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NEWS UPDATES Asean Affairs        26  March 2011

More finance liberalization in Malaysia

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More liberalisation measures, particularly in increasing financial linkages and encouraging foreign banks to increase their network in Malaysia, are some of the developments that are likely to take place in Malaysia's financial sector.

Recently, Bank Negara gave some hints on the new financial sector blueprint, which will be announced soon.

The focus of the new master plan will be enhancing the capacity and capability of the Malaysian financial sector to serve the needs of a high value-added and high-income economy; reinforcing Malaysia's position as a global hub for Islamic financial services; supporting the holistic review of the pension and social security system given the demographic and social trends in Malaysia; and deepening Malaysia's interlinkages with regional and international economies by facilitating further growth of cross-border financial transactions.

Bank Negara is confident that banking institutions in Malaysia will be able to transition into Basel III from a position of strength owing to the extensive reform initiatives undertaken by the central bank and the industry following the Asian financial crisis.

The Basel Committee on Banking Supervision endorsed a package of reforms to strengthen global capital standards and introduced global standards for liquidity known as Basel III in September 2010. As the market has witnessed, Malaysia's inter-linkages with the region have started to show progress.

For instance, the Industrial and Commercial Bank of China had begun the renminbi foreign exchange market direct trade in ringgit.

This was to facilitate cross-border business transactions in prevailing exchange rates without involving the US dollar as an intermediary currency, thus saving time and foreign exchange conversion costs.

Datuk Lee Kok Kwan, the Deputy CEO and treasurer of CIMB Group, expects to see more liberalisation in the region. These liberalisations will focus on better facilitating real trade flows of imports and exports in the region as well as to better enable cross-border investments and corporate issuances within the region.

Lee said this would especially be apparent in the Asean+3 countries. The three include China, South Korea and Japan.

"These developments will likely encompass the proliferation of foreign exchange products to better facilitate intra-regional real trade flows so that customers have a wider and more effective range of forex hedging solutions in the regional currencies," Lee said.

"On the capital markets front, the developments will likely focus on enabling cross-border investments and corporate issuances within the Asean+3 region. Currently, Asean+3 seldom invests in the region beyond its own domestic markets relying on global funds to do so despite the region being highly attractive to global markets due to its sound economic fundamentals, high FX reserves and high growth economies."

Meanwhile, HwangDBS Vickers banking analyst Lim Sue Lin expects to see more incumbent foreign banks increasing their number of branches.

She also expects to see more strategic alliances between local and foreign banks, rather than an outright acquisition of a local bank by a foreign bank.

On the banking sector as a whole, CIMB banking analyst Winson Ng is positive on Malaysia's banking sector and expects to see healthy earnings growth in 2011.

"Our positive outlook for banks is reflected in our projection of healthy net earnings growth of 15.3 percent for 2011, which is underpinned by the expected 11 percent expansion of net and non-interest income and a 4.2 percent slide in loan-loss provisioning," he said.

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