The recent move to liberalise the financial sector is quite interesting. According to a report, Malaysia today raised the cap on foreign equity for investment banks and insurers to 70 per cent but retained a 30 per cent limit for local commercial banks in a mixed bag of incentives to boost the financial services industry.
Prime Minister Najib Razak also announced that Bank Negara will issue two new licences for foreign-owned Islamic banks that must each be capitalised at US$1 billion or more, and foreign trade banks in 2009. Three new commercial banking licences will also be further offered in 2011.
The government has decided to allow banks and financial institutions to employ skilled foreign workers. This is a good move to expand the human resource pool. However, the government should focus on attracting skilled Malaysian financial specialists who are now working in important a few regional and global financial hubs.
However, this decision will not create an immediate influx of foreign talents to our shores. Before the financial can grow, Malaysia has to become an important regional financial hub first. The lack of liquidity in the local equity market will not help to attract many new deals. A number of IPOs will still head for the Singapore, London or Hong Kong equity markets.
The commercial banking sector had gone through a consolidation barely a couple of years ago aftermath of the 1997 Asian financial crisis. I am not too sure if the government's decision to allow for 3 more new licenses by 2011 is a smart move or not. Can the domestic market accommodate a few more commercial banks? Can these banks be viable?
I would like to urge the government to look beyond just mere equity liberalisation as a strategy to overhaul the economy. We need to focus on building quality companies, skilled and productive workforce and enhancing the effectiveness, transparency and independence of our democratic institutions.
We should also focus on mindset and work culture change. Malaysian public and private sectors must learn to take more risk. We need to shorten the time to new product and services delivery. Companies and public agencies should focus on better client relationship management and service delivery quality.