KUALA LUMPUR: Stand-alone investment banks and insurers described the government’s move to relax the foreign equity conditions as a measure that will be positive for the long-term prospects of the industry and strengthen the domestic financial institution to compete with others.

ECM Libra Financial Group Bhd executive chairman and chief executive officer Datuk Seri Kalimullah Hassan said increasing the foreign equity participation limit would especially benefit smaller investment banks that could ride on the balance sheet of a bigger partner and also tap on their expertise.

“Foreigers had shown interest in investment banks here before. By allowing them to hold a bigger stake, it would facilitate their entry. It would also allow the investment banks here to grow as well as provide opportunities to venture into new areas where they previously could not look at due to balance sheet constraints,” he said.

Prime Minister and Finance Minister Datuk Seri Najib Razak had announced a slew of measures to open up the financial sector on Monday, including that up to two new commercial banking licences would be awarded to foreign players this year, allowing investment banks to enter into foreign strategic partnerships, and increasing foreign equity participation in investment banks, domestic Islamic banks and insurance companies to 70% from 49% previously.

Under the newly announced measures, the 30% foreign ownership limit in domestic commercial banks remained unchanged —  something that has not gone down with some bankers.

“The government should consider raising the foreign shareholder limit on (domestic) commercial banks to help them compete with the foreign players,” said a banking official.

Meanwhile, an investment banker here agreed the liberalisation measures would allow non-bank-backed investment banks to get the backing of a foreign partner to boost their balance sheets, which have been traditionally smaller than that of bank-backed investment banks.

“The investment banks should have been given a chance to do this a long time ago, the question now is how to get the best out of a foreign tie-up. On the business side of it, it will allow the non-bank-backed investment banks to recoup their investments,” he told The Edge Financial Daily.

Meanwhile, he said although it had been “very difficult” for non-bank-backed investment banks to compete before the onset of the financial crisis, the smaller investment banks were able to catch up amid the crisis, as their balance sheets were relatively clean.

Meanwhile, the Life Insurance Association of Malaysia (LIAM) in its statement yesterday said that the series of relaxation for insurance companies will allow consumers to have a wider choice in selecting the most suitable insurance plans and savings instruments and this will certainly increase the percentage of the insured population which is at 42%.

Apart from allowing insurance companies and takaful operators to have up to 70% foreign shareholding, they are allowed to establish branches nationwide. Also the restriction for locally incorporated foreign insurance companies and takaful operators to enter into bancassurance/bancatakaful arrangements with banking institutions is now lifted.

LIAM stated that the increase in the foreign equity limit to 70% was in line with the Financial Sector Master Plan (FSMP) which has entered its final stage. This move will make Malaysia an attractive place for established international players to set up their operations, it said.

On the lifting of restrictions pertaining to bancassurance business, LIAM stated that this would further enhance the bancassurance distribution channel. 

“In the end, we may see the bancassurance channel as a more viable alternative distribution channel to the existing agency channel, providing better reach and a wider choice for the consumers,” LIAM stated