Malaysia and Singapore to guarantee all bank deposits

By IZWAN IDRIS


PETALING JAYA: In a coordinated effort to contain the effect of the global financial crisis, Malaysia and Singapore have agreed to provide a blanket guarantee on all bank deposits in their respective banking systems.

All ringgit and foreign currency deposits placed with financial institutions regulated by Bank Negara will be fully guaranteed by the Government with immediate effect, the central bank said in a joint statement with the Ministry of Finance posted on its website.

The statement on Thursday also said that access to Bank Negara’s liquidity facility would also be extended to insurance companies and takaful operators.

“These measures are pre-emptive and precautionary, since Malaysia’s financial institutions are well capitalised with ample liquidity, and confidence of depositors remains intact,” it added.

“Given the soundness and strong capitalisation of Malaysia’s banking institutions, it is unlikely that these guarantees will be called upon,” it added.

The deposits are fully guaranteed through Perbadanan Insurans Deposit Malaysia (PIDM) until December 2010.

The move to reassure depositors is consistent with regional initiatives to preserve confidence in the financial systems, which have been wrecked by the huge losses suffered by some of the biggest and respected international financial institutions.

It is understood that this is part of bilateral cooperation efforts between Malaysian and Singaporean authorities to reduce the amount of contagion in the region arising from the global financial crisis.

In a similar announcement Thursday, Singapore said it would provide guarantee for all deposits of individual and non-bank customers in banks, finance companies and merchant banks licensed by the Monetary Authority of Singapore with immediate effect until Dec 31, 2010.

Similar measures have been taken by Hong Kong, Indonesia, Australia and New Zealand in extending safeguard on deposits as the global financial crisis widens.

Association of Banks in Malaysia president Datuk Seri Abdul Hamidy Abdul Hafiz said that all banks operating in the country were financially sound.

“After the 1997 financial crisis, various disciplines were put in place and audits of banks were conducted all year round. Bank Negara conducted stress tests on local banks even in good times,” he said. “Our banks are well capitalised at a capital adequacy ratio of13% although the requirement is only 8%. The non-performing loan ratio is at a historical low of 2.5%,” he said.