chapter 4 finance companies and investment banks


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chapter 4 finance companies and investment banks

  2. 2. snurazani/dis2012
  3. 3. DEFINITION snurazani/dis2012 Under the BAFIA 1989, a “finance company” is defined as “a person who carries on finance company business”. “Finance company business” in turn is defined as: A. “the business of receiving deposits on deposit account, saving accounts or other similar account; B. i) the lending of money ii) leasing business; or iii) the business of hire-purchase, including that of which is subject to the Hire-Purchase act 1967; or C. the lending of money such other business as the Central Bank with the approval of the Minister of Finance, may prescribe”.
  4. 4. FACTS 1. 2. snurazani/dis2012 Finance companies form the second largest group of deposit-taking institutions in Malaysia Finance companies are allowed to carry out transactions in the short and medium-term credit markets, but not allowed to accept current account deposits, to deal in gold and foreign exchange, to grant overdraft and to grant loans without collateral.
  5. 5. REGULATION 1. snurazani/dis2012 Finance companies were initially governed by BNM through the Finance Companies Act 1969. (former known as Borrowing Companies Act 1960) 2. This enactment safeguard the interest of the depositors and also strengthened the financial institutions.
  6. 6. snurazani/dis2012 SOURCES AND USES OF FUNDS/ STRUCTURE OF ASSETS AND LIABILITIES Sources of funds/ Structure of liabilities Uses of funds / Structure of assets Deposits - Fixed deposits - Saving deposits Interbank money market To grant loan for - hire purchase and leasing of motor vehicles - agricultural equipments - industrial and construction equipments - other consumer durables
  7. 7. snurazani/dis2012 STATUTORY REQUIREMENTS The operations of the finance companies also have an important bearing on the monetary and credit situation of the country. Therefore, finance companies are also required to observe statutory reserve and liquidity requirements
  8. 8. snurazani/dis2012 SERVICES Finance companies specializing in consumption credit comprise mainly hire purchase finance, leasing finance, housing loans and personal loans. Other services include:1. 2. 3. 4. 5. 6. Saving and fixed deposits Hire-purchase and Leasing Housing and real estate financing Floor Stocking Factoring Corporate Financing Local money market activities.
  9. 9. snurazani/dis2012 EXAMPLE OF FINANCE COMPANY 1. 2. 3. 4. 5. Maybank Finance Berhad Eon Finance Berhad Hong Leong Finance Bhd Public Finance Berhad Arab-Malaysian Finance Berhad
  10. 10. snurazani/dis2012
  11. 11. snurazani/dis2012 INVESTMENT BANK IN MALAYSIA  Investment bank is introduced by BNM on March 2005- to strengthen Malaysian Fin. Sector  All discount houses were absorbed by the merchant banks by the end of 2006.  The new framework required the merchant banks, stock-broking companies and universal brokers to be transformed into investment banks latest by first quarter of 2007  Investment banks is licensed to perform investment banking functions by Securities Commission and BNM.
  12. 12. snurazani/dis2012 ROLE OF INVESTMENT BANKS
  13. 13. snurazani/dis2012 INVESTMENT BANKS?? Investment banking means the business of providing credit facilities, providing consultancy and advisory services relating to corporate and investment matters of making investments on behalf of customers The main function – to provide services to corporate sectors such advisory and management services, stock broking services, loan syndication, portfolio management and others. It plays important role – to complement banking system by providing avenue for individuals and corporations to source funding for their business activities as well as diversifying their portfolio investment.
  14. 14. snurazani/dis2012 INVESTMENT BANK?  Investment banks help companies and governments and their agencies to raise money by issuing and selling securities in the primary market.  They assist public and private corporations in raising funds in the capital markets (both equity and debt) as well as in providing strategic advisory services for mergers, acquisitions and other types of financial transactions.  The investment banking industry plays an important intermediation function in all market economies.
  15. 15. snurazani/dis2012 INVESTMENT BANKS IN MALAYSIA….
  16. 16. snurazani/dis2012
  17. 17. snurazani/dis2012 SOURCES AND USES OF FUNDS SOURCES OF FUNDS USES OF FUNDS 1. Deposits from customers 2. Deposits and placement of banks and other financial institutions 3. Balance due to clients and brokers 4. Borrowing 1. Loan, Advances And Finance 2. Deposit Placement With Financial Institutions 3. Security Held For Trading 4. Security Held For Maturity 5. Security Available For Sale 6. Statutory Deposit With BNM 7. Investment Into Subsidiary Companies 8. Property, Plant And Equipment.
  18. 18. snurazani/dis2012 PRODUCTS AND SERVICES
  19. 19. snurazani/dis2012 CORPORATE FINANCIAL & ADVISORY       The management and underwriting of public and private securities. Identification of investors for new ventures or for the expansion of established business. Handling of public and private companies‟ mergers, acquisitions and restructuring. Undertaking of industry research or project feasibility studies. Undertaking of share valuations for various purposes. Private placements of debt and equity.
  20. 20. snurazani/dis2012 INFO: UNDERWRITING   Underwriting - guarantee that all the issued shares will be sold. If there is any portion that is unsold, the underwriting institutions themselves will take it up.
  21. 21. snurazani/dis2012 PORTFOLIO AND INVESTMENT SERVICES        Nominee and registration services including custodianship of all types of securities. Trading of stocks, shares, Government bonds and money market securities. Management of corporate and private portfolio, trusts and pension funds. Share register and share registration services. Management of investment portfolios. Management of investment and unit trusts and property trust funds. Fund management funds.
  22. 22. snurazani/dis2012 CORPORATE BANKING          Management of syndicated and consortium facilities in local and foreign currencies. Provision of trade financing facilities. Syndication and provision of guarantee facilities. Management and underwriting of commercial papers. Provision and arrangement of short, medium and long-term loans in Malaysia and overseas. Provision of bridging finance and project finance. Provision of factoring and leasing facilities. Capital market issues. Block discounting of hire-purchase agreements.
  23. 23. snurazani/dis2012 INFO: SYNDICATED LOAN    When the value of loan required by a company is too large, it is possible that the company may be unable to obtain it from one single financial institutions. Investment bank will help to arrange the loan from several financial institutions. Such loans are called syndicated loan. The aim of the syndicated loan is to reduce risks and exposure of each of the syndicate participants.
  24. 24. snurazani/dis2012 FUND-BASED ACTIVITIES  Banking Services    Acceptance of call and fixed deposits. Term loans Investment banks also offer a number of other services which are provided by commercial banks. Investment banks cannot accept current or demand deposits.