Malaysian Prime Minister Datuk Seri Najib Razak has given his backing to a root-and-branch liberalisation of the banking and financial services sector, which should see foreign players receive unprecedented opportunities, as competition takes hold.

Among the measures announced in April are the relaxation of thresholds for foreign shareholdings of all players in Islamic banking, investment banking, Takaful Ta'awuni (or Islamic mutual assistance programmes) and insurance players. The threshold is to jump from 49% to 70%.

The measures also foresee up to nine banking licences issued to new players from 2009 to 2012.

While there is no change in the upper level of foreign ownership in commercial banking - which stays at 30% - locally incorporated foreign commercial banks will be allowed to establish four new fully-fledged branches in 2011 and 10 new micro-finance branches this year.

The government is to issue up to nine banking licences from 2009 to 2012, of which two are for Islamic banking, with paid-up capital of US$1 billion. The licences are to be issued this year.

Up to two new conventional banking licences are to be issued this year to foreign players with special expertise and invitations have been sent. Up to two new family Takaful licences are also to be issued this year.

The remaining three licences envisage new commercial banks being set up in 2011, consisting of world-class players that can provide a value proposition in the Malaysian investment field.

In essence, the measures aim to facilitate world-class, high value-added financial products and services at competitive prices.

According to the Prime Minister, priority will be given to players which have the capacity to contribute in areas where there are gaps in the market and that re-inforce Malaysia's ambition to become an international Islamic financial hub.

The government also wants to see greater operational flexibility for foreign institutions operating in Malaysia in order to improve the outreach of financial products on a mass retail level.

Some companies perceive that the development and operation of profitable and sustainable brands in the financial services area will transform the Malaysian financial sector, with such products using data-driven, brand strategies.

Malaysian-based brand consultancy FusionBrand expects to practise in the market. Managing Director Marcus Osborne said: "communication strategies using cluttered channels of media that promote products crammed with technical jargon to consumers already struggling in troubled economic times are not going to help the financial services industry compete."

The move should see a greater internationalisation of Islamic banking. With immediate effect, existing domestic Islamic banks that wish to scale up their operations and expand into global markets are given greater flexibility to enter into strategic partnerships with foreign players through an increased foreign equity limit of up to 70%. These banks will be required to maintain a paid-up capital of at least US$1 billion.

Also immediately coming into force, banking institutions, insurance companies and Takaful operators will be accorded greater flexibility to employ specialist expatriates who have expertise to contribute in the development of the financial system.

To provide a more flexible operating business environment, offshore banking institutions licensed by the Labuan Offshore Financial Services Authority (LOFSA) that meet the predetermined criteria will be accorded flexibility to have a physical presence onshore from 2010.

Similarly, offshore insurance companies licensed by the Labuan Offshore Financial Services Authority that meet the predetermined criteria will be accorded flexibility to have a physical presence onshore from 2011. This flexibility will be complemented by a strengthened regulatory and supervisory framework that will govern these players.

from Sue Chong, Kuala Lumpur Office