Central Bank: New banking and insurance licences to bolster growth

The Star, Tuesday, April 28, 2009, PUTRAJAYA: The new banking and insurance licences that will be given out in the liberalisation of the financial sector are meant to plug the gaps in the country’s financial system and launch the sector as a key driver of economic growth in the country.

“This is consistent with the financial sector masterplan. We issued the financial sector masterplan in 2001 and we are now in the final stages,” said Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz. “We want a diversified economy with balanced growth.”

Zeti was speaking to the media yesterday after Prime Minister and Finance Minister Datuk Seri Najib Tun Razak announced the issuance of up to nine new banking and insurance licences over the next few years.

These licences, which are part of efforts to liberalise the domestic financial system, aims to add depth to a system that has seen tremendous growth over the past decade.

Tan Sri Zeti Akhtar Aziz and Prime Minister Datuk Seri Najib Tun Razak at the press conference Monday where they announces the liberalisation.

There are 13 fully foreign-owned banks in the country, cornering 25% of the local banking market.

Even though the liberalisation of the financial services industry will see these banks open more branches and lead to the entrance of new foreign players, local banks are not expected to be affected much.

The issuance of new commercial banking licences is rare, with Zeti noting that the last one given to a foreign bank was over four decades ago.

In recent years, licences were given out to new foreign Islamic players to add depth to the industry and to meet the country’s aspirations of making Malaysia an Islamic finance hub.
Three years ago, Bank Negara issued four new family takaful licences but they were on a joint venture basis.

And five years ago, the Government allowed foreign banks in the country to increase their branch networks.

The financial services industry in the country today is a key driver of growth and accounts for 11% of GDP today compared with 9.2% in 2000, according to Zeti.

“While significant progress has been achieved by the financial sector, the domestic and global financial landscape continues to evolve, presenting new challenges and opportunities for our financial system,’’ Bank Negara said in a statement yesterday. “Malaysia’s approach towards liberalisation will be selective and sequenced to ensure maximum benefits to the country.’’

Jupiter Securities head of research Pong Teng Siew hopes the new licences will put Malaysia on the financial services map globally.

“We cannot be banking on manufacturing anymore,” he said.

Bank Negara issued the criteria for applicants for the new banking licences in a separate statement.

It said applicants for the new Islamic banking licences must be reputable, demonstrate sound business plans and help grow the industry domestically and internationally.
These banks must also have a paid-up capital of US$1bil.

The two Islamic licences to be given out are for the creation of large, internationally-driven Islamic banking businesses, which are currently missing from the financial landscape, Zeti said.

“Because we want to be an international Islamic hub, we are offering up to two licences for mega Islamic financial institutions,’’ she said.

The benefit of the Islamic banking licence is that they carry no branching restrictions while the issuance of new takaful licences aim to lift to a segment that has lagged in recent years.

For the new commercial banking licences scheduled to be issued this year, the central bank said applicants need to be reputable banks that can serve an untapped banking segment in the country.

And for the licences for world class banks, Bank Negara requires that applicants facilitate international trade and investment flows between Malaysia and the rest of the world.
Banks interested in setting up shop in Malaysia need to strengthen Malaysia’s position as an international Islamic financial hub and as a shared services and outsourcing centre.
“As regional investments take place, this is very important,” Zeti said.

The new commercial banks must have unimpaired capital funds of RM300mil at all times while a new commercial licence for the niche segment would allow specialised banks to operate in the country.

Zeti said none of the existing players, except for Bank Pertanian, possesses such expertise.

The central bank will issue up to three new licences in 2011 to world-class commercial banks. For these licenses, the submission of applications to Bank Negara should be made by Dec 31.

Successful applicants may commence operations in Malaysia from Jan 1, 2011.
The deadline for the submission of applications for commercial banking licences scheduled to be issued in 2009 is Oct 31. Successful applicants can start operations in 2010.

Even though Bank Negara will issue new licences, it does not want to erode the market share being held by Malaysian domestic banks.

“We would like a financial system that has a significant market share by domestic banks. We are not opening aggressively because the domestic agenda remains important,’’ says Zeti.

Source from: The Star Online, By JAGDEV SINGH SIDHU
URL:
http://biz.thestar.com.my/news/story.asp?file=/2009/4/28/business/3784944&sec=business