Financial System in Malaysia

Published on January 2018 | Categories: Documents | Downloads: 54 | Comments: 0 | Views: 536
of 8
Download PDF   Embed   Report

Comments

Content

Financial System In Malaysia Introduction The evolution of Malaysia’s financial sector after independence : • In the beginning, the monetary authority in the federation of Malaya was the Board of Commissioners of currency, Malaya and British Borneo. • On January 24, 1959, central Bank of Malaysia was officially opened. • The prime objectives of the bank have been to maintain a strong ringgit, promote financial stability and foster growth of a sound financial structure. • Financial system was dominated by the branches of the British banks, designed to serve and promote the well-being of British • Tun Ismail Mohamed Ali served as the second governor of Bank Negara from July 1962 to July 1980. He sought to promote and strengthen domestic banks to match the branches of the foreign banks in the country. • During 1960s, the attention of our financial sector through Bank Negara was focused on building up the financial infrastructure. It witnessed the development of strong domestic commercial banks and widespread branching of banking services. • Also set up during the period the Kuala Lumpur Stock Exchange (KLSE), discount houses, Pilgrims Management and Fund Board (LUTH), Pernas (the national investment and trading corporation), agriculture bank, Capital Issues Committee and Malaysian Industrial Development Finance.

• In the 1970s emphasis was put on in inculcating integrity and professionalism in bank management. Credit Guarantee Corporation was set up to ensure that small borrowers had access to bank credit at reasonable cost. Post office savings bank was introduced to mobilize small savings. • Foreign exchange market was set up to serve the nation’s international trade but also to promoter Kuala Lumpur as an international centre for the trading of primary commodities. Merchant banks and development banks were set up. • The Kuala Lumpur Commodity Exchange (KLCE) was established and a market for long term Malaysian Government securities was encouraged. • In the 1980s, financial authorities adopted a stance of fostering greater financial

discipline among the financial institutions, while ensuring that adequate bank credit was made available to private investors at reasonable cost. Bank Islam was set up in 1983 to promote the Islamic banking. First merger, United Asian Bank (UAB) merged with Bank of Commerce. • Non-financial institution were revamped and strengthened to promote the growth of small-scale industries. Those involved were CGC, Bank Industri and Malaysia Export Credit Insurance Bhd.

• In the 1990s, the most important scenario was the complete deregulation of the interest rate regime. On February 1991, BLR of the banking institutions were completely freed from the administrative control of Bank Negara; that is, BLRs were allowed to be determined on the basis of each banking institutions’ own cost of fund. With effect from November 1995, each bank was allowed to quote its own BLR at any level subject to an industry ceiling rate. • It permitted greater flexibility for banking institutions to respond more quickly to changes in market liquidity situations and also encouraged greater competition and efficiency within the banking industry. • Securities Commission (SC) was set up on March 1, 1993. it becomes the watchdog for the securities, options and financial futures industries as well capital market instruments. SC absorbed the functions of the Capital Issues Committee and Panel on Takeovers and Mergers. Future Industry Act 1992 came into force on 1 March 1993. • This act provides the underlying regulatory framework of the financial system. International Offshore Financial Center (IOFC) was established in October 1990. It enhances the contribution of the broad financial sector to economic growth. January 3, 1994, Islamic inter-bank money market was introduced, making Malaysia the first country with a full-fledged Islamic banking system which functions on a parallel basis with the conventional system.

• Bank Negara Malaysia and its roles in promoting growth The entity responsible for overseeing the monetary for nation Monetary policy The actions of a central bank, currency board or other regulatory committee, the determine the size and rate of growth of the money supply, which in turn affects

interest rates. How the central bank influences an economy i. Macroeconomic approach – when regulating inflation and price stability ii. Microeconomic approach – when functioning as a lender of last resort

Macroeconomic influences - As it is responsible for price stability, the central bank must regulate the level of inflation by controlling the money supplies by means of monetary policy. - This open bank performs open market transaction that either inject the market with liquidity or absorb extra funs, direct affecting the level of inflation Microeconomic influences - A commercial bank offers funds, if the commercial bank does not have enough liquidity, the commercial bank can turn to central bank to borrow additional funds. - The central bank may require all commercial bank to keep reserve/deposit ratio. - Enforcing a policy of commercial bank reserves functions as another means to control money supply in the market. FUNCTION OF CENTRAL BANK 1. Banker for currency issue -The central bank is the sole currency issuing authority in the country 2. Keeper of international reserve - Holding of country’s official external reserve are centralized at the Central Bank. - The Central Bank’s international reserve comprise gold, foreign exchange, reserve position with IMF and holding of special drawing rights. - To safeguard the external value of ringgit, the Central Bank Act, 1958 provides for the maintenance of minimum external reserve backing of 80.59% against the currency issue

3. Government banker and financial advisor - The Central Bank acts as a banker, fiscal agent and financial advisor to the government.

- Close cooperation between the government and the bank is also evident from the centralization of government deposit with bank. - With this arrangement, government receipts, arising mainly from the new issue of government securities, tax, and dividend payments are placed with the bank and managed by the bank depending on the liquidity situation of the system. - The central Bank manages the government accounts and performs the same functions as the commercial banks perform for their customer. - The Central Bank also empowered to provide temporary advances to the government to cover ant deficit in the budget revenue. - The Central Bank manages the public debt and is responsible for the floatation of government loans, both in Malaysia and abroad. 4. The agency responsible for monetary policies and management of the financial system. - The Central Bank analyses and assesses the development in the international and domestic economy and highlight the area that need to be addressed. - Central Bank undertakes economy intelligence and surveillance and carries out forecast on the economic condition of the country. - Base on these assessments, CB presents policy recommendations at regular briefings to the Ministry of Finance as well as at various economic policy making forums at the national level. 5. Banker to the commercial bank - Central Bank develops institutions and market infrastructure for the development of modern and strong financial systems to contributing to the strengthening of the foundation of the economy. - Central Bank has built strong payments systems. These systems are regularly `upgraded’ to address the impact of technology on banking systems/ to promote a good credit among banking institutions. Central Bank also operates the Central Credit Reference Information System. - This allows banking institution to make informed decisions on loan applications.

BANK NEGARA MALAYSIA (BNM) It was established on 26 January 1959, under Central Bank of Malaya Ordinance, 1958, with following objectives: i. To issue currency and keep reserves safeguarding the value of money ii. To act as a banker and financial adviser to government iii. To promote monetary stability and a sound financial structure iv. 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 advantages of Malaysian v. To influence the credit situation to the advantage of the country.

FUNCTIONS OF BANK NEGARA MALAYSIA i. The BNM ensures that the availability and cost of money and credit in the economy are consonant with national macroeconomic objectives. ii. The BNM acts as the banker for currency issue, keeper of international reserves and safeguarding the value of the ringgit, banker and financial adviser to the government, agency responsible for monetary policy and management of the financial system and banker to the banks. iii. The goals of the BNM are to achieve sustained economic growth path, high level of employment, maintain stability in the purchasing power of the ringgit, eradication of poverty, to raise the living standard of Malaysians and to achieve a reasonable balance of payments position.

FINANCIAL INSTITUTIONS The following table provides an overview of the number of financial institutions under the purview of Bank Negara Malaysia as at end-February 2012: Total

Malaysian-

Foreign-

Controlled

Controlled

Institution

Institution

Commercial Banks

25

8

17

Islamic Banks

16

10

6

International Islamic Banks

5

0

5

Investment Banks

15

15

0

Insurers

36

19

17

9

3

Takaful

Operators

(Islamic 12

Insurers) International Takaful Operators

1

0

1

Reinsurers

7

3

4

(Islamic 4

1

3

Financial 6

6

0

Retakaful

Operators

Reinsurers) Development Institutions The banking system, comprising commercial banks, investment banks, and Islamic banks, is the primary mobiliser of funds and the main source of financing which supports economic activities in Malaysia. Banking institutions, operate through a network of more than 2,000 branches across the country. There are also 14 representative offices of foreign banks in Malaysia which do not conduct banking business but undertake research, liaison services and exchange of information. Six Malaysian banking groups have presence in 19 countries through branches, representative offices, subsidiaries, equity participation and joint ventures.

The non-bank financial institutions, namely development financial institutions, insurance companies and takaful operators, complement the banking institutions in mobilising savings and meeting the financial needs of the economy. The insurance

and reinsurance companies conduct life and general insurance business and similarly takaful and retakaful operators engage in the general and family takaful business. The insurance companies and takaful operators which operate through a network of more than 800 offices and 100,000 registered agents nationwide provide avenues for risk management and financial planning solutions for businesses and individuals.

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close