The document provides an overview of the functions and operations of Bank Negara Malaysia (BNM), the central bank of Malaysia. It discusses BNM's establishment in 1959 due to the need to manage Malaysia's money and credit situation. The key objectives and functions of BNM include issuing currency, maintaining monetary stability, influencing credit situations, and supervising banking institutions. BNM implements various monetary policy tools such as interest rates, reserve requirements, and open market operations to regulate money supply and credit. It also acts as the government's banker and financial advisor.

1. FIN426
BANKING
OPERATIONS
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Prepared by:
Anis Sabrina binti Iskandar
Dania Iwana Binti Mahadi
Rabiatul Adawiyah binti Muzafar
Norliyana binti Nor Azmi
Nur Aina Aqilah binti Yahya

2. INTRODUCTION
Was established on Jan 26, 1959.
Was set up due to the need for the management of the
country’s money and credit situation.
BNM also as the controller and supervisor of the
institutions under the banking system

3. OBJECTIVES OF BNM
The objectives of the central bank are
defined as:
 To issue currency and keep reserves in safeguarding the
value of money.
 To act as a banker and fin advisor/agent to government
 To promote monetary stability and sound financial
structure.
 To influence the credit situation to the advantage of the
country.

4. FUNCTIONS OF CENTRAL
BANK OF MALAYSIA
FUNCTIONS
OF BNM
Banker for Currency issue
Keeper of international
Reserves
Government banker and
advisor
Responsibility for monetary
policy
Banker to the banks

5. F1: BANKER FOR
CURRENCY ISSUE
Part III of CBO 1958 provides for the Central Bank as sole currency
issuing authority in the country.
The Central Banks commenced to issue its own currency on June,
1967; replacing the Currency Board.
Unit of currency: “Ringgit Malaysia” (RM) & “sen”

6. F2: KEEPER OF INTERNATIONAL
RESERVES & SAFEGUARDING
VALUE OF RINGGIT
Holdings of the country official external reserved centralized at the CB.
International reserves: gold, foreign exchange, reserve with IMF & Special
Drawing Rights.
Reserves has increased progressively due to the Influence by economic
situation.
To safeguard the external value of Ringgit, the maintenance of min external
reserves backing of 80% against the currency issues.

7. F3: GOVERNMENT BANKER &
FINANCIAL ADVISOR
Central Bank also act as a banker, fiscal agent and financial advisor to the
Gov.
Central Bank responsible as fiscal agent of the Government include acting on
behalf of the Government in public loan program including internal and
external loans.
Management of government accounts
• Same functions as commercial banks perform for their customers.
Source of funds to government
• Provide temporary advances to Gov to cover any deficit in budget revenue.
Management of national debt
• Manages & advises on public debt such as advices Gov on its loan programmes.

8. F4: AGENCY RESPONSIBLE
FOR MONETARY POLICY
a) Promoting monetary stability and sound financial structure.
 Influence credit situation thru supply of money & volume of credit
 The CB is obliged to ensure that the supply of money and the volume
credit are sufficiently elastic to the demands without pressure on the
resources.
 Using quantitative & qualitative controls.
b) Management of banking system
 Responsible to manage the banking system such maintaining public
confidence in the banking system thru its legislative power.

9. F4: AGENCY RESPONSIBLE FOR
MONETARY POLICY
Central Bank of Malaysia ordinance (CBO) 1958: BNM is empowered to
regulate the supply of money & credit creation through:
 Qualitative measures
 Interest rate Ceiling
 Selected Credit Control
 Moral Suasion
 Quantitative measures
 Statutory reserved requirement (SRQ)
 Minimum Liquidity Requirement (MLR)
 Money Market Operation (MMO)
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10. F4: AGENCY RESPONSIBLE FOR
MONETARY POLICY
Qualitative
Measures
Interest Rate
Ceiling
Eg. Involved in
setting the minimum
lending rates for
bank loans.
Selected Credit
Control
These measure are
used in regulating
the volume and
direction of credit
Moral Suasion
Inducing a voluntary
response from the
financial system to
its policy initiatives

11. INTEREST RATE CEILING
financial institution charge a
borrower for an adjustable
rate mortgage or loan
according to the contractual
terms of the mortgage or
loan.
Encourage a market-oriented
system of interest rate
CB allowed commercial banks
to determine the deposit and
lending rates
BLR is fixed based on the cost
of funds, after providing for
the cost of SRR, MLR and
overheads

12. SELECTED CREDIT CONTROL
Among the
most effective
measures
available to CB
in regulating
volume &
direction of
credit
To ensure the economic
& social objectives are
met, consistent with the
national objectives
Done by
holding down
demand for
credit without
limiting the
available
supply; do not
raise interest
rates

13. MORAL SUASION
Tactic used by an authority to influence and pressure but
not force , banks into adhering to policy.
Examples :
• Discourage financial institutions to lend excessively for
speculation activity
• Encourage to extend more longer-term financing loans
• Encourage to step up lending to priority areas such as
Bumiputera community & small borrowers

14. MONETARY POLICY
(QUANTITATIVE
MEASURES)

15. LIQUIDITY
REQUIREMENT
All banking institution must keep a minimum liquidity ratio to
protect customer interest
Liquid asset include cash, T-bills, MGS, Cagamas bond and
BNM certificate
Functions of liquidity requirement:
a) Can be used for credit creation
b) Can be used to finance government development
project
c) Maintain customer interest

16. DISCOUNT OPERATION
Allows all financial institution to
borrow from BNM by discounting
Increase in discounting by BNM =
High reserves of the bank
Decrease in discounting by BNM =
Reduces the bank reserves

17. STATUTORY RESERVES
REQUIREMENT
Bank must reserve a portion of
asset for emergency purpose such
as during investment loss
Higher ratio of SRR = Lower loans
and deposit in the bank

18. MONEY MARKET
OPERATIONS
Operations conducted by BNM to influence the
liquidity situation in the system
Open market operations: Involves purchase & sale
of Government papers by BNM in open organized
markets
Borrowing or Lending: Strategies used by BNM if
shortage of OMO
Tight monetary policy = Reduces liquidity (issues
more government paper)
Ease monetary policy = Increase liquidity
(repurchased government paper)

19. FINANCIAL SERVICES ACT
(FSA 2013)
 An Act to provide for the regulation and supervision of
financial institutions, payment systems and other
relevant entities.
 To promote financial stability and for related,
consequential or incidental matters.
 The Financial Services Act 2013 (FSA) and Islamic
Financial Services Act 2013 (IFSA) come into force on 30
June 2013
Several combine laws of FSA & IFSA :
- Banking & Fin. Act 1989 (BAFIA)
- Takaful act 1984
- Insurance act 1996 (IA)

20. ELEMENT OF FSA 2013
FSA
2013
Greater clarity
&
transparency
Clear focus
on syariah
compliance
Regulate financial
holding company
& non-regulated
entities
Strengthened
business
conduct &
consumer
proctection

21. F5: BANKER TO THE BANKS
Banker
to the
Banks
Promote
sound
financial
structure
Licensing
banks &
non-banks
Banking
relationshi
p
Currency
distributio
n
Banks
inspection
and
investigati
on
Lender of
last resort

22. F5: BANKER TO THE BANKS
Promote a sound financial structure
 Relationship CB-financial institutions in 3 main legislations:
 Central Bank Ordinance 1958
 Banking and Financial Institutions Act (BAFIA) 1989
 Islamic Banking Act 1983
Licensing of banks and non-banks
 Part II BAFIA: financial institutions must have licenses to carry
business
 Issued by MOF, recommended by BNM
 Must fulfilled minimum requirements of BAFIA 1989

23. F5: BANKER TO THE BANKS
Banking relationship
 Banking institutions must maintain deposit accounts
Statutory reserve account (SRR): monetary control
Current account
Currency distribution
 Responsible for cash required & acceptance by the commercial banks
Inspection & investigation of banks and non-banks
 BAFIA empowers CB
 To ensure sound & prudent conduct of operations

24. F5: BANKER TO THE BANKS
Lender of last resort
 Main forms:
Rediscounting.
Borrowing against collateral.
 For serious temporary shortages:
Grant loans against security of shares.
Inject capital when existing shareholders unable to do
so.

25. POWERS OF CENTRAL BANKS
•Provides for the administration & specify objectives of
BNM
•Enumerates the powers & duties of the BNM
CENTRAL BANK ORDINANCE
(CBO)1959
•Provides for licensing & regulation of Islamic banking
business
•Has provisions on financial requirements & duties of
an Islamic Bank
ISLAMIC BANKING ACT 1983
•Provide for licensing & regulation of financial
institutions that conduct the banking & financial
business
BANKING & FINANCIAL
INSTITUTIONS ACT (BAFIA)1989
•Gives BNM powers to investigate the affairs of any
person it suspects or has reason to believe is a
deposit-taker
•Empowers BNM to freeze the properties
ESSENTIAL (PROTECTION OF
DEPOSITORS) REGULATIONS 1986
•Deal with the licensing of insurers, ins brokers,
adjusters .
•Provides matters relating to policies, insurance
guarantee scheme fund, enforcement powers of BNM,
offences & other general provisions
INSURANCE ACT 1997
•Provides for registration & regulation of takaful
business in Malaysia
TAKAFUL ACT 1984

26. EXCHANGE CONTROL NOTICES
OF MALAYSIA (ECMS)
Malaysia implements selective foreign exchange
controls that apply to transactions with all countries
except Israel, Serbia and Montenegro, for which special
restrictions apply.
Implemented under the Exchange Control Act 1953,
with detailed policies and procedures being
promulgated by BNM via Exchange Control Notices of
Malaysia (ECMs)
Ensure that the country’s limited financial resources
are used for purposes that will benefit the Malaysian
economy
Able to increase the country’s productivity and earn foreign
exchange
Bank Negara Malaysia (BNM) monitor funds’ inflow and
outflow, and to foster a more dynamic economic
environment

27. MAJOR THEMES OF EXCHANGE
CONTROL POLICY AS
PRESCRIBED IN THE ECMS
INCLUDE:
Payment for the import of goods and
services must be made in foreign
currency
Residents are not permitted credit
facilities in ringgit from non-residents
without the prior approval of BNM

28. SPECIAL STATUS FOR EXCHANGE
CONTROL PURPOSES:
Labuan Offshore Banks are permitted to receive
payments in ringgit from residents in the form of
fees, commissions, dividends, or interest from
deposit of funds
Labuan Offshore entities are free to maintain
ringgit accounts with onshore banks to defray
statutory and administrative expenses in Malaysia

29. AMLATFA
AMLATFA: Anti-Money Laundering & Anti-Terrorism
Financing Act
Laundering - an act of a person who engages
directly or indirectly in a transaction that involves
proceeds of an unlawful activity
Money laundering - a process whereby funds,
generated by illegal means such as drug trafficking
and smuggling
How many money laundered?
Placement: Keep the money/fund in separate account
bank
Layering: Doing cross multiple transaction so its
difficult to identify its original source
Integration: Move the money back into financial
institution by buying new assets

30. AMLATFA (CONTD..)
Terrorism Financing : carrying out transactions involving
funds that may or may not be owned by terrorist
It is prohibited to be involve in fund raising where the person
involved intends to used the money for terrorism purposes