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Financial Sector Development

Financial Sector Development

The principal objects of the Bank are to promote monetary and financial stability conducive to the sustainable growth of the Malaysian economy. Towards this end, the Bank plays a crucial role in the development of a progressive and inclusive financial sector which entails preserving the core foundations of financial stability at all times, ensuring effective and efficient financial intermediation, and contributing towards economic growth and development.

Pivotal to the development process of the financial sector are two 10-year masterplans, which provide the foundation for a balanced, inclusive and sustainable growth of the financial sector. The Financial Sector Masterplan (FSMP), which was for the period 2001- 2010, provided the foundation for the orderly development of the financial sector, beginning with building the institutional capacity of the domestic intermediaries and developing the domestic financial infrastructure. This was followed by the introduction of an increasingly competitive environment as the financial sector became more deregulated and market oriented. To date, all recommendations under FSMP have been implemented or are being implemented on an ongoing basis.

The second masterplan, the Financial Sector Blueprint (Blueprint) was released in 2011 for the period 2011-2020. The Blueprint builds on the achievements of the FSMP to evolve a financial ecosystem that will best serve a high value-added, high-income Malaysian economy, while also having an increasingly important role in meeting the growing financial needs of emerging Asia. Initiatives will continue to be pursued to strengthen financial sector linkages and support intra-regional integration to effectively and efficiently intermediate Asia’s surplus funds towards the vast investment opportunities in the region. An important part of this will be the internationalisation of Islamic finance and the development of Malaysia as an international Islamic financial centre.

The recommendations in the Blueprint are focused on nine major areas supported by 69 recommendations and more than 200 initiatives. Focus areas under the Blueprint:

  1. Effective intermediation for a high value-added, high-income economy;
  2. Development of deep and dynamic financial markets;
  3. Greater shared prosperity through financial inclusion;
  4. Strengthening regional and international financial integration;
  5. Internationalisation of Islamic finance;
  6. Safeguarding the stability of the financial system;
  7. Achieving greater economic efficiency through electronic payments;
  8. Empowered consumers; and
  9. Talent development for the financial sector.

Over the next decade, the financial sector is envisioned to grow beyond its role as an enabler of growth to be a key driver and catalyst of economic growth, with growth in the financial system firmly anchored to growth in the real sector. Based on the rate of growth of the economy projected for the next decade, it is envisaged that the financial system will grow at an annual rate of 8-11%, increasing the depth of the financial system to six times times of gross domestic product (GDP) in 2020 (2010: 4.3 times of GDP). At the same time, the contribution of the financial sector to nominal GDP is expected to grow from 8.6 percent of nominal GDP in 2010 to between 10 and 12 percent by 2020.