Single Customer Limit / Exposure

What is single customer limit or exposure definition? Most of the people is confusing with the definition and always deemed single customer view as a very subjective matter to understand. Each central bank of the countries may have their own definition but mostly are identical or similar.  

Below is a summary of the definition for Single Customer Limit or Single Customer Exposure that extracted from Bank Negara Malaysia (Central Bank of Malaysia).  

A.    The definition is extracting from the below guideline and rules

1)    Bank Negara Malaysia’s Garis Panduan 5 (GP5)

2)    Bank Negara Malaysia’s Guidelines 

B.    The important components for Single Customer Exposure Computation

1)    Relationship that are deemed Single Customer or Issuer, i.e. Individual and Spouse, Individual and Company, Individual and Partnership, Holding Company (its subsidiaries, associates and related companies)

2)    Mean and Purpose Test

3)    Holding Company, Subsidiaries, Associates and Related Companies

4)    Type of Credit Facilities (Loans and Advances, Guarantee, Foreign Exchange Contract, etc.), Equity, Loan Stock and Debts Instrument 

C.   Single Customer Limit Exposure Limit

1)    Total exposure to a Single Customer must not be more than 25% of the Bank’s Capital Funds

2)    Capital funds comprises Tier 1 Core Capital and Tier 2 Supplementary Capital as defined by Bank Negara’s Risk Weighted Capital Ratio (RWCR) Guidelines 

D.   Tier 1 Capital (Core Capital) components

1)    Share Capital

2)    Non-cum perpetual Preference Share

3)    Share Premium

4)    Statutory Reserve Fund

5)    General Reserve Fund

6)    Retained Profits Brought Forward

7)    Half yearly Profit (audited)

8)    Current year’s Losses (unaudited) 

E.    Tier 2 Capital (Supplementary Capital) components

1)    Hybrid (debt/equity) capital instruments

2)    Subordinated term loan

3)    Reserve arising from revaluation of premises

4)    General provision for bad & doubtful debts

Total Tier 2 Capital eligible for computing Capital Funds cannot exceed Tier 1 Capital 

F.    Single Customer Limit Exemption

1)    Transaction with other Banks

2)    Credit facilities granted to the Government of Malaysia and the Government of any State

3)    Credit facilities granted to Permodalan Nasional Bhd

4)    Credit facilities extended with the guarantee of the Federal Government 

G.   Single Customer Limit Inclusion

1)    Credit facilities granted to State owned corporations

2)    Credit facilities extended with the guarantee of State Government or Permodalan Nasional Bhd 

The extraction may be varied from the latest guideline. Thus, please refer to the latest guideline published by Bank Negara Malaysia in order to confirm the definition.