929594-W) www.jalatama.com 13/07/2012 194 Jalur Gemilang Maju Enterprise (SA 0412058 - U) http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 195 Jazlaan Enterprise 13/07/2012 196 Jihadfarisha Ventures www.dpkingfx.weebly.com 17/05/2017 197 JJ Commerce Trading (SA0399365P) 29/06/2017 198 JJ Global Network www.jjptr.com 24/02/2017 199 JJ Online Enterprise (SA0399360K) 29/06/2017 200 JJ Poor To Rich www.jjptr.com 24/02/2017 201 JJPTR www.jjptr.com 24/02/2017 202 JM Communications & Technology Sdn Bhd (702054-V) 13/07/2012 203 JMI Global 13/07/2012 204 JTGold 13/07/2012 205 Jutawan Apps http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/09/2017 206 Kazuki Coin www.kazukicoin.net https://www.facebook.com/kzkcSamuraiNetwork/ https://www.facebook.com/kazukicoinHQ/ https://www.facebook.com/billionaireislandclub/ https://www.facebook.com/kazukimalaysia/ http://kongsikazukicoin.blogspot.my/2017/09/kongsikazukicoin.html 30/05/2018 207 Kelab Kebajikan dan Sosial Tun Teja Malaysia http://yds2u.com 02/05/2013 208 Kelab Kebajikan Sosial Malaysia (VVIP88) 04/04/2014 www.kcgtraders.com www.keenonlinefx.com 210 Keenan Prestige Services (002095851-P) 25/07/2014 211 Keenan Brilliant Services (002021597-V) 25/07/2014 212 Kembara Jutawan Crypto https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/07/2017 213 Khaira Sakinah Resources (CT0018249-R) 20/10/2014 153 Global Wave Gold Corporation 12/11/2013 209 Keenan Capital Group 25/07/2014 http://www.globalpeacelf.com/ http://globalventurefinancing.com/ https://globalwavegold.com/ http://gwgfx.com/ https://www.empiresmm4u.com/ https://www.empiresmm4u.com/ http://greenmillionagrisolution.blogspot.com/ http://www.hifx2rich.com/ https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf http://www.igsvc.biz/igs1 http://www.igsvc.biz/igs1 http://www.itradexsystem.com/ http://www.jalatama.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ http://www.dpkingfx.weebly.com/ http://www.jjptr.com/ http://www.jjptr.com/ http://www.jjptr.com/ http://www.jutawanapp.com/ http://www.jutawanapp.com/ http://yds2u.com/ http://www.kcgtraders.com/ http://www.keenonlinefx.com/ https://www.facebook.com/svdmalaysia https://www.facebook.com/svdmalaysia No Name of unauthorised entities/individual Website Date Added to Alert List 214 Kilauan Padu Services Sdn Bhd (KPSSB) (657711-X) 22/06/2017 215 KL FxUnited Club 10/04/2015 216 Kris Plus Enterprise (IP0238424-A) 13/07/2012 217 Kudaemas www.kudaemas.com 20/10/2014 218 L & L Property Ventures SB (1186992T) 29/06/2017 219 Lestari2U www.lestari2u.com 13/07/2012 220 LetDuit Scheme www.letduit.com Let Duit Boss (Facebook page) LetDuit Plan 30 Hari (Facebook page) 28/08/2017 221 Liberty Reserve www.libertyreserve.com 13/07/2012 222 Life Time Holidays Sdn Bhd (727129-U) 13/07/2012 223 Live Coin Express 23/06/2017 224 LocalAdClick http://localadclick.net 13/07/2012 http://locusnetwork4u.com http://carigold.com/portal/forums/showthread.php?t=548206 226 LS Gold Bullion Sdn Bhd (235435-H) 28/03/2013 227 Making Money For You (MM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 228 Mama Captain International http://www.mamacaptain.com http://www.barrel2u.com https://www.mamaharbour.com 29/06/2017 229 Marco Robinson Sdn Bhd www.marcorobinson.com 17/05/2017 230 Mari Wholesale (M) Sdn Bhd (556117-T) 13/07/2012 231 Mateen Acquisition Global (002693981K) www.asia-equity.com 10/10/2018 232 Maxim Capital Ltd www.maximtrader.com 25/09/2013 233 Mayuni Enterprise https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/02/2018 234 Maza Network Sdn Bhd (1006389-H) 12/11/2013 235 MBI International Sdn Bhd (873323-V) http://www.mbiv2u.com/ 22/05/2017 236 McRen Oceanus Sdn Bhd (908484-X) 22/07/2013 237 MD Venture Group Sdn Bhd (1058936U) 23/12/2015 238 Meccafund Family Malaysia www.meccafundfamilymalaysia.blogspot.com 04/04/2014 239 Mecca Fund Global (MFG) http://meccafundglobal.com https://makkahislamichotel.com mekahalsafwah.blogspot.my 25/02/2016 240 Mega Dynasty Sdn Bhd (931589-V) 13/07/2012 241 Megaherbs Bioextreme (001946380-K) 13/07/2012 242 Megah Mewah Trading (SA0295909-A) 20/10/2014 243 Mface International Sdn Bhd (978203-V) http://www.mbiv2u.com/ 22/05/2017 244 MGCfx www.mgcforex.com 06/06/2016 245 MGC Capital Sdn Bhd www.morgagecapitals.com 06/06/2016 246 MGSB Holding Sdn Bhd www.mgsb.org.my 16/11/2015 247 MH Secret Wealth Enterprise (NS0122059A) 14/05/2015 248 Mi1 Global Sdn Bhd (1145697-X) http://mymi1millionaire.org 09/01/2017 249 Million Jade Sdn Bhd http://www.millionjade.com 14/05/2015 250 Miracle Day Trading (JR0047390-V) 01/09/2015 251 Mohamad World Enterprise 10/04/2015 252 MonSpace (M) Sdn Bhd http://www.monspacea.com 09/05/2017 253 MMM Malaysia https://malaysia-mmm.net https://www.facebook.com/MMM.Malaysia.Official 28/08/2017 254 MOP Consultant Sdn. Bhd (101867-W) 13/10/2015 255 Mughniwave International Sdn. Bhd. (1163697-W) http://mughniglobal.com 15/09/2016 256 MX3 World Wide http://mx3worldwide.com 27/05/2016 257 My Cameron Hills Sdn Bhd 21/05/2015 258 Myrezki http://myrezki.com https://www.facebook.com/bizmeletop2017 28/08/2017 259 MyHowk Ling https://www.facebook.com/profile.php?id=100013203109581 31/07/2017 260 Nahana Golbal Resources (00211411-M) 29/06/2017 261 New Gen Food Sdn Bhd (1186962X) 29/06/2017 262 Nexgain Malaysia Sdn Bhd (773854-D) 28/03/2013 263 Next Generation mall 15/09/2016 264 NGR Asia Group Sdn Bhd (1138129-M) http://www.ngrasia.com 29/06/2017 265 NGR Global Sdn Bhd (UT0004411-H) 29/06/2017 266 NIKPROFIT TRADING http://www.premierfxmarket.com 28/08/2017 267 Nory Motor (TR0023237-H) 25/07/2014 268 Norry Setia Ent (TR0103958-M) 25/07/2014 269 NTB Agencies Sdn Bhd (1039052-M) 25/07/2014 270 O2 Only One 22/06/2017 271 Ocean Century International Limited 23/12/2015 272 OCI Management Sdn Bhd (1042036X) 23/12/2015 273 OCI Venture Sdn Bhd (1039926H) 23/12/2015 274 ODFX http://www.ODFX.com 14/05/2015 275 OG1 Asean 22/06/2017 276 Overseas Commercial Futures (OCFX) 28/08/2017 277 OLTA Capital Management Inc. 13/07/2012 278 Omega Pinnacle Ltd (Labuan) 28/08/2017 www.clubautocash.com www.1autocash.com 280 Only One International Sdn Bhd (1195288W) 22/06/2017 281 Orion Healthcare Management Services Sdn Bhd 10/04/2015 282 Orion Prokasih (M) Sdn Bhd 10/04/2015 283 Ostim Academy (002443002-A) www.ostimint.com 25/02/2016 284 Overseas Delight Sdn Bhd (614245-W) www.arawana2u.com 25/07/2014 285 Pancar Mayang Sdn Bhd (527196-H) 13/07/2012 286 Pars Pay Sdn Bhd (813378-V) 13/07/2012 287 Pegasus Bullion www.pegasusbullion.com 04/04/2014 288 Perfway Traders Sdn Bhd (918583-V) http://www.perfway.com 30/12/2014 289 Perniagaan Jatidana Wawasan (M) Sdn Bhd 30/12/2014 225 LocusNetwork4u.com 14/05/2015 279 One AutoCash 13/07/2012 http://www.lestari2u.com/ http://www.letduit.com/ http://www.letduit.com/ http://www.letduit.com/ http://www.libertyreserve.com/ http://locusnetwork4u.com/ http://carigold.com/portal/forums/showthread.php?t=548206 http://www.mamacaptain.com/ http://www.mamacaptain.com/ http://www.mamacaptain.com/ http://www.marcorobinson.com/ http://www.asia-equity.com/ http://www.maximtrader.com/ http://www.meccafundfamilymalaysia.blogspot.com/ http://www.mgcforex.com/ http://www.morgagecapitals.com/ http://www.mgsb.org.my/ http://mymi1millionaire.org/ http://www.millionjade.com/ http://www.monspacea.com/ https://malaysia-mmm.net/ https://malaysia-mmm.net/ http://mughniglobal.com/ http://mx3worldwide.com/ http://myrezki.com/ http://myrezki.com/ https://www.facebook.com/profile.php?id=100013203109581 http://www.ngrasia.com/ http://www.premierfxmarket.com/ http://www.odfx.com/ http://www.clubautocash.com/ http://www.ostimint.com/ http://www.arawana2u.com/ http://www.pegasusbullion.com/ http://www.perfway.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 290 Perubatan Islam Seiring Syariat Al-Ikhlas 22/07/2013 291 Pioneer Forest Sdn Bhd (1069104M) www.abunur.com rezekipasif.blogspot.my 27/05/2016 292 Pertubuhan Kebajikan Komuniti Malaysia (PKKM) https://www.pkkm.my 24/02/2017 293 Pok Din Consultant & Services www.pokdinempire.com 27/05/2016 294 Pok Din Empire Sdn Bhd (1130978-D) www.pokdinempire.com 27/05/2016 295 Pollywood Scheme http://www.pollywood.asia/index.html http://www.polly.academy/ http://www.facebook.com/pollywoodhq/ https://www.facebook.com/Pollywood-Pte-Ltd-2747462042880450/ 28/08/2017 296 Power Trade Asia Sdn Bhd (933528-T) www.kuasaforex.com.my 12/11/2013 297 PPC Storm http://ppcstorm.com 04/04/2014 298 Preferred Credentials Sdn Bhd 23/01/2013 299 Premier FX Malaysia 28/08/2017 300 Premier Point Market Sdn Bhd (1166245-K) 28/08/2017 301 Premier Point Market LLC 28/08/2017 302 Premier Ventures Gold 28/03/2013 303 Prestige Dairy Farm (M) Berhad (832757-A) 13/07/2012 304 Proficiency Management and Services (002532706X) 22/06/2017 305 Profit Web Sdn Bhd 19/02/2014 306 Program 10 Bulan Forex Trading 13/07/2012 307 Program I-Rich 13/07/2012 308 Pro Infinity Ltd http://proinfinity.com 25/07/2014 309 Projek Duit 2012 13/07/2012 310 Project Tebus Nilai IQD Investment Scheme 06/08/2018 311 Provisio Multimedia 13/07/2012 312 Pruton Mega Holding Limited 24/02/2017 313 PTFX https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia765053533643113/?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia-765053533643113/ https://www.facebook.com/PTFXCopyTrade/ 28/08/2017 314 PTM4U http://passport2u.com 31/07/2017 315 Public Golden House Sdn Bhd (806825-M) 19/02/2014 316 Puncak Hartawan Resources (0000097980-T) 25/07/2014 317 Quantum Capital Program www.quantumcapitalprogram.com www.berjayaforex.com 30/12/2014 318 Questra World (QW) https://questraworld.es https://www.facebook.com/QuestraWorld.Malaysia.1/ 28/08/2017 319 Qinur Enterprise http://www.premierfxmarket.com 28/08/2017 320 Ram Kris Venture (0024165647-K) 23/12/2015 321 RCFX 07/03/2016 322 RC Group 07/03/2016 323 RC Group Sdn Bhd 07/03/2016 324 Real Biz Pasif 12/11/2013 325 Real Ingenious Sdn Bhd (926598-U) www.worldfocus.co 13/07/2012 326 Relax Green Enterprise (PG0415537X) 29/06/2017 327 Rejab Trading (TR0115248-A) 25/07/2014 328 Rejabwealth Sdn Bhd (1005424-X) 25/07/2014 329 Reza Anuar Seven 20/10/2014 330 Retro Titan Sdn Bhd 19/02/2014 331 Rex Russel Capital Investment Group 28/08/2017 332 RGCX Trading Corp http://www.goldrgcx.com/richman8 www.rapidgcx.com 13/07/2012 333 Richway Global Venture www.richwayventure.com www.richwayventure.info 17/05/2017 334 Richway Green Venture (PG0406414M) 29/06/2017 335 Rich World Revolution (RWR) http://richworldrevolution.com/rwr/ https://www.facebook.com/richworldrevolution/ 28/08/2017 336 Rimbun Tekad Realty Sdn Bhd (966604-D) 25/07/2014 337 Rimbun Tekad Consultancy Sdn Bhd (966620-V) 25/07/2014 338 Rising Premium Sdn Bhd (285572-P) 14/05/2015 339 RMMUDAH.COM 13/07/2012 340 RM20segera.com www.rm20segera.com 25/07/2014 341 RN Corporate Services Sdn Bhd 19/02/2014 342 Rowther Technologies MSC Sdn Bhd (727979-T) 13/07/2012 343 Royal Gold Sdn Bhd (1005830-X) http://royalgolds.com 27/09/2012 344 Royale Team Groups www.royaleteaminfo.blogspot.com 02/05/2013 345 RS Capital Holdings Bhd (819833-P) 13/07/2012 346 Safeena Gold Gallery (IP0386035-U) 25/02/2016 347 Sanabil Investment www.sanabil.com 31/07/2017 348 Sejati Agarwood Enterprise 21/05/2014 349 Sera Land Mangement & Enterprise (JM0503206-P) 23/01/2013 350 SFX Management (KT0339697-V) http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/08/2017 351 SGFM Trading Sdn Bhd (936419-V) 27/09/2012 352 SGV Premier Plan Scheme 28/08/2017 353 SimplyFX Malaysia https://www.facebook.com/simplyfxmalaysia/ 28/08/2017 354 Slimberry Extreme Team http://zatslimberry.blogspot.com slimberryxtreme.com 13/07/2012 355 Smarthink Trading (001973331 - M) 19/09/2017 356 Smart Trade Entrepreneur (002459702D ) 22/06/2017 357 Smart Trade Resources Sdn Bhd (1180992A) 22/06/2017 358 SMCI Corporation www.smci.co 31/07/2017 359 Solor Bond Capital Sdn Bhd (1163697-W) www.mysolarbond.com http://solarbond-malaysia.blogspot.my 15/09/2016 360 Speedline www.speedline-inc.com 13/07/2012 361 Spot Gold Scheme 24/04/2018 362 Srgold Exchange Bhd (1033164-V) www.srgold.com.my 12/11/2013 363 Sri Perkasa Emas Trading 13/07/2012 364 Sri Chempaka Emas Enterprise (SA0293336-P) 25/07/2014 365 Steady Dynasty Sdn Bhd (782270-H) 22/07/2013 http://www.premierfxmarket.com https://www.pkkm.my/ http://www.pokdinempire.com/ http://www.pokdinempire.com/ http://www.kuasaforex.com.my/ http://ppcstorm.com/ http://proinfinity.com/ https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH http://passport2u.com/ http://www.quantumcapitalprogram.com/ http://www.quantumcapitalprogram.com/ https://questraworld.es/ https://questraworld.es/ http://www.premierfxmarket.com/ http://www.goldrgcx.com/richman8 http://richworldrevolution.com/rwr/ http://richworldrevolution.com/rwr/ http://www.rm20segera.com/ http://royalgolds.com/ http://www.royaleteaminfo.blogspot.com/ http://www.sanabil.com/ http://www.topprofx.com/about.php http://www.topprofx.com/about.php https://www.facebook.com/simplyfxmalaysia/ http://www.smci.co/ http://www.speedline-inc.com/ http://www.srgold.com.my/ http://www.premierfxmarket.com/ No Name of unauthorised entities/individual Website Date Added to Alert List 366 Steady Global Network Sdn Bhd 22/07/2013 367 Strategic Solution (Goldex Group International Limited) 19/09/2017 368 Superbinvest Group https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/ 28/08/2017 369 Suliz Pearl Mines 13/07/2012 370 Suisse Coins Sdn Bhd www.suissecoins.com 10/04/2015 371 Sweblink Global Network Sdn Bhd (209952-H) 22/07/2013 372 Swiss Capital Venture 13/07/2012 373 SVD Malaysia https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/07/2017 374 SV International Scheme 28/08/2017 375 SV International Sdn Bhd (1169355-K) 28/08/2017 376 Syarikat Azza Motor Network Sdn Bhd (104795-P) www.rajakeretaweebly.com www.rajakereta.com 30/12/2014 377 Syarikat GECS Ltd 13/07/2012 378 Syarikat Sri Alam 13/07/2012 379 Tabung Dana Ehsan 13/07/2012 380 Tanjung Trading ((TR0123942-W) 25/07/2014 381 Tenaga Setia Services (107239-P) 25/07/2014 382 TF International Group 22/06/2017 383 TF International Group (MY) 22/06/2017 384 TF International W1212 KL Team 22/06/2017 385 TG Reliance Sdn Bhd (1086255-A) 01/09/2015 386 The Gold Guarantee 29/11/2012 387 Times Travel & Explorer Sdn Bhd (1041742-H) 09/04/2018 388 Titan Group Sdn. Bhd (823732-U) 13/07/2012 389 TP Eagle Venture Sdn Bhd (1114378-M) www.tpeagles.com 12/07/2016 390 Trillion Venture https://trivfx.com 23/12/2015 391 Triple One Management Pte Ltd ( T1FX) http://www.t1fx.com 25/02/2016 392 Tü-E Capital Berhad (806096-H) https://tu-e.capital/ http://www.tu-e.com.my/ 13/03/2018 393 TukarGold.net www.tukargold.net 13/07/2012 394 Toga Capital Sdn Bhd (1132072-MD) 28/08/2017 395 Toga Company Limited 28/08/2017 396 TopproFX http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/08/2017 397 UER Gold https://uergold.com/profitsharing.php-inaccessible 25/07/2014 www.jutawanufunclub.com ufunclub2me.bolgspot.com 399 Ultimate Power Profits www.ultimatepowerprofits.yolasite.com 16/10/2012 400 United American Traders Council www.uatconline.com 12/11/2013 www.argrow.biz www.unicapasia.net 402 Uncang Teguh Resources (0000102116-T) 25/07/2014 403 Urustabil Sdn Bhd (545426-X) 27/09/2012 404 VC Gold Sdn Bhd (722295-T) 13/07/2012 405 Virgin Gold Mining Corporation 13/07/2012 406 VenusFX www.venusfx.com 06/06/2016 407 V Save FX Trading (002482098 - K) 19/09/2017 408 V Sim Marketing (002283635 - U) 19/09/2017 409 Verger Management Services 25/07/2014 410 VI Profit Galaxy (DSV Cryptoclub & LUX Galaxies) https://luxgalaxies.com/ https://www.lavidacoin.com/ 29/08/2018 411 Wadiah Trading www.wadiahtrading.com 23/12/2015 412 Water Beaute World Berhad https://wbwglobal.wordpress.com/ http://wbwig.blogspot.my/ 09/05/2017 413 Water World Marketing (CA0177161-P) 25/07/2014 414 Webster Trade Consulting Sdn Bhd (1171420D) www.wtcpro.com http://wtcprolimited.blogspot.my 24/02/2017 415 Westrank Equity Sdn Bhd (1046449-A) 25/09/2013 416 Windsor Fragrance Sdn Bhd (599208-H) 20/10/2014 417 WMS Capital Ltd (Labuan) 28/08/2017 418 WMS Global Services (PG0402301-M) 28/08/2017 419 World Dirham Berhad (970807-X) 22/07/2013 420 Worldwide Community Programme https://wcp2u.com/ 15/09/2016 421 WSL Merchants Pte Ltd www.worldshopperslink.com www.click4dollar.com 16/10/2012 422 Xcelent Job Trading (001971755P) 09/01/2017 423 XIG Limited www.xiglimitedmalaysia.com https://my.xiglimited.com https://www.facebook.com/xiglimitedofficial https://www.facebook.com/myduitcom 28/08/2017 424 XM Forex Malaysia https://www.xm.com/my 06/12/2017 425 XOC7 13/07/2012 426 YDS Corporate Line Sdn Bhd (877697-P) http://yds2u.com 02/05/2013 427 YDS Holding Groups Bhd (987797-T) http://yds2u.com 02/05/2013 428 ZEMC Sdn Bhd (1216874-A) 22/06/2017 429 Zenith Gold International Limited (ZGI) http://www.zenithgolds.com http://zenithgoldrocks.wordpress.com http://zenithgoldpowerteam.blogspot.my 25/02/2016 430 Zeta Capital Management 13/07/2012 431 Zill Akasha Gemilang Enterprise 10/04/2015 432 Zness.com http://zness.com 25/09/2013 SV International Investment Malaysia (Facebook page) SV International (Facebook page) http://togacapital.com.my/ https://www.facebook.com/TogaCapitalLimited/ 398 UFUNCLUB 25/07/2014 401 Uni Argrow (Cambodia) Co. Ltd 30/12/2014 https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH http://www.suissecoins.com/ https://www.facebook.com/svdmalaysia https://www.facebook.com/svdmalaysia http://www.rajakeretaweeblycom/ http://www.rajakeretaweeblycom/ http://www.tpeagles.com/ https://trivfx.com/ http://www.t1fx.com/ https://tu-e.capital/ https://tu-e.capital/ http://www.tukargold.net/ http://www.topprofx.com/about.php http://www.topprofx.com/about.php https://uergold.com/profitsharing.php-inaccessible http://www.jutawanufunclub.com/ http://www.ultimatepowerprofits.yolasite.com/ http://www.uatconline.com/ http://www.argrow.biz/ http://www.unicapasia.net/ http://www.venusfx.com/ https://luxgalaxies.com/ https://luxgalaxies.com/ http://www.wadiahtrading.com/ https://wcp2u.com/ http://www.worldshopperslink.com/ http://www.worldshopperslink.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ http://www.xiglimitedmalaysia.com/ https://www.xm.com/my http://yds2u.com/ http://yds2u.com/ http://zness.com/ http://togacapital.com.my/ http://togacapital.com.my/

Public Notice

20 Mar 2019

Call for Public Feedback: Consultation Paper on the Proposed Amendments to the Money Services Business Act 2011

https://www.bnm.gov.my/-/call-for-feedback-20032019

https://www.bnm.gov.my/documents/20124/761679/Consultation+Paper+on+the+Proposed+Amendments+to+the+MSBA+2011.pdf

Reading: Call for Public Feedback: Consultation Paper on the Proposed Amendments to the Money Services Business Act 2011 Share: Call for Public Feedback: Consultation Paper on the Proposed Amendments to the Money Services Business Act 2011 Release Date: 20 Mar 2019 This consultation paper outlines the proposed amendments to the Money Services Business Act 2011 (MSBA), with a view to enable more effective enforcement to stamp out illegal money services business (MSB) by unlicensed operators, and provide appropriate deterrents against non-compliances by licensed MSB. Bank Negara Malaysia (the Bank) invites written feedback and comments on the proposed amendments. To facilitate the Bank’s assessment, please support each comment with clear rationale, accompanying evidence or illustrations where appropriate.    Feedback and comments are to be submitted to the following address by 19 April 2019: Pengarah Jabatan Pengawalan Perniagaan Perkhidmatan Wang Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: msbareview@bnm.gov.my Electronic submission is encouraged. To facilitate the Bank’s collation efforts, kindly use the form attached (Attachment) for your submission. Attachment Consultation Paper on the Proposed Amendments to the Money Services Business Act 2011 Feedback Form Issuing Department Money Services Business Regulation Department © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 19 March 2019 BNM/RH/DP 031-1 Proposed Amendments to the Money Services Business Act 2011 Consultation Paper Proposed Amendments to the Money Services Business Act 2011 Issued on: 19 March 2019 This consultation paper outlines the proposed amendments to the Money Services Business Act 2011 (MSBA), with a view to enable more effective enforcement to stamp out illegal money services business (MSB) by unlicensed operators, and provide appropriate deterrents against non-compliances by licensed MSB. Bank Negara Malaysia (the Bank) invites written feedback and comments on the proposed amendments. To facilitate the Bank’s assessment, please support each comment with clear rationale, accompanying evidence or illustrations where appropriate. Feedback and comments are to be submitted to the following address by 19 April 2019: Pengarah Jabatan Pengawalan Perniagaan Perkhidmatan Wang Bank Negara Malaysia Jalan Dato' Onn 50480 Kuala Lumpur Email: msbareview@bnm.gov.my Electronic submission is encouraged. To facilitate the Bank’s collation efforts, kindly use the feedback form attached for your submission. mailto:msbareview@bnm.gov.my Issued on: 19 March 2019 TABLE OF CONTENTS PART A OVERVIEW ......................................................................................... ……1 1 Introduction ................................................................................................. 1 2 Objectives of the proposed amendments……….…………………………….2 PART B PROPOSED AREAS FOR AMENDMENT ................................................. 5 1 Definition of remittance business …………………………………..………....5 2 Admissibility of evidence………………………………………………………..5 3 Scope of abetment……………………………………………………………....6 4 Mandatory imprisonment and minimum fine for the offence of conducting money services business without a licence………………………….……….6 5 Forfeiture power of the court…………………………………………………...7 6 Scope of administrative actions by the Bank…………………………………7 7 Replace the words ‘money changing business’ with ‘currency exchange business’………………………………………………………………….……...7 APPENDICES ........................................................................................................... ..8 APPENDIX I ....................................................................................................................................8 APPENDIX II ...................................................................................................................................9 APPENDIX III .............................................................................................................................. 12 Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 1 of 12 Issued on: 19 March 2019 PART A OVERVIEW 1 Introduction 1.1 The Money Services Business Act 2011 [Act 731] (MSBA) was enacted in December 2011 to govern money services business (MSB) activities, which comprise the remittance, money changing and wholesale currency businesses. The MSBA principally aims to fortify the industry safeguards against money laundering and terrorism financing (ML/TF) and other illegal activities; enhance consumer protection; and elevate the standards of professionalism in the MSB industry. Under the MSBA, a service provider must be licensed in order to carry out MSB activities. 1.2 Since the introduction of the MSBA, the MSB industry has transformed to become more dynamic and efficient, with strengthened safeguards to prevent its use as a conduit for financial crimes. Over the years, the industry has grown steadily with increasing usage of legal channels for conducting money services transactions. This is supported by a significant expansion of the authorised access points which offer cost-efficient, safe and convenient services to the consumers. It is estimated that approximately a quarter of the money services transactions captured through the legal channels were previously conducted via illegal channels. 1.3 Despite significant strides made to disrupt and stamp out illegal MSB activities, such activities continue to pose risks to the integrity of the MSB industry. These illegal operators facilitate money services transactions without performing customer identification and verification, thus allowing anonymity and concealing money trails of such transactions. Not only do these illegal MSB activities increase the vulnerability of the industry to ML/TF risks, they also result in a loss of national income which could otherwise be channelled for productive purposes and heightened reputational risk to the country. 1.4 Under the MSBA, carrying out MSB without a licence is a serious offence. It is also a predicate offence under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 [Act 631] (AMLA). As such, enforcement has been stepped up by the Bank to combat illegal MSB activities. As at end-December 2018, 48 entities have been convicted for operating MSB without a licence, while trial for 27 cases are on-going. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 2 of 12 Issued on: 19 March 2019 Currently, investigation is also being undertaken by the Bank on 31 cases suspected of carrying out MSB activities without a licence. 1.5 In parallel with the heightened enforcement actions undertaken over the years, the Bank continues to seek avenues in enhancing the effectiveness of enforcement against illegal MSB activities. At the same time, continuous efforts are also being taken to ensure swift actions in addressing non-compliances by licensed MSB with regulatory requirements that serve to protect consumers and promote high standards of integrity and professionalism in the industry. 2 Objectives of the proposed amendments 2.1 The proposed amendments to the MSBA are aimed at: I. Enabling swifter, more punitive and visible enforcement actions to combat illegal MSB by: a) enhancing the definition of “remittance business” to better cover the conduct of remittance business Based on the Bank’s supervision on licensed MSB, surveillance and enforcement actions on illegal remittance operators since the enactment of MSBA, a key observation has been that cross-border remittance transactions, especially trade-based remittances, are not necessarily accompanied by a corresponding movement of funds. Corresponding movement of funds refers to the movement of funds from (i) a sender to the remittance operator and (ii) from the remittance operator to its overseas corresponding counterparty, and (iii) for subsequent disbursement to the beneficiary. Illegal remittance operators have also been observed to resort to a wide range of settlement methods such as net settlement, set-off, debt assignment, or other settlement methods to reconcile and settle their cross border transactions (see Appendix I for illustration of the modus operandi). Other key features observed in such transactions conducted by illegal remittance operators, which could potentially increase ML/TF risks include: Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 3 of 12 Issued on: 19 March 2019 (i) lack of documentation (which would otherwise allow for due diligence on senders) that enables anonymity and complicates the traceability of the remittance transactions; and (ii) absence of a clear trail (normally exists in a remittance instruction from the sender that contains information on the recipient and the destination of the funds) linking the parties involved in the remittance transaction. This makes it difficult to show that the illegal remittance operator accepts the money from the sender with a view to making the funds available to the beneficiary. These observations and the evolving modus operandi employed by illegal remittance operators necessitate a wider and enhanced definition of “remittance business”. b) enhancing punitive and deterrent effects of the law against illegal MSB activities Carrying on MSB without a licence is a serious offence listed under the Second Schedule of the AMLA, given that such activity undermines the integrity of the industry, financial system and the country. It also poses risks which can include financial losses to customers (i) if the monies remitted do not reach the intended beneficiary for any reason; or (ii) where disputes arise without mechanisms in place for customers to seek redress. Unlike illegal remittance operators, licensed remittance service providers must comply with the requirement to ring-fence remittance funds, which cannot be used for purposes other than remittance payments to intended beneficiaries. Licensed money changers are also required to install counterfeit detection machines at their business premises to prevent counterfeit currencies from being used for exchange transactions. In addition, a licensed MSB is required under the law to disclose adequate information to customers on its products and services, as well as on the process to lodge a complaint. Given the severity of the offence and the risks posed to customers by illegal MSB operators, enhancements to the current legislation are necessary to ensure that penalties imposed are appropriate to reflect the gravity of the offence, and the court has forfeiture power under the MSBA to deprive offenders of the tools and proceeds of illegal activities. This is important to create the desired deterrent effect Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 4 of 12 Issued on: 19 March 2019 against the conduct of illegal MSB, and ensure that criminals will not profit or gain benefit from such activities. II. Enabling prompt actions in addressing non-compliances by licensed MSB through an expanded scope of administrative actions The current provision of the MSBA empowers the Bank to take administrative action for offences committed under the MSBA, except for offences under the provisions listed in the Schedule of the MSBA, which provides for any violations to be dealt with through criminal action. The provisions listed in the Schedule of the MSBA include provisions that are operational in nature, such as the requirements for record keeping and issuance of receipt. With improvements in the compliance standards in the industry, as evidenced by the positive feedback from the Mutual Evaluation Exercise by the Asia/Pacific Group on Money Laundering that was conducted on Malaysia in 2015, it is timely to introduce a more proportionate enforcement approach for operational offences by licensed MSB, while promoting continued improvements in compliance by the licensees. The enhanced MSBA is expected to result in more effective enforcement against illegal MSB operators, and an expanded scope of administrative actions that can be taken by the Bank in the event of non-compliances by licensed MSB, thereby promoting increased usage of authorised MSB services. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 5 of 12 Issued on: 19 March 2019 PART B PROPOSED AREAS FOR AMENDMENT I. For swifter, more punitive and visible enforcement actions against illegal MSB activities 1. Definition of remittance business The Bank proposes for the definition of ‘remittance business’ in section 2 of the MSBA to be enhanced, as reflected in paragraph 1 of Appendix II. The proposed enhancements (i) remove the requirement to show that a remittance operator acted ‘with a view to making the funds available’ to a beneficiary, and (ii) expand the definition of ‘remittance business’ to cover different types of remittance transactions and modus operandi used to undertake remittance transactions. Accordingly, the phrase ‘facilitating the transfer of funds’ will be elaborated to cover activities commonly associated with remittance as follows: (i) offering to transfer the funds; (ii) accepting or receiving the funds; (iii) transporting the funds; (iv) arranging for the transfer of the funds; (v) issuing receipts for the transfer of the funds; (vi) utilising a system to transfer the funds; (vii) engaging in activities involving or connected to any form of settlement of the funds including net settlement, set-off and debt assignment; or (viii) allowing an account to be used as a channel for transfer or receipt of the funds. 2. Admissibility of evidence The Bank proposes for the scope of admissible evidence to be widened by making all evidence obtained by an investigating officer admissible in court. This is to ensure that the law can be effectively enforced and criminals would not be able to avoid prosecution on technical grounds. In this respect, it is proposed for a new section 89A to be introduced in the MSBA, as provided in paragraph 2 of Appendix II. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 6 of 12 Issued on: 19 March 2019 3. Scope of abetment To facilitate enforcement actions against parties who assist the conduct of illegal MSB activities, the Bank proposes for the current provision on abetment in section 86 of the MSBA to be enhanced as provided in paragraph 3 of Appendix II, by including: (i) an explanation to describe the word ‘abet’, whereby a person abets an offence if he continues to lend assistance and support in any manner or form to another person, who he knows is engaging in an unlawful activity under the MSBA; and (ii) illustrations of abetment in the conduct of illegal MSB activities. The illustrations make references to a landlord, employer and remittance system provider allowing the continuation of illegal MSB activities even with knowledge, or after being notified by the Bank of the illegality of such activities. These illustrations are based on actual observations from the Bank’s surveillance activities. These are intended to be illustrative and shall not limit the Bank’s ability to invoke the provision against any person who abets illegal MSB activities by any other means. 4. Mandatory imprisonment and a minimum fine for the offence of conducting MSB without a licence Given the significant risks posed by illegal MSB activities, the Bank proposes for the legislation of mandatory imprisonment and a minimum fine of RM50,000 for the offence of conducting MSB without a licence. The proposal adopts a similar enhancement made to the AMLA in 2014, to ensure a sufficiently punitive penalty and effective deterrent for serious offences. For this, the Bank proposes for the amendment to section 4(4) of the MSBA as in paragraph 4 of Appendix II. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 7 of 12 Issued on: 19 March 2019 5. Forfeiture power of the court The Bank proposes for the MSBA to include the power for the court to forfeit all exhibits, namely properties and documents tendered during trial, similar to the AMLA. This is aimed at preventing criminals from benefiting from illegal MSB activities by depriving them of the proceeds or properties associated with the commission of the offence. Additionally, this proposal will also help prevent a recurrence by the offender. A new section 66A will be inserted into the MSBA to operationalise this proposal, as in paragraph 5 of Appendix II. II. For prompt enforcement actions on non-compliances by licensed MSB 6. Scope of administrative actions by the Bank To enable the Bank to take prompt actions against operational breaches and encourage continued improvements in compliance by licensed MSB, the Bank proposes to expand the scope of breaches for which it may take administrative actions. These are: • 5 provisions relating to conditions of licence and directives imposed by the Bank; • 2 provisions relating to issuance of receipt and maintenance of records; and • 3 provisions relating to key responsible persons and shareholding. (See Appendix III for the list of 10 provisions proposed to be subject to administrative actions). The types of administrative actions include monetary penalties, issuance of a directive, reprimand, requirement to remedy or mitigate the effect of breach and issuance of a public statement. III. Additional area for review 7. Replace the words ‘money changing business’ with ‘currency exchange business’ Based on the Bank’s observation, the term ‘money changing business’ has often been confused by members of the public with money lending business. As such, the Bank proposes to replace the words ‘money changing business’ in the MSBA with ‘currency exchange business’. This is aimed at distinguishing the industry more clearly from the money lending activities. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 8 of 12 Issued on: 19 March 2019 APPENDICES APPENDIX I Illustration : Modus operandi of trade-based illegal remittance In a typical cross border trade-based illegal remittance, a supplier will engage the service of an illegal remittance operator (A) to facilitate payment from the buyer. Upon receiving information from the supplier, the buyer will give the funds to the sending illegal remittance operator (B) for payment to be made, without having to provide instruction containing information on the recipient and destination of the payment. At the other end, the supplier receives the payment from the buyer through illegal remittance operator (A), with no trail clearly linking operators (A) and (B). This is further compounded by the fact that the remittance transaction performed may not necessarily involve the corresponding movements of funds, as unauthorised remittance operators often resort to net settlement, set-off, debt assignment, or other settlement methods to reconcile and settle their cross border transactions. Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 9 of 12 Issued on: 19 March 2019 APPENDIX II 1. Definition of remittance business Section 2 of the MSBA is amended by substituting the definition of ‘remittance business’ with the following definition: ““remittance business” means the business of transferring funds or facilitating the transfer of funds, whether in any form or by any means, or whether there is any movement of funds or not, on behalf of an originator person in or outside Malaysia to a beneficiary person in or outside Malaysia, and the originator person and the beneficiary person may be the same person, but excludes such other businesses, activities, systems or arrangements as the Bank may prescribe. For purposes of this definition, “facilitating the transfer of funds” includes: (a) offer to transfer the funds; (b) acceptance or receipt of the funds; (c) transportation of the funds; (d) arrangement for the transfer of the funds; (e) issuance of receipt for the transfer of the funds; (f) utilisation of a system to transfer the funds; (g) engagement in activities involving or connected to any form of settlement of the funds including net settlement, set-off and debt assignment; or (h) allowing an account to be used as a channel for transfer or receipt of the funds.” 2. Admissibility of evidence The MSBA is amended by inserting the following section: “89A. Any document or other evidence, whether primary or secondary, obtained or seized by virtue of this Act, and their content shall be admissible as evidence in any proceedings under this Act, notwithstanding anything to the contrary in any written law.” Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 10 of 12 Issued on: 19 March 2019 3. Scope of Abetment Section 86 of the MSBA is amended by inserting the following explanation and illustrations: “Explanation – A person abets an offence under this Act if he continues to lend his assistance, services, facilities or support, in any manner or form, to another person who he knows is engaging in an unlawful activity under this Act. ILLUSTRATIONS (a) A, a landlord, continues to rent out his premises to B, who is carrying on currency exchange business without a licence, after being informed by the Bank of B’s unlawful activities. A abets the commission of an offence by B for carrying on currency exchange business without a licence under this Act. (b) C, an employer, invites D, who he knows is not a licensee under this Act to provide remittance services for C’s employees. C abets the commission of an offence by D for carrying on remittance business without a licence under this Act. (c) E, a remittance system provider, who knows F is not a licensee under this Act, continues to provide F with a system or application that supports F’s remittance business activities, abets the commission of an offence by F, for carrying on remittance business without a licence under this Act.” 4. Mandatory imprisonment and minimum fine for the offence of conducting money services business without a licence Section 4 of the MSBA is amended by substituting section 4(4) with the following: “(4) Any person who contravenes subsection (1) commits an offence and shall, on conviction, be punished with imprisonment for a term not exceeding ten years and a fine of not less than fifty thousand ringgit but not exceeding five million ringgit.” Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 11 of 12 Issued on: 19 March 2019 5. Forfeiture power to the court The MSBA is amended by inserting, the following section: “Forfeiture upon prosecution 66A. (1) In any prosecution for an offence under this Act, the court may make an order for the forfeiture of any property which is the subject matter of the offence or appears to have been used in the commission of the offence where the offence is proved against the accused. (2) Any forfeiture to be made under this section shall be made in accordance with the procedures under the Criminal Procedure Code [Act 593].” Proposed Amendments to the Money Services Business Act 2011 - Consultation Paper 12 of 12 Issued on: 19 March 2019 APPENDIX III Proposed provisions to be subject to administrative actions No. Sections Areas Provisions relating to conditions of licence and directives imposed by the Bank 1. 7(4) Conditions of licence 2. 9(11) Conditions of renewal of licence 3. 10(3) Conditions of licence imposed by the Bank at any time 4. 73(10) Compliance with directives issued by the Bank within the stipulated time 5. 73(14)(a) Conditions imposed via directive when the Bank decides not to take action on the licensee or MSB agent under Section 73(1) Provisions relating to issuance of receipt and maintenance of records by licensed MSB 6. 27(1) Issuance of receipt 7. 28(1) Maintenance of records Provisions relating to key responsible persons and shareholding 8. 30(10)(a) Notification to the Bank when the CEO, director or manager ceased to hold office 9. 32(2) Obtaining of prior written approval from the Bank for new substantial shareholder 10. 33(2) Obtaining of prior written approval from the Bank in effecting change to shareholding structure which would result in the change of control

Public Notice

20 Mar 2019

RINGGIT Newsletter (Bil. 1/2019 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil.-1/2019-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761679/Ringgit+Ed105+2019-01+v6.pdf

Reading: RINGGIT Newsletter (Bil. 1/2019 issue) is now available for download Share: RINGGIT Newsletter (Bil. 1/2019 issue) is now available for download Release Date: 20 Mar 2019 The highlight for this issuance is Transaksi Tanpa Tunai Yang Selamat Other topics of interest include : DuitNow Apa Yang Anda Perlu Tahu Panduan Kewangan Berkesan Untuk Pasangan Muda 12 Perancangan Kewangan Individu Untuk Tahun 2019 Hak Sebagai Peminjam Wang Berlesen RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil. 1//2019 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 1/2019 12 Perancangan Kewangan Individu untuk tahun 2019 Panduan Kewangan Berkesan Untuk Pasangan Muda PERCUMA | PP 16897/05/2013 (032581) DuitNow – Apa Yang Anda Perlu Tahu Transaksi Tanpa Tunai Yang Selamat Sistem e-pembayaran merupakan kaedah melakukan transaksi barangan dan perkhidmatan melalui sistem pembayaran elektronik atau sistem pembayaran dalam talian. Sistem pembayaran elektronik telah berkembang sejak sedekad yang lalu disebabkan oleh kepesatan dalam sektor perbankan dan peningkatan pembelian melalui internet. Ketika dunia semakin maju dengan pembangunan teknologi, sistem pembayaran elektronik dan peranti pemprosesan pembayaran turut mengalami perubahan yang pesat. Bank Negara Malaysia (BNM) mentakrifkan wang elektronik (e-money) sebagai instrumen pembayaran yang menyimpan dana secara elektronik sebagai tukaran kepada dana yang dibayar kepada pengeluar wang elektronik dan boleh digunakan untuk membuat pembayaran kepada mana-mana pihak selain pengeluar wang elektronik tersebut. Wang elektronik boleh dikeluarkan dalam pelbagai bentuk, sama ada berasaskan kad atau rangkaian (seperti dompet elektronik menerusi peranti mudah alih). Dana terkumpul wang elektronik akan disimpan di dalam akaun amanah / akaun deposit yang dikhususkan di institusi kewangan berlesen. Pengeluar wang elektronik adalah dilarang untuk membayar faedah atau keuntungan ke atas baki wang elektronik dan menggunakan wang elektronik untuk memberi pinjaman kepada orang lain. Penggunaan e-money adalah lebih selamat, mudah dan boleh dikesan. Selain itu, kesilapan yang dilakukan oleh juruwang juga dapat dikurangkan. Kad debit dan kad kredit adalah pilihan transaksi tanpa tunai yang paling lazim digunakan di Malaysia. Transaksi mudah alih menjadi semakin popular dengan jumlah perniagaan dalam talian yang semakin meningkat. Selain itu, teknologi baharu telah dilengkapi dengan kad pembayaran dan penggunaan telefon pintar dengan ciri pembayaran tanpa sentuh. Ciri-ciri ini mempercepatkan proses pembayaran. Dalam kaji selidik yang dijalankan oleh Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh pada setiap bulan. Kad yang dimuatkan dengan wang tunai boleh digunakan untuk membayar tol di lebuh raya dan tempat letak kereta. Kini ia telah berkembang untuk digunakan dalam rangkaian runcit, restoran, pengangkutan awam dan penjagaan kesihatan. Walaupun sistem tanpa tunai semakin meningkat dan diterima secara lebih meluas, terdapat beberapa halangan terhadap perkembangannya. Sistem tanpa tunai masih belum diterima sepenuhnya oleh sektor perniagaan. Masih terdapat sektor perniagaan yang menerima wang tunai sahaja. Oleh itu, walaupun pengguna mungkin telah dilengkapi instrumen tanpa tunai, pembekal dan peniaga perlu menukar polisi mereka sebelum transaksi tanpa tunai dapat dilaksanakan sepenuhnya. Walaupun ramai pengguna Malaysia yang menggunakan sistem tanpa tunai, khususnya dalam kalangan masyarakat di bandar, masih ramai juga pengguna yang bergantung kepada wang tunai, terutama masyarakat yang tinggal di luar bandar. Usaha untuk mengubah minda dan menanam keyakinan terhadap sistem tanpa tunai mungkin mengambil sedikit masa. Kajian Visa Inc. juga mendapati semakin ramai rakyat Malaysia yang yakin dengan sistem tanpa tunai. Enam daripada sepuluh responden mengatakan mereka akan menggunakan sistem tanpa tunai sepanjang masa. Dalam Transaksi Tanpa Tunai Yang Selamat “Dalam kaji selidik Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh setiap bulan.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Dalam kaji selidik Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh setiap bulan.” kajian yang sama seterusnya, menunjukkan bahawa lebih daripada 50% rakyat Malaysia mempunyai lebih banyak kad pembayaran berbanding dua tahun lalu, dengan separuh daripada responden memilih pembayaran tanpa tunai atau tanpa sentuh. Pengguna juga perlu menyedari akan risiko sistem pembayaran tanpa tunai dan perlu mempunyai pengetahuan untuk melindungi diri mereka sendiri. Antara risiko yang perlu dihadapi ialah: • Penipu menggunakan aplikasi pembayaran dalam talian palsu di pasaran yang boleh mencuri butir-butir peribadi dan perbankan anda seperti ID log masuk dan kata laluan perbankan, nombor kad kredit / debit, dan lain-lain. • Penipu mewujudkan laman sesawang palsu. Laman sesawang ini kelihatan sama seperti laman sesawang perbankan atau portal membeli-belah yang akan memancing dan mencuri maklumat anda. Penipu boleh menggunakan maklumat tersebut untuk mengugut anda. • Anda mungkin menerima e-mel dengan pautan yang menawarkan diskaun jika anda membeli barangan dari laman sesawang tertentu. E-mel tersebut mungkin e-mel palsu yang akan mengarahkan anda ke laman sesawang palsu atau dijangkiti perisian hasad (malware). • Anda juga boleh menerima SMS atau mesej WhatsApp yang mengesyorkan anda memuat turun aplikasi mudah alih untuk pembayaran dalam talian. Ini juga boleh jadi palsu. bil. 1/2019 | 3 tanpa OTP / TAC. Oleh yang demikian, jangan sekali- kali berkongsi OTP / TAC anda dengan pihak ketiga. 7. Sentiasa pilih kata laluan yang kukuh untuk akaun pada aplikasi perbankan internet atau pembayaran dalam talian. Pastikan kata laluan anda sekurang- kurangnya mengandungi lapan aksara, mempunyai gabungan huruf besar dan kecil, nombor dan simbol. Contohnya, ‘Cool15is@King’ 8. Elakkan membuat transaksi tanpa tunai daripada komputer awam seperti di kafe siber. 9. Jangan gunakan rangkaian Wi-Fi yang tidak selamat untuk membuat bayaran dalam talian. Melakukannya mungkin membiarkan penyerang mencuri maklumat anda. 10. Pasang penyelesaian antivirus pelbagai lapisan dengan ciri-ciri seperti di bawah: • Menyekat laman sesawang palsu, penipuan atau dijangkiti perisian hasad. • Menyekat e-mel yang membawa pautan atau lampiran yang berniat jahat. • Penyemak imbas selamat untuk transaksi perbankan dan membeli-belah yang selamat. 11. Pasang aplikasi keselamatan mudah alih yang boleh: • Menghalang aplikasi palsu atau berniat jahat daripada dipasang pada telefon pintar anda. • Menghalang akses ke laman sesawang palsu dan dijangkiti perisian hasad. • Membolehkan anda mengunci aplikasi anda (aplikasi pembayaran dalam talian seperti PayTm) dengan kata laluan untuk mengelakkan sebarang penyalahgunaan. E-money dan e-wallet boleh melengkapkan penggunaan kad kredit dan kad debit untuk mempercepatkan proses pemindahan wang tunai dan cek di Malaysia. Sumber: FOMCA • Rangkaian Wi-Fi yang bebas, tidak selamat boleh direka oleh penipu untuk menipu pengguna yang tidak berhati-hati. Panduan untuk transaksi tanpa tunai yang selamat: 1. Muat turun aplikasi pembayaran dalam talian hanya dari kedai rasmi seperti Google Play Store dan Apple Play Store. 2. Sebelum anda memuat turun sebarang aplikasi, dapatkan pengesahan mengenai pembuat aplikasi tersebut. Baca juga ulasan daripada penggunanya. 3. Lebih penting lagi, baca kebenaran yang diminta oleh aplikasi. Jika aplikasi tersebut meminta lebih banyak maklumat daripada apa yang sepatutnya, maka lebih baik jangan memuat turun aplikasi tersebut. 4. Jangan sekali-kali mengunjungi laman sesawang perbankan atau membeli-belah dalam talian dengan menggunakan pautan yang diterima melalui e-mel atau pesanan ringkas. 5. Pilih laman sesawang yang anda yakini untuk membuat pembayaran anda. 6. Memastikan terdapat dua bentuk pengesahan untuk transaksi perbankan melalui internet melalui pembayaran menggunakan kad kredit / debit anda. Ini bererti apabila anda membuat pembayaran, anda akan diminta untuk mengesahkan diri anda sebanyak dua kali. Sebagai contoh, semasa membayar melalui perbankan internet, anda akan memasukkan ID dan kata laluan masuk dan juga OTP / TAC (kod yang dihantar ke nombor mudah alih berdaftar anda) sebelum anda dapat membuat pembayaran akhir. Oleh itu, walaupun penipu berjaya mencuri maklumat perbankan anda, mereka tidak akan dapat melakukan 4 | RINGGIT Semenjak 8 Oktober 2018, ramai pengguna menerima khidmat pesanan ringkas (SMS) daripada bank mereka untuk membuat pendaftaran perkhidmatan DuitNow. Ini menimbulkan kekeliruan sama ada SMS yang diterima mereka adalah sahih atau sebaliknya. SMS berkenaan adalah sebagai pra-pelancaran untuk memperkenalkan perkhidmatan tersebut, sekali gus memudahkan pendaftaran bagi pihak pelanggan bank. DuitNow adalah perkhidmatan perbankan terbaharu yang diperkenalkan oleh Payments Network Malaysia Sdn Bhd (PayNet). PayNet juga sebelum ini telah menerajui beberapa perkhidmatan perbankan, antaranya MEPS untuk pengeluaran duit melalui ATM dan JomPay yang memudahkan pembayaran bil. Apakah DuitNow? D u i t N o w m e r u p a k a n perkhidmatan perbankan baharu yang memudahkan pengguna menerima dan membuat pindahan wang kepada pihak ketiga secara selamat dan tidak terikat kepada penggunaan nombor akaun bank semata-mata. Melalui DuitNow, pengguna boleh memautkan nombor telefon bimbit, nombor kad pengenalan awam (MyKad), nombor kad pengenalan tentera / polis atau nombor passport (untuk bukan warganegara) ke akaun bank mereka. Selepas memautkannya, pengguna boleh menerima pembayaran terus ke akaun mereka. Langkah ini sekali gus telah memudahkan beberapa proses pembayaran. Selain itu, penggunaan DuitNow juga akan memudahkan syarikat atau agensi kerajaan untuk membayar terus ke dalam akaun anda menggunakan nombor pengenalan diri (ID) anda tanpa perlu meminta nombor akaun bank. Hal yang sama juga sekiranya pihak kerajaan ingin melakukan sesuatu pembayaran terus kepada rakyat. Simpanan rekod juga menjadi lebih mudah dengan menggunakan DuitNow. Pada masa yang sama, DuitNow turut menyokong akaun perbankan milik syarikat. Syarikat boleh memautkan nombor pendaftaran syarikat mereka ke akaun bank dan seterusnya menerima pembayaran yang dibuat ke nombor pendaftaran syarikat mereka. Ini juga boleh meningkatkan kadar keyakinan pembeli terhadap syarikat berkenaan. Secara keseluruhan, DuitNow dilihat sebagai langkah PayNet untuk memudahkan pengguna mengingati maklumat penerima pembayaran. Bagaimanakah DuitNow Berfungsi? DuitNow berfungsi seperti perbankan normal yang memerlukan pengguna memasukkan nombor telefon bimbit atau nombor (ID) pada ruang penerima, seterusnya memasukkan amaun yang ingin dipindahkan. Seperti pembayaran biasa, pengguna akan dibawa ke skrin seterusnya untuk mengesahkan maklumat penerima seperti nama penerima. Sebaik sahaja disahkan, pemindahan wang akan dilakukan seperti sedia kala. DuitNow Apa Yang Anda Perlu Tahu bil. 1/2019 | 5 DuitNow menawarkan pemindahan percuma untuk nilai bawah RM5,000. Menurut PayNet, sekiranya nombor telefon bimbit atau ID tidak dipautkan ke nombor akaun, maka ia akan memaparkan mesej yang menunjukkan penerima berkenaan tidak wujud, sekali gus tidak membolehkan anda membuat pemindahan wang. Penggunaan Nombor Telefon Bimbit / ID Setiap nombor telefon bimbit atau ID boleh dipautkan ke satu bank sahaja. Sebagai contoh, sekiranya anda telah menerima SMS berkenaan nombor telefon yang dipautkan ke akaun Maybank, maka anda tidak boleh menggunakan nombor telefon yang sama untuk akaun bank lain. Anda perlu membatalkan pendaftaran tersebut terlebih dahulu sebelum dapat menggunakannya untuk perkhidmatan perbankan lain. Perkara yang sama juga untuk ID anda. Pada masa ini, pendaftaran dan pembatalan pendaftaran diuruskan melalui bank secara dalam talian atau menggunakan aplikasi mudah alih sahaja. Jaminan Keselamatan Dengan penggunaan nombor telefon bimbit, ramai yang risau mereka akan tersilap dan melakukan pemindahan wang tanpa sengaja. Anda tidak perlu risau kerana pemindahan wang melalui DuitNow ini hanya satu hala sahaja dengan menggunakan perbankan dalam talian atau aplikasi mudah alih. Pengguna hanya boleh menerima pembayaran menggunakan nombor telefon bimbit atau ID mereka. Pengguna tidak boleh melakukan pembayaran menggunakan nombor telefon bimbit, sebaliknya perlu melakukannya melalui akaun bank mereka seperti biasa. Melangkah ke Hadapan Pengenalan DuitNow ini dijangka akan menjadi titik tolak untuk sejumlah perkhidmatan lain dalam arena kewangan. Sebagai contoh, dengan pengenalan DuitNow ini juga kita mungkin akan dapat melihat PayNet menggunakan kerangka sama dalam pengenalan sistem kod QR universal yang dinantikan ramai. Malah, ia juga mungkin memudahkan syarikat teknologi kewangan lain dalam mengintegrasikan kemudahan pembayaran, dan menambah baik penawaran masing-masing. Sumber: Amanz.my “Setiap nombor telefon bimbit atau ID boleh dipautkan ke satu bank sahaja. Sebagai contoh, sekiranya anda telah menerima SMS berkenaan nombor telefon yang dipautkan ke akaun Maybank, maka anda tidak boleh menggunakan nombor telefon yang sama untuk akaun bank lain. ” 6 | RINGGIT Majlis perkahwinan yang mewah adalah idaman hampir setiap pasangan kerana ia berlaku mungkin hanya sekali dalam seumur hidup. Namun begitu, dalam merancang majlis perkahwinan dan rumahtangga, ramai pasangan muda melakukan kesilapan dalam pengurusan kewangan yang boleh menjejaskan masa hadapan mereka. Sediakan diri anda untuk kebahagiaan rumahtangga dan kebebasan kewangan dengan mengikuti panduan untuk pasangan muda. 1. Fahami Bagaimana Pasangan Anda Membelanjakan Wang Wang boleh menjadi isu sensitif bagi semua pihak, tidak terkecuali p a s a n ga n m u d a . S e t i a p pasangan harus memahami hubungan masing-masing dengan wang sebelum mengambil keputusan u n t u k b e r k o n g s i komitmen kewangan bersama-sama. Anda harus mengetahui t a b i a t b e r b e l a n j a pasangan anda. Dengan memahami sifat pasangan anda tentang wang, anda boleh merancang hal kewangan dengan lebih berkesan. 2. Bincang Soal Wang Sebelum Berkahwin Hari perkahwinan adalah hari paling penting dalam kehidupan anda bersama. Walau bagaimanapun, realiti hanya akan datang selepas majlis tersebut berakhir. Jadi, anda harus berbincang tentang soal komitmen jangka masa panjang sebelum anda melangkah ke pelamin. Adakah anda berdua mahu menjadi rakan kongsi yang setara dalam hal kewangan atau perkongsian setara itu mustahil? Apa yang penting di sini ialah komunikasi yang kerap dan jujur. Bincangkan sejarah dan matlamat kewangan masing- masing, termasuklah topik yang digeruni iaitu hutang bersama. Lebih awal anda mencapai kata sepakat dengan pasangan anda, lebih senang perhubungan anda dengan pasangan anda dalam aspek kewangan. 3. Bincangkan Matlamat Kewangan Jangka Masa Panjang Matlamat kewangan boleh berubah dari semasa ke semasa. Ia bukan satu ketetapan pasti yang dicapai dengan hanya satu perbincangan. Luangkan masa setiap bulan untuk duduk berbincang tentang soal wang, Panduan Kewangan Berkesan Untuk Pasangan Muda bil. 1/2019 | 7 menilai keadaan dan mengatur semula matlamat kewangan bersama. Perbincangan bulanan ini adalah masa yang terbaik untuk berbincang tentang kereta baharu yang diidamkan atau percutian ke luar negara yang diimpikan. Jika anda berdua jelas tentang apa yang anda mahukan, lebih mudah bagi anda merealisasikan matlamat bersama. 4. Mulakan Belanjawan Yang Realistik (Dan Berpegang Padanya) Memulakan satu belanjawan yang konsisten mampu membantu anda dan pasangan pada masa hadapan. Langkah pertama ialah dengan mel ihat ga j i bu lanan dan perbelanjaan masing-masing. Jika anda sedang merancang perkahwinan, fikirkan jumlah yang mampu dibelanjakan dan jumlah yang boleh disimpan. Cara terbaik untuk merancang belanjawan bagi perkahwinan ialah dengan mengurangkan jumlah pendapatan dan melebihkan anggaran kos di dalam belanjawan anda. Di samping itu, anda juga masih perlu menyimpan untuk keperluan kecemasan. 5. Sejajarkan Pelan Simpanan Persaraan ANDA Persaraan yang selesa boleh dimiliki dengan merancang lebih awal. Setiap pasangan perlu menelit i pelan persaraan daripada majikan masing- masing dan pastikan setiap manfaat yang ada daripada pelan tersebut digunakan. 6. Pastikan Komunikasi Anda Jujur Dan Terbuka Dalam perhubungan dan juga kehidupan, amat penting bagi kita memastikan komunikasi adalah jujur dan terbuka. Apa sahaja isu yang tersorok tentang hutang atau perbelanjaan pastinya akan mendatangkan kerumitan dan merosakkan pelan kewangan bersama. Oleh itu, pastikan anda mengamalkan perbualan terbuka dalam “janji temu kewangan” bulanan anda. Inilah peluang bagi anda menilai semula pelan kewangan bersama agar ia memenuhi kehendak dan gaya hidup anda. 7. Mulakan Perancangan Keluarga Dari Awal Anda perlu bersedia untuk menimang cahaya mata. Namun begitu, kos membesarkan anak di Malaysia agak tinggi. Pe ra n ca n ga n ya n g i d e a l perlu bermula sebelum anak dilahirkan agar anda mempunyai masa untuk membina kekuatan kewangan sebagai persediaan untuk menghadapi waktu tersebut. 8. Bersedia Untuk Menghadapi Apa Jua Keadaan Kadangkala anda akan menghadapi situasi yang tidak dijangka seperti mesin basuh atau kenderaan rosak ataupun yang melibatkan soal kesihatan. Amat penting bagi anda memiliki sejumlah wang yang mampu menolong anda dalam situasi ‘kemalangan’ yang lazimnya muncul entah dari mana. Apabila anda merancang untuk berkahwin dan memulakan keluarga, soal kematian juga perlu difikirkan. Seeloknya anda memiliki insurans nyawa atau takaful keluarga agar pasangan anda dapat dilindungi jika anda tiada kelak. 9. Melabur Dengan Bijak Memulakan sesuatu pelaburan tidak memerlukan modal jutaan ringgit di dalam bank. Bagaimanapun, ia memerlukan fokus jangka masa panjang untuk anda membina aset bersama. Pelaburan anda mungkin bermodal serendah RM5,000 tetapi pastikan anda melaburkan jumlah yang anda selesa pada set iap bu lan. In i termasuk membina jaring keselamatan dengan jumlah gaji selama enam bulan sebelum anda memulakan portfolio pelaburan anda. Sumber: www.aia.com.my 8 | RINGGIT Perancangan Kewangan Individu Untuk Tahun 2019 Setiap individu perlu mempunyai perancangan kewangan individu sendiri terutama ketika menghadapi keadaan ekonomi yang kurang memberangsangkan. Tujuan perancangan kewangan individu perlu diadakan adalah supaya anda dapat mengurus kewangan dengan baik dan tidak terlibat dalam masalah hutang yang berlebihan. Berikut adalah 12 intipati perancangan kewangan individu yang anda perlu tahu. 1. Mencukupkan Simpanan Kecemasan Simpanan kecemasan sangat penting kerana keadaan ekonomi yang tidak menentu. Antara p e r ka ra ya n g b o l e h berlaku dan memerlukan simpanan kecemasan ialah seperti kehilangan pekerjaan dan kos sara hidup yang tinggi. 2. Meningkatkan Simpanan Percutian Bagi individu yang sudah berkeluarga, aktiviti percutian atau beriadah bersama- s a m a k e l u a r g a memerlukan kos yang tinggi. Oleh itu, anda perlu menyediakan satu simpanan untuk perbelanjaan aktiviti percutian. 3. Simpanan Perbelanjaan Tetap Tahunan Antara perbe lan jaan t e ta p ta h u n a n ya n g w a j i b a d a a d a l a h seperti memperbaharui cukai dan insurans / takaful kenderaan dan p e r b e l a n j a a n m u s i m perayaan seperti hari raya. 4. Simpanan Perbelanjaan Persekolahan Anak-Anak P e r b e l a n j a a n perseko lahan anak- anak adalah termasuk kos pembelian barang k e p e r l u a n s e p e r t i p a ka i a n , b u k u d a n alat tulis, selain kos p e n g a n g k u t a n d a n perbelanjaan harian anak-anak di sekolah. bil. 1/2019 | 9 Sumber: www.duitkertas.com 5. Dana Pendidikan Anak- Anak S e l a i n s i m p a n a n perbelanjaan sekolah, a n d a j u g a p e r l u menyediakan satu dana pendidikan tinggi untuk anak-anak. Dana pendidikan ini akan m e m b a n t u u n t u k memudahkan anak anda mendaftar ke institut pengajian tinggi tanpa perlu membuat pinjaman pendidikan. 6. Dana Persaraan Jika anda sudah mempunyai dana persaraan melalui pencen atau simpanan KWSP, anda perlu tingkatkan lagi dana persaraan melalui instrumen lain bagi memastikan dana persaraan anda mencukupi walaupun kos sara hidup meningkat. 7. Dana Derma Kos sara hidup yang meningkat bukanlah satu alasan untuk anda berhenti membuat dana tabung derma. 8. Menambah Aset Ramai yang membuat spekulasi bahawa harga rumah akan turun pada tahun ini dan juga tahun h a d a p a n . I n i a d a l a h peluang terbaik anda untuk menambah aset seperti pembelian rumah. 9. Mempelbagaikan Pelaburan Anda perlu mempelbagaikan pelaburan supaya anda tidak bergantung kepada satu instrumen pelaburan sahaja untuk memperoleh pulangan keuntungan yang diharapkan. 10. Menyediakan Penggantian Dan Perlindungan Pendapatan Anda perlu menyediakan satu pelan penggantian d a n p e r l i n d u n g a n p e n d a p a t a n u n t u k k e l u a r g a a n d a . Penggantian ini akan membantu keluarga anda sekiranya berlaku sesuatu yang tidak diingini atas diri anda. Contohnya, anda perlu mempunyai perlindungan insurans / takaful yang menyediakan keluarga dari segi kewangan jika sesuatu berlaku terhadap diri anda. 11. Menambah Sumber Pendapatan Pada masa kini, setiap individu hanya berpeluang untuk menambah sumber pendapatan secara separuh masa. Jadikan media sosial sebagai platform untuk anda meningkatkan pendapatan. 12. Pengurangan Hutang Jika masih ada lagi hutang- hutang kecil seperti kad kredit dan hutang peribadi, anda perlu selesaikan segera. Jadikan tahun 2019 sebagai tahun bebas hutang kecil anda. Hidup anda akan lebih tenang tanpa hutang-hutang kecil tersebut. 10 | RINGGIT Hak Sebagai Peminjam Wang Berlesen Ramai dalam kalangan pengguna yang kurang arif mengenai cara-cara untuk membuat pinjaman wang daripada syarikat pemberi pinjam wang berlesen. Ramai pengguna mengadu bahawa mereka telah ditipu oleh syarikat pemberi pinjam wang yang mengenakan kadar faedah yang terlampau tinggi. Mereka juga tidak diberikan sesalinan surat perjanjian. Untuk mengelakkan insiden tersebut, pengguna dinasihati supaya tidak terburu-buru membuat pinjaman. Mereka perlu menyiasat terlebih dahulu latar belakang sesebuah syarikat yang menawarkan perkhidmatan pinjaman wang. Menurut Akta Pinjaman Wang 1951 (Akta 400), pemberi pinjam wang (PPW) ialah mana-mana orang yang menjalankan perniagaan pinjaman wang yang didaftarkan di bawah Akta Pinjaman Wang 1951. PPW perlu mematuhi syarat-syarat yang ditetapkan dalam akta tersebut. Sebagai contoh, menurut seksyen 18 Akta 400, PPW hendaklah menyimpan dengan teratur tiap-tiap akaun peminjam. Akaun tersebut hendaklah ditulis dalam turutan dengan angka dan perkataan yang jelas. Akaun tersebut tidak boleh memudahkan penghapusan, penyisipan atau penggantian mana-mana muka surat. Mana-mana PPW yang tidak mematuhi kehendak tersebut tidak boleh menguatkuasakan tuntutan-tuntutan mereka. Peminjam pula hendaklah diberikan pernyataan atau maklumat yang tidak mengelirukan bagi setiap pinjaman yang dibuat. Setiap pinjaman hendaklah menggunakan borang pinjaman yang ditetapkan oleh Kementerian Perumahan dan Kerajaan Tempatan (KPKT) sahaja, selaku pengawal selia PPW, iaitu Jadual J (pinjaman tanpa cagaran) atau Jadual K (pinjaman dengan cagaran). Peminjam berhak untuk diberikan satu salinan perjanjian secara percuma. Peminjam juga hendaklah mendapatkan resit bayaran bagi setiap bayaran balik pinjaman yang dibuat. Peminjam turut diingatkan supaya tidak menandatangani borang perjanjian yang kosong. Sebarang transaksi pembayaran pinjaman hendaklah diterima selepas perjanjian diisi penuh, dimatikan setem dan pembayaran dibuat di pejabat PPW yang berkenaan. Jika peminjam gagal menjelaskan hutang kepada PPW: a) Mengikut perjanjian pinjaman di bawah tajuk ‘hak tindakan’, jika peminjam gagal melunaskan hutangnya d a l a m t e m p o h 28 hari selepas tempoh genap tarikh bayaran ansuran atau melakukan perbuatan kebangkrapan secara terpaksa atau sukarela, PPW berhak untuk menamatkan perjanjian tersebut; b) PPW dikehendaki memberi notis 14 hari bagi tujuan menamatkan perjanjian itu; c) Jika dalam tempoh tersebut peminjam tidak dapat juga menjelaskan hutangnya, PPW berhak untuk menamatkan perjanjian tersebut; d) Tindakan menuntut baki jumlah hutang termasuk faedah serta lain-lain kos guaman dan mahkamah akan dituntut oleh pihak PPW di mahkamah; dan e) Jika pinjaman bercagar, PPW berhak ke atas cagaran tersebut mengikut proses undang-undang. Pengguna boleh mengetahui perbezaan antara PPW yang sah atau haram melalui iklan. Mengikut Peraturan 8, Peraturan-peraturan Pemberi Pinjam Wang (Kawalan dan Perlesenan), setiap iklan sama ada dalam bentuk papan iklan, kain pemidang atau kad mesti mengandungi butir-butir berikut: a) Nombor lesen PPW dan tarikh pengesahannya; b) Nombor permit iklan; c) Nama, alamat dan nombor telefon PPW berlesen; dan d) Kadar faedah yang ditawarkan. Cara lain untuk peminjam mengenal pasti sama ada sesuatu premis itu menjalankan perniagaan pemberi pinjam wang secara sah adalah melalui portal KPKT, di alamat www.kpkt.gov.my atau boleh berhubung terus melalui talian telefon 03-8000 8000, atau datang sendiri ke Bahagian Pemberi Pinjam Wang dan Pemegang Pajak Gadai, Kementerian Perumahan dan Kerajaan Tempatan, Aras 22, No. 51, Persiaran Perdana, Presint 4, Putrajaya. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 1/2019 | 11 imSME_A4 (bleed).pdf 1 15/3/2019 4:53:56 AM

Public Notice

19 Mar 2019

Phishing Attempts by Impersonating Email and Training Website from Bank Negara Malaysia

https://www.bnm.gov.my/-/phishing-attempts-19032019

Reading: Phishing Attempts by Impersonating Email and Training Website from Bank Negara Malaysia Share: Phishing Attempts by Impersonating Email and Training Website from Bank Negara Malaysia Release Date: 19 Mar 2019 Bank Negara Malaysia (the Bank) is aware of an email being circulated purportedly advertising complimentary training programmes offered by Bank Negara Malaysia. The email also includes a URL that redirects to a website that claims to be Bank Negara Malaysia’s Training Portal. The email (support@bnm-training.com) and website (https://bnm-training.com/course) are not associated with Bank Negara Malaysia. Please do not open any attachments or links in the email if you have received it. Members of the public are advised to ignore such messages or anything similar. This is to protect them from becoming victims of phishing, identity theft or malicious malware. The “complimentary” programme requires the provision of personal data such as full name, Mykad number, employee number, company name and contact details. Please be warned that this is a ‘phishing’ attempt to obtain sensitive personal information. Please note that the Bank will never request for personal information or clarification via SMS, telephone call, email, social media or any messaging app. The public is advised to contact BNMTELELINK at 1300-88-5465 or email bnmtelelink@bnm.gov.my to report or enquire on suspicious text messages, emails or instant messages received that are related to the Bank.   NOTE: Phishing is the attempt to acquire sensitive and personal information from unsuspecting individuals, usually for malicious reasons, by disguising as a legitimate institution in a form of communication, such as email.   A snapshot of the email and website is as follows: © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

14 Mar 2019

Bank Negara Malaysia Scholarship Programme 2019 / 2020 Shaping The Nation’s Best

https://www.bnm.gov.my/-/bank-negara-malaysia-scholarship-programme-2019-/-2020-shaping-the-nation-s-best

Reading: Bank Negara Malaysia Scholarship Programme 2019 / 2020 Shaping The Nation’s Best Share: Bank Negara Malaysia Scholarship Programme 2019 / 2020 Shaping The Nation’s Best Release Date: 14 Mar 2019 The online application for Bank Negara Malaysia Scholarship 2019 / 2020 will begin on 16 March 2019. For more information on requirements, field of studies and how to apply, kindly visit: bnm.my/scholarship2019.   © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

08 Mar 2019

Enforcement Action Against Illegal Money Services Business Operators in Kedah and Perlis

https://www.bnm.gov.my/-/enforcement-action-illegal-msb-08032019

Reading: Enforcement Action Against Illegal Money Services Business Operators in Kedah and Perlis Share: Enforcement Action Against Illegal Money Services Business Operators in Kedah and Perlis Release Date: 08 Mar 2019 On 7 March 2019, Bank Negara Malaysia (BNM) charged four individuals at the Alor Setar and Kangar Sessions Courts for conducting money changing activities without a license under section 7(1) of Money Services Business Act 2011 (MSBA), which is an offence under section 4(1) of MSBA. Two of the accused pleaded guilty to the charges and were sentenced as follows: Alor Setar Sessions Court Lee Boon Kian (NRIC: 600422-02-5187): Fine of RM60,000 (in default 12 month imprisonment) for an offence under section 4(1) of MSBA. In addition, he was also fined RM30,000 (in default 6 month imprisonment) for use of the words ‘money service business’ without approval, an offence under section 23(1) of the MSBA. Lee Ai Choo (NRIC: 681231-02-5480): Fine of RM60,000 (in default 12 month imprisonment). At the same Court, another accused, Kok Eng Huat (NRIC: 561227-02-5545) claimed trial and the Court set bail at RM30,000 with one surety. The next mention date is fixed on 28 March 2019. Kangar Sessions Court The accused, Chin Foh Lean (NRIC: 501227-02-5284) claimed trial and the Court set bail at RM50,000 with one surety. The next mention date is fixed on 9 April 2019. Foreign currencies found in the premises were also seized for further investigation under Section 4(1) of Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001. The premises run by the individuals above in Bukit Kayu Hitam, Kedah and Padang Besar, Perlis were raided on 3 March 2019 in collaboration with the Royal Malaysia Police. The raiding exercise is part of the continuous enforcement actions undertaken by BNM to protect members of the public against potential financial losses when dealing with unlicensed entities. As such, members of the public are advised not to deal or conduct any money changing or remittance transactions with illegal money services business operators and their agents. Any person who conducts transactions with an illegal money services business operator does so at his own risk, and appropriate legal action can be taken against him by the relevant authorities. Members of the public are advised to refer to the list of licensed money services business operators on BNM's website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

14 Feb 2019

Enforcement Action Against Illegal Money Services Business Operators in Kuala Lumpur

https://www.bnm.gov.my/-/enforcement-action-illegal-msb-14022019

Reading: Enforcement Action Against Illegal Money Services Business Operators in Kuala Lumpur Share: Enforcement Action Against Illegal Money Services Business Operators in Kuala Lumpur Release Date: 14 Feb 2019 On 12 February 2019, Bank Negara Malaysia (BNM) raided eight premises conducting money changing and remittance business activities without a license granted under section 7(1) of Money Services Business Act 2011 (MSBA), which is an offence under section 4(1) of MSBA. Any person or company who commits an offence under section 4(1) of the MSBA shall, on conviction, be liable to a fine not exceeding RM5 million or to imprisonment for a term not exceeding 10 years or to both. Relevant documents and computer peripherals were seized for the purpose of assisting investigations. The raids were conducted at premises located along Jalan Tuanku Abdul Rahman and Jalan Dato’ Keramat, Kuala Lumpur. The entities are: Anver Cahaya Enterprise (002422813-D) Kawzar Enterprise (002222493-K) Mabruk Mohaideen Enterprise (PG0413789-U) Nisha Khan Enterprise (002616692-V) Rifai Maju Enterprise (002689961-X) B First Resources (002581856-X) Money Me@Hotel Kita (945197-U) Nur Ekspress Enterprise (002392685-H) The raiding exercise was conducted in collaboration with the Royal Malaysia Police and the Immigration Department of Malaysia (JIM). Five illegal immigrants who were involved in manning the premises and customers of the illegal entities were detained by JIM for investigations under the Immigration Act 1959/63 (Act 155). The raiding exercise is part of the continuous enforcement actions undertaken by BNM to protect members of the public against potential financial losses when dealing with unlicensed entities. As such, members of the public are advised not to deal or conduct any money changing or remittance transactions with illegal money services business operators and their agents. Any person who conducts transactions with an illegal money services business operator does so at his own risk, and appropriate legal action can be taken against him by the relevant authorities. Members of the public are advised to refer to the list of licensed money services business operators on BNM's website (www.bnm.gov.my). © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice

25 Jan 2019

Requirements for Directors and Chief Executive Officers to Attend the Money Services Business Directors Education Programme (MSB-DEP)

https://www.bnm.gov.my/-/req-director-ceo-to-attend-msb-eduprogramme

https://www.bnm.gov.my/documents/20124/761679/Circular+on+MSB+DEP+18+Jan+2019+FINAL+%28sanitised+for+website%29.pdf

Reading: Requirements for Directors and Chief Executive Officers to Attend the Money Services Business Directors Education Programme (MSB-DEP) Share: Requirements for Directors and Chief Executive Officers to Attend the Money Services Business Directors Education Programme (MSB-DEP) Release Date: 25 Jan 2019 Issuance Date 22 January 2019   Effective Date 22 January 2019   Applicability Money services business (MSB) licensees under the Money Services Business Act 2011.   Summary This circular requires MSB licensees with an annual turnover of RM30 million and above to ensure that their directors and CEOs attend the Money Services Business Directors Education Programme (MSB–DEP), with the view to enhance their levels of competency and capability to provide effective oversight on and strategic direction to the company.   Issuing Department Money Services Business Regulation Department Click here to view. © 2024 Bank Negara Malaysia. All rights reserved.

JPPPW/POL/2400/02 22 Januari 2019 Pemegang Lesen Perniagaan Perkhidmatan Wang Tuan/Puan Requirements for Directors and Chief Executive Officers to Attend the Money Services Business Directors Education Programme (MSB–DEP) This circular is issued pursuant to section 74(1) of the Money Services Business Act 2011 (MSBA). The circular is applicable to all licensees and takes effect from 22 January 2019. 2. To ensure that money services business (MSB) activities are conducted professionally and in compliance with applicable laws and requirements, key responsible persons of a licensee such as directors and Chief Executive Officers (CEO) play a critical role in promoting sound governance, financial and management practices. 3. In support of this, the ICLIF Leadership and Governance Centre (ICLIF) and the Malaysian Association of MSB (MAMSB) have jointly developed the MSB–DEP. The objectives of the MSB–DEP are to: a) promote greater clarity on the roles and responsibilities of MSB directors and CEOs in discharging their functions; b) foster more effective boardroom governance and processes in providing continuous oversight and strategic direction to the licensee; c) assist the board of directors to embed a strong risk management and compliance culture for the licensee; d) enhance the board of directors’ effectiveness in deliberations on licensees’ affairs and decision making; and e) equip directors and CEOs with the ability to recognise and evaluate wide-ranging issues and their impact on risk and corporate strategy. 4. All licensees with an annual turnover of RM30 million and above are required to ensure that their directors and CEOs enrol into and attend the MSB–DEP in accordance with the timelines specified as follows: Requirements Timelines For directors and CEOs appointed: a) Prior to and on the effective date of this circular  Enrol into the programme  By 31 March 2019  Attend the programme  By 31 March 2021 b) After the effective date of this circular  Enrol into the programme  Within 2 months of his / her appointment  Attend the programme  Within 12 months of the enrolment date For broader exposure in the area of governance, directors and CEOs may opt for the Financial Institutions Directors’ Education (FIDE) programme offered by ICLIF, as an alternative to the MSB–DEP. 5. Licensees with an annual turnover of below RM30 million are encouraged to attend the MSB–DEP. Notwithstanding this, Bank Negara Malaysia reserves the right to require a licensee to ensure its directors and CEO attend the MSB–DEP programme, based on supervisory and other considerations. 6. Any non-compliance with the requirements in this circular will be subject to appropriate actions as provided under the MSBA.

Public Notice

14 Jan 2019

Policy Document on Investment-linked Business

https://www.bnm.gov.my/-/policy-doc-investmentlinked-business-14012019

https://www.bnm.gov.my/documents/20124/761679/Response+to+Feedback+20190111.pdf, https://www.bnm.gov.my/documents/20124/761679/pd_ILBusiness_Jan2019.pdf

Reading: Policy Document on Investment-linked Business Share: Policy Document on Investment-linked Business Release Date: 14 Jan 2019 This policy document sets out strengthened requirements on the conduct of investment-linked (IL) business with the primary objective to protect the interests of consumers. The salient requirements are as follows: Implementation of standards on Minimum Allocation Rates to protect the account values of IL policy/certificate owners; Minimum standards on sustainability tests and communication to policy/certificate owners to improve long term persistency of IL policies/certificates and consumer awareness; and Strengthened disclosure standards on product illustration to facilitate more informed decision-making by consumers.   See also: Investment-linked Business Response to feedback received © 2024 Bank Negara Malaysia. All rights reserved.

. R A K A N K E W A N G A N A N D A B I L . 1/2019 12 Perancangan Kewangan Individu untuk tahun 2019 Panduan Kewangan Berkesan Untuk Pasangan Muda PERCUMA | PP 16897/05/2013 (032581) DuitNow – Apa Yang Anda Perlu Tahu Transaksi Tanpa Tunai Yang Selamat Sistem e-pembayaran merupakan kaedah melakukan transaksi barangan dan perkhidmatan melalui sistem pembayaran elektronik atau sistem pembayaran dalam talian. Sistem pembayaran elektronik telah berkembang sejak sedekad yang lalu disebabkan oleh kepesatan dalam sektor perbankan dan peningkatan pembelian melalui internet. Ketika dunia semakin maju dengan pembangunan teknologi, sistem pembayaran elektronik dan peranti pemprosesan pembayaran turut mengalami perubahan yang pesat. Bank Negara Malaysia (BNM) mentakrifkan wang elektronik (e-money) sebagai instrumen pembayaran yang menyimpan dana secara elektronik sebagai tukaran kepada dana yang dibayar kepada pengeluar wang elektronik dan boleh digunakan untuk membuat pembayaran kepada mana-mana pihak selain pengeluar wang elektronik tersebut. Wang elektronik boleh dikeluarkan dalam pelbagai bentuk, sama ada berasaskan kad atau rangkaian (seperti dompet elektronik menerusi peranti mudah alih). Dana terkumpul wang elektronik akan disimpan di dalam akaun amanah / akaun deposit yang dikhususkan di institusi kewangan berlesen. Pengeluar wang elektronik adalah dilarang untuk membayar faedah atau keuntungan ke atas baki wang elektronik dan menggunakan wang elektronik untuk memberi pinjaman kepada orang lain. Penggunaan e-money adalah lebih selamat, mudah dan boleh dikesan. Selain itu, kesilapan yang dilakukan oleh juruwang juga dapat dikurangkan. Kad debit dan kad kredit adalah pilihan transaksi tanpa tunai yang paling lazim digunakan di Malaysia. Transaksi mudah alih menjadi semakin popular dengan jumlah perniagaan dalam talian yang semakin meningkat. Selain itu, teknologi baharu telah dilengkapi dengan kad pembayaran dan penggunaan telefon pintar dengan ciri pembayaran tanpa sentuh. Ciri-ciri ini mempercepatkan proses pembayaran. Dalam kaji selidik yang dijalankan oleh Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh pada setiap bulan. Kad yang dimuatkan dengan wang tunai boleh digunakan untuk membayar tol di lebuh raya dan tempat letak kereta. Kini ia telah berkembang untuk digunakan dalam rangkaian runcit, restoran, pengangkutan awam dan penjagaan kesihatan. Walaupun sistem tanpa tunai semakin meningkat dan diterima secara lebih meluas, terdapat beberapa halangan terhadap perkembangannya. Sistem tanpa tunai masih belum diterima sepenuhnya oleh sektor perniagaan. Masih terdapat sektor perniagaan yang menerima wang tunai sahaja. Oleh itu, walaupun pengguna mungkin telah dilengkapi instrumen tanpa tunai, pembekal dan peniaga perlu menukar polisi mereka sebelum transaksi tanpa tunai dapat dilaksanakan sepenuhnya. Walaupun ramai pengguna Malaysia yang menggunakan sistem tanpa tunai, khususnya dalam kalangan masyarakat di bandar, masih ramai juga pengguna yang bergantung kepada wang tunai, terutama masyarakat yang tinggal di luar bandar. Usaha untuk mengubah minda dan menanam keyakinan terhadap sistem tanpa tunai mungkin mengambil sedikit masa. Kajian Visa Inc. juga mendapati semakin ramai rakyat Malaysia yang yakin dengan sistem tanpa tunai. Enam daripada sepuluh responden mengatakan mereka akan menggunakan sistem tanpa tunai sepanjang masa. Dalam Transaksi Tanpa Tunai Yang Selamat “Dalam kaji selidik Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh setiap bulan.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Dalam kaji selidik Visa Inc. mendapati lebih daripada tiga juta transaksi tanpa sentuh setiap bulan.” kajian yang sama seterusnya, menunjukkan bahawa lebih daripada 50% rakyat Malaysia mempunyai lebih banyak kad pembayaran berbanding dua tahun lalu, dengan separuh daripada responden memilih pembayaran tanpa tunai atau tanpa sentuh. Pengguna juga perlu menyedari akan risiko sistem pembayaran tanpa tunai dan perlu mempunyai pengetahuan untuk melindungi diri mereka sendiri. Antara risiko yang perlu dihadapi ialah: • Penipu menggunakan aplikasi pembayaran dalam talian palsu di pasaran yang boleh mencuri butir-butir peribadi dan perbankan anda seperti ID log masuk dan kata laluan perbankan, nombor kad kredit / debit, dan lain-lain. • Penipu mewujudkan laman sesawang palsu. Laman sesawang ini kelihatan sama seperti laman sesawang perbankan atau portal membeli-belah yang akan memancing dan mencuri maklumat anda. Penipu boleh menggunakan maklumat tersebut untuk mengugut anda. • Anda mungkin menerima e-mel dengan pautan yang menawarkan diskaun jika anda membeli barangan dari laman sesawang tertentu. E-mel tersebut mungkin e-mel palsu yang akan mengarahkan anda ke laman sesawang palsu atau dijangkiti perisian hasad (malware). • Anda juga boleh menerima SMS atau mesej WhatsApp yang mengesyorkan anda memuat turun aplikasi mudah alih untuk pembayaran dalam talian. Ini juga boleh jadi palsu. bil. 1/2019 | 3 tanpa OTP / TAC. Oleh yang demikian, jangan sekali- kali berkongsi OTP / TAC anda dengan pihak ketiga. 7. Sentiasa pilih kata laluan yang kukuh untuk akaun pada aplikasi perbankan internet atau pembayaran dalam talian. Pastikan kata laluan anda sekurang- kurangnya mengandungi lapan aksara, mempunyai gabungan huruf besar dan kecil, nombor dan simbol. Contohnya, ‘Cool15is@King’ 8. Elakkan membuat transaksi tanpa tunai daripada komputer awam seperti di kafe siber. 9. Jangan gunakan rangkaian Wi-Fi yang tidak selamat untuk membuat bayaran dalam talian. Melakukannya mungkin membiarkan penyerang mencuri maklumat anda. 10. Pasang penyelesaian antivirus pelbagai lapisan dengan ciri-ciri seperti di bawah: • Menyekat laman sesawang palsu, penipuan atau dijangkiti perisian hasad. • Menyekat e-mel yang membawa pautan atau lampiran yang berniat jahat. • Penyemak imbas selamat untuk transaksi perbankan dan membeli-belah yang selamat. 11. Pasang aplikasi keselamatan mudah alih yang boleh: • Menghalang aplikasi palsu atau berniat jahat daripada dipasang pada telefon pintar anda. • Menghalang akses ke laman sesawang palsu dan dijangkiti perisian hasad. • Membolehkan anda mengunci aplikasi anda (aplikasi pembayaran dalam talian seperti PayTm) dengan kata laluan untuk mengelakkan sebarang penyalahgunaan. E-money dan e-wallet boleh melengkapkan penggunaan kad kredit dan kad debit untuk mempercepatkan proses pemindahan wang tunai dan cek di Malaysia. Sumber: FOMCA • Rangkaian Wi-Fi yang bebas, tidak selamat boleh direka oleh penipu untuk menipu pengguna yang tidak berhati-hati. Panduan untuk transaksi tanpa tunai yang selamat: 1. Muat turun aplikasi pembayaran dalam talian hanya dari kedai rasmi seperti Google Play Store dan Apple Play Store. 2. Sebelum anda memuat turun sebarang aplikasi, dapatkan pengesahan mengenai pembuat aplikasi tersebut. Baca juga ulasan daripada penggunanya. 3. Lebih penting lagi, baca kebenaran yang diminta oleh aplikasi. Jika aplikasi tersebut meminta lebih banyak maklumat daripada apa yang sepatutnya, maka lebih baik jangan memuat turun aplikasi tersebut. 4. Jangan sekali-kali mengunjungi laman sesawang perbankan atau membeli-belah dalam talian dengan menggunakan pautan yang diterima melalui e-mel atau pesanan ringkas. 5. Pilih laman sesawang yang anda yakini untuk membuat pembayaran anda. 6. Memastikan terdapat dua bentuk pengesahan untuk transaksi perbankan melalui internet melalui pembayaran menggunakan kad kredit / debit anda. Ini bererti apabila anda membuat pembayaran, anda akan diminta untuk mengesahkan diri anda sebanyak dua kali. Sebagai contoh, semasa membayar melalui perbankan internet, anda akan memasukkan ID dan kata laluan masuk dan juga OTP / TAC (kod yang dihantar ke nombor mudah alih berdaftar anda) sebelum anda dapat membuat pembayaran akhir. Oleh itu, walaupun penipu berjaya mencuri maklumat perbankan anda, mereka tidak akan dapat melakukan 4 | RINGGIT Semenjak 8 Oktober 2018, ramai pengguna menerima khidmat pesanan ringkas (SMS) daripada bank mereka untuk membuat pendaftaran perkhidmatan DuitNow. Ini menimbulkan kekeliruan sama ada SMS yang diterima mereka adalah sahih atau sebaliknya. SMS berkenaan adalah sebagai pra-pelancaran untuk memperkenalkan perkhidmatan tersebut, sekali gus memudahkan pendaftaran bagi pihak pelanggan bank. DuitNow adalah perkhidmatan perbankan terbaharu yang diperkenalkan oleh Payments Network Malaysia Sdn Bhd (PayNet). PayNet juga sebelum ini telah menerajui beberapa perkhidmatan perbankan, antaranya MEPS untuk pengeluaran duit melalui ATM dan JomPay yang memudahkan pembayaran bil. Apakah DuitNow? D u i t N o w m e r u p a k a n perkhidmatan perbankan baharu yang memudahkan pengguna menerima dan membuat pindahan wang kepada pihak ketiga secara selamat dan tidak terikat kepada penggunaan nombor akaun bank semata-mata. Melalui DuitNow, pengguna boleh memautkan nombor telefon bimbit, nombor kad pengenalan awam (MyKad), nombor kad pengenalan tentera / polis atau nombor passport (untuk bukan warganegara) ke akaun bank mereka. Selepas memautkannya, pengguna boleh menerima pembayaran terus ke akaun mereka. Langkah ini sekali gus telah memudahkan beberapa proses pembayaran. Selain itu, penggunaan DuitNow juga akan memudahkan syarikat atau agensi kerajaan untuk membayar terus ke dalam akaun anda menggunakan nombor pengenalan diri (ID) anda tanpa perlu meminta nombor akaun bank. Hal yang sama juga sekiranya pihak kerajaan ingin melakukan sesuatu pembayaran terus kepada rakyat. Simpanan rekod juga menjadi lebih mudah dengan menggunakan DuitNow. Pada masa yang sama, DuitNow turut menyokong akaun perbankan milik syarikat. Syarikat boleh memautkan nombor pendaftaran syarikat mereka ke akaun bank dan seterusnya menerima pembayaran yang dibuat ke nombor pendaftaran syarikat mereka. Ini juga boleh meningkatkan kadar keyakinan pembeli terhadap syarikat berkenaan. Secara keseluruhan, DuitNow dilihat sebagai langkah PayNet untuk memudahkan pengguna mengingati maklumat penerima pembayaran. Bagaimanakah DuitNow Berfungsi? DuitNow berfungsi seperti perbankan normal yang memerlukan pengguna memasukkan nombor telefon bimbit atau nombor (ID) pada ruang penerima, seterusnya memasukkan amaun yang ingin dipindahkan. Seperti pembayaran biasa, pengguna akan dibawa ke skrin seterusnya untuk mengesahkan maklumat penerima seperti nama penerima. Sebaik sahaja disahkan, pemindahan wang akan dilakukan seperti sedia kala. DuitNow Apa Yang Anda Perlu Tahu bil. 1/2019 | 5 DuitNow menawarkan pemindahan percuma untuk nilai bawah RM5,000. Menurut PayNet, sekiranya nombor telefon bimbit atau ID tidak dipautkan ke nombor akaun, maka ia akan memaparkan mesej yang menunjukkan penerima berkenaan tidak wujud, sekali gus tidak membolehkan anda membuat pemindahan wang. Penggunaan Nombor Telefon Bimbit / ID Setiap nombor telefon bimbit atau ID boleh dipautkan ke satu bank sahaja. Sebagai contoh, sekiranya anda telah menerima SMS berkenaan nombor telefon yang dipautkan ke akaun Maybank, maka anda tidak boleh menggunakan nombor telefon yang sama untuk akaun bank lain. Anda perlu membatalkan pendaftaran tersebut terlebih dahulu sebelum dapat menggunakannya untuk perkhidmatan perbankan lain. Perkara yang sama juga untuk ID anda. Pada masa ini, pendaftaran dan pembatalan pendaftaran diuruskan melalui bank secara dalam talian atau menggunakan aplikasi mudah alih sahaja. Jaminan Keselamatan Dengan penggunaan nombor telefon bimbit, ramai yang risau mereka akan tersilap dan melakukan pemindahan wang tanpa sengaja. Anda tidak perlu risau kerana pemindahan wang melalui DuitNow ini hanya satu hala sahaja dengan menggunakan perbankan dalam talian atau aplikasi mudah alih. Pengguna hanya boleh menerima pembayaran menggunakan nombor telefon bimbit atau ID mereka. Pengguna tidak boleh melakukan pembayaran menggunakan nombor telefon bimbit, sebaliknya perlu melakukannya melalui akaun bank mereka seperti biasa. Melangkah ke Hadapan Pengenalan DuitNow ini dijangka akan menjadi titik tolak untuk sejumlah perkhidmatan lain dalam arena kewangan. Sebagai contoh, dengan pengenalan DuitNow ini juga kita mungkin akan dapat melihat PayNet menggunakan kerangka sama dalam pengenalan sistem kod QR universal yang dinantikan ramai. Malah, ia juga mungkin memudahkan syarikat teknologi kewangan lain dalam mengintegrasikan kemudahan pembayaran, dan menambah baik penawaran masing-masing. Sumber: Amanz.my “Setiap nombor telefon bimbit atau ID boleh dipautkan ke satu bank sahaja. Sebagai contoh, sekiranya anda telah menerima SMS berkenaan nombor telefon yang dipautkan ke akaun Maybank, maka anda tidak boleh menggunakan nombor telefon yang sama untuk akaun bank lain. ” 6 | RINGGIT Majlis perkahwinan yang mewah adalah idaman hampir setiap pasangan kerana ia berlaku mungkin hanya sekali dalam seumur hidup. Namun begitu, dalam merancang majlis perkahwinan dan rumahtangga, ramai pasangan muda melakukan kesilapan dalam pengurusan kewangan yang boleh menjejaskan masa hadapan mereka. Sediakan diri anda untuk kebahagiaan rumahtangga dan kebebasan kewangan dengan mengikuti panduan untuk pasangan muda. 1. Fahami Bagaimana Pasangan Anda Membelanjakan Wang Wang boleh menjadi isu sensitif bagi semua pihak, tidak terkecuali p a s a n ga n m u d a . S e t i a p pasangan harus memahami hubungan masing-masing dengan wang sebelum mengambil keputusan u n t u k b e r k o n g s i komitmen kewangan bersama-sama. Anda harus mengetahui t a b i a t b e r b e l a n j a pasangan anda. Dengan memahami sifat pasangan anda tentang wang, anda boleh merancang hal kewangan dengan lebih berkesan. 2. Bincang Soal Wang Sebelum Berkahwin Hari perkahwinan adalah hari paling penting dalam kehidupan anda bersama. Walau bagaimanapun, realiti hanya akan datang selepas majlis tersebut berakhir. Jadi, anda harus berbincang tentang soal komitmen jangka masa panjang sebelum anda melangkah ke pelamin. Adakah anda berdua mahu menjadi rakan kongsi yang setara dalam hal kewangan atau perkongsian setara itu mustahil? Apa yang penting di sini ialah komunikasi yang kerap dan jujur. Bincangkan sejarah dan matlamat kewangan masing- masing, termasuklah topik yang digeruni iaitu hutang bersama. Lebih awal anda mencapai kata sepakat dengan pasangan anda, lebih senang perhubungan anda dengan pasangan anda dalam aspek kewangan. 3. Bincangkan Matlamat Kewangan Jangka Masa Panjang Matlamat kewangan boleh berubah dari semasa ke semasa. Ia bukan satu ketetapan pasti yang dicapai dengan hanya satu perbincangan. Luangkan masa setiap bulan untuk duduk berbincang tentang soal wang, Panduan Kewangan Berkesan Untuk Pasangan Muda bil. 1/2019 | 7 menilai keadaan dan mengatur semula matlamat kewangan bersama. Perbincangan bulanan ini adalah masa yang terbaik untuk berbincang tentang kereta baharu yang diidamkan atau percutian ke luar negara yang diimpikan. Jika anda berdua jelas tentang apa yang anda mahukan, lebih mudah bagi anda merealisasikan matlamat bersama. 4. Mulakan Belanjawan Yang Realistik (Dan Berpegang Padanya) Memulakan satu belanjawan yang konsisten mampu membantu anda dan pasangan pada masa hadapan. Langkah pertama ialah dengan mel ihat ga j i bu lanan dan perbelanjaan masing-masing. Jika anda sedang merancang perkahwinan, fikirkan jumlah yang mampu dibelanjakan dan jumlah yang boleh disimpan. Cara terbaik untuk merancang belanjawan bagi perkahwinan ialah dengan mengurangkan jumlah pendapatan dan melebihkan anggaran kos di dalam belanjawan anda. Di samping itu, anda juga masih perlu menyimpan untuk keperluan kecemasan. 5. Sejajarkan Pelan Simpanan Persaraan ANDA Persaraan yang selesa boleh dimiliki dengan merancang lebih awal. Setiap pasangan perlu menelit i pelan persaraan daripada majikan masing- masing dan pastikan setiap manfaat yang ada daripada pelan tersebut digunakan. 6. Pastikan Komunikasi Anda Jujur Dan Terbuka Dalam perhubungan dan juga kehidupan, amat penting bagi kita memastikan komunikasi adalah jujur dan terbuka. Apa sahaja isu yang tersorok tentang hutang atau perbelanjaan pastinya akan mendatangkan kerumitan dan merosakkan pelan kewangan bersama. Oleh itu, pastikan anda mengamalkan perbualan terbuka dalam “janji temu kewangan” bulanan anda. Inilah peluang bagi anda menilai semula pelan kewangan bersama agar ia memenuhi kehendak dan gaya hidup anda. 7. Mulakan Perancangan Keluarga Dari Awal Anda perlu bersedia untuk menimang cahaya mata. Namun begitu, kos membesarkan anak di Malaysia agak tinggi. Pe ra n ca n ga n ya n g i d e a l perlu bermula sebelum anak dilahirkan agar anda mempunyai masa untuk membina kekuatan kewangan sebagai persediaan untuk menghadapi waktu tersebut. 8. Bersedia Untuk Menghadapi Apa Jua Keadaan Kadangkala anda akan menghadapi situasi yang tidak dijangka seperti mesin basuh atau kenderaan rosak ataupun yang melibatkan soal kesihatan. Amat penting bagi anda memiliki sejumlah wang yang mampu menolong anda dalam situasi ‘kemalangan’ yang lazimnya muncul entah dari mana. Apabila anda merancang untuk berkahwin dan memulakan keluarga, soal kematian juga perlu difikirkan. Seeloknya anda memiliki insurans nyawa atau takaful keluarga agar pasangan anda dapat dilindungi jika anda tiada kelak. 9. Melabur Dengan Bijak Memulakan sesuatu pelaburan tidak memerlukan modal jutaan ringgit di dalam bank. Bagaimanapun, ia memerlukan fokus jangka masa panjang untuk anda membina aset bersama. Pelaburan anda mungkin bermodal serendah RM5,000 tetapi pastikan anda melaburkan jumlah yang anda selesa pada set iap bu lan. In i termasuk membina jaring keselamatan dengan jumlah gaji selama enam bulan sebelum anda memulakan portfolio pelaburan anda. Sumber: www.aia.com.my 8 | RINGGIT Perancangan Kewangan Individu Untuk Tahun 2019 Setiap individu perlu mempunyai perancangan kewangan individu sendiri terutama ketika menghadapi keadaan ekonomi yang kurang memberangsangkan. Tujuan perancangan kewangan individu perlu diadakan adalah supaya anda dapat mengurus kewangan dengan baik dan tidak terlibat dalam masalah hutang yang berlebihan. Berikut adalah 12 intipati perancangan kewangan individu yang anda perlu tahu. 1. Mencukupkan Simpanan Kecemasan Simpanan kecemasan sangat penting kerana keadaan ekonomi yang tidak menentu. Antara p e r ka ra ya n g b o l e h berlaku dan memerlukan simpanan kecemasan ialah seperti kehilangan pekerjaan dan kos sara hidup yang tinggi. 2. Meningkatkan Simpanan Percutian Bagi individu yang sudah berkeluarga, aktiviti percutian atau beriadah bersama- s a m a k e l u a r g a memerlukan kos yang tinggi. Oleh itu, anda perlu menyediakan satu simpanan untuk perbelanjaan aktiviti percutian. 3. Simpanan Perbelanjaan Tetap Tahunan Antara perbe lan jaan t e ta p ta h u n a n ya n g w a j i b a d a a d a l a h seperti memperbaharui cukai dan insurans / takaful kenderaan dan p e r b e l a n j a a n m u s i m perayaan seperti hari raya. 4. Simpanan Perbelanjaan Persekolahan Anak-Anak P e r b e l a n j a a n perseko lahan anak- anak adalah termasuk kos pembelian barang k e p e r l u a n s e p e r t i p a ka i a n , b u k u d a n alat tulis, selain kos p e n g a n g k u t a n d a n perbelanjaan harian anak-anak di sekolah. bil. 1/2019 | 9 Sumber: www.duitkertas.com 5. Dana Pendidikan Anak- Anak S e l a i n s i m p a n a n perbelanjaan sekolah, a n d a j u g a p e r l u menyediakan satu dana pendidikan tinggi untuk anak-anak. Dana pendidikan ini akan m e m b a n t u u n t u k memudahkan anak anda mendaftar ke institut pengajian tinggi tanpa perlu membuat pinjaman pendidikan. 6. Dana Persaraan Jika anda sudah mempunyai dana persaraan melalui pencen atau simpanan KWSP, anda perlu tingkatkan lagi dana persaraan melalui instrumen lain bagi memastikan dana persaraan anda mencukupi walaupun kos sara hidup meningkat. 7. Dana Derma Kos sara hidup yang meningkat bukanlah satu alasan untuk anda berhenti membuat dana tabung derma. 8. Menambah Aset Ramai yang membuat spekulasi bahawa harga rumah akan turun pada tahun ini dan juga tahun h a d a p a n . I n i a d a l a h peluang terbaik anda untuk menambah aset seperti pembelian rumah. 9. Mempelbagaikan Pelaburan Anda perlu mempelbagaikan pelaburan supaya anda tidak bergantung kepada satu instrumen pelaburan sahaja untuk memperoleh pulangan keuntungan yang diharapkan. 10. Menyediakan Penggantian Dan Perlindungan Pendapatan Anda perlu menyediakan satu pelan penggantian d a n p e r l i n d u n g a n p e n d a p a t a n u n t u k k e l u a r g a a n d a . Penggantian ini akan membantu keluarga anda sekiranya berlaku sesuatu yang tidak diingini atas diri anda. Contohnya, anda perlu mempunyai perlindungan insurans / takaful yang menyediakan keluarga dari segi kewangan jika sesuatu berlaku terhadap diri anda. 11. Menambah Sumber Pendapatan Pada masa kini, setiap individu hanya berpeluang untuk menambah sumber pendapatan secara separuh masa. Jadikan media sosial sebagai platform untuk anda meningkatkan pendapatan. 12. Pengurangan Hutang Jika masih ada lagi hutang- hutang kecil seperti kad kredit dan hutang peribadi, anda perlu selesaikan segera. Jadikan tahun 2019 sebagai tahun bebas hutang kecil anda. Hidup anda akan lebih tenang tanpa hutang-hutang kecil tersebut. 10 | RINGGIT Hak Sebagai Peminjam Wang Berlesen Ramai dalam kalangan pengguna yang kurang arif mengenai cara-cara untuk membuat pinjaman wang daripada syarikat pemberi pinjam wang berlesen. Ramai pengguna mengadu bahawa mereka telah ditipu oleh syarikat pemberi pinjam wang yang mengenakan kadar faedah yang terlampau tinggi. Mereka juga tidak diberikan sesalinan surat perjanjian. Untuk mengelakkan insiden tersebut, pengguna dinasihati supaya tidak terburu-buru membuat pinjaman. Mereka perlu menyiasat terlebih dahulu latar belakang sesebuah syarikat yang menawarkan perkhidmatan pinjaman wang. Menurut Akta Pinjaman Wang 1951 (Akta 400), pemberi pinjam wang (PPW) ialah mana-mana orang yang menjalankan perniagaan pinjaman wang yang didaftarkan di bawah Akta Pinjaman Wang 1951. PPW perlu mematuhi syarat-syarat yang ditetapkan dalam akta tersebut. Sebagai contoh, menurut seksyen 18 Akta 400, PPW hendaklah menyimpan dengan teratur tiap-tiap akaun peminjam. Akaun tersebut hendaklah ditulis dalam turutan dengan angka dan perkataan yang jelas. Akaun tersebut tidak boleh memudahkan penghapusan, penyisipan atau penggantian mana-mana muka surat. Mana-mana PPW yang tidak mematuhi kehendak tersebut tidak boleh menguatkuasakan tuntutan-tuntutan mereka. Peminjam pula hendaklah diberikan pernyataan atau maklumat yang tidak mengelirukan bagi setiap pinjaman yang dibuat. Setiap pinjaman hendaklah menggunakan borang pinjaman yang ditetapkan oleh Kementerian Perumahan dan Kerajaan Tempatan (KPKT) sahaja, selaku pengawal selia PPW, iaitu Jadual J (pinjaman tanpa cagaran) atau Jadual K (pinjaman dengan cagaran). Peminjam berhak untuk diberikan satu salinan perjanjian secara percuma. Peminjam juga hendaklah mendapatkan resit bayaran bagi setiap bayaran balik pinjaman yang dibuat. Peminjam turut diingatkan supaya tidak menandatangani borang perjanjian yang kosong. Sebarang transaksi pembayaran pinjaman hendaklah diterima selepas perjanjian diisi penuh, dimatikan setem dan pembayaran dibuat di pejabat PPW yang berkenaan. Jika peminjam gagal menjelaskan hutang kepada PPW: a) Mengikut perjanjian pinjaman di bawah tajuk ‘hak tindakan’, jika peminjam gagal melunaskan hutangnya d a l a m t e m p o h 28 hari selepas tempoh genap tarikh bayaran ansuran atau melakukan perbuatan kebangkrapan secara terpaksa atau sukarela, PPW berhak untuk menamatkan perjanjian tersebut; b) PPW dikehendaki memberi notis 14 hari bagi tujuan menamatkan perjanjian itu; c) Jika dalam tempoh tersebut peminjam tidak dapat juga menjelaskan hutangnya, PPW berhak untuk menamatkan perjanjian tersebut; d) Tindakan menuntut baki jumlah hutang termasuk faedah serta lain-lain kos guaman dan mahkamah akan dituntut oleh pihak PPW di mahkamah; dan e) Jika pinjaman bercagar, PPW berhak ke atas cagaran tersebut mengikut proses undang-undang. Pengguna boleh mengetahui perbezaan antara PPW yang sah atau haram melalui iklan. Mengikut Peraturan 8, Peraturan-peraturan Pemberi Pinjam Wang (Kawalan dan Perlesenan), setiap iklan sama ada dalam bentuk papan iklan, kain pemidang atau kad mesti mengandungi butir-butir berikut: a) Nombor lesen PPW dan tarikh pengesahannya; b) Nombor permit iklan; c) Nama, alamat dan nombor telefon PPW berlesen; dan d) Kadar faedah yang ditawarkan. Cara lain untuk peminjam mengenal pasti sama ada sesuatu premis itu menjalankan perniagaan pemberi pinjam wang secara sah adalah melalui portal KPKT, di alamat www.kpkt.gov.my atau boleh berhubung terus melalui talian telefon 03-8000 8000, atau datang sendiri ke Bahagian Pemberi Pinjam Wang dan Pemegang Pajak Gadai, Kementerian Perumahan dan Kerajaan Tempatan, Aras 22, No. 51, Persiaran Perdana, Presint 4, Putrajaya. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 1/2019 | 11 imSME_A4 (bleed).pdf 1 15/3/2019 4:53:56 AM

Public Notice

14 Jan 2019

Financial Consumer Alert: List of unauthorised companies and websites has been updated.

https://www.bnm.gov.my/-/unauthorised-company-website-14012019

https://www.bnm.gov.my/documents/20124/761679/FCA_20190114_EN.pdf

Reading: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Share: Financial Consumer Alert: List of unauthorised companies and websites has been updated. Release Date: 14 Jan 2019 The Bank has updated the Financial Consumer Alert list. The list consists of companies and websites which are neither authorised nor approved under the relevant laws and regulations administered by BNM. Please take note that the list is not exhaustive and only serves as a guide to members of the public based on information and queries received by BNM. The latest list consists of 431 companies. The following company was added to the list: Carousell Capital (0000140783T) CFAF Islamic CFWA Capital Business (002665083V) EZYFX Berhad (1213734P) Grow Asia Capital Holdings (0000151641T) Grow Asia Capital Ventures (0000151635T) The list will be updated regularly for public's reference.  To view the updated list, click on this link. © 2024 Bank Negara Malaysia. All rights reserved.

Financial Consumer Alert's List (BI)-(Latest list as at 11 January 2019).xls No Name of unauthorised entities/individual Website Date Added to Alert List 1 1globalcash 13/7/2012 2 1Gold.com.my www.1gold.com.my  13/7/2012 3 3Sixty Venture Capital PLC www.empire3sixty.com http://forum.putera.com/tanya/index.php?/topic/92929-3sixty- ventureanda-mahu-income-pasif-rm1500-setiap-hari/ 30/12/2014 4 A.A.M Global Corporation Sdn Bhd 17/5/2017 5 Ace Global Sales & Services 2/5/2013 6 Ace Dimension Network Sdn Bhd 10/4/2015 7 AE Group Holding Pte. Ltd. (201322498-D) http://www.aevfc.com 14/5/2015 8 Agarwood Venture (002273031-A) 19/2/2014 9 Agar Wood Chamber of Commerce Malaysia 21/5/2015 10 Ahmad Zulkhairi Associates PLT (LLP0009065) http://www.fx10capital.com 22/6/2017 11 Ajuwah Realty Sdn Bhd (966604-D) 25/7/2014 12 Ajuwah Agencies Sdn Bhd (966604-D) 25/7/2014 13 Ajuwah Consultancy 21/5/2015 14 Alpari (Asian) Ltd 21/5/2014 15 Al-Saliha Worlwide Sdn. Bhd. (628267-M) 13/7/2012 16 Amazing Yields Sdn Bhd (891529-V) 23/1/2013 17 Amethyst Gold Creation Sdn Bhd (951063-K) www.powergoldclub.com www.powergold999.com www.powergold.biz 12/11/2013 18 Applikasi Duit http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/9/2017 19 APS Asia Plantation Sdn Bhd (984575-T) 28/3/2013 20 Arba Emas Perak (SA0280035-A) http://www.arbaemasperak.com 14/5/2015 21 ARS Ultimate Sdn Bhd (1268778 - A) 6/8/2018 22 Aruna Travel 25/9/2013 23 Arribhu Suci Enterpise http://www.premierfxmarket.com 28/8/2017 24 Asas Seroja Sdn Bhd (357014A) 23/12/2015 25 Ascada Kiraana Sdn Bhd (1225011A) 6/12/2017 26 Asia Equity Ventures (002576131V) www.asian-equity.com 10/10/2018 27 Ashnik Holdings (M) Sdn Bhd (1124601D) 23/12/2015 28 Ashnik Trading (002369914-W) 23/12/2015 29 AsiaLink Globe Capital www.com-agc.com 25/7/2014 30 Astral Progress Sdn Bhd (989294-K) 13/10/2015 31 Asset Growth Solution Enterprise (002552148 - K) http://www.aplikasiduit.com https://www.facebook.com/aplikasiduitandroid/ 19/9/2017 32 Atlantic Global Asset Management (AGAM) https://atlanticgam.es https://private.atlanticgam.es/#/signup/partner=P09201446202971 28/8/2017 33 AU Niaga Sdn Bhd (907806-W) 13/7/2012 34 AU79 International 13/7/2012 35 Auto Trading Management https://www.facebook.com/simplyfxmalaysia/ 28/8/2017 36 Aurawave Marketing Sdn. Bhd http://www.aurawave2u.com 14/5/2015 37 Axis Capital Corporation Ltd www.axiscapitalcorp.com 19/2/2014 38 Aziera Gold Enterprise (NS0133976-K) 25/2/2016 39 BC Academy Sdn Bhd 17/5/2017 40 BC Bullion Sdn Bhd 17/5/2017 41 BDIG Investment Scheme https://www.facebook.com/BDIGroupMalaysia/ https://www.facebook.com/TeamDoubleProfit/ https://www.facebook.com/smartBDIG/ https://www.facebook.com/BdiGroups-Malaysia-1937078139955774/ 11/7/2018 42 Berkat FD Sdn Bhd 17/5/2017 43 BFS Markets Ltd www.bfsforex.com 25/7/2014 44 Binary Indulgence Sdn Bhd (963258-W) 25/7/2014 45 Bitclub Network https://bitclubnetwork.com/opportunity.html https://www.facebook.com/bitclubnetwork.BCN/ 28/8/2017 46 BitKingdom www.bitkingdom.org 24/2/2017 47 BSG- Buat.Simpan.Ganda www.bsg.my www.bsg.my/arib www.bsg.my/atsproject https://www.facebook.com/atsproject 6/12/2017 48 Build Rich Mining Group Bhd (1006586-T) www.buildrich.us 28/3/2013 49 Build Rich Investment Group Ltd 19/2/2014 50 Build Rich Group Holding 19/2/2014 51 Build Rich Agrotech Berhad 19/2/2014 52 Build Rich Enterprise 19/2/2014 53 Bumi Klasik Warisan Enterprise 13/7/2012 54 Capital Asia Group (M) Sdn Bhd www.capitalasiagroup.com 14/5/2015 55 Carbon Cash Bhd (1218702-K) http://carbontoken.com/ http://goalgreen2u.com 31/7/2017 56 Carousell Capital (0000140783T) 14/1/2019 57 Cash Deal Sdn Bhd (Boss Venture) www.bossventure.com 19/2/2014 58 Century Dynasty Asia Pacific Sdn Bhd 28/8/2017 59 Century Dynasty Group Berhad 28/8/2017 60 Century Dynasty Group LTD 28/8/2017 61 Century Dynasty Resources Sdn Bhd (980031-K) 28/8/2017 62 Celik Emas Enterprise (0021517795-K) 14/5/2015 63 CFAF Islamic www.cfaf-islamic.com 14/1/2019 64 CFWA Capital Business (002665083V) www.cfaf-islamic.com 14/1/2019 65 Changkat Agro Resources (IP 0353991V) 14/5/2015 66 CG International 31/7/2017 67 CGC Aquaculture Sdn Bhd (1044976P) 6/12/2017 68 CGF Fine Metal Sdn Bhd 27/9/2012 69 Classic Worldwide Corporation (M) Sdn Bhd (773082M) www.cwc.com.my programarba.blogspot.my 27/5/2016 70 Climate Protectors Sdn. Bhd 23/6/2017 71 Coin Enterprise Ltd Livecoin.net 23/6/2017 www.bookcoinsmalaysia.com Based on information received by BNM, below is the list of known companies and websites which are not authorised nor approved under the relevant laws and regulations administered by BNM: No Name of unauthorised entities/individual Website Date Added to Alert List 72 CryptoDaily Investment Packages https://cryptodaily.io https://www.facebook.com/pg/Cryptodailyio-323902771374164/reviews/ 19/9/2017 73 CTK Network http://CTK2U.com 16/10/2012 74 Classic FX Venture https://www.facebook.com/Classic-FX-Venture-92977800446648/ 31/7/2017 75 CybertrustFX 22/7/2013 76 CYL Asia Enterprise 29/6/2017 77 CYL4U Resources www.cyl4u.com 29/6/2017 78 CYL Peoria Enterprise 29/6/2017 79 CYL Prospect Trading 29/6/2017 80 Danatama Millennium Sdn Bhd (819082-U) 2/5/2013 81 Dana Haji Jasman 13/7/2012 82 Darul Emas Perak Bhd 19/2/2014 83 DBB Star Sdn Bhd (1110055-M) 25/2/2016 84 Degold Empire Sdn Bhd (882335-M) 13/7/2012 85 Delta Wealth Services (002194713-K) 25/7/2014 86 Destiny Resources Services 25/7/2014 87 Dgreat Network http://info.simplebisnes.com 2/5/2013 www.dinardirham.com www.dinardirham.online 89 DM Rise Enterprise (PG 0262929-H) 20/10/2014 90 DNA Profile Sdn Bhd (245435-W) 13/7/2012 91 Dream Success International Sdn Bhd (1002002-P) www.Surewin4u.com 25/9/2013 92 Dynamic Wira Marketing Sdn Bhd - Skim Beras 1 Malaysia 23/1/2013 www.dynasty-worldwide-net www.dynastymf.com 94 Eagle Aeronautics (M) Sdn Bhd (796603-A) 27/9/2012 95 East Cape Mining Corp 13/7/2012 96 Ecobit 23/6/2017 97 Ecofuturefund www.ecofuturefund.biz 25/9/2013 98 Efzinitus Capital Pte Ltd www.efzinitus.com 9/5/2017 99 Emgoldex (Emirates Gold Exchange) 10/4/2015 100 Empire Five Trading www.mikadofx.com 4/4/2014 101 Empires Making Money For You (EMM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/2/2018 102 Energetic Gateway Sdn Bhd (511826-X) 23/1/2013 103 Epic Palms Bhd http://epicpalmsberhad.com/ 28/3/2013 104 Ethtrade Limited https://ethtrade.org 22/6/2017 105 Ethtrade Malaysia 22/6/2017 106 Everise Fumigation Sdn Bhd (861654-K) 25/7/2014 107 Exorbitance Influence Sdn Bhd (1191499-U) www.krubal.com 9/1/2017 108 Exquisite Bottle Index Sdn Bhd (1060843T) www.xbi.com.my 23/12/2015 109 Exness Executive Management 28/8/2017 110 Exness Malaysia 28/8/2017 111 Extra Capital Programme http://extracapitalprogram.com 13/7/2012 112 Ezey Marketing 13/7/2012 113 Ezy Save Trading (PG0216560 - V) 19/9/2017 114 EZYFX Berhad (1213734P) www.ezyfx4u.com https://ezfx4u.wordpress.com 14/1/2019 115 E-Qirad Sdn Bhd (595699-D) 28/3/2013 116 FA Markets 2/5/2013 117 Family Wealth Resources (SA0310508-M) 13/10/2015 118 Fari Group Global Resources (SA0319984-M) 23/12/2015 119 FBS Malaysia http://fbsmy.com 31/7/2017 120 FE Brands (M) Sdn Bhd (1000656-H) 13/7/2012 121 Financial.org Malaysia https://www.facebook.com/financial.org.malaysia/ 9/4/2018 122 Flexsy Enterprise & Barrilorne Corp 13/7/2012 123 FNZ Capital Limited www.intelfx.com 13/7/2012 124 Fruits LT Ventures 28/8/2017 125 Fruits LT Ventures Investment Scheme 28/8/2017 126 Fortrend International Sdn Bhd (876619-X) 1/9/2015 127 Forex4you http://www.forex4you.com/en/about https://www.facebook.com/forex4you.malaysia/ 28/8/2017 128 Forexnova http://www.facebook.com/forexnovamalaysia/ https://www.forexbrokerz.com/brokers/ForexNova-review 31/7/2017 129 Futurebarrel.com http://futurebarrel.com 12/11/2013 http://ftindojaya.blogspot.com www.ft-indojaya.com 131 FXBITLab Holdings Sdn Bhd (1212832-T) https://www.fxbitlab.com 31/7/2017 132 FxUnited Malaysia (myfxunited) 10/4/2015 133 FXUnited Power Sdn Bhd (1146795-M) http://www.fxunitedpowerinternational.com/ 27/5/2016 134 FXZN Zenith Limited http://www.fxzn.com 30/12/2014 135 FXZN Investment Limited 30/12/2014 136 FXZN Zenith Management Limited 30/12/2014 137 FX Primus Ltd https://trivfx.com 23/12/2015 138 Gain FX Capital Sdn Bhd www.gainfxcapital.org 13/7/2012 139 Gan Patt Services 13/7/2012 140 Ganding Wawasan Trading (TR0133766-A) 25/7/2014 141 GCMAsia https://www.gcmasia.com/my/ https://www.facebook.com/GCMAsia-902721186484854/ https://www.instagram.com/gcmasia/ https://twitter.com/GcmAsia 17/1/2018 142 Gemilang Jalur Pintar Enterprise http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/9/2017 143 GGC Aquaculture Sdn Bhd (1044976P) 23/12/2015 144 GGF Golden House Sdn Bhd (803753-W) 13/7/2012 88 Dinar Dirham Global 9/1/2017 93 Dynasty Worldwide Sdn Bhd (800311-D) 25/9/2013 https://exnesmalaya.com https://www.facebook.com/Fruits-LT-Ventures-161191244419863 130 Future Trade Indojaya Sdn Bhd (1003327-P) 27/9/2012 No Name of unauthorised entities/individual Website Date Added to Alert List 145 GGT Golds Sdn Bhd (547290-D) 25/2/2016 146 Global Creation Trading 13/7/2012 147 Global Golds Trading (JM0518201-W) 25/2/2016 148 Global Peace Loving Family www.globalpeacelf.com 27/9/2012 149 Global Tijari Holdings Berhad 31/7/2017 150 Global Tijari Industries Sdn Bhd 31/7/2017 151 Global Venture Financing http://globalventurefinancing.com 13/7/2012 https://globalwavegold.com http://gwgfx.com 153 Globamas Trading https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/2/2018 154 GM Trader http://www.gmtraderteam.com https://www.facebook.com/GmTrader-859208567506294/ 28/8/2017 155 Gold Bullion World Sdn Bhd (1018604-A) http://goldenworld.com.my 22/7/2013 156 Gorgeous Chain Sdn Bhd (841928-P) 13/7/2012 157 Grand View Golden Success Sdn Bhd (638186-X) - Golden Maximum 22/7/2013 158 Golden Speed Trading (002252254-K) 28/8/2017 159 Great Access Sdn Bhd (517965-X) 13/7/2012 160 Green Buck Resources Sdn Bhd (851115-A) 2/5/2013 161 Greenmillion Agrosolution Enterprise http://greenmillionagrisolution.blogspot.com 27/9/2012 162 Green Forest Global Sdn Bhd (987049-P) 22/7/2013 163 Grow Asia Capital Holdings (0000151641T) 14/1/2019 164 Grow Asia Capital Ventures (0000151635T) 14/1/2019 165 GTGVIP www.gtgvip.biz www.gtgvip.net 31/7/2017 166 HAFX Global Venture Sdn Bhd 13/10/2015 167 Harvest Reliance Consultancy Sdn Bhd (965589-W) 2/5/2013 168 HEA Teguh 25/9/2013 169 Hexa Commerce Sdn Bhd (645798-X) 13/7/2012 170 HG Resources Sdn Bhd http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/2/2016 171 HiFX Asia (HiFX) www.hifx2rich.com 25/2/2016 172 Highway Group Resources http://www.highwayrich.com http://www.highwayrichclub.com http://www.highwaygroup2u.com 25/2/2016 173 Hin Huat Auto Sparts (TR0005484-X) 25/7/2014 174 HotForex Malaysia https://www.hotforex.com/sv/en/about-us/about-hotforex.html https://www.facebook.com/hfmarketsmalaysia http://hotforexpro.blogspot.my/ 28/8/2017 175 Holiday Express Asia 25/9/2013 176 Honest Group Ltd 13/7/2012 177 Hupro International Inc 13/10/2015 178 I & A Global Community Network 15/9/2016 179 Iconhill Holding Sdn Bhd (810775-P) 13/7/2012 180 IGC Diamond 13/7/2012 181 IGOFX https://www.facebook.com/IGOFXinvestment/?hc_ref=PAGES_TIMELINE&fref=nf 31/7/2017 182 Infinity Star International Sdn Bhd (851864-T) 25/9/2013 183 Instaforex 13/7/2012 184 Instagroup Resources (JM0531870-X) 27/5/2016 185 INint Global Solution - (IGS) http://www.igsvc.biz/igs1 https://www.facebook.com/igs.biz/?hc_ref=SEARCH&fref=nf 28/8/2017 186 Inter Pasicfic Soyy Enterprise 10/4/2015 187 IPG Capital 24/4/2018 188 Iridian Ventures PLT (LLP0002569-LGN): 13/10/2015 189 IronFX Solid Trading 13/10/2015 190 Isothree Gold Sdn Bhd (906561-K) 13/7/2012 191 Itradex www.itradexsystem.com 17/5/2017 192 Jalatama Management Sdn Bhd (929594-W) www.jalatama.com 13/7/2012 193 Jalur Gemilang Maju Enterprise (SA 0412058 - U) http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/9/2017 194 Jazlaan Enterprise 13/7/2012 195 Jihadfarisha Ventures www.dpkingfx.weebly.com 17/5/2017 196 JJ Commerce Trading (SA0399365P) 29/6/2017 197 JJ Global Network www.jjptr.com 24/2/2017 198 JJ Online Enterprise (SA0399360K) 29/6/2017 199 JJ Poor To Rich www.jjptr.com 24/2/2017 200 JJPTR www.jjptr.com 24/2/2017 201 JM Communications & Technology Sdn Bhd (702054-V) 13/7/2012 202 JMI Global 13/7/2012 203 JTGold 13/7/2012 204 Jutawan Apps http://www.jutawanapp.com/ https://www.facebook.com/JutawanApp/ 19/9/2017 205 Kazuki Coin www.kazukicoin.net https://www.facebook.com/kzkcSamuraiNetwork/ https://www.facebook.com/kazukicoinHQ/ https://www.facebook.com/billionaireislandclub/ https://www.facebook.com/kazukimalaysia/ http://kongsikazukicoin.blogspot.my/2017/09/kongsikazukicoin.html 30/5/2018 206 Kelab Kebajikan dan Sosial Tun Teja Malaysia http://yds2u.com 2/5/2013 207 Kelab Kebajikan Sosial Malaysia (VVIP88) 4/4/2014 www.kcgtraders.com www.keenonlinefx.com 209 Keenan Prestige Services (002095851-P) 25/7/2014 210 Keenan Brilliant Services (002021597-V) 25/7/2014 211 Kembara Jutawan Crypto https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/7/2017 212 Khaira Sakinah Resources (CT0018249-R) 20/10/2014 152 Global Wave Gold Corporation 12/11/2013 208 Keenan Capital Group 25/7/2014 No Name of unauthorised entities/individual Website Date Added to Alert List 213 Kilauan Padu Services Sdn Bhd (KPSSB) (657711-X) 22/6/2017 214 KL FxUnited Club 10/4/2015 215 Kris Plus Enterprise (IP0238424-A) 13/7/2012 216 Kudaemas www.kudaemas.com 20/10/2014 217 L & L Property Ventures SB (1186992T) 29/6/2017 218 Lestari2U www.lestari2u.com 13/7/2012 219 LetDuit Scheme www.letduit.com Let Duit Boss (Facebook page) LetDuit Plan 30 Hari (Facebook page) 28/8/2017 220 Liberty Reserve www.libertyreserve.com 13/7/2012 221 Life Time Holidays Sdn Bhd (727129-U) 13/7/2012 222 Live Coin Express 23/6/2017 223 LocalAdClick http://localadclick.net 13/7/2012 http://locusnetwork4u.com http://carigold.com/portal/forums/showthread.php?t=548206 225 LS Gold Bullion Sdn Bhd (235435-H) 28/3/2013 226 Making Money For You (MM4U) https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/2/2018 227 Mama Captain International http://www.mamacaptain.com http://www.barrel2u.com https://www.mamaharbour.com 29/6/2017 228 Marco Robinson Sdn Bhd www.marcorobinson.com 17/5/2017 229 Mari Wholesale (M) Sdn Bhd (556117-T) 13/7/2012 230 Mateen Acquisition Global (002693981K) www.asia-equity.com 10/10/2018 231 Maxim Capital Ltd www.maximtrader.com 25/9/2013 232 Mayuni Enterprise https://www.empiresmm4u.com https://makemoremoney3m.wixsite.com/mm4u 28/2/2018 233 Maza Network Sdn Bhd (1006389-H) 12/11/2013 234 MBI International Sdn Bhd (873323-V) http://www.mbiv2u.com/ 22/5/2017 235 McRen Oceanus Sdn Bhd (908484-X) 22/7/2013 236 MD Venture Group Sdn Bhd (1058936U) 23/12/2015 237 Meccafund Family Malaysia www.meccafundfamilymalaysia.blogspot.com 4/4/2014 238 Mecca Fund Global (MFG) http://meccafundglobal.com https://makkahislamichotel.com mekahalsafwah.blogspot.my 25/2/2016 239 Mega Dynasty Sdn Bhd (931589-V) 13/7/2012 240 Megaherbs Bioextreme (001946380-K) 13/7/2012 241 Megah Mewah Trading (SA0295909-A) 20/10/2014 242 Mface International Sdn Bhd (978203-V) http://www.mbiv2u.com/ 22/5/2017 243 MGCfx www.mgcforex.com 6/6/2016 244 MGC Capital Sdn Bhd www.morgagecapitals.com 6/6/2016 245 MGSB Holding Sdn Bhd www.mgsb.org.my 16/11/2015 246 MH Secret Wealth Enterprise (NS0122059A) 14/5/2015 247 Mi1 Global Sdn Bhd (1145697-X) http://mymi1millionaire.org 9/1/2017 248 Million Jade Sdn Bhd http://www.millionjade.com 14/5/2015 249 Miracle Day Trading (JR0047390-V) 1/9/2015 250 Mohamad World Enterprise 10/4/2015 251 MonSpace (M) Sdn Bhd http://www.monspacea.com 9/5/2017 252 MMM Malaysia https://malaysia-mmm.net https://www.facebook.com/MMM.Malaysia.Official 28/8/2017 253 MOP Consultant Sdn. Bhd (101867-W) 13/10/2015 254 Mughniwave International Sdn. Bhd. (1163697-W) http://mughniglobal.com 15/9/2016 255 MX3 World Wide http://mx3worldwide.com 27/5/2016 256 My Cameron Hills Sdn Bhd 21/5/2015 257 Myrezki http://myrezki.com https://www.facebook.com/bizmeletop2017 28/8/2017 258 MyHowk Ling https://www.facebook.com/profile.php?id=100013203109581 31/7/2017 259 Nahana Golbal Resources (00211411-M) 29/6/2017 260 New Gen Food Sdn Bhd (1186962X) 29/6/2017 261 Nexgain Malaysia Sdn Bhd (773854-D) 28/3/2013 262 Next Generation mall 15/9/2016 263 NGR Asia Group Sdn Bhd (1138129-M) http://www.ngrasia.com 29/6/2017 264 NGR Global Sdn Bhd (UT0004411-H) 29/6/2017 265 NIKPROFIT TRADING http://www.premierfxmarket.com 28/8/2017 266 Nory Motor (TR0023237-H) 25/7/2014 267 Norry Setia Ent (TR0103958-M) 25/7/2014 268 NTB Agencies Sdn Bhd (1039052-M) 25/7/2014 269 O2 Only One 22/6/2017 270 Ocean Century International Limited 23/12/2015 271 OCI Management Sdn Bhd (1042036X) 23/12/2015 272 OCI Venture Sdn Bhd (1039926H) 23/12/2015 273 ODFX http://www.ODFX.com 14/5/2015 274 OG1 Asean 22/6/2017 275 Overseas Commercial Futures (OCFX) 28/8/2017 276 OLTA Capital Management Inc. 13/7/2012 277 Omega Pinnacle Ltd (Labuan) 28/8/2017 www.clubautocash.com www.1autocash.com 279 Only One International Sdn Bhd (1195288W) 22/6/2017 280 Orion Healthcare Management Services Sdn Bhd 10/4/2015 281 Orion Prokasih (M) Sdn Bhd 10/4/2015 282 Ostim Academy (002443002-A) www.ostimint.com 25/2/2016 283 Overseas Delight Sdn Bhd (614245-W) www.arawana2u.com 25/7/2014 284 Pancar Mayang Sdn Bhd (527196-H) 13/7/2012 285 Pars Pay Sdn Bhd (813378-V) 13/7/2012 286 Pegasus Bullion www.pegasusbullion.com 4/4/2014 287 Perfway Traders Sdn Bhd (918583-V) http://www.perfway.com 30/12/2014 288 Perniagaan Jatidana Wawasan (M) Sdn Bhd 30/12/2014 224 LocusNetwork4u.com 14/5/2015 278 One AutoCash 13/7/2012 No Name of unauthorised entities/individual Website Date Added to Alert List 289 Perubatan Islam Seiring Syariat Al-Ikhlas 22/7/2013 290 Pioneer Forest Sdn Bhd (1069104M) www.abunur.com rezekipasif.blogspot.my 27/5/2016 291 Pertubuhan Kebajikan Komuniti Malaysia (PKKM) https://www.pkkm.my 24/2/2017 292 Pok Din Consultant & Services www.pokdinempire.com 27/5/2016 293 Pok Din Empire Sdn Bhd (1130978-D) www.pokdinempire.com 27/5/2016 294 Pollywood Scheme http://www.pollywood.asia/index.html http://www.polly.academy/ http://www.facebook.com/pollywoodhq/ https://www.facebook.com/Pollywood-Pte-Ltd-2747462042880450/ 28/8/2017 295 Power Trade Asia Sdn Bhd (933528-T) www.kuasaforex.com.my 12/11/2013 296 PPC Storm http://ppcstorm.com 4/4/2014 297 Preferred Credentials Sdn Bhd 23/1/2013 298 Premier FX Malaysia 28/8/2017 299 Premier Point Market Sdn Bhd (1166245-K) 28/8/2017 300 Premier Point Market LLC 28/8/2017 301 Premier Ventures Gold 28/3/2013 302 Prestige Dairy Farm (M) Berhad (832757-A) 13/7/2012 303 Proficiency Management and Services (002532706X) 22/6/2017 304 Profit Web Sdn Bhd 19/2/2014 305 Program 10 Bulan Forex Trading 13/7/2012 306 Program I-Rich 13/7/2012 307 Pro Infinity Ltd http://proinfinity.com 25/7/2014 308 Projek Duit 2012 13/7/2012 309 Project Tebus Nilai IQD Investment Scheme 6/8/2018 310 Provisio Multimedia 13/7/2012 311 Pruton Mega Holding Limited 24/2/2017 312 PTFX https://www.facebook.com/ooi.ptfx?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia765053533643113/?hc_ref=SEARCH https://www.facebook.com/PTFX-Malaysia-765053533643113/ https://www.facebook.com/PTFXCopyTrade/ 28/8/2017 313 PTM4U http://passport2u.com 31/7/2017 314 Public Golden House Sdn Bhd (806825-M) 19/2/2014 315 Puncak Hartawan Resources (0000097980-T) 25/7/2014 316 Quantum Capital Program www.quantumcapitalprogram.com www.berjayaforex.com 30/12/2014 317 Questra World (QW) https://questraworld.es https://www.facebook.com/QuestraWorld.Malaysia.1/ 28/8/2017 318 Qinur Enterprise http://www.premierfxmarket.com 28/8/2017 319 Ram Kris Venture (0024165647-K) 23/12/2015 320 RCFX 7/3/2016 321 RC Group 7/3/2016 322 RC Group Sdn Bhd 7/3/2016 323 Real Biz Pasif 12/11/2013 324 Real Ingenious Sdn Bhd (926598-U) www.worldfocus.co 13/7/2012 325 Relax Green Enterprise (PG0415537X) 29/6/2017 326 Rejab Trading (TR0115248-A) 25/7/2014 327 Rejabwealth Sdn Bhd (1005424-X) 25/7/2014 328 Reza Anuar Seven 20/10/2014 329 Retro Titan Sdn Bhd 19/2/2014 330 Rex Russel Capital Investment Group 28/8/2017 331 RGCX Trading Corp http://www.goldrgcx.com/richman8 www.rapidgcx.com 13/7/2012 332 Richway Global Venture www.richwayventure.com www.richwayventure.info 17/5/2017 333 Richway Green Venture (PG0406414M) 29/6/2017 334 Rich World Revolution (RWR) http://richworldrevolution.com/rwr/ https://www.facebook.com/richworldrevolution/ 28/8/2017 335 Rimbun Tekad Realty Sdn Bhd (966604-D) 25/7/2014 336 Rimbun Tekad Consultancy Sdn Bhd (966620-V) 25/7/2014 337 Rising Premium Sdn Bhd (285572-P) 14/5/2015 338 RMMUDAH.COM 13/7/2012 339 RM20segera.com www.rm20segera.com 25/7/2014 340 RN Corporate Services Sdn Bhd 19/2/2014 341 Rowther Technologies MSC Sdn Bhd (727979-T) 13/7/2012 342 Royal Gold Sdn Bhd (1005830-X) http://royalgolds.com 27/9/2012 343 Royale Team Groups www.royaleteaminfo.blogspot.com 2/5/2013 344 RS Capital Holdings Bhd (819833-P) 13/7/2012 345 Safeena Gold Gallery (IP0386035-U) 25/2/2016 346 Sanabil Investment www.sanabil.com 31/7/2017 347 Sejati Agarwood Enterprise 21/5/2014 348 Sera Land Mangement & Enterprise (JM0503206-P) 23/1/2013 349 SFX Management (KT0339697-V) http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/8/2017 350 SGFM Trading Sdn Bhd (936419-V) 27/9/2012 351 SGV Premier Plan Scheme 28/8/2017 352 SimplyFX Malaysia https://www.facebook.com/simplyfxmalaysia/ 28/8/2017 353 Slimberry Extreme Team http://zatslimberry.blogspot.com slimberryxtreme.com 13/7/2012 354 Smarthink Trading (001973331 - M) 19/9/2017 355 Smart Trade Entrepreneur (002459702D ) 22/6/2017 356 Smart Trade Resources Sdn Bhd (1180992A) 22/6/2017 357 SMCI Corporation www.smci.co 31/7/2017 358 Solor Bond Capital Sdn Bhd (1163697-W) www.mysolarbond.com http://solarbond-malaysia.blogspot.my 15/9/2016 359 Speedline www.speedline-inc.com 13/7/2012 360 Spot Gold Scheme 24/4/2018 361 Srgold Exchange Bhd (1033164-V) www.srgold.com.my 12/11/2013 362 Sri Perkasa Emas Trading 13/7/2012 363 Sri Chempaka Emas Enterprise (SA0293336-P) 25/7/2014 364 Steady Dynasty Sdn Bhd (782270-H) 22/7/2013 http://www.premierfxmarket.com No Name of unauthorised entities/individual Website Date Added to Alert List 365 Steady Global Network Sdn Bhd 22/7/2013 366 Strategic Solution (Goldex Group International Limited) 19/9/2017 367 Superbinvest Group https://www.facebook.com/pu3superbinvest/?hc_ref=SEARCH https://www.facebook.com/pu3superbinvest/ 28/8/2017 368 Suliz Pearl Mines 13/7/2012 369 Suisse Coins Sdn Bhd www.suissecoins.com 10/4/2015 370 Sweblink Global Network Sdn Bhd (209952-H) 22/7/2013 371 Swiss Capital Venture 13/7/2012 372 SVD Malaysia https://www.facebook.com/svdmalaysia https://www.cryptobeggar.net 31/7/2017 373 SV International Scheme 28/8/2017 374 SV International Sdn Bhd (1169355-K) 28/8/2017 375 Syarikat Azza Motor Network Sdn Bhd (104795-P) www.rajakeretaweebly.com www.rajakereta.com 30/12/2014 376 Syarikat GECS Ltd 13/7/2012 377 Syarikat Sri Alam 13/7/2012 378 Tabung Dana Ehsan 13/7/2012 379 Tanjung Trading ((TR0123942-W) 25/7/2014 380 Tenaga Setia Services (107239-P) 25/7/2014 381 TF International Group 22/6/2017 382 TF International Group (MY) 22/6/2017 383 TF International W1212 KL Team 22/6/2017 384 TG Reliance Sdn Bhd (1086255-A) 1/9/2015 385 The Gold Guarantee 29/11/2012 386 Times Travel & Explorer Sdn Bhd (1041742-H) 9/4/2018 387 Titan Group Sdn. Bhd (823732-U) 13/7/2012 388 TP Eagle Venture Sdn Bhd (1114378-M) www.tpeagles.com 12/7/2016 389 Trillion Venture https://trivfx.com 23/12/2015 390 Triple One Management Pte Ltd ( T1FX) http://www.t1fx.com 25/2/2016 391 Tü-E Capital Berhad (806096-H) https://tu-e.capital/ http://www.tu-e.com.my/ 13/3/2018 392 TukarGold.net www.tukargold.net 13/7/2012 393 Toga Capital Sdn Bhd (1132072-MD) 28/8/2017 394 Toga Company Limited 28/8/2017 395 TopproFX http://www.topprofx.com/about.php https://www.facebook.com/tpfxmalaysia/?hc_ref=SEARCH&fref=nf 28/8/2017 396 UER Gold https://uergold.com/profitsharing.php-inaccessible 25/7/2014 www.jutawanufunclub.com ufunclub2me.bolgspot.com 398 Ultimate Power Profits www.ultimatepowerprofits.yolasite.com 16/10/2012 399 United American Traders Council www.uatconline.com 12/11/2013 www.argrow.biz www.unicapasia.net 401 Uncang Teguh Resources (0000102116-T) 25/7/2014 402 Urustabil Sdn Bhd (545426-X) 27/9/2012 403 VC Gold Sdn Bhd (722295-T) 13/7/2012 404 Virgin Gold Mining Corporation 13/7/2012 405 VenusFX www.venusfx.com 6/6/2016 406 V Save FX Trading (002482098 - K) 19/9/2017 407 V Sim Marketing (002283635 - U) 19/9/2017 408 Verger Management Services 25/7/2014 409 VI Profit Galaxy (DSV Cryptoclub & LUX Galaxies) https://luxgalaxies.com/ https://www.lavidacoin.com/ 29/8/2018 410 Wadiah Trading www.wadiahtrading.com 23/12/2015 411 Water Beaute World Berhad https://wbwglobal.wordpress.com/ http://wbwig.blogspot.my/ 9/5/2017 412 Water World Marketing (CA0177161-P) 25/7/2014 413 Webster Trade Consulting Sdn Bhd (1171420D) www.wtcpro.com http://wtcprolimited.blogspot.my 24/2/2017 414 Westrank Equity Sdn Bhd (1046449-A) 25/9/2013 415 Windsor Fragrance Sdn Bhd (599208-H) 20/10/2014 416 WMS Capital Ltd (Labuan) 28/8/2017 417 WMS Global Services (PG0402301-M) 28/8/2017 418 World Dirham Berhad (970807-X) 22/7/2013 419 Worldwide Community Programme https://wcp2u.com/ 15/9/2016 420 WSL Merchants Pte Ltd www.worldshopperslink.com www.click4dollar.com 16/10/2012 421 Xcelent Job Trading (001971755P) 9/1/2017 422 XIG Limited www.xiglimitedmalaysia.com https://my.xiglimited.com https://www.facebook.com/xiglimitedofficial https://www.facebook.com/myduitcom 28/8/2017 423 XM Forex Malaysia https://www.xm.com/my 6/12/2017 424 XOC7 13/7/2012 425 YDS Corporate Line Sdn Bhd (877697-P) http://yds2u.com 2/5/2013 426 YDS Holding Groups Bhd (987797-T) http://yds2u.com 2/5/2013 427 ZEMC Sdn Bhd (1216874-A) 22/6/2017 428 Zenith Gold International Limited (ZGI) http://www.zenithgolds.com http://zenithgoldrocks.wordpress.com http://zenithgoldpowerteam.blogspot.my 25/2/2016 429 Zeta Capital Management 13/7/2012 430 Zill Akasha Gemilang Enterprise 10/4/2015 431 Zness.com http://zness.com 25/9/2013 SV International Investment Malaysia (Facebook page) SV International (Facebook page) http://togacapital.com.my/ https://www.facebook.com/TogaCapitalLimited/ 397 UFUNCLUB 25/7/2014 400 Uni Argrow (Cambodia) Co. Ltd 30/12/2014

Public Notice

07 Jan 2019

Policy Document on Publishing Open Data using Open API

https://www.bnm.gov.my/-/policy-doc-api-07012019

https://www.bnm.gov.my/documents/20124/761679/Open+Data+API+PD.pdf, https://www.bnm.gov.my/documents/20124/761679/The+Bank%27s+response+to+public+queries+comments.pdf

Reading: Policy Document on Publishing Open Data using Open API Share: Policy Document on Publishing Open Data using Open API Release Date: 07 Jan 2019 This Policy Document sets out the Bank’s guidance on the development and publication of Open Application Programming Interface (Open API) for open data by financial institutions. The Policy Document also encourages financial institutions to adopt the Open Data API Specifications (Specifications) on selected product information developed by the Open API Implementation Groups. The Specifications are published on https://github.com/BankNegaraMY. The Bank had received written feedback and queries from the public throughout the consultation period. Where relevant, the Bank has incorporated the feedback in the Policy Document. The Bank has also prepared a response to common feedback/queries from the public.   See also: Policy Document BNM’s response to common feedback/queries from the public _____________________ [1] Open Application Programming Interface (Open API) refers to an API that allows third party access, which may be subject to certain controls by the Open API publisher. © 2024 Bank Negara Malaysia. All rights reserved.

Issued on: 2 January 2019 BNM/RH/PD 029-33 Publishing Open Data using Open API Applicable to: 1. Licensed bank 2. Licensed Islamic bank 3. Licensed insurer 4. Licensed takaful operator Publishing Open Data using Open API Issued on: 2 January 2019 TABLE OF CONTENTS PART A OVERVIEW ....................................................................................................... 1 1. Introduction ............................................................................................... 1 2. Applicability .............................................................................................. 4 3. Legal provision ......................................................................................... 4 4. Effective date ............................................................................................ 4 5. Interpretation ............................................................................................ 4 6. Related legal instruments and policy documents ..................................... 6 PART B POLICY RECOMMENDATIONS ....................................................................... 7 7. Open Data API Standards ...................................................................... 7 8. Third party governance process ............................................................... 9 9. Adoption of Open Data API Specifications and publication of Open Data APIs……………………………………………………………………..……….9 Publishing Open Data using Open API 1 of 10 Issued on: 2 January 2019 PART A OVERVIEW 1. Introduction 1.1. An Application Programming Interface (API) enables the interaction between different software applications via a specified set of protocols. This allows software applications to communicate with each other to exchange data directly or to access another software application’s functionalities, through automated access. 1.2. Open APIs allow third party developers to access data without needing to establish a business relationship with the Open API publisher. Access to restricted or more sensitive data through Open APIs, such as customer account information, is usually supported by security, legal and governance frameworks necessary to protect customer’s confidentiality and financial institutions’ core systems. 1.3. The Bank recognises the benefits of Open API standardisation initiatives to the industry at large, including improving third party experience in accessing Open APIs published by different providers. This would encourage greater usage and offerings of innovative solutions by third parties, which results in efficiency gains to both customers and businesses alike. Time-to-market can be reduced as third parties are able to rapidly build on existing systems by leveraging on standardised Open APIs. However, the identification of Open APIs to be standardised should take into consideration various factors, including the financial industry’s level of readiness to adopt such APIs and the overall benefits arising from such standardisation. 1.4. The Bank has undertaken measures to encourage wider adoption of Open API in the payments arena. In March 2018, the Bank finalised the Interoperable Credit Transfer Framework, a move to encourage the approved operator of shared payment infrastructure and issuers of designated payment instruments to publish Open APIs to facilitate convenient credit transfers and the development of other value-added services. Publishing Open Data using Open API 2 of 10 Issued on: 2 January 2019 Open API Implementation Groups: Pursuit of Open API standardisation 1.5. The initiative to identify use cases and further foster the adoption of Open API in the financial sector would be undertaken in close collaboration with the financial industry and other relevant stakeholders. The Bank has moved ahead in the first quarter of 2018 to establish Open API Implementation Groups at industry-level for both banking/Islamic banking and insurance/takaful industries, with representation from a few financial technology (fintech) companies. The Open API Implementation Groups, in consultation with the Bank, will continue to identify and develop standardised Open APIs for high-impact use cases. 1.6. In 2018, the focus of the Open API Implementation Groups was to pursue standardisation of Open APIs which would enhance third party developers’ access to open data published by banks/Islamic banks and insurers/takaful operators, commencing with product information on SME financing, credit card and motor insurance/takaful products. These open data have been identified based on the following objectives: (a) further enhance SMEs’ access to financing products and services offered by financial institutions; (b) promoting comparability of motor insurance/takaful products in line with the move towards liberalisation; (c) facilitate development of fintech to allow consumers to compare a wide range of financial products and services matching their specific needs and circumstances, besides improving experience and providing choices to customers; and (d) leverage on technology for the provision, distribution and consumption of financial services. 1.7. While open data is, by definition, publicly accessible, there is value in enabling seamless access via Open API. This will also be an important testbed to gauge industry reception and adoption in charting the future direction on Open API adoption. Publishing Open Data using Open API 3 of 10 Issued on: 2 January 2019 1.8. This policy document outlines recommendations for financial institutions in developing and publishing Open Data API, accompanied with the Open Data API Specifications developed by the Open API Implementation Groups. Financial institutions are therefore encouraged to adopt these specifications to ensure industry-wide publication of standardised Open Data API. Phased approach towards Open API adoption 1.9. The Bank takes cognisance of the developments in other jurisdictions, where regulators and financial industries alike are considering the need to move towards Open Banking1, which involves either read and/or write access to bank accounts. This forms part of regulatory effort to widen choices available to financial consumers in relation to satisfying their financial needs. Alongside empowered consumers, seamless access to data holds the potential to promote innovation and further enhance quality of financial services. 1.10. However, it is important to weigh these benefits against the associated risks and costs. In particular, careful consideration is necessary in developing the appropriate security controls and governance measures over greater data access and portability, which are part of the tenets of Open Banking. To this end, the Bank plans to issue a Discussion Paper on Open Banking implementation in Malaysia by the second quarter of 2019 for feedback from the industry and public at large. 1.11. A collaborative partnership is pertinent to reap the benefits of data-driven innovation. Therefore, the Bank welcomes additional proposals from the financial industry players, fintech community as well as any interested parties on other potential use cases that would benefit from standardised Open APIs2. 1 For purposes of this Policy Document, Open Banking is defined as the use of Open APIs that enable third party developers to build applications and services around the financial institution; and allowing bank to share customers’ financial/non-financial information with third parties, with customers’ consent. 2 Such proposals may be submitted to openapi@bnm.gov.my. Publishing Open Data using Open API 4 of 10 Issued on: 2 January 2019 2. Applicability 2.1. This policy document is applicable to financial institutions intending to publish Open Data APIs. 2.2. For avoidance of doubt, the guidance under this Policy Document is not applicable to the publication of private API3 and partner API4. 3. Legal provision 3.1. The guidance in this policy document is specified pursuant to – (a) section 266(c)5 of the Financial Services Act 2013 (FSA); and (b) section 277(c) of the Islamic Financial Services Act 2013 (IFSA). 4. Effective date 4.1. This policy document comes into effect on 2 January 2019. 5. Interpretation 5.1. The terms and expressions used in this policy document shall have the same meanings assigned to them in the FSA and IFSA, as the case may be, unless otherwise defined in this policy document. 3 Refers to APIs that facilitate information flow within an organisation by connecting different databases or systems. 4 Refers to APIs that support interfaces between a data provider and a third party which have entered into business relationships. 5 Under section 266(c) of the FSA and section 277(c) of the IFSA, the Bank may issue guidance in writing to any person- (a) with respect to the provisions of the FSA/IFSA; (b) for the purpose of carrying out or achieving the regulatory objectives of the FSA/IFSA; or (c) with respect to any other matter which, in the opinion of the Bank, is desirable to give information, advice or recommendation. Publishing Open Data using Open API 5 of 10 Issued on: 2 January 2019 5.2. For the purpose of this policy document: “API” is a set of protocols that enables the communication between software applications; “financial institution” refers to – (a) licensed bank; (b) licensed Islamic bank; (c) licensed insurer; and (d) licensed takaful operator; “Open API” means an API that allows third party access, which may be subject to certain controls by the Open API publisher; “Open Data API Specifications” refer to the specifications developed by the Open API Implementation Groups, in consultation with the Bank, for industry adoption; “Open Data API Standards” refer to the standards on Open Data APIs as recommended under this Policy Document for financial institutions; “open data” refers to publicly available and usable data that is published by financial institutions, including financial product information (i.e. key information on a financial product, such as those provided in product disclosure sheets, which facilitates customers in making informed decisions); “Open Data API” means a “read-only” Open API which allows access to open data; and “third party” refers to any person who uses an Open API published by financial institution, whereby the user is not associated with the financial institution, and may include other financial institutions. Publishing Open Data using Open API 6 of 10 Issued on: 2 January 2019 6. Related legal instruments and policy documents 6.1. This policy document must be read together with other relevant instruments and policy documents that have been issued by the Bank, including the following: (a) Guidelines on the Provision of Electronic Banking (e-banking) Services by Financial Institutions; (b) Guidelines on Internet Insurance; (c) Circular on Internet Takaful; (d) Circular on Managing Cyber Risks; (e) Circular on Preparedness against Distributed Denial of Service (DDoS) Attack; and (f) Guidelines on Management of IT Environment. Publishing Open Data using Open API 7 of 10 Issued on: 2 January 2019 PART B POLICY RECOMMENDATIONS 7. Open Data API Standards G 7.1 Open Data API Standards comprise of the following: (a) API architecture standards, as provided under paragraphs 7.3 and 7.4, that outline the recommended design considerations to encourage interoperability across various Open APIs; (b) recommendations under paragraphs 7.5 and 7.6 on considerations in determining the appropriate data standards; and (c) security measures recommended under paragraph 7.7 that establish the baseline on security measures as protection against potential security threats, proportionate to the sensitivity of the Open Data API functions. G 7.2 Financial institutions are encouraged to adhere to the Open Data API Standards in developing Open Data APIs. Financial institutions may also refer to API standards developed by other independent bodies6 which are in line with the recommended Open Data API Standards. API Architecture Standards G 7.3 Financial institutions are encouraged to adopt the Representational State Transfer (REST) architectural style and data formats which are recognised industry-wide such as JavaScript Object Notation (JSON). G 7.4 Financial institutions are encouraged to facilitate conversion from alternative protocols and data formats to REST and JSON respectively. Data Standards G 7.5 Financial institutions should consider the following factors in determining data standards to be adopted for publication of Open Data APIs: (a) data standards recommended by the Implementation Groups which may include available industry standards; and 6 Such as the Open Banking Limited in the United Kingdom. Publishing Open Data using Open API 8 of 10 Issued on: 2 January 2019 (b) appropriateness in meeting the intended business functions of the Open APIs. G 7.6 The Bank recommends for financial institutions that use their own data definitions to publish these definitions online, with sufficient level of detail to facilitate third party understanding and adoption. Security Standards G 7.7 Security measures installed by financial institutions in relation to Open Data API should be proportionate to the potential risks. At minimum, financial institutions should put in place the following measures to mitigate cybersecurity risks: (a) restrict API to only perform interfacing functions and allow pass through of information only; (b) restrict access to the API configurations to dedicated staff only; (c) restrict APIs from storing sensitive data such as customer information; (d) protect the API server with security layers such as firewall and intrusion prevention system (IPS) to mitigate risk of cyber-attacks on the financial institutions’ interfaced IT systems; (e) ensure high availability of API service by designing APIs to support efficient processing of information and scalability of functionalities; (f) undertake secure coding practices of the API such as restricting hard coding of ID and password; (g) adopt the latest and robust authorisation and authentication protocols that are adequate for the risks presented by Open Data APIs, such as OAuth 2.0; (h) conduct periodic audit and penetration testing on the API infrastructure and configuration setup; (i) conduct real time monitoring on any suspicious activities at the API; (j) restrict use of unsecured communications protocols and encryption standards for the API system and communications infrastructure as well as the interfaces; and (k) all sensitive credentials such as password must be encrypted using latest and most secured standards. Publishing Open Data using Open API 9 of 10 Issued on: 2 January 2019 8. Third party governance process G 8.1 Financial institutions are encouraged to establish basic registration process for third party, which may include agreement to the terms of use and disclaimer when consuming the Open Data APIs. G 8.2 Financial institutions may also implement more advanced functionalities for its third-party governance processes, provided it does not create unnecessary barriers for the third party to access the Open Data API. 9. Adoption of Open Data API Specifications and publication of Open Data APIs G 9.1 Financial institutions are encouraged to adopt Open Data API Specifications recommended by the Open API Implementation Groups for selected open data. These specifications are provided at https://github.com/BankNegaraMY. G 9.2 Where financial institutions have adopted standards or specifications on Open Data APIs which differ from those recommended by the Open API Implementation Groups, financial institutions are advised to assess potential impact to third party adoption and security arising from these differences, if any. Financial institutions are encouraged to take measures to resolve potential frictions or gaps that may impede implementation or adoption, as appropriate. G 9.3 To facilitate third party adoption, financial institutions are strongly encouraged to publish detailed API documentation online to accompany the published Open Data APIs. G 9.4 Financial institutions are encouraged to define and disclose key performance metrics of the published Open Data APIs, such as response time, API availability/uptime, performance throughput, invocation quota/ throttling limit. https://github.com/BankNegaraMY Publishing Open Data using Open API 10 of 10 Issued on: 2 January 2019 G 9.5 Open Data API Specifications may be revised periodically to address issues or to enrich the Open API’s functionalities. Financial institutions are encouraged to ensure the published Open Data APIs are consistent with the latest version of Open Data API Specifications, within one month for minor revisions and within six months for significant revisions. Policy Document on Publishing Open Data using Open API (Policy Document) The Bank’s response to common feedback and queries Note: Unless otherwise specified, “API Standards” refer to the recommended Open Data API Standards in the Policy Document and “Specifications” refer to the Open Data API Specifications developed by the Open API Implementation Groups. A. General 1. Are the API Standards recommended under the Policy Document applicable to account access Open APIs and/or payment Open APIs? No. The API Standards are only applicable to the development/publication of Open APIs for publicly-available information (open data). Financial institutions (FIs) interested in publishing account access and/or payment Open APIs are advised to engage the Bank for further clarity. 2. FIs should be mandated to adopt the API Standards and Specifications in order to achieve industry-wide convergence. While the Bank views Open API as a key enabler for further innovation, the Bank is cognisant of the differing level of readiness among FIs in terms of infrastructure, resources and business considerations in publishing Open Data APIs. As such, at this juncture, FIs are strongly encouraged to adopt the API Standards and the Specifications. 3. Certain FIs have published Open Data APIs based on other standards/specifications that may differ from the recommended API Standards and Specifications. Are they required to adopt the API Standards and Specifications? FIs that have already published Open Data APIs based on other standards/specifications may maintain such Open Data APIs. However, the Bank encourages such FIs to assess any significant impact arising from the divergence. If the differing standards impede third parties’ access to such Open Data APIs, FIs are encouraged to adopt the recommended API Standards and Specifications. 4. The recommended API Standards are high-level requirements; more specific recommendations would be instructive in developing Open Data APIs. The API Standards are intended to guide the publication of Open APIs on any type of open data. FIs may adopt further requirements based on individual controls and internal policies. 5. What is the Bank’s expectation with regards to the monetisation of the Open Data APIs? The Bank expects for the Open Data APIs to be accessible without any fee imposed on the third party accessing it. B. Security Standards 1. What are the authorisation and authentication protocols for Open Data APIs? The Bank does not recommend any specific protocols. FIs should adopt secure protocols that commensurate with the risks presented by Open Data APIs. The Open API Implementation Group has decided to incorporate OAuth 2.0 framework into the Open API Specifications. C. Third Party Governance Process 1. Registration processes are intended for partners or vendors. Thus, establishing a registration process for third parties is more suitable for Partner APIs, rather than Open Data APIs. Minimal registration process is not expected to impede access to Open Data APIs. Instead, it will enable financial institutions to perform basic due diligence on third parties and to monitor consumption of the Open Data APIs. 2. A centralised third party governance process e.g. undertaken by the Bank or a suitable body will be more efficient for developers and provide more credibility to FIs. A bilateral registration process is viewed as the most efficient manner to encourage financial institutions’ adoption of Open Data APIs. However, financial institutions may collaborate and agree on a common baseline to be adopted across the industry. The Bank may consider more stringent third party governance process in the future, as the industry progresses to publish more sensitive Open APIs.

Public Notice

04 Jan 2019

RINGGIT Newsletter (December 2018 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-december-2018-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/761679/Ringgit+Ed104+Dec+2018+v5.pdf

Reading: RINGGIT Newsletter (December 2018 issue) is now available for download Share: RINGGIT Newsletter (December 2018 issue) is now available for download Release Date: 04 Jan 2019 The highlight for this month is Mewariskan Harta Kepada Orang Tersayang Other topics of interest include : Apa Yang Anda Boleh Lakukan Dengan Bonus Tahunan Memilih Kad Perubatan Yang Sesuai Senarai Insentif Yang Diterima Golongan B40 dalam Belanjawan 2019 Mengenal Pasti Penipuan Kewangan Berkaitan Pinjaman Peribadi RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a monthly publication. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - December/2018 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A E D I S I DIS 2 0 1 8 Mengenal Pasti Penipuan Kewangan Berkaitan Pinjaman Peribadi Memilih Kad Perubatan Yang Sesuai PERCUMA | PP 16897/05/2013 (032581) Apa Yang Anda Boleh Lakukan Dengan Bonus Tahunan Mewariskan Harta Kepada Orang Tersayang Penulisan wasiat merupakan perkara yang sering dianggap sebagai sesuatu yang remeh. Hanya kira- kira 2% daripada penduduk Malaysia yang telah menulis wasiat. Majoriti penduduk ‘terlepas pandang’ tentang kepentingan menulis wasiat. Berdasarkan rekod Bahagian Pembahagian Pusaka, Jabatan Ketua Pengarah Tanah dan Galian Persekutuan, kira-kira RM60 bilion jumlah harta tidak dituntut oleh waris si mati sehingga tahun 2016. Adakah penulisan wasiat benar-benar diperlukan? Mari kita lihat beberapa persoalan umum dan akibat tidak menulis wasiat. Kebaikan Mempunyai Wasiat A. Secara Konvensional Jadual di bawah menunjukkan kelebihan menulis wasiat dan akibat meninggalkan keluarga anda tanpa menyediakannya. Jika seseorang meninggal dunia dengan wasiat Harta pusaka akan diberi kepada waris pilihan anda. Anda berhak memilih pentadbir aset yang bakal melaksanakan wasiat. Anda juga boleh melantik penjaga yang boleh menjaga kebajikan anak-anak anda sehingga mereka matang. Kos untuk memproses pembahagian harta adalah rendah dan hanya mengambil masa beberapa bulan. Wasiat akan memastikan orang tersayang mendapat jaminan daripada sudut kewangan, selain mengelakkan konflik antara ahli keluarga. Jika seseorang meninggal dunia tanpa wasiat Tanpa mempertimbangkan keperluan waris, harta pusaka akan dibahagikan mengikut Akta Pembahagian 1958 dan bukannya mengikut kehendak anda. Mahkamah akan membuat keputusan untuk anda. Proses pembahagian mungkin melibatkan kos yang tinggi, dan dalam kes yang melibatkan konflik kekeluargaan, yuran guaman boleh melonjak berlipat kali ganda kerana kes-kes sebegini boleh mengambil masa sehingga beberapa tahun untuk diselesaikan. Keadaan ini menyebabkan keluarga anda menghadapi masalah kewangan dan persengketaan sebelum dapat mewarisi pusaka anda. Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga. Persediaan wasiat boleh menggelakkan konflik yang mungkin berlaku pada masa depan apabila berlaku kematian. Mewariskan Harta Kepada Orang Tersayang “Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga.” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Mandeep Singh Shabana Naseer Ahmad Ringgit merupakan penerbitan usaha sama di antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan pada setiap bulan. Untuk memuat turun Ringgit dalam format “PDF“, sila layari laman sesawang www. fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks : 03-7873 0636 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Faks : 03-2174 1515 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 Faks : 03-7875 5468 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. “Sering kali, pertikaian tentang pembahagian harta si mati menyebabkan perselisihan sesama ahli keluarga.” B. Secara Islam Bagi orang Islam, wasiat hendaklah ditulis mengikut undang-undang Islam. Wasiat perlu bagi orang Islam. Tanpa penyediaan wasiat, harta pusaka akan dibahagikan mengikut kaedah Faraid, yang menyebabkan anak angkat atau anak tiri tidak layak mewarisi apa-apa harta. Jika seorang Muslim meninggal dunia dengan wasiat Selepas menolak hutang dan liabiliti, seorang Muslim boleh memilih untuk menyumbang 1/3 daripada harta pusakanya kepada bukan waris, dan bakinya akan diberi kepada waris Faraid (mengikut undang-undang). Sesiapa boleh menjadi waris anda, (pengagihan lebih daripada ½ harta pusaka kepada bukan waris memerlukan persetujuan daripada waris, tetapi walaupun tanpa persetujuan mereka, pengagihan boleh dilakukan sebagai Hibah semasa anda masih hidup). Kebaikan lain adalah sama dengan wasiat secara konvensional. Dis 2018 | 3 • Pertukaran agama; contohnya kepada agama Islam, iaitu wasiat terikat kepada Undang-undang Syariah Kesimpulan Lebih penting lagi, anda tidak mahu harta anda diambil alih oleh kerajaan akibat tidak dituntut oleh sesiapa. Beri perhatian untuk menulis fasal-fasal dalam wasiat tersebut dengan jelas dan sempurna kerana wasiat yang tidak sah atau boleh dicabar adalah sama seperti anda tidak membuat wasiat. Sumber: Loanstreet.com.my Jika seorang Muslim meninggal dunia tanpa wasiat Harta akan diagihkan mengikut undang-undang Faraid. Andaikan kedua-dua ibu bapanya telah meninggal dunia, 1/8 daripada harta pusaka si mati akan diberi kepada isteri, dan selebihnya akan diberi kepada anak lelaki dan anak perempuan (dengan pertalian darah tetapi tidak termasuk anak luar nikah) dengan nisbah 2:1. Ahli keluarga bukan Islam tidak berhak mewarisi harta pusaka ahli keluarga Muslim. Anak angkat atau anak tiri tidak berhak mewarisi harta pusaka. Kesan-kesan lain adalah sama dengan tidak mempunyai wasiat konvensional. Penyediaan wasiat bertujuan untuk memastikan harta pusaka tersebut akan diagihkan mengikut keutamaan dan kehendak si mati. Siapakah Yang Perlu Menulis / Memperbaharui Wasiat? Wasiat perlu dikemas kini dari semasa ke semasa untuk merangkumi semua aset yang baru diambil alih atau perubahan dalam waris. Berikut beberapa keadaan yang memerlukan anda menulis atau mengemas kini wasiat anda: • Perkahwinan, perkahwinan semula atau perceraian • Memulakan atau menamatkan perniagaan • Kematian ahli keluarga atau benefisiari • Pembelian atau pelupusan aset 4 | RINGGIT Apabila tiba musim hujung tahun, ramai yang akan menerima bonus tahunan daripada syarikat atau majikan masing-masing. Namun, terdapat individu yang gagal mengurus bonus tersebut dengan baik. Berikut adalah beberapa cadangan dan perkara yang anda boleh lakukan dengan bonus tahunan anda. Selesaikan hutang Perkara pertama anda perlu lakukan apabila mempunyai lebihan wang adalah menyelesaikan hutang anda; sama ada hutang dengan pihak bank, hutang PTPTN, hutang kedai atau individu. Hidup anda lebih tenang apabila tidak terbeban dengan hutang. Bagi hutang yang melibatkan pelaburan, anda tidak perlu usik atau kurangkan hutang tersebut j ika pinjaman atau pembiayaan tersebut masih menguntungkan. Tambah pelaburan jangka masa panjang Selepas berjaya menyelesaikan beberapa hutang, anda boleh mula merancang untuk memulakan pelaburan atau menambah pelaburan anda. Untuk pelaburan jangka masa panjang, fokus pada dana persaraan dan dana pendidikan anak- anak. Semakin banyak anda laburkan untuk dana persaraan, semakin cepat anda boleh bersara. Dengan menggunakan bonus tahunan anda setiap tahun, dana persaraan anda lebih terjamin. Tambah simpanan kecemasan Jika sebelum ini, anda hanya menyimpan tiga bulan gaji sebagai simpanan kecemasan, k in i anda boleh meningkatkan simpanan tersebut sehingga enam bulan. Semakin berusia, semakin banyak masalah yang bakal / mungkin anda hadapi. Oleh itu, simpanan kecemasan ini boleh dijadikan sebagai satu dana yang akan membantu anda ketika anda memerlukan. Dalam keadaan ekonomi yang tidak menentu, anda juga perlu bersedia dengan segala kemungkinan yang boleh berlaku seperti kehilangan pekerjaan. Apa Yang Anda Boleh Lakukan Dengan Bonus Tahunan $ $$ $ $ Dis 2018 | 5 Tambah tabung untuk pembelian mahal Tabung untuk pembelian mahal bermaksud satu tabung yang baka l d i g u n a k a n u n t u k perbelanjaan yang besar, terutama ketika m u s i m p e r a y a a n d a n m u s i m a w a l persekolahan. Ketika itu, banyak perbelanjaan yang akan digunakan. Tabung in i pent ing bagi mengelakkan masalah wang gaji dihabiskan untuk perbelanjaan besar tersebut. Tambah ilmu Selain menambah pelaburan dan simpanan, anda juga perlu meningkatkan lagi ilmu pengurusan kewangan dan pelaburan. Anda boleh menyertai pelbagai seminar atau beli buku rujukan di kedai buku. Buku rujukan tersebut juga boleh digunakan sebagai panduan untuk mengurangkan cukai pendapatan anda. Lebih banyak ilmu yang anda belajar, semakin banyak idea pengurusan kewangan dan pelaburan yang anda boleh lakukan. Tingkatkan pelan perlindungan insurans / takaful anda Ini juga merupakan masa terbaik untuk anda mengambil pelan perlindungan insurans / takaful atau menyemak semula pelan yang anda sedia ada. Jika sebelum ini jumlah pampasan yang anda ambil hanya RM100,000, anda boleh menambah jumlah tersebut ke satu jumlah yang lebih besar sesuai dengan diri anda. Selain pampasan, semak juga manfaat kad perubatan anda sama ada masih sesuai atau tidak dengan keadaan semasa. Anda juga boleh menggunakan bonus tersebut untuk menyambung bayaran caruman bagi memudahkan anda membuat caruman setiap bulan. Sumber: www.duitkertas.com “Selain menambah pelaburan dan simpanan, anda juga perlu meningkatkan lagi ilmu pengurusan kewangan dan pelaburan.” 6 | RINGGIT Memilih Kad Perubatan Yang Sesuai Kad perubatan telah menjadi satu keperluan dalam kalangan rakyat Malaysia pada hari ini. Seorang pengguna yang memiliki kad perubatan akan mendapat akses kepada hospital dan klinik swasta yang menawarkan perkhidmatan dengan lebih cepat dan mudah. Walaupun kepentingannya tidak disangkal, namun pengguna perlu bijak memilih kad perubatan yang bersesuaian dengan keperluan mereka. Pengguna perlu mengimbangi antara kos, aspek liputan rawatan, akses kepada perkhidmatan dan perkhidmatan lain yang disediakan bagi memastikan pengguna mendapat perlindungan yang menyeluruh. Bagi membantu anda dan keluarga anda memilih kad perubatan yang sesuai, berikut adalah beberapa panduan mudah: 1. Pastikan had tahunan Walaupun perlindungan bagi rawatan di hospital agak besar kosnya, tetapi pengguna perlu mempertimbangkan had tahunan sebelum membuat keputusan. Pemegang polisi perlu memahami berapakah jumlah bil yang dibenarkan bagi setiap tahun dan jangka masa perlindungan tersebut. 2. Kad perubatan asas atau produk pelaburan Pengguna perlu memastikan jenis insurans / takaful yang dilanggan – sekiranya ia polisi asas atau yang dipakej sekali bersama- sama dengan produk pelaburan (investment linked). Pengguna dengan polisi asas dan produk pelaburan perlu membayar kadar bulanan yang lebih mahal. Namun begitu, polisi seperti ini mempunyai kelebihan simpanan tunai, yang juga boleh digunakan untuk membayar kadar bulanan bagi satu jangka masa tertentu. 3. Bandingkan pakej polisi lain dan pilih yang sesuai dengan anda Akhir sekali, pengguna perlu memahami jenis dan kos rawatan yang ditanggung oleh polisi. Pengguna juga boleh membandingkan dengan pakej polisi lain atau menambah baik pakej yang sedia ada. Sebagai contoh, terdapat polisi yang memberikan elaun bagi pemegang polisi yang dimasukkan ke dalam wad. Memiliki kad perubatan adalah satu keperluan, namun pemahaman tentang polisi akan membantu anda apabila ingin mendapatkan rawatan kelak. Pengguna disaran supaya membaca terma dan syarat polisi serta memahami kepentingan untuk mengisytihar penyakit sedia ada bagi mengelakkan kesulitan pada kemudian hari. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Dis 2018 | 7 Senarai Insentif Yang Diterima Golongan B40 dalam Belanjawan 2019 Golongan isi rumah berpendapatan rendah (B40) merupakan penerima manfaat terbesar daripada Belanjawan 2019. Beberapa inisiatif telah diperkenalkan oleh kerajaan bagi menyalurkan bantuan kepada golongan B40 untuk membantu mengurangkan bebanan kos sara hidup yang dihadapi oleh golongan tersebut. Sumber: kapital.my BANTUAN SARA HIDUP (BSH) BSH adalah sebuah program bantuan yang sebelum ini dikenali sebagai Bantuan Rakyat 1Malaysia (BR1M). Beberapa penambahbaikan dilakukan dengan matlamat supaya pemberian ini dapat dilaksanakan dengan lebih bersasar. Terdapat tiga kategori penerima BSH: • Isi rumah berpendapatan bulanan RM2,000 dan ke bawah akan menerima bantuan berjumlah RM1,000. • Isi rumah berpendapatan bulanan daripada RM2,001 hingga RM3,000 akan menerima bantuan berjumlah RM750. • Isi rumah berpendapatan bulanan daripada RM3,001 hingga RM4,000 akan menerima bantuan berjumlah RM500. Selain itu, bantuan tambahan sebanyak RM120 untuk setiap anak berumur 18 tahun ke bawah dan terhad kepada 4 orang, kecuali anak kurang upaya yang tidak dihadkan umur. BANTUAN PEMILIKAN RUMAH Dana berjumlah RM1 bi l ion yang ditubuhkan oleh Bank Negara Malaysia bagi membantu golongan yang memiliki pendapatan RM2,300 sebulan dan ke bawah untuk memiliki rumah pertama melalui pembelian rumah mampu milik berharga RM150,000 dan ke bawah. SUBSIDI ELEKTRIK Golongan B40 akan menerima subsidi bil elektrik isi rumah sebanyak RM40. Subsidi ini akan disalurkan khusus kepada golongan miskin dan miskin tegar yang berdaftar di bawah program e-Kasih. DANA PERLINDUNGAN KESIHATAN Sebuah skim jaringan p e r l i n d u n g a n k e s i h a t a n b a k a l d i p e r k e n a l k a n bermula Januari 2019 hasi l usaha sama kerajaan dan syarikat swasta. Mela lu i sk im in i , golongan B40 akan mendapat perlindungan kesihatan percuma untuk empat sakit kritikal utama dengan jumlah sebanyak RM8,000. Golongan ini juga layak menerima pendapatan gantian maksimum 14 hari semasa tempoh rawatan pada kadar RM50 sehari. SUBSIDI MINYAK BERSASAR Kera jaan bercadang untuk memperkenalkan satu mekanisme pemberian subsidi minyak yang lebih bersasar supaya hasrat utama kerajaan untuk membantu golongan yang layak untuk menerima bantuan, berjaya dicapai. Hanya golongan sasaran yang layak akan menerima subsidi tersebut. Apabila subsidi ini dilaksanakan, harga minyak petrol RON95 akan diapungkan. Melalui mekanisme subsidi bersasar ini, kerajaan akan memberi subsidi minyak sebanyak 30 sen seliter kepada pemilik kereta persendirian dengan enjin berkapasiti 1,500cc ke bawah dan motosikal berkapasiti enjin 125cc ke bawah (tidak termasuk kenderaan di bawah kategori kenderaan mewah). Pemberian subsidi minyak ini hanya terhad kepada 100 liter minyak sebulan bagi kereta dan 40 liter bagi motosikal. Sebanyak RM2 bilion peruntukan akan disalurkan bagi pelaksanaan subsidi minyak ini dan dijangkakan akan memberi manfaat kepada lebih 4 juta pemilik kereta dan 2.6 juta pemilik motosikal. 8 | RINGGIT Tidak dinafikan pinjaman peribadi adalah satu kemudahan kewangan yang popular dalam kalangan rakyat Malaysia. Sehingga hari ini, ramai rakyat Malaysia mempunyai pinjaman peribadi dan mendapat manfaat daripadanya. Jika digunakan untuk kebaikan, pinjaman peribadi banyak memberi manfaat kepada setiap individu. Contohnya, untuk membaiki rumah, membantu ibu bapa, menguruskan hutang, dan juga sebagai modal untuk perniagaan. Namun, anda perlu berhati-hati terhadap pinjaman peribadi yang ditawarkan; terutamanya jika pinjaman tersebut tidak ditawarkan oleh bank. Bank Negara Malaysia (BNM) juga sering memberi nasihat dan peringatan kepada orang ramai supaya lebih berhati-hati dengan tawaran pinjaman peribadi daripada pihak yang tidak dikenali. Kami ingin kongsikan dengan anda beberapa cara untuk mengenal pasti penipuan kewangan berkaitan pinjaman peribadi. 1. Tawaran melalui media sosial Pernahkah anda melihat iklan di media sosial, seperti Facebook, Instagram, WeChat atau Twitter, berkenaan tawaran pinjaman peribadi yang boleh diluluskan walaupun nama anda sudah disenarai hitam? Jangan terkejut kerana perkara tersebut sudah menjadi kebiasaan untuk pemberi pinjaman peribadi melakukan penipuan. Ini adalah perkara yang paling mudah untuk anda mengenal pasti pemberi pinjaman peribadi tersebut adalah betul atau sekadar satu penipuan. Sebenarnya, tawaran seperti ini adalah satu berita gembira kepada individu yang tidak layak mendapatkan pinjaman peribadi daripada pihak institusi kewangan. 2. Pinjam RM5,000, bayar RM5,000 Cara lain yang membolehkan anda mengetahui pemberi pinjaman tersebut menipu adalah melalui tawaran pinjaman tanpa faedah atau keuntungan di pihak pemberi pinjaman. Contohnya adalah seperti tawaran, ‘Pinjam RM5,000, Bayar RM5,000’. Ini bermakna, pihak pemberi pinjaman menawarkan pinjaman tanpa kadar faedah atau keuntungan. Seperti kita tahu, setiap syarikat pemberi pinjaman adalah satu perniagaan dan sudah pasti mahukan keuntungan daripada setiap pinjaman yang ditawarkan. Jadi, sangat mustahil untuk sesuatu syarikat memberi perkhidmatan mereka tanpa menjana keuntungan. Selain itu, anda juga perlu berhati-hati jika ada syarikat pemberi pinjaman yang memberikan kadar faedah yang terlalu rendah sehingga kurang daripada kadar faedah semasa sebagaimana yang ditawarkan oleh pihak institusi kewangan. 3. Bayaran awal dan pendahuluan Modus operandi yang biasa dilakukan oleh syarikat jenis ini adalah dengan memberitahu bahawa permohonan pinjaman tersebut sukar untuk diluluskan. Oleh itu, untuk meluluskan permohonan pinjaman tersebut, peminjam perlu memberi bayaran pendahuluan. Mengenal Pasti Penipuan Kewangan Berkaitan Pinjaman Peribadi Dis 2018 | 9 Selepas bayaran awal diterima, syarikat tersebut biasanya akan terus hilang dan tidak dapat dihubungi. Kes seperti ini biasanya berlaku apabila pemohon pinjaman peribadi terlalu mengharap dan terdesak untuk mendapatkan pinjaman peribadi tersebut. Akhirnya, pinjaman peribadi tidak dapat, kerugian pula yang perlu ditanggung. Selain bayaran awal, syarikat pemberi pinjaman yang ingin menipu anda biasanya akan meminta anda membayar kos pengurusan yang terlalu tinggi. 4. Akaun media sosial palsu Bagi individu yang aktif dalam dunia media sosial, anda mungkin pernah dihubungi oleh individu yang menawarkan pinjaman peribadi. Kebiasaannya, mereka akan menggunakan gambar wanita cantik untuk mengumpan anda. Perkara pertama anda boleh lihat ialah gambar pada akaun media sosial tersebut. J ika gambar yang digunakan adalah gambar seperti haiwan atau gambar orang lain, kemungkinan untuk berlaku penipuan adalah tinggi. Mereka juga gemar untuk menghantar pesanan ringkas (SMS) atau melalui aplikasi WhatsApp dengan tawaran yang sangat menar ik dan sukar untuk ditolak. Selain itu, mereka juga lebih gemar untuk memproses segala urusan secara dalam talian sahaja dan tidak perlu berjumpa. Cara ini menjadikan mereka lebih mudah untuk melakukan penipuan kerana tidak perlu berjumpa dengan orang ramai. 5. Memaksa tandatangan Bagi individu yang sudah diluluskan pinjaman peribadi, mereka perlu menandatangani surat perjanjian sebagai tanda persetujuan. Jika anda sebagai peminjam tidak diberi peluang untuk membaca isi kandungan perjanjian dan dipaksa menandatangan perjanjian tersebut, itu menandakan anda mungkin akan ditipu melalui perjanjian yang berat sebelah. Perkara yang sering berlaku adalah apabila peminjam tidak sedar tentang kadar faedah yang mereka ambil adalah terlalu tinggi. Akhirnya, pelanggan terpaksa membayar jumlah pinjaman tersebut sehingga melebihi 10 kali ganda daripada jumlah pinjaman. Bagaimana Jika Anda Sudah Tertipu dan Apa Yang Perlu Dilakukan? Jika anda merupakan mangsa skim penipuan pinjaman peribadi, anda boleh lakukan perkara-perkara berikut: 1. Buat laporan polis Pertama sekali, sila buat laporan di balai polis. Tujuan laporan polis dilakukan adalah supaya pihak polis boleh membantu jika terdapat penipuan dan juga melindungi diri anda daripada sebarang ancaman. Berdasarkan Seksyen 420 Kanun Keseksaan, penipuan tersebut akan disiasat dan si penipu boleh dipenjara maksimum 10 tahun serta boleh dikenakan denda jika bersalah. 2. Dapatkan nasihat daripada penasihat kewangan A n d a m u n g k i n menghadapi masalah yang lebih teruk untuk mengurus kewangan anda selepas terjebak dalam penipuan pinjaman peribadi tersebut. Oleh itu, cara terbaik adalah untuk mendapatkan nasihat kewangan supaya pengurusan kewangan anda menjadi lebih baik. 3. Sebarkan nama penipu tersebut Jangan berasa malu untuk kongsikan pengalaman anda ditipu oleh syarikat pinjaman peribadi. Perkongsian tersebut mungkin berjaya menyelamatkan ramai lagi individu daripada terjebak dalam penipuan yang sama dan mungkin mengalami kerugian yang lebih besar. Akhir kata, jika anda ingin mendapatkan pinjaman peribadi, pastikan anda memohon daripada syarikat atau melalui saluran yang betul supaya tidak tertipu. Sumber: iMoney.my 10 | RINGGIT Jangan SERAHKAN KAD ATM anda kepada orang lain. Akaun Bank anda mungkin disalah guna untuk tujuan PENIPUAN. Anda BOLEH DIDAKWA secara Fraud membantu menyembunyikan harta orang lain yang membawa hukuman PENJARA, boleh sampai 5 tahun atau DENDA atau kedua-duanya. Siasatan Jenayah Siber & Multimedia JSJK Bukit Aman # BAHAYA BM_bnk_scamvictim_poster_A4 edit.pdf 1 9/12/2018 6:12:08 PM

Public Notice

23 Dec 2020

Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions

https://www.bnm.gov.my/-/exchange-of-defaced-currency-notes-tampered-currency-coins-and-demonetised-currency-at-financial-institutions

Reading: Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions Share: 191 Exchange of Defaced Currency Notes, Tampered Currency Coins and Demonetised Currency at Financial Institutions Embargo : For immediate release Not for publication or broadcast before 0920 on Wednesday, 23 December 2020 23 Dec 2020 Members of the public are advised to exchange their defaced currency notes, tampered currency coins and demonetised currency at any financial institutions. The financial institutions will: compensate the public on the same day for straight forward cases of defaced currency notes; and refer to BNM for assessment on doubtful cases of defaced currency notes, tampered currency coins and demonetised currency. BNM will compensate the public at a later date after assessment. The exchange counter at BNM Head Office and BNM Offices are closed to the public but will remain open to financial institutions only to accept (ii) above. For further assistance, please contact: BNM Ibu Pejabat Kuala Lumpur +603-26988044 (ext. 7390, 7416 or 7414) BNM Office Johor Bahru +607-225 7888 BNM Office Pulau Pinang +604-258 7588 BNM Office Kuala Terengganu +609-638-2001 BNM Office Kuching +6082-224-200 BNM Office Kota Kinabalu +6088-522-310 Bank Negara Malaysia 23 December 2020 © Bank Negara Malaysia, 2020. All rights reserved.

Public Notice

21 Dec 2020

The Financial Markets Committee (FMC) will drive the development of an alternative financial benchmark rate for Malaysia

https://www.bnm.gov.my/-/the-financial-markets-committee-fmc-will-drive-the-development-of-an-alternative-financial-benchmark-rate-for-malaysia

Reading: The Financial Markets Committee (FMC) will drive the development of an alternative financial benchmark rate for Malaysia Share: 13 The Financial Markets Committee (FMC) will drive the development of an alternative financial benchmark rate for Malaysia Embargo : For immediate release Not for publication or broadcast before 1415 on Monday, 21 December 2020 21 Dec 2020 The Financial Markets Committee[1] (FMC) has been appointed as the committee to oversee the development of an alternative reference rate (ARR) for Malaysia and to deliberate on the continuity of Kuala Lumpur Interbank Offered Rate (KLIBOR). Financial benchmark reforms are underway internationally to improve the integrity of global interest rate benchmarks or reference rates, in line with the Financial Stability Board’s (FSB) recommendation. The Bank envisages the identified ARR will run in parallel with the existing KLIBOR, thus providing sufficient time for market participants and stakeholders to prepare for the adoption of ARR. The FMC comprises representatives from Bank Negara Malaysia, Securities Commission Malaysia, financial institutions, insurers, fund managers and corporate treasurers. It will be the key forum to discuss the latest international developments on financial benchmarks and is responsible for providing recommendations on the strategic direction for the financial benchmark rates in Malaysia. The first key task for the committee would be to conduct an initial public consultation on the identification of a suitable ARR and enhancements to the KLIBOR framework if it is retained. The FMC will also deliberate on industry-wide standards to facilitate the adoption of ARR for financial contracts currently referencing KLIBOR. Regular updates on the progress achieved by the FMC, including its assessment and recommendations, will be published for reference by all market participants.     [1] The Financial Markets Committee is a committee established by BNM in May 2016 and comprises representatives from Bank Negara Malaysia, financial institutions, corporations, financial service providers and other institutions which have prominent roles or participation in the financial markets.   Bank Negara Malaysia 21 December 2020 © Bank Negara Malaysia, 2020. All rights reserved.

Public Notice

17 Dec 2020

Welcome to the new look of the BNM website!

https://www.bnm.gov.my/-/welcome

Reading: Welcome to the new look of the BNM website! Share: 18 Welcome to the new look of the BNM website! Embargo : For immediate release Not for publication or broadcast before 0033 on Thursday, 17 December 2020 17 Dec 2020 The BNM website has undergone a facelift to improve the user experience. It is now easier to navigate through the site to find information and it is also more mobile friendly. The search feature has been enhanced to return more relevant results. The menu has also been simplified to reflect the most requested content. Other website contents has been surfaced to the front page. For our repeat visitors, the contents have been moved to new web addresses (URLs). If you face difficulties in finding your regular page, you may either familiarise yourself with the new front page, or please try our new search page: www.bnm.gov.my/search Some of the popular pages now have a new address. Exchange rates: www.bnm.gov.my/exchange-rates Latest rates: www.bnm.gov.my/latest-rates List of Licensed Financial Institutions: www.bnm.gov.my/list-of-licensed-financial-institutions NSDP: www.bnm.gov.my/national-summary-data-page-for-malaysia ARC: www.bnm.gov.my/advance-release-calendar COVID19 information page: www.bnm.gov.my/covid19 Targeted Repayment Assistance page: www.bnm.gov.my/tra For those who have subscribed to our email alerts, you may resubscribe at www.bnm.gov.my/subscribe If you are unable to locate your favourite page, please let us know in the feedback form (bnm.my/websitefeedback) and we will try to help you locate it. Apologies for any inconvenience, and thank you for your continued support. Bank Negara Malaysia 17 December 2020 © Bank Negara Malaysia, 2020. All rights reserved.

Public Notice

09 Dec 2020

RINGGIT Newsletter (Bil 5/2020 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-5/2020-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/947994/Ringgit+Bil+052020.pdf

Reading: RINGGIT Newsletter (Bil 5/2020 issue) is now available for download Share: RINGGIT Newsletter (Bil 5/2020 issue) is now available for download Release Date: 09 Dec 2020 The highlight for this issuance is Intipati Belanjawan 2021. Other topics of interest include : Perlindungan Tenang: Mampu dan Mudah untuk Semua Mengatasi Cabaran Merancang Simpanan Persaraan Banjir - Adakah Kenderaan Anda Dilindungi? RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 5/2020 [PDF] © 2024 Bank Negara Malaysia. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 5/2020 Banjir - Adakah Kenderaan Anda Dilindungi? Mengatasi Cabaran Merancang Simpanan Persaraan Perlindungan Tenang: Mampu dan Mudah untuk Semua Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. I n t I p a t I “Teguh KiTa, Menang BersaMa” #Belanjawan2021 #Budget2021 “Teguh KiTa, Menang BersaMa” #Belanjawan2021 #Budget2021 PERCUMA | PP 16897/05/2013 (032581) Pada 6 November 2020, YB Senator Tengku Dato’ Sri Zafrul Abdul Aziz selaku Menteri Kewangan Malaysia telah membentangkan Belanjawan 2021 yang bertemakan “Teguh Kita, Menang Bersama”. Belanjawan 2021 telah dirangka berdasarkan tiga matlamat induk iaitu Kesejahteraan Rakyat, Kelangsungan Ekonomi dan Ketahanan Ekonomi. Kesemua matlamat ini adalah merupakan kesinambungan kepada pakej PRIHATIN, PRIHATIN PKS TAMBAHAN, PENJANA dan juga KITA PRIHATIN. Antara strategi yang dicadangkan untuk mengukuhkan kesejahteraan rakyat di dalam Belanjawan 2021 termasuklah: Perlindungan mySalam diperluaskan ke atas tuntutan kos peranti perubatan seperti stent untuk jantung atau prosthesis. Program Baucar Perlindungan Tenang RM50 kepada golongan B40 sebagai bantuan kewangan untuk membeli produk Perlindungan Tenang termasuk takaful hayat dan kemalangan diri. Menaikkan kadar bantuan kebajikan bulanan seperti berikut: • Kadar Bantuan OKU Tidak Berupaya Bekerja dinaikkan daripada RM250 kepada RM300. • Kadar Bantuan Warga Emas dan Bantuan Penjagaan OKU dan Pesakit Kronik Terlantar dinaikkan daripada RM350 kepada RM500. • Kadar Elaun Pekerja OKU dinaikkan daripada RM400 kepada RM450. • Kadar Bantuan Kanak-kanak Keluarga Miskin dinaikkan daripada RM100 seorang anak (maksimum RM450 sekeluarga), kepada RM150 seorang anak berumur 7 tahun hingga 18 tahun atau RM200 seorang anak berumur 6 tahun dan ke bawah (maksimum RM1,000 sekeluarga). Strategi 1: Pandemik COVID-19 dan kesihatan awam Strategi ini merupakan usaha bagi memerangi pandemik COVID-19 dan juga melindungi kesihatan awam. Antaranya adalah seperti yang berikut: Strategi 2: Memelihara kebajikan golongan rentan Strategi ini adalah untuk memelihara kebajikan golongan rentan, merangkumi lebih 400,000 isi rumah berpendapatan kurang daripada Pendapatan Garis Kemiskinan (PGK). Antara langkah-langkah yang diambil adalah seperti yang berikut: Langkah 1: Penambahbaikan Bantuan Kewangan Strategi 1: Pandemik Covid-19 & Kesihatan Awam Perluasan Program mySalam Strategi 1: Pandemik Covid-19 & Kesihatan Awam Baucar Perlindungan Tenang RM50 Strategi 2: Memelihara Kebajikan Golongan Rentan “Teguh Kita, Menang Bersama” Intipati “Teguh Kita, Menang Bersama” B E L A N J A W A N 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. • Bantuan Prihatin Rakyat (BPR) dengan kadar bantuan dan kategori pendapatan seperti berikut: Individu bujang berpendapatan kurang daripada RM2,500 menerima RM350. Had umur kelayakan individu bujang diturunkan kepada 21 tahun berbanding syarat sebelum ini ialah 40 tahun. Bantuan Prihatin Rakyat (BPR) Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Isi rumah berpendapatan <RM2,500 1 orang anak RM1,200 2 orang anak atau lebih RM1,800 Bantuan Prihatin Rakyat (BPR) Isi rumah berpendapatan RM2,500 - RM4,000 1 orang anak RM800 2 orang anak atau lebih RM1,200 Bantuan Prihatin Rakyat (BPR) Isi rumah berpendapatan RM4,001 - RM5,000 1 orang anak RM500 2 orang anak atau lebih RM700 Bantuan Prihatin Rakyat (BPR) bil. 5/2020 | 3 Langkah 2: Meringankan Beban Hidup Rakyat Kadar cukai pendapatan diturunkan sebanyak 1% bagi banjaran pendapatan bercukai RM50,001 hingga RM70,000. Menambah baik Bantuan Pembayaran Bersasar seperti berikut: Peminjam kategori B40/perusahaan mikro (pinjaman kurang daripada RM150,000) diberi pilihan: • Opsyen 1: Menangguhkan ansuran bulanan selama 3 bulan atau • Opsyen 2: Pengurangan ansuran bulanan sebanyak 50% selama 6 bulan. Peminjam daripada golongan M40, proses permohonan bantuan bayaran balik pinjaman akan dipermudahkan. Peminjam hanya perlu membuat pengisytiharan kendiri (self-declaration). Pengurangan kadar caruman minimum KWSP pekerja daripada 11% kepada 9% mulai Januari 2021 untuk tempoh 12 bulan. Pengeluaran simpanan KWSP Akaun 1 secara bersasar untuk membantu ahli-ahli yang terjejas pendapatan mereka. Sistem Insurans Pekerjaan (SIP) akan dilanjutkan dan tempoh Elaun Mencari Kerja akan dilanjutkan selama 3 bulan dan kadar layak menuntut daripada 80% gaji bagi bulan pertama, 50% bagi bulan kedua hingga keenam dan seterusnya 30% bagi tiga bulan terakhir. Penurunan Kadar Cukai Pendapatan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Strategi 2: Memelihara Kebajikan Golongan Rentan Bantuan Pembayaran Sasaran untuk B40 dan Perusahaan Mikro Pengurangan Caruman KWSP Daripada 11% kepada 9% Pengeluaran Simpanan KWSP Akaun 1 Lanjutan Tempoh Elaun Mencari Kerja Selama 3 Bulan • 80% gaji bagi bulan pertama • 50% gaji bagi bulan kedua • 30% gaji bagi 3 bulan terakhir RM150 juta diperuntukkan untuk 130,000 pencari kerja 4 | RINGGIT Strategi 3: Menjana dan Mengekalkan Pekerjaan Berikutan pandemik COVID-19, kadar pengangguran telah meningkat kepada 5.3% atau 820,000 penganggur pada Mei 2020 iaitu tertinggi sejak 1989. Oleh itu, beberapa langkah-langkah yang telah diambil bagi mengekang masalah pengangguran ini antaranya: Langkah 1: Insentif PenjanaKerjaya Insentif untuk pekerja bergaji RM1,500 ke atas akan dinaikkan daripada kadar rata RM800 sebulan, kepada 40% daripada gaji bulanan, terhad kepada gaji maksimum RM4,000 bagi tempoh 6 bulan. Insentif tambahan sebanyak 20% daripada gaji bulanan pekerja diberikan kepada majikan yang mengambil pekerja OKU, penganggur jangka panjang dan pekerja yang diberhentikan bagi tempoh 6 bulan. Insentif sebanyak 60% daripada gaji bulanan disediakan dengan 40% kepada majikan dan 20% kepada pekerja tempatan yang menggantikan pekerja asing bagi tempoh 6 bulan. Kadar maksimum program latihan yang layak dituntut majikan dinaikkan daripada RM4,000 kepada RM7,000 bagi menjalani program kemahiran tinggi atau sijil profesional. Langkah 2: Reskilling & Upskilling Program Kementerian Pengajian Tinggi persijilan profesional (KPT-PACE) iaitu graduan baharu ditawarkan baucar bernilai RM3,000 bagi kursus sijil profesional di universiti awam dan swasta. Pelaksanaan program latihan dan kerja secara usahasama dengan majikan swasta oleh Pembangunan Sumber Manusia Berhad (HRDF). Strategi 3: Menjana dan Mengekalkan Pekerjaan Penambahbaikan Program PenjanaKerjaya Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Penambahbaikan Program PenjanaKerjaya Insentif tambahan sebanyak 40% + 20% Penambahbaikan Program PenjanaKerjaya Insentif tambahan sebanyak 40% + 20% Penambahbaikan Program PenjanaKerjaya Program Peningkatan Kemahiran & Latihan Semula (Reskilling & Upskilling Programme) RM150 juta untuk KPT-PACE Baucar RM3,000 seorang untuk 50,000 graduan bagi pengambilan sijil professional Program Peningkatan Kemahiran & Latihan Semula (Reskilling & Upskilling Programme) RM100 juta untuk HRDF Program latihan dan kerja secara usahama dengan majikan sektor swasta bil. 5/2020 | 5 Malaysia Digital Economy Corporation (MDEC) memudahkan peralihan bakat tenaga kerja sedia ada bagi mengisi keperluan dalam industri Teknologi Maklumat dan Komunikasi. Pelepasan cukai yuran pengajian akan diperluas meliputi perbelanjaan menghadiri kursus peningkatan kemahiran oleh badan-badan bertauliah, terhad kepada RM1,000 bagi setiap tahun taksiran. Langkah 3: Malaysia Short Term Employment Programme (MYSTEP) 50,000 peluang pekerjaan secara kontrak dalam sektor awam dan Syarikat Berkaitan Kerajaan atau GLC bermula Januari 2021. Langkah 4: Program Subsidi Upah Bersasar Program Subsidi Upah Bersasar dilanjutkan selama tiga bulan khusus bagi sektor pelancongan dan peruncitan. Langkah 5: Perlindungan Sosial • P e n g e l u a r a n simpanan Akaun 2 KWSP untuk membeli produk p e r l i n d u n g a n i n s u r a n s d a n takaful hayat dan penyakit kritikal yang diluluskan oleh KWSP. • Pelepasan cukai pendapatan individu sehingga RM3,000 ke atas caruman Skim Persaraan Swasta dilanjutkan sehingga tahun taksiran 2025. Secara kesimpulannya, melihat kepada senario ekonomi semasa akibat gelombang ketiga wabak COVID-19, FOMCA berpandangan bahawa Belanjawan 2021 sedikit sebanyak dapat membantu golongan yang terjejas akibat penularan wabak ini. Selain itu, FOMCA juga menyifatkan pembentangan Belanjawan 2021 sebagai menyeluruh meskipun kerajaan menghadapi pelbagai kekangan daripada segi kewangan. Malahan, Belanjawan 2021 ini juga bukan sahaja mengurangkan bebanan rakyat tetapi pada masa yang sama ianya bertujuan bagi menggerakkan ekonomi negara ─ Mohd Yusof Abdul Rahman, Timbalan Presiden, FOMCA. Sumber: www.treasury.gov.my Caruman Skim Bencana Pekerjaan PERKESO kepada: • Anggota Pasukan Sukarelawan Angkatan Tentera, Sukarelawan Simpanan Polis, Sukarelawan Pertahanan Awam Malaysia dan Sukarelawan Maritim Malaysia. • Guru takmir, imam, bilal, siak, noja, dan merbut. • Pekerja sektor awam berstatus Contract for Service. • Delivery riders. Strategi 3: Menjana dan Mengekalkan Pekerjaan Program Peningkatan Kemahiran & Latihan Semula (Reskilling & Upskilling Programme) RM100 juta untuk MDEC Memudahkan peralihan bakat tenaga kerja sedia ada bagi mengisi keperluan industri ICT Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Strategi 3: Menjana dan Mengekalkan Pekerjaan Perluasan Skop Pelepasan Cukai Yuran Pengajian Terhad kepada RM1,000 bagi setiap tahun taksiran Bagi perbelanjaan kursus peningkatan kemahiran Short-term Employment Programme (MySTEP) RM700 juta Menawarkan 50,000 peluang pekerjaan Program Subsidi Upah Bersasar Skim Bencana Pekerjaan PERKESO RM24 juta 6 | RINGGIT Perlindungan yang Mampu dan Mudah untuk Semua Perlindungan insurans dan takaful penting dalam perancangan kewangan masa depan kerana ia menawarkan jaringan keselamatan untuk anda dan keluarga. Ia memastikan semua ahli keluarga mendapat perlindungan daripada segi kewangan sekiranya berlaku kematian, kebakaran dan kejadian yang tidak diingini. Anda dan orang tersayang yang bergantung kepada anda akan menerima sejumlah wang untuk membantu perbelanjaan harian dan membolehkan mereka meneruskan kehidupan sekiranya berlaku sesuatu kejadian yang tidak diingini. Ini dapat membantu anda dalam membina semula dan meneruskan kehidupan tanpa terjerumus ke dalam perangkap kemiskinan. Melalui Perlindungan Tenang, anda kini boleh membeli atau menyertai pelan perlindungan yang mampu dan mudah difahami, dengan proses tuntutan yang senang dan ringkas. Untuk menggalakkan rakyat Malaysia menggunakan perlindungan insurans dan takaful bagi mengurus risiko kewangan dalam kehidupan mereka, kerajaaan telah mengumumkan inisiatif Program Baucar Perlindungan Tenang sebanyak RM50 di bawah Belanjawan 2021 sebagai bantuan kewangan kepada golongan B40 untuk membeli produk Perlindungan Tenang. Produk Perlindungan Tenang menawarkan perlindungan kepada pemegang polisi serta keluarga dalam menghadapi peristiwa yang tidak dijangka (bergantung kepada jenis polisi) seperti kematian, kemalangan, hilang upaya kekal, kebakaran atau kerosakan harta benda. Untuk maklumat lebih lanjut, orang ramai dinasihatkan untuk menghubungi syarikat insurans/pengendali takaful yang berkenaan, atau layari laman sesawang www.mycoverage.my Keistimewaan Perlindungan Tenang Mampu dan berbaloi • Premium/caruman serendah RM1.00 sebulan. • Pelan boleh diperbaharui setiap tahun. Mudah • Mudah difahami. • Bayaran tuntutan terus kepada pemegang polisi atau benefisiari (penama), sekiranya berlaku musibah. • Proses pengunderaitan (underwriting) yang mudah dan pengeluaran polisi/sijil yang segera. Senang untuk dibeli dan disertai Produk Perlindungan Tenang boleh dibeli melalui: • Internet di laman sesawang syarikat insurans/ pengendali takaful; • Kaunter cawangan-cawangan syarikat insurans/ pengendali takaful; • Cawangan-cawangan bank tertentu; • Kaunter POS Malaysia; atau • Syarikat pengendali telefon mudah alih tertentu. Proses tuntutan adalah mudah dan ringkas • Tuntutan akan dibayar dalam tempoh lima (5) hari bekerja dari tarikh penerimaan dokumen yang lengkap. Program Baucar Perlindungan Tenang sebanyak RM50 merupakan inisiatif yang diumumkan di bawah Belanjawan 2021 sebagai bantuan kewangan kepada golongan B40 untuk membeli produk Perlindungan Tenang. Strategi 1: Pandemik Covid-19 & Kesihatan Awam Program Baucar Perlindungan Tenang bil. 5/2020 | 7 Mengatasi Cabaran Merancang simpanan persaraan merupakan satu komitmen jangka panjang yang mencabar. Apatah lagi, ketidaktentuan yang silih berganti memberi kesan kepada pengurusan kewangan peribadi kita, serta boleh memberi impak terhadap strategi simpanan persaraan kita. Tidak hairanlah, 16% rakyat Malaysia sangat bimbang tentang perbelanjaan isi rumah pada usia tua mereka1. Sehubungan itu, Skim Persaraan Swasta (PRS) telah diperkenalkan sebagai skim simpanan dan pelaburan jangka panjang sukarela yang direka bagi membantu rakyat Malaysia menyimpan lebih banyak untuk persaraan. PRS juga amat sesuai bagi golongan yang tidak ada apa-apa skim persaraan wajib – seperti golongan yang bekerja sendiri, berniaga mahupun suri rumah sepenuh masa. Private Pension Administrator Malaysia (PPA), selaku pentadbir pusat PRS, telah menyenaraikan beberapa perkara yang perlu dititikberatkan untuk menolong anda terus berada di landasan yang tepat dalam mencapai matlamat simpanan persaraan anda. Mulakan Sedikit, Mulakan Sekarang. Menyimpan untuk persaraan adalah satu usaha jangka panjang dan langkah pertama selalunya merupakan langkah yang paling sukar. Ramai yang tidak tahu bagaimana untuk memulakannya atau telah berputus asa kerana berpendapat bahawa ianya sudah terlambat. Satu cara untuk menjadikan proses ini tidak begitu mencabar adalah dengan melengkapkan diri dengan pengetahuan asas pengurusan kewangan. Terdapat pelbagai alat bantu dan bahan pembelajaran atas talian di laman web PPA yang boleh digunakan secara percuma, seperti kalkulator persaraan, yang dapat membantu anda mengira pelan simpanan untuk mencapai matlamat simpanan persaraan anda. Anda boleh layari www.ppa.my/ms untuk mengakses kemudahan ini. “Berita baiknya adalah anda tidak memerlukan jumlah yang besar untuk mula menyimpan untuk masa depan anda,” kata Husaini Hussin, Ketua Pegawai Eksekutif PPA. “Sekiranya anda masih belum mula menabung, pertimbangkan untuk mulakan sedikit dengan PRS, yang merupakan skim simpanan jangka panjang sukarela untuk rakyat Malaysia menyimpan lebih banyak untuk tujuan persaraan di bawah kerangka kerja yang dikawal selia dan tersusun.” Teruskan Menyimpan Secara Konsisten Setelah anda mula menyimpan, adalah penting untuk anda terus konsisten melakukannya. Sekiranya anda masih bekerja dan tidak terjejas secara kewangan disebabkan oleh pandemik global ini, maka teruskanlah menabung secara konsisten untuk persaraan anda, selain daripada melalui skim persaraan mandatori. Ahli PRS yang menyimpan secara konsisten ke dalam akaun PRS mereka setiap bulan boleh memilih untuk menyimpan lebih banyak dalam bulan-bulan yang mereka mampu. Merancang Simpanan Persaraan 1 Strategi Literasi Kewangan Kebangsaan 2019-2023 8 | RINGGIT Simpanan Persaraan Adalah Untuk Jangka Masa Panjang Perlu difahami bahawa simpanan persaraan anda dalam PRS adalah untuk jangka masa panjang. Walaupun setelah membuat pengeluaran pra-persaraan, anda digalakkan untuk terus menyimpan secara konsisten setelah anda mampu berbuat sedemikian. “Sekiranya situasi kerjaya anda tidak berubah, maka tiada alasan untuk mengubah cara menyimpan atau matlamat persaraan anda,” tambah Husaini. “Terus kekal dengan perancangan persaraan anda sekarang kerana PRS adalah direka untuk membantu pencarum mencapai matlamat persaraan mereka.” Untuk mula menyimpan di PRS, anda boleh mendaftar melalui perkhidmatan PRS Online PPA. Berikut adalah ringkasan prestasi Dana PRS sejak tarikh diperkenalkan: Kategori Dana PRS Pulangan* (Konvensional) Pulangan (Patuh Syariah**) Konservatif 4.59 % 4.19 % Sederhana 6.42 % 5.48 % Pertumbuhan 6.84 % 7.62 % Bukan Teras 11.15 % 8.84 % Sumber: Morningstar * Pulangan adalah dikira secara purata tahunan sejak tarikh diperkenalkan, setakat 31 Oktober 2020. ** PRS dikawal selia oleh Suruhanjaya Sekuriti Malaysia (SC) dan aktiviti Dana Syariah dipantau oleh Majlis Penasihat Syariah SC. Sumber: www.ppa.my (Private Pension Administrator Malaysia) Caruman ini akan menghasilkan penjimatan lebih banyak melalui Pengecualian Cukai PRS. Ini adalah kelebihannya bila anda simpan sendiri untuk masa depan. “Ini adalah masa yang tepat untuk menyimpan lebih banyak atau setidaknya mengekalkan jumlah caruman yang biasa anda lakukan untuk memberi kelebihan ke atas pergerakan pasaran,” jelas Husaini lagi. “Apabila anda menyimpan sejumlah wang ke dalam akaun persaraan anda setiap bulan, simpanan anda akan menghasilkan pulangan daripada pertumbuhan kompaun dari masa ke masa. Seperti kata pepatah - sikit-sikit, lama-lama jadi bukit.” Pastikan Simpanan Persaraan Anda Tetap Terpelihara Sekiranya anda perlu menilai semula kos sara hidup anda pada tempoh yang mencabar ini, jangan berhenti mencarum secara total tetapi pertimbangkan untuk menyemak semula bajet anda, laraskan sedikit jumlah yang anda ingin simpan dan tingkatkan semula apabila keadaan bertambah baik. Anda disarankan untuk menggunakan dana kecemasan dan akaun bukan persaraan anda terlebih dahulu, kerana memelihara simpanan persaraan anda sepatutnya menjadi keutamaan walaupun pada tempoh yang tidak menentu. Ini kerana semakin lama simpanan anda dilaburkan, maka semakin banyak jugalah pulangan simpanan persaraan anda bercambah melalui kuasa kompaun. Namun begitu, sekiranya anda masih perlu membuat pengeluaran daripada dana persaraan anda, terdapat beberapa pilihan yang boleh anda lakukan. Pada awal tahun ini, Kerajaan telah meluluskan pengeluaran pra-persaraan dari PRS tanpa dikenakan penalti cukai sehingga 31 Disember 2020. Selain itu, pengeluaran pra-persaraan tanpa penalti cukai juga boleh dilakukan bagi tujuan perumahan dan penjagaan kesihatan. Kemudahan pengeluaran ini memberikan lebih banyak fleksibiliti kepada ahli PRS untuk menggunakan simpanan mereka bagi membiayai sesuatu keperluan yang penting. Bagi menggalakkan simpanan hari tua, pelepasan cukai pendapatan individu sehingga RM3,000 ke atas caruman Skim Persaraan Swasta atau PRS dilanjutkan sehingga tahun taksiran 2025. Strategi 3: Menjana dan Mengekalkan Pekerjaan Menggalakkan Simpanan Skim Persaraan Swasta (PRS) Pelepasan cukai pendapatan sehingga RM3,000 untuk menggalakkan simpanan hari tua bil. 5/2020 | 9 Adakah Kenderaan Anda Dilindungi? Banjir Apabila musim tengkujuh melanda negara ini, timbul kebimbangan dalam kalangan pengguna kenderaan tentang risiko kenderaan mereka ditenggelami air akibat banjir. Walaupun mereka telah mengambil langkah berjaga-jaga, seperti meletak kenderaan di tempat letak kereta yang tinggi, serta mengelak daripada melalui kawasan yang sering dilanda banjir semasa hujan lebat, namun risiko kenderaan ditenggelami air banjir masih ada. Oleh itu, pengguna pasti tertanya-tanya sama ada mereka boleh membuat tuntutan insurans atau takaful bagi kerosakan kenderaan yang diakibatkan oleh banjir. Secara amnya, polisi insurans/takaful motor komprehensif memberikan pampasan bagi musibah seperti kerosakan atau kehilangan kenderaan akibat kemalangan, kebakaran mahupun kecurian. Namun demikian, kerosakan akibat banjir atau apa jua yang disebabkan banjir adalah dikategorikan sebagai bencana alam dan disenaraikan sebagai risiko yang tidak dilindungi oleh polisi insurans/takaful motor. Antara kerosakan atau kehilangan akibat banjir yang tidak dilindungi ialah: • kerosakan terhadap kenderaan yang ditenggelami banjir. • kehilangan kenderaan akibat hanyut semasa banjir. • kebakaran dan letupan kenderaan akibat dimasuki air banjir. • kemalangan terhadap kenderaan dengan objek lain yang dihanyutkan air banjir seperti batang pokok atau sampah. Selain banjir, bencana alam lain yang tidak dilindungi termasuklah: • gempa bumi dan bencana lain yang terhasil akibat daripadanya seperti ombak besar/tsunami. • tanah runtuh (dan akibat daripadanya seperti letupan gas atau kebakaran akibat gangguan elektrik berikutan tanah runtuh). • ribut petir (dan akibat daripadanya seperti kerosakan daripada kenderaan dipanah petir semasa ribut). Walau bagaimanapun, pihak insurans/takaful akan melindungi kenderaan pengguna apabila berlaku banjir, sekiranya pengguna melanggan perlindungan komprehensif* berserta perlindungan tambahan untuk bencana alam semula jadi. Perlindungan tambahan ini juga terpakai untuk risiko bencana alam yang lain, seperti gempa bumi, tanah runtuh dan ribut petir. Perlindungan tambahan ini dikenakan caj premium/sumbangan tambahan sekitar 0.5% daripada jumlah yang dilindungi. Sebagai contoh, sekiranya kenderaan diinsuranskan sebanyak RM30,000, pemilik kenderaan akan dikenakan premium/sumbangan tambahan sebanyak RM150. Walau bagaimanapun, jumlah pemilik kenderaan di negara ini yang memilih untuk mendapatkan perlindungan insurans/ takaful motor daripada banjir dan bencana alam yang lain didapati masih di tahap amat rendah. Menurut data yang dikongsikan oleh Persatuan Insurans Am Malaysia (PIAM), hanya 2% hingga 4% pemilik kenderaan memilih untuk melindungi kenderaan mereka daripada bencana alam seperti banjir. Kebanyakan pemilik kenderaan berpendapat bahawa mereka tidak akan mengalami musibah bencana alam. Oleh itu, mereka mengelak daripada membeli perlindungan tambahan untuk bencana alam bagi menjimatkan kos. Pengguna hanya sedar kepentingan untuk mendapatkan polisi tambahan perlindungan banjir apabila kenderaan mereka telah rosak atau musnah akibat banjir. FOMCA menyarankan agar pengguna dapat menyemak semula polisi insurans/takaful motor dan mempertimbangkan untuk melanggani pakej perlindungan tambahan insurans/ takaful untuk menguruskan risiko kerugian akibat bencana alam seperti banjir. *Perlindungan komprehensif juga dikenali sebagai polisi pihak pertama seperti berlaku kematian/kecederaan pihak ketiga, kehilangan/kerosakan kepada kenderaan yang disebabkan kecurian, kebakaran dan kemalangan terhadap pihak lain. Sumber: www.piam.org.my / www.fomca.org.my 10 | RINGGIT Pusat Khidmat Aduan Pengguna Kebangsaan (NCCC) telah menerima sebanyak 4,268 aduan terhadap penjual produk pengguna umum. Kebanyakan aduan adalah daripada para pengguna dalam lingkungan umur 31-40 tahun iaitu 40.21% dan 21-30 tahun 22.16%. Antara aduan yang diterima adalah terhadap kualiti produk, perkhidmatan baik pulih, bayaran balik, jaminan dan informasi yang mengelirukan. Aduan mengenai kualiti produk mencatat jumlah yang tertinggi iaitu sebanyak 32.47% atau 1,386 aduan yang telah dikemukakan oleh para pengguna. Antara aduannya adalah kualiti produk yang tidak memenuhi tahap minima dan juga produk yang dibeli telah rosak dan tidak dapat berfungsi dengan baik. Barangan atau produk pengguna umum ini dibeli oleh para pengguna untuk kegunaan harian seperti perabot, peralatan elektrik dan elektronik serta pelbagai barangan lain. Barangan yang dijual kepada para pengguna mestilah bersesuaian dan selamat digunakan oleh mereka. Kebiasaannya, jangka hayat peralatan rumah seperti perabot, barangan eletrik dan elektronik adalah agak lama tetapi seringkali para pengguna mengadu barangan pengguna umum yang diterima oleh mereka telah rosak sebaik sahaja tamat tempoh jaminan. Para pengguna merasakan diri mereka telah ditipu kerana membeli barangan dengan harga yang mahal tetapi tidak boleh bertahan lama. Sekiranya barangan yang dibeli tidak berfungsi dengan baik, para pengguna mempunyai hak untuk menuntut barangan tersebut dibaiki atau diganti semula dengan nilai barangan tersebut. Perkara ini termaktub di bawah Akta Perlindungan Pengguna Seksyen 32 yang memberikan perlindungan kepada pengguna dan menetapkan bahawa semua barangan yang dibeli harus mempunyai jaminan kualiti barangan yang sepatutnya. Pada tahun 2019, sebanyak 11.08% aduan telah diterima berkaitan dengan pembaikpulihan. Seringkali barangan yang dihantar untuk dibaikpulih, perkhidmatannya tidak sempurna. NCCC menerima aduan bahawa para pengguna dipaksa untuk membayar bagi tujuan baikpulih dan juga upahnya. Para pengguna mengharapkan juruteknik dapat membaiki peralatan elektrik atau elektronik yang tidak berfungsi walaupun masih dalam tempoh jaminan. Tetapi tempoh baikpulih mestilah mematuhi masa yang telah ditetapkan. Selain itu, NCCC juga menerima aduan mengenai tuntutan balik barangan atau bayaran iaitu sebanyak 9.02%. Seseorang pengguna boleh menuntut semula wangnya sekiranya barangan tersebut tidak mengikut spesifikasi dan tidak dapat berfungsi seperti yang telah dimaklumkan. Namun ramai penjual enggan menukarkannya dengan barangan yang baru. Penjual mendakwa barangan yang dijual tidak boleh diganti mahupun diberi pilihan tuntutan balik bayaran. Di samping itu, aduan mengenai jaminan barangan juga telah mencatatkan sebanyak 7.99%. Kebanyakan aduan adalah mengenai penjual dan pengedar yang enggan menggantikan barangan rosak dengan barangan yang baru walaupun barangan tersebut masih dalam tempoh jaminan. FOMCA menasihatkan para pengguna yang mempunyai masalah sedemikian supaya melaporkan perkara tersebut kepada Pusat Khidmat Aduan Pengguna Nasional (NCCC) dan juga kepada Kementerian Perdagangan Dalam Negeri dan Hal Ehwal Pengguna (KPDNHEP). FOMCA juga berpandangan kerajaan harus memperkenalkan ‘Lemon Law’ untuk barangan kegunaan pengguna seperti di Singapura. Menurut peruntukan ini, barangan yang rosak dan masih dalam jaminan perlu diganti dengan yang baru sekiranya barangan tersebut terpaksa dihantar dengan kerap ke pusat untuk diperbaiki. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) Suara Pengguna: Kualiti dan Perkhidmatan Produk Pengguna bil. 5/2020 | 11 Q " Tanpa moratorium menyéluhfln’, K peminlam sukar mendapat bantuan W * mm» "9 “ Bantuan bayaran balik blniaman bersasar hanya untuk B60 " patina! yang utiqjsaldhatpundunflt '0‘ Iémnfiua « hmlnpohi “ Bank minta terlalu banyak dokumen " o uv.pumrh1a-Isa-an Intnihlpuh I VXIGOJVIOIIIXII-IXBOIJUMULU :0 “ l3mse's'permohonan téflaltu’ lama " e-mol atau semak laman web moreka unluk buluan lanjut auemaxif Lawati https://www.bnm.gov.my/tra untuk mendapatkan maklumat lanjut mengenai bantuan bayaran balik pinjaman secara bersasar Tanggapan Salah Mengenai _ % Bantuan Bayaran Balik Pinjaman Bersasar unluk mendapatkan nasihal atau pilihan bantuan bayaran balik “-"I A. . ' 3'- "_$ayafi¢fa'kUabht’:nemohon PKPD dan mm: " ‘ ‘ ' W ,2 -. - - -x ' .. “N. _|I"“'°""" |"“‘¢“". ._ J ‘ “Bantuan masih tidak cukup uniuk menampung hutang " ‘n_ _ I hm . ._|. _ — uomwm OM31!!!‘ - wmmm hun:I?h!a»~taIn’-wanna: “Tiada kos tambahan tmtuk bantuan bayaran balik plnjaman bersasar " 0 htdth ahuhrus cumin 0 Pclaiivhmflntrpflihannflailolnsnnhlifi Ac snhnngninnn '0 " Rekod (CRIS saya akan terielas” o aenamansadanpemuuunuitum ° Fen-M-Mmitmm-s-8|-rl nnsamauaesssamseuunaanuuzozuiaauaa-n 0 FIG: Dalam masamaui dinavarm datum nmdccmsanda Apakah yang anda boleh lakukan? Inga: 3 langkah ini: O Hubungi bank anda dahulu: Ielefon. O Hubungi AKPK di tahan 03-2616 7766 Q Hubungi BNMTELELINK melalui talian 1-300-88-5465 atau bnm.myIRAsurvey unluk membuak aduan BANK NEGARA MALAYSIA CENYRAK BANK OF HAUWSIA

Public Notice

06 Nov 2020

Download the 2021 Budget Speech by Finance Minister of Malaysia

https://www.bnm.gov.my/-/download-the-2021-budget-speech-by-finance-minister-of-malaysia

Reading: Download the 2021 Budget Speech by Finance Minister of Malaysia Share: Download the 2021 Budget Speech by Finance Minister of Malaysia Embargo : For immediate release Not for publication or broadcast before 1830 on Friday, 6 November 2020 6 Nov 2020 The 2021 Budget Speech by YB Tengku Dato' Sri Zafrul Abdul Aziz, Finance Minister of Malaysia. Click on the hyperlink below to download. The 2021 Budget SpeechBank Negara Malaysia 6 November 2020 © Bank Negara Malaysia, 2020. All rights reserved.

Public Notice

27 Oct 2020

RINGGIT Newsletter (Bil 4/2020 issue) is now available for download

https://www.bnm.gov.my/-/ringgit-newsletter-bil-4/2020-issue-is-now-available-for-download

https://www.bnm.gov.my/documents/20124/947994/Ringgit+Ed114+2020-04+web.pdf

Reading: RINGGIT Newsletter (Bil 4/2020 issue) is now available for download Share: RINGGIT Newsletter (Bil 4/2020 issue) is now available for download Embargo : For immediate release Not for publication or broadcast before 1258 on Tuesday, 27 October 2020 27 Oct 2020 The highlight for this issuance is Bulan Literasi Kewangan Oktober 2020: Bijak Wang Pilihan Saya Other topics of interest include : Perkara Yang Perlu Diketahui Berkaitan Wang Tak Dituntut Inisiatif eBerkat: MDEC bantu usahawan mikro dan PKS Berhati-hatilah dengan Skim Cepat Kaya! Suara Pengguna: Aduan Pengurusan Sistem Pengangkutan Awam RINGGIT is a joint-effort publication between Bank Negara Malaysia and FOMCA and it is a bi-monthly publication starting from year 2019. This publication is published in Bahasa Malaysia only. Click on the link below to get the latest issue : Issue - Bil 4/2020 [PDF] Bank Negara Malaysia 27 October 2020 © Bank Negara Malaysia, 2020. All rights reserved.

R A K A N K E W A N G A N A N D A B I L . 4/2020 Suara Pengguna: Aduan Pengurusan Sistem Pengangkutan Awam Inisiatif eBerkat MDEC Bantu Usahawan Mikro dan PKS PERCUMA | PP 16897/05/2013 (032581) Perkara Yang Perlu Diketahui Berkaitan Wang Tak Dituntut Adakah anda mempunyai sebarang komen mengenai RINGGIT? Sila imbas kod QR untuk tinjauan bagi Majalah Ringgit. Bijak Wang Pilihan Saya Bulan Literasi Kewangan Oktober 2020 BULAN LITERASI KEWANGAN 2020 Selaras dengan Strategi Literasi Kewangan Kebangsaan 2019 – 2023, objektif FLM 2020 adalah untuk memberi maklumat, mendidik dan menyokong rakyat Malaysia dalam memantapkan pengurusan kewangan. Ini termasuk melengkapkan individu dengan instrumen dan pengetahuan untuk mencapai matlamat kewangan, menguruskan hutang dan melindungi diri mereka daripada penipuan kewangan. Berdasarkan Kaji Selidik Keupayaan dan Rangkuman Kewangan dari Sudut Permintaan 2018, 1 daripada 3 rakyat Malaysia mempunyai tahap keyakinan yang rendah dalam pengetahuan dan perancangan kewangan mereka, 52% rakyat Malaysia berasa sukar untuk menyediakan RM1,000 sekiranya berlaku kecemasan dan hampir separuh rakyat Malaysia tidak yakin bahawa mereka mempunyai simpanan yang mencukupi untuk persaraan. Memandangkan rakyat Malaysia juga menghadapi cabaran kewangan akibat pandemik COVID-19, FLM 2020 menyediakan lebih 100 program bertujuan untuk memperkasakan individu dalam membuat keputusan kewangan yang bijak dengan instrumen dan pengetahuan yang tepat. Jaringan Pendidikan Kewangan (FEN) telah melancarkan Bulan Literasi Kewangan (Financial Literacy Month, FLM 2020), dengan tema “Bijak Wang Pilihan Saya”. Majlis pelancaran peringkat Kementerian Pendidikan Malaysia turut disempurnakan oleh Timbalan Menteri Pendidikan II, YB Dato’ Dr. Mah Hang Soon pada 6 Oktober 2020 di Putrajaya. FEN dianggotai oleh lapan agensi dan diterajui bersama Bank Negara Malaysia dan Suruhanjaya Sekuriti Malaysia. Ahli-ahli lain adalah Kementerian Pendidikan Malaysia, Kementerian Pengajian Tinggi, Perbadanan Insurans Deposit Malaysia, Kumpulan Wang Simpanan Pekerja, Agensi Kaunseling dan Pengurusan Kredit serta Permodalan Nasional Berhad. Pelbagai inisiatif dan program oleh ahli-ahli FEN akan diadakan sepanjang FLM 2020 sebagai usaha berterusan untuk meningkatkan tahap celik kewangan dalam kalangan rakyat Malaysia. Bulan Literasi Kewangan Oktober 2020 Bijak Wang Pilihan Saya “Berdasarkan Kaji Selidik Keupayaan dan Rangkuman Kewangan dari Sudut Permintaan 2018, 1 daripada 3 rakyat Malaysia mempunyai tahap keyakinan yang rendah dalam pengetahuan dan perancangan kewangan mereka,....” 2 | RINGGIT Sidang Redaksi Penasihat Prof Datuk Dr. Marimuthu Nadason Presiden FOMCA Ketua Sidang Pengarang Dato’ Dr. Paul Selva Raj Editor Mohd Yusof bin Abdul Rahman Sidang Pengarang Maizatul Aqira Ishak Baskaran Sithamparam Nur Asyikin Aminuddin Ringgit merupakan penerbitan usaha sama antara Bank Negara Malaysia dan FOMCA. Ia diterbitkan secara berkala sebanyak enam edisi mulai tahun 2019. Untuk muat turun Ringgit dalam format “PDF“, sila layari laman sesawang www.fomca.org.my dan www.bnm.gov.my Gabungan Persatuan-Persatuan Pengguna Malaysia No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7876 2009 Faks: 03-7877 1076 E-mel : fomca@fomca.org.my Sesawang : www.fomca.org.my Bank Negara Malaysia Jalan Dato’ Onn 50480 Kuala Lumpur Tel : 03-2698 8044 Diurus terbit oleh: Pusat Penyelidikan dan Sumber Pengguna (CRRC) No. 24, Jalan SS1/22A 47300 Petaling Jaya Selangor Darul Ehsan Tel : 03-7875 2392 E-mel : info@crrc.org.my Sesawang : www.crrc.org.my Dicetak oleh: Percetakan Asas Jaya (M) Sdn Bhd No. 5B, Tingkat 2, Jalan Pipit 2 Bandar Puchong Jaya 47100 Puchong Jaya Selangor Darul Ehsan Artikel yang disiarkan dalam Ringgit tidak semestinya mencerminkan pendirian dan dasar Bank Negara Malaysia atau FOMCA. Ia merupakan pendapat penulis sendiri. FOMCA berpendapat pelancaran FLM 2020 ini adalah bertepatan dengan keadaan sekarang berikutan ramai pengguna yang terkesan kewangan mereka akibat daripada pandemik Covid-19. FOMCA berharap para pengguna dapat mengambil peluang yang ada untuk mengikuti program-program yang telah diatur dan diadakan sepanjang FLM 2020. Program-program ini merangkumi pengenalan kepada alat-alat kewangan kendiri, ceramah pendidikan kewangan, webinar, kuiz, pertandingan, perbincangan dan pameran secara maya. Program-program tersebut terbuka kepada orang ramai sepanjang Oktober 2020. Bersempena FLM 2020, FOMCA juga turut mengadakan aktiviti pendidikan kewangan bersasar bertujuan untuk memberi pendidikan kewangan khusus kepada golongan muda yang baru mula untuk bekerja supaya mereka lebih mengetahui cara-cara untuk menguruskan kewangan mereka dan lebih memahami persediaan untuk persaraan mereka. Pengguna boleh mendapatkan maklumat lanjut mengenai program yang dijalankan sepanjang FLM 2020, serta rakaman sebahagian daripada program terbabit dengan melayari https://www.fenetwork.my/. BULAN LITERASI KEWANGAN 2020 bil. 4/2020 | 3 Perkara Yang Perlu Diketahui Berkaitan Wang Tak Dituntut Bermula tahun 2020, pihak kerajaan melalui Jabatan Akauntan Negara Malaysia telah memperkenalkan portal yang membolehkan pengguna membuat semakan Wang Tak Dituntut (WTD) secara atas talian. Kini, pengguna hanya boleh menggunakan laman sesawang yang telah disediakan oleh pihak kerajaan untuk menyemak WTD. FOMCA juga telah menerima banyak panggilan daripada pengguna untuk mengetahui cara untuk menyemak WTD. WTD merupakan sejumlah wang milik mana-mana individu atau syarikat sama ada dalam bentuk akaun simpanan, dividen, tuntutan insurans, bank draf atau sebagainya, dan tidak dituntut oleh pemiliknya untuk satu tempoh yang telah ditetapkan. Sehingga 31 Oktober 2019 yang lalu, jumlah serahan WTD yang diterima oleh Jabatan Akauntan Negara Malaysia adalah sebanyak RM10.862 bilion. Apa itu Wang Tak Dituntut? Terdapat tiga (3) kategori WTD: 1. Wang yang perlu dibayar di sisi undang-undang kepada empunya tetapi tidak dibayar dalam satu tempoh masa tidak kurang dari satu (1) tahun. Contoh di bawah kategori ini ialah: • gaji, upahan, bonus, komisen dan wang lain yang kena dibayar kepada kakitangan • dividen • keuntungan yang diisytiharkan untuk dibahagikan • tuntutan insurans yang telah diluluskan untuk bayaran • draf bank, cashier’s order dan dokumen lain yang mempunyai fungsi yang serupa di mana tempoh sah lakunya telah luput • simpanan tetap (tanpa arahan pembaharuan automatik) yang telah matang • cagaran dan deposit apabila tujuan wang itu dikutip telah tercapai • pemiutang pelbagai atau penghutang pelbagai berbaki kredit 2. Wang dalam kredit sesuatu akaun yang telah tidak dikendalikan oleh empunya dengan apa cara sekalipun dalam satu tempoh masa tidak kurang dari tujuh (7) tahun. Contoh di bawah kategori ini ialah: • akaun simpanan • akaun semasa • simpanan tetap (yang mempunyai arahan pembaharuan automatik) 3. Wang dalam kredit sesuatu akaun dagangan yang telah tidak dikendalikan melalui apa-apa urus niaga dalam satu tempoh masa tidak kurang dari dua (2) tahun, seperti: • akaun pemiutang dagangan • akaun penghutang dagangan berbaki kredit Cara Membuat Semakan Wang Tak Dituntut Hanya individu dan syarikat/firma dibenarkan untuk membuat semakan WTD secara atas talian melalui nombor pengenalan diri dan nombor pendaftaran syarikat. 4 | RINGGIT Pemohon boleh membuat semakan WTD secara atas talian dengan mengikuti langkah-langkah seperti berikut: 1 Layari pautan portal https://egumis.anm.gov.my/ Buat pendaftaran pengguna secara atas talian. Pengguna akan terima emel menyatakan kata laluan sementara untuk log masuk ke portal. Log masuk portal menggunakan kata laluan sementara yang diemel. Pengguna perlu menukar kata laluan baharu. Kemaskini maklumat pengguna. Klik pada “KLIK DI SINI UNTUK CARIAN WANG TAK DITUNTUT” untuk membuat semakan WTD melalui nombor pengenalan diri dan cetak maklumat WTD tersebut (jika ada). 2 3 4 5 Sekiranya pengguna tidak log masuk ke portal Electronic Government Unclaimed Money Information System (eGUMIS) setelah menerima kata laluan sementara melebihi 30 hari, akaun pengguna tersebut akan dinyahaktifkan secara automatik. Semakan WTD atas talian boleh dibuat di portal rasmi eGUMIS di https://egumis.anm.gov.my/. Sistem tersebut boleh diakses terus di portal rasmi Jabatan Akauntan Negara Malaysia bermula 1 Januari 2020. Tempoh masa bagi akaun pengguna eGUMIS Tempoh aktif adalah 6 bulan sahaja daripada tarikh terakhir log masuk ke portal eGUMIS. Akaun pengguna akan dinyahaktif secara automatik dan pengguna perlu mendaftar sebagai pengguna baharu. “WTD merupakan sejumlah wang milik mana-mana individu atau syarikat sama ada dalam bentuk akaun simpanan, dividen, tuntutan insurans, bank draf atau sebagainya, dan tidak dituntut oleh pemiliknya untuk satu tempoh yang telah ditetapkan.” bil. 4/2020 | 5 Senarai semak dokumen yang diperlukan eGUMIS Bagi membuat permohonan tuntutan WTD, ada beberapa dokumen perlu dibawa bersama antaranya: • Borang UMA-7 yang lengkap diisi dan ditandatangani. • Salinan kad pengenalan (hadapan dan belakang) bagi warganegara/pasport pemohon yang disahkan oleh Notari Awam/Pegawai Konsulat Negara berkenaan bagi bukan warganegara. • Salinan cetakan carian WTD yang lengkap dengan nama dan nombor pengenalan empunya sama dengan maklumat pemohon daripada portal eGUMIS. • Dokumen asal (contoh: buku bank/sijil simpanan tetap dan lain-lain). • Surat pengesahan daripada syarikat yang membuat serahan WTD hendaklah disertakan jika dokumen asal tiada. • Salinan muka hadapan buku akaun/penyata bank pemohon yang aktif serta disahkan oleh pihak bank (bayaran akan dikreditkan terus ke dalam akaun) • Sekurang-kurangnya dua (2) daripada tiga (3) dokumen berikut:** i. Borang pembelian asal banker’s cheque/bank draf/ cashier’s order yang mempunyai cetakan bank yang jelas bagi maklumat transaksi tersebut. ii. Banker’s cheque/bank draft/cashier’s order yang asal. iii. Surat pengesahan daripada bank penyerah WTD kepada Pendaftar yang menyatakan maklumat pembeli dan penerima banker’s cheque/bank draft /cashier’s order mengikut format yang ditetapkan. ** Sekiranya individu yang ingin membuat permohonan tuntutan WTD bagi jenis Banker’s Cheque, Bank Draf, Demand Draf, Cashier’s Order. Nota: Akaun tabung haji/Akaun pelaburan/Akaun pinjaman tidak dibenarkan Di manakah pemohon boleh mengemukakan permohonan yang lengkap? Permohonan yang lengkap dengan cetakan maklumat wang tak dituntut dan dokumen sokongan boleh dikemukakan secara pos (digalakkan secara Pos Berdaftar) atau melalui kaunter di kaunter Pendaftar Wang Tak Dituntut atau di mana- mana Jabatan Akauntan Negara Malaysia (JANM) Negeri/ Cawangan seperti di pautan portal berikut: http://www. anm.gov.my/index.php/direktori-ag/direktori-janm-negeri- cawangan-bahagian-akaun-kementerian/maklumat-janm- negeri-dan-cawangan Pejabat Pendaftar WTD Jabatan Akauntan Negara Malaysia Bahagian Pengurusan Wang Tak Dituntut Aras 1, Perbendaharaan 2 Presint 2, 62594 Putrajaya, Wilayah Persekutuan Putrajaya Tel : 03-8000 8600 Waktu urusan : Isnin - Khamis: 9.00 pg - 3.00 ptg Jumaat : 9.00 pg - 12.30 tgh hari Tutup : Sabtu, Ahad & Cuti Umum Nota: Pendaftar mempunyai kuasa mutlak dan berhak meminta apa-apa dokumen tambahan walaupun pemohon telah menyertakan semua dokumen yang disenaraikan di atas bagi tujuan pembayaran balik WTD kepada pemohon. Tiada sebarang caj dikenakan ke atas permohonan bayaran WTD dan bayaran serahan WTD adalah melalui Online Banking. FOMCA ingin mengingatkan para pengguna bahawa Kementerian Kewangan Malaysia atau Pendaftar Wang Tak Dituntut tidak pernah melantik mana-mana individu/ firma/syarikat sebagai orang tengah atau ejen untuk urusan tuntutan bayaran balik WTD. Oleh itu, pastikan anda sentiasa berwaspada sekiranya terdapat mana-mana pihak yang cuba memanipulasi WTD dengan mengenakan sebarang caj tambahan kepada anda. Sumber: www.anm.gov.my “Permohonan yang lengkap dengan cetakan maklumat wang tak dituntut dan dokumen sokongan boleh dikemukakan secara pos ...” 6 | RINGGIT Inisiatif MDEC bantu usahawan mikro dan PKS Ketidaktentuan ekonomi yang sedang berlaku akibat pandemik Covid-19 telah membawa impak ketara terhadap kehidupan rakyat Malaysia khususnya usahawan Perusahaan Kecil dan Sederhana (PKS), usahawan mikro dan pekerja di sektor tidak formal. Majoriti terdiri daripada golongan berpendapatan rendah (B40) yang mempunyai kemampuan ekonomi yang terhad boleh mengakibatkan golongan ini tergelincir dalam kumpulan rentan kewangan dengan mudah. Bagi membantu usahawan mikro dan PKS, Malaysia Digital Economy Corporation (MDEC), sebuah agensi kerajaan di bawah Kementerian Komunikasi dan Multimedia Malaysia (KKMM) telah memperkenalkan program eBerkat. Ianya merupakan inisiatif untuk membantu rakyat Malaysia meningkatkan kesedaran dan ilmu pengetahuan tentang perkhidmatan kewangan digital. Inisiatif ini diharap dapat membantu untuk meningkatkan keupayaan mereka dalam mengawal situasi kewangan melalui platform digital sekaligus melahirkan komuniti yang lebih berkemampuan bagi membentuk masa depan. Bagi tujuan ini, MDEC telah bekerjasama dengan beberapa syarikat teknologi kewangan (Fintech) dan penyedia perkhidmatan industri kewangan yang diiktiraf kerajaan menggunakan strategi SLIP iaitu Savings (simpanan), Lending (pembiayaan), Investment (pelaburan) dan Payment (pembayaran). Strategi SLIP memberikan tumpuan kepada prinsip mudah, mampu dan pantas serta produk patuh syariah. MDEC juga menyediakan platform eBerkat untuk meningkatkan kesedaran dan memberikan pendedahan kepada masyarakat tentang perkhidmatan kewangan digital yang disediakan. Untuk maklumat lanjut layari https://mdec.my/eberkat/ i. Maklumat tentang pembiayaan modal melalui saluran alternatif • eBerkat memberikan pendedahan kepada usahawan mikro terhadap pembiayaan kecil, serendah RM1,000 yang boleh dipohon untuk membiayai kos seperti modal pusingan, membeli mesin dan peralatan bagi tujuan pembuatan, kos pemasaran dan sebagainya. • Usahawan kecil mungkin sukar mendapatkan pembiayaan sebegini melalui institusi kewangan tradisional. • Produk pembiayaan alternatif mungkin lebih sesuai dan usahawan boleh terus ke pautan melalui platform eBerkat untuk membuat permohonan secara atas talian kepada syarikat teknologi kewangan (Fintech) yang telah menjalinkan kerjasama dengan MDEC. • Pelbagai saluran disediakan seperti platform Peer-to- peer (P2P), pembiayaan terus (direct financing) dan pembiayaan invois (invoice financing). ii. Pendedahan kepada perlindungan insurans mikro • Melalui e-Berkat, MDEC memberi kesedaran tentang risiko terhadap usahawan mikro dan PKS, seperti kemalangan diri dan kecederaan semasa mencari rezeki, kerosakan aset perniagaan seperti food truck, mesin pemprosesan dan sebagainya. • Produk insurans mikro dapat membantu memberikan jaminan perlindungan sekiranya berlaku sebarang perkara yang tidak diingini ketika bertugas. • Seperti pembiayaan, platform eBerkat menyediakan pautan kepada pengguna untuk mendapatkan sebut harga dan melanggani perlindungan insurans mikro secara atas talian. • Produk sebegini amat sesuai untuk usahawan mikro mahupun pekerja ekonomi Gig yang memerlukan perlindungan dalam jumlah yang kecil dan tempoh yang singkat. iii. Pelaburan pintar untuk masa hadapan • eBerkat juga menyediakan maklumat dan pautan bagi pengguna untuk melabur secara mudah dan selamat. • Pengguna boleh pergi ke pautan yang disediakan untuk membuat pelaburan secara atas talian bermula dengan hanya RM1, tanpa halangan tradisional pelaburan seperti akaun minimum pembrokeran atau jumlah pelaburan minimum yang besar. • Peluang pelaburan melalui platform eBerkat adalah antara perkhidmatan yang ditawarkan sekiranya ada yang ingin melabur secara digital. • Menurut dokumen Strategi Literasi Kewangan Kebangsaan 2019-2023, 6 daripada 10 rakyat dewasa di Malaysia tidak dilindungi oleh sebarang sistem persaraan atau pencen yang formal, seperti skim pencen kerajaan ataupun Kumpulan Wang Simpanan Pekerja. Platform pelaburan ini sudah tentu dapat membantu usahawan mikro dan mereka yang bekerja di sektor informal untuk membuat simpanan hari tua secara berkala dan sistematik. Sumber: www.mdec.my bil. 4/2020 | 7 Menurut kajian terkini yang dilakukan oleh Universiti Utara Malaysia (UUM), individu yang mempunyai personaliti tertentu didapati lebih cenderung menjadi mangsa Skim Cepat Kaya. Hasil kajian yang dijalankan ini berdasarkan Model Lima Personaliti Utama [Personality Big Five Inventory (BFI) Model] mungkin boleh dijadikan sebagai panduan untuk kita lebih berhati-hati dan mengambil langkah yang sewajarnya dalam membendung diri sendiri serta rakan taulan daripada terjebak dengan Skim Cepat Kaya. Ciri-ciri personaliti mangsa Skim Cepat Kaya 1. Suka bergaul • Golongan yang berada dalam k a t e g o r i i n i b i a s a n y a bersikap mesra, penuh bertenaga d a n s e n t i a s a bersikap positif. • Walaupun sikap ini amat disenangi, ia juga membuka ruang kepada scammer untuk mendekati bagi mempromosi dan seterusnya memerangkap mangsa ke dalam Skim Cepat Kaya. 2. Kurang teliti • Golongan yang mudah te r j e j a s d e n ga n tekanan psikologi ( N e u r o t i s m e ) selalunya menjadi kurang teliti atau sering mengalah ke p a d a t e k a n a n scammer. • Apabila menghadapi tekanan, mereka akan membuat keputusan terburu-buru tanpa menyemak terlebih dahulu dengan pihak berkuasa mahupun rakan atau ahli keluarga yang lebih arif. 3. Cepat cemas • Seseorang yang cenderung untuk cepat cemas mudah dieksploitasi. S c a m m e r m u d a h m e n g a m b i l kesempatan dengan mendakwa peluang y a n g d i t a w a r k a n a d a l a h te r h a d d a n menjerumuskan mereka dalam Skim Cepat Kaya. Berhati-hatilah dengan Skim Cepat Kaya! Anda suka bergaul tetapi kurang teliti dan cepat cemas? 8 | RINGGIT Anda juga boleh mengikuti laman Facebook Amaran Scam untuk mendapat maklumat-maklumat t e r k i n i m e n g e n a i Skim Cepat Kaya dan penipuan kewangan lain agar dapat menghindar d i r i dan orang yang tersayang daripada menjadi m a n g s a ( h t t p s : / / w w w. facebook.com/amaranpenipuan/). Semak dengan pihak berkuasa ataupun rakan taulan yang lebih arif. Jangan buat keputusan terburu-buru atau secara impulsif. Jangan rasa bersalah untuk menolak pelawaan atau tawaran. Kenali personaliti anda Anda boleh memahami lebih lanjut personaliti anda dengan mengambil ujian personaliti BFI. Terdapat laman web percuma yang boleh anda layari untuk memahami lebih lanjut mengenai kecenderungan personaliti anda seperti https://bigfive-test.com/. Personaliti anda bukanlah penentu utama menyebabkan anda akan menjadi mangsa Skim Cepat Kaya. Namun, ia boleh dijadikan panduan untuk lebih berhati-hati daripada dieksploitasi oleh scammer Skim Cepat Kaya, terutamanya golongan yang mempunyai ciri-ciri personaliti bersifat sosial yang tinggi (Extraversion), tidak tahan tekanan secara psikologi dan emosi (Neuroticism) ataupun mudah cemas sekiranya dalam situasi yang tak terduga (Conscientiousness). 1 2 3 Apakah tip untuk mengelakkan diri daripada menjadi mangsa Skim Cepat Kaya? “Personaliti anda bukanlah penentu utama menyebabkan anda akan menjadi mangsa Skim Cepat Kaya. Namun, ia boleh dijadikan panduan untuk lebih berhati-hati daripada dieksploitasi oleh scammer Skim Cepat Kaya, ...” bil. 4/2020 | 9 Dunia k ian berkembang pesat termasuklah perkhidmatan pengangkutan awam yang kini jauh lebih baik jika dibandingkan dengan satu dekad yang lalu. Di Malaysia pihak kerajaan telah mengambil pelbagai tindakan untuk menambah baik mutu pengurusan pengangkutan awam. Namun demikian, FOMCA masih menerima pelbagai jenis aduan berkaitan dengan pengurusan sistem pengangkutan awam. Pada tahun 2019, aduan daripada pengguna meningkat daripada 1,110 kes (2018) kepada 1,210 kes. Jumlah anggaran kos kerugian yang dialami oleh pengguna dianggarkan sebanyak RM1.47 juta. Dengan kemajuan teknologi yang telah disediakan oleh syarikat-syarikat pengangkutan awam, ramai pengguna telah mula menggunakan kemudahan pembelian tiket atas talian untuk memudahkan urusan tempahan dan pembelian tiket perjalanan tanpa perlu beratur. Telefon mudah alih merupakan medium utama dalam urusan tempahan tiket. Walau bagaimanapun, aduan yang diterima daripada pengguna turut meningkat kerana pengendalian sistem atas talian yang diperkenalkan t idak begitu cekap. S e b a n y a k 2 8 . 0 2 % atau 339 aduan telah diterima berkaitan dengan tempahan tiket atas talian seperti pembelian tiket Tren Elektrik Ekspres (ETS), t i ket penerbangan dan tiket bas. Aduan y a n g d i ke t e n ga h ka n o leh peng guna ada lah kebanyakannya mengenai tiket yang telah ditempah atas talian didapati tidak sah dan tidak boleh digunakan setibanya pengguna di stesen pengangkutan awam. Oleh itu, mereka terpaksa membeli tiket yang baru untuk meneruskan perjalanan tersebut. Malahan terdapat kes tiket yang telah ditempah melalui atas talian, tidak dibayar balik oleh syarikat tersebut. Selain itu, FOMCA juga menerima aduan berkaitan penggunaan kad “Touch ‘n Go” di lebuh raya, di mana pengguna jalan raya seringkali mengadu mereka terpaksa membayar dua kali kerana apabila mereka menambah nilai dalam kad mereka di kaunter yang dibenarkan, nilai yang dibayar tidak ditambah ke dalam kad mereka. Ini menyebabkan perjalanan mereka sering kali mengalami masalah. FOMCA berpendapat bahawa pihak pengurusan dan pihak berkuasa perlu mengkaji semula keseluruhan sistem pengurusan pembayaran eletronik yang menimbulkan pelbagai masalah kepada para pengguna. Apa gunanya menggalakkan para pengguna menggunakan sistem pembayaran eletronik tetapi ianya masih tidak cekap dan menimbulkan pelbagai kesukaran dan kerugian. Para pengguna lain juga turut terkesan apabila tersekat di laluan tol yang boleh mengakibatkan kesesakan lalu lintas terutamanya ketika waktu puncak. Suara Pengguna: Aduan Pengurusan Sistem Pengangkutan Awam 10 | RINGGIT Di samping i tu , kua l i t i perkhidmatan pengangkutan awam mencatatkan jumlah aduan kedua tertinggi. Jumlah aduan yang diterima adalah sebanyak 22.89% atau 277 aduan. Antara aduan yang diterima adalah berkaitan pengguna t i d a k m e n d a p a t maklumat yang tepat dan terkini. Terdapat j u g a a d u a n y a n g diterima berkenaan pengangkutan awam yang tidak menggunakan laluan yang sepatutnya untuk mengambi l dan menurunkan penumpang. Keadaan bas dan teksi yang kotor serta dipenuhi serangga turut diketengahkan oleh pengguna. Kelewatan dan penjadualan semula perjalanan turut disuarakan oleh pengguna kepada FOMCA iaitu sebanyak 215 aduan atau 17.77%. Kelewatan penjadualan semula dan pembatalan perjalanan pada tarikh yang telah ditetapkan akan menimbulkan pelbagai masalah kepada penumpang khususnya kepada mereka yang berulang alik ke tempat kerja atau mempunyai urusan keluarga yang penting. Kadar kemalangan yang melibatkan kenderaan pengangkutan awam juga turut membimbangkan kerana ianya melibatkan nyawa para pengguna. Sebanyak 15.87% daripada j u m l a h k e s e l u r u h a n aduan adalah mengenai isu keselamatan para penumpang. FOMCA berpendapat bahawa Agensi Pengangkutan Darat (APAD) dan Kementerian Pengangkutan Malaysia harus memantau semua kenderaan pengangkutan awam secara berkala mahu pun membuat pemeriksaan mengejut atau ‘spot check’ untuk memastikan ianya selamat dan sesuai digunakan untuk membawa penumpang. Di samping itu, mereka juga perlu memastikan syarikat- syarikat yang menyediakan perkhidmatan pengangkutan awam mematuhi semua peraturan demi keselamatan dan keselesaan para penumpang. Sumber: Pusat Khidmat Aduan Pengguna Nasional (NCCC) bil. 4/2020 | 11 FENE.*:"i‘:f:Z-:-‘~‘ ifiVeSt® S m 3 rt Bij a k Wa ng Pi I i han Saya Malaysia A Securities Commission Malaysia Initiative PELABUR YANG DILINDUNGI ADALAH PELABUR YANG BERMAKLUMAT Pelabur yang bermaklumat mahupun kesilapan dalam pelaburan \i\_ I Keputusan Perancangan Pengumpulan Kesedaran pelaburan kewangan kekayaan yang mengenai hak dan berdasarkan dan persaraan Iebih mampan tanggungjawab maklumat yang Iebih baik pelabur Pendidikan pelaburan ,. ' Layari laman merupakan strategi utama sesawang |nvestSmart® dalam meningkatkan keyakinan di www.investsmartsc.my dan pemerkasaan pelabur ' untuk maklumat Ianjut Sumber: Jaringan Pendidikan Kewangan & |nvestSmart® Infografik Bernama BULAN LITERASI KEWANGAN I OKTOBER 2020 . BULAN LITERASI KEWANGAN 2020 FINANCIAL EDUCATION . NETWORK Dianjurkan oleh: IA .. M *@.13‘ {SW/-¥ ?AKPK PNB pufl -- - KEMENYERA "' W‘ *‘9e"5i'<a“"5e"“9<?a" """""""""""""""""" ‘ Pengurusan Kredit BANK NEGARA MALAYSIA I N PENDIDIKAN MALAVSIA KEMENTERIAN PENGAJIAN TINGGI CEMYRAL BANK or MALAVSM miaysia

Public Notice

14 Oct 2020

Release of the Financial Stability Review 1st Half 2020

https://www.bnm.gov.my/-/release-of-the-financial-stability-review-1st-half-2020-1

Reading: Release of the Financial Stability Review 1st Half 2020 Share: Release of the Financial Stability Review 1st Half 2020 Release Date: 14 Oct 2020 The Bank today released the biannual Financial Stability Review for the first half of 2020. The report may be accessed at BNM Financial Stability Review for First Half 2020 © 2024 Bank Negara Malaysia. All rights reserved.

Public Notice