Malaysian banks to benefit from TPPA, says RAM Ratings

Will Maybank follow suit to raise its base rates?

KUALA LUMPUR: The Trans-Pacific Partnership Agreement (TPPA) will increase Malaysian banks' access to global markets in the long run, says RAM Rating Services Bhd.

The ratings agency said on Wednesday that Malaysia and 11 other countries signed the TPPA, which would also encompass financial services on Feb 4, 2016. 

“We see strategic opportunities for Malaysian banks arising from the TPPA,” says  Joanne Kek, RAM’s financial institutions rating specialist.

The more sizeable trade flows among TPP member countries will result in demand for trade finance services such as letters of credit or guarantees and hedging products, thereby providing Malaysian banks with avenues to expand their customer bases as well as to grow their interest and fee-based revenues. 

“It is likely however, that most of this would materialise over the long term given the current challenging domestic landscape,” Kek said.

The TPPA is expected to take effect in 2018. In the post TPPA era, RAM draws comfort that Bank Negara Malaysia (BNM) will maintain its ability to enforce prudential measures that are critical to the integrity of the domestic financial system. 

RAM Rating said under the TPPA, measures that are fundamental to Malaysia’s financial market structure and development plans – such as terms on licensing and approval, shareholding requirements and developmental financial institutions - have been retained. Meanwhile, provisions for regulatory transparency – where member countries agree to first announce any proposed banking regulation and permit comments on the published document – will build on BNM’s existing market practices, and be beneficial to market participants as a whole.

Given the inherently competitive nature of the Malaysian banking system, the impact of new competition attributable to banks originating from TPP member countries is likely to be muted. 

“We could see locally-incorporated foreign banks from TPP countries benefiting from additional branching capabilities. However, this would still be within the constraints of regulatory reciprocity arrangements,” she said.