Malaysian financial system

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Financial Sector Talent Enrichment Programme

The Malaysian Financial System
Jessica Chew
Assistant Governor
Bank Negara Malaysia
21 April 2011
1

Let’s discuss the role of…

the financial system

bank negara malaysia

YOU

2

Landscape of the Malaysian financial system
BANK NEGARA MALAYSIA

SECURITIES COMMISSION
stock
broking
companies

markets
payment &
settlement
systems

Islamic banks

(re)insurance
companies

(re)takaful
operators

insurance
brokers/
adjustors

venture
capital/private
equity

asset/fund
management
companies

offshore
insurance

international
Islamic banks

international
takaful
operators

financial
advisors

financial
planners

dealers/ brokers

offshore fund
management
companies

money brokers

institutions

commercial
banks

development
finance
institutions

factoring &
leasing
companies

money market

investment banks

foreign exchange market

unit trust
companies

LABUAN
FSA

other offshore
financial
institutions
debt securities
market

derivatives
market

equity market

payment system
operators

payment system issuers

clearing systems for
securities / funds / cheques / derivatives

offshore
banking

non-bank
financial
intermediaries

provident &
pension funds

Cagam as

cooperatives

Credit
Guarantee
Corporation

m oney lenders

housing credit
institutions

3

A snapshot of the financial sector…

 Diversified financial system
 Strong financials
 Contributes almost 12% of GDP
 Workforce of 150,000
 Regional presence
 Global leader and centre for Islamic finance
 Largest bond market in South East Asia

The financial sector and the economy



macroeconomy

household
sector



financial
sector



corporate
sector





financial & property markets

5

Financial instability can cause serious breakdown in market functioning, with adverse implications for the broader economy… Consequences of financial instability
 Disruption in financial intermediation
 Credit crunch or lack of financing for new
investments and consumption activities
 Settlement risk in payment systems
 Financial market dislocations

 Widespread unemployment
 Social repercussions

 Weakened local and foreign investor
confidence in financial sector

Asian financial crisis – Malaysia’s experience
Extreme volatility in financial
markets
Downgrading of sovereign rating
from A+ to BBB- (S&P)

Fall in currency value
 Ringgit depreciated by 40% against USD
Fall in stock market value
 Declined by over 70% (Aug ’98)

↓ Corporate sector health
↓ Household wealth
↓ Investment & consumption

Declined economic
activities
GDP contracted 7.5%
Weak regional export
demand

VICIOUS CRISIS
CYCLE

Inefficiency in
intermediation process
Tight liquidity
Sharp loan growth moderation

Pressure on
Banking system
↑ NPLs (2.2%  7.7%)
Capital erosion
Over-concentration of
risk

Putting the cost of a financial crisis into perspective

60

Public costs of financial restructuring (% of GDP)

51

50
40
25

30

13

20

5

10
0
Indonesia
Recapitalization

Thailand
Purchase of NPLs

S. Korea
Interest Costs

MALAYSIA
Liquidity Support

Asian Financial Crisis 1997

1600
1400
1200
1000
800
600
400
200
0

Losses in USD billions

US savings & Japan banking Asia financial
loan crisis (1986-crisis (1990-99) crisis (1998-99)
95)

Bank losses

Other financials

40
35
30
25
20
15
10
5
0
US subprime
crisis (2007present)

% of GDP (RHS)

Comparison of Financial Crises

the total cost of the Asian Financial Crisis
amounted to USD400 billion!!!
What can USD400 billion buy?
11.4 billion
bananas

1.3 billion
movie tickets

20 million
iPhones

250,000
Chanel bags

How long would it take to count to 400 billion?
If you count one number a second...
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