Financial Sector Blueprint 2011 - 2020

Bank Negara Malaysia today released the new Financial Sector Blueprint. Themed "Strengthening Our Future", the Blueprint charts the future direction of the financial system over the next ten years.

As the country transitions towards a high value-added and high-income economy, the role of the financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth. Towards this end, the aim is for the financial sector to be more competitive, dynamic, inclusive, diversified and integrated, with the ability to offer world class financial services, in terms of breadth, depth and quality to serve the needs of Malaysia. The growth of the financial system should be ultimately anchored to the growth in the real sector. Based on the rate of growth of the economy projected for the next decade, the financial sector is envisaged to expand to six times of GDP in 2020 from 4.3 times of GDP currently. Meanwhile, the contribution of the financial services sector to nominal GDP is expected to grow from 8.6% of nominal GDP to between 10 and 12% by 2020.

Recognising the increasingly complex linkages, both between the various components of the financial system and the greater international connectivity and regional financial integration, the Blueprint moves away from the sector-based approach of the previous Financial Sector Masterplan (FSMP). The Blueprint adopts an integrated approach where recommendations are based on shared outcomes applicable to various sub-sectors within the financial sector. Beyond domestic borders, the Blueprint envisions greater participation by the Malaysian financial sector in facilitating regional financial flows, especially in supporting regional trade and investment, regional financial integration, as well as the internationalisation of Islamic finance. The formulation of the Blueprint also draws important lessons from the recent global financial crisis where financial stability is an important prerequisite in ensuring orderly and sustainable development of the financial sector and the economy as a whole.

There are nine focus areas under the Blueprint to further advance financial sector development to drive Malaysia's transition to a high value-added, high-income economy with adequate safeguards to preserve financial stability:

• Effective intermediation for a high value-added and high-income economy - This entails the mobilisation of diverse savings to productive investments in Malaysia and to meet the needs of both businesses and households. A vibrant risk-capital ecosystem to support innovation-driven economic activities and start-up ventures will be developed. The initiatives will also include enhancing the provision of large and long-term project financing for infrastructure development. As Malaysia deepens its trade and investment linkages, the financial sector is envisaged to have a larger role in supporting the internationalisation of Malaysian businesses. To cater to Malaysia's growing affluent segment and maturing population, emphasis will be placed on enhancing the provision of financial services for wealth management, retirement and long-term healthcare. The development of a vibrant private pension industry is also expected to enhance the role of pension funds as a key source of funding for the longer-term and risk-based financing needs of the economy.
  
  
• Developing deep and dynamic financial markets - Efforts will be directed towards improving the liquidity, depth and participation in the money, foreign exchange and government securities markets in Malaysia, in enabling more effective intermediation, transfer of risks and management of liquidity, and meeting the diverse needs of a more developed and internationally integrated economy. The foreign exchange administration rules will be progressively liberalised to further raise efficiency in financial market transactions. The development of vibrant domestic foreign exchange and money markets, and ensuring sound risk management and corporate governance practices by financial market players, will be an important agenda in the development of our financial system.
  
  
• Financial inclusion for greater shared prosperity - The aim is to enable all members of society, including the underserved, to have access to and usage of quality, affordable and essential financial services. Initiatives will focus on developing more innovative delivery channels such as agent banking to enhance the outreach of financial services in a cost-efficient manner and expansion of the range of products and services such as more flexible micro financing products, long-term contractual micro saving products, and microinsurance and microtakaful products to cater to distinct financial needs of all segments of society.
  
  
• Strengthening regional and international financial integration - As the Malaysian financial sector assumes a larger role in mobilising regional and cross-border funds and supporting the needs of both Malaysian corporations expanding abroad and corporations that invest in Malaysia, efforts to strengthen Malaysia's international financial linkages will be pursued. Moving forward, Malaysia's investment policy will be guided by two key considerations - (i) prudential criteria and (ii) the best interest of Malaysia criteria, which includes the effect of the investment on Malaysia's economic activity, particularly in catalysing new high value-added activities, contribution towards enhancing international trade and investment linkages and impact on financial stability, including the level of competition. A further consideration in assessing the best interest of Malaysia is the continued presence of strong and well-managed domestic banking groups that continue to mobilise a significant share of resident deposits, as this is important for the orderly growth and development of the financial sector.
  
  
• Internationalisation of Islamic finance - While Malaysia has made significant inroads in becoming an international Islamic financial centre, efforts will continue to be undertaken to enhance the Islamic financial ecosystem. This will entail developing a more conducive environment for the mobilisation of higher volumes of international Islamic financial flows from a diverse range of players to be channelled through innovative Islamic financial instruments. In strengthening the legal and Shariah frameworks and further advancing Malaysia's thought leadership in Islamic finance, a single legislated body to be the apex authority on Shariah matters in Islamic finance will be established.
  
  
• Regulatory and supervisory regime to safeguard the stability of the financial system - A comprehensive legislative framework will be enacted to reinforce a sound, transparent and accountable system for effective regulation and supervision. Focus will also be accorded towards enhancing capital and liquidity standards of financial institutions in line with international standards as well as raising their governance and risk management standards. As the financial sector grows to be more regionally-and internationally-connected, greater cross-border collaboration will be pursued with other supervisory authorities.
  
  
• Electronic payments for greater economic efficiency - Accelerating the migration to electronic payments (e-payments) will be emphasized. In the next ten years, the Bank targets to increase the number of e-payment transactions per capita from 44 transactions to 200 transactions, and reduce cheques by more than half from 207 million to 100 million per year. Measures to achieve this aim will include providing the right price signals to encourage the switch from paper-based payments to e-payments, and facilitating wider outreach of e-payments infrastructure, such as point-of-sale terminals and mobile phone banking.
  
  
• Empowering consumers - A comprehensive and holistic approach towards consumer protection and education will be pursued in collaboration with various stakeholders. The aim is to promote a culture of mutual responsibility shared between consumers, who are empowered with the knowledge, skills and financial literacy to manage their personal wealth, and financial service providers, who uphold fair and responsible dealings in the conduct of their business. The infrastructure to support greater consumer empowerment will be strengthened through establishing a single consumer credit legislation, integrated dispute resolution system and an enhanced credit information framework. Measures to promote financial capability among consumers through the integration of financial curriculum at schools and targeted financial literacy programmes based on life events will be pursued.
  
  
• Talent development to support a more dynamic financial sector - A Financial Services Talent Council will be established to drive, oversee and coordinate talent development efforts in the financial sector. Other initiatives include developing talent for entry level, promoting continuous learning for the existing workforce, and attracting talent from abroad. Ensuring an adequate supply of skilled talent to meet the challenges in the new financial landscape will require greater collaboration and coordination among various agencies beyond the financial sector.

The strategies and recommendations of the Blueprint will build on the strong foundation of the Malaysian financial system. Malaysian financial institutions today are well capitalised with strong buffers, improved risk management and corporate governance practices, and greater regional presence. The financial infrastructure in Malaysia has also been significantly strengthened, including the development of a deep and vibrant bond market, robust payment and settlement systems, and an effective financial safety net. This has been supported by a comprehensive and robust regulatory and supervisory framework and effective surveillance that is forward looking and focused on addressing the risks to overall financial stability. In addition, Malaysia has a comprehensive Islamic financial system that is recognised as among the most advanced in the world.

The Blueprint charts a vision and direction for the Malaysian financial sector for the next ten years that will support Malaysia's long-term ambitions. To ensure the achievement of the desired outcomes, a robust implementation and monitoring framework will be put in place, including update on the progress of the implementation of the Blueprint.