KL opens door to foreign state banks

KL opens door to foreign state banks

KUALA LUMPUR (Reuter): New legislation will allow foreign
state-owned banks to set up in Malaysia for the first time in
years, but a ban on new privately-owned foreign banks will stay,
Deputy Prime Minister Anwar Ibrahim said yesterday.

Among the immediate beneficiaries could be the Bank of China
and the State Bank of India, which operated in Malaysia in the
1960s until the country banned them, analysts said.

Anwar, who is also finance minister, told reporters the
question of allowing foreign state-owned banks would be decided
on a case-by-case basis.

"Yes, but we'll have to look into specific cases," he said
when asked if Bank of China and State Bank of India would be
allowed in.

However, a freeze on letting in additional privately-owned
foreign banks would continue, Anwar said.

He said the government did not want to lift the freeze --
imposed in the late 1970s -- because the 16 existing foreign
banks in the country still controlled a substantial portion of
total deposits.

Anwar said Malaysia was committed to liberalizing its
financial services sector, adding: "I don't think we will go
ahead in such a rush to liberalize. But this will send a very
clear signal to local financial institutions."

The amendments tabled in parliament last week would
"accommodate the establishment or operation of a licensed bank
which is wholly-owned by a foreign government or its agencies in
Malaysia".

Other amendments deal with the implementation of Islamic
banking and adjust the language of the act to take account of new
financial instruments such as derivatives.

Analysts say the Bank of China would likely be the first to
get a license. Others, including the State Bank of India, may
have to wait for some time.

A Chinese embassy spokesman was quoted by local newspapers as
saying the new legislation would allow the Bank of China to open
a Malaysian operation fast.

China put forward its request to open a Bank of China branch
when Anwar visited Beijing in August of 1994.

The bank ceased operations when ties with China were cut at
the height of the Cultural Revolution and during a communist
insurgency in Malaysia in the 1960s.

Malaysia has been moving closer to China in recent years after
ties were restored. The volume of investment and trade between
the two countries has surged.

Malaysia's two largest banks, Maybank and Public Bank, each
have a representative office in China.

As of December 1994, Malaysian investments in China totaled
1.8 billion ringgit (US$708 million). Trade between Malaysia and
China stood at 8.44 billion ringgit ($3.3 billion) last year.

Singapore's two government-linked banks, DBS Bank and Keppel
Bank, are reportedly eager to establish operations in Malaysia.

But Malaysia has been encouraging foreign banks seeking a way
into the country's booming economy to begin operations first in
its international offshore financial center and tax haven on
Labuan island, off the Borneo coast.

Neither of the two Singaporean banks has a Labuan branch.

Some 49 banks have set up offshore operations in Labuan, where
financial institutions do not come under the purview of the
Banking and Financial Institutions Act but are governed by
separate legislation.