Financial System of Malaysia

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 the miscellaneous group (discount houses and representative offices of foreign banks). The banking system is the largest component of the financial system, accounting for more than 70% of the total assets of the financial system. The rapid expansion of the largest group of institutions in banking system grew an average rate 19.7% (1988- 1997) but decline by 5.6% (during Asian Financial crisis) and its recover after years 2000.

1.2.1 Bank Negara Malaysia (BNM)

Bank Negara Malaysia (the Central Bank of Malaysia) was established on 26 January 1959 under the Central Bank of Malaya Ordinance 1958. Objectives of BNM are as follows:

* To issue currency and keep reserves to safeguard the value of the currency

* To act as a banker and financial adviser to the Government

* To promote monetary stability and a sound financial structure

* To influences the credit situation to the advantage of Malaysia

The introduction of the Banking and Financial Institution Act 1989 (BAFIA) in 1 October 1989 extended BNM’s powers for the supervision and regulation of financial institutions and deposit taking institution who are also engaged in the provision of finance and credit.

1.2.2 Commercial Banks

The commercial banks are the largest and most significant providers of funds in...