KL liberalizes rules on banking, exchange control

KL liberalizes rules on banking, exchange control

KUALA LUMPUR (AFP): Malaysia's central bank yesterday designated seven of the country's largest banks to operate foreign currency accounts for exporters in a significant move to liberalize its exchange control rules.

This also followed the decision by the central bank to allow stronger, well-managed banking institutions to conduct new activities under a more liberal two-tier regulatory environment.

Five Malaysian and two foreign-owned banks will from next month allow exporters to maintain export proceeds in foreign currency of up to an overnight balance of $5 million per exporter.

"The move to allow exporters to hold foreign exchange besides the central bank and commercial banks represents the first major revision of Malaysia's exchange control rules since 1987," central bank governor Ahmad Mohd Don said.

The liberalization of Malaysia's exchange control rules was first announced in the 1995 budget presented by Finance Minister Anwar Ibrahim in parliament on October 28.

Rules governing capital flows had to be changed in view of the increasing number of Malaysians now expanding businesses abroad in a big way, officials of Bank Negara, the central bank, said.

Previously, exporters had to repatriate proceeds in the form of ringgit back to Malaysia within a specified period.

Malayan Banking (Maybank), Bank Bumiputra Malaysia Bhd., Public Bank Bhd., Bank of Commerce (M) Bhd., Development and Commercial Bank Bhd. and foreign-owned Hongkong Bank Malaysia Bhd. and OCBC Bank (M) Bhd. have been designated for the purpose.

Finance

The seven banks were chosen based on their strong financial backing under the two-tier system, Ahmad said.

"While the minimum capital requirement is set initially at 500 million ringgit (US$200 million) for the seven banks, they will have to raise their capital to at least one billion over a specified period of time," Ahmad said.

Bank Negara announced in August plans to introduce its so- called two-tier system to allow the better-managed and financially-sound banks more freedom to undertake activities their weaker counterparts were not permitted to do.

The rest of the 30 commercial banks operating in Malaysia could graduate into "Tier-1" once they qualified, Ahmad said. The 12 merchant banks in the country may be classified in the same manner, he said.

The seven "Tier-1" banks account for 54 percent of total number of 1,248 bank branches in the country, 60 percent of total deposits and 58 percent of total loans.

Explaining the 1995 budget proposals on the more relaxed rules on foreign currency borrowing, Ahmad said the threshold on foreign loans requiring approval was now raised from the current level of two million ringgit to five million ringgit.

The aggregate limit of ringgit loans to foreigners for buying property in Malaysia would also be raised to 200,000 ringgit from the present 100,000 ringgit, he said.