Bank Negara allows MDBs and DFIs to issue ringgit bonds

PETALING JAYA: Bank Negara is now allowing multilateral development banks (MDBs) and foreign development financial institutions (DFIs) to issue ringgit-denominated debt securities for funding in Malaysia and provide ringgit financing to resident corporates.

The move to liberalise the foreign exchange policy for international financial institutions is done to support investments in Malaysia.

The central bank expects the action to spur the domestic bond and Islamic securities markets with increased participation from international investors.

Bashar Al Natoor, managing director and global head of Islamic finance at Fitch Ratings, said the move could attract a more diversified group of investors, including those with a preference for high-quality, investment-grade securities.

He added the MDBs and DFIs can provide substantial financing for infrastructure and development projects, driving economic growth.

“The streamlined application process for DFIs and the flexibility for MDBs highlight Malaysia’s commitment to creating an investor-friendly environment.

“This initiative is a pivotal step in enhancing the Malaysian financial market’s depth and attracting a more diversified investor base, which is crucial for sustainable economic growth,” said Bashar.

It could potentially increase Malaysia’s share in the global and regional financial markets. The presence of established MDBs and DFIs could also support investor confidence in the Malaysian debt capital market, he added.

“The integration of MDBs and DFIs into the Malaysian sukuk and bond market not only enhances market credibility but also aligns Malaysia with global financial standards, making it a more competitive player in the region and Organisation of Islamic Cooperation countries.

“Given Malaysia’s leadership in Islamic finance, we anticipate a substantial portion of these issuances to be sukuk, which could solidify Malaysia’s ambition to become a truly active global hub for Islamic finance,” he said.

Bashar stated the entry of MDBs and DFIs, which typically have high credit ratings, is expected to enhance the market’s overall credit profile.

He however warned market volatility could increase with the entry of foreign entities, and local issuers might face heightened competition.