Financial Services in Brief

An Overview

The financial services sector is an integral component of the Malaysian economy, and it is becoming increasingly important.

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.

Liberalisation measures, like the issuance of new licenses to banks and a considerable increase in foreign equity limits in some sub sectors, are to be implemented over the period 2009 to 2012, making this a particularly interesting period for foreign investors. Even though the Malaysian banking sector has weathered the global financial crisis very well, it is in need of improving its efficiency, with monetary transactions still taking up to three working days.

In terms of SME banking and customer friendly products, Europe is far ahead and Malaysia could greatly benefit from European know-how. The same holds true for the insurance sector, which is still very limited in the country, and where the transfer of European expertise is urgent. Europe, on the other hand, could benefit from closer cooperation in the sector of Islamic Banking, where Malaysia is among the world leaders.

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, 41 Insurance companies and 7 Reinsurance companies. 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.

At the moment, there is no real discussion forum that addresses these issues in the area of Financial Services. The project's objective will therefore be to engage in an ongoing discussion with the various stakeholders, in order to facilitate technology and knowledge transfer in the banking and insurance sectors, for the benefit of all involved.

Outlook for 2010

The new areas of growth are project finance, and loans to initiatives linked to the 10th Malaysian Plan (10MP). Education, Small Medium Enterprises (SME) and health sectors stand to benefit from the new interest in private sector co-financing opportunities.

Outlook for 2011

During the opening of the Financial Inclusion Policymakers Forum, Bank Negara Malaysia announced that it will let the market sort out how many banks should operate in the country. Prime Minister Datuk Seri Najib Razak's assured that the government would consider applications for higher foreign shareholding in local banks. It would be important that banks are well capitalised with quality capital. Currently, Malaysia has cut down the number of local anchor banks to nine but is giving new licenses to foreign banks to set up operations here.

Islamic Finance in Malaysia

Islamic Finance is a key niche for the economy in the 10MP. Islamic finance sector stretches back to 1960s when structured funds helped Muslims save for their pilgrimage to Mecca and this was headed by Tabung Haji currently one of Malaysia’s and the world’s largest Islamic investment institution. Bank Islam Malaysia is the first Islamic bank which now has Tabung Haji as a shareholder.

Currently, there are 17 Islamic Banks in Malalysia, 10 Islamic “windows” – standard commercial banks that operate Islamic sections, 4 international Islamic Banks. 12 Islamic fund management firms, 8 Takaful and 4 re-takaful operators plus one international takaful operator presently operating.

The Malaysian stock exchange has 143 Islamic unit trust funds.

Key information of Bursa Suq Al-Sila' from Bursa Malaysia can be obtained here.

Attached is the Islamic Markets Brochure and a list of products and services in the Islamic capital markets provided by Bursa Malaysia.