Thursday, May 19, 2011

BNM Liberalises Forex Again: Go Forth And Multiply

Along with yesterday’s GDP report, BNM has also reduced the already low barriers for overseas investment:

Liberalisation on direct investment abroad, inter-company loans and trade financing

As part of the efforts to continuously increase business efficiency and enhance competitiveness of the economy, Bank Negara Malaysia wishes to announce with effect from June 1, 2011 the following liberalisations on direct investment abroad, inter-company loans and trade financing facilities obtained by residents:

(a) To support private sector expansion of their operations and direct investment abroad, resident companies that meet the prudential requirements will now be permitted to undertake any amount of direct investment abroad. Therefore, direct investment abroad will be excluded from the prevailing RM50 million limit on investment in foreign currency assets.

(b) To further enhance the efficient management of financial resources within a corporate group and to provide greater flexibility on sources of competitive financing, resident companies may now borrow any amount in ringgit or foreign currency from their resident and non-resident non-bank related companies.

(c) The RM5 million limit currently imposed on foreign currency trade financing obtained by residents from non-residents will no longer be applicable. In this regard, residents may obtain foreign currency borrowing, including foreign currency trade financing, up to the prevailing aggregate limit of RM100 million for companies on a corporate group basis and RM10 million for individuals.

Note that this really only applies for Malaysian companies – the rules for foreign companies are already pretty light. Is this encouraging locals to invest overseas? Obviously…and probably a nod too at the already extensive operations the bigger ones have in the region. The last point is interesting though, as the effect is to increase competition for the local banking sector.


  1. The last point reminds me of Thailand pre-1997. Not that I disagree with the liberalization, but just saying.

  2. I think this a precursor to another round of local bank consolidation. The presumption is largely capitalised banks would attain scale economies and could withstand stiff competition from big foreign banks that set up shop here. But again x-inefficiency is a main issue in local banks as empirical evidence indicated so. A bank may be big in term capital but not necessarily better in competition if input recources are not effeciently allocated. Attanining economies of scale is one issue and managerial efficiency is another.

  3. malaysian companies can now lend/borrow millions among their foreign subsidiaries. Do shareholders really know of their foreign subsidiaries activities abroad? This will allow more room for corporate fraud. Directors buy assets in overseas and sell it back to foreign subsidiaries for a handsome markup profit.
    Poor shareholders ! Board meetings are going to be held in overseas resorts. Holiday, Golf and the entertainment .Decenting directors won't get reelected !

  4. Hi Mr Hisham,

    My name is Syahirah Rashid from Monash University Sunway Campus, Bachelor of Communications. I am doing a short news coverage for my journalism assignment on the latest result of World Economic Competitiveness ranking that was released yesterday, 19/05/2011.

    I am wondering if I can interview you for your view on Malaysia's slip in the ranking from #10 last year to #16 this year. The interview will be a short one and would probably take 15 minutes.

    Questions asked will include:
    Were you shocked by the news?
    Does this concern you as a citizen?
    Do you think Malaysia's ranking will be improved next year?
    What can you propose to improve the ranking?

    I hope to hear a reply from you soon. Your co-operation will be truly appreciated. The interview will be purely academic and all interviewees will be credited appropriately.

    I apologise for asking this through your blog. You can email me at

    Thanks & Best Regards,
    Syahirah binte Mohd Rashid
    Monash University Sunway Campus
    Bachelor of Communications

  5. @anon 7.35

    Very good point about x-efficiency. I've studied that before and its pretty obvious that big isn't beautiful.

    I think BNM took a conscious decision to risk inefficiency in favour of better capitalisation. I think they were tired of having to rescue some of our more wayward banks.

    But that route also risks creating institutions that are TBTF - too big too fail. You might lower the risk of an "event", but when that event happens, the risk to the system will be correspondingly greater.

    And I note that historically most of the banks that have failed in Malaysia have tended to be the bigger ones.