MCF 304: Bank Management

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MCF 304 Bank Management

• Lecture 1.1
• Structure of Financial Systems
• in Malaysia

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Structure of Financial Systems in Malaysia

• Financial System (FS) acts as a mechanism to
  transfer excess fund from to those who need them
• The Malaysian FS structure can be divided into
  three parts
• Banking system
• Non-bank financial intermediaries
• Financial markets

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Banking System

• Bank Negara Malaysia
• Banking Institutions
• Commercial banks
• Finance companies
• Merchant banks
• Islamic banks

• Discount Houses
• Representative office of foreign banks
• Labuan off-shore banks

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Non-Bank Financial Intermediaries

• Employee Provident Fund Pension Fund
• Insurance Takaful companies
• Development Financial Institutions (FI)
• SME Bank
• Agro Bank

• Savings Institutions
• Bank Simpanan Nasional
• Co-operatives associations
• Unit Trusts
• Lembaga Urusan Tabung Haji

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Financial Markets

• Money Market Foreign Exchange Market
• Capital Market
• Equity market
• Bond market

• Derivatives Market / Off Shore Market
• Labuan Off Shore
• Foreign Finance Authority

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Banking System

• Financial intermediaries linking financial
  institutions and individuals with excess fund and
  financial institutions and individuals with
  shortage fund
• The Central Bank (BNM) regulates and control the
  banking system

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Banking System
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Central Bank (Bank Negara Malaysia)

• Main Objectives
• Supply currency, acts as custodian of banks
  reserves controller of the currency value
• Governments banker and financial adviser
• Ensure financial stability strong financial
  structure
• Commercial banks banker
• Control influence the countrys credit
  situation to ensure a stable economic growth rate
  

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Central Bank

• Control influence the countrys credit
  situation to ensure a stable economic growth rate
  
• Statutory reserves requirement
• Minimum liquidity requirement
• Open market operation
• Discount operations
• Interest rate control
• Credit control lending guidelines
• Moral persuasion

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Commercial Banks

• Accepting deposits for current, deposits, savings
  and other similar accounts
• Making payments to collect cheques written or
  paid by customers
• Other businesses as permitted by the Cental Bank
  / MOF

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Role Importance of Commercial Banks

• Creating money
• Providing payment mechanism
• Collect savings
• Providing credits
• Financing international trades

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ExampleCreating Money

• Bank X gives A an overdraft of 200 to purchase a
  radio. A paid the vendor
• Vendor bank in the 200 in Bank B
• Bank B keep 20 as reserves and lend the balance

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ExampleCreating Money

• Radio vendors deposit 200
• Furniture vendor deposit 200 x (80/100) 160
• Spare parts vendor deposits 200 x (80/100)2
  128
• And so on
• P original value of deposits
• r banks reserve ratio

• Total Deposits
• P1/r
• 200 x (1/20)/100
• 1000

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Finance Companies

• Accepting deposits for deposits accounts and
  other similar accounts
• Provide lending, leasing, hire-purchase
• Other business as permitted by central bank / MOF

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Merchant Bank

• Accepting deposits for deposits accounts and
  other similar accounts
• Provide consultancy and advisory services related
  to corporate and investment matters
• Create / manage investment for other parties
• Other business as permitted by central bank / MOF

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Other Banking System

• Islamic Banks
• - commercial banks operating under the islamic
  laws which forbidden the element of usury
• Discount Houses
• - financial intermediaries dealing specifically
  with short term investors and borrowers
• Labuan Offshore Banks
• - commercials banks which operates in financial
  offshore centers and permitted to operates in any
  currencies except of local currencies

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Non-Banking Financial Intermediary System

• Matching the parties with excess and shortage of
  funds
• Non-banking financial intermediary system is
  under the direct control of various government
  department and agencies

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Non-Banking Financial Intermediary System
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Institutions of Development Finance

• Specific purpose of providing medium and long
  term capital, as well as mobilizing savings,
  economic activities and expertise with an aim to
  promote investment in the industrial and
  agricultural sectors
• The role of institutions of development finance
  complement the services offered by commercial
  banks and financial companies

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Non-Banking Financial Intermediary System

• Savings Institutions
• Institutions which promote and mobilize savings
  of the middle and lower income group
• Depends mostly on network of branches to collect
  huge amount of savings

• Co-operatives
• - A society that aims to improve its members
  interest through co-operatives principles

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Non-Banking Financial Intermediary System

• Provident Pension Fund
• - Collect fund from workers and providing them
  with funds for retirement

• Insurance Companies
• Funds collected as insurance premiums from policy
  holders for protection against calamities
• Two types of insurance business (i) Life, (ii)
  General

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Non-Banking Financial Intermediary System

• Unit Trust Companies
• Housing Credit Institutions
• Leasing Factoring Companies
• Venture Capital Companies

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Financial MarketsMoney Market

• Trading ground between banks and those with short
  term money
• Trading of short term financial instruments
  quoted in RM
• The operations of money market consist of three
  categories
• Placement of time fixed deposits
• Commercial financing
• Buying selling of money market financial papers

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Money Market

• Financial Instruments
• - Treasury Bills
• Government Investment Certificates
• Bankers Acceptance
• (Floating Rate) / Negotiable Certificates of
  Deposits

• Money Markets
• Primary Market depositing in FIs
• Secondary Market FIs trade deposits among
  themselves

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Financial Markets

• Foreign Exchange Market
• Trading of short term financial instruments
  quoted in foreign currencies
• Two types of markets (i) spot exchange market
  and (ii) forward market

• Capital Market
• Trading of shares / securities
• Two types of markets (i) primary markets, and
  (ii) secondary markets

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Thank You!

• Izdihar Baharin _at_ Md Daud
• Post Graduate Centre
• HP 006019-5170817
• Email izdi_at_oum.edu.my