The Malaysian Ministry of Finance recently published its 2002/2003 Economic Report assessing the performance and prospects of the Malaysian economy.

Generally, the domestic banking sector has recovered well from the economic crisis. The thrust of monetary policy in 2002, which was directed at supporting domestic economic recovery, translated principally into low interest rates and ample liquidity. As a result, the number of loans applications, approvals and disbursements increased significantly. A total of almost M$79 million (approximately $21 million) was approved in the first seven months of 2002, representing an increase of 7.4% over the corresponding period in 2001. More than M$231 million (over $60 million) was disbursed, representing an increase of 7.5% over the corresponding period in 2001.

Mergers and consolidations of banks and financial institutions have yielded positive results and the merged entities are now well equipped to deal with increased competition. Following the mergers, most banking groups have carried out reviews of their business systems with a view to improving customer services (including the introduction of internet banking which is increasing in popularity). The merger process has also resulted in other innovative products being launched to meet the increasing demands of customers.

The government’s decision to allow locally-incorporated foreign banks to offer internet banking from January 1 2002 signifies a further step towards levelling the playing field for domestic and incumbent foreign banks.

Islamic banking has increased its market share in terms of assets and deposits. In 2002, Islamic banking assets registered a market share of 8.2% (exceeding the 8% target set by the Central Bank of Malaysia), while the Islamic banking sector's total assets rose by 8.9% to over M$64 million (almost $17 million). With two full-fledged Islamic banks and almost all domestic banks and financial institutions offering Islamic banking services, new products are constantly being developed under Islamic principles, offering customers a sound alternative to conventional products.

The ministry's report envisages further growth for the Malaysian economy. Monetary policy for 2003 is likely to focus on supporting private sector initiatives, dynamism and growth to further accelerate the economy's recovery and reduce over-dependency on external demand.

For further information on this topic please contact Ahmad Lutfi Abdull Mutalip at Azmi & Associates by telephone (+603 2145 6161) or by fax (+603 2145 7171) or by email ([email protected]).