Where Are We Going?

Excerpt from The Star 27th April 2009


Change comes to local financial services industry

PETALING JAYA: The local financial services industry will be undergoing several changes over the next few years to enhance its role as an enabler and catalyst for growth as well as to strengthen the local economy’s linkages with other economies.

These changes would include the issuance of up to nine new financial licenses, increasing foreign shareholding in non-commercial banks and allowing locally-incorporated foreign commercial banks to have better access to underserved sectors of the economy.


The changes in the financial services industry followed the announcement made by Prime Minister Datuk Seri Najib Razak last week of the waiver of the 30% bumiputera equity stake in 27 subsectors of the services sector.

Bank Negara said in a statement released on Monday that “the liberalisation plan aims to pursue opportunities that will bring net benefits and contribute to the development of the Malaysian financial sector and the economy as a whole while ensuring that overall financial stability and soundness is preserved.”

The central bank added that the plan would be supplemented with sufficient safeguards to ensure that the overall financial intermediation function of the financial system remained intact, effective and sound.

Meanwhile the AP reported:

PUTRAJAYA, Malaysia: Malaysia announced Monday it will let foreigners hold a majority stake in insurance companies and investment banks, while five more foreign banks will be allowed to operate by 2011 in major steps toward financial liberalization.

Prime Minister Najib Razak told reporters he is raising the foreign ownership cap in insurance companies and investment banks _ known as noncommercial banks - from 49 percent at present to 70 percent.

"These liberalization measures are in line with the government's initiatives to promote structural change within the economy and diversify sources of growth to further drive economic expansion," said Najib, who is also the finance minister.

"In enhancing our international linkages and taking the financial sector to a new level of performance it will contribute to our overall economy," he said.

Najib said the government will issue licenses to five new foreign commercial banks, which are the traditional lenders serving the public, by 2011.

Currently, there are 13 locally incorporated commercial banks, including Citibank, Standard Chartered and HSBC. Although they are fully owned by foreign entities, they are restricted in their operations and can only run a certain number of branches.

Still, the foreign banks control 25 percent of the domestic banking market.

The foreign banks are also not allowed to own more than 30 percent of domestic commercial banks.

Najib said this rule will remain unchanged to allow the local financial services sector to flourish.

He said the government will issue six new licenses to foreign financial bodies in 2009 and three in 2011.

Of the six licenses, two will be given to foreign Islamic banks with a paid up capital of at least $1 billion, two to foreign commercial banks with specialized expertise and two to Islamic family insurance companies.

In 2011, up to three licenses will be issued to world class foreign commercial banks, he said.

"Our liberalization is a sequence-managed and gradual process," said central bank governor Zeti Akhtar Aziz said.

The financial services sector contributed 11 percent to Malaysia's gross domestic product last year, and employs more than 140,000 workers.

Monday's announcement came less than a week after Najib scrapped a 30 percent requirement for ethnic Malay ownership of investments in some service sectors in a bid to boost the country's flagging economy.

Malaysia's exports have been hit by the meltdown in global demand and the government says the economy will shrink 1 percent this year in its worst case scenario. - AP