This document discusses credit direction, statutory requirements, and banks' liquidity in Malaysia. It outlines two major tools for monetary management: the statutory reserve ratio and liquid asset ratio. These tools allow the central bank to control liquidity in the banking system and credit creation in the economy. The statutory reserve requirement mandates that banks keep a minimum percentage of deposits in a special account with the central bank, earning no interest. This effectively locks up banks' resources and limits their lending capacity. The liquid assets requirement sets minimum ratios of liquid assets like cash, government securities, and approved bonds that banks must maintain.

1. PB303-BANKING IN MALAYSIA
PUAN NOOR AZNI BT ABU BAKAR
“Credit direction, statutory requirements
and bank’s liquidity”
DMP3B
SESI JUNE 2014
NAMA NO MATRIK
MAS IZZATI BT MASSNA SUDARMAJI 10DPM13F1109
NOR HAZLIN BINTI MOHD HAZIM 10DPM13F1127
NURUL NADIA BINTI AMRAN 10DPM13F1043
NUR AMIRA SYAMIMI BINTI HASHIM 10DPM13F1106
NOR ATIKAH BINTI MOHD IDROS 10DPM13F1118
NUR HAZWANI BT RUSLIM 10DPM13F1130
SITI HAJAR BT AMRAN 10DPM13F1046
ZINITULNIZA BT MOHD HARIS 10DPM13F1094

3. 3.2 Credit direction, statutory requirements
and bank’s liquidity
a) Credit Direction

4. b) Statutory Requirements and
Commercial bank’s Liquidity
 The statutory reserve and liquid asset
ratios are two major tools for
monetary management in Malaysia.
These instruments have enable the
Centre Bank to control the volume of
liquidity in the banking system and,
hence, credit creation in the economy.

5. C) Statutory Reserve Requirements
 The Statutory reserve requirements (SRR) is one of the
instruments deployed by the Central Bank to control the
volume of liquidity in the banking system, hence, the
capacity of the commercial banks to generate loans and
advance.
 Its was first introduced in the 1959 and all commercial
banks were then required to maintain not less than
2.5% of their total deposit liabilities in the special
account with the Central Bank.
 These reserves earns no interest for the commercial
banks.
 In practice,an increase in these reserves would
effectively “lock in” with the Central Bank a larger
preportion of the resources of the commercial banks
and thus, limit their lending capacity,
 A decrease would raised the volume of resources
available to the commercial banks for granting new
credit.

6.  The SRR is one of the most effective instruments of
monetary and credit control.

7. Liquid Assets Requirement
Prior to June 1990,the commercial banks were
required to comply with the liquidity requirement at
two levels :
- A minimum overall liquidity rates
- A primary liquidity asset ratio,which were set at 17.0
% and 5.0 % of the eligible liabilities (EL) base.
Liquidity assets are defined to include :
i. Cash
ii. Clearing account balances with the Central Bank
iii. Money at call with the discount houses
iv. Treasury bills
v. Malaysian Government securities
vi. Bank Negara bills
vii. Cagamas bonds
viii. Other approved securities such as Malaysian
Government Investment certificates.