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Malaysia opens financial sector but banks constrained

Posted on: April 29, 2009


Reuters – Monday, April 27

* Foreign stakes in insurers, investment banks upped

* Disappointment as commercial banks capped at 30 percent

By Liau Y-Sing and Julie Goh

PUTRAJAYA, Malaysia, April 27 – Malaysia on Monday moved to boost foreign investment in financial services, although the opening fell short of expectations as ownership caps on commercial banks were not raised.

Prime Minister Najib Razak said that foreign ownership caps for insurers and investment banks would be raised to 70 percent from 49 percent and that new foreign-owned Islamic banks and trade banks would be licensed.

“Moving forward, the financial sector will have a greater role in facilitating and catalysing economic growth as Malaysia transitions towards achieving developed economy status by 2020,” Najib told reporters in the country’s administrative capital.

A cap on foreign ownership of Malaysian commercial banks was kept at 30 percent, counter to expectations among some financiers that the industry would be liberalised.

For a Factbox, please click on [ID:nKLR430760]

“The market will be disappointed since the foreign ownership of commercial banks was left untouched at 30 percent but there are some good prospects with opening up of investment banks and insurers, you are effectively giving control to foreigners anyway,” said Kaladher Govindan, head of research at local broker TA Securities.

A single foreign investor is prevented from owning a stake of more than 20 percent in a Malaysian commercial bank while the overall limit is 30 percent for foreign ownership.

Foreign banks already own some sizeable stakes in Malaysian banks and some market players have speculated that foreign banks would seek to raise their stakes.

ANZ <ANZ.AX> owns part of Ambank <AMMB.KL> and Bank of East Asia <0023.HK> has a stake in Affin Holdings <AFIN.KL>, while private equity firm Primus Pacific has a stake in Affin EON Capital <EONP.KL>.

GRADUAL REFORMS FROM NAJIB

Many of the policies announced on Monday, such as raising foreign equity stakes in insurers, are part of a financial sector plan to be implemented by 2010.

The liberalisation came after Najib, who has been in office since April 3, acted last week to end the requirement for Malays to own 30 percent equity stakes in some small sectors of the service economy. [ID:nKLR433815]

The premier has promised to reduce Malaysia’s economic dependence on electronics and commodities exports as these have been hit hard by the global economic downturn.

“Similar to last week’s announcement, this is going to be a slow burn type of process,” said Robert Prior-Wandesforde, economist at HSBC in Singapore.

“I think the combination in particular of the services sector changes and to a more limited extent the financial liberalisation will encourage potential investors to look more closely at Malaysia as an investment destination in time.”

Malaysia, once a preferred destination for foreign direct investment in Asia, has seen others push ahead of it.

At end-2007, the latest year for which data was available, Malaysia had $76.75 billion of FDI stock while Thailand, which lagged it until 2001, had $85.5 billion, according to United Nations figures.

(Additional reporting by Varsha Tickoo and Niluksi Koswanage; Writing by David Chance; Editing by Jan Dahinten)

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