In the following, an overview on the banking system of Malaysia and the influential institutions including the Central Bank, Commercial Banks, Investment Banks and Islamic Banks will first be mentioned. Then, it will give a glance of the recent trend of the banking system in Malaysia.
Banking system consists of Central Bank (Bank Negara Malaysia), banking institutions and other groups. The banking institutions mainly include commercial banks, investment banks and Islamic banks, while the other groups consist of representative offices of foreign banks and many others. All the banks including the Islamic Banks are operating through a network of more than 2,651 branches across the country. There are also six Malaysian banking groups have appeared in 19 other countries through representative offices, branches, subsidiaries and joint ventures. There are also 22 foreign banks, which maintain representative offices in Malaysia. They facilitate information exchange between business interests in Malaysia and their counterparts.
1. The Central Bank
Bank Negara Malaysia, established under the Central Bank of Malaya Ordinance in1959, is the central bank of Malaysia. It acts as a sole monitor of the Malaysia banking system. The functions of Bank Negara Malaysia are issuing currency, safeguarding the value of the currency by keeping enough reserves, being as a financial adviser and banker to the Government, promoting monetary stability and a sound financial structure, influencing the credit situation for the stability of the country. In November 2010, it holds an international reserve of RM 326.4 billion (equivalent to USD 105.8 billion), which is sufficient to support 4 times the short-term external debt and finance 8.6 months of retained imports.
The Bank is given powers bound by laws to monitor and supervise the banking institutions and other non-bank financial intermediaries. The other functions of BNM also includes supervising and acting as a lender for the last resort to all banks and other financial institutions. Also, it provides facilities to settle debts among commercial banks and provide the transfer of funds. It encourages and assists the development of financial institutions as well. 
3. Commercial Banks
The commercial banks in Malaysia are divided into two types, Malaysian-controlled and foreign-controlled. Commercial bank is the largest sector among different kinds of bank in Malaysia. There are 22 commercial banks, 13 among them are foreign- controlled and 9 are local. For the 13 foreign-controlled Institutions, they are required to put their operation under a Malaysian corporation, which has at least one local board of directors. Moreover, a foreign investor cannot own a Malaysian commercial bank more than 20 in percentage while the overall limit is 30 percent for the total foreign ownership.
The local government imposes large sum of capital requirement on commercial banks. Take 2009 as an example. In that year, strict testing is targeted to all the banks by the central bank. As a result, some banks, such as Public Banks and Maybank have to raise capital in order to meet the requirement. Despite the policies are strict, with the supervision by the policy, the commercial banks in Malaysia thus can maintain a degree of confidence in banking system.
According to the Banking and Financial Institutions Act, Commercial banks is the only banking institutions that can accept demand deposits from the public and engage in foreign exchange operation. They also engage in trade financing, lending businesses and current account operations.
2. Investment Banks
All the 15 investment banks in Malaysia are now locally owned. The main function of investment banks is to raise capital, through syndicating the loans, underwriting, corporate financing, financial advisory services and listing of stocks. In addition, the...