Published April 28, 2009

Najib takes more steps to free up financial services

Nine new banking, insurance licences; foreign equity cap raised to 70%

By S JAYASANKARAN
IN KUALA LUMPUR

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PRIME Minister Najib Razak yesterday announced further measures to liberalise Malaysia's financial services industry including the issue of nine new banking and insurance licences between now and 2012 and the raising of foreign equity thresholds - from 49 per cent to 70 per cent with immediate effect - in investment banks, Islamic banks, insurance companies and takaful (Islamic insurance) operators.

Mr Najib: Moves allow offshore holding firms, financial institutions in Labuan to set up onshore presence in KL

He also announced measures to enable offshore holding companies and financial institutions in Labuan to establish an onshore presence in Kuala Lumpur this year and in 2010 respectively. Mr Najib, who is also finance minister, said foreign banks in Malaysia will also be allowed to establish new branches. And there will be greater flexibility on hiring expatriate staff.

The nine new licences will be issued as follows:

Two new Islamic banking licences this year for foreign players to establish institutions with minimum capital of at least US$1 billion;

Two new commercial bank licences for foreign players with 'specialised expertise';

Two new takaful licences this year; and

Three new commercial bank licences in 2011 for 'world-class' banks.

The moves reflect Malaysia's intent to strengthen its services sector to become a key driver of growth and make its economy less dependent on export-oriented manufacturing.

The moves also mark Malaysia's adherence to its commitments to the World Trade Organisation, first spelled out for financial services in Mr Najib's 2001 financial sector master- plan, which essentially promised the sector would be liberalised by 2011.

According to a statement from the central bank: 'Ninety per cent of the measures announced in the plan have been implemented or are in the process of being implemented.'

The latest moves also highlight the central bank's confidence that Malaysia's nine local banks can survive new competition, after their consolidation and restructuring almost a decade ago. The central bank noted that the local banks are adequately capitalised and have a 70 per cent market share.

Local observers applauded the move. Some are disappointed that foreign equity thresholds for commercial banks remained the same at 30 per cent. But by and large, analysts are pleased.

'I think this is a very good move that will enable us to rope in foreign partners and leverage on their skills,' said Kalimullah Hassan, the chairman and group chief executive of ECM-Libra Financial Services Group, a modest-size investment bank in Kuala Lumpur.

Indeed, analysts think ECM-Libra, which is cash rich, undervalued and small, will probably be the first to become a takeover target by foreign parties. Mr Kalimullah declined to comment, but analysts noted that ECM-Libra's stock rose by almost a third in a down market yesterday.

Going forward, there could be more liberalisation in other areas. Deputy International Trade Minister Mukhriz Mahathir said at the weekend that import permits for foreign cars - the so-called approved permits or APs reserved for bumiputras - could be scrapped, with the permits being open to all through public auction.

The scheme has been widely criticised as inefficient, wasteful and having been abused. Even so, Mr Mukhriz said changing it has to be a Cabinet decision.

Analysts also said tight control of its listed government-linked companies could be relaxed, with the federal government selling down its shareholdings from the 60-75 per cent it holds in such firms as Sime Darby, Maybank, Tenaga Nasional and Telekom Malaysia to just over 51 per cent.

Such a move, said the analysts, would increase the liquidity of these counters and make them more attractive to foreign portfolio investors.