Вы находитесь на странице: 1из 34
Financial Sector Talent Enrichment Programme The Malaysian Financial System Jessica Chew Assistant Governor Bank Negara

Financial Sector Talent Enrichment Programme

The Malaysian Financial System

Jessica Chew Assistant Governor Bank Negara Malaysia

Enrichment Programme The Malaysian Financial System Jessica Chew Assistant Governor Bank Negara Malaysia 21 April 2011

21 April 2011

1

Let’s discuss the role of…

the financial system

bank negara malaysia

YOU

Let’s discuss the role of… the financial system bank negara malaysia YOU 2

2

Landscape of the Malaysian financial system

BANK NEGARA MALAYSIA SECURITIES COMMISSION stock commercial unit trust Islamic banks investment banks broking
BANK NEGARA MALAYSIA
SECURITIES COMMISSION
stock
commercial
unit trust
Islamic banks
investment banks
broking
banks
companies
companies
insurance
venture
asset/fund
(re)insurance
(re)takaful
brokers/
capital/private
management
companies
operators
adjustors
equity
companies
international
international
financial
financial
takaful
dealers/ brokers
Islamic banks
advisors
planners
operators
development
factoring &
money brokers
finance
leasing
institutions
companies
debt securities
market
derivatives
money market
foreign exchange market
market
equity market
payment system
operators
provident &
payment system issuers
Cagamas
pension
funds
Credit
clearing systems for
securities / funds / cheques / derivatives
Guarantee
money lenders
Corporation
payment &
settlement
institutionsmarkets
systems
payment & settlement institutionsmarkets systems LABUAN FSA offshore banking offshore insurance offshore

LABUAN

FSA

offshore

banking

offshore

insurance

offshore fund

management

companies

other offshore

financial

institutions

non-bank

financial

inter-

mediaries

cooperatives

housing credit

institutions

3

A snapshot of the financial sector…

A snapshot of the financial sector…  Diversified financial system  Strong financials  Contributes almost

Diversified financial system

Strong financials

Contributes almost 12% of GDP

Workforce of 150,000

Regional presence

Global leader and centre for Islamic finance

Largest bond market in South East Asia

 Regional presence  Global leader and centre for Islamic finance  Largest bond market in

The financial sector and the economy

macroeconomy

The financial sector and the economy  macroeconomy financial  sector household  sector corporate 
The financial sector and the economy  macroeconomy financial  sector household  sector corporate 

financial

sector

and the economy  macroeconomy financial  sector household  sector corporate  sector 

household

sector

corporate

sector

financial  sector household  sector corporate  sector  financial & property markets 5

financial & property markets

financial  sector household  sector corporate  sector  financial & property markets 5

5

Financial instability can cause serious breakdown in market functioning, with adverse implications for the broader economy…

Consequences of financial instability  Disruption in financial intermediation  Credit crunch or lack of
Consequences of financial instability
 Disruption in financial intermediation
 Credit crunch or lack of financing for new
investments and consumption activities
 Settlement risk in payment systems
 Financial market dislocations
 Widespread unemployment
 Social repercussions
Weakened local and foreign investor
confidence in financial sector
unemployment  Social repercussions  Weakened local and foreign investor confidence in financial sector

Asian financial crisis – Malaysia’s experience

Extreme volatility in financial markets Downgrading of sovereign rating from A+ to BBB- (S&P)

Fall in currency value

Ringgit depreciated by 40% against USD

Fall in stock market value

Declined by over 70% (Aug ’98)

in stock market value  Declined by over 70% (Aug ’98) Declined economic activities GDP contracted

Declined economic activities GDP contracted 7.5% Weak regional export demand

activities GDP contracted 7.5% Weak regional export demand ↓ Corporate sector health ↓ Household wealth ↓
activities GDP contracted 7.5% Weak regional export demand ↓ Corporate sector health ↓ Household wealth ↓

Corporate sector health Household wealth Investment & consumption

VICIOUS CRISIS CYCLE
VICIOUS CRISIS
CYCLE

Inefficiency in intermediation process Tight liquidity Sharp loan growth moderation

process Tight liquidity Sharp loan growth moderation Pressure on Banking system ↑ NPLs (2.2%  7.7%)

Pressure on Banking system NPLs (2.2% 7.7%) Capital erosion Over-concentration of risk

loan growth moderation Pressure on Banking system ↑ NPLs (2.2%  7.7%) Capital erosion Over-concentration of

Putting the cost of a financial crisis into perspective

Public costs of financial restructuring (% of GDP)

60 51 50 40 25 30 20 13 5 10 0 Indonesia Thailand S. Korea
60
51
50
40
25
30
20
13
5
10
0
Indonesia
Thailand
S. Korea
MALAYSIA
Recapitalization
Purchase of NPLs
Interest Costs
Liquidity Support

Asian Financial Crisis 1997

Losses in USD billions

1600 40 1400 35 1200 30 1000 25 800 20 600 15 400 10 200
1600
40
1400
35
1200
30
1000
25
800
20
600
15
400
10
200
5
0
0
US savings &
Japan banking
Asia financial
US subprime
loan crisis (1986- crisis (1990-99)
crisis (1998-99)
crisis (2007-
95)
present)
Bank losses
Other financials
% of GDP (RHS)

Comparison of Financial Crises

the total cost of the Asian Financial Crisis amounted to USD400 billion!!!

What can USD400 billion buy? 11.4 billion 1.3 billion bananas movie tickets 20 million 250,000
What can USD400 billion buy?
11.4 billion
1.3 billion
bananas
movie tickets
20 million
250,000
iPhones
Chanel bags
movie tickets 20 million 250,000 iPhones Chanel bags How long would it take to count to
How long would it take to count to 400 billion? If you count one number
How long would it take to count to 400 billion?
If you count one number a second without stopping
until you reach a billion, that task would take you 31
years, 259 days, 1 hours, 46 minutes, and 40
seconds.
Multiply that by 400.

8

How a financial crisis can occur…

Liberalisation and deregulation
Liberalisation and
deregulation

Rapid credit expansion

• Weak credit assessments

• Speculative activities

• High leverage

Economic shocks from greater market volatility

• interest/exchange

rates

• asset prices

• liquidity

• interest/exchange rates • asset prices • liquidity Financial crisis • Weakened banking system • Reduced
• interest/exchange rates • asset prices • liquidity Financial crisis • Weakened banking system • Reduced
• interest/exchange rates • asset prices • liquidity Financial crisis • Weakened banking system • Reduced

Financial crisis

• Weakened banking system

• Reduced credit availability

• Economic slow down

• Confidence crisis

…and be avoided

…and be avoided Liberalisation of financial system Rapid credit expansion • Sound risk management • Strong

Liberalisation of financial system

Rapid credit expansion

• Sound risk management

• Strong financial condition

• Sound risk management • Strong financial condition Effective regulation/ supervision & crisis management

Effective regulation/ supervision & crisis management

Economic shocks from greater market volatility

• interest rates

• asset prices

market volatility • interest rates • asset prices Financial stability • Protection of consumers • Preserve
market volatility • interest rates • asset prices Financial stability • Protection of consumers • Preserve
market volatility • interest rates • asset prices Financial stability • Protection of consumers • Preserve

Financial stability

• Protection of consumers

• Preserve market confidence

• Able to absorb shocks

• Preserve market confidence • Able to absorb shocks • Continued performance of efficient intermediation

• Continued performance of efficient intermediation function (of mobilising savings, diversifying risks and allocating resources)

Role of Bank Negara Malaysia within the financial system

Principal objects

Promote monetary stability and financial stability conducive to the sustainable growth of the Malaysian economy

What is financial stability?

comprising financial intermediaries, markets & market infrastructures – is capable of

a

condition in which the financial system –

• “In a broad sense… think of financial stability in terms of maintaining confidence in the financial system”

withstanding shocks

confidence in the financial system” withstanding shocks Primary functions • Regulate and supervise financial
confidence in the financial system” withstanding shocks Primary functions • Regulate and supervise financial

Primary functions

Regulate and supervise financial institutions

Promote sound, progressive and inclusive financial system

Provide oversight over the money and foreign exchange market

Exercise oversight over payment system

Financial stability encompasses both efficiency and resilience of the financial system

both efficiency and resilience of the financial system financial stability financial risks are assessed, managed
financial stability
financial
stability

financial risks are assessed, managed and … priced reasonably

financial resources are allocated smoothly and … efficiently

resources are allocated smoothly and … efficiently financial… system smoothly absorbs financial and real
resources are allocated smoothly and … efficiently financial… system smoothly absorbs financial and real

financial… system smoothly absorbs financial and real economic shocks

Source: Schinasi (2006)

and … efficiently financial… system smoothly absorbs financial and real economic shocks Source: Schinasi (2006) 13

13

Changing landscape brings new challenges

Structural

transformations

Globalisation

More contestable markets

Advances in financial engineering

• Financial conglomeration • Larger and more complex financial institutions • New business models •
• Financial conglomeration
• Larger and more complex financial institutions
• New business models
• Breakdown of geographical barriers
• Increased cross-border flows & linkages
• Dismantling of traditional boundaries between
intermediaries
• Emergence of structured products
• Increasing importance of pooled funds (pensions, life
insurance, mutual funds, investment trusts) as
channel of savings
• Securitisation

Credit derivatives

A comprehensive framework is essential to support financial stability

efficient

safety nets

robust

financial

infrastructure

comprehensive

surveillance

framework

effective

regulatory

framework

sound

supervisory

framework

Strong corporate governance

Sound risk management

Effective legal framework And prudential standards

Market transparency

Responsibility to consumers

risk management Effective legal framework And prudential standards Market transparency Responsibility to consumers 15

15

Financial sector development complements the regulation and supervision of financial institutions

the regulation and supervision of financial institutions Institutional and capacity building Development of financial

Institutional and capacity building

financial institutions Institutional and capacity building Development of financial markets Human capital development
financial institutions Institutional and capacity building Development of financial markets Human capital development

Development of financial markets

and capacity building Development of financial markets Human capital development Consumer protection arrangements

Human capital development

and capacity building Development of financial markets Human capital development Consumer protection arrangements

Consumer protection arrangements

Promoting balanced & equitable through financial inclusion

ensure all economic sectors, regions and the population at large have access to a broad range of financial products and services

access to financial information
access to financial information
products and services access to financial information access to financial services nation growth with building

access to financial services

access to financial information access to financial services nation growth with building balanced distribution
nation growth with building balanced distribution financial political inclusion stability social harmony
nation
growth with
building
balanced
distribution
financial
political
inclusion
stability
social
harmony
people’s
confidence
access to financial assistance
access to financial assistance
inclusion stability social harmony people’s confidence access to financial assistance access to financing 17
inclusion stability social harmony people’s confidence access to financial assistance access to financing 17
access to financing
access to financing

17

The five pillars in building an inclusive financial sector in Malaysia

Conducive environment for greater financial inclusion

1

Create a diverse range

of financial service providers that

thrives and competes

2

Enhance

distribution channels to

ensure widespread access to financial services

3

Ensure a minimum level

of banking products and services are

provided at reasonable costs

4

5

Improve

Strengthen

financial

the

literacy,

supporting

advisory,

financial

awareness

infrastructure

and

and enabling

consumer

environment

education

advisory, financial awareness infrastructure and and enabling consumer environment education

Comprehensive blueprints to develop and strengthen the financial system

blueprints to develop and strengthen the financial system financial sector masterplan capital markets masterplan
blueprints to develop and strengthen the financial system financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan

financial sector masterplan

financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan

capital markets masterplan

financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
financial sector masterplan capital markets masterplan
PHASE I build capacity & capability
PHASE I
build capacity & capability
PHASE II level playing field intensify competition
PHASE II
level playing field
intensify competition
PHASE III assimilate into global arena introduce new foreign competition
PHASE III
assimilate into
global arena
introduce new foreign
competition

2001

2010

global arena introduce new foreign competition 2001 2010 enhance infrastructure 9.7% greater financial sector

enhance infrastructure

9.7%

9.7% greater financial sector contribution to GDP

greater financial sector contribution to GDP

11.7%
11.7%

stronger financial institutions arising from capacity building measures

domestic financial institutions with presence abroad

Malaysia International Islamic Financial Centre

building measures domestic financial institutions with presence abroad Malaysia International Islamic Financial Centre 19
building measures domestic financial institutions with presence abroad Malaysia International Islamic Financial Centre 19

19

The Malaysian financial sector moving forward

greater role as an enabler, catalyst and driver of growth

Reinforce Malaysia’s position as an international hub for Islamic services through accelerated development and promotion of Islamic finance

Foster increased international linkages and regional integration through enhanced presence of Malaysian financial institutions & development of the domestic and regional financial markets

ENABLER CATALYST DRIVER Facilitate transformation Accelerate growth of Generate higher into a high income, high
ENABLER
CATALYST
DRIVER
Facilitate transformation
Accelerate growth of
Generate higher
into a high income, high
value-added economy
supporting and ancillary
services sectors
contribution to gross
domestic product
income, high value-added economy supporting and ancillary services sectors contribution to gross domestic product 20
income, high value-added economy supporting and ancillary services sectors contribution to gross domestic product 20
income, high value-added economy supporting and ancillary services sectors contribution to gross domestic product 20

20

Realignment of regulatory and supervisory functions to further enhance effectiveness

REGULATION SECTOR

 
 

Payment

Financial

Surveillance

Systems

Policy

Prudential

Financial

Financial

Sector

Policy

Development

Islamic

Islamic

Consumer

and Market

Conduct

Banking and

Takaful

Development

Development Financial Enterprises

 

Payment System Policy

Financial Enterprises   Payment System Policy BEFORE SUPERVISION REALIGNMENT SECTOR BANKING Financial
BEFORE SUPERVISION REALIGNMENT SECTOR BANKING Financial Conglomerates Supervision Banking INSURANCE Supervision
BEFORE
SUPERVISION
REALIGNMENT
SECTOR
BANKING
Financial
Conglomerates
Supervision
Banking
INSURANCE
Supervision
Insurance and
ISLAMIC
Takaful
BANKING &
Supervision
TAKAFUL
Supervisory
Practices unit
DFE
PAYMENT
SYSTEMS

From sectoral to functional organisation

Provide more comprehensive view and cohesive approach to development of financial system

Ensure clear distinction between prudential regulation & developmental objectives

Sharpen focus on risk management with greater consistency in management of similar risks

Complementary external framework further reinforces sound financial sector

Malaysia Deposit Insurance Corporation

Malaysian Accounting Standards Board

Industry associations

Professional bodies

Standards Board Industry associations Professional bodies • Administers statutory deposit insurance system •

Administers statutory deposit insurance system

Differential premium contributions to deposit insurance fund based on risk profile of individual institutions

Responsible for financial reporting standards

Promotes convergence with international reporting standards

Establishes industry rules on market practices and conduct of market intermediaries

Accounting, actuarial, legal and financial analysts

Establishes codes of conduct and good practice

Provides guidance to members in specific areas relating to profession’s discharge of roles & responsibilities

Your role in the Malaysian financial system

MALAYSIAN ECONOMY financial system financial institutions bank negara malaysia YOU
MALAYSIAN ECONOMY
financial system
financial institutions
bank negara
malaysia
YOU
system MALAYSIAN ECONOMY financial system financial institutions bank negara malaysia YOU consumer leader employee 23
consumer
consumer
system MALAYSIAN ECONOMY financial system financial institutions bank negara malaysia YOU consumer leader employee 23
system MALAYSIAN ECONOMY financial system financial institutions bank negara malaysia YOU consumer leader employee 23
leader
leader
employee
employee
system MALAYSIAN ECONOMY financial system financial institutions bank negara malaysia YOU consumer leader employee 23

23

Useful links

Bank Negara Malaysia

– http://www.bnm.gov.my

Malaysian Deposit Insurance Corporation

– http://www.pidm.gov.my

Information portals

– http://www.bankinginfo.com.my

– http://www.insuranceinfo.com.my

– http://www.smeinfo.com.my

Centres for education and development

– http://www.iclif.org

– http://www.inceif.org

– http://www.seacen.org/

– http://www.ifsb.org/

– http://www.insurance.com.my/

Other regulators

– http://www.sc.com.my

– http://www.lofsa.gov.my

– http://www.sc.com.my – http://www.lofsa.gov.my  Institutes / Associations of Industries –

Institutes / Associations of Industries

– http://www.ibbm.org.my

– http://www.aibim.com/

– http://www.liam.org.my/

– http://www.piam.org.my/

Financial Mediation Bureau

– http://www.fmb.org.my/

Credit Counselling and Debt Management Agency

– http://www.akpk.org.my

Credit Guarantee Corporation Malaysia Berhad

– http://www.cgc.gov.my/

Malaysia International Islamic Financial Centre

– http://www.mifc.com/

Cagamas Berhad

– http://www.cagamas.com.my/

Small and Medium Industries Development Corporation

– http://www.smidec.gov.my/

Bursa Malaysia

– http://www.bursamalaysia.com/

24

THANK YOU

Questions?

THANK YOU Questions? 25

25

Business of Commercial banks

Wide range of corporate and retail services

– Acceptance of deposits : savings, time and demand

– Extension of loans : term, revolving, trade finance, credit cards, overdrafts

– Treasury services : foreign currency dealings, derivative instruments

– Payments services : cheque clearing, remittances

– Custodial services

– Wealth management services

– Custodial services – Wealth management services  Largest mobiliser and provider of funds 

Largest mobiliser and provider of funds



Specialise in retail & consumer banking

– Acceptance of deposits : savings, time

– Loans : Hire purchase for cars, leasing, housing loan, secured personal loans and secured guarantees

savings, time – Loans : Hire purchase for cars, leasing, housing loan, secured personal loans and

26

Islamic banking activities

Islamic banks carry out almost similar activities in nature as commercial banks but based on Shariah principles

nature as commercial banks but based on Shariah principles  Islamic banking services available via: –

Islamic banking services available via:

– Domestic-owned Islamic banks

– Conventional commercial banks which offer Islamic banking services through Islamic windows or full fledged Islamic subsidiaries

– Foreign Islamic banks

Islamic Interbank Money Market established since 1994

– Facilitates interbank acceptance and investment

– Trading of Islamic instruments

– Facilitates better asset liability management

acceptance and investment – Trading of Islamic instruments – Facilitates better asset liability management 27

27

Investment bank framework

Holds 2 licenses

Merchant bank (under Banking & Financial Institutions Act 1989)

Capital market services license (under Capital Market Services Act

2007)

Jointly regulated by BNM and SC

Entities

Formula for IBs formation

Minimum Capital Requirement

Within banking groups

Merchant bank + Stockbroking company

RM2 billion (on Group basis)

Universal brokers

Universal Brokers + Discount House

RM500 million

Discount houses

2 Discount Houses + Stockbroking company

brokers Universal Brokers + Discount House RM500 million Discount houses 2 Discount Houses + Stockbroking company

28

Business of investment banks

Wholesale banking business

– Focus on serving the corporate sector, specialising in corporate advisory and finance, arranging for issue and listing of shares, and investment portfolio management

Activities undertaken

Underwriter or agent for corporations issuing securities

– Offer advisory services to investors

Facilitate mergers and acquisitions, securities offerings and corporate restructuring

– Act as a broker for institutional clients

– Permitted to accept deposit from any persons

Deposit must with a minimum amount of RM500,000

clients – Permitted to accept deposit from any persons › Deposit must with a minimum amount

29

Comparing CBs and IBs

 

Commercial Banks

Investment Banks

Regulatory body

BNM

BNM + SC

Min capital funds

RM2 b (banking group)

RM2 b (banking group)

RM300m for stand alone Islamic banks & foreign banks

RM500m for stand alone banks

Products and services

   

i) Loans

All types

Usually ancillary to fee based activities

i) Deposits

All types

Corporate and interbank (RM500k min)

Stockbroking Advisory services

ii)

Other activities

Not allowed to deal in equities

interbank (RM500k min) Stockbroking Advisory services ii) Other activities Not allowed to deal in equities 30

30

Development Financial Institutions

Development Financial Institutions Owned or largely funded by the Government Functions • To develop and promote

Owned or largely funded by the Government Functions

To develop and promote certain strategic sectors of the economy (specialised institutions)

To achieve socio-economic goals

To complement the role of the banking institutions

DFIs
DFIs
Regulated by BNM: • Bank Pembangunan • SME Bank • EXIM Bank • Bank Simpanan

Regulated by BNM:

Bank Pembangunan

SME Bank

EXIM Bank

Bank Simpanan Nasional

Bank Kerjasama Rakyat

Agrobank

Pembangunan • SME Bank • EXIM Bank • Bank Simpanan Nasional • Bank Kerjasama Rakyat •
Pembangunan • SME Bank • EXIM Bank • Bank Simpanan Nasional • Bank Kerjasama Rakyat •

31

Insurance & Takaful Industry

Insurers/Takaful Operators

Life / Family takaful

General

Composite

Reinsurers / Retakaful

Intermediaries

• Insurance / Takaful brokers • Loss adjusters • Financial advisors
• Insurance / Takaful
brokers
• Loss adjusters
• Financial advisors

Mobilises long-term savings to support economic growth

Risk management & financial planning solutions for businesses & individuals

Type of Insurance

Activities

Life Insurance / Family Takaful Operators

Insurance business concerned with life policies and those incidental to life insurer’s business. Takaful business for the benefit of individual & family

General Insurance / General Takaful Operator

All insurance business which is not life business (eg. property and liability) All takaful business which is not family takaful business

Composite Insurance

Combination of life and general insurance by a single entity

Reinsurance Company / Retakaful Operator

Insurance of risks assumed by the insurer under the policies it has issued. Offers coverage for takaful companies against risks, loss or dilution of its capital and reserves resulting from high-claim exposure.

Insurance / Takaful brokers

Solicit, negotiate or procure a policy from an insurer / takaful operator

Insurance / Takaful adjusters

Ascertaining cause, circumstance & quantum of loss

Financial advisors

Financial planning advise relating to insurance products

circumstance & quantum of loss Financial advisors Financial planning advise relating to insurance products 32

32

circumstance & quantum of loss Financial advisors Financial planning advise relating to insurance products 32

Money Brokers

Arrange deals between interbank institutions in fixed income, money market instruments, forex, cash & unlisted derivatives products in the wholesale markets

Money brokers may also arrange deals between banking institutions and foreign counterparties in the international money market

6 money brokers:

1)

Affin Moneybrokers Sdn Bhd

2)

Amanah Butler Malaysia Sdn Bhd

3)

First TAZ Tradition Sdn Bhd

4)

Forex Enterprise Sdn Bhd

5)

Harlow's & MGI Sdn Bhd

6)

KAF-Astley & Pearce Sdn Bhd

As financial intermediaries, money brokers play important role in facilitating interbank trades, but pose minimal impact on financial system stability

but pose minimal impact on financial system stability Money systemic risk: brokers do not pose 
but pose minimal impact on financial system stability Money systemic risk: brokers do not pose 

Money

systemic risk:

brokers

do

not

pose

Only provide service and act as ‘middle person’ for market participants - do not take position

Not custodian of public funds

Financial Markets

Money Market

Market for ST funds (maturities <12 mths)

• Interbank borrowing & placement, repo and SBL transactions

• Purchase & sale of ST papers

Forex Market

• Market for buying and selling of one currency against RM or against other foreign currencies

• Dealings in forex market through spot, forward or swap market

• Under the Exchange Control Act 1953, FX transactions have to be undertaken through authorised dealers (CBs & designated IBs)

Capital Market

• Market for LT funds for conventional & Islamic financial assets

Equity Market

• Avenue for corporations to raise funds by issuing stocks & shares

• Secondary market trading in stocks and shares is conducted through stockbrokers on Bursa Malaysia, inclusive of ACE Market

Bond Market

• Avenue for issuers to raise funds via debentures

• Comprises public and private debt securities and sukuk market

• OTC secondary market

Derivatives • Markets for trading instruments that provide contingent claims on underlying assets Market •
Derivatives
• Markets for trading instruments that provide contingent claims on underlying assets
Market
• Main use - to hedge against volatility in the price of the underlying assets
• Examples - forwards, futures, options, swaps, and credit derivatives
• Instruments traded - stock index, interest rate & commodity futures
34