Heightened competition from foreign players a 'very gradual affair' for Malaysian banks

ATM liberties accorded to TPPA member countries are subject to reciprocity.

Maybank Kim Eng notes that positively, the Trans-Pacific Partnership Agreement (TPPA) opens up additional market access opportunities, with preferential terms for member countries. At present, however, the only ASEAN countries in this partnership, aside from Malaysia, are Brunei, Singapore and Vietnam.

The analyst adds that in financial services, what Malaysia is offering in return, among others, are (i) new licenses and up to 100% foreign equity subject to the fulfilment of the “best interest of Malaysia” criteria, (ii) additional 8 sub-branches over and above the current 8 branches that foreign banks are allowed to have, and

(iii) no restriction on ATMs. Of comfort is the fact that Bank Negara retains full autonomy to regulate the financial system, the only major consideration being that the policies do not discriminate between TPPA financial institutions and domestic ones.

Here's more from Maybank Kim Eng:

A point to note is that the additional branches and ATM liberties accorded to TPPA member countries are subject to reciprocity, so any increase in competition from foreign players is likely to be a very gradual affair.

In any case, Malaysia is already committed to a gradual liberalization of its financial services sector, as outlined in its Financial Sector Blueprint 2011-2020, so domestic banks will have to brace for the eventual increase in competition.

Currently, there are 19 foreign commercial banks and 9 foreign Islamic banks (including the international Islamic banks) in the country and they cumulatively account for about 21% of the banking system’s total assets.

The TPPA in itself is relatively neutral on the financial sector, in our view, but the indirect benefits of increased trade flows and investments would eventually be positive for the local banks.