chapter 4 finance companies and investment banks

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FINANCE COMPANIES AND INVESTMENT BANKS CHAPTER 4 snurazani/dis2012

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Transcript of chapter 4 finance companies and investment banks

Page 1: chapter 4   finance companies and investment banks

FINANCE COMPANIES AND INVESTMENT

BANKS

CHAPTER 4

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Under the BAFIA 1989, a “finance company” is defined as “a

person who carries on finance company business”. “Finance

company business” in turn is defined as:

A. “the business of receiving deposits on deposit account,

saving accounts or other similar account;

B. i) the lending of money

ii) leasing business; or

iii) the business of hire-purchase, including that of which is

subject to the Hire-Purchase act 1967; or

C. the lending of money

such other business as the Central Bank with the approval

of the Minister of Finance, may prescribe”.

DEFINITION snurazani/dis2012

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1. Finance companies form the second largest group

of deposit-taking institutions in Malaysia

2. Finance companies are allowed to carry out

transactions in the short and medium-term credit

markets, but not allowed to accept current

account deposits, to deal in gold and foreign

exchange, to grant overdraft and to grant loans

without collateral.

FACTS snurazani/dis2012

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1. Finance companies were initially governed by

BNM through the Finance Companies Act 1969. (former known as Borrowing Companies Act 1960)

2. This enactment safeguard the interest of the

depositors and also strengthened the financial

institutions.

REGULATION snurazani/dis2012

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SOURCES AND USES OF FUNDS/

STRUCTURE OF ASSETS AND LIABILITIES

Sources of funds/

Structure of liabilities

Deposits

- Fixed deposits

- Saving deposits

Interbank money market

Uses of funds /

Structure of assets

To grant loan for

- hire purchase and

leasing of motor vehicles

- agricultural equipments

- industrial and

construction equipments

- other consumer

durables

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STATUTORY REQUIREMENTS

The operations of the finance companies

also have an important bearing on the

monetary and credit situation of the

country. Therefore, finance companies are

also required to observe statutory reserve

and liquidity requirements

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SERVICES

Finance companies specializing in consumption

credit comprise mainly hire purchase finance,

leasing finance, housing loans and personal

loans. Other services include:- 1. Saving and fixed deposits

2. Hire-purchase and Leasing

3. Housing and real estate financing

4. Floor Stocking

5. Factoring Corporate Financing

6. Local money market activities.

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1. Maybank Finance Berhad

2. Eon Finance Berhad

3. Hong Leong Finance Bhd

4. Public Finance Berhad

5. Arab-Malaysian Finance

Berhad

EXAMPLE OF FINANCE COMPANY snurazani/dis2012

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INVESTMENT BANK IN MALAYSIA

Investment bank is introduced by BNM on March

2005- to strengthen Malaysian Fin. Sector

All discount houses were absorbed by the merchant

banks by the end of 2006.

The new framework required the merchant banks,

stock-broking companies and universal brokers to be

transformed into investment banks latest by first

quarter of 2007

Investment banks is licensed to perform investment

banking functions by Securities Commission and

BNM.

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ROLE OF INVESTMENT

BANKS

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Investment banking means the business of providing credit

facilities, providing consultancy and advisory services relating

to corporate and investment matters of making investments on

behalf of customers

The main function – to provide services to corporate sectors

such advisory and management services, stock broking

services, loan syndication, portfolio management and others.

It plays important role – to complement banking system by

providing avenue for individuals and corporations to source

funding for their business activities as well as diversifying their

portfolio investment.

INVESTMENT BANKS?? snurazani/dis2012

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INVESTMENT BANK?

Investment banks help companies and governments and their agencies to

raise money by issuing and selling securities in the primary market.

They assist public and private corporations in raising funds in the capital

markets (both equity and debt) as well as in providing strategic advisory

services for mergers, acquisitions and other types of financial transactions.

The investment banking industry plays an important intermediation function

in all market economies.

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INVESTMENT BANKS IN MALAYSIA….

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SOURCES AND USES OF FUNDS

1. Deposits from customers

2. Deposits and placement of

banks and other financial

institutions

3. Balance due to clients and

brokers

4. Borrowing

1. Loan, Advances And Finance

2. Deposit Placement With Financial

Institutions

3. Security Held For Trading

4. Security Held For Maturity

5. Security Available For Sale

6. Statutory Deposit With BNM

7. Investment Into Subsidiary

Companies

8. Property, Plant And Equipment.

SOURCES OF FUNDS USES OF FUNDS

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PRODUCTS AND

SERVICES

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CORPORATE FINANCIAL & ADVISORY

The management and underwriting of public and

private securities.

Identification of investors for new ventures or for the

expansion of established business.

Handling of public and private companies‟ mergers,

acquisitions and restructuring.

Undertaking of industry research or project feasibility

studies.

Undertaking of share valuations for various purposes.

Private placements of debt and equity.

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INFO: UNDERWRITING

Underwriting - guarantee that all the issued shares will

be sold.

If there is any portion that is unsold, the underwriting

institutions themselves will take it up.

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PORTFOLIO AND INVESTMENT SERVICES

Nominee and registration services including

custodianship of all types of securities.

Trading of stocks, shares, Government bonds and

money market securities.

Management of corporate and private portfolio, trusts

and pension funds.

Share register and share registration services.

Management of investment portfolios.

Management of investment and unit trusts and

property trust funds.

Fund management funds.

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CORPORATE BANKING

Management of syndicated and consortium facilities

in local and foreign currencies.

Provision of trade financing facilities.

Syndication and provision of guarantee facilities.

Management and underwriting of commercial papers.

Provision and arrangement of short, medium and

long-term loans in Malaysia and overseas.

Provision of bridging finance and project finance.

Provision of factoring and leasing facilities.

Capital market issues.

Block discounting of hire-purchase agreements.

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INFO: SYNDICATED LOAN

When the value of loan required by a company is too

large, it is possible that the company may be unable to

obtain it from one single financial institutions.

Investment bank will help to arrange the loan from

several financial institutions. Such loans are called

syndicated loan.

The aim of the syndicated loan is to reduce risks and

exposure of each of the syndicate participants.

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FUND-BASED ACTIVITIES

Banking Services

Acceptance of call and fixed deposits.

Term loans

Investment banks also offer a number of other

services which are provided by commercial banks.

Investment banks cannot accept current or demand

deposits.

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