Finance in Asia After GFC: Malaysia
 Mah-Hui LIM
 Workshop on Financial Evolution,
Regulatory Reform and Cooperation
in Asia
 May 17-18, 2013
 Seoul National University
1
Domestic Financial
Liberalization Measures

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Credit controls and allocation
Interest rate deregulation
Entry Barriers –domestic & foreign
Govt regulation & ownership
Competition in finance
Ease of financial innovation
Diversification of financial services
2
Exeternal Financial
Liberalization Measures
 Free entry of foreign fin services
 Liberalization of capital flows
 Wider & deeper integration to
regional and international financial
markets
3
Brief History of Financial Libzn
in malaysia
 Prior to 1985 banks regulated but
finance companies lax. 1985 fin crisis
& recession > bailout and closing of
finance cos
 1990s -1997 – robust recovery &
surge in capital inflows >AFC
 Again bail out, restructure,
recapitalization & consolidation
4
Consolidation in Financial
Industry
 54 banks & fin cos merged into 9
banking groups
 1986 –2011:
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

Tot no. banks from 38 > 24
Domestic banks 22 > 8
Foreign banks remain at 16
Insurance cos fr 63 > 36
5
Number of Financial Institutions
in Malaysia
 Source:Bank Negara, MSR, Mar2013
6
Financial Sector Master Plan 2001-2010
Financial Sector Blueprint 2011-2020
 Objectives:
 Create more open, competitive,
diversified, liberalized, efficient
financial system
 Develop and deepen capital markets
– bond, stock markets
 1997-2010: Bond mkts doubled to
96% of GDP while banking assets
declined fr 289% to 230%
7
Financial Structure in Malaysia
Percent of GDP
1997
Banking Assets
289
Debt Securities Market 47
Stock Market Cap
133
Total Financial Assets 469
GDP RM billion
282
2000
220
68
125
413
356
2010 2020 F
229 300
96 NA
160 NA
485 600
795 NA
8
Financial Sector Growth
 Sukuk (Islamic bonds) now 55% of
debt securities market
 2010 – cap mkts 46% of tot financing
 2020 – target 52%
 Fin sector major driver – since 2001
grew at av 7.3% p.a. faster than GDP
growth. Expected to grow btw 811%pa with total fin assets to reach
600% of GDP in 2020
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Internationalization of Financial
Sector
 Reduce entry barriers to finance and
create level playing field for foreign
and domestic fin players
 Malaysian banks to expand overseas
 Deeper and wider integration with
regional & int’l financial markets
10
Greater presence of foreign
banks
 Number of Islamic banks foreign
owned rose fr 0 to 12 btw 1986-2011
 2009 – up to 2 new Islamic bank and
2 new commercial bank licenses
offered to foreign institutions and 3
new licenses offered in 2011
 Equity participation of foreign interest
raised to 70% for joint ventures
 Greater operational flexibility given
11
Internationalization of banks
 Foreign banks account for 25% of
total bank assets and deposits
 Foreign ownership of Msian
government bonds reached 28% in
2012 (20% Indonesia; 7% Thailand)
 Msian banks overseas expansion
2002-2010. Overseas assets rose 73x
fr RM3bn to RM240bn; pretax income
fr -4.3% to 13.6%
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Other Internationalization Efforts
 Expand use of local & regional
currency payments, integrating
settlement systems, common stds for
cross border payments,
harmonization of regulatory &
supervisory, prudential stds
 Regional coopn to share info,
surveillance, crisis prevention,
liquidity crisis mgt, reg supervisory
colleges & network
13
Capital Account Controls -1998
 Ringgit pegged to US$ 1= 3.8
 Offshore ringgit account and trading
banned
 Moratorium on repatriation of
proceeds fr sale of securities
 All off-shore ringgit repatriated home
 Foreign currency borrowing by
residents ltd to RM5mm equivalent
 Rgt borrowing by NRs limited
14
Post 1998 – gradual
liberalization of capital account
 1999 10% exit levy to replace
moratorium, this levy abolished in
May 2000
 Since then no controls on capital
inflows and capital outflow
 Controls still on borrowing of ringgit
by non residents & borrowing of
foreign currency (FXC) by residents
15
Transactions Involving NonResidents (NRs)
 Ringgit Borrowing by NRs
 In 2000-intraday credit to NR
stockbrokers increased to RM200m and
limit abolished in 2007
 2001-NR companies cd borrow up to
RM5m for use in real sector in Msia
 2007- increased to RM10m
 By 2008 can borrow ANY amt for use in
real sector WITHIN Msia
16
Ringgit borrowings by NRs
 2010- allowed international trade to
be settled in ringgit on shore. Also
banks can lend ANY amount of ringgit
to NRs for trade financing
 But NRs still not allowed to borrow
ringgit for financial speculation
 2004 NR cos can issue ringgit bonds
for ANY amt for onshore use or
subject to outward invst rules if used
offshore
17
Foreign Currency Borrowings by
Residents -control currency
mismatch
 Msia less affected during AFC because of
limit to FXC borrowing of up to RM5 mm
equivalent before AFC
 2005 – this limit raised to RM50mm for
resident group of cos & RM10mm for
individuals
 2007 – limit raised to RM100m fr banks
equivalent for cos. Still applies today
 2010- no limit if resident cos borrow
FXC fr parent or related cos that are non
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resident and non-bank.
FXC borrowing by Residents
 If residents have own FXC, no limit on
outward direct investments
 If residents have domestic currency
borrowing then can only borrow up to
RM50m equivalent in FXC
19
Residents ODI (Outward Direct
Investments)
 1998- residents who invest overseas
in excess RM10,000 equivalent
required BN approval
 In 2007, residents outward invst of
own money in excess of RM50mm
equivalent abolished
 Residents can even borrow to invst in
FXC up to RM100mm in FXC and
RM50mm in ringgit equivalent
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Outward Direct Invsts exceed
Foreign Direct Invsts > 2007
50,000
40,000
30,000
20,000
10,000
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-10,000
-20,000
-30,000
-40,000
-50,000
-60,000
Outward Direct Invst
Inflow FDI
21
Internationalization of Ringgit
 Ringgit is partially internationalized –
can use ringgit for international trade
(exporter can receive ringgit onshore)
 But access to ringgit is still limited
 No offshore ringgit trading
 No offshore ringgit account
 Non-resident banks no access to Rgt
 Travellers limited to take out or bring
in up to RM30,000
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Conclusions
 Financial sector and capital account
become more liberal after the AFC
and this process is proceeding
 But restrictions apply to the
accessibility of ringgit although it is
now used for international trade
settlement
 Emphasise principles & risks based
regulations & dependence on
prudential measures
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