Friday November 27, 2009
New banking laws for swift action during future economic crisis
PETALING JAYA: The new Central Bank of Malaysia Act 2009, which repeals one of the oldest laws in Malaysia, the Central Bank of Malaysia Act 1958, is to strengthen Malaysia’s resilience to financial crises in a globalised environment.
According to a Bank Negara statement, the new Act provides comprehensive provisions to ensure swift and orderly resolution in the event of an imminent financial crisis to reduce its impact and costs to the domestic economy and to sustain public confidence.
“Provisions have been made for heightened surveillance, pre-emptive actions and resolution powers including the extension of liquidity assistance to entities not regulated by the central bank but which pose risks to the overall financial stability,” it said.
The new Act also provides for Bank Negara to have oversight over the money and foreign exchange markets, payment systems and for enhanced arrangements for cooperation with other supervisory authorities.
The exercise of the powers for the purposes of achieving financial stability shall be decided by the Financial Stability Executive Committee (FSEC) established under the Act.
The FSEC will comprise the governor, a deputy governor and at least three other members to be appointed on the recommendation of the bank’s board of directors.
Meanwhile, monetary policies, which are to maintain price stability while giving due regard to developments in the economy, would be formulated and implemented autonomously by a Monetary Policy Committee (MPC) established under the Act.
The new Act clearly outlines that the MPC would comprise seven to 11 members, including the governor and deputy governors, who will meet no less than six times a year.
“The members of the MPC must be persons of probity, competence and sound judgment with relevant expertise and experience,” the new Act states.
Other extensive safeguards of the new Act prescribe that monetary policy would only be formulated at a formally convened meeting of the MPC with a quorum of not less than two-thirds of its members.
As part of its efforts to enhance the governance framework to be more robust, the Board Governance Committee, the Board Audit Committee and the Board Risk Committee, consisting only of non-executive directors, would be established to assist Bank Negara’s board of directors in its oversight role of the management and performance review of the bank.
Consistent with the goal to promote Malaysia as an international centre for Islamic finance, the Act also gives due recognition to both the Islamic and conventional financial systems operating in parallel in Malaysia.
The new Act also provides for an enhanced role of the Syariah Advisory Council on Islamic Finance (SAC) whose members are appointed by the Yang di-Pertuan Agong on the advice of the finance minister after consultation with the bank.
The SAC “shall be the authority for the ascertainment of Islamic law for the purposes of Islamic financial business”, the new Act states.
Key changes under the new Act:
1. A more robust governance framework
2. Comprehensive provisions to ensure swift and orderly resolution in the event of an imminent financial crisis
3. Heightened surveillance, pre-emptive actions and resolution powers
4. Central bank to have oversight over the money and foreign exchange markets, payment systems and for enhanced arrangements for cooperation with other supervisory authorities
5. Monetary policy is to be formulated and implemented autonomously by a Monetary Policy 6. Committee established under the Act
6. Due recognition to both the Islamic and conventional financial systems operating in parallel in Malaysia
http://biz.thestar.com.my/news/story.asp?file=/2009/11/27/business/5194496&sec=business
Friday, November 27, 2009
Saturday, November 14, 2009
Overseas Banks in Malaysia
1. OCBC
Oversea-Chinese Banking Corporation Berhad (OCBC Bank) was born out of the Great Depression with the merger of three banks in 1932 - The Chinese Commercial Bank Limited (1912), the Ho Hong Bank Limited (1917) and the Oversea-Chinese Bank Limited (1919). OCBC Bank flourished to become one of the largest banks in Singapore and Malaysia. OCBC Bank was also the only foreign bank to have branches in China in the 1950s - its long history in China dates back to 1925 when it opened its first branch in Xiamen, the first Singapore bank to do so.
The Ho Hong Bank was a Malaysian bank established in (1917 - 1932) to provide banking services that prior to 1912 were solely delivered by European Banks. The Ho Hong Bank was founded by Lim Peng Siang, Dr. Lim Boon Keng and Seow Poh Leng all of whom were, before that time, officers of The Chinese Commercial Bank.
2. UOB
United Overseas Bank (UOB) was founded on 6 August 1935 by Sarawak-born Datuk Wee Kheng Chiang together with 6 other Chinese businessmen, under the name of United Chinese Bank (UCB). Through a series of acquisitions, UOB is now a leading bank in Asia.
In 1965, UCB changed name to United Overseas Bank and opened its first overseas branch in Hong Kong. In 1971, UOB acquired a majority interest in Chung Khiaw Bank Limited and its branch network in Singapore, Malaysia and Hong Kong, and introduced its red five-barred logo still in use today. In 1973, it acquired 100% shareholding in Lee Wah Bank Limited and its branch network in Singapore and Malaysia. UOB subsequently acquired Far Eastern Bank Limited in 1984, and Industrial & Commercial Bank Limited in 1987. Chung Khiaw Bank became a wholly-owned banking subsidiary of UOB in 1988. UOB acquired Westmont Bank in Philippines and Radanasin Bank in Thailand in 1999. In 2001, UOB acquired 100% shareholding in Overseas Union Bank Limited, and ICB in 2002. In 2005, UOB acquired a controlling stake of 53% in PT Bank Buana in Indonesia and renamed the bank to PT Bank UOB Buana (UOB Buana) in 2007.
Lee Wah Bank was incorporated in Singapore in 1920 and opened its first Malaysian branch in 1956.
3. Standard Chartered
The Standard Chartered Group was formed in 1969 through a merger of two banks. The Standard Bank of British South Africa founded in 1863, and the Chartered Bank of India, Australia and China (The Chartered Bank). The Chartered Bank was founded in 1851/1853 following the grant of a Royal Charter from Queen Victoria. It opened its first branches in 1858 in Calcutta and Bombay and soon after in Shanghai. The Standard Chartered Bank first began operations in Malaysia in Penang in 1875. The Bank has evolved from a bank supporting the trading community to a one-stop financial centre today, offering a full range of banking products and services in retail and wholesale banking. It has three core businesses namely Consumer Banking, Corporate and Institutional Banking and Treasury.
4. HSBC
The Hong Kong and Shanghai Banking Corporation (HSBC) was established in Hong Kong in March 1865 to finance the growing trade between China and Europe, with an office opened in Shanghai during April of that year. HSBC's presence in Malaysia dates back to more than 125 years. The Hongkong and Shanghai Banking Corporation Limited established its first branch in Malaysia in 1884, on the island of Penang, with privileges to issue currency notes. Thereafter, it opened branches in Ipoh in 1909 followed by branches in Malacca, Johore Bahru and Kuala Lumpur in 1910. The Kota Bharu branch was opened in 1912. By 1959, The Hongkong and Shanghai Banking Corporation Limited had embarked on a programme of acquisitions - including The Mercantile Bank and alliances and has network of 40 branches throughout Malaysia. Through the acquisition of The Mercantile Bank, which started operations in Malaysia in 1860, HSBC is indirectly the oldest bank in Malaysia.
The Mercantile Bank of India, London and China was established in October 1853 in Bombay (now Mumbai), but its headquarters moved to London in 1858.
5. RBS
The Royal Bank of Scotland was founded in 1727, with the first premises in the Old Town of Edinburgh, and has become one of the largest financial services groups in the world. During the 1900’s, it acquired several English banks including Williams Deacon's Bank, Glyn, Mills & Co and Drummonds Bank. In 1969, it merged with National Commercial Bank of Scotland to achieve a greater market share in Scotland. In 2000, it acquired National Westminster Bank (NatWest) in the biggest banking takeover ever in Britain and so inherited a rich heritage covering more than 200 banks that had made up NatWest. In 2007, in the biggest takeover in banking history, it led a unique consortium to acquire the Dutch bank ABN Amro.
ABN Amro was a prominent international bank, which traces its origins to Nederlandsche Handel-Maatschappij or Netherlands Trading Society (NTS) which was founded on the initiative of the Merchant Monarch, King Willem I, in the Hague on 29 March 1824. The object was to resuscitate national trade and industry in the wake of the period of French rule (1795-1813). NTS was an import/export company set up to expand existing trade relations and open up new channels. The growing concentration of banking in the Netherlands reached a climax in October 1964 when a merger between two of the Big Four Dutch bank, NTS and Twentsche Bank merged to become Algemene Bank Nederland (ABN Bank). A very important acquisition occurred in 1979 with ABN Bank’s take-over of Chicago-based LaSalle National Bank. This take-over laid the foundation for what would become the second home market of the bank. Founded in 1927 as National Builders Bank of Chicago, LaSalle Bank gave ABN its first firm foothold in the US Midwest. In 1990, Exchange Bancorp of Chicago was incorporated in LaSalle.
ABN Bank and Amro Bank decided in mid-1990 to combined forces, and the merger was completed rapidly after ABN AMRO Holding N.V. made a successful bid for the shares of both banks in August 1990. On 22 September 1991, the new ABN AMRO Bank was established, with its head office in Amsterdam.
Twentsche Bankvereeniging (TB) was established in Amsterdam on 24 June 1861 targeting the textile industry in the Twente region in the eastern part of the Netherlands and on financing textile exports to the Dutch East Indies. TB's first major post-war takeover was Van Ranzow's Bank in Arnhem in 1950, followed in 1952 by Van Mierlo en Zoon in Breda. The latter, however, continued to trade under its own name.
Amsterdam-Rotterdam Bank (Amro Bank) was created in 1964 between the merger of Amsterdamsche Bank (AB) and Rotterdamsche Bank (RB), after plans for a merger in 1939 were shelved due to the Second World War.
Rotterdamsche Bank (RB) was founded in Rotterdam on 16 May 1863 by a group of businessmen and bankers. On 19 April 1911, RB merged with Rotterdam's Deposito- en Administratie Bank (est. 1900) to form Rotterdamsche Bankvereeniging (Robaver).
Amsterdamsche Bank (AB) was established in Amsterdam on 5 December, 1871 by a group of mainly German banks led by Bank für Handel und Industrie of Darmstadt. Amsterdamsche Bank and Incasso-Bank signed an agreement in October 1947 under which the two banks merged. This considerably expanded AB’s branch network.
References:
http://www.rbs.com/about-rbs/g2/heritage/our-story/history-highlights.ashx
Oversea-Chinese Banking Corporation Berhad (OCBC Bank) was born out of the Great Depression with the merger of three banks in 1932 - The Chinese Commercial Bank Limited (1912), the Ho Hong Bank Limited (1917) and the Oversea-Chinese Bank Limited (1919). OCBC Bank flourished to become one of the largest banks in Singapore and Malaysia. OCBC Bank was also the only foreign bank to have branches in China in the 1950s - its long history in China dates back to 1925 when it opened its first branch in Xiamen, the first Singapore bank to do so.
The Ho Hong Bank was a Malaysian bank established in (1917 - 1932) to provide banking services that prior to 1912 were solely delivered by European Banks. The Ho Hong Bank was founded by Lim Peng Siang, Dr. Lim Boon Keng and Seow Poh Leng all of whom were, before that time, officers of The Chinese Commercial Bank.
2. UOB
United Overseas Bank (UOB) was founded on 6 August 1935 by Sarawak-born Datuk Wee Kheng Chiang together with 6 other Chinese businessmen, under the name of United Chinese Bank (UCB). Through a series of acquisitions, UOB is now a leading bank in Asia.
In 1965, UCB changed name to United Overseas Bank and opened its first overseas branch in Hong Kong. In 1971, UOB acquired a majority interest in Chung Khiaw Bank Limited and its branch network in Singapore, Malaysia and Hong Kong, and introduced its red five-barred logo still in use today. In 1973, it acquired 100% shareholding in Lee Wah Bank Limited and its branch network in Singapore and Malaysia. UOB subsequently acquired Far Eastern Bank Limited in 1984, and Industrial & Commercial Bank Limited in 1987. Chung Khiaw Bank became a wholly-owned banking subsidiary of UOB in 1988. UOB acquired Westmont Bank in Philippines and Radanasin Bank in Thailand in 1999. In 2001, UOB acquired 100% shareholding in Overseas Union Bank Limited, and ICB in 2002. In 2005, UOB acquired a controlling stake of 53% in PT Bank Buana in Indonesia and renamed the bank to PT Bank UOB Buana (UOB Buana) in 2007.
Lee Wah Bank was incorporated in Singapore in 1920 and opened its first Malaysian branch in 1956.
3. Standard Chartered
The Standard Chartered Group was formed in 1969 through a merger of two banks. The Standard Bank of British South Africa founded in 1863, and the Chartered Bank of India, Australia and China (The Chartered Bank). The Chartered Bank was founded in 1851/1853 following the grant of a Royal Charter from Queen Victoria. It opened its first branches in 1858 in Calcutta and Bombay and soon after in Shanghai. The Standard Chartered Bank first began operations in Malaysia in Penang in 1875. The Bank has evolved from a bank supporting the trading community to a one-stop financial centre today, offering a full range of banking products and services in retail and wholesale banking. It has three core businesses namely Consumer Banking, Corporate and Institutional Banking and Treasury.
4. HSBC
The Hong Kong and Shanghai Banking Corporation (HSBC) was established in Hong Kong in March 1865 to finance the growing trade between China and Europe, with an office opened in Shanghai during April of that year. HSBC's presence in Malaysia dates back to more than 125 years. The Hongkong and Shanghai Banking Corporation Limited established its first branch in Malaysia in 1884, on the island of Penang, with privileges to issue currency notes. Thereafter, it opened branches in Ipoh in 1909 followed by branches in Malacca, Johore Bahru and Kuala Lumpur in 1910. The Kota Bharu branch was opened in 1912. By 1959, The Hongkong and Shanghai Banking Corporation Limited had embarked on a programme of acquisitions - including The Mercantile Bank and alliances and has network of 40 branches throughout Malaysia. Through the acquisition of The Mercantile Bank, which started operations in Malaysia in 1860, HSBC is indirectly the oldest bank in Malaysia.
The Mercantile Bank of India, London and China was established in October 1853 in Bombay (now Mumbai), but its headquarters moved to London in 1858.
5. RBS
The Royal Bank of Scotland was founded in 1727, with the first premises in the Old Town of Edinburgh, and has become one of the largest financial services groups in the world. During the 1900’s, it acquired several English banks including Williams Deacon's Bank, Glyn, Mills & Co and Drummonds Bank. In 1969, it merged with National Commercial Bank of Scotland to achieve a greater market share in Scotland. In 2000, it acquired National Westminster Bank (NatWest) in the biggest banking takeover ever in Britain and so inherited a rich heritage covering more than 200 banks that had made up NatWest. In 2007, in the biggest takeover in banking history, it led a unique consortium to acquire the Dutch bank ABN Amro.
ABN Amro was a prominent international bank, which traces its origins to Nederlandsche Handel-Maatschappij or Netherlands Trading Society (NTS) which was founded on the initiative of the Merchant Monarch, King Willem I, in the Hague on 29 March 1824. The object was to resuscitate national trade and industry in the wake of the period of French rule (1795-1813). NTS was an import/export company set up to expand existing trade relations and open up new channels. The growing concentration of banking in the Netherlands reached a climax in October 1964 when a merger between two of the Big Four Dutch bank, NTS and Twentsche Bank merged to become Algemene Bank Nederland (ABN Bank). A very important acquisition occurred in 1979 with ABN Bank’s take-over of Chicago-based LaSalle National Bank. This take-over laid the foundation for what would become the second home market of the bank. Founded in 1927 as National Builders Bank of Chicago, LaSalle Bank gave ABN its first firm foothold in the US Midwest. In 1990, Exchange Bancorp of Chicago was incorporated in LaSalle.
ABN Bank and Amro Bank decided in mid-1990 to combined forces, and the merger was completed rapidly after ABN AMRO Holding N.V. made a successful bid for the shares of both banks in August 1990. On 22 September 1991, the new ABN AMRO Bank was established, with its head office in Amsterdam.
Twentsche Bankvereeniging (TB) was established in Amsterdam on 24 June 1861 targeting the textile industry in the Twente region in the eastern part of the Netherlands and on financing textile exports to the Dutch East Indies. TB's first major post-war takeover was Van Ranzow's Bank in Arnhem in 1950, followed in 1952 by Van Mierlo en Zoon in Breda. The latter, however, continued to trade under its own name.
Amsterdam-Rotterdam Bank (Amro Bank) was created in 1964 between the merger of Amsterdamsche Bank (AB) and Rotterdamsche Bank (RB), after plans for a merger in 1939 were shelved due to the Second World War.
Rotterdamsche Bank (RB) was founded in Rotterdam on 16 May 1863 by a group of businessmen and bankers. On 19 April 1911, RB merged with Rotterdam's Deposito- en Administratie Bank (est. 1900) to form Rotterdamsche Bankvereeniging (Robaver).
Amsterdamsche Bank (AB) was established in Amsterdam on 5 December, 1871 by a group of mainly German banks led by Bank für Handel und Industrie of Darmstadt. Amsterdamsche Bank and Incasso-Bank signed an agreement in October 1947 under which the two banks merged. This considerably expanded AB’s branch network.
References:
http://www.rbs.com/about-rbs/g2/heritage/our-story/history-highlights.ashx
Malaysian Achor Banks of 1999
In 1999, emerging from the Asian Financial Crisis and other financial issues, and in line with the Government’s plan to consolidate the banking and finance industry, the Government announced the following 10 anchor banks:
1. Malayan Banking
2. Bumiputra-Commerce Bank
3. Public Bank
4. RHB Bank
5. Arab-Malaysian Bank
6. EON Bank
7. Multi-Purpose Bank
8. Hong Leong Bank
9. Affin Bank
10. Southern Bank
Maybank
Malayan Banking, or Maybank, is the largest financial services group in Malaysia boasting group assets worth RM301 billion (USD$87 billion), placing it among the top 120 banks worldwide. It has the largest network of branches with over 374 branches and owns the largest ATM network in Malaysia with over 900 ATMs. Todate, Maybank has more than 4 million deposit accounts and more than half a million loan accounts.
In August 2000, Maybank announced the merger of the commercial banking business under Phileo Allied Bank and the securities business under Phileo Securities with that of Maybank and Mayban Securities respectively.
On 1 January 2001, Maybank also announced the merger of The Pacific Bank with Maybank.
Malayan Banking was formed by Malaysian business tycoon Khoo Teck Puat with a few partners in Kuala Lumpur. It was incorporated on 31 May 1960 and commenced operations on 12 September 1960. The bank grew rapidly to more than 150 branches within 3 years, but in 1965, Khoo Teck Puat was ousted from Maybank by the Government of Malaysia under the then Deputy Prime Minister Tun Abdul Razak's administration on the pretext of pumping the bank's money into his own private firm in Singapore. The bank formed its own investment banking subsidiary, Aseambankers Malaysia Berhad (Asian & Euro-American Merchant Banking (Malaysia) Berhad) in 1973. In 1993, the bank acquired a local insurance company, Safety Life & General insurance Sdn Bhd, and relaunched it as Mayban Life Assurance to focus solely in bankassurance. In 2005, the insurance arm acquired MNI Insurance and Takaful Nasional, and subsequently rebranded its insurance companies to Eitqa in 2008.
The Pacific Bank was established in 1919 and was listed on the KLSE in August 1990 …
PhileoAllied Bank ….
CIMB Bank
CIMB Bank, the consumer banking are of CIMB Group, was rebranded to its current name in 2006 to reflect its group restructuring and the completion of the merger between Bumiputra-Commerce Bank and Southern Bank Berhad.
Bumiputra-Commerce Bank (BCB) was formed in October 1999 through the merger of Bank of Commerce (BoC) and Bumiputra Bank Malaysia Berhad (BBMB) resulting in the biggest merger in Malaysia's banking history.
Bank Bumiputra was established in 1965 in line with government initiatives to increase the Bumiputra participation in the national economy. By the 1980s, it had become the largest bank in the country in terms of assets and was the first domestic bank to have operations in New York, London, Tokyo, Bahrain and Hong Kong. In 1982, it was listed as the largest bank in Southeast Asia by Asian Finance magazine.
The history of Bank of Commerce goes back to November 1979 when Bian Chiang Bank was renamed Bank of Commerce on the acquisition by the UMNO-owned Fleet Group and co-shareholder JP Morgan. Bian Chiang Bank was established in 194 in Kuching by Wee Kheng Chiang, focusing mainly in business financing and the issuance of bills of exchange.
In November 1991, the acquisition of United Asian Bank (UAB) by Bank of Commerce was the starting point for the significant expansion of this nascent force in banking. With the acquisition, the Bank of Commerce branch network increased almost fourfold, complementing its established reputation in the corporate lending market.
United Asian Bank (UAB) was established in Kuala Lumpur in 1972 as a result of the merger of three Indian-owned banks; Indian Overseas Bank Ltd, Indian Bank Ltd and United Commercial Bank Ltd. UAB started as a joint-venture in banking between Malaysia and India, taking over the operations of the Malaysian branches of the Indian banks in 1972.
Southern Bank was founded as Southern Banking Limited in 1965 by the late Tan Sri Saw Seng Kew in Penang and quickly expanded to other parts of the country. In 1978, the bank set up operations in Kuala Lumpur and became recognised as an important player in wealth management products, credit cards and SME lending. The bank was the first in the country to set up the MEPS / ATM system used throughout Malaysia today. Southern Bank was one of the anchor banks announced in 1999, in which Southern Bank acquired Ban Hin Lee Bank. Ban Hin Lee Bank (BHLB) was also established in Penang. Formed in 1935 by “Towkay” Yeap Chor Ee, it originally focused on serving local businessmen in their trading and merchant activities. In the 1960's, it branched into real estate and house financing eventually reaching throughout Malaysia and Singapore from its headquarters in Penang, though it mainly served the Penang region.
RHB Bank
RHB Bank was formed in 1997 as a result of the merger between DCB Bank and Kwong Yik Bank. In line with the government’s plan to consolidate the banking industry, the merger between Sime Bank and RHB Bank was finalized in 1999 to form the RHB Banking Group, resulting in the third largest banking group in Malaysia. In 2003, the RHB Banking Group completed its merger with Bank Utama, offering its customers a wider network of 200 branches nationwide, 470 ATMs and new products and services, such as internet banking.
DCB Bank was established in 1966 as Development and Commercial Bank (D&C Bank) by the late Tun Sir H. S. Lee, a well known entrepreneur and the first Minister of Finance for the country. D&C Bank became the 5th largest Malaysian bank by the late 80’s. In 1990, a majority shareholding of the bank was sold to Abdul Rashid Hussain, the owner of the then largest stock brokerage firm, Rashid Hussain Bhd which was founded in 1982.
Kwong Yik Bank was established in 1913 with a start-up capital of RM300,000 at the Old Market Square in Kuala Lumpur, making it Malaya’s first local bank . In 1996, Abdul Rashid Hussain acquired a 75% stake in Kwong Yik Bank at RM2.3bil and its merger with DCB Bank in 1997 formed the RHB Bank, making it the country’s biggest ever banking merger at that time. 1999, he bought the troubled Sime Bank for RM852.2mil.
Sime Bank was initially set up in 1959 as the United Malayan Banking Corporation (UMBC) by a group of businessmen, led by Mr Chang Ming Thien, a prominent figure in the rubber industry in Malaya and Singapore. The bank was officially declared open by the then Prime Minister, Tunku Abdul Rahman in 1960 as the first commercial bank to be established in independent Malaya. In 1996, UMBC became part of the Sime Darby Group and was renamed Sime Bank Berhad.
Bank Utama (Malaysia) Berhad was first incorporated in 1976 in Sarawak as the first bumiputra-owned bank.
Public Bank
Public Bank merged with Hock Hua Bank in 1999 as part of the government’s merger programme for domestic banking institutions. With this merger, Public Bank saw an increase in its domestic branch network to 381 branches in Malaysia from 345 branches, comprising 213 commercial bank branches and 168 finance company branches.
Public Bank was founded in 1966 by Tan Sri Teh Hong Piow, who began his banking career in 1950 as a bank clerk in Overseas-Chinese Banking Corporation Ltd. and rose in rank to officer within five years. He joined Malayan Banking Berhad as Manager in 1960, and later in 1964, was promoted to the position of General Manager at the age of 34. He left Malayan Banking in 1966 to set up Public Bank. Public Bank is the largest domestic bank in Malaysia by market capitalisation and the third largest by balance sheet. The Public Bank Group employs close to 16,000 people in 2009 – with about 90% of the staff in Malaysia and the remaining spread across Hong Kong and the People’s Republic of China, Cambodia, Vietnam, Laos and Sri Lanka.
Hock Hua Bank was founded in 1952 and became Sarawak’s regional bank. With an established customer base in the state of Sarawak especially in the retail consumer and commercial sectors, Hock Hua Bank complemented and enhanced Public Bank’s similar focus and specialization in the retail and commercial segment.
AmBank
Arab-Malaysian Bank Berhad commenced operations on 1 August 1994, when the AMMB Group acquired the Malaysian operations of Security Pacific Asian Bank Limited from Bank of America (Asia) Limited. On 1 June 2005, the merger of AmBank and AmFinance took place to create AmBank (M) Berhad, the sixth largest domestic bank in the country. On 18 May 2007, AmBank Group commemorated the entry of Australia and New Zealand Banking Group Limited (ANZ Bank) as its strategic partner and major investor.
The AMMB Group began its finance business in 1977, when the Group acquired a 70.0% shareholding in Malaysian Industrial Finance Company Limited (“MIFCL”), which was later renamed Arab-Malaysian Finance Berhad (“AMFB”). In 1990, AMFB acquired First Malaysia Finance Berhad. In line with the Government’s plan to consolidate the industry, AMFB acquired Abrar Finance Berhad in 1998, and MBf Finance Berhad in 2001.
The AMMB Group traces its roots to Arab-Malaysian Development Bank Berhad which was incorporated on 5 August 1975 as a joint venture between Malaysian Industrial Development Finance Berhad, with a 55.0% shareholding, Arab Investments for Asia (Kuwait) with a 33.0% shareholding, and the National Commercial Bank (Saudi Arabia) holding 12.0%.
Mbf Finance was a major finance institution in the country which was built up by the late Loy Hean Heong from the time he purchased Malaysia Borneo Finance Corp. in 1974.
Hong Leong Bank
Hong Leong Bank merged with Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad in 2000 as part of the government’s directive for the domestic banking institutions consolidation programme. In 2004, the finance business of Hong Leong Finance Berhad was acquired by Hong Leong Bank. Hong Leong Finance was operating in Malaysia since 1968.
Hong Leong Bank started its humble beginnings in 1905 in Kuching, Sarawak, Malaysia under the name of Kwong Lee Mortgage & Remittance Company and later in 1934, incorporated as Kwong Lee Bank Limited. On 2 February 1983, it changed its name to Malayan United Bank Berhad after the acquisition by Khoo Kay Peng of Malayan Industries Bhd, a former OCBC banker. On 26 June 1989, it changed name to MUI Bank Berhad, operating in 35 branches. In January 1994, the Hong Leong Group acquired MUI Bank and assumed its present name. In that the same year in October, Hong Leong Bank was listed on the Kuala Lumpur Stock Exchange.
Wah Tat Bank started business as Wah Tat Money Exchange and Remittances in Sibu, Sarawak during the Rajah Brooke’s reign in 1929.
EON Bank
EON Bank as of 2008 has a branch network of 136 branches and over 5,000 employees serving a customer base of more than 1,000,000. Its total assets stood at RM41,563 billion as at 30 June 2008.
Kong Ming Bank was founded by the late Datuk Sri Ling Beng Sung in Sarawak in 1965, serving mostly the Sarawak region. In 1991, the bank was acquired by the Edaran Otomobil Nasional (EON) and assumed its present name. EON was established to distribute Malaysia's first national car, Proton. In 2006?, Hong Kong-based principal investment company Primus Pacific Partners, acquired a 20% stake in EON Capital Bhd to enable it to exploit the opportunities in the Malaysian financial sector.
Oriental Bank was founded in 1937…
Affin Bank
Affin Bank commenced operations using its current name in January 2001 following a merger between the former Perwira Affin Bank Berhad and BSN Commercial (M) Berhad in August 2000. In June 2005, pursuant to the amendment to the BAFIA 1989, it again merged with the former Affin-ACF Finance Berhad. To date, Affin Bank has a network of 82 branches nationwide.
Affin Bank was established incorporated in 1975 under the name Perwira Habib Bank Malaysia Berhad. It started as a joint venture between several Malaysian parties including LTAT, Syarikat Permodalan Kebangsaan Berhad, and Habib Bank Limited of Pakistan. In 1991, the Bank embarked on a capital restructuring resulting in the emergence of Affin Holdings Berhad as its largest shareholder in 1992. It later changed its name to Perwira Affin Bank Berhad.
BSN Commercial Bank was incorporated in Malaysia on 16 July 1975 under the name of Bank Buruh (Malaysia) Berhad. It changed its name to BSN Commercial Bank after it was acquired by Bank Simpanan Nasional (BSN) from bankrupt Central Co-operative Bank (CCB) on 11 March 1995.
Alliance Bank
Alliance Financial Group (formerly known as Alliance Banking Group) was founded in early 2001 through a consolidation of 7 financial institutions, in which Multi Purpose Bank Berhad anchored the merger. Besides Multi-Purpose Bank Bhd, the other institutions were International Bank Malaysia Bhd, Bolton Finance Bhd, Bumiputra Merchant Bankers Bhd, Sabah Bank Bhd, Sabah Finance Bhd and Amanah Merchant Bank Bhd.
Multi Purpose Bank first commenced operations in 1958 as Banque de L'indochine, and later changed its name to Banque Indosuez in 1975. In 1982, Banque Indosuez was incorporated into the Malaysian French Bank Berhad. With the corporate restructuring resulting in a majority stake in the bank by Multi-Purpose Capital Holdings Berhad, it was renamed as Multi-Purpose Bank in 1996.
Sabah Bank was incorporated by the State Government of Sabah on 9 August 1977 under the name of Bank Pembangunan Sabah Berhad, as a public limited company under the Companies Act, 1965.
==
Banking Groups announced by Bank Negara
1.Malayan Banking Bhd (MayBank) :
Mayban Finance Bhd, Aseambankers Malaysia Bhd, PhileoAllied Bank Bhd, Pacific Bank Bhd, Sime Finance Bhd and Kewangan Bersatu Bhd
2. The Bumiputra – Commerce Bank Bhd
Bumiputra-Commerce Finance Bhd and Commerce International Merchant Bankers Bhd
3. RHB Bank Bhd
RHB Sakura Merchant Bankers Bhd, Delta Finance Bhd and Interfinance Bhd
4. Public Bank
Public Bank Bhd, Public Finance Bhd, Hock Hua Bank Bhd, Advance Finance Bhd and Sime Merchant Bankers Bhd
5. The Arab Malaysian Bank Bhd (AMMB)
Arab Malaysian Finance Bhd, Arab Malaysian Merchant Bank Bhd, Bank Utama Malaysia Bhd and Utama Merchant Bankers Bhd
6. Hong Leong Bank Bhd
Hong Leong Finance Bhd, Wah Tat Bank Bhd and Credit Corporation Malaysia Bhd
7. Perwira Affin Bank Bhd
Affin Finance Bhd, Perwira Affin Merchant Bankers Bhd, BSN Commercial Bank Bhd, BSN Finance Bhd and BSN Merchant Bank Bhd
8. Multi-Purpose Bank Bhd
International Bank Malaysia Bhd, Sabah Bank Berhad, MBf Finance Bhd, Bolton Finance Bhd, Sabah Finance Bhd, Bumiputra Merchant Bankers Bhd and Amanah Merchant Bank Bhd
9. EON Bank Bhd
EON Finance Bhd, Oriental Bank Bhd, City Finance Bhd, Perkasa Finance Bhd and Malaysian International Merchant Bankers Bhd
10. Southern Bank Bhd
Ban Hin Lee Bank Bhd, Cempaka Finance Bhd, United Merchant Finance Bhd, Perdana Finance Bhd and Perdana Merchant Bankers Bhd
Source: Bank Negara Malaysia
Reference
http://www.maybank2u.com.my/corporate/achievement.shtml
http://www.maybank2u.com.my/corporate/notice3.shtml
http://www.maybank2u.com.my/corporate/press_release/archives/aug30_2.shtml
http://www.cimb.com/index.php?ch=group_ch_acg&pg=group_pg_acg_oh&ac=609&tpt=cimb_group
http://www.rhb.com.my/corporate_profile/history.shtm
http://www.ambg.com.my/ambank_webmedia/file/Our%20History.pdf
http://www.hlb.com.my/ahlb/inv_his.jsp?flag=inv_his
http://www.alliancebank.com.my/ourhistory.html
1. Malayan Banking
2. Bumiputra-Commerce Bank
3. Public Bank
4. RHB Bank
5. Arab-Malaysian Bank
6. EON Bank
7. Multi-Purpose Bank
8. Hong Leong Bank
9. Affin Bank
10. Southern Bank
Maybank
Malayan Banking, or Maybank, is the largest financial services group in Malaysia boasting group assets worth RM301 billion (USD$87 billion), placing it among the top 120 banks worldwide. It has the largest network of branches with over 374 branches and owns the largest ATM network in Malaysia with over 900 ATMs. Todate, Maybank has more than 4 million deposit accounts and more than half a million loan accounts.
In August 2000, Maybank announced the merger of the commercial banking business under Phileo Allied Bank and the securities business under Phileo Securities with that of Maybank and Mayban Securities respectively.
On 1 January 2001, Maybank also announced the merger of The Pacific Bank with Maybank.
Malayan Banking was formed by Malaysian business tycoon Khoo Teck Puat with a few partners in Kuala Lumpur. It was incorporated on 31 May 1960 and commenced operations on 12 September 1960. The bank grew rapidly to more than 150 branches within 3 years, but in 1965, Khoo Teck Puat was ousted from Maybank by the Government of Malaysia under the then Deputy Prime Minister Tun Abdul Razak's administration on the pretext of pumping the bank's money into his own private firm in Singapore. The bank formed its own investment banking subsidiary, Aseambankers Malaysia Berhad (Asian & Euro-American Merchant Banking (Malaysia) Berhad) in 1973. In 1993, the bank acquired a local insurance company, Safety Life & General insurance Sdn Bhd, and relaunched it as Mayban Life Assurance to focus solely in bankassurance. In 2005, the insurance arm acquired MNI Insurance and Takaful Nasional, and subsequently rebranded its insurance companies to Eitqa in 2008.
The Pacific Bank was established in 1919 and was listed on the KLSE in August 1990 …
PhileoAllied Bank ….
CIMB Bank
CIMB Bank, the consumer banking are of CIMB Group, was rebranded to its current name in 2006 to reflect its group restructuring and the completion of the merger between Bumiputra-Commerce Bank and Southern Bank Berhad.
Bumiputra-Commerce Bank (BCB) was formed in October 1999 through the merger of Bank of Commerce (BoC) and Bumiputra Bank Malaysia Berhad (BBMB) resulting in the biggest merger in Malaysia's banking history.
Bank Bumiputra was established in 1965 in line with government initiatives to increase the Bumiputra participation in the national economy. By the 1980s, it had become the largest bank in the country in terms of assets and was the first domestic bank to have operations in New York, London, Tokyo, Bahrain and Hong Kong. In 1982, it was listed as the largest bank in Southeast Asia by Asian Finance magazine.
The history of Bank of Commerce goes back to November 1979 when Bian Chiang Bank was renamed Bank of Commerce on the acquisition by the UMNO-owned Fleet Group and co-shareholder JP Morgan. Bian Chiang Bank was established in 194 in Kuching by Wee Kheng Chiang, focusing mainly in business financing and the issuance of bills of exchange.
In November 1991, the acquisition of United Asian Bank (UAB) by Bank of Commerce was the starting point for the significant expansion of this nascent force in banking. With the acquisition, the Bank of Commerce branch network increased almost fourfold, complementing its established reputation in the corporate lending market.
United Asian Bank (UAB) was established in Kuala Lumpur in 1972 as a result of the merger of three Indian-owned banks; Indian Overseas Bank Ltd, Indian Bank Ltd and United Commercial Bank Ltd. UAB started as a joint-venture in banking between Malaysia and India, taking over the operations of the Malaysian branches of the Indian banks in 1972.
Southern Bank was founded as Southern Banking Limited in 1965 by the late Tan Sri Saw Seng Kew in Penang and quickly expanded to other parts of the country. In 1978, the bank set up operations in Kuala Lumpur and became recognised as an important player in wealth management products, credit cards and SME lending. The bank was the first in the country to set up the MEPS / ATM system used throughout Malaysia today. Southern Bank was one of the anchor banks announced in 1999, in which Southern Bank acquired Ban Hin Lee Bank. Ban Hin Lee Bank (BHLB) was also established in Penang. Formed in 1935 by “Towkay” Yeap Chor Ee, it originally focused on serving local businessmen in their trading and merchant activities. In the 1960's, it branched into real estate and house financing eventually reaching throughout Malaysia and Singapore from its headquarters in Penang, though it mainly served the Penang region.
RHB Bank
RHB Bank was formed in 1997 as a result of the merger between DCB Bank and Kwong Yik Bank. In line with the government’s plan to consolidate the banking industry, the merger between Sime Bank and RHB Bank was finalized in 1999 to form the RHB Banking Group, resulting in the third largest banking group in Malaysia. In 2003, the RHB Banking Group completed its merger with Bank Utama, offering its customers a wider network of 200 branches nationwide, 470 ATMs and new products and services, such as internet banking.
DCB Bank was established in 1966 as Development and Commercial Bank (D&C Bank) by the late Tun Sir H. S. Lee, a well known entrepreneur and the first Minister of Finance for the country. D&C Bank became the 5th largest Malaysian bank by the late 80’s. In 1990, a majority shareholding of the bank was sold to Abdul Rashid Hussain, the owner of the then largest stock brokerage firm, Rashid Hussain Bhd which was founded in 1982.
Kwong Yik Bank was established in 1913 with a start-up capital of RM300,000 at the Old Market Square in Kuala Lumpur, making it Malaya’s first local bank . In 1996, Abdul Rashid Hussain acquired a 75% stake in Kwong Yik Bank at RM2.3bil and its merger with DCB Bank in 1997 formed the RHB Bank, making it the country’s biggest ever banking merger at that time. 1999, he bought the troubled Sime Bank for RM852.2mil.
Sime Bank was initially set up in 1959 as the United Malayan Banking Corporation (UMBC) by a group of businessmen, led by Mr Chang Ming Thien, a prominent figure in the rubber industry in Malaya and Singapore. The bank was officially declared open by the then Prime Minister, Tunku Abdul Rahman in 1960 as the first commercial bank to be established in independent Malaya. In 1996, UMBC became part of the Sime Darby Group and was renamed Sime Bank Berhad.
Bank Utama (Malaysia) Berhad was first incorporated in 1976 in Sarawak as the first bumiputra-owned bank.
Public Bank
Public Bank merged with Hock Hua Bank in 1999 as part of the government’s merger programme for domestic banking institutions. With this merger, Public Bank saw an increase in its domestic branch network to 381 branches in Malaysia from 345 branches, comprising 213 commercial bank branches and 168 finance company branches.
Public Bank was founded in 1966 by Tan Sri Teh Hong Piow, who began his banking career in 1950 as a bank clerk in Overseas-Chinese Banking Corporation Ltd. and rose in rank to officer within five years. He joined Malayan Banking Berhad as Manager in 1960, and later in 1964, was promoted to the position of General Manager at the age of 34. He left Malayan Banking in 1966 to set up Public Bank. Public Bank is the largest domestic bank in Malaysia by market capitalisation and the third largest by balance sheet. The Public Bank Group employs close to 16,000 people in 2009 – with about 90% of the staff in Malaysia and the remaining spread across Hong Kong and the People’s Republic of China, Cambodia, Vietnam, Laos and Sri Lanka.
Hock Hua Bank was founded in 1952 and became Sarawak’s regional bank. With an established customer base in the state of Sarawak especially in the retail consumer and commercial sectors, Hock Hua Bank complemented and enhanced Public Bank’s similar focus and specialization in the retail and commercial segment.
AmBank
Arab-Malaysian Bank Berhad commenced operations on 1 August 1994, when the AMMB Group acquired the Malaysian operations of Security Pacific Asian Bank Limited from Bank of America (Asia) Limited. On 1 June 2005, the merger of AmBank and AmFinance took place to create AmBank (M) Berhad, the sixth largest domestic bank in the country. On 18 May 2007, AmBank Group commemorated the entry of Australia and New Zealand Banking Group Limited (ANZ Bank) as its strategic partner and major investor.
The AMMB Group began its finance business in 1977, when the Group acquired a 70.0% shareholding in Malaysian Industrial Finance Company Limited (“MIFCL”), which was later renamed Arab-Malaysian Finance Berhad (“AMFB”). In 1990, AMFB acquired First Malaysia Finance Berhad. In line with the Government’s plan to consolidate the industry, AMFB acquired Abrar Finance Berhad in 1998, and MBf Finance Berhad in 2001.
The AMMB Group traces its roots to Arab-Malaysian Development Bank Berhad which was incorporated on 5 August 1975 as a joint venture between Malaysian Industrial Development Finance Berhad, with a 55.0% shareholding, Arab Investments for Asia (Kuwait) with a 33.0% shareholding, and the National Commercial Bank (Saudi Arabia) holding 12.0%.
Mbf Finance was a major finance institution in the country which was built up by the late Loy Hean Heong from the time he purchased Malaysia Borneo Finance Corp. in 1974.
Hong Leong Bank
Hong Leong Bank merged with Wah Tat Bank Berhad and Credit Corporation (Malaysia) Berhad in 2000 as part of the government’s directive for the domestic banking institutions consolidation programme. In 2004, the finance business of Hong Leong Finance Berhad was acquired by Hong Leong Bank. Hong Leong Finance was operating in Malaysia since 1968.
Hong Leong Bank started its humble beginnings in 1905 in Kuching, Sarawak, Malaysia under the name of Kwong Lee Mortgage & Remittance Company and later in 1934, incorporated as Kwong Lee Bank Limited. On 2 February 1983, it changed its name to Malayan United Bank Berhad after the acquisition by Khoo Kay Peng of Malayan Industries Bhd, a former OCBC banker. On 26 June 1989, it changed name to MUI Bank Berhad, operating in 35 branches. In January 1994, the Hong Leong Group acquired MUI Bank and assumed its present name. In that the same year in October, Hong Leong Bank was listed on the Kuala Lumpur Stock Exchange.
Wah Tat Bank started business as Wah Tat Money Exchange and Remittances in Sibu, Sarawak during the Rajah Brooke’s reign in 1929.
EON Bank
EON Bank as of 2008 has a branch network of 136 branches and over 5,000 employees serving a customer base of more than 1,000,000. Its total assets stood at RM41,563 billion as at 30 June 2008.
Kong Ming Bank was founded by the late Datuk Sri Ling Beng Sung in Sarawak in 1965, serving mostly the Sarawak region. In 1991, the bank was acquired by the Edaran Otomobil Nasional (EON) and assumed its present name. EON was established to distribute Malaysia's first national car, Proton. In 2006?, Hong Kong-based principal investment company Primus Pacific Partners, acquired a 20% stake in EON Capital Bhd to enable it to exploit the opportunities in the Malaysian financial sector.
Oriental Bank was founded in 1937…
Affin Bank
Affin Bank commenced operations using its current name in January 2001 following a merger between the former Perwira Affin Bank Berhad and BSN Commercial (M) Berhad in August 2000. In June 2005, pursuant to the amendment to the BAFIA 1989, it again merged with the former Affin-ACF Finance Berhad. To date, Affin Bank has a network of 82 branches nationwide.
Affin Bank was established incorporated in 1975 under the name Perwira Habib Bank Malaysia Berhad. It started as a joint venture between several Malaysian parties including LTAT, Syarikat Permodalan Kebangsaan Berhad, and Habib Bank Limited of Pakistan. In 1991, the Bank embarked on a capital restructuring resulting in the emergence of Affin Holdings Berhad as its largest shareholder in 1992. It later changed its name to Perwira Affin Bank Berhad.
BSN Commercial Bank was incorporated in Malaysia on 16 July 1975 under the name of Bank Buruh (Malaysia) Berhad. It changed its name to BSN Commercial Bank after it was acquired by Bank Simpanan Nasional (BSN) from bankrupt Central Co-operative Bank (CCB) on 11 March 1995.
Alliance Bank
Alliance Financial Group (formerly known as Alliance Banking Group) was founded in early 2001 through a consolidation of 7 financial institutions, in which Multi Purpose Bank Berhad anchored the merger. Besides Multi-Purpose Bank Bhd, the other institutions were International Bank Malaysia Bhd, Bolton Finance Bhd, Bumiputra Merchant Bankers Bhd, Sabah Bank Bhd, Sabah Finance Bhd and Amanah Merchant Bank Bhd.
Multi Purpose Bank first commenced operations in 1958 as Banque de L'indochine, and later changed its name to Banque Indosuez in 1975. In 1982, Banque Indosuez was incorporated into the Malaysian French Bank Berhad. With the corporate restructuring resulting in a majority stake in the bank by Multi-Purpose Capital Holdings Berhad, it was renamed as Multi-Purpose Bank in 1996.
Sabah Bank was incorporated by the State Government of Sabah on 9 August 1977 under the name of Bank Pembangunan Sabah Berhad, as a public limited company under the Companies Act, 1965.
==
Banking Groups announced by Bank Negara
1.Malayan Banking Bhd (MayBank) :
Mayban Finance Bhd, Aseambankers Malaysia Bhd, PhileoAllied Bank Bhd, Pacific Bank Bhd, Sime Finance Bhd and Kewangan Bersatu Bhd
2. The Bumiputra – Commerce Bank Bhd
Bumiputra-Commerce Finance Bhd and Commerce International Merchant Bankers Bhd
3. RHB Bank Bhd
RHB Sakura Merchant Bankers Bhd, Delta Finance Bhd and Interfinance Bhd
4. Public Bank
Public Bank Bhd, Public Finance Bhd, Hock Hua Bank Bhd, Advance Finance Bhd and Sime Merchant Bankers Bhd
5. The Arab Malaysian Bank Bhd (AMMB)
Arab Malaysian Finance Bhd, Arab Malaysian Merchant Bank Bhd, Bank Utama Malaysia Bhd and Utama Merchant Bankers Bhd
6. Hong Leong Bank Bhd
Hong Leong Finance Bhd, Wah Tat Bank Bhd and Credit Corporation Malaysia Bhd
7. Perwira Affin Bank Bhd
Affin Finance Bhd, Perwira Affin Merchant Bankers Bhd, BSN Commercial Bank Bhd, BSN Finance Bhd and BSN Merchant Bank Bhd
8. Multi-Purpose Bank Bhd
International Bank Malaysia Bhd, Sabah Bank Berhad, MBf Finance Bhd, Bolton Finance Bhd, Sabah Finance Bhd, Bumiputra Merchant Bankers Bhd and Amanah Merchant Bank Bhd
9. EON Bank Bhd
EON Finance Bhd, Oriental Bank Bhd, City Finance Bhd, Perkasa Finance Bhd and Malaysian International Merchant Bankers Bhd
10. Southern Bank Bhd
Ban Hin Lee Bank Bhd, Cempaka Finance Bhd, United Merchant Finance Bhd, Perdana Finance Bhd and Perdana Merchant Bankers Bhd
Source: Bank Negara Malaysia
Reference
http://www.maybank2u.com.my/corporate/achievement.shtml
http://www.maybank2u.com.my/corporate/notice3.shtml
http://www.maybank2u.com.my/corporate/press_release/archives/aug30_2.shtml
http://www.cimb.com/index.php?ch=group_ch_acg&pg=group_pg_acg_oh&ac=609&tpt=cimb_group
http://www.rhb.com.my/corporate_profile/history.shtm
http://www.ambg.com.my/ambank_webmedia/file/Our%20History.pdf
http://www.hlb.com.my/ahlb/inv_his.jsp?flag=inv_his
http://www.alliancebank.com.my/ourhistory.html
Wednesday, November 11, 2009
FRS 139 and its bearing on transfer pricing
Wednesday November 11, 2009
COME Jan 1, the Malaysian Accounting Standards Board’s Financial Reporting Standard 139 – Financial Instruments: Recognition and Measurement (FRS 139) will finally be implemented in Malaysia. Four years since its implementation date was set, it is still considered uncharted waters for many corporations. This is not surprising since FRS 139 is considered the “mother” of all standards by some.
Under FRS 139, many financial assets and financial liabilities are required to be carried at fair value. This will have a significant impact on loans between related parties, which generally can be interest-free or carry interest rates which are well below the market rates.
The definition of fair value under FRS 139 is “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”. Paragraph 48A of FRS 139 further states that “The best evidence of fair value is quoted prices in an active market ... Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available ... ”
Interestingly, it loosely echoes the Organisation for Economic Cooperation and Development’s guide for an arm’s length interest rate:
“... an arm’s length interest rate shall be an interest rate which was charged, or would have been charged, at the time the financial assistance was granted, to uncontrolled transactions with or between independent persons under similar circumstances.”
It could well imply that the measurement of related party loans initially at their respective fair values and subsequently at amortised cost using the effective interest method, may be deemed to be in line with the arm’s length principle since market interest rate is used.
Following the introduction of Section 140A of the Income Tax Act 1967 (ITA) which basically requires taxpayers to ensure that their related party transactions are carried out at arm’s length, would this then mean that an assessment of the fair value of related party loans by the auditors under FRS 139 can serve as contemporaneous documentation for transfer pricing purposes?
The corporate taxpayers do not have an option as to whether to accept the fair value accounting treatment in their financial statements – it is a requirement of FRS 139 and also the Companies Act 1965.
Further, requiring corporations to measure related-party loans initially at their respective fair value may not only affect the income statement. However, for certain, the subsequent amortisation amounts, measured at amortised costs, will represent accounting interest income or interest expense in the income statement. Book entries are generally not the actual receipts or payments, and in tax terms are not real costs or income earned.
At this point, it would be helpful to look at what other tax jurisdictions have done under similar circumstances. Hong Kong, Singapore and New Zealand tax authorities have issued departmental interpretation and practice notes on the income tax implications arising from the adoption of IAS 39 or its local equivalent.
While in general most tax authorities require the tax treatments to follow or be consistent with the accounting treatment under FRS 139 as far as possible, they also acknowledge that the revenue versus capital consideration would need to be considered in determining the tax treatment.
As an example, in Singapore, the tax adjustment is such that the discount on the interest-free loan recognised in the income statement will not be allowed as a tax deduction and the interest income recorded will not be taxed because these are merely book entries.
The auditor’s primary role is still that of expressing an opinion as to the true and fair view of the financial statements. This means that corporations would still need to provide auditors with supporting evidence of the fair value of the related-party loans to enable auditors to express an opinion.
The fair value measurement rests on the rebuttable presumption that effective interest rates used in the amortised cost method is the market interest rate and is thus, at arm’s length. While this is generally true, loan arrangements made with unrelated parties in the current business environment should be considered as arm’s length, although they may not carry the same market interest rates due to various factors such as level of credit risks, tenure, size of collaterals, etc.
So, what would corporations provide to the auditors? Section 140A of the ITA provides that the acquisition or supply of property or services with related parties be conducted at arm’s length, failing which the Director General of Inland Revenue may adjust the transfer prices.
Since 2003, transfer pricing guidelines have been issued, setting out the extent of information required in a transfer pricing report. The guidelines also stipulate that it is a pre-requisite that a comparable analysis (benchmarking) be carried out to substantiate the arm’s length pricing.
To ensure that corporations provide auditors with the correct arm’s length and market rate interest for related-party loans in the FRS 139 measurement of fair value, it is very likely that a comparable analysis would need to be carried out. This should then provide the setting not only for the auditors but for the tax authorities in support of the argument for arm’s length. Any fair value book entries put through the financial statements should then be met with minimum queries from the tax authorities.
http://biz.thestar.com.my/news/story.asp?file=/2009/11/11/business/5084831&sec=business
COME Jan 1, the Malaysian Accounting Standards Board’s Financial Reporting Standard 139 – Financial Instruments: Recognition and Measurement (FRS 139) will finally be implemented in Malaysia. Four years since its implementation date was set, it is still considered uncharted waters for many corporations. This is not surprising since FRS 139 is considered the “mother” of all standards by some.
Under FRS 139, many financial assets and financial liabilities are required to be carried at fair value. This will have a significant impact on loans between related parties, which generally can be interest-free or carry interest rates which are well below the market rates.
The definition of fair value under FRS 139 is “the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction”. Paragraph 48A of FRS 139 further states that “The best evidence of fair value is quoted prices in an active market ... Valuation techniques include using recent arm’s length market transactions between knowledgeable, willing parties, if available ... ”
Interestingly, it loosely echoes the Organisation for Economic Cooperation and Development’s guide for an arm’s length interest rate:
“... an arm’s length interest rate shall be an interest rate which was charged, or would have been charged, at the time the financial assistance was granted, to uncontrolled transactions with or between independent persons under similar circumstances.”
It could well imply that the measurement of related party loans initially at their respective fair values and subsequently at amortised cost using the effective interest method, may be deemed to be in line with the arm’s length principle since market interest rate is used.
Following the introduction of Section 140A of the Income Tax Act 1967 (ITA) which basically requires taxpayers to ensure that their related party transactions are carried out at arm’s length, would this then mean that an assessment of the fair value of related party loans by the auditors under FRS 139 can serve as contemporaneous documentation for transfer pricing purposes?
The corporate taxpayers do not have an option as to whether to accept the fair value accounting treatment in their financial statements – it is a requirement of FRS 139 and also the Companies Act 1965.
Further, requiring corporations to measure related-party loans initially at their respective fair value may not only affect the income statement. However, for certain, the subsequent amortisation amounts, measured at amortised costs, will represent accounting interest income or interest expense in the income statement. Book entries are generally not the actual receipts or payments, and in tax terms are not real costs or income earned.
At this point, it would be helpful to look at what other tax jurisdictions have done under similar circumstances. Hong Kong, Singapore and New Zealand tax authorities have issued departmental interpretation and practice notes on the income tax implications arising from the adoption of IAS 39 or its local equivalent.
While in general most tax authorities require the tax treatments to follow or be consistent with the accounting treatment under FRS 139 as far as possible, they also acknowledge that the revenue versus capital consideration would need to be considered in determining the tax treatment.
As an example, in Singapore, the tax adjustment is such that the discount on the interest-free loan recognised in the income statement will not be allowed as a tax deduction and the interest income recorded will not be taxed because these are merely book entries.
The auditor’s primary role is still that of expressing an opinion as to the true and fair view of the financial statements. This means that corporations would still need to provide auditors with supporting evidence of the fair value of the related-party loans to enable auditors to express an opinion.
The fair value measurement rests on the rebuttable presumption that effective interest rates used in the amortised cost method is the market interest rate and is thus, at arm’s length. While this is generally true, loan arrangements made with unrelated parties in the current business environment should be considered as arm’s length, although they may not carry the same market interest rates due to various factors such as level of credit risks, tenure, size of collaterals, etc.
So, what would corporations provide to the auditors? Section 140A of the ITA provides that the acquisition or supply of property or services with related parties be conducted at arm’s length, failing which the Director General of Inland Revenue may adjust the transfer prices.
Since 2003, transfer pricing guidelines have been issued, setting out the extent of information required in a transfer pricing report. The guidelines also stipulate that it is a pre-requisite that a comparable analysis (benchmarking) be carried out to substantiate the arm’s length pricing.
To ensure that corporations provide auditors with the correct arm’s length and market rate interest for related-party loans in the FRS 139 measurement of fair value, it is very likely that a comparable analysis would need to be carried out. This should then provide the setting not only for the auditors but for the tax authorities in support of the argument for arm’s length. Any fair value book entries put through the financial statements should then be met with minimum queries from the tax authorities.
http://biz.thestar.com.my/news/story.asp?file=/2009/11/11/business/5084831&sec=business
Tuesday, November 10, 2009
New Islamic banking licences under process
Tuesday November 10, 2009
Keen interest to set up Islamic banking operations in Malaysia
KUALA LUMPUR: The applications for two new Islamic banking licences, which are part of the financial sector liberalisation plan, are still being processed, according to Deputy Finance Minister Datuk Dr Awang Adek Hussin.
“Bank Negara at the moment is processing the applications and making the necessary evaluations. The decision will be made by the central bank in the best interest of the financial sector.
“I was informed that there have been quite a number of applications as well as keen interest from other players to set up Islamic banking operations in the country,” he told a press briefing in conjunction with the Islamic Financial Planning and Wealth Management Conference 2009 (IFPC 2009) here.
In April, the Government announced a financial sector liberalisation plan that included the issuance of licences for seven banking and two takaful players from this year until 2011. It also, among others, eased foreign ownership rules by increasing limits of equity ownership to 70% from 49% for investment banks, Islamic banks, insurance companies and takaful operators.
From left: Financial Planning Association of Malaysia president Wong Boon Choy, Organising Committee IFPC 2009 chairman Datuk Ibrahim Muhammad, Datuk Dr Awang Adek Hussin and Islamic Banking and Finance Institute Malaysia CEO Datuk Dr Adnan Alias at the opening of the IFPC 2009 conference on Monday.
On whether there would be further liberalisation in the financial sector, Awang Adek said it would be done in stages and more would come over time.
“When the time is right and we think we are ready for the next step, we will take it. I don’t think this is the end of liberalisation,” he said.
He noted that the Islamic banking sector had registered double-digit growth over the past eight
years with an average annual growth rate of 20% in terms of assets.
As at end-June, the share of Islamic banking assets in the banking sector had expanded to 19% from 6.9% in 2000. Given the growing maturity of the local bond market, Awang Adek said it was timely that Malaysia offered its own “brand proposition”.
This was to distinguish foreign currency-denominated bonds and sukuk originating from the country in global capital markets, he said.
He added that Petroliam Nasional Bhd had become the largest issuer of US dollar-denominated bonds and sukuk in Asia ex-Japan with the issue of US$3bil worth of bonds and US$1.5bil of sukuk.
Awang Adek also called on Islamic and conventional advisors, including financial planners, to capitalise on the potential growth of syariah-compliant financial sectors, such as the financing-protection segment, where previously Muslims were not able to participate due to a lack of syariah-compliant products.
The increasing demand for Islamic financial products necessitates financial planners to be equipped with the knowledge of syariah requirements of Islamic finance and such expertise was a potential area for growth, he said.
http://biz.thestar.com.my/news/story.asp?file=/2009/11/10/business/5074249&sec=business
Keen interest to set up Islamic banking operations in Malaysia
KUALA LUMPUR: The applications for two new Islamic banking licences, which are part of the financial sector liberalisation plan, are still being processed, according to Deputy Finance Minister Datuk Dr Awang Adek Hussin.
“Bank Negara at the moment is processing the applications and making the necessary evaluations. The decision will be made by the central bank in the best interest of the financial sector.
“I was informed that there have been quite a number of applications as well as keen interest from other players to set up Islamic banking operations in the country,” he told a press briefing in conjunction with the Islamic Financial Planning and Wealth Management Conference 2009 (IFPC 2009) here.
In April, the Government announced a financial sector liberalisation plan that included the issuance of licences for seven banking and two takaful players from this year until 2011. It also, among others, eased foreign ownership rules by increasing limits of equity ownership to 70% from 49% for investment banks, Islamic banks, insurance companies and takaful operators.
From left: Financial Planning Association of Malaysia president Wong Boon Choy, Organising Committee IFPC 2009 chairman Datuk Ibrahim Muhammad, Datuk Dr Awang Adek Hussin and Islamic Banking and Finance Institute Malaysia CEO Datuk Dr Adnan Alias at the opening of the IFPC 2009 conference on Monday.
On whether there would be further liberalisation in the financial sector, Awang Adek said it would be done in stages and more would come over time.
“When the time is right and we think we are ready for the next step, we will take it. I don’t think this is the end of liberalisation,” he said.
He noted that the Islamic banking sector had registered double-digit growth over the past eight
years with an average annual growth rate of 20% in terms of assets.
As at end-June, the share of Islamic banking assets in the banking sector had expanded to 19% from 6.9% in 2000. Given the growing maturity of the local bond market, Awang Adek said it was timely that Malaysia offered its own “brand proposition”.
This was to distinguish foreign currency-denominated bonds and sukuk originating from the country in global capital markets, he said.
He added that Petroliam Nasional Bhd had become the largest issuer of US dollar-denominated bonds and sukuk in Asia ex-Japan with the issue of US$3bil worth of bonds and US$1.5bil of sukuk.
Awang Adek also called on Islamic and conventional advisors, including financial planners, to capitalise on the potential growth of syariah-compliant financial sectors, such as the financing-protection segment, where previously Muslims were not able to participate due to a lack of syariah-compliant products.
The increasing demand for Islamic financial products necessitates financial planners to be equipped with the knowledge of syariah requirements of Islamic finance and such expertise was a potential area for growth, he said.
http://biz.thestar.com.my/news/story.asp?file=/2009/11/10/business/5074249&sec=business
Saturday, September 19, 2009
Bright outlook for domestic takaful business
Saturday September 19, 2009
PETALING JAYA: The outlook for the domestic takaful business remains bright due to the limited number of takaful operators in the country and because almost 60% of the Malaysian population is still uninsured, industry players and analysts said.
Syarikat Takaful Malaysia Bhd (STMB) group managing director Datuk Hassan Kamil said with only eight takaful operators in the country and two more takaful licences to be issued by Bank Negara, there was plenty room for growth for takaful products.
In line with the positive outlook, STMB aims to increase its market share to more than 50% by aggressively growing its retail distribution capabilities.
“Our key growth drivers will mainly come from the general takaful portfolio and retail life market,” Hassan told StarBizWeek.
He added that in order to ensure continuous growth, takaful products needed to be innovative and transparent, together with professional sales and customer service.
Acting on this strategy, STMB has in the pipeline three new takaful products for its financial year ending June 30, 2010, namely Takaful myGraduan (protection and savings plan), Takaful myInvest (protection and investment plan) and Takaful myGemilang (retirement plan).
“High-tech information technology solutions are also necessary to support the dynamic and various distribution channels such as corporate sales, bancatakaful and retail divisions within STMB,” Hassan noted.
He said with many multinationalcorporations vying for the upcoming takaful licences, competition was stiff but it showed that the takaful market domestically and overseas was still quite attractive.
“In any business, further liberalisation will have a positive and negative impact to existing takaful operators. The positive impact from liberalisation will come from the increased innovation in products and technology introduced by new entrants to the industry.
“The negative impact will be that the existing players will have their market share reduced and perhaps some of their staff pinched by the new entrants,” he said.
An analyst with a bank-backed brokerage agreed with Hassan that Malaysia was an attractive destination for the insurance business due to its low penetration rate and expertise in takaful, a segment which many global insurers were keen to dip their fingers into. The analyst also noted that the takaful industry had been enjoying double-digit growth, in revenue as well as takaful fund assets, every year for the past few years, which was another factor to attract investors.
“There (has been) interest shown by foreign parties since the liberalisation announcement, but it could take some time for things to start moving,” the analyst said.
“This has a lot to do with pricing. With the current market conditions and uncertainty still in the air, foreign investors and shareholders are taking a wait-and-see approach.”
STMB’s net profit shot up 170% to RM39.21mil for the fourth quarter ended June 30 compared with RM14.65mil from the previous corresponding period.
But revenue fell 5% to RM365.07mil against RM383.19mil previously.
Earnings per share was higher at 24.08 sen from 9.24 sen previously.
STMB attributed the higher profit to better underwriting results from the general takaful fund and lower operating expenses.
Lower contributions from the family takaful fund as well as lower investment income were cited as reasons for the slight drop in revenue.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/19/business/4750116&sec=business
PETALING JAYA: The outlook for the domestic takaful business remains bright due to the limited number of takaful operators in the country and because almost 60% of the Malaysian population is still uninsured, industry players and analysts said.
Syarikat Takaful Malaysia Bhd (STMB) group managing director Datuk Hassan Kamil said with only eight takaful operators in the country and two more takaful licences to be issued by Bank Negara, there was plenty room for growth for takaful products.
In line with the positive outlook, STMB aims to increase its market share to more than 50% by aggressively growing its retail distribution capabilities.“Our key growth drivers will mainly come from the general takaful portfolio and retail life market,” Hassan told StarBizWeek.
He added that in order to ensure continuous growth, takaful products needed to be innovative and transparent, together with professional sales and customer service.
Acting on this strategy, STMB has in the pipeline three new takaful products for its financial year ending June 30, 2010, namely Takaful myGraduan (protection and savings plan), Takaful myInvest (protection and investment plan) and Takaful myGemilang (retirement plan).
“High-tech information technology solutions are also necessary to support the dynamic and various distribution channels such as corporate sales, bancatakaful and retail divisions within STMB,” Hassan noted.
He said with many multinationalcorporations vying for the upcoming takaful licences, competition was stiff but it showed that the takaful market domestically and overseas was still quite attractive.
“In any business, further liberalisation will have a positive and negative impact to existing takaful operators. The positive impact from liberalisation will come from the increased innovation in products and technology introduced by new entrants to the industry.
“The negative impact will be that the existing players will have their market share reduced and perhaps some of their staff pinched by the new entrants,” he said.
An analyst with a bank-backed brokerage agreed with Hassan that Malaysia was an attractive destination for the insurance business due to its low penetration rate and expertise in takaful, a segment which many global insurers were keen to dip their fingers into. The analyst also noted that the takaful industry had been enjoying double-digit growth, in revenue as well as takaful fund assets, every year for the past few years, which was another factor to attract investors.
“There (has been) interest shown by foreign parties since the liberalisation announcement, but it could take some time for things to start moving,” the analyst said.
“This has a lot to do with pricing. With the current market conditions and uncertainty still in the air, foreign investors and shareholders are taking a wait-and-see approach.”
STMB’s net profit shot up 170% to RM39.21mil for the fourth quarter ended June 30 compared with RM14.65mil from the previous corresponding period.
But revenue fell 5% to RM365.07mil against RM383.19mil previously.
Earnings per share was higher at 24.08 sen from 9.24 sen previously.
STMB attributed the higher profit to better underwriting results from the general takaful fund and lower operating expenses.
Lower contributions from the family takaful fund as well as lower investment income were cited as reasons for the slight drop in revenue.
http://biz.thestar.com.my/news/story.asp?file=/2009/9/19/business/4750116&sec=business
Monday, August 17, 2009
Asian banks sought for deals
Monday August 17, 2009
PETALING JAYA: In the aftermath of the global financial crisis, Asian banks are increasingly being sought after for deal-making and capital raising.
“The financial crisis has been an eye-opener,” said RHB Investment Bank chief executive officer Chay Wai Leong.
“International liquidity has been very tight and in recent large fund raising exercises, domestic liquidity had played a crucial role.”
Many things that were literally unheard of in the past are happening:
·Asian banks going on international roadshows for local clients; and
·Increasing number of requests to participate in bilateral and syndication loans.
“The investment banking community reacts very quickly,” Chay told StarBiz.
Seeing the successful capital raising and backstopping in recent rights issues, global banks now appear to have “more respect” for local banking names.
“We know where the distribution is,” said Chay.
“Asian liquidity is very strong and is likely to play a big part in the upcoming initial public offering of the Asian life unit of American International Group Inc.”
The recent oversubscription to the substantial rights issues of Malayan Banking Bhd (RM5bil), TM International Bhd (RM5.25bil) and DBS Bank (S$2.8bil) indicates the power of domestic liquidity and the dynamic role of local banks.
“In the past, it could not be done,’’ said Chay. “That has opened the eyes of a lot of people that local banks are capable of handling huge deals and that has become a lasting impression.’’
“We are being invited to do deals beyond Malaysian shores,” said Maybank Investment Bank CEO Mohammed Rashdan Yusof.
“We are also getting requests from foreign companies outside of Asean.”
Previously the domain of prominent global names, the deal-making and banking markets are now increasingly being opened to Asian banks that are now big names themselves.
“There is a lot of lending from the banking market as capital markets are still tight,” said Rashdan, adding that requests for funding involved infrastructure, utilities and property development in the region.
Pointing to a renewed focus on Islamic capital markets, Rashdan said a funding mix of syndication loans as bridgers during the construction period and bonds in the form of Islamic finance were also becoming popular.
Chay sees the potential for more bond deals, pointing to the resurgence in the ringgit bond and sukuk markets. RHB had completed a roadshow in Kuwait, Qatar and Saudi Arabia where interest in the Malaysian sukuk market was still strong.
Global offerings
In terms of global offerings, Asian banks are growing in prominence. “The Asian bid is getting much larger in proportion to the global order book especially for strong Asian credits,’’ said Lee Kok Kwan, deputy CEO and group treasurer of CIMB Bhd.
CIMB has just brought to market Petroliam Nasional Bhd’s global US dollar offering of five-year sukuk and 10-year bonds for which issuance was upsized to US$4.5bil, representing the largest issuance to date out of South East Asia in 2009.
“The Asian bid of the order book was particularly strong and respresents a solid turnaround for future issuances of Malaysian credits,’’ said Lee. “It is also a clear example of the coming of age of some Asian banks to competently bring global issues to the market for corporate clients in terms of syndication, distribution and execution.’’
Moreover, the far-reaching impact of the Asian recovery, post-crisis, is not just on investment but also commercial banking.
“Coming out of this recession, the East has piled up savings to invest in its own economies,” Lee said.
Upcoming trends, according to Lee, include the faster rate of recovery for Asia and the BRIC (Brazil, Russia, India and China) countries; higher intra-Asian investments coupled with a potentially more inward-looking region, which bodes well for further expansion in infrastructure development.
Hard infrastructure is likely to be the emphasis in India and Indonesia, while China, having built much of its hard infrastructure, is focusing on its soft infrastructure such as rural development.
Due to sheer proximity, Asian banks are projected to be the major beneficiaries especially in terms of their retail and mortgage businesses, regional activities and movements.
“Credit decisions can be made faster by Asian banks that understand local companies better,” said Lee, adding that moves by Asian countries to develop their own currencies, loans and deposits as well as capital market systems would benefit local banks.
“This will reduce funding costs,” Lee explained, adding that local banks had a higher competitive advantage in their ability to raise local currency deposits.
“Once the push to domestic economies gathers steam, the full array of banking activities from retail to corporate will rise,” he said.
This will enable Asian banks to realise their vision of becoming regional champions.
So far, it appears that vast opportunities await Asian banks in terms of further business development. In terms of mergers and acquisitions (M&As), it may be a different ball game.
“If we take Asia to include Australia, the recent acquisition of the Asian operations of the Royal Bank of Scotland by the Australia and New Zealand banking group indicates that a fairly strong Australian bank has achieved its target of becoming a super regional bank,” said Rashdan.
Otherwise, M&As remain challenging for South East Asian banks, some of which had just completed large acquisitions as in the case of CIMB and Maybank.
Rashdan suggested a Chinese or Indian bank could embark on an acquisition, which may not be easy to execute, as seen in the integration and cultural issues faced by Nomura Holdings when it acquired the Asian operations of Lehman Brothers.
http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4530770&sec=business
Banks ready to implement new framework by January 2010
Monday August 17, 2009
On track for advanced Basel II approaches
PETALING JAYA: The country’s banks are on track to adopt advanced Basel II approaches by January next year and a delay in the implementation is not expected.
John Lee, KPMG head of Asia Pacific financial risk management and head of Malaysia financial services, said many banks were at various degrees of Basel II projects, covering enhancements of risk management governance and framework, and ongoing improvements in risk assessment, measurement and mitigation.
“Basel II is a pivotal milestone to achieve better risk and capital management,” he said.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz had said Malaysian banks were well positioned for the advanced implementation of Basel II in 2010.
Most banks, which have chosen to comply with the less sophisticated approaches of Basel II Pillar 1, which focuses on minimum capital requirements, are already in compliance with Basel II since January 2008.
However, some of the country’s banks such as Malayan Banking Bhd, OCBC Bank (M) Bhd and United Overseas Bank (M) Bhd have chosen to skip the adoption of the standardised approach and move towards the advanced approaches such as the internal rating based (IRB) approach for credit risk, where compliance is by January 2010.
Lee said that besides the Basel II Pillar 1 requirements, all banks were also working towards complying with Basel II Pillar 2 which focused on banks’ internal capital management and Pillar 3 on disclosure of risk management and market discipline, where the deadline indicated by Bank Negara was the beginning of 2010 (for banks which have adopted the standardised approach).
“These banks are certainly occupied in preparing and ensuring that various critical milestones are fulfilled to meet the impending timeline,” he added.
Malayan Banking Bhd project director (Basel II) Ariffin Morad said the group had obtained Bank Negara’s conditional approval to adopt the IRB approach in 2010.
“Bank Negara is in the process of reviewing our preparations and we expect final IRB certification before we implement,” he said.
According to Ariffin, Maybank has also made preparations for Pillar 2 and Pillar 3, in line with regulatory requirements.
“We have submitted a high-level Internal Capital Adequacy Assessment Process framework to Bank Negara in 2008.
“We will implement IRB disclosure requirements as set out by Bank Negara for Pillar 3,” he said.
OCBC Bank (M) Bhd and OCBC Al-Amin Bank Bhd plan to be ready to adopt Basel II IRB for credit risk by the stipulated deadline pending the release of the finalised IRB rules by the central bank.
OCBC Bank country chief risk officer Choo Yee Kwan said: “We are currently on track to comply with Bank Negara’s IRB rules by January 2010.”
Pillar 2 for credit risk would follow a year after implementation of Pillar 1, he added.
“Although Pillar 3 for the credit risk timeline in the country has yet to be determined, OCBC, at group level, has included Pillar 3 market disclosure in its 2008 annual report,” he said.
United Overseas Bank (M) Bhd director and chief executive officer Chan Kok Seong said the bank was also currently preparing the necessary processes to implement the IRB approach for credit risk.
“Where reporting to the local authority is concerned, we still report under the Basel I regime and will need Bank Negara’s certification to migrate to the advanced approaches for credit risk.
“We are ready to adopt Basel II from 2010 onwards, subject to Bank Negara’s validation,” he said.
KPMG’s Lee noted that locally incorporated foreign banks, such as OCBC and UOB, had the necessary infrastructure to comply with the advanced approaches of Basel II as their parents, which are international banks, would have already adopted the approaches in other countries.
“These banks have a slight advantage because of this. However, they will need to work on localising the approaches according to Bank Negara’s requirements,” he said.
Meanwhile, Alliance Bank Malaysia Bhd, which had adopted the Basel II standardised approach in 2008, is building capabilities towards the more advanced Basel II IRB approach, which enables rating models to be developed to enhance its business decisions.
Group chief executive officer Datuk Bridget Lai said: “We are continuously enhancing our risk management capabilities and making preparations for the more sophisticated Basel II approaches.”
Some of the key challenges banks cited in adopting Basel II include the collection of data history for the development of IRB models, availability of skilled resources and sufficient investment in IT infrastructure to implement Basel II.
Nevertheless, Basel II, with its linkages between risk and capital, is expected to enhance the resilience of domestic banks.
http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4525770&sec=business
On track for advanced Basel II approaches
PETALING JAYA: The country’s banks are on track to adopt advanced Basel II approaches by January next year and a delay in the implementation is not expected.
John Lee, KPMG head of Asia Pacific financial risk management and head of Malaysia financial services, said many banks were at various degrees of Basel II projects, covering enhancements of risk management governance and framework, and ongoing improvements in risk assessment, measurement and mitigation.
“Basel II is a pivotal milestone to achieve better risk and capital management,” he said.
Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz had said Malaysian banks were well positioned for the advanced implementation of Basel II in 2010.
Most banks, which have chosen to comply with the less sophisticated approaches of Basel II Pillar 1, which focuses on minimum capital requirements, are already in compliance with Basel II since January 2008.
However, some of the country’s banks such as Malayan Banking Bhd, OCBC Bank (M) Bhd and United Overseas Bank (M) Bhd have chosen to skip the adoption of the standardised approach and move towards the advanced approaches such as the internal rating based (IRB) approach for credit risk, where compliance is by January 2010.
Lee said that besides the Basel II Pillar 1 requirements, all banks were also working towards complying with Basel II Pillar 2 which focused on banks’ internal capital management and Pillar 3 on disclosure of risk management and market discipline, where the deadline indicated by Bank Negara was the beginning of 2010 (for banks which have adopted the standardised approach).
“These banks are certainly occupied in preparing and ensuring that various critical milestones are fulfilled to meet the impending timeline,” he added.
Malayan Banking Bhd project director (Basel II) Ariffin Morad said the group had obtained Bank Negara’s conditional approval to adopt the IRB approach in 2010.
“Bank Negara is in the process of reviewing our preparations and we expect final IRB certification before we implement,” he said.
According to Ariffin, Maybank has also made preparations for Pillar 2 and Pillar 3, in line with regulatory requirements.
“We have submitted a high-level Internal Capital Adequacy Assessment Process framework to Bank Negara in 2008.
“We will implement IRB disclosure requirements as set out by Bank Negara for Pillar 3,” he said.
OCBC Bank (M) Bhd and OCBC Al-Amin Bank Bhd plan to be ready to adopt Basel II IRB for credit risk by the stipulated deadline pending the release of the finalised IRB rules by the central bank.
OCBC Bank country chief risk officer Choo Yee Kwan said: “We are currently on track to comply with Bank Negara’s IRB rules by January 2010.”
Pillar 2 for credit risk would follow a year after implementation of Pillar 1, he added.
“Although Pillar 3 for the credit risk timeline in the country has yet to be determined, OCBC, at group level, has included Pillar 3 market disclosure in its 2008 annual report,” he said.
United Overseas Bank (M) Bhd director and chief executive officer Chan Kok Seong said the bank was also currently preparing the necessary processes to implement the IRB approach for credit risk.
“Where reporting to the local authority is concerned, we still report under the Basel I regime and will need Bank Negara’s certification to migrate to the advanced approaches for credit risk.
“We are ready to adopt Basel II from 2010 onwards, subject to Bank Negara’s validation,” he said.
KPMG’s Lee noted that locally incorporated foreign banks, such as OCBC and UOB, had the necessary infrastructure to comply with the advanced approaches of Basel II as their parents, which are international banks, would have already adopted the approaches in other countries.
“These banks have a slight advantage because of this. However, they will need to work on localising the approaches according to Bank Negara’s requirements,” he said.
Meanwhile, Alliance Bank Malaysia Bhd, which had adopted the Basel II standardised approach in 2008, is building capabilities towards the more advanced Basel II IRB approach, which enables rating models to be developed to enhance its business decisions.
Group chief executive officer Datuk Bridget Lai said: “We are continuously enhancing our risk management capabilities and making preparations for the more sophisticated Basel II approaches.”
Some of the key challenges banks cited in adopting Basel II include the collection of data history for the development of IRB models, availability of skilled resources and sufficient investment in IT infrastructure to implement Basel II.
Nevertheless, Basel II, with its linkages between risk and capital, is expected to enhance the resilience of domestic banks.
http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4525770&sec=business
New rules to boost insurance
Monday August 17, 2009
Lifting of restriction on tie-ups to improve penetration rate, insurers’ revenues
PETALING JAYA: The lifting of the restriction on foreign insurers’ tie-ups with local banks is expected to improve the penetration rate of insurance, apart from boosting insurers’ revenues.
Before the liberalisation of the financial sector in April, foreign-owned insurers were only allowed to tie up with local banks to market bancassurance products.
Foreign insurance companies are now able to partner as many local and foreign banks that they want to sell insurance products. Life Insurance Association of Malaysia (Liam) president Md Adnan Md Zain said the measure would increase the distribution channels for life insurance as consumers could have access to a wider range of products. This augur well for the Malaysian public as the percentage of people with life insurance protection was still around 41%, he said in an interview with StarBiz.
With the restriction removed, Liam sees the bancassurance channel playing a more important role in distributing insurance, as foreign-owned insurers would now be more active in bancassurance.
“The traditional agency channel will remain an important distribution channel for insurance companies. Experience so far in Malaysia shows the bancassurance channel has its strength in distributing short to medium-term single premium products.
“For regular premium products, the agency distribution channel is still the dominant channel. This is due to the complexity of regular premium products which the agency channel currently has a relative advantage in terms of experience and knowledge over their bancassurance counterpart,’’ Adnan said.
For the life insurance industry, the bancassurance market share of total new business premium increased from 2% in 1994 to 42% in 2008.
Last year, the share of bancassurance in single premium products was 65% while in regular premium products it was 7%.
Bancassurance contributed RM2.47bil in single premiums and RM185mil in regular premiums in 2008. The corresponding figures for 2007 were RM3.17bil and RM130mil.
According to Adnan, the recent financial turmoil had affected the single premium business to an extent and, hence, the performance of bancassurance would be affected in the short term as well. However, with the liberalisation and the subsequent economic recovery, bancassurance was expected to grow positively in the medium to long term, he added.
As of June 30, there were 15 life insurance companies which had tie-ups with banking institutions. In the same period, a total of 7,375 bank staff selling life insurance were registered with Liam.
Great Eastern Life Assurance (M) Bhd collaborated last month with OCBC Bank to launch its first regular premium bancassurance product.
Before the liberalisation, Great Eastern was only involved in marketing credit life-related products through banks.
Great Eastern director and CEO Koh Yaw Hui said the new bancassurance partnership with OCBC would enable the company to market a full range of life insurance products through the bank. With this partnership, Great Eastern is expected to generate total new business premiums of about RM100mil by the year-end.
The tie-up would see bancassurance contributing 8% to 9% of the company’s total portfolio by year’s end, Koh said.
Lonpac Insurance Bhd adviser Tee Choon Yeow said the company would consider more tie-ups for bancassurance if the opportunities arose. Currently, Lonpac’s main partners for this business are Public Bank Group, United Overseas Bank (M) Bhd and EON Bank.
“The liberalisation will afford the insurers to have more outlets to reach their potential clients. With more than one financial institution in partnership, they will be able to design and market bancassurance products as well as provide the insurer greater opportunities to expand its market,’’ Tee said.
The company’s bancassurance premiums grew from 5% in 2005 to 10% as at June 30.
http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4490024&sec=business
Lifting of restriction on tie-ups to improve penetration rate, insurers’ revenues
PETALING JAYA: The lifting of the restriction on foreign insurers’ tie-ups with local banks is expected to improve the penetration rate of insurance, apart from boosting insurers’ revenues.
Before the liberalisation of the financial sector in April, foreign-owned insurers were only allowed to tie up with local banks to market bancassurance products.
Foreign insurance companies are now able to partner as many local and foreign banks that they want to sell insurance products. Life Insurance Association of Malaysia (Liam) president Md Adnan Md Zain said the measure would increase the distribution channels for life insurance as consumers could have access to a wider range of products. This augur well for the Malaysian public as the percentage of people with life insurance protection was still around 41%, he said in an interview with StarBiz.
With the restriction removed, Liam sees the bancassurance channel playing a more important role in distributing insurance, as foreign-owned insurers would now be more active in bancassurance.
“The traditional agency channel will remain an important distribution channel for insurance companies. Experience so far in Malaysia shows the bancassurance channel has its strength in distributing short to medium-term single premium products.
“For regular premium products, the agency distribution channel is still the dominant channel. This is due to the complexity of regular premium products which the agency channel currently has a relative advantage in terms of experience and knowledge over their bancassurance counterpart,’’ Adnan said.
For the life insurance industry, the bancassurance market share of total new business premium increased from 2% in 1994 to 42% in 2008.
Last year, the share of bancassurance in single premium products was 65% while in regular premium products it was 7%.
Bancassurance contributed RM2.47bil in single premiums and RM185mil in regular premiums in 2008. The corresponding figures for 2007 were RM3.17bil and RM130mil.
According to Adnan, the recent financial turmoil had affected the single premium business to an extent and, hence, the performance of bancassurance would be affected in the short term as well. However, with the liberalisation and the subsequent economic recovery, bancassurance was expected to grow positively in the medium to long term, he added.
As of June 30, there were 15 life insurance companies which had tie-ups with banking institutions. In the same period, a total of 7,375 bank staff selling life insurance were registered with Liam.
Great Eastern Life Assurance (M) Bhd collaborated last month with OCBC Bank to launch its first regular premium bancassurance product.
Before the liberalisation, Great Eastern was only involved in marketing credit life-related products through banks.
Great Eastern director and CEO Koh Yaw Hui said the new bancassurance partnership with OCBC would enable the company to market a full range of life insurance products through the bank. With this partnership, Great Eastern is expected to generate total new business premiums of about RM100mil by the year-end.
The tie-up would see bancassurance contributing 8% to 9% of the company’s total portfolio by year’s end, Koh said.
Lonpac Insurance Bhd adviser Tee Choon Yeow said the company would consider more tie-ups for bancassurance if the opportunities arose. Currently, Lonpac’s main partners for this business are Public Bank Group, United Overseas Bank (M) Bhd and EON Bank.
“The liberalisation will afford the insurers to have more outlets to reach their potential clients. With more than one financial institution in partnership, they will be able to design and market bancassurance products as well as provide the insurer greater opportunities to expand its market,’’ Tee said.
The company’s bancassurance premiums grew from 5% in 2005 to 10% as at June 30.
http://biz.thestar.com.my/news/story.asp?file=/2009/8/17/business/4490024&sec=business
Monday, July 13, 2009
RHB Bank continues to transform
Monday July 13, 2009
It wants to be well prepared for imminent economic recovery
PETALING JAYA: RHB Bank Bhd expects to sustain profitability and asset growth this year while raising the bar on service quality as the group continues to reap the benefits of its ongoing transformation exercise amid a challenging economic environment, said the bank’s new group managing director Datuk Tajuddin Atan.
Tajuddin aims to maintain the banking group’s record net profit achieved in financial year ended Dec 31, 2008, which exceeded RM1bil for the first time.
“To sustain at this level would be fantastic in view of the current challenging environment,” he said. “In that way, we would surely make heads turn.’’
He said his immediate priorities were to continue with the group’s five-year transformation programme which started in 2007.
“It is crucial to position ourselves well in order to be prepared for the imminient economic recovery,” Tajuddin told StarBiz.
“RHB already has a strong management team. As a mid-sized bank, it is agile and can respond fast to changes. It is matter of improving efficiency and further reducing costs.”
The various strategic business units have already been restructured and buzzing with activities based on their areas of focus, he said, adding that RHB has passed its first phase of improved efficiency and was now into its second phase of sustainability and higher performance.
Tajuddin succeeded Michael J. Barrett, the former group managing director, on July 1.
He was previously CEO and president of Bank Pembangunan Malaysia Bhd.
Prior to that, Tajuddin was general manager (CEO position) at Bank Simpanan Nasional from October 2004 to November 2007.
He spent his early years at the former Bank Bumiputra, where he served for 16 years, holding various positions such as group treasurer and assistant general manager (treasury) of its New York branch.
RHB plans to strengthen Islamic banking in both aspects of retail and investment banking, Tajuddin said, adding that his main priorities were to ensure that assets and liabilities were well managed, with loans growth targeted at 5% to 7% this year.
“If the business is fundamentally sound, we would look to restructure credit facilities to match cashflows affected by the difficult external environment.
“We have strengthened a clear credit framework and strengthened our collection as well as early tracking mechanism,” he said.
Tajuddin is also stressing on the need to set a high level of service quality at RHB.
“Customers nowadays are very choosy. It is not just about offering a whole range of products or services.
“Competition is the buzzword now. We blink and we would lose potential customers. If someone else blinks, we would get their customers. Not doing anything in the current environment is bad,” he said.
Tajuddin said he used the bank’s products and services himself and sometimes turned up unannounced at some of the bank’s branches as part of efforts to improve the quality of service.
“I need to experience it first-hand. If I find it difficult to use, how would our customers feel?” he asked.
RHB has been looking seriously into customer complaints and will embark on a re-training programme for over 3,000 staff in the areas of service and credit quality.
“We are a recognisable brand, with over 180 branches and a large customer base. But all this means nothing if the service quality is not improved,” he said.
Tajuddin also intends to further improve staff welfare by organising annual dinners, family and sports days.
“We want to get the families involved as we understand that a lot of family time has been sacrificed by our staff,” he said.
http://thestar.com.my/news/story.asp?file=/2009/7/13/business/4300440&sec=business
It wants to be well prepared for imminent economic recovery
PETALING JAYA: RHB Bank Bhd expects to sustain profitability and asset growth this year while raising the bar on service quality as the group continues to reap the benefits of its ongoing transformation exercise amid a challenging economic environment, said the bank’s new group managing director Datuk Tajuddin Atan.
Tajuddin aims to maintain the banking group’s record net profit achieved in financial year ended Dec 31, 2008, which exceeded RM1bil for the first time.
“To sustain at this level would be fantastic in view of the current challenging environment,” he said. “In that way, we would surely make heads turn.’’
He said his immediate priorities were to continue with the group’s five-year transformation programme which started in 2007.
“It is crucial to position ourselves well in order to be prepared for the imminient economic recovery,” Tajuddin told StarBiz.
“RHB already has a strong management team. As a mid-sized bank, it is agile and can respond fast to changes. It is matter of improving efficiency and further reducing costs.”
The various strategic business units have already been restructured and buzzing with activities based on their areas of focus, he said, adding that RHB has passed its first phase of improved efficiency and was now into its second phase of sustainability and higher performance.
Tajuddin succeeded Michael J. Barrett, the former group managing director, on July 1.
He was previously CEO and president of Bank Pembangunan Malaysia Bhd.
Prior to that, Tajuddin was general manager (CEO position) at Bank Simpanan Nasional from October 2004 to November 2007.
He spent his early years at the former Bank Bumiputra, where he served for 16 years, holding various positions such as group treasurer and assistant general manager (treasury) of its New York branch.
RHB plans to strengthen Islamic banking in both aspects of retail and investment banking, Tajuddin said, adding that his main priorities were to ensure that assets and liabilities were well managed, with loans growth targeted at 5% to 7% this year.
“If the business is fundamentally sound, we would look to restructure credit facilities to match cashflows affected by the difficult external environment.
“We have strengthened a clear credit framework and strengthened our collection as well as early tracking mechanism,” he said.
Tajuddin is also stressing on the need to set a high level of service quality at RHB.
“Customers nowadays are very choosy. It is not just about offering a whole range of products or services.
“Competition is the buzzword now. We blink and we would lose potential customers. If someone else blinks, we would get their customers. Not doing anything in the current environment is bad,” he said.
Tajuddin said he used the bank’s products and services himself and sometimes turned up unannounced at some of the bank’s branches as part of efforts to improve the quality of service.
“I need to experience it first-hand. If I find it difficult to use, how would our customers feel?” he asked.
RHB has been looking seriously into customer complaints and will embark on a re-training programme for over 3,000 staff in the areas of service and credit quality.
“We are a recognisable brand, with over 180 branches and a large customer base. But all this means nothing if the service quality is not improved,” he said.
Tajuddin also intends to further improve staff welfare by organising annual dinners, family and sports days.
“We want to get the families involved as we understand that a lot of family time has been sacrificed by our staff,” he said.
http://thestar.com.my/news/story.asp?file=/2009/7/13/business/4300440&sec=business
Saturday, July 11, 2009
Stronger growth seen for insurance
Saturday July 11, 2009
THE insurance industry is poised to show improvement in performance in the second half of the year on the back of the recovery in the country’s export sector.
THE insurance industry is poised to show improvement in performance in the second half of the year on the back of the recovery in the country’s export sector.
Many insurance players are optimistic the performance for the second half will be better than the first half of the year underpin by the pick-up in economic activities spurring stronger export growth.
Great Eastern Life Assurance (Malaysia) Bhd director and chief executive officer Koh Yaw Hui says: “All recent economic indicators suggest that the worst is over as the most affected export industry has been seen picking up and many companies have started recruiting.
“We expect the life insurance industry for the second half of the year to do much better than the first half. Personally, I think this year, the industry should end up having double-digit growth.”
The growth driver that will steer the industry in the second half according to general insurer LPI Capital Bhd chief executive officer Tee Choon Yeow will be the export and construction sectors.
The growth in the export industry, he adds, will help in the development of the marine and manufacturing sectors, which in turn will create greater demand for marine insurance as well as fire insurance.
Tee is also the advisor of Lonpac Insurance Bhd, the wholly-owned insurance arm of LPI Capital.
The construction industry can also be identified as a key potential growth driver that will help construction related insurance to continue to grow as long as the government continue to invest in infrastructure, Tee notes.
Manulife Holdings Bhd Group CEO Michael Chan says he is positive of the outlook for the insurance for the second half as insurance plays a very important role in one’s financial planning portfolio regardless of the economic cycles.
“Manulife’s insurance business showed strong growth in the second quarter as we launched new products and new agency performance management standards.
“We expect to see continued improvement in the second half as we roll out more new products, further drive the agency performance management standards and continue with our recruitment programmes,” Chan adds.
Koh says Great Eastern has done very well in the first half of the year registering more than RM360mil in total weighted new business premium, which was more than 50% growth compared with the similar period last year in line with economic improvement.
Riding on the momentum of its strong first half result, he adds the company should continue to do well in the second half and meet its goal of RM800mil in total weighted new business premium for this year.
Based on the company’s first six months results, Tee points out that Lonpac is still optimistic of meeting its target of 15% growth in gross premiums by year-end.
Despite operating in a competitive and challenging environment, it turned in an impressive underwriting surplus of RM35.5mil representing a significant jump of 55.7% over the corresponding period of 2008. It also recorded underwriting surplus in all classes of insurance for the period.
Improved performance
Tee attributed the improved performance to prudent underwriting which has help it achieve profit and premium growth year on year.
He stress for insurers to improve performance amid the tough economic environment, they need to also display a high degree of transparency, corporate governance and professionalism.
According to Bank Negara’s statistics, gross premiums for general insurance last year stood at RM9.73bil against RM9.07bil in 2007. Net premiums for the period was also higher at about RM9bil as oppose to RM8.2bil (in 2007).
The Life Insurance Association of Malaysia (LIAM), in releasing its latest figures, says the industry delivered a strong first quarter (January-March) performance with new business sales growing by 14% on weighted premium basis.
Weighted premium is calculated as 10% of single premium plus 100% of regular premium.
The growth, LIAM says, was contributed by a strong performance in regular premium sales which went up by 24% compared to the same period last year.
The growth, LIAM says, was contributed by a strong performance in regular premium sales which went up by 24% compared to the same period last year.
Single premium business, however, registered a decline of 43% due to the global financial crisis and the decline in interest rate.
By class of business, investment-linked business, normally perceived as savings related products, registered a sharp decline of 23% by weighted premium.
The sale of single premium investment-linked declined from RM584mil in the first quarter of 2008 to a mere RM48mil in the corresponding period in 2009.
Traditional business, normally perceived as protection related products, on the other hand registered a strong growth of 43% during the period as opposed to similar quarter last year.
The sales of group insurance business remained fairly static with total premium of RM652mil compared to RM653mil a year earlier, LIAM says.
Key growth drivers
Koh said the two key growth drivers for the industry for the second half will still be the distribution channel as well as products.
“For us, the second half of the year will be an exciting period. Apart from continuing with our strategy to further enhance the productivity and professionalism of our 17,000 agency force, we will be distributing our products through the bancassurance channel under the financial sector liberalisation plan.
“Great Eastern is now able to have bancassurance tie-up with all the banks including foreign banks in Malaysia and hope to sell its first policy within the next one to two months,” he adds.
As far as distribution channel is concern, Koh says bancassurance is set to grow faster after the liberalisation as there is now no restriction of insurance companies tying up with banks to enhance their sales.
On the possible and likely challenges for the industry, Tee says it is the increasing claim trends from motorists, especially on bodily injury as well as from motor theft.
“We believe that the most important step that needs to be taken to address these issues is to practice prudential underwriting and to have in place strong claims management and underwriting processes,” he adds.
Koh says one of the challenges is for agents to advise consumers on the importance of financial planning to meet their future goals since people tend to be very prudent in their spending during the current difficult times.
As such, it is important that agents are professional and have the required knowledge and competency to play that role, he explains.
Chan views the state of the economy as a challenge for the industry. “The positive news is that the Government has announced numerous stimulus plans to help drive economic growth but the pace of growth may be impacted by external factors among which is the recovery of our export markets.
“Also, equity markets have not stabilised and should they continue to be volatile, it will impact investment income for insurers,” Chan says.
http://thestar.com.my/news/story.asp?file=/2009/7/11/business/4282588&sec=business
Friday, June 26, 2009
EON Cap plans RM1bil fund-raising exercise
Friday June 26, 2009
EON Cap plans RM1bil fund-raising exercise
It hopes to raise at least RM500mil from the Tier 1 capital programme
KUALA LUMPUR: EON Capital Bhd has submitted an application to raise RM1bil in Tier 1 capital, barely a week after Bank Negara rejected the group’s plan to sell new warrants to shareholder Primus Pacific Partners LLC for RM29.5mil.
“We hope to raise at least RM500mil from the RM1bil innovative Tier 1 capital programme,” chairman Tan Sri Syed Anwar Jamalullail told reporters after the group’s AGM yesterday.
He said the proposal on the fund-raising programme was submitted to the Securities Commission yesterday.
EON Cap director Rodney Ward said the group’s current core capital ratio would strengthen to just below 11% from the current 9.7% with the additional RM500mil in fresh funds from the upcoming issue.
“We don’t want the bank to be over-capitalised,” Syed Anwar said when asked why the bank planned to raise just half the proposed amount.
Ward explained that the innovative Tier 1 capital raising programme was a special investment instrument designed to appeal to long-term investors. EON Cap has appointed CIMB Bank Bhd and its own unit MIMB Investment Bank Bhd to develop the instrument.
Recently, some analysts opined that EON Cap has ample room to raise as much as RM1.5bil in Tier 1 capital to shore up its working capital.
Ward said the bank would also continue to look at other capital raising options, but was “not under the gun to do so” at this moment.
EON Cap’s capital position was put under the microscope after Bank Negara rejected the proposed sale of new warrants to Primus last week without disclosing the reasons behind the decision.
Syed Anwar said that the amount to be raised from the warrants sale was small, and would only improve the bank’s core capital ratio by 0.15% if the issue were to go through.
Assuming the warrants were fully converted into EON Cap shares, Primus’ stake would increase to 26.4% from 20.2% currently.
Primus was reported to be appealing against the decision by Bank Negara.
On another note, Syed Anwar said the group had narrowed the candidates to lead the bank following the retirement of former chief executive officer Albert Lau in April.
“We hope to appoint one before the end of the year,” he said.
Syed Anwar said consumer loans at the bank grew at a steady rate of 6% so far this year, although corporate lending activities showed a contraction due to the sharp decline in trade finance.
The group’s asset quality showed some deterioration in the first quarter, mainly due to “two loans” that were being restructured.
“In the current quarter, asset quality has improved, while at the same time we have also expanded our loan recovery unit,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2009/6/26/business/4196919&sec=business
EON Cap plans RM1bil fund-raising exercise
It hopes to raise at least RM500mil from the Tier 1 capital programme
KUALA LUMPUR: EON Capital Bhd has submitted an application to raise RM1bil in Tier 1 capital, barely a week after Bank Negara rejected the group’s plan to sell new warrants to shareholder Primus Pacific Partners LLC for RM29.5mil.
“We hope to raise at least RM500mil from the RM1bil innovative Tier 1 capital programme,” chairman Tan Sri Syed Anwar Jamalullail told reporters after the group’s AGM yesterday.
He said the proposal on the fund-raising programme was submitted to the Securities Commission yesterday.
EON Cap director Rodney Ward said the group’s current core capital ratio would strengthen to just below 11% from the current 9.7% with the additional RM500mil in fresh funds from the upcoming issue.
“We don’t want the bank to be over-capitalised,” Syed Anwar said when asked why the bank planned to raise just half the proposed amount.
Ward explained that the innovative Tier 1 capital raising programme was a special investment instrument designed to appeal to long-term investors. EON Cap has appointed CIMB Bank Bhd and its own unit MIMB Investment Bank Bhd to develop the instrument.
Recently, some analysts opined that EON Cap has ample room to raise as much as RM1.5bil in Tier 1 capital to shore up its working capital.
Ward said the bank would also continue to look at other capital raising options, but was “not under the gun to do so” at this moment.
EON Cap’s capital position was put under the microscope after Bank Negara rejected the proposed sale of new warrants to Primus last week without disclosing the reasons behind the decision.
Syed Anwar said that the amount to be raised from the warrants sale was small, and would only improve the bank’s core capital ratio by 0.15% if the issue were to go through.
Assuming the warrants were fully converted into EON Cap shares, Primus’ stake would increase to 26.4% from 20.2% currently.
Primus was reported to be appealing against the decision by Bank Negara.
On another note, Syed Anwar said the group had narrowed the candidates to lead the bank following the retirement of former chief executive officer Albert Lau in April.
“We hope to appoint one before the end of the year,” he said.
Syed Anwar said consumer loans at the bank grew at a steady rate of 6% so far this year, although corporate lending activities showed a contraction due to the sharp decline in trade finance.
The group’s asset quality showed some deterioration in the first quarter, mainly due to “two loans” that were being restructured.
“In the current quarter, asset quality has improved, while at the same time we have also expanded our loan recovery unit,” he said.
http://biz.thestar.com.my/news/story.asp?file=/2009/6/26/business/4196919&sec=business
RHB Cap to expand in Vietnam
Friday June 19, 2009
RHB Cap to expand in Vietnam
It has set its sights on a full banking licence there
KUALA LUMPUR: RHB Capital Bhd (RHB Cap), the fourth largest financial services group in the country, plans to expand its presence in Vietnam eventually, through a full banking licence.
The group currently has a 49% stake in retail brokerage Vietnam Securities Corp which it acquired in November last year.
Outgoing group managing director Michael Barrett told a press briefing after the group’s AGM yesterday that for now, RHB Bank Bhd had representative offices in Ho Chi Minh City and Hanoi.
He added that it was the long-term intention of the group to obtain a full banking licence in the country. Barrett said this would come “in due course” when the banking and financial landscape became more open.
He also did not rule out the possibility of raising RHB Cap’s stake in Vietnam Securities. Barrett said current regulations did not allow the group to acquire a majority stake in a Vietnamese financial firm.
“We’re looking at taking a local retail brokerage that has the capabilities to do investment banking and corporate finance to expand our initiatives,” Barrett said, adding that the group was also interested in expanding its presence in the South-East Asian region.
Meanwhile, he expects loans growth of between 5% and 7% for the current financial year as “significant signs of recovery” began to show in the fourth quarter.
He said home loans, personal financing and credit cards were areas in which the group saw growth but motor vehicle loans and loans to small and medium-scale enterprises were down due to the more challenging economic environment.
He said non-performing loans (NPLs) increased to 2.57% in the first quarter but had come down recently. For the financial year ended Dec 31, 2008, NPLs were lower at 2.24% against 2.43% 2007 while loan-loss coverage rose to 90% from 71% previously.
Barrett said although NPLs were higher in the first quarter, the absolute number had not gone up. He said this was largely due to the lower loan base in the quarter.
http://thestar.com.my/news/story.asp?file=/2009/6/19/business/4148210&sec=business
RHB Cap to expand in Vietnam
It has set its sights on a full banking licence there
KUALA LUMPUR: RHB Capital Bhd (RHB Cap), the fourth largest financial services group in the country, plans to expand its presence in Vietnam eventually, through a full banking licence.
The group currently has a 49% stake in retail brokerage Vietnam Securities Corp which it acquired in November last year.
Outgoing group managing director Michael Barrett told a press briefing after the group’s AGM yesterday that for now, RHB Bank Bhd had representative offices in Ho Chi Minh City and Hanoi.
He added that it was the long-term intention of the group to obtain a full banking licence in the country. Barrett said this would come “in due course” when the banking and financial landscape became more open.
He also did not rule out the possibility of raising RHB Cap’s stake in Vietnam Securities. Barrett said current regulations did not allow the group to acquire a majority stake in a Vietnamese financial firm.
“We’re looking at taking a local retail brokerage that has the capabilities to do investment banking and corporate finance to expand our initiatives,” Barrett said, adding that the group was also interested in expanding its presence in the South-East Asian region.
Meanwhile, he expects loans growth of between 5% and 7% for the current financial year as “significant signs of recovery” began to show in the fourth quarter.
He said home loans, personal financing and credit cards were areas in which the group saw growth but motor vehicle loans and loans to small and medium-scale enterprises were down due to the more challenging economic environment.
He said non-performing loans (NPLs) increased to 2.57% in the first quarter but had come down recently. For the financial year ended Dec 31, 2008, NPLs were lower at 2.24% against 2.43% 2007 while loan-loss coverage rose to 90% from 71% previously.
Barrett said although NPLs were higher in the first quarter, the absolute number had not gone up. He said this was largely due to the lower loan base in the quarter.
http://thestar.com.my/news/story.asp?file=/2009/6/19/business/4148210&sec=business
Tuesday, June 23, 2009
Takaful Malaysia eyes 10% increase in customer base with Takaful myDesk
Tuesday June 23, 2009
The Star
KUALA LUMPUR: Syarikat Takaful Malaysia Bhd (STMB) targets a 10% increase in customer base from 400,000 currently for its financial year ending June 30, 2010 with the launch of its latest initiative – Takaful myDesk – with Lembaga Tabung Haji (LTH).
Takaful myDesk is a one-stop centre for customers to carry their takaful transactions for all general and family-related takaful products at various LTH branches.
Through Takaful myDesk, STMB also hopes to achieve RM1mil worth of premium contributions in its first year of operations.
STMB group managing director Datuk Hassan Kamil said the collaboration was part of its strategy to enhance access to wider potential customer base, through sharing of database.
“We see this ‘smart partnership’ as a strong platform for various business opportunities, including cross selling of insurance products with investments and savings. We also hope to further reach out to customers, especially in remote areas, utilising LTH’s extensive network nationwide,” he said at the launch yesterday.
He added that the cost of the initiative was minimal as all that was required was Internet connectivity and one staff to man the desk located at LTH’s branch.
STMB’s majority shareholder is BIMB Holdings Bhd, with a shareholding of 65.22%. LTH in turn, is a majority shareholder in BIMB, holding 41.92% shares.
LTH group managing director and chief executive officer Datuk Ismee Ismail said with the inclusion of the Takaful myDesk to its list of additional services, it hoped to help promote the Islamic financial services sector within Malaysia. “Since the introduction of Takaful myDesk at our Jalan Tun Razak branch, LTH’s depositors have been very receptive towards the concept and execution of this new service,” Ismee said.
Due to this encouraging response, Hassan said that they had identified 11 other LTH branches to carry this service, and would be implemented in stages within the next six months.
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4172502&sec=business
The Star
KUALA LUMPUR: Syarikat Takaful Malaysia Bhd (STMB) targets a 10% increase in customer base from 400,000 currently for its financial year ending June 30, 2010 with the launch of its latest initiative – Takaful myDesk – with Lembaga Tabung Haji (LTH).
Takaful myDesk is a one-stop centre for customers to carry their takaful transactions for all general and family-related takaful products at various LTH branches.
Through Takaful myDesk, STMB also hopes to achieve RM1mil worth of premium contributions in its first year of operations.
STMB group managing director Datuk Hassan Kamil said the collaboration was part of its strategy to enhance access to wider potential customer base, through sharing of database.
“We see this ‘smart partnership’ as a strong platform for various business opportunities, including cross selling of insurance products with investments and savings. We also hope to further reach out to customers, especially in remote areas, utilising LTH’s extensive network nationwide,” he said at the launch yesterday.
He added that the cost of the initiative was minimal as all that was required was Internet connectivity and one staff to man the desk located at LTH’s branch.
STMB’s majority shareholder is BIMB Holdings Bhd, with a shareholding of 65.22%. LTH in turn, is a majority shareholder in BIMB, holding 41.92% shares.
LTH group managing director and chief executive officer Datuk Ismee Ismail said with the inclusion of the Takaful myDesk to its list of additional services, it hoped to help promote the Islamic financial services sector within Malaysia. “Since the introduction of Takaful myDesk at our Jalan Tun Razak branch, LTH’s depositors have been very receptive towards the concept and execution of this new service,” Ismee said.
Due to this encouraging response, Hassan said that they had identified 11 other LTH branches to carry this service, and would be implemented in stages within the next six months.
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4172502&sec=business
Stronger base for insurance sector
Tuesday June 23, 2009
Stronger base for insurance sector
KUALA LUMPUR: The local insurance industry is undergoing a transformation to provide a strong foundation for a more resilient and competitive industry in support of Malaysia’s economic development agenda.
Bank Negara assistant governor Datuk Muhammad Ibrahim said Malaysia had implemented the risk-based capital framework this year and new product regulations.
He said these developments were part of a broader move towards introducing a more principle-based regulatory regime that would allow greater flexibility for insurers to compete and improve performance.
“Later this year, Bank Negara will consult the industry on risk management standards that insurers are expected to observe as part of this evolution,” he said in his keynote address at the LOMA/LIMRA 17th Annual Strategic Issues Conference yesterday.
The conference, themed The New Global Economy: Resilience in Challenging Times, is jointly organised with the Life Insurance Association of Malaysia.
It aims to serve as a platform for captains of the financial services sectors operating in Asia to discuss the latest development in the industry.
Muhammad said the distribution channels for insurance products and services had also been broadened significantly with the development of bancassurance and financial advisers.
“This will contribute towards enhancing revenue and reducing costs, while enhancing consumer protection and improving the insurance penetration rate in Malaysia,” he said.
In April, Bank Negara announced a liberalisation package for the financial sector aimed at strengthening Malaysia’s economic inter-linkages with other economies and enhancing the role of the financial sector as a key enabler and catalyst of economic growth.
In the insurance sector, the measures included the issuance of new family takaful licences with higher limits of up to 70% on foreign equity participation in insurance companies and takaful operators, and incentives for the consolidation and rationalisation of the insurance industry.
They also included the removal of restrictions on the establishment of branches and bancassurance tie-ups, and greater flexibility to employ specialist expatriates. — Bernama
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4171897&sec=business
Stronger base for insurance sector
KUALA LUMPUR: The local insurance industry is undergoing a transformation to provide a strong foundation for a more resilient and competitive industry in support of Malaysia’s economic development agenda.
Bank Negara assistant governor Datuk Muhammad Ibrahim said Malaysia had implemented the risk-based capital framework this year and new product regulations.
He said these developments were part of a broader move towards introducing a more principle-based regulatory regime that would allow greater flexibility for insurers to compete and improve performance.
“Later this year, Bank Negara will consult the industry on risk management standards that insurers are expected to observe as part of this evolution,” he said in his keynote address at the LOMA/LIMRA 17th Annual Strategic Issues Conference yesterday.
The conference, themed The New Global Economy: Resilience in Challenging Times, is jointly organised with the Life Insurance Association of Malaysia.
It aims to serve as a platform for captains of the financial services sectors operating in Asia to discuss the latest development in the industry.
Muhammad said the distribution channels for insurance products and services had also been broadened significantly with the development of bancassurance and financial advisers.
“This will contribute towards enhancing revenue and reducing costs, while enhancing consumer protection and improving the insurance penetration rate in Malaysia,” he said.
In April, Bank Negara announced a liberalisation package for the financial sector aimed at strengthening Malaysia’s economic inter-linkages with other economies and enhancing the role of the financial sector as a key enabler and catalyst of economic growth.
In the insurance sector, the measures included the issuance of new family takaful licences with higher limits of up to 70% on foreign equity participation in insurance companies and takaful operators, and incentives for the consolidation and rationalisation of the insurance industry.
They also included the removal of restrictions on the establishment of branches and bancassurance tie-ups, and greater flexibility to employ specialist expatriates. — Bernama
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4171897&sec=business
Changes to spur insurers’ revenue
Tuesday June 23, 2009
Changes to spur insurers’ revenue
The Star
‘Transformation’ of agents will protect consumers’ interest
PETALING JAYA: The changes that the insurance sector is going through may help boost its revenue and productivity and enhance the concept of need-based selling, industry players said
The move is in line with Bank Negara’s call to enhance professionalism in the industry and safeguard customers’ interest, they added.
The exercise involves the “transformation” of agents into professional wealth planners who will also sell products like unit trusts and takaful and offer will-writing services apart from selling insurance.
Prudential Assurance Malaysia Bhd chief agency officer Lai Leong Pin said since embarking on an agency transformation exercise last year, the company had converted about 1,800 agents to wealth planners from a total agency force of about 9,000.
“This year, we plan to train an additional 1,800 to 2,000 agents to become wealth planners. In the next five years, we expect to transform between 40% and 50% of our total agency force into wealth planners,” he said in interview.
“Besides boosting the company’s revenue, these professionals will also enhance the productivity of the agency force. Last year, our agency’s average productivity was among the highest in the industry, with about RM69,000 in first year new business premiums.’’
To be qualified as Prudential wealth planners, Lai said an agent must be productive, have met various licensing requirements and undergo external or intensive in-house training.
The in-house training provided by its PRUbusiness academy covers wide-ranging modules that include introduction to wealth planning concepts, products and technicalities and personal effectiveness.
For external programmes, the candidate must have sat for the Registered Financial Planner or Certified Financial Planner examinations. In terms of productivity, the agent must bring in new business premiums worth at least RM200,000 annually.
Meanwhile, Great Eastern Life Assurance (M) Bhd is targeting to have at least 3,000 Life Planning Advisors (LPAs), similar to the wealth planner concept, by 2010.
Its director and CEO Koh Yaw Hui said since launching the LPA programme in December 2006, the company had 600 agents certified as LPAs as of last year.
“The programme is one of the key pillars of the Agency Transformation Project. As such, we are investing substantially to ensure that the professionalism and productivity of our agency force is elevated.
“This is also in line with Bank Negara’s call for higher professionalism from agency force in conducting their business to ensure that consumers’ interests are constantly being looked after,’’ he said.
According to Koh, the LPAs are trained to serve the clients’ financial needs in the core areas of protection, savings/investment, education, and retirement.
Going forward, he said LPAs would be trained under the Great Eastern Life Planning Advisory Service Centre to provide them with comprehensive financial solutions in estate planning services, will writing, unit trusts and tax consultation to penetrate high net worth clientele base.
This would allow them to become full-fledged multiple financial service providers within the next one year or so, he said.
Manulife Holdings Bhd group CEO Michael Chan said he expected 300 of the company’s total agency force of 1,500 to be certified as wealth planners by year-end.
The certified wealth planners were projected to constitute 50% of its agency force by 2010, he added.
“It is estimated that only 15% of agents in the industry are familiar with selling wealth management products. Therefore, proper training is required for an agent to obtain a licence and understand the financial planning process.
“We have a dedicated centre to train and ‘transform’ our agents into wealth planners,’’ Chan said.
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4170041&sec=business
Changes to spur insurers’ revenue
The Star
‘Transformation’ of agents will protect consumers’ interest
PETALING JAYA: The changes that the insurance sector is going through may help boost its revenue and productivity and enhance the concept of need-based selling, industry players said
The move is in line with Bank Negara’s call to enhance professionalism in the industry and safeguard customers’ interest, they added.
The exercise involves the “transformation” of agents into professional wealth planners who will also sell products like unit trusts and takaful and offer will-writing services apart from selling insurance.
Prudential Assurance Malaysia Bhd chief agency officer Lai Leong Pin said since embarking on an agency transformation exercise last year, the company had converted about 1,800 agents to wealth planners from a total agency force of about 9,000.
“This year, we plan to train an additional 1,800 to 2,000 agents to become wealth planners. In the next five years, we expect to transform between 40% and 50% of our total agency force into wealth planners,” he said in interview.
“Besides boosting the company’s revenue, these professionals will also enhance the productivity of the agency force. Last year, our agency’s average productivity was among the highest in the industry, with about RM69,000 in first year new business premiums.’’
To be qualified as Prudential wealth planners, Lai said an agent must be productive, have met various licensing requirements and undergo external or intensive in-house training.
The in-house training provided by its PRUbusiness academy covers wide-ranging modules that include introduction to wealth planning concepts, products and technicalities and personal effectiveness.
For external programmes, the candidate must have sat for the Registered Financial Planner or Certified Financial Planner examinations. In terms of productivity, the agent must bring in new business premiums worth at least RM200,000 annually.
Meanwhile, Great Eastern Life Assurance (M) Bhd is targeting to have at least 3,000 Life Planning Advisors (LPAs), similar to the wealth planner concept, by 2010.
Its director and CEO Koh Yaw Hui said since launching the LPA programme in December 2006, the company had 600 agents certified as LPAs as of last year.
“The programme is one of the key pillars of the Agency Transformation Project. As such, we are investing substantially to ensure that the professionalism and productivity of our agency force is elevated.
“This is also in line with Bank Negara’s call for higher professionalism from agency force in conducting their business to ensure that consumers’ interests are constantly being looked after,’’ he said.
According to Koh, the LPAs are trained to serve the clients’ financial needs in the core areas of protection, savings/investment, education, and retirement.
Going forward, he said LPAs would be trained under the Great Eastern Life Planning Advisory Service Centre to provide them with comprehensive financial solutions in estate planning services, will writing, unit trusts and tax consultation to penetrate high net worth clientele base.
This would allow them to become full-fledged multiple financial service providers within the next one year or so, he said.
Manulife Holdings Bhd group CEO Michael Chan said he expected 300 of the company’s total agency force of 1,500 to be certified as wealth planners by year-end.
The certified wealth planners were projected to constitute 50% of its agency force by 2010, he added.
“It is estimated that only 15% of agents in the industry are familiar with selling wealth management products. Therefore, proper training is required for an agent to obtain a licence and understand the financial planning process.
“We have a dedicated centre to train and ‘transform’ our agents into wealth planners,’’ Chan said.
http://thestar.com.my/news/story.asp?file=/2009/6/23/business/4170041&sec=business
Monday, June 1, 2009
Growing Pains - Islamic finance is well positioned but faces governance challenges
C F A M A G A Z I N E M A Y – J U N E 2 0 0 9
KEY POINTS
• Islamic banks were largely spared the effects of the toxic assets at the heart of the global credit crunch.
• To take advantage of opportunities, Islamic financial institutions need to improve governance practices.
• Lack of standardization poses a challenge for practitioners, regulators, and investors.
Islamic banks, which shy away from leverage, have been largely buffered from the toxic debts of the credit crunch, now estimated by the International Monetary Fund to reach as high as US$4 trillion. Unlike mainstream houses, Islamic institutions are still growing. Their financial assets are estimated to be worth US$750–US$800 billion, having grown at a compound
annual rate of 20–30 percent over the past decade, according to a September 2008 research report by Morgan Stanley. This figure is widely expected to exceed US$1 trillion by 2010, and some consultants believe it could go as high as $2 trillion.
“Because of the global credit crunch, the potential for Islamic banking is now brighter than the potential of the conventional system,” explains Wohid Islam, legal counsel for the Qatar Investment Authority, the sovereign wealth fund of the state of Qatar.
Islamic finance is governed by Shariah law, which prohibits usury, making it difficult to offer debt, interest, or leveraged products to the market. Shariah-compliant institutions are also prohibited from making investments in companies involved in tobacco, weapons, gambling, alcohol, or porkrelated products. Shariah-compliant supervisory boards must approve each product, adding an extra layer of governance to the mix.
Growth in the industry has come largely from debt-based products. Sukuks are Islamic bonds that offer coupon profits instead of compound interest. They are the fastest growing area of the market.
Challenges to Growth
And yet, for the industry to reach its potential, there are growing pains to resolve. In 2007, Sheikh Muhammad Taqi Usmani, chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI) said that 85 percent of all Gulf Islamic bonds do not fully comply with Islamic laws. Hedge funds and structured products have also caused controversy, with critics saying that some Shariah scholars, who sit on the boards of multiple financial institutions because of rising demand, are often too well paid or too unfamiliar with products to make fair decisions. Very few of the Shariah scholars have financial backgrounds, and most have had to learn about the industry as they went along.
“Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else.”
One hedge fund of funds manager, after being given approval to develop a product by his own Shariah board, was startled to discover that other scholars at different institutions would not allow the product to be distributed. “It’s ridiculous to go ahead with something which takes up time, energy, and money only to then find out that there’s no consensus and you can’t launch the thing anyway,” he complains. “There needs to be some sort of coherent approach, we have to be able to trust our advice.”
Regulators are trying to deal with the issue. “Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else,” says Shaykh Yusuf Talal DeLorenzo, a leading Islamic scholar and adviser to the Dow Jones Islamic Market Indices. “Owing to the special nature of Islamic finance products, however, some jurisdictions have established an extra level of supervision. Such measures are welcomed by the industry.”
But even this is proving tricky. Malaysia has tackled the issue by developing its own Shariah board at a regulatory level to provide centralized oversight. But the Gulf Cooperation Council (GCC) and stricter Muslim nations feel Malaysia’s approach to Shariah compliance is far too liberal and relaxed.
“Investors here are not willing to invest in the products that are approved by Shariah boards in Malaysia,” explains Mohammad Shoaib, CFA, chief executive of Al Meezan Investment Management in Pakistan.
In most of the GCC, Shariah governance is devolved to the bank level. “It is almost privatized, and as a result there is quite a lot of variation in systems of governance. You don’t get standardization, and there are issues about the appointment of Shariah scholars and what qualifications they have and how many boards they sit on,” explains Rodney Wilson, professor of Islamic finance at Durham University and visiting professor at Qatar University. Wilson is also chair of the academic committee of the Institute of Islamic Banking and Insurance in the United Kingdom. “There is one scholar who sits on the boards of 55 institutions,” he points out. “We have published guidelines that highlight some of these issues, not least of which is confidential access to information.”
Unlike Malaysia, Dubai does not believe in a centralized approach to governance and regulation. “We don’t think we are qualified to be Shariah arbitrators,” insists Nik Thani, executive director of Islamic finance at the Dubai International Finance Centre (DIFC). He believes that Malaysia has limited its options by centralizing. “They have an excellent Islamic finance market, and it’s very efficient. But the backbone of their structure is not something that is recognised outside of Malaysia. Shariah law is like common law. It is dynamic, and it evolves. It’s difficult for a government to shift its position. We leave it to market players to develop products that will appeal to their clients.” Thani also points out that unlike other religions, Islam has no central authority. “We need a more collaborative approach between the various regulators,” he says.
Standardization
For some observers, standardization is a difficult concept. “From my perspective, you stifle development by having total standardization. If you had a universal Shariah committee, there would be more certainty to the market, but the downside would be a lack of innovation,” says Richard Thomas, managing director of GSH UK, the UK investment arm of a Kuwaiti-based real estate firm. He believes that a large amount of standardization has already been put in place. “What is universally agreed upon is far greater than areas where there is some conflict. A lot of the controversy has come up from the way that different organizations have exploited the industry and encouraged inappropriate uses for instruments like sukuks.” Others argue that standardization wouldn’t be necessary if international banks hadn’t jumped on the bandwagon and come into Muslim countries with the idea of paying lip service to Islamic
banking by pushing every esoteric structured product through the system. They believe that Islamic banks should continue to do what they are good at— follow classic banking models, with
financing to come from deposits. Then there are those who favor practical standards. “You don’t have to standardize products, but there’s nothing wrong with standardizing procedures,”
says Wilson. “There are different principles of Islamic jurisprudence, but there’s no reason why principles can’t be done in a way that gives confidence to the market.”
ISLAMIC BANKINGCONVENTIONAL BANKING
1. Money is not a commodity, good, or service. It has no price of its own and cannot be used in lending or borrowing for a price (i.e., interest).
2. Money is priced based on the concept of time value of money/opportunity cost, in
addition to the level of risk inherent in a given transaction.
1. Financing activities must be backed by tangible assets.
2. Financing activities are mostly carried out back to back without being asset backed.
1. Money (a stream of cash flow) cannot be exchanged against money (another stream of cash flow) for a price.Exchanging different streams of cash flow in terms of interest paid/received or timing of payment/collection is a common practice.
2. Transactions and activities that involve an element of uncertainty (speculation) regarding outcome and/or timing of execution or delivery are not allowed.Uncertainty and risk management are part and parcel of conventional banking activities
1. Penalties on late payments are prohibited. If penalties are levied, they must be re-channelled to charities.
2. Fees are typically charged for late payments.
1. Transactions and activities that involve engagement with unlawful business sectors, such as gambling and alcohol, are not allowed.
2. Besides money laundering and the financing of criminal activities, how customers use borrowed funds is typically unrestricted.
Source: Al Meezan Guide to Islamic Finance, Morgan Stanley Research.
Challenges to Development
Standardization is one of many challenges to future development. Morgan Stanley has identified four other areas of concern. First, the scarcity of Shariah scholars who are well versed in both Islam and finance leads to overburdened Shariah boards and slow approval processes. Second, Shariah compliance leads to greater product complexity, higher skills requirements, and more onerous documentation. Third, because of the unique aspects of Islamic finance and lack of hedging instruments, liquidity makes risk management that much more challenging. Finally, says Morgan Stanley, there is competition from conventional banking. Industry leaders are unfazed. “At the moment, Islamic finance only accounts for 1 percent of the global financial market,” says DIFC’s Thani. “We have done a lot of growing up in the past few years, and we’re conscious of the weaknesses in the system. We’re always addressing those. It’s difficult to set a time for the development of a level playing field [with conventional banking], but I think it will be relatively fast.”
Maha Khan Phillips is a financial journalist based in London.
KEY POINTS
• Islamic banks were largely spared the effects of the toxic assets at the heart of the global credit crunch.
• To take advantage of opportunities, Islamic financial institutions need to improve governance practices.
• Lack of standardization poses a challenge for practitioners, regulators, and investors.
Islamic banks, which shy away from leverage, have been largely buffered from the toxic debts of the credit crunch, now estimated by the International Monetary Fund to reach as high as US$4 trillion. Unlike mainstream houses, Islamic institutions are still growing. Their financial assets are estimated to be worth US$750–US$800 billion, having grown at a compound
annual rate of 20–30 percent over the past decade, according to a September 2008 research report by Morgan Stanley. This figure is widely expected to exceed US$1 trillion by 2010, and some consultants believe it could go as high as $2 trillion.
“Because of the global credit crunch, the potential for Islamic banking is now brighter than the potential of the conventional system,” explains Wohid Islam, legal counsel for the Qatar Investment Authority, the sovereign wealth fund of the state of Qatar.
Islamic finance is governed by Shariah law, which prohibits usury, making it difficult to offer debt, interest, or leveraged products to the market. Shariah-compliant institutions are also prohibited from making investments in companies involved in tobacco, weapons, gambling, alcohol, or porkrelated products. Shariah-compliant supervisory boards must approve each product, adding an extra layer of governance to the mix.
Growth in the industry has come largely from debt-based products. Sukuks are Islamic bonds that offer coupon profits instead of compound interest. They are the fastest growing area of the market.
Challenges to Growth
And yet, for the industry to reach its potential, there are growing pains to resolve. In 2007, Sheikh Muhammad Taqi Usmani, chairman of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOFI) said that 85 percent of all Gulf Islamic bonds do not fully comply with Islamic laws. Hedge funds and structured products have also caused controversy, with critics saying that some Shariah scholars, who sit on the boards of multiple financial institutions because of rising demand, are often too well paid or too unfamiliar with products to make fair decisions. Very few of the Shariah scholars have financial backgrounds, and most have had to learn about the industry as they went along.
“Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else.”
One hedge fund of funds manager, after being given approval to develop a product by his own Shariah board, was startled to discover that other scholars at different institutions would not allow the product to be distributed. “It’s ridiculous to go ahead with something which takes up time, energy, and money only to then find out that there’s no consensus and you can’t launch the thing anyway,” he complains. “There needs to be some sort of coherent approach, we have to be able to trust our advice.”
Regulators are trying to deal with the issue. “Islamic financial products are subject to the same regulation as any other financial product, whether they are offered in Europe, Asia, Africa, or anywhere else,” says Shaykh Yusuf Talal DeLorenzo, a leading Islamic scholar and adviser to the Dow Jones Islamic Market Indices. “Owing to the special nature of Islamic finance products, however, some jurisdictions have established an extra level of supervision. Such measures are welcomed by the industry.”
But even this is proving tricky. Malaysia has tackled the issue by developing its own Shariah board at a regulatory level to provide centralized oversight. But the Gulf Cooperation Council (GCC) and stricter Muslim nations feel Malaysia’s approach to Shariah compliance is far too liberal and relaxed.
“Investors here are not willing to invest in the products that are approved by Shariah boards in Malaysia,” explains Mohammad Shoaib, CFA, chief executive of Al Meezan Investment Management in Pakistan.
In most of the GCC, Shariah governance is devolved to the bank level. “It is almost privatized, and as a result there is quite a lot of variation in systems of governance. You don’t get standardization, and there are issues about the appointment of Shariah scholars and what qualifications they have and how many boards they sit on,” explains Rodney Wilson, professor of Islamic finance at Durham University and visiting professor at Qatar University. Wilson is also chair of the academic committee of the Institute of Islamic Banking and Insurance in the United Kingdom. “There is one scholar who sits on the boards of 55 institutions,” he points out. “We have published guidelines that highlight some of these issues, not least of which is confidential access to information.”
Unlike Malaysia, Dubai does not believe in a centralized approach to governance and regulation. “We don’t think we are qualified to be Shariah arbitrators,” insists Nik Thani, executive director of Islamic finance at the Dubai International Finance Centre (DIFC). He believes that Malaysia has limited its options by centralizing. “They have an excellent Islamic finance market, and it’s very efficient. But the backbone of their structure is not something that is recognised outside of Malaysia. Shariah law is like common law. It is dynamic, and it evolves. It’s difficult for a government to shift its position. We leave it to market players to develop products that will appeal to their clients.” Thani also points out that unlike other religions, Islam has no central authority. “We need a more collaborative approach between the various regulators,” he says.
Standardization
For some observers, standardization is a difficult concept. “From my perspective, you stifle development by having total standardization. If you had a universal Shariah committee, there would be more certainty to the market, but the downside would be a lack of innovation,” says Richard Thomas, managing director of GSH UK, the UK investment arm of a Kuwaiti-based real estate firm. He believes that a large amount of standardization has already been put in place. “What is universally agreed upon is far greater than areas where there is some conflict. A lot of the controversy has come up from the way that different organizations have exploited the industry and encouraged inappropriate uses for instruments like sukuks.” Others argue that standardization wouldn’t be necessary if international banks hadn’t jumped on the bandwagon and come into Muslim countries with the idea of paying lip service to Islamic
banking by pushing every esoteric structured product through the system. They believe that Islamic banks should continue to do what they are good at— follow classic banking models, with
financing to come from deposits. Then there are those who favor practical standards. “You don’t have to standardize products, but there’s nothing wrong with standardizing procedures,”
says Wilson. “There are different principles of Islamic jurisprudence, but there’s no reason why principles can’t be done in a way that gives confidence to the market.”
ISLAMIC BANKINGCONVENTIONAL BANKING
1. Money is not a commodity, good, or service. It has no price of its own and cannot be used in lending or borrowing for a price (i.e., interest).
2. Money is priced based on the concept of time value of money/opportunity cost, in
addition to the level of risk inherent in a given transaction.
1. Financing activities must be backed by tangible assets.
2. Financing activities are mostly carried out back to back without being asset backed.
1. Money (a stream of cash flow) cannot be exchanged against money (another stream of cash flow) for a price.Exchanging different streams of cash flow in terms of interest paid/received or timing of payment/collection is a common practice.
2. Transactions and activities that involve an element of uncertainty (speculation) regarding outcome and/or timing of execution or delivery are not allowed.Uncertainty and risk management are part and parcel of conventional banking activities
1. Penalties on late payments are prohibited. If penalties are levied, they must be re-channelled to charities.
2. Fees are typically charged for late payments.
1. Transactions and activities that involve engagement with unlawful business sectors, such as gambling and alcohol, are not allowed.
2. Besides money laundering and the financing of criminal activities, how customers use borrowed funds is typically unrestricted.
Source: Al Meezan Guide to Islamic Finance, Morgan Stanley Research.
Challenges to Development
Standardization is one of many challenges to future development. Morgan Stanley has identified four other areas of concern. First, the scarcity of Shariah scholars who are well versed in both Islam and finance leads to overburdened Shariah boards and slow approval processes. Second, Shariah compliance leads to greater product complexity, higher skills requirements, and more onerous documentation. Third, because of the unique aspects of Islamic finance and lack of hedging instruments, liquidity makes risk management that much more challenging. Finally, says Morgan Stanley, there is competition from conventional banking. Industry leaders are unfazed. “At the moment, Islamic finance only accounts for 1 percent of the global financial market,” says DIFC’s Thani. “We have done a lot of growing up in the past few years, and we’re conscious of the weaknesses in the system. We’re always addressing those. It’s difficult to set a time for the development of a level playing field [with conventional banking], but I think it will be relatively fast.”
Maha Khan Phillips is a financial journalist based in London.
Monday, April 6, 2009
Malaysia Deposit Insurance ready for the worst
Monday April 6, 2009
MALAYSIA Deposit Insurance Corp (PIDM) has set up teams and a comprehensive risk assessment system in preparation for any crisis.
“Last year, we developed a risk assessment system which allows us to slice and dice the information, do trending between peer groups and monitor non-performing loans,’’ said PIDM CEO Jean Pierre Sabourin.
As an independent statutory body, PIDM assesses the financial institutions based on the least cost approach. Backed by a team of six risk managers, it meets Bank Negara, which is the supervisor, once a month to share information and discuss issues of concern.
“We also spend a lot of time on the intervention and resolution framework,’’ Sabourin told StarBiz. PIDM has powers to intervene into a problem institution to mitigate the loss, provide financial assistance, purchase assets, provide guarantees or make deposits. If the institution is deemed unviable, intervention powers include taking control, nationalisation, liquidation, finding the least cost solution, purchase assumptions, recapitalisation, doing bridge banks or agency agreements.
The US Federal Deposit Insurance Corp (FDIC) and the Canadian Deposit Insurance Corp (CDIC) have all those powers too. Sabourin had worked at the CDIC for 30 years, of which he was CEO for 15 years.
The deposit insurance system complements Bank Negara’s role in protecting depositors and contributing to financial stability.
The principle is to intervene properly and find quick solutions in the best interests of the financial system.
“If the institution is liquidated through the court process, we would be obligated to reimburse depositors,’’ said Sabourin who has experience with 43 bank failures in Canada.
Since the end of last year, PIDM has been developing a comprehensive payout system which will be rolled out in phases over the next two years. This involved complex calculations, looking at ways to obtain access to all the deposits, reconciling all deposit liabilities and aggregating accounts.
Besides that, the payout system looks at calculation of interest, uncleared cheques, reconciliation for depositors and transfer of the deposit base to a new institution. Another avenue is to sell the bank branches.
“When we do resolution, we don’t just look at costs but at other issues such as contagion and public concerns,’’ said Sabourin.
“We are the responsible organisation to deal with troubled banks. When the situation cannot be rectified by the regulator, it becomes a viability issue and our responsibility to intervene,’’ he added.
However, banks in Malaysia are in good shape based on financial stability reports and the data and observations made at PIDM.
“We have teams working day and night now on approaches and policies on contingency planning,’’ he said.
To reward banks with better risk profiles, a new method of collecting premiums called the differentiated premium system was implemented.
Taking into account qualitative and quantitative factors, it does back testing and checks on factors to assess banks individually and as a group.
PIDM has come up with the best bank model looking at ratios such capital, efficiency and profit volatility.
In comparison with the previous flat rate of 0.06% of insured deposits, banks in No. 1 category pay less premiums which had totalled RM100mil per year for three years since the formation of PIDM.
Based on the higher deposit base at banks, the premiums collected by PIDM is projected to increase. But this amount can be mitigated if a bank falls in No. 1 category (0.03%); No. 2 (0.06%); No. 3 (0.12%) and No. 4 (0.24%).
For 2008 which was the first year of implementation, the banks enjoyed a transitional mechanism where quantitative scores were adjusted upwards by 20%. Risk ratings also take into account Bank Negara ratings (35%).
For 2009, there is no transitional mechanism; by May 31, the results will be available of the first year of implementation of the new system.
“Based on the Canadian experience of the best bank model, we saw a substantial increase in banks going to highest category.
“This information is provided to the board which will probably ask the CEO why their bank is paying more premium to PIDM,’’ said Sabourin.
PIDM has a current fund size of about RM280mil. “The premiums charged cannot be large enough for the banks to start charging customers for it,’’ said Sabourin.
In most cases, deposit insurers build a target fund which is large enough to deal with losses expected. A system of early intervention based on viability, not insolvency, should help to contain losses.
In Malaysia, the deposit insurer is a government agency. It also has the authority to borrow from the Government or issue debt.
PIDM funds are invested only in government securities, based on the objective of capital preservation.
“This year, we are building a target fund with some proxies to evaluate the kind of fund and level we would be comfortable with. Then, we can reduce premiums further. We have done that in Canada and the process can take 10 to 15 years,’’ he said.
The target fund is based on probability of bank failures and loss given default (how much it costs if a bank fails). There is no history in Malaysia, hence the need to find some proxies.
Target funds can become very huge. The FDIC had more than US$50bil two years ago and paid rebates.
http://biz.thestar.com.my/news/story.asp?file=/2009/4/6/business/3637330&sec=business
MALAYSIA Deposit Insurance Corp (PIDM) has set up teams and a comprehensive risk assessment system in preparation for any crisis.
“Last year, we developed a risk assessment system which allows us to slice and dice the information, do trending between peer groups and monitor non-performing loans,’’ said PIDM CEO Jean Pierre Sabourin.
As an independent statutory body, PIDM assesses the financial institutions based on the least cost approach. Backed by a team of six risk managers, it meets Bank Negara, which is the supervisor, once a month to share information and discuss issues of concern.
“We also spend a lot of time on the intervention and resolution framework,’’ Sabourin told StarBiz. PIDM has powers to intervene into a problem institution to mitigate the loss, provide financial assistance, purchase assets, provide guarantees or make deposits. If the institution is deemed unviable, intervention powers include taking control, nationalisation, liquidation, finding the least cost solution, purchase assumptions, recapitalisation, doing bridge banks or agency agreements.
The US Federal Deposit Insurance Corp (FDIC) and the Canadian Deposit Insurance Corp (CDIC) have all those powers too. Sabourin had worked at the CDIC for 30 years, of which he was CEO for 15 years.
The deposit insurance system complements Bank Negara’s role in protecting depositors and contributing to financial stability.
The principle is to intervene properly and find quick solutions in the best interests of the financial system.
“If the institution is liquidated through the court process, we would be obligated to reimburse depositors,’’ said Sabourin who has experience with 43 bank failures in Canada.
Since the end of last year, PIDM has been developing a comprehensive payout system which will be rolled out in phases over the next two years. This involved complex calculations, looking at ways to obtain access to all the deposits, reconciling all deposit liabilities and aggregating accounts.
Besides that, the payout system looks at calculation of interest, uncleared cheques, reconciliation for depositors and transfer of the deposit base to a new institution. Another avenue is to sell the bank branches.
“When we do resolution, we don’t just look at costs but at other issues such as contagion and public concerns,’’ said Sabourin.
“We are the responsible organisation to deal with troubled banks. When the situation cannot be rectified by the regulator, it becomes a viability issue and our responsibility to intervene,’’ he added.
However, banks in Malaysia are in good shape based on financial stability reports and the data and observations made at PIDM.
“We have teams working day and night now on approaches and policies on contingency planning,’’ he said.
To reward banks with better risk profiles, a new method of collecting premiums called the differentiated premium system was implemented.
Taking into account qualitative and quantitative factors, it does back testing and checks on factors to assess banks individually and as a group.
PIDM has come up with the best bank model looking at ratios such capital, efficiency and profit volatility.
In comparison with the previous flat rate of 0.06% of insured deposits, banks in No. 1 category pay less premiums which had totalled RM100mil per year for three years since the formation of PIDM.
Based on the higher deposit base at banks, the premiums collected by PIDM is projected to increase. But this amount can be mitigated if a bank falls in No. 1 category (0.03%); No. 2 (0.06%); No. 3 (0.12%) and No. 4 (0.24%).
For 2008 which was the first year of implementation, the banks enjoyed a transitional mechanism where quantitative scores were adjusted upwards by 20%. Risk ratings also take into account Bank Negara ratings (35%).
For 2009, there is no transitional mechanism; by May 31, the results will be available of the first year of implementation of the new system.
“Based on the Canadian experience of the best bank model, we saw a substantial increase in banks going to highest category.
“This information is provided to the board which will probably ask the CEO why their bank is paying more premium to PIDM,’’ said Sabourin.
PIDM has a current fund size of about RM280mil. “The premiums charged cannot be large enough for the banks to start charging customers for it,’’ said Sabourin.
In most cases, deposit insurers build a target fund which is large enough to deal with losses expected. A system of early intervention based on viability, not insolvency, should help to contain losses.
In Malaysia, the deposit insurer is a government agency. It also has the authority to borrow from the Government or issue debt.
PIDM funds are invested only in government securities, based on the objective of capital preservation.
“This year, we are building a target fund with some proxies to evaluate the kind of fund and level we would be comfortable with. Then, we can reduce premiums further. We have done that in Canada and the process can take 10 to 15 years,’’ he said.
The target fund is based on probability of bank failures and loss given default (how much it costs if a bank fails). There is no history in Malaysia, hence the need to find some proxies.
Target funds can become very huge. The FDIC had more than US$50bil two years ago and paid rebates.
http://biz.thestar.com.my/news/story.asp?file=/2009/4/6/business/3637330&sec=business
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