PUTRAJAYA, 27 April 2009: Prime Minister Datuk Seri Najib Razak today announced a significant package of measures to liberalise the financial sector including raising the equity in investment and Islamic banks, and insurance and Takaful firms to 70%.
Other measures include issuing nine new licenses to foreign participation in both conventional and Islamic banking.
Najib, who is also Finance Minister, said two new Islamic banking licenses and two new commercial banking licenses will be offered this year to foreign players that will bring in specialised expertise.
Besides this, up to three new commercial banking licences will be offered in 2011 to world-class banks that can offer significant value propositions to Malaysia, he told a press conference here.
He also announced that two new family takaful licences would be granted this year to players who offer significant value proposition to Malaysia to spur the development of the Takaful industry and reinforce Malaysia’s position as an international Islamic financial hub.
Locally-incorporated foreign commercial banks in Malaysia will be allowed to establish up to four new branches in 2010 while they can set up 10 microfinance branches immediately.
While saying that domestic banks and financial institutions were ready to compete in a liberalised environment, he stressed that the liberalisation measures were a significant milestone towards achieving the long-term vision to have a financial sector that is efficient, resilient and dynamic.
This liberalisation will also contribute towards the transformation process of the Malaysian economy to its next phase of development, he said.
Najib said that for the two new Islamic banking licences to be offered this year to foreign players to establish new Islamic banks, they would have a paid-up capital of at least US$1 billion to enhance global interlinkages, leverage on global developments in Islamic finance and reinforce Malaysia’s position as an international Islamic financial hub.
Turning to the increase in foreign equity limits from the current 49%, he said with immediate effect, existing domestic Islamic banks that wish to scale up their operations are given greater flexibility to enter into strategic partnerships with foreign players through an increased foreign equity limit of up to 70%.
These banks will be required to maintain a paid-up capital of at least US$1 billion, he said.
With immediate effect, investment banks would also be given the flexibility to enter into foreign strategic partnerships to enhance international linkages and business opportunities.
In this regard, the foreign equity participation in investment banks will be increased to a limit of up to 70%, he said, adding that insurance companies and takaful operators will also be similarly increased for the same reasons.
Najib said that a higher foreign equity limit beyond 70% for insurance companies will be considered on a case-by-case basis for players who can facilitate consolidation and rationalisation of the insurance industry.
Existing foreign insurers that participate in the process will be accorded flexibility in meeting the divestment requirement.
Touching on operational flexibilities, locally-incorporated foreign commercial banks can establish up to 10 microfinance branches with immediate effect.
Further branches will be considered based on the effectiveness of these branches in serving microenterprises.
The move is aimed at enhancing the opportunity for locally-incorporated foreign commercial banks to increase their potential to provide financial services to the underserved sectors of the economy.
More branches for foreign banks
Najib also announced that locally-incorporated foreign commercial banks in Malaysia will be allowed to establish up to four new branches in 2010 based on a distribution ratio of 1(market centre): 2(semi-urban): 1(non-urban).
This, he said, is to promote greater financial inclusion and enhance the ability of the locally-incorporated foreign commercial banks to have a more effective intermediation role in the domestic economy.
Locally-incorporated foreign insurance companies and takaful operators are allowed to establish branches nationwide without restriction with immediate effect in efforts to improve insurance and takaful penetration in the country.
The Prime Minister also announced that the restriction for locally-incorporated foreign insurance companies and takaful operators to enter into bancassurance and bancatakaful arrangements with banking institutions is now lifted with immediate effect.
Najib also said that with immediate effect, banking institutions, insurance companies and takaful operators will be accorded greater flexibility to employ specialist expatriates that have expertise to contribute to the development of the financial system in Malaysia.
To provide a more flexible operating business environment, he said offshore banking institutions licensed by the Labuan Offshore Financial Services Authority that meet the predetermined criteria will be accorded flexibility to have a physical presence onshore from 2010.
Similarly, offshore insurance companies licensed by the Labuan Offshore Financial Services Authority that meet the predetermined criteria will be accorded flexibility to have a physical presence onshore from 2011.
This flexibility will be complemented by a strengthened regulatory and supervisory framework that will govern these players, he said. – Bernama