Bank Negara's Sunshine Sally says Malaysian banks' bond portfolios unaffected by rising interest rates -Governor Nor Shamsiah Yunus argues that there are no realised or unrealised losses suffered

 by Ganesh Sahathevan 

                                                  

                 Governor Shamsiah  furthers the proud traditions of her predecessor Zeti Aziz 

 In keeping with typical Bank Negara Malaysia style, Governor Nor Shamsiah Yunus has said: 

“When it comes to MTM losses, bonds that are held in the banking books, which are not MTM, are very small. It only accounts to about 6%-7% of their total assets, unlike Silicon Valley Bank, which was about 40%.

“And even if you were to MTM the 7%, the capital ratio of the banks would just decline by one percentage point. The 18.4% (total capital ratio) that you see is net of MTM, it is already at fair value,” she explained.

Marked-to-market simply means accounting for unrealised losses. "Not MTM" means the bonds are being traded, with profit or losses recognised, with the usual consequences for capital. Either way, in a an environment where interest rates are rising, losses will be suffered. Not however, according to Nor Shamsiah, who seems to be saying that no losses have been incurred, and even if incurred, it will not matter. 

Rating Agency Malaysia , which has a reputation equal to that of Bank Negara puts it this way:

Moreover, less than 40% (on average) of bond holdings in Malaysia’s eight major banks are classified as HTM while the rest are marked to market. This means that fair value losses on bond securities are already largely reflected in the banks’ capital position.

"HTM" means "Held To Maturity". If not "Held To Maturity" then it must be traded. Therefore "fair value losses on bond securities are already largely reflected in the banks’ capital position" means losses have been suffered. 

RAM stating  "classified as HTM while the rest are marked to market" seems like a confused attempt to obfuscate, which often happens when trying to conceal the facts. 

In short, according to Bank Negera's Sahmsiah and Rating Agency Malaysia losses have been suffered, but that  does not really matter. 

All this brings to mind former Governor Zeti Aziz's  who at the height of the of Asian Financial Crisis in 1997, when faced with falling reserves, declared that Bank Negara will be cash rich in Ringgit. 

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