Malaysia takes big step in finance liberalization
PUTRAJAYA, Malaysia — Malaysia announced Monday it will let foreigners hold a majority stake in insurance companies and investment banks, while five more foreign banks will be allowed to operate by 2011 in major steps toward financial liberalization.
Prime Minister Najib Razak told reporters he is raising the foreign ownership cap in insurance companies and investment banks — known as noncommercial banks — from 49 percent at present to 70 percent.
“These liberalization measures are in line with the government’s initiatives to promote structural change within the economy and diversify sources of growth to further drive economic expansion,” said Najib, who is also the finance minister.
“In enhancing our international linkages and taking the financial sector to a new level of performance it will contribute to our overall economy,” he said.
Najib said the government will issue licenses to two new foreign commercial banks with specialized expertise this year, and three more by 2011.
Currently, there are 13 locally incorporated foreign commercial banks including Citibank, Standard Chartered and HSBC. Although they are fully owned by foreign entities, they are restricted in their operations and can only run a limited number of branches.
Still, the foreign banks control 25 percent of the domestic banking market.
Najib said the rule preventing foreigners from owning more than 30 percent of domestic commercial banks will remain unchanged to allow the local financial services sector to flourish.
In a boost to Islamic finance, he said the government will also issue two new licenses to foreign Islamic banks with a paid up capital of at least $1 billion and two more to Islamic family insurance companies this year.
Analysts hailed the measures, saying they will boost investment in Malaysia’s banking sector once the global economy improves and cement Malaysia as an Islamic financial hub.
“It’s definitely a step in the right direction and should help the government reorient the economy toward services,” said Philip McNicholas, an economist with research firm IDEAglobal in Singapore.
The financial services sector contributed 11 percent to Malaysia’s gross domestic product last year, and employs more than 140,000 workers.
“Our liberalization is a sequence-managed and gradual process,” said central bank governor Zeti Akhtar Aziz.
Monday’s announcement came less than a week after Najib scrapped a 30 percent requirement for ethnic Malay ownership of investments in some service sectors in a bid to boost the country’s flagging economy.
Malaysia’s exports have been hit by the meltdown in global demand and the government says the economy will shrink 1 percent this year in its worst case scenario.
The measures marked a dilution of the country’s politically sensitive affirmative action policy which aims to uplift the majority ethnic Malays. Critics say the policy hinders investment and has largely benefited well-connected elite Malays rather than the poor.
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