• The Governor of Bank Negara Malaysia, Tan Sri Dato’ Seri Ali Abul Hassan bin Sulaiman today clarified that banking institutions are not prohibited from extending financing for the purchase of shares and units of unit trust fund. In fact, the limit on lending for the purchase of shares for the commercial banks and finance companies was increased from 15% to 20% of total loans with effect from 23 September 1998. The limit for the merchant banks remains at 30% of total loans. This limit includes loans by the banking system to the stockbroking firms.

• As at end-June 1999, total loans extended by the banking system for the purchase of shares, including loans to stockbroking firms, amounted to RM27.8 billion or 7% of total loans outstanding. The banking system can therefore extend an additional RM54 billion in credit facilities for this purpose. Given the large excess capacity available, there is no reason for stockbroking firms to tighten margin financing requirements vis-a-vis their clients.

• In extending loans for the purchase of shares, banking institutions should encourage long-term investments in the stock market. Confidence in the stock market will enhance the value of listed companies which in turn would enable and facilitate these companies to secure financing at reasonable costs to fund their operations as well as expand their activities. This would then translate into more economic activities which would strengthen economic recovery.

Tan Sri Dato’ Seri Ali Abul Hassan bin Sulaiman

Gabenor Bank Negara Malaysia