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Explore the structure of Malaysia's financial systems, including banking institutions, non-bank financial intermediaries, and financial markets. Learn how the Central Bank regulates the system and the role of commercial banks in creating money and providing financial services.
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MCF 304: Bank Management Lecture 1.1 Structure of Financial Systems in Malaysia
Structure of Financial Systems in Malaysia Financial System (FS) acts as a mechanism to transfer excess fund from to those who need them The Malaysian FS structure can be divided into three parts; Banking system Non-bank financial intermediaries Financial markets
Banking System Bank Negara Malaysia Banking Institutions Commercial banks Finance companies Merchant banks Islamic banks Discount Houses Representative office of foreign banks Labuan off-shore banks
Non-Bank Financial Intermediaries Employee Provident Fund & Pension Fund Insurance & Takaful companies Development Financial Institutions (FI) SME Bank Agro Bank Savings Institutions Bank Simpanan Nasional Co-operatives associations Unit Trusts Lembaga Urusan Tabung Haji
Financial Markets Money Market & Foreign Exchange Market Capital Market Equity market Bond market Derivatives Market / Off Shore Market Labuan Off Shore Foreign Finance Authority
Banking System Financial intermediaries linking financial institutions and individuals with excess fund and financial institutions and individuals with shortage fund The Central Bank (BNM) regulates and control the banking system
Central Bank (Bank Negara Malaysia) Main Objectives Supply currency, acts as custodian of banks reserves & controller of the currency value Government’s banker and financial adviser Ensure financial stability & strong financial structure Commercial bank’s banker Control & influence the country’s credit situation to ensure a stable economic growth rate
Central Bank Control & influence the country’s credit situation to ensure a stable economic growth rate Statutory reserves requirement Minimum liquidity requirement Open market operation Discount operations Interest rate control Credit control & lending guidelines Moral persuasion
Commercial Banks Accepting deposits for current, deposits, savings and other similar accounts Making payments to collect cheques written or paid by customers Other businesses as permitted by the Cental Bank / MOF
Role & Importance of Commercial Banks Creating money Providing payment mechanism Collect savings Providing credits Financing international trades
Example;Creating Money Bank X gives A an overdraft of 200 to purchase a radio. A paid the vendor Vendor bank in the 200 in Bank B Bank B keep 20% as reserves and lend the balance
Example;Creating Money Radio vendors deposit = 200 Furniture vendor deposit = 200 x (80/100) = 160 Spare parts vendor deposits = 200 x (80/100)2 = 128 And so on …… P = original value of deposits r = bank’s reserve ratio Total Deposits = P[1/r] = 200 x [(1/20)/100] = 1000
Finance Companies Accepting deposits for deposits accounts and other similar accounts Provide lending, leasing, hire-purchase Other business as permitted by central bank / MOF
Merchant Bank Accepting deposits for deposits accounts and other similar accounts Provide consultancy and advisory services related to corporate and investment matters Create / manage investment for other parties Other business as permitted by central bank / MOF
Other Banking System Islamic Banks - commercial banks operating under the islamic laws which forbidden the element of usury Discount Houses - financial intermediaries dealing specifically with short term investors and borrowers Labuan Offshore Banks - commercials banks which operates in financial offshore centers and permitted to operates in any currencies except of local currencies
Non-Banking Financial Intermediary System Matching the parties with excess and shortage of funds Non-banking financial intermediary system is under the direct control of various government department and agencies
Institutions of Development Finance Specific purpose of providing medium and long term capital, as well as mobilizing savings, economic activities and expertise with an aim to promote investment in the industrial and agricultural sectors The role of institutions of development finance complement the services offered by commercial banks and financial companies
Non-Banking Financial Intermediary System Savings Institutions Institutions which promote and mobilize savings of the middle and lower income group Depends mostly on network of branches to collect huge amount of savings Co-operatives - A society that aims to improve its members interest through co-operatives principles
Non-Banking Financial Intermediary System Provident & Pension Fund - Collect fund from workers and providing them with funds for retirement Insurance Companies Funds collected as insurance premiums from policy holders for protection against calamities Two types of insurance business; (i) Life, & (ii) General
Non-Banking Financial Intermediary System Unit Trust Companies Housing Credit Institutions Leasing & Factoring Companies Venture Capital Companies
Financial Markets:Money Market Trading ground between banks and those with short term money Trading of short term financial instruments quoted in RM The operations of money market consist of three categories; Placement of time & fixed deposits Commercial financing Buying & selling of money market financial papers
Money Market Financial Instruments - Treasury Bills Government Investment Certificates Bankers Acceptance (Floating Rate) / Negotiable Certificates of Deposits Money Markets Primary Market: depositing in FI’s Secondary Market: FI’s trade deposits among themselves
Financial Markets Foreign Exchange Market Trading of short term financial instruments quoted in foreign currencies Two types of markets; (i) spot exchange market and (ii) forward market Capital Market Trading of shares / securities Two types of markets; (i) primary markets, and (ii) secondary markets
Thank You! Izdihar Baharin @ Md Daud Post Graduate Centre HP: 006019-5170817 Email: izdi@oum.edu.my