PETALING JAYA: Relaxing foreign shareholding cap in local banks and issuing new banking licences rather than solely focusing on either options will attract more foreign investments into the banking sector and facilitate growth and expansion in the sector.
Many industry observers are also of the view that Malaysia as a developing nation need to adopt the above options for the robustness of the banking sector to ride on any future financial crisis.
RAM Ratings head of financial institution ratings Promod Dass told StarBiz that lifting the ceiling on foreign equity interest in domestic banks as well as new licences would draw more foreign direct investments into the Malaysian banking sector.
He said these moves could also be an important catalysts for global banking groups to strategically consider Malaysia as a regional hub, adding that Malaysia would appear as a stronger signal in their radar when considering regional expansion.
While a higher level of foreign ownership in local banks and the issuance of new licences would consolidate Malaysia's position as a financial centre, Dass noted the incremental impact on competition in the industry would likely be minimal over the short term.
He said foreign competition was nothing new as locally incorporated foreign banks belonging to prominent banking groups had long been operating locally and already have a significant franchise.
The cap on foreign-equity stake in domestic banks was currently at 30%. Under the financial sector liberalisation announced in 2009, foreign ownership rules were eased by raising the limits of equity ownership to 70% from 49% for investment banks, Islamic banks, insurance companies and takaful operators.
OSK Research on March 4 said a higher foreign-equity limit in local banks was a more effective and viable option to improve their competitiveness compared with issuing new banking licences as the domestic market was “small and already saturated”.
OSK said new foreign banks were unlikely to develop the rural banking landscape in small towns as they were more return-on-equity-oriented and would rather focus on already saturated but high-income urban townships.
It said this in a recent report after Prime Minister Datuk Seri Najib Razak said he was open to the idea of Australia and New Zealand Banking Group (ANZ) increasing its stake in AMMB Holdings Bhd to 49% from about 24%.
Malaysian Rating Corp Bhd vice-president and head of financial institution ratings Anandakumar Jegarasasingam said allowing existing strategic foreign shareholders such as ANZ to increase their stakes to a more meaningful level was definitely a step in the right direction.
“An enlarged stake is likely to facilitate greater knowledge sharing among the two institutions and strengthen the foreign investor's commitment towards Malaysia, possibly even moving towards brand-name sharing.
“Issuing new banking licenses is also important to attract world-class banks and to gradually establish Malaysia as an alternative financial centre in the region. Therefore, the two are complementary and not alternatives,'' he added.
When relaxing the foreign shareholding cap, Anandakumar felt preference should be given to investors who had natural synergies to derive from their Malaysian investments and posses an established track record in value creation. From this perspective, foreign commercial banks such as ANZ are better candidates than institutional funds.
For foreign non-bank institutional funds, he said the Government may need to ascertain the benefits accrued to the Malaysian economy through such shareholding before further increases in shareholdings are allowed.
Bank Negara could not be reached for comment on its views on OSK's statement.
Commenting on the two options, The Association of Banks in Malaysia (ABM) in a statement said: “ The two approaches entail different considerations and derive different results. It would thus be difficult to say which one is better as the prospective entrant would have to make a selection based on the desired outcome.
“A holder of a new commercial banking licence has the flexibility of building the business from scratch and is in full control. The time, process and cost of start-up have to be taken into account. An investor can leverage on an investee bank's existing operations and infrastructure. The down-side depends on the shareholding participation. Its involvement can be quite limited,” it said
A spokesperson from a local bank said the move by Bank Negara to open its shores by issuing licenses was good as it would intensify competition and benefit consumers in terms of pricing and product range.
Reuters recently reported Najib as saying in Australia that he would consider allowing ANZ, Australia's fourth largest bank, to raise its stake in AMMB, the fifth largest banking group among the nine banks here.
The report, citing market talk, also said AMMB chairman Tan Sri Azman Hashim, who holds close to a 17% indirect stake in the bank, was looking to sell the stake.
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