OPENING KEYNOTE ADDRESS
YAB DATO’ SRI MOHD NAJIB TUN HAJI ABDUL RAZAK
PRIME MINISTER OF MALAYSIA AT THE 13th MALAYSIAN BANKING SUMMIT
THE ASIAN STRATEGY & LEADERSHIP INSTITUTE (ASLI)
ON 11th MAY 2009 (MONDAY), AT 12.25 PM
AT THE MANDARIN ORIENTAL HOTEL, KUALA LUMPUR
Bismillahir Rahmanir Rahim
Ladies and Gentlemen;
Assalamualaikum Warahmatullahi Wabarakatuh and very good afternoon to all of you.
1. First of all, I would like to thank the Asian Strategy & Leadership Institute (ASLI) for inviting me to deliver the Keynote Address at this 13th Malaysian Banking Summit. I wish to commend and congratulate ASLI for organizing this Annual Series of Malaysian Banking Summits for the 13th year. Today’s Summit provides an apt and timely opportunity for me to share my thoughts with the Banking and Financial community in Malaysia, particularly in the light of the Global Financial Crisis.
2. The Global Financial Crisis has caused an erosion of trust and confidence in banks and financial institutions in America and Europe. Many of the world’s largest and leading banks have shrunk in size and have been taken over by Governments. The Banking Sector is an important and strategic sector in any country. Banks are the life-blood of business and industry. Without access to credit, business will fail. In the current Global Financial Crisis, the role of banks and financial institutions become even more important. Banks need to proactively support viable economic activities by channeling sufficient funds to businesses and individuals.
3. In the domestic front, the banking sector in Malaysia is well buffered with the capacity to provide credit to the private sector. During this challenging period, loans to SMEs should not be curtailed. I hope our banks will continue to lend during these difficult times and not pull back loans from hitherto viable customers. Without credit, businesses and companies will not be able to survive. Banks must not withdraw credit without justifiable cause.
4. Our banks must work with Government to promote economic growth and support the private sector as the primary engine of growth. In this regard, banks need to continue to fund productive activities such as housing and construction and provide trade financing for our manufacturers and exporters. Banks should also build their capabilities to provide credit to the new growth areas, including to the services sector, IT, life sciences and other knowledge-driven investments. Rural banking services must also be improved so that people in rural areas can also benefit from modern banking and financial services and have access to credit.
5. I note that the business community is also concerned with the speed and timeliness of the approval of loans and efficiency of the supply of banking services. Banks have tended to become over-cautious today. This has resulted in delays in the approval process when more unnecessary steps that require more information are adopted. The slowness of approvals will have a significant impact on economic activity. I therefore hope that banks will expedite loan approvals so as not to impede economic recovery.
Ladies and gentlemen,
6. I am glad to note that Bank Negara Malaysia continues to manage our financial sector well. The rigorous management of the financial system by Bank Negara Malaysia has put our banking & financial institutions in a good stead to weather the global economic storm. The consolidation of banks following the 1997-98 Asian Financial Crisis has created stronger banks in Malaysia. The further reforms of the financial system and the strengthening of the regulatory and supervisory framework have also ensured the stability of our financial system.
7. Despite a challenging environment, the banking sector has healthy balance sheets. The banking sector today is well capitalized with a risk weighted capital ratio of 13.4% at end-March 2009 with RM44.6 billion as buffer against loss. There are no systemic risks identified to our banks. As at March 2009, the net NPL ratio is 2.2%. There is also better risk management in our banking and financial institutions. Today, our three largest banks have even higher market capitalization than the largest US bank. Therefore, with these large capital buffers, our financial sector remains resilient.
8. The Malaysian financial sector continues to showcase a high degree of resilience and remains well positioned to weather the effects of heightened external vulnerabilities on the local economy. In addition to the high level of financial buffers, strengthened institutional structures, enhanced governance and risk management practices have supported the resilience of the banking sector. With the continued growth of bank loans, the banking sector has remained largely supportive of the financing requirements of the economy amid the ample liquidity environment.
9. Total applications for new financing in the first quarter of 2009 has however, declined by 3.5% due to lower applications from businesses, which could be scaling back, or delaying large-scale investment and expansion plans. Total approvals granted for new financing have moderated slightly to RM58.9 billion for the 3-month period while disbursements declined by 2.3% to RM148.1 billion. As at end-March 2009 outstanding loans and financing have however expanded by 10.9% to RM733.9 billion.
10. I would like to see the Malaysian banking industry becoming more cost effective, especially during these tough economic times. The management of banks need to upgrade operational efficiency. Greater efforts must also be placed on Human Capital Development. During this period of economic slowdown, banks should step up training and development to upgrade your human capital skills development and retraining must be given priority. Succession planning and talent management must be managed well so that banks retain their talents and enhance their core competencies. This slowdown is a good time to improve internal processes and systems to become more competitive. At the end of the day, I would like to see Malaysian banks being transformed into world class banks that operate based on international best practices and providing excellent customer service with quick delivery and turnaround time.
Ladies and gentlemen,
11. With conventional banks and financial institutions in the West suffering huge losses and major drop in market value, Islamic Banking & Finance is attracting greater attention. Islamic Banking has thus far escaped the worst and seems to be performing well. According to Standard and Poor’s, Islamic Banking assets globally exceeds US500 billion and is growing at 10% a year.
12 In the area of Islamic Finance, the Malaysia Islamic Financial Centre is poised to be a leading international financial hub. Overall, the Islamic banking sector has registered growth averaging more than 20% in the past eight years, resulting in an enlarged market share of almost 17% of the total banking sector. There is further room to grow Islamic Banking & Finance in Malaysia, to make us a truly global player in all aspects of Islamic Finance. I am confident that Malaysia will become a major global leader in Islamic Banking & Finance. More Sukuk origination should be supported and new Islamic Financial products developed.
13. In February 2009, Malaysia’s foreign exchange reserves stood at RM316 billion, more than 4 times the RM70 billion foreign reserves we had in 1998. While this provides for continued confidence in the Malaysian economy and in our banking & financial system, nevertheless, my Government will continue to work hard to transform the Malaysian economy into an innovation-based knowledge-economy with higher value add and having knowledge, technology and innovation as key drivers of growth. Ensuring sustainable economic recovery will be a major priority of this Government.
Ladies and gentlemen,
14. This global economic crisis provides us with a timely opportunity to restructure our economy and build for the future. We need to identify core niches in our economy that Malaysia has a comparative advantage in so that we hone our competitive edge in these niche areas. As a small nation, realistically, we cannot compete with the best in all areas. We therefore need to define our niche and carve out comprehensive competitive strategies that will make us winners in those chosen niches, where we can excel and compete against the best in the world – areas such as Islamic Finance, Halal Foods, Medical Tourism, Palm Oil-based Biofuels, Rubber Research and Tropical Medicine, are some areas we can excel in. There is a greater need to enhance innovation in Malaysia by leveraging on our core strengths.
15. In the face of global economic recession, tighter credit conditions, declining corporate profits and gloomy global outlook, foreign direct investments worldwide are expected to decline. FDI’s inflows into Malaysia will also be affected, both in manufacturing and in the services sector. Because of the gloomy global prospects, Malaysia needs to continue to attract inflows of FDIs in particular into the services sector. As a key component of the services sector, the financial sector representing 11% of the share in GDP, plays an important role as a facilitator and catalyst of economic growth in supporting Malaysia’s transition into a developed economy by 2020.
16. Recognizing this, I recently announced the liberalization of the financial services sector, which encompasses the issuance of new licenses, increase in foreign equity limits and providing greater operational flexibilities to foreign institutions that operate in Malaysia. The liberalization will place the financial sector on a stronger footing to capitalize on opportunities and support economic growth. The liberalization plan will also enhance Malaysia’s economic and financial linkages with the rest of the world, attract foreign direct investments and create employment.
Ladies and gentlemen,
17. As Malaysia successfully overcome the Asian Financial Crisis on our own with our own initiatives and programmes, the West look at our experience in tackling the Global Financial Crisis. In fact, almost 80% of the measures adopted by the US are almost similar to measures taken by Malaysia during the 1997-98 crisis. Our Danaharta, Danamodal and the CDRC (Corporate Debt Restructuring Committee) are useful models that can be adopted elsewhere to overcome a Financial Crisis. More concerted efforts however should be taken to reform the International Financial Architecture. Important in this process is to give a greater voice to developing and emerging economies.
18. Every Malaysian will have a rightful place under the Malaysian sun. 1Malaysia envisages that all Malaysians will enjoy the fruits of our development. To make 1Malaysia a reality, the Government needs to partner actively with the business community, to create more opportunities for Malaysians of all races and from all geographical locations and irrespective of gender or religion. The poor, the disadvantaged, the marginalized will not be left behind. We shall have programmes to cater to their needs. I call upon the banking sector and the wider business community to work together with my Government, hand-in-hand, to create and expand employment and business opportunities for these people. Make this a key priority of your CSR programmes and initiatives.
19. I wish to again assure the business community and all Malaysians that the Government will uphold responsible governance and be responsive to the people of all races and religions. We shall be accountable and transparent. We will work to restore confidence, certainty and competence in Government. People must believe and trust in what we do. Regaining public trust is an important quest of my Government. We shall uphold the highest standards of public ethics.
20. Likewise, I hope the banking industry and the business community in general will also enhance business ethics and corporate governance. The highest standards of corporate governance must be upheld. Ethical leadership is what the people expect today. We in Government and business must meet these rising demands. Honesty and Integrity is essential in banking, in business and in government. There can be no compromise to honest and ethical leadership be it in the public or private sectors. Our leaders at all levels and in all sectors, be it in Government or business must be beyond reproach.
21. 2009 will be a tough and difficult year for Malaysia. It will be so for most countries in the world. We need to put our shoulders to the wheel, to enhance collaboration between the Government and business community to overcome the challenges we face. I like to also invite the Third Sector, that is, the NGO’s to also collaborate with us to build a better and more prosperous future for all.
22. Finally, I wish to once again thank and compliment ASLI for organizing this Annual Series of Malaysian Banking Summits. The Government welcomes and appreciates the efforts of ASLI as an independent Think Tank to promote discourse between the Government and Business community for the betterment of the nation.