MALAYSIAN FINANCIAL SYSTEMMALAYSIAN FINANCIAL SYSTEM

Malaysian Financial SystemStructure of Malaysian Financial System

Financial Institutions

Non- Bank Financial Intermediaries

Financial Market

Financial System

Financial Institutions

Financial Market

Banking System

1.Bank Negara Malaysia2.Bank Institutions•Commercial Banks•Finance Companies•Merchant Banks•Islamic Banks3.Others•Discount Houses•Representative offices of foreign Banks

Non-Bank Financial Intermediaries

1.Provider & Pension Funds2.Insurance Companies (including Takaful)3.Development finance Institutions4.Saving Institutions.

• National Saving Banks• Co-operative societies5. Others• Unit Trusts• Pilgrims Fund Board• Housing Credit

Institutions• Cagamas Berhad• Credit Guarantee

Corporation• Leasing Companies• Factoring Companies• Venture Capital

Companies

Money & Foreign Exchange Market1.Money market2.Foreign exchange Market

Capital Market1.Equity Market2.Bond Market•Public Debt Securities•Private debt Securities

Derivatives Market1. Commodity Futures2, KLSE CI Futures3. KLIBOR Futures

Offshore Market

1. Labuan International Offshore Financial Center (IOFC)

Banking SystemConsists of Bank Negara Malaysia (Central Bank of

Malaysia – BNM) , banking institutions ( commercial banks, finance companies, merchant bank and Islamic banks) and a miscellaneous group ( discount house and representative office of foreign banks).

Largest of financial system ,accounting for >70% of the total assets of the financial system.

Rapid expansion of largest group of institutions in banking system – grew an average rate 19.7% (1988-97) but decline by 5.6% (during Asian Financial crisis). – recover after 2000.

Bank Negara MalaysiaEstablished on 26 January1959 under the Central Bank of

Malaya Ordinance 1958. Objectives of BNM are as follows: To issue currency and keep reserves to safeguard the value of the

currency; To act as a banker and financial adviser to the Government; To promote monetary stability and a sound financial structure; and To influences the credit situation to the advantage of Malaysia.

The objectives of BNM, in essence, encapsulate the importance of promoting economic growth with price stability and maintaining and financial stability.

The introduction of the Banking and Financial Institutions Act 1989 (BAFIA) on 1 October 1989 extended BNM’s powers for the supervision and regulation of financial institutions and depositing taking institutions who also engaged in the provisions of finance and credit.

Commercial BanksThe commercial banks are largest and most significant

providers of funds in the banking system.

Since they are involved in deposit-taking activities, they are required to operate within the ambit of the provisions of the Banking and Financial Institutions Act 1989 (BAFIA) – under direct supervision of Bank Negara Malaysia.

Current 22 commercial banks (exclude Islamic banks) of

which 13 are locally incorporated foreign banks.

Commercial Banks The main functions of commercial banks are to provide:I. The mobilization of saving , deposits, surplus and idle funds through

savings accounts, currents accounts, fixed deposit accounts, negotiable instruments of deposits and through other banking, financial and investment instruments.

II. The provision of services and facilities for their customers and others members of the public to collect/receive and transfer/pay money in Malaysian ringgits or in other foreign currencies, both locally and internationally. Commercial banks are also authorized to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities.

III.The lending of money under various from of overdrafts, loan and advances, and the financing instruments to private individuals and different forms of business enterprises and other organizations for personal consumption, investments, working capital requirements and for other productive and economically viable purpose and activities.

IV.The provision of banking services and facilities to stimulate, assist and encourage productive and profitable utilization of available funds for investments and promotion of exports.

V. The financing of government project and activities through subscriptions to Treasury Bills, Cagamas Bonds, Government securities, and so on.

Commercial BankNo Name Ownership

1 Affin Bank Berhad Local

2 Alliance Bank Berhad Local

3 AmBank (M) Berhad) Local

4 Bangkok Bank Berhad Foreign

5 Bank of America Malaysia Berhad Foreign

6 Bank of China (Malaysia) Berhad Foreign

7 Bank of Tokyo-Mitsubishi UFJ (Malaysia) Berhad Foreign

8 CIMB Bank Berhad Local

9 Citibank Berhad Foreign

10 Deutsche Bank (Malaysia) Berhad Foreign

11 EON Bank Berhad Local

12 Hong Leong Bank Berhad Local

13 HSBC Bank Malaysia Berhad Foreign

14 J.P. Morgan Chase Bank Berhad Foreign

15 Malayan Banking Berhad Local

16 OCBC Bank (Malaysia) Berhad Foreign

17 Public Bank Berhad Local

18 RHB Bank Berhad Local

19 Standard Chartered Bank Malaysia Berhad Foreign

20 The Bank of Nova Scotia Berhad Foreign

21 The Royal Bank of Scotland Berhad Foreign

22 United Overseas Bank (Malaysia) Bhd Foreign

Finance companiesFinance companies form the second largest

group of deposit taking institutions in Malaysia.Financial company initially governed by BNM

through the Finance company Act 1969.This was repealed by the Banking and Financial

Institutions Act 1989 (BAFIA).Finance company business is defined as:The business of receiving deposits on deposit account,

saving account or other similar account;The lending of money;Leasing business or the business of hire purchase; andAny other such business as BNM with the approval of the

Minister may prescribe.

Finance CompaniesNo List of Finance Companies in Malaysia

1 Alliance Finance Bhd.

2 Arab-Malaysian Finance Bhd.

3 Affin-MCF Finance Bhd.

4 Bumiputera-Commerce Finance Bhd.

5 RHB-Delta Finance Bhd.

6 EON Finance Bhd.

7 Hong Leong Finance Bhd.

8 Kewangan Bersatu Finance Bhd.

9 Mayban Finance Bhd.

10 AMFinance Bhd

11 Public Finance Bhd.

12 Southern Finance Bhd.

Merchant BanksMerchant banks emerged in the Malaysian banking

scene in the 1970s, marking an important milestone in the development of the financial system alongside the corporate development of the country.

They play a role in the short-term money market and capital raising activities including financing specializing in syndication, corporate finance and management advisory services, arranging for the issue and listing of shares, as well as investment portfolio management.

There are currently 9 merchant banks in Malaysia.

Merchant Banks

No List of Merchant Banks in Malaysia

1 Affin Merchant Bank Bhd.

2 Alliance Merchant Bank Bhd.

3 Arab-Malaysian Merchant Bank Bhd.

4 Aseambankers (M) Bhd.

5 Commerce International Merchant Bank Bhd.

6 Southern Investment Bank Bhd.

7 Public Merchant Bankers Bhd.

8 RHB Sakura Merchant Bankers Bhd.

9 Utama Merchant Bank Bhd.

Islamic Banks In Malaysia, separate banking legislation and banking regulation

exists side by side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA), which came into effect on 07 April 1983. The IBA provides BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks.

The banking activities of Islamic banks are based on Syariah principles (the Islamic principles). The first Islamic bank was Bank Islam Malaysia Bank (paid-up capital RM80million) which commenced operations on 1 july 1983. On 1 October 1999, a second Islamic bank, namely Bank Mualamat Malaysia Berhad was established. Apart from Islamic banks, other financial institutions also offer Islamic banking services through the “Islamic Banking Scheme”

In term of products, all Islamics banking entities are offers banking products based on the Islamic principles.

Islamic BanksNo. Name Ownership

1 Affin Islamic Bank Berhad L

2 Al Rajhi Banking & Investment Corporation (Malaysia) Berhad

F

3 Alliance Islamic Bank Berhad L

4 AmIslamic Bank Berhad L

5 Asian Finance Bank Berhad F

6 Bank Islam Malaysia Berhad L

7 Bank Muamalat Malaysia Berhad L

8 CIMB Islamic Bank Berhad L

9 EONCAP Islamic Bank Berhad L

10 Hong Leong Islamic Bank Berhad L

11 HSBC Amanah Malaysia Berhad F

12 Kuwait Finance House (Malaysia) Berhad F

13 Maybank Islamic Berhad L

14 OCBC Al-Amin Bank Berhad F

15 Public Islamic Bank Berhad L

16 RHB Islamic Bank Berhad L

17 Standard Chartered Saadiq Berhad F

Islamic BanksBanking Product/Facility Islamic Principle/Concept

Current Account Al-Wadiah Yah Dhamanah

Saving Account Al-Wadiah Yah Dhamanah

General Investment account Al-Mudharabah

Special Investment account Al-Mudharabah

Investment in GovernmentInvestment Certificate

Al-Qardhul HassanAl-Wakalah, or

Investment in shares/Share financing

Al-Mudharabah, orBai’ Bithaman Ajil

Housing (loan ) financing Bai’ Bithaman Ajil

Vehicle financing Bai’ Bithaman Ajil or Al-Ijarah Thumma Al-Bai

Working capital financing Al-Murabahah

Project financing Al-Mudharabah, or Al-Musyarakah

Asset acquisition financing Bai’ Bithaman Ajil

Islamic Export Credit Refinancing(i) Pre-shipment(ii) Post-shipment

Al-Murabahah/ Bai’ Al-DaynBai’ Al-Dayn

Islamic BanksBanking Product/Facility Islamic Principle/Concept

Islamic Accepted Bills(i)Import/Purchases (local)(ii)Export/Sales (local)

Al-Murabahah / Bai’ Al-DaynBai’ al-Dayn

Letter of Credit Al-Wakalah, pr Al-Murabahah, or al-Musyarakah

Shipping Guarantee Al-Kafalah

Letter of guarantee Al-Kafalah

Overdraft Al-Qardhul Hassan

Leasing Al- Ijarah

Bill operation Al-Ujr / Al-Wakalah

Discount HouseDiscount House began operations in Malaysia since

1963.Generally, the discount house specialize in short-term

money market operations and mobile deposits from the financial institutions and corporations in the form of money at call, overnight money and short term deposits.

The funds mobilized are invested in Malaysian Treasury Bills, Malaysian Government Securities (MGS), banker acceptance (Bas), negotiable certificates of deposits (NCDs), Cagamas bonds and Floating Rate Negotiable Certificate of Deposits (FRNCDs), as well as to provide an active secondary market for these activities.