A brief on Silicon Valley Bank…
…and its implications on Malaysian Banks
1
About Silicon Valley Bank
FACTS
Established in 1983, listed on NASDAQ in 1988
Largest bank in Silicon Valley; 16th largest US bank by asset size
Offices in Canada, the Cayman Islands, China (Beijing, Shanghai,
Shenzhen), Hong Kong, India, Ireland, Israel, Sweden, the UK,
Denmark, Germany.
50:50 partnership with Shanghai Pudong Development Bank – SPD
Silicon Valley Bank, to lend to technology start-ups in China.
US banks: Total assets (USD'b)
3,500 3,202
3,000
2,419
2,500
2,000 1,767 1,718
1,500
1,000
585 552 546 487 453 387
500 325 298 226 213 210 209
-
JP Morgan Bank of Citibank Wells Fargo US Bank PNC Bank Trust Bank Goldman Capital One TD Bank Bank of NY State Street Citizens Bank First Republic Morgan Silicon Valley
Chase America Bank Sachs Mellon Bank Stanley Pte Bk Bank
page 01
Banker to tech companies and start-ups
FACTS
In 2022, it banked:
• Nearly 50% of US venture-backed
technology and life science
companies
• 44% of US venture-backed
technology and healthcare IPOs
64% of total assets
for Malaysian Banks
page 02
Banker to tech companies and start-ups
A beneficiary of the pandemic tech boom: SVB’s deposits ballooned from USD60b in 2019 to
nearly USD200b in 2022.
The bank invested the funds in US Treasuries and mortgage-backed securities.
2 problems:
The Federal Reserve started raising interest rates aggressively
Cash burn among clients remained high amid weak capital markets - start-up companies started
withdrawing deposits to stay afloat. 1Q23 US VC Investment expected to decline 15-20% QoQ,
client cash burn 2x higher than pre-2021 levels.
page 03
A quick review of investment securities
Held for trading (HFT) investments / Financial investments at fair value through profit or loss (FVTPL)
Short-term investments held for trading purposes. Marked-to-market (MTM) unrealized gains/losses taken to P&L
Available-for-sale (AFS) investments / Financial investments at fair value through other comprehensive income (FVOCI)
Longer-term investments held for capital gain and interest returns. MTM unrealized gains/losses taken to FVOCI reserves in
shareholders’ funds.
Held-to-maturity (HTM) investments / Financial investments at amortized cost
Investments that are held to maturity. Not marked-to-market. On maturity, recognize the realized gains/losses on disposal.
page 04
Tried to raise capital
As a result of rising interest rates:
SVB started to incur mark-to-market (MTM) unrealized losses.
As at end-2022, it had USD15b unrealized losses for HTM securities against USD13.7b of CET1 capital and USD18.4b total capital.
Moody’s and S&P were considering a ratings action: a negative outlook, a downgrade of 1 or 2 notches and/or placing ratings under
review.
On 8 March, it announced that it had sold USD21b of its AFS portfolio at a loss of USD1.8b, and was looking to raise capital of USD2.25b
via common equity and mandatory convertible preference shares.
Reasons: It expected continued higher interest rates, pressured public and private markets, elevated cash burn from clients.
page 05
Depositors panicked
SVB’s fund raising exercise had come just after the collapse of crypto-focused Silvergate Bank.
Customers panicked and by Thursday 9th March, USD42b (24% of total deposits) had been withdrawn.
On Friday 10th March, it cancelled its share sale and tried to look for a buyer, but that failed.
California regulators intervened, shut it down and placed it in receivership with the Federal Deposit Insurance Corporation (FDIC).
FDIC insures only up to USD250k per deposit. 85-96% of the bank’s deposits are uninsured.
Financials as at 31 Dec 2022 USD'b
In summary:
AFS investments 26.1
HTM investments 91.3
SVB’s problems stemmed from: Other investments 2.7
Total investments 120.1
• A concentrated depositor base with high cash-burn rates….tech cos, start-ups, cryptos
Gross loans 74.3
• Its over-exposure to investments at a time of rising interest rates: Allowances (0.6)
(Investments accounted for 57% of total assets end-2022) Net loans 73.6
Total assets 211.8
• Having to liquidate these investments to service deposit withdrawals.
Total deposits 173.1
Holding investments is not the issue, NOR is it entirely about rising interest rates… Shrs funds 16.0
the issue is having to liquidate when cash flows are tight
Investments as % of assets 57%
= Second largest default in US history by asset size (MYR212b assets), after Loan/deposit ratio 43%
Washington Mutual (USD307b assets) in 2008
page 06
About Silvergate Bank and Signature Bank
Silvergate Bank (USD11b assets end-2022)
• A California-based crypto bank – 1,620 digital asset customers end-2022.
• Operated Silvergate Exchange Network (SEN), a payments system that allowed cryptocurrency investors to transfer funds on a real-
time basis, to and from crypto exchanges – USD563b transfers in 2022.
• Turmoil in crypto markets (and collapse of FTX) led to heavy deposit withdrawals: –30% from USD13.5b in 2021 to USD9.4b in 2022
• Bank had to liquidate some of its investments, resulting in loss of USD948m in FY22
• Further runs on the bank resulted in winding down in March 2023
Signature Bank (USD110b assets end-2022)
• A New York-based bank that was primarily focused on real-estate lending, financing of taxi medallions.
• Entered the crypto space in 2018. Almost 25% of deposits end-Sep 2022 came from the crypto sector.
• Operated the Signet payment network which enabled real-time fund transfers through blockchain
• Also impacted by heavy deposit withdrawals (reports say USD10b out of USD89b deposits on Friday 10th March alone), became third
largest bank failure in US history
page 07
Government intervenes
The Federal Reserve announced that all of SVB’s depositors will have access to their deposits.
It will provide financing to banks to meet all depositor withdrawals via a new Bank Term Funding Program (BTFP).
The BTFP offers loans of up to 1 year. Banks pledge US Treasuries, agency debt and mortgage-backed securities and other qualifying
assets as collateral.
These securities will be valued at “par” ie the amounts that banks receive will not be impaired by MTM losses.
Implication: banks can meet customer withdrawals without having to sell their bonds at a loss.
Interest rate on loans fixed at the one-year Overnight Interest Swap (OIS) plus 10bps (OIS rate currently 4.9%).
Loans will be backstopped with USD25b from the US Treasury’s Exchange Stabilization Fund.
The Fed does not expect to tap this Fund, because the loans under the program are full recourse i.e. the Fed can seize all collateral in
the event of non-payment.
Uninsured deposits of entire banking system said to be more than USD1 trillion
page 08
A quick look at Credit Suisse…
Issues:
• Net loss of CHF7.3b in 2022, CHF1.6b in 2021
• Plagued by client cash outflows – CHF110b in
4Q22
• Delayed release of annual report when the SEC
raised last-minute queries on cash flows – CS
found “material weaknesses” in reporting and
control procedures.
• Losses expected to continue in 2023
Nevertheless, CET1 ratio of 14.4% looks
comfortable (recapitalized in 2022), LCR of 144%.
page 09
Moody’s cuts US banking system outlook
• Cut banking system outlook to negative from stable, cautioning of “rapid deterioration in the operating
environment”
• Has placed 6 banks on ratings watch:
Comerica Bank (assets: USD87b) UMB Bank. (assets: USD37b)
High reliance on more confidence sensitive uninsured deposit High reliance on more confidence sensitive uninsured deposit
funding, high amount of AFS unrealized losses, lower level of funding, high amount of AFS & HTM unrealized losses (51% of CET1
capitalization. end-Dec 2022).
First Republic Bank (assets: USD198b) Western Alliance Bank (assets: USD66b)
High reliance on more confidence sensitive uninsured deposit High reliance on more confidence sensitive uninsured deposit
funding, high amount of AFS & HTM unrealized losses, low level of funding, material unrealized AFS and HTM losses, and relatively
capitalization relative to peers. low, though improving capital levels.
Intrust Bank (assets: USD7b) Zions Bank (assets: USD88b)
Some reliance on more confidence sensitive uninsured deposit Modestly high reliance on more confidence sensitive uninsured
funding, high amount of unrealized AFS losses (91% of its CET1 deposit funding, high amount of unrealized AFS losses (51% of its
ratio), low level of capitalization (CET1 ratio 9.6% end-Dec 2022). CET1 ratio), low level of capitalization (CET1 ratio 9.8% end-Dec
2022).
page 10
Moody’s says limited impact on APAC financial institutions
Stable funding & ample liquidity Healthy LCRs and NSFRs
• Stable funding – mostly funded by customer deposits, market • Most banks subject to Liquidity Coverage Ratio (LCR)
borrowings average 16% of total assets requirements – banks have to hold ample high-quality liquid
assets
• Deposits not concentrated on single customers
• Most banks subject to Net Stable Funding Ratio (NSFR)
requirements – banks need to have ample stable long-term
funding
page 11
Moody’s says limited impact on APAC financial institutions
Relatively low HTM investments exposure What Moody’s says:
• Not substantial relative to equity base • Chinese banks: policy rate cuts will boost fair values of HTM
securities if MTM, as interest rates in China have declined.
• Most HTM securities are liquid because they can be repo’ed
with central banks • Taiwan banks: differences between the carrying values and
fair values of their HTM investments are modest, and such
securities have relatively short duration.
• Indian banks: if MTM, would incur losses of 5%-10% of the par
values of the bonds, or 12%-25% of their CET1 capital. Banks
are unlikely to realize such losses because their funding and
liquidity are strong enough to allow them to hold onto their
HTM securities. Indian banks' average LCR was a healthy 133%
end-March 2022- understated because it does not include the
bulk of their cash reserves at the central bank, as well as
parts of their holdings of government securities.
• Japanese banks: Have holdings of US Treasuries and therefore
have unrealized losses because of higher rates in the US. Hold
large amounts of Japanese government bonds (JGBs).
However, their unrealized losses on domestic and foreign
bonds are small relative to capital, and most of such securities
are measured at FVOCI. No signs of large outflows from
deposits, and liquidity remains ample in the system.
page 12
Why it does not apply to Malaysian banks
1. Interest rates have not risen as dramatically as in the US, i.e. 100bps MYR OPR vs Fed Rate
since May 2022 vs 450bps in the US. Therefore, MTM losses have not been 6.00
as heavy. 5.00
4.00
2. SVB was unique with 57% of assets in investments vs 16-25% for Malaysian 3.00
banks. This exacerbated its risk to rising interest rates, while having to 2.00
liquidate when cashflows are ight. 1.00
Mar-09
Mar-14
Mar-19
Jul-07
Jul-12
Jul-17
Jul-22
Jan-05
Jan-10
Jan-15
Jan-20
Sep-06
Sep-11
Sep-16
Sep-21
Nov-05
Nov-10
Nov-15
Nov-20
May-08
May-13
May-18
MY OPR Fed Rate
Financial investments as at 31 Dec 2022
(MYR'm) ABMB AMMB CIMB HLBK MAY PBK RHB
FVTPL 306 7,865 33,200 6,760 38,627 949 3,089
FVOCI 8,387 23,474 58,676 28,816 120,706 54,867 38,974
HTM 2,835 12,744 64,533 31,518 71,757 25,570 27,007
Total 11,528 44,083 156,410 67,095 231,090 81,387 69,070
FVTPL 3% 18% 21% 10% 17% 1% 4%
FVOCI 73% 53% 38% 43% 52% 67% 56%
HTM 25% 29% 41% 47% 31% 31% 39%
Total 100% 100% 100% 100% 100% 100% 100%
Total assets 65,088 185,205 666,721 265,189 947,813 493,263 310,788
Investments % 18% 24% 23% 25% 24% 16% 22%
page 13
Why it does not apply to Malaysian banks
3. Malaysian banks do not disclose HTM unrealized ABMB AMMB CIMB MAY RHB Avg
gains/losses, but provisions (Expected Credit FVOCI reserve (MYR'm)
Losses) are made against diminution in value, since 31.12.20 282 961 217 4,573 1,856
stated at amortized cost. 31.12.22 (214) 401 (1,656) (1,631) (547)
MTM loss (497) (559) (1,874) (6,203) (2,402)
FVOCI losses have been small and the HTM portfolio
is generally smaller than the FVOCI portfolio. As FVOCI investments (MYR'm) 8,387 23,474 58,676 120,706 38,974
such, risk to capital from a large write-down in the MTM loss as % of FVOCI investments 5.9% 2.4% 3.2% 5.1% 6.2% 4.6%
HTM portfolio is low.
HTM investments (MYR'm) 2,835 12,744 64,533 71,757 27,007
(HLBK & PBK do not separately disclose their FVOCI
reserves)
page 14
Why it does not apply to Malaysian banks
4. 60% of HTM investments are held in domestic Government papers, which are redeemed at par value
Investments at amortised cost
(MYR'm) ABMB AMMB HLBK CIMB MAY PBK RHB Total
MGS 485 1,347 5,497 9,263 12,358 1,099 3,725 33,773
MGII 1,975 4,108 22,676 16,659 24,692 8,076 5,694 83,879
Other govt bonds 2,182 9,385 4,256 6,974 1,855 24,653
Government bonds 2,460 5,454 30,354 35,307 41,306 16,149 11,275 142,305
Domestic corporate bonds 375 7,783 1,116 19,813 28,496 7,333 12,908 77,823
Foreign corporate bonds 48 4,209 1,209 56 5,521
Foreign govt bonds 5,757 2,245 2,093 3,470 13,565
2,835 13,237 31,518 65,085 73,255 25,575 27,708 239,213
Others 33 33
ECL (493) (0) (585) (1,498) (4) (701) (3,282)
Total 2,835 12,744 31,518 64,533 71,757 25,570 27,007 235,964
MGS & MGII as % of total 87% 43% 89% 40% 52% 36% 35% 50%
Total Govt bonds as % of total 87% 43% 96% 55% 58% 63% 42% 60%
page 15
Why it does not apply to Malaysian banks
5. Malaysian banks have a stable and diversified depositor base, that is not concentrated in single sectors e.g. SVB’s tech depositor
base.
Individual Business Other
depositors depositors depositors
Maybank 36% 43% 21%
CIMB 41% 37% 22%
Public Bk 53% 29% 18%
AMMB 40% 51% 10%
HL Bank 50% 46% 4%
RHB 32% 47% 21%
ABMB 43% 34% 22%
Average 42% 41% 17%
page 16
Why it does not apply to Malaysian banks
6. Liquidity is not an issue: Average loan/deposit ratio (LDR) of 92%, loan/fund ratio (LFR) of 88%
Note: loan/fund ratio = (total loans / customer deposits + borrowings)
Liquidity coverage ratios average 145% versus minimum of 100%
Note: LCR = stock of high-quality liquid assets (HQLA) / total net cash outflows over the next 30 calendar days =>100%
LDR & LFR Liquidity coverage ratios
120 180 170
162
102 154
96 96 94 160 145
92 95 93 141
100 91 130
86 86 86 83 84 82 140 127 128
80 120
100
60
80
40 60
40
20
20
- 0
Maybank CIMB Public Bk AMMB HL Bank RHB ABMB ABMB AMMB BIMB CIMB HLBK MAY PBK RHB
Loans/deposits ratio Loans/funds ratio LCR (%) Minimum
page 17
Why it does not apply to Malaysian banks
7. Capital ratios are comfortable
Group CET1 ratio Commercial bank CET1 ratio
18.0 16.9 18
15.7 15.3 15.1
16.0 14.5 14.6 16 14.9
14.2 13.8
14.0 13.0 14 13.2 13.1
12.3
12.0 12 11.2
10.0 10
8.0 8
6.0 6
4.0 4
2.0 2
0.0 0
ABMB AMMB CIMB HL Bank Maybank Public Bk RHB ABMB AMMB CIMB HL Bank Maybank Public Bk RHB
Group CET1 ratio Commercial bank CET1 ratio
page 18
Thank you for your time and indulgence
page 03
