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The Malaysian financial sector is undergoing a process of deep restructuring. During the past years foreign banks encountered several obstacles settling in Malaysia, but this is likely to change soon. The Malaysian government has committed itself to a gradual opening up of the financial sector to foreign companies, in order to improve both the competitiveness of the sector in general and the quality of the services offered, thus sustaining the economic development.

The financial services, besides supporting the development of the industrial sector and the economy in general, contribute directly to the economic growth, accounting for 10.7% of the GDP in 2007.

In the same year, the financial sector in Malaysia counted 22 Commercial banks, 14 Investment banks, 11 Islamic banks, 41 Insurance companies, 7 Reinsurance companies and 10 Takaful/ Retakaful operators. Since 2000, the assets of the banks have grown to an average rate of 8.2% per year, whereas the deposits have grown to an average rate of 8.5% per year in the same period.

As with the rest of Asia, Malaysia has in recent years seen a rapid expansion in retail banking. Having acknowledged the importance of this sector, the Malaysian Government, together with Bank Negara Malaysia, has taken initiatives to develop and strengthen the financial market and its infrastructure.

For instance, important initiatives have been taken to develop and improve the skills of the human capital in the financial area. Bank Negara Malaysia, in collaboration with the Ministry of Higher Education, has started a dialogue between the financial industries and the educational institutes in order to fill the knowledge gaps of the graduates in financial disciplines.

In order to enhance bond trading activities, an Electronic Trading Platform (ETP) for unlisted bond is being developed. The Information and Surveillance System for Debt Securities will collect the data regarding debt securities in one database. This will provide a comprehensive view of the market and will help the banks in formulating their policies. Similarly, other provisions for enhancing the access to financial information are currently being developed.

The Islamic banking system has grown significantly recently. In 2007 it represented 15.4% of the total banking assets of the Malaysian financial system. Malaysia wants to become the international hub of the Islamic financial services. To pursue this objective, the Malaysia International Islamic Financial Centre (MIFC) initiative was launched in 2006. New licenses have been granted to leading international Islamic financial institutions, allowing them to operate in Malaysia. In 2007 the Government has taken initiatives to accelerate the immigration procedure for releasing working visas to experts in Islamic banking. Additional support includes the allowance of 100% foreign equity ownership, granting flexibilities over the acquisition of land and properties as well as tax exemptions.

The Malaysian authorities have engaged in a process of stabilising, strengthening and liberalising the financial sector. The legal and structural obstacles, which in the past, were hindering the entrance of foreign investors in this area, seem to be slowly diminishing, leaving space for opportunities to be ventured.

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