INTRODUCTION TO MALAYSIAN FINANCIAL SYSTEM

Outline: The structure of Malaysian Financial System Malaysian Banking System Monetary vs Non-monetary institutions Non-banks fin intermediaries Malaysian financial market

MALAYSIAN FINANCIAL SYSTEM

BANKING SYSTEM

NON-BANK FINANCIAL INTERMEDIARIES

FINANCIAL MARKETS

Malaysian financial system can be categorized into 3 broad sectors: Banking Financial Intermediaries
The monetary institutions Comprising BNM and the commercial banks (now including bank companies). The banking system is the largest components of the financial system, accounting for about 67% of the total assets of the financial system.

Non-Banking Financial Intermediaries

Carry out financing activities but their resources are not directly obtained from the savers as debt. Instead, these institutions mobilize the public savings for rendering other financial services. All such institutions are financial intermediaries and when they lend, they are known as (NBIs) Eg. Factoring companies, Insurance Companies, Cagamas Berhad

Financial Market
A market for the exchange of capital credit, including the money markets and the capital market. Eg. Labuan International Offshore Financial Centre, Stock Exchange, Commodity Future Exchange.

BANK NEGARA MALAYSIA

COMMERCIAL BANKS

INVESTMENT BANKS

FOREIGN BANKS REPRESENTATIVES

OFFSHORE BANKS

CREDIT GUARANTEE CORPORATION (CGC)

The commercial banks are the largest and most significant providers of funds in the banking system. There are currently 24 commercial banks (excluding Islamic banks) of which 13 are locally incorporated foreign banks. Required to be licensed under Section 2 6(4) of BAFIA 1989 Offer both paper based and electronic fund transfer FUNCTIONS: Facilities for savings through current, saving and fixed etc Facilities to effect payments on behalf of its customers Loans and credit facilities Financing the government through the purchase of gov. securities and treasury bills A wide variety of other banking services such FOREX transaction and internet banking

Commercial banks are also authorized to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities.

Offshore Banks

Offshore banking can only be carried on in Labuan by an offshore company or a foreign offshore company incorporated or registered for that sole and exclusive purpose by an office, branch or subsidiary of a licensed Malaysian bank- Commercial Banks To apply for an offshore banking license, an application needs to be made to the Labuan Offshore Financial Service Authority (LOFSA) providing a guarantee and minimum capital funds of RM10Million.

Islamic Banking

Commercial Banks BIMB, Bank Muamalat Introduce in 1983 with the enforcement of the Islamic Banking Act 1983 which empowers BNM to supervise and regulate Islamic Banks Conduct business strictly in line with Syariah Principles Serves both muslim and non-muslims customers

Finance Companies

Second most important group of banking institutions in Malaysia Functions: Accept Deposits + Provide a range of credit facilities

Other Financial Institutions

Merchant Banks- Basically involved in providing wholesale finance to corporate customer. Provides financial service such as corporate advisory services (listing of public companies, the underwriting of new issues of shares and project finance to the customer) Discount House Specialize in short term money market operations. Eg. They receive funds mainly from the banks and corporate sector and invest such funds mainly in Government Securities and T-bills. Banks rely on DH to meet their short-term funding requirements.

Money Brokers Involved in brokerage activities in the money and foreign exchange market.

Monetary Institutions

Institutions whose principal liabilities are generally accepted as money. Eg: BNM the sole currency issuing authority in the country and commercial banks that allowed to operate current accounts.

Non-Monetary

Linked closely to the Monetary Institutions & liabilities generally accepted as near-money.

Eg. Investment banks, Finance companies.

Development and Finance Institutions (DFIs)

Refers to the institutions that are supervised by various government departments and agencies except insurance companies are supervised by BNM.

Saving Institutions Special Investments Agencies Insurance Companies

Housing Credit Institutions Provident and Pension Funds

Unit Trust

19

Money Market Short-term instruments i.e. T-Bills, MGS Capital Market Long-term instruments i.e. Stocks, Bonds Derivatives Market Future/option instruments derive from underlying securities i.e. KLIBOR future, KLCI future Foreign Exchange Market Trade of foreign currency i.e. Spot & Forward contract

1.

THE Malaysian Financial System can be divided into three areas. Name the areas and explain on each area. What does it means by Monetary and Non-monetary institutions?

2.