How Well Do You Know Malaysia's Financial System?

Overview of Malaysia's Financial System and Institutions

• Bank Negara Malaysia (BNM) is the Central Bank of Malaysia and is responsible for issuing currency, acting as a banker and financial advisor to the government, promoting monetary stability and a sound financial structure, and influencing the credit situation to the advantage of Malaysia.
• There are 26 commercial banks in Malaysia, excluding Islamic banks, and they are the largest providers of funds in the banking system. Their main functions include retail banking services, trade financing facilities, treasury services, cross-border payment services, and custody services.
• Islamic banking operates within the realms of shariah teachings and there are 16 licensed Islamic banks in Malaysia. They operate under separate Islamic legislation and banking regulations alongside conventional banks.
• Merchant banks specialize in short-term money market and capital raising activities, including financing, syndication, corporate finance and management advisory services, arranging for the issue and listing of shares, and investment portfolio management.
• Discount houses specialize in short-term money market operations and mobilize deposits from financial institutions and corporations in the form of money at call, overnight money, and short-term deposits.
• Investment banks undertake fund management and unit trust businesses, underwrite new debt and equity securities for all types of corporations, and help corporations, governments, and other groups plan and manage financial aspects of large projects.
• There are 16 approved foreign banks that have established representative offices in Malaysia, which are merely liaison offices and do not offer banking products directly to the Malaysian market.
• Provident and pension funds provide retirement, medical, death, or disability benefits to members and their dependents and are the second largest group of financial institutions in Malaysia in terms of aggregate assets, next to banking institutions.
• Development Financial Institutions (DFIs) are established by the government to promote the development of certain identified priority sectors and sub-sectors of the economy, such as agriculture, infrastructure development, and international trade.
• The money market and foreign exchange market involve trading of short to medium-term instruments and currency exchange, respectively.
• The derivatives market involves financial instruments derived from other forms of assets, such as future contracts, calls, and options.
• The capital or equity market involves trading of long-term instruments, while the offshore market refers to the Labuan International offshore financial center and includes representative offices of foreign banks and the Credit Guarantee Corporation. Islamic banking principles include being free from gambling and interest.