Further to Prime Minister Najib Razak's budget speech in March 2009, on 22 April and 27 April 2009, new liberalisation programmes were announced by the Malaysian Prime Minister's office. The steps taken are intended to encourage growth and development in the service and financial sectors and present new opportunities for international investment in Malaysia.
Liberalisation of the Service Sector
Prior to the 22 April 2009 announcement, ordinarily 30% of the equity of each Malaysian company had to be held, directly or indirectly, by Bumiputera (being, broadly speaking, the indigenous people of Malaysia), subject to certain exceptions.
The recent announcement declared that, with immediate effect, the 30% Bumiputera equity condition would no longer be imposed on 27 sub-sectors of the service sector, including aspects of:
- health and social services
- tourism services
- transport services
- business services
- computer and related services
- sporting and other recreational services
Further, the Prime Minister's office has explained that its aim is for the service sector to increase its contribution to Malaysia's GDP from 55% to 60% and, in order to achieve this, the Malaysian Government will be progressively undertaking further liberalisation of other service sub-sectors.
Liberalisation of the Financial Sector
On 27 April 2009 the Prime Minster's office released a further announcement regarding the liberalisation of the financial sector. It was explained that, unlike the liberalisation of the service sector, the changes to the financial sector would be implemented over a 3 year period commencing in 2009. The financial liberalisation package includes: (i) the issuance of a number of licences which will allow more foreign companies to operate in the Malaysian financial services sector; (ii) measures to increase foreign equity ownership limits; and (iii) the relaxation of certain other operational restrictions.
New licences available for foreign companies
The Government has proposed that the following licences be issued:
- Islamic banking licences - up to 2 licences to be issued by the end of 2009 to foreign companies to establish new Islamic banks. Any new institution receiving a licence will have to be incorporated locally and will be required to have issued and paid-up capital of at least US$1 billion. Applications for these licences should be submitted by 31 October 2009 and the successful applicants will be expected to commence operations no later than 12 months from the date on which their application is approved.
- Commercial banking licences (specialist expertise) - up to 2 licences to be issued by the end of 2009 to foreign companies that will bring specialist expertise to Malaysia and spur on the development of targeted economic sectors. These newly licensed banks will need to be incorporated locally and maintain, at all times, capital funds of RM300 million (unimpaired by losses). Applications for these licences should be submitted by 31 October 2009, with the successful applicants commencing operations in 2010.
- Commercial banking licences (significant value propositions) - up to 3 licences to be issued by the end of 2011 to "world class banks" that will be able to offer expertise and resources for the development of the Malaysian financial services sector and the wider economy in general. Again, these newly licensed banks will need to be incorporated locally and maintain, at all times, capital funds of RM300 million (unimpaired by losses). Applications for these licences should be submitted by 31 December 2009, with the successful applicants commencing operations from 1 January 2011.
- Family takaful1 licences - up to 2 new licences to be issued by the end of 2009 to foreign companies that can spur the development of the takaful industry and reinforce Malaysia's position as an international Islamic financial hub. Any newly licensed family takaful operator will have to be registered under the Takaful Act 1984 and maintain a minimum issued and paid-up capital of RM100 million. Applications for family takaful licences should be submitted by 31 October 2009 and the successful applicants will be expected to commence operations no later than 12 months from the date on which their application is approved.
Relaxation of shareholding restrictions
The Government has also increased the size of the stake that a foreign investor can hold in Malaysian incorporated Islamic banks, investment banks, insurance companies and takaful operators. Previously foreign investors ordinarily could not own more than 49% of these entities. This has now been increased to 70% with immediate effect. It has also been announced that for insurance companies which can facilitate consolidation and rationalisation of the insurance industry a higher foreign equity limit above 70% will be considered on a case-by-case basis.
It should be noted that the restriction on foreign investors holding more than 30% of domestic commercial banks remains.
Further, and unlike the new position in relation to the aforementioned 27 service industry sub-sectors, generally a 30% stake in all companies in the financial service sector must still in principle be held by Bumiputera.
Increased operational flexibility
Other changes to the legislative and regulatory regime governing the financial sector, which were announced recently and which are intended to increase operational flexibility, include the following:
- Locally-incorporated foreign commercial banks are now able to establish up to 10 microfinance2 branches and will, subject to certain conditions, be able to establish up to 4 new fully-fledged branches in 2010.
- Locally-incorporated foreign insurance companies and takaful operators are allowed to establish branches nationwide without restriction with immediate effect.
- The restriction on locally-incorporated foreign insurance companies and takaful operators entering into bancassurance and bancatakaful3 arrangements with banking institutions has now been lifted.
- Offshore banking institutions licensed by the Labuan Offshore Financial Services Authority (the "LOFSA") that meet certain criteria may have the opportunity to have an onshore presence from 2010; similarly, offshore insurance companies licensed by the LOFSA that meet certain criteria may be able to establish an onshore presence by 2011.
- With immediate effect, banking institutions, insurance companies and takaful operators will be accorded greater flexibility to employ specialist expatriates.
Please note that we will shortly be circulating a separate e-bulletin analysing the possible impact of the recent announcements on the insurance industry in Malaysia.