INTRODUCTION TO MALAYSIAN 1

FINANCIAL SYSTEM

Outline:
• The structure of Malaysian
Financial System
•Malaysian Banking System
•Monetary vs Non-monetary
institutions
•Non-banks fin intermediaries
•Malaysian financial market
 THE STRUCTURE OF MALAYSIAN FINANCIAL SYSTEM

MALAYSIAN
FINANCIAL SYSTEM

NON-BANK
BANKING SYSTEM FINANCIAL FINANCIAL MARKETS
INTERMEDIARIES
 THE STRUCTURE OF MALAYSIAN FINANCIAL SYSTEM

Malaysian financial system can be categorize into 3 broad sectors:

1. 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.
2. 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 (NBI’s)
Eg. Factoring companies, Insurance Companies, Cagamas Berhad
3. 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.
 MALAYSIAN BANKING SYSTEM

BANK NEGARA
MALAYSIA

FOREIGN
COMMERCIAL INVESTMENT BANKS OFFSHORE
BANKS BANKS REPRESENTAT BANKS
IVES

CREDIT
GUARANTEE
CORPORATION
(CGC)
 COMMERCIAL BANKS

• The commercial banks are the largest and most significant providers of funds in the banking
system.
• There are currently 26 commercial banks (excluding Islamic banks) of which 18 are locally
incorporated foreign banks.
• Required to be licensed under Financial Services Act (FSA) 2013
• 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 & ISLAMIC BANKS

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
 OTHER INSTITUTIONS

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

Other Financial Institutions

• Investment 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.
 MALAYSIAN BANKING SYSTEM

MONETARY
INSTITUTIONS

NON-
MONETARY
INSTITUTIONS
 MONETARY vs NON-MONETARY

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.
 NON-BANK FINANCIAL INTERMEDIARIES

Development and Finance Institutions

Refers to the institutions that
are supervised by various
government departments
and agencies except
insurance companies are
supervised by BNM.
(DFIs)
Saving Institutions
Special Investments Agencies
Insurance Companies
Housing Credit Institutions

Provident and Pension Funds

Unit Trust
 MALAYSIAN FINANCIAL MARKET

FINANCIAL MARKETS

MONEY DERIVATI FOREX

CAPITAL
VES
MARKET MARKET MARKET
MARKET
 MALAYSIAN FINANCIAL MARKET
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
 QUESTIONS TO PONDER

1. THE Malaysian Financial System can be divided into three

areas. Name the areas and explain on each area.

2. What does it means by Monetary and Non-monetary

institutions?