Malaysia to allow 7 new foreign banks

PUTRAJAYA: In a major move to open up the financial services sector, Malaysia will allow as many as seven new foreign banks -- including two mega-Islamic ones -- to operate here by 2012.

It has also eased foreign ownership rules, allowing foreigners to have controlling stakes in non-commercial banks.

"These liberalisation measures are in line with the government's initiative to promote structural change within the economy and diversify sources of growth to further drive economic expansion," said Prime Minister Datuk Seri Najib Razak, who is also the finance minister, at a press briefing here yesterday.

The financial services sector is an important component of the economy, contributing 11 per cent to gross domestic product last year compared with 9.2 per cent in 2000.

The measures, aimed at making Malaysia more competitive amid the economic downturn, come just a week after parts of the services sector were also liberalised.

Najib said foreign investors could now own up to 70 per cent of local Islamic and investment banks, as well as insurers. Previously, their ownership was capped at 49 per cent.

The foreign ownership limit for local commercial banks, however, remains at 30 per cent. Bank Negara Malaysia governor Tan Sri Zeti Akhtar Aziz said there were no plans to change this for now.

"Our liberalisation is sequenced and it is a gradual, managed process," Zeti, who was also at the briefing, remarked.

She said the reforms were consistent with the Financial Sector Master Plan's objectives of developing a resilient, diversified and efficient sector.

The new meaures will be implemented between this year and 2012.

This year, Bank Negara will issue up to two new licences to foreign "mega-Islamic" banks to undertake international business, reinforcing the country's position as an international Islamic financial hub. It will also issue two new commercial banking licences to foreign players that bring in specialised expertise. These can be banks with a niche in agriculture or infrastructure financing, for example, Zeti said.

In 2011, it will open up the market further by giving licences to three new "world-class" commercial banks that can offer "significant value proposiitions".

Zeti said interested parties could be 100 per cent foreign owned, or a consortium with a local partner.

"The reforms are more 'generous' than we expected. It will definitely bring about stiffer comptition in the industry," Fiona Leong, a banking analyst at AmBank Research, commented.

Consumers would, however, be the ultimate beneficiary as heightened competition would likely bring about better deals at potentially lower costs, she added.

Malaysia currently has 13 financial institutions which are fully foreign owned, with a combined market share of 25 per cent