Malaysian banks face 20% capital surcharge from Basel III internal model switch

Basel III sovereign cap creates internal model headache for Malaysian banks

Malaysian banks operating across several jurisdictions in South-east Asia are facing higher capital charges when shifting from a standardised to an internal-based model for credit risk at a group level, due to Basel III's sovereign ratings cap.

Under the standardised approach, banks use ratings provided by recognised external rating agencies to apply risk weights within the capital computation framework. However, for exposures to corporate counterparties, banks must use the higher risk weight of