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Tue, Apr 28, 2009 - Page 10 News List

Malaysia to allow foreign majority stake in finance

AP , PUTRAJAYA, MALAYSIA

Malaysia said yesterday it would let foreigners hold a majority stake in insurance companies and investment banks, while five more foreign banks would be allowed to operate by 2011 in major steps toward financial liberalization.

Prime Minister Najib Razak told reporters he would raise the foreign ownership cap in insurance companies and investment 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 would issue licenses to five new foreign commercial banks, which are the traditional lenders serving the public, by 2011. There are currently 13 locally incorporated 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 certain number of branches. Still, the foreign banks control 25 percent of the domestic banking market.

The foreign banks are also not allowed to own more than 30 percent of domestic commercial banks. Najib said this rule would remain unchanged to allow the local financial services sector to flourish.

He said the government would issue six new licenses to foreign financial institutions this year and three in 2011. Of the six licenses, two will be given to foreign Islamic banks with a paid-up capital of at least US$1 billion, two to foreign commercial banks with specialized expertise and two to Islamic family insurance firms.

In 2011, up to three licenses will be issued to world-class foreign commercial banks, he said.

“Our liberalization is a sequence-managed and gradual process,” central bank Governor Zeti Akhtar Aziz said.

Analysts hailed the measures, saying they would 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 GDP last year and employs more than 140,000 workers.

Yesterday’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.

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