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Here is a brief overview of banking sector in Malaysia.
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Banking Sector in Malaysia

The origin of the banking sector in Malaysia goes back to the existence of the British merchant communities in Penang and Singapore dating back to the 19th century, which is also known as the Straits Settlement. Penang's strategic location and port facilities became a launch pad for banks. Mercantile Bank was among the first to set up office in Penang, followed by Chartered Bank (now Standard Chartered) in 1875, followed by Hong Kong bank in 1884.
The abundance in natural resources ensured the industrialization of Penang, especially the tin industry. With the influx of Chinese immigrant laborers, commerce also flourished. Rubber trees became a major cash crop. A quarter of a million of acres of land were converted into rubber plantations by 1908.The tin and rubber business fueled the growth of the banking sector.
Malaysian Banking Sector at Present
In spite of the scenario for global financial markets and world economic being gloomy, the financial health of the commercial banks operating in Malaysia is sound. The Association of Banks in Malaysia (ABM) representing the banks feels that commercial banks in Malaysia are in a strong position to execute there responsibilities and support domestic economic activities.
According to ABM, there is no credit crunch in Malaysia and banks in Malaysia have a strong domestic presence, with 90 per cent of the total assets in Ringgit denominated assets and most of the investments and assets are concentrated in Association of Southeast Asian Nations (ASEAN).
The credit extension is more diversified at present between business and household loans in Malaysia, without heavy exposure to any one segment.
There has been an improvement in banks’ assets quality, that being the 3-month Non-Performing Loan ratio, to 2.5 per cent in August 2008 versus a high of 11.5 per cent in 2001. In August 2008, industry capitalization is also strong with risk-weighted capital ratio at 13.2 per cent, exceeding the 8 per cent minimum requirement, while industry loan loss coverage is at a comfortable 95.2 per cent.
Malaysia has a savings rate of 37 per cent, which is relatively high by International standards. The local financial system's strong liquidity, combined with high domestic savings rate and Bank Negara Malaysia’s mid September 2008 external reserves of US$119 billion, would ensure the orderly functioning of transactional and lending activities to give an impetus to domestic growth.
There is ample liquidity in the system and Bank Negara Malaysia's assurance to provide liquidity, whenever needed to financial institutions under its purview and readiness to respond with coordinated measures with other monetary authorities in the region, means the demand for financing as well as financial services, arising from economic and financing activities remain intact and unaffected.
The Central banks strict monitoring and control has ensured that the Malaysian banking industry has been to a large extent insulated from the global financial crisis. The experience gained from the 1997-98 Asian financial crisis and the reforms undertaken thereafter have significantly strengthened the banking industry.

Last Updated on: 18-11-2009

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