Published April 24, 2009

Najib expected to open the door wider

Website says foreign ownership ceiling on banks may be relaxed next week

By S JAYASANKARAN
IN KUALA LUMPUR

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THE Malaysian government's move to liberalise the services sector on Wednesday was greeted with cautious optimism by analysts yesterday with some expressing the view that the moves could be a prelude to wider liberalisations going forward.

One influential website reported, for example, that the 30 per cent cap on foreign shareholdings in commercial banks may be lifted when new Prime Minister Najib Razak unveils measures to boost the finance industry next week.

Citing unidentified sources, The Malaysian Insider (www.themalaysianinsider.com) said yesterday that the government was considering lifting foreign ownership ceiling.

Under the current ruling, foreigners cannot own more than 30 per cent of Malaysian banks. The shareholding restriction for investment banks and Islamic banks is 49 per cent.

Of the measures already announced on Wednesday, Chris Oh, the research head of JPMorgan in Kuala Lumpur said: 'It's a good and symbolic start, but so far they're not really wide ranging.'

'But it could signal bigger moves ahead and that's a huge positive,' he added.

Mr Najib has announced that the 30 per cent bumiputra equity requirement for 27 sub-sectors in the services industry would be lifted with immediate effect. The sub-sectors are in health, social services, transport, tourism and the computer industry. Mr Najib added that more deregulation involving the financial services sector would be announced next week.

The moves illustrate Mr Najib's desire to rejuvenate the Malaysian economy, which has been beset with declining investment from both local and foreign companies. It also further removes parts of the restrictive New Economic Policy, which has been blamed for distorting the economy and repelling foreign investment.

On another level, it is also good politics as it could win back non-Malay support for the ruling Barisan Nasional coalition which has been steadily losing it. The BN has lost four consecutive by-elections and all with larger majorities largely because of the lack of support from non-Malays.

Indeed, some of the changes appeared sweeping, especially those related to tourism where ownership of theme parks, convention centres and four and five star hotels were suddenly thrown open to all comers. But it isn't clear if the bumiputra requirements would still be unnecessary if the firms concerned were to go for a listing.

At least, one body appeared apprehensive of the moves, especially the one relating to permission being granted to five international law firms to open a local shop for the provision of services relating to Islamic finance. The move was pushed through by the central bank to help Kuala Lumpur become an international Islamic financial hub.

The Bar Council, which can hardly be said to be bumiputra-dominated, expressed concern yesterday that the move could be counter-productive to the local legal services market in the long run.

Its president Ragunath Kesavan said that there was no necessity for such foreign law firms to share or transfer any technology or knowledge to Malaysian practitioners if they were allowed to set up on a 'stand-alone' basis.

Mr Ragunath said that the Bar Council's position was that a managed system of liberalisation, in which foreign law firms are required to enter into joint ventures with Malaysian law firms, represents the best of both worlds as there were sufficient Malaysian lawyers with expertise in the area of Islamic finance at an international level.