Fin System in malaysia

INTRODUCTION TO MALAYSIAN FINANCIAL SYSTEM

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Outline: • The structure of Malaysian

Financial System•Malaysian Banking System•Monetary vs Non-monetary

institutions•Non-banks fin intermediaries•Malaysian financial market

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MALAYSIAN FINANCIAL SYSTEM

BANKING SYSTEM

NON-BANK FINANCIAL

INTERMEDIARIESFINANCIAL MARKETS

THE STRUCTURE OF MALAYSIAN FINANCIAL SYSTEM

Malaysian financial system can be categorize into 3 broad sectors:

1. Banking Financial Intermediaries

The monetary institutions

Comprising BNM and the commercial banks (now including bank companies).

The banking system is the largest components of the financial system, accounting for about 67% of the total assets of the financial system.

2. Non-Banking Financial Intermediaries

Carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these institutions mobilize the public savings for rendering other financial services. All such institutions are financial intermediaries and when they lend, they are known as (NBI’s)

Eg. Factoring companies, Insurance Companies, Cagamas Berhad

3. Financial Market

A market for the exchange of capital credit, including the money markets and the capital market.

Eg. Labuan International Offshore Financial Centre, Stock Exchange, Commodity Future Exchange.

THE STRUCTURE OF MALAYSIAN FINANCIAL SYSTEM

MALAYSIAN BANKING SYSTEM

BANK NEGARA MALAYSIA

COMMERCIAL BANKS

CREDIT GUARANTEE CORPORATIO

N (CGC)

INVESTMENT BANKS

FOREIGN BANKS

REPRESENTATIVES

OFFSHORE BANKS

• The commercial banks are the largest and most significant providers of funds in the banking system.

• There are currently 24 commercial banks (excluding Islamic banks) of which 13 are locally incorporated foreign banks.

• Required to be licensed under Section 2 6(4) of BAFIA 1989• Offer both paper based and electronic fund transfer

FUNCTIONS:• Facilities for savings through current, saving and fixed etc• Facilities to effect payments on behalf of its customers• Loans and credit facilities• Financing the government through the purchase of gov. securities and treasury bills• A wide variety of other banking services such FOREX transaction and internet banking

Commercial banks are also authorized to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities.

COMMERCIAL BANKS

Offshore Banks• Offshore banking can only be carried on in Labuan by an offshore company or a foreign

offshore company incorporated or registered for that sole and exclusive purpose by an office, branch or subsidiary of a licensed Malaysian bank- Commercial Banks

• To apply for an offshore banking license, an application needs to be made to the Labuan Offshore Financial Service Authority (LOFSA) providing a guarantee and minimum capital funds of RM10Million.

Islamic Banking• Commercial Banks – BIMB, Bank Muamalat• Introduce in 1983 with the enforcement of the Islamic Banking Act 1983 which

empowers BNM to supervise and regulate Islamic Banks• Conduct business strictly in line with Syariah Principles• Serves both muslim and non-muslims customers

OFFSHORE & ISLAMIC BANKS

Finance Companies• Second most important group of banking institutions in Malaysia• Functions: Accept Deposits + Provide a range of credit facilities

Other Financial Institutions• Merchant Banks- Basically involved in providing wholesale finance to corporate customer.

Provides financial service such as corporate advisory services (listing of public companies, the underwriting of new issues of shares and project finance to the customer)

• Discount House – Specialize in short term money market operations.

Eg. They receive funds mainly from the banks and corporate sector and invest such funds mainly in Government Securities and T-bills. Banks rely on DH to meet their short-term funding requirements.

• Money Brokers – Involved in brokerage activities in the money and foreign exchange market.

OTHER INSTITUTIONS

MALAYSIAN BANKING SYSTEM

MONETARY INSTITUTIONS

NON-MONETARY INSTITUTIONS

Monetary Institutions Institutions whose principal liabilities are generally accepted as money. Eg: BNM – the sole currency issuing authority in the country and commercial

banks that allowed to operate current accounts.

Non-Monetary Linked closely to the Monetary Institutions & liabilities generally accepted as

near-money. Eg. Investment banks, Finance companies.

MONETARY vs NON-MONETARY

NON-BANK FINANCIAL INTERMEDIARIES

Refers to the institutions that are supervised by various government departments

and agencies except insurance companies are

supervised by BNM.

Provident and Pension Funds

Housing Credit Institutions

Unit Trust

Development and Finance Institutions (DFIs)

Saving Institutions

Insurance Companies

Special Investments Agencies

MALAYSIAN FINANCIAL MARKET

FINANCIAL MARKETS

MONEY MARKET

CAPITAL MARKET

DERIVATIVES

MARKET

FOREXMARKET

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Money Market Short-term instruments i.e. T-Bills, MGS

Capital Market Long-term instruments i.e. Stocks, Bonds

Derivatives Market Future/option instruments derive from underlying

securities i.e. KLIBOR future, KLCI future

Foreign Exchange Market Trade of foreign currency i.e. Spot & Forward contract

MALAYSIAN FINANCIAL MARKET

1. THE Malaysian Financial System can be divided into three areas. Name the areas and explain on each area.

2. What does it means by Monetary and Non-monetary institutions?

QUESTIONS TO PONDER