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FINA0501
Asian Financial Institutions
Term Paper

FINA0501
Asian Financial Institutions
Term Paper

Name: Li Cheuk Ying Cherry
UID: 2010078197
Name: Li Cheuk Ying Cherry
UID: 2010078197
Overview of
Malaysia’s Banking Sector

Overview of
Malaysia’s Banking Sector

Contents

Introduction| P.3|
Overview of Malaysia’s Financial System| P.4|
Central Bank of Malaysia| P.5|
Commercial Banking System| P.7|
Islam Banking System| P.9|
Investment Banking System| P.11|
Development Financial Institutions| P.12|
Conclusion and Outlook| P.13|
References| P.14|

Introduction

The financial crisis in Asia has shown that a robust financial system is one of the key components of economic progress. Without it, misallocation of investments could seriously disrupt development. For Malaysia, the banking sector is sound compared to the Asian crisis and well capitalized to withstand any deterioration in asset quality. From 2001 to 2010, the central bank of Malaysia, Bank Negara Malaysia (BNM), carried out the Financial Master Sector Plan (FSMP), which objective is to evolve a “competitive, resilient and dynamic financial system” (Bank Negara Malaysia, 2011). Under FSMP, there were restructuring of financial systems, aiding the industry to become more competitive in the international arena after post-liberization. The outcome was positive – having resulted in more resilient financial institutions in the country and being able to survive the 2008 financial turmoil. In 2011, it contributed to almost 12% of the GDP of Malaysia (Bank Negara Malaysia Annual Report, 2011).

This paper aims to examine the key of success behind Malaysia’s financial banking sector, focusing on the banking system made up of monetary institutions, including central bank, commercial banks, and Islamic banks, and the non-monetary institutions like investment banks and development financial institutions.

Overview of Malaysia’s financial system

Structure
The financial system of Malaysia is diversified, comprising of banking and non-bank institutions, aiming to serve the intricate needs of the domestic economy. The banking system, includes the central bank, commercial banks, investment banks, and Islamic banks. They are the main mobiliser of funds and the main source of financing which supports economic activities in Malaysia. The banking system is the largest component, accounting for about 70% of the total assets of the Malaysian financial system (Bank Negara Malaysia, 1999) The non-bank financial institutions are development financial institutions, insurance companies and takaful operators, complement the banking institutions in mobilizing savings and meeting the financial needs of the economy (Malaysian Investment Development Authority, 2012). In this paper, I will focus on the banking system and the development financial institutions of the non-bank financial institutions.

Changes to Financial Sector
Malaysia underwent changes to its banking sectors in 2009, shortly after the financial crisis in 2008. The liberalisation measures were carried out by BNM in order to put Malaysia back on the global competitiveness map.

Central Bank of Malaysia

Background
Bank Negara Malaysia (BNM) is the Central Bank of Malaysia. It was established on 26th January, 1959, and was under the Central Bank of Malaya Ordinance (CBO) 1958 at that time. In 1994, CBO was revised into the present Central Bank of Malaysia Act 1958 (CBA). BNM acts as the monetary authority of Malaysia, which it oversees Malaysia’s financial system and economy. Wholly owned by the Government of Malaysia, it is a statutory body which reports to the Minister of Finance, Malaysia. It keeps the Minister informed of matters relating to monetary and financial sector policies (Bank Negara Malaysia, 2012). Being the central bank, it carries out monetary policies...
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