Bank Negara announced yesterday the framework for the creation of investment banks, which involves rationalising the operations of merchant banks, discount houses and stockbroking companies within a single banking group into one entity.
Companies have one year from the start of June to make their submissions for creating investment banks, and foreign banking groups can own up to 49% of domestic investment banks.
“The framework is among the key initiatives to strengthen the capacity and capability of domestic banking groups to contribute towards economic transformation, and position them for the challenges of liberalisation and globalisation,'' Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz said in releasing the central bank's 2004 annual report.
“It also aims to rationalise the discount house industry, and develop a more resilient, competitive and dynamic financial system,'' she said.
Zeti said a discount house that did not have a merchant bank could merge with another discount house to become a merchant bank, and subsequently be transformed into an investment bank when the resultant merchant bank merged with a stockbroking company.
She said integration would enhance efficiency and effectiveness through minimising duplication of resources and overlapping of activities, and would allow the merged entities to leverage on their common infrastructure as well as reap the benefits of synergies and economies of scale.
“It will also strengthen their potential to capitalise on business opportunities, increase their competitive advantage, and leverage on a larger capital base to support their expanded range of activities,'' Zeti said. “Customers will also benefit from wider access to financial services at more cost-effective prices.''
Investment banks will retain all licences they held prior to any rationalisation. They will be able to continue accepting wholesale deposits; conduct lending activities to complement fee-based activities; and provide a wide array of investment banking activities, including financial advisory, underwriting, portfolio management and equity brokerage services.
Bank Negara and the Securities Commission (SC) will co-regulate investment banks, adopting an objective-driven approach to maximise efficiency and effectiveness.
Zeti said Bank Negara would be responsible for the prudential regulation of investment banks to preserve their stability and soundness, and the SC's role would be to promote market integrity and investor protection.
“Both regulatory agencies will have powers to prescribe and enforce regulations, and supervise and conduct inspections on investment banks,'' she said. “The philosophy of regulation will be to balance financial stability and efficiency and competition.''
The minimum capital funds requirement for investment banks that are not part of a banking group is RM500mil, while other investment banks will be required to comply with the RM2bil capital funds requirement on a group basis.
Commenting on the move to allow foreign banking institutions to hold up to 49% in investment banks, Zeti said the liberalisation represented Malaysia's commitment to further liberalise the banking sector.
To minimise the cost of rationalisation, the Government will grant exemption of stamp duty and real property tax for all mergers that create investment banks.
Zeti also said the central bank would consider requests by universal brokers that met a specified criteria to participate in the interbank market.
“The access to the interbank market is to strengthen their capacity and competitiveness in the light of the changing financial landscape,'' she said. That would be subject to prudential limits and regulations to ensure market integrity and the system's stability.
Related stories:Bank Negara relaxes rules for overseas investmentCorporations, foreigners free to negotiate FD rates Portfolio funds being turned into longer term papers: Zeti Formula for foreign bank branches out this year Embracing change to become vibrant banking sector Easier to transfer funds overseas KAF, Abrar to form merchant bank? Framework is a step forwardNew investment limit ‘more meaningful’
Go to www.bnm.gov.my to get The 2004 Bank Negara Malaysia Annual Report (in pdf format).