NKEA: Financial Services - Farisan Mokhtar

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NKEA: Financial Services - Farisan Mokhtar

  1. 1. National Key Economic AreaFinancial Services (FS) Farisan MokhtarAssociate Director, NKEA Financial Services 0
  2. 2.  Overview of NKEA Entry Points Projects 2012 Looking Forward 1
  3. 3. IntroductionThe financial services sector is the bedrock of the high income economy The Financial Services Sector is both: An enabler of other sectors of ... as well as a the economy... 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. 2
  4. 4. NKEA Overview Incremental GNI (2020) RM billions Oil, Gas & Energy 131 Palm Oil & Rubber 125 Financial Services 121 Wholesale & Retail 108 Tourism 67 Business Services 59 E&E 53 CCI 36 Healthcare 35 Education 34 Agriculture 29 Greater KL/KV 1 3921 Other NKEA GNI impact that directly contributes to Greater KL/KV’s GNI 3
  5. 5. Financial Services are one of the largestand fastest growing sectors in Malaysia.It is currently the 2nd highest contributing sector.The AMBITION:To grow the sector 3x by 2020.The TARGET:Incremental GNI impact of RM121bn by 2020, and Creationof 363k jobs by 2020 4
  6. 6. Financial services encompass full range of solutions catering to different financial needs Micro finance / Development Retail banking Finance Inst (DFIs) Investment mgmt Venture Capital & (asset & wealth Private Equity mgmt) Insurance & Financial services sub- Business banking Takaful sectors Capital market Islamic banking 5
  7. 7. Starting positionThe financial services sector is crucial to Malaysias economy #2 sector in GNI contribution today Robust growth over the past decade GNI per capita (RM) 2,171 6,732 2000 – 2009 Historical GDP growth rate (%) Health services & products 8.8 206 Business services 7.9 272 224 Telecommunications 7.8 276 Financial Services 7.1 374 375 Education 6.8 537 Tourism 6.3 583 Wholesale & retail 6.2 598 Palm oil & related products 6.0 1,116 Agriculture 4.8 Automotive & assembly 4.5 Real estate 4.5 Livestock & fisheries 4.5 Utilities 4.3 Oil & Total retail oil Telco Others gas Wholesale Education Automotive Finance Agriculture Electronics services Tourism Palm Transport & storage 3.5 Metal products & heavy equipment 1.9 3.4 Construction Rubber & plastic products 1.5 Oil & gas, energy & petroleum 1.4 Forestry & related products 0.1 Electrical & electronics -0.8 Baseline Gross National Income of RMXbillion in 2009 -2 0 2 4 6 8 10 % Developed clear areas of strength Strong, well-regulated industry with proven resilience to external shocks Leadership position in some niches High level of financial inclusion • Post the Asian Financial Crisis, Islamic finance • #1 largest sukuk issuance • More than 80% banking penetration Malaysia has enhanced institutional • #3 largest Islamic finance capacity and strengthened the market globally • In 2009, the penetration of deposit regulatory and supervisory framework • Worlds first e2e Syariah- accounts and loan accounts in Malaysia compliant trading platform are 3,300 deposit accounts per 1,000 • Malaysian banks emerged relatively • Largest no. of Islamic adults and 1,100 loan accounts per unscathed from global crisis Commodities fund mgrs in the world 1,000 adults, respectively. – Strong capital base – Credit quality remained strong • Worlds largest derivative • Ranked #1 for 3 years in a row from for – Long growth holding up exchange dealing in crude access to credit by the World Bank palm oil contracts 6
  8. 8. Case for change However, the Malaysian domestic market is maturing Going forward, need to look externally and develop new engines of growth to become developed nation Nascent / Early Fast emerging Maturing Developed Stage of country • GDP growth ~3-5% develop- • Most FS sectors growing in line with GDP ment • Players fight for share to grow • GDP growth ~4-7% • Banking penetration >80% • FS sectors growing slightly above GDP • High GDP growth • Industry consolidation beginning • High growth (2-3x GDP growth) • Competition heats up • Industry opening up to foreign • Banking penetration ~30-80% • Low GDP growth competition Key • High political/economic instability • Banking penetration ~10-30%characteris- • Limited accessibility tics • State own FS assets • Banking penetration >10% Micro banking Retail banking Corporate bankingOpportuni- Capital markets ties Insurance Payments Wealth mgmt / asset mgmt Source: BCG Analysis 7
  9. 9. Case for changeThe financial services sector faces a few challenges in pursuing growth Lack of liquidity Competition from Lack of scale and diversity in other financial Low levels of capital markets centers financial literacy • Some segments e.g. • Malaysias capital • Low level of financial investment banking markets suffers from awareness ... and brokerages lack of liquidity – Highest level of remain highly – Malaysia’s household fragmented liquidity ranking Regional debt/GDP in Asia in Asia has compe- – Lack of • Lack of scale means dropped from tition preparedness for that many players 3rd in 1996 to retirement lack the resources 14th in 2010. – Low penetration and expertise to Turnover velocity% of some key scale-up in domestic 100 90 84 financial services markets, let alone to 67 60 (e.g. insurance, e- establish a 36 payment) meaningful position Rise of 0 India in regional markets. SET HKEX SGX IDX Bursa • .... while increasing and complexity/sophistica • Malaysia lacks the • Also, high degree of China tion of products critical mass to concentration in the attract significant market, in terms of • Recent scandals levels of investment. investors, products eroded trust in the or currency. financial sector 8
  10. 10. 10 high impact projects across 4 themes ENABLER in a high income ENGINE OF GROWTH economy contributing to GNI of RM192B Strengthen Serve high-income Go on the Seed new growth the core population offensive 5 • Insure our population 1• Revitalize equity 8 • Accelerate asset 9 • Create regional markets management industry champions 6 • Develop private Entry point 2• Deepen and broaden pension industry projects bond markets 10• Become the 3• Transform DFIs undisputable global 7 • Spur growth of wealth Islamic Finance Hub 4• Create integrated management payment eco-system Asset/ Business Commercial Insurance Islamic Investment Other FSOpportunities wealth Banking and Takaful Banking Banking sub-sectors mgmt Robust, market-oriented legal and regulatory framework with efficient and effective enforcement Competitive tax environment Government-industry co-operation to drive financial sector strategy Enablers World class business and financial infrastructure Compelling branding and promotion Financial literacy Human capital 9
  11. 11. Overview of Financial Services EPPs and BOs PrivateGNI RM 121bn, Jobs 363k, Funding RM 255bn GNI (2020) Jobs Investments Investments RM billions ‘000s RM billions % 1 Revitalize equity markets 5.8 13 1.55 100% Entry Point Projects 2 Deepen and broaden bond markets 0.3 1 0.48 100% 3 Transform DFIs 2.1 - 0.79 100% 4 Create integrated payment ecosystem 2.8 8 0.72 71% 5 Insure our population 1.7 9 0.07 50% 6 Develop private pension industry 4.1 2 0.07 50% 7 Spur growth of wealth management 2.4 6 0.55 100% 8 Accelerate asset management industry 2.8 7 0.72 100% 9 Regional champions 5.8 -9 28.39 100% 10 Undisputed global Islamic Finance Hub 7.9 13 38.33 97% 35.8 50 71.67 87% 1 Commercial banking 31.6 71 69.78 88% Business Opportunities 2 Insurance and Takaful 16.2 53 20.97 90% 3 Islamic Banking 15.5 52 75.63 87% 4 Investment Banking 6.5 18 13.75 85% 5 Asset / wealth management 1.7 7 1.48 86% 6 Other FS sub-sectors 13.8 112 2.17 90% 85.3 313 183.78 88% 10
  12. 12. In total, Financial Services can potentially deliverbeyond original target by RM 31bn 250 200 13.8 Over target RM 30.6bn(RM bn) 150 85.3 7.9 100 4.1 2.4 2.8 5.8 192.2 0.3 2.1 2.8 1.7 161.6 5.8 57.4 50 0 Insurance Wealth mgmt DFIs Asset mgt Islamic finance E-payment GNI 2009 GNI 2020 Bond Markets Business opps and Private pension Capital Markets GNI Target 2020 Multiplier Regionalization BAU EPPs BOs & BAU RM 35.8bn RM 85.3bn 11
  13. 13.  Overview of NKEA Entry Points Projects 2012 Looking Forward 12
  14. 14. Strengthening the core EPP # 1: Revitalize equity markets 5.8bn ~13k 0 1.5bn Improve attractiveness Enhance Integrate with Case for change of Bursa intermediary leading exchanges Relatively low liquidity Liquidity Improvement Liberalisation of Strategic allianceTurnover velocity% 90 84 • GLICs to further diversify stock broking with leading regional100 67 60 36 portfolio industry exchanges 0 • Increase free • Phase I (2010- • SGX SET HKEX SGX IDX Bursa float of GLCs 2012): complete • HKEX ...as well as scale and growth • List more GLCs consolidation,Market cap (USD T) Growth% • ASEAN2.5 50 standardise Allow volatility approved Continue to pursue • Liberalise number of activities agreements to increase0.0 0 HKEX SGX Bursa IDX SET Proprietary Day • Phase II (2013- linkage with buy side and Traders 2015): Fully intermediary base Aspirations • Allow intraday liberalise • Cross-listing Vibrant capital markets that attracts short selling brokerages by • Cross membership quality listings and investors opening up • Remote access Trading Product offerings licensing • Mutual recognition Market cap (RM B) velocity % • List more ETFs • Phase III (2016- 100 • Create REIT from selected 2020): Move to 60 GLIC/GLC property assets principle-based10,000 50 31 supervision 5,471 960 0 0 2009 2020 2009 2020 13
  15. 15. Strengthening the core EPP # 2: Deepen and broaden bond markets 0.3bn ~ 1.4k 0 0.48bn Case for change Widen the • Encourage major GLICs/institutional • Low participation by credit investors to further diversify their foreign issuers/investors . spectrum Supply • Enhance positioning of investment to lower rated bonds Malaysia as a regional Sukuk hub • Intensify promotional efforts to attract • Narrow investor base and Increase foreign investors to : focused on AAA/AA. participation  invest in Malaysian bond markets Demand • Minimal retail of foreign participation in the bond  Issue Non RM Sukuk market issuers Aspirations Deep and broad fixed-income market with Increase • Develop retail fixed income active secondary market retail market2,000 Total 2,000 Total value participation outstanding of bond bond (RM B) traded (RM B)1,000 883 1,000 618 268 64 2009 2020 2009 2020 14
  16. 16. Strengthening the core EPP # 3: Transform DFIs 2.1bn Limited 0 0.79bn Revisit •Revisit mandate and align operations Case for change DFI Evolution of DFIs and FIs resulting in some of each DFIs degree of overlap mandates Varying degree on emphasis towards •Refine detailed policy for board composition business sustainability Improve and expertise requirement operations & Select DFIs have relatively small economies •Strengthen performance based and of scale promote self- sustainability culture Only few DFIs provide value add service to customer sustainability •Improve overall productivity level of DFIs •Enhance risk management Aspirations Effective and accountable DFIs to support developmental needsNPL (%) Clear mandates Value add •Extend offerings to include advisory and10 6.8 5 6.0 services value add service for all DFIS 0 Sustainable 2009 2020 ROA (%) Efficient Emphasis on •For all new financing starting in 2011, operations 3 2.3 2.5 Islamic do "Islamic first" for financing that 2 Providing value- finance 1 added support is feasible to be done in Islamic way 2009 2020 Italic = already championed by regulators 15
  17. 17. Strengthening the core EPP # 4: Create integrated payment eco-system 2.8bn1 ~ 8k 0.1bn 0.62bn Integrated payment Pan-ASEAN regional Case for change backbone (switch) Centralized analytics payment backbone Cost per trn (RM) 1 – 5 years 1 – 7 years 1 – 10 years 5 Lower 2.0 0.9 0.5 cost 0.1 Create integrated Develop centralized Expand partnership 0 1 6 7 domestic switch Malaysia analytics with other countries Cheque Cash ATM Internet / mobile E-pmt Drive consumer Migration 100 2 5 1 8 Create pan-ASEAN Cheque adoption through at modest 8 consortium for 93 91 Cash 2 selective payment switch pace 0 2005 2009 forced mandating Immobilize large Aspirations Expand merchant denomination ringgit 3 acceptance on notes Frequency of transactions (%) domestic switch 100 1 8 E-pmt 9 37 Chequeless 0 Cheque Conduct study to society 91 Charge customer actual 63 Cash enable people perform 0 4 cost of cheque payment transactions 2009 2020 transaction. using universal RENTAS Switch identifier Centralized Implement intensive Malaysia Msia Analytics education and Analytics 5 Tax Other awareness system systems program Italic = already championed by regulators 161. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
  18. 18. Serving a high-income population EPP # 5: Insuring our population 1.7bn ~ 9k 0.03bn 0.04bn Improve Tax Employee Insurance Case for change Treatment Scheme•Life insurance penetration in Malaysia of 2.8% below world • Segregate EPF & insurance Term life insurance average contribution • Basic coverage, low premium•Only 40% pop. with disposable inc. >RM3K can afford life • Additional RM2K tax relief for • For death/permanent insurance insurance disability•RM6K relief for EPF contributions and life RM0003 6 Critical illnesses (Optional) insurance insufficient • Basic coverage for C.I. (e.g., 15 Current Proposed 6 6 Aspirations 12 kidney failure, terminal Adequately insured population with 10 illness) peace of mind knowing their protection 10 needs are met Insurance Hospitalization benefits Medical & Life insurance Total life policies over education (Optional) penetration (% GDP) population (%) 5 5 4 100 • Daily cash hospital benefits 75 EPF & life 3 47 insurance EPF in the event of 50 0 hospitalization 0 0 2009 2020 2009 2020 17
  19. 19. Serving a high-income population EPP # 6: Accelerate private pensions 4.1bn ~ 2k 0.03bn 0.04bn Case for change Develop Private Retirement Planning Provide Incentives 2 million self-employed not Pension Funds Education covered by EPF Voluntary shift of Target segment contributions above 12% – Awareness Most EPF members exhaust into PPFs campaigns their lump sums within 3-5 Active EPF contributors Revise EPF Voluntary withdrawal of – Online retirement contribution EPF savings years planning tool EPF retirees policy to from Acc. I & II promote Option to withdraw EPF – Training/seminar Aging population increases Self-employed investment savings for PPFs if >RM1 in PPFs Mn in Acc. I strain on the system Introduce PPFs as alternative option to unit Aspirations Customiz- trusts Regulatory ed features New RM6K relief for PPF Model pension system with vibrant framework Enhance tax to suit contributions private pension industry to govern system for target Extend tax exemption for PPF ops. PPFs segments pension inc. to PPFs Strong multi-pillar pension framework Zero First Second Third Fourth pillar pillar pillar pillar pillar Non- Mandatory Mandatory Voluntary Informal contributo- contributions defined contributions sources of ry benefits linked to contribution support earnings Fund assets Fund participants USD 38B ~3 M people 18
  20. 20. Serving a high-income population EPP # 7: Spur growth of wealth management 2.4bn ~ 6k 0 0.55bn • Review definition of HNWI and allow for marketing Increase of products without approval Case for change products • Streamline approval process for retail products Sizable amount Significant available • Encourage local players to compete with new of Malaysian offshore liquid wealth wealth products 15% - RM 5 mil & above Encourage • Implement a "tiered returns" model for EPF amount 10% - RM 1 mil to 13% Offshore RM 5 mil withdraw >RM1M to encourage withdrawal 27% - RM100k to EPF amount – Proceeds from investment using withdrawn RM 1mil 87% Onshore 47% >RM1M amount to be tax-exempted 2009 2009 • Attract top 10 wealth management houses to be Aspirations Attract located in Malaysia by providing tax break for the Attractive wealth management destination expertise first 10 years on income and bringing back offshore Malaysian wealth • Increase number of Shariah financial planners WM AuM (RM B) Carve a through training and education 600 niche in • Exploit synergies with Islamic asset management 400 355 Islamic firms to leverage on the growing products pool 200 17 0 2009 2020 Italic = already championed by regulators 191. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
  21. 21. Seed new growth EPP # 8: Accelerate asset management 2.8bn ~7k 0 0.72bn Current Desired Current vs desired level of AUM (RM Bn) outsourcing Case for change 0% 5% 10% 15% 20% EPF 371 Concentrated industry – top 5 KWAP 65 accounted for 55% of AuM SOCSO 16 Strong regional competition – Increase LTAT 7 S’pore AuM has been growing GLICs Tabung Haji 24 twice as fast outsource 49 PNB mandate 50 Bn Opportunity to capture growing Outsourced Increase GLICs outsourcing portion on average from 5% segments to 15% of total portfolio • Each mandate must be sufficiently attractive (i.e. RM1-2M) Aspirations • Firms must locate at least 6FTEs (including 2 A thriving regional asset portfolio managers) and bringing additional capital management hub • Allow EPF member to withdraw up to 50% of Stimulate account 1 if total amount in account 1 exceeds 120k 2,000 1,740 retail • Expand list of approved unit trusts managers to AuM (RM B) market include stock brokers and foreign fund managers 1,000 Carve a • Provide incentives for foreign sourced fund 302 nice in • Leverage on mandate to attract top funds in Islamic finance Islamic • Strengthen domestic fund management demand pool via the 0 fund growth of wealth management industry • Position Malaysia as Islamic product innovation hub 2009 2020 Italic = already championed by regulators 201. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector
  22. 22. Go on the offensive EPP # 9: Create regional champions5.8bn ~9k 0 28.39bn •G2G lobby to relax host country restriction Case for change Expand •Support to strong local banks for landscape Loan Growth (%) internationally changing acquisitions Domestic 20 13 10 in meaningful 7 •Provide additional incentives for banks to growth has 10 mannerslowed down 0 2001- 2005- Nominal regionalize 2005 2009 GDP 05- 09 ROA (%) Profitability 2 1.4 1.2also has come 1 Push •Explore possibility of initiating a more down 0 integrated integrated banking framework for ASEAN 2005 2009 ASEAN region (esp. for banks licensing requirements) Aspirations banking Source of net income for framework (%) Msian banks 100 16 30 Foreign Expansion •GLICs to take up stakes in attractive markets 84 70 Domestic Beyond beyond just following outward FDI/ trade flow ASEAN in 0 •Explore feasibility of merger among top 2010 2020 attractive Malaysian bank in the top 3 in markets financial institutions either within Malaysia or ASEAN by market in ASEAN to create regional champion capitalization 21
  23. 23. Go on the offensive EPP # 10: Global Islamic finance hub 7.9bn ~12k 0.2bn 38.33bn Case for change Undisputable Global Islamic Hub Msia already 3rd largest Islamic mkt Islamic Intellectual Center Islamic Capital Center Most key countries still •Codify & standardize • Create mega i-bank and underpenetrated Shariah guidelines expand internationally • Shift DFIs emphasis towards Malaysia has the reputation & Islamic finance competitive advantage •Push for global convergence and • Lead creation of global Aspirations Islamic liquidity mgmt, incl. mutual recognition Undisputable Global leader in Islamic more FX instruments Finance • Develop Islamic fund industryIslamic bank world Takaful world • Further develop non-Sukukmkt share (%) mkt share (%) •Become CoE and capital market, e.g. i-REIT20 20 reference points (Refer to EPP 1) 13 8 20 11 5 Overseas for Islamic finance 2 11 15 Domestic research, development 0 • Expand Takaful products 0 and education 2009 2020 2009 2020 overseas • Strengthen Malaysia retakaful Msian Islamic Bank is among the Worlds top 5 capacity Italic = already championed by regulators 22
  24. 24.  Overview of NKEA Entry Points Projects 2012 Looking Forward 23
  25. 25. What’s in store for 2012 …..  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. 24
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