Financial System of Malaysia
1.1 Financial System Structure in Malaysia
The Malaysia financial system is structured into two major categories, Financial Institutions and Financial Market. The Financial Institutions comprise Banking System and Non-bank Financial Intermediaries. The Financial Market in Malaysia comprises four major markets namely: Money & Foreign Exchange Market, Capital Market, Derivatives Market, and Offshore Market.
Chart 1: The Financial System Structure in Malaysia
1.2 Banking System
The banking system consists of Bank Negara Malaysia (Central Bank of Malaysia), banking institution (Commercial banks, finance companies, merchant bank and Islamic banks) and ...view middle of the document...
There are currently 24 commercial banks (excluding Islamic banks) of which 13 are locally incorporated foreign banks. The main functions of commercial banks are to provide:
* Retail banking services such as the acceptance of deposit, granting of loans and advances and financial guarantees
* Trade financing facilities such as letters of credit, discounting of trade bills, shipping guarantees, trust receipts and Banker’s Acceptances
* Treasury services
* Cross border payment services
* Custody services such as safe deposits and share custody
Commercial banks are also authorised to deal in foreign exchange and are the only financial institutions allowed to provide current account facilities.
1.2.3 Finance Companies
Finance companies from the second largest group of deposit-taking institution in Malaysia. Finance companies were initially governed by BNM trough the Finance Companies Act 1969. This was replaced in 1989 with the Banking and Financial Institution Act 189. There are currently 12 finance companies. Finance companied is defined as:
* The business of receiving deposits on deposit account, saving account or other similar account
* The lending of money
* Leasing business or the business of hire purchase
* Any other such business as BNM with the approval of the Minister may prescribe
1.2.4 Merchant Banks (also known as Investment Banks)
Merchant banks emerged in the Malaysian banking scene in the 1970s, making an important milestone in the development of the financial system alongside the corporate development of the country. They play a role in the short-term money market and capital raising activities including financing, specialising in syndication, corporate finance and management advisory services, arranging for the issues and listing of shares, as well as investment portfolio management. There are currently 10 merchant banks in Malaysia
1.2.5 Islamic Banking
In Malaysia, separate Islamic legislation and banking regulations exist side-by-side with those for the conventional banking system. The legal basis for the establishment of Islamic banks was the Islamic Banking Act (IBA), which came into effect on 7 April 1983. The IBA provide BNM with powers to supervise and regulate Islamic banks, similar to the case of other licensed banks.
The banking activities of Islamic banks are based on Syariah Principle (the Islamic principles). The first Islamic bank established was Bank Islam Malaysia Berhad, which commenced operations on July 1983. On 1 October 1999, a second Islamic bank, namely Bank Mualamat Malaysia Berhad was established. Apart from Islamic banks, other financial institutions also offer Islamic banking services through the “Islamic Banking Scheme”. In terms of products, all Islamic banking entities are offering banking products based on the Islamic principle.
1.2.6 Discount Houses
Discount houses began operations in Malaysia since 1963. Generally, the discount houses specialize in...