nkea: financial services - farisan mokhtar
TRANSCRIPT
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Farisan Mokhtar
Associate Director, NKEA Financial Services
National Key Economic Area
Financial Services (FS)
1
Overview of NKEA
Entry Points Projects
2012 Looking Forward
2
The financial services sector is the bedrock of the high income economy
The Financial Services Sector is both:
An enabler of
other sectors of
the economy...
... as well as a
growth engine in
its own right
Above all, our desired transformation from a middle-income to a high-income economy will not
be possible unless we ensure that there is an abundance of debt and equity financing options
to invest in new and expanding businesses envisaged under our New Economic Model.
Introduction
3
NKEA Overview
131
125
121
108
67
59
53
36
35
34
29
Oil, Gas & Energy
Palm Oil & Rubber
Financial Services
Wholesale & Retail
Tourism
Greater KL/KV 1 392
Agriculture
Education
Healthcare
CCI
E&E
Business Services
Incremental GNI (2020) RM billions
1 Other NKEA GNI impact that directly contributes to Greater KL/KV’s GNI
4
Financial Services are one of the largest
and fastest growing sectors in Malaysia.
It is currently the 2nd highest contributing sector.
The AMBITION:
To grow the sector by 2020.
The TARGET: Incremental GNI impact of RM121bn by 2020, and Creation of 363k jobs by 2020
3x
5
Financial services encompass full range of solutions catering to different financial needs
Retail banking
Business banking
Islamic banking Capital market
Insurance & Takaful
Investment mgmt (asset & wealth
mgmt)
Venture Capital & Private Equity
Financial services sub-
sectors
Micro finance / Development
Finance Inst (DFIs)
6
The financial services sector is crucial to Malaysia's economy
GNI per capita (RM) 6,7322,171
206224272276374
375537583
5981,116
Tota
l
Oth
ers
Agriculture
Telc
o
Auto
motive
Education
Ele
ctr
onic
s
Tourism
Palm
oil
Whole
sale
reta
il
Fin
ance
serv
ices
Oil
&
gas
2000 – 2009 Historical GDP growth rate (%)
Strong, well-regulated industry with
proven resilience to external shocks High level of financial inclusion
Baseline Gross National Income of RMXbillion in 2009
#2 sector in GNI contribution today Robust growth over the past decade
Developed clear areas of strength
Starting position
-0.80.1
1.41.5
3.43.5
4.34.5
4.54.5
4.86.06.2
6.36.87.1
7.87.9
8.8
-2 0 2 4 6 8 10
%
Construction
Electrical & electronics Forestry & related products
Oil & gas, energy & petroleum Rubber & plastic products
1.9 Metal products & heavy equipment Transport & storage
Utilities Livestock & fisheries
Real estate Automotive & assembly
Agriculture Palm oil & related products
Wholesale & retail Tourism
Education Financial Services
Telecommunications Business services
Health services & products
Leadership position in some niches
• #1 largest sukuk issuance
• #3 largest Islamic finance
market globally
• World's first e2e Syariah-
compliant trading platform
• Largest no. of Islamic
fund mgrs in the world
• World's largest derivative
exchange dealing in crude
palm oil contracts
Islamic finance
Commodities
• More than 80% banking penetration
• In 2009, the penetration of deposit
accounts and loan accounts in Malaysia
are 3,300 deposit accounts per 1,000
adults and 1,100 loan accounts per
1,000 adults, respectively.
• Ranked #1 for 3 years in a row from for
access to credit by the World Bank
• Post the Asian Financial Crisis,
Malaysia has enhanced institutional
capacity and strengthened the
regulatory and supervisory framework
• Malaysian banks emerged relatively
unscathed from global crisis
– Strong capital base
– Credit quality remained strong
– Long growth holding up
7
However, the Malaysian domestic market is maturing Going forward, need to look externally and develop new engines of growth to become developed nation
Case for change
• Low GDP growth
• High political/economic instability
• Limited accessibility
• State own FS assets
• Banking penetration >10%
• High GDP growth
• High growth (2-3x GDP growth)
• Industry opening up to foreign
competition
• Banking penetration ~10-30%
• GDP growth ~3-5%
• Most FS sectors growing in line
with GDP
• Players fight for share to grow
• Banking penetration >80% • GDP growth ~4-7%
• FS sectors growing slightly
above GDP
• Industry consolidation beginning
• Competition heats up
• Banking penetration ~30-80%
Source: BCG Analysis
Nascent / Early Fast emerging Maturing Developed
Micro banking
Retail banking
Corporate banking
Payments
Capital markets
Insurance
Wealth mgmt / asset mgmt
Key
characteris-
tics
Opportuni-
ties
Stage of
country
develop-
ment
8
The financial services sector faces a few challenges in pursuing growth Case for change
Lack of scale Lack of liquidity
and diversity in
capital markets
Competition from
other financial
centers
Low levels of
financial literacy
• Some segments e.g.
investment banking
and brokerages
remain highly
fragmented
• Lack of scale means
that many players
lack the resources
and expertise to
scale-up in domestic
markets, let alone to
establish a
meaningful position
in regional markets.
• Malaysia lacks the
critical mass to
attract significant
levels of investment.
Rise of
India
and
China
Regional
compe-
tition
• Malaysia's capital
markets suffers from
lack of liquidity
– Malaysia’s
liquidity ranking
in Asia has
dropped from
3rd in 1996 to
14th in 2010.
• Also, high degree of
concentration in the
market, in terms of
investors, products
or currency.
36
60678490
0
100
SET SGX HKEX
Turnover velocity%
Bursa IDX
• Low level of financial
awareness ...
– Highest level of
household
debt/GDP in Asia
– Lack of
preparedness for
retirement
– Low penetration
of some key
financial services
(e.g. insurance, e-
payment)
• .... while increasing
complexity/sophistica
tion of products
• Recent scandals
eroded trust in the
financial sector
9
Strengthen the core
Serve high-income population
Seed new growth Go on the offensive
• Revitalize equity markets
• Deepen and broaden bond markets
• Transform DFIs
• Create integrated payment eco-system
1
2
3
4
• Insure our population
•Develop private pension industry
• Spur growth of wealth management
5
6
•Accelerate asset management industry
7
8
Robust, market-oriented legal and regulatory framework with efficient and effective enforcement
• Create regional champions
•Become the undisputable global Islamic Finance Hub
9
10
Competitive tax environment
Government-industry co-operation to drive financial sector strategy
World class business and financial infrastructure
Compelling branding and promotion
Human capital
ENABLER in a high income economy
ENGINE OF GROWTH contributing to GNI of RM192B
Commercial Banking
Insurance and Takaful
Islamic Banking
Investment Banking
Asset/ wealth mgmt
Other FS sub-sectors
Business Opportunities
Enablers
Entry point projects
Financial literacy
10 high impact projects across 4 themes
10
Entry Point
Projects
Business
Opportunities
Revitalize equity markets 1
2
3
4
5
6
7
8
1
2
3
Deepen and broaden bond markets
Transform DFIs
Create integrated payment ecosystem
Insure our population
Develop private pension industry
Spur growth of wealth management
Accelerate asset management industry
Regional champions
Undisputed global Islamic Finance Hub
Commercial banking
Insurance and Takaful
Islamic Banking
Investment Banking
Asset / wealth management
9
10
Other FS sub-sectors
4
5
6
GNI (2020)
RM billions
Jobs
‘000s
Investments
RM billions
Private
Investments
%
35.8
5.8
0.3
2.1
2.8
1.7
4.1
2.4
2.8
5.8
7.9
50
13
1
-
8
9
2
6
7
-9
13
71.67
1.55
0.48
0.79
0.72
0.07
0.07
0.55
0.72
28.39
38.33
87%
100%
100%
100%
71%
50%
50%
100%
100%
100%
97%
85.3
31.6
16.2
15.5
6.5
1.7
13.8
313
71
53
52
18
7
112
183.78
69.78
20.97
75.63
13.75
1.48
2.17
88%
88%
90%
87%
85%
86%
90%
Overview of Financial Services EPPs and BOs GNI RM 121bn, Jobs 363k, Funding RM 255bn
11
In total, Financial Services can potentially deliver beyond original target by RM 31bn
57.4 5.8 0.3 2.1 2.8 1.7
4.1 2.4 2.8 5.8 7.9
85.3
13.8
192.2
161.6
0
50
100
150
200
250 G
NI 2009
Capital M
ark
ets
Bond M
ark
ets
DF
Is
E-p
aym
ent
Insura
nce
Private
pensio
n
Wealth m
gm
t
Asset m
gt
Regio
naliz
ation
Isla
mic
fin
an
ce
Busin
ess o
pps a
nd
BA
U
Multip
lier
GN
I 2020
GN
I T
arg
et
2020
(RM
bn
)
Over target RM 30.6bn
EPPs RM 35.8bn
BOs & BAU RM 85.3bn
12
Overview of NKEA
Entry Points Projects
2012 Looking Forward
13
Case for change
Aspirations
90 84 67 60 36
0
100
Turnover velocity%
Bursa IDX SGX HKEX SET
0
50
0.0
2.5
Growth% Market cap (USD T)
SET IDX Bursa SGX HKEX
Relatively low liquidity
...as well as scale and growth
10,000
0
2020
5,471
2009
960
Market cap (RM B)
31
60
50
2009
100
0
2020
Trading velocity %
Vibrant capital markets that attracts quality listings and investors
Improve attractiveness of Bursa
Liquidity Improvement • GLICs to further diversify
portfolio • Increase free float of GLCs • List more GLCs
Allow volatility • Liberalise number of
Proprietary Day Traders • Allow intraday short selling
Product offerings • List more ETFs • Create REIT from selected
GLIC/GLC property assets
Integrate with leading exchanges
Strategic alliance with leading regional exchanges • SGX • HKEX • ASEAN
Continue to pursue agreements to increase linkage with buy side and intermediary base • Cross-listing • Cross membership • Remote access • Mutual recognition
Enhance intermediary
Liberalisation of stock broking industry • Phase I (2010-
2012): complete consolidation, standardise approved activities
• Phase II (2013-2015): Fully liberalise brokerages by opening up licensing
• Phase III (2016-2020): Move to principle-based supervision
5.8bn ~13k 0 1.5bn
Strengthening the core EPP # 1: Revitalize equity markets
14
Case for change
Aspirations
Supply
Demand
• Low participation by foreign issuers/investors .
• Enhance positioning of Malaysia as a regional Sukuk hub
• Narrow investor base and focused on AAA/AA.
• Minimal retail participation in the bond market
Deep and broad fixed-income market with active secondary market
Total outstanding bond (RM B)
2,000
1,000
2020
883
2009
268 64
Total value of bond traded (RM B)
618
Widen the credit
spectrum
Increase participation
of foreign issuers
Increase retail
participation
• Encourage major GLICs/institutional
investors to further diversify their
investment to lower rated bonds
• Intensify promotional efforts to attract
foreign investors to :
invest in Malaysian bond markets
Issue Non RM Sukuk
• Develop retail fixed income
market
0.3bn ~ 1.4k 0 0.48bn
Strengthening the core EPP # 2: Deepen and broaden bond markets
2020 2009
2,000
1,000
15
EPP # 3: Transform DFIs
Aspirations
Effective and accountable DFIs to support developmental needs
Clear mandates
Providing value- added support
Efficient operations
Sustainable
6.8 6.0
0
5
10
NPL (%)
2020 2009
2.3 2.5
1
2
3
ROA (%)
2020 2009
Improve operations &
promote self-
sustainability of DFIs
•Revisit mandate and align operations
of each DFIs
Revisit DFI
mandates
•Refine detailed policy for board composition
and expertise requirement
•Strengthen performance based and
sustainability culture
•Improve overall productivity level
•Enhance risk management
Value add services
Emphasis on Islamic finance
•Extend offerings to include advisory and
value add service for all DFIS
•For all new financing starting in 2011,
do "Islamic first" for financing that
is feasible to be done in Islamic way
Italic = already championed by regulators
Case for change
Evolution of DFIs and FIs resulting in some degree of overlap
Varying degree on emphasis towards business sustainability
Select DFIs have relatively small economies of scale
Only few DFIs provide value add service to customer
2.1bn Limited 0 0.79bn
Strengthening the core
16 Italic = already championed by regulators
Lower cost
2.0 0.9 0.5 0.1
0
5 Cost per trn (RM)
Cheque Cash ATM Internet/ mobile
Migration at modest
pace
100
0
Cash
Cheque
E-pmt
2009
91
1 8
2005
93
2 5
Chequeless society
Centralized Malaysia Analytics
Frequency of transactions (%)
37
0
100
Cash
Cheque
E-pmt
2020
63
0
2009
91
1 8
M'sia Analytics
Switch RENTAS
Tax system
Other systems
1 – 5 years 1 – 7 years 1 – 10 years
1 Create integrated domestic switch
3
Expand merchant acceptance on domestic switch
4
Charge customer actual cost of cheque transaction.
6 Develop centralized Malaysia analytics
7 Expand partnership with other countries
2
Drive consumer adoption through selective forced mandating
8
Create pan-ASEAN consortium for payment switch
5
Implement intensive education and awareness program
9
Immobilize large denomination ringgit notes
1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
Case for change
Aspirations
Integrated payment backbone (switch)
Centralized analytics Pan-ASEAN regional payment backbone
Conduct study to enable people perform payment transactions using universal identifier
2.8bn1 ~ 8k 0.1bn 0.62bn
EPP # 4: Create integrated payment eco-system
Strengthening the core
17
EPP # 5: Insuring our population
Case for change
Aspirations
•Life insurance penetration in Malaysia of 2.8% below world average
•Only 40% pop. with disposable inc. >RM3K can afford life insurance
•RM6K relief for EPF contributions and life insurance insufficient
Adequately insured population with peace of mind knowing their protection
needs are met
0
5
10
15
RM'000
6
3
6
6
Employee Insurance
Scheme
Term life insurance
• Basic coverage, low premium
• For death/permanent
disability
Hospitalization benefits
(Optional)
• Daily cash hospital benefits
in the event of
hospitalization
Critical illnesses (Optional)
• Basic coverage for C.I. (e.g.,
kidney failure, terminal
illness)
3
4
0
5
Life insurance penetration (% GDP)
2020 2009
47
75
Total life policies over population (%)
50
100
0
2020 2009
1.7bn ~ 9k 0.03bn 0.04bn
Serving a high-income population
Improve Tax Treatment
• Segregate EPF & insurance
contribution
• Additional RM2K tax relief for
insurance
EPF & life insurance
Medical & education
Current
10
EPF
Insurance
Proposed 12
18
EPP # 6: Accelerate private pensions
Case for change
Aspirations
2 million self-employed not covered by EPF
Most EPF members exhaust their lump sums within 3-5
years
Aging population increases strain on the system
Model pension system with vibrant private pension industry
Fund assets USD 38B
Fund participants ~3 M people
Zero pillar
Non-contributo-ry benefits
First pillar
Mandatory contributions
linked to earnings
Strong multi-pillar pension framework
Second pillar
Mandatory defined
contribution
Third pillar
Voluntary contributions
Fourth pillar Informal
sources of support
– Awareness
campaigns
– Online retirement
planning tool
– Training/seminar
Active EPF contributors
EPF retirees
Self-employed
Target segment
Customiz-ed features
to suit target
segments
Regulatory framework to govern PPF ops.
4.1bn ~ 2k 0.03bn 0.04bn
Revise EPF contribution
policy to promote
investment in PPFs
Voluntary shift of contributions above 12%
into PPFs
Enhance tax system for
PPFs
Voluntary withdrawal of EPF savings
from Acc. I & II
Option to withdraw EPF savings for PPFs if >RM1
Mn in Acc. I
Introduce PPFs as alternative option to unit
trusts
New RM6K relief for PPF contributions
Extend tax exemption for pension inc. to PPFs
Serving a high-income population
Develop Private
Pension Funds
Retirement Planning
Education Provide Incentives
19
EPP # 7: Spur growth of wealth management
Italic = already championed by regulators 1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
Case for change
Aspirations
Sizable amount of Malaysian liquid wealth
2009
47%
27%
10%
15%
Significant offshore wealth
Onshore
Offshore
2009
87%
13%
Attractive wealth management destination and bringing back offshore Malaysian
wealth
17
355
0
200
400
600
WM AuM (RM B)
2020 2009
Increase
products
available
Encourage
withdraw
EPF amount
>RM1M
Attract
expertise
Carve a
niche in
Islamic
• Review definition of HNWI and allow for marketing
of products without approval
• Streamline approval process for retail products
• Encourage local players to compete with new
products
• Implement a "tiered returns" model for EPF amount
>RM1M to encourage withdrawal
– Proceeds from investment using withdrawn
amount to be tax-exempted
• Attract top 10 wealth management houses to be
located in Malaysia by providing tax break for the
first 10 years on income
• Increase number of Shariah financial planners
through training and education
• Exploit synergies with Islamic asset management
firms to leverage on the growing products pool
2.4bn ~ 6k 0 0.55bn
Serving a high-income population
- RM100k to
RM 1mil
- RM 1 mil to
RM 5 mil
- RM 5 mil & above
20
EPP # 8: Accelerate asset management
Italic = already championed by regulators 1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
Case for change
Aspirations
Concentrated industry – top 5 accounted for 55% of AuM
Strong regional competition – S’pore AuM has been growing
twice as fast
Opportunity to capture growing segments
A thriving regional asset management hub
302
1,740
0
1,000
2,000
2020 2009
AuM (RM B)
Increase GLICs'
outsource mandate
Stimulate retail
market
Carve a nice in Islamic
fund
• Allow EPF member to withdraw up to 50% of account 1 if total amount in account 1 exceeds 120k • Expand list of approved unit trusts managers to include stock brokers and foreign fund managers
• Provide incentives for foreign sourced fund • Leverage on mandate to attract top funds in Islamic finance • Strengthen domestic fund management demand pool via the
growth of wealth management industry • Position Malaysia as Islamic product innovation hub
2.8bn ~7k 0 0.72bn Current vs desired level of
outsourcing AUM (RM Bn)
EPF
KWAP
SOCSO
LTAT
Tabung Haji
371
65
16
7
24
PNB
0% 5% 10% 15% 20%
49
Desired Current
50 Bn Outsourced
Increase GLICs outsourcing portion on average from 5% to 15% of total portfolio • Each mandate must be sufficiently attractive (i.e.
RM1-2M) • Firms must locate at least 6FTEs (including 2
portfolio managers) and bringing additional capital
Seed new growth
21
EPP # 9: Create regional champions
Aspirations
0
100 Foreign
(%)
Domestic 70
30
84
16
Source of net income for M'sian banks
Expand internationally in meaningful
manner
Push integrated
ASEAN banking
framework
Expansion Beyond
ASEAN in attractive markets
•G2G lobby to relax host country restriction
•Support to strong local banks for landscape
changing acquisitions
•Provide additional incentives for banks to
regionalize
•Explore possibility of initiating a more
integrated banking framework for ASEAN
region (esp. for banks licensing requirements)
•GLICs to take up stakes in attractive markets
beyond just following outward FDI/ trade flow
•Explore feasibility of merger among top
financial institutions either within Malaysia or
in ASEAN to create regional champion
Case for change
Domestic growth has
slowed down
Profitability also has come
down
13 10 7
0
10
20
Loan Growth (%)
Nominal GDP '05-
'09
2005-2009
2001-2005
1.4 1.2
0
1
2
ROA (%)
2009 2005
5.8bn ~9k 0 28.39bn
Go on the offensive
Malaysian bank in the top 3 in
ASEAN by market
capitalization
2020 2010
22
EPP # 10: Global Islamic finance hub
Case for change
Aspirations
M'sia already 3rd largest Islamic mkt
Most key countries still underpenetrated
Malaysia has the reputation & competitive advantage
Undisputable Global leader in Islamic Finance
11
0
20
Takaful world mkt share (%)
Domestic
Overseas
2020
20
2009
15
5 8
0
20
Islamic bank world mkt share (%)
2020
13
2009
11
2
M'sian Islamic Bank is among the World's top 5
Islamic Capital Center
Undisputable Global Islamic Hub
Islamic Intellectual Center
•Codify & standardize Shariah guidelines
•Push for global convergence and
mutual recognition
•Become CoE and reference points for Islamic finance research, development
and education
Italic = already championed by regulators
•Create mega i-bank and expand internationally
• Shift DFIs emphasis towards Islamic finance
• Lead creation of global Islamic liquidity mgmt, incl. more FX instruments
•Develop Islamic fund industry • Further develop non-Sukuk
capital market, e.g. i-REIT (Refer to EPP 1)
• Expand Takaful products overseas
• Strengthen Malaysia retakaful capacity
7.9bn ~12k 0.2bn 38.33bn
Go on the offensive
23
Overview of NKEA
Entry Points Projects
2012 Looking Forward
24
Listing of FGVH (FELDA) and Integrated Healthcare (Khazanah);
Increase GLICs sell down and free float in Bursa Malaysia;
Retail investors participation in bonds market;
Private Pension Scheme launched;
Mobile Banking Platform roll-out;
Regional expansion by Malaysian banks;
Islamic Mega Bank fully operational.
What’s in store for 2012 …..
25