Malaysia May Liberalize Banking Sector

By webadmin on 07:04 pm Jun 24, 2012
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Francezka Nangoy

Malaysia, the third-biggest economy in Southeast Asia, is considering opening up its banking system to foreign investors, a move seen by analysts as part of the country’s efforts to expedite integration into the so-called Asean Community in 2015.

Zeti Akhtar Aziz, governor of Bank Negara Malaysia, that nation’s central bank, said the country was preparing new banking rules to provide greater flexibility in the nation’s financial system.

“We are now pushing a new law in parliament for the full financial system,” Zeti said after delivering a keynote speech at the Wharton Global Alumni Forum in Jakarta on Friday. “We’re not sure when it will go, either this time or next time. Next time [may mean] in September. But that law will give us more flexibility in the licensing,” she said.

Bank Negara Malaysia has been discussing the move since last year. The central bank said in December, as reported by Bloomberg, that the country would allow foreign banks to own larger stakes in local lenders, grant more licenses and ease rules on short sales as it sought to triple the size of its finance sector by the end of the decade.

Under it’s first 10-year Financial Sector Master Plan published in 2001, Malaysia’s banks and brokerages were encouraged to merge as rules were gradually eased and more licenses were granted, Bloomberg reported.

Several international lenders currently own stakes in Malaysian lenders. Australia & New Zealand Banking Group holds 23.8 percent of AMMB Holdings, while Hong Kong’s Bank of East Asia has 23.5 percent ownership in Affin Holdings, according to Bloomberg data.

Malaysia maintains a 30 percent cap on foreign ownership of banks in Malaysia now. The upcoming banking flexibility may affect this ceiling.

Zeti, who earned a doctorate in economics from the University of Pennsylvania in 1978, was vague on the likely extent of the flexibility.

“It will be greater flexibility than what we have now. I can’t discuss it because the parliament has not passed it,” she said.

“Essentiality in our assessment, our financial system can become more competitive. But at the same time we want to have safeguards in place.”

Malaysia’s central bank eased foreign ownership limits on non-commercial banks in 2009 when its economy slipped into recession. It raised the maximum amount that foreign investors may own in insurers, Islamic banks, investment banks and sellers of Shariah-compliant insurance to 70 percent from 49 percent at that time, according to Bloomberg.

At the same time, Indonesia’s central bank is working to curb foreign ownership in Indonesian lenders. Currently, a single investor may own up to 99 percent of an Indonesian lender.

When asked about Indonesia’s banking regulation Zeti said: “I cannot comment on another central bank’s policy, especially policy and measures that have a influence on the market.”

Indonesia, Southeast Asia’s largest economy, has cut the number of commercials lenders to 120 from more than 250 during the 1997-98 Asian financial crisis in a move to consolidate its banking system.

Malaysia and Thailand have fewer banks than Indonesia, which makes them easier to regulate. In Malaysia, 54 banks combined into 10 after the crisis, while the number of Thai commercial banks fell to 12 from 16.