ASSET MANAGEMENT COMPANIES
CHAPTER 5:THE MALAYSIAN BOND MARKETPRESENTED BY:
AFIZRENNA BINTI MOHAMED2011377639KHAMISAH BINTI FADIL2011537077NORAZIAH AFIQAH BINTI MAD NOH2010303645NUR IFFAH BINTI JAFFRI2011968279SITI NAEEMAH BINTI GHAZALI2010730357The Malaysian Bond MarketWho are the issuers in the Malaysian Bond MarketGovernment of MalaysiaBank Negara MalaysiaQuasi-government InstitutionsCagamas BerhadMultilateral Development BanksInvestors in the Malaysian Bond MarketEmployees Provident FundPension FundsUnit TrustsInsurance CompaniesAssets Management CompaniesDiscount HousesCommercial Banks
THE MALAYSIAN BOND MARKETMalaysian government start to issue bonds in the 1970s
Main objective- to raise funds for the countrys development project
During 1980s, Malaysian government develop a relatively deep bond market that has become a competitive sorces of financing
After the 1997-1998 Asian Financial crisis, there has been a conscious shift towards the bond market
Malaysia needs a strong domestic bond market because:Investors demand large amount of finance for their manufacturing activities, infrastructure improvements and provision of servicesThe change in the economic structure from labour intensive to capital intensive industries demand long-term debt financing that cannot be met by the banking sector or equity marketLong-term institutional investors needs fund for portfolio diversification and asset liability management purposeIslamic bonds- comply which Shariah principles, play a major role in Malaysias capital market development
Has increased the diversity of assets classes and instruments in the Malaysia bond market
In 2007, Securities Commission of Malaysia approved RM160.3 billion of ringgit-denominated bond issuesWHO ARE THE ISSUERS IN THE MALAYSIAN BOND MARKET?
Government of MalaysiaBank Negara MalaysiaQuasi-government InstitutionsCagamas BerhadMultilateral Development BanksGovernment of MalaysiaIssues marketable bonds to finance its working capital and development expenditure
Raises development funds from the domestic capital market by issuing diverse forms of government securities
Long-term and short-term non-interest-bearing securities(Government Investment Issues (GII) and Malaysian Islamic Treasury Bills (MITB) Malaysian Treasury Bills (MTB)Interest-bearing long-term bondBank Negara MalaysiaCentral bank for MalaysiaObjectives:To issue currency and keep reserves safeguarding the value of the currency
To act as a banker and financial adviser to the government
To promote the reliable, efficient and smooth operation of national payment and settlement systems and to ensure that the national payment and settlement systems policy is directed to the advantage of Malaysia
To influence the credit situation to the advantage of the country
Business- Managing the liabilities of the government, both in Malaysia and abroad
Advises the government on its loan programmes. E.g: planning the government securities auction calendar, timing of loans and issuing of new types of securities
Issues bond to manage liquidity in both the conventional and Islamic financial marketsExamples of securities issued by Bank NegaraBank Negara Monetary NotesSukuk BNM IsuuesMerdeka Savings Bonds
Bank Negara Monetary NoteDiscounted or coupon bearing government securities with maturity periods of 91, 182, 364 days an 1-3 yearsTo manage liquidity in both conventional and Islamic marketSukuk BNM IssuesZero coupon bonds with maturities of 1-2 yearsBased on IjarahMerdeka Saving BondsSavings vehicle targeted at retirees by offering a slightly higher return than the market rate, and a tax exemption.Unique- based on the Islamic banking concept of Bai Al-InahQuasi-government InstitutionKhazanah Nasional Berhadthe Government of Malaysia's strategic investment fundmain long-term objective: to promote economic growth and make strategic investments on behalf of the government which would contribute towards nation buildingIt shapes up selected strategic industries in Malaysia and nurtures their development to meet the objective of contributing to the nations long-term economic interests.Quasi-government InstitutionKhazanah Nasional BerhadIssues Khazanah Bonds- zero coupon bonds guaranteed by the government- issued based on the Islamic principle of Murabahah with maturity of 3,5,7, or 10 yearsQuasi-government InstitutionPengurusan Danaharta Nasional Berhadpublic company incorporated under the CA 1965Wholly owned by the Malaysian governmentAct as the nasional asset management companyObjective: Re-energize the Malaysian financial sector by buying non-performing loans (NPLs) from financial institutions and maximize their recovery value.Quasi-government InstitutionDanamodalSpecial purpose company incorporated by Bank Negara(1998)To ensure that the local banking sector continues to be a lending conduit to corporations and individualsRecapitalized banking institutions are in a better position to focus on providing funding to companies that contribute to Malaysias economic recoveryCAGAMAS BERHADCagamas (The National Mortgage Corporation)
Promote development of the private debt securities market as well as promotes secondary mortgage market in Malaysiaissues debt securities to finance the purchase of government servants housing loans
18CAGAMAS BERHADCagamas Fixed Rate Bonds
Have period of one and a half to ten years and carry a fixed coupon rateInterest on these bonds is payable half-yearly.The redemption of the bonds is at nominal value together with the interest due on the maturity date.
CAGAMAS BERHADCagamas Floating Rate Bonds
Have period of up to 10 yearsAn adjustable interest rate pegged to the 3 month or 6 month KLIBOR.
CAGAMAS BERHADCagamas Notes
Short-term instruments with maturities between 1 to 12 monthsThe notes issued at a discount from the face valueRedeemable at their nominal value upon maturityCAGAMAS BERHADSanadat Mudharabah CagamasProfit-sharing arrangementUsed to finance the purchase of Islamic house financing debts which are granted on the basis of Bai Bithaman Ajil (deferred payment sale contract)The purchase of Islamic hire purchase debts are granted under the principle of Ijarah Thumma Al-Bai (Finance lease)The bonds aer redeemable at par on maturity and may have tenure of up to ten years.Multilateral Development Banks (MDBs)
The World Bank Group
The objective of multilateral development banksThe MDBs Source to raise funds for the developing countriesFor the development projects:The MDBs borrow development funds from international capital markets and re-land to the governments of developing countries in the form of long term loans. Change market interest rates on these loans.The MDBs use money donated by governments of other countries to finance very long-term loans. The borrowing countries pay interest well below market interest rates.The development of the Malaysian capital market Domestic bond market- Bank Negara liberalized its foreign exchange administration rules to facilitate multilateral development banks or multilateral financial institutions to raise ringgit-denominated bonds in the Malaysian capital market.MLFEA allows resident and foreign issuers to raise foreign currency-denominated bonds, include Islamic bondsInvestor can freely obtain ringgit and foreign currencies to finance their investments.Foreign investors in Malaysia are liberated to hedge their funds with onshore banks.The hedging process allows them to commit their flow of funds such as the repatriation of investment proceeds, dividends and profits from Malaysia following the purchase of ringgit assets in Malaysia.EMPLOYEES PROVIDENT FUND (EPF)A Malaysiangovernment agency under the Ministry of FinanceA national society security organization operating through a provident scheme in MalaysiaManages the compulsory savings plan andretirement planningfor legally employed workers inMalaysiaPRIMARY OBJECTIVEThe EPF is intended to help employees from both private and non-pensionablepublic sectors save a fraction of their salary in a lifetime banking scheme, to be used in an event that the employee is temporarily or no longer fit to workA contribution constitutes the amount of money credited to members' individual accounts in the EPFThe amount is calculated based on the monthly wages of an employeeCurrent contribution rate is in accordance with wage/salary received
Employees salaryEmployees contributionEmployers contributionRM5,000 and below11%13%Exceeding RM5,00011%12%EMPLOYEES PROVIDENT FUND (EPF)Investment AllocationMembers monthly contributions are invested in a number of approved financial instruments to generate incomeFinancial instruments: Malaysian Government Securities, Money Market Instruments, Loans & Bonds, Equity and PropertyEMPLOYEES PROVIDENT FUND (EPF)EMPLOYEES PROVIDENT FUND (EPF)PENSION FUNDSPENSION FUNDSUNIT TRUSTUNIT TRUSTExamples of Malaysian unit trusts:ASB,Affin Fund Management BHD, Alliance Investment Management BHDAmInvestment Services BerhadINSURANCE COMPANIESASSET MANAGEMENT COMPANIESEarn income by charging service fees to their clientsHave a larger pool of resources than the individual investor.Help the investor to avoid minimum investment requirements often required when purchasing securities on their own.
ASSET MANAGEMENT COMPANIESASSET MANAGEMENT COMPANIESCan take form on the following:A central disposition agency which takes loans from all financial institutionAn entity specific to a particular bank or group of banksAn independent contractor as an outsourced approachAn auction process with rapid accumulation and sale without rehabilitationdiscount housesOperation includes the business of receiving and utilizing deposits and other funds for investment purposes.Investments are made in Malaysian Government Securities, treasury bills or other instruments.By providing discounting/rediscounting facilities Commercial banksFinancial intermediaries.Main objectives :To maintain higher profitability.Other objectives :Attract more customers and build profitability relationship with the new and existing customers.Transfer deposits by making loan.Pool fund from numerous sources and lend to a large number of borrowers.
Commercial banksTo achieve their objective :THANK YOU
