The Net Stable Funding Ratio (NSFR) is a minimum standard that requires banking institutions to maintain a stable funding profile to support their assets and off-balance sheet activities.
A stable funding profile reduces the likelihood of a banking institution’s liquidity position being severely eroded by material disruptions to its regular sources of funding. Under such circumstances, the viability of the banking institution may be put, or perceived to be, at risk. This could subsequently lead to broader systemic stress.
The NSFR complements the Liquidity Coverage Ratio (LCR), which has been in effect in Malaysia since 1 June 2015. While the LCR encourages the short-term resilience (30 days) of a banking institution’s liquidity risk profile, the NSFR aims to reduce funding risk over a time horizon of up to one year.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
