Malaysia to relax investment curbs

Malaysia on Monday unveiled measures to liberalise investment in its financial sector, but stopped short of raising the cap on foreign stakes in existing commercial banks.

Najib Razak, prime minister, said foreign equity limits for insurers and investment banks would be increased to 70 per cent from 49 per cent. Five operating licences allowing foreign commercial banks to set up the first wholly owned local units in more than a decade would be issued by 2011. However, investment in nine domestic commercial banks would remain capped at 30 per cent.

“Our liberalisation is sequenced and managed. It is a gradual process,” Zeti Akhtar Aziz, the central bank governor, said.

Prior to the global financial crisis, foreign investors including Australia & New Zealand Banking Group, Hong Kong-based Bank of East Asia and Primus Pacific acquired minority stakes in several smaller Malaysian banks.

The liberalisation of the financial sector is the second economic reform to be introduced by Mr Najib since he became prime minister this month. It follows a decision last week to relax rules that required ethnic Malays to own at least 30 per cent of most service businesses, a limit that had been seen as a barrier to foreign investment.

The measures to ease investment restrictions have been under scrutiny for several years, but the onset of Malaysia’s worst recession since independence in 1957 has pushed officials to accelerate liberalisation to promote services to counter a heavy dependence on export manufacturing.

The measures would help Malaysia conclude a bilateral trade agreement this year with the US, which has sought the opening-up of the bank and insurance sectors.

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Island eyes benefit of blacklist row

Labuan, Malaysia’s offshore financial centre, believes it could benefit from a dispute with the Organisation for Economic Co-operation and Development, which briefly placed the island on a blacklist of tax havens.

“The OECD is convinced that we are following international guidelines after we held a dialogue with them and that will assure companies looking to locate in Labuan that we are a clean and well-regulated jurisdiction,” Martin Crawford, head of the Labuan International Business and Financial Centre, told the Financial Times.

The OECD named Labuan and three other territories as unco-operative tax havens this month at a G20 meeting in London – only to take all of them off the blacklist less than a week later when their governments promised to comply with international standards.

Mr Crawford said Labuan had been surprised by the OECD’s initial decision as Malaysia had agreed to international tax standards.