Malaysia opens banking door wider to foreign investors

Dec 21 (Reuters) – Malaysia said on Wednesday it would open up its banking sector to more foreign investment, in a move by the government to put the economy back on investors’ radar ahead of general elections expected in 2012.

In a 10-year blueprint, Prime Minister Najib Razak said more licenses would be handed out to foreign financial institutions with specialised skills. He promised greater flexibility in letting foreigners hold stakes in lending institutions.

Najib also announced moves to toughen supervision of financial holding companies and create a deeper Islamic finance market in a broad roadmap which largely echoed earlier proposals and contained few details on implementation.

“These moves, when they materialise, would definitely attract foreign investments into Malaysia,” said Gundy Cahyadi, an economist at OCBC in Singapore.

“Investor sentiment, on a broader scale, would tend to welcome this announcement as a positive – this could be taken as another step towards more liberalisation, and definitely a positive twist to the country’s longer term growth.”

Revitalising the economy is the cornerstone of Najib’s transformation plan as he heads into what is expected to be an election year in 2012 although analysts say an illiquid stock market and resistance to reforms highlight the uphill task he faces.

“The financial sector blueprint for the next 10 years reinforces the government’s initiatives to drive Malaysia to become a fully developed nation,” Najib wrote in the foreword to the plan.

“The financial system will have a key role in spurring new areas of growth, and facilitating our economic transformation.”

PRECONDITIONS

The key element was a pledge to exercise greater flexibility in allowing foreigners to hold stakes in financial institutions.

But the central bank said this was subject to preconditions being in place “to ensure an orderly transition to a more liberalised environment”.

It said any move to allow more foreign investment in the financial industry would be guided by the lender’s business record and experience and the investment would have to be in Malaysia’s best interest.

Foreigners are now subject to a 30 percent cap on ownership of commercial banks and 70 percent in investment banks and conventional and Islamic insurers.

In March, Najib indicated a readiness to ease bank ownership rules when he said he would consider allowing Australia & New Zealand Banking Group to raise its stake in Malaysia’s AMMB Holdings to 49 percent, provided the central bank approved.

Last year, the central bank awarded five commercial banking licences to foreign lenders BNP Paribas, Mizuho Corporate Bank, National Bank of Abu Dhabi, PT Bank Mandiri (Persero) and Sumitomo Mitsui Banking Corp.

Malaysia has eight local banking groups and the authorities are seen as favouring consolidation to create larger institutions which can compete with foreign lenders.

Malayan Banking Bhd and CIMB Group Holdings Bhd had earlier put in separate bids to acquire rival RHB Capital Bhd, a deal which would have created Southeast Asia’s most valuable lender. But both scrapped plans due to pricing considerations.

Other new measures included allowing greater flexibility on the maximum permitted shareholdings by institutions and cross-shareholdings in financial institutions and implementing Basel III capital rules.

The central bank said it would ensure better cross-border provision of liquidity to markets and institutions, including the implementation of collateral and currency swap arrangements with regional central banks.

To promote Islamic financial markets, the central bank said it would encourage new products to facilitate repo deals, widen the range of hedging tools and offer tax breaks to ensure more Malaysian issuers sell foreign currency investment products

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Other new measures included allowing greater flexibility on the maximum permitted shareholdings by institutions and cross-shareholdings in financial institutions and implementing Basel III capital rules.

The central bank said it would ensure better cross-border provision of liquidity to markets and institutions, including the implementation of collateral and currency swap arrangements with regional central banks.

To promote Islamic financial markets, the central bank said it would encourage new products to facilitate repo deals, widen the range of hedging tools and offer tax breaks to ensure more Malaysian issuers sell foreign currency investment products.

http://www.reuters.com/article/2011/12/21/malaysia-banking-idUSL3E7NL1S620111221

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