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| Banking Industry in Malaysia
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The banking industry in Malaysia dates back to the early 1900s when rapid economic development, as a result of thriving profits from rubber plantations and the tin industry then, saw the opening of foreign bank branches and the setting up of Malaysia’s first domestic bank – Kwong Yik (Selangor) Banking Corporation (now Malayan Banking Berhad) in 1913.
Since then, the banking industry has continued its steady growth and expansion until eventually there was a need for a governing body to oversee the activities and operations of the numerous banks in the country. This led to the establishment of Bank Negara Malaysia (Central Bank), a statutory body which is wholly-owned by the Federal Government.
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The constitution, functions and powers of Bank Negara are set out in the Central Bank of Malaysia Act 1958. The objectives of Bank Negara are to:
• Promote monetary stability and a sound financial structure
• Act as a banker and financial adviser to the Government
• Issue currency and keep reserves safeguarding the value of the currency
• Influence the credit situation to the advantage of the country
Financial Institutions
Those classified as financial institutions in Malaysia constitute commercial banks, Islamic banks, merchant banks, foreign banks’ representative offices, finance companies and discount houses.
Following the successful restructuring and consolidation of the banking sector in Malaysia in 2003, efforts have shifted to building the domestic financial infrastructure. The industry-wide consolidation of the domestic banking institutions resulted in 54 banking institutions being reduced to ten domestic anchor banking groups: Affin Bank, Alliance Bank, AmBank, Bumiputra-Commerce Bank, EON Bank, Hong Leong Bank, Malayan Banking, Public Bank, RHB Bank, Southern Bank. These banks have finance company subsidiaries.
The first round of banking consolidation was initiated by the government when it imposed a RM2 billion capitalization requirement for banks. The second phase of consolidation from 2004 onwards could involve further mergers of individual banks and finance company subsidiaries as well as mergers among the ten banking groups.
Banking Products and Services
The evolution of the banking industry in Malaysia has led to conventional banking products and services, such as deposits and loans/hire purchase, taking on more sophisticated and advanced features such as phone banking, phone-a-loan, auto pay, auto debit, ATMs and online shopping and banking. These features are facilitated by advanced technological developments that allow bank customers easier and simpler methods and processes of going about their daily banking.
In addition to improving banking features and methods, it has also led to the introduction of new products and services like credit and debit cards, investment products (insurance and unit trusts), financing products and services (trade and share financing), trade and credit facilities, remittances, loans to priority sectors and Islamic banking.
Base Lending Rate/Interest Rates
The Base Lending Rate (BLR) is fixed by Bank Negara Malaysia and is derived from the cost of funds which fluctuates depending on the economic conditions of the country. Thus, if economic conditions are good, the BLR will be higher and conversely, if economic conditions are poor, the BLR will be lower.
Since 1983, with the exception of special loans or priority sectors, all loans charged by banks are at a margin (usually between 0.75% and 2%) above the BLR. This margin is determined by the respective banks depending on the banks’ own cost of funds and the borrower’s credibility. Bank Negara has presently set the BLR at 6%. In Islamic banking, the BLR is known as the base financing rate.
Apart from the BLR, which covers loans, other interest rates imposed by banks cover all kinds of deposits. Some banks even offer joint current and savings accounts which also earn interest. These interest rates are determined by the banks and tend to vary according to the economic development of the country. Thus during good times you can expect higher deposit rates but, consequently, loan rates would also go up and vice versa.
Banking & Financial Institutions Act 1989 (BAFIA)
The Banking and Financial Institutions Act came into force on 1 October 1989 and provides for the licensing and regulation of institutions carrying on banking, finance company, merchant banking, discount house and money-broking businesses. It also provides for the regulation of institutions carrying on scheduled business comprising non-bank sources of credit and finance, such as credit and charge card companies, building societies, factoring, leasing companies and development finance institutions.
Lodging a Complaint Against a Financial Institution
If your financial institution is unable to resolve your complaint, you can write to Bank Negara Malaysia’s Banking Mediation Bureau, which handles disputes between customers and financial institutions. All you have to do is write a letter to the bureau stating your complaint and that you were unable to resolve it with your bank. You will also need to complete a standard form allowing your bank to disclose to the bureau any information on your account required for the purpose of investigating your complaint.
The Banking Mediation Bureau handles complaints relating to the charging of excessive fees interest or penalties; misleading advertisements; unauthorized ATM withdrawals; unauthorized use of credit cards; and unfair practices of pursuing actions against a guarantor.
After receiving your official complaint, the bureau will conduct a thorough investigation and see how best to resolve your complaint. It will speak with you and the officers concerned at your bank before coming to a decision based on its findings. If you choose to accept this decision, the matter is deemed resolved. However, if you choose to reject the decision, your only other recourse will be the judicial process where you can proceed with taking legal action against your bank.
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