As Bank Negara Malaysia (BNM) moves toward finalizing its Interest Rate Risk in the Banking Book (IRRBB) framework (Exposure Draft issued 30 September 2025), Malaysian banks are preparing for a significant upgrade in governance, modelling, capital planning, stress testing, and more.
The good news for Malaysian financial institutions is that BNM is not reinventing IRRBB, but bringing its reporting requirements and related risk governance guidelines in line with the Basel standards. The Exposure Draft includes qualitative principles on managing IRRBB, a quantitative framework for measurement and reporting as well as BNM’s expectations on pillar 2 capital allocation for IRRBB.
Those 3 sets of requirements are far reaching and require banks to approach the framework strategically. This article offers some lessons learned from ElysianNxt’s global IRRBB implementations as well as identify key components of future proof solutions.
The Shared Foundation: All Frameworks Are Basel-Aligned
At a conceptual level, BNM IRRBB derives from the Basel IRRBB standards.
This means the framework requires:
1. Dual IRRBB measurement
- Economic Value of Equity (EVE)
- Earnings-at-Risk / Net Interest Income (NII/EAR)
2. Six prescribed interest-rate shock scenarios
Parallel up, parallel down, steepener, flattener, short-rate up, short-rate down.
3. Robust behavioral modelling
- Non-maturity deposits (NMDs)
- Loan prepayment behavior
- Term deposit early redemption
4. Strong governance and oversight
Board understanding and oversight, challenge, limit setting, escalation.
5. Integration into ICAAP & Stress Testing
Forward-looking scenarios and reverse stress testing.
A strategic approach towards IRRBB compliance consider double use cases:
- The compliance use case, focusing on out-of-the-box supervisory parameterization and governance
- The risk management use case, focusing on robust scenario modelling capabilities
What Malaysian Banks Can Learn from Other Jurisdictions
1. IRRBB requires immense processing power
A single calculation is extremely processing intensive and includes contract level cash flow generation and slotting for each scenario.
Extensive cash flow and behavioral modelling for each scenario (both prescribed and internal).
2. IRRBB must integrate with liquidity, stress testing and ICAAP
Governance principles prescribe full integration with banks’ risk management framework and introduce clear expectations under the Pillar 2 expectations.
3. Data quality is of the essence
Supervisors place intense scrutiny on data lineage, granularity, parameter history and reconciliation, but experience learns that data lineage is above all a minimum system requirement for explaining the results.
4. Governance is key
Model validation, Board oversight, documentation and clear assumptions matter as much as calculations.
How ElysianNxt Helps Malaysian Banks Accelerate IRRBB 2027 Readiness
Because ElysianNxt already provides IRRBB solutions to Banks in Europe, Asia, and Australia, Malaysian banks benefit from:
A microservices architecture the scales with processing need
The specialized containers take care of their respective jobs and scale effortlessly when data load increases. This ensures that your millions of IRRBB calculations perform fast and without fail.
Out-of-the-box implementation approach
With a centralized Supervisory Dictionary, it is easily configurable for BNM buckets and scenarios compliance. This approach makes regulatory changes fast, effortless, and effective. Any future demands (i.e. Capital requirements, SOT, …) will be easily updated into the dictionary.
Pre-configured behavioral modelling frameworks
NMD stability, prepayments, early redemption, Islamic product variations.
Integrated interest rate risk management in the platform
The regulatory scenarios serve as a starting point for internal scenario analysis, like stress testing, simulations and what-if scenarios.
Platform features that are designed for governance
From Model Governance to Data Lineage and Configuration Lineage, the .NXT Platform ensures end-to-end oversight and documentation as well as simplifies data management (validation, reconciliation at granular level).
Islamic banks coverage
ElysianNxt’s experience with Islamic/Sharia banks in Asia has proven that the platform can easily configure and support specific rules applicable to Islamic banking products
The Bottom Line: IRRBB Compliance can be Fast, Simple, and Cost-efficient
By adopting global best practices and leveraging platforms already proven globally, Malaysian banks can move faster, with higher accuracy and at lower cost.
