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.