Kuala Lumpur, 3 May 2007: The national deposit insurer, Perbadanan Insurans Deposit Malaysia (PIDM), is seeking public feedback on its proposed regulations aimed at capturing, enhancing and rewarding good risk management practices among member institutions. PIDM is also seeking views on regulations related to compliance with terms and conditions of membership by commercial and Islamic banks.
This step follows the release of two consultation papers today on the Differential Premium Systems (DPS) framework and on the draft regulations on the Terms and Conditions of Membership for member institutions.
“The objective of the DPS, which will be implemented next year, is to promote sound risk management in member banks. PIDM will assess and collect premiums with a view to rewarding its member institutions that improve their risk management practices and contribute to the stability of the financial system,” said Jean Pierre Sabourin, the Chief Executive Officer of PIDM.
At the same time, the proposed Terms and Conditions of Membership Regulations set out the obligations and responsibilities of PIDM’s member institutions in a number of areas with regard to their safety and soundness, deposits, premiums and other charges, and communications with depositors, he added.
“The issuance of the consultation papers is part of our ongoing efforts to promote transparency and to engage the public in our policy making process. This process ensures that the views of interested parties are taken into consideration so that the regulations are clear, equitable and effective,” Mr. Sabourin noted.
PIDM is the first deposit insurer in the ASEAN region to establish a DPS based on international best practices and customized to the Malaysian banking system, he added.
Both consultation papers are available on PIDM’s website (Click here to download). Member institutions and the public are invited to submit written comments to PIDM by 15 June 2007 for the Terms and Conditions of Membership consultation paper and by 2 July 2007 for the DPS framework consultation paper.
PIDM will collate all the comments received and publish its responses, including any amendments to the draft regulations, on its website. Thereafter, the draft regulations will be subject to the due legislative process before coming into force.
Mr. Sabourin explained that the proposed DPS, which will replace the current flat rate premium system, takes into account the different business models adopted by conventional banks, Islamic banks and Islamic windows of commercial banks while maintaining the principle that it should apply equitably to all members irrespective of size or complexity of their businesses.
Banks will be assessed and scored based on their respective risk profiles and, in this regard, there will be a 60-40 weightage assigned to quantitative and qualitative criteria in arriving at the DPS score for each bank.
“The use of a combined quantitative and qualitative criteria approach ensures that the DPS is objective and transparent, while containing forward looking elements,” he said.
Among the main quantitative criteria to be used are capital measures, profitability and asset quality, while the qualitative criteria includes supervisory ratings and other information such as compliance with regulations and ratings determined by the appropriate agencies.
“There will be four premium categories based on the DPS scores obtained. Although most banks will be placed in the top two categories, well-managed and well-capitalised banks will be rewarded through lower premiums paid on their insured deposits while higher risk profile banks will have to pay more. This will provide incentives for banks to reduce their risk profiles,” Mr. Sabourin said.
Turning to the draft Regulations on the Terms and Conditions of Membership, Mr. Sabourin noted that failure to comply with the regulations may result in a premium surcharge or other forms of penalties.
Under the proposed Terms and Conditions of Membership, member institutions will be required to provide PIDM with information it needs to monitor ongoing soundness of banks.
Members are also encouraged to comply with capital requirements and sound risk management practices issued by Bank Negara Malaysia, in that non-compliance may result in PIDM imposing a premium surcharge on the concerned bank.
“The issuance of such regulations is consistent with the role of PIDM and its mandate to provide incentives for sound risk management by member institutions which would promote financial system stability,” added Mr. Sabourin.
For more information about this press release, kindly contact :
S.Loganathan, General Manager, Communications and Public Affairs Division
(Tel : 03-2274 2615)
Zeti Zahariah Zainul, Manager, Communications and Public Affairs Division
(Tel : 03-2260 7436 ext 112)
PIDM administers the Government-backed deposit insurance in Malaysia. We protect depositors – automatically – up to RM60,000 per depositor per member institution. For further information:
PIDM protects your deposits in the bank as well as your takaful and insurance benefits in the unlikely event of a failure of a member bank or a takaful operator / insurance company.