BANK AND THE BUSINESS

OF

BANKING IN MALAYSIA

From Latin word “Banco.”The Italian called it banca and theFrench banque. These three words refer to a “bench” or money

changer’s table situated in the busy business street of a city or

seaport. The bankers provided money changing services for the

traders and travelers to exchange foreign coins for local moneyor discounting commercial notes for the merchant as well as

lending money to the borrowers.

Definition of Banking Business

FSA 2013:

The business of accepting various kinds of deposits, collecting

and paying various kinds of bills of exchange (cheques, drafts,

notes, etc.), providing various types of financing, providing thefinancial advisory services and providing any other business that

the government may allow from time to time

Who is the banker?FSA 2013:

Banker – the banks and their staff or agents who are involved in

the provision of banking business.

GFMA 2023 INTERNATIONAL BUSINESS

Who is the customer?

FSA 2013:A bank’s customer is one who uses or participates, has used or

participated or may be intending to use or participate, any

financial service or product offered by the banks.

Banking Industry in Malaysia

Banking sector in Malaysia consist of Commercial banks, Islamic banks

and Investment banks.

The FSA 2013 and IFSA 2013 lay down certain requirements on banking

sector some of which are as follows:

a) Structure – FHC

• Banks must take in the form of Public Limited Companies.

• banks are allowed to offer various financial services under FHC

• FHC can only own one commercial bank, and it cannot own non-

financial companies.

b) Capital

• All banks were required to have a minimum capital of 8% of their Risk-

Weighted Risky Assets.

• -This capital is suppose to be inform of Tier I (50%) and Tier II (50%)

c) Board of Directors

-Guideline on Corporate Governance specified certain requirements for anybody to qualify as a member of bank’s Board of Director some of which

are as follows:

i. The directors must be qualified, honest, professional and competent.

ii. The directors must have ‘clean’ records

iii. No individual director or a small group of individual directors should dominate decision-making of the bank.

iv. The appointment of directors must be approved by BNM.

d) Management

➢ It is important that banks be led by highly qualified, professional and competent management teams.

➢ The BNM’s Guideline on Corporate Governance, together with the FSA 2013 and IFSA 2013 gave the guidance which banks must follow in appointing the CEOs and the top management team.

The Evolution in Banking

Industry

BRICK & MORTAR

ELECTRONIC INTERNET

Competition in Banking Prior to1970s – little competition

1980s – stiff competition

1990s - stiffer competition from

❖ Liberalization & Globalization

2000s – fierce competition

❖ New Washington-made laws❖ Basel III, IV, V????❖ Data Protection Act❖ AMLAT & FA❖ US-Sponsored TPPA

Bank & Malaysian Economy

Data As at 31 July 2016 RM (million) %

Gross Domestic Product (GDP) 540,139 100

Total Liabilities of Banking

System

1,110,340.4 205.6

Banks are the backbone of a country’s economy for the

following reasons:

I. Mobilize funds

I. Mobilize funds

Banks facilitate domestic and international trades. Banks provide various

on-balance sheet and off-balance sheet facilities to support domestic

and international trades.

Banks provide Payment and Settlement System

Domestic and international traders pay for their purchases using

(or receive money for their sales in the forms of) banks’ cheques, drafts,

Telegraphic Transfer, and various forms of electronic and internet fund

transfers provided by the banking system to keep the economy working.

Foreign exchange services

Malaysian exporters who are paid in foreign currencies can

conveniently convert the currencies into ringgit Malaysia at any bank in

Malaysia. Malaysian importers too can convert ringgit into foreign

currencies at Malaysian banks to pay for their import bills.

Act as fiscal agents to government

-Establishment of Bank Pertanian Malaysian Bhd.

-Establishment of EXIM-Bank

-Allocation of Fund to priority sector

Government uses bank to manage economy

➢ Interest rate

➢ Money supply