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General Objective Specific Objectives
: To understand the structure of financial system in Malaysia.
At the end of the unit you will be able to : explain the evolution, function, role and structure of the financial system in Malaysia which consist of banking system, non-bank financial intermediaries and financial market. explain the role and function of financial institution and financial intermediaries in the country’s development. explain the assets, sources and uses of fund and steps taken to develop the system. explain in details about the flow of funds and the direction of credits. explain in details about the latest monetary policies.
explain the acts that regulate financial institution – BAFIA 1989, the Offshore Banking Act 1990 and Islamic Banking Act 1983. explain the role and purpose of regulatory body in Malaysian financial system. explain the characteristics, roles and objectives of International Offshore Financial Centre (IOFC). discuss the factors that contribute to the successful operation of the International Offshore Financial Centre’s (IOFC). describe the financial services which is offered by International Offshore Financial Centre (IOFC). Discuss the incentives given to the participants who operate in Labuan. identify the challenges faced by the financial sector in the global economy.
1.0 EVOLUTION, ROLES AND STRUCTURE OF THE FINANCIAL SYSTEM In this chapter, we will discuss about the Malaysian financial structure. Let us begin with the: EVOLUTION OF THE FINANCIAL SYSTEM The development of a sound and financial system is a necessary pre-condition for a stable and balanced economic and social development in Malaysia. In this regard, Bank Negara Malaysia (BNM) has consciously and systematically developed a modern and sophisticated financial system. The financial system has effectively mobilized and allocated resources for productive use in tandem with the rapid transformation of the economy. The development can be divided into four phases: First phase. The first priority of BNM in the early 1960s was to create the basic infrastructure for the financial system. It is also to develop a truly Malaysian-oriented banking system to complement the presence of strong foreign banking in the economy. Therefore, early efforts were focused on institutional building in order to develop an extensive domestic banking network and re-orientate the operations foreign banks branches to domestic needs. Second phase In the 1970s, BNM’s efforts were focused on introducing other financial intermediaries. The establishment of merchant banks, the first of which was set up in 1970, satisfied the growing need for financial expertise in wholesale banking and corporate financing. This is caused by the expansion of the public and private
enterprises which progressed towards more technology-oriented activities, involving more complicated forms of financing. In addition, BNM was also instrumental in establishing a number of development finance institutions and the Credit Guarantee Corporation to ensure a better position for the financial system to serve the financing needs of a more diversified economy. Another significant development during the decade was the enactment of a new legislation, the Banking Act 1973, to strengthen the regulation and supervision of banking institutions. Third phase In the 1980s, BNM’s efforts were focused on further strengthening the regulatory and supervisory framework for the banking system. The latter part of the 1980s was a period of prudential re-regulation and significant structural changes in the banking system. These changes were comprehensive and prompted by lessons from domestic development as well as the global recession in the early 1980s. As a result, the Malaysian banking system was strengthened considerably, and was able to remain sound and intact despite the severe consequences of the sharp recession following the Asian financial crisis. Fourth phase The 1990s was characterized by rapid changes shaped by the forces of liberalization and globalization, aided by technology which broke new frontiers in the functioning of financial markets and in the development of financial products. The Asian crisis was a catharsis that catalyzed national and international efforts to strengthen domestic financial system and the financial architecture. These issues will remain on the Malaysian agenda in the years ahead, including an acceleration of on-going efforts to consolidate the banking industry and to inject greater dynamism and competition into the system.
Discount houses specialized in short-term money market operations and mobilize deposits from the financial institutions and corporations in the form of money at call. overnight money and short-term deposits. fixed deposits and negotiable instruments of deposits (NIDs). current account. Finance companies form the second largest group of deposit-taking institutions in Malaysia. both locally and internationally. Malaysian . The funds mobilized are invested in The Malaysian Treasury bills (TB). They are the largest and most significant providers of funds in the banking system. to operate hire purchase transactions on behalf of retailers of consumer goods such as cars and electronic and electrical equipment. makes commercial and industrial loans and trade finance. They also play a role in the short-term money market and capital raising activities. e. by complementing the facilities offered by commercial banks which are more focused on providing shortterm credit for working capital and trade financing. Merchant banks filled the need for large corporations which require bulky financing and complex banking services.g.FINANCIAL STRUCTURE P2112/1/5 ROLES OF THE FINANCIAL SYSTEM Banking System The banking system consists of BNM. The commercial banks are the main players in the banking system. They provide facilities for making payments or monetary transfers in domestic or foreign currencies. the representative offices of foreign banks and offshore banks in the International Offshore Financial Centre in Labuan (Labuan IOFC). They provide finance (credit) . and is responsible for the regulation and supervision of the banking system. namely the discount houses. the banking institutions and other financial institutions. The range of transaction accounts typically offered are savings account. as the central bank. with the exception of the offshore banks operating in the Labuan IOFC which comes under purview of the Labuan Offshore Financial Services Authority (LOFSA). BNM. is at the apex of the banking system.
while at the same time. On the other hand. bankers acceptances (BA). It provides a ready source of funds for market participants facing temporary shortfalls in funding. Like their sources.FINANCIAL STRUCTURE P2112/1/6 Government Securities (MGS). . the capital markets. the derivatives markets and offshore markets. - Non-bank financial intermediaries These institutions are generally under the supervision of various government departments and agencies. - The money market is an avenue for the channeling of short-term funds with maturities typically not exceeding 12-month. All of them deal with funds. capital markets are markets for raising long-term funds containing the equity and bond markets. ● - Financial Market The financial market in Malaysia comprise the money and foreign exchange market. Finally. - The derivatives markets are for trading instruments that provide contingent claims on underlying assets. - Development finance institutions help to promote the development of certain economic sectors through long-term investment financing. the uses of these funds varies. - Unlike the money market. saving institutions are important to the small-time savers ant the rural population who usually have less opportunities to utilize existing banking facilities. and whose values depend on the price of the underlying assets or securities. providing short-term investment outlets for those with temporary surplus funds. negotiable instrument of deposit (NID) and Cagamas bonds. provident and pension funds is designed to meet contingent financial needs of their clients and further assist the public sector’s development efforts by subscribing to government securities. They mobilize funds from certain sources and channel them to the deficit units.
1 Financial System ( Source: The Central Bank and the Financial System in Malaysia – A Decade of Change.Commercial Banks1 .Credit Guarantee Corporation .Unit Trusts .Leasing Companies .FINANCIAL STRUCTURE P2112/1/7 - The Labuan IOFC is aimed at enhancing the attractiveness of Malaysia as a regional financial centre.Representative Offices of Foreign Banks .National Savings Bank . FINANCIAL INSTITUTIONS Banking System Bank Negara Malaysia Banking Institutions .Housing Credit Institutions .Discount Houses .Offshore Banks in Labuan IOFC Non-Bank Financial Intermediaries ● Provident and Pension Funds ● Insurance Companies2 ● Development Finance Institutions ● Savings Institutions .1.Factoring Companies .Cagamas Berhad .Private Debt Securities Derivatives Market ● Commodity Futures ● KLSE CI Futures ● KLIBOR Futures Offshore Market ● Labuan International Offshore FinancialCentre (IOFC) Including Islamic banks Including Takaful Figure 1. as well as to promote the economic development of Labuan and its vicinity.Merchant Banks ● Others . STRUCTURE OF THE FINANCIAL SYSTEM The structure of Malaysian Financial System is presented in Figure 1.Public Debt Securities . BNM 1999) .Venture Capital Companies 1 2 FINANCIAL MARKETS Money & Foreign Exchange Markets ● Money Market ● Foreign Exchange Market Capital Market ● Equity Market ● Bond Market .Pilgrims Fund Board .Finance Companies .Co-operative societies ● Other Non-Bank Financial Intermediaries .
strong and efficient financial institutions are essential for the efficient functioning of the payment system. institutions and services that facilitate the transfer of value to discharge the payment obligation. The means of payment can take on many forms such as currency. As key players in the payment system. . services. as well as modern electronics means such as stored-value cards. Therefore. This intermediation function involves the mobilization of resources by providing the means for savers to hold monetary and financial assets. serve as the payment system architecture. and with longer gestation period and riskier prospects. comprising both financial institutions and markets. it has a significant effect on the operating efficiency of an economy. and allocating these resources for productive investment. acts as an intermediary of resources in the economy.1 ROLES OF FINANCIAL INSTITUTIONS AND FINANCIAL INTERMEDIARIES IN THE DEVELOPMENT OF COUNTRY.FINANCIAL STRUCTURE P2112/1/8 1. allowing investment opportunities to be identified so that resources can be channeled to these activities. An efficient financial intermediation system helps channel resources efficiently towards activities with high rate of return. 2) Operation of the payment system A payment system essentially refers to a network of services that facilitates transactions involving the exchange a means of payment in return for goods. efficiency also means that information is processed well. Therefore the payment system is a central element in the economic infrastructure that facilitates the efficient clearing and settlement process. In addition. The instruments. real assets and financial assets. 1) Intermediation function The financial system. as well as allow implementation of projects that are larger in scale. cheques and credit cards.
the ability of a central bank to raise interest rates would be constrained if the financial institutions are weak. . usually characterized by financially weak banking institutions and inefficient market mechanisms may render monetary policy less effectively in achieving its objectives. This is because monetary policy is transmitted primarily through the banking system.FINANCIAL STRUCTURE P2112/1/9 3) As a channel for transmission of monetary policy In addition to its contribution to the development of the economy. This is because higher interest rates would weaken the health of the corporate sector and lead to the deterioration in the asset quality of the banking institutions. an inefficient banking system. a wellfunctioning and efficient financial system is vital for the effective conduct of monetary policy. On the other hand. In an environment of emerging inflationary pressure.
5 13.3 18.1 100.0 39.5 3.4 10.0 -4.6 -5.9 3.0 70.0 61.2 -1.2 19.1 28.4 -4.8 11.9 21.5 1.FINANCIAL STRUCTURE P2112/1/10 1.2 ASSETS.4 56.9 15.5 12.8 1.5 30.8 16.5 18.9 -11.8 29.2 326.9 100.6 12.4 4.4 85.6 36.6 140.1.8 21.5 21.2 17.2 20.6 22.9 13.3 6.0 18.2 2.2 113.9 42. Growth (% per annum) 1988 – 1988 – 1997 1998 1998 (Avg.2 3.1 1.4 17.3 3.0 459.8 21.3 25.5 17.2 123.6 1.093.8 5.) Outstanding (end-period) RM billion As % of financial system 1987 1998 69.0 75.5 -8.7 16.4 18.4 15.1 42.6 8.6 174.4 2.6 11.3 19.2 Excludes Offshore Banks in Labuan IOFC Includes Bank Islam Malaysia Berhad Table 1.0 18.1 11.6 39.7 622.0 11. BNM 1999) . SOURCES AND USES OF FUND AND STEPS TAKEN TO DEVELOP THE SYSTEM.1 16.3 3.3 19.6 14.4 -18.1 Assets of the financial system (Source: The Central Bank and the Financial System in Malaysia – A Decade of Change.6 6.2 15.0 1987 Banking system1 Bank Negara Malaysia Banking Institutions Commercial banks2 Finance companies Merchant banks Discount Houses Non-bank Financial Intermediaries Provident and Pensions Funds Insurance funds Development Finance Institutions Saving Institutions Other Non-bank Financial Intermediaries Total Assets 1 2 1998 766.8 -5.7 18.6 -1.8 6.4 8.7 124.5 12.7 4.8 16.2 16.6 1.) (Avg. ASSETS OF THE FINANCIAL SYSTEM Assets of the financial system are presented in Table 1.3 202.0 56.8 18.3 16.7 16.6 24.
387 93.3 1. reserve & profit Currency Demand deposits Other deposits1 (of which): Public sector Other financial institutions2 Private sector Foreign Borrowings Funds from other financial institutions Domestic2 Foreign Insurance.309 0.7 5.6 1.1 1.866 9.3 0.7 9.111 457.084 2.597 115.2 3.768 7.578 136.3 19.8 5.208 7.962 4.993 14.827 108.791 176.015 28.6 14. provident & pension funds Other liabilities Total liabilities Uses of funds: Currency Deposits with other financial institutions Domestic Foreign Bills Treasury Commercial Loans & advances Public sector Other financial institutions Private sector Foreign Securities Malaysian government Foreign Corporate Others Gold & foreign exchange reserves 17.3 0.0 41.641 47.7 1.351 38.648 3.4 0.269 141. 1988 RM million Sources of funds: Capital.703 2.237 3.450 198.1 2.2 17.FINANCIAL STRUCTURE P2112/1/11 SOURCES AND USES OF FUNDS Table 1.0 8.567 28.4 27.0 9.3 3.0 0.781 10.490 93.2 100.4 1.3 0.9 6.3 2.3 0.093.0 20.2 18.0 38.0 0.954 40.4 16.0 7.047 69 41.567 4.9 5.9 36.0 1.3 13.224 151.0 % 7.5 0.438 32.8 .995 448.998 1.321 % 7.3 20.7 0.1 21.9 4.2 1.9 0.335 1998 RM million 102.9 3.0 44.3 22.1 13.944 96.5 1.0 4.418 5.4 0.600 26.400 66.0 7.3 100.767 201.4 1.7 35.832 225.242 2.6 5.5 10.4 5.615 49.5 1.5 1.8 3.088 209.852 485.558 5.3 20.445 20.808 1993 RM million 41.569 71.347 25.9 0.060 7.393 103.9 34.472 1.061 5.4 17.016 62.074 39.271 0.562 1.427 75.2 summarizes the structure of the sources and uses of funds of the financial system in selected years of the period.0 905 33.768 56.9 12.265 0.0 1.245 61.547 65.796 10.5 2.1 0.0 6.9 0.0 40.460 569.6 2.2 2.349 2 11.868 127.6 1.474 189.649 33.479 28.6 40.4 0.388 105.936 14.5 0.860 3.575 1.138 15.130 18.0 100.6 6.653 119.737 5.440 14.802 2.717 51.4 13.4 14.5 21.825 2.6 10.0 3.318 2.870 305.403 27.366 0 17.787 1.913 229.5 0.5 0.037 11.389 99.712 5.328 274 5.6 12.7 41.699 7.8 22.0 % 9.9 8.4 2.612 12.5 28.264 87.4 2.3 6.014 29.
Table 1. that is.321 106 100. Consequently. to achieve the objective of financial sector development. and the approach of BNM in this regard has been pragmatic and flexible. The harmonization of standards was aimed at enhancing competition among the three groups of banking institutions. This development has been significantly shaped by BNM. Leveling the playing field Several measures were introduced during the period of 1989-99 to level the playing field to allow commercial banks.LPHT. .808 7.1 100. as well as the introduction of the risk-weighted asset approach as the uniform method of capital adequacy assessment for the three groups of banking institutions. fixed and other (NIF. In this regard. These include the adoption of a standard ratio for the statutory reserve requirement (SRR).0 53. BNM 1999) STEPS TAKEN TO DEVELOP THE SYSTEM The development of Malaysia’s financial system has evolved over several decades against the backdrop of rapid changes in the economy and the international financial environment.4 100. policies have been modified according to the changing circumstances. the statutory reserves of the banking institutions have been reclassified as “ Funds from other financial institutions” rather than “ Other deposits from other financial institutions”.324 1.0 Equal savings.093.0 116. to develop an efficient and sophisticated financial system that can support balanced economic development.335 9. data for prior years have also been revised accordingly. etc) deposits + NIDs + repos Effective 1998.390 229.729 569. The steps taken are as discussed below: 1. which were essentially engaged in the same type of business.2 Sources and uses of funds of the financial system (Source: The Central Bank and the Financial System in Malaysia – A Decade of Change. finance companies and merchant banks to compete on equal ground with each other.FINANCIAL STRUCTURE P2112/1/12 Other assets Total Assets 1 2 16.
Interest rate reforms In line with the objective to develop a more market-driven financial system. BNM initiated the establishment of the Securities Commission (SC) on 1 March 1993. a long transmission lag for policy (approximately 2-3 months). the process of interest rate reforms resumed. with banking institutions allow to charge a maximum of 4 percentage points above their declared BLR.As part of the institutional building to develop the capital markets. a new BLR framework was introduced in November 1995. The IOFC conducts a variety of international banking. in order to enhance the attractiveness of Malaysia as a regional financial centre. however.International Offshore Financial Centre (IOFC) was established on 1st October 1990 in Labuan. With the freeing of the BLR. with effect from 1st February 1991. A separate institution is necessary to consolidate the regulation and supervision of the capital markets as well as oversee future measures to broaden and deepen the markets. increase the contribution of the financial services sector to the nation’s GDP and promote the economic development of Labuan and its vicinity. the base lending rate (BLR) of the banking institutions was completely freed from administrative control. In . insurance and investment activities. following its abandonment during the period of tight liquidity from 1985-87.The pegged deposit rate arrangement was dismantled in 1987. To reduce this lag. There was. Meanwhile. the maximum margin over the quoted BLR was also reduced from 4 percentage points to 2. Institutional development . both the deposit and lending rates were expected to be determined competitively by the banking institutions. This has reduced the transmission lag to within one week. 3. In 1998. taking market forces into consideration. . whereby the BLR was linked to the weighted monthly average of the 3-month BNM interbank rate. the BLR was linked to the 3-month BNM intervention rate instead of the 3month interbank rate.5 percentage points.FINANCIAL STRUCTURE P2112/1/13 2. In addition.
and establishing Danaharta. begin with efforts by BNM to restructure the banking system following the banking crisis in the mid1980s. in essence. On 15th December 1995. Malaysia becomes the fourth Asian country after Singapore. (MESDAQ). . . as reflected in the deterioration in capitalization and asset quality. the launching of the interest-free banking scheme in March 1993 provided the foundation for developing a viable and comprehensive Islamic banking system. 4.FINANCIAL STRUCTURE P2112/1/14 addition. While the banking sector entered the financial crisis in 1997 from a position of strength. . Following these developments and anticipation of further adverse implications of the crisis on the banking system. .BNM also developed the private debt securities market and the Rating Agency Malaysia Berhad (RAM) to rate debt issues by corporations. Another milestone during the decade was the commencement of trading on the Malaysian Exchange of Securities Dealing & Automated Quotation Bhd. as well as corporate debts.In the banking system. with the launching of KLOFFE’s stock index futures contract. Hong Kong and Japan to offer domestic equity derivatives product. it is also recognized that there is a need to further develop the capital markets as an alternative source of funding primarily for the private sectors. on 30 April 1999. respectively. the severity of the crisis weakened the health of the banking sector. a stock exchange targeted specifically at growth and technology companies. BNM adopted a pre-emptive and comprehensive four-pronged plan to restructure the financial system. Danamodal and Corporate Debt Restructuring Committee to deal with the emerging problems of deteriorating asset quality and capitalization. Consolidation and restructuring of the financial system The consolidation of the banking institutions over the past decade.To further develop Kuala Lumpur as a key financial centre. This involved a strategy to consolidate the finance company industry. the decade also saw initiatives being taken to promote trading in options and financial futures.
cash. secure. the regulatory and supervisory framework of the banking system has been continually reviewed since the early 1980s in order to ensure that it remains relevant in the light of structural changes in the domestic economy and external environment. officer or controller of a licensed institution liable to indemnify the institution in full for any loss or damage in any form arising from or caused by on offence committed by any person. . This move is aimed at strengthening the capacity. Prudential and regulatory reforms In Malaysia. it has always been on the agenda to encourage banking institutions to merge in order to achieve economies of scale and higher level of efficiency. BNM launched the payment system masterplan in 1996 to chart the development and implementation of payment system in Malaysia. The forces of financial globalization and rapid technological advancements have also provided the impetus for the promotion for payment mechanism that are inexpensive. 6. namely. the crisis exposed the vulnerability of small banking institutions and the need for these institutions to maintain a high level of capital. This review led to the introduction of the Banking and Financial Institution Act 1989 (BAFIA) in October 1989. 5. reliable and efficient. Payment system The design and development of effective and efficient payment systems have been an integral part of BNM’s initiative to further enhance the operations of the financial system. Towards this. capability and ability of domestic banking institutions to meet the challenges arising from an increasingly competitive global environment. BAFIA provides a framework for an integrated supervision of the Malaysian financial system and enhances the powers and duties of the auditors of licensed institutions and made a director. In this regard. cheques. card-based payment instruments and electronic-based payment mechanism. The masterplan was formulated along the lines of the four major modes of payment instruments.FINANCIAL STRUCTURE P2112/1/15 Nonetheless.
FINANCIAL STRUCTURE P2112/1/16 Another major related development was the transfer of regulation and supervision of the insurance industry to BNM with effect from 1st May 1988. it is recognized that for the benefits of liberalization to be fully realized. thus enabling the sector to play a more efficient and effective role in the economy. In this regard. At the same time. competitive and market-driven financial sector. The main rationale behind the relocation was to streamline and adopt an integrated approach to the supervision of the entire financial system in the country and to realize economies of scale in regulation and supervision. On its part. the pace of liberalization has to be in tandem with the capacity and ability of the system to absorb these changes without undermining financial stability. Liberalization of the financial sector Malaysia recognizes that the opening up of the domestic financial sector to foreign competition would contribute towards a more efficient. BNM has also reviewed its supervisory approach by focusing on areas of high risk that have adverse implications on the soundness of the banking institutions. 7. . This policy has resulted in a high foreign participation in the Malaysian financial sector. BNM has adopted risk-based supervision which emphasizes a combination of dynamic off-site surveillance and on-site examination.
FINANCIAL STRUCTURE P2112/1/17 Activity 1A TEST YOUR UNDERSTANDING BEFORE YOU CONTINUE WITH THE NEXT INPUT…! 1. .2 What are the roles of the financial institutions and financial intermediaries in the development of a country? 1.3 List down three sources and uses of the financial system funds.1 Describe briefly the structure of the financial system in Malaysia. 1.
3 Sources of fund: a) Deposits b) Insurance. Offshore market 1. Money and foreign exchange markets ii. provident and pension funds c) Capital.FINANCIAL STRUCTURE P2112/1/18 Feedback To Activity 1A 1. Banking system Non-bank financial intermediaries b) Financial markets i.2 a) Intermediation function b) Operation of the payment system c) As a channel for transmission of monetary policy 1. Capital market iii.1 a) Financial institution i. ii. Derivative market iv. reserve and profit Uses of fund: a) Loans and advances b) Securities c) Deposits with other financial institutions .
whereby commodity money was used as the basic transmission unit. At this stage.3 FLOW OF FUNDS AND DIRECTION OF CREDITS FLOW OF FUNDS IN AN ECONOMY The evolution of a financial system can be broadly categorized into four basic stages. Barter trade to monetary system The first stage is when the economy moves from a barter trade system into a monetary system. financial intermediaries mobilize from the surplus units and reduce their risk of default by issuing relatively risk-free liabilities. however. Under this system. often made of precious metals served as a standard unit of account and measures of value to facilitate trade. through their specialized knowledge of the credit market.FINANCIAL STRUCTURE P2112/1/19 INPUT 1. 2. At the same time. maturity and the element of risks. 3. Funds accumulated by wealthy persons were loaned to other individuals or companies who were willing to pay for these funds for a fee or interest. This is where those economic units who are in need of funds “deficit” units came to terms with those who have excess funds to be lent out or called “surplus” units. tokens. there are some problems such as the difference in amount. During this stage. Establishment of financial intermediaries The third stage came following the establishment of financial intermediaries to overcome the problems of primary debt in the direct borrowing-lending process. Saving and borrowing practices The second stage came when the practice of borrowing began. they were able to supply funds to deficit units . 1.
The liabilities of these financial intermediaries are known as secondary or indirect debt. Major sectors of the economy To illustrate how fund flows in an economy with a developed financial system. In of Malaysia. The household sector. not all households are surplus units as a significant proportion of the funds mobilized by the financial intermediaries are channeled back to household in the form of consumer credits and housing loans. the country can be considered to have arrived at the final stage of the evolution process in establishing a complete monetary system.FINANCIAL STRUCTURE P2112/1/20 in the amount and terms that these units were willing to pay to meet its financing needs. Varied financial instruments The final stage is when a complete set of financial intermediaries were established to form a financial system which provide a variety of financial instruments as saving media for the surplus units. as well as a varied range of credit and investment facilities to meet the financing requirements of the deficit units. it can be divided into five major institutional sectors. However. 4. These sectors are: a) households b) enterprises c) government d) financial institutions e) external sectors Each sector has different sources and uses of funds from the other sectors and behaves relatively homogeneous as a group. as a group is usually the major net surplus unit in an economy since they save a large proportion of their income and invest their savings in the form of real and financial assets. .
To fulfill this function. Here. financial intermediaries operate in various markets such as the money and foreign exchange markets. The financial system basically serves to assist in the allocation of scarce resources in an economy from the surplus units to the deficit units. . To do this. The other one is the credit market where financial intermediaries supply the financial resources required by the deficit units. financial institutions have introduced various savings and investment instruments to attract funds from the surplus units. an efficient recycling mechanism is essential in order that scarce resources would be used to their optimum for the development of the nation. Financial intermediaries primarily operate in two markets. First is the saving markets where they operate as borrowers while meeting the demand for financial assets by surplus units. again. the capital markets and the financial futures and option markets. they offer various financial instruments as a conduit to supply funds to the deficit units. These sectors mobilize resources mainly through the financial system in the form of loans equity capital. Under the present situation. bills and long-term securities.FINANCIAL STRUCTURE P2112/1/21 The private enterprises and the government sectors are usually the deficit units since they are the sectors primarily involved in the investment process in an economy.
Saving inst. inst. Investment or expenditure of: Money at call Overdrafts Bills Term loans Hire purchase Bridging loans Leasing Securities Bonds Debentures External reserves Households Enterprises Government Financial institutions External sector Table 1. Inst.FINANCIAL STRUCTURE P2112/1/22 SOURCES OF FUNDS FINANCIAL INTERMEDIARIES SURPLUS UNIT FINANCIAL INSTRUMENTS USES OF FUNDS FINANCIAL INSTRUMENTS DEFICIT UNITS Saving or Investment of: Households Enterprises Government Financial institutions External sector Currency Deposits Bills Loans Bonds Unit trusts Share capital Insurance premiums Provident funds Pension funds Foreign loans Investments Central bank Commercial banks Finance companies Merchant banks Discount houses Industrial Fin.3 The flow of funds in an economy . Provident funds Pension funds Insurance companies Unit trusts Building societies Cooperatives Other fin.
2: Direction of credit (1988) .0% Manufacturing 15.00% 15.3% 26.6% 9.8% Others 35.00% 35.FINANCIAL STRUCTURE P2112/1/23 DIRECTION OF CREDITS The financial system extended credit to the non-financial private sector in the form of loans and advances.2 below provides a graphic illustration of the change in the direction of credit to the non-financial private sector over the period.1% 8.1% Consumption credit 4. Sector 1988 1998 Investment in corporate securities 11.00% 10. Figure 1.00% 5.8% 15. as well as through the holding of corporate securities.00% 25.3% Table 1.7% 11.1% 4.6% Housing 13.00% 30. (% of total credit outstanding) (Source: The Central Bank and the Financial System in Malaysia – A Decade of Change.00% Investm ent in corporate securities Manufacturing Construction Housing Consum ption credit Purchase of shares Others Figure 1. BNM 1999) 40.00% 0.4 Direction of credit.5% Purchase of shares 1.5% 24.7% Construction 18.00% 20.
While there were structural imbalances present such as the current account deficit. Given the strong macroeconomic and institutional fundamentals at the outset of the crisis. The economic growth was achieved resulting in a lower inflation rate and an improved balance of payments position.00% 15.00% Investm ent in corporate securities Manufacturing Construction Housing Consum ption credit 25. the fundamentals of the economy were strengthened further.00% Figure 1. policies were already in place to address these weaknesses and positive results began to emerge.3: Direction of credit (1998) 1. the structural reforms undertaken since the mid-1980s strengthened the banking system. The government continued to record fiscal surpluses and.4 LATEST MONETARY POLICIES The Malaysian economy was fundamentally strong prior to the start of the crisis. very importantly. In the first two quarters of 1997.00% 10. In the banking sector. Malaysia had greater flexibility in responding to the crisis.FINANCIAL STRUCTURE P2112/1/24 30. . At the end of 1997. the level of external debt was low at 43.00% 20. real GDP continued to grow at about 8%. asset inflation and high credit growth.2% of GNP.00% Purchase of shares 5.00% Others 0.
6% against the United States Dollar. the reversal of short-term capital flows caused the ringgit to be depreciated further by as much as 20% on 7th January 1998 and the KLSE CI to decline to as low as 286 points on 1st September 1998.FINANCIAL STRUCTURE P2112/1/25 Despite strong fundamentals. the East Asian financial crisis affected Malaysian economy in numerous ways.5% (10% in 1996). As the contagion spread in the region.98. the real GDP increased by 7. the social consequences from the crisis was less severe on Malaysia. . However. However.5%. From February to June 1998. in 1998. In addition to instability of financial markets.88 against the US Dollar on 7th January 1998. Between end of June 1997 and end of December 1998. with the Kuala Lumpur Stock Exchange Composite Index (KLSE CI) declining about 144. the contraction in the domestic economy and increased speculative activity. The immediate impact of the ringgit depreciation was on the stock market. due to the stronger fundamentals and affirmative action to eradicate poverty. investors’ confidence was further eroded. the real GDP declined by 7. That was the first negative growth registered since 1985 and the trough was reached in the third quarter of 1998. ringgit was depreciated by 33. the value of ringgit was relatively stable between US$1= RM3.8% in the second half 1997. Towards the end of 1997. From June to August 1998.84-3. the downward pressure on ringgit was intensified following the depreciation of the Japanese Yen. The crisis affected all the broad sectors in Malaysian economy including the financial. but strengthened thereafter. the crisis affected the real sector and weakened the financial sector. It was further depreciated to a historic low of RM4. real and external sectors. The impact of the crisis on Malaysian economy was discussed as below: Depreciation of Ringgit The crisis was felt in the KL foreign exchange and stock markets.
combined with higher interest rate led to severe difficulties for individuals and businesses.7% in 1997). was due mainly to the contraction of domestic demand.3%. The decline in the property and stock markets. Inflation.5% at the end of 1997 to 1. resulting in deterioration in the asset quality of the portfolio of the banking institutions. and moderated thereafter. The PPI also increased by 10. including viable businesses in productive economic activities. Inflation The price pressures arose from the depreciation of ringgit became apparent towards the end of 1997. despite the severe depreciation. These development caused loan growth (including loans sold to Danaharta) to slow down from of 26. to obtain financing.2% on an annual basis in June 1998. In 1998 alone. the debt-servicing capacity of borrowers was also affected by the economic contraction. the CPI rose by 5.FINANCIAL STRUCTURE P2112/1/26 State of the banking system The sharp depreciation of ringgit combined with the fall in share prices had a material adverse effects on earnings and overall performance of the banking sector. . The reluctance of the banking institutions to lend. in terms of CPI.7% in 1998 (2. the highest increase since 1982.3% at the end of 1998. The rather “mild” inflation. peaked at 6.
ensured that budget allocations with respect to health. While the policy direction was changed early in the crisis. The government. in April – may 1998. In early 1998. . prudential regulations of the financial sector were adjusted further to be consistent with international standards. In the financial sector. however. In addition. As higher interest rates were considered detrimental to the real sector. but subsequently choose a different route. Initial Policy Response Initially. a 20% by the end of the first quarter of 1998 and 15% by the end of 1998. When it proved ineffective. the government reduced its expenditure and deferred implementation of selected infrastructure projects. and were maintained till September 1997. the IMF advised against Malaysia’s plans to reverse fiscal policy to a deficit position to arrest emerging signs of economic contraction. This included reclassification of loans as nonperforming which had been in arrears for 3 months (instead of 6 month previously). With respect to fiscal policy. Malaysia unilaterally allocated additional fiscal expenditures amounting to RM3 billion. The selective exchange control measures were a necessary part of the efforts to stabilize domestic financial markets to ensure that the prospects for an economic recovery would not be jeopardized by external developments and contagion. a credit plan was introduced in September 1997 to moderate loan growth. the ultimate objective of ensuring growth with the price stability remained unchanged. High interest rate to contain speculation against the ringgit was adopted only for a brief period. interest rates were adjusted to reflect higher rates of inflation to ensure a positive real rate of return to savers. more stringent guidelines were imposed on hire purchase loans for non-commercial passenger vehicles. interest rate were restored to pre-crisis levels soon after. education and the provision of other basic amenities were maintained. Thereafter.FINANCIAL STRUCTURE P2112/1/27 Policy response to the crisis. when it was clear that the economy was contracting. The target loan growth rate was set as 25% by the end 1997 (from 29% at end September 1997). However. Malaysia did follow some of the standard IMF prescriptions adopted by other crisis countries.
On 23 July 1998. In view of this objective. the NEAC launched the National Economic Recovery Plan (NERP) to provide a comprehensive framework for economic recovery and to counter the negative impact of the ringgit depreciation and the decline of the stock market. and restoring adversely affected sectors. The NERP had six objectives. Then. Amidst the deteriorating economic conditions. The need for a change in policy direction The combination of tight monetary policy and fiscal restraint adopted in an environment of weakening external demand caused aggregate demand to fall more sharply than anticipated. The approach was a pragmatic one to adjust the policy direction to the changing economic circumstances. These were complemented with structural reform objectives of strengthening economic fundamentals. the Malaysian Government adopted a more comprehensive and forward-looking policy approach. which included the short-term focus of stabilizing the ringgit. Since early August 1998. Policies were formulated taking into account the likely developments and the associated risks. from 11% to 9. restoring market confidence.5% .FINANCIAL STRUCTURE P2112/1/28 increasing the rate for general provisioning and requiring greater financial disclosure by banking institutions. the government eased its monetary and fiscal policies. continuing the socio-economic agenda. Economic Recovery Plan – Mid 1998 Beginning mid-1998. and maintaining financial market stability. monetary policy has become accommodative by reducing interest rates and the SRR to reinforce expansionary fiscal policy and revive the economy. the policy focus shifted towards reviving the economy. The 3month intervention rate of BNM was reduced in three successive steps. the National Economic Action Council (NEAC) was established on 7 January 1998 to make concrete recommendations to the government to arrest the worsening economic situation and revitalize the economy.
to purchase NPLs from banking institutions and manage these NPLs in order to maximize their recovery value. the measures were also aimed at stabilizing short-term capital flows. In addition. rules that governed trade transactions and foreign direct investment were left unchanged. They were carefully designed to have minimal impact on economic activities. to facilitate the recapitalisation of banking institutions. The importance of the efficient functioning of the intermediation role of the banking institutions came to the forefront during the crisis period. Selective Exchange Control Measures The selective exchange control measures were designed to achieve specific objectives.FINANCIAL STRUCTURE P2112/1/29 during the month of August. These measures were essentially aimed at curbing the . the establishment of Danaharta. The only requirement was for trade settlements to be carried out in foreign currencies. banking institutions had become excessively cautious in their lending decisions. The SRR was reduced from 8% to 6 % on 1 September. The measures were multi-pronged . In an environment of uncertainty. The controls were aimed specifically at eliminating access to ringgit by speculators by reducing the offshore market in ringgit and limiting the supply of ringgit to speculators. banking institutions with sufficient capacity were encouraged to achieve a minimum loan growth rate of 8% for 1998. Thus. Danmodal. To avoid a credit crunch situation. Current account convertibility continued to be maintained. causing a sharp slowdown in credit. The measures included the consolidation of the finance companies. when the selective exchange controls were imposed and further to 4% on 16 September in order to ensure adequate liquidity in the banking system and to reduce their cost of funds. a platform for both the borrowers and the creditors to work out feasible debt restructuring schemes without having to resort to legal proceedings. Pre-emptive measures were also introduced to strengthen the resilience of the financial sector to avoid systemic risks and to ensure the continued efficient functioning of the banking sector and promote market confidence in the face of deteriorating economic conditions.aimed at strengthening all aspects of the financial system. and the Corporate Debt Restructuring Committee (CDRC).
As such. the exchange controls affect only short-term flows. The main selective exchange control measures were: control the transfer of funds in the external accounts to immobilize trading of ringgit offshore.FINANCIAL STRUCTURE P2112/1/30 internationalization of the ringgit. commercial banks.5 ACTS THAT REGULATE FINANCIAL INSTITUTION The Banking and Financial Institutions Act 1989 (BAFIA) A major event which took place in 1989 was the introduction of the Banking and Financial Institutions Act 1989 (BAFIA) to replace the Banking Act 1973 and Finance Companies Act 1969. Medium and long-term flows of foreign funds into the country continue to be unaffected by the controls. This had let to the extent that the methodology of supervision of these institutions had increasingly converged although the legislative basis for supervision was legally . merchant banks and finance companies. namely. limiting the amount of ringgit that could be imported or exported and the amount of foreign currency that could be exported. Rationale for BAFIA The growing competition in the banking system had resulted in the blurring of lines of business between the three traditional groups of banking institutions under the Central Bank supervision. The introduction of BAFIA was intended to provide an integrated supervision of the Malaysian financial system and to modernize and streamline the laws related to banking and banking institutions. imposition of the 12-month holding rule on the repatriation of funds in external accounts (replaced by repatriation levy on portfolio funds on 15 February 1999 which was subsequently liberalized further on 21 September 1999). 1. control on ringgit loans to non-residents.
FINANCIAL STRUCTURE P2112/1/31 separated under the repealed Banking Act 1973 and repealed Finance Companies Act 1969. including discount houses and money and foreign exchange brokers which were previously supervised on an administrative basis. merchant banks. discount houses. among others. major changes were made. by expanding the definition of offshore banking business to include a wide range of financial services that could be undertaken by offshore banks instead of only providing credit facilities and accepting deposits. The Offshore Banking Act 1990 The Offshore Banking Act 1990 (OBA) governs the activities of offshore banking and offshore investment banking. while the prudential and structural regulatory features essential for ensuring the stability of the banking system have not been changed under the BAFIA. under one supervisory and regulatory scheme. finance companies. c) Non-scheduled institutions Comprising all other statutory bodies and institutions involved in the provision of finance and credit. b) Scheduled institutions Comprising the major non-bank sources of credit and finance and representative offices of foreign banks or foreign institutions which carry out the business or activities similar to the scheduled institutions. In the amendments to OBA in 1996. BAFIA placed all banking institutions supervised by the Central Bank. BAFIA was built on the strength of the regulatory regime in the two repealed acts. The Institutions under BAFIA a) Licensed institutions Comprising commercial banks. money brokers and foreign exchange brokers. . Bank and financial institutions intending to operate as an offshore investment bank in Labuan are required to seek a license from the Minister of Finance through Labuan Offshore Financial Services Authority (LOFSA).
BNM was also responsible for the supervision. it is vested with comprehensive legal powers under various Acts and Ordinances to regulate and supervise the financial system. Registering authority for prospectuses of corporations other than unlisted recreational clubs. regulation and development of the insurance industry as part of the financial system. effective 1 May 1988. ii. Furthermore. To enable BNM to meet its objectives. Approving authority for corporate bond issues. 1. Regulating all matters relating to securities and futures contracts. The SC’s many regulatory functions include: Supervising exchanges. to provide for the licensing and regulation of Islamic banking business. powers of supervision and control over Islamic bank and other general provision such as penalties etc. Bank Negara Malaysia Bank Negara Malaysia (BNM) is a regulatory body to have primary oversight of the monetary and banking system in Malaysia.FINANCIAL STRUCTURE P2112/1/32 The Islamic Banking Act 1983 An act which came into effect on April 7th 1983. BNM was also as agent of the government on exchange control matters. secure and transparent securities and futures markets and to facilitate the orderly development of an innovative and competitive capital market. the Security Commission (SC) was established under the Securities Commission Act 1993. Security Commission To streamline the regulatory structure of the capital markets. . ownership. clearing houses and central depositors. restriction of its business. as a self-funding statutory body with investigate and enforcement powers.6 ROLE AND PURPOSE OF REGULATORY BODIES i. The act inter alia has provisions on the financial requirements and duties of an Islamic Bank. efficient. control and management of Islamic banks. The mission is to promote and maintain fair.
. and Ensuring proper conduct of market institutions and licensed persons. Licensing and supervising all licensed persons. Regulating all matters relating to unit trust schemes.FINANCIAL STRUCTURE P2112/1/33 Regulating the take-over and mergers of companies. Encouraging self-regulation.
1.5 Name three special mechanisms which are established to overcome the serious increas NPLs banking industry. .FINANCIAL STRUCTURE P2112/1/34 Activity 1B TEST YOUR UNDERSTANDING BEFORE YOU CONTINUE TO THE NEXT INPUT…! 1. 1.6 Name the regulatory bodies in Malaysian financial system.4 List down five major sectors in the economic fund flow.
6 Bank Negara Malaysia and Security Commission .4 i) Households ii) Enterprises iii) Government iv) Financial institutions v) External sectors 1.FINANCIAL STRUCTURE P2112/1/35 Feedback To Activity 1B 1.5 Danaharta. Danamodal and Corporate Debt Re-structuring Committee (CDRC) 1.
inheritance or estate duties and no value added tax. Generally also. it does not have any exchange control or limitation or transboundary movement of funds into and out of the jurisdiction by the offshore company. d) To form part of the broad national strategy to spread out and diversify the growth opportunities of the nation. financial or other affairs of the company other than in compliance with the law. no stamp death. focusing attention on the further development of East Malaysia in terms of industrial and services (including tourism) development. c) to strengthen the contribution of broad financial sector to the progress of diversified economic growth. An IOFC maintains a high degree of secrecy through limitation on public inspection of company files. dividend and interest earned or derived from the offshore business activities or transactions carried out by offshore multinational corporation in or from those jurisdictions. b) to supplement the onshore financial system centre in Kuala Lumpur by tapping the growing demand for tailored financial and related services. . ROLES AND OBJECTIVES OF IOFC The Characteristics of an IOFC An offshore is basically a small territory or jurisdiction that imposes low or no taxes on income. prohibition from disclosure of the shareholding or beneficial ownership and management of the business. profit. The roles and objectives of IOFC In summary. the objectives of establishing Labuan IOFC are as follows: a) to enhance the attractiveness of Malaysia as an investment centre.FINANCIAL STRUCTURE P2112/1/36 INPUT 1.7 CHARACTERISTICS.
FINANCIAL STRUCTURE P2112/1/37 1.8 FACTORS THAT CONTRIBUTE TO THE SUCCESSFUL OPERATION OF IOFC There are some factors that contribute to the success of the existing IOFC: a) Political stability in the country which is a crucial factor in the investment decisions of the potential players. e) Lower operating costs compared to other financial centres in the region. The tax rate imposed on offshore companies is among the lowest in the world. c) Banking secrecy and confidentiality coupled with minimum rules and regulations. 1. d) A competitive tax regime. b) Stable currency with minimum or no exchange control. f) Good infrastructural support facilities such as excellent communications and transportation system with other financial centres.9 FINANCIAL SERVICES WHICH IS OFFERED BY IOFC AND INCENTIVES GIVEN TO THE PARTICIPANTS Financial services offered in Labuan IOFC Some of the international business activities that can be conducted in Labuan IOFC are: a) offshore banking operations b) offshore insurance and offshore insurance-related businesses c) corporate funding d) investments and trust management e) offshore investment holding companies f) professional services and other related services. . g) Professionally qualified and experienced workforce.
including Malaysia. death or estate duties and no value added tax. and in enabling the design of innovative and complex financial instruments that have helped to improve risk management and shifted risks to those who are better able to manage them. information processing and computing have been a key factor in integrating financial markets across the globe. Consequently. inheritance. b) No limitation or exchange control on the movement of funds in or out of the territory (other than the standard exchange control requirements on resident and nonresident institutions). dividend and interest earned from offshore business activities or transactions carried out by the offshore multinational corporation in or from the territory. As a result. the array of activities that can be undertaken by different groups of financial institutions is converging. d) Strict rules on confidentiality in the territory or accounts in the territory’s banks. economic agents have become willing to assume greater risk.FINANCIAL STRUCTURE P2112/1/38 Incentives to operate in Labuan IOFC Some of the incentives offered to financial institutions to attract them to operate in Labuan IOFC are: a) Low or no taxes on income. For instance. . the global trend towards liberalization in the financial system has led to the blurring of traditional demarcation lines separating the activities of the different groups of financial institutions and removed artificial barriers to competition. c) No levy stamp. while short-term capital funds have flowed rapidly in large amounts from developed economies into emerging economies since the late 1980s.10 CHALLENGES OF THE FINANCIAL SECTOR IN GLOBAL ECONOMY The rapid intensification of globalization in recent years has significantly affected the structure and operations of financial institutions all over the world. Technological advances in telecommunications. Globalisation is rapidly and irreversibly changing the way business and policy are conducted. profit. 1.
FINANCIAL STRUCTURE P2112/1/39 The measures that have been undertaken so far would serve as the foundation to further enhance the capability and capacity of the domestic financial system. competitive and resilient banking system that would be better able to withstand future shocks. minimizing the adverse implications on macroeconomic stability. given the increasing volatility of the financial environment. In this regard. . and to achieve the agenda for the financial system. as follows: To create strong. thereby. the further development of the bond market and securitization would be accelerated. efforts will be intensified to increase the proportion of non-bank financing in the economy and diversify risks away from the banking system. To accelerate implementation of measures to broaden and deepen financial markets and strengthen the financial infrastructure. efficient. To promote dynamism in developing new products and management systems. In particular. To inculcate strong risk management skills in order to ensure that there is no excessive risk taking that could result in adverse implications.
7 What are the main objectives of establishing International Offshore Financial Centre (IOFC)? 1.8 What are the challenges faced by the financial sectors in global economy? .FINANCIAL STRUCTURE P2112/1/40 Activity 1C TEST YOUR UNDERSTANDING BEFORE YOU CONTINUE TO THE NEXT INPUT…! 1.
7 To complement Kuala Lumpur as a regional financial centre. 1. information processing and computing.FINANCIAL STRUCTURE P2112/1/41 Feedback To Activity 1C 1. strengthen the contributions of the financial services sector to the gross national product of Malaysia and promote the economic development of Labuan and its vicinity. .8 i) Liberalization in the financial system ii) Technological advances in telecommunications.
Briefly the structure of the financial system is as follow: a) Financial institutions i.FINANCIAL STRUCTURE P2112/1/42 KEY FACTS 1. The main assets of the financial system: a) Commercial banks b) Provident and pension funds c) Bank Negara Malaysia d) Finance companies . Derivative market iv.i Banking system i. The roles of financial institutions and financial intermediaries in the country’s development: a) Intermediation function b) Operation of the payment system c) As a channel for transmission of monetary policy 3. Offshore market 2. Money and foreign exchange markets ii.ii Non-bank financial intermediaries b) Financial markets i. Capital market iii.
Financial intermediaries primarily operate in two markets. First in the saving market where they operate as borrowers while meeting the demand for financial assets by surplus units. The other one is the credit market where financial intermediaries supply the financial resources required by the deficit units. The main objectives of establishing International Offshore Financial Center (IOFC) are to complement Kuala Lumpur as a regional financial center. strengthen the contributions of the financial services sector to the gross national product of Malaysia and promote the economic development of Labuan and its vicinity. 5. .FINANCIAL STRUCTURE P2112/1/43 4.
The more efficient the system of financial intermediation. Identify the units that are considered having surplus funds and those in need of funds. the more effective it would be in mobilizing previously idle resources for development in those areas that need these funds the most. Distinguish the groups of institutions that fall into the two categories. channeling savings of the economy for productive investment. Good luck. Try all the questions in this self-assessment section and check your answers with those given in the Feedback on Self-Assessment 1 given on the next page. 1. . the financial system acts as the conduit for the flow of funds. In an economy. The Malaysian financial system can be broadly divided into banking system and nonbank financial intermediaries.FINANCIAL STRUCTURE P2112/1/44 SELF-ASSESSMENT 1 You are approaching success. discuss it with your lecturer. If you face any problems. Describe how funds flow an economy. 2.
Leasing Companies. ii. Housing Credit Institutions. These institutions can be divided into five major groups consisting of: i. Cagamas Berhad. b) Non-bank financial intermediaries The non-bank financial intermediaries are mainly supervised by other government agencies. v. Credit Guarantee Corporation. iii. Pilgrims Fund board. Factoring Companies and Venture Capital Companies. a) Financial Institutions The banking system which is the major component of the financial sector consists of: Bank Negara Malaysia Commercial banks (include Bank Islam Malaysia Berhad and Bank Muamalat Malaysia Berhad) Finance companies Merchant banks Discount houses Foreign bank’s representative offices They are regulated and supervised by the central bank. Provident and pension funds Insurance companies Development financial institutions Saving institutions Other non-bank financial intermediaries comprising Unit trusts. . iv.FINANCIAL STRUCTURE P2112/1/45 Feedback To Self-Assessment 1 1.
FINANCIAL STRUCTURE P2112/1/46 2. It also illustrate how these funds are utilized. The flow of fund is presented in graphical form table below to provide information on how savings are mobilized through the organized financial system including banking institutions.. Private sector savings Financial Intermediaries: Saving and Other Financial Institutions Private Investment Accumulation of International Reserves Net Inflow of Long-Term Funds TOTAL FLOWS OF CAPITAL FUNDS Public sector savings Unidentified private payments abroad Public investment The units that are considered having surplus funds and those in need of funds: Household: usually the major net surplus unit Enterprises: usually the deficit units Government: usually the deficit units External sector: usually the deficit units CONGRATULATIONS!!!!…. R I G F F c F c F u r m i u v l a a t t e i o i n n v o e f s t i m n e t n e t r n a t i o n a l r e s e r v e s . May success be with you always….