{"kind":"task","effective_mode":"full","benchmark":{"kind":"benchmark","effective_mode":"full","slug":"longbench-v2","formal_name":"LongBench v2","introduction":"LongBench v2 evaluates deep understanding and reasoning over long contexts through multiple-choice questions. Its official description lists 503 questions spanning tasks such as single-document and multi-document QA and code-repository understanding.","introduction_ja":"","introduction_en":"","category":"Category not supplied","task_count":null,"acquisition_status":"Acquisition status not supplied","official_url":"https://huggingface.co/datasets/zai-org/LongBench-v2","indexing_mode":"noindex","profile":{"resources":[],"task_format":"","scoring":"","metric":"","size":"","answer_access":"","license":"","citation":"","maintainer":"","released":"","why_hard":"","related":[]}},"task_id":"cecc6e7e-d6db-56b7-a224-3a7d3f06de5d","task_key":"train--6703f73cbb02136c067cd74a","task_revision_id":"3","upstream_id":"6703f73cbb02136c067cd74a","short_description":"Considering the sustained global economic recovery and the increasing…","config":"","split":"train","body":"{\"choice_A\":\"Maintaining the pegged exchange rate may lead to a rapid depletion of foreign reserves during capital outflows, potentially forcing a devaluation of the ringgit. A significant intervention by the central bank, including interest rate hikes and liquidity tightening, could lead to a domestic recession.\",\"choice_B\":\"A capital outflow would likely necessitate abandoning the pegged regime in favor of a managed float, allowing for more flexible exchange rate adjustments. Implementing capital controls and reducing short-term debt could mitigate impacts on economic stability.\",\"choice_C\":\"A sudden capital outflow could expose vulnerabilities in Malaysia's banking sector, causing liquidity shortages. To stabilize the currency, a combination of tight fiscal policies and tax reforms would be required, along with banking sector consolidation.\",\"choice_D\":\"While facing capital outflows, Malaysia might attempt to maintain the peg by utilizing external reserves and increasing sterilization efforts. However, this approach may strain reserves in the long run, limiting flexibility and responsiveness to market conditions.\",\"context\":\"EliScholar – A Digital Platform for \\nEliScholar – A Digital Platform for \\nScholarly Publishing at Yale \\nScholarly Publishing at Yale \\nYPFS Resource Library \\n2003 \\nBank Negara Malaysia Annual Report 2003 \\nBank Negara Malaysia Annual Report 2003 \\nBank Negara Malaysia/Central Bank of Malaysia \\n \\nThis resource is brought to you for free and open access by the Yale Program on Financial Stability and \\nEliScholar, a digital platform for scholarly publishing provided by Yale University Library. \\nFor more information, please contact ypfs@yale.edu. \\n\\n\\nStatutory Requirements\\nIn accordance with section 48 of the Central Bank of Malaysia Act 1958, Bank Negara Malaysia\\nhereby publishes and has transmitted to the Minister of Finance a copy of this Annual Report\\ntogether with a copy of its Annual Accounts for the year ended 31 December 2003, which have\\nbeen examined and certified by the Auditor-General. The Annual Accounts will also be published\\nin the Gazette.\\n26 March 2004\\nZeti Akhtar Aziz\\nChairman\\nBoard of Directors\\n\\n\\nBoard of Directors\\nDr. Zeti Akhtar Aziz\\nD.K. (Johor), P\\n.S.M., S.S.A.P\\n., D.P\\n.M.J.\\nGovernor and Chairman\\nDato’ Mohd Salleh bin Hj. Harun\\nD.S.D.K.\\nDeputy Governor\\nDato’ Ooi Sang Kuang\\nD.M.P.N.\\nDeputy Governor\\nTan Sri Dato’ Seri Dr. Samsudin bin Hitam\\nP\\n.S.M., P.N.B.S., D.C.S.M., S.S.A.P\\n., S.M.J., D.P\\n.M.T., D.P\\n.M.P., J.S.M., K.M.N., A.M.N.\\nSecretary General to the Treasury\\nDatuk Oh Siew Nam\\nP\\n.J.N.\\nTan Sri Datuk Amar Haji Bujang bin Mohd. Nor\\nP\\n.S.M., D.A., P\\n.N.B.S., J.S.M., J.B.S., A.M.N., P\\n.B.J. P\\n.P\\n.D.(Emas)\\nTan Sri Dato’ Seri Dr. Mohd. Noordin bin Md. Sopiee\\nP\\n.S.M., D.I.M.P., D.M.S.M., D.G.P\\n.N.\\nDato’ N. Sadasivan\\nD.P\\n.M.P., J.S.M., K.M.N.\\n\\n\\nGovernor\\nDr. Zeti Akhtar Aziz\\nDeputy Governor\\nDato’ Mohd Salleh bin Hj. Harun\\nDeputy Governor\\nDato’ Ooi Sang Kuang\\nAssistant Governor\\nDatuk Zamani bin Abdul Ghani\\nAssistant Governor\\nDato’ Mohamad Daud bin Hj. Dol Moin\\nAssistant Governor\\nDatuk Latifah Merican Cheong\\nAssistant Governor\\nDato’ Mohd Razif bin Abd. Kadir\\nSecretary to the Board\\nMohd Nor bin Mashor\\nDirectors/Heads of Department\\nGovernor’s Office\\nNg Chow Soon\\nInternal Audit\\nYahaya bin Haji Besah\\nLegal\\nGopala Krishnan Sundaram\\nEconomics\\nMonetary Assessment and Strategy\\nV. Vijayaledchumy\\nEconomics\\nDr. Phang Hooi Eng\\nInternational\\nWan Hanisah binti Wan Ibrahim\\nForeign Exchange Administration\\nMahdi bin Mohd. Ariffin\\nStatistical Services\\nChan Yan Kit\\nRegulation\\nBank Regulation\\nNor Shamsiah binti Mohd Yunus\\nInsurance Regulation\\nDonald Joshua Jaganathan\\nIslamic Banking and Takaful\\nBakarudin bin Ishak\\nDFI Regulation\\nChe Zakiah binti Che Din\\nRisk Management\\nTeo Kee Tian\\nSupervision\\nBank Supervision I\\nAzizan bin Haji Abd Rahman\\nBank Supervision II\\nChung Chee Leong\\nInsurance Supervision\\nSani bin Ab. Hamid\\nPayment Systems\\nAhmad Hizzad bin Baharuddin\\nInformation Systems Supervision\\nRamli bin Saad\\nSpecial Investigation\\nKamari Zaman bin Juhari\\nFinancial Intelligence\\nKoid Swee Lian\\nInvestment and Operations\\nInvestment Operations and Financial Market\\nMuhammad bin Ibrahim\\nFinance\\nAbdul Aziz bin Abdul Manaf\\nOrganisational Development\\nIT Services\\nHong Yang Sing\\nHuman Resource Management\\nMainor bin Awang\\nHuman Resource Development Centre\\nLim Lai Hong\\nCorporate Services\\nMohd Nor bin Mashor\\nCorporate Communication\\nAbu Hassan Alshari bin Yahaya\\nStrategic Planning\\nMior Mohd Zain bin Mior Mohd Tahir\\nCurrency Management and Operation\\nHor Weng Keng\\nSecurity\\nAhmad bin Mansur\\nProperty and Services\\nZulkifli bin Abd Rahman\\nChief Representative\\nLondon Representative Office\\nLillian Leong Bee Lian\\nNew York Representative Office\\nShamsuddin bin Mohd Mahayiddin\\nBranch Manager\\nPulau Pinang\\nOng Boon Teck\\nJohor Bahru\\nIshak bin Musa\\nKota Kinabalu\\nYusoff bin Yahaya\\nKuching\\nNallathamby s/o Nalliah\\nKuala Terengganu\\nMokhtar bin Mohd Noh\\nShah Alam\\nHamzah bin Abu Bakar\\n\\n\\nContents\\nGovernor’s Statement\\nThe Malaysian Economy in 2003\\nOverview ................................................................................................................. 02\\nWhite Box: Potential Output of the Malaysian Economy ....................................... 07\\nSectoral Review ....................................................................................................... 12\\nDomestic Demand Conditions .................................................................................. 27\\nPrices and Employment ............................................................................................ 32\\nExternal Sector......................................................................................................... 37\\nWhite Box: Recent Trends in Foreign Direct\\nInvestment in Malaysia ....................................................................... 47\\nFlow of Funds .......................................................................................................... 56\\nMonetary and Fiscal Developments\\nMonetary Policy in 2003 .......................................................................................... 60\\nWhite Box: Monetary Policy Statement ................................................................. 61\\nMonetary Developments .......................................................................................... 62\\nExchange Rate Developments .................................................................................. 68\\nFiscal Policy and Operations ..................................................................................... 69\\nOutlook and Policy\\nThe International Economic Environment ................................................................. 80\\nMalaysian Economy in 2004 .................................................................................... 85\\nWhite Box: Liberalisation and Simplification of Foreign\\nExchange Administration Rules ........................................................... 89\\nMonetary Policy in 2004 .......................................................................................... 96\\nFiscal Policy in 2004 ................................................................................................. 98\\nFinancial Sector Policy in 2004 ................................................................................. 99\\nWhite Box: Report on SME Development Framework ......................................... 101\\nThe Financial Sector\\nSources and Uses of Funds of the Financial System................................................. 104\\nManagement of the Banking System...................................................................... 107\\nWhite Box: The International Center for Leadership in Finance............................ 110\\nSupervisory Activities.............................................................................................. 119\\nWhite Box: Banking Measures Introduced in 2003.............................................. 122\\nPerformance of the Banking System ....................................................................... 128\\nWhite Box: Financial Sector Masterplan .............................................................. 141\\nWhite Box: The Proposed Deposit Insurance System in Malaysia ......................... 150\\nOther Financial Institutions ..................................................................................... 152\\nFinancial Markets ................................................................................................... 157\\nWhite Box: Key Capital Market Measures in 2003 .............................................. 164\\nDevelopments in Payment and Settlement Systems ................................................ 172\\nWhite Box: Payment Systems Act 2003 .............................................................. 173\\nMalaysia’s Anti-Money Laundering and Counter Financing\\nof Terrorism (AML/CFT) Programme........................................................................ 178\\n\\n\\nThe Islamic Financial System\\nGrowing Significance of the Islamic Financial System.............................................. 182\\nPolicy Thrusts in 2003 ............................................................................................ 186\\nWhite Box: Introduction of Islamic Variable Rate Mechanism .............................. 187\\nWhite Box: The Framework of the Rate of Return ............................................... 190\\nWhite Box: Guidelines on the Specimen Reports and Financial\\nStatements for Licensed Islamic Banks (GP8-i) ................................... 193\\nPerformance of the Islamic Banking System............................................................ 196\\nDevelopment Financial Institutions\\nIntroduction ........................................................................................................... 204\\nPolicies and Measures ............................................................................................ 204\\nPerformance of Development Financial Institutions................................................. 208\\nExternal Relations\\nEconomic Surveillance ............................................................................................ 222\\nInternational Financial Architecture ........................................................................ 222\\nExternal Relations with the IMF .............................................................................. 223\\nIslamic Banking ...................................................................................................... 223\\nCombating Money Laundering and Terrorist Financing ........................................... 224\\nFinancial Sector Liberalisation ................................................................................. 224\\nRegional Co-operation ........................................................................................... 229\\nWhite Box: Asian Bond Market Initiative ............................................................. 231\\nBilateral Co-operation ............................................................................................ 232\\nTechnical Assistance and Information Exchange...................................................... 232\\nOrganisation and Human Resource\\nOrganisation Development – Overview................................................................... 234\\nRisk Management in Bank Negara Malaysia ........................................................... 238\\nOrganisation Structure ........................................................................................... 241\\nAnnual Accounts\\nBalance Sheet as at 31 December 2003 ................................................................. 245\\nAnnex .................................................................................................................. 253\\n\\n\\nThe more optimistic global environment and stronger domestic economic conditions have\\nenhanced Malaysia’s prospects as we advance into 2004.  The renewed strength of the recovery\\nof the world economy is now supported by a more synchronised expansion of the major\\nindustrial economies and the strong growth in the Asian region.  While economic and financial\\npolicies have been important in providing the stimulus to the improved overall growth\\nperformance, the increasing significance of the private sector in driving this growth has\\nincreased the prospects for the sustainability of these positive trends.\\nStrong domestic demand has been particularly evident in the Asian region, reflecting the\\nincreased role of the private sector in driving the growth.  This strong growth in regional\\ndemand has provided a rapidly expanding market for Asian goods and services.  The increased\\nregional integration is, however, not only occurring as a result of the growth in intra-regional\\ntrade, but also in the form of financial flows, with intra-Asian investments gaining greater\\nsignificance, resulting in a growing amount of the savings in Asia being reinvested in the region.\\nAs these trends become more pronounced, they would not only contribute towards greater\\nregional integration but would also reinforce further the regional growth momentum. In\\naddition, the growing demand from the Asian economies has also been increasingly supportive\\nof the global recovery.  Indeed, this trend would contribute towards reducing the external\\nimbalances existing in the global economy and increase the prospects for a more balanced\\nglobal growth.\\nThe Malaysian economy in 2003 benefited from the more robust external demand and increased\\nprivate sector activity in the domestic economy.  A better-than-expected economic performance\\nof 5.2% was recorded during the year.  The growth momentum is projected to strengthen\\nfurther in the region of 6 – 6.5% in 2004, with the private sector assuming the lead role as the\\nengine of growth.  Private consumption and investment activity are projected to be stronger,\\nunderpinned by improved economic and employment conditions and stronger balance sheets in\\nboth the corporate and financial sectors.  Growth is expected to be stronger across almost all\\nsectors of the economy, with the services and manufacturing sectors being the main drivers of\\ngrowth.  While the role of the Government in the economy remains important, the focus of\\npolicy has now shifted to providing an enabling environment, including enhancing the\\nGovernment delivery system to reduce the cost of doing business, and to providing a stable and\\nsound macroeconomic environment.\\nThe underlying economic and financial fundamentals have continued to strengthen in the\\nearly part of 2004, according monetary policy the flexibility to remain supportive of private\\nsector activity.  This is reflected in the near absence of inflationary pressures in both the\\nconsumer and asset markets and excess capacity in the system, evident in the gap between\\nactual and potential output.  Price stability has also been reinforced by productivity\\nimprovements and further capacity expansion.  In addition, as the globalisation process\\nintensifies, there is increased access to goods and services at lower costs.  Moreover, as the\\ncorporate sector performance improves, higher costs will not always translate into higher\\nprices in this more competitive environment.  The Government’s fiscal prudence has also been\\na factor in reinforcing price stability.  Against this environment, low interest rates can remain\\nfor some time to come.\\nGovernor’s Statement\\n\\n\\nIn this stable environment, and with the much strengthened banking system and progress\\nachieved in the development of the financial infrastructure, it is timely to transition to the new\\ninterest rate framework.  The aim is to achieve greater efficiency in the operations of the\\nfinancial markets and thus facilitate more effective pricing in the financial system as well as\\nenhance the effectiveness of the monetary transmission mechanism.  The window of\\nopportunity will therefore be taken during this period when the current interest rate policy will\\nremain unchanged.  This will provide the market with the opportunity to adjust to the new\\nmonetary operating procedures to achieve the desired outcome of more efficient functioning\\nfinancial markets and increased effectiveness of monetary policy.\\nLiquidity has remained ample in an environment of a strong external balance, a steady inflow of\\nforeign direct investment and increased portfolio inflows.  Sterilisation operations, however, have\\nbeen conducted, taking into consideration the need to ensure adequate liquidity to support\\nfinancing of the private sector-led growth, while at the same time, ensuring that this does not\\nresult in any risks to the financial system and to the economy.  Important to this process is that\\nthe Central Bank has the instruments and the capacity to absorb this liquidity.  The costs\\ninvolved in these operations are essentially covered by the returns on the investment of the\\nincreased inflows.  The Central Bank will absorb such immediate-term costs of monetary policy\\nto ensure the stability and sustainability of our medium and long-term prospects.  In the current\\nenvironment, the net position has continued to remain positive.  In managing the reserves, a\\nwell-diversified reserves portfolio is maintained. Major considerations taken into account are\\ncapital preservation and liquidity, while optimising returns.  This has ensured a sound financial\\nposition for the Central Bank.\\nOn the exchange rate, the objective of our policy remains unchanged, that is, to achieve\\nexchange rate stability, in particular, with our trading partners.  As our trade with the region\\nbecomes increasingly significant, exchange rate stability in the region becomes increasingly\\nimportant. At the very outset, when the pegged exchange rate arrangement was introduced\\nalmost six years ago, we have stated that we want an effective exchange rate mechanism that\\nwill efficiently facilitate international trade and investment. While there may be trade-offs, the\\nbenefits of the present system have far outweighed any costs.  Consideration for an alternative\\nsystem should only be made in the event of anticipated fundamental misalignment or structural\\nchange or if new regional arrangements can be evolved.\\nExtreme movements and high volatility in exchange rates have always been a concern, even to\\nthe major economies.  For emerging market economies, the ramifications of such movements\\nare even more pronounced and far-reaching.  Recent pronouncements and pressures on Asian\\neconomies to adopt more flexible exchange rate regimes have been based on the view that\\nadjustments in the exchange rate would correct structural imbalances in the global economy.  It\\nneeds to be recognised that the comparative advantage that Asia possesses is not due to\\nexchange rates but reflects other factors that have resulted in lower costs.  Adjustments in\\nexchange rates are therefore unlikely to correct such structural imbalances.  In addition, whether\\nexchange rate appreciation can address any signs of overheating needs to take into account the\\nnature of the price pressures.  In situations where the pressures are sectoral or localised, other\\nmeasures, including prudential measures, may be more effective in addressing these\\n\\n\\ndevelopments.  Indeed, the exchange rate should not be used for the purpose for which it may\\nnot be able to yield the desired results.\\nIn strengthening our competitiveness, Malaysia has adopted a more comprehensive strategy,\\naddressing all dimensions that will enhance competitiveness.  This includes strategies to enhance\\nlabour quality and productivity, innovation, enterprise and the public delivery system, applied not\\nonly to the manufacturing sector but to all sectors of the economy. The strategy is essentially to\\nassess costs on a more comprehensive basis.  The strategy is towards achieving an enhanced\\noverall cost competitiveness, leveraging on our low country risk, including the economic, social\\nand political stability, reliable intellectual property protection framework, and our industrial\\nmaturity.  Moving forward, efforts will therefore be focused on developing an efficient supply\\nchain that is reinforced with local supporting industries, and on becoming more knowledge-\\nbased with the necessary skills and competencies.\\nAn integral part of the strategy on competitiveness is to develop a robust Small and Medium-\\nScale Enterprises (SME) sector that will be able to contribute more significantly to the economy.\\nTwo years ago, Bank Negara Malaysia proposed a comprehensive framework for the\\ndevelopment of SMEs to provide an enabling environment and to strengthen the infrastructure\\nfor SME development.  The progress of the work achieved thus far will be deliberated by the\\nNational SME Development Council.  The Council, which is being set up by the Government, will\\nfunction as the highest policy-making body that will chart the future direction and strategies for\\nSME development and ensure coordination and comprehensiveness of the policies.\\nAs part of the efforts to enhance overall cost competitiveness, reduce country risks and sustain\\nour position as a destination of choice for both local and foreign investors, a gradual\\nliberalisation of rules and regulations will be undertaken by Bank Negara Malaysia to improve\\nthe delivery systems and reduce regulatory costs to business.  Leveraging on technology to\\nimprove the surveillance system on capital flows has improved the ability to monitor the risks\\nassociated with these flows.  This has therefore enabled the further deregulation and\\nliberalisation of foreign exchange rules. In addition to the liberalisation in early 2003, further\\nliberalisation of foreign exchange rules will take effect from 1 April 2004 to improve efficiency\\nin the delivery system, while further reducing the cost of doing business.\\nIn the development of the financial system, significant progress has been achieved during\\nthe first three years of the Financial Sector Master Plan.  The efforts to evolve a more\\ndiversified financial structure that is complemented with the development of strengthened\\nfinancial institutions have now yielded positive results.  While the banking sector is still the\\nmain mobiliser and provider of financing, the more diversified financial infrastructure has\\nincreased the potential for new and alternative channels to mobilise savings as well as\\nincreased the alternative sources of financing. Financing from the capital market, in\\nparticular, the private bond market, specialised financial institutions and the insurance\\nsector, have now become more significant.  The provision of financial services to micro-\\nenterprises has also been strengthened, while venture capital as an alternative form of\\nfinancing has provided increased support to the new areas of growth that are more\\ntechnology and knowledge intensive.\\n\\n\\nSignificant progress has been achieved on institutional development and capacity building.  The\\nlevel of capitalisation, the capacity to lend to a wider range of activities, the level of operational\\nefficiency, the level of skills, the more differentiated scope of business, the level of innovation,\\nthe standards of service quality and the risk management capacity have shown significant\\nimprovements.  This is reflected, in particular, in the lower operating costs, the narrowing of\\nmargins, and the wider range of new products and services. These improvements are also\\nreflected in the ability of the domestic institutions to maintain market shares in an environment\\nof increased competition and narrowing margins.\\nThe supporting infrastructure has also been strengthened to reinforce this trend.  These include\\nthe consumer education programme, the strengthening of the Credit Guarantee Corporation,\\nthe establishment of the International Centre for Leadership in Finance to develop world-class\\nleaders in the financial services sector and the new Financial Mediation Bureau to be established\\nthis year.  Work is also underway to develop a deposit insurance scheme that will add another\\nlayer to the consumer protection framework, representing a further building block in our\\nfinancial infrastructure.  Of significance is that it is designed to take into account the structure\\nand conditions in our financial system and economy.  The deposit insurance system will have a\\nbroader mandate that will integrate the financial restructuring processes and structure within its\\noperations.  The system will also be the first to provide for the protection of Islamic deposits in\\nline with Shariah principles. These developments have also been complemented by\\nimprovements in the regulatory and supervisory framework to ensure the soundness and\\nresilience of the financial system.\\nAccess to financing to a wider range of activities in the private sector, in particular, to the SMEs,\\ncontinues to improve.  Outstanding loans to SMEs grew at an annual rate of 10% in 2003.\\nFinancing to the private sector and to the SMEs is expected to remain robust in 2004.  Other\\nmeasures that have supported this trend include the establishment of the Small Debt Resolution\\nCommittee, supported by Bank Negara Malaysia’s SME Special Unit and continued availability of\\nBank Negara Malaysia’s special funds that currently amount to RM5.6 billion.  New avenues are\\nalso being developed to increase the SMEs’ access to capital market funding.\\nAs the financial sector evolves to meet the needs of increasingly sophisticated consumers,\\nattention has been directed to ensure that basic banking facilities are widely available and that\\nthese facilities are offered at minimal costs to all segments of society.  In addition, as banking\\nconsumers become more empowered by their awareness of financial products and facilities, they\\nwill exercise their rights and ability to select between products and services offered by different\\ninstitutions.  This, combined with the transparency requirements, will ensure that pricing is\\ncommensurate with the financial products and services.  The competitive process is also\\nexpected to result in more competitive pricing of products and services and encourage greater\\ninnovation.\\nThe insurance industry continued to perform an important role in supporting economic\\ngrowth as a mobiliser of long-term funds and as a risk transfer mechanism.  An important\\naspect in the development of the insurance industry is also the increasing socio-economic role\\nof insurance in meeting the demand for healthcare financing support.  This is being realised\\n\\n\\nZeti Akhtar Aziz\\nGovernor\\n26 March 2004\\nthrough the increasing provision of medical and health insurance products. As major\\ninstitutional investors, insurers have an increasingly important role in the development of the\\ncapital markets. The insurance fund assets have increased significantly in 2003 to account for\\nthe largest share of the total fund assets of the industry.  During the year, the framework\\ngoverning insurance market practices, including claims handling practices, standards of\\nproduct disclosure and dispute resolution mechanisms, were further strengthened to ensure\\ngreater consumer protection.  A comprehensive consumer education programme was also\\nlaunched to promote a larger role for consumer activism in the insurance business and\\npractices and to ensure competitive prices to consumers.\\nThe comprehensiveness of the Islamic financial system in Malaysia, in terms of both the pool\\nof Islamic financial players as well as the broad spectrum of innovative Islamic financial\\nproducts have enhanced the role of the Islamic financial system as a financial intermediary\\nand enabler of economic growth.  Further progress in the development and expansion of\\nthe Islamic financial system was achieved in 2003.  Policy initiatives have focused on\\nliberalising the domestic Islamic banking system, increasing the level of competition, and\\npromoting financial innovation.  Other measures were also directed towards strengthening\\nand broadening the legal framework for Islamic banking and finance.  On the global front,\\nthe Islamic Financial Services Board (IFSB) has drawn wide participation and has made\\nsignificant progress in fulfilling its mandated role.  The promulgation of standards on the\\ncapital adequacy and risk management is progressing rapidly and work on establishing\\nstandards for corporate governance has already been initiated.  The year has also seen\\nfurther Islamic-based issues accessing the international capital markets.  Cumulatively, these\\ndevelopments have enhanced the role of Islamic finance as an integral component of the\\ninternational financial system.\\nBank Negara Malaysia has continued its developmental role during the year, over and above\\nour core mandate of monetary and financial stability.  This broader mandate is outlined in\\nour Financial Sector Master Plan and essentially takes a holistic approach in the development\\nand management of the financial system.  While efforts to address areas of vulnerability and\\nidentifying emerging risks are important, these need to be complemented with efforts to\\nbuild the financial infrastructure.  Institutional and capacity building are necessary\\nfoundations for the financial system.  It is in this context that the Central Bank drives the\\ndevelopment of the financial sector.\\n\\n\\nThe Malaysian \\nEconomy in 2003\\n02-12\\nOverview\\n07\\nWhite Box: Potential Output of the\\nMalaysian Economy\\n12-27\\nSectoral Review\\n27-32\\nDomestic Demand Conditions\\n32-37\\nPrices and Employment\\n37-56\\nExternal Sector\\n47-51\\nWhite Box: Recent Trends in Foreign Direct\\nInvestment in Malaysia\\n56-58\\nFlow of Funds\\n\\n\\n4.H-2\\n2\\nOVERVIEW\\nWhile events in the first half of the year had an\\nimpact on growth, the mutually reinforcing\\ncombination of strong economic fundamentals,\\nsupportive monetary and financial policies and\\ndecisive Government action provided the platform\\nfor growth to accelerate in the second half. For the\\nyear as a whole, real gross domestic product (GDP)\\nexpanded by 5.2% (2002: 4.1%), exceeding the\\nofficial forecast of 4.5%.\\nThe Malaysian Economy in 2003\\nThe Malaysian economy demonstrated greater resilience in the\\nface of uncertainties to expand by 5.2%, more rapidly than\\npreviously forecast.\\nGrowth in 2003 was broad based and balanced\\nacross sectors. The manufacturing sector grew by\\n8.2% on the back of strong production growth, both\\nin the export-oriented and domestic-oriented\\nindustries. Export-oriented industries, particularly the\\nelectronics and chemicals industries, benefited from\\nthe recovery in the global electronics sector as\\ninvestment demand picked up in most major\\neconomies. This growth was also seen in the strong\\nexpansion in manufactured exports (8.2%) and\\ncapacity utilisation levels that exceeded 80%. In\\nGraph 1.1\\nThe Economy in 2003 (at 1987 Prices)\\nSupply of goods and services (RM458.3 billion)\\nServices\\n25.3%\\nConstruction\\n1.6%\\nImports of services\\n8.9%\\nImports of goods\\n40.7%\\nManufacturing\\n15.6% \\nAgriculture\\n4.2%\\nMining\\n3.6%\\nTrade, etc. 25.6%\\nFinance, etc. 25.3%\\nGovernment services 12.9%\\nTransport, etc. 15.1%\\nUtilities 7.2%\\nOthers 14.0%\\nDemand for goods and services (RM458.3 billion)\\nExports of goods\\n48.9%\\nExports of services\\n6.3%\\nPrivate consumption\\n23.4%\\nPublic consumption\\n7.4%\\nPublic investment\\n9.2%\\nPrivate investment\\n4.9%\\n\\n\\n3\\nThe Malaysian Economy in 2003\\ncertain industries, the 90% utilisation level was\\nbreached in 2003, prompting an increase in capital\\nexpenditure.\\nThe agriculture sector also enjoyed higher growth of\\n5.5% as higher production and prices, mainly of\\npalm oil and rubber, drove growth. The mining\\nsector, which grew by 4.8%, also enjoyed the\\nbenefits of higher prices. In addition, the production\\ncapacity in the sector was enhanced with the MLNG\\nTiga plant and four new oil and gas fields each\\ncoming on-stream. Higher prices and improving\\nexternal demand conditions led to the strong growth\\nin exports of primary commodities (30.4%).\\nThe services sector experienced the greatest impact\\nfrom the uncertainties in the first half, most notably\\nthe impact of the severe acute respiratory syndrome\\n(SARS) outbreak on tourism and travel-related\\nactivities. The wholesale and retail trade, hotels and\\nrestaurants sub-sector and air passenger travel\\nsegment, in particular, were severely affected as the\\nnumber of tourist arrivals dropped significantly from\\na pre-SARS monthly average of one million to about\\nhalf that number in April. However, the impact of\\nSARS proved transitory and these sub-sectors\\nrecovered rapidly in the second half. In addition, the\\nstrong loan growth, increased use of new services in\\nthe cellular telecommunications segment and\\nsustained volume of international trade ensured that\\ngrowth in the sector remained resilient. The sector\\nrecovered rapidly and for the year as a whole\\nexpanded by 4.1%.\\nGrowth in the construction sector moderated to\\n1.9% due to slower growth in the civil engineering\\nsub-sector as a result of the completion of several\\nprivatised projects. On the other hand, strong\\n2\\n4\\n6\\n8\\n10\\n1999\\n2000\\n2001\\n2002\\n2003\\n0\\n0\\n50\\n100\\n150\\n200\\n250\\nAnnual change (%)\\nRM billion\\nGraph 1.2\\nReal GDP\\nReal GDP value (RHS)\\nReal GDP growth (LHS)\\n-5\\n0\\n5\\n10\\n15\\n20\\n1999\\n2000\\n2001\\n2002\\n2003\\nAnnual change (%)\\n-5\\n0\\n5\\n10\\n15\\n20\\nRM ('000)\\nGraph 1.4\\nGNP Growth and Nominal GNP per Capita\\nNominal GNP per Capita (RHS)\\nNominal GNP (LHS)\\nReal GNP (LHS)\\n0\\n5\\n10\\n15\\n20\\n1999\\n2000\\n2001\\n2002\\n2003\\nAnnual change (%)\\nGraph 1.3\\nReal GDP and Aggregate Domestic Demand \\nGDP\\nAggregate domestic demand\\n-10\\n-5\\n0\\n5\\n10\\n15\\n1999\\n2000\\n2001\\n2002\\n2003\\nPercentage\\npoint \\n-10\\n-5\\n0\\n5\\n10\\n15\\nAnnual change\\n(%)\\nGraph 1.5\\nContribution to Real GDP Growth:\\nDomestic Demand and Net Exports\\nDomestic demand (LHS)\\nNet exports (LHS)\\nReal GDP growth (RHS)\\n\\n\\n4.H-4\\n4\\nTable 1.1: Malaysia – Key Economic Indicators\\n2001\\n2002\\n2003p\\n2004f\\nPopulation (million persons)\\n24.0\\n24.6\\n25.1\\n25.6\\nLabour force (million persons)\\n9.9\\n10.2\\n10.5\\n10.9\\nEmployment (million persons)\\n9.5\\n9.8\\n10.2\\n10.5\\nUnemployment (%)\\n3.6\\n3.5\\n3.5\\n3.4\\nPer Capita Income\\n(RM)\\n12,855\\n13,683\\n14,592\\n15,376\\n(US$)\\n3,383\\n3,601\\n3,840\\n4,046\\nNATIONAL PRODUCT (% change)\\nReal GDP\\n0.3\\n4.1\\n5.2\\n6.0 – 6.5\\n(RM billion)\\n210.6\\n219.3\\n230.7\\n244.6\\nAgriculture, forestry and fishery\\n-0.9\\n3.0\\n5.5\\n2.6\\nMining and quarrying\\n-0.8\\n3.7\\n4.8\\n5.5\\nManufacturing\\n-5.8\\n4.0\\n8.2\\n10.2\\nConstruction\\n2.1\\n2.3\\n1.9\\n1.5\\nServices\\n5.8\\n4.1\\n4.1\\n5.2\\nNominal GNP\\n-1.6\\n8.7\\n10.1\\n6.5\\n(RM billion)\\n308.7\\n335.6\\n369.4\\n393.3\\nReal GNP\\n1.2\\n4.7\\n6.6\\n5.6\\n(RM billion)\\n193.0\\n202.1\\n215.4\\n227.5\\nReal aggregate demand1\\n2.5\\n4.2\\n4.8\\n5.0\\nPrivate expenditure1\\n-3.3\\n0.7\\n4.3\\n8.7\\nConsumption\\n2.4\\n4.4\\n5.1\\n8.1\\nInvestment\\n-19.9\\n-13.1\\n1.1\\n11.5\\nPublic expenditure1\\n15.6\\n10.8\\n5.5\\n-1.3\\nConsumption\\n17.0\\n12.2\\n7.9\\n4.2\\nInvestment\\n14.5\\n9.8\\n3.6\\n-5.7\\nGross national savings (as % of GNP)\\n34.9\\n34.4\\n36.9\\n35.8\\nBALANCE OF PAYMENTS (RM billion)\\nGoods\\n69.9\\n72.1\\n97.7\\n96.4\\nExports (f.o.b.)\\n334.3\\n357.7\\n398.9\\n443.3\\nImports (f.o.b.)\\n280.2\\n303.1\\n317.7\\n366.8\\nServices balance\\n-8.4\\n-6.0\\n-15.0\\n-11.9\\n(as % of GNP)\\n-2.7\\n-1.8\\n-4.1\\n-3.0\\nIncome\\n-25.6\\n-25.1\\n-22.6\\n-24.7\\n(as % of GNP)\\n-8.3\\n-7.5\\n-6.1\\n-6.3\\nCurrent tranfers\\n-8.2\\n-10.6\\n-9.3\\n-9.8\\nCurrent account balance\\n27.7\\n30.5\\n50.8\\n50.0\\n(as % of GNP)\\n9.0\\n9.1\\n13.7\\n12.7\\nBank Negara Malaysia reserves, net2\\n117.2\\n131.4\\n170.5\\n–\\n(as months of retained imports)\\n5.1\\n5.4\\n 6.8\\n–\\nPRICES (% change)\\nCPI (2000=100)\\n1.4\\n1.8\\n1.2\\n1.5\\nPPI (1989=100)\\n-5.0\\n4.4\\n 5.7\\n–\\nReal wage per employee in the manufacturing sector\\n1.6\\n 3.2\\n2.6\\n–\\nNote: Figures may not necessarily add up due to rounding.\\n1 Exclude stocks.\\n2 All assets and liabilities in foreign currencies have been revalued into ringgit at rates of exchange ruling on the balance sheet date and the gain/loss has been reflected\\naccordingly in the Bank’s account.\\np Preliminary\\nf Forecast\\n\\n\\n5\\nThe Malaysian Economy in 2003\\nTable 1.2: Malaysia – Financial and Monetary Indicators\\n2001\\n2002\\n2003p\\nFEDERAL GOVERNMENT FINANCE (RM billion)\\nRevenue\\n79.6\\n83.5\\n92.8\\nOperating expenditure\\n63.7\\n68.7\\n75.2\\nNet development expenditure\\n34.2\\n35.1\\n38.5\\nOverall balance\\n-18.4\\n-20.3\\n-20.9\\nOverall balance (% of GDP)\\n-5.5\\n-5.6\\n-5.3\\nPublic sector net development expenditure\\n59.7\\n69.1\\n72.0\\nPublic sector overall balance (% of GDP)\\n-0.3\\n-0.7\\n-0.4\\nEXTERNAL DEBT\\nTotal debt (RM billion)\\n173.4\\n185.6\\n187.2\\nMedium and long-term debt\\n149.3\\n153.6\\n152.8\\nShort-term debt1\\n24.1\\n32.1\\n34.5\\nDebt service ratio (% of exports of goods and services)\\nTotal debt\\n6.8\\n6.7\\n6.1\\nMedium and long-term debt\\n6.6\\n6.5\\n6.0\\nChange in 2001\\nChange in 2002\\nChange in 2003\\nRM billion\\n%\\nRM billion\\n%\\nRM billion\\n%\\nMONEY AND BANKING\\nMoney Supply\\nM1\\n2.5\\n3.2\\n8.3\\n10.3\\n13.0\\n14.6\\nM2\\n7.8\\n2.2\\n21.0\\n5.8\\n42.5\\n11.1\\nM3\\n13.0\\n2.9\\n31.6\\n6.7\\n48.5\\n9.7\\nBanking system deposits\\n8.6\\n1.8\\n25.3\\n5.3\\n49.5\\n9.8\\nBanking system loans2\\n16.1\\n3.9\\n19.8\\n4.6\\n21.8\\n4.8\\nManufacturing\\n…\\n…\\n-1.2\\n-2.0\\n-0.2\\n-0.3\\nBroad property sector\\n12.4\\n8.2\\n10.8\\n6.6\\n14.7\\n8.4\\nFinance, insurance and business services\\n0.7\\n2.2\\n-2.5\\n-7.7\\n-0.6\\n-1.9\\nLoan-deposit ratio\\n85.9%\\n84.9%\\n80.9%\\nFinancing-deposit ratio3\\n95.7%\\n95.1%\\n91.7%\\n2001\\n2002\\n2003\\n%\\n%\\n%\\nINTEREST RATES (AVERAGE RATES AS AT END-YEAR)\\n3-month interbank\\n3.27\\n3.13\\n2.87\\nCommercial banks\\nFixed deposit\\n3-month\\n3.21\\n3.20\\n3.00\\n12-month\\n4.00\\n4.00\\n3.70\\nSavings deposit\\n2.28\\n2.12\\n1.86\\nBase lending rate (BLR)\\n6.39\\n6.39\\n6.00\\nFinance companies\\nFixed deposit\\n3-month\\n3.22\\n3.20\\n3.00\\n12-month\\n4.01\\n4.00\\n3.68\\nSavings deposit\\n2.94\\n2.65\\n2.18\\nBase lending rate (BLR)\\n7.45\\n7.45\\n6.90\\nTreasury bill (3-month)\\n2.73\\n2.82\\n2.77\\nGovernment securities (1-year)\\n2.93\\n2.94\\n2.93\\nGovernment securities (5-year)\\n3.18\\n3.15\\n4.28\\n2001\\n2002\\n2003\\n%\\n%\\n%\\nEXCHANGE RATES\\nMovement of Ringgit (end-period)\\nChange against composite\\n3.5\\n-3.4\\n-3.2\\nChange against SDR\\n3.8\\n-7.3\\n-8.5\\nChange against US$4\\n0.0\\n0.0\\n0.0\\n1 Excludes currency and deposits held by non-residents with resident banking institutions.\\n2 Includes loans sold to Cagamas.\\n3 Adjusted to include holdings of private debt securities.\\n4 Ringgit was pegged at RM3.80=US$1 on 2 September 1998.\\np Preliminary\\n\\n\\n4.H-6\\n6\\ndemand for housing sustained activity in the\\nresidential construction segment.\\nIn 2003, GDP growth was private sector-driven.\\nPrivate expenditure contributed 2.5 percentage\\npoints of the 5.2% growth rate. Both households\\nand the corporate sector benefited from rising\\ndisposable incomes, the improving terms of trade\\nfor commodities and strengthening external\\ndemand. While household incomes increased as a\\nresult of growth in wages and higher commodity\\nprices, the corporate sector generated higher profits\\nand cash flows from rising productivity and higher\\nexport earnings. From a sample of 300 non-financial\\ncompanies listed on the Kuala Lumpur Stock\\nExchange (KLSE), 54% recorded higher cumulative\\nprofits for the first three quarters of 2003 compared\\nwith the same period a year earlier and the\\nannualised return-on-equity rose from 5.4% in the\\nthird quarter of 2002 to 7.3% in the third quarter\\nof 2003.\\nAs a result of higher disposable income, especially for\\nhouseholds, private consumption increased by 5.1%.\\nIn addition, the low interest rate environment,\\ncoupled with the high savings rate, provided the\\nimpetus for households to increase their borrowings\\nfor consumption expenditure. Measures unveiled in\\nthe Economic Package in May improved consumer\\nconfidence, further supporting consumption\\nexpenditure.\\nA significant development in 2003 has been the\\nturnaround in private investment, which increased by\\n1.1% after two years of contraction. The improved\\neconomic outlook, particularly in the second half,\\nstronger corporate balance sheets and cashflow\\npositions and high capacity utilisation, especially in\\nthe manufacturing sector, prompted increased capital\\nspending. In addition, the low interest rate\\nenvironment and the steps taken to improve\\ncompanies’, especially the small and medium\\nenterprises’ (SMEs), access to finance, provided the\\nimpetus for capital expansion.\\nThe public sector continued to play an important role\\nin sustaining domestic demand, especially in the first\\nhalf. Real public consumption increased by 7.9% due\\nto higher spending on supplies and services. On the\\nother hand, real public investment growth\\nmoderated to 3.6% in line with the moderate\\nincrease in Federal Government development\\nexpenditure and lower capital spending by the\\nnon-financial public enterprises.\\nAs a result, real aggregate domestic demand\\n(excluding change in stocks), increased more rapidly\\nby 4.8%. However, this pick-up in demand did not\\nlead to an increase in inflation. The Consumer Price\\nIndex (CPI) increased more moderately by 1.2%\\nduring the year (2002: 1.8%), with core inflation –\\ninflation that excludes price-volatile and price-\\nadministered items – amounting to 0.6% in spite of\\nhigher commodity prices. While stronger economic\\ngrowth led to a narrowing of the output gap, it was\\nnot completely eliminated and reflected excess\\ncapacity in selected sectors.\\nIn 2003, the external sector’s contribution to growth\\nturned positive (2 percentage points; 2002: –1.3\\npercentage points), primarily due to the acceleration\\nof exports of goods in the trade account by 11.5%\\n(2002: 7%). The trade surplus increased to RM81.1\\nbillion (2002: RM54.6 billion). Sustained consumer\\ndemand and the pick-up in investment activity in the\\nmajor industrial economies as well as higher\\ncommodity prices spurred the growth in exports of\\nmanufactures and primary commodities. On the\\nother hand, import growth moderated to 4.8%\\n(2002: 8.1%) as exports of primary commodities,\\nunlike manufactured exports, had a low import\\ncontent. Further, the changing pattern of investment,\\nespecially foreign direct investment (FDI), into the\\nservices sector were smaller in scale but had higher\\npotential to generate value added. As a result,\\nimports of capital goods remained relatively stable\\n(0.7%).\\nThe large trade surplus, coupled with a smaller\\nincome account deficit brought about by the\\nrepatriation of earnings from overseas investments by\\nMalaysian firms, more than compensated for the\\nlarger services account deficit (RM15 billion) due to\\nlower tourism receipts. As a result, the current\\naccount surplus increased to RM50.8 billion,\\nequivalent to 13.7% of gross national product (GNP)\\n(2002: 9.1% of GNP).\\nThe financial account in the balance of payments\\nremained stable, recording a deficit of RM12.1\\nbillion (2002: -RM11.9 billion). Stronger inflows of\\nfunds for investment were balanced by higher\\nrepayments and prepayments of external debt by\\nthe public sector and overseas investments by\\nMalaysian companies. FDI into Malaysia remained\\nsignificant while funds for portfolio investment\\nturned around to record an inflow as the KLSE\\nstaged a markedly improved performance, especially\\nsince the third quarter.\\n\\n\\n7\\nThe Malaysian Economy in 2003\\nPotential Output of the Malaysian Economy\\nPotential output is output derived from the full use of available capital and potential employment,\\nwhich is the level of employment that is consistent with the “natural” or “long run” rate of\\nunemployment.  Therefore, the potential output is defined as the maximum capacity of output that\\nthe economy can achieve without experiencing either inflationary pressures or external imbalances.\\nThe output gap is the difference between actual and potential output and is measured as a\\npercentage of potential output.  When actual output is lower than its potential, the output gap is\\nnegative and, theoretically, output can sustain an increase without exerting undue inflationary\\npressures on the economy.\\nTable 1\\nActual GDP and Potential Output\\nActual\\nPotential\\nInvestment\\nLabour\\nOutput\\nGDP\\noutput\\nGap\\nPeriod\\nAnnual change (%)\\n(% of\\npotential\\noutput)\\n1992-1997\\n9.2\\n8.2\\n14.1\\n3.9\\n-1.9\\n1998\\n-7.4\\n3.7\\n-43.0\\n-2.1\\n-11.4\\n1999\\n6.1\\n2.4\\n-6.5\\n3.7\\n-8.3\\n2000\\n8.5\\n4.0\\n25.7\\n4.3\\n-4.3\\n2001\\n0.3\\n3.2\\n-2.8\\n3.3\\n-6.9\\n2002\\n4.1\\n1.7\\n0.3\\n3.1\\n-4.8\\n2003\\n5.2\\n3.4\\n2.7\\n3.3\\n-3.1\\n-30\\n-20\\n-10\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n-15\\n-10\\n-5\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\nRM billion\\n% of potential\\noutput \\nPotential output\\nActual output (GDP)\\nOutput gap\\nGraph 1\\nActual and Potential Output\\n92\\n93\\n94\\n95\\n96\\n97\\n98\\n99\\n00\\n01\\n02\\n03\\nDuring the high growth years of the early 1990s, actual output closely followed its potential, as shown in\\nTable 1 and Graph 1. Amidst the pronounced contraction in output experienced after the Asian financial\\ncrisis, the output gap had widened significantly in 1998 but as the economy recovered, the gap narrowed.\\nIn 2002, the output gap was 4.8% compared to 6.9% in 2001. Subsequently, in 2003, the stronger\\npickup in economic activity compared to the growth in potential output led to a further narrowing of the\\noutput gap. Bank Negara Malaysia’s latest estimates of potential output indicated that actual GDP\\nincreased at a faster pace (5.2%) compared to potential GDP (3.4%). Nevertheless, the faster growth of\\nGDP did not exert inflationary pressures as actual GDP would have to increase by more than 8% before\\nthe output gap could be bridged in 2003.\\nThe potential growth rate doubled in 2003, due mainly to stronger growth in capital investment (2.7%;\\n2002: 0.3%) as business sentiment improved amidst higher capital utilisation rates in selected sectors of\\nthe economy.\\nThe estimated short-run elasticity of capital is significantly higher than the short-run elasticity of labour,\\nimplying that changes in capital have a greater impact on output and that returns to capital have\\ncontinued to improve. This has encouraged firms to accelerate their investment activities, including the\\nupgrading of technological capabilities that, in turn, could have had an immediate impact on output.\\nIn line with previous findings, the long-run elasticity of capital, which is estimated to be 0.50, is higher\\nthan its short-run counterpart. This higher return to capital implies more efficient capital utilisation, as\\ncalculated by the ratio of output to capital, which has had a faster rate of increase compared to the ratio\\nof output to labour. Previous supportive infrastructure investments, which have long gestation periods,\\nhave begun to show positive returns, while stronger investment activities were visible in the services sector,\\nmainly in technology and logistics infrastructure. With the greater focus and emphasis placed on a\\nknowledge-driven economy, expectations are for potential output to expand further.\\n\\n\\n4.H-8\\n8\\nAs a result of the large current account surplus,\\nsustained inflows of funds for investment, including\\nFDI, and revaluation gains from the translation of\\nnon-US dollar assets into ringgit terms, the net\\ninternational reserves of Bank Negara Malaysia\\nincreased to RM170.5 billion, or equivalent to\\nUS$44.9 billion at the end of 2003. This represented\\nan increase of RM39.1 billion or US$10.3 billion\\nduring the year. The increasing trend in reserves\\ncontinued into 2004. By 15 March, the reserves rose\\nto RM194.9 billion or US$51.3 billion, sufficient to\\nfinance 7.8 months of retained imports and was 5.2\\ntimes the short-term external debt.\\nMalaysia’s external debt position remained stable in\\n2003, standing at RM187.2 billion or 50.7% of GNP\\n(2002: RM185.6 billion or 55.3% of GNP) in spite of\\na RM4.1 billion revaluation adjustment that resulted\\nmainly from the appreciation of the euro and yen.\\nMalaysia’s external debt position remains sustainable\\nwith the debt service ratio improving from 6.7% in\\n2002 to 6.1% in 2003. In addition, the nation’s debt\\nprofile remains healthy, with short-term debt\\naccounting for only 18.4% of total external debt.\\nThe health of the banking system improved in 2003,\\nin tandem with stronger economic growth. Banks\\ncontinue to be well capitalised with the risk-weighted\\ncapital ratio sustained at a high level at 13.4%, well\\nabove the prescribed 8% mark. The trend for non-\\nperforming loans (NPLs) also reversed with the ratio,\\non a 6-month basis, declining from 7.5% as at end-\\n2002 to 6.8% as at end-2003.\\nMacroeconomic Management\\nComing into 2003, the Malaysian economy was\\nalready in a strong position. Private sector activity\\nwas exhibiting an upward trend. Commodity prices\\nremained high, providing a significant positive\\nmultiplier effect on rural incomes. Further, both the\\nmonetary and fiscal stance were conducive to\\nsustaining growth without increase in risk, given the\\nbenign inflation outlook, strong external position and\\nthe sustainable public sector finances. Given this\\nstrength, it was assessed that the economy had the\\nresilience to absorb the impact of uncertainties that\\ncould adversely affect growth prospects. Hence, the\\nmacroeconomic policy stance was left unchanged in\\nthe early part of the year.\\nBy the second quarter, however, the unforeseen\\nSARS outbreak and the weaker-than-expected global\\neconomic conditions prompted new policy measures.\\nEconomic and financial indicators for the first half-\\nyear also indicated that growth in the United States\\nremained well below trend, mainly due to subdued\\ninvestment. Deflationary concerns and continued\\nfinancial market volatility cast doubt on the strength\\nof global economic activity. This prompted the\\nauthorities to take pre-emptive measures in order to\\nsupport economic activity. On 21 May, Bank Negara\\nMalaysia reduced its policy rate, the 3-month\\nIntervention Rate, by 50 basis points to 4.5%. This\\nmove was aimed at mitigating the effects of a more\\nadverse external environment on domestic demand.\\nA comprehensive economic stimulus and relief\\npackage, encompassing fiscal and financing\\nmeasures, was announced by the Government. The\\npackage was designed to provide immediate relief to\\naffected sectors, diversify economic activity and\\nimprove long-term competitiveness.\\nIn the short term, the main stimulus measures were\\ndesigned to provide relief to affected sectors and\\nencourage private consumption in order to diversify\\nthe sources of growth. Hotels and restaurants were\\nexempted from service taxes and received a\\ndiscount on utility charges. Income tax payments for\\ntravel agencies were suspended, the road tax on\\ntaxis was reduced and import duties on selected\\nitems were lowered. In addition, a Special Relief\\nGuarantee Fund of RM1 billion was set up by Bank\\nNegara Malaysia to provide working capital to\\naffected companies while existing funding facilities,\\nespecially for SMEs, were enlarged. To encourage\\nconsumer spending, employees’ contribution to the\\nEmployees Provident Fund was reduced by two\\npercentage points and civil servants were given an\\ninterim half-month bonus. In addition, measures\\ntargeted at construction activities, particularly\\nmeasures to provide affordable housing to the\\nlower income group, also had a positive effect on\\nconsumption.\\nWith the additional expenditure, coupled with\\nrevenue foregone arising from the relief measures\\nimplemented, the overall Federal Government deficit\\nwas revised from the budgeted 4% of GDP to 5.3%\\nof GDP. However, the higher deficit did not exert\\npressure on domestic consumer prices and interest\\nrates as the high savings rate and excess liquidity in\\nthe banking system made it possible for the bulk of\\nthe deficit to be financed from non-inflationary\\ndomestic sources. While the deficit led to higher\\nFederal Government debt (48.2% of GDP as at end-\\n2003), this level was sustainable. Debt servicing\\nremained low (14% of operating expenditure).\\nSimilarly, the Federal Government external debt\\n\\n\\n9\\nThe Malaysian Economy in 2003\\ndeclined to 9.5% of GDP\\n, thus lowering exposure to\\nexternal risks. Given the Government’s target to\\nachieve a balanced budget in the near term, the\\ndebt-to-GDP ratio is expected to decline in the\\nmedium term as growth accelerates.\\nThe immediate effect of the measures was to\\nstrengthen domestic demand and hence, growth.\\nAfter recording a 4.5% growth in the first half, real\\nGDP accelerated to 5.2% in the third quarter. As\\nconflict in the Middle East was resolved and SARS\\nabated, domestic consumer and business sentiment\\nimproved markedly in the third quarter. Further\\ndeclined during the year. The average lending rate\\ncharged by commercial banks declined further, and\\nat end-year was 39 basis points lower than the end-\\n2002 level. Liquidity remained ample during the year\\nas BNM’s operations stabilised inter-bank interest\\nrates at low levels.\\nThe ringgit peg has provided stability and\\npredictability during a period of increased uncertainty\\nin financial markets, thereby facilitating trade and\\ninvestment activities. While the US dollar depreciated\\nduring the year, Bank Negara Malaysia’s estimates\\nindicate that the ringgit remains close to its fair\\nThe proactive monetary and fiscal measures implemented by the\\nGovernment in response to uncertainties in the first half\\nsupported growth and provided the platform for the private\\nsector to take the lead in generating growth. For the longer\\nterm, Malaysia has formulated a comprehensive strategic\\nframework to meet new challenges.\\nfavourable signs started to emerge from September\\nas growth in the United States exceeded the trend\\nrate in the third quarter following a recovery in\\ninvestment and a build-up in inventories. In tandem,\\nthe other major economies also recorded stronger\\ngrowth. The mutually reinforcing combination of\\nfiscal expansion and monetary easing provided the\\nplatform on which the domestic economy was able\\nto leverage on the accelerating global and regional\\ngrowth momentum. In the fourth quarter, growth\\naccelerated to 6.4%, the fastest rate since the fourth\\nquarter of 2000.\\nThe reduction in interest rates spurred loan growth,\\nprompted by increased demand from both\\nhouseholds and businesses, particularly SMEs. As a\\nresult, total financing from the banking system\\nthrough loans and holdings of private debt securities\\nincreased by 5.9%. The demand for credit intensified\\nin the latter part of the year as global economic\\nconditions improved, consequently leading to a\\nstrengthening of the growth momentum in Malaysia.\\nIn particular, funding to the SMEs increased strongly\\nwith a large proportion of new loans directed to this\\nsegment. By end-2003, loans to SMEs had expanded\\nby 10% and accounted for 38.4% of all loans\\noutstanding to business enterprises.\\nAs a result of the reduction in the Intervention Rate,\\nample liquidity and a competitive lending\\nenvironment, lending rates charged by the banks\\nvalue. The surplus in the current account remains\\nlarge while reserves continue to rise. Domestically,\\ninflation remains low at 1.2% and there appears to\\nbe no significant imported inflation. Hence,\\neconomic fundamentals continue to support the\\ncurrent exchange rate arrangement.\\nThe importance of strong fundamentals was\\ndemonstrated in 2003. They allowed the\\nGovernment to implement a wide-ranging and\\ncomprehensive response to adverse conditions\\nwithout creating undue risks. In addition, the\\nsuccessful corporate sector restructuring undertaken\\nin recent years provided the enabling conditions for a\\npositive private sector response to the measures.\\nEqually important, the comprehensive and balanced\\napproach, with fiscal and monetary policy reinforcing\\neach other, increased the likelihood of achieving the\\naims of the measures.\\nThe May Economic Package did not only serve as a\\nshort-term stimulus package but was also an integral\\npart of longer-term initiatives to meet emerging\\nchallenges. The Mid-Term Review of the Eighth\\nMalaysia Plan (2001-2005) clearly identifies two\\nmajor challenges that are becoming increasingly\\napparent: dealing with the changing dynamics of\\nglobal competition and increasing capacity to\\nmanage risks from greater volatility. Thus, the May\\nEconomic Package and the 2004 Federal\\nGovernment Budget laid out the following strategies\\n\\n\\n4.H-10\\n10\\nto ensure that growth is sustained over the longer\\nterm while fundamentals are strengthened:\\n•\\nIncrease competitiveness by enhancing\\nproductivity\\nIntegral to achieving this objective is the move\\ntowards a knowledge-based economy. Some\\nimportant strides have been made in enhancing\\nthe knowledge content of economic activity in\\n2003, especially by enhancing education and\\ntraining and promoting higher value-added\\nindustries.\\n•\\nStrengthen resilience through sound\\neconomic fundamentals and strong\\nfinancial and corporate sectors\\nThe financial sector restructuring process\\nundertaken following the Asian financial crisis\\nhas been completed and the corporate sector\\nhas begun to increase investments and expand\\noperations. A major milestone in 2003 was\\nDanamodal Nasional Berhad’s redemption of\\nbonds with a nominal value of RM11 billion on\\n21 October. Currently, Danamodal still has\\nassets with a book value of RM2.2 billion. As\\nproceeds from their disposal is expected to\\nexceed book value, the net cost incurred by\\nDanamodal in recapitalising the banking sector\\nis estimated to be 0.15% of GDP.\\nNotwithstanding the successful completion of\\nthe restructuring process, regulatory agencies\\nwill continue to ensure that Malaysian\\ncompanies and financial institutions\\ncontinuously upgrade governance and reporting\\nstandards.\\n•\\nStimulate private domestic investment as\\nwell as attract quality FDI\\nTo promote private investment, a number of\\nmeasures were directly targeted at SMEs by\\nimproving their access to financing as well as\\nmaking several tax and non-tax incentives\\navailable to them. The focus on domestic\\nsources of investment, however, is not at the\\nexpense of foreign investors. A number of\\nmeasures were announced under the economic\\npackage that liberalised regulations governing\\nforeign investment.\\n•\\nPromote new sources of growth in the\\nmanufacturing and services sector\\nApart from making Malaysia a more conducive\\nlocation for existing businesses, several sectors\\nwere earmarked as new sources of growth.\\nThese included education, tourism and health\\nservices in the services sector; Islamic finance;\\nand high-technology manufacturing.\\n•\\nRevitalise the agriculture sector\\nThe agriculture sector recorded the fastest\\ngrowth after manufacturing in 2003. While high\\ncommodity prices provided the incentive for\\nhigher production, the sector has deep and\\nstrong links with the rest of the economy. As\\nsuch, measures taken to improve productivity\\nand returns in this sector and develop new\\ndownstream activities will have a significant\\nmultiplier impact on the rest of the economy.\\n•\\nPursue sound macroeconomic management\\nwith fiscal prudence\\nThe Government is committed to a programme\\nof gradual fiscal consolidation. Similarly,\\nmonetary policy has remained supportive of\\ngrowth while ensuring risks, either in the form\\nof inflation or external imbalances, are\\ncontained.\\n•\\nImprove the delivery system of the\\nGovernment to create a pro-business\\nenvironment\\nImproved efficiency, especially in the public\\nsector, will effectively reduce costs, thereby\\nboosting competitiveness. Therefore, the final\\nstrategic prong was aimed at enhancing the\\nefficiency in the delivery of public services and\\neffectiveness in implementing national\\ndevelopment policies and strategies. These\\nincluded eliminating bureaucratic delays,\\nstreamlining regulations and procedures,\\nreducing duplication and shortening waiting\\nperiods.\\nBanking sector policies in 2003 were aimed at\\nenhancing the infrastructure and environment for\\nbanking institutions to deliver quality products and\\nservices, encouraging greater innovation while\\nmaintaining financial stability. In addition, an\\nimportant strategy was to ensure that the banking\\nsystem continued to be a facilitator of growth,\\nparticularly in providing financing and other\\nancillary services to the SMEs.\\n•\\nStrengthening the capacity of domestic\\nbanking institutions\\nDuring the year, efforts were directed at\\ndeveloping and enhancing the quality of human\\ncapital in the banking sector. As the business\\n\\n\\n11\\nThe Malaysian Economy in 2003\\nenvironment and consumer demands are\\nconstantly evolving, continuous upgrading of\\nskills is necessary, particularly at the top\\nmanagement level. Recognising this, Bank\\nNegara Malaysia initiated two important\\nmeasures to enhance the quality of human\\ncapital in the banking sector. The International\\nCentre for Leadership in Finance was established\\nto accelerate the development of skilled and\\ncompetent leaders of financial institutions and\\ncorporations. Work has also been initiated to\\nreposition Institut Bank-Bank Malaysia to better\\nmeet the needs of the financial sector through\\nmore focused training and accreditation,\\nparticularly in specialised areas.\\nTo provide a conducive environment for banking\\nconglomerates to further improve their group\\nstructures, rationalise their operations and improve\\nefficiency, the Banking and Financial Institutions\\nAct 1989 was amended to allow the merger of the\\ncommercial bank and finance company within a\\ndomestic banking group into a single legal entity.\\n•\\nSafeguarding financial stability and fortifying\\nthe financial system\\nDuring the year, steps were taken to strengthen\\ncorporate governance practices in the banking\\ninstitutions. These included enhancing the role of\\nthe board of directors, especially independent\\ndirectors, and regulations covering the\\nappointment of external auditors.\\nTo ensure that the activities of banking\\nconglomerates do not introduce risks to the\\nfinancial system, Bank Negara Malaysia is\\nformalising and strengthening the existing\\ninfrastructure and regulatory framework. To\\nstrengthen the legal framework, the Central Bank\\nof Malaysia Act 1958, the Banking and Financial\\nInstitutions Act 1989, the Islamic Banking Act\\n1983 and the Takaful Act 1984 were amended in\\n2003. A new Payment System Act 2003 was also\\nenacted to formalise the Bank’s oversight authority\\nof the payment system.\\n•\\nEnsuring that all sectors of the economy have\\nadequate access to finance\\nPolicies were directed at facilitating improved\\naccess to credit for the various sectors of the\\neconomy, particularly the SMEs. In addition, a\\nmicro-financing programme that has an extensive\\noutreach was also established for micro\\nenterprises.\\n•\\nStrengthening the consumer awareness and\\nprotection framework\\nActive consumerism is a critical prerequisite in the\\ntransition towards greater market orientation.\\nTherefore, an effective consumer education and\\nprotection framework is being developed to allow\\nbanking consumers to eventually take greater\\nresponsibility for their financial decisions. To assist\\nconsumers in making their decisions, the Bank is\\ncurrently finalising the product transparency and\\ndisclosure rules. Bank Negara Malaysia has also\\ninitiated work on establishing a framework on\\nbasic banking services, which aims to ensure that\\nthe banking public, especially the low-income\\ngroup, would have access to affordable basic\\nbanking services. To enable consumers to seek\\nredress on a broad range of retail consumer\\nissues raised against financial institutions\\nregulated by the Bank, the Financial Mediation\\nBureau, a one-stop center for the resolution of\\nthese issues, will be established in the first half\\nof 2004.\\nThe increased strength and resilience of the\\nbanking system has provided a positive\\nenvironment for the effective implementation of\\na deposit insurance scheme in Malaysia. The\\nimplementation of the system will further\\nstrengthen the consumer protection framework\\nby providing for the explicit protection of deposits\\nas well as greater incentives for sound financial\\nand business practices among banking\\ninstitutions.\\nThe rapid development of the domestic Islamic\\nfinancial system, accentuated by significant progress\\non the global front in recent years, have set the stage\\nfor it to play a more prominent role in the economy.\\nCurrently, 33 banking institutions, including two\\nIslamic banks, offer a comprehensive range of Islamic\\nfinancial products and services to the Malaysian\\npublic. Similarly, the takaful industry has progressed\\nrapidly, accounting for 5.6% of assets in the\\ninsurance sector in 2003. During the year, policy\\nfocused on strengthening the institutional\\ninfrastructure, enhancing the regulatory framework,\\nstrengthening the Shariah and legal infrastructure\\nand developing intellectual capital and consumer\\neducation. In 2003, Bank Negara Malaysia brought\\nforward liberalisation in Islamic banking to allow\\nfull-fledged foreign Islamic banks in Malaysia.\\nThe strategies laid out for sustaining long-term\\ngrowth will continue to be complemented by\\n\\n\\n4.H-12\\n12\\nappropriate short-term measures. Conversely, taking\\nsteps to ensure the long-term sustainability of growth\\nand strength of fundamentals would provide both\\nthe resources and platform on which shorter-term\\ncorrective measures may be taken. Thus, the\\ninteraction between short- and longer-term\\nmacroeconomic policies in Malaysia aims to be\\ncomplementary in nature, one reinforcing the other,\\nto achieve sustained economic development.\\nSECTORAL REVIEW\\nManufacturing Sector\\nIn 2003, output growth in the manufacturing sector\\ngained momentum especially in the second half-year,\\nfollowing the broad-based recovery in the global\\neconomy and strengthening domestic demand.\\nManufacturing production growth strengthened to\\n10.5% (2002: 4.5%), with expansion across a wide\\nrange of products in both the export- and domestic-\\noriented industries. Consonant with the pick-up in\\nproduction activities, value-added growth of the\\nmanufacturing sector doubled to 8.2% (2002: 4%),\\nGraph 1.6\\nManufacturing Sector: Sales, Production  \\nand Exports \\nSales\\nProduction\\nExports\\n2002\\n2003\\nAnnual change (%)\\n-15\\n-10\\n-5\\n0\\n5\\n10\\n15\\n20\\n1Q\\n2Q\\n3Q\\n4Q\\n1Q\\n2Q\\n3Q\\n4Q\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003p\\n%\\nAnnual change (%)\\nCapacity utilisation (LHS)\\nOutput (RHS)\\nGraph 1.7\\nCapacity Utilisation in the Manufacturing \\nSector\\np Preliminary\\n60\\n65\\n70\\n75\\n80\\n85\\n-20\\n-10\\n0\\n10\\n20\\n30\\nPick-up in exports and strengthening domestic demand led to\\nstronger expansion in the manufacturing sector.\\nand contributed significantly to overall GDP growth.\\nConsequently, the share of the manufacturing sector\\nin GDP rose slightly to 30.9% (2002: 30.1%). The\\ncapacity utilisation rate in the manufacturing sector\\nremained high at 82% in 2003 (2002: 82%), with\\nthe export- and domestic-oriented industries\\noperating at 86% and 77% respectively (2002: 83%\\nand 81% respectively).\\nExport-oriented industries expanded by 11.9% in\\n2003, with stronger expansion in the second half-year,\\nled by the cyclical upturn in global electronics demand,\\nand further enhanced by the strong performance of\\nthe chemicals and rubber products industries. Given\\nthe strong inter-linkages, the chemical industry also\\nbenefited from the spillover effects of the upsurge in\\nthe electronics industry. Demand for chemical and\\nrubber products were strong, particularly from the US\\nand the Asia-Pacific region. Overall, the outbreak of\\nSARS in the region during the early part of the year\\nhad a minimal impact on export-oriented industries,\\nnotwithstanding some slowdown in the regional\\neconomies.\\nWhile the SARS outbreak had affected consumer\\ndemand, the Economic Package introduced in May\\nTable 1.3\\nManufacturing Sector: Value Added and\\nProduction\\n2002\\n2003\\nAnnual change (%)\\nValue added\\n(Constant at 1987 price)\\n4.0\\n8.2\\nOverall Production\\n4.5\\n10.5\\nExport-oriented industries\\n5.0\\n11.9\\n of which:\\nElectronics\\n13.4\\n15.1\\nElectrical products\\n-5.1\\n-7.0\\nChemicals and chemical products\\n2.7\\n20.8\\nWood and wood products\\n-6.0\\n0.9\\nTextiles and wearing apparel\\n-6.2\\n-2.2\\nOff-estate processing\\n7.1\\n11.8\\nRubber products\\n2.0\\n18.7\\nDomestic-oriented industries\\n3.4\\n6.1\\n of which:\\nConstruction-related products\\n3.8\\n10.2\\nFabricated metal products\\n0.8\\n7.4\\nFood products\\n8.7\\n8.8\\nTransport equipment\\n6.2\\n-5.5\\nPetroleum products\\n-4.1\\n2.3\\nSource: Department of Statistics, Malaysia.\\n\\n\\n13\\nThe Malaysian Economy in 2003\\nhelped to stimulate domestic demand and support the\\ngrowth of the domestic-oriented industries (6.1%).\\nOutput was higher in all sub-sectors, except for the\\ntransport equipment industry. Of significance, growth\\nstrengthened in the fabricated metal products,\\nconstruction-related materials and food and beverages\\nindustries. These industries benefited largely from the\\nimproved domestic demand and continued growth in\\nthe construction sector. Only the automobile industry\\nrecorded lower output, affected by subdued sales of\\nmotor vehicles.\\nThe electronics industry recorded another year of\\nstrong growth following the broad-based expansion\\nin global demand across all geographical regions\\nand products. Expansion in the first-half year was\\nmoderate and picked up strongly in the second-half\\nyear. Growth emanated mainly from the expansion\\nin the wireless and personal computer (PC) markets\\nas well as consumer electronics products.  While\\ngrowth in wireless products was driven by the rising\\ndemand for wireless applications and cell phones,\\nthe demand for PCs was led by the PC replacement\\ncycle, which took place in the latter half of the year\\nas companies invested to replace their equipment\\nacquired during the Y2K period. The consumer\\nelectronics products experienced strong growth due\\nto growing consumer interest in adopting new\\ntechnology and multi-functional devices such as\\ncamera phones, personal digital assistants (PDAs)\\nand digital video decoders (DVDs). In terms of\\nexport markets, the Asia-Pacific region continued to\\nspearhead growth and remained the largest market\\nfor the global semiconductor sales. Demand was\\nespecially strong from the People’s Republic of\\nChina (P.R.China), which became the largest\\nimporter of chips in the world.\\nMalaysian manufacturers were able to benefit from\\nthe emerging global electronics up-cycle, in view of\\nthe diversity in product mix and export markets.\\nLocal semiconductor manufacturers continued to\\nmove up the value chain from assembly and\\npackaging activities to become full turnkey\\nproviders to maintain their competitiveness.\\nAmidst increased global competition, the\\nperformance of the electrical products sub-sector\\ncontinued to deteriorate. The decline was mainly in\\nthe audio-visual and telecommunication products\\nas producers who emphasised on low labour cost\\nhad relocated elsewhere. Nevertheless, output of\\nair conditioners, refrigerators and other ventilating\\ndevices continued to increase in tandem with the\\nimproving external demand. Overall, the\\nperformance of the industry was also affected by\\nlower offtake from most of the major importers of\\nMalaysia’s electrical products, particularly from the\\nUS, Japan, Hong Kong  China, the United Kingdom\\nand Netherlands. Nevertheless, exports to P\\n.R.China\\nincreased strongly.\\nGrowth in the chemical products industry\\naccelerated in 2003, benefiting from the spillover\\neffects of the strong pick-up in the electronics\\nindustry as well as the improved external demand\\nfor organic chemicals, and resins and plastic\\nproducts. The expansion was further reinforced by\\nthe higher output of industrial gases following the\\ncommencement of the new MLNG plant in\\nSarawak. The resins and plastic products sub-sector\\ncontinued to experience strong growth, driven by\\nstronger domestic demand from the food,\\nconstruction and packaging industries as well as\\nincreased demand from the Asia-Pacific region. In\\nparticular, exports of Malaysia’s chemical products\\nto major markets, namely P.R.China, Singapore and\\nJapan, continued to expand strongly during\\nthe year.\\nThe stronger performance of the off-estate\\nprocessing industry was supported mainly by\\nhigher activity in palm oil processing, arising from\\nimproved offtake for processed palm oil products,\\nparticularly from Japan and Europe. Production of\\nrubber products also increased strongly, driven by\\nhigher external demand for rubber gloves for\\nmedical examinations and surgery. Expansion in\\nproduction capacity enabled the industry to meet\\nthe increased global demand for gloves following\\ntensions in the Middle-East and outbreak of SARS.\\nThe industry’s aggressive promotions to expand to\\nGraph 1.8\\nProduction and Exports of the Electronics  \\nIndustry\\nAnnual change (%)\\nProduction of electronics in Malaysia\\nElectronics exports of Malaysia\\nWorldwide sales of semiconductors\\n-40\\n-20\\n0\\n20\\n40\\nJ\\nJ \\nD\\nJ\\nJ \\nD\\n2003\\n2002\\n\\n\\n4.H-14\\n14\\nnew export markets also contributed to the\\nincrease in demand for gloves. While the US\\nremained as Malaysia’s largest export market for\\nrubber products, exports to other countries,\\nnamely P.R.China, Hong Kong China, Japan and\\nSingapore, also grew strongly to account for a\\nbigger market share.\\nOutput of petroleum products recovered, driven\\nby strong demand from Asian countries, especially\\nfrom P.R.China, Japan and Singapore. Similarly,\\noutput of wood products turned around to record\\npositive growth due to higher output of plywood\\nand particleboard. The increase was largely\\nattributable to higher export demand for veneer\\nand plywood arising from the recovery in\\nconstruction activities in Malaysia’s traditional\\nmarkets, especially Japan, P.R.China and Chinese\\nTaipei. Exports of furniture also increased due to\\nhigher demand from the US, Singapore, Saudi\\nArabia, Australia and P.R.China. While the export\\nperformance remained favourable, the furniture and\\nwood products industries faced keen competition\\nfrom other countries in the region and cheaper\\nsubstitute products, such as PVC and steel.\\nThe textiles and wearing apparel industry\\nregistered another year of lackluster performance\\ndue mainly to intensive competition from low cost\\ncountries. Shipments by major importers,\\nparticularly the US, the largest buyer of Malaysian\\ntextiles and apparel, continued to contract.\\nProduction in the transport equipment industry\\nwas subdued in 2003 due entirely to lower\\nassembly of motor vehicles.  Demand for motor\\nvehicles in the domestic market slowed down as\\nconsumers held back purchases due to uncertainty\\nover car prices following the phase-in of the\\nautomotive industry into the AFTA framework. The\\ndecline in assembly of motor vehicles was, to some\\nextent, offset by higher production of motor vehicle\\nparts and accessories, and assembly of motorcycles\\nand scooters arising from the higher demand for\\nlocally-assembled motorcycles and scooters.\\nOutput in the construction-related materials\\nindustries expanded strongly, supported by higher\\nexport demand and continued expansion in\\nconstruction activity. Growth was particularly strong\\nin the second half-year due to sharply higher\\nproduction of iron and steel as manufacturers\\nincreased their exports to take advantage of the\\nstrong demand and higher prices in the export\\nmarket. As a result, exports of metal products\\nincreased strongly, particularly to the US, P\\n.R.China,\\nJapan, Singapore, Thailand and Australia.\\nProduction of non-metallic mineral products also\\nincreased during the year due to increased demand\\nfrom the construction sector, especially for\\nproduction of cement, fabricated construction\\nmaterials and structural clay products. However,\\nproduction of glass declined as it was affected by\\nlower export demand as well as subdued demand\\nfrom the domestic car industry.\\nProduction in the fabricated metal products\\nindustry increased further, reflecting higher\\nproduction of structural metals, wire and wire\\nproducts as well as tin cans and metal products. The\\nexpansion was supported mainly by on-going\\nactivity in the construction sector and increased\\ndemand for packaging materials from the food\\nprocessing industry. On the other hand, production\\nof brass, copper and aluminium declined due to the\\nlower demand from the electrical products industry.\\nMeanwhile, growth in the paper products\\nindustry moderated during the year due to lower\\nproduction of pulp, paper and paperboard, while\\nthe manufacture of containers, boxes of paper and\\npaperboard remained flat. Performance of both the\\nsub-sectors was affected by the oversupply in the\\nmarket. Nevertheless, the production of the pulp,\\npaper and articles sub-sector continued to expand\\nstrongly. Notwithstanding the moderation in\\nproduction, exports of paper and pulp products\\nincreased further due to higher exports to Thailand,\\nP.R.China, the Philippines, Australia and US. Output\\nin the food and beverages sub-sector was higher,\\nsupported by consumer spending and higher\\ndemand from Singapore and Brunei.\\nConstruction Sector\\nIn 2003, the construction sector expanded at a\\nmore moderate pace of 1.9% (2002: 2.3%) due\\nmainly to a slowdown in the civil engineering sub-\\nsector following the completion of several\\nprivatised projects. Growth was mainly supported\\nby the residential sub-sector, while activity in the\\nnon-residential sub-sector remained subdued\\namidst the continued overhang of office and retail\\nspace, although the excess supply was reduced\\nduring the year.\\nActivity in the residential sub-sector was higher as\\ndemand for houses remained strong, especially with\\nthe incentives introduced in the Economic Package.\\nFavourable financing conditions, namely low\\n\\n\\n15\\nThe Malaysian Economy in 2003\\ninterest rates and attractive loan packages offered\\nby the banking institutions, helped support interest\\nin the residential sub-sector both for new property\\nas well as the secondary market. Construction of\\nnew houses gained momentum during the first nine\\nmonths of the year, as reflected in a 17% increase\\nin housing starts. Reflecting house purchasers’\\npreference for bigger houses due to a rise in\\naffordability following higher disposable income\\nTable 1.4\\nResidential Property Indicators\\n2002\\n2003\\nUnits\\nResidential property transactions\\nUnits\\n162,269\\n164,723\\nValue (RM billion)\\n21.1\\n23.0\\nApprovals1\\n198,970\\n205,518\\nDevelopers’ licences\\nNew\\n1,170\\n1,062\\nRenewals\\n397\\n436\\nSales and advertising permits\\nNew\\n1,134\\n1,103\\nRenewals\\n1,666\\n1,707\\nLoans by banking system\\n- Value (RM billion)\\nOutstanding\\n100.4\\n116.6\\nApprovals\\n29.2\\n30.0\\n1 Units approved for construction by private developers.\\nSource: NAPIC, Valuation and Property Services Department, Ministry of\\nHousing and Local Government and Bank Negara Malaysia\\nConstruction sector grew at a moderate rate due to slower\\ngrowth in the civil engineering sub-sector.\\nand lower interest rates, the average price of\\nresidential units transacted was higher at\\nRM139,700 (2002: RM130,300). Prices of\\nresidential properties, including terraced houses as\\nwell as high-rise units, remained firm during the\\nyear, supported by continued demand for houses in\\nprime locations.\\nDemand for residential houses was stimulated by\\ninnovative financing packages with attractive terms\\nprovided by financial institutions. To encourage home\\nownership, the Economic Package announced by the\\nGovernment on 21 May 2003 provided the following\\nincentives for one year, beginning 1 June 2003:\\n•\\nStamp duty waiver on the Sale and Purchase\\nAgreements, loan and transfer documents for\\nhouses costing RM180,000 and below;\\n•\\nIncome tax relief on interest payments for new\\nbuyers of completed houses, and first time\\nowners of houses costing between RM100,000\\nto RM180,000;\\n•\\nSubsidy of RM600 for new buyers of houses\\ncosting below RM100,000; and\\n•\\nExemption from real property gains tax.\\nIn line with the Government’s objective to provide\\naffordable houses to the low-income group,\\nSyarikat Perumahan Negara Berhad (SPNB) has\\ntargeted to build at least 150,000 units of medium-\\ncost and affordable houses within a five-year\\nperiod.  With the liberalisation of the Foreign\\nInvestment Committee (FIC) guidelines in 2001, the\\nFIC has approved the purchase of 1,617 units of\\nresidential properties (representing an increase of\\n30.1%) valued at RM771 million by foreigners in\\nMalaysia during the year. However, the purchase of\\ncommercial properties by foreigners declined.\\nTo reduce the cost of purchasing low-cost houses\\nand to improve purchasers' access to financing, the\\nfollowing measures were announced during the year:\\n•\\nEPF contributors who purchase low-cost houses\\nbuilt by SPNB will be provided with end financing\\nfrom the Malaysia Building Society Berhad;\\n•\\nState governments will exempt land premiums\\nfor the construction of low-cost houses; and\\n•\\nThe exemption from stamp duties in respect of\\nSale and Purchase Agreements for low-cost houses\\nexecuted between the purchaser and the\\ndeveloper on or after 1 July 2002 was gazetted in\\nFebruary 2003.  In this connection, loan and\\ntransfer documents associated with the Sale and\\nPurchase Agreements were eligible for exemption.\\nOn the supply side, housing units approved for\\nconstruction by private developers in Peninsular\\nMalaysia increased by 3.3% in 2003, with approvals\\npicking up by 23% in the second half-year as\\ndevelopers anticipated higher demand in response to\\nthe incentives in the Economic Package. At the same\\ntime, new sales and advertising permits issued\\nrecorded a strong pick-up of 18% in the second half\\nof the year (first half: -20.1%). However, renewals of\\npermits continued to increase in 2003, reflecting a\\nlonger duration required to sell the properties.\\nIn the civil engineering sub-sector, growth was\\nsignificantly slower due to the completion of several\\nprivatised projects, mainly power generation plants.\\nNevertheless, ongoing road projects such as the\\nKajang Ring Road, Guthrie Corridor Expressway,\\n\\n\\n4.H-16\\n16\\nPenchala Link of the SPRINT Expressway, New Pantai\\nExpressway, Kajang-Seremban Expressway and the\\nButterworth Outer Ring Road, supported civil\\nengineering activity during the year. Construction\\nwork was also ongoing for projects related to water,\\nports, sewerage and power generation plants. In\\nview of the experience acquired in the domestic civil\\nengineering sub-sector, Malaysian construction\\ncompanies have diversified their earnings base and\\nexpanded overseas, particularly in the construction of\\nhighway projects and other infrastructure projects.\\nThese companies are able to compete in the global\\nmarket, particularly in India and the Middle East.\\nInfrastructure projects by the public sector, as\\nreflected in the Federal Government development\\nexpenditure, remained strong during the year,\\nespecially in the transportation sub-sector.  Among\\nthe major ongoing public projects supporting growth\\nwas the SMART Intelligent Tunnel for Flood\\nMitigation in Kuala Lumpur and the Kuala Lumpur\\nConvention Centre.\\nConstruction activity in the non-residential sub-\\nsector remained subdued as reflected in lower\\nongoing activity in projects related to purpose-built\\noffice and shopping complex. In particular,\\ncompletion of new office space in the Klang Valley\\nslowed down during the last three years. In the\\nfirst nine months of 2003, only 93,000 square\\nmetres of office space were completed compared\\nwith 200,000 square metres in 2002 (2001:\\n178,000 sq. m; 2000: 1.4 million sq. m).  Large\\nshopping complexes that were completed in the\\nKlang Valley include the Berjaya Times Square,\\nIkano Power Centre, IKEA, Maju Junction and the\\nGreat Eastern Mall. The share of new starts to total\\nincoming supply for Malaysia as a whole increased\\nfrom 2% to 8% in the first nine months of 2003.\\nThe average occupancy rate for office space and\\nretail complexes stabilised at 79% and 78%\\nrespectively as at end-September 2003, reflecting\\ncontinued demand, particularly for projects located\\nin choice locations.\\nTable 1.5\\nIncoming Supply and Planned Supply of Property\\nIncoming\\nPlanned\\nIncoming\\nPlanned\\nSupply1\\nSupply2\\nSupply1\\nSupply2\\nJune-03p\\nSept-03p\\n Units/’000 sq.m.\\nUnits/’000 sq.m.\\nResidential (units)\\n573,117\\n533,784\\n569,994\\n537,919\\nPurpose-built office (‘000 sq.m.)\\n1,969\\n1,890\\n1,945\\n1,865\\nShopping complexes (‘000 sq.m.)\\n1,479\\n1,715\\n1,535\\n1,639\\nRetail shops (units)\\n31,424\\n34,537\\n32,507\\n34,413\\nIndustrial properties (units)\\n8,616\\n22,236\\n8,299\\n22,174\\n1 Consists of properties that are under construction, including those where certificates of fitness/temporary certificates of fitness have not been issued.\\n2 Approved but not started.\\np Preliminary\\nSource: NAPIC, Valuation and Property Services Department\\n2,000\\n0\\n4,000\\n6,000\\n8,000\\n10,000\\n12,000\\n14,000\\n2000\\n2001\\n2002\\n3Q 2003p\\n70\\n75\\n80\\n85\\n90\\nNet lettable area\\n('000 sq.m)\\nOccupancy rate (%)\\nGraph 1.9\\nSupply and Occupancy Rate of Purpose-Built \\nOffice Space in Malaysia: 2000 - 2003\\nExisting stock\\nCompletion\\nOccupancy rate (%)\\nOccupied space\\nIncoming supply\\np Preliminary\\n1,000\\n0\\n2,000\\n3,000\\n4,000\\n5,000\\n6,000\\n7,000\\n2000\\n2001\\n2002\\n3Q 2003p\\n70\\n75\\n80\\n85\\n90\\nNet lettable area\\n('000 sq.m)\\nOccupancy rate (%)\\nGraph 1.10\\nSupply and Occupancy Rate of Retail Space in\\nMalaysia: 2000 - 2003\\nExisting stock\\nCompletion\\nOccupancy rate (%)\\nOccupied space\\nIncoming supply\\np Preliminary\\n\\n\\n17\\nThe Malaysian Economy in 2003\\nRentals for prime office space in the Klang Valley\\nstabilised at RM45 per square metre per month\\nduring the year. In the case of shopping complexes,\\nthe average monthly rental rates of prime retail space\\nalso remained stable at RM226 per square metre.\\nRentals of office and retail space in secondary\\nlocations remained low to attract tenants.\\nIn the case of hotels, there were 111 new hotels\\ncompleted during the year, providing 7,838\\nadditional rooms. However, the hotel industry was\\nadversely affected by SARS, especially during the\\nsecond quarter of 2003, when tourist arrivals fell by\\n59% to below 500,000 in April. Arrivals for the year\\nas a whole declined to 10.6 million from 13.3 million\\nin 2002, thus resulting in the average occupancy rate\\nof hotels declining to 53% (2002: 58%).\\nAvailability of adequate financing continued to play\\nan important role in supporting growth of the\\nconstruction sector. In recent years, there has been a\\ndiscernible shift in the source of financing for the civil\\nengineering sub-sector. The civil engineering sub-\\nsector has increasingly tapped the capital market by\\nissuing private debt securities (PDS) and also through\\nrecourse to Bank Pembangunan dan Infrastruktur\\nMalaysia Berhad (BPIMB) to meet its financing\\nrequirements. PDS issued for infrastructure projects\\namounted to RM6 billion out of the total RM42.8\\nbillion PDS issued for the year, representing 14% of\\ntotal PDS issued (2002: 8%). Similarly, total loans\\napproved by BPIMB for infrastructure projects rose to\\nRM5 billion in 2003 (2002: RM2.8 billion). However,\\nloans outstanding of the banking system for\\ninfrastructure projects declined to RM3.4 billion\\n(2002: RM5.2 billion). For residential property, the\\nbanking system continued to be the main source of\\nfinancing. Total housing loans approved by the\\nbanking system increased by 2.9% to RM30 billion.\\nRM/sq.m\\nRM/sq.m\\n1  Refers to Kuala Lumpur and Selangor\\nSource: CH Williams Talhar & Wong Sdn. Bhd.\\nGraph 1.11\\nAverage Monthly Rentals for Prime Office and \\nRetail Space in the Klang Valley1\\nPrime office space (LHS)\\nPrime retail space (RHS)\\n38\\n40\\n42\\n44\\n46\\n48\\n50\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\n100\\n150\\n200\\n250\\nTable 1.6\\nOffice and Retail Space - Unoccupied Space, Incoming Supply and Planned\\nSupply by State (as at end-September 2003p)\\nOffice Space\\nRetail Space\\nUnoccupied\\nIncoming\\nPlanned\\nUnoccupied\\nIncoming\\nPlanned\\nSpace\\nSupply1\\nSupply2\\nSpace\\nSupply1\\nSupply2\\n( ‘000 sq.m. )\\nWP Kuala Lumpur\\n1,414\\n1,085\\n1,028\\n286\\n746\\n649\\nSelangor\\n488\\n55\\n0\\n186\\n138\\n63\\nWP Putrajaya\\n0\\n295\\n155\\n0\\n66\\n0\\nJohor\\n260\\n140\\n493\\n326\\n228\\n789\\nPulau Pinang\\n292\\n45\\n39\\n279\\n172\\n52\\nNegeri Sembilan\\n24\\n28\\n118\\n41\\n61\\n64\\nPerak\\n41\\n49\\n6\\n50\\n4\\n0\\nMelaka\\n25\\n0\\n0\\n56\\n0\\n0\\nKedah\\n21\\n34\\n1\\n64\\n51\\n14\\nPahang\\n14\\n15\\n9\\n33\\n0\\n8\\nTerengganu\\n10\\n0\\n0\\n6\\n7\\n0\\nKelantan\\n9\\n4\\n16\\n2\\n63\\n0\\nPerlis\\n1\\n34\\n0\\n0\\n0\\n0\\nSabah\\n112\\n142\\n0\\n25\\n0\\n0\\nWP Labuan\\n38\\n0\\n0\\n15\\n0\\n0\\nSarawak\\n57\\n20\\n0\\n40\\n0\\n0\\nTotal\\n2,806\\n1,946\\n1,865\\n1,409\\n1,536\\n1,639\\n1 Consists of properties that are under construction, including those where certificates of fitness/temporary certificates of fitness have not been issued.\\n2 Approved but not started.\\np Preliminary\\nSource: NAPIC, Valuation and Property Services Department\\n\\n\\n4.H-18\\n18\\nValue \\nadded\\nCrude palm \\noil\\nRubber\\nSaw logs\\nCocoa\\nAnnual change (%)\\n2002\\n2003p\\nGraph 1.12\\nAgriculture Production\\n-25\\n-20\\n-15\\n-10\\n-5\\n0\\n5\\n10\\n15\\n20\\np Preliminary\\nAnnual change (%)\\nGraph 1.13\\nAgriculture Exports\\nTotal \\nAgriculture \\nExports\\nPalm oil\\nSaw logs\\nSawn \\ntimber\\nRubber\\np Preliminary\\n0\\n20\\n40\\n60\\n2002\\n2003p\\nIn addition, loans approved by other housing credit\\ninstitutions as a group also increased during the\\nyear. In tandem with higher approvals, housing\\nloans outstanding of the banking system as well as\\nother housing credit institutions rose by 16.1% and\\n10.4% respectively.\\nIn 2003, construction activity was higher with the\\nreturn of foreign workers who were repatriated in\\n2002. Nonetheless, over-dependence on foreign\\nlabour remained an issue in raising productivity in\\nthe sector.  Meanwhile, the Construction Labour\\nExchange Centre Berhad was set up in 2003 to act\\nas a centre for training and screening of foreign\\nworkers as well as supplying and transferring excess\\nforeign workers to contractors who require these\\nworkers from time to time.\\nAnother development during the year was the\\nlaunch of the Building Materials Cost Index by the\\nConstruction Industry Development Board in\\ncollaboration with the Department of Statistics,\\nMalaysia. The Index gives an indication of pressures\\narising from input cost. While the Index showed that\\noverall prices of building materials have remained\\nsteady from the second half of 2002 until September\\n2003, some construction companies faced shortages\\nof building materials.  The shortage was mainly in\\nsteel bars as millers preferred to export their\\nproducts to take advantage of the higher prices\\noverseas.\\nIn line with the Government’s efforts to streamline\\nthe approval and delivery process of the Government\\nmachinery, the Ministry of Housing and Local\\nGovernment implemented a two-tier One-Stop\\nCentre at the local authority and state government\\nlevels for building plan approvals and issuance of\\nCertificate of Fitness for Occupation (CFO). In\\naddition, the number of technical departments\\ninvolved in certifying CFOs was also reduced from\\nseven to four.\\nAgriculture sector\\nIn 2003, the agriculture, forestry and fishery\\n(agriculture) sector recorded the strongest growth in\\n11 years against a backdrop of robust exports and\\nhigh prices. Value added growth picked up to 5.5%\\ndriven mainly by significant increases in crude palm\\noil and rubber output. Growth was also supported\\nby increases in production of saw logs and, to a\\nlesser extent, other agricultural commodities, namely\\nvegetables, fruits, livestock and fish, reflecting the\\npositive effects of measures taken by the\\nGovernment to increase domestic sources of growth\\nthrough increased food production. Meanwhile,\\ncocoa output declined significantly during the year.\\nGiven the substantial increases of between 11-42%\\nin the prices of major commodities during the year\\nand improved export volume, export receipts from\\nagricultural commodities rose significantly by 28.1%.\\nThus, the share of agriculture exports to total exports\\nrose from an average of 6.5% in the period\\n2000-2002 to 8.4% in 2003.\\nThe strong performance of the agriculture sector\\nduring the year was attributable to both supply and\\ndemand factors. Crude palm oil and rubber\\nregistered double-digit growth as farmers maximised\\nproduction by increasing yields through good\\nagriculture practices (including higher usage of\\nfertilisers), encouraged by more favourable prices.\\nProduction of palm oil was also supported by\\nfavourable weather conditions as well as the coming\\non stream of new mature areas with high yielding\\n\\n\\n19\\nThe Malaysian Economy in 2003\\ntrees. Meanwhile, higher rubber production was due\\nto intensive tapping, including in areas that were\\npreviously abandoned. At the same time, external\\ndemand for these commodities was strong amidst\\nsupply shortages in the global market.\\nThe stronger performance of the agriculture sector in\\n2003 generated significant spill-over effects,\\nparticularly on the rural population.  Given that the\\nagriculture sector employs about 14% of the total\\nworkforce in Malaysia and that a sizable proportion\\nof them are smallholders, the higher incomes helped\\nsupport the increase in consumption among the rural\\ncommunity. The plantation sector also benefited from\\nthe stronger economic performance, resulting in\\nsharp increases in profits.\\nCrude palm oil (CPO) remained as the major\\ncommodity, accounting for about 4.1 percentage\\npoints of the increase in the value added of the\\nagriculture sector in 2003. CPO recorded a bumper\\nproduction of 13.35 million tonnes or an increase of\\n12.1%.  Growth was primarily due to expansion in\\ntotal mature area (3.1%), mainly in Sabah (6.3%) and\\nSarawak (13%) as well as good agriculture practices.\\nTable 1.7\\nAgriculture Sector: Value Added, Production and Exports\\n2002\\n2003p\\nVolume\\nAnnual\\nVolume\\nAnnual\\nand\\nchange\\nand\\nchange\\nValue\\n(%)\\nValue\\n(%)\\nValue Added (RM million at 1987 prices)\\n18,438\\n3.0\\n19,453\\n5.5\\nProduction1\\nof which:\\nCrude palm oil\\n      11,909\\n0.9\\n13,355\\n12.1\\nRubber\\n           589\\n7.7\\n698\\n18.4\\nSaw logs\\n      20,649\\n9.1\\n21,381\\n3.5\\nCocoa beans\\n             48\\n-17.4\\n36\\n-24.0\\nExports (RM million)\\n26,327\\n31.9\\n33,728\\n28.1\\nof which:\\nPalm oil\\n(‘000 tonnes)\\n      10,854\\n3.7\\n12,509\\n15.2\\n(RM/tonne)\\n           1,367\\n44.9\\n1,617\\n18.3\\n(RM million)\\n        14,838\\n50.2\\n20,224\\n36.3\\nRubber\\n(‘000 tonnes)\\n           928\\n12.9\\n945\\n1.9\\n(sen/kilogramme)\\n           269\\n17.0\\n379\\n41.0\\n(RM million)\\n        2,492\\n32.1\\n3,582\\n43.8\\nSaw logs\\n(‘000 cubic metres)\\n5,104\\n5.6\\n5,508\\n7.9\\n(RM/cubic metre)\\n359\\n13.9\\n366\\n1.9\\n(RM million)\\n1,832\\n20.3\\n2,015\\n10.0\\nSawn timber\\n(‘000 cubic metres)\\n2,474\\n2.6\\n2,816\\n13.8\\n(RM/cubic metre)\\n990\\n5.0\\n926\\n-6.5\\n(RM million)\\n2,450\\n7.8\\n2,607\\n6.4\\n1\\nAll in ‘000 tonnes, except for saw logs in ‘000 cubic metres.\\np\\nPreliminary\\nSource: Department of Statistics, Malaysia\\nMalaysian Palm Oil Board\\nForestry Departments (Peninsular Malaysia, Sabah and Sarawak)\\nMalaysian Cocoa Board\\n Hectares\\nTonnes\\nGraph 1.14\\nOil Palm: Area, Production and Yield\\nProduction in million tonnes (RHS)\\nMature area in '000 hectares (LHS)\\nYield of CPO in tonnes/mature hectare (RHS)\\n500\\n1,000\\n1,500\\n2,000\\n2,500\\n3,000\\n3,500\\n1999\\n2000\\n2001\\n2002\\n2003p\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\np Preliminary for mature area and yield\\n\\n\\n4.H-20\\n20\\nAs a result, CPO output, which usually peaks in the\\nthird quarter in a normal year, recorded monthly\\nproduction of above one million tonnes for an\\nextended period during April – December 2003. On\\na regional basis, Peninsular Malaysia accounted for\\nalmost 60% of total national output, or 7.94 million\\ntonnes of CPO, while Sabah and Sarawak produced\\nthe remaining 5.41 tonnes. In terms of global\\nranking, Malaysia maintained its position as the\\nleading palm oil producer and exporter in 2003,\\naccounting for 49% of the world’s output and 58%\\nof total exports.\\nAverage export prices of Malaysian palm oil rose by\\n18.3% to RM1,617 per tonne in 2003. Against a\\nbackdrop of supply shortages in the global oils and\\nfats markets, prices of most oilseeds, oils and meals\\nrallied in 2003, especially since August 2003. In line\\nwith these developments, Malaysian CPO local\\nprices averaged RM1,577 per tonne in 2003 (2002:\\nRM1,364). The stronger prices reflected mainly\\nimbalances in the global vegetable oils and fats\\nmarkets arising from a marginal increase in output\\nof major oilseeds, especially soybean, amidst\\nstronger demand from major consumers of edible\\noils. Soybean harvest in the United States was\\nadversely affected by drought during the year.  The\\nshortages in soybean, rapeseed and sunflower oils\\nled to large price premiums of these oils over palm\\noil and this triggered import substitution by price\\nsensitive buyers.  Export demand for palm oil from\\nthe major buyers of soybean oil (palm oil’s closest\\nsubstitute), namely P.R.China, the European Union\\n(EU) and Middle East, picked up strongly during\\nthe year.\\nDemand from P.R.China, the EU, Pakistan and\\nemerging markets in the Middle East, rose between\\n4% and 29% during the year, on account of lower\\ndomestic production amidst an expansion in their\\nrefining capacities. In the case of P.R.China, the\\nhigher offtake was also due to its higher import\\nquota for palm oil following its accession into\\nWTO. However, imports by India, which is one of\\nMalaysia’s major buyers, declined in 2003 due to\\nhigher tariffs for palm oil products and imposition\\nof new import regulations, which made palm oil\\nless competitive against other major oilseeds.\\nNonetheless, with double-digit increases in price\\nand export volume, palm oil generated an\\nadditional export revenue of RM5.4 billion in 2003,\\nwith total export receipts amounting to RM20.2\\nbillion.  Despite the strong external demand,\\nMalaysian palm oil stocks remained almost\\nunchanged at 1.17 million tonnes (end-2002\\nstocks: 1.14 million tonnes) given that output had\\nalso increased significantly during the year.\\nThe palm oil industry made significant strides\\nduring the year. Malaysia gained market shares for\\npalm oil-based products in five new markets,\\nnamely Chechnya, Antigua, Mayotte, Cape Verde\\nand the Central African Republic. In the area of\\nresearch and development, the Malaysian Palm Oil\\nBoard (MPOB) launched 35 new technologies and\\nproducts for commercialisation in the palm oil\\nindustry in 2003.  To enhance utilisation of palm oil\\nproducts, MPOB together with local palm oil\\nrelated agencies conducted research in\\ncollaboration with research organisations and\\ninstitutional users in several consuming countries.\\nJoint venture projects have been conducted with\\nP.R.China, Egypt, Oman, Poland, Russia, Ukraine,\\nSouth Africa, Pakistan, Turkey and Kuwait. In\\naddition, Malaysia participated actively in the\\ninternational scientific and trade meetings to\\npromote facilitation of international trade for palm\\noil products.\\nNatural rubber production, which recorded its\\nfirst positive annual growth in seven years in 2002,\\ncontinued to expand strongly by 18.4% in 2003, to\\nreach nearly 700,000 tonnes. Smallholders\\naccounted for almost 90% of total national output\\nas remunerative prices motivated intensive tapping\\nactivities, which led to a substantial increase in\\noutput of 23.3%. The increase in production was\\nalso contributed by tapping of trees that were\\npreviously abandoned. In contrast, production by\\nestates declined further by 10.8% (2002: -14.7%)\\ndue mainly to continued conversion of rubber land\\ninto other economic activities during the year. Total\\ntapped area for Malaysia expanded by about\\n48,000 hectares or 7% to 737,600 hectares.\\n0\\n500\\n1,000\\n1,500\\n2,000\\n1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q\\n2000\\n2001\\n2002\\n2003\\nPrice \\n(RM/tonne) \\nStocks\\nCPO Local delivered price\\n0\\n300\\n600\\n900\\n1,200\\n1,500\\nStocks \\n('000 tonnes) \\nGraph 1.15\\nPalm Oil Price and Stocks\\n\\n\\n21\\nThe Malaysian Economy in 2003\\nIn line with developments in the global natural\\nrubber industry, the Malaysian rubber prices (RSS1)\\nstrengthened significantly by 37% to 401 sen per\\nkilogramme in 2003 (2002: 292 sen). The increase\\nin prices gained momentum during the course of\\nthe year, rising from 364 sen in the first quarter to\\n486 sen by the fourth quarter. RSS1 price peaked in\\nNovember to record a monthly high of 512 sen,\\nwith the highest daily traded price at 543 sen on\\n5-6 November before consolidating to close the\\nyear at 473 sen. The strong price performance\\nduring the year was due to the surge in demand\\nfrom P.R.China, active purchases by European\\ntraders as well as tight supplies in the major\\nproducing regions, which were affected by the wet\\nweather, especially in the latter part of the year.\\nPurchases by P\\n.R.China picked up significantly for the\\nsecond consecutive year (60.2%; 2002: 51.4%),\\nfuelled mainly by strong demand from the local\\nautomotive industry. The market was further\\nsupported by the decision of the Chinese\\ngovernment to raise the import quota for natural\\nrubber by an additional 200,000 tonnes to\\naccommodate the higher demand by the major tyre\\nmanufacturers.  P.R.China remained as Malaysia’s\\nlargest export market to account for 21.9% share of\\ntotal rubber exports (2002: 13.9%).  Besides\\nP\\n.R.China, the other major buyers were Korea,\\nGermany and the Middle East, which together\\naccounted for 52% of total rubber exports.\\nReflecting both higher prices and export volume,\\nexport receipts rose by 43.8% to RM3.6 billion\\nin 2003.\\nA significant development in the international natural\\nrubber sector in 2003 was the signing of the\\nagreement for the establishment of the International\\nRubber Consortium Limited (IRCo) on 6 October by\\nMalaysia, Thailand and Indonesia. IRCo was formed\\nwith the objective to undertake strategic market\\noperations, as and when deemed necessary, as well\\nas to complement agreed measures by these\\ncountries under the Supply Management Scheme\\nand the Agreed Export Tonnage Scheme, which were\\nendorsed earlier in 2001. These schemes have\\ncontributed positively to improving the overall\\nsentiment of the rubber market.\\nGiven the importance of the natural rubber sector in\\nterms of employment of the rural community as well\\nas its strong linkages to the downstream rubber-\\nbased industries, rubber has been identified as one of\\nthe strategic crops for sustainable growth of the\\nMalaysian agriculture sector. In 2003, further\\nmeasures were taken to develop the natural rubber\\nsector, including a study on the medium-term master\\nplan. An interim report of the study has been\\ncompleted. Apart from traditional planting of rubber\\nto produce latex to sustain the encouraging growth\\nof the rubber wood-based industries, the\\nGovernment has announced incentives to encourage\\nprivate sector investment. This includes encouraging\\ncultivation of latex-timber clone rubber for both latex\\nand timber production. This clone would also assist\\nin reducing anticipated shortage in the supply of\\nrubber wood for the manufacture of furniture, as\\n80% of earnings from Malaysian furniture exports\\nare rubber wood-based.\\nLogging activities in all regions, namely Sarawak,\\nSabah and Peninsular Malaysia, intensified in 2003.\\nTotal production of saw logs increased by 3.5% to\\n21,381 cubic metres in response to stronger external\\nand domestic demand. Demand from the domestic\\nwood-based industries turned around to record a\\ngrowth of 0.9% in 2003 (2002: -6%), whilst\\nshipments of logs increased by 7.9%.  Exports\\nincreased despite strong competition from other\\nhardwood producing countries such as Indonesia,\\nVietnam, Brazil and Africa. Purchases by the major\\nregional buyers, namely Thailand, India, P\\n.R.China\\nand Chinese Taipei, which accounted for about 63%\\nof total exports, rose by 24%. Amidst the strong\\nregional demand and keen competition in the\\ninternational markets, prices of Malaysian logs\\nremained relatively stable at RM366 per cubic metre\\n(2002: RM359). Consequently, export revenue from\\nsaw logs increased by 10% in 2003.  Meanwhile,\\nexport volume of sawn timber rose by 13.8%,\\nespecially to markets in the EU, but growth in export\\nreceipts moderated during the year due entirely to\\nlower export prices (-6.5%).\\nOn the international front, the Malaysian timber\\nindustry continued to face pressures by the “green”\\nsentiment in Europe, especially in the Scandinavian\\ncountries. This was reflected in the unilateral\\nrestriction imposed by the Norwegian government\\non imports of tropical timber for public projects,\\nunless certified by the Forest Stewardship Council\\n(FSC). The timber industry has also to contend with\\nnew regulations and standards that are imposed by\\ndeveloped countries ostensibly to protect the\\nenvironment as well as the safety and health of\\nconsumers. Since October 2001, the Malaysian\\ntimber industry has responded to the “green”\\nsentiment with the setting up of its own certification\\n\\n\\n4.H-22\\n22\\nscheme operated by the Malaysian Timber\\nCertification Council (MTCC). By end-2003, seven\\nstates have been awarded the Certificate for Forest\\nManagement, and 38 timber companies have been\\ngiven permits to use the MTCC logo to provide the\\nassurance of sustainable and legal source of forest\\nproducts to buyers of Malaysian timber and timber\\nproducts. Another significant development during\\nthe year was the acceptance of the MTCC scheme by\\nDenmark as one of the accepted certification\\nschemes in its Environmental Guidelines for\\nPurchasing Tropical Timber. Given the wider\\nacceptance and recognition of Malaysia’s timber\\ncertification efforts, a total of 6,629 cubic metres of\\nMTCC-certified sawn timber (2002: 732 cubic\\nmetres) and 45 cubic metres of mouldings were\\nexported to a number of countries, particularly to\\nEurope, in 2003.\\nProduction of other agriculture commodities,\\ncomprising vegetables, fruits, livestock and fishery,\\nregistered a mildly positive growth during the year.\\nThe increase in vegetables (4.5%) and fruits (3.1%)\\nproduction was supported mainly by an expansion in\\nthe cultivated area. The increase in cultivated area for\\nthese crops was in line with the expansion in the\\narea allocated for the Permanent Food Production\\nPark (PFPP) scheme. As at end-2003, more than\\n2,160 hectares of land were developed under the\\nscheme, with the bulk or 1,681 hectares allocated\\nfor the planting of vegetables. Similarly, growth in\\nthe livestock sub-sector increased by 5.5%, mainly\\non account of higher poultry production, as demand,\\nparticularly from the domestic food processing\\nindustries was higher. The fishery sub-sector also\\nexpanded further by 2.6%, supported mainly by\\nhigher landings of marine fish.\\nOutput of cocoa beans declined sharply by 24% to\\n36,240 tonnes, attributable mainly to lower\\ncultivated area from 48,035 hectares in 2002 to an\\nestimated 46,395 hectares in 2003.  The reduction\\nreflected mainly conversion of cocoa land to other\\ncrops as well as adverse effects from the wet\\nweather conditions, particularly in the final quarter\\nof 2003. Cocoa yields were lower as the higher\\namount of rainfall affected the fruit-setting period\\nfor the main crop and intensified the black pod\\ninfection. Amidst the need to increase production\\nof cocoa beans to meet the requirements of local\\ncocoa grinders as well as to reduce dependency on\\nimported cocoa beans, rehabilitation programmes\\ninvolving mainly smallholders continued during the\\nyear. Under the Cocoa Smallholders’ Development\\nProgramme, a total of 6,916 hectares or 15% of\\ntotal acreage under the cocoa smallholdings area\\nwere developed as at end-2003.\\nExport prices of cocoa rose further by 20.9% during\\nthe year to RM6,314 per tonne due to supply\\ndisruptions in a major producing country following\\nunfavourable political developments. However, the\\nMalaysian cocoa sector was unable to capitalise\\nfully from the high prices of cocoa as domestic\\nproduction also fell during the year. Hence, export\\nrevenue from cocoa declined to RM83 million\\n(2002: RM110 million).\\nMining Sector\\nThe mining sector expanded by 4.8% in 2003, as\\nstrong domestic and external demand amidst\\nexpansion in production capacity stimulated higher\\nproduction of crude oil and natural gas. Following\\nhigher shipments of oil and gas as well as the\\nsignificant increase in export prices, gross foreign\\nexchange revenue from exports of minerals\\nincreased substantially by 33.1% in 2003.\\nCrude oil production (excluding condensates) rose\\nby 5% to 625,800 barrels per day (bpd) compared\\nwith 2002, close to the year’s production target of\\n626,000 bpd under the National Depletion Policy.\\nThe increase in production during the year was\\ndriven by increased domestic demand for petroleum\\nproducts and higher external demand, particularly\\nfrom India, Australia, Thailand, P\\n.R.China and US,\\nwhich together accounted for about 65% of\\nMalaysia’s total export of oil. Exports to these\\ncountries increased by 34% during the year. Higher\\noutput emanated from existing oil fields as well as\\nfour new oil fields that came on stream during the\\nyear. The increase in export volume and sharply\\n1999\\n2000\\n2001\\n2002\\n2003\\nAnnual change (%)\\nGraph 1.16\\nMining Production\\nCrude oil\\nNatural gas\\nValue added\\n-3\\n-6\\n0\\n3\\n6\\n9\\n12\\n\\n\\n23\\nThe Malaysian Economy in 2003\\nhigher export prices (22%), lifted gross receipts from\\ncrude oil exports by 35% to RM15.7 billion (2002:\\nRM11.6 billion), to account for 4% of gross exports.\\nMalaysian crude oil prices (Tapis Blend) strengthened\\nsignificantly to average US$29.79 per barrel (2002:\\nUS$25.55) in tandem with higher global crude oil\\nprices. Prices during the year were, to a large extent,\\ndriven by market sentiments as well as fundamental\\nfactors. In early 2003, geopolitical concerns in the\\nMiddle East, supply disruptions in the major\\nproducing countries, namely, Venezuela, Nigeria and\\nIraq, and lean inventories in the major consuming\\ncountries, especially in the US, sustained Malaysian\\nexport prices at a high level of above US$30 per\\nbarrel in the first quarter of the year. In the second\\nhalf-year, Malaysian crude oil prices averaged US$30\\nper barrel, in line with the international oil prices of\\nWest Texas Intermediate and North Sea Brent, which\\naveraged US$30.64 and US$28.96 per barrel,\\nrespectively.\\nTable 1.8\\nMining Sector: Value Added, Production and Exports\\n2002\\n2003p\\nVolume\\nAnnual\\nVolume\\nAnnual\\nand\\nchange\\nand\\nchange\\nValue\\n(%)\\nValue\\n(%)\\nValue added (RM million at 1987 prices)\\n15,826\\n3.7\\n16,581\\n4.8\\nProduction\\nCrude oil and condensates\\n698,462\\n4.9\\n736,000\\n5.4\\n(barrels per day)\\nof which:\\nCrude oil (barrels per day)\\n596,216\\n2.9\\n625,775\\n5.0\\nNatural gas - net\\n(million standard cubic feet)\\n1,706,141\\n2.9\\n1,794,388\\n5.2\\nTin-in-concentrates\\n(tonnes)\\n4,215\\n-15.2\\n3,606\\n-14.2\\nExports (RM million)\\n22,364\\n-4.6\\n29,777\\n33.1\\nof which:\\nCrude oil\\n(‘000 tonnes)\\n16,192\\n7.4\\n17,913\\n10.6\\n(US$/barrel)\\n24.81\\n-2.8\\n30.27\\n22.0\\n(RM million)\\n11,600\\n4.3\\n15,662\\n35.0\\nLiquefied natural gas\\n(‘000 tonnes)\\n15,007\\n-2.7\\n17,402\\n16.0\\n(RM/tonne)\\n659\\n-8.6\\n766\\n16.2\\n(RM million)\\n9,888\\n-11.1\\n13,328\\n34.8\\nTin\\n(‘000 tonnes)\\n27,076\\n-0.7\\n15,164\\n-44.0\\n(RM/tonne)\\n15,713\\n-7.0\\n18,732\\n19.2\\n(RM million)\\n425\\n-7.7\\n284\\n-33.2\\np Preliminary\\nSources: PETRONAS\\nDepartment of Statistics, Malaysia\\nDepartment of Minerals and Geoscience, Malaysia\\nDecisions by the Organisation of Petroleum Exporting\\nCountries (OPEC) in managing global oil supplies was\\na dominant factor in determining oil prices,\\nparticularly during the post-Iraq war period. In the\\nfirst half of 2003, OPEC, which accounts for about\\n1999\\n2000\\n2001\\n2002\\n2003p\\nAnnual change (%)\\nGraph 1.17\\nMineral Exports\\nTotal mineral exports \\nCrude oil\\nLNG\\n-20\\n-40\\n0\\n20\\n40\\n60\\n80\\np Preliminary\\n\\n\\n4.H-24\\n24\\nThe services sectors remained resilient despite the occurrence of\\nSARS. Activity picked up strongly in the second half-year, largely\\ndue to stronger domestic demand, aided by the Economic Package.\\n40% of world supply, raised its output quota twice,\\nby 1.3 million bpd and 2.4 million bpd respectively to\\n25.4 million bpd to ease the shortfall in supply.\\nSubsequently, in November, OPEC reversed part of its\\nearlier increases by cutting the output quota by\\n900,000 bpd to 24.5 million bpd amidst concerns of\\nincreasing supplies by non-OPEC members. This,\\ntogether with the pick-up in global growth and the\\nseasonally higher demand during the fourth quarter,\\nhelped to sustain the high oil prices towards end-\\nyear. P.R.China accounted for almost 35% of the\\nincrease in global oil demand during 2003. Reflective\\nof these developments, the Malaysian crude oil prices\\nremained relatively strong during the year to close at\\nUS$32.15 per barrel as at end-December.\\nNatural gas production expanded by 5.2% in 2003\\nas the sector was able to respond to the higher\\ndemand given an increase in production capacity,\\nespecially with the commencement of the MLNG\\nTiga plant in May 2003 and the coming on stream of\\nfour new gas fields during the year. Domestic\\nTable 1.9\\nMalaysia: Crude Oil and Natural Gas Reserves1\\nAs at end\\n2002\\n2003p\\nCrude oil\\nReserves (billion barrels)\\n3.61\\n3.69\\nReserve/Production (year)\\n16.0\\n16.0\\nNatural gas\\nReserves\\n(trillion standard cubic feet)\\n87.76\\n89.67\\nReserve/Production (year)\\n35.7\\n30 - 40\\n1\\nThe National Depletion Policy was introduced in 1980 to safeguard the\\nexploitation of the national oil reserves by postponing the development and\\ncontrol the production of major oil fields (with reserves of 400 million barrels\\nor more).\\np Preliminary\\nSource: PETRONAS\\ndue mainly to depleting tin reserves in existing tin\\nmines, which resulted in low productivity.\\nDuring the year, four new oil fields, two each in\\nPeninsular Malaysia and Sarawak, commenced\\noperations, thus bringing the total number of oil\\nfields in production as at end-2003 to 51. With the\\ncommencement of four new gas fields in Peninsular\\nMalaysia and Sarawak, a total of 18 gas fields were\\nin operation by end-2003.\\nA significant development in the Malaysian oil sector\\nin 2003 was the discoveries of deepwater oil reserves\\nin offshore Sabah towards the latter part of the year.\\nPrior to these discoveries, oil was also found in\\noffshore Sabah in July 2002. A total of six new\\nproduction-sharing contracts were signed in 2003.\\nServices Sector\\nIn 2003, the services sector remained resilient,\\nrecovering rapidly from the adverse effects of the\\nSevere Acute Respiratory Syndrome (SARS) that\\ndemand remained favourable, particularly from the\\npower generation sub-sector, which consumed 66%\\nof total domestic gas production. Higher offtake by\\nall LNG buyers, namely Japan, Korea and Chinese\\nTaipei as well as the increase in export prices (RM766\\nper tonne; 2002: RM659) led to the sharp increase of\\n34.8% in export receipts generated from LNG.\\nProduction of tin-in-concentrates declined by 14.2%\\nin 2003, despite higher prices and an increase in the\\nnumber of active tin mines. Decline in production was\\noccurred in the early part of the year. Overall, the\\neffects of SARS were found to be transitory and\\naffected the retail, tourism and travel-related sectors,\\nmainly in the second quarter of the year. Tourist\\narrivals fell significantly for a brief period in April-May\\n(average of 500,000) before gradually picking up in\\nthe following months to reach the pre-SARS level of\\nabove one million tourists by November. Amidst the\\nsharp decline in tourist arrivals and weaker consumer\\nsentiment, growth in the services sector slowed\\ndown to 2.9% during the second quarter. The quick\\ncontainment of the disease globally and the pro-\\nactive measures undertaken by the Government to\\nassist the affected industries and to boost consumer\\nconfidence, contributed to the recovery in the\\nservices sector in the second half-year, which grew by\\n4.5% (first half-year: 3.7%). While growth in final\\nservices moderated largely due to the impact of\\nSARS, growth in the intermediate services was more\\nrobust, supported by stronger trade-related activities.\\nOverall, growth in the services sector was sustained\\nat 4.1% during the year, but its share to GDP\\ndeclined slightly to 56.4% from 57% in 2002.\\nWithin the final services sector, growth in the\\nwholesale and retail trade, hotels and\\n\\n\\n25\\nThe Malaysian Economy in 2003\\nrestaurants sub-sector moderated to 1.5% in\\n2003.  The sub-sector contracted in the second\\nquarter by 2% as consumers avoided public places,\\nwhilst the hotel occupancy rate in some areas fell to\\n30% due to a decline in tourist arrivals and the\\ncancellation of several meetings, incentives,\\nconventions and exhibitions (MICE).  Nevertheless,\\nthe Economic Package introduced in May helped the\\ntourism and travel-related industries to tide over the\\ndifficult period as well as stimulate domestic\\ndemand. The strong pent-up demand, amidst the\\nimproving consumer confidence and recovery in\\ntourist arrivals to the pre-SARS level, helped support\\n-4\\n-2\\n-8\\n-10\\n-12\\n-6\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n1Q\\n00\\n2Q 3Q 4Q 1Q\\n01\\n2Q 3Q 4Q 1Q\\n02\\n2Q 3Q 4Q 1Q\\n03\\n2Q 3Q 4Q\\n-60\\n-40\\n-50\\n-20\\n-30\\n-10\\n0\\n20\\n10\\n40\\n60\\n50\\n30\\n80\\n70\\n90\\nGraph 1.18\\nTrends in Wholesale and Retail Trade, Hotels  \\nand Restaurants Sub-sector vis-a-vis Private  \\nConsumption and Tourist Arrivals\\nValue added of the sub-sector (LHS) \\nTourist arrivals (RHS)\\nPrivate consumption (LHS)\\nAnnual change (%)\\nAnnual change (%) \\nTable 1.10\\nGrowth in the Services Sector at Constant 1987 Prices\\n2002\\n2003p\\n2002\\n2003p\\n1H\\n2H\\nYear\\nAnnual change (%)\\n% share of GDP\\nServices\\n4.1\\n3.7\\n4.5\\n4.1\\n57.0\\n56.4\\nIntermediate services\\n4.3\\n4.2\\n6.1\\n5.2\\n22.8\\n22.8\\nTransport, storage and communication\\n2.6\\n4.5\\n6.6\\n5.6\\n8.5\\n8.5\\nFinance, insurance, real estate and\\n5.3\\n4.1\\n5.7\\n4.9\\n14.3\\n14.3\\n    business services\\nFinal services\\n4.1\\n3.3\\n3.4\\n3.4\\n34.2\\n33.6\\nElectricity, gas and water\\n3.9\\n7.3\\n5.1\\n6.2\\n4.0\\n4.0\\nWholesale and retail trade, hotels and\\n2.6\\n0.6\\n2.4\\n1.5\\n14.9\\n14.4\\n   restaurants\\nGovernment services 1\\n6.7\\n6.4\\n4.9\\n5.6\\n7.2\\n7.3\\nOther services 2\\n4.6\\n3.3\\n3.2\\n3.2\\n8.0\\n7.9\\n1\\nInclude general public services (general public administration, external affairs and public order and safety), defence, health, education and others.\\n2\\nInclude imputed rent from owner-occupied dwellings; community, social and personal services; products of private non-profit services to households and domestic\\nservices of households.\\np Preliminary\\nSource: Department of Statistics, Malaysia\\nthe recovery in the sub-sector. By September, the\\naverage hotel occupancy rate rose above 50%. In\\naddition, the upward trend in the equity market\\namidst stable employment conditions, disbursement\\nof bonus payments and year-end festivities, further\\nreinforced consumer sentiment, resulting in the\\nexpansion of the sub-sector in the second half-year.\\nValue added growth was also affected by greater\\ncompetition among retailers especially\\nhypermarkets. Although the trend of lower prices\\nhad benefited consumers in general, the price\\ncompetition had squeezed retailers’ margins.\\nCoupled with the evolving consumer preference to\\nshop in hypermarkets and large multi-concept\\nshopping centers, the year saw the exit of several\\nsmall- and medium-sized retailers and\\nrationalisation of existing retailers through mergers\\nand acquisitions.\\nThe other services sub-sector which includes\\ncommunity, social and personal services as well as\\nimputed rent from owner-occupied dwellings,\\nexpanded at a moderate rate of 3.2% (2002: 4.6%).\\nThe moderation reflects slower growth in the\\ncommunity, social and personal services as\\nentertainment and gaming activities were affected by\\nSARS during the second quarter. Education and\\nprivate healthcare services were also affected, albeit\\nto a lesser extent. These sectors performed better for\\nthe year as a whole. The total number of students\\npursuing higher private education in Malaysia rose to\\nalmost 300,000 as at end-2003 (end-2002: 294,600),\\nreflecting increases in students from both Malaysia\\n\\n\\n4.H-26\\n26\\nand abroad. Similarly, the private healthcare industry\\ncontinued to expand in response to increased\\ndemand by locals and foreigners for better\\nhealthcare services. The survey by the Association of\\nPrivate Hospitals in Malaysia showed that the number\\nof foreign patients treated in the private hospitals\\nrose to 102,946 as at end-2003 (end-2002: 84,585).\\nThe Government services sub-sector expanded by\\n5.6% in 2003 (2002: 6.7%). The growth reflected\\nhigher expenditure on emoluments following the\\nsalary adjustment for civil servants with the\\nimplementation of the Skim Saraan Malaysia in the\\nlast quarter of 2002. Consonant with the\\nstrengthening economic activity, the utilities sub-\\nsector registered a higher growth of 6.2%\\n(2002: 3.9%), reflecting mainly increased electricity\\ndemand, as well as higher gas and water\\nconsumption. The coming on stream of five power\\nplants by the Independent Power Producers also\\ncontributed to the increase in electricity generation\\nduring the year.\\nWithin the intermediate services sector, growth in\\nthe transport, storage and communication sub-\\nsector picked up strongly by 5.6% in 2003\\n(2002: 2.6%), owing largely to robust activities in\\nthe telecommunications industry. The\\ntelecommunications industry benefited from\\neconomies of scale following the rationalisation of\\nTable 1.11\\nSelected Indicators for the Services Sector\\n2002\\n2003p\\nAnnual change (%)\\nElectricity production index\\n10.3\\n5.8\\nLoans outstanding in the banking system\\n4.6\\n4.8\\nInsurance premiums\\n13.3\\n14.0\\nKLSE (turnover, volume)\\n12.0\\n101.7\\nLRT ridership1\\n3.5\\n8.8\\nTourist arrivals\\n4.0\\n-20.4\\nAirport passenger traffic\\n4.2\\n1.3\\nAir cargo handled\\n16.3\\n6.9\\nBulk cargo throughput at five major ports2\\n4.9\\n9.7\\nContainer throughput at six major ports3\\n23.8\\n14.9\\n%\\nHotel occupancy rate\\n57.9\\n53.3\\nPenetration rate:\\n- Internet dial-up\\n10.5\\n11.4\\n- Broadband\\n0.08\\n0.44\\n- Mobile phone\\n36.9\\n43.9\\n- Fixed line\\n18.8\\n18.1\\n1\\nInclude STARline and PUTRAline.\\n2\\nInclude Port Klang, Johor Port, Penang Port, Sabah Ports and Bintulu Port.\\n3\\nInclude Port Klang, Johor Port, Port of Tanjung Pelepas, Penang Port,\\nSabah Ports and Bintulu Port.\\np Preliminary\\nSource:\\nDepartment of Statistics, Malaysia; Malaysia Airports Holdings Berhad; Kuala\\nLumpur Stock Exchange; Malaysian Communications and Multimedia\\nCommission; Ministry of Finance; Port authorities; Syarikat Prasarana Negara\\nBerhad; Malaysia Tourism Promotion Board; and Bank Negara Malaysia\\nthe cellular industry as well as the various measures\\nundertaken to promote new areas of growth in\\ntelecommunications. In the cellular segment,\\ngrowth accelerated in 2003 due to further\\nexpansion in the subscriber base (11 million; end-\\n2002: 9 million) as well as increased usage of both\\ntraditional voice telephony and new applications in\\nmobile data. During the year, Short Messaging\\nService (SMS) traffic rose significantly, boosted by\\nthe wider usage of SMS in various applications,\\nsuch as entertainment and ticket reservation as well\\nas the downloading of data and other information.\\nGrowth in mobile data was further reinforced by the\\nintroduction of the Multimedia Messaging Service\\n(MMS) in the second half-year, which allows mobile\\nphone users to enhance their messages by\\nincorporating sounds and images. With the\\ncontinued popularity of mobile phones, fixed line\\nsubscribers declined further.\\nVarious measures undertaken to promote new areas\\nof growth in the telecommunications industry, such as\\ngreater usage of e-commerce and on-line services for\\nthe purchase of goods and services, supported growth\\nin the industry. In addition, the reduction in the access\\nfee for broadband and strong demand for high-speed\\nInternet access resulted in the number of broadband\\nsubscribers rising five fold to 110,400 as at end-2003,\\nwhile the number of Internet subscribers increased by\\n10.1% to 2.9 million.\\nIn the transportation industry, lower tourist arrivals\\naffected the air passenger segment.  Growth in the\\nother segments was supported by higher trade and\\ndomestic tourism activities, particularly in the second\\nhalf of the year. Following the increase in both\\nindigenous and transhipment cargo, activity at the\\nports continued to remain strong.  Total container\\ncargo handled at the six major ports increased by\\n14.9% in 2003 (2002: 23.8%). Air cargo business was\\nalso enhanced by the introduction of the I-port\\nprogramme in the two major ports, facilitating more\\nefficient transfer of goods between ports and airports\\nin the country. Aggressive campaigns undertaken by\\nthe Government to promote domestic tourism as well\\nas the rapid expansion of the no-frills budget airline to\\nmany local destinations led to the continued increase\\nin domestic passengers, compensating for the decline\\nin international passengers during the year.\\nGrowth in the finance, insurance, real estate and\\nbusiness services sub-sector was sustained at\\n4.9% in 2003  (2002: 5.3%).  Growth emanated\\nfrom increased bank lending amidst lower lending\\n\\n\\n27\\nThe Malaysian Economy in 2003\\nrates, more robust insurance activities, as well as the\\npick-up in the stock market and real estate activities\\nin the latter part of the year. The low interest rates\\nand attractive financing packages offered by financial\\ninstitutions, additional funds provided by the\\nGovernment under the Economic Package, as well as\\nimproved infrastructure for the small- and medium-\\nenterprises stimulated lending activities during the\\nyear. Value added growth in the finance sector was\\nsupported by interest income and strong growth in\\nfee-based income of financial institutions. The\\nsignificant increase in insurance premiums from both\\nconventional insurance and takaful products further\\nsupported the growth in the sub-sector.\\nDOMESTIC DEMAND CONDITIONS\\nDomestic demand conditions strengthened further in\\n2003, as the economy successfully weathered the\\nuncertainty in the external environment, including\\nthe outbreak of SARS and the geopolitical tensions in\\nthe first half of the year. Growth was driven mainly\\nby stronger private sector activities and supported by\\npublic sector expenditure. The improved external\\nenvironment in the second half-year, which led to\\nrising consumer and business confidence, as well as\\nthe positive effects of the Government’s Economic\\nPackage translated into higher private sector\\nactivities. The low interest rate environment, stable\\nemployment prospects, high commodity prices,\\nimprovement in corporate cash flow positions as well\\nas further liberalisation of foreign equity ownership\\nin the manufacturing sector reinforced the positive\\nspill-over benefits from the Economic Package. As a\\nresult, the private sector resumed its role as the main\\ndriver of growth in 2003, led by the strengthening in\\nconsumer spending and a recovery in private\\ninvestment. Meanwhile, growth in public sector\\nexpenditure moderated with the Government\\ncontinuing to provide an enabling environment to\\nsupport private sector activities. Overall, growth in\\naggregate domestic demand (excluding stocks)\\nstrengthened to 4.8% from 4.2% in 2002.\\nThe public sector continued to play an important role\\nin stimulating the economy. The pro-growth measures\\ntaken in early 2003 were instrumental in mitigating\\nthe impact of SARS and contributed towards the\\nmomentum of growth in the second half-year. Overall,\\nthe pace of expansion of public sector expenditure\\nmoderated to 5.5% in 2003, in line with the move\\ntowards gradual fiscal consolidation.\\nGraph 1.19\\nReal Domestic Demand Aggregates\\nAggregate domestic demand (excl. stocks)\\nPrivate consumption\\nPublic consumption\\nPrivate investment\\nPublic investment\\n-60\\n-40\\n-20\\n0\\n20\\n40\\n93\\n94\\n95\\n96\\n97\\n98\\n99\\n00\\n01\\n02\\n03\\nAnnual change (%)\\nDomestic demand conditions strengthened further in 2003. The\\nprivate sector resumed its lead role in driving growth, supported\\nby higher consumption and the turnaround in private investment.\\nGrowth in public sector expenditure moderated but was\\nsupportive of private sector activities.\\nPublic consumption was sustained, increasing by\\n7.9% in 2003, due mainly to the continued high\\nexpenditure on supplies and services, emoluments\\nand defence. The higher expenditure on supplies and\\nservices was largely due to the measures to improve\\nthe public sector delivery system. Meanwhile, the\\nhigher expenditure on emoluments was partly due to\\nthe implementation of the Malaysian Remuneration\\nSystem for employees in the public sector (effective\\nNovember 2002) as well as the special critical\\nallowance for staff in Government hospitals who\\nwere directly involved in addressing SARS-related\\ncases.\\nReflecting the public sector’s role of providing a\\nsupportive environment for private sector activities,\\npublic investment continued to increase in 2003,\\nalbeit moderately. The increase in public investment\\nreflected higher outlays to improve and upgrade the\\ncountry’s infrastructure, including roads and\\n\\n\\n4.H-28\\n28\\nhighways, and rail, port and airport facilities. Higher\\noutlays were also expended on the construction and\\nupgrading of hospitals as well as rural and health\\nclinics. In addition, expenditure on agriculture and\\nrural development increased in 2003 in line with the\\nGovernment’s effort to modernise the agriculture\\nsector and to narrow income disparities between\\nurban and rural areas by encouraging agro-based\\nindustries. A large share of the expenditure\\ncontinued to be channelled towards education and\\ntraining, especially skills development and training in\\ntechnical fields and on information and\\ncommunication technology to facilitate the move\\ntowards a knowledge-based economy.\\nTotal capital expenditure of the NFPEs remained high\\nin 2003, on account of upgrading and capacity\\nexpansion programmes. Petroliam Nasional Berhad\\n(PETRONAS) continued to invest in exploration and\\nproduction projects as well as the construction of\\nliquefied natural gas tankers and petroleum tankers.\\nIn the case of Tenaga Nasional Berhad, the bulk of\\nthe expenditure was for upgrading of the\\ntransmission system and power generation, while a\\nlarge portion of Telekom Malaysia Berhad’s\\nexpenditure was focussed on upgrading and capacity\\nexpansion to improve telecommunication\\ninfrastructure and services.\\nThe private sector resumed its role as the main\\nengine of growth for the Malaysian economy in\\n2003, contributing 2.5 percentage points to real GDP\\ngrowth. Private sector expenditure increased\\nsignificantly by 4.3% (2002: 0.7%), reflecting the\\nup-turn in private investment and a further\\nstrengthening of consumer spending. Private\\nconsumption increased at a faster pace of 5.1% in\\n2003, after a hesitant start, particularly at the height\\nof the geopolitical tensions and the SARS outbreak\\nduring the second quarter. Private consumption,\\nwhich was less robust in April and May, regained\\nstrength from June as confidence improved following\\nthe containment of the SARS threat and the\\nannouncement of the Economic Package to promote\\ndomestic demand. Measures to enhance household\\ndisposable income included a voluntary reduction in\\nthe EPF contribution rate for employees and various\\ntax exemptions. Lower interest rates following the\\nreduction in the policy rate by Bank Negara Malaysia\\nfurther improved consumer confidence. As a result,\\nconsumer spending gathered momentum and\\nreturned to its normal trend in the third quarter. The\\nrise in consumer spending also reflected the effects\\nof pent-up demand, with increased purchases of cars\\nand consumer durables as well as higher expenditure\\non hotels and restaurants during the quarter. Retail\\nsales also turned around to register a positive growth\\nin the third quarter and strengthened further in the\\nlatter part of the year, reinforced by seasonal factors\\nsuch as festivities, year-end bonus payments and\\nback-to-school shopping. Other factors supporting\\nhigher consumer spending during the year included\\nthe positive wealth effect from the improved stock\\nmarket performance as well as higher rural income\\ndue to the large multiplier impact of higher\\ncommodity prices.\\nOf significance, private investment turned around\\nto record positive growth beginning from the third\\nquarter of 2003. For the year as a whole, private\\ninvestment increased by 1.1% following two years of\\ncontraction. The expansion in private sector\\ninvestment reflected the improvement in business\\nconfidence, particularly in the second half-year. In\\naddition, improved capacity utilisation due to rising\\nexternal demand and higher production underpinned\\nTable 1.12\\nPrivate Consumption Indicators\\n2002\\n2003\\n1Q\\n2Q\\n3Q\\n4Q\\nYear\\nSales of passenger\\ncars (incl. 4WD)\\n‘000 units\\n375.4\\n85.1\\n83.2\\n89.6\\n76.5 334.4\\nAnnual change (%)\\n9.4\\n-7.4 -14.9\\n-9.5\\n-11.7 -10.9\\nTax collection\\nSales tax\\n(RM billion)\\n9.2\\n1.5\\n2.1\\n2.0\\n2.4\\n8.0\\nService tax\\n(RM billion)\\n2.2\\n0.4\\n0.7\\n0.4\\n0.6\\n2.0\\nNarrow Money (M1)\\nAnnual change (%)\\n10.3\\n8.4\\n10.0\\n11.9\\n14.6\\n14.6\\nLoans disbursed by\\nbanking system\\nConsumption credit\\n(excl. passenger cars)\\nAnnual change (%)\\n38.1\\n11.2\\n5.9\\n12.3\\n11.4\\n10.2\\nRetail trade,\\nrestaurants and\\nhotels\\nAnnual change (%)\\n-1.4\\n6.5\\n7.8\\n6.9\\n12.1\\n8.4\\nMRA retail sales\\nAnnual change (%)\\n3.0\\n-0.1\\n-2.9\\n3.9\\n8.4\\n3.6\\nCredit card operation\\nTurnover spending\\n(RM billion)\\n26.8\\n7.2\\n7.1\\n8.0\\n8.6\\n30.9\\nAnnual change (%)\\n25.0\\n18.8\\n13.8\\n15.5\\n14.2\\n15.5\\nMIER Consumer\\nSentiments Index\\n- 105.2 106.9 112.8 115.5\\n-\\nKLSE Composite Index 646.3 635.7 692.0 733.5 793.9 793.9\\nCommodity prices\\nCPO (RM/tonne)\\n       1,364 1,585 1,486 1,444 1,793 1,577\\nCrude oil (USD/barrel)\\n26\\n33\\n28\\n28\\n32\\n30\\nRubber (sen/kg)\\n292\\n364\\n367\\n387\\n486\\n401\\n\\n\\n29\\nThe Malaysian Economy in 2003\\ncapital spending activities, particularly in the\\nmanufacturing sector. Other factors supporting the\\nimprovement in investment activities were the low\\ninterest rates as well as improved profitability and\\ncash flow positions of companies in line with higher\\nsales and profits.\\nBusiness investment improved in most sectors of the\\neconomy except for the transportation sector where\\ncapital outlays had tapered off following the\\ncompletion of large projects, and the\\ntelecommunication sector. Manufacturing\\ninvestment turned around significantly to register a\\npositive growth of 3.2% in 2003 (2002: -32.8%),\\nreflecting the improvement in business conditions\\nand the high capacity utilisation rates (82% in 2003).\\nCapital outlays in the manufacturing sector were\\nmainly in the form of investment in machinery and\\nequipment as industries needed to expand\\nproductive capacity in response to high demand and\\nutilisation rates.\\nA positive development during the year was the\\nsignificant improvement in the value of proposed\\ninvestment applications and approvals in the\\nmanufacturing sector, signalling the improved\\nbusiness confidence and the need to add new\\ncapacity. The total value of applications received\\nincreased by 37.1% to RM25.8 billion, while the\\nvalue of approved investment increased significantly\\nby 62.8% to RM29.1 billion. Of the total value of\\ninvestment approvals, approximately 77% was for\\nnew investment, while the balance was for\\nreinvestment. Unlike in the past years when the\\nelectrical and electronics industry accounted for a\\nlarge share of the total approved investment, a large\\nTable 1.13\\nPrivate Investment Indicators\\n2003\\n1Q\\n2Q\\n3Q\\n4Q\\nYear\\nSales of commercial\\nvehicles (incl. 4WD)\\n ‘000 units\\n59.6\\n14.9\\n16.2\\n19.4\\n20.1\\n70.6\\n Annual change (%)\\n12.2\\n4.2\\n7.4\\n24.5\\n37.2\\n18.5\\nApplications to\\nMITI\\nNo. of projects\\n878\\n208\\n225\\n272\\n228\\n933\\nCapital investment\\n(RM billion)\\n18.8\\n12.2\\n5.1\\n4.2\\n4.3\\n25.8\\nForeign\\n11.7\\n5.7\\n1.7\\n1.8\\n2.3\\n11.6\\nLocal\\n7.0\\n6.4\\n3.4\\n2.4\\n2.0\\n14.1\\nApprovals by MITI\\nNo. of projects\\n792\\n292\\n199\\n261\\n213\\n965\\nCapital investment\\n(RM billion)\\n17.9\\n5.3\\n2.7\\n12.0\\n9.1\\n29.1\\nForeign\\n11.6\\n2.1\\n1.7\\n6.0\\n5.8\\n15.6\\nLocal\\n6.3\\n3.2\\n0.9\\n6.0\\n3.3\\n13.5\\nMSC-Status Companies\\nNo. of companies\\n191\\n41\\n42\\n39\\n39\\n161\\nApproved investment\\n(RM billion)\\n2.7\\n0.3\\n0.4\\n0.3\\n0.5\\n1.6\\nLoans disbursed by\\nbanking system\\nManufacturing sector\\nAnnual change (%)\\n0.9\\n1.9\\n3.0\\n7.3\\n7.0\\n4.8\\nConstruction sector\\nAnnual change (%)\\n41.8\\n-1.3\\n-34.3\\n11.2\\n3.5\\n-8.5\\nBusiness services\\nAnnual change (%)\\n-7.4\\n7.4\\n-20.6\\n27.1\\n22.9\\n6.7\\nPrivate Debt\\nSecurities\\nTotal funds raised\\n(RM billion)\\n26.7\\n16.2\\n12.0\\n6.4\\n8.3\\n42.8\\nInitial Public Offerings\\n(KLSE)\\nTotal funds raised\\n(RM billion)\\n6.8\\n0.2\\n0.2\\n0.6\\n3.0\\n4.0\\nMIER Business\\nConditions Survey\\nBusiness Conditions\\nIndex\\n-\\n99.3 104.9 109.8 109.9\\n-\\nCapacity Utilisation\\nRate (%)\\n-\\n79.6\\n78.0\\n79.6\\n81.1\\n-\\n2002\\nAverage net profit  \\nper company\\nPrivate Investment (RHS)\\nGraph 1.20  \\nHigher Investments with Higher Profits\\nROE\\n-20\\n-10\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n1995\\n1996\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million,%\\n-60\\n-40\\n-20\\n0\\n20\\n40\\n60\\n80\\n100\\n120\\n140\\n160\\n180\\nAnnual change (%) \\n2003\\nMining\\n15%\\nServices \\n20%\\nConstruction\\n23%\\nManufacturing \\n30%\\nAgriculture \\n12%\\nGraph 1.21\\nPrivate Investment by Sector (% share)\\n\\n\\n4.H-30\\n30\\nproportion of the approved investment in 2003 was\\nin the basic metal products industry, which\\naccounted for a significant share of 30% of total\\napproved investment. This was followed by the\\ntransport equipment sector (24%) and the electrical\\nand electronics industry (17%).\\nThere has been some shift in the pattern of\\ninvestment towards higher value added and higher\\ntechnology projects, involving highly-skilled manpower\\nand higher capital investment. For example, in the\\nconsumer electronics sub-sector, companies have\\nshifted production from traditional products to higher\\nvalue added products, such as digital audio-video\\nequipment, multimedia speakers, plasma television\\nsets and home theatres, while in the electronics sub-\\nsector, approved projects were for high-end computer\\nand computer peripheral products and high-end\\ntelecommunications equipment. Some companies\\nhave also set up their own research and development\\ncentres to improve design capabilities and reduce\\ncosts. This shift towards higher value added and\\nAnnual change (%)\\nUtilisation rate (%)\\nGraph 1.22  \\nManufacturing Investments and Capacity  \\nUtilisation Rates\\nManufacturing investments\\nUtilisation rate\\n1999\\n2000\\n2001\\n2002\\n2003\\n-40\\n-30\\n-20\\n-10\\n0\\n10\\n20\\n30\\n40\\n50\\n70\\n72\\n74\\n76\\n78\\n80\\n82\\n84\\nhigher technology is reflected in the gradual rise in the\\ncapital intensity as measured by the ringgit value of\\ncapital investment per employee (CIPE). The CIPE has\\nincreased from RM0.08 million in the 1980s to\\nRM0.24 million in the 1990s and RM0.38 million in\\n2003.\\nReflecting the increased confidence of foreign\\ninvestors, the value of approved foreign investment\\nincreased significantly by 35.1% to RM15.6 billion and\\naccounted for 53.7% of the total approved\\ninvestment. Of this amount, 28% was reinvestment by\\nthe existing foreign investors and 72% was for new\\nactivities. This indicated that Malaysia remained an\\nattractive investment location despite the emergence\\nof competition from other regional countries. The five\\nmost important sources of foreign investments in\\nMalaysia in 2003 were United Arab Emirates, United\\nKingdom, the United States, Japan and Singapore,\\nwhich together accounted for 80% of total foreign\\ninvestments in approved projects. One of the\\napproved projects includes a high technology project\\nfrom the United Kingdom to develop a stratosphere-\\nbased high altitude surveillance and communication\\nplatform, which may eventually be a worldwide\\nsystem of surveillance and communications as it\\ncomplements contemporary satellite aerial\\ninfrastructure.\\nMeanwhile, local manufacturers have become more\\naggressive in their business expansion plans as their\\nshare of the value of investment applications have\\nexceeded that of their foreign counterparts for the\\nfirst time since 1997. The value of approved domestic\\ninvestment more than doubled to RM13.5 billion,\\nreflecting the positive response to the Government’s\\nGraph 1.24\\nApproved Manufacturing Investment\\nby Industry, 2003 (% share)\\nBasic metal\\nproducts 30% \\nTransport\\nequipment 24% \\nOthers\\n21%\\nElectrical & electronic\\nproducts 17% \\nFabricated metal\\nproducts 4%\\nWood & wood\\nproducts 4% \\n0\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\n40\\n45\\n50\\n97\\n98\\n99\\n00\\n01\\n02\\n03\\n0\\n200\\n400\\n600\\n800\\n1,000\\n1,200\\nGraph 1.23 \\nPrivate Investment in the Manufacturing Sector\\nRM billion\\nNo. of projects\\nDomestic investment\\nForeign investment\\nNo. of projects (RHS)\\nApplications:\\nDomestic investment\\nForeign investment\\nNo. of projects (RHS)\\nApprovals:\\n\\n\\n31\\nThe Malaysian Economy in 2003\\npolicy to encourage domestic investment to drive\\ngrowth. This development also reflected the success of\\nthe government’s efforts in encouraging local\\nmanufacturers to upgrade their productive capacity as\\nwell as collaborate with foreigners in new business\\nventures. Excluding a single large investment in the\\nbasic metal products industry, local investments were\\nconcentrated in the high value-added non-resource\\nbased industries, namely, the transport equipment,\\nelectrical and electronics products and fabricated\\nmetal products industry.\\nInvestment in the construction sector continued to\\nregister a moderate increase during the year. A large\\npart of construction investment reflected activities in\\nthe residential sub-sector, which was supported by the\\nconducive property market environment in response to\\nthe low interest rates offered by the banking\\ninstitutions and the Government’s Economic Package\\nfor the property sector. Meanwhile, capital investment\\nin the sector was also supported by activity in several\\nongoing privatised road projects, namely the New\\nPantai Expressway, Kajang Ring Road, Guthrie Corridor\\nExpressway, SPRINT Highway (Penchala Link), Kajang-\\nSeremban Expressway, Jelutong Highway and\\nButterworth Outer Ring Road.\\nStronger investment activities in the services sector\\nwere visible in the utilities as well as the retail,\\nwholesale and business sub-sectors. Capital spending\\nin the utilities sub-sector continued to increase in 2003,\\nsupported by activities in water supply projects as well\\nas the development works of several power plants. The\\npower plants that came onstream during the year\\nincluded the Teknologi Tenaga Perlis Power Plant, Prai\\nPower Plant and Panglima Power Plant, while the\\nconstruction of the new 2,100MW power plant in\\nTanjung Bin was in progress. The consolidation of the\\ntelecommunications industry affected investment in\\nthis sub-sector. The rationalisation exercises of\\ntelecommunication operators and the merger of\\nservice providers contributed to lower capital spending.\\nInvestment in the sub-sector was mainly towards\\nimproving the existing network quality and increasing\\ncoverage areas in response to intense competition,\\nparticularly in the cellular services sector. Investment in\\nthe transport sub-sector was largely supported by the\\ndevelopment of ports, reflecting mainly the capacity\\nexpansion of Port of Tanjung Pelepas, West Port and\\nKuantan Port. In recent years, capital spending in the\\nsub-sector had been on a declining trend due to the\\ncompletion of several major rail projects. The KL\\nMonorail was completed and started commercial\\noperations in the second half of 2003.\\nCapital spending in the retail business reflected the\\nestablishment of new outlets in the expansion\\nprogrammes by major hypermarket operators and\\nestablished retailers. Various incentives introduced by\\nthe Government have attracted companies to\\nestablish shared services centres in Malaysia, which\\nprovide information technology services, software\\ndevelopment, customer management and data\\nprocessing for the companies’ global or regional\\noperations. The setting up of these shared services\\ncentres includes additional capital spending in\\ntechnology and logistic infrastructure. A major\\ndevelopment project during the year was the\\nintensification of the Proton City mixed development\\nproject.\\nNew capital expenditure in the mining sector was\\nlargely by the oil and gas sub-sector, boosted by\\nhigher upstream activities in exploration and\\nproduction. Higher demand for crude oil, coupled\\nwith the increase in crude oil prices, encouraged\\ncompanies to increase capital expenditure for\\nproduction facilities. Sustained investment in the\\nagriculture sector was largely attributed to activities\\nin crop plantation, with a larger contribution from\\npalm oil plantations, buoyed by stronger demand for\\ncrude palm oil and high prices. The capital\\nexpenditure was mainly to improve efficiency in crop\\nharvesting processes and for new planting as well as\\nreplanting activities. The increase in investment in the\\nagriculture sector was also reflected in higher imports\\nof agricultural equipment during the year. In\\naddition, higher investment committed under the\\nNational Agricultural Policy continued to encourage\\nparticipation from the private sector, primarily for\\nfood production.\\nNotwithstanding stronger consumption spending in\\n2003, gross national savings (GNS) increased by\\n18.1%. Higher incomes from the improvement in\\nexternal demand and strong export earnings from\\nhigh commodity prices led to a significant expansion\\nin gross national income in nominal value.\\nIn the private sector, both households and the\\ncorporate sector enjoyed stronger cash flows,\\nbenefiting from higher disposable incomes as a result\\nof the measures in the Economic Package, the\\nsignificant improvement in domestic activities and\\nexternal demand, and sharply higher commodity\\nprices. This enabled private consumption to\\nstrengthen further in 2003, while private sector\\nsavings registered a strong increase of 34.7% during\\nthe year, with the main contributor being corporate\\n\\n\\n4.H-32\\n32\\nsavings. Higher corporate savings was reflected in a\\nmarked increase of RM13.9 billion in new deposits\\nplaced by businesses in the banking institutions,\\ncompared with a net withdrawal of RM154 million in\\n2002.  Despite higher public consumption, public\\nsector savings increased further by 4.4% due mainly\\nto better revenue performance of both the Federal\\nGovernment and the non-financial public enterprises.\\nOverall, the share of GNS to GNP rose to 36.9% in\\n2003 compared with 34.4% in 2002. This high rate\\nof savings has enabled Malaysia to finance its\\neconomic growth from domestic sources.  With the\\nrecovery in investment still in its early stage, gross\\ndomestic capital formation (including stocks)\\nregistered modest growth. The savings-investment\\nbalance as reflected in the current account of the\\nbalance of payments, therefore, recorded a higher\\nsurplus of RM50.8 billion or 13.7% of GNP\\n. The\\nsavings-investment surplus is expected to moderate\\nas the recovery in investments would strengthen in\\nline with stronger economic growth.\\nPRICES AND EMPLOYMENT\\nConsumer Prices\\nInflation remained low and stable in 2003. The\\noverall inflation rate, as measured by the annual\\nchange in the Consumer Price Index (CPI), was\\nslightly lower at 1.2%, compared with 1.8% in the\\nprevious year. Core inflation, which is inflation\\nexcluding price-controlled and price-volatile items as\\nwell as items that are subject to one-off price\\nTable 1.14\\nSavings-Investment Gap\\n2002\\n2003p\\n(RM million)\\nPublic gross domestic\\ncapital formation\\n53,698\\n56,304\\nPublic savings\\n63,496\\n66,313\\nDeficit / surplus\\n9,798\\n10,009\\nPrivate gross domestic\\ncapital formation1\\n31,317\\n29,329\\nPrivate savings\\n52,013\\n70,081\\nDeficit / surplus\\n20,696\\n40,752\\nGross domestic capital formation\\n85,015\\n85,633\\n(% of GNP)\\n25.3\\n23.2\\nGross national savings\\n115,509\\n136,394\\n(% of GNP)\\n34.4\\n36.9\\nBalance on current account\\n30,494\\n50,761\\n(% of GNP)\\n9.1\\n13.7\\n1 Includes the change in stocks. Previously, the change in stocks was distributed\\nbetween the public and private sector gross domestic capital formation.\\np Preliminary\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nadjustments, remained broadly stable at 0.6% in\\n2003 (2002: 0.5%).  Several factors combined to\\nensure that inflation was benign. While domestic\\ndemand strengthened, excess capacity in selected\\nsectors and the absence of wage cost pressures,\\namidst improving labour productivity, helped to\\ncontain price pressures.  Small price adjustments, in\\nMarch 2003, in retail prices of petrol, diesel and\\ncooking gas and telephone rental contributed to\\nabout 0.4 percentage point to the overall inflation\\nduring the year.\\nTransport and communication prices moderated\\nsignificantly in 2003 due in part to the higher base in\\n2002, despite higher prices of petroleum and\\npetroleum-related products. Prices for clothing and\\nfootwear, furniture, furnishing and household\\nequipment continued to decline during the year\\n0.5\\n0.0\\n1.0\\n1.5\\n2.0\\n2.5\\nAnnual change (%)\\nHeadline\\nCore inflation\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\n9\\nBeverages &\\ntobacco  \\nFood\\nOverall\\nTransport &\\ncommunication \\nGross rent,\\nfuel & power \\n-20\\n-10\\n0\\n10\\n20\\n30\\n40\\nNon-commodity\\nrelated \\nCommodity \\nrelated\\nOverall\\nMeasures of Consumer Price Inflation\\n2000\\n2001\\n2002\\nJ F MA M J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D\\nProducer Price Index\\nAnnual change (%)\\n2000\\n2001\\n2002\\nConsumer Price Index\\nAnnual change (%)\\nJ F MAM J J A S O N D J F MA MJ J A S O N D J F MAM J J A S O N D\\nGraph 1.25\\nInflation: Annual Rate of Change\\n2000\\n2001\\n2002\\nJ F MAM J J A S O N D J F MAM J J A S O N D J F MAM J J A S O N D\\n\\n\\n33\\nThe Malaysian Economy in 2003\\n-0.20\\n0.00\\n0.20\\n0.40\\n0.60\\n0.80\\n1.00\\n1.20\\n1.40\\n1.60\\n1.80\\n2.00\\nOverall CPI\\nFood\\nBeverages and tobacco\\nClothing and footwear\\nGross rent, fuel and power\\nFurniture, furnishings and household equipment and operation\\nMedical care and health expenses\\nTransport and communication\\nRecreation, entertainment, education and cultural services\\nMiscellaneous goods and services\\npercentage point\\nGraph 1.26\\nContribution to Annual Change in the Consumer Price Index\\n2002\\n2003\\nTable 1.15\\nPrice Indicators\\nWeight\\n2002\\n2003\\nAnnual change\\n%\\nConsumer Price Index\\n(2000=100)\\n100.0\\n1.8\\n1.2\\nof which:\\nFood\\n33.8\\n0.7\\n1.3\\nBeverages and tobacco\\n3.1\\n4.2\\n1.6\\nClothing and footwear\\n3.4\\n-2.3\\n-2.0\\nGross rent, fuel and power\\n22.4\\n0.7\\n0.9\\nFurniture, furnishings and\\nhousehold equipment\\nand operation\\n5.3\\n-0.4\\n-0.6\\nMedical care and health\\nexpenses\\n1.8\\n2.4\\n1.7\\nTransport and communication\\n18.8\\n6.6\\n1.6\\nRecreation, entertainment,\\neducation and cultural services\\n5.9\\n0.2\\n0.6\\nMiscellaneous goods and services\\n5.5\\n1.1\\n1.3\\nConsumer Price Index\\nDurable Goods\\n9.4\\n-0.8\\n-1.1\\nSemi-Durable Goods\\n5.4\\n-1.6\\n-1.4\\nNon-durable Goods\\n40.2\\n1.6\\n1.6\\nServices\\n45.0\\n3.0\\n1.3\\nProducer Price Index\\n(1989=100)\\n100.0\\n4.4\\n5.8\\nof which:\\nLocal Production\\n79.3\\n5.7\\n7.0\\nImports\\n20.7\\n-0.7\\n0.8\\nHouse Price Index\\n(1990=100)\\n-0.6\\n-\\nof which:\\nKlang Valley\\n-0.3\\n-\\nJohor Bahru\\n-6.0\\n-\\nPenang Island\\n-5.2\\n-\\nSource:\\nDepartment of Statistics, Malaysia\\nNAPIC, Department of Valuation and Property Services\\namidst increased capacity and rising competition\\nfrom imported goods.\\nStronger demand was reflected mainly in higher\\nprices for food, rental, fuel and power. Generally,\\nhigher prices for food items reflected stronger\\ndemand amidst higher commodity prices, and higher\\nprices for selected imported food items. Meanwhile,\\nthe increase in rental was moderate. Rental for\\nlower-end houses rose by 1%, while the increase for\\nthe higher-end houses was 0.8%.\\nProducer Prices\\nProducer prices, as measured by the Producer Price\\nIndex (PPI), rose at a higher annual rate of 5.7% in\\n2003 (2002: 3.7%), reflecting largely higher prices\\nfor commodity-related products, following higher\\nprices of crude palm oil, rubber and crude petroleum.\\nExcluding commodity-related products, producer\\nprices remained subdued, increasing by 0.5% (2002:\\n0.1%). Prices paid for imported goods increased by\\n0.8% (2002: -0.7%), reflecting mainly higher\\npetroleum prices and the appreciation of major\\ncurrencies against the ringgit.\\nLabour Market Developments\\nThe domestic labour market conditions remained\\nstable and healthy. In 2003, overall growth in total\\nemployment and the labour force expanded\\nmoderately by the same rate of 3.3% to 10.2 million\\nworkers and 10.5 million persons respectively. The\\nunemployment rate remained low at 3.5%. Further\\n\\n\\n4.H-34\\n34\\nAnnual change (%) \\n%\\n0\\n2\\n4\\n6\\n8\\n10\\n1999\\n2000\\n2001\\n2002\\n2003\\n0\\n1\\n2\\n3\\n4\\nGraph 1.28\\nOutput and Employment\\nGDP\\nLabour force\\nSource: Department of Statistics, Malaysia\\n \\nEconomic Planning Unit \\n \\nBank Negara Malaysia\\nTotal employment\\nUnemployment rate (RHS)\\nmeasures were undertaken in 2003 to improve the\\nquality of labour, narrow the skills mismatches and\\naddress the changing demands of the economy.\\nThe Beveridge Curve, which tracks the pattern of\\nunemployment and vacancies in the labour market,\\nshifted downwards and inwards in 2003, indicating\\nlower turnover in the labour market and increased\\nefficiency in the worker-job matching process. This\\nwas corroborated by the findings of other surveys. The\\nSalary, Benefits and Employment Conditions Survey in\\nthe Manufacturing Sector conducted by the\\nFederation of Malaysian Manufacturers (FMM) showed\\nthat the overall average monthly turnover rate was\\nlower at 1.76% in 2003 (2002: 4.1%). Similarly, the\\nSalary and Fringe Benefits Survey undertaken by the\\nMalaysian Employers Federation (MEF), which also\\nLabour market conditions remained favourable, supported by\\nhigher growth in productivity.\\nTable 1.16\\nLabour Market Indicators\\n1999\\n2000\\n2001\\n2002\\n2003e\\nLabour force (‘000)\\n9,177.8\\n9,572.5\\n9,892.1\\n10,198.8\\n10,535.3\\n(annual change in %)\\n3.7\\n4.3\\n3.3\\n3.1\\n3.3\\nEmployment (‘000)\\n8,869.6\\n9,271.2\\n9,532.5\\n9,840.0\\n10,166.2\\n(annual change in %)\\n3.5\\n4.5\\n2.8\\n3.2\\n3.3\\nUnemployment rate (%)\\n3.4\\n3.1\\n3.6\\n3.5\\n3.5\\nLabour productivity (GDP/Employment)\\n(annual change in %)\\n2.6\\n3.9\\n-2.4\\n0.9\\n2.0\\nReal wage per employee in manufacturing sector\\n(annual change in %)\\n3.1\\n5.0\\n1.6\\n3.2\\n2.6\\ne Estimate\\nSource: Department of Statistics, Malaysia, Economic Planning Unit and Bank Negara Malaysia\\nUnemployment Rate (%)\\nSource: Economic Planning Unit \\n \\nMinistry of Human Resources \\n \\nBank Negara Malaysia   \\nVacancy rate\\n(%) \\nGraph 1.27\\nBeveridge Curve for Malaysia (1998 - 2003)\\n0.2\\n0\\n0.4\\n0.6\\n0.8\\n1.0\\n1.2\\n1.4\\n1.6\\n3.1\\n3.2\\n3.3\\n3.4\\n3.5\\n3.6\\n3.7\\n1999\\n2000\\n2001\\n2002\\n1998\\n2003\\nincluded firms from the non-manufacturing sectors,\\nshowed that the overall average monthly turnover rate\\nremained low at 1.76% in 2003 (2002: 1.66%).\\nThe low turnover in the labour market was also\\nreflected in data on vacancies and retrenchment for\\n2003, while data on placements and unplaced job\\nseekers mirrored the efficiency in the job matching\\nprocess. Growth in the number of vacancies\\nreported, which were mainly in the manufacturing,\\nagriculture, services and construction sectors,\\nmoderated by 40% to 96,918 (2002: 162,787).\\nRetrenchments, which occurred mainly in the\\nmanufacturing and tourism-related sectors, were also\\nlower by 20% (21,206 persons; 2002: 26,452). The\\nmain reasons for retrenchment included reduction in\\ndemand for products, company reorganisation and\\nclosure of company. Other reasons included\\ncompletion of projects, reduction in production and\\n\\n\\n35\\nThe Malaysian Economy in 2003\\nemployment, and outsourcing. Growth in the\\nnumber of placements during the year moderated by\\n16%, although the slowdown in the growth of\\nvacancies was higher. Concurrently, the number of\\nregistered unplaced job seekers reached 28,404 at\\nend-2003, the lowest since January 2001. Both\\ndevelopments indicate greater efficiency in the\\nmatching of workers to jobs available.\\nGiven some underemployment in selected sectors,\\nthe pick-up in economic activity did not exert undue\\npressure on wages in 2003. Available indicators on\\nwages showed that increases in wage rates\\ncontinued to moderate in 2003:\\n•\\nData from the Monthly Manufacturing Survey\\nconducted by the Department of Statistics\\nindicated that, on an annual basis, real wage per\\nemployee increased by 2.6% (2002: 3.2%).\\n•\\nThe Salary and Fringe Benefits Survey undertaken\\nby the MEF showed that the increase in the\\naverage private sector salary was slightly lower at\\n5.8% in 2003 (2002: 6%). On a sectoral basis,\\nthe average salary increase in the non-\\nmanufacturing sector was higher (6.1% in 2003\\nand 2002) than the manufacturing sector (5.5%;\\n2002: 5.9%). The average minimum monthly\\nsalary offered to those with a basic degree was\\nmarginally lower at RM1,669 (2002: RM1,675).\\n•\\nThe Salary, Benefits and Employment Conditions\\nSurvey in the Manufacturing Sector conducted by\\nthe FMM showed that the increase in overall\\naverage salary paid to employees was also\\nmoderate at 5.5% in 2003, while the average\\nbasic salary of a fresh graduate was RM1,861.\\n•\\nThere were only two industrial strikes relating to\\ndemand for higher wages in 2003, the same as in\\nthe previous year.\\nLabour productivity, as measured by the ratio of\\nGDP to total employment, improved significantly\\nwith growth doubling to 2% in 2003 (2002: 0.9%).\\nThe productivity growth was attributed to the\\nimprovement in output across most major sectors in\\nAgriculture, \\nforestry \\nand fishing \\nManufacturing \\nSource: Economic Planning Unit\\nConstruction \\nServices \\nNumber ('000 persons)\\nGraph 1.29\\nTotal Employment by Sector\\n2000\\n2001\\n2002\\n2003\\n0\\n1,000\\n2,000\\n3,000\\n4,000\\n5,000\\n6,000\\n0\\n5,000\\n10,000\\n15,000\\n20,000\\n25,000\\n30,000\\n35,000\\n40,000\\n2000\\n2001\\n2002\\n2003\\nNumber of workers\\nGraph 1.30 \\nRetrenchment in Selected Sectors\\nTotal retrenchment\\nRetrenchment in manufacturing sector\\nRetrenchment in services sector\\nRetrenchment in agriculture sector\\nRetrenchment in construction sector\\n    \\nSource: Ministry of Human Resources\\nNumber of employees\\nGraph 1.31 \\nReasons for Retrenchment\\n1 Closure of companies\\n2 Sale of companies\\n3 Relocation to foreign countries\\n4 Relocation locally\\n5 High production cost\\n6 Reduction in demand for products\\n7 Company reorganisation and automation\\n8 Others\\nSource: Ministry of Human Resources\\n  2002\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\n  2003\\n2,000\\n4,000\\n6,000\\n8,000\\n10,000\\n12,000\\n0\\n\\n\\n4.H-36\\n36\\nSource: Pembangunan Sumber Manusia Berhad\\n0\\n100,000\\n200,000\\n300,000\\n400,000\\n500,000\\n600,000\\n1994 1995 1996 1997 1998 1999 2000 2001 2002 2003\\nNumber of training places \\nGraph 1.32\\nHRDF: Number of Training Places Approved\\nline with the stronger economic activities. Of\\nsignificance, productivity in the manufacturing sector\\nturned around to register a positive growth of 3%\\n(2002: -0.8%) due to increased use of capital. The\\nagriculture and services sectors recorded higher\\nproductivity growth of 5.7% and 0.7% respectively\\n(2002: 3.1% and 0.5% respectively). Higher\\nproductivity in the agriculture sector was due to good\\nweather, which is a critical factor in determining the\\noutput of agricultural produce, improved agricultural\\npractices and greater automation.\\nOver the longer term, the Government continues to\\nencourage firms to adopt better work practices,\\nincrease mechanisation and automation as well as\\nintroduce structural changes, in order to increase\\nefficiency and productivity to alleviate the shortage of\\nworkers, particularly for the lower end jobs. In the\\ninterim, the Government continued to approve the\\nrecruitment of new foreign workers from designated\\ncountries, namely Bangladesh, Cambodia, P\\n.R.China,\\nIndia, Indonesia, Kazakhstan, Kyrgyz Republic, Lao\\nPeople’s Democratic Republic, Myanmar, Nepal,\\nPakistan, the Philippines, Sri Lanka, Thailand,\\nTurkmenistan, Uzbekistan and Vietnam. During the\\nyear, the Government concluded a total of six\\nMemoranda of Understanding, namely, with\\nBangladesh, P\\n.R.China, Sri Lanka, Thailand, Pakistan and\\nVietnam to regulate the recruitment process and\\nprocedures, while agreements in principle were reached\\nwith Nepal and Kyrgyz Republic.\\nIn 2003, approval was given for the recruitment of\\n516,355 new foreign workers (2002: 545,725) mainly\\nin the agriculture, manufacturing and construction\\nsectors. A large majority of the new workers originate\\nfrom Indonesia, while the rest are mainly from Nepal,\\nVietnam, India, Myanmar and Thailand. In total, the\\nnumber of registered foreign workers in the country\\nincreased by 17% to 1,239,862 (2002: 1,057,156)\\nconstituting about 12% of the total labour force. The\\nmajority are engaged in the manufacturing sector,\\nfollowed by the agriculture, services (including domestic\\nservices) and construction sectors. About 70% of the\\nforeign workers are from Indonesia, while those from\\nNepal and Bangladesh constitute the second and third\\nlargest group at about 8% and 7% respectively.\\nThe policy on the employment of foreign nationals was\\nfurther liberalized to address the need for certain\\nspecialized skills. In this regard, the period of\\nemployment of foreign workers engaged in the 3'D'\\nareas (Difficult, Dirty and Dangerous) was extended\\nfrom five years up to a maximum of ten years. Similarly,\\nthe policy on expatriate employment in the\\nmanufacturing sector was liberalised.\\nIn view of the strategy to diversify into new growth\\nareas, especially manufacturing related and research\\nand design services as well as high-technology\\nindustries, employment opportunities were more\\nabundant in higher value added sectors which require\\nhighly specialised skills. In this regard, the Brain-Gain\\nprogramme was launched in 2001 to attract Malaysians\\noverseas with special expertise in fields such as\\nmedicine and health, ICT, accountancy and finance, to\\nreturn to work in Malaysia. The programme has\\nattracted 599 professionals, of which 234 were\\napproved.\\nMeanwhile, under the Economic Package, a Retraining\\nFund of RM100 million was established with the\\nobjective to provide unemployed graduates with\\ntraining to acquire skills that are in demand, such as ICT\\nand accountancy. As at end-2003, a total of 7,338\\ngraduate trainees had benefited from training provided\\nunder the Fund, commonly known as the Graduate\\nTraining Scheme II (GTS II). Financial assistance granted\\nto the trainees under the GTS II amounted to RM55.7\\nmillion. As funds under the earlier special schemes\\nimplemented in 2001 for unemployed graduates and\\nretrenched workers were still available, the schemes\\nwere continued into 2003. As at end-2003, a total of\\n38,942 persons had participated in the various\\nattachments and training schemes for unemployed\\ngraduates, commonly known as Graduate Training\\nScheme I, while another 11,135 participants benefited\\nfrom the scheme for retrenched workers and the\\nunemployed.\\nIn line with the push for knowledge-based and services-\\nled growth, the Human Resource Development\\nFund (HRDF) played an important role to foster\\nincreased training of staff by employers. In the period\\n\\n\\n37\\nThe Malaysian Economy in 2003\\n1993-2003, a total of 3.9 million training places costing\\na total of RM1.4 billion were approved (2003: 441,721\\ntraining places with financial assistance of RM206\\nmillion). The scope of the HRDF has been expanded to\\nmeet changing demands. Reimbursement for promoted\\ncourses were increased to the full amount of the levy\\n(85% previously), while additional schemes for smaller\\ncompanies and the SMEs were introduced. The\\nutilisation period of the HRDF by employers was\\nextended to five years, from two years previously. The\\nscope of the HRDF would be further expanded to\\ninclude training in related services such as ports and\\nlogistics, health services, marketing, ICT and research\\nand development.\\nThe Skills Development Fund (SDF) is another\\nskills training initiative that has been in place since\\n2001. Its aim is to enhance the participation of the\\nprivate sector as training providers and increase\\naccessibility to technical education and vocational\\ntraining by providing financial assistance to the\\ntrainees. The SDF is open to all, including school\\nleavers, retrenched workers as well as workers\\nundergoing training at public and private training\\ninstitutes. The objective is to ensure that the\\njobseekers acquire the skills required by employers. In\\n2003, besides an additional allocation of RM500\\nmillion under the Economic Package, guidelines on\\nthe provision of financial assistance were reviewed to\\nenable more persons to pursue skills training under\\nthe SDF. As a result, using the existing allocation\\n(excluding the RM500 million), the SDF was able to\\nprovide financial assistance to a total of 45,856\\napplicants compared with 36,700 applicants a\\nyear ago.\\nApart from training polices, which are basically\\ngovernment driven, an encouraging development is\\nthat the private sector is also actively involved in the\\ndrive to raise the quality of labour through the\\nadoption of productivity linked wage systems (PWLS).\\nBesides embedding rewards with performance and\\nhigher productivity, such flexible practices have\\nhelped employers to better manage costs and share\\nsuccess with employees. The Salary and Fringe\\nBenefits Survey undertaken by the MEF in 2003\\nshowed that the majority of respondent companies\\nadopted the PWLS.\\nEXTERNAL SECTOR\\nBalance of Payments\\nA stronger external environment and improved\\ninvestor sentiment, particularly in the second half\\nof the year, contributed to the strengthening of\\nthe external position in 2003.  The overall\\nbalance of payments registered a significantly\\nhigher surplus on the back of a larger current\\nRM billion\\nRM billion\\nCurrent Account\\nGoods exports\\nGoods imports\\nBalance on services \\nand income\\nCurrent account \\nbalance (RHS)\\nGraph 1.33\\nMalaysia: Balance of Payments\\n-100\\n-50\\n0\\n50\\n100\\n150\\n200\\n250\\n300\\n350\\n400\\n450\\n2001\\n2002\\n2003e\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\nRM billion\\nCapital and Financial Account\\n-25\\n-20\\n-15\\n-10\\n-5\\n0\\n5\\n10\\n2001\\n2002\\n2003e\\nPortfolio investment \\nBalance on capital and financial account\\nOther investment - private sector\\nOfficial long-term capital\\nDirect investment \\nRM billion\\nNet International Reserves\\nNet international reserves\\nBalance on current account\\nBalance on capital and financial account\\n-50\\n0\\n50\\n100\\n150\\n200\\n2001\\n2002\\n2003\\ne  Estimate\\n\\n\\n4.H-38\\n38\\naccount surplus, sustained inflows of foreign direct\\ninvestment and higher inflows of portfolio funds.\\nErrors and omissions, including exchange gain\\nfrom the revaluation of Bank Negara Malaysia’s\\ninternational reserves due to the appreciation of\\nthe major currencies against the US dollar (RM11.9\\nbillion), was RM0.4 billion. After adjusting for the\\nerrors and omissions, the overall balance of\\nThe external position strengthened further, supported by a\\nstronger current account surplus. Inflows of FDI were sustained\\nwhile inflows of portfolio investment were higher. The external\\ndebt of the official sector was reduced.\\nTable 1.17\\nBalance of Payments\\n2002\\n2003e\\nItem\\n+\\n -\\nNet\\n+\\n -\\nNet\\nRM million\\nGoods\\n358,504\\n286,387\\n72,117\\n398,998\\n301,297\\n97,701\\nTrade account\\n 357,682\\n303,063\\n54,619\\n398,882\\n317,746\\n81,136\\nServices\\n        56,536\\n62,532\\n-5,996\\n51,594\\n66,620\\n-15,026\\nBalance on goods and services\\n415,040\\n348,919\\n66,121\\n450,592\\n367,917\\n82,675\\nIncome\\n8,129\\n       33,190\\n-25,061\\n13,116\\n35,730\\n-22,614\\nCurrent transfers\\n2,513\\n       13,079\\n-10,566\\n1,929\\n11,229\\n-9,300\\nBalance on current account\\n425,682\\n395,188\\n30,494\\n465,638\\n414,876\\n50,761\\n% of GNP\\n9.1\\n13.7\\nCapital account\\n-\\n-\\nFinancial account\\n-11,941\\n-12,063\\nDirect investment\\n4,935\\n4,242\\nPortfolio investment\\n-6,506\\n4,176\\nOther investment\\n-10,370\\n-20,481\\nBalance on capital and financial account\\n-11,941\\n-12,063\\nErrors and omissions\\n-4,362\\n360\\nof which:\\nExchange revaluation gain (+) or loss (-)\\n6,627\\n11,927\\nOverall balance\\n14,191\\n39,059\\nBank Negara Malaysia\\ninternational reserves, net\\n131,394\\n170,453\\n(US$ million)\\n34,577\\n44,856\\ne Estimate\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\npayments recorded a large surplus of RM39.1\\nbillion or US$10.3 billion. Consequently, the net\\ninternational reserves of Bank Negara Malaysia\\nincreased to RM170.5 billion or US$44.9 billion at\\nend-2003. The reserves increased further to\\nRM194.9 billion or US$51.3 billion as at 15 March\\n2004. This level of reserves represented 7.8\\nmonths of retained imports and 5.2 times coverage\\nof the short-term external debt. Malaysia’s reserves\\nare usable and unencumbered.\\nCurrent Account\\nIn 2003, the current account recorded a larger\\nsurplus of RM50.8 billion or 13.7% of GNP due to\\na higher trade surplus. The stronger growth in\\nmanufacturing exports and robust expansion in\\nexport of commodities, which have low import\\ncontent, contributed to the larger trade surplus.\\nThe larger surplus in the goods account generated\\nmore than sufficient foreign exchange earnings to\\nfinance the deficits in the services (4.1% of GNP),\\nincome and current transfers accounts. The\\nservices account deficit widened due to the impact\\nof SARS, which lowered travel receipts. On the\\nother hand, the income account deficit was\\nreduced, reflecting higher profits and dividends\\naccrued to Malaysian companies from their\\ninvestments abroad and higher returns from other\\ninvestment. Net outflows in the current transfers\\n\\n\\n39\\nThe Malaysian Economy in 2003\\naccount declined as a result of lower remittances\\nby foreign workers.\\nAmidst the improvement in the external\\nenvironment, gross exports expanded strongly by\\n11.5% in 2003 (2002: 7%). The stronger export\\nperformance was due to higher manufactured\\nexports, as well as robust growth in exports of\\nprimary commodities.\\nGrowth in manufactured exports strengthened to\\n8.2% (2002: 5.9%), supported mainly by strong\\ndemand for electronics, chemical products,\\npetroleum products, metal products and rubber\\nAnnual change (%)\\nGraph 1.34\\nExport Performance of the Manufacturing \\nSector\\n-10\\n-5\\n0\\n5\\n10\\n15\\n20\\n1Q\\n2Q\\n3Q\\n4Q\\n1Q\\n2Q\\n3Q\\n4Q\\n2002\\n2003\\nExport Value\\nExport Volume\\nExport Prices\\nGraph 1.35 \\nExport Performance of Electronics and \\nNon-electronics Industries\\nAnnual change (%)\\nManufactured exports\\nElectronics\\nNon-electronics\\n-15\\n-10\\n-5\\n0\\n5\\n10\\n15\\n20\\n25\\n1Q\\n2Q\\n3Q\\n4Q\\n1Q\\n2Q\\n3Q\\n4Q\\n2002\\n2003\\nTable 1.18\\nGross Exports\\n2003p\\nRM  million\\nAnnual change (%)\\n% share\\nManufactured goods\\n326,950\\n8.2\\n82.0\\nOf which:\\nElectronics, electrical machinery and appliances\\n223,547\\n5.2\\n56.0\\n  Electronics\\n167,620\\n6.3\\n42.0\\n \\nSemiconductor\\n85,184\\n16.3\\n21.4\\n \\nElectronic equipment & parts\\n82,436\\n-2.4\\n20.7\\n  Electrical machinery & appliances\\n55,927\\n1.9\\n14.0\\n \\nConsumer electrical products\\n19,747\\n-6.5\\n5.0\\n \\nIndustrial & commercial electrical products\\n20,414\\n3.5\\n5.1\\n \\nElectrical industrial machinery and equipment\\n13,886\\n9.6\\n3.5\\n \\nHousehold electrical appliances\\n1,880\\n36.7\\n0.5\\nChemicals & chemical products\\n21,236\\n23.3\\n5.3\\nManufactures of metal\\n11,303\\n28.5\\n2.8\\nPetroleum products\\n9,416\\n23.6\\n2.4\\nOptical and scientific equipment\\n9,213\\n13.0\\n2.3\\nTextiles, clothing and footwear\\n8,771\\n2.3\\n2.2\\nWood products\\n6,698\\n6.1\\n1.7\\nRubber products\\n5,060\\n12.3\\n1.3\\nAgricultural commodities\\n33,728\\n28.1\\n8.4\\nOf which:\\nPalm oil\\n20,224\\n36.3\\n5.1\\nRubber\\n3,582\\n43.8\\n0.9\\nSawn timber\\n2,607\\n6.4\\n0.7\\nSaw logs\\n2,015\\n10.0\\n0.5\\nMinerals\\n29,777\\n33.1\\n7.5\\nOf which:\\nCrude oil\\n15,662\\n35.0\\n4.0\\nLNG\\n13,328\\n34.8\\n3.3\\nTin\\n284\\n-33.2\\n0.1\\nOther exports\\n8,427\\n25.5\\n2.1\\nTotal\\n398,882\\n11.5\\n100.0\\np   Preliminary\\nSource: Department of Statistics, Malaysia\\n\\n\\n4.H-40\\n40\\nproducts. Growth in electronics exports was largely\\ndriven by the upturn in the global electronics cycle,\\nwhilst the chemical products sector benefited from\\nhigher export prices for iron and steel.  Overall, the\\nincrease in export receipts was attributed entirely to\\nhigher volume as prices continued to decline.\\nExports of primary commodities rose markedly by\\n30.4%, driven mainly by the strong export\\nperformance of agriculture (28.1%) and minerals\\n(33.1%).  Commodity exports was supported by\\nstronger prices (17.1%) and higher export volume\\n(11.9%) during the year. Strong demand for\\ncommodities amidst the tight global supplies of\\nmany major commodities during the year supported\\nthe rise in prices.\\nTotal receipts from agriculture exports rose to\\nRM33.7 billion with the main contributor to growth\\nbeing palm oil, which generated RM20.2 billion\\nforeign earnings following strong average export\\nprices of RM1,617 per tonne and higher export\\nvolume of 12.5 million tonnes. Palm oil prices\\nincreased due mainly to imbalances in the global\\nedible oils markets, arising from shortages in the\\nUnited States\\nASEAN excl.\\nSingapore\\nOthers\\n% share\\n0\\n5\\n10\\n15\\n20\\n25\\nSingapore\\nJapan\\nPeople's Republic of China,\\nHong Kong China,\\nKorea & Chinese Taipei\\nEuropean Union\\n2003\\n2000\\nGraph 1.36\\nExport of Manufactured Goods by Destination\\nTable 1.19\\nExternal Trade\\n2002\\n2003p\\n2002\\n2003p\\nRM billion\\nUS$ billion\\nGross export (f.o.b)\\n357.7\\n398.9\\n94.1\\n105.0\\nAnnual change (%)\\n7.0\\n11.5\\n7.0\\n11.5\\nAnnual change (%)\\nVolume1\\n6.1\\n7.2\\n6.1\\n7.2\\nPrices1\\n-0.4\\n1.0\\n-0.4\\n1.0\\nGross import (c.i.f)\\n303.1\\n317.7\\n79.8\\n83.6\\nAnnual change (%)\\n8.1\\n4.8\\n8.1\\n4.8\\nAnnual change (%)\\nVolume1\\n6.1\\n1.1\\n6.1\\n1.1\\nPrices1\\n1.4\\n2.3\\n1.4\\n2.3\\nTrade balance\\n54.6\\n81.1\\n14.4\\n21.4\\n1 Volume and prices for 2003 are estimates.\\np Preliminary\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nThe significantly large trade surplus was due to stronger growth\\nin manufacturing exports and robust expansion in commodity\\nexports which have low import content.\\nthe spillover effects of the strong electronics\\nperformance as well as higher demand for organic\\nchemicals, resins and plastic products. Higher exports\\nof rubber products were driven largely by increased\\nglobal demand for rubber gloves. Exports of metal\\nproducts also rose strongly as manufacturers\\nincreased their export volume to take advantage of\\nsupply of major oilseeds amidst rising demand.\\nMalaysian palm oil also benefited from import\\nsubstitution by several price sensitive buyers given\\nthe large price discounts of palm oil against other\\nmajor oilseeds, particularly soybean oil, its closest\\nsubstitute. The major export markets for Malaysian\\npalm oil in 2003 were P\\n.R.China, the Middle East,\\nIndia and the EU, which together accounted for 60%\\nof total Malaysian palm oil exports. With substantially\\nhigher revenue, palm oil accounted for about 60%\\nof total agriculture export receipts and 5% of total\\ngross exports. The strong agriculture exports during\\nthe year was also supported by increases in the\\nexports of other commodities, including rubber and\\ntimber and timber products.\\nExport revenue from minerals turned around sharply\\nto record a growth of 33.1% to RM29.8 billion,\\ndriven mainly by the significantly higher oil prices.\\nMalaysian crude oil export prices strengthened\\nsignificantly to average US$30.27 per barrel in\\ntandem with higher global crude oil prices. In line\\nwith the upward trend in oil prices, liquefied natural\\ngas (LNG) prices also trended upwards to average\\nRM766 per tonne in 2003. The commencement of\\nthe MLNG Tiga plant during the year also boosted\\nthe exports of Malaysian gas. Thus, revenue from\\n\\n\\n41\\nThe Malaysian Economy in 2003\\ncrude oil and LNG exports rose to RM15.7 billion and\\nRM13.3 billion respectively.\\nGross imports registered a moderate growth of\\n4.8% (2002:  8.1%) attributable to imports of capital\\nand intermediate goods, which picked up in the\\nfourth quarter. Import prices increased by 2.3%,\\nreflecting higher prices of imports of manufactured\\ngoods, mineral fuel and chemicals.\\nImports of intermediate goods, which were the main\\ndriver of import growth, continued to grow by 6.4%.\\nIntermediate imports are inputs for the production of\\nmanufactured exports, particularly electronic and\\nelectrical products. Capital imports, excluding lumpy\\nitems, increased by 6%, reflecting growth in investment\\nactivity, particularly in the second half of the year.\\nImports of lumpy items were lower due to fewer\\ndeliveries of new aircraft. The continued strength of the\\nservices sector as well as increased automation of\\nbusinesses induced the turnaround in imports of office\\nequipment to record positive growth. Increased\\nexploration activity in the oil and gas industry in the\\nwake of higher prices of petroleum led to the increase\\nin imports of construction and mining equipment.\\nImports of telecommunication equipment declined by\\n9.5% against a background of industry consolidation\\nfollowing the mergers of selected cellular service\\nproviders. In line with higher disposable income,\\nimports of consumption goods increased by 1.1%\\nreflecting higher imports of consumer goods and\\ntransport equipment.\\nThe growth in intra-regional East Asian (excluding\\nJapan) trade since 1997 has reshaped trading\\npatterns, with P\\n.R. China providing the main impetus\\nto this growth. P.R. China is the sixth largest exporter\\nin the world and 30% of the P\\n.R. China’s exports is\\nexported to the region. Approximately 36% of P\\n.R.\\nChina’s imports are sourced from East Asia.\\nTable 1.20\\nGross Imports by End Use\\n2003p\\n RM\\nAnnual\\n million\\nchange (%)\\n% share\\nCapital goods\\n43,508\\n0.7\\n13.7\\nCapital goods (except transport equipment)\\n40,837\\n7.1\\n12.9\\nIndustrial machinery and equipment\\n9,862\\n-0.4\\n3.1\\nOffice equipment\\n7,404\\n26.6\\n2.3\\nTelecommunication equipment\\n5,213\\n-9.5\\n1.6\\nTransport equipment\\n2,671\\n-47.1\\n0.8\\nIntermediate goods\\n233,046\\n6.4\\n73.3\\nFood and beverages, mainly for industry\\n5,831\\n7.3\\n1.8\\nIndustrial  supplies, n.e.s.\\n66,130\\n3.4\\n20.8\\nMetals & metal products\\n18,594\\n6.2\\n5.9\\nChemicals\\n7,285\\n1.1\\n2.3\\nFuels and lubricants\\n13,623\\n23.2\\n4.3\\nParts and accessories of capital goods\\n(except transport equipment)\\n141,283\\n8.0\\n44.5\\nElectronics\\n95,314\\n7.1\\n30.0\\nParts and accessories of telecommunication equipment\\n6,587\\n-9.8\\n2.1\\nParts and accessories of transport equipment\\n6,179\\n-16.0\\n1.9\\nConsumption goods\\n18,866\\n1.1\\n5.9\\nFood and beverages, mainly for household consumption\\n6,777\\n-1.5\\n2.1\\nTransport equipment, non-industrial\\n337\\n90.9\\n0.1\\nConsumer goods, n.e.s.\\n11,752\\n1.3\\n3.7\\nConsumer durables\\n2,646\\n-2.0\\n0.8\\nConsumer  semi-durables\\n3,985\\n-5.1\\n1.3\\nConsumer non-durables\\n5,121\\n8.9\\n1.6\\nDual use goods\\n7,057\\n15.2\\n2.2\\nMotor spirit\\n2,981\\n17.2\\n0.9\\nPassenger motor cars\\n4,075\\n13.8\\n1.3\\nOthers\\n6,547\\n-4.4\\n2.1\\nRe-exports\\n8,722\\n-4.3\\n2.7\\nGross Imports\\n317,746\\n4.8\\n100.0\\nn.e.s. Not elsewhere specified.\\np Preliminary\\nSource: Department of Statistics, Malaysia\\n\\n\\n4.H-42\\n42\\nConsequently, Malaysia’s share of trade with major\\ntrading partners, namely, the US and Japan, has\\ndeclined, while the share with the EU remained\\nunchanged. Malaysia’s trade with the US, Japan and\\nthe EU as a group declined to account for a share of\\n43.1% of total trade (2002: 44.8%) while East Asian\\ntrade increased to 44.9% (2002: 44%) of total trade.\\nEfforts continue to be made towards diversifying\\nmarkets particularly into non-traditional markets,\\nsuch as the South Asia and West Asia regions, and\\nincreasing market share in East Asian countries. The\\ndiversification of markets, which is measured by the\\nnormalised Herfindahl-Hirschmann index, improved\\nin 2003.  In the normalised Herfindahl-Hirschmann\\nindex, a ratio closer to zero reflects increasing\\ndiversification. The index for exports declined to 0.15\\nin 2003 from 0.16 in 2002.  Similarly, the index for\\nimports also declined to 0.15 from 0.16.\\nThe United States (US) remained as Malaysia’s most\\nimportant trading partner although its share of total\\ntrade declined to 17.7% (2002:18.8%). Exports to\\nthe US consist mainly of electronics components, in\\nparticular integrated circuits, rubber, optical and\\nscientific instrument, furniture and parts and\\napparatus. Approximately 65% of imports from the\\nUS are intermediate inputs for the electrical and\\nelectronics industry. Other imports include optical\\nand scientific instruments, plastics and chemicals. As\\nexports to the US increased while imports declined,\\nthe bilateral trade surplus widened to RM29.2 billion\\n(2002: RM20.1 billion).\\nSingapore maintained its position as the second\\nmost important trading partner of Malaysia despite\\nthe decline in the share of trade to 14% (2002:\\n14.7%). The bulk of exports to Singapore were\\nelectronics, with integrated circuits and micro-\\nassemblies accounting for 26%, parts and\\naccessories 13% and diodes and transistors 4.8%.\\nThe lower share of exports to Singapore (15.7%;\\n2002: 17%) was attributable to the increased direct\\ntrade and usage of local ports. On the imports side,\\nevery one out of three imported products were\\nelectronics and electrical goods while petroleum\\nand petroleum related products made up 18%. The\\ntrade surplus with Singapore increased to RM25.5\\nbillion as exports grew at a faster pace relative\\nto imports.\\nGraph 1.37\\nExports Diversification Index\\nThe export diversification index is a modified version of Herfindahl-Hirschmann \\nindex. It is normalized to obtain a numeric range from 0 to 1. A lower index \\nsignifies higher degree of diversification. \\n0.10\\n0.12\\n0.14\\n0.16\\n0.18\\n0.20\\n0.22\\n1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003\\nRest of the world \\n11.2%\\nDirection of Exports: 2003\\nGraph 1.38 \\nDirection of Exports:  1995\\n1  ASEAN excluding Singapore\\n2  Hong Kong China, South Korea and Chinese Taipei\\n1  ASEAN excluding Singapore\\n2  Hong Kong China, South Korea and Chinese Taipei\\nEuropean Union  \\n14.2%\\nUnited States \\n20.7%\\nNIEs2\\n11.3% \\nPeople's\\nRepublic of China \\n2.7% \\nJapan \\n12.7%\\nASEAN1\\n6.9%\\nSingapore \\n20.3%\\nEuropean Union  \\n12.1% \\nUnited States \\n19.6%\\nRest of the world \\n13.6% \\nASEAN1 \\n8.9% \\nSingapore \\n15.7%\\nJapan \\n10.7%\\nNIEs2 \\n12.9% \\nPeople's Republic \\nof China \\n6.5% \\n\\n\\n43\\nThe Malaysian Economy in 2003\\nSupported by a higher export growth relative to\\nimports, the trade balance with Japan, which has\\nbeen in Japan’s favour, improved to register a\\nsmaller deficit of RM11.6 billion (2002: -RM14.1\\nbillion). Export growth of 7.4% was underpinned\\nby increased export receipts from LNG, petroleum\\nand chemical products on the back of higher crude\\noil and LNG prices. Imports grew marginally by\\n0.9% reflecting growth in imports of machinery\\nand transport equipment, manufactured articles\\nand crude materials.\\nTrade with the European Union (EU) turned around\\nto record a growth of 9.2% in the wake of an\\nimprovement in economic performance of EU\\ncountries. Malaysia continued to record a trade\\nsurplus of RM11 billion (2002: RM9.5 billion) with EU\\ncountries. Germany remained the leading trading\\npartner, accounting for 3.3% of total trade.\\nExports to the North East Asia region (excluding\\nJapan), which accounted for 19.4% of total exports,\\nexpanded by 18.3%. The impetus to this growth\\nstemmed from the continued strong export growth\\nof 29.6% to the P\\n.R.China and 26.7% to Hong Kong\\nChina. The driver of this growth was the continued\\nrelocation by multinational companies to the\\nP\\n.R.China and increased outsourcing activity.\\nTable 1.21\\nDirection of External Trade\\n2003p\\nExports\\nImports\\nTrade balance\\nRM million\\n% share\\nRM million\\n% share\\nRM million\\nASEAN countries\\n98,225\\n24.6\\n76,345\\n24.0\\n21,879\\nSingapore\\n62,786\\n15.7\\n37,283\\n11.7\\n25,503\\nThailand\\n17,538\\n4.4\\n14,549\\n4.6\\n2,989\\nIndonesia\\n8,091\\n2.0\\n11,168\\n3.5\\n-3,077\\nPhilippines\\n5,459\\n1.4\\n11,835\\n3.7\\n-6,376\\nOther ASEAN countries\\n4,351\\n1.1\\n1,510\\n0.5\\n2,841\\nEuropean Union (EU)\\n48,264\\n12.1\\n37,216\\n11.7\\n11,047\\nUnited Kingdom\\n8,872\\n2.2\\n5,991\\n1.9\\n2,881\\nGermany\\n9,145\\n2.3\\n14,787\\n4.7\\n-5,642\\nNetherlands\\n13,036\\n3.3\\n2,151\\n0.7\\n10,886\\nOther EU countries\\n17,210\\n4.3\\n14,287\\n4.5\\n2,923\\nUnited States\\n78,007\\n19.6\\n48,757\\n15.3\\n29,250\\nJapan\\n42,643\\n10.7\\n54,273\\n17.1\\n-11,630\\nThe People’s Republic of China\\n25,878\\n6.5\\n27,739\\n8.7\\n-1,861\\nHong Kong China\\n25,778\\n6.5\\n8,580\\n2.7\\n17,199\\nChinese Taipei\\n14,351\\n3.6\\n15,698\\n4.9\\n-1,347\\nSouth Korea\\n11,550\\n2.9\\n17,308\\n5.4\\n-5,758\\nIndia\\n9,629\\n2.4\\n2,555\\n0.8\\n7,074\\nAustralia\\n9,932\\n2.5\\n4,803\\n1.5\\n5,129\\nRest of the world\\n34,626\\n8.7\\n24,473\\n7.7\\n10,153\\nTotal\\n398,882\\n100.0\\n317,746\\n100.0\\n81,136\\np Preliminary\\nSource: Department of Statistics, Malaysia\\nP\\n.R.China remained the biggest trading partner of the\\nregion. About a quarter of Malaysia’s exports to\\nP\\n.R.China consisted of integrated and printed circuits,\\nsemiconductor devices and light emitting diodes.\\nAnother source of increase in export growth came\\nfrom demand for resource exports, particularly palm\\noil and rubber.\\nReflecting increasing intra-regional trade and better\\neconomic performance of ASEAN countries\\n(excluding Singapore), the share of trade with\\nmember countries expanded to 10.4% in 2003\\n(2002: 9.6%). The market share of imports from\\nASEAN countries rose to 12.3% against a\\nbackground of increasing sourcing from low cost\\nsuppliers such as Thailand, Indonesia and the\\nPhilippines.\\nServices Account\\nPolicies to promote exports of services have been\\nsuccessful in reducing the services deficit in the\\nbalance of payments to as low as -1.8% of GNP in\\n2002. In 2003, however, the services account\\ndeficit widened to RM15 billion or -4.1% of GNP due\\nmainly to lower tourism receipts as travel, especially\\ninto the Asian region, was severely affected by SARS.\\nNevertheless, gross receipts from new sources of\\nforeign exchange income, namely education,\\n\\n\\n4.H-44\\n44\\nTourist arrivals\\nin million \\nReceipts in\\nRM million \\nGraph 1.39\\nTourist Arrivals and Tourism Receipts\\nTourist arrivals\\nTourism receipts\\np Preliminary\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n1996\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003p\\n0\\n5,000\\n10,000\\n15,000\\n20,000\\n25,000\\n30,000\\ncomputer and information services, as well as ports\\nand airports continued to increase.\\nDespite the impact of SARS, travel remained the\\nlargest contributor to services receipts in 2003,\\naccounting for 43.4% of total services receipts.\\nTourist arrivals totalled 10.6 million visitors in 2003\\n(2002: 13.3 million visitors) with lower tourist\\nreceipts of RM21.3 billion (2002: RM25.6 billion).\\nThis resulted in the net surplus of the travel account\\ndeclining sharply to RM11.6 billion (2002: RM17.1\\nbillion). The outbreak of SARS caused visitor arrivals\\nto decline by 51.6% in the second quarter. Tourist\\narrivals from P.R.China and Singapore declined most\\nsignificantly. Tourist arrivals recovered strongly in\\nthe fourth quarter with arrivals exceeding the\\nmonthly average of one million attained in the\\npre-SARS period.\\nFor 2003 as a whole, the decline in receipts from the\\ntourism sector, however, was mitigated by new\\nsources of services export income, namely earnings\\nfrom education and healthcare services. The number\\nof foreign students increased by 8.5% to 39,577\\nstudents in 2003. Foreign students were mainly from\\nIndonesia and P\\n.R.China. Receipts from education\\ntourism are still small, accounting for about 1.4% of\\ntotal travel receipts and 0.6% of total services\\nreceipts, although the spillover effects on the\\neconomy through consumption spending and travel\\nare large.  Revenue from 102,946 foreign patients\\nseeking treatment in Malaysia in 2003 increased by\\nTable 1.22\\nServices and Income Accounts\\n2002\\n2003e\\nRM billion\\nNet\\n+\\n–\\nNet\\nServices  Account\\nTransportation\\n-11.6\\n10.5\\n23.8\\n-13.3\\nTravel\\n17.1\\n22.4\\n10.8\\n11.6\\nOther Services\\n-11.2\\n18.2\\n31.2\\n-13.0\\nGovernment services n.i.e.\\n-0.3\\n0.5\\n0.8\\n-0.3\\nRM billion\\n-6.0\\n51.6\\n66.6\\n-15.0\\nUS$ billion\\n-1.6\\n13.6\\n17.5\\n-4.0\\n% of GNP\\n-1.8\\n-4.1\\nIncome Account\\nCompensation of employees\\n-1.2\\n2.2\\n3.1\\n-1.0\\nInvestment income\\n-23.9\\n10.9\\n32.6\\n-21.7\\nRM billion\\n-25.1\\n13.1\\n35.7\\n-22.6\\nUS$ billion\\n-6.6\\n3.5\\n9.4\\n-6.0\\n% of GNP\\n-7.5\\n-6.1\\ne  Estimate\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nTravel \\n43.4%\\nOther services \\n35.3%\\nGovernment \\ntransactions \\n0.9% \\nTransportation \\n20.4%\\nGraph 1.40\\n2003: Components of Gross Receipts in the \\nServices Account (% share)\\nTransportation\\n35.7%\\nGovernment  \\ntransactions\\n1.2%\\nOther services\\n46.9%\\nTravel\\n16.2%\\nGraph 1.41\\n2003: Components of Gross Payments in the \\nServices Account (% share) \\n\\n\\n45\\nThe Malaysian Economy in 2003\\n64.2%.  Foreign patients were mainly from Indonesia\\n(72.5%), other ASEAN countries, West Asian\\ncountries and Japan.\\nOn the payments front, travel outflows increased to\\nRM10.8 billion (2002: RM9.9 billion), reflecting\\nhigher expenditure on business travel and education\\nabroad. Payments for travel abroad by Malaysians,\\nincluding business travel, expanded by 17.9% to\\nRM7.7 billion in 2003 in line with the pick-up in\\neconomic activity. Meanwhile, education outflows\\nincreased by 1.3% with a larger number of students\\nstudying aboard.\\nThere was a broadening of tourism products in\\n2003, with more niche products in areas such as\\nsports, eco-tourism, agro-tourism and meetings,\\nservices related to infrastructure and oil and gas\\nexploration resulted in higher payments for contract\\nand professional charges. Payments for insurance\\nand financial services increased as larger external\\ntrade transactions led to higher demand for\\nimported support services. Receipts from computer\\nand information services improved in line with the\\nexpansion in business process outsourcing and ICT\\nservices.\\nFor the third consecutive year, the income account\\ndeficit declined by 9.8% to RM22.6 billion or -6.1%\\nof GNP in 2003  (2002: -RM25.1 billion or -7.5% of\\nGNP). This improvement was attributable to profits\\nand dividends accruing to Malaysian companies\\nfrom their investments aboard, particularly in the oil\\nand gas and utilities sectors, which increased by\\nHigher profits and dividends of Malaysian companies operating\\nabroad contributed to an improvement in the income account.\\nincentives, conventions and exhibitions being\\npromoted. The main strategy of the new tourism\\nproducts was to increase the length of stay of\\nvisitors. Promotion of tourism products and\\nservices was undertaken through joint\\ncollaboration by the public and private sectors.\\nConnectivity of air services was facilitated through\\nallowing greater use of charter flights and budget\\nfares offered by no-frills airlines. More gateway\\npoints, such as Langkawi, Penang, Kuching and\\nKota Kinabalu, enabled the travel industry to\\nexpand into new as well as established markets.\\nThe new markets targeted for promotion included\\nPakistan and Iran.\\nThe deficit in the transportation account widened\\nto RM13.3 billion in 2003 (2002: -RM11.6 billion),\\nas payments abroad increased while receipts were\\nsustained. Gross outflows reflected higher freight\\ncharges as well as increased volume of trade. Gross\\nreceipts were sustained, supported mainly by\\nearnings from cargo services and charter services\\nprovided by domestic shipping companies and\\nairlines.  The increase in cargo handled was\\nunderpinned by the increase in transhipment cargo\\nsourced from India, P.R.China, Myanmar, Indonesia\\nand Thailand.\\nIn line with the improvement in the economy, the\\nhigher demand for other services led to a higher net\\npayment of RM13 billion in the other services\\naccount (2002: -RM11.2 billion). In particular,\\nimports of design, technical and project consultancy\\n190.6% to RM2 billion (2002: RM0.7 billion). It\\naccounted for 17.9% of the total gross investment\\nincome inflows. Secondly, income from other\\ninvestments turned around to record a net inflow of\\nRM2.4 billion (2002: -RM0.9 billion), reflecting\\nlargely the better returns from higher external\\nreserves while interest payments on external debt\\ndeclined.\\nOn the payments side, gross profits and dividends\\naccruing to foreign direct investors also increased.\\nThis was attributable mainly to higher earnings in\\nthe electronics and electrical industries following\\nimproved export performance, as well as the oil and\\ngas sector on the back of higher oil prices. While\\nprofits and dividends accounted for 78.8% of the\\ngross investment income outflow, a substantial\\nportion is retained in Malaysia for further\\nreinvestment. Retained earnings were estimated at\\n42.5% of total profits and dividends, and credited\\nas inflows of foreign direct investment in the\\nfinancial account.\\nIn 2003, the net outflow in the current transfers\\naccount declined by 12% to RM9.3 billion. The\\nsignificant decline in current transfers payments by\\n14.1% in 2003 (2002: +28%), was largely due to\\nlower remittances by foreign workers following the\\nreturn of the illegal workers under the Amnesty\\nProgram conducted in 2002. There were about 1.2\\nmillion registered foreign workers in Malaysia in\\n2003, more than half of whom were employed in\\nthe plantation and manufacturing sectors.\\n\\n\\n4.H-46\\n46\\nFinancial Account\\nIn 2003, the financial account remained stable\\nwith a net outflow of RM12.1 billion (2002:\\n-RM11.9 billion). Outflows of short-term capital,\\ncomprising portfolio investment and other private\\nsector investment, were significantly lower\\nfollowing improved investor sentiment in the equity\\nmarket as well as interest differentials in Malaysia’s\\nfavour. In the long-term capital account, large\\nrepayments of external loans by the official sector\\nand modest drawdown of loans helped to contain\\nthe increase in Malaysia’s external debt position.\\nPrivate long-term capital, comprising mainly\\nforeign direct investment, was sustained at a\\nmoderate level.\\nIn terms of gross inflows, about half of the FDI\\ncontinued to be in the form of reinvested earnings,\\nparticularly from the manufacturing sector. With\\nrespect to new inflows of FDI as recorded by the\\nCash BOP Reporting System of Bank Negara\\nMalaysia, both the services and manufacturing\\nsectors continued to receive significant shares of\\nabout 38% and 37% respectively, while the share\\nof the oil and gas sector was about 15%. Large\\ninflows into the services sector continued to be\\nsustained. There was an increase in foreign\\nparticipation in Malaysia’s network of wholesale and\\nretail trade sub-sector, ranging from automotive\\ndistribution, petrol station to hypermarkets. Foreign\\ninterests were also higher in the higher value-added\\nTable 1.23\\nBalance of Payments: Financial Account\\n2002\\n2003e\\n2002\\n2003e\\nRM billion\\nUS$ billion\\nFinancial Account\\n-11.9\\n-12.1\\n-3.1\\n-3.2\\nDirect Investment\\n4.9\\n4.2\\n1.3\\n1.1\\nIn Malaysia\\n12.2\\n9.4\\n3.2\\n2.5\\nAbroad\\n-7.2\\n-5.2\\n-1.9\\n-1.4\\nPortfolio Investment\\n-6.5\\n4.2\\n-1.7\\n1.1\\nOther Investment\\n-10.4\\n-20.5\\n-2.7\\n-5.4\\nOfficial sector\\n4.7\\n-11.2\\n1.2\\n-3.0\\nOf which:\\nFederal Government (net)\\n8.0\\n-3.7\\n2.1\\n-1.0\\nGross borrowing\\n10.5\\n3.1\\n2.8\\n0.8\\nRepayment\\n2.5\\n6.9\\n0.6\\n1.8\\nNFPEs (net)\\n-3.3\\n-7.3\\n-0.9\\n-1.9\\nGross borrowing\\n3.5\\n5.2\\n0.9\\n1.4\\nRepayment\\n6.8\\n12.4\\n1.8\\n3.3\\nPrivate sector\\n-15.1\\n-9.3\\n-4.0\\n-2.4\\ne Estimate\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nThe financial account remained stable, reflecting sustained\\ninflows of FDI and higher portfolio investment. The official sector\\nreversed to record a large net loan repayment. Overseas\\ninvestment generated higher profits and dividends to Malaysia.\\nGross foreign direct investment (FDI) in Malaysia\\nwas higher in 2003 at RM21.8 billion (2002:\\nRM20.5 billion), reflecting largely broad-based\\ninflows into the services and manufacturing sectors,\\nas well as the oil and gas sector. On a net basis,\\nhowever, FDI moderated to RM9.4 billion or 2.5%\\nof GNP in 2003 (2002: RM12.2 billion), due largely\\nto the acquisition of foreign interests in the oil and\\ngas sector by a Malaysian company upon the expiry\\nof joint venture contracts, as well as large loan\\nrepayments to parent companies abroad.\\nservices sector, especially the transport sub-sector,\\nairlines and port management, as well as\\nknowledge-based activities in the form of MSC-\\nrelated investment and electronic data processing\\nindustries. In 2003, 219 regional facilities for\\nforeign- and local-owned companies were\\nestablished, encouraged by investment incentives\\nprovided by the Government. Of these, 12 were\\noperational headquarters (OHQs), 37 regional\\noffices, 32 international procurement centres (IPCs),\\n134 representative offices and 4 regional\\ndistribution centres (RDCs).\\nForeign interests in the manufacturing sector\\ncontinued to remain high, with larger new FDI\\ninflows into electrical and electronics and\\npetroleum-related industries. Inflows were also\\nbroad-based into food processing, industrial\\nrefrigeration and printing industries as well as\\nhigh-end aerospace industry.\\nMalaysian direct investment abroad remained\\nlarge, albeit at a moderately lower level, at RM5.2\\nbillion in 2003 (2002: -RM7.2 billion) after several\\nmajor overseas acquisitions in 2002. Investment\\nabroad was mainly to diversify and reinforce\\nprincipal activities in Malaysia. Notably, the scope of\\ninvestment has become increasingly broad-based. A\\nlarge share of overseas investments was channelled\\ninto both the oil and gas and services sectors,\\nfollowed by the manufacturing sector. In the oil and\\ngas sector, Malaysia continues to operate through\\n\\n\\n47\\nThe Malaysian Economy in 2003\\nRecent Trends in Foreign Direct Investment in Malaysia\\nIntroduction\\nForeign investments continue to account for about one-third of total private investment in Malaysia.  The\\ntrend in gross FDI has remained stable since 2000 after a moderation during the Asian financial crisis. This\\nstability is largely due to existing multinational companies (MNCs) expanding and diversifying their\\noperations, with funding mainly from retained earnings. The pattern of FDI flows has also changed in\\nfavour of the higher value-added services sector, as the services sector is transformed and accounts for a\\nlarger share of GDP\\n. As the services sector tends to be less capital intensive, the scale of the gross value of\\nnew flows tends to be smaller while the value-added and contribution to growth is higher.\\nThe Government continues to ensure that policies remain supportive of attracting new foreign\\ninvestments and that Malaysia remains a place of choice for companies seeking opportunities in the Asian\\nregion. Policy initiatives include a series of Investment Guarantee Agreements (IGA), tax and non-tax\\nincentives, sequential sector liberalization, improving administrative processes and the delivery system of\\nthe public sector and lowering the overall cost of doing business. Equally important is the commitment to\\nsound macroeconomic policies.\\nDefinition, Methodology and Compilation of FDI Data\\nIn the compilation of FDI statistics in the balance of payments, Malaysia adopts international standards in\\nterms of definition, methodology and measurement. FDI, based on the IMF’s Balance of Payments Manual,\\nFifth Edition, is defined as “....foreign holdings of at least 10% ownership in the enterprise with a lasting\\ninterest”.\\nActual FDI flows are reported in the financial account of the balance of payments, released on a quarterly\\nbasis by the Department of Statistics, Malaysia (DOS). DOS data refers to actual investments that have\\ntaken place in Malaysia in all sectors. This data differs from the data on applications and approvals\\nreleased on a quarterly basis by the Malaysian Industrial Development Authority (MIDA), which records\\nmainly investments in the manufacturing sector and covers investors who have applied for the various tax\\nincentives. MIDA’s data also does not cover investments in the oil and gas sector.\\nData in the financial account of the balance of payments covers all the three components of FDI, namely\\nequity capital, reinvested earnings and other capital (mainly inter-company loans). In addition to the\\nquarterly survey by DOS, Bank Negara Malaysia maintains the Cash Balance of Payments (CBOP) Reporting\\nSystem. Under this system, Bank Negara Malaysia is able to provide data on actual FDI flows on all cross-\\nborder transactions between residents and non-residents which are effected through the banking system,\\ninter-company accounts and overseas accounts.\\nWhile the CBOP data does not capture the retained earnings by existing foreign enterprises in Malaysia\\n(since there are no cross-border transfers through the banking system), it provides a good indicator on the\\ntrends of new FDI flows. The CBOP data is also available on a more timely basis, with a six-week lag.\\nRecent FDI Trends in Malaysia\\nOn a gross basis, FDI continues to be sustained at a high level of about RM18-20 billion in recent years\\n(Graph 1). Inflows of FDI have contributed to the establishment of new industries and products,\\nintroduction of new processes and production technology, the growth of support services, research and\\ndevelopment and access to new markets.\\nFDI flows during the post-crisis period remained stable as MNCs with operations in Malaysia continued to\\nreinvest their retained earnings to expand, upgrade and diversify their production lines, in spite of the\\nincreased competition from low-wage economies in the region. Reinvested earnings accounted for nearly\\nhalf of gross FDI for the period 1998 - 2002 (Graph 2).\\n\\n\\n4.H-48\\n48\\nGraph 1\\nGross FDI Flows (1990-2002)\\nGross FDI (LHS)\\nSource: Department of Statistics, Malaysia; Bank Negara Malaysia's estimates\\nGross FDI as % GDP (RHS)\\n%\\n25\\n20\\n15\\n10\\n5\\n0\\n90\\n92\\n91\\n94\\n93\\n96\\n95\\n98\\n99\\n97\\n00\\n01\\n02\\n12\\n10\\n8\\n6\\n4\\n2\\n0\\nRM billion\\nGraph 2\\nGross FDI Components\\nSource: Department of Statistics, Malaysia; Bank Negara Malaysia's estimates\\nOther capital\\nEquity capital\\n1993 - 1997\\n1998 - 2002\\nReinvested earnings\\n31%\\n29%\\n46%\\n28%\\n26%\\n40%\\nGraph 3\\nGross FDI by Sector\\nSource: Department of Statistics, Malaysia; Bank Negara Malaysia's estimates\\nManufacturing\\nOil & Gas\\n1993 - 1997\\n1998 - 2002\\nOthers (mainly services)\\n66%\\n13%\\n21%\\n38%\\n38%\\n24%\\nAs a share of GDP\\n, gross FDI has been sustained at 6% in the post-crisis years, compared with an average\\nof 8% in the mid-1990s when FDI flows peaked. This was the result of two major developments:\\n•\\nBetween 1990 and 2002, the capital investment per employee (CIPE) in the manufacturing sector has\\nincreased by 66%, indicating a discernible trend towards higher value-added and high-technology\\nprojects and the employment of highly skilled manpower. However, in recent years (2001 - 2003), the\\nCIPE in the manufacturing sector has declined as the bulk of increased investment was mainly\\nfrom the expansion, upgrading and diversification of existing projects. Going forward, the\\ngrowth in CIPE is likely to be sustained following the Government’s efforts to promote investment in\\nnew high-growth sectors such as biotechnology and the agro-based industry.\\n•\\nAs a higher share of FDI flows are targeted at the higher value-added services sector and knowledge-\\nbased activities, FDI inflows tend to be lower per investment project. The value of FDI in services\\nhas tended to be on a smaller scale and low in import content but having a larger multiplier impact on\\nincome and employment. FDI in the services sector usually includes new technology and brings in\\nspecialised expertise that contributes towards raising productivity.  The structural change in FDI flows is\\nconsistent with the transformation of the Malaysian economy towards services as another engine of\\ngrowth and the move towards a knowledge-based economy.\\nChanging pattern of FDI flows\\nThis trend, however, does not mean that FDI flows into the manufacturing sector have become less\\nsignificant. FDI inflows into the manufacturing sector remain high, but the rapid growth of new inflows\\ninto other sectors has led to a relative decline in its share to 38% in 1998 - 2002, compared with 66% in\\n1993 - 1997 (Graphs 3 & 4). Both services and oil and gas sectors have experienced a significant increase\\nin their share of FDI flows, accounting for 38% and 24% respectively in 1998 - 2002.\\n\\n\\n49\\nThe Malaysian Economy in 2003\\nFDI in services is increasingly broad-based, extending beyond the financing, insurance and business\\nservices sub-sector into other major sub-sectors such as wholesale and retail trade and hotels, transport\\nand communications as well as utilities. In the financial sector, a number of foreign banks have set up\\ntheir treasury, back-office and data processing operations in Malaysia to facilitate their group operations in\\nthis region. Malaysia already hosts a number of regional facilities for both foreign and local companies. As\\nof end 2003, the Government has approved 1,695 regional facilities for foreign- and local-owned\\ncompanies. Of these, 71 are operational headquarters (OHQs), 473 regional offices, 141 international\\nprocurement centres (IPCs), 1,006 representative offices and 4 regional distribution centres (RDCs).\\nIn the IT sector, Malaysia’s IT hub, the Multimedia Super Corridor (MSC), has continued to expand. By\\nFebruary 2004, there were 283 foreign companies operating in the MSC, accounting for 29% of the\\nMSC-status companies that employed more than 20,000 knowledge workers. To continue to attract\\ngreater foreign participation, the Multimedia Development Corporation, the MSC administrator, has\\noffered a generous package of financial incentives. MSC-status companies also enjoy privileges in terms of\\nadministrative ease to source capital and borrow funds globally.\\nFDI in Regional Perspective\\nRegionally, with the exception of Hong Kong China and Singapore, Malaysia ranks ahead of many\\nregional economies in terms of inflows of FDI despite declining FDI flows to emerging economies\\nGraph 5\\nFDI as at end-2002: stock (bar) and flow\\nas % GDP (line)\\n300\\nStock, %GDP\\nFlow, %GDP\\n250\\n200\\n150\\nSingapore\\nThailand\\nMalaysia\\nP\\n.R.China\\nIndonesia\\nKorea\\n100\\n50\\nNote: HK figures were exaggerated by inflows redirected to P\\n.R.China via\\nHong Kong China by Chinese Taipei investors as well as P\\n.R.China's\\n'round-tripping capital' (UNCTAD)\\nSource: UNCTAD\\n0\\n266\\n143\\n20\\n15\\n10\\n5\\n0\\n-5\\n1994\\n1995\\n1996\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n59\\n36\\n32\\n24\\n15\\n9\\n5\\nHK\\nSpore\\nMsia\\nChina\\nIndo\\nThai\\nPhil\\nKorea\\nIndia\\nGraph 4\\nFDI in Services\\nSource: Cash BOP Reporting System, Bank Negara Malaysia\\nWholesale & retail trade and hotels\\nFinancing, insurance and  \\nbusiness services\\n1999\\n2002\\nTransport and\\ncommunications\\nUtilities\\n1%\\n0%\\n2%\\n20%\\n79%\\n5%\\n42%\\n51%\\n\\n\\n4.H-50\\n50\\n(Graphs 5 & 6). The high presence of MNCs in Malaysia is testimony of the advantages Malaysia can offer\\nin the global production or marketing chain. Based on the US data, the US non-bank MNCs have achieved\\na higher rate of return on their investment in Malaysia (5.6%), compared with an average of 3.5% in the\\nAsian economies in 2000.\\nThe UNCTAD World Investment Report 2003\\nlisted Malaysia as one of the top ten\\neconomies that had defied the global FDI\\nslowdown in 2002. Similarly, the A.T.Kearney\\nFDI 2003 report stated that Malaysia has\\nenhanced its attractiveness as a destination\\nfor FDI, by improving to 23rd position\\n(previous: 42nd) in the overall FDI confidence\\nindex. More specifically, Malaysia is in the\\ntop ten positions for FDI in primary industries\\nas well as improving its standing in sectors\\nsuch as electronics, mining, petrochemical,\\nstone/glass and chemicals/plastics sectors\\nand consultancy.\\nFDI Policies\\nMalaysia’s strength in fundamentals such as trade openness, legal protection of patents, low tax\\nrates, commitment to market pricing, a highly educated workforce, an efficient and diversified\\nfinancial system for raising long-term capital, strong corporate governance, well-developed\\ninfrastructure and a wide array of tax incentives continue to be recognised as strong points in\\nattracting FDI. While previous policies were more broad-based in nature, incentives have been\\nrepackaged and are increasingly customized and tailor-made for specific investors and industries.\\nThere are three broad philosophies governing policies specific to FDI:\\n•\\nTax and non-tax incentives to promote specific industries;\\n•\\nSequential liberalization of sectors in terms of market access, regulations governing employment\\nof expatriates, equity ownership and relaxing rules and regulations; and\\n•\\nImprovement in the administrative processes and minimize costs of establishing and\\noperating a business enterprise in Malaysia.\\nWithin this framework, there are a wide range of measures that are specific, targeted and,\\nmost importantly, benefit investors. Further, as the investment framework is goal-oriented\\nrather than incentive-oriented, incentives are regularly fine-tuned to meet investor needs\\nthrough the existing mechanism for consultation between the Government and the MNCs.\\nThis is acknowledged by the 2003 World Competitiveness Yearbook, which ranked Malaysia as\\nsecond best in the world in terms of firms’ perception of the ability of the Government to adapt\\npolicy to changes in the economy. In addition to fiscal and other specific incentives, the sequential\\nsector liberalization measures offers new opportunities to foreign investors, in both the goods and\\nservices sectors.\\nGraph 6\\nTop 10 Developing Economy FDI Recipients  \\nin 2002\\nUS$ billion\\nSource: UNCTAD\\nP\\n.R.China\\nBrazil\\nHong Kong\\nChina\\nMexico\\nBermuda\\nSingapore\\nIndia\\nMalaysia\\nCayman\\nIslands\\nKazakhstan\\n10\\n53\\n17\\n14\\n14\\n9\\n8\\n3\\n3\\n3\\n3\\n0\\n30\\n20\\n50\\n60\\n40\\n\\n\\n51\\nThe Malaysian Economy in 2003\\nThe Government has adopted a holistic approach to lower the cost of doing business as well as to\\nencourage efficiency and technological enhancement through strategic alliances with foreign\\ninvestors in key economic sectors. The Government also recognizes the importance of forging closer\\nlinks between indigenous small and medium enterprises (SMEs) and the large foreign-owned\\ncompanies. Thus, the current policy emphasis on developing a strong and vibrant SME sector should\\nbe viewed as complementary efforts to attract FDI. By broadening the indigenous industrial base, the\\neconomy stands to gain by spreading the benefits of FDI more equitably. At the same time, foreign\\ninvestors will have access to high quality goods and services that are provided by the domestic\\neconomy at low cost. Going forward, a balanced growth strategy involving the synergy between\\ndomestic- and foreign-owned companies will equip the country to respond effectively to an\\nincreasingly competitive global environment.\\njoint ventures in exploration and extraction. During\\nthe year, Malaysia’s investments in the oil and gas\\nsector were channelled mainly into the ASEAN and\\nselected African countries.\\nIn the services sector, overseas investments were\\nmade mainly in the utilities, transportation, retail and\\ntravel-related sub-sectors. There were also some\\ninvestments by companies in the construction\\nindustry following their success in bidding for large\\ninfrastructure, roads and highway projects abroad.\\nWhile the share of the manufacturing sector in\\noverseas investment is smaller, investments were\\nbroad-based across sub-sectors, ranging from\\nelectrical and electronics, and textiles to high value-\\nadded activities such as petroleum-related\\nmanufacturing and aerospace industry. Several\\nmultinational companies from the electrical and\\nelectronics industry in Malaysia have also invested\\nabroad, mainly through the extension of inter-\\ncompany loans to their subsidiaries in lower-cost\\ncountries.  Malaysia’s investment abroad has\\ncontinued to yield positive results. Profits and\\ndividends accrued to Malaysian companies from their\\ninvestments abroad increased to RM2 billion in 2003\\n(2002: RM0.7 billion).\\nPortfolio investment turned around to record a net\\ninflow of RM4.2 billion in 2003 (2002: -RM6.5\\nbillion). In the first half of the year, portfolio\\ninvestment recorded a net outflow of RM1.3 billion\\nas sentiments in the regional markets were\\ndampened by uncertainties over the global economic\\noutlook due to geopolitical tensions in the Middle\\nEast and SARS. Nonetheless, the net outflow was\\nsignificantly lower compared with the first and\\nsecond half of 2002.\\nThe sharp increase in portfolio investment of RM5.5\\nbillion in the second half of the year reflected\\nimproving investor confidence following news of\\nbetter growth and more favourable prospects for\\nthe Malaysian economy. The bulk of the portfolio\\ninflows was channelled into the equity market,\\nfollowing the sovereign upgrade by a rating agency\\nin October.\\nThe other investment account recorded a\\nsignificantly higher net outflow of RM20.5 billion\\nin 2003, mainly due to the reversal from a net\\ndrawdown of external debt in 2002 to a large net\\nrepayment in 2003. Meanwhile, net outflows by\\nthe private sector continued to moderate for the\\nfourth consecutive year. The official sector\\nrecorded a large net repayment of RM11.2 billion\\nin 2003, in line with the Government’s prudent\\nexternal debt strategy and commitment towards\\nfiscal consolidation. Taking advantage of the\\nfavourable global interest rate regime, the\\nGovernment also prepaid and refinanced some\\nloans, thereby reducing its debt servicing cost.\\nSimilarly, the Non-financial Public Enterprises (NFPEs)\\nalso recorded a higher net repayment as their\\nearnings capacity improved during the year.\\nIn 2003, other investment by the private sector,\\ncomprising mainly borrowing and lending as well as\\nplacement and withdrawal of deposits by the\\nbanking and non-bank private sector with unrelated\\ncounterparties, improved markedly to record a lower\\nnet outflow of RM9.3 billion (2002: -RM15.1 billion).\\nSignificantly lower net outflows were recorded by the\\nnon-bank private sector while the banking sector\\nsustained a smaller net inflow. The net borrowing of\\nforeign currency by the banking sector, albeit lower,\\ncontinued to reflect the arbitrage opportunities as\\ninterest rate differentials remained in favour of\\nMalaysia. Similarly, there were lower outflows in the\\nnon-bank private sector due largely to lower trade\\ncredits extended by Malaysian exporters to importers\\n\\n\\n4.H-52\\n52\\nabroad, representing a shift in exporters’ decision to\\ntake advantage of the current favourable monetary\\nand financial environment.\\nExternal Debt\\nPrudent external debt management strategy\\nremained an integral part of macroeconomic policy\\nin 2003. Malaysia continues to maintain an active\\nexternal debt management strategy, which\\nincorporates the guiding principles that minimise\\nrisk with balanced currency and maturity profile.\\nCorporations sourcing external funds for operations\\nin Malaysia are generally required to utilise the\\nfunds for productive activities that will generate\\nforeign exchange income. This will provide a\\nnatural hedge for debt servicing. They are also\\nencouraged to raise loans with longer maturity,\\nwhile short-term borrowings by the non-bank\\nbillion). The increase in external debt reflected\\nmainly a small net borrowing by the private sector\\nand the exchange revaluation loss, arising from the\\nweakening of the US dollar. External debt of the\\npublic sector, comprising the Federal Government\\nand NFPEs, declined in 2003 due to significantly\\nhigher net repayment and prepayment. The external\\ndebt to GNP and exports of goods and services\\nratios improved further to 50.7% and 40.4%\\nrespectively (2002: 55.3% and 44.3% respectively).\\nAccordingly, the overall debt service ratio (excluding\\nprepayments) declined to 6.1% in 2003 (2002:\\n6.7%). Of significance is that the share of short-\\nterm debt to total debt continued to remain low,\\naccounting for only 18.4% of total external debt.\\nThe ratio of short-term debt to international\\nreserves also improved further, to account for\\n20.2% of reserves (end-2002: 24.4%).\\nExternal debt remained stable at a manageable level. Higher\\nrepayments and moderate new borrowings by the public sector\\nresulted in a lower share of public sector debt to total debt.\\nprivate sector to finance long-term investment is\\ndiscouraged. Prudential regulations to achieve\\nthese objectives have been effective in keeping the\\nnation’s external debt low and its risk profile\\nbalanced.\\nIn 2003, total external debt outstanding increased\\nmarginally by 0.9% to RM187.2 billion (US$49.3\\nThe outstanding medium and long-term external\\ndebt was sustained at RM152.8 billion (US$40.2\\nbillion) at the end of 2003 (2002: RM153.6 billion).\\nAmidst lower drawdown (-12.1%), repayment of\\nmedium and long-term loans increased significantly\\nby 25.1%. For the first time since 1992, the public\\nsector recorded a large net repayment of RM11\\nbillion (2002: +RM4.7 billion), reflecting net\\nrepayments by both the Federal Government (-RM3.7\\nbillion) and NFPEs (-RM7.3 billion). Meanwhile, the\\nprivate sector debt turned around to register a net\\nborrowing of RM3.1 billion (2002: -RM4 billion).\\nNevertheless, after taking into account an exchange\\nrevaluation loss of RM4.1 billion following the\\nappreciation of major currencies, particularly the euro\\nand yen against the US dollar, and a reclassification\\nof a domestic foreign currency loan raised previously\\nfrom an offshore bank in the Labuan International\\nOffshore Financial Centre into an external loan, the\\nmedium and long-term loans declined only\\nmarginally by RM0.8 billion.\\nIn 2003, short-term external debt (maturity of one\\nyear or less) rose by RM2.4 billion to RM34.5 billion\\n(US$9.1 billion), reflecting largely the increase in\\nexternal borrowing by the banking sector, particularly\\nin the second quarter. The increase was attributed\\nmainly to the hedging activities of banks in relation\\nto trade-related transactions. Towards year end, as\\nforeign currency deposits at commercial banks rose\\nTable 1.24\\nOutstanding External Debt\\n2002\\n2003p\\nRM\\nUS$\\nRM\\nUS$\\nmillion\\nmillion\\nmillion\\nmillion\\nTotal debt\\n185,643\\n48,853\\n187,250\\n49,276\\nMedium and long-term 153,587\\n40,418\\n152,788\\n40,207\\nShort-term1\\n32,055\\n8,436\\n34,462\\n9,069\\nAs % of total debt\\n17.3\\n17.3\\n18.4\\n18.4\\nAs % of international\\nreserves\\n24.4\\n24.4\\n20.2\\n20.2\\nAs % of GNP\\nTotal debt\\n55.3\\n55.3\\n50.7\\n50.7\\nMedium and long-term\\ndebt\\n45.8\\n45.8\\n41.4\\n41.4\\nAs % of exports of\\n   goods and services\\nTotal debt\\n44.3\\n44.3\\n40.4\\n40.4\\nMedium and long-term\\ndebt\\n36.6\\n36.6\\n32.9\\n32.9\\nDebt service ratio (%)\\n6.7\\n6.7\\n6.1\\n6.1\\n1 Excludes currency and deposits held by non-residents with resident banking\\ninstitutions.\\np Preliminary\\nSource: Ministry of Finance and Bank Negara Malaysia\\n\\n\\n53\\nThe Malaysian Economy in 2003\\nduring the fourth quarter, banking institutions began\\nto wind down the interbank foreign borrowings that\\nwere  taken to cover the forward sales of foreign\\nexchange by exporters.  Meanwhile, short-term\\nborrowings by the non-bank private sector,\\ncomprising mainly revolving credits, overdraft\\nfacilities and term loans, declined marginally in 2003.\\nThe decline was due mainly to the repayment of\\nthese facilities by several large companies, particularly\\nfrom the oil and gas sector.\\nThe bulk of the medium and long-term debt\\ncontinued to be denominated in US dollars (stabilised\\nat 77% as at end 2003), as settlements for trade and\\ninvestment were mainly in US dollars. The appreciation\\nof the yen and euro in 2003 has therefore led to only\\na small exchange revaluation loss equivalent to 2.6%\\nof the total medium and long-term debt. In 2003, the\\nshare of yen denominated debt declined marginally to\\n13% (2002: 14%) due partly to a bullet payment of a\\nyen denominated loan by the Federal Government,\\nwhile that of the euro increased marginally to 5%\\n(2002: 4%). The remaining 5% of the debt was\\ndenominated in other international currencies,\\nincluding the pound sterling, Swiss franc and\\nSingapore dollar.\\nPublic sector external debt: The outstanding\\nexternal debt of the public sector declined by RM3.8\\nbillion to RM96.8 billion (US$25.5 billion), as at end\\n2003, reflecting higher repayment by both the\\nFederal Government and NFPEs. Consequently, the\\nshare of the public debt to total external debt\\ndeclined to 51.7% (2002: 54.2%). During the year,\\nthe Federal Government maintained its practice to\\nsource its funding requirements mainly from\\nnon-inflationary domestic sources.\\nIn 2003, three main strategies were undertaken by\\nthe Federal Government to manage its external\\ndebt. Firstly, the Federal Government did not rely on\\nnew borrowings from the international capital\\nmarket, despite the nation’s low debt position.\\nThus, the Government’s gross external borrowing\\ndeclined significantly by RM7.3 billion (US$1.9\\nbillion) to RM3.1 billion (US$0.8 billion) in 2003.\\nSecondly, the Government increased its repayments,\\nincluding the prepayments of external loans, to\\nRM6.9 billion (2002: -RM2.4 billion). During the\\nyear, the Government prepaid two external loans,\\nnamely a Floating Rate Note due 2005 and a\\nsyndicated loan due 2005/07, which together\\namounted to RM1.6 billion. Thirdly, taking\\nadvantage of the tighter margins arising from\\nimproved credit position and investor confidence,\\nthe Federal Government refinanced a number of its\\nmore costly term and syndicated loans. In January, a\\n¥1.4 billion term loan due 2006 was raised at Libor\\n+ 57.5 basis points to refinance the 3.17% ¥4.1\\nbillion term loan due 2006. In March, the\\nGovernment refinanced a US$250 million and ¥54\\nbillion dual currency syndicated loan at a lower\\nmargin of Libor + 38 basis points (previously Libor +\\n125 basis points).  Nevertheless, after taking into\\naccount a reclassification of a domestic foreign\\ncurrency loan into an external loan and the\\nexchange revaluation loss during the year, the\\noutstanding external debt of the Federal\\nGovernment increased marginally to RM37.3 billion\\nor US$9.8 billion (2002: RM36.3 billion).\\n0\\n20\\n1991\\n1992\\n1993\\n1994\\n1995\\n1996\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\n40\\n60\\n80\\n100\\n120\\n140\\n160\\n180\\n200\\nRM billion\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n70\\n%\\nGraph 1.42a\\nOutstanding External Debt\\nFederal Government\\nNFPEs\\nPrivate sector\\nShort-term1\\nDebt/GNP (RHS)\\n1 Excludes currency and deposits held by non-residents with resident banking \\n institutions\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\nRM billion\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\n%\\nGraph 1.42b\\nDebt Servicing\\n1991\\n1992\\n1993\\n1994\\n1995\\n1996\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\nInterest payment\\nRepayment\\nDebt service ratio (RHS)\\n\\n\\n4.H-54\\n54\\nReflecting Malaysia’s strong fundamentals, the interest\\nspread on Malaysia’s benchmark securities narrowed\\nfurther in 2003. The spread on Malaysia’s Global Bond\\ndue 2011 narrowed to 36 basis points at the end of\\n2003 (end-2002: 145 basis points).  Similarly, the\\nspread on the Global Bond due 2009 narrowed\\nsteadily in 2003 to 85 basis points at\\nend-2003 (end-2002: 183 basis points). During the\\nyear, Standard & Poor’s raised its long-term foreign\\ncurrency sovereign credit rating on Malaysia to A-\\nfrom BBB+ and assigned a stable outlook to the rating\\non 7 October 2003. Meanwhile, Moody’s Investor\\nService, Fitch and Japan Credit Rating Agency Ltd. also\\nreaffirmed the respective sovereign ratings for\\nMalaysia. In addition, Rating And Investment\\nInformation Inc. upgraded Malaysia’s long-term\\nforeign currency rating to A- from BBB+, with a stable\\noutlook on 30 January 2004. On 6 February 2004,\\nMoody’s also changed the outlook for Malaysia’s\\nforeign currency ratings to positive.\\nThe NFPEs’ external debt declined further to RM59.6\\nbillion in 2003 (US$15.7 billion; 2002: RM64.3 billion).\\nThe low interest rate environment and continued\\nstrengthening of the NPFEs’ earnings performance\\nhave allowed the NFPEs to streamline their debt\\nposition. The NFPEs recorded a higher net repayment\\nof RM7.3 billion (2002: -RM3.3 billion), reflecting\\nsignificantly larger repayments, including the\\nprepayment and refinancing of several higher cost\\nloans. These repayments (-RM12.4 billion), including\\nthe settlement of several large loans, were effected\\nmainly by NFPEs in the oil and gas, transportation and\\ntelecommunication sectors.  Inflows of external\\nborrowing had also increased to RM5.2 billion (2002:\\nRM3.7 billion). These loans were raised mainly to\\nfinance capital investment and overseas investment as\\nwell as for refinancing of more costly loans.\\nPrivate sector external debt: Private sector debt\\n(including short-term debt) continued to account for a\\nsignificant share of Malaysia’s external debt, at 48.3%\\nof total debt in 2003 (2002: 45.8%). The private\\nsector medium and long-term external debt increased\\nby 5.6% to RM55.9 billion (US$14.7 billion) as at end-\\n2003. During the year, the larger drawdown of\\nexternal debt, amounting to RM12.7 billion (2002:\\nRM9.7 billion) was mainly by investment holding\\ncompanies and companies in the manufacturing and\\nplantation sectors. These funds were mainly to finance\\ncapital expenditure and overseas investment.\\nMeanwhile, repayments by the private sector declined\\nto RM9.6 billion in 2003 (2002: RM13.7 billion). While\\nthe medium and long-term external debt is marginally\\nhigher, the overall risk remains low as the bulk of\\nprivate sector external debt has a natural hedge. Most\\nof these loans were used to finance productive export-\\noriented activities with foreign exchange revenue to\\nservice the debt.  In addition, about two-thirds of the\\nprivate sector external borrowing were sourced by\\nnon-resident controlled companies from their\\nshareholders or related companies abroad. These loans\\nwere generally provided on flexible terms, including\\nlonger maturity and at concessionary interest rates.\\nIn addition to the existing published detailed\\ninformation on external debt, Malaysia has\\nsubscribed to the new IMF Special Data\\nDissemination Standard (SDDS) on external debt\\nsince 30 September 2003. The new SDDS external\\ndebt data requirement is consistent with the\\nframework for international investment position\\nstatistics in the fifth edition of the Balance of\\nPayments Manual. Under the new template of\\nexternal debt data, currency and deposits held by\\nnon-residents with resident banking institutions were\\nincluded in the coverage of external debt. While\\nBank Negara Malaysia has adopted this coverage for\\nexternal debt in the SDDS templates, for the time\\nbeing, publications by Bank Negara Malaysia will not\\ninclude currency and deposits held by non-residents\\nwith resident banking institutions. Instead, the Bank\\nwill continue to show this item as part of external\\nliabilities of the banking system in its monthly\\nstatistics. However, to be consistent with the new\\nSDDS format, adjustment to the external debt tables\\nin all Bank Negara Malaysia’s publications will be\\nmade during the course of 2004.\\nInternational Reserves\\nThe international reserves held by Bank Negara\\nMalaysia comprises gold and foreign exchange\\nholdings, IMF reserves position and holdings of\\n1999\\nYield Spread\\n2000\\n2001\\n2002\\n2003\\nGraph 1.43\\nSpread of Sovereign Bonds and Selected NFPE \\nBond Over US T-bills\\nGlobal bond (2009)\\nGlobal bond (2011) \\nPetronas bond (2006)\\n0\\n50\\n100\\n150\\n200\\n250\\n300\\n350\\n400\\n450\\nF A J A O D F A J A O D F A J A O D F A J A O D F A J A O D\\n\\n\\n55\\nThe Malaysian Economy in 2003\\nSpecial Drawing Rights (SDR). In 2003, net\\ninternational reserves increased by RM39.1 billion, or\\nUS$10.3 billion, to a record level of RM170.5 billion\\nor US$44.9 billion as at end-2003. This is the largest\\nannual increase in the last decade. The significant\\nbuild-up in international reserves over the course of\\n2003 reflected the more robust economic activities,\\nimproved export performance and inflows of foreign\\ndirect investment and portfolio investment.\\nAs at 15 March 2004, reserves increased further to\\nRM194.9 billion or US$51.3 billion. The level of\\ninternational reserves is sufficient to finance 7.8\\nmonths of retained imports and to cover 5.2 times\\nthe short-term external debt.\\nMore significant is that the international reserves\\nheld by the Bank are fully usable and\\nunencumbered. There are no foreign currency loans\\nwith embedded options, and no undrawn,\\nunconditional credit lines provided by or to other\\ncentral banks, international organisations, banks\\nand other financial institutions. Bank Negara\\nMalaysia also does not engage in options in foreign\\ncurrencies vis-à-vis the ringgit.\\nIn 2003, foreign exchange inflows were largely\\ngenerated by the sharp increase in trade surplus as\\nwell as early repatriation of export earnings in view\\nof interest rate differentials that were in Malaysia’s\\nfavour. The accumulation of reserves was also due to\\nsustained inflows of foreign funds for direct\\ninvestment as well as into the equity market. The net\\noutflows of portfolio funds in the first half of the\\nyear due to geopolitical uncertainty and the SARS\\noutbreak reversed in the second half of the year as\\neconomic performance strengthened and the\\ncorporate earnings outlook improved. The increase in\\nreserves also reflected the net revaluation gains\\nduring the year.\\nThe increase in reserves during the year occurred\\namidst higher outflows arising from larger payments\\nfor imports of goods and services and repatriation of\\nprofits and dividends underpinned by stronger\\neconomic activities. There was also a higher\\nrepayment of external loans by the public sector,\\nincluding settlements of several large loans by the\\nThe net reserves increased to US$51.3 billion as at 15 March 2004,\\nand reflected the more robust economic activities, improved\\nexport performance and inflows of foreign direct investment and\\nportfolio investment.\\nTable 1.25\\nNet International Reserves\\nAs at end\\nChange\\n                                           2001\\n2002\\n2003\\n2003\\nRM million\\nSDR holdings\\n487.8\\n585.0\\n685.0\\n100.0\\nIMF reserves position\\n3,193.5\\n3,315.5\\n3,652.0\\n336.5\\nGold and foreign\\nexchange\\n113,542.3 127,515.1 166,139.3 38,624.2\\nGross International\\nReserves\\n117,223.6 131,415.6 170,476.3 39,060.7\\nLess Bank Negara\\nMalaysia external\\nliabilities\\n20.7\\n21.9\\n23.8\\n1.9\\nNet International\\nReserves\\n117,202.9 131,393.7 170,452.5 39,058.8\\nUS$ million equivalent\\n30,842.9\\n34,577.3\\n44,855.9 10,278.6\\nMonths of retained\\nimports\\n5.1\\n5.4\\n6.8\\nReserves/Short-term\\nexternal debt (times)\\n4.9\\n4.1\\n4.9\\nNFPEs in 2003. The outflows in terms of overseas\\ninvestments by Malaysian companies, especially in\\nthe oil and gas sector, while remaining high, have\\nyielded returns in the form of profits and dividends\\nand interests earned amounting to RM2 billion in\\n2003 (2002: RM0.7 billion) and generated export\\nrevenues from new markets.\\nMalaysia’s reserves also yielded revaluation gains\\narising from quarterly adjustments of the reserves in\\nall quarters of 2003 as a result of the appreciation of\\nthe major currencies against the US dollar during the\\nyear. Net revaluation gain for the year amounted to\\n2003\\nRM billion\\n2002\\nMonths/Times\\nGraph 1.44  \\nNet International Reserves (End-month)\\nNet international reserves, RM billion (LHS)\\nImport cover (RHS)\\nReserves/short-term external debt (RHS)\\nD \\nJ\\nF\\nM\\nA\\nM\\nJ\\nJ\\nA\\nS\\nO\\nN\\nD\\n120\\n130\\n140\\n150\\n160\\n170\\n180\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\n\\n\\n4.H-56\\n56\\nRM11.9 billion or US$3.1 billion, compared with the\\nnet revaluation gain of RM6.6 billion or US$1.7\\nbillion in 2002, exceeding the revaluation loss in\\n2001 (-RM4.1 billion or -US$1.1 billion) and 2000\\n(-RM5.3 billion or -US$1.4 billion).\\nIn managing the reserves, a prudent approach is\\nadopted to achieve the objectives of ensuring\\ncapital preservation and liquidity while optimising\\nreturns. The reserves, which comprise gold and\\nmajor foreign currencies, are well diversified.\\nMalaysia, as a member of the IMF, can hold reserves\\nwith the Fund in the form of SDR, through\\nparticipation in the Operational Budget. Under the\\nOperational Budget, the Fund invites member\\ncountries which are viewed as ‘strong’ and have\\nsurpluses in their balance of payments to make\\nresources available to members which are facing\\nbalance of payments difficulties. In return, the\\ncontributing members agree to receive a claim on\\nthe Fund (termed as the reserves position with\\nthe IMF) that can be drawn in the event of a\\nbalance of payments need.\\nDuring the year, reflecting Malaysia’s strength in the\\nbalance of payments and gross reserves position,\\nMalaysia was included in the IMF’s Operational\\nBudget. This was reflected in an increase in the net\\npurchase of SDR5 million, resulting in an increase in\\nMalaysia’s net creditor position with the IMF, and\\nthe consequent increase in Bank Negara Malaysia’s\\nTable 1.26\\nInternational Reserves for Selected Regional\\nEconomies\\nReserves\\nReserves\\nReserves\\nReserves\\nas at\\nin months\\nas cover\\nas cover\\nCountry\\nend-2003, of imports\\nof short-\\nof total\\n(US$\\nterm\\nexternal\\nbillion)\\nexternal\\ndebt*\\ndebt*\\nChinese Taipei\\n206.6\\n19.5\\n4.6\\n3.4\\nHong Kong China\\n118.4\\n21.9\\n0.5\\n0.3\\nIndonesia\\n36.3\\n13.4\\nn.a.\\n0.3\\nKorea\\n155.4\\n10.4\\n2.6\\n1.0\\nMalaysia\\n44.9\\n6.8\\n4.9\\n0.9\\nPhilippines\\n16.9\\n5.2\\n2.7\\n0.3\\nP\\n.R. China\\n403.3\\n11.7\\n6.0\\n2.2\\nSingapore\\n96.3\\n9.0\\nn.a.\\nn.a.\\nThailand\\n42.1\\n6.8\\n3.7\\n0.8\\n* Except for Malaysia, external debt data refers to amount outstanding as at\\nend 3Q 2003.\\nn.a. Not available.\\nSource: National authorities; Asian Development Bank\\nreserves position. In ringgit terms, the reserves\\nposition with the IMF increased by RM336.5 million\\nat the end of 2003. Meanwhile, the receipts of\\nremuneration from the IMF resulted in Malaysia’s\\nSDR holdings increasing by SDR8 million to SDR121\\nmillion at the end of 2003.\\nBank Negara Malaysia releases information on the\\ninternational reserves position and the statement of\\nthe Bank’s assets and liabilities on a fortnightly basis\\nwith a one-week lag. The Bank also fulfils the IMF’s\\nSDDS requirements of publishing the reserves data\\ntemplate at end-month with a one-month lag. The\\nSDDS template not only covers detailed information\\non international reserves, but also includes the\\nrelease of forward-looking information on the size,\\ncomposition and usability of official reserves and\\nIn managing the reserves, a prudent approach is adopted to\\nachieve the objectives of ensuring capital preservation and\\nliquidity while optimising returns.\\nother foreign currency assets, and the future and\\npotential (contingent) inflows and outflows of\\nforeign exchange of the Federal Government and\\nthe Bank over the next 12 months.\\nFlow of Funds\\nThe economy registered a higher resource surplus of\\nRM50.8 billion or 13.7% of GNP in 2003 (2002: a\\nsurplus of RM30.5 billion or 9.1% of GNP). In terms\\nof balance of payments, the higher resource surplus\\nreflected higher exports over imports following\\nimproved external demand in the second half of the\\nyear. While exports grew strongly by 8.6% (2002:\\n6.6%), imports rose at a slower pace of 5.4%\\n(2002: 6.5%). From the perspective of the country’s\\nsaving-investment gap, the higher resource surplus\\nreflected the significantly higher net savings\\nposition of the private sector. The inter-sectoral flow\\nof funds between various sectors of the economy\\nfor the year is shown in Tables 1.27 and 1.28.\\nThe disposable income of the public sector\\nincreased by 5.9% to RM120.2 billion in 2003.\\nHowever, this higher disposable income was offset\\nby higher public consumption and investment\\nexpenditure arising from the government’s efforts to\\nsustain economic activity in the face of adverse\\nexternal developments in the first half of 2003.\\nConsequently, the resource surplus of the public\\nsector was marginally higher at RM10 billion in\\n2003 (2002: RM9.8 billion). The resource surplus\\nreflected entirely the surpluses from the NFPEs of\\n\\n\\n57\\nThe Malaysian Economy in 2003\\nTable 1.27\\nFlow of Funds: 2002\\nDomestic Economy\\nPublic\\nPrivate\\nBanking\\nSector\\nSector\\nSystem\\nRM billion\\nDisposable Income\\n-325.0\\n113.5\\n211.5\\n0\\nConsumption\\n209.5\\n-50.0\\n-159.5\\n0\\nInvestment\\n83.8\\n-53.7\\n-30.1\\n0\\nChange in Stocks\\n1.3\\n-1.3\\n0\\nExports of Goods and Non-Factor Services\\n415.0\\n-415.0\\n0\\nImports of Goods and Non-Factor Services\\n-348.9\\n348.9\\n0\\nNet Factor Payment Abroad\\n-25.1\\n25.1\\n0\\nNet Transfers\\n-10.6\\n10.6\\n0\\nNon-Financial Balance\\n0.0\\n9.8\\n20.7\\n0.0\\n-30.5\\n0\\nForeign Financing\\nDirect Investment\\n4.9\\n-4.9\\n0\\nNet Foreign Borrowings\\n4.7\\n-27.9\\n23.2\\n0\\nNet Change in Foreign Assets\\nBank Negara Malaysia\\n-14.2\\n14.2\\n0\\nBanking System\\n6.3\\n-6.3\\n0\\nDomestic Financing\\nChange in Credit\\n11.5\\n27.7\\n-39.3\\n0\\nChange in Money Supply, M3\\n-31.6\\n31.6\\n0\\nNet Borrowings from Non-Bank Sector\\n-26.1\\n26.1\\n0\\nNet Errors and Omissions\\n-19.9\\n15.5\\n4.4\\n0\\nSum\\n0\\n0\\n0\\n0\\nNational\\nAccounts\\nSum\\nRest of\\nthe\\nWorld\\nTable 1.28\\nFlow of Funds: 2003\\nDomestic Economy\\nPublic\\nPrivate\\nBanking\\nSector\\nSector\\nSystem\\nRM billion\\nDisposable Income\\n-360.1\\n120.2\\n239.9\\n0\\nConsumption\\n223.7\\n-53.9\\n-169.8\\n0\\nInvestment\\n87.1\\n-56.3\\n-30.8\\n0\\nChange in Stocks\\n-1.5\\n1.5\\n0\\nExports of Goods and Non-Factor Services\\n450.6\\n-450.6\\n0\\nImports of Goods and Non-Factor Services\\n-367.9\\n367.9\\n0\\nNet Factor Payment Abroad\\n-22.6\\n22.6\\n0\\nNet Transfers\\n-9.3\\n9.3\\n0\\nNon-Financial Balance\\n0.0\\n10.0\\n40.8\\n0.0\\n-50.8\\n0\\nForeign Financing\\nDirect Investment\\n4.2\\n-4.2\\n0\\nNet Foreign Borrowings\\n-11.2\\n-12.8\\n24.0\\n0\\nNet Change in Foreign Assets\\nBank Negara Malaysia\\n-39.1\\n39.1\\n0\\nBanking System\\n7.7\\n-7.7\\n0\\nDomestic Financing\\nChange in Credit\\n12.9\\n32.4\\n-45.3\\n0\\nChange in Money Supply, M3\\n-48.5\\n48.5\\n0\\nNet Borrowings from Non-Bank Sector\\n-11.7\\n11.7\\n0\\nNet Errors and Omissions\\n-27.8\\n28.2\\n-0.4\\n0\\nSum\\n0\\n0\\n0\\n0\\n0\\nNational\\nAccounts\\nRest of the\\nWorld\\nSum\\n\\n\\n4.H-58\\n58\\nRM24.7 billion, which helped offset the resource\\ngap of the general government of RM14.7 billion.\\nThe bulk of the resource gap of the general\\ngovernment was financed through net domestic\\nborrowings (RM12.9 billion). Government\\nborrowings and the resource surplus of the NFPEs\\nwere utilised to make a net repayment of foreign\\nborrowings of RM11.2 billion, while RM11.7 billion\\nwas transferred to the private sector during the\\nyear.\\nThe resource surplus of the private sector increased\\ntwofold to RM40.8 billion or 11% of GNP in 2003\\nfrom RM20.7 billion or 6.2% of GNP in 2002.\\nHigher disposable income of RM239.9 billion during\\nthe year (2002: RM211.5 billion) following\\ncontinued strong growth in economic activity,\\nenabled the private sector to increase consumption\\nexpenditure (6.5%). At the same time, private\\ninvestment expenditure turned around (2.4%), the\\nfirst positive growth since 2000. The resource\\nsurplus of the private sector together with net\\ninflows of FDI (RM4.2 billion), net borrowings from\\nthe banking system (RM32.4 billion) and net\\ntransfers from the public sector (RM11.7 billion), led\\nto a larger increase of resources amounting to\\nRM89.1 billion (2002: RM79.4 billion) being\\navailable to the private sector.\\nA sizeable pool of resources available to the private\\nsector was placed with the banking system,\\nresulting in a net placement of deposits of RM48.5\\nbillion. Some of the excess resources were also\\nutilised for repayments of foreign borrowings by the\\nprivate sector (RM12.8 billion). For the economy as\\na whole, the large current account surplus and\\ncontinued inflows of FDIs, were more than sufficient\\nto accommodate these outflows. Consequently, the\\nnet international reserves of BNM rose by RM39.1\\nbillion to RM170.5 billion as at the end of 2003.\\n\\n\\nMonetary and Fiscal\\nDevelopments \\n60-61\\nMonetary Policy in 2003\\n61\\nWhite Box: Monetary Policy Statement\\n62-68\\nMonetary Developments in 2003\\n68-69\\nExchange Rate Developments\\n69-77\\nFiscal Policy and Operations\\n\\n\\n4.H-60\\n60\\nMONETARY POLICY IN 2003\\nIn 2003, Bank Negara Malaysia maintained an\\naccommodative monetary policy to support\\ngrowth. The assessment at the beginning of the\\nyear was that the economy was operating below\\npotential. In an environment of the near absence\\nof demand pressures and excess capacity in many\\nsectors, inflation was forecast to remain low in\\n2003 with the output gap positive. The\\naccommodative monetary policy therefore\\nreinforced fiscal policy and other measures aimed\\nat promoting domestic economic activities. The\\nlow inflation and stronger fundamentals provided\\nthe flexibility to the Central Bank to maintain this\\naccommodative monetary stance. During the year,\\nefforts were also intensified to improve access to\\nfinancing to the private sector, in particular to the\\nSmall and Medium Enterprises (SMEs).\\nWith low and stable inflation, monetary policy remained\\naccommodative to support economic growth.\\nThe monetary framework in 2003 continued to\\noperate under a pegged exchange rate regime.\\nThe ringgit remained fixed at RM3.80=US$1, an\\narrangement that has been in place since\\nSeptember 1998. In 2003, the ringgit remained\\nclose to its fair value and has been well supported\\nby strengthened economic fundamentals.\\nDuring the year, the policy rate of Bank Negara\\nMalaysia, the 3-month intervention rate, was\\nreduced once on 21 May. Interest rate policy in\\nthe first quarter was based on two\\nconsiderations. First, the cumulative reductions in\\ninterest rates by 600 basis points since 1998 had\\nresulted in lower interest rates and ample\\nliquidity. Liquidity conditions in the banking\\nsystem created competitive pressures on banks to\\nprice loans at below the quoted base lending\\nrates. The lower lending rates had been effective\\nin raising demand for credit. Amidst stable\\nemployment and higher incomes, supported by\\nhigher commodity prices and strong performance\\nin selected export sectors, the prevailing\\naccommodative monetary policy reinforced fiscal\\npolicy in sustaining domestic demand. Growth in\\ndomestic demand was reflected in the further\\nexpansion in monetary aggregates and bank\\nlending indicators during the first quarter.\\nStronger expansion was also seen in loans\\nextended to small businesses.\\nSecond, an important consideration to leave the\\npolicy rate unchanged in the first quarter was to\\nprovide a reasonable return to savers. In an\\nenvironment of ample liquidity, maintaining a\\nreasonable return to savers continued to remain\\nan important consideration. During this period,\\nconsumer and business sentiment was affected by\\nthe uncertainties from tensions prior to the Iraq\\nwar and subsequently, greater uncertainty\\nfollowing the outbreak of the Severe Acute\\nRespiratory Syndrome (SARS) in April. The stance\\nof monetary policy in early 2003 was therefore\\naimed at balancing the need to promote\\nconsumption and investment while maintaining a\\nreasonable real rate on savings.\\nTowards mid-2003, however, developments in the\\nregional and global economies indicated\\nincreased risks on the growth prospects.\\nEconomic and financial indicators showed that the\\nglobal economic recovery was slower than\\nexpected, with growth in the United States\\nremaining well below trend in the first half-year\\ndue to subdued investment. Deflationary\\nconcerns and continued financial market\\nvolatilities pointed to a more modest recovery for\\nthe global economy for 2003. The dampened\\nglobal outlook and the implication of SARS on a\\nnumber of sectors threatened to weaken\\ndomestic demand and increase the downside risks\\nto economic recovery in Malaysia. Given this, on\\n21 May, Bank Negara Malaysia reduced the policy\\nrate by 50 basis points to 4.5% as a pre-emptive\\nmove to mitigate the effects of a more adverse\\nexternal environment on the domestic economy.\\nThe impact of SARS on economic recovery was\\nexpected to be transitory. Its impact was primarily\\non the services sub-sectors of tourism, transport\\nand retail services. To ease the burden on the\\naffected industries and workers in these sectors,\\nother measures were implemented, including a\\nSpecial Relief Guarantee Facility of RM1 billion\\nMonetary and Fiscal Developments\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-61\\n61\\nand special relief for housing loan repayments to\\nworkers in these sectors. These specific measures\\nwere part of the overall package introduced on\\n21 May, to address the impact of SARS on the\\neconomy as well as to stimulate further structural\\nchanges. Implementation of the measures\\nincluding the reduction in interest rates, as a\\ncomprehensive package was designed to give\\nmaximum impact to the package.\\nThese coordinated policy measures promoted and\\nreinforced a stronger recovery in the domestic\\neconomy in the second half-year when global and\\nregional growth gained momentum. A number of\\npositive developments on the global front lent\\nfurther support to domestic policies. The reduction\\nin geopolitical uncertainty in the Middle East and\\nthe abatement of SARS resulted in markedly\\nstrengthened domestic consumer and business\\nsentiment in the third quarter. More favourable\\ntrends emerged in the third quarter, with indicators\\nthat the global economic growth was\\nstrengthening. Growth in the United States in the\\nthird quarter, picked up to well above trend\\nfollowing the recovery in investment and a build-up\\nin inventory. On the domestic front, lower interest\\nrates, amidst improving sentiment, led to stronger\\ndemand for credit. Demand for financing, which\\nmoderated in May on uncertainties of the effects of\\nSARS, recovered strongly since June. Monetary\\nindicators for the second half-year also expanded at\\na stronger pace, reflecting stronger demand for\\nliquidity. Overall, the accommodative monetary\\npolicy reinforced other policies to contribute to\\nstronger growth in output. For the year as a whole,\\nreal GDP growth strengthened to 5.2%, with the\\ngrowth momentum into 2004 sustained. Inflation\\nhas continued to remain low at 1.2% while core\\ninflation, that is inflation due to demand pressures,\\nwas lower at 0.6%.\\nMonetary Policy Statement\\nAn important development during the year was the issuance of the Monetary Policy Statement (MPS)\\nby Bank Negara Malaysia at pre-determined intervals. On 27 August 2003, Bank Negara Malaysia\\nissued its first MPS together with the announcement of the second quarter GDP data. The second\\nand third MPS was issued at the release of the third quarter GDP data on 19 November 2003 and the\\nfourth quarter GDP data on 25 February 2004.\\nThe MPS is a forward looking statement, outlining the monetary policy stance in the near term and\\nthe rationale for the policy thrust. The objective of issuing this statement is part of the overall\\nstrategy to provide greater understanding of the monetary policy objectives and measures in light of\\na more complex and dynamic environment. In particular, it would help anchor expectations on\\ngrowth and inflation. Signalling the Bank’s policy intent through direct communication is aimed at\\nincreasing the understanding and appreciation of money market participants, and thereby, facilitate a\\nmore rapid transmission of the policy rate in the pricing of credit and longer-term rates, and thus\\nenhance the overall efficiency of the monetary transmission mechanism. The MPS is released four\\ntimes a year and would coincide with the release of Malaysia’s quarterly GDP performance. Between\\nthe fixed scheduled dates, additional press statements would be issued if a policy change is\\nwarranted.\\nThe issuance of the MPS is part of the ongoing process to enhance market understanding of the\\nBank’s financial and economic assessments, operations and policy objectives. Since 1998, in a drive to\\nensure symmetric information to the public, the Bank has disseminated a wider range of information,\\nwhich included among others, on-line information on its daily liquidity forecasts and money market\\noperations. Over the years, there has also been significant enhancement of the coverage of\\ninformation available through the Bank’s website, and reduction in the time lag of data releases to\\nthe public.\\n\\n\\n4.H-62\\n62\\nMONETARY DEVELOPMENTS IN 2003\\nIn 2003, low interest rates, ample liquidity and a\\nstrengthened banking sector supported stronger\\neconomic activity. Funds available in the banking\\nsystem increased during the year as a result of the\\nexpansionary fiscal operations and stronger\\nbalance of payments position. The underlying\\nample liquidity continued to result in competitive\\npricing of loans to selected sectors.\\nthe average lending rate (ALR) declined further,\\nand at end-year was 39 basis points lower than\\nthe end-2002 level. While the BLR of finance\\ncompanies declined by 55 basis points, the ALR of\\nfinance companies, nevertheless, declined by a\\nlarger magnitude of 64 basis points as fixed rates\\non hire purchase for passenger cars had been on\\na declining trend. The lower hire purchase rates\\nwere due to greater competition for loans in the\\npassenger car market.\\nMonetary conditions remained supportive of economic expansion.\\nLow interest rates, ample liquidity and a strengthened banking\\nsector contributed to increased financing to the private sector.\\nFollowing the 50 basis point reduction in the\\npolicy rate in May, the lending rates of banking\\ninstitutions declined further. The commercial\\nbanks reduced their Base Lending Rate (BLR) by\\n39 basis points. As the component of lower cost\\nnew loans increased relative to the existing loans,\\nDeposit rates declined by a smaller margin, with\\nthe one to 12-month fixed deposit rates of the\\ncommercial banks declining by 20-30 basis points.\\nNotwithstanding the reduction in nominal deposit\\nrates, the real rates of return (end year nominal\\nrates of return less inflation rate) on deposits with\\nTable 2.1\\nInterest Rates and Liquidity\\n2000\\n2001\\n2002\\n2003\\n2003\\nAt end period (%)\\nChange (%)\\n3-month Intervention Rate\\n5.5\\n5.0\\n5.0\\n4.5\\n-0.5\\nInterbank rates\\nOvernight\\n2.77\\n2.76\\n2.71\\n2.72\\n0.01\\n1- month\\n3.05\\n2.97\\n2.99\\n2.99\\n0.00\\nBase lending rate (BLR)\\nCommercial banks\\n6.78\\n6.39\\n6.39\\n6.00\\n-0.39\\nFinance companies\\n7.95\\n7.45\\n7.45\\n6.90\\n-0.55\\nAverage lending rate (ALR)\\nCommercial banks\\n7.46\\n6.67\\n6.50\\n6.11\\n-0.39\\nFinance companies\\n11.14\\n10.24\\n9.75\\n9.11\\n-0.64\\nFixed deposit rates\\nCommercial banks\\n3-month\\n3.48\\n3.21\\n3.20\\n3.00\\n-0.20\\n12-month\\n4.24\\n4.00\\n4.00\\n3.70\\n-0.30\\nFinance companies\\n3-month\\n3.52\\n3.22\\n3.20\\n3.00\\n-0.20\\n12-month\\n4.27\\n4.01\\n4.00\\n3.68\\n-0.32\\nSavings deposit rates\\nCommercial banks\\n2.72\\n2.28\\n2.12\\n1.86\\n-0.26\\nFinance companies\\n3.44\\n2.94\\n2.65\\n2.18\\n-0.47\\nAverage during the period (%)\\nChange (%)\\nNominal interest rate differential\\nMalaysia - United States\\n-3.32\\n-0.49\\n1.31\\n1.66\\n0.35\\nMalaysia - Singapore\\n0.73\\n1.31\\n2.23\\n2.27\\n0.04\\nAt end period (RM billion)\\nChange (RM b)\\nResource surplus (+)/gap (-)1\\n73.7\\n67.4\\n76.2\\n105.8\\n29.6\\nAdjusted resource surplus (+)/gap (-)2\\n36.1\\n20.8\\n24.6\\n45.8\\n21.2\\nAt end period (%)\\nChange (%)\\nLoan-deposit ratio\\n84.3\\n85.9\\n84.9\\n80.9\\n-4.0\\nFinancing-deposit ratio3\\n92.3\\n95.7\\n95.1\\n91.7\\n-3.4\\n1\\nDeposits less loans.\\n2\\nDeposits less loans and holdings of private debt securities.\\n3\\nIncludes holdings of private debt securities.\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-63\\n63\\ncommercial banks were higher at end-2003, at\\n0.66% for savings deposits (at end-2002: 0.42%)\\nand ranging from 1.8% for the 3-month fixed\\ndeposit to 2.5% for the 12-month maturity (1.5%\\nand 2.3% at end-2002). Savings and fixed deposits\\nof individuals increased by 8.8% in 2003 and as a\\nshare of GDP, remained stable at 57% at end-2003.\\nFollowing significantly improving cash flows, total\\ndeposits of businesses increased significantly, by\\n14.9%, and as a share of GDP, rose to 46.9% at\\nend-2003 (at end-2002: 44.4%).\\nBy international standards, lending rates in Malaysia\\nremained competitive, and the spread between\\nlending and deposit rates was among the lowest.\\nLow interest rates, amidst higher disposable income,\\nparticularly in the second half-year, led to stronger\\ndemand for financing by the private sector from\\nboth the banking sector and the capital market to\\nfinance consumption and business expansion. In\\naddition, a larger amount of funds was also raised\\nby businesses in the PDS market to restructure and\\nrefinance debts, to strengthen their balance sheets\\nand to prepare for future investment opportunities.\\nCumulatively, loans disbursed by the banking\\nsystem for working capital, trade financing and\\nfixed investment, and funds raised in the capital\\nmarket increased by 9% compared with the\\nprevious year. While the banking system remained\\nthe main source of finance for the economy, there\\nwas further diversification in the sources of\\nfinancing. Loan disbursements by the banking\\nsystem which rose by 7.3%, accounted for 89.7%\\nof total gross financing in 2003 while funds raised\\nfrom the capital market rose at a stronger rate of\\nBLR-CB \\nALR-CB \\nBLR-FC \\nALR-FC \\nGraph 2.1 \\nLending Rates: Commercial Banks and \\nFinance Companies\\nJ M M J S N J M M J S N J M M J S N J M M J S N J M M J S N J M M J S N D\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\n5\\n6\\n7\\n8\\n9\\n10\\n11\\n12\\n13\\n14\\n15\\n16\\n%\\n    6.00\\n6.11\\n6.90\\n9.11\\nGraph 2.2 \\nInternational Comparison of Interest Rates as at end-2003\\nSpread between Lending and Deposit Rates\\n2.53\\n2.91\\n3.00\\n3.31\\n4.63\\n4.96\\n4.85\\n4.93\\n5.91\\n8.75\\n0\\n2\\n4\\n6\\n8\\n10\\nUnited Kingdom\\nMalaysia\\nUnited States\\nThailand\\nSingapore\\nKorea\\nPhilippines\\nChinese Taipei\\nHong Kong China\\nIndonesia\\nPrime Lending Rates\\n4.00\\n4.25\\n5.00\\n5.63\\n6.00\\n6.50\\n7.04\\n9.34\\n9.35\\n18.00\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n20\\nUnited States\\nHong Kong China\\nSingapore\\nMalaysia\\nThailand\\nChinese Taipei\\nUnited Kingdom\\nKorea\\nPhilippines\\nIndonesia\\n%\\n%\\n11.9%\\n31.9%\\n5.8%\\n9.8%\\nAnnual growth\\n9.0%\\n200\\n250\\n300\\n350\\n400\\n450\\n500\\n550\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\nGraph 2.3 \\nPrivate Sector Gross Financing through the \\nBanking System and the Capital Market \\nLoans disbursed\\nPDS issued\\nEquity issued\\n\\n\\n4.H-64\\n64\\n26.6% to account for a small share of 10.3% of\\nfinancing to the private sector.\\nThe success of the measures to promote growth and\\ndepth in the PDS market was reflected in the rising ratio\\nof PDS outstanding as a percentage of GDP to 34.7% at\\nend-2003, while the ratio of bank loans to GDP trended\\ndown to 120.9%. This is a significant development\\ncompared to the 1998 level (PDS at 16.5% and banking\\nsystem loans at 147.2% of GDP respectively). In 2003,\\nbusinesses with strong credit profiles took advantage of\\nthe low interest rate environment to lock in their funds in\\nlong-term PDS. As a result, gross PDS financing increased\\nsignificantly by 60.5% during the year (-15.4% in 2002).\\nWith the expansion of the PDS market, banking\\ninstitutions have also increased indirect financing of\\nthe business sector through holdings of PDS,\\naccounting for approximately 7% of the loan base.\\nOn a net basis, banking system outstanding loans\\nand holdings of PDS increased by 5.9%. The greater\\ndiversification in financing sources and the focus on\\npromoting domestic sources of growth has led to a\\nshift in the profile of banking system loans. In\\nparticular, with measures undertaken to enhance the\\ncontribution of SMEs in the domestic economy and\\nthe drive to promote private consumption growth,\\nbanking institutions have accorded emphasis on\\nSMEs and the household sector.\\nEfforts by Bank Negara Malaysia to strengthen the\\nSME financing infrastructure have been important in\\nproviding adequate and cost-effective funding to\\nsupport the growth of SMEs. Reflecting this,\\noutstanding loans to SMEs grew strongly by 10% in\\n2003 to reach a record high of RM82 billion. This\\namount represented 38.4% and 17.3% respectively\\nof business and total loans outstanding. Meanwhile,\\ndisbursements to SMEs amounted to RM87.1 billion.\\nFinancing of SMEs via the special funds has expanded\\nsignificantly. As at end-2003, RM5.3 billion had been\\napproved to more than 14,000 borrowers,\\nrepresenting an increase of 58.5% for the year as a\\nwhole. Meanwhile, disbursements amounted to\\nRM4.1 billion, an increase of 82.9% over the\\nprevious year. Excluding both the Special Relief\\nTable 2.2\\nBanking System1: Loan Indicators\\nDuring the year (RM billion)\\nAnnual growth (%)\\n2000\\n2001\\n2002\\n2003\\n2001\\n2002\\n2003\\nTotal\\nLoan applications\\n208.8\\n190.6\\n217.2\\n227.6\\n-8.7\\n14.0\\n4.8\\nLoan approvals\\n134.8\\n125.6\\n137.6\\n152.7\\n-6.8\\n9.5\\n11.0\\nLoan disbursements\\n360.7\\n373.5\\n411.6\\n441.7\\n3.5\\n10.2\\n7.3\\nLoan repayments\\n347.1\\n365.4\\n402.7\\n430.5\\n5.3\\n10.2\\n6.9\\nChange in loans outstanding2\\n21.2\\n16.1\\n19.8\\n21.8\\n3.9\\n4.6\\n4.8\\nBusinesses\\nLoan applications\\nn.a.\\nn.a.\\n135.3\\n124.9\\nn.a.\\nn.a.\\n-7.7\\nLoan approvals\\n79.1\\n63.5\\n68.5\\n77.2\\n-19.7\\n7.9\\n12.7\\nLoan disbursements\\n270.2\\n270.4\\n282.0\\n303.4\\n0.1\\n4.3\\n7.6\\nLoan repayments\\n269.4\\n276.8\\n275.8\\n299.6\\n2.8\\n-0.4\\n8.6\\nChange in loans outstanding2\\n2.0\\n-5.6\\n-3.1\\n-5.1\\n-2.5\\n-1.4\\n-2.3\\nSMEs\\nLoan applications\\nn.a.\\nn.a.\\nn.a.\\n44.5\\nn.a.\\nn.a.\\nn.a.\\nLoan approvals\\nn.a.\\nn.a.\\nn.a.\\n25.7\\nn.a.\\nn.a.\\nn.a.\\nLoan disbursements\\nn.a.\\nn.a.\\nn.a.\\n87.1\\nn.a.\\nn.a.\\nn.a.\\nChange in loans outstanding2\\n2.9\\n4.0\\n…\\n7.4\\n5.7\\n…\\n10.0\\nOther businesses\\nLoan applications\\nn.a.\\nn.a.\\nn.a.\\n80.4\\nn.a.\\nn.a.\\nn.a.\\nLoan approvals\\nn.a.\\nn.a.\\nn.a.\\n51.5\\nn.a.\\nn.a.\\nn.a.\\nLoan disbursements\\nn.a.\\nn.a.\\nn.a.\\n216.4\\nn.a.\\nn.a.\\nn.a.\\nChange in loans outstanding2\\n-0.9\\n-9.6\\n-3.1\\n-12.5\\n-6.1\\n-2.1\\n-8.7\\nHouseholds\\nLoan applications\\nn.a.\\nn.a.\\n81.9\\n98.5\\nn.a.\\nn.a.\\n20.2\\nLoan approvals\\n53.1\\n59.2\\n66.9\\n72.0\\n11.5\\n13.0\\n7.6\\nLoan disbursements\\n76.0\\n87.0\\n105.1\\n114.5\\n14.5\\n20.8\\n8.9\\nLoan repayments\\n65.1\\n71.5\\n83.7\\n94.1\\n9.9\\n17.0\\n12.4\\nChange in loans outstanding2\\n17.1\\n23.1\\n26.2\\n26.2\\n14.8\\n14.7\\n12.8\\n1 Includes Islamic banks.\\n2 The annual growth is for loans outstanding at end-period.\\nn.a.  Not available.\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-65\\n65\\nGuarantee Fund (SRGF) and the Rehabilitation Fund\\nfor Small Businesses (RFSB), which were recently\\nintroduced in 2003, the allocations for the remaining\\nfour funds have been fully utilised, with a utilisation\\nrate of 109.7%. With the Central Credit Reference\\nInformation System (CCRIS) in place, banking\\ninstitutions have been able to accelerate loan\\nprocessing and assess the viability of SMEs, given the\\ncomprehensive and current credit profiles of all\\nborrowers available in the system.\\nAlmost half the loan disbursements were channelled\\nto large businesses in the main sectors of the\\neconomy, namely the manufacturing, wholesale and\\nretail trade; agriculture; and finance, insurance and\\nbusiness services sectors. New loan approvals and\\nloan disbursements to large businesses were\\nsignificantly higher in the second half-year.\\nNevertheless, there was a decline in outstanding\\nloans of large businesses. Better corporate health\\nand improving cash flow positions led to a greater\\nreliance on internal funds, and less on bank\\nborrowings to fund business activities. In addition,\\nthe bulk of loans disbursed were primarily for short-\\nterm working capital purposes. As a result, the high\\nlevel of disbursements was matched by a similar\\nvolume of repayments, which resulted in a neutral\\neffect on loans outstanding.\\nTable 2.3\\nSpecial Funds for SMEs administered by Bank Negara Malaysia\\nRM million\\n%\\nType of Fund\\nAllocations\\nApprovals Disbursements Repayments\\nLoans\\nUtilisation\\nRatio of undrawn\\nOutstanding\\nRate2\\nportion to approvals\\nAs at end-2003\\nFund For Food\\n1300.0\\n1410.8\\n1298.8\\n600.8\\n698.0\\n108.5\\n7.9\\nNew Entrepreneurs Fund 2\\n1150.0\\n1077.2\\n806.7\\n36.1\\n770.6\\n93.7\\n25.1\\nFund For Small and Medium Industries 2\\n2000.0\\n2284.9\\n1588.4\\n177.9\\n1410.4\\n114.2\\n30.5\\nBumiputera Entrepreneurs Project Fund\\n300.0\\n437.7\\n361.5\\n269.1\\n92.4\\n145.9\\n17.4\\nSpecial Relief Guarantee Facility1\\n1000.0\\n40.3\\n0.0\\n0.0\\n0.0\\n4.0\\n100.0\\nRehabilitation Fund for Small Businesses\\n800.0\\n0.0\\n0.0\\n0.0\\n0.0\\n0.0\\n0.0\\nTotal\\n6550.0\\n5250.9\\n4055.4\\n1083.9\\n2971.4\\n80.2\\n22.8\\nChange since end-2002\\nFund For Food\\n0.0\\n115.1\\n174.4\\n152.8\\n23.5\\nNew Entrepreneurs Fund 2\\n650.0\\n425.0\\n480.9\\n26.6\\n454.2\\nFund For Small and Medium Industries 2\\n1350.0\\n1236.0\\n1078.2\\n124.3\\n953.7\\nBumiputera Entrepreneurs Project Fund\\n0.0\\n121.0\\n104.1\\n122.7\\n-18.5\\nSpecial Relief Guarantee Facility1\\n1000.0\\n40.3\\n0.0\\n0.0\\n0.0\\nRehabilitation Fund for Small Businesses\\n800.0\\n0.0\\n0.0\\n0.0\\n0.0\\nTotal\\n3800.0\\n1937.4\\n1837.6\\n426.4\\n1412.9\\n1\\nThis is only a guarantee fund.\\n2\\nAs a percentage of total loans approved to the fund’s total allocations.\\n2002\\n2003\\nGraph 2.4 \\nLoan Disbursements by Sector: Value and Share\\nOthers\\n(RM107 b; 26%)\\nPassenger\\ncars\\n(RM26 b; 6%) \\nCredit cards\\n(RM25 b; 6%)\\nResidential\\nproperty\\n(RM30 b; 7%) \\nFinance,\\ninsurance and\\nbusiness services\\n(RM24 b; 6%) \\nConstruction\\n(RM30 b; 7%)\\nWholesale and retail\\ntrade, restaurants\\nand hotels\\n(RM65 b; 16%)  \\nManufacturing\\n(RM105 b; 26%)\\nManufacturing\\n(RM110 b; 25%)\\nWholesale and\\nretail trade,\\nrestaurants and\\nhotels\\n(RM70 b; 16%)  \\nConstruction\\n(RM28 b; 6%)\\nFinance,\\ninsurance and\\nbusiness\\nservices\\n(RM37 b; 8%)  \\nResidential\\nproperty\\n(RM36 b; 8%) \\nCredit cards\\n(RM31 b; 7%)\\nPassenger\\ncars\\n(RM25 b; 6%) \\nOthers\\n(RM106 b; 24%)\\n\\n\\n4.H-66\\n66\\nOn an outstanding basis, bank lending to the\\nhousehold sector expanded at a high annual rate of\\n12.8% in 2003. The low interest rates and\\ncompetitive financing packages offered by banking\\ninstitutions continued to stimulate demand for loans\\nfrom households, with the bulk of credit channelled\\ntowards the purchase of residential property. In the\\nresidential property market, the value of loan\\napplications increased by 24.8% while loan\\ndisbursements were higher by 20%.\\nCredit card spending, as reflected by loan\\ndisbursements, grew at a rate of 20%. Outstanding\\nbalances on credit cards increased by 15.5%\\n(2002: 19.5%) to RM12.2 billion, representing 2.6%\\nof total loans outstanding at end-year (at end-2002:\\n2.3%). While credit card spending on goods and\\nservices continued to increase, households are not\\nover leveraged. Total overdue balances amounted to\\n14.1% of outstanding credit card balances at end-\\n2003, which was lower than the average over the\\nprevious five years of 14.6%. Similarly, balances\\noverdue for more than 3 months were relatively\\ncontained at 4.4% compared to the average over the\\nprevious five years of 7.2%.\\nOn the whole, as the majority of household loans\\nwere relatively long-term in nature, the continued\\ngrowth in these loans has led to an increase in the\\nshare of household loans as a percentage of total\\nloans outstanding to 48.8% at end-2003 (at end-\\n2002: 45%) and as a percentage of GDP, to 58.9%.\\nThese percentages are similar to those recorded\\namong regional countries, and lower than those\\nregistered in several of the advanced economies.\\nWhile the household debt exposure has become a\\ncause for concern in some countries, indicators\\nsuggest that the Malaysian household balance sheet\\nhas remained strong and debt servicing is sustainable\\nwith the potential for further expansion in\\nconsumption growth. Underpinning the resilience of\\nthe household balance sheet, is the high savings rate,\\nincreasing disposable income, a stable property\\nTable 2.4\\nBanking System1: Loans Outstanding\\nAnnual change\\n% share of\\n2002\\n2003\\ntotal loans at\\nRM billion\\nend-2003\\nBanking system loans, of which\\nextended to:\\nBusiness enterprises\\n-3.1\\n-5.1\\n45.1\\nIndividuals\\n26.2\\n26.2\\n48.8\\nBy sector:\\nAgriculture, hunting, forestry\\nand fishing\\n-0.1\\n-1.1\\n2.2\\nMining and quarrying\\n-0.3\\n0.1\\n0.2\\nManufacturing\\n-1.2\\n-0.2\\n12.9\\nElectricity, gas and water supply\\n1.6\\n-1.7\\n1.1\\nWholesale and retail trade,\\nrestaurants and hotels\\n1.0\\n2.1\\n8.3\\nBroad property sector\\n10.8\\n14.7\\n39.8\\n   Construction\\n-1.7\\n-2.7\\n6.2\\n   Purchase of residential property\\n14.2\\n16.2\\n24.6\\n   Purchase of non-residential\\nproperty\\n…\\n1.1\\n6.1\\n   Real estate\\n-1.6\\n…\\n2.9\\nTransport, storage and\\ncommunication\\n-0.4\\n1.0\\n2.3\\nFinance, insurance and\\nbusiness services\\n-2.5\\n-0.6\\n6.2\\nConsumption credit\\n12.0\\n8.9\\n18.8\\n  Of which:\\nCredit cards\\n1.8\\n1.6\\n2.6\\nPurchase of passenger cars\\n9.6\\n6.5\\n13.0\\nPurchase of securities\\n0.2\\n-1.7\\n4.2\\nPurchase of transport vehicles\\n-0.5\\n0.3\\n0.7\\nCommunity, social and\\npersonal services\\n-0.3\\n-0.7\\n1.0\\nOthers\\n-0.4\\n0.9\\n2.3\\nTotal loans outstanding 2\\n19.8\\n21.8\\n100.0\\n1\\nIncludes Islamic banks.\\n2\\nIncludes loans sold to Cagamas.\\nNumbers may not add-up due to rounding.\\n4\\n6\\n8\\n10\\n12\\n14\\n1999\\n2000\\n2001\\n2002\\n2003\\n3\\n5\\n7\\n9\\n11\\n13\\n15\\nRM billion\\n%\\nOverdue balances\\nShare of balances overdue for more than 3 months \\nto total balance (RHS)\\nShare of overdue balances to total balance (RHS)\\nCurrent balances\\nGraph 2.5\\nBanking System: Outstanding Credit Card\\nBalances (at end-period)\\nCash advances\\n% of cash advances to total transactions (RHS)\\nPurchases\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n%\\nGraph 2.6\\nBanking System: Credit Card Transactions\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-67\\n67\\nmarket, an improvement in the stock market as well\\nas stable labour market conditions. As a leverage\\nindicator, the ratio of household deposits to loans\\nremained at greater than one, demonstrating that\\nhouseholds continued to accumulate wealth. Lower\\nlending rates have also been instrumental in\\nsustaining households’ financial net worth and the\\ncapacity of the sector to service debt. With falling\\nrates, interest payments incurred on new loans have\\nbeen lower and refinancing activity has also\\nincreased, allowing consumers to pay down earlier\\nhigher cost loans.\\nThe non-performing loans (NPLs) of the household\\nsector has also remained manageable. As a\\nproportion of total household loans, the gross NPL\\nratio for the sector declined to 8% at end-2003\\n(12.2% at-end 1998 and 8.5% at end-2002). In\\nparticular, the gross NPL ratio for the purchase of\\nresidential property remained unchanged at 8.7%.\\nThe default rate on credit card loans, an emerging\\nconcern in some economies, had declined to a level\\nless than one-third the rate registered at the height\\nof the financial crisis in 1998.\\nBank Negara Malaysia’s efforts to improve the\\nfinancial infrastructure to facilitate bank lending\\nhave also ensured that banking institutions assign\\nappropriate risk evaluation in lending to this\\nsector, thereby maintaining the quality of\\nhousehold debt. In particular, the implementation\\nof risk-based measures included setting up CCRIS\\nand effecting credit card guidelines. To facilitate\\nthe assessment of risks across non-bank credit\\ninstitutions, such as charge card companies, the\\ninformation in CCRIS is also extended to these\\ninstitutions, with the necessary “firewalls” to\\nprotect customer information. These risk\\nmanagement measures have enhanced the\\ncapacity of lenders to extend loans without\\ncreating unnecessary vulnerabilities in the real and\\nfinancial sectors.\\nIn tandem with higher financing by the banking\\nsystem, broad money, M3, expanded at a faster\\nannual rate of 9.7% at end-2003 (at end-2002:\\n6.7%). The growth in M3 was also due to stronger\\nexternal operations arising from a higher trade\\nsurplus, sustained foreign direct investment and\\nhigher portfolio inflows; as well as expansionary\\nGovernment operations. Growth in M3 was broadly\\nconsistent with nominal demand during the year.\\nIn terms of components, transaction balances,\\nconsisting of currency in circulation and demand\\ndeposits, grew strongly by 14.6% at end-2003 (at\\nend-2002: 10.3%), in line with higher consumption\\nspending, higher turnover of the KLSE CI, and\\nimproved business activity. Among broad quasi-money\\n0\\n50\\n100\\n150\\n200\\n250\\n1997\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n%\\nGraph 2.7\\nBanking System: Loans to Households\\n(at end-period)\\nTotal household loans\\nShare of household NPLs to total loans (RHS)\\nShare of household NPLs to household loans (RHS)\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\nM1=14.6\\nM1=14.6\\nM3=9.7\\nM3=9.7\\nM2=11.1\\nM2=11.1\\n%\\nGraph 2.8\\nMoney Aggregates: Annual Growth\\nJ\\nF M A M J\\nJ\\nA\\nS\\nO N D J\\nF M A M J\\nJ\\nA S O N D\\n2002\\n2003\\nTable 2.5\\nBroad Money, M3\\nChange (RM billion)\\n2002\\n2003\\nM3\\n31.6\\n48.5\\nCurrency\\n1.8\\n2.2\\nDemand deposits\\n6.7\\n11.2\\nBroad quasi money\\n23.1\\n35.1\\nFixed deposits\\n12.6\\n17.1\\nSavings deposits\\n5.6\\n5.6\\nNIDs\\n3.6\\n2.0\\nRepos\\n2.5\\n8.0\\nFX deposits\\n-1.2\\n2.4\\nDeterminants of M3\\nNet claims on Government\\n11.5\\n12.9\\nClaims on private sector\\n27.7\\n32.4\\nLoans\\n19.3\\n21.7\\nSecurities\\n8.4\\n10.7\\nNet external operations\\n1.2\\n19.5\\nBank Negara Malaysia\\n7.6\\n27.1\\nBanking system\\n-6.3\\n-7.6\\nOther influences\\n-8.9\\n-16.3\\n\\n\\n4.H-68\\n68\\nDevelopments in the ringgit foreign exchange\\nmarket were driven mainly by the depreciation of\\nthe US dollar and the consequent realignments in\\nthe currencies of most major and several regional\\neconomies. Throughout the year, the US dollar was\\nmainly affected by concerns over the large US\\ncurrent account deficit and the positive interest rate\\ndifferentials in favour of other major economies.\\nThe corresponding adjustments to the US dollar\\nwere seen mainly in major currencies, including the\\nAustralian dollar, the Canadian dollar and the euro,\\nwhich appreciated by 32.7%, 21.7% and 20% in\\n2003. The yen and pound sterling appreciated to a\\nlesser degree of 11% and 11.1% respectively.\\nGiven the pegged exchange rate regime, the ringgit\\ndepreciated against the euro (-16.7%), the pound\\ncomponents, the increase was mainly in terms of\\nfixed deposits and to a lesser extent, repos. The\\nincrease in fixed deposits was primarily in the 9-12\\nmonth maturity and was spread out during the\\nyear, reflecting to some extent, the desire of\\ndepositors to hold fixed deposits as an asset class.\\nIn contrast to the previous year, business deposits\\nrecorded the biggest increase and were mainly short-\\nterm fixed deposits. The stronger financial position of\\ncorporations was in line with improving profitability\\nand cash flow, higher trade surplus and faster\\nrepatriation of export proceeds. Meanwhile, higher\\npersonal disposable income and financial wealth of\\nhouseholds sustained the growth in deposits of this\\nsector, which grew at a stronger rate in 2003\\ncompared to the previous year.\\nAmid considerable volatility in international currency markets,\\nthe ringgit peg continues to provide a stable and predictable\\nenvironment to promote trade and investment as well as\\nsupporting the structural changes in the Malaysian economy.\\nEXCHANGE RATE DEVELOPMENTS\\nIn 2003, the system of a fixed exchange rate for\\nringgit at RM3.80 to US$1 was maintained with\\nstrengthening economic fundamentals. The fixed\\nexchange rate regime has been in place for the sixth\\nyear since it was introduced in September 1998.\\nAmidst volatility in the foreign exchange markets\\nand debates on effects of the volatility of major\\ncurrencies on the ringgit peg, the ringgit continues\\nto fulfil its intended objective of supporting the\\nexpansion of trade and investments in Malaysia.\\nTable 2.6\\nMovement of the Ringgit\\nRM to one unit of foreign currency1\\nAnnual change (%)\\nChange (%)\\n1997\\n1998\\n2002\\n2003\\n2002\\n2003\\nEnd-June ’97-\\n2 Sep.’98 -\\nEnd-June2\\nSept. 23\\nEnd-Dec.\\nEnd-Dec. 2003 End-Dec. 2003\\nSDR\\n3.5030\\n5.1177\\n5.1474\\n5.6264\\n-7.3\\n-8.5\\n-37.7\\n-9.0\\nUS$\\n2.5235\\n3.8000\\n3.8000\\n3.8000\\n0.0\\n0.0\\n-33.6\\n0.0\\nS$\\n1.7647\\n2.1998\\n2.1887\\n2.2342\\n-6.2\\n-2.0\\n-21.0\\n-1.5\\n100 yen\\n2.2088\\n2.7742\\n3.2020\\n3.5546\\n-9.6\\n-9.9\\n-37.9\\n-22.0\\nPound sterling\\n4.1989\\n6.3708\\n6.0924\\n6.7678\\n-9.5\\n-10.0\\n-38.0\\n-5.9\\nSwiss franc\\n1.7368\\n2.6450\\n2.7386\\n3.0632\\n-16.9\\n-10.6\\n-43.3\\n-13.7\\nEuro4\\n–\\n–\\n3.9811\\n4.7783\\n-15.4\\n-16.7\\n–\\n–\\n100 Thai Baht\\n9.7470\\n9.3713\\n8.8096\\n9.5947\\n-2.4\\n-8.2\\n1.6\\n-2.3\\n100 Indonesian rupiah\\n0.1038\\n0.0354\\n0.0425\\n0.0449\\n-14.1\\n-5.3\\n131.4\\n-21.1\\n100 Korean won\\n0.2842\\n0.2827\\n0.3197\\n0.3180\\n-9.8\\n0.5\\n-10.6\\n-11.1\\n100 Philippine peso\\n9.5878\\n8.8302\\n7.1462\\n6.8431\\n3.1\\n4.4\\n40.1\\n29.0\\n1\\nUS$ rates are the average of buying and selling rates at noon in the Kuala Lumpur Interbank Foreign Exchange Market.\\nRates for foreign currencies other than US$ are cross rates derived from rates of these currencies against the US$ and the RM/US$.\\n2\\nEnd-June 1997 represents pre-Asian Financial Crisis levels.\\n3\\nRinggit was fixed at US$1 = RM3.8000 on 2 September 1998.\\n4\\nThe euro began to be traded on 4 January 1999 (EUR 1= RM4.5050).\\nsterling (-10%) and the yen (-9.9%), along with the\\nUS dollar in 2003. The ringgit depreciated to a\\nlesser extent against most regional currencies in the\\nrange of 2 – 8%. Against the Korean won and the\\nPhilippine peso, the ringgit appreciated. The ringgit\\nremained stable against the Chinese renminbi and\\nthe Hong Kong dollar, as these currencies are also\\npegged to the US dollar.\\nDespite considerable volatility in the foreign\\nexchange market, the pegged exchange rate regime\\nhas remained sustainable with the ringgit close to\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-69\\n69\\nSTG\\nEuro\\nUS$\\n100 Yen\\nGraph 2.9 \\nExchange Rate of the Malaysian Ringgit \\nagainst Major Currencies\\n(Weekly average)\\nRinggit fixed at US$1=RM3.80\\nRM/foreign currency\\nRM/foreign currency\\n3\\n2\\n4\\n5\\n6\\n7\\n8\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\nM\\nJ\\nS D M J\\nS D M\\nJ\\nS D M J\\nS D M J\\nS D\\nJ\\nS D\\nM\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\n75\\n85\\n95\\n105\\n115\\nD J FM A MJ JA S O NDJ F M A MJ J AS O ND J FM A M JJ AS O ND\\n2001\\n2002\\n2003\\n75\\n85\\n95\\n105\\n115\\nIndex (Dec. 2000=100)\\nIndex\\n(End-month)\\nPeso\\nS$\\nRupiah\\nWon\\nBaht\\nGraph 2.10\\nExchange Rate of the Malaysian Ringgit \\nagainst Selected Regional Currencies\\nNote: An increase in the index represents an appreciation of the currency\\n \\nagainst the ringgit.\\n•\\nImpact on overall external debt and debt\\nservicing due to the ringgit depreciation had been\\nmanageable, given that only 23% of Malaysia’s\\ntotal external debt is denominated in currencies\\nother than the US dollar.\\nUnder these circumstances, the ringgit peg, on\\nbalance, continues to provide significant advantages\\nto the overall economy. The stability of the exchange\\nrate has been effective in improving the longer-term\\ncompetitiveness of the Malaysian corporate sector by\\ncreating incentives for structural adjustments to\\nincrease productivity, thereby enhancing the country’s\\nfuture growth prospects.\\nFISCAL POLICY AND OPERATIONS\\nThe Government presented on 20 September 2002 a\\nmoderately expansionary budget for 2003. The fiscal\\ndeficit was, therefore, budgeted at 4% of GDP\\n, lower\\nthan the fiscal deficit of 5.6% in 2002. The\\nMalaysian economy was expected to strengthen in\\n2003, benefiting from the recovery in the major\\nindustrial countries and stronger growth in the\\nregion, with the sustained growth in intra-regional\\ntrade. The private sector was envisaged in the Budget\\nto play a larger role in sustaining domestic-driven\\ngrowth. Private sector investment was projected to\\nreturn to positive growth due to expected\\nimprovement in the financial position of\\ncorporations, following the structural adjustments\\nundertaken since the crisis, emerging business\\nopportunities in selected sectors as well as the\\nimproved business environment. A major thrust of\\nthe 2003 Budget was, therefore, designed to provide\\nthe enabling environment and incentives to revitalise\\nthe private sector to resume its role as the main\\nengine of growth. Policies in the Budget thus focused\\non the enhancement of the supportive incentives to\\npromote private sector ventures, especially into new\\ngrowth areas.\\nThe 2003 Budget contained both expenditure\\nallocation and tax incentives to generate higher\\ngrowth in the promoted sectors. In terms of budget\\nallocation, emphasis was given towards enhancing\\nthe quality of education and upgrading manpower\\nskills. The tax incentives included the reduction in\\ncorporate tax for small- and medium-scale\\nenterprises (SMEs) from 28% to 20% for chargeable\\nincome of up to RM100,000 and tax incentives for\\nmanufacturers of machinery and auto parts makers\\nto promote high value activities in the manufacturing\\nsector. At the same time, an option was introduced\\nits fair value. There are no signs of the ringgit being\\nmisaligned. On the domestic front:\\n•\\nInflation and unemployment remained low;\\n•\\nCurrent account surplus in the balance of\\npayments remained at sustainable levels;\\n•\\nContinued increase in reserves throughout 2003;\\n•\\nExternal debt has been kept at manageable\\nlevels with low debt servicing to export ratio;\\nand\\n•\\nHighly capitalized banking system with further\\nimprovements to asset quality ratios.\\nOn the external front, developments were benign\\non Malaysia’s exchange rate regime:\\n•\\nDepreciating with the US dollar had benefited\\nexports, offsetting the impact on imports;\\n•\\nDepreciation had a minimum impact on\\nimported inflation since the ringgit did not\\ndepreciate against the US dollar and imports\\ndenominated in currencies other than the\\nUS dollar accounted for only a small share of\\ntotal imports. In addition, the share of imported\\ncomponents in the CPI basket remained small,\\nat about less than 10%; and\\n\\n\\n4.H-70\\n70\\nfor pioneer status holders to qualify for reinvestment\\nallowance if their Pioneer Status were surrendered\\nfor cancellation. For the agriculture sector, various\\nincentives were introduced for consolidation of\\nsmallholdings, cultivation of rubber wood trees,\\ndeep-sea fishing, food processing and modernisation\\nof poultry farming.\\nThe actual outturn of fiscal deficit for 2003 was\\n5.3% of GDP\\n, due mainly to counter-cyclical\\nexpenditure to support growth. Revenue\\nperformance was strong in 2003 with higher\\nproceeds from the sale of Government’s shares in\\nselected public listed companies. During the year, the\\nGovernment unlocked some of its assets to optimise\\nreturns from its ownership of high-value assets and\\nto achieve greater flexibility in fiscal management. At\\nsavings rate amidst ample liquidity in the banking\\nsystem, the Government financed its fiscal deficit\\nthrough non-inflationary domestic sources. Given the\\nlow interest rate environment, new issues of MGS\\nwith maturities of 5 and 10 years were raised at\\ncoupon rates ranging between 3.702-3.917% and\\nbetween 4.24-4.41% for those with maturity of 15\\nyears. As part of prudent debt management, the\\nGovernment exercised vigilance on its external\\nindebtedness. Recourse to external borrowings was\\nlimited to drawdown of loans committed earlier and\\nrefinancing of several loans at lower cost, thereby\\nreducing future debt servicing obligations.\\nThe Federal Government debt amounted to 48.2%\\nof GDP as at end-2003 while the debt servicing\\nremained low at 14% of operating expenditure or\\nFiscal policy remained supportive of growth in 2003. While\\nbudgetary operations remained expansionary, fiscal management\\nfocused at ensuring a balance between sustaining the near-term\\ngrowth and achieving fiscal consolidation.\\nthe same time, such exercise would provide the\\nopportunity towards gradual increases in the “free\\nfloat” and liquidity of companies with large\\nGovernment shareholdings and thus benefit trading\\nin the Malaysia Securities Exchange Berhad.\\nHigher-than-expected expenditure in 2003 was due\\nmainly to the increased expenditure to minimise the\\nspill-over effects from the less favourable global and\\nregional developments in the first half of 2003. An\\nEconomic Package amounting to RM7.3 billion was\\naimed at containing the adverse impact from tensions\\nin the Middle East and the outbreak of Severe Acute\\nRespiratory Syndrome (SARS) in the region.\\nThe positive impact of the Economic Package\\nmeasures coupled with other factors including low\\ninterest rates, high commodity prices and improved\\ncashflow position of companies, strengthened\\naggregate domestic demand. Together with the\\nrecovery in external demand, the private sector’s\\ncontribution to economic growth rose to 2.5\\npercentage points in 2003 (0.4% in 2002). Stronger\\nconsumption spending and recovery in external\\ndemand supported higher investment activities.\\nPrivate sector investment turned around to register\\nthe first positive growth since 2000.\\nWhile fiscal expansion contributed to GDP growth, it\\ndid not exert pressure on domestic consumer prices\\nand interest rates. Taking advantage of the high\\n2.7% of GDP\\n. Similarly, external debt of the Federal\\nGovernment declined in 2003 to 9.5% of GDP (2002:\\n10.1%), enhancing Malaysia’s external position.\\nConsolidated Public Sector\\nIn 2003, the consolidated public sector registered a\\nslightly smaller overall deficit of 0.4% of GDP\\n. The\\nimproved position emanated from better revenue\\nperformance of the general government and the\\nnon-financial public enterprises (NFPEs) as well as\\nlower development expenditure of the NFPEs.\\nDevelopment expenditure of the general government\\nwas higher mainly to finance the Economic Package\\nintroduced in May 2003 to mitigate the adverse\\nimpact of global economic uncertainties and regional\\nhealth threat on domestic economic activities.\\nFederal Government Finance\\nThe Federal Government registered an overall deficit\\nof 5.3% of GDP in 2003 (2002: -5.6%), higher than\\nthe 4% targeted in the 2003 Budget. The larger-\\nthan-planned deficit was due to higher counter-\\ncyclical expenditure as well as proactive response to\\nthe risk of a private sector pull-back due to global\\npolitical uncertainties and SARS. The threat of\\nglobal slowdown in the first half of the year\\nprompted the Government to implement stronger\\nexpansionary measures to sustain the growth\\nmomentum. Despite the higher fiscal deficit, the\\ntotal debt of the Federal Government remained\\nmanageable at 48.2% of GDP as at\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-71\\n71\\nend-2003. Debt servicing expenditure also\\nremained low in terms of operating expenditure\\nand GDP. External debt to GDP ratio declined in\\n2003 as the bulk of financing was raised from\\nnon-inflationary domestic sources.\\nIn 2003, Federal Government revenue increased by\\n11.1% to RM92.8 billion, accounting for 23.7% of\\nGDP. The better revenue performance was due to\\nsignificantly higher non-tax revenue, which\\naccounted for a larger share of total revenue (30%).\\nHigher receipts were registered in almost all\\ncomponents; investment income, licence and\\npermits, petroleum royalties and service fees . In\\nparticular, investment income was higher due to\\nproceeds from the sale of the Government’s shares\\nin selected public listed companies. The\\nGovernment disposed of some of its assets to\\noptimise returns from the ownership of high-value\\nassets and achieve a greater flexibility in fiscal\\nmanagement.\\nCollection from taxes declined slightly by 2.9%\\n(-RM2 billion), mainly attributable to lower receipts\\nTable 2.7\\nConsolidated Public Sector Finance\\n2002\\n2003e\\n2004f\\nRM million\\nGeneral government1\\nRevenue\\n96,763\\n110,408\\n109,389\\nOperating expenditure\\n75,450\\n84,809\\n88,538\\nCurrent surplus of general\\ngovernment\\n21,312\\n25,600\\n20,850\\nCurrent surplus of NFPEs2\\n45,324\\n44,627\\n41,890\\nPublic sector current\\nsurplus\\n66,637\\n70,227\\n62,741\\n% of GDP\\n18.5\\n17.9\\n15.0\\nNet development expenditure\\n69,125\\n71,951\\n66,687\\nGeneral government\\n36,828\\n43,727\\n37,563\\nNFPEs\\n32,297\\n28,225\\n29,124\\nOverall balance\\n-2,488\\n-1,725\\n-3,946\\n% of GDP\\n-0.7\\n-0.4\\n-0.9\\n1\\nComprises Federal Government, state governments, statutory bodies\\nand local governments.\\n2\\nRefers to 35 NFPEs in 2003 and 2004.\\ne Estimate\\nf\\nForecast\\nSource: Ministry of Finance, state governments and non-financial public\\nenterprises\\nTable 2.8\\nFederal Government Finance\\n2002\\n2003p\\n2004r\\nRM million\\nRevenue\\n83,515\\n92,804\\n89,966\\nOperating expenditure\\n68,699\\n75,224\\n79,642\\nCurrent account\\n14,816\\n17,580\\n10,324\\n% of GDP\\n4.1\\n4.5\\n2.5\\nNet development expenditure\\n35,069\\n38,508\\n29,084\\nGross development\\nexpenditure\\n35,977\\n39,353\\n29,960\\nLess: Loan recoveries\\n908\\n845\\n876\\nOverall balance\\n-20,253\\n-20,928\\n-18,760\\n% of GDP\\n-5.6\\n-5.3\\n-4.5\\nSources of financing:\\nNet domestic borrowing\\n6,076\\n23,250\\n–\\nGross borrowing\\n18,000\\n41,850\\n–\\nLess: Repayment\\n11,924\\n18,600\\n–\\nNet foreign borrowing\\n8,019\\n-3,709\\n–\\n  Gross borrowing\\n10,465\\n3,144\\n–\\n  Less: Repayment\\n2,446\\n6,853\\n–\\nSpecial receipts\\n62\\n0\\n–\\nRealisable assets1 and\\nadjustments\\n6,096\\n1,387\\n–\\nTotal\\n20,253\\n20,928\\n–\\n1\\nIncludes changes in Government’s Trust Fund balances.\\nA positive (+) sign indicates a drawdown in the accumulated realisable assets.\\np Preliminary\\nr\\nRevised\\nSource: Ministry of Finance\\nGraph 2.11\\nFederal Government Finance\\nFederal Government Debt\\nDebt as \\n% of GDP\\nOverall balance as\\n% of GDP\\n0\\n20\\n40\\n60\\n80\\n100\\n1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003p\\nRM billion\\nCurrent account\\nRevenue\\nOperating expenditure\\nGross development expenditure\\n-80\\n-60\\n-40\\n-20\\n0\\n20\\n40\\n60\\n80\\n1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003p\\n-8\\n-6\\n-4\\n-2\\n0\\n2\\n4\\n6\\n8\\nOverall balance\\n(RHS)\\nDomestic debt\\nExternal debt\\nDebt level remained\\nmanageable\\n-5.3%\\np Preliminary\\n\\n\\n4.H-72\\n72\\nfrom income taxes and sales tax on petroleum\\nproducts. The collection of tax revenue was affected\\nby the negative impact of geopolitical developments\\nand the outbreak of SARS on business activities.\\nOther contributory factors included tax incentives\\nand exemptions introduced in the 2003 Budget and\\nmeasures introduced in the May Economic Package.\\nThese tax initiatives included the reduction of the\\ntax rate from 28% to 20% on chargeable income\\nof up to RM100,000 for small and medium-scale\\ncompanies and the suspension of income tax\\ninstalment payments for travel agencies beginning 1\\nJune to 31 December 2003. Additionally, the lower\\ncompany income tax collection was due to the\\nimplementation of the current year tax assessment\\nsystem in 2000 and self-assessment system in 2001.\\nAs companies overpaid income taxes during the\\ntransition period, these were set off against tax\\nexpenses in 2003. Meanwhile, petroleum\\nincome tax rose by 10.9% due mainly to higher\\ncrude oil prices.\\nImport and excise duties collected were higher\\nreflecting the stronger aggregate domestic demand.\\nOther indirect taxes collected, namely sales and\\nservice tax, were lower. In particular, the lower sales\\ntax was due to the higher tax exemption for\\npetroleum products. In 2003, a higher tax exemption\\nwas provided to oil companies to stabilise the retail\\nprices of petroleum products. The weighted average\\nprice of Malaysian crude oil was higher at US$30.30\\nper barrel in 2003, compared with US$25.24 per\\nbarrel in 2002. The decline in service tax collected\\n(-7.9%) was mainly the result of tax exemption. In\\nthe restaurants and hotels sub-sector, the exemption\\nTable 2.9\\nFederal Government Revenue\\n2002\\n2003p\\n2002\\n2003p\\nRM million\\nAnnual change (%)\\nTax revenue\\n66,860\\n64,891\\n8.7\\n-2.9\\n% of GDP\\n18.5\\n16.6\\nDirect taxes\\n44,351\\n43,016\\n5.4\\n-3.0\\nIncome taxes\\n42,237\\n40,690\\n5.2\\n-3.7\\nCompanies\\n24,642\\n23,990\\n18.6\\n-2.6\\nPetroleum\\n7,636\\n8,466\\n-22.5\\n10.9\\nIndividuals\\n9,889\\n7,984\\n4.8\\n-19.3\\nOthers\\n69\\n251\\n-1.4\\n263.5\\nReal property gains tax\\n319\\n264\\n40.7\\n-17.1\\nStamp duties\\n1,732\\n2,008\\n5.0\\n15.9\\nOthers\\n63\\n53\\n-26.2\\n-15.9\\nIndirect taxes\\n22,509\\n21,875\\n16.1\\n-2.8\\nExport duties\\n803\\n1,157\\n-7.3\\n43.9\\nImport duties\\n3,668\\n3,919\\n14.9\\n6.9\\nExcise duties\\n4,745\\n5,031\\n14.9\\n6.0\\nSales tax\\n9,243\\n7,965\\n25.7\\n-13.8\\nService tax\\n2,214\\n2,038\\n14.9\\n-7.9\\nOthers\\n1,836\\n1,765\\n-4.5\\n-3.8\\nNon-tax revenue\\n16,655\\n27,913\\n-7.9\\n67.6\\nTotal revenue\\n83,515\\n92,804\\n5.0\\n11.1\\n% of GDP\\n23.2\\n23.7\\np Preliminary\\nSource: Ministry of Finance\\nGraph 2.12 \\nComposition of Federal Government Revenue, 2003 (% share)\\nDirect taxes\\n46.4%\\nCompanies\\n25.9%\\nPetroleum\\n9.1%\\nExcise duties\\n5.4%\\nExport duties\\n1.2%\\nImport duties\\n4.2%\\nOthers\\n1.9%\\nService tax\\n2.2%\\nSales tax\\n8.6%\\nIndividuals\\n8.6%\\nOthers\\n2.8%\\nNon-tax revenue \\n30.1% \\nIndirect\\ntaxes\\n23.6%\\nTotal Revenue:  RM92.8 billion\\non service tax was granted for the period June-\\nDecember 2003. In the 2003 Budget, courier services\\nand selected professional services provided to\\ncompanies within the same group were given\\ntax exemption.\\nThe expansionary budgetary operations and the\\nGovernment’s Economic Package implemented in\\nMay to support growth and strengthen further the\\nlong-term productive capacity of the economy\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-73\\n73\\nresulted in gross expenditure rising by 9.5% to\\nRM114.6 billion.\\nOperating expenditure, which accounted for two-\\nthirds of total Federal Government expenditure,\\nincreased by 9.5% to RM75.2 billion. The total wage\\nbill, which was the largest component of operating\\nexpenditure (29%), was higher, due to the\\nimplementation of the Malaysian Remuneration\\nSystem as well as the payment of monthly critical\\nallowances for doctors and medical staff arising from\\nthe outbreak of SARS. While debt-service charges\\nincreased, their share to operating expenditure was\\ncontained at 14% (2002: 14.1%).\\nOutlays on supplies and services were higher due to\\nmeasures introduced to enhance productivity and\\nefficiency (increased expenditure for professional\\nservices and small repairs and maintenance). Other\\ntransfer payments were higher due mainly to grants\\nand transfers to Government agencies for\\ndevelopment and maintenance purposes. Payment\\nfor subsidies in 2003 was lower. As part of the\\nGovernment’s policy to reduce the subsidy on\\npetroleum products, the retail prices of petrol, diesel\\nand liquefied petroleum gas (LPG) were raised by two\\nsen with effect from 1 March.\\nDuring the year, gross development expenditure\\nrose by 9.4% to RM39.4 billion. The bulk of the\\noutlays were extended to the social and economic\\nservices sectors (80%).\\nAs in the past, the thrust of expenditure was on\\nhuman resource development. In 2003, education\\nand training expenses continued to be the largest\\ncomponent of development expenditure (26% of\\ntotal). Expenses were channelled mainly towards\\nconstructing and upgrading schools, matriculation\\ncentres, polytechnics and other institutions of\\nhigher learning as well as for computerisation\\nprogrammes and the acquisition of teaching aids.\\nMeanwhile, the construction of new hospitals as\\nwell as upgrading existing hospitals and rural and\\nhealth clinics were the main factors accounting for\\nthe increase in spending for health. Expenditure on\\nhousing was also higher as the Government\\ncontinued to implement housing programmes for\\npublic sector personnel and the lower income\\ngroup. The Government also increased spending on\\nsocial and community services, mainly for youth\\nprogrammes, small projects in new local housing\\nestates, development work carried out in Putrajaya\\nand Cyberjaya and acquisition of vehicles for\\ncommunity work.\\nIn the economic services sector, a higher amount\\nwas spent on transportation, mainly in constructing\\nnew roads and bridges, upgrading existing roads\\nand improving and increasing the capacity of the\\nrailroad system, ports and airports. Spending under\\nthe trade and industry sub-sector was focussed on\\nthe provision of infrastructure facilities, promotion\\nof small and medium-sized industries (SMIs),\\nindustrial research and technological development\\nand promotion of tourism. Under the Economic\\nPackage announced in May, a total of RM500\\nmillion was allocated to development financial\\ninstitutions (DFIs) as equity to support their efforts\\nin financing small businesses. Outlays on agriculture\\nand rural development remained high, reflecting\\nflood- mitigation projects and the continuous\\nmodernisation programme involving the building\\nand upgrading of infrastructure facilities such as\\nrural roads, the water supply network and\\nelectrification.\\nThe increase in expenditure for general administration\\nwas largely to cater for ICT development in various\\nGovernment agencies to further improve the quality\\nand delivery of services. Spending for defence and\\ninternal security was mainly under the modernisation\\nprogramme for the armed forces and police.\\nFederal Government total debt outstanding\\nincreased by 14.4% to RM188.8 billion or 48.2% of\\nGDP as at end-2003. Higher borrowings from the\\ndomestic market resulted in domestic debt\\noutstanding rising to RM151.5 billion as at end-2003\\nTable 2.10\\nFederal Government Operating Expenditure by\\nObject\\n2002\\n2003p\\n2002\\n2003p\\nRM million\\n% share\\nEmoluments\\n20,242\\n21,721\\n29.5\\n28.9\\nSupplies and services\\n11,269\\n13,968\\n16.4\\n18.6\\nAsset acquisition\\n968\\n1,409\\n1.4\\n1.9\\nDebt service charges\\n9,669\\n10,546\\n14.1\\n14.0\\nPensions and gratuities\\n5,134\\n5,870\\n7.5\\n7.8\\nSubsidies\\n3,677\\n2,679\\n5.4\\n3.6\\nOther grants and transfers1\\n15,949\\n16,324\\n23.2\\n21.7\\nOther expenditure2\\n1,791\\n2,706\\n2.6\\n3.6\\nTotal\\n68,699\\n75,224\\n100.0\\n100.0\\n% of GDP\\n19.0\\n19.2\\n1\\nIncludes grants and transfers to state governments as well as public agencies\\nand enterprises.\\n2\\nIncludes grants to international organisations, insurance claims and gratuities\\nand others.\\np Preliminary\\nSource: Ministry of Finance\\n\\n\\n4.H-74\\n74\\nor 38.6% of GDP (35.7% of GDP). The bulk of\\nGovernment’s financing requirements (93%) was\\nfinanced from domestic sources. Recourse to external\\nborrowings was limited to the drawdown of loans\\nwhile several external loans were refinanced to take\\nadvantage of tighter spreads arising from Malaysia’s\\nimproved ratings. Overall, the prevailing low interest\\nrate environment enabled the Government to raise\\nfunds at low cost and hence, minimised future debt\\nservicing. The regular issue of Government securities\\nin the domestic market also facilitated the\\ndevelopment of a more reflective benchmark yield\\ncurve while deepening the domestic bond market.\\nIn 2003, total gross borrowings of the Federal\\nGovernment amounted to RM45 billion, compared\\nwith RM28.5 billion in 2002. The higher gross funds\\nraised was to finance both the fiscal deficit as well as\\nto roll-over maturing debt. Net borrowings of the\\nFederal Government rose to RM19.5 billion, from\\nRM14.1 billion in 2002. As revenue was more than\\nadequate to finance operating expenditure, the net\\nfunds raised were used only to finance development\\nexpenditure. During the year, the Treasury Housing\\nLoans Fund recorded a net borrowing to meet the\\nhigher demand for housing loans by civil servants.\\nThe high domestic savings rate, coupled with ample\\nliquidity in the banking system, allowed the Federal\\nGovernment to raise funds required from the\\ndomestic market, without crowding out private\\nsector. Malaysian Government Securities (MGS) with\\nmaturities of 5 and 10 years were issued at coupon\\nrates ranging between 3.702-3.917% (3.15-\\n4.053% for funds raised in 2002) and between\\n4.24-4.41% for those with a maturity of 15 years.\\nThere were no issues of 15-year MGS in 2002.\\nDuring the year, the Federal Government floated\\ntwelve issues of MGS totalling RM39.9 billion by\\nopen tender through principal dealers and private\\nplacements and raised a single issue of the\\nGovernment Investment Issues (GIIs) amounting\\nto RM2 billion. The Government reopened eight\\nof its existing conventional issues to increase their\\nrespective issue sizes and enhance liquidity in\\norder to develop the secondary market. The\\nTable 2.11\\nFederal Government Development Expenditure\\nby Sector\\n2002\\n2003p\\n2002\\n2003p\\nRM million\\n% share\\nDefence and security\\n4,333\\n6,026\\n12.0\\n15.3\\nEconomic services\\n12,433\\n13,799\\n34.6\\n35.1\\nAgriculture and rural\\ndevelopment\\n1,364\\n1,621\\n3.8\\n4.1\\nTrade and industry\\n3,474\\n3,463\\n9.7\\n8.8\\nTransport\\n5,401\\n7,354\\n15.0\\n18.7\\nPublic utilities\\n1,808\\n920\\n5.0\\n2.3\\nOthers\\n387\\n442\\n1.1\\n1.1\\nSocial services\\n18,043\\n17,704\\n50.2\\n45.0\\nEducation\\n12,436\\n10,194\\n34.6\\n25.9\\nHealth\\n1,503\\n2,684\\n4.2\\n6.8\\nHousing\\n1,808\\n1,928\\n5.0\\n4.9\\nOthers\\n2,296\\n2,897\\n6.4\\n7.4\\nGeneral administration\\n1,168\\n1,824\\n3.2\\n4.6\\nTotal\\n35,977\\n39,353\\n100.0\\n100.0\\n% of GDP\\n10.0\\n10.0\\nNumbers may not add up due to rounding.\\np Preliminary\\nSource: Ministry of Finance\\nTable 2.12\\nFederal Government Debt Outstanding\\nAnnual change\\nAt end-\\n2002\\n2003p\\n2003p\\nNominal value in RM million\\nDomestic debt\\n7,284\\n22,803\\n151,483\\nTreasury Bills\\n0\\n0\\n4,320\\nGovernment Investment\\n   Issues\\n1,000\\n2,000\\n7,000\\nMalaysian Government\\n   Securities\\n6,100\\n21,250\\n130,800\\nTreasury Housing Loans\\n   Fund\\n1,180\\n2,628\\n9,363\\nMarket loans\\n-996\\n-3,075\\n0\\nExternal debt\\n11,955\\n1,001\\n37,284\\nMarket loans\\n10,992\\n-485\\n28,189\\nProject loans\\n963\\n1,486\\n9,095\\nTotal\\n19,239\\n23,804\\n188,767\\n% of GDP\\n48.2\\np Preliminary\\nSource: Ministry of Finance\\nGraph 2.13 \\nFederal Government Outstanding Debt \\nas at end-2003p (% share)\\nExternal debt \\naccounted for only \\n19.8% of the total \\nFederal Government \\ndebt\\nTreasury Bills\\n2.3%\\nTotal debt : RM188.8 billion\\n Domestic : RM151.5 billion \\n External : RM37.3 billion\\nGovernment Investment Issues \\n3.7%\\nMalaysian\\nGovernment\\nSecurities \\n69.3%\\nHousing loan \\n5.0%\\np Preliminary\\nDomestic debt\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-75\\n75\\nissuance of Treasury Bills (TBs) facilitated the\\nroll-over of maturing bills. MGS issued continued\\nto be absorbed mainly by provident, pension and\\ninsurance funds (76% of the outstanding MGS),\\nwhile the ownership of GIIs and TBs was mainly\\ndominated by the banking sector (94% and 76%\\nof the respective amounts outstanding). After\\ntaking into account repayments, the net domestic\\nborrowing of the Federal Government as at end-\\n2003 amounted to RM23.3 billion.\\nTo contain the cost of debt servicing and\\nminimise exposure to external risks, the\\nGovernment kept its external debt level low in\\n2003 by prepaying and refinancing some of its\\nexisting loans. In this regard, new external\\nborrowings were limited to project loans\\ncommitted earlier. A total of RM1.7 billion was\\ndrawn down from bilateral sources, especially\\nfrom Japan under the New Miyazawa Initiative,\\nas well as multilateral sources. In line with its\\nprudent debt management philosophy, the\\nGovernment refinanced a number of its existing\\nterm and syndicated loans to take advantage of\\nthe tighter spreads. In January, a ¥1.4 billion\\nTerm Loan due 2006 was raised at Libor + 57.5\\nbasis points to refinance the 3.17% ¥4.1 billion\\nTerm Loan due 2006. In March, the Government\\nrefinanced a US$250 million and ¥54 billion dual\\ncurrency syndicated loan at a lower margin of\\nLibor + 38 basis points (previously, Libor + 125\\nbasis points). Another dual currency syndicated\\nloan amounting to US$1.25 billion and ¥11.6\\nbillion was rolled over in December with a\\ntighter spread of 33 basis points (from 52 basis\\npoints). The Government also prepaid two of its\\nexternal loans during the year, namely a Floating\\nRate Note due 2005 and a syndicated loan due\\n2005/07 totalling US$433 million. Overall, the\\nFederal Government registered a net repayment\\nof RM3.7 billion in 2003. During the year, the\\nreclassification of a domestic syndicated foreign-\\ncurrency loan raised in the Labuan International\\nFinancial Centre as external debt and exchange\\nrevaluation loss, led to a slightly higher external\\ndebt. However, with the Government’s restraint\\non recourse to external borrowings and the\\nprepayment exercise, the share of external debt\\noutstanding to GDP declined to 9.5% of GDP\\n(10.1% of GDP in 2002).\\nThe debt servicing expenditure remained within\\nprudent levels. Debt charges as percentage of\\noperating expenditure, revenue and GDP were\\nkept low at 14%, 11.4% and 2.7% respectively\\nin 2003 (2002: 14.1%, 11.6% and 2.7%\\nrespectively). The external debt service ratio of\\nthe Federal Government also remained low at\\n1.3% in 2003 (2002: 1%) while foreign exposure\\ndeclined to account for 20% of the total debt\\noutstanding (2002: 22%). Proactive and sound\\ndebt management enabled the Government to\\navoid a bunching of repayments. As at end-2003,\\nabout 60% of loans outstanding had a remaining\\nmaturity exceeding three years and most were at\\nfixed interest rates, reducing exposure to\\nfluctuations in interest rates.\\nState Governments\\nBased on preliminary estimates, the consolidated\\nfinancial position of state governments recorded\\na small overall deficit of 0.6% of GDP in 2003.\\nWhile the revenue performance remained strong,\\noperating and development expenditures\\nincreased during the year. The overall deficit was\\nfinanced by Federal Government loans and the\\ndrawdown of accumulated financial assets of the\\nstate governments.\\nDuring the year, the higher consolidated state\\nrevenue was derived from state sources. The higher\\ncommodity prices, particularly for crude oil and crude\\npalm oil, had a positive impact on the states’ own\\nsources of revenue through petroleum royalty and\\nsales tax on crude palm oil. Meanwhile, receipts from\\nTable 2.13\\nHoldings of Federal Government Domestic Debt\\n2002\\n 2003p\\n2002\\n 2003p\\n Nominal value in\\n% share\\nRM million\\nTreasury Bills\\n4,320\\n4,320\\n100.0\\n100.0\\nInsurance companies\\n65\\n67\\n1.5\\n1.6\\nBanking sector\\n3,744\\n3,266\\n86.7\\n75.6\\nOthers\\n512\\n986\\n11.8\\n22.8\\nGovernment Investment\\nIssues\\n5,000\\n7,000\\n100.0\\n100.0\\nInsurance companies\\n320\\n390\\n6.4\\n5.6\\nBanking sector\\n4,680\\n6,611\\n93.6\\n94.4\\nMalaysian Government\\nSecurities\\n109,550 130,800\\n100.0\\n100.0\\nSocial security and insurance\\ninstitutions\\n85,325\\n99,260\\n77.9\\n75.9\\nof which:\\nEmployees Provident\\nFund\\n72,980\\n84,678\\n66.6\\n64.7\\nInsurance companies\\n9,313\\n11,597\\n8.5\\n8.9\\nBanking sector\\n14,629\\n19,008\\n13.4\\n14.5\\nOthers\\n9,597\\n12,532\\n8.8\\n9.6\\nNumbers may not add up due to rounding.\\np Preliminary\\n\\n\\n4.H-76\\n76\\nthe Federal Government were sustained to assist\\nthe states in providing infrastructure, utilities and\\nother essential amenities. The increase in operating\\nexpenditure reflected mainly higher payments for\\nemoluments following the implementation of the\\nMalaysian Remuneration System for public sector\\nemployees, as well as the acquisition of assets to\\nfacilitate higher efficiency in the delivery of\\nservices. A major portion of the higher\\ndevelopment expenditure was on expanding and\\nupgrading public utilities, housing, agriculture and\\non rural development as well as for industrial\\ndevelopment.\\nNon-Financial Public Enterprises\\nPreliminary estimates of the consolidated financial\\nposition of the 35 NFPEs indicated a higher overall\\nsurplus position (4.4% of GDP). The improvement\\nwas due to higher revenue and lower development\\nexpenditure with the completion of several big\\nprojects and the reprioritisation of planned\\nprojects.\\nThe higher consolidated revenue of the NFPEs\\nreflected increased earnings from oil and gas-\\nrelated services, utilities and agriculture-based\\nsectors. These sectors benefited from stronger\\neconomic activities and higher commodity prices,\\nespecially for crude oil. Significant earnings were\\nalso recorded from overseas operations. Higher\\noperating expenditure was due to increased raw\\nmaterial costs, especially crude oil and fuel, and\\nmeasures taken to improve services, including the\\nupgrading of technology.\\nThe capital outlay of the NFPEs was channelled\\ntowards expanding capacities, both at home and\\nabroad. Petroliam Nasional Berhad continued to\\ninvest in exploration and production projects in\\nMalaysia and overseas, namely in Egypt, Sudan\\nand Vietnam. The bulk of expenditure was also for\\nProduction Sharing Contracts within Malaysia.\\nOther projects included the final stage construction\\nof MLNG Tiga Plant and on-going building of\\nliquefied natural gas and petroleum tankers. In the\\ncase of Tenaga Nasional Berhad, expenditure was\\nmainly for generation capacity and transmission\\nTable 2.14\\nConsolidated State Government Finance\\n2002\\n2003e\\n2004\\nBudget\\nRM million\\nRevenue\\n8,341\\n8,787\\n9,676\\nState sources\\n6,239\\n6,729\\n7,120\\nFederal grants\\nand transfers\\n2,102\\n2,058\\n2,556\\nExpenditure\\n5,090\\n6,009\\n6,397\\nCurrent surplus\\n3,251\\n2,778\\n3,278\\n% of GDP\\n0.9\\n0.7\\n0.8\\nNet development expenditure\\n3,772\\n4,973\\n4,595\\nGross development\\nexpenditure\\n4,161\\n5,503\\n4,756\\nLess:  Loan recoveries\\n389\\n530\\n161\\nOverall balance\\n-520\\n-2,196\\n-1,316\\n% of GDP\\n-0.1\\n-0.6\\n-0.3\\nSources of financing:\\nFederal loans\\n752\\n773\\n496\\nRealisable assets1\\n-231\\n1,423\\n821\\nTotal\\n520\\n2,196\\n1,316\\n1\\nA positive (+) sign indicates a drawdown in the accumulated realisable\\nassets.\\ne Estimate\\nSource: State governments\\nTable 2.15\\nList of NFPES, 20031\\n1\\n1st Silicon (Malaysia) Sdn. Bhd.\\n2\\nBintulu Port Sdn. Bhd.\\n3    Cement Industries (Sabah) Sdn. Bhd.\\n4    Central Spectrum (M) Sdn. Bhd.\\n5    Felda Agricultural Services Sdn. Bhd.\\n6    Golden Hope Plantations Bhd.\\n7    Indah Water Konsortium Sdn. Bhd.\\n8    Keretapi Tanah Melayu Bhd.\\n9    Kontena Nasional Bhd.\\n10   Kuching Port Authority\\n11   Kulim (Malaysia) Bhd.\\n12   Kumpulan Guthrie Bhd.\\n13   MA (Sepang) Sdn. Bhd.\\n14   Malaysia Airline System Bhd.\\n15   Malaysia Airports Sdn. Bhd.\\n16   Marconi (Malaysia) Sdn. Bhd.\\n17   Multimedia Development Corporation Sdn. Bhd.\\n18   Northport (Malaysia) Bhd.\\n19   Penang Port Sdn. Bhd.\\n20   Penerbangan Malaysia Bhd.\\n21   Petroliam Nasional Bhd.\\n22   PPES Works (Sarawak) Sdn. Bhd.\\n23   Rakyat Berjaya Sdn. Bhd.\\n24   Sabah Energy Corporation Sdn. Bhd.\\n25   Sabah Ports Sdn. Bhd.\\n26   Sarawak Electricity Supply Corporation\\n27   Sebor (Sabah) Sdn. Bhd.\\n28   Sergam Bhd.\\n29   Silterra Malaysia Sdn. Bhd.\\n30   Sinora Sdn. Bhd.\\n31   Syarikat Prasarana Negara Bhd.\\n32   Telekom Malaysia Bhd.\\n33   Tenaga Nasional Bhd.\\n34   TH Plantations Sdn. Bhd.\\n35   UDA Holdings Bhd.\\n1\\nList of NFPEs for monitoring and reporting purposes was revised in 2003.\\nNFPEs are defined as companies in which the Government has an equity of at\\nleast 51 per cent and sales turnover of at least RM100 million or having a\\nsignificant impact on the economy, including large borrowing needs and\\ncapital expenditure.\\n\\n\\nMonetary and Fiscal Developments\\n4.6.3-77\\n77\\nnetwork. Major expenditure included the\\nconstruction of the Port Dickson Phase 1\\nCombined Cycles Power Plant and the East-West\\nGrid Interconnection in Sabah. A large share of the\\ndevelopment expenditure of Telekom Malaysia\\nBerhad was focussed on upgrading and expanding\\ncapacity to improve the telecommunication\\ninfrastructure and services. Projects undertaken\\nincluded the underwater cable network connecting\\nthe Asia Pacific region, Phase VI of the Digitaline II\\nproject to facilitate data transmission for\\nbusinesses and the Government Corporate\\nInformation Network Superhighway to support\\nvarious information technology-related\\napplications for businesses.\\nTable 2.16\\nConsolidated NFPEs Finance1\\n2001\\n2002\\n2003e\\nRM million\\nRevenue\\n105,075\\n126,562\\n149,970\\nCurrent expenditure\\n65,392\\n80,951\\n104,556\\nCurrent account\\n39,683\\n45,611\\n45,414\\n% of GDP\\n11.9\\n12.6\\n11.6\\nDevelopment expenditure2\\n24,033\\n32,297\\n28,225\\nOverall balance\\n15,651\\n13,313\\n17,188\\n% of GDP\\n4.7\\n3.7\\n4.4\\n1\\nRefers to 35 NFPEs in 2003.\\n2\\nIncludes grants from the Federal Government.\\ne Estimate\\nSource: Ministry of Finance and non-financial public enterprises\\n\\n\\n\\n\\n80-85\\nThe International Economic Environment\\n85-96\\nMalaysia Economy in 2004\\n89-91\\nWhite Box: Liberalisation and Simplification of\\nForeign Exchange Administration Rules\\n96-97\\nMonetary Policy in 2004\\n98\\nFiscal Policy in 2004\\n99-100\\nFinancial Sector Policy in 2004\\n101-102\\nWhite Box: Report on SME Development Framework\\nOutlook and Policy\\n\\n\\n80\\nTHE INTERNATIONAL ECONOMIC ENVIRONMENT\\nDevelopments in 2003\\nThe global economy strengthened considerably in\\n2003, led by the United States (US). Growth has also\\nbeen synchronised across major industrial economies,\\nwith the recovery in Japan and Europe adding\\nsupport to global growth. Growth in 2003 was\\ncharacterised by two distinct phases, with the first\\nhalf-year dampened by uncertainties related to the\\nIraq war and the Severe Acute Respiratory Syndrome\\n(SARS) outbreak in Asia. Since mid-2003, however,\\nrevival of growth in Japan and euro zone and\\nstronger growth in the US led to a better-than-\\nexpected global growth of 3.2% for the year.\\nExpansionary fiscal and accommodative monetary\\npolicies in the advanced economies and Asian\\ncountries supported growth. At the same time, the\\nsources of growth have broadened from\\nconsumption-led to include an upturn in investment\\nand inventory rebuilding.\\nThe global recovery was accompanied and supported\\nby improvements in international trade and financial\\nmarkets. World trade grew by 3.5-4.5% in 2003,\\nlargely attributable to import demand from developing\\ncountries. Reflecting the rising global demand, the\\ninternational prices for non-oil primary commodities\\nrose during the year. In the financial markets, major\\nequity markets rallied, supported by rising investor\\nconfidence and improved corporate financial\\npositions. The lower cost of capital amidst sustainable\\ndemand led to a revival in the global investment cycle.\\nDuring the year, the global foreign exchange markets\\nwere dominated by the significant weakening of the\\nUS dollar due to the concerns on the widening US\\nfiscal and current account imbalances. In Asia, there\\nwas strong expansion in domestic demand resulting in\\na significant increase in intra-regional trade.\\nIn the US, the pace of recovery gained strong\\nmomentum in the second half to register a growth of\\n5.8% (first half: 2.1%). Despite weak labour market\\nconditions, household spending remained an\\nimportant driver of growth, with consumption\\nincreasing strongly by 4.9% in the second half-year.\\nWhile the tax cuts provided a significant stimulus,\\nspending also benefited from the low interest and\\nmortgage rates as well as rising household wealth\\nfrom renewed strength in the stock market. More\\nimportant, business spending on equipment and\\nsoftware recovered following productivity-driven\\nincreases in profits and improved corporate balance\\nsheets. Latest data showed real GDP sustaining its\\ngrowth momentum to expand by 4.1% in the final\\nquarter of 2003. Overall, the growth was well\\nsupported by positive contributions from\\nconsumption, investment, exports and inventory\\nincreases.\\nGrowth in Japan picked up in the second quarter of\\n2003 and accelerated in the fourth quarter, led by\\nstrong growth in exports from rising regional trade\\nand recovery in investment spending. The euro area\\nrecovered gradually, supported by fiscal spending and\\nimprovement in net exports. In the United Kingdom\\n(UK), growth remained resilient, underpinned by both\\nprivate and public consumption.\\nOutlook and Policy\\nTable 3.1\\nWorld Economy : Key Economic Indicators\\nReal GDP Growth (%)\\nInflation (%)\\n2002 2003e\\n2004f\\n2002 2003e\\n2004f\\nWorld Growth\\n3.0\\n3.2\\n4.1\\n–\\n–\\n–\\nWorld Trade\\n2.9\\n3.5 - 4.5 5.0 - 6.0\\n–\\n–\\n–\\nMajor Industrial\\nCountries\\nUnited States\\n2.4\\n3.1\\n3.9\\n1.6\\n2.1\\n1.3\\nJapan\\n-0.4\\n2.7\\n2.0\\n-0.9\\n-0.3\\n-0.6\\nEuro Area\\n0.9\\n0.4\\n1.6\\n2.3\\n2.0\\n1.6\\nUnited Kingdom1 1.7\\n2.3\\n2.3\\n2.2\\n2.8\\n2.5\\nEast Asia\\n6.2\\n6.2\\n6.6 - 6.8\\n1.3\\n1.8\\n2.4 - 2.7\\nAsian NIEs\\n4.5\\n2.9\\n5.0 - 5.2\\n0.8\\n1.2\\n1.4 - 1.5\\nKorea\\n6.3\\n2.9\\n5.2\\n2.7\\n3.5\\n3.0\\nChinese Taipei\\n3.6\\n3.2\\n4.7\\n-0.2\\n-0.3\\n0.4\\nSingapore\\n2.2\\n1.1\\n3.5 - 5.5 -0.4\\n0.5\\n0.5 - 1.5\\nHong Kong China2 2.3\\n3.3\\n6.0\\n-3.0\\n-2.6\\n-1.0\\nThe People’s\\nRepublic of\\nChina\\n8.2\\n9.1\\n8.3\\n-0.8\\n1.2\\n3.0\\nASEAN3\\n4.0\\n4.5\\n4.9 - 6.0\\n5.3\\n3.8\\n3.0 - 4.3\\nMalaysia\\n4.1\\n5.2\\n6.0 - 6.5\\n1.8\\n1.2\\n1.5\\nThailand\\n5.4\\n6.7\\n6.3 - 7.3\\n0.7\\n1.8\\n1- 2\\nIndonesia\\n3.7\\n4.1\\n4.0 - 5.0 11.9\\n6.6\\n4.5 - 6.5\\nPhilippines\\n4.4\\n4.5\\n4.9 - 5.8\\n3.1\\n3.4\\n4.0 - 5.0\\n1 Refers to retail price excluding mortgage interest.\\n2 Refers to composite price.\\n3 Includes Singapore.\\ne Estimate\\nf Forecast\\nSource:\\nInternational Monetary Fund, Datastream,\\nOECD Economic Outlook, National Sources\\n\\n\\nOutlook and Policy\\n81\\nIn the Asian region, despite geopolitical\\nuncertainties and the negative impact of SARS in the\\nfirst half of 2003, regional growth was sustained at\\n6.2%, twice the global average. The main impetus to\\ngrowth emanated from exports, driven mainly by the\\nupturn in the global electronics cycle and sustained\\nfavourable prices for non-oil primary commodities\\nreinforced by strong domestic demand. In tandem\\nwith improvements in the global economic\\nenvironment, the trade momentum accelerated in\\nthe second half, resulting in a doubling of the export\\ngrowth rate to 18.6% for the year (2002: 9.5%). Of\\nsignificance, intra-regional trade accounted for about\\nhalf of the regional economies’ export growth, with\\nexports to the People’s Republic of China (P\\n. R.China)\\naccelerating by 33%.\\nGlobal prospects have improved, supported by reinforcing and\\nbroad-based growth across major industrial countries.\\nDuring the year, regional growth was reinforced by\\nthe underlying strength in domestic demand,\\nsupported by accommodative monetary and fiscal\\npolicies. In several countries, economic stimulus\\npackages that were introduced to mitigate the\\nimpact of SARS led to the broad recovery in private\\nconsumption and travel-related industries in the\\nsecond half of the year. Of importance, financial\\nindicators in the region improved during the year.\\nBank balance sheets strengthened while corporate\\nsector debt levels were lower and external debt\\npositions improved. The improved assessment of\\ncredit risk in the region in 2003 was reflected in the\\nraising of ratings for P\\n. R. China, Indonesia, Malaysia,\\nSingapore and Thailand by international credit rating\\nagencies.\\nAmong regional countries, growth continued to be\\nled by P. R. China, with a strong expansion of 9.1%,\\nfollowed by Thailand and Malaysia at 6.7% and\\n5.2%, respectively. While growth was higher in Hong\\nKong China, the growth of the Asian Newly\\nIndustrialised Economies (NIEs) as a whole slowed\\ndown to 2.9% (2002: 4.5%), due mainly to a\\ncontraction in private consumption in Korea and the\\nadverse impact of SARS on the economies of\\nSingapore and Chinese Taipei.\\nProspects for 2004\\nThe outlook for the global economy has become\\nincreasingly optimistic, following the strong upturn in\\nthe second half of 2003. Amidst improved prospects,\\nmost growth projections have been revised upwards.\\nFor 2004, world output and world trade are\\nprojected to grow at a faster pace of 4.1% and\\n5-6%, respectively. The Asian regional economies’\\nshare in global trade has also increased. Measured in\\nterms of the share of world exports of goods and\\nservices, the region’s share has increased from 16.3%\\nin 1994 to 19.6% in 2002. Favourable export\\nperformance, continued growth in private\\nconsumption and expansion in investment are\\nexpected to lead to higher growth for the Asian\\nregional economies in 2004.\\nAmidst a low inflation environment, the growth\\nmomentum in the US is expected to be supported by\\nexpansionary monetary and fiscal policy that have\\nbeen in place for some time, as well as productivity\\ngains, investment and inventory rebuilding. Growth\\nin the euro area is expected to recover gradually as\\nexpansionary fiscal policies continue to be adopted in\\nmajor euro area economies. While the economic\\nrecovery in Japan is affected by long-term structural\\nproblems, deflationary pressures have begun to ease\\nand signs of sustainable recovery have emerged since\\nthe second half of 2003. In the UK, economic growth\\nis expected to remain resilient, underpinned by public\\nand private consumption.\\nIndustrial Countries\\nIn 2004, growth of the US economy is expected to\\nremain strong and more broad-based, with real GDP\\nAnnual change \\n(%)\\n0.0\\n0.5\\n1.0\\n1.5\\n2.0\\n2.5\\n3.0\\n3.5\\n4.0\\n4.5\\nUS\\nJapan\\nEuro\\nUK\\nGraph 3.1\\nMajor Industrial Countries: Real GDP Growth  \\n(2003-2004) \\n2003e\\n2004f\\n3.1\\n3.9\\n2.7\\n2.0\\n0.4\\n1.6\\n2.3\\n2.3\\ne  Estimate\\nf  Forecast\\n\\n\\n82\\ngrowth strengthening to 3.9% from 3.1% in 2003.\\nConsumption growth is expected to continue, albeit\\nat a more moderate pace as benefits of mortgage\\nrefinancing and tax cuts abate. Investment is\\nexpected to provide a higher contribution to growth\\nalthough excess capacity still remains in certain\\nsectors of the economy. The upturn in equipment\\nand software spending is expected to lead\\ninvestment growth. Gains in corporate profits and\\ncapacity expansion are expected to stimulate\\nbusiness expenditure, while expected inventory\\nrebuilding from decade low levels is expected to add\\nto growth.\\nIn the euro area, real GDP is expected to expand by\\n1.6% in 2004. Domestic demand has remained\\nsubdued due to weak labour markets and\\nuncertainties related to social welfare reforms.\\nHowever, the low interest rate environment coupled\\nwith rising real disposable income should provide\\nsome impetus for growth. In addition, investment\\nactivity is expected to recover owing to\\nimprovements in global demand and further\\nRecovery in Japan is expected to be sustained. Major\\ncontributory factors are the robust exports, stronger\\ninvestment activity supported by improved business\\nconfidence, corporate profitability as well as\\nincreased consumption arising from personal income\\ngrowth and more stable employment conditions.\\nDeflationary conditions and long-term structural\\nweaknesses in the corporate and banking sectors are\\nstill being addressed.\\nInflation is expected to remain benign in major\\nindustrialised countries in 2004. While inflation is\\nprojected to remain low at 1.3%, higher global crude\\noil prices could exert upward inflationary pressures,\\nparticularly in the US. Meanwhile, in the euro area,\\nthe stronger euro would contribute to offsetting the\\nimpact of higher crude oil prices. Despite improving\\ngrowth prospects, deflationary pressures are\\nexpected to remain in the Japanese economy.\\nOverall, for 2004, oil prices are expected to remain\\nmarginally higher than the OPEC band (US$22-28\\nper barrel), attributable mainly to rising demand in\\ninventory rebuilding. Despite improvements in\\nbusiness confidence, growth in Germany is expected\\nto remain modest due to weak labour market\\nconditions and moderate private consumption\\ngrowth. While euro area exports are expected to\\ngrow further with strengthening global demand, a\\nsharp and sustained appreciation of the euro could\\nadversely affect exports, corporate profitability and\\ngrowth. Sustainable recovery in the euro area would\\nlargely be dependent on a revival in domestic\\ndemand.\\nIn UK, the economy is expected to remain resilient as\\nthe global economic recovery becomes more\\nentrenched. Growth is estimated at 2.3%, growing\\nabove trend in 2004. Investment is expected to\\nrecover with increased corporate profitability, while\\nfiscal expenditure is expected to rise modestly.\\nConsumption is expected to continue to grow, but at\\na more moderate pace with the slowdown in growth\\nof disposable income. Recovery of export growth will\\nbe influenced by exchange rate movements and\\ndemand conditions in the euro area. While house\\nprices have been rising at a rapid rate, recent\\nincreases in borrowing costs are expected to mitigate\\nfurther price increases.\\ntandem with the strengthening of global growth. In\\nFebruary 2004, OPEC announced that with effect\\nfrom 1 April 2004, the production ceiling will be\\nlowered by one million barrels per day, given a\\nprojected supply surplus in the second quarter of the\\nyear due to seasonally low demand. Also,\\nuncertainties in oil production, particularly in Iraq,\\nand positive investor sentiments on the commodities\\nmarket, are expected to contribute to price increases.\\nEast Asian Economies\\nProspects are for growth in the Asian region to be\\nstronger between 6.6-6.8% in 2004. The majority\\nof regional countries are expected to register faster\\ngrowth, with P\\n. R. China leading growth in the\\nregion. Overall, regional growth is expected to be\\nbroad based, with both external and domestic\\ndemand providing the impetus to faster growth.\\nOn the external front, growth is expected to benefit\\nfrom the further strengthening of the electronics\\nupcycle. Besides demand for consumer electronics,\\nwhich was the main factor for growth of\\nsemiconductor sales in 2003, higher business\\nspending on IT replacement and a revival of\\ninvestment are projected to enhance sales. On the\\nGrowth momentum to continue in US, with recovery gaining\\nstrength in Japan and Europe and growth in Asia to be driven by\\nrecovery in investment.\\n\\n\\nOutlook and Policy\\n83\\nsupply side, the industry is expected to register\\nstrong capacity expansion, particularly in equipment\\ninvestment, which was last seen during the\\nelectronics upturn in 2000. With capacity utilisation\\nabove 90% in 2003, investment in equipment and\\nmachinery is forecast to increase by 36-42% on an\\nannual basis in 2004 (2003: 12.4%). The rise in\\ninvestment activity during the year is envisaged to\\nemanate from stronger foreign direct investment\\nyear. Reflecting efforts to diversify the economy, a\\nkey measure taken in recent years by most regional\\ncountries is to spearhead investments in the services\\nsector. Of importance, domestic investments through\\nthe promotion of small and medium enterprises\\n(SMEs) are expected to pick up during the year.\\nConsonant with higher growth, most regional\\ncountries are forecast to record fiscal improvements.\\nFor 2004, the global outlook is biased on the upside,\\nwith stronger recovery in demand. Growth is\\nexpected to be supported by continued expansion in\\nconsumption and private investment and the\\nstrengthening of the labour market in the US and the\\npositive impact of tax and labour market reforms in\\nEurope. Hence, prospects for regional growth in Asia\\nremain favourable.\\nIn 2004, real GDP growth of the Asian Newly\\nIndustrialised Economies (NIEs) as a group, is\\nexpected to strengthen to 5-5.2%, underpinned by\\nrobust export performance and a pick up in domestic\\ndemand.\\nIn Korea, real GDP is projected to register growth of\\n5.2% in 2004. Exports would remain the main driver\\nof economic expansion. Tax incentives, increased\\ninvestment expenditure, and measures to improve\\nlabour-management relations as well as nurture\\n2003\\nAnnual change (%) \\nGraph 3.2\\nRegional Countries: Real GDP Growth\\n2004\\n0\\n2\\n4\\n6\\n8\\n10\\nP.R. China\\nKorea\\nHong Kong China\\nChinese Taipei\\nSingapore\\nThailand\\nPhilippines\\nIndonesia\\nMalaysia\\n9.1\\n5.2\\n6.0\\n4.7\\n3.2\\n3.3\\n2.9\\n1.1\\n4.5\\n4.1\\n5.2\\n6.7\\n3.5~5.5\\n6.0~6.5\\n4.0~5.0\\n4.9~5.8\\n6.3~7.3\\n8.3\\nHigher and broad based regional growth in 2004, with expansion\\nin exports, consumption and investment.\\ninflows and the further strengthening of regional\\nproduction networks. Therefore, intra-regional trade\\nis expected to continue expanding.\\nOn the domestic front, private consumption is\\nexpected to strengthen further in 2004, supported\\nmainly by rising disposable incomes and low interest\\nrates in most regional countries. With the exception\\nof Korea, lending to the household sector in most\\nother regional countries remains below pre-crisis\\nlevels, implying the potential for further expansion.\\nThe impact of the bird flu on economic growth\\nwould be marginal as the livestock industry accounts\\nfor a small share of GDP\\n, ranging from 0.1% in Japan\\nto 15% in Cambodia. A key development during the\\nyear is the expansion in investment activity, which\\nbegan to pick up in the second half of 2003. The\\nbenefits of past restructuring of the corporate sector\\nhave led to higher profitability as well as increased\\nbank lending and equity capital, all of which are\\nexpected to enhance investment activity during the\\nSMEs are expected to lead to the improvement in job\\nprospects. Hence, private consumption is expected to\\nimprove in the second half of the year.\\nGrowth in Hong Kong China is forecast to pick up\\nfurther in 2004 to reach 6%, the highest in four\\nyears. A boost to economic expansion is expected to\\nemanate from the Closer Economic Partnership\\nArrangement (CEPA) with P\\n.R.China, which came into\\neffect on 1 January 2004. The agreement, covering a\\nwide range of goods and the opening up of 17\\nservices sectors, is the first extensive bilateral FTA in\\nthe region. Further strengthening of the domestic\\neconomy and strong demand from P\\n.R.China would\\nsupport employment and the services sector\\nincluding the tourism and financial sectors.\\nLed by investment and exports, growth in Chinese\\nTaipei is expected to be higher at 4.7%. Higher\\ninvestment spending is forecast for the year, due to\\ngovernment expenditure on construction projects\\n\\n\\n84\\nand a rebound in private investments in the\\nmanufacturing sector. In line with the strengthening\\nof the global electronics upcycle, exports are poised\\nto benefit from the country’s competitive advantage\\nin contract manufacturing, namely in wafer\\nfabrication, notebooks and consumer electronics.\\nIn Singapore, growth is expected to strengthen in\\nthe range of 3.5-5.5% in 2004, attributable mainly\\nto the recovery in global IT spending. A revival in\\nconsumer demand is projected to emanate mainly\\nfrom positive sentiments arising from improvements\\nin labour market conditions and the low interest rate\\nenvironment.\\nThe ASEAN economies as a whole is expected to\\nexpand at a faster pace of 4.9-6% in 2004, with\\nhigher contribution from the domestic and external\\nsectors. Within the group, Thailand is forecast to\\nrecord the strongest growth in output, with growth\\nof 6.3-7.3%. Following rising capacity utilisation,\\nfaster investment growth is expected, with the bulk\\nof investments comprising private sector investments\\nin the manufacturing sector, and reinforced by public\\nsector infrastructure projects.\\nIn the Philippines, real GDP growth is projected to\\nexpand by 4.9-5.8%, attributable mainly to higher\\nelectronics exports. Continued strong overseas\\nremittances as well as favourable farm output are\\nexpected to contribute to growth in private\\nconsumption. Growth in Indonesia is expected to\\nincrease between 4-5%, with private consumption to\\nremain as the primary source of growth. With\\nincreased access to financing at lower interest rates\\namidst declining inflation, private consumption is\\nexpected to register a sustained rise.\\nP\\n. R.China is forecast to register the highest growth\\nof 8.3% in 2004. While exports and private\\nconsumption are expected to increase, investment\\nexpenditure is expected to moderate in line with the\\ngovernment’s policy to achieve a more balanced and\\nsustainable growth.\\nIn 2004, inflation in the regional countries is\\nexpected to remain low between 2.4-2.7%. Inflation\\nin the Asian NIEs as a group, however, is expected\\nto increase marginally to between 1.4-1.5%. In\\nKorea, inflation is projected to moderate, reflecting a\\nstabilisation in food and oil prices and receding\\ndemand pressures. In all other NIEs, consumer prices\\nare forecast to trend upwards, attributable to the\\npick up in general economic activity. While\\ndeflationary pressures are expected to ease in Hong\\nKong China, a turnaround is forecast for Chinese\\nTaipei, with price increases in 2004, compared with\\nprice declines registered in the last two years.\\nMeanwhile, inflation in the ASEAN countries as a\\ngroup is expected to remain stable in the range of\\n3-4.3% in 2004. In Indonesia, price pressures are\\nprojected to subside further, with slower growth in\\nwages amidst excess capacity conditions. In contrast,\\ninflation in the Philippines is estimated to increase\\nfurther, reflecting rising demand pressures as\\neconomic growth strengthens. In Thailand, modest\\nprice pressures are forecast, arising from continued\\nbuoyant domestic demand conditions.\\nInterest Rates and Exchange Rates\\nIn 2003, the major industrial countries continued to\\nmaintain accommodative monetary policies. Weak\\neconomic conditions, particularly in the first half of\\nthe year, led several major central banks to reduce\\ninterest rates.\\nIn the US, the Federal Reserve Board (Fed)\\nreduced interest rates by 25 basis points on 25 June\\n2003 following heightened risk of deflation. The\\nFed’s actions had brought the Federal funds rate to\\n1.0%, its lowest level in more than 40 years, and\\nmarked a cumulative reduction of 550 basis points\\nsince the Fed began its easing cycle in early 2001. By\\nend-year, however, amidst a stronger recovery in\\ngrowth, the threat of falling inflation had receded.\\nMeanwhile, signs of economic weakness in the euro\\nzone especially in early 2003 prompted the\\nRate,%\\nGraph 3.3 \\nMajor Industrial Countries: Official Interest Rates\\nUnited Kingdom\\n(Base lending rate)\\nUnited States\\n(Fed funds Rate)\\nEuro area\\n(Repo rate)\\nJapan\\n(Overnight rate)\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n1999\\n2000\\n2001\\n2002\\n2003\\n2004\\n2.00\\n4.00\\n1.00\\n0.0\\n\\n\\nOutlook and Policy\\n85\\nEuropean Central Bank to reduce rates by 25 basis\\npoints in March 2003 and a further 50 basis points in\\nJune 2003. Consequently, the benchmark repo rate\\ndeclined to 2%, reflecting a cumulative 275 basis\\npoint reduction since May 2001 to counter the\\nslowdown in the euro area.\\nIn the UK, the Bank of England (BOE) eased its base\\nlending rate twice by 25 basis points in February and\\nJuly 2003 on concerns about the downturn in the\\nmanufacturing sector and that domestic and external\\ndemand would be lower than earlier anticipated.\\nHowever, with the sharp increases in house prices\\nand rapid growth in consumer loans seen in the\\nsecond half-year, the BOE raised rates in November\\n2003 and again in February 2004, mainly to\\nconstrain the pace of household debt accumulation.\\nMeanwhile, in Japan, with official short-term interest\\nrates virtually at zero, the Bank of Japan continued\\nto engage in quantitative easing measures\\nthroughout 2003 to inject liquidity into the banking\\nsystem in order to counter deflation and lend support\\nto the economic recovery.\\nFor the remaining part of 2004, while growth has\\ngathered momentum, excess capacity still exists in\\nthe global economy. Excess capacity in the industrial\\nsector and high unemployment in the labour markets\\nare reflective of output gaps. Thus, despite rising\\ncommodity prices, inflation levels remain subdued in\\nmany economies. Nonetheless, in some countries,\\nhouse price increases and excessive credit growth\\nhave surfaced to influence the stance of monetary\\npolicy. Overall, the timing and magnitude of\\nmonetary policy actions would depend on country-\\nspecific factors, including the strength of economic\\ngrowth, inflation trends and developments in the\\ncurrency and financial markets.\\nIn the foreign exchange markets, the US dollar\\ndepreciated further against all major currencies in\\n2003, extending its decline, which began in early\\n2002. Consequently, by end-2003 the US dollar\\ndepreciated further by about 20% against the euro\\nand about 11% against both the Japanese yen and\\npound sterling. Underlying the depreciating trend\\nhas been the pressure from a widening current\\naccount deficit and declining capital inflows into US\\ndollar assets. Against the backdrop of a weaker US\\ndollar, the euro appreciated in 2003 and ended the\\nyear at a record high of E1=US$1.2595. This trend\\ncontinued into early 2004, with the dollar\\nweakening further against the other major\\ncurrencies.\\nMALAYSIAN ECONOMY IN 2004\\nThe Malaysian economy is expected to strengthen\\nfurther in 2004, building on the strong growth\\nmomentum in the second half of 2003 and\\nbrighter prospects for global growth in 2004. Real\\nGDP is expected to expand by 6-6.5% (2003:\\n5.2%), underpinned by stronger domestic demand\\nand reinforced by more favourable external\\ndemand. Growth will mainly be private sector-\\ndriven, while the public sector gradually\\nconsolidates. The growing consumer and business\\nconfidence since the second quarter of 2003,\\nstrengthened economic fundamentals and the\\npositive impact of pro-growth fiscal and monetary\\nmeasures are expected to mutually reinforce robust\\nconsumer spending and the upturn in private\\ninvestment activities.\\nThe projections for growth in 2004 are based on a\\nstronger global economic growth of 4.1% and led\\nby synchronised recovery across all regions, an\\nupturn in the global electronics cycle and firm prices\\nfor crude palm oil and crude oil. With the growth in\\nAsia stronger than the global average, Malaysia is\\nalso expected to benefit from the continued\\nexpansion in intra-regional trade. The expectation of\\nthe stronger pace of growth is also premised on the\\nstrength and dynamism of the private sector\\nperformance, especially the strength of the upturn\\nin domestic investment. Evidence of higher new\\ninvestments and capacity expansion are indicative\\nthat the recovery in economic growth is sustainable.\\nEuro, Sterling\\nYen\\nUS$/£\\nUS$/Euro\\n¥/US$\\nGraph 3.4\\nMovement of the US Dollar against Major\\nCurrencies\\n0.80\\n1.00\\n1.20\\n1.40\\n1.60\\n1.80\\n2.00\\n2000\\n2001\\n2002\\n2003\\n2004\\n100\\n105\\n110\\n115\\n120\\n125\\n130\\n135\\n140\\n1999\\n\\n\\n86\\nWhile possible downside risks remain, the strong\\nunderlying fundamentals will provide strong\\nfoundations for economic resilience and future\\ngrowth.\\nWhile the external environment has improved\\nsignificantly, Malaysia will continue to fine-tune the\\nstrategies to strengthen the domestic sources of\\ngrowth to reduce vulnerability to external risks and\\nstrengthen economic resilience. Hence, while\\ncontinuing to promote exports and foreign direct\\ninvestment, greater focus has been directed at\\nenhancing the contribution of domestic\\nconsumption and investment to growth.\\nPrivate consumption has become an important\\ncomponent of the economy. Measures to promote\\ndomestic consumption have resulted in a higher\\nshare of private consumption to GDP (46.4%; 1999:\\n43.6%). However, the share of private consumption\\nto GDP is relatively low compared to other countries\\nin the region, which have higher shares of between\\nMeanwhile, private investment is expected to be an\\nincreasingly important driver of growth. Several\\nmeasures have been implemented recently to\\nenhance the contribution of investment to growth,\\nparticularly investment by the SMEs. The SME sector\\nGraph 3.5\\nInternational Comparison - Household Debts1 \\n(% of nominal GDP, 2003)\\nThailand\\nSingapore\\nMalaysia\\nHong Kong China\\nKorea\\nAustralia\\nJapan\\nEuro Area\\nCanada\\nUK\\nUS\\n58.9\\n0\\n20\\n40\\n60\\n80\\n100\\n%\\n1 Financial liabilities of households with the banking system\\nReal GDP to expand by 6-6.5% in 2004, underpinned by stronger\\ndomestic demand and reinforced by robust external demand.\\nPrivate sector will lead growth, while the Government continues\\nto provide a supportive environment.\\nwill continue to be developed and integrated into the\\nmainstream of industrial and technological\\ndevelopment to actively support the domestic\\nindustries. This will strengthen the inter-linkages in\\nthe economy and contribute towards the\\ndevelopment of a more vibrant domestic economy.\\nIn this regard, the key strategies in the 2004 Budget\\nreinforced the measures in the Economic Package to\\nstrengthen the domestic sources of growth and to\\nfacilitate the private sector to assume its lead role as\\nthe engine of growth. The thrust of the 2004 Budget\\nstrategies focused on providing a supportive\\nenvironment for private sector initiatives, while\\ngradually cutting back public expenditure. Towards\\nthis end, various tax and non-tax incentives were\\ndirected at enhancing domestic sources of growth in\\nniche areas, with continuing emphasis on the services\\nsector (especially private education, health and\\ntourism), developing SMEs as a key growth catalyst,\\nand agriculture as the third engine of growth.\\nAdditional incentives were provided to encourage\\nmanufacturers to move up the value chain to\\nundertake higher value-added activities such as\\nresearch and development. Measures also continue\\n50-70% of GDP. In terms of the average propensity\\nto consume (APC), Malaysia’s APC is also lower\\n(within the range of 0.45-0.49 in the last five years)\\ncompared with that of the other countries in the\\nregion (above 0.55). Thus, given the steady income\\nlevels and the high savings rate, there is potential to\\nfurther enhance the contribution of domestic\\nconsumption to growth, without increased risks to\\nthe economy.\\nAs at end-2003, household debt to GDP accounted\\nfor 58.9% (end-2002: 56.8%). This level remains\\ncomparatively low compared with other countries.\\nThe debt service burden accounted for only 16.4%\\nof GDP. Including credit card repayments, the ratio\\nwould be 24%. While household debt has\\nincreased, the repayment capability of households\\nhas continued to improve. This is reflected in the\\ncontinued decline in the household NPLs to 8% as\\nat end-2003, from 8.5% as at end-2002. The ability\\nof the household sector to service their debts is also\\nreflected in the sustained increase in disposable\\nincome and accumulation of savings. Household\\ndeposits, as a percentage of GDP, remained high at\\n66.6% at end-2003 (end-2002: 67.3%).\\n\\n\\nOutlook and Policy\\n87\\nto focus on enhancing the country’s efficiency and\\nproductivity and overall competitiveness to enable\\nMalaysian companies to compete globally. These\\ninclude incentives directed at reducing the cost of\\ndoing business and increasing innovation through\\nhigher research and development activities.\\nReflecting the gradual fiscal consolidation, the\\nGovernment’s fiscal deficit is expected to narrow to\\n4.5% of GDP in 2004 from 5.3% in 2003. With\\ninflation remaining subdued, monetary policy in\\n2004 would continue to be directed at sustaining the\\ngrowth momentum. The current low interest rate\\nenvironment will remain to reinforce the private\\nsector-led growth. In this regard, efforts would\\ncontinue to focus on improving the flow of credit to\\nsectors with growth potential, particularly the SMEs\\nand to new growth areas. In addition to the banking\\nsystem, new avenues are also being developed to\\nincrease the SMEs’ access to capital market funding.\\nIn 2004, growth would also be supported by higher\\nproductivity. Given the infrastructure in place and\\nefforts to improve skills to better leverage on\\ntechnology, productivity is expected to increase. An\\nimportant factor that would enhance productivity is\\nthe efficiency of the delivery system for public sector\\nservices. In this regard, Bank Negara Malaysia further\\nliberalised the foreign exchange rules as part of its\\ncontinuous effort to reduce regulatory cost and\\nimprove overall efficiency of both businesses and\\nbanking institutions. The changes are to achieve\\nthree main objectives:\\n•\\nTo promote efficiency and risk management;\\n•\\nTo facilitate management of funds and risk\\ndiversification; and\\n•\\nTo deepen the capital market.\\nDomestic Demand\\nThe positive factors that supported domestic\\ndemand in 2003 are expected to continue to drive\\nthe growth momentum in 2004. The pace of\\ngrowth of private investment, which had turned\\npositive in 2003, is expected to accelerate this year,\\nwith a more significant contribution to growth.\\nPrivate consumption would strengthen further. The\\ngrowth enhancing effects of fiscal policy and low\\ninterest rates will continue to support private sector\\nactivities.\\nGrowth would also be reinforced by the\\nimprovement in external demand with the\\nstrengthening of the economies of Malaysia’s main\\ntrading partners. While a more robust growth of\\nexports is anticipated, the contribution from net\\nexports to growth would be modest as a stronger\\nincrease in imports is expected with the recovery in\\nprivate investment and stronger economic\\nexpansion. Against this backdrop, the private sector\\nis expected to resume the lead role, with its\\ncontribution to growth doubling from 2.5\\npercentage points in 2003 to 4.9 percentage points\\nin 2004. Reflecting the policy of fiscal consolidation,\\npublic expenditure would show a modest decline.\\nGrowth in private consumption, which displayed\\nresilience in 2003, is expected to strengthen to\\n8.1% in line with growing consumer confidence.\\nThe propensity to consume would be further\\nenhanced by continued firm commodity prices,\\nTable 3.2\\nReal GDP by Expenditure (1987=100)\\n2003p\\n2004f\\nAnnual change (%)\\nDomestic Demand1\\n4.8\\n5.0\\nPrivate sector expenditure\\n4.3\\n8.7\\nConsumption\\n5.1\\n8.1\\nInvestment\\n1.1\\n11.5\\nPublic sector expenditure\\n5.5\\n-1.3\\nConsumption\\n7.9\\n4.2\\nInvestment\\n3.6\\n-5.7\\nNet exports of goods and services\\n20.5\\n0.8\\nExports\\n6.3\\n12.1\\nImports\\n5.0\\n13.3\\nGross Domestic Product\\n5.2\\n6.0 - 6.5\\n1\\nExcluding stocks.\\np\\nPreliminary\\nf\\nForecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nTable 3.3\\nContribution of Demand Components to Real\\nGDP Growth\\n2003p\\n2004f\\n% point of\\ncontribution\\nDomestic Demand1\\n4.3\\n4.5\\nPrivate sector expenditure\\n2.5\\n4.9\\nConsumption\\n2.4\\n3.7\\nInvestment\\n0.1\\n1.1\\nPublic sector expenditure\\n1.8\\n-0.4\\nConsumption\\n1.1\\n0.6\\nInvestment\\n0.7\\n-1.0\\nChange in stocks\\n-1.1\\n1.5\\nNet exports of goods and services\\n2.0\\n0.1\\nExports\\n6.9\\n13.3\\nImports\\n4.9\\n13.2\\nGross Domestic Product\\n5.2\\n6.0 - 6.5\\nNote: Figures may not necessarily add up due to rounding.\\n1\\nExcluding stocks.\\np\\nPreliminary\\nf\\nForecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\n\\n\\n88\\nhigher export earnings, the low interest rate\\nenvironment, stable job market and the positive\\nwealth effect of higher equity prices. The  income\\nlevels of households are also expected to increase in\\nline with the improvement in business conditions\\nand productivity gains. The stimulus measures\\nalready in place would continue to filter through\\nwith positive effects on consumer spending\\ncapacity. The reduction in EPF contribution by\\nemployees would continue to enhance the\\ndisposable income of individuals in the first half-\\nyear. In addition to the improving income levels, the\\nhigh savings rate would also provide the support for\\nhigher spending capacity.\\ngas sector is expected following the discovery of\\ndeep sea oil and for ongoing exploration work by\\nthe oil companies.\\nNew investment activities are also expected in the\\nnew growth areas in the information and\\ncommunications technology and shared services\\nsub-sectors (such as operational headquarters and\\nback-room operations) with the additional\\nallocation of funds under Malaysian Venture\\nCapital Management (MAVCAP), the expansion of\\nMultimedia Development Corporation’s role as a\\none-stop agency for selected services sectors and\\nthe additional incentives for operational\\nRobust external demand, improved cash flow position of\\ncompanies, higher capacity utilisation and low interest rates will\\nreinforce and strengthen the pace of private investment, while\\nfirm commodity prices and stable job market continue to drive\\nprivate consumption.\\nPrivate investment is expected to expand at a\\nstronger pace of 11.5% in 2004 as the rise in\\nprivate capital spending gains further momentum\\ndue to more positive business sentiment, improved\\ncorporate cash flow positions and high capacity\\nutilisation rates. The IT replacement cycle would also\\nlead to increases in investment in equipment and\\nsoftware. Private sector capital formation would be\\nsupported by higher capital outlay, particularly in\\nthe manufacturing, oil and gas and services sectors.\\nInvestments would also be supported by a steady\\ninflow of new foreign direct investment and\\nreinvestment.\\nPositive developments in the manufacturing sector,\\nincluding the markedly higher approvals of\\nmanufacturing projects by the Ministry of\\nInternational Trade and Industry (MITI) and high\\ncapacity utilisation rates are expected to drive\\ninvestment activities in the sector. A contributory\\nfactor is the additional tax incentives given to local\\ncompanies to reinvest in the production of\\nmachinery and equipment and heavy industries.\\nInvestment in the construction sector would be\\nsustained, mainly from the development of several\\nresidential housing projects as well as ongoing\\nprivatised road projects. In addition, large capital\\nspending would emanate from other major\\ninfrastructure projects in the transport and utilities\\nsub-sectors such as building of new power plants,\\nexpansion of port facilities and development of\\nwater projects. Higher investment in the oil and\\nheadquarters. Meanwhile, investment in the\\nagriculture sector is expected to be sustained with\\nthe measures announced in the Economic Package\\nand the 2004 Budget to promote large-scale mixed\\nfarming and further modernise the agriculture\\nsector.\\nIn 2004, a modest decline in public sector\\nexpenditure is expected. The public sector, while\\ngradually consolidating, would remain supportive\\nof growth. Public sector consumption is\\nbudgeted to increase moderately by 4.2% due to\\nincreased spending on supplies and services to\\nimprove the quality and delivery of public services.\\nMeanwhile, public investment would be reduced\\nby 5.7% to a more sustainable level in 2004\\nfollowing the accelerated implementation of\\ndevelopment projects in 2001-2003. Although\\ndevelopment expenditure would decline, its impact\\non growth would be compensated by private\\nsector expenditure, which has a larger multiplier\\nimpact on the economy. Also, increased efficiency\\nin expenditure allocation and improved\\neffectiveness in the delivery of Government\\nservices would generate positive multiplier effects\\non private sector activities. More importantly, the\\nFederal Government’s development expenditure\\nwill be mainly channelled to projects and\\nprogrammes with strong linkages and value added\\npotential, including infrastructure facilities,\\nagriculture and rural development as well as\\neducation and human resource development.\\n\\n\\nOutlook and Policy\\n89\\nLiberalisation and Simplification of Foreign Exchange Administration Rules\\nMalaysia maintains a liberal foreign exchange administration system. Within this liberal system,\\napproval requirements for inflows and outflows are mainly prudential in nature to ensure financial\\nstability. Regulations are implemented in a transparent and pragmatic manner. Foreign exchange\\nadministration regulations are also applied where appropriate to prevent any recourse to the Malaysian\\nbanking system for money laundering and terrorism financing.\\nIn line with the policy of gradual and progressive liberalisation of the financial sector, liberalisation and\\nfurther simplification of several major foreign exchange administration policies aimed at enhancing the\\nbusiness environment as well as efficiency and competitiveness of business operations in Malaysia\\nwere made effective from 1 April 2004. These changes form part of Bank Negara Malaysia’s (the\\nBank) on-going initiatives towards contributing to the deepening of the capital market and enhancing\\nefficiency of the regulatory delivery system.\\n(i)\\nRules Affecting Reporting of Foreign Exchange Transactions\\nWhile maintaining the requirement for exporters to repatriate receipts arising from export of goods\\n(export receipts) when contractually due, which must not exceed six months from the date of export,\\nthe rules on reporting of such transactions are being abolished or simplified to reduce the\\nadministration cost to businesses.\\n•\\ncompletion of Forms P (for payments abroad) and R (for receipts from abroad) by residents was\\ndiscontinued since 1 January 2004. Information as contained in Forms P and R is being\\nprovided by the remitting or receiving banks to the Bank through an on-line system.\\n•\\nIn simplifying business operations, the reporting requirement to the Bank is further relaxed\\neffective 1 April 2004. The requirement for submission of annual reports for export of goods by all\\nexporters is abolished. Only exporters with annual gross exports exceeding RM50 million need to\\nsubmit quarterly reports. The process for submission of such reports is being simplified further. The\\nreporting mechanism will be designed taking into account business operations of companies.\\n(ii)\\nForeign Currency Accounts of Residents\\nRules on maintenance of foreign currency accounts (FCA) are liberalised further following the\\nrelaxation implemented in April 2003. The liberalisation of limits for companies is aimed at enhancing\\nthe cash flow management for supporting value chain expansion in Malaysia. Rules on FCA of\\nindividuals are also relaxed to provide flexibility in the management of income and saving.\\n•\\nEffective 1 April 2004, the overnight export FCA limit for Approved Operational Headquarters is\\nincreased further to USD100 million from USD70 million.\\n•\\nThe overnight limits for export FCA of other resident exporters are also raised. The revised limits,\\nbased on the average monthly export receipts are as follows -\\nAverage monthly export\\nOvernight limits\\nreceipts\\n(USD million)\\nExceeding RM100 million\\n100\\nExceeding RM50 million up to RM100 million\\n60\\nUp to RM50 million or for new exporters\\n30\\n•\\nIn addition, resident exporters are given the option to merge their export and non-export FCA in\\naccordance with overnight limits imposed on export FCA.\\n\\n\\n90\\n•\\nResident companies with domestic borrowings may also open FCA for non-export receivables\\n(receivables other than from export of goods) to retain such receipts with onshore licensed banks\\nwith no overnight limit. For resident companies that do not have domestic borrowings, they may\\nalso maintain non-export FCA with licensed offshore banks in Labuan, but up to an aggregate\\novernight limit of USD500,000.\\n•\\nIn the case of resident individuals, FCA remains permitted to facilitate education and employment\\n overseas. However, effective 1 April 2004, the limits for these FCA are increased from\\nUSD100,000 to up to an aggregate overnight limit of USD150,000 each with onshore licensed\\nbanks and licensed offshore banks in Labuan.\\n•\\nResident individuals with funds abroad (no conversion from ringgit) may maintain non-export FCA,\\nonshore or offshore, including licensed offshore banks in Labuan, without any limit.\\n•\\nResident individuals in Malaysia who have foreign currency funds are free to invest in any foreign\\ncurrency products offered by onshore licensed banks.\\n(iii)\\nRinggit Credit Facilities to Non-Residents\\nRules on lending in ringgit to non-residents are liberalised effective 1 April 2004 to facilitate non-\\nresident businesses in Malaysia. This liberalisation does not impact current rules on non-\\ninternationalisation of ringgit:\\n•\\nTo enhance access to ringgit funds for business requirement in Malaysia, all permitted ringgit\\nlending limits for various purposes, by banking institutions to a non-resident (excluding\\nstockbroking company, custodian bank and correspondent bank) are consolidated into one\\naggregate limit and raised to RM10 million.\\nThe non-resident may use the ringgit credit facilities for any purpose in Malaysia, excluding for\\nfinancing or refinancing the purchase or construction of immovable properties.\\n•\\nEffective 1 April 2004, residents (banks and non-banks) may extend ringgit credit facilities in\\naggregate up to three property loans to a non-resident to finance or refinance the purchase or\\nconstruction of immovable properties in Malaysia, excluding the purchase of land only.\\nPrior to 1 April 2004, only financial institutions and employers may extend property loans to a non-\\nresident.\\n•\\nIn the case of non-resident stockbrokers or custodian banks, onshore licensed banks are now\\nallowed to extend up to an aggregate overnight overdraft facility of RM200 million (RM10 million\\npreviously) to facilitate settlement for purchase of shares listed on Malaysia Securities Exchange\\nBerhad.\\n(iv)\\nInvestment Abroad by Resident Individuals\\n•\\nEffective 1 April 2004, to provide flexibility for better management of funds, resident individuals\\nemployed or staying abroad with own foreign currency funds may invest in any foreign currency\\nassets, including those offered by onshore licensed banks and licensed offshore banks in Labuan.\\n(v)\\nInvestment Abroad by Domestic Institutions\\n•\\nFor greater geographical diversification and in simplifying approval process, unit trust\\nmanagement companies may, effective 1 April 2004, invest abroad up to the full amount of\\n\\n\\nOutlook and Policy\\n91\\nNet Asset Value (NAV) subscribed by non-residents and up to 10% of the NAV per fund\\nsubscribed by residents. Different funds of a unit trust management company or of different\\ncompanies may also be pooled to benefit from economies of scale when investing abroad. Such\\ninvestments abroad are required to be in compliance with the Securities Commission’s prudential\\nguidelines.\\n•\\nInsurance companies and takaful operators may also invest abroad up to 5% of their Margin of\\nSolvency (MOS) and up to 5% of their total assets respectively. In addition, insurance companies\\nand takaful operators may also invest abroad up to 10% of the NAV of investment-linked funds\\nthat they market. These investments are required to be in compliance with prudential insurance\\nand takaful regulations issued by the Bank Negara Malaysia.\\n•\\nFund/asset managers may invest abroad up to the full amount of investments by their non-\\nresident clients and up to 10% of investments by resident clients. These funds may be pooled to\\nbenefit from economies of scale when investing abroad. Such investments are required to be\\nbased on the mandate of their clients and in compliance with the Securities Commission’s\\nprudential guidelines.\\n(vi)\\nIssuance of Bonds Denominated in Ringgit by Multilateral Development Banks and\\nForeign Multinational Corporations\\nTo deepen the development of the domestic bond market, Multilateral Development Banks (MDB),\\nwhere Malaysia is a member, and foreign multinational corporations (MNC) may, based on the\\nmerits of each case, issue ringgit-denominated bonds in Malaysia.\\n(vii) Forward Foreign Exchange Contracts\\nEffective 1 April 2004, rules on hedging are liberalised to facilitate overall economic management\\nof currency risks as follows:\\n•\\nMDB and MNC issuers of ringgit-denominated bonds, will be allowed to enter into forward foreign\\nexchange contracts with onshore licensed banks to hedge their currency risks.\\n•\\nSimilarly, non-resident investors subscribing to these ringgit-denominated bonds issued by MDB\\nand MNC can also enter into forward foreign exchange contracts with onshore licensed banks to\\nhedge their currency risks arising from the investment in these ringgit-denominated bonds.\\n•\\nForward sales by residents of any foreign currency receivables for ringgit with onshore licensed\\nbanks or approved merchant banks can now be undertaken up to the tenure of the underlying\\ntransaction as long as the transaction is supported by firm underlying commitment to receive such\\ncurrency (previously foreign currency receivables, other than export receipts, could be sold forward\\nup to 12 months only).\\n•\\nResidents may also enter into forward foreign exchange contracts to sell foreign currency yet to be\\nreceived for another foreign currency with onshore licensed banks and approved merchant banks\\nup to the tenure of the underlying transactions.\\n•\\nResident companies may temporarily retain up to the amount of foreign currency receipts received\\nearlier than the maturity date of the forward foreign exchange contract in their onshore FCA,\\npending maturity of the forward foreign exchange contract.\\n•\\nResidents may enter into interest rate swaps with onshore licensed banks, approved merchant\\nbanks and licensed offshore banks in Labuan.\\n\\n\\n92\\n0\\n5\\n10\\n15\\n20\\n25\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nGraph 3.7\\nManufacturing Sector: Overseas investment and \\nApproved Foreign Investment in Malaysia\\nOverseas investment\\nApproved foreign investment in Malaysia\\nSource: Ministry of International Trade and Industry \\n \\nBank Negara Malaysia\\nSectoral Outlook\\nOn the production side, growth is expected to be\\nsupported by stronger performance across all sectors,\\nexcept agriculture and construction. The\\nmanufacturing and services sectors are expected to\\nremain as the main drivers of growth. The agriculture\\nsector is also projected to expand although at a more\\nmoderate pace following the strong performance in\\n2003. Growth in the construction sector would be\\nmoderate amidst weaker civil engineering activities.\\nIn the manufacturing sector, ongoing structural\\nshift has become more evident as the sector’s\\nTable 3.4\\nReal GDP by Sector (1987=100)\\n2003p\\n2004f\\nAnnual\\nchange (%)\\nAgriculture\\n5.5\\n2.6\\nMining\\n4.8\\n5.5\\nManufacturing\\n8.2\\n10.2\\nConstruction\\n1.9\\n1.5\\nServices\\n4.1\\n5.2\\nReal GDP\\n5.2\\n6.0 - 6.5\\np Preliminary\\nf Forecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nBroad based growth across sectors benefiting mainly from\\nstrengthening global electronics cycle, higher trade and tourist\\narrivals, as well as firm commodity prices.\\ncompetitive advantages adjust from labour-intensive\\nto higher technology-driven manufacturing\\nprocesses. Greater efficiency in the use of resources is\\nbeing realised through manufacturing companies\\noperating more at a regional level, as seen in the\\nrelocation of some of the more labour-intensive\\nindustries to lower-cost countries. Key indicators such\\nas the contribution of the manufacturing sector in\\nterms of value added and employment, flows of\\ninvestment as well as the retrenchment trend clearly\\nsuggest that the manufacturing sector continues to\\nremain resilient.\\nThe recent trend in overseas investment is a\\nreflection of Malaysian companies seeking greater\\nsynergy based on locational advantages.\\nConsequently, notwithstanding the investments\\nabroad, the share of the manufacturing sector in\\nterms of value added (GDP) and total employment\\nhave remained significant at 31% and 28%\\nrespectively in 2003. Employment in the\\nmanufacturing sector continues to expand, while\\nretrenchments have moderated further in 2003.\\nWhile retrenchments due to relocation accounted\\nfor one-fifth of total retrenchments in the\\nmanufacturing sector, it only amounted to 0.2% of\\ntotal employment in the manufacturing sector for\\nthe period 2001-2003. Furthermore, new jobs\\ncreated by approved foreign investment in the\\nmanufacturing sector (2003: 77,182 workers)\\nhave outpaced the retrenchment in the sector\\n(2003: 14,967 workers). More importantly, outflows\\nof overseas investment in the manufacturing sector\\n(2003: RM2.3 billion) remain small compared\\nwith approved FDI in the sector in Malaysia\\n(2003: RM15.6 billion).\\n% share\\nGraph 3.6\\nManufacturing Sector: Share of Value Added  \\nand Employment \\n15\\n20\\n25\\n30\\n35\\n87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03\\nEmployment\\nValue added\\nSource: Department of Statistics, Malaysia\\n \\nEconomic Planning Unit\\n\\n\\nOutlook and Policy\\n93\\nAs part of the efforts to expedite the structural shift,\\npromotion of manufacturing-related services was\\nintensified with the establishment of the\\nManufacturing Related Services Division in both MITI\\nand MIDA. Consequently, there was an increase in\\nthe number of applications received and approvals in\\n2003 for the establishment of OHQs, IPCs, RDCs and\\nregional offices (Table 3.5). Going forward, the\\nmanufacturing sector will continue to move away\\nfrom labour-intensive production and give greater\\nemphasis to higher value added production with\\nknowledge-based labour of higher productivity\\nand skills.\\nValue added in the manufacturing sector is projected\\nto pick up further to 10.2% in 2004 (2003: 8.2%),\\nsupported by the pick up in the global electronics\\nindustry and improved domestic demand. Of\\nsignificance, the global semiconductor industry is\\nexpected to strengthen, supported by broad-based\\nexpansion across all geographical regions and\\nproducts. This is premised on expectations of a\\nstrong increase in the global semiconductor capital\\nand investment spending of 27.9% in 2004 (2003:\\n5.7%). Most industry experts are more optimistic on\\nthe prospects for the industry and have revised\\nupward their growth forecast for 2004. In the recent\\ndialogues between Bank Negara Malaysia and the\\nprivate sector, manufacturers in the electronics sector\\nin Malaysia also expressed a more optimistic outlook\\nfor the industry in 2004.\\nLatest indicators suggest an upturn in the global\\nsemiconductor cycle. Global semiconductor sales,\\nwhich have been expanding since the latter part of\\n2002, have strengthened sharply to register a growth\\nof above 20% in the last quarter of 2003. In the US,\\nshipment and sales of semiconductors have risen\\nstrongly, while the book-to-bill ratio has improved to\\nabove one since the fourth quarter of 2003. The\\nunfilled orders of electronic products and\\ncommunication devices in the US have also risen\\nsteadily since early 2003.\\nGrowth in the electronics industry would be driven\\nmainly by the wireless and PC markets, due to rising\\ndemand for wireless applications as well as the PC\\nreplacement cycle, as companies invest again\\nfollowing their huge spending prior to the Y2K period.\\nThis would be further augmented by the growth in\\nthe consumer electronics products segment as\\ndemand for new technology and multi-functional\\ndevices such as camera phones, PDAs and DVDs gains\\nmomentum.\\nConsonant with the pick up in the global electronics\\nindustry and the spillover effects on the chemical\\nproducts industry, growth in the export-oriented\\nindustries is projected to expand at a more rapid rate\\nof 13.8% (2003: 11.9%). Similarly, growth in the\\ndomestic-oriented industries is expected to strengthen\\nto 8.3% (2003: 6.1%), due to improved demand for\\nmotor vehicles and construction-related materials.\\nThe services sector is expected to expand at a faster\\nrate of 5.2%, reflecting higher expansion across most\\nsub-sectors. Growth would be supported by higher\\ntrade and tourism activities and improved consumer\\nspending. Of significance, growth in the wholesale and\\nretail trade, hotels and restaurants sub-sector is\\nexpected to pick up. Similarly, growth in the transport,\\nstorage and communications sub-sector is expected to\\ntrend higher in line with the robust expansion in trade,\\nincreased number of business and leisure passengers as\\nwell as the expected strong growth in the cellular\\nsegment of the telecommunications industry mainly\\ninduced by new innovations. With the expected\\nincrease in bank lending and other financial and\\nbusiness services activities, the finance, insurance, real\\nestate and business services sub-sector is expected to\\nrecord a stronger growth in 2004. The services sector\\nwill also be supported by the rapid expansion in new\\ngrowth areas, such as the shared services industry,\\nnamely call centres, data centres, operational\\nheadquarters, regional distribution centres and\\ninternational procurement centres, as well as specialised\\ntypes of ICT services.\\nThe agriculture sector is expected to expand further,\\nalbeit at a more moderate pace of 2.6% in 2004 as\\ngrowth in the major commodities, particularly palm oil\\nand rubber, is expected to moderate following the\\ndouble-digit growth in 2003. While yields are likely to\\nremain strong amidst sustained high prices for palm oil,\\nincreased production would emanate mainly from the\\nexpansion in mature areas. Rubber production is\\nforecast to increase to above 700,000 tonnes, with the\\nbulk of the increase contributed by the smallholdings\\nTable 3.5\\nApproved Manufacturing-related Services\\n2000\\n2001\\n2002\\n2003\\nEnd-Period\\nOperational Headquarters (OHQs)\\n41\\n50\\n59\\n71\\nInternational Procurement\\nCentres (IPCs)\\n55\\n78\\n109\\n141\\nRegional Distribution\\nCentres (RDCs)\\n-\\n-\\n-\\n4\\nRegional Offices\\n357\\n404\\n436\\n473\\nRepresentative Offices\\n673\\n783\\n872\\n1,006\\nSource: MIDA\\n\\n\\n94\\nsector, as continued high prices are likely to induce\\nincreased tapping activity. Within the other\\nagriculture group, production of selected\\ncommodities is expected to increase, led by cocoa\\n(24.3%) and livestock (6.5%). Growth is also\\nexpected to emanate from some of the food crops,\\nsuch as vegetables and fruits, reflecting the efforts by\\nthe Government to increase domestic food crops\\nproduction through the Permanent Food Production\\nPark scheme. Meanwhile, paddy production is\\nestimated to be higher on account of wider usage of\\nhigh yielding paddy seeds.\\nGrowth in the mining sector is expected to\\nstrengthen to 5.5% in 2004, led by higher gas\\noutput. The new Malaysian Liquefied Natural Gas\\n(MLNG) plant is expected to operate at a higher\\ncapacity utilisation to meet the increased demand.\\nMeanwhile, production of crude oil (including\\ncondensates) is expected to remain stable at 733,000\\nbarrels per day (2003: 736,000 bpd).\\nGrowth in the construction sector is envisaged to\\nincrease at a moderate rate of 1.5%, due to lower\\nactivity in the civil engineering sub-sector following\\nthe completion of several infrastructure projects by\\nboth the Government and the private sector.\\nMeanwhile, activities in the residential sub-sector is\\nexpected to remain strong in view of the increase in\\nnew housing starts during the first nine months of\\n2003, as well as ongoing work on projects under\\nconstruction. Demand for residential property,\\nespecially for affordable housing, would remain\\nfavourable, encouraged by the incentives granted\\nunder the Economic Package, especially the stamp\\nduty exemption, tax relief and the waiver on the real\\nproperty gains tax until the first half of 2004.\\nMeanwhile, activity in the non-residential sub-sector\\nis expected to remain subdued, although on an\\nimproving trend, as the average occupancy rates for\\noffice space and retail complexes have stabilised\\nsince the third quarter of 2003.\\nPrices and Employment\\nInflation is expected to remain low at 1.5% in 2004,\\nwhile core inflation is estimated at 1%. Adequate\\ncapacity, increasing competition and low inflation\\nabroad are expected to keep domestic inflation\\nbenign.\\nIn line with the stronger GDP growth in 2004, overall\\ngrowth in employment is also expected to\\nstrengthen with encouraging growth in new job\\nopportunities. Consequently the unemployment rate\\nis expected to improve to about 3.4%. Meanwhile,\\nefforts would continue to be focused on improving\\nthe quality and productivity of labour to ensure\\nworkers are constantly prepared to meet challenges\\nassociated with structural changes taking place in the\\neconomy, in particular with regard to enhancing skills\\nin the higher value added manufacturing-related\\nservices as well as services-led and knowledge-led\\ngrowth areas.\\nBalance of Payments\\nThe balance of payments is expected to remain\\nstrong in 2004, with a sustained high current\\naccount surplus, reflecting the continued large\\nsurplus in merchandise trade and improvement in the\\nservices account. The current account of the balance\\nof payments is expected to remain large at 12.7% of\\nGNP in 2004 despite the projected stronger growth\\nin imports (15.4%). Strong export growth (11.1%),\\nunderpinned by the systemic upswing in global\\ndemand, is expected to contribute to a large surplus\\nin the trade account. The impetus to this growth\\nstems from the strong expansion in manufactured\\nexports (12%), in particular electronics exports, and\\ncontinued growth in agriculture exports. The\\ncontinued high level of agriculture and mineral\\nexports, which have low import content, will provide\\nfurther support to the large trade surplus.\\nIn tandem with the pick up in global\\nsemiconductor demand and expanding intra-\\nregional trade, growth in manufactured exports\\nis expected to strengthen further to 12% in 2004\\n(2003: 8.2%), with higher exports from both\\nelectronics and non-electronics products. Exports\\nof electronic products would expand at a more\\nrapid rate of 14.7%, underpinned by increased\\ndemand for PC, wireless products and consumer\\nelectronic products such as DVDs and digital\\ncameras. Similarly, non-electronics exports are\\n1.5\\n1.0\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n1998\\n1999\\n2000\\n2001\\n2002\\n2003\\n2004f\\nAnnual change (%)\\nCPI Inflation\\nf Forecast\\nCore Inflation \\nGraph 3.8\\nConsumer Prices\\n\\n\\nOutlook and Policy\\n95\\nexpected to increase further by 9.2%, reflecting\\nexpansion in exports of rubber products, chemicals,\\npaper and pulp products, and furniture and parts.\\nNotwithstanding the strengthening external demand,\\nexport prices would continue to remain subdued due\\nto global competition.\\nExports of commodities, comprising agriculture and\\nminerals, are expected to moderate to 5.5% in 2004,\\nfollowing two successive years of strong export\\ngrowth averaging above 20%. Agriculture export\\nearnings are projected to grow by 8.8% in 2004,\\nsupported by high prices and increases in volume.\\nPalm oil and rubber exports will be the main\\ncontributors, accounting for almost 70% of total\\nagriculture exports. Export prices of major agriculture\\ncommodities are expected to remain high due to\\nfavourable global demand amidst continued supply\\nshortages of some commodities, especially during the\\nfirst half-year. Of significance, export price of palm oil\\nis projected to remain strong, averaging RM1,650 per\\ntonne given the expected shortage in global supplies\\nof major oilseeds, especially soybean oil. Similarly,\\nrubber prices are expected to record a higher average\\nof 385 sen per kilogramme in line with expectations\\nof continued strong pick up in global rubber\\nTable 3.6\\nBalance of Payments\\n2003e\\n2004f\\n2003e\\n2004f\\nRM billion\\nUS$ billion\\nGoods\\n97.7\\n96.4\\n25.7\\n25.4\\nTrade account\\n81.1\\n76.5\\n21.4\\n20.1\\nExports (% change)\\n11.5\\n11.1\\n11.5\\n11.1\\nImports (% change)\\n4.8\\n15.4\\n4.8\\n15.4\\nServices\\n-15.0\\n-11.9\\n-4.0\\n-3.1\\nBalance on goods and services\\n82.7\\n84.5\\n21.8\\n22.2\\nIncome\\n-22.6\\n-24.7\\n-6.0\\n-6.5\\nCurrent transfers\\n-9.3\\n-9.8\\n-2.4\\n-2.6\\nCurrent account balance\\n50.8\\n50.0\\n13.4\\n13.2\\n(% of GNP)\\n13.7\\n12.7\\n13.7\\n12.7\\nFinancial account\\n-12.1\\n-3.2\\nErrors and omissions\\n0.4\\n0.1\\nof which:\\nExchange revaluation gain\\n11.9\\n3.1\\nOverall balance\\n39.1\\n10.3\\ne Estimate\\nf\\nForecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nSustained balance of payments position with continued large\\ncurrent account surplus and long-term capital inflows. Trade\\nsurplus to remain large due to strong expansion in electronics\\nexports and continued growth in agriculture exports.\\ndemand, particularly from the tyre manufacturers. In\\naddition, the upliftment of import quotas by\\nP\\n.R.China, effective January 2004 in line with their\\ncommitments under the WTO, would lend further\\nsupport to the international rubber market.\\nExports of minerals are projected to grow\\nmarginally by 1.8%, as the higher receipts from LNG\\nwould be largely offset by the sharp decline in crude\\noil exports. Despite the relatively high crude oil prices\\nof US$28.50 per barrel, prices would still be lower\\nthan in 2003. Malaysian crude oil prices would be\\nbroadly in line with trends in the global oil markets in\\n2004, which would be characterised by a more\\nbalanced demand and supply situation. Strict\\nmanagement of oil supplies by OPEC members\\nwould also influence global oil prices during the year.\\nMeanwhile, LNG exports are projected to remain\\nstrong, expanding by 15.3%. The MLNG Tiga plant\\nwould be operating at a higher capacity to\\naccommodate the increased demand.\\nImport growth is expected to emanate mainly from\\nhigher imports of intermediate goods (15.5%),\\nconsonant with forecast of stronger production and\\nexports in the manufacturing sector, in particular the\\nelectronic segment. Capital imports are expected to\\nmake a strong recovery (12.7%) in line with the\\nrevival in investment activity. Higher capital goods\\nimports are mainly for capacity expansion in the\\nmanufacturing, oil and gas, the airlines and shipping\\nsectors. The stronger growth in consumption imports\\nwould reflect the projected higher consumer\\nspending. The higher growth would also reflect the\\nlow base in consumption imports in 2003 due to the\\nimpact of SARS.\\nThe large surplus in the goods account will be more\\nthan adequate to finance the net payments in the\\nservices, income and current transfers accounts. The\\nservices account deficit is envisaged to narrow to\\n3% of GNP, reflecting mainly the expected\\nimprovement in performance of the tourism sector.\\nEarnings from the export of education and\\nhealthcare services are expected to be higher with\\nimproved quality of services and closer collaboration\\nbetween the Government and the private sector in\\nexport promotion. Port earnings are expected to\\n\\n\\n96\\nincrease in line with the increase in transhipment\\ncargo, while freight income is expected to improve\\nfollowing the capacity expansion by Malaysian\\nshipping companies and airlines. The higher\\nvolume of trade and increases in freight rates are\\nalso expected to lead to higher payments for\\ntransportation. Gross receipts in the other services\\naccount are expected to increase in line with the\\nincreasing trend in export of ICT products and\\nservices such as software and business process\\noutsourcing services. The tax incentives for\\nOperational Headquarters and International\\nProcurement Centres and the widening of the\\nrange of activities to include research and\\ndevelopment, design, marketing, distribution,\\nquality control, testing, labelling and packaging\\nthat can be undertaken in free industrial zones or\\nlicensed manufacturing warehouses are expected\\nto encourage higher export of value added\\nservices.\\nThe income account deficit is projected to be\\nsustained at 6.3% of GNP, reflecting higher profits\\nand dividends accruing to multinational companies\\n(MNCs) from their investments in Malaysia. The\\nprojected larger outflow in investment income is\\ndue to the strong export performance by the\\nelectronics industry as well as other export-\\noriented industries. Given the favourable\\ninternational outlook, profits and dividends\\naccruing to Malaysian companies investing abroad\\nare also expected be on an upward trend.\\nThe financial account is expected to improve on\\nthe back of continued long-term capital inflows,\\nespecially higher foreign direct investment (FDI). As\\nreflected in higher approvals granted by MITI in\\n2003, FDI inflows are expected to remain sizeable\\nwith the implementation of major projects in the\\nmanufacturing sector. The bulk of the FDI in the\\nmanufacturing sector is expected to be in the form\\nof reinvestment by the MNCs for capacity\\nexpansion in view of the strong upturn in\\nelectronics demand as this sector was already\\noperating at near full capacity in 2003. The\\nservices sector is expected to continue to be a\\nmajor recipient of new FDI inflows, especially in\\nareas such as logistics, distribution and\\nmanufacturing-support services in view of the\\nstrong linkages between the growth of\\nmanufacturing and services sectors. Meanwhile,\\nforeign investment in the oil and gas sector are\\nlikely to pick up on prospects of more\\njoint-venture agreements with the national\\noil company.\\nMalaysia’s overseas investment is likely to remain\\nsignificant. These overseas investments will\\ncontinue to be broad-based and channelled into\\nthe oil and gas, services and manufacturing\\nsectors. These funds are likely to be targeted at\\nboth developing and developed countries in the\\nform of acquisitions and new investments to\\nprovide greater synergy to their operations in\\nMalaysia.\\nMONETARY POLICY IN 2004\\nProspects for the global economy in 2004 have\\nturned more favourable. Against the more broad-\\nbased growth in the industrial countries and\\nstronger regional economies, the Malaysian\\neconomy is expected to grow at a faster pace of\\n6-6.5% in 2004. The firm recovery in export\\ndemand would further reinforce sustained growth\\nin domestic demand. The increasing level of\\nconsumer and business confidence should lead to\\nstronger private sector activities and further\\nconsolidation in fiscal expenditure. Notwithstanding\\nrising aggregate domestic and external demand,\\nTable 3.7\\nExports and Imports\\n2003p\\n2004f\\nRM billion\\nGross exports\\n398.9\\n443.3\\n(% change)\\n11.5\\n11.1\\nManufactures\\n327.0\\n366.3\\n(% change)\\n8.2\\n12.0\\nof which:\\nElectronics\\n167.6\\n192.3\\n(% change)\\n6.3\\n14.7\\nElectrical products\\n55.9\\n60.8\\n(% change)\\n1.9\\n8.7\\nChemical & chemical products\\n21.2\\n23.6\\n(% change)\\n23.3\\n11.3\\nMinerals\\n29.8\\n30.3\\n(% change)\\n33.1\\n1.8\\nAgriculture\\n33.7\\n36.7\\n(% change)\\n28.1\\n8.8\\nGross imports\\n317.7\\n366.8\\n(% change)\\n4.8\\n15.4\\nCapital goods\\n43.5\\n49.0\\n(% change)\\n0.7\\n12.7\\nIntermediate goods\\n233.0\\n269.1\\n(% change)\\n6.4\\n15.5\\nConsumption goods\\n18.9\\n22.6\\n(% change)\\n1.1\\n19.9\\np Preliminary\\nf\\nForecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\n\\n\\nOutlook and Policy\\n97\\nthe existence of excess capacity and ongoing\\ncapacity expansion allow for the increase in\\ndemand and output to be met without creating\\npressures on supply and prices.  Conditions of\\ncontinued low inflation provide flexibility for\\nmonetary policy in 2004 to continue to be\\nsupportive of the stronger growth momentum.\\nWith the investment cycle in its early stage, a low\\ninterest rate environment remains important to\\nreinforce the private sector-led expansion, while\\nproviding flexibility for fiscal consolidation and\\nstrengthening growth.\\nInflation risks for Malaysia remain low, as the\\neconomy is operating in an environment of excess\\ncapacity. Stronger economic expansion in 2004 is\\nexpected to narrow the output gap in some sectors\\nmoney market.  As in 2003, the Bank will rely on\\nmarket-determined instruments and direct\\nborrowings in its conduct of liquidity operations.\\nThe overall policy thrust is to ensure a stable and\\npredictable environment to support business\\nexpansion.  Over and above this, the objective of\\nmonetary policy will also aim at improving the\\nefficient flow of credit to productive investments in\\nsectors and industries that have the potential to\\nraise the overall output and competitiveness of the\\nMalaysian economy.\\nGoing forward, risks and uncertainties remain. The\\ntwin deficits in the US and global current account\\nimbalances continue to pose risks, such as\\ndisruptive global capital flows and exchange rate\\nvolatilities causing large changes in relative prices\\nWith low inflation and growth in early cycle, the thrust of\\nmonetary policy in 2004 will continue to be directed at sustaining\\nthe growth momentum. The low interest rate environment will\\ncontinue to provide support for private sector-led expansion.\\nwhile new investments will add on to output\\npotential.  With stronger recovery in demand and\\nthe return of business confidence, signs of a revival\\nin business investment have emerged, with the\\nexpansion in capacity taking place in sectors\\nexperiencing high capacity utilization.  Meanwhile,\\nintense competition in the product market has\\ninduced producers to increase efficiency in the use\\nof capital, labour and technology to contain costs.\\nThe intense competitive pressure has moderated\\nwage increases while driving high productivity\\ngrowth.  Overall, stepped up capital investment\\nand ongoing productivity improvements together\\nwith low inflation abroad would contribute to\\nsustaining low inflation.  The absence of\\ninflationary expectations has accorded greater\\nflexibility for interest rates to continue to remain\\nlow to ensure growth is soundly entrenched.\\nStronger economic growth, a large surplus in the\\ncurrent account of the balance of payments and\\nsome capital inflows create challenges for the\\nCentral Bank to manage liquidity to maintain\\nstable conditions in the money market.  New\\nliquidity is expected to emanate from the strong\\nexport performance and continued inflows of\\nlong-term capital. Given these expansionary\\ninfluences on domestic liquidity, monetary\\nmanagement in 2004 will actively balance excess\\nliquidity to maintain stable conditions in the\\nthat affect the pace and spread of global economic\\nrecovery. Global growth in the short term is still\\nheavily dependent on the growth in the US despite\\nstronger growth in the Asian region. These factors\\ncould affect the consumer and business sentiments\\nand disrupt the momentum of global and regional\\ngrowth. The challenge to monetary policy\\ntherefore would be to respond proactively to\\nemerging signals of impending developments in\\nthe macroeconomic conditions. In this regard,\\nMalaysia enjoys a high degree of freedom for\\nflexible responses and more importantly, monetary\\npolicy continues to have significant room to\\nmanoeuvre to cushion the impact of possible\\nadverse external circumstances on domestic\\neconomy.\\nThe Monetary Policy Statement (MPS), which was\\nfirst released in August in 2003, will continue to\\nbe issued on a quarterly basis together with the\\nannouncement of the GDP data. This is part of the\\nBank’s continuing effort to provide comprehensive\\ninformation to the public on the Bank’s policies.\\nThe issuance of the MPS would provide a direction\\nof the Bank’s policy intent and thus contribute\\ntowards stable and efficient conditions in the\\nfinancial markets.  It represents another\\nmechanism to fulfil its objectives of maintaining\\nmonetary and financial stability to achieve\\nsustained long-term growth.\\n\\n\\n98\\nFISCAL POLICY IN 2004\\nThe 2004 Budget was formulated at a time when the\\noutlook for the global growth was improving and\\ndomestic private sector demand gaining strength.\\nProspects of improved business and consumer\\nconfidence were expected to pave the way for the\\npublic sector to moderate its expansionary influence\\nand the private sector to take the lead in driving\\ngrowth. The Budget strategies announced on 12\\nSeptember 2003, therefore, aimed at enhancing the\\nmacroeconomic fundamentals and ensuring a more\\nbroadly balanced economic structure with new\\ndomestic economic activities contributing towards\\nsustainable longer-term growth. The thrust of the\\nBudget strategies, therefore, focused on facilitating\\nthe private sector to assume its lead role as the\\nengine of growth, while engineering a gradual cut-\\nback in expenditure.  Against this background, the\\noverall financial position was budgeted to register a\\nsmaller deficit of RM13.8 billion or 3.4% of GDP in\\n2004, after factoring in the potential net revenue loss\\narising from the tax changes introduced in the 2004\\nBudget.\\nIn a recent review of the 2004 Budget, it was\\nestimated that tax revenue collection for 2004\\nprojected in the Budget could be on the high side,\\ngiven the lower actual tax collection for 2003.\\nNotwithstanding the downward revision in revenue\\ncollection, it was deemed appropriate to maintain the\\nFederal Government development expenditure\\n(excluding contingent reserves) as budgeted in\\nSeptember 2003. Development expenditure was\\nalready scaled down to be significantly lower, a decline\\nof 21.1% to RM30 billion from estimated expenditure\\nof RM38 billion in 2003.  With the revision to revenue,\\nthe fiscal deficit for 2004 is expected to be 4.5% of\\nGDP\\n, against the fiscal deficit of 5.3% registered in\\n2003.  While the pace of deficit reduction is more\\ngradual, the objective of fiscal consolidation remains\\non track. Given the ample liquidity in the financial\\nsystem, the bulk of financing would continue to be\\nraised from the domestic market with no risk of\\ncrowding out private sector financing. Recourse to\\nexternal borrowings will be determined mainly by the\\nneed to establish international market presence and\\nfor benchmarking purposes.\\nWhile development expenditure would be lower,\\nemphasis would be on improving productivity and the\\ndelivery systems of the government to reduce the cost\\nof doing business and to support private sector\\ninvestment and initiatives.  Development expenditure\\nduring the year would be targeted at enhancing the\\nlonger-term productive capacity and competitiveness\\nof the economy.  The changing composition of fiscal\\nspending is expected to generate higher multiplier\\neffects on the economy. Given these strategies, the\\ndecline in public sector demand is projected to be\\nmarginal in 2004 (-0.4%), while private sector\\ndemand is expected to show a stronger growth. The\\nprivate sector is expected to contribute 4.9 percentage\\npoints to real GDP growth.\\nIn terms of budget allocation, emphasis would\\ncontinue to be given towards enhancing the quality of\\neducation and manpower skills. Special attention\\nwould be directed towards modernising and nurturing\\nthe agriculture and rural sectors to position them as\\nsignificant growth-generating sectors of the economy.\\nPriority would also be placed on the implementation\\nof programmes to improve the socio-economic well-\\nbeing of Malaysians, especially those in the lower\\nincome group.\\nThe 2004 Budget measures contained wide-ranging\\ntax and non-tax incentives directed at accelerating\\ngrowth in new growth industries; reducing the cost of\\ndoing business; and increasing innovation through\\nhigher research and development activities to enhance\\nthe ability of companies to compete internationally. In\\norder to promote private sector activities, focus\\ncontinued to be placed on the development of small\\nand medium-sized enterprises (SMEs). Measures\\nimplemented included raising the threshold for\\nchargeable income subjected to a corporate tax rate\\nof 20% from RM100,000 to RM500,000,\\nestablishment of a SMEs debt restructuring committee\\nand enhancement of the size of micro-credit schemes\\nby RM1 billion. Other measures proposed to spur\\nfurther domestic-led growth included various schemes\\nto more aggresively promote Malaysian products,\\nestablishment of a one-stop agency to promote the\\nservices sector and tax incentives and financing\\nschemes to further modernise the agriculture sector\\nand promote investments in related downstream\\nactivities.\\nThe 2004 Budget also contained various tax\\nmeasures to reduce the cost of doing business.\\nMeasures included allowing deduction on\\nentertainment expenses incurred in sales promotions;\\nreducing or abolishing import duties of selected\\ngoods such as computer batteries, wooden and\\nplastic goods; as well as reducing or abolishing\\nexport duties on several agricultural produce and\\ncommodities.\\n\\n\\nOutlook and Policy\\n99\\nFINANCIAL SECTOR POLICY IN 2004\\nThe policy thrust in 2004 will continue to focus on\\nbuilding capacity of domestic financial institutions\\nand enhancing the resilience and stability of the\\nfinancial sector while ensuring that all sectors of the\\neconomy continue to have adequate access to\\nfinancing. Attention is also given to strengthening\\nthe framework for consumer protection and\\npromoting greater consumer awareness on banking\\nand insurance products and services.\\nThe benchmarking exercise, initiated in 2000, which\\nenables banking institutions and insurance companies\\nto measure their performance by highlighting\\noperational and strategic opportunities as well as areas\\nfor strategy building and skill enhancements will be\\nfurther refined.  Regular dialogues with the board and\\nsenior management of banking institutions will\\ncontinue to be held to discuss on performance, trends\\nand issues that may have impact on the\\ncompetitiveness and overall strength of their\\nrespective institutions. Another area of focus is on\\nimproving the service quality of the banking\\ninstitutions and insurance companies. The findings\\nfrom the nationwide customer satisfaction survey that\\nwas conducted in 2003 will be discussed with the\\nindustry and strategies at the industry and institutional\\nlevel will be formulated to elevate quality of service.\\nIt is also expected that a number of domestic\\ncommercial banks will merge with their finance\\ncompany subsidiaries with the coming into force of\\nthe amendments to the Banking and Financial\\nInstitutions Act 1989 allowing for such mergers.\\nDomestic banking groups could improve operational\\nefficiency by reaping higher economies of scale and\\nenhance access to banking and finance companies\\nbusiness nationwide. The framework for creation of\\ninvestment banks is also expected to be finalised in\\n2004. The framework would enable the investment\\nbanks to undertake the whole range of capital\\nmarket activity under one entity, including equity\\nbrokerage business.\\nInitiatives to strengthen the capacity of domestic\\nbanking institutions will be complemented by\\nenhancement to prudential regulations as well as a\\nmore comprehensive surveillance infrastructure.  On\\nthe prudential front, efforts would be focused on the\\nformulation of a comprehensive framework to\\nregulate and supervise group structures involving\\nfinancial conglomerates as well as to improve\\ncapability and expertise of the banking institutions\\nand the supervisors to meet the challenges in\\nimplementing the new Basel Capital Accord. The\\nsurveillance infrastructure will be enhanced to\\nprovide early warning signal on any imbalances in the\\nfinancial sector.\\nAs the banking sector remains the main source of\\nfinancing in the economy, initiatives would be taken\\nto further improve access to financing by all\\nsegments of the economy. Focus would be towards\\nstrengthening existing infrastructure to enhance\\naccess to financing by the SMEs. Initiatives to\\nencourage consumer activism and enhance the\\nconsumer protection framework would remain a\\npriority. The Financial Mediation Bureau (FMB),\\nwould be established during the year. This is a one-\\nstop centre to provide customers with avenue of\\nlegal redress against all financial institutions to deal\\nwith their grievances on banking institutions,\\ninsurance companies, development financial\\ninstitutions under Bank Negara Malaysia supervision\\nand payments system operators. A framework to\\nimprove the level of transparency and disclosure on\\nall retail financial products offered by the banking\\ninstitutions to facilitate a more effective and well\\ninformed decision making by customers would be\\nintroduced during the year. To further strengthen\\nthe consumer protection framework in an\\nincreasingly market-oriented financial system, the\\nlegislation that will introduce a deposit insurance\\nsystem in Malaysia is expected to be tabled before\\nParliament in 2004.\\nBank Negara Malaysia is also mandated to ensure\\nthat the payment systems and instruments in the\\ncountry are safe and efficient and that there is\\ncontinued public confidence in the use of payment\\ninstruments.  This would entail mitigating risks in the\\nfinancial system, promoting efficiency of the\\npayment systems, enhancing security features of\\npayment systems and instruments as well as\\nexercising oversight over such systems and\\ninstruments. In addition, Bank Negara Malaysia will\\nencourage and educate consumers to avail\\nthemselves of the wide variety of electronic payment\\nfacilities and products in line with the move towards\\na cashless society.\\nIn the Islamic banking sector, key policy thrusts in\\n2004 will continue to focus on enhancing the\\neffectiveness and efficiency of the Islamic banking\\nsystem as an enabler of economic growth and\\ndevelopment. The policy thrusts in 2003 to\\nstrengthen the financial infrastructure, enhance the\\n\\n\\n100\\nregulatory framework, strengthen the Shariah and\\nlegal infrastructure as well as enhancing intellectual\\ncapital development and consumer awareness will\\ncontinue to be pursued in 2004. In the development\\nof the financial infrastructure, the window\\ninstitutional structure of banking institutions\\nparticipating in the Islamic Banking Scheme would be\\nfurther strengthened to provide for the effective\\nregulation of Islamic banking operations based on its\\nunique characteristics.  The Islamic banking\\nlandscape will also be transformed with the issuance\\nof up to three new Islamic banking licences to\\nforeign financial institutions in 2004.\\nTo enhance the effectiveness of the Shariah\\ngovernance framework, Guidelines on the Shariah\\nCommittee for Islamic banking institutions would be\\nintroduced to delineate the roles and responsibilities,\\nqualifications and the terms of appointment of the\\nShariah advisory body at Islamic banking institutions.\\nTo support the sound and progressive development\\nof the Islamic banking industry, initiatives in\\nstrengthening the legal infrastructure would continue\\nto be pursued in 2004. These initiatives include\\nexpanding the scope of arbitration framework for\\nIslamic banking and finance cases, the review of the\\nIslamic Banking Act 1983 to strengthen the legal\\nframework for Islamic banking operations and the\\nfinalisation of tax issues on Islamic banking and\\nfinance under the Law Review Committee to accord\\na neutral tax treatment between Islamic financial\\nproducts and conventional financial products.\\nPromoting financial soundness and building financial\\nresilience of the Islamic banking system will be\\nemphasised through the refinement of prudential\\nregulatory standards to incorporate specific features\\nof Islamic banking and enhancing market depth\\nthrough the introduction of variable rate financing\\nmechanism and the mudharabah and musyarakah\\nimplementation framework as well as the\\ndevelopment of an Islamic reference rate.\\nPolicy thrusts for development financial institutions\\n(DFIs) will be guided by the strategic directions set\\nout in the Financial Sector Masterplan.  The focus of\\npolicy is to strengthen further the foundation on\\nwhich DFIs can operate efficiently and effectively,\\nthrough building the capacity of the DFIs and\\nproviding the enabling environment for the DFIs to\\noperate efficiently and effectively. Emphasis will be\\naccorded towards ensuring DFIs remain committed\\nand focussed on mandated roles, to increase the\\nresponsiveness of DFIs to the developmental\\nrequirements, especially of the SMEs and identified\\npriority sectors. In addition, current initiatives to\\nenhance the capability and capacity of DFIs as\\nspecialised institutions in providing advisory services\\nto their targeted clients, in particular, SMEs, would\\ncontinue in 2004.  This will be complemented with\\ninitiatives to strengthen the risk management\\npractices of the DFIs.\\nFinancial sector policies in 2004 will continue to\\nfocus on strengthening the resilience, stability,\\nefficiency and effectiveness of the financial system to\\nensure that the financial sector continues to play an\\neffective role in supporting economic growth as well\\nas meeting the nation’s social objectives. Efforts are\\nfocussed not only on the creation of a sound and\\nresilient financial sector but also on capacity building\\nof the financial sector to elevate it to a higher level of\\nperformance, efficiency and excellence.\\n\\n\\nOutlook and Policy\\n101\\nReport on SME Development Framework\\nIn October 2002, an Inter-Ministry SME Steering Committee was formed to take forward the\\nrecommendations by Bank Negara Malaysia contained in its report, Proposed Comprehensive Framework\\nfor the Development of Small and Medium Enterprises (SMEs). The proposed framework outlines\\nrecommendations for the creation of an enabling environment for development of SMEs across all\\nsectors of the economy. The proposals are aimed at strengthening the infrastructure for SME\\ndevelopment, building the capacity of the SMEs and improving their access to financing towards\\nincreasing their capacity to contribute to the economy.\\nStrengthening the Infrastructure for SME Development\\nSince its inception, the Steering Committee has conducted assessments on the existing infrastructure\\nfor SME development. The underlying objective was to identify areas of resource duplication among the\\nvarious Government ministries and agencies, and to address gaps in the existing infrastructure for SME\\ndevelopment. This undertaking involved: -\\n•\\nA review of the roles and responsibilities of the ministries and agencies involved in SME\\ndevelopment;\\n•\\nAn assessment on the need to form a central coordinating body for SME development;\\n•\\nAn evaluation of the feasibility of enacting an SME Law to coordinate efforts for SME development.\\nFor greater focus and enhanced coordination, the Steering Committee proposed that a permanent\\ninstitutional framework be established in order to enhance the Government’s capacity and ability to\\ncontinuously promote the development of competitive and resilient SMEs across all sectors. Having a\\nformal structure dedicated to the development of SMEs would result in greater synergies and\\nsynchronisation of efforts among the various stakeholders involved in SME development, while ensuring\\nthat SME development issues across all sectors are appropriately identified and addressed.\\nFollowing the Steering Committee’s presentation of its recommendations to the Cabinet Committee for\\nNational Competitiveness, the Government will establish a National SME Development Council. The\\nSME Council will function as the highest policy-making body to chart the future direction and strategies\\nfor SME development and will be chaired by the Prime Minister. Membership to this high-level SME\\nCouncil will comprise Ministers from stakeholder ministries, as well as appointed representatives of\\nprivate sector organisations involved in SME development, with Bank Negara Malaysia serving as the\\nSecretariat.\\nBridging the Gap\\nTo further enhance the coordination and comprehensiveness of SME development, the Steering\\nCommittee has embarked on several initiatives to address the gaps in the current infrastructure for\\nSME development: -\\n•\\nEstablishment of a standard definition for SMEs across all sectors. Currently, the definition of an\\nSME varies amongst the various Government ministries and agencies based on their respective\\ncriteria. Standardising the definition of SMEs within the national context will enable effective policy\\nsetting to target sectors within the economy, facilitate the provision of technical assistance and\\nimprove the channeling of financial benefits and other incentives under various policies. It allows for\\nthe physical identification of SMEs at the micro-level, encourages the formation of SME associations\\nat the macro-level, and facilitates better articulation of the problems and prospects of the sector.\\nThe standardisation of definition of SMEs will also support the collection of relevant and comparable\\nSME data for database-building purposes.\\n\\n\\n102\\n•\\nEstablishment of a comprehensive national SME Database. The absence of a central database with\\nrelevant SME and entrepreneurship statistics makes it difficult to gauge the present stage of SME\\ndevelopment, their operating conditions, financial viability and developmental needs. To cultivate\\nthe potential of SMEs as a source of endogenous growth, and to facilitate informed policy decision-\\nmaking with regard to SME development, SME policymakers need to be able to measure, monitor\\nand evaluate the performance and contribution of SMEs to the nation’s overall economic growth\\nprocess. The availability of a comprehensive national SME Database will greatly assist in the process\\nof monitoring and evaluating the level of SME development, determining their development needs\\nand providing critical input for the formulation of development policies.\\n•\\nFormulation of a coordinated framework for the marketing and promotion of SMEs across all\\nsectors. The emphasis is on the overall marketing and promotion of SMEs in terms of products,\\nservices, and the SMEs themselves. SMEs also need special assistance in the areas of product\\ndevelopment and improvement, design, packaging and branding of their products. The formulation\\nof a comprehensive and coordinated framework will ensure the efforts of the various stakeholders\\nare concerted towards assisting SMEs to penetrate new markets, increase awareness on branding\\nand intellectual property, enhance business networking, linkages and strategic alliances between\\nSMEs and other larger firms.\\n\\n\\nThe Financial Sector\\n104-107\\nSources and Uses of Funds of the Financial System\\n107-119\\nManagement of the Banking System\\n110-111\\nWhite Box: The International Center for Leadership in Finance\\n119-122\\nSupervisory Activities\\n122-127\\nWhite Box: Banking Measures Introduced in 2003\\n128-140\\nPerformance of the Banking System\\n141-149\\nWhite Box: Financial Sector Masterplan\\n150-151\\nWhite Box: The Proposed Deposit Insurance System in Malaysia\\n152-157\\nOther Financial Institutions\\n157-172\\nFinancial Markets\\n164-165\\nWhite Box: Key Capital Market Measures in 2003\\n172-178\\nDevelopments in Payment and Settlement Systems\\n173-175\\nWhite Box: Payment Systems Act 2003\\n178-180\\nMalaysia’s Anti-Money Laundering and Counter Financing of \\nTerrorism (AML/CFT) Programme \\n\\n\\n104\\nSOURCES AND USES OF FUNDS OF THE\\nFINANCIAL SYSTEM\\nTotal assets of the financial system expanded\\nsignificantly by 12.1% to RM1,564 billion in 2003 in\\nline with the improvement in overall economic\\nperformance. As a share of GDP\\n, total assets of the\\nfinancial system increased to 399% of GDP\\n(2002: 386%).\\nAssets of both the banking system and the non-\\nbank financial intermediaries (NBFIs) expanded in\\n2003. Total assets of the banking system increased\\nby 13.2% (2002: 6.8%), while assets of the non-\\nbank financial intermediaries (NBFIs) grew by 8.4%\\n(2002: 8.6%). The bulk of the increase in assets\\nwithin the banking system was due to the stronger\\ngrowth in assets of the commercial banks. This\\nreflected mainly the increase in deposits with other\\nfinancial institutions (19.5%), investment in\\nsecurities (15%) and loans and advances (7.2%).\\nThe growth in assets of the NBFIs was driven\\nprincipally by an expansion in the assets of the\\nprovident, pension and insurance funds (+RM30.5\\nbillion), which accounted for 65.1% of the increase\\nin the total assets of NBFIs.\\nDuring the year, the bulk of new resources was\\ncontributed by deposits placed with the financial\\nThe Financial Sector\\nBank Negara Malaysia\\n12.8%\\nCommercial banks\\n40.3%\\nFinance companies\\n9.1%\\nMerchant banks\\n2.8%\\nDiscount houses\\n1.9%\\nDevelopment financial institutions\\n5.1%\\nOther financial intermediaries\\n5.8%\\nLife insurance funds\\n4.1%\\nGeneral insurance funds\\n1.1%\\nProvident, pension\\nand insurance funds\\n22.2%\\nOther provident and pension funds\\n3.0%\\nEmployees Provident Fund\\n14.0%\\np Preliminary \\nGraph 4.1\\nAssets of the Financial System as at end-2003p (% share)\\nTotal Assets: RM 1,564.0 billion\\ninstitutions and contributions to the provident,\\npension and insurance funds. Deposits mobilised by\\nthe financial institutions grew at a higher rate of\\n11.8% in 2003, compared with 6% in 2002. The\\nbanking institutions (comprising commercial banks,\\nfinance companies, merchant banks and discount\\nhouses) continued to be the largest mobiliser of\\ndeposits in 2003, accounting for 71.1% of the\\nincrease in deposits raised by the financial system in\\n2003 (2002: 83.5%) and 81.4% of total\\noutstanding deposits of the financial system as at\\nend-2003 (2002: 82.6%). The strong deposit\\ngrowth was due to improved economic conditions,\\nwhich resulted in higher disposable income and\\nfinancial wealth of households and business\\nenterprises.\\nIn terms of holders, deposits were mainly held by the\\nnon-financial private sector (comprising individuals\\nand business enterprises), which accounted for\\n71.2% of the total outstanding deposits as at end-\\n2003 (79.6% as at end-2002). The deposits of this\\ngroup grew by 16.6% in 2003, with higher deposits\\nby individuals (47.2% of total outstanding deposits).\\nIn 2003, deposits of business enterprises also\\nincreased significantly by 14.6% (2002: 2.7%), while\\ndeposits by individuals grew at 7.7% (2002:6.9%).\\nAs in previous years, fixed deposits continued to\\naccount for the bulk of the increase in deposits\\n\\n\\n105\\nThe Financial Sector\\nplaced by the non-financial private sector, with\\nholders continuing to exhibit preference for\\ndeposits with shorter maturities, given the smaller\\nTable 4.1\\nAssets of the Financial System\\nAnnual change\\nAs at\\nend-\\n2002\\n2003p\\n2003p\\nRM billion\\nBanking system\\n58.5\\n122.2\\n1,046.7\\nBank Negara Malaysia\\n 12.5\\n38.6\\n200.8\\nCommercial banks1\\n33.2\\n66.7\\n629.6\\nFinance companies\\n8.9\\n11.3\\n142.0\\nMerchant banks\\n0.3\\n2.8\\n44.1\\nDiscount houses\\n3.6\\n2.8\\n30.2\\nNon-bank financial intermediaries\\n42.6\\n46.8\\n517.3\\nProvident, pension and insurance\\nfunds\\n27.0\\n30.5\\n347.7\\nEmployees Provident Fund\\n15.2\\n18.0\\n220.2\\nOther provident & pension funds\\n4.5\\n1.5\\n46.2\\nLife insurance funds\\n6.7\\n9.8\\n64.1\\nGeneral insurance funds\\n0.6\\n1.2\\n17.2\\nDevelopment financial institutions2\\n11.1\\n6.7\\n79.1\\nOther financial intermediaries3\\n4.5\\n9.6\\n90.5\\nTotal\\n101.1\\n169.0\\n1,564.0\\n1 Includes the Islamic banks (since 1999).\\n2 Includes Bank Simpanan Nasional (National Savings Bank), Bank Kerjasama\\nRakyat Malaysia Berhad, Bank Pertanian Malaysia, Malaysian Industrial\\nDevelopment Finance Berhad (MIDF), Borneo Development Corporation,\\nSabah Development Bank Berhad, Sabah Credit Corporation, Export-Import\\nBank Malaysia Berhad, Bank Pembangunan dan Infrastruktur Malaysia\\nBerhad, Bank Industri dan Teknologi Malaysia Berhad, Malaysia Export Credit\\nInsurance Berhad, Credit Guarantee Corporation Malaysia Berhad (CGC) and\\nLembaga Tabung Haji (Pilgrims’ Funds Board).\\n3 Includes unit trusts run by Amanah Saham Nasional Berhad (ASNB) and\\nAmanah Saham Mara Berhad, cooperative societies, leasing and factoring\\ncompanies, venture capital companies and housing credit institutions\\n(comprising of Cagamas Berhad, Borneo Housing Mortgage Finance Berhad\\nand Malaysia Building Society Berhad).\\np Preliminary\\ninterest differentials between short- and longer-term\\ndeposit rates.\\nContractual savings with provident and pension\\nfunds, as well as contributions to insurance funds,\\ncontinued to be one of the major sources of funds\\nfor the financial system, expanding by 8.3% to\\naccount for 19% of the total funds mobilised by the\\nfinancial system as at end-2003. Meanwhile, capital\\nand reserves of the financial system increased by\\n17.8% in 2003 (2002: +10.2%), reflecting\\nmainly improved financial performance of the\\nbanking institutions.\\nThe increase in the total resources of the financial\\nsystem in 2003 was invested mainly in loans and\\nadvances and securities. Total loans and advances\\ngrew by RM40.4 billion or 7.2% in 2003\\n(2002: RM35.2 billion or 6.7%). This development\\nwas due mainly to increased demand from the\\nhousehold sector, as reflected by the higher\\ndemand for loans for the purchase of residential\\nproperty and consumption credit. In addition,\\nfinancing available to SMEs was also higher during\\nthe year, with outstanding loans increasing by\\nGraph 4.2\\nSources and Uses of Funds of the Financial  \\nSystem as at end-2003p (% share)\\n14.7%\\n10.0%\\n19.0%\\n10.6%\\n5.7%\\n25.2%\\n38.3%\\n3.1%\\n1.1%\\n45.4%\\n14.4%\\n1.9%\\n0.4%\\n10.2%\\nCapital and reserves\\nCurrency\\nDeposits\\nBorrowings\\nFunds from other financial institutions\\nPension, provident and insurance funds\\nOther liabilities\\nCurrency\\nDeposits with other financial institutions\\nBills\\nLoans and advances\\nSecurities\\nGold and foreign exchange reserves\\nOther assets\\nUSES\\nSOURCES\\np Preliminary \\nTotal: RM1,564.0 billion\\nTable 4.2\\nSources and Uses of Funds of the Financial\\nSystem\\nAnnual change\\nAs at\\nend-\\n2002\\n2003p\\n2003p\\nRM billion\\nSources:\\nCapital and reserves\\n12.6\\n24.0\\n158.8\\nCurrency\\n1.8\\n2.3\\n29.4\\nDeposits\\n 36.3\\n74.8\\n709.4\\nBorrowings\\n9.7\\n3.1\\n48.0\\nFunds from other financial institutions1\\n2.3\\n18.0\\n88.9\\nInsurance and provident funds\\n23.0\\n22.7\\n297.1\\nOther liabilities\\n15.5\\n24.1\\n232.4\\nTotal\\n101.2\\n169.0\\n1,564.0\\nUses:\\nCurrency\\n0.3\\n-1.1\\n6.3\\nDeposits with other financial\\ninstitutions\\n13.9\\n36.7\\n224.6\\nBills\\n2.7\\n-2.2\\n16.7\\nTreasury\\n1.6\\n-2.1\\n3.5\\nCommercial\\n1.1\\n-0.1\\n13.2\\nLoans and advances2\\n35.2\\n40.4\\n600.8\\nSecurities\\n24.0\\n51.2\\n393.4\\nMalaysian Government\\n0.9\\n19.9\\n124.3\\nForeign\\n0.5\\n0.3\\n3.5\\nCorporate\\n21.2\\n32.3\\n259.0\\nOthers\\n1.4\\n-1.3\\n6.6\\nGold and foreign exchange reserves\\n14.0\\n38.6\\n166.1\\nOther assets\\n11.1\\n5.4\\n156.1\\n1 Includes statutory reserves of banking institutions.\\n2 Excludes loans sold to Danaharta.\\np Preliminary\\n\\n\\n106\\n10% on annual basis, the highest growth\\nregistered since July 2001.\\nInvestment in securities by the financial system\\ncontinued to expand in 2003, recording a significant\\nincrease of 15% in 2003 (2002: 7.5%). The bulk of\\nTable 4.3\\nNon-Financial Private Sector Deposits1 with the\\nFinancial System2\\nAnnual change\\nAs at\\nend-\\n2002\\n2003p\\n2003p\\nRM billion\\nDeposits3 with:\\nCommercial banks\\n16.1\\n37.3\\n355.2\\nFinance companies\\n3.0\\n0.2\\n64.1\\nMerchant banks\\n0.2\\n2.4\\n13.9\\nDiscount houses\\n3.2\\n2.3\\n10.7\\nBank Simpanan National\\n0.7\\n0.2\\n8.3\\nOthers4\\n0.1\\n6.6\\n29.9\\nTotal\\n23.3\\n49.0\\n482.1\\nDemand deposits\\n5.9\\n13.5\\n77.5\\nFixed deposits\\n9.5\\n17.8\\n300.0\\nof which:\\nUp to 1 year\\n15.5\\n14.3\\n258.1\\nMore than 1 year\\n-6.0\\n3.5\\n41.9\\nSavings deposits\\n5.8\\n11.3\\n75.4\\nNIDs5\\n0.5\\n0.3\\n2.7\\nRepos6\\n1.6\\n6.1\\n26.5\\n1 Refers to deposits placed by business enterprises (excluding NFPEs) and\\nindividuals.\\n2 Excludes provident and pension, insurance and unit trust funds.\\n3 Refers to demand, savings and fixed deposits, negotiable instruments of\\ndeposits and repos.\\n4 Includes development financial institutions, cooperative societies and housing\\ncredit institutions.\\n5 Refers to negotiable instruments of deposits.\\n6 Refers to repurchase agreements.\\np Preliminary\\nGraph 4.3\\nNon-Financial Private Sector Deposits with the Financial System as at end-2003p (% share)\\np Preliminary \\nBy Institutions\\nTotal Deposits: RM482.1 billion\\nBy Types of Deposits\\nTotal Deposits: RM482.1 billion\\nFinance companies\\n13.3%\\nMerchant banks\\n2.9%\\nDiscount houses\\n2.2%\\nBank Simpanan Nasional\\n1.7%\\nOthers\\n6.2%\\nCommercial Banks\\n73.7%\\nDemand deposits\\n16.1%\\nSavings deposits\\n15.6%\\nNIDs\\n0.6%\\nRepos\\n5.5%\\nUp to 1 year\\n53.5%\\nMore than 1 year\\n8.7%\\nFixed deposits\\n62.2%\\nthe increase was in equities and reflect improving\\noptimism and opportunity for high returns in the\\nequity market. Provident, pension and insurance\\nfunds continued to be the main investors in\\nsecurities, accounting for 51.4% of the increase in\\ninvestments in securities. Meanwhile, gross holdings\\nof gold and foreign exchange reserves also recorded\\na significant rise of RM38.6 billion or 30.3% in 2003\\n(2002: RM14 billion or 12.3%), on account of larger\\nforeign exchange inflows generated from the large\\ntrade surplus, short and long-term capital inflows,\\nand unrealised revaluation gains on reserves.\\nTable 4.4\\nDirection of Credit1 to the Non-Financial Private\\nSector\\nAnnual change\\nAs at\\nend-\\n2002\\n2003p\\n2003p\\nRM billion\\nLoans and advances\\n20.8\\n31.2\\n563.1\\nAgriculture\\n0.0\\n-0.4\\n13.6\\nMining and quarrying\\n-0.2\\n0.1\\n1.1\\nManufacturing\\n0.1\\n0.9\\n55.8\\nConstruction and real estate\\n-1.5\\n4.4\\n80.9\\nPurchase of residential properties\\n17.1\\n16.8\\n147.8\\nRetail, wholesale, restaurants\\nand hotels\\n2.3\\n-0.3\\n21.0\\nTransport, storage and\\ncommunications\\n1.3\\n0.5\\n14.7\\nBusiness services\\n-2.6\\n1.7\\n21.6\\nConsumption credit\\n0.1\\n10.1\\n96.4\\nPurchase of shares\\n0.1\\n-1.7\\n19.3\\nOthers\\n4.1\\n-0.9\\n90.9\\nInvestments in corporate securities\\n48.1\\n2.1\\n259.0\\nTotal\\n68.9\\n33.3\\n822.1\\n1 Excludes credit to non-financial public enterprises.\\np Preliminary\\n\\n\\n107\\nThe Financial Sector\\np Preliminary \\nGraph 4.4\\nDirection of Credit to the Non-Financial Private Sector as at end-2003p (% share)\\nTotal Credit: RM822.1 billion\\nMining and quarrying 0.1%\\nAgriculture 1.7%\\nManufacturing 6.8%\\nConstruction and real estate 9.8%\\nPurchase of residential property 18.0%\\nRetail, wholesale, hotels and restaurants 2.6%\\nTransport, storage and communications 1.8%\\nBusiness services 2.6%\\nConsumption credit 11.7%\\nPurchase of shares 2.3%\\nOthers 11.1%\\nInvestment in  \\ncorporate securities\\n31.5%\\nLoans and advances\\n68.5%\\nMANAGEMENT OF THE BANKING SYSTEM\\nThe thrust of banking policies in 2003 continued to\\nfocus on enhancing the efficiency and\\ncompetitiveness of the domestic banking institutions\\nwhile reinforcing the resilience of the banking system\\nto preserve financial stability. Policies implemented\\nover the years to restructure and strengthen the\\nbanking system, supported by improved economic\\nperformance contributed to the strengthening of the\\nbanking system in 2003. The risk weighted capital\\nratio of the banking system remained above 13%\\nthroughout 2003, while non-performing loans were\\non a declining trend. This had enabled the banking\\nenhancing the foundations and environment for the\\nbanking institutions to efficiently deliver quality\\nproducts and services, encouraging greater innovation\\nand maintaining financial stability. An important\\nstrategy was to ensure that the banking system\\ncontinued to be a facilitator of growth, particularly in\\nproviding financing and other ancillary services to the\\nsmall and medium enterprises (SMEs).\\nProgress of Financial Sector Restructuring\\nThe financial sector restructuring that started during\\nthe Asian financial crisis is virtually completed.\\nFollowing the closure of Corporate Debt\\nThe design of banking policies in 2003 was aimed at enhancing\\nthe foundations and environment of the banking institutions to\\nefficiently deliver quality products and services, encouraging\\ngreater innovation and maintaining financial stability.\\nsystem to effectively support economic activities.\\nNew loan approvals and disbursements expanded\\nstrongly by 11.2% and 7.2% respectively, while total\\noutstanding loans grew by 4.8% in 2003. Overall,\\nfinancing provided by the banking system through\\nextension of loans and its holdings of private debt\\nsecurities expanded at an annual rate of 5.9%.\\nThe completion of financial restructuring and stronger\\nbalance sheets have enabled the banking institutions\\nto focus on harnessing their operational efficiency and\\nmeeting the needs of their customers. In this regard,\\nthe design of banking policies in 2003 was aimed at\\nRestructuring Committee in August 2002, another\\nimportant landmark in the financial sector\\nrestructuring process in 2003 was the winding-down\\nof the operations of Danamodal Nasional Berhad on\\n31 December 2003, five years after its establishment\\nin 1998. During its operations, Danamodal injected a\\ntotal of RM7.6 billion into 10 banking institutions\\naffected by the Asian financial crisis, significantly\\nlower than the initial budget allocation of RM16\\nbillion. Danamodal has recovered RM6.6 billion of\\nthe capital investment, while the remaining RM1\\nbillion capital in one institution is expected to be fully\\ndivested in 2004. Prior to the winding-down,\\n\\n\\n108\\nDanamodal had redeemed its entire RM11 billion\\n5-year zero-coupon unsecured redeemable bonds on\\n21 October 2003. As at end-2003, Danamodal had\\nremaining assets of RM2.2 billion.\\nThe timely establishment of Danamodal ensured the\\nsuccess of the overall resolution of banking sector\\nproblems arising from the Asian financial crisis. The\\nfunds injected by Danamodal helped to increase the\\ncapital of weak but viable banking institutions. With\\nthe improved capital position, coupled with\\noperational restructuring, these institutions were\\nable to resume their lending activities. Danamodal’s\\nearly action and strict adherence to the “first-loss”\\nprinciple where the existing shareholders absorbed\\nall the losses before the recapitalisation, has kept\\nthe total cost of recapitalisation low, at\\napproximately 0.2% of GDP.\\nDanaharta, which completed acquiring non-\\nperforming loans (NPLs) from the financial sector in\\n2001, has made significant progress in its recovery\\noperations. Of the RM52.4 billion adjusted loan rights\\nacquired in its portfolio, Danaharta expects to recover\\nRM30.6 billion over its lifespan, which translates into\\nan overall expected recovery rate of 58%. As at\\nend-2003, RM22.4 billion or approximately 73% has\\nbeen collected, of which RM19 billion has been\\nconverted into cash, whilst the rest are still in the form\\nof non-cash assets, namely restructured loans,\\nsecurities and properties. The remaining expected\\nrecoveries totalling RM8.2 billion is still pending\\nimplementation of the respective recovery strategies.\\nIn 2003, Danaharta has cumulatively distributed\\nrecoveries amounting to RM13.4 billion in cash and\\n66,472,441 units of securities to the Government and\\n36 financial institutions. The distribution to the\\nfinancial institutions is done in respect of the 80:20\\nsurplus recovery sharing agreement between the\\nfinancial institutions and Danaharta.\\nGiven the progress of its operations and the\\ncommendable recovery rate achieved, Danaharta\\nhas paid in full, its RM1.3 billion loans from\\nKhazanah Nasional Berhad and Employees’\\nProvident Fund by June 2003, earlier than\\nscheduled. In addition, Danaharta has also\\nsuccessfully redeemed the first two tranches of\\nzero-coupon bonds with a total face value of RM2.6\\nbillion on 31 December 2003. The remaining 13\\ntranches, with a total face value of RM8.5 billion,\\nwould be maturing in every subsequent quarter up\\nto 31 March 2005. As at end-2003, Danaharta has\\ncash and cash equivalents amounting to RM5.9\\nbillion. With its existing financial position and the\\nremaining assets to be recovered, Danaharta is in\\nthe position to redeem its remaining bonds of\\nRM8.5 billion without having to call upon the\\nGovernment guarantee.\\nThrust of Policy Measures in 2003\\nThe main thrust of policy measures in 2003 was the\\ncontinuation of efforts to strengthen the capability\\nand capacity of domestic banking institutions. In\\nparticular, efforts to enhance the efficiency and\\ncompetitiveness of domestic banking institutions\\nwere further intensified during the year, with\\nparticular focus on harnessing human capital in the\\nbanking institutions. These initiatives were\\ncomplemented by measures taken to safeguard\\nfinancial stability.\\nGiven the importance of financing in ensuring\\nsustainable and balanced economic growth, the\\nthrust of policy in 2003 was also to ensure that all\\nsectors of the economy had adequate and continued\\naccess to financing. Towards this end, policies were\\ndirected at facilitating access to credit by developing\\nthe financial infrastructure to meet the financing\\nneeds of various sectors of the economy, particularly\\nthe SMEs which are important in generating\\ndomestic investment and growth. In addition, a\\nmicrofinancing programme with an extensive\\noutreach was established during the year for\\nmicroenterprises.\\nThe growing sophistication of the financial markets\\nand products requires consumers to have greater\\nTable 4.5\\nDanaharta: Loan Recovery as at 31 December 2003\\nAdjusted loan\\nExpected\\nrights acquired1\\nrecovery rate\\n(RM billion)\\n(%)\\nAcquired Managed Acquired Managed\\nNPLs\\nNPLs\\nNPLs\\nNPLs\\nPlain loan restructuring\\n2.2\\n5.5\\n62\\n87\\nSettlement\\n2.7\\n6.7\\n89\\n78\\nSchemes of arrangement\\n2.9\\n6.9\\n66\\n77\\nSchemes under Special\\nAdministrators\\n2.5\\n2.9\\n51\\n35\\nForeclosure\\n9.9\\n4.5\\n28\\n46\\nOthers\\n1.7\\n3.0\\n60\\n53\\nLegal action\\n0.2\\n1.0\\n-\\n-\\nTotal\\n21.9\\n30.5\\n49\\n66\\nOverall\\n52.4\\n58\\n1\\nComprising total loan rights acquired of RM47.7 billion and accrued interest\\nof RM4.7 billion.\\nNote: Total may not add-up due to rounding.\\nSource: Pengurusan Danaharta Nasional Berhad.\\n\\n\\n109\\nThe Financial Sector\\nawareness and understanding of banking products\\nand services, so that they can make well-informed\\nfinancial decisions. In this regard, the framework for\\nconsumer awareness and protection was further\\nstrengthened in 2003. The work on this area is\\naimed at laying the foundation for a more\\ncompetitive operating environment and where\\nbanking consumers will be able to make well-\\ninformed decisions and be fully responsible for their\\ndecisions.\\nEnhancing Domestic Capacity\\nIn a more competitive environment, domestic banking\\ninstitutions need to be aware and understand the\\ndrivers of performance to meet consumer demands in\\nan effective and efficient manner. More importantly,\\nthe banking institutions need to be in a position to\\nprovide high quality services at competitive prices to\\nbenefit the overall economy. Against these objectives,\\nBank Negara Malaysia continued to accord priority\\ntowards strengthening the capability of domestic\\nbanking institutions as well as improving the efficiency\\nof the overall banking system. After three years, the\\ncapacity building efforts is showing positive results,\\nwith the domestic banking institutions improving not\\nonly their financial performance but equally important,\\ntheir quality of services and product innovativeness as\\nwell as increasing usage of technology in delivering\\nproducts and managing risks.\\nTo gauge the level of service quality of the banking\\ninstitutions, Bank Negara Malaysia implemented a\\n4-year programme to assess the requirements,\\nexpectations and satisfaction level of consumers on\\nthe quality of the products and services provided by\\nbanking institutions and insurance companies. As\\npart of the programme, a nationwide survey was\\nconducted in 2003 involving 5,000 banking and\\ninsurance customers, comprising individuals, SMEs,\\nlarge corporations and multinationals. The survey\\ncovers various aspects of banking products and\\nservices, both conventional and Islamic banking, as\\nwell as insurance and takaful products and services.\\nThe analysis of the survey result will provide a\\nsnapshot of the current level of customers’ needs\\nand satisfaction, and highlight the areas for\\nimprovement to enhance the level of customer\\nservice in the banking and insurance sectors.\\nThe domestic banking groups are also concentrating\\non maximising the benefits of consolidation,\\nparticularly through rationalising and streamlining\\ntheir internal operations and improving operational\\nefficiency. This had led to the offering of a broader\\nrange of financial products and services to meet\\nvarious customer needs under one roof. Towards this\\nend, an important policy initiative in 2003 was the\\namendment to the Banking and Financial Institutions\\nAct 1989 to allow the merger of commercial bank\\nand finance company within a domestic banking\\ngroup into a single legal entity. This single entity will\\nhold two licences, one to carry on banking business\\nand the other to carry on finance company business.\\nThis change in the legal framework provides an\\nopportunity for the banking groups to further\\nimprove their group structure and rationalise their\\noperations, and thus enhancing their efficiency.\\nAs a service provider, the banking institutions rely\\nsignificantly on human intellectual capital. At the top\\nlevel of the management, highly skilled senior\\nmanagers are vital to drive the strategic direction and\\nposition the banking institutions to maximise\\nopportunities presented by the continuously evolving\\nfinancial landscape. At the same time, staff with\\nappropriate skills at all levels of the institution is\\nnecessary to implement the business strategies as\\nwell as realise the improvements in business\\nprocesses and systems. As the business environment\\nand consumer demands are constantly evolving,\\ncontinuous upgrading of skills of staff is necessary.\\nRecognising this, Bank Negara Malaysia initiated two\\nimportant measures to provide avenues for\\ncontinuous learning for the banking institutions to\\nutilise in order to strengthen the competency of their\\nstaff. The establishment of the International Centre\\nfor Leadership in Finance (ICLIF) was aimed at\\nachieving this objective, to accelerate the\\ndevelopment of skilled leaders of financial institutions\\nand corporations. Towards this end, ICLIF is working\\nwith renowned international business schools and\\nleading institutions to provide executive management\\nprogrammes tailored to developing leadership\\ncapability and leaders in the financial services sector.\\nEqually important is the need to provide an avenue\\nfor the other levels of staff in the banking\\ninstitutions to continuously upgrade their skills and\\nexpertise in the face of evolving financial market\\nconditions. Increasingly, staff in banking institutions\\nneed to possess specialised skills, particularly in the\\nareas of risk management, credit assessment and\\nsystem development. Towards this end, work has\\nbeen initiated to reposition the Institut Bank-Bank\\nMalaysia (IBBM) to continuously meet the learning\\nneeds of the middle managers, executives and non-\\nexecutives of banking institutions. In addition,\\n\\n\\n110\\nThe International Centre For Leadership In Finance\\nThe financial sector has a vital role in promoting growth and economic transformation towards a more\\ndiversified economic structure. These aspirations on the financial sector formed the main thrusts of the\\nFinancial Sector Masterplan (FSMP), a ten-year plan that was launched in 2001 to develop a more resilient,\\ncompetitive and dynamic financial sector with best practices that supports and contributes positively to the\\ngrowth of the economy. In the first phase of the FSMP\\n, efforts are focused on enhancing the capability and\\ncapacity of the domestic financial institutions to face the challenges in the changing and more demanding\\neconomic and financial environment. This is vital in ensuring that the domestic financial institutions become\\nmore innovative, technology-driven and strategically more focused, and able to compete effectively and\\nefficiently, thereby remaining relevant and meeting the changing needs of the economy.\\nAs the financial services sector becomes increasingly more complex and competitive, financial institutions\\nneed to make the necessary adjustments to become more productive and innovative in order to meet the\\ngreater demands from businesses and individuals and remain competitive. In this respect, the quality of\\nhuman resource and leadership capability in the financial sector becomes increasingly crucial in defining\\nthe success of the institutions. The training needs of middle management and staff of financial\\ninstitutions are well served by learning institutions such as Institut Bank-Bank Malaysia (IBBM) and\\nMalaysian Insurance Institute (MII). To complement this, there is a critical need for avenues for leaders and\\nsenior management of financial institutions to pursue continuous training, particularly in strategic and\\nleadership management, and thereby drive the strategic direction of the institutions and transform the\\ninstitutions into high-performing organisations. For this, requisite leadership skills for the changed\\nenvironment require continuous learning. This includes having the ability to create a culture of high\\nperformance within the organisation to drive the institution towards excellence and contribute towards\\nthe long-term growth of the institution and the financial sector as a whole. The leadership needs to be\\nable to identify and capitalise on new emerging opportunities so that they can adapt rapidly to changes\\nand maximise on the opportunities presented by the changing environment. This was the motivation for\\ndeveloping the infrastructure for high-level training for top management of organisations to create a high\\nquality human resource pool of top management for the financial sector and corporations.\\nBank Negara Malaysia established the International Centre for Leadership in Finance (ICLIF) with the\\nobjective of providing a focused and coordinated approach towards the development of world class leaders\\nin the financial and business sectors in Malaysia and the region. ICLIF was officially launched on 28 October\\n2003 and is established as a company limited by guarantee with a trust fund of RM500 million\\n(USD132 million), whereby the income generated from the fund will be utilised to finance the operations of\\nICLIF. The establishment of ICLIF represents one of Bank Negara Malaysia’s contributions in providing an\\navenue for top management of financial institutions and corporations to seek continuous learning whilst\\nhaving the opportunity to network, participate in shared learning experiences and able to form strong\\nalumni contacts. In this connection, the mandate for ICLIF is to develop excellence in leaders with regional\\ninsights by providing learning opportunities and experience through effective development programmes.\\nICLIF also strives to serve the needs of the financial institutions in the region and thus, complements efforts\\nin promoting Malaysia as a regional training centre of excellence for the financial services sector.\\nAs ICLIF aims to accelerate the development of intellectual capital and managerial capabilities of senior\\nmanagement of financial institutions and corporations, it adopts a multi-disciplinary approach and offers\\nprogrammes on strategic management as well as those that are relevant across the whole spectrum of\\nthe financial services industry, covering banking, insurance and Islamic financial industry. ICLIF aims to\\ntake a proactive approach in identifying the needs of the industry, which then serve as input in designing\\nthe programmes. ICLIF’s planned programmes are divided into three broad categories:\\n\\n\\n111\\nThe Financial Sector\\n•\\nStructured executive management programmes, in the areas of strategic management, customer and\\nmarketing management, people management, business technology and knowledge management,\\nand risk management;\\n•\\nSeminars and workshops on topical issues, as well as providing a platform for the top management of\\nfinancial industry and corporations, regulators and academicians to discuss current economic and\\nfinancial issues; and\\n•\\nSpecialised programmes in Islamic financial services and other specialist areas.\\nA distinctive feature of ICLIF is the strategic alliances it has formed with renowned international business\\nschools and learning institutions to provide programmes that are adapted to the regional context and to\\nthe needs of the financial industry and corporations. Through these partnerships, ICLIF has entered into\\narrangements with a number of international business schools to design and deliver structured executive\\nmanagement programmes at ICLIF. The strategic partners provide the resource persons for the\\nprogrammes while ICLIF provides the necessary infrastructure and facilities. This approach will enable the\\nparticipants to have access to high quality management programmes at reasonable cost and thereby\\nprovide greater opportunities for the leaders from the financial and corporate sectors to benefit from\\nworld-class knowledge sharing and networking.\\nAs part of achieving these objectives, ICLIF has developed a unique leadership competency model to\\nanalyse and understand competencies that are necessary towards the development of excellent\\ncorporate leaders in the regional context. These skills and behaviours will form the foundation in the\\ndesign and delivery of ICLIF’s leadership development learning programmes. One of these programmes\\nis the Global Leadership Development Program (GLDP), which is ICLIF’s flagship programme. The GLDP\\nrepresents ground-breaking design in terms of an executive education programme by drawing faculty\\nfrom leading learning institutions and consultants, which enables ICLIF to combine the best ideas and\\nthoughts on the various key leadership issues and concerns. These participating institutions and\\nconsultants are the Peter F. Drucker Graduate School of Management-Claremont Graduate University,\\nMarshall School of Business-University of Southern California, Stanford Graduate School of Business\\nand Tower Perrins. The GLDP primarily focuses efforts on developing the best leaders across industries\\nby combining an optimal mix of theory and practical application in its leadership development\\ntechniques. The programme also provides an opportunity for the participants to strengthen their\\nnetworking circle and participate in shared learning experiences and discussions with leaders of other\\norganisations. The GLDP will be held twice a year and comprise three parts, with Part 1 and 2\\nconducted in Malaysia while Part 3 comprises a focused two-week study programme to the United\\nStates of America to provide a unique experience for the participants to be exposed to the best\\nlearning institutions and corporate organisations in the United States of America. The first GLDP was\\nheld from 9 to 13 February 2004 and attended by 20 top management of financial institutions and\\ncorporations in Malaysia and from the region.\\nICLIF is governed by its own Board of Directors, with the Governor of Bank Negara Malaysia as its\\nChairman. In addition to the Board of Directors, ICLIF also has an Advisory Council, comprising eminent\\npersons from Malaysia and abroad, to provide strategic direction on training matters and the\\ndevelopment of high quality programmes. It evaluates the learning needs of the financial services and\\ncorporate sectors in the region in developing programmes that meet the objectives of ICLIF.\\nThe establishment of ICLIF aims to reinforce the notion that investments in human capital, including the\\npursuit of leadership excellence, is a continuing process in this ever-changing environment. ICLIF will\\ntherefore be focused on making positive contributions towards developing excellent leaders and become\\na regional centre of excellence for leadership training in finance.\\n\\n\\n112\\nIBBM, as a training provider, aims to complement\\nprofessional institutes, universities and management\\nconsultancy firms. Thus, to remain effective as a\\npremier training provider for the financial sector,\\nIBBM is giving priority to two broad areas, namely\\nprovision of focused training and accreditation,\\nparticularly in the specialised areas, and to act as an\\neffective training adviser to the banking institutions.\\nTo achieve this objective, IBBM has developed\\nseveral broad strategies, which include building a\\nnew education and qualification portfolio,\\nimproving the institutional structure to support\\nfuture requirements and building capacity to deliver\\nspecialised courses.\\nAnother initiative pursued to strengthen the\\nbanking institutions is the setting up of investment\\nbanks. Policy proposals have been developed with a\\nview to place the new institutions in a stronger and\\nmore competitive position vis-à-vis the regional and\\nglobal players. At the same time, a prudential\\nregulatory framework is being formulated, taking\\ndriven by the low interest rate environment and\\nimproved economic outlook, was effectively met by\\nthe banking institutions.\\nThere has been a marked shift in the lending\\npattern of the banking institutions to the household\\nsector and small businesses. The share of loans to\\nthe household sector has increased from 33.4% at\\nend-1997 to 48.7% at end-2003. This shift in\\nlending pattern has supported the growth in private\\nconsumption and has positive spillover effect on the\\nother sectors of the economy. From the financial\\nstability perspective, the shift towards high-volume\\nlow-value loans also diversifies the distribution of\\ncredit risks within the banking system, minimising\\nthe potential occurrence of large losses stemming\\nfrom the failures of a few large borrowers. At the\\nsame time, Bank Negara Malaysia is mindful that a\\ncontinuous build up in household debts that is not\\naccompanied with an increase in the level of\\nhousehold income could affect the sustainability of\\nthe debt servicing capacity of the household sector\\nTo promote endogenous sources of growth, attention was\\ndirected at providing improved access to financing by SMEs.\\ninto consideration existing regulations, the different\\nnature of the new institution and international\\nregulatory frameworks for comparable institutions.\\nThis includes the envisaged structure for the\\ninvestment banks and their permissible activities.\\nCentral to this is defining the appropriate capital\\nand liquidity frameworks that seek to converge the\\nmanner in which risks are measured under the\\nexisting frameworks. The capital and liquidity\\nframeworks are being formulated to best reflect the\\nnature of risks to be undertaken by the new\\ninstitution in order to give a fair representation of\\nthe solvency position and risks undertaken by\\ninvestment banks.\\nEnsuring Continuous Access to Financing\\nWith policy priority being accorded to generate\\ndomestic sources of economic growth, access to\\nfinancing is critical to promote and sustain both\\nprivate consumption and investment. As the banking\\nsystem remains the largest provider of funds in the\\neconomy, policy initiatives during the year were\\ndirected at ensuring that the lending activities of the\\nbanking system were supportive of economic growth\\nas well as facilitating access to financing to all sectors\\nof the economy. Indeed, the increased demand for\\nloans from both the household and businesses,\\nwith destabilising effects on the banking system.\\nBank Negara Malaysia has in place a surveillance\\nmechanism to monitor the banking system’s\\nexposure to the household sector and the debt\\nservicing capacity of the household sector. The\\nexposure to the household sector has thus far\\nremained within prudential levels. With rising\\nincome levels, the household sector in Malaysia has\\ncontinued to accumulate net financial savings, as\\nreflected in higher accumulation of deposits against\\ndebt accumulation. In addition, while the level of\\nNPLs for the household sector has increased, the\\nNPL ratio has remained at manageable levels.\\nEqually important is the ability of the banking\\ninstitutions to manage these risks. Since the crisis,\\nthe banking institutions have enhanced their risk\\nmanagement infrastructure and capabilities to\\nbetter cope with the changing risk profile of their\\nassets. This was further reinforced with the\\navailability of complete positive and negative credit\\ninformation of all borrowers in the banking system\\non a real time basis provided by the Central Credit\\nReference Information System.\\nIn line with the policy priority of strengthening the\\nsupport to SMEs to promote endogenous sources\\nof growth, particular attention was directed at\\nproviding improved access to financing by SMEs.\\n\\n\\n113\\nThe Financial Sector\\nAlthough the Government, through various\\nministries and agencies, have established various\\nfinancing schemes, it was evident that the\\nawareness among SMEs of these schemes was\\nlow. To address this, Bank Negara Malaysia\\nestablished the SME Special Unit in May 2003 to\\nassist SMEs to obtain information on the various\\nfinancing schemes available to them and to\\nprovide financial advisory services. In addition, the\\nSME Special Unit also assists in facilitating SMEs\\nin their loan application process. As at end-2003,\\nthe Unit has received 1,789 enquiries from SMEs,\\nof which 82% were enquiries on sources of\\nfinancing, whilst the remainder was related to\\nproblems on access to financing and requests for\\nloan restructuring. While the Unit strives to assist\\nviable SMEs, SMEs themselves need to ensure\\nsatisfactory financial records are maintained to\\nfacilitate the process.\\nOne of the problems faced by SMEs is the existing\\nNPLs, which constrained their ability to obtain\\nnew loans despite having on-going and viable\\nbusinesses. Bank Negara Malaysia has, therefore,\\nestablished a small debt resolution mechanism in\\nOctober 2003 to support viable SMEs that are\\nconstrained by NPLs by facilitating loan\\nrestructuring with their banks. A Small Debt\\nResolution Committee (SDRC) has been\\nestablished to undertake independent\\nassessments on the viability of the businesses,\\nand propose the loan restructuring and assess\\nnew financing requirements of the affected SMEs.\\nThis mechanism is open to SMEs with on-going\\nbusinesses that have aggregate NPLs of not more\\nthan RM3 million. As the debt restructuring may\\ninvolve new financing, Bank Negara Malaysia has\\nestablished the Rehabilitation Fund for Small\\nBusinesses with an allocation of RM800 million.\\nAs part of the efforts to enhance access to\\nfinancing, the Fund for Small and Medium\\nIndustries 2 (FSMI2) and the New Entrepreneurs\\nFund 2 (NEF2) were increased further. In 2003,\\nBank Negara Malaysia provided additional\\nallocations of RM1.35 billion for FSMI2 and\\nRM650 million for NEF2. Consequently, the total\\nallocation of these two Funds increased to RM2\\nbillion and RM1.15 billion respectively. Apart from\\nsetting up special funds, Bank Negara Malaysia\\nalso required the banking institutions to set their\\nlending targets to SMEs. Where the individual\\ninstitutions’ targets were deemed insufficient,\\nappropriate targets were imposed.\\nIn addition, banking institutions have also\\nundertaken various initiatives to support SMEs in\\nobtaining financing. These initiatives include the\\nestablishment of dedicated SME units, provision\\nof financial advisory services and display of client\\ncharters. The display of the client charter by all\\nbanking institutions enhances the efficiency of\\nloan approval process by disclosing the necessary\\ndocumentation for submission to the banking\\ninstitution to support the loan applications,\\neligibility criteria, definition of project viability,\\nand duration taken by a banking institution to\\nprocess the loan application. Banking institutions\\nare also required to inform applicants of reasons\\nfor their loans being rejected. Bank Negara\\nMalaysia monitors the compliance of the client\\ncharter through the on-site inspection process.\\nThe unexpected outbreak of Severe Acute\\nRespiratory Syndrome (SARS) in early 2003 had\\nadversely affected the tourism and other related\\nsectors. Two specific measures were introduced to\\nprovide relief to ease the financial burden of\\naffected businesses and their employees. A\\nSpecial Relief Guarantee Facility of RM1 billion\\nwas established in May 2003 to alleviate the cash\\nflow problems faced by businesses directly\\naffected by the SARS outbreak. Under the\\nscheme, affected businesses could obtain working\\ncapital loans from banking institutions, up to an\\naggregate amount of RM2.5 million, at low\\ninterest rates. In addition, this was reinforced by\\nthe guarantee facility of up to 80% of these loans\\nby the Credit Guarantee Corporation Malaysia\\nBerhad. Banking institutions also provided\\nfinancial relief to borrowers in the SARS-affected\\nindustries by restructuring or rescheduling loans\\nfor all types of borrowings and credit facilities. In\\nthe case of employees whose remuneration were\\nreduced by their employers, banking institutions\\nextended similar financial relief on the housing\\nloans taken by the employees.\\nA significant initiative undertaken in 2003 was\\nthe strengthening of the existing infrastructure\\nand institutional arrangements to extend the\\noutreach of financial services to microenterprises.\\nIn February 2003, Bank Negara Malaysia proposed\\nto leverage on the extensive branch network of\\nBank Simpanan Nasional and Bank Pertanian\\nMalaysia to provide microfinancing. To equip\\nthese development financial institutions with the\\nnecessary best practices and skills to provide\\nmicrofinancing, initiatives were undertaken to\\n\\n\\n114\\ndevelop microfinance products, operating\\nmanuals and systems as well as training\\nprogrammes for loan officers and branch\\nmanagers. Meanwhile, to promote microcredit,\\nthe Government allocated RM1 billion, channelled\\nthrough Bank Pertanian Malaysia (RM500 million),\\nBank Simpanan Nasional (RM300 million) and\\nAmanah Ikhtiar Malaysia (RM200 million). Due to\\nthe encouraging response from microenterprises,\\nthe Government announced in the 2004 Budget\\nan additional allocation of RM1 billion to Bank\\nPertanian Malaysia and Bank Simpanan Nasional\\nto finance microenterprise activities. Bank Negara\\nMalaysia is also working with the Ministry of Land\\nand Cooperative Development and Department of\\nCooperative Development to strengthen the\\ncooperative movement as a potential source of\\nfinancing for microenterprises and low-income\\ngroups. Efforts are underway to enhance the\\ninfrastructure and regulatory and supervisory\\nframeworks to achieve this objective.\\nPromoting Active Consumerism\\nA vital aspect in the transition towards greater\\nmarket orientation is promoting active\\nconsumerism. Consumers can be an important\\nforce to drive the performance and efficiency of\\nthe banking institutions. Towards this, consumers\\nneed to be well informed of the different\\nproducts and services offered, and their rights\\nand responsibilities. There must also be an\\neffective avenue for consumers to seek protection\\nand redress. Efforts during the year continued to\\nfocus on increasing consumer awareness and\\nfurther strengthening the consumer protection\\ninfrastructure, including ensuring accessibility to\\naffordable banking services.\\nfor their decisions. However, this does not absolve\\nthe banking institutions from their responsibilities\\nto ensure that their products deliver what is\\npromised and that customers will obtain fair value\\nfor their money.\\nThe Consumer Education Programme, which has\\nnow entered into its second year of\\nimplementation, has received encouraging\\nresponse from the public. As at end-2003, the\\nBankingInfo website has received 6.4 million hits\\nand 1.2 million booklets have been taken up by\\nthe public. During the year, another six booklets\\nwere published, bringing the total number of\\nconsumer booklets published to 18. Two of the\\nnew booklets aim to provide information to assist\\nSMEs in preparing loan applications as well as the\\ndifferent types of financing products available.\\nThe other new booklets provide information on\\nthe role and responsibilities of guarantors, the\\nCredit Guarantee Corporation Malaysia Berhad,\\nhouse financing-i and charge cards.\\nBank Negara Malaysia is also finalising the\\nproduct transparency and disclosure rules. The\\nobjective of such rules is to provide\\ncomprehensive, clear and fair information about\\nthe risks and liabilities of financial products and\\nservices to consumers to facilitate informed\\ndecisions. The disclosure standards focuses on\\nfour main items deemed most essential for\\nmaking informed decisions, namely the form and\\ntiming of disclosure, items to be disclosed and\\ndisclosure requirements in advertisements. To\\nfacilitate and reduce the cost of information\\nsearch by consumers, Bank Negara Malaysia is\\nalso developing “Comparative Tables” on the\\nyield and cost of financial products and services\\nEfforts continued to focus on increasing consumer awareness and\\nstrengthening the consumer protection infrastructure, including\\nensuring accessibility to affordable banking services.\\nAs outlined in the Financial Sector Masterplan, an\\neffective consumer education and protection\\nframework is being developed to set the\\nfoundation for an environment where ultimately,\\nbanking consumers will need to take greater\\nresponsibility for their financial decisions. Once\\nthe relevant information and risks have been\\nappropriately disclosed and explained, consumers\\nmust be actively involved in comparing,\\nexamining and deciding on investments or\\npurchases to be made, and assume responsibility\\noffered by the banking institutions. These tables\\nwould serve as a one-stop reference centre for\\ninformation on the costs and features of financial\\nproducts and services offered. Initially, the focus\\nwill be on developing comparative tables on the\\ncommonly offered deposit and credit products.\\nAs consumers become more discerning,\\ncompetition will drive banking institutions to\\nincreasingly offer greater product differentiation\\nand value added services to gain competitive\\n\\n\\n115\\nThe Financial Sector\\nadvantage. Banking institutions are increasingly\\nleveraging on advances in technology to introduce\\nand market new products, services as well as new\\ndelivery channels. This dynamic environment will\\nsee the introduction of an increasingly broader\\narray of financial products and services to\\nconsumers. However, as these innovations require\\nsubstantial investments, costs of the more\\nsophisticated products and services will result in\\nfees and charges. While this development may be\\ninevitable, attention has been given to ensure that\\nthe public has access to basic banking services at\\nminimal cost while the more complex and\\nsophisticated products and services reflect their\\nappropriate costs. This is to ensure appropriate\\npricing of banking services. In achieving this\\nobjective, a balance is made between providing an\\noperating environment that promotes innovation\\nwhile also taking into account consumer interests.\\nTherefore, while Bank Negara Malaysia is\\ncommitted to a market driven approach to pricing,\\nthis will be undertaken under an environment\\nwhere the interests of consumers are also\\nprotected.\\nIn this connection, Bank Negara Malaysia has\\ninitiated work on establishing a framework on\\nbasic banking services, which aims to ensure that\\nthe banking public, especially the low-income\\ngroup, would have access to affordable basic\\nbanking services. Under this framework, all\\nbanking institutions would be required to offer a\\nbasic bank account that would provide a\\nprescribed minimum level of services and\\ntransactions to all Malaysians at minimal cost. The\\nbasic banking services framework is being finalised\\nfor implementation in 2004.\\nAttention has also been directed at enhancing\\ndispute resolution mechanisms for consumers to\\nseek redress. Towards this end, Bank Negara\\nMalaysia has finalised the structure and operating\\nframework of the new Financial Mediation Bureau\\n(FMB), which will commence operations in the first\\nhalf of 2004. This new entity will function as a\\none-stop centre for the resolution of a broad range\\nof retail consumer issues raised against the\\nfinancial institutions that are regulated by Bank\\nNegara Malaysia. The enlarged scope of FMB will\\nprovide the public with a prompt and more\\neffective resolution mechanism. In addition,\\nregional offices of FMB will be set up to enhance\\naccess to its services nationwide. The expanded\\nscope of operations of the new bureau and the\\nincreased maximum quantum of claim awards are\\nillustrated in the following table:\\nElements\\nBanking sector\\nInsurance sector\\nLimit\\nNature of dispute\\nLosses suffered not exceeding\\nRM100,000\\nAll retail banking complaints except\\nthose involving policies, credit\\ndecisions, quality of service and cases\\nthat have been or are referred to\\ncourt. This would include complaints\\non the following:\\n• Personal Loans\\n• Housing Loans\\n• Automatic Teller Machine\\n• Credit Card\\n• Hire Purchase\\n• Savings Account\\n• Current Account\\n• Fixed Deposits\\n• Remittances\\nClaims not exceeding:\\n• RM200,000 (motor and fire\\ninsurance);\\n• RM100,000 (others); and\\n• RM5,000 (3rd party property\\ndamage)\\nAll disputes between policyholders/\\nclaimants and their own or third party\\ninsurers except those involving pricing\\nof insurance product and\\nunderwriting issues, fraud cases and\\ncases that have been or are referred\\nto court.\\n\\n\\n116\\nMaintaining Financial Stability\\nThe increasingly complex and dynamic financial\\nactivities demand continuous enhancements to the\\nregulatory and supervisory frameworks to maintain\\nfinancial stability. The soundness of the banking\\nsystem is important to safeguard the interest of\\ndepositors and ensure that the banking system is\\nstrong and well capitalised to support the growth\\nprocess through robust lending activities. In this\\nregard, due attention continues to be given to\\nenhance prudential regulations, to ensure that the\\nregulations are relevant in the face of rapid change in\\nthe financial markets. At the same time, Bank Negara\\nMalaysia is mindful of the need to ensure that new\\nregulations would not stifle innovation and\\ncompetition amongst players in the financial market.\\nTo further strengthen the regulatory framework, the\\nCentral Bank of Malaysia Act 1958, the Banking and\\nFinancial Institutions Act 1989, the Islamic Banking\\nAct 1983 and the Takaful Act 1984 were amended in\\n2003. A new Payment Systems Act 2003 was also\\nenacted during the year to provide for a\\ncomprehensive legal framework to ensure that the\\npayment systems are protected from disruptions that\\nmay affect financial stability, and that public\\nconfidence in the payment systems and instruments\\nis preserved.\\nAmong the key amendments under the Central Bank\\nof Malaysia (Amendment) Act 2003 are:\\n•\\nThe enhancement of the regulatory and\\nsupervisory framework for the over-the-counter\\nRinggit bond market. This enables Bank Negara\\nMalaysia to carry out its functions in providing\\ninfrastructure for the Ringgit bond market, which\\nincludes the power to issue regulations necessary\\nfor the regulation and operation of the systems\\nfor the debt securities market;\\n•\\nThe provision for Bank Negara Malaysia to\\npromote reliable, efficient and smooth operation\\nof national payment systems and payment\\ninstruments. This is consequential to the\\nenactment of the Payment Systems Act 2003,\\nwhich provide the regulatory powers of Bank\\nNegara Malaysia over the designated payment\\nsystems and payment instruments; and\\n•\\nThe enhancement of the Shariah Advisory\\nCouncil of Bank Negara Malaysia [Please refer to\\nIslamic banking section for details].\\nCorporate governance practices in the banking\\ninstitutions were also enhanced during the year.\\nGood corporate governance reinforces sound\\nregulation and supervision. In most instances,\\ncorporate governance forms the first line of defence\\nagainst any crisis. For corporate governance to work,\\ngood corporate practices need to be instilled and\\nembedded in all aspects of the operations and at all\\nlevels within the organisation. Sound corporate\\ngovernance would lead to greater responsibility and\\naccountability of the board and senior management\\nof the banking institutions. Therefore, the banking\\ninstitutions need to be headed by an effective board\\nwith sufficient skills and a high degree of\\nprofessionalism. To help achieve this, Bank Negara\\nMalaysia issued in May 2003 the Guidelines on the\\nEstablishment of Board Committees, Minimum\\nQualification and Training Requirement for Directors,\\nand Definition and Responsibilities of Independent\\nDirectors. The Guidelines set the requirements on the\\nestablishment of three board committees, namely the\\nnominating committee, remuneration committee and\\nrisk management committee, and the terms of\\nreference of each of the committee.\\nThe nominating committee is responsible to ensure\\nthat only the most competent individuals who can\\ncontribute and discharge their responsibilities are\\nappointed to the board and key management\\nposition. Among others, the committee is required to\\nprovide a formal and transparent procedure for the\\nappointment of directors and chief executive officer,\\nand a mechanism to assess the effectiveness of\\nindividual directors, the board, chief executive officer\\nand senior management officers. The remuneration\\ncommittee oversees the remuneration matters of\\ndirectors and senior management officers. The\\ncommittee is responsible for recommending the\\nremuneration framework for directors, chief\\nexecutive officer and senior management officers. It\\nshould ensure that the remuneration framework of\\nthe institution is competitive and consistent with the\\ninstitution’s culture, objectives and strategy, and\\nreflects the responsibilities of board members, chief\\nexecutive officer and senior management officers.\\nThe risk management committee is responsible for\\noverseeing senior management’s activities in\\nmanaging credit, liquidity, operational, legal and\\nother risks, and ensuring that the risk management\\ninfrastructure and process is in place and functioning.\\nGiven the increased complexity of banking businesses\\nand the heavy responsibilities of the board of\\ndirectors, directors need to have the necessary\\nqualifications and experience to effectively discharge\\ntheir duties. In this regard, the Guidelines also focus\\n\\n\\n117\\nThe Financial Sector\\non the required skills and experience for this purpose.\\nIn addition, recognising the critical role of\\nindependent directors in spearheading corporate\\ngovernance and upholding independence of the\\nboard, the Guidelines also set out the definition of\\nindependent directors, and their expected roles and\\nresponsibilities. As their primary responsibility is to\\nprotect the interest of minority shareholders and the\\ngeneral public, independent directors are expected to\\nprovide effective oversight and ensure a strong\\nindependent element on the board. To complement\\nthese measures, the Guidelines on the Appointment\\nof External Auditor by banking institutions was\\nissued in August 2003 to mitigate potential conflicts\\nof interest arising from the long-term relationship\\nwith an external auditor.\\nThe increasingly complex group structures involving\\nfinancial conglomerates has called for the\\ndevelopment of a comprehensive regulatory and\\nsupervisory framework for financial conglomerates.\\nThe objective of the framework is to ensure that the\\nfinancial health of the financial groups can be\\nadequately assessed and monitored by supervisors.\\nRegulation is, therefore, to balance between allowing\\ngroup synergy and efficiency, and ensuring that the\\nactivities of the financial conglomerates do not\\nintroduce excessive risks to the financial system.\\nTowards this end, a concept paper on the\\nConsolidated Supervision of Financial Conglomerates\\nwas issued in December 2003 with the aim of\\nformalising and strengthening the existing\\ninfrastructure and regulatory framework for financial\\nconglomerates. Given the diverse risks associated\\nwith the different activities undertaken by the\\ndifferent entities within the financial conglomerates,\\nthe proposed framework does not prescribe common\\nprudential requirements for all entities within the\\nfinancial conglomerate. Instead, the framework\\nemphasises on developing prudential guidelines and\\nprinciples to ensure that the financial holding\\ncompanies are financially strong and able to lend\\nsupport to its subsidiaries.\\nThe framework focuses on five main areas, namely\\ngroup structures, corporate governance, risk\\nmanagement, intra-group exposures and reporting\\nrequirements. On group structures, the framework\\noutlines the main principles that would form the\\nbasis for financial groups to determine their optimum\\ngroup structure, both from a commercial as well as\\nregulatory perspective. While it is recognised that the\\nfinancial groups would organise their group\\nstructures according to their strategies and market\\nniches, sufficient safeguards need to be in place to\\nensure that the group structure does not pose\\nsystemic risk to the banking system. In particular,\\nregulation is required to ensure minimal transmission\\nof financial distress from unregulated entities to the\\nregulated entities within the group, which could\\ndestabilise the banking system. In addition, there is a\\nneed to ensure that the obligation of the\\nGovernment in assuring the safety of deposits would\\nnot be extended to other non-depository institutions\\nwithin the group. The framework also establishes\\nbasic principles of good corporate governance, which\\nfocuses on the processes and structures used to\\nmanage the business and affairs of a financial\\nholding company (FHC) and its related entities,\\nplacing greater emphasis on the roles and\\nresponsibilities of the board of directors and\\nmanagement of the FHC.\\nAs the FHC is expected to provide financial support\\nto all entities within the group, the framework also\\nsets out the capital adequacy requirements for the\\ngroup. In assessing financial strength of the\\nconglomerate, Bank Negara Malaysia will focus on\\nthe capital adequacy of the individual banking\\ninstitutions on an individual and consolidated basis (if\\nthe institution has subsidiaries), as well as on the\\ncapital adequacy at the group and holding company\\nlevel. On risk management, the framework requires\\nthe board of the FHC to establish a Group Risk\\nManagement Committee to oversee the overall\\nmanagement of the group’s risks, review the senior\\nmanagement’s control and procedures in managing\\nthese risks, as well as ensuring that remedial actions\\nare taken. To ensure that all potential sources of\\ncontagion risks, other than cross-selling, are\\nidentified and addressed promptly, the framework\\nalso requires that written policies on intra-group\\nexposures be incorporated into the risk management\\nat group level. Subsequently, the FHC is required to\\nsubmit periodic reports to Bank Negara Malaysia to\\nfacilitate the continuous assessment of the financial\\nconglomerate.\\nBank Negara Malaysia is also reviewing the current\\nGuidelines on the Credit Limit to a Single Customer\\n(GP5) to expand the coverage of exposures to a\\nsingle customer to include exposures other than\\ncredit facilities. This exposure would include amongst\\nothers, exposures to holdings of shares and debt\\nsecurities, and off-balance sheet items. This revision\\nwould also entail the streamlining of several existing\\nregulations pertaining to exposures to large\\ncustomers into a single comprehensive guideline for\\n\\n\\n118\\neasy compliance and reference by banking\\ninstitutions.\\nAs banking institutions make greater use of\\nsophisticated financial instruments, they are\\nincreasingly exposed to higher market risk. In this\\nregard, a concept paper on the Incorporation of\\nMarket Risk into the Risk Weighted Capital Ratio\\n(RWCR) was issued in mid-2003 to principally assess\\nthe impact of incorporating market risk into the\\nRWCR. The study indicated that the RWCR of the\\nbanking system would decline marginally by 0.12\\npercentage points, with all banking institutions\\nmaintaining a RWCR of more than 8%. Among the\\nbanking institutions, merchant banks exhibited the\\nlargest decline in their RWCR primarily due to their\\nprincipal activities in the capital market. Following a\\nseries of discussions with the Market Risk Industry\\nWorking Group, the framework was further refined\\nand the second concept paper was issued in January\\n2004. Among the significant changes made to the\\nframework include the definition of trading and\\nbanking books, treatment on holdings of securities\\nresulting from debt/loan restructuring, and valuation\\nof illiquid papers. Banking institutions are required to\\nassess the quantitative impact of the revised\\nframework by February 2004.\\nThe market surveillance also detected incidences of\\nunhealthy trading practices in the domestic bond\\nmarket. To preserve market integrity, banking\\ninstitutions were reminded to tighten their risk\\nmanagement practices. The lack of transparency and\\ninformation gap in the over-the-counter bond market\\nis one of the factors that contributed to the\\noccurrence of irregular trading. To address the\\ninformation gap and lack of transparency, Bank\\nNegara Malaysia is working with the Securities\\nCommission to enhance the infrastructural\\ndevelopment of the bond market. These measures\\ninclude electronic trading platform to improve price\\ndiscovery mechanism and the automation and\\nintegration of trade-related processes to allow for\\nfurther improvements in operational efficiency.\\nOn the international front, work on the New Basel\\nCapital Accord or Basel II continued to be the focus of\\nthe Bank for International Settlements (BIS). Following\\nthe issuance of the second consultative paper in\\nJanuary 2001 and after consultation with the global\\nfinancial industry, BIS issued the third consultative\\npaper (CP3) in April 2003. Among the main changes\\nin CP3 include a lower risk-weight for residential\\nmortgages, recognition of “past due” loans with\\nsignificant levels of provisioning, the introduction of an\\nalternative “Standardised” approach for operational\\nrisk at supervisory discretion, and fine-tuning some of\\nthe elements of the Internal Ratings Based (IRB)\\napproach. Before issuing CP3, the BIS conducted the\\nthird quantitative impact study (QIS3) in October 2002\\nto gauge the impact of Basel II proposals on minimum\\ncapital requirements. The results of QIS3, which was\\nreleased in May 2003, showed marginal increase in\\ncredit risk capital requirements relative to the current\\nAccord for banking institutions adopting the\\n“Standardised” approach, while for banking\\ninstitutions adopting the IRB approaches, substantial\\nreductions in credit risk capital requirements were\\nreported. However, the new operational risk capital\\nrequirement more than outweighed the reduction in\\ncredit risk capital requirements, resulting in an overall\\nincrease in capital for banking institutions adopting\\nthe “Standardised” approach. In comparison, the\\nminimum capital requirements of banking institutions\\nintending to adopt the more sophisticated IRB\\napproach were broadly unchanged. The new rules are\\nexpected to be finalised by mid-2004.\\nBank Negara Malaysia has conducted a preliminary\\nimpact study in October 2002 to ascertain the\\nimpact of Basel II on the local banking industry\\nusing the “Standardised” approach. The results of\\nthe impact study indicated that, using the\\n“Standardised” approach, the RWCR of the banking\\nsystem would decline marginally, but still well above\\nthe 8% regulatory requirement. The decline in\\nRWCR was mainly due to the new operational risk\\ncapital requirements, which more than offset the\\nincrease in the RWCR due to credit risk capital\\nrequirements. In addition, the preliminary survey\\nfindings indicated that unrated corporate loans and\\npast due loans contributed to the increase in risk-\\nweighted assets.\\nIn tandem with this impact study, a study was also\\nundertaken to determine the readiness of domestic\\nbanking institutions to adopt the IRB approach,\\nwhich requires banks to use internal ratings to\\ncalculate the capital adequacy requirements. The\\nmain challenge in the adoption of the IRB approach\\nis the availability of clean or usable data, which is\\nrequired to meet the minimum historical 5-year data\\nrequirement. The task of data collection, cleansing\\nand verification is time-consuming. For some banks,\\nthe recently concluded merger and consolidation\\nprogramme and the impending merger between\\ncommercial banks and finance companies may\\nfurther complicate this task as the 5-year historical\\n\\n\\n119\\nThe Financial Sector\\ndata could only be developed post-merger to reflect\\nthe current risk profile of the institutions. Data\\nstorage will become a major factor under Basel II as\\nbanking institutions will require data warehouses\\nwith sufficient capacity to cater for the data\\nintensive IRB systems. To facilitate implementation,\\nbanking institutions will also be required to invest in\\nstaff training to gain the technical expertise to assist\\nwith Basel II implementation.\\nIn the case of banking institutions that already have\\ninternal ratings systems, the challenge is that the\\nsystems are relatively new and the results are\\nSUPERVISORY ACTIVITIES\\nThe supervisory activities throughout the year 2003\\nwere focused on multi-pronged strategies to further\\npromote the stability of the banking system in tandem\\nwith the evolving financial industry and increasing\\ncomplexities of the financial landscape. These activities\\ninvolved on-site examination, off-site surveillance,\\nmarket assessment through formal and informal\\ndialogue sessions with industry players, as well as\\nfurther strengthening the capacity building and\\nassessment methodologies of the supervisors. The on-\\nsite examination and off-site surveillance in supervising\\nThe supervisory activities in 2003 were focused on multi-pronged\\nstrategies to further promote the stability of the banking system.\\nuntested. Some of the banking institutions are also\\nin the process of upgrading their internal rating\\nsystems to be two-dimensional, covering the\\nborrower risk as well as the facility risk. Other\\nexpected challenges faced by banking institutions\\ninclude being able to fully utilise the capital relief\\ngained through credit risk mitigation and risk\\nmanagement techniques under Basel II.\\nTo facilitate the implementation of Basel II in\\nMalaysia, a Basel II Task Force would be formed to\\npromote greater consistency and understanding\\namong banking institutions. The task force,\\ncomprising Bank Negara Malaysia officials and\\nresource persons from the banking sector will\\ndiscuss experiences and build on the best practices\\nand approaches to capital regulation.\\nMoving Forward\\nSignificant progress has been achieved in financial\\nsector restructuring and efforts to strengthen the\\nresilience and capability of the banking system.\\nMeanwhile, the Malaysian economy continues to\\nevolve, with new sources of growth emerging. This,\\ncombined with changes in the global financial\\nenvironment will demand greater efficiency,\\ncompetitiveness and resilience from the domestic\\nbanking sector. Hence, moving forward, the\\nstrategies aimed at improving the efficiency of the\\ndomestic banking sector while preserving financial\\nstability will continue to be pursued. At the same\\ntime, given the important role of the banking sector\\nin promoting sustainable and balanced economic\\ngrowth, due emphasis will continue to be given to\\nensure that the banking sector remains supportive\\nof meeting the socio-economic agenda of the\\ncountry.\\nbanking institutions continued to be premised on the\\nrisk-based supervisory approach. The overall thrust of\\nthis approach is to identify and assess key risks\\nencountered by banking institutions and their\\ncapacity to manage these risks. Based on this\\nassessment, a supervisory plan is formulated for each\\nbanking group, so that supervisory resources can be\\noptimally allocated in supervising the institutions,\\nwith particular focus on areas of high risk.The\\nfinancial and operating conditions of all entities\\nwithin a banking group and activities undertaken by\\nthese entities are taken into account to ensure that\\nthese do not adversely affect the performance of the\\nbanking group concerned and pose a systemic threat\\nto the banking system as a whole.\\nIn 2003, Bank Negara Malaysia conducted 93 on-site\\nexaminations on banking institutions, including the\\nIslamic banks, as well as development financial\\ninstitutions. These examinations covered head offices,\\nlocal and overseas branches, bank holding companies\\nand related companies of banking institutions. The\\nsupervisory scope has also included the examination of\\nIslamic banking operations and anti-money laundering\\nmeasures undertaken by banking institutions. In\\naddition to the enhanced supervisory scope, Bank\\nNegara Malaysia has, in recent years, accorded greater\\nsupervisory resources in evaluating banking\\ninstitutions’ market and operational risk management\\npractices, besides credit risk.\\nTo complement the on-site examination of banking\\ninstitutions, on-going monitoring of the financial\\nhealth of these institutions was conducted through\\noff-site surveillance. Banking institutions were\\nmonitored closely through regular reporting and\\nrigorous financial analysis accompanied by periodic\\n\\n\\n120\\nstress testing for the early detection of emerging\\nproblems. The off-site surveillance function also\\nincluded the review and approval of the financial\\naccounts of banking institutions to ascertain\\ncompliance with accounting standards and Bank\\nNegara Malaysia regulations, with particular emphasis\\non the adequacy of provisions for impairment of\\nassets, particularly loans and investments. The off-site\\nsurveillance function has been intensified, to include\\ncredit and fraud surveillance through electronic\\ninformation database.\\nThe soundness of banking institutions has been\\nevaluated based on the CAMELS rating framework\\nwhich encompasses the review of a banking\\ninstitution’s capital adequacy, asset quality,\\nmanagement capability, earnings performance, liquidity\\nand sensitivity to market risk. With the inclusion of the\\n“sensitivity to market risk” component to the CAMELS\\nframework in 2003, the Bank has developed a more\\nstructured supervisory framework to assess banking\\ninstitutions’ market risk management processes and\\nmodeling techniques. During the year, a measurement\\ntool kit for market risk was developed to enable bank\\nsupervisors to validate the market risk models used in\\nbanking institutions. An essential element of banking\\nsupervision included the supervision of banking groups\\non a consolidated basis. In this regard, the Bank\\nconducted regular examinations of bank holding\\ncompanies as well as related non-banking entities\\nwithin the banking groups. These examinations enabled\\nthe Bank to identify sources of vulnerability and assess\\nthe strength and ability of the holding company in\\nproviding financial support to the banking institutions\\nwithin the group. It also enabled the Bank to evaluate\\nthe potential impact that other non-bank entities within\\nthe group may have on the banking institutions’\\nsolvency.\\nIn engaging the risk-based supervision approach, Bank\\nNegara Malaysia implemented a structured risk\\nassessment framework to evaluate the risk profile of\\neach banking institution and the adequacy of the\\ninstitution’s risk management processes. While banking\\ninstitutions have mainly focused on implementing credit\\nand market risk management, they have also been\\nmoving towards a fully integrated risk management\\nsystem, which provides the management with a holistic\\nview of risk management so that interactions amongst\\nrisks can be identified and managed more effectively. In\\nthis regard, banking institutions have also begun\\ndeveloping a more structured process in managing their\\noperational risk. Given that banking institutions are still\\nin different stages of developing their respective\\nintegrated risk management framework, the Bank\\ncontinues its developmental role in monitoring and\\nevaluating the individual banking institution’s progress\\nand plans in this area.\\nIn promoting sound corporate governance in banking\\ninstitutions, bank supervisors conduct assessments of\\nthe corporate governance practices of banking\\ninstitutions to ensure that these practices are indeed\\ninstilled and embedded in all aspects of operations\\nand at every level of the institutions. A major part of\\nthis assessment is focused on evaluating the\\neffectiveness of the board of directors who are\\nultimately responsible for the overall management of\\nthe banking institutions. The assessment also provides\\nvaluable input for the purpose of approving the\\nappointment and reappointment of directors.\\nIn line with the Financial Sector Masterplan, an\\nEnforcement Actions Framework has been developed\\nto provide a comprehensive and incremental approach\\ntowards enforcing actions to be taken following\\nsupervisory exercise on banking institutions. The first\\nphase of the framework involving the Informal\\nEnforcement Actions Framework (IEAF), has been\\nimplemented since September 2002. The IEAF has\\nfacilitated Bank Negara Malaysia in taking pre-emptive\\nmeasures not only on banking institutions but also on\\nrelated companies of banking institutions to address\\nemerging weaknesses in a timely and effective manner.\\nThe Bank is working on the second phase where a\\nFormal Enforcement Actions Framework (FEAF) is being\\ndeveloped as an extension of the existing informal\\nframework. Actions under the formal framework will\\nbe taken for institutions with problems or where\\ninformal actions have been unsuccessful in achieving\\nthe desired outcome. While the legal framework is\\nalready in place, the FEAF will refine the mechanism to\\nmake the process more transparent. In addition, in\\nenforcing pre-emptive measures on a problem banking\\ninstitution, the FEAF will incorporate prompt corrective\\nactions, which will be taken once specified thresholds\\nfor supervisory intervention are triggered.\\nAnother important supervisory area that has been\\ngiven greater emphasis since the enactment of the\\nAnti-Money Laundering Act in 2002, was Bank\\nNegara Malaysia’s assessment of anti-money\\nlaundering measures taken by banking institutions.\\nThe framework that has been put in place focuses on\\nfive broad functional areas of an institution’s\\noperations, namely quality of board and management\\noversight, comprehensiveness of policies and\\nprocedures, effectiveness of internal controls,\\n\\n\\n121\\nThe Financial Sector\\nadequacy and accuracy of the management\\ninformation system, as well as, quality of the human\\nresource and availability of training.\\nAs part of the Bank’s supervisory activities, regular\\nconsultative dialogues are held with the board of\\ndirectors and management of banking institutions, to\\nprovide an effective forum for two-way\\ncommunication on supervisory issues. Through these\\ninteractions, the Bank was better positioned to\\nevaluate the institutions’ capacity and readiness to\\nmeet impending challenges.\\nThe Bank has also long recognised the importance of\\nmaintaining the integrity of Information Technology\\n(IT) infrastructure deployed by the banking institutions,\\nwhich forms the backbone of all banking operations.\\nIn order to promote a safe and sound IT environment\\nin banking institutions, to maintain public confidence\\nand minimise service interruptions, supervisory\\nattention is given to the Information System (IS)\\nfunctions of these institutions through both the on-\\nsite examinations and off-site monitoring mechanisms,\\nthat ensure the adoption of best IT practices and\\ncompliance with regulations. In the year 2003, the\\nBank had conducted 18 on-site IS examinations on\\nbanking institutions including overseas branches and\\nsubsidiaries of domestic banking institutions. This is to\\nensure relevant controls are in place and appropriate\\nsystems are deployed in their operations particularly\\nfor high risk banking products and services such as\\nInternet Banking, Mobile Banking, Credit Cards and\\nAutomated Teller Machine.\\nIn an effort to improve the IS supervisory function and\\npromote supervisory transparency, the Bank has\\nembarked on several strategic measures in line with\\ninternational standards to improve the quality and\\neffectiveness of its on-site IS examinations. Firstly, a\\nnew IS examination methodology has been developed\\nand will be fully implemented for all on-site IS\\nexaminations beginning in 2004. The new\\nmethodology provides a more balanced appraisal to\\nenhance the quality and standard of IS examinations.\\nIt also employs a structured and guided tool for risk\\nassessment and provides a foundation for IT\\nbenchmarking. Secondly, an enhanced version of the\\nexamination report has been implemented. The Bank\\nis also developing a new guideline that aims to\\nstrengthen the level of IT management in banking\\ninstitutions, which will be enforced in 2004.\\nIn 2003, Bank Negara Malaysia embarked on\\nupgrading its MS ISO 9002:1994 Quality Management\\nSystem certification for the planning and monitoring\\nof the performance of routine on-site examinations on\\nbanking institutions to MS ISO 9001:2000. The scope\\nof registration for the new standard was expanded to\\ninclude Malaysian banking institutions’ branches and\\nsubsidiaries, operating outside Malaysia and the\\nincorporation of new quality standards. The new\\ncertification reaffirmed Bank Negara Malaysia’s\\ncommitment to maintain the highest level of\\nprofessionalism in undertaking its supervision\\nresponsibilities. In addition, the Bank is also in the\\nprocess of obtaining the MS ISO 9001:2000\\ncertification for its on-site IS examinations on domestic\\nbanking institutions.\\nRecognising the increasing challenges of banking\\nsupervision, Bank Negara Malaysia is committed to\\nensure that the knowledge and skills of bank\\nsupervisors are continually enhanced to meet the\\ndemands of an increasingly sophisticated financial\\nenvironment. Besides structured training for bank\\nsupervisors, bank supervisors are trained in several\\nspecialised key areas of banking supervision such as\\nrisk modeling and Syariah principles, to keep abreast\\nwith market developments; and function as sources of\\nreference and capacity building for the Bank. These\\nmeasures have further enhanced the capacity of the\\nBank to perform its supervisory function in a more\\neffective manner as well as provide value-add\\nrecommendations to the banking institutions.\\nWith the rapid changes in the financial environment,\\nparticularly with the New Basel Capital Accord, the\\nBank is faced with increasing supervisory challenges. As\\na pre-requisite for effective supervision, supervisors are\\nprovided with continuous training and exposure to\\nkeep pace with the developments taking place globally\\nto ensure that Malaysia is at par with international best\\npractices. In meeting the challenges of the New Accord,\\nbank supervisors are being equipped with the necessary\\nknowledge and skills, particularly in effectively\\nevaluating the more sophisticated methodologies to\\ndetermine capital requirements. These initiatives range\\nfrom participation in regional and international training\\nprogrammes, dialogues with other supervisory agencies\\nand international bodies on implementation issues and\\ndiscussions with the banking industry to facilitate\\nunderstanding of their level of readiness towards\\nimplementing the requirements of the New Accord.\\nIn 2003, the Bank continued to strengthen its working\\nrelationship with other domestic and foreign\\nsupervisory agencies to facilitate enhanced co-operation\\nand information exchange. This collaboration process\\n\\n\\n122\\nhas been very valuable to the Bank in facilitating its\\nefforts to undertake effective consolidated supervision\\nof banking institutions. In this context, Bank Negara\\nMalaysia carried out nine examinations of overseas\\nbranches and subsidiaries of domestic banks. The\\nassessment of the financial and general conditions of\\nthese entities was discussed with the respective host\\nsupervisory agencies to identify any common issues of\\nconcern and facilitate their resolution. The Bank also\\njointly conducted two examinations on offshore\\nsubsidiaries of domestic banks with the Labuan\\nOffshore Financial Services Authority (LOFSA).\\nBank Negara Malaysia is committed in its role in\\npreserving the safety and soundness of the banking\\nsystem through effective bank supervision. In the\\nBank’s pursuit towards this objective, efforts will\\ncontinue to be directed at strengthening our\\nsupervisory resources and processes. These efforts\\ninclude a more intensive training in specialized areas\\nof expertise, developing specialists in core banking\\noperations, closer co-operation with other regulatory\\nand supervisory agencies, and international bodies, as\\nwell as automation of work processes to achieve\\ngreater efficiency.\\nBanking Measures Introduced in 2003\\nMeasures implemented in 2003 were aimed primarily at enhancing the efficiency, competitiveness and\\nsoundness of the financial sector. Initiatives were also taken to improve access of businesses, in particular\\nthe small and medium enterprises (SMEs), to financing. Institutional arrangements to strengthen\\nconsumer protection and to increase the awareness of consumers were also introduced.\\nMeasures to Enhance Safety and Soundness\\nGuidelines on the Establishment of Board Committees, Minimum Qualifications and Training\\nRequirements for Directors and Definition and Responsibilities of Independent Directors\\nThe Guidelines were issued in May 2003 as part of Bank Negara Malaysia’s continuous efforts to enhance\\nthe corporate governance standards among the licensed institutions. The Guidelines outlined the following:\\n•\\nThe requirement on the establishment of board committees comprising nominating committee,\\nremuneration committee and risk management committee, and the terms of reference for each of\\nthe committee. The main objectives of the committees are as follows:\\nNominating Committee\\nTo provide formal and transparent procedures for the appointment of directors and chief executive\\nofficer and assessment of effectiveness of individual directors and board as a whole and performance\\nof chief executive officer and key senior management officers.\\nRemuneration Committee\\nTo provide formal and transparent procedures for developing remuneration policy for directors, chief\\nexecutive officer and key senior management officers and ensuring that compensation is competitive\\nand consistent with the licensed institution’s culture, objectives and strategy.\\nRisk Management Committee\\nTo oversee senior management’s activities in managing credit, market, liquidity, operational, legal and\\nother risks and to ensure that the risk management process is in place and functioning effectively.\\n•\\nTo ensure that only qualified individuals are appointed to serve on the boards of licensed institutions,\\nthe Guidelines set out the minimum qualifications and continuous learning requirements for the\\ndirectors.\\n•\\nRecognising the critical role played by independent directors in corporate governance, the Guidelines\\nalso set out the definition of independent directors and their expected roles and responsibilities.\\nAuditor’s Independence and Appointment of External Auditors\\nA number of corporate scandals overseas, which involved irregularities in accounting practices, issues on\\nauditors’ independence and the role of auditors, have raised the concerns of various regulators\\n\\n\\n123\\nThe Financial Sector\\nworldwide. In this regard, Bank Negara Malaysia issued Guidelines on the Appointment of External\\nAuditor by licensed institutions which cover:\\n•\\nThe imposition of mandatory rotation of engagement partner after a period of 5 years. The\\nengagement partner relinquishing the assignment would not be allowed to resume the role of audit\\nengagement partner for the licensed institution until after a period of 5 years has lapsed;\\n•\\nProvision of non-audit services by the same audit firm would require the prior approval of the\\nrespective licensed institution’s Audit Committee; and\\n•\\nThe approval for the re-appointment of external auditors by Bank Negara Malaysia on an annual basis.\\nThere should not be any compromise on auditor’s independence in the interim period before the 5\\nyears rotation requirement takes effect.\\nPrudential Standards on Asset-Backed Securitisation\\nAlthough significant benefits could be derived from securitisation activities, participation of banking\\ninstitutions in securitisation activities could potentially increase the overall risk profile of the institutions. In\\nthis regard, Bank Negara Malaysia has issued the Prudential Standards on Asset-Backed Securitisation\\nTransactions which outline the general risk management framework as well as specific regulatory\\ntreatment relating to asset-backed securitisation transactions undertaken by banking institutions. The\\nPrudential Standards were issued on 10 March 2003.\\nCredit Card Guidelines\\nThe Guidelines were issued in March 2003 to all credit card issuers. The Guidelines were intended to\\npromote active consumerism and consumers’ understanding of credit card usage and protecting their\\ninterest as card users.\\nThe Guidelines specify the minimum requirements on credit card operations that need to be complied\\nwith by all credit card issuers. Among others, the Guidelines set the following:\\n•\\nMinimum eligibility criteria on credit card application.\\n•\\nRM250 limit as the cardholders’ liability for unauthorised transactions as a consequence of lost and\\nstolen credit cards.\\n•\\nBarring of credit card usage for unlawful activities.\\n•\\nThe requirement for credit card issuers to undertake prudent credit assessment and verification of\\ncredit worthiness of the card applicants using the Central Credit Reference Information System\\n(CCRIS) and other sources of credit information.\\nMigration to Chip-based Automated Teller Machine (ATM)\\nIn an effort to enhance the security of payment cards, banking institutions were required to migrate to\\nchip-based payment card technology. The domestic banking institutions were required to fully upgrade\\ntheir ATM infrastructure to be fully chip-enabled and convert their customers’ ATM card to chip-based by\\nend-September 2003, and the locally incorporated foreign banks, by March 2004.\\nMinimum Security Standards for Cheques\\nA concept paper on the proposed Guidelines on Minimum Security Standards for Cheques was issued to\\nthe banking industry in November 2003. The proposed Guidelines set the minimum standards for security\\nfeatures on cheques, cheque fraud detection facility, security management in cheque printing and\\nconsumer advice on best practices.\\nAccounting Treatment of Handling Fees for Hire Purchase Loans (HPL)\\nTo standardise the accounting treatment of handling fees for HPL across the finance company industry, all\\nhandling fees for HPL approved and disbursed after 1 January 2004 by finance companies have to be\\nexpensed off in the period they are incurred. For HPL approved and disbursed before\\n\\n\\n124\\n1 January 2004 where the amortisation method had been adopted, finance companies were allowed to\\ncontinue amortising the outstanding handling fees. Accordingly, in the event of prepayment or the HPL\\nturning non-performing, the balance of the unamortised handling fees would be expensed off.\\nRecognition of Deferred Tax Assets (DTA) and Treatment of DTA for Risk Weighted Capital Ratio\\n(RWCR) Purposes\\nIn line with MASB 25 which was issued by the Malaysian Accounting Standards Board (MASB), licensed\\ninstitutions had to account for all DTA in their financial reports. For RWCR purposes, however, such deferred tax\\nincome or expense is excluded from the computation of Tier-1 capital and calculation of risk-weighted assets.\\nConcept Paper on Incorporation of Market Risk into the RWCR Framework\\nIn April 2003, the first concept paper (CP1) on the incorporation of market risk into the RWCR Framework was\\nissued to the industry for comments. CP1 adopted and customised recommendations issued by the Basel\\nCommittee on Banking Supervision (BCBS) according to the environment of the local banking industry.\\nFollowing a series of discussions with the Market Risk Industry Working Group, the second concept paper\\n(CP2) was issued in January 2004. CP2 incorporated significant changes to CP1, in particular on the\\nfollowing areas:\\n•\\nClassification of securities in the trading and banking book;\\n•\\nHoldings of securities resulting from debt/loan restructuring;\\n•\\nHedging policy;\\n•\\nUnderwriting positions; and\\n•\\nValuation of illiquid papers.\\nCP2 also aims to gauge the level of readiness for incorporation of the revised market risk framework and\\nassess the quantitative impact of the latest proposal on the financial institutions.\\nConcept Paper on Consolidated Supervision of Financial Conglomerates\\nIn line with Recommendation 3.26 of the Financial Sector Masterplan (FSMP), Bank Negara Malaysia has\\ndeveloped a framework for the Consolidated Supervision of Financial Conglomerates. This is to ensure that the\\nfinancial health of financial groups may be adequately assessed and monitored by supervisors on a group-wide\\nbasis so as to minimise risks emanating from the financial group that could destabilise the financial system.\\nA concept paper was issued to the banking industry in December 2003. The proposed framework\\noutlines the underlying regulatory principles of consolidated supervision. Specific recommendations were\\nmade in five areas, namely group structures, corporate governance, risk management, intra-group\\nexposures, and reporting requirements.\\nImplementation of the Anti-Money Laundering Act 2001 (AMLA) Compliance Programme\\nTo combat money laundering activities, banking institutions were required to put in place a\\ncomprehensive compliance programme to comply with AMLA. The compliance programme includes an\\neffective transaction monitoring system that is implemented at all operations of banking institutions\\nincluding the branches and subsidiaries. There should also be regular on-going employee training and\\nregular independent audit.\\nMeasures to Enhance Competition and Efficiency of the Banking Industry\\nGuidelines on New Product Approval Requirements\\nThe Guidelines were issued in March 2003 as part of the measures to promote Bank Negara Malaysia’s\\nregulatory philosophy of \\\"what is not prohibited is allowed\\\" as stated in the FSMP\\n. The main essence of\\n\\n\\n125\\nThe Financial Sector\\nthe Guidelines is the replacement of the existing product pre-approval requirements with a simple new\\nproduct notification and approval process that is expected to promote greater incentive for banking\\ninstitutions to increase their investment in developing more innovative products. The requirements for\\ngreater product transparency and consumers to have access to product information are embodied in the\\nGuidelines.\\nInvestments Linked to Derivatives\\nEffective 12 May 2003, banking institutions were allowed to offer additional yield enhancing investment\\nproducts linked to derivatives, other than investments linked to Ringgit denominated interest rate\\nderivatives. Blanket approval was granted to all banking institutions to offer the following additional\\ninvestment products linked to derivatives:\\n•\\nInvestment products linked to interest rate, commodity, equity and fixed income derivatives,\\ndenominated in both Ringgit and foreign currency; and\\n•\\nInvestment products linked to foreign currency derivatives denominated in foreign currency only.\\nNevertheless, banking institutions are required to meet the general conditions when offering investment\\nproducts linked to derivatives and comply with all exchange control rules. However, investment products\\nlinked to credit derivatives would still require specific approval from Bank Negara Malaysia.\\nAmendments to the Central Bank of Malaysia Act 1958 (CBA) and Banking and Financial\\nInstitutions Act 1989 (BAFIA)\\nBoth the CBA and BAFIA were amended to incorporate provisions to support the efforts to develop the\\nbond market and to enhance competitiveness and efficiency of the banking industry. The amendments\\ncame into force on 1 January 2004 for the CBA and 15 January 2004 for the BAFIA.\\nThe CBA was amended, among others to empower Bank Negara Malaysia to carry out its functions in\\nproviding the infrastructure for the Ringgit bond market, including the power to establish and operate\\nsystems for the bond market and to make the necessary regulations for the operation of the systems.\\nThe BAFIA was amended to provide for the establishment of a banking and finance company, an entity\\nwhich will hold two licences, one for banking business and the other for finance company business.\\nMeasures to Improve Access to Financing\\nEstablishment of Bank Negara Malaysia SME Special Unit\\nAs part of the initiatives to enhance access to financing to SMEs, Bank Negara Malaysia established the\\nSME Special Unit in May 2003 to assist SMEs in the following areas:\\n•\\nTo provide information on the various sources of financing for SMEs;\\n•\\nTo facilitate loan application process for SMEs;\\n•\\nTo deal with problems faced by viable SMEs in accessing financing; and\\n•\\nTo provide advisory services on other SMEs financial requirements.\\nThe role of the SME Special Unit will be expanded to include:\\n•\\nCoordinating, monitoring and evaluating the financing needs of the SMEs;\\n•\\nFormulating policies and strategies to enhance access to financing by SMEs;\\n•\\nEstablishing and maintaining database on SME financing;\\n•\\nEnhancing SMEs awareness on various financing sources; and\\n•\\nFormulating structured training programmes for SMEs.\\n\\n\\n126\\nAdditional Allocation for Special Funds for SMEs\\nAs part of efforts to ensure availability of adequate funds at reasonable cost to the SMEs, Bank Negara\\nMalaysia increased the allocation, twice in 2003 for Fund for Small and Medium Industries 2 (FSMI2) and the\\nNew Entrepreneurs Fund 2 (NEF2) by RM1,350 million and RM650 million, respectively. Consequently, the total\\nfunds available for FSMI2 and NEF2 rose to RM2 billion and RM1.15 billion respectively.\\nSmall Debt Resolution Mechanism\\nTo facilitate the restructuring of non-performing loans (NPLs) of SMEs with on-going businesses and to\\nassist in their financing requirements, Bank Negara Malaysia established a Small Debt Resolution\\nMechanism in November 2003.\\nUnder the mechanism, an 11-member Small Debt Resolution Committee (SDRC) was established to\\nundertake independent assessment on the viability of the businesses, and propose the loan restructuring\\nand financing requirements of the affected businesses. The SME Special Unit at Bank Negara Malaysia\\nserves as the Secretariat to the committee.\\nThis mechanism is open to SMEs with on-going businesses which have aggregate NPLs of not more than\\nRM3 million with the commercial banks, finance companies, Islamic banks, Bank Pembangunan dan\\nInfrastruktur Malaysia Berhad, and Bank Industri & Teknologi Malaysia Berhad.\\nAs the debt restructuring process may involve the provision of new financing to the businesses, Bank\\nNegara Malaysia established the Rehabilitation Fund for Small Businesses with an allocation of\\nRM800 million. In this regard, eligible businesses may obtain new financing up to RM1.5 million at a\\nfinancing rate of 5% per annum for a maximum of 5 years.\\nWith the introduction of this new mechanism, the existing restructuring and financing mechanisms under\\nTabung Pemulihan dan Pembangunan Usahawan, and Tabung Pemulihan Industri Kecil dan Sederhana\\nwere discontinued.\\nAccess to Financing by Priority Sectors\\nAs in previous years, Bank Negara Malaysia continued to place due emphasis on lending by the\\ncommercial banks and finance companies to the priority sectors, namely the Bumiputra community, SMEs\\nand purchase of low and medium cost houses. Targets set were based on various factors taking into\\nconsideration the capacity of the respective institutions.\\nEstablishment of a Special Relief Guarantee Facility for Severe Acute Respiratory Syndrome\\n(SARS) Affected Businesses\\nAs part of the Economic Package announced by the Government in May 2003 to assist businesses\\naffected by the SARS outbreak, Bank Negara Malaysia established the Special Relief Guarantee Facility\\nwith an allocation of RM1 billion in the form of guarantee fund provided through the Credit Guarantee\\nCorporation Malaysia Berhad (CGC).\\nThe salient features of the Facility are as follows:\\n•\\nThe Facility is implemented through all commercial banks, Islamic banks, finance companies, Bank\\nPembangunan dan Infrastruktur Malaysia Berhad and Bank Industri & Teknologi Malaysia Berhad;\\n•\\nThe maximum loan amount allowable under the facility is RM2.5 million for a maximum tenure of 2\\nyears;\\n•\\nThe financing rate is capped at 3.75% p.a for the first year and not more than the 3-month KLIBOR\\nrate plus 1 percentage point for the subsequent year; and\\n•\\nCGC will guarantee 80% of the loans taken from the implementing institutions.\\n\\n\\n127\\nThe Financial Sector\\nFinancial Relief Provided by Banking Institutions to Borrowers in SARS-affected Industries\\nIn response to the SARS outbreak, banking institutions were also requested to formulate appropriate\\nrescheduling or restructuring schemes to reduce the financial burden of borrowers whose businesses and\\ncash-flows were affected by the SARS. The rescheduling/restructuring programme should be\\nimplemented on a pre-emptive manner.\\nTo facilitate this measure, the requirement stipulated in the Guidelines on Classification of Non-\\nPerforming Loans and Provisions for Sub-Standard, Doubtful and Bad Debts that requires banking\\ninstitutions to obtain specific approval from Bank Negara Malaysia to reschedule a performing loan\\naccount more than once within a 2-year period, was waived.\\nMeasures Related to Consumerism\\nBankingInfo\\nTo promote greater financial literacy among the public and enhance public understanding of the roles\\nand functions of the different segments in the financial system, Bank Negara Malaysia launched the\\nConsumer Education Programme (CEP), known as \\\"BankingInfo\\\" in January 2003.\\nIn summary, BankingInfo aims to:\\n•\\nDisseminate information on features of banking products and services, including the rights and\\nresponsibilities of consumers and financial institutions in a clear and simple manner;\\n•\\nPromote public understanding on the role and functions of the different segments in the financial\\nsystem;\\n•\\nAlert consumers on illegal transactions and financial scams;\\n•\\nProvide information on basic financial management and importance of savings and financial planning; and\\n•\\nProvide consumers with information on how they can seek redress in the event that they have\\nsuffered monetary losses.\\nTo date, 18 booklets have been introduced and are available at all branches of banking institutions.\\nInformation on BankingInfo is also available at the Internet website www.bankinginfo.com.my.\\nFormation of Financial Mediation Bureau (FMB)\\nIn line with Recommendation 3.37 of the FSMP\\n, a concept paper on the Formation of the Financial\\nMediation Bureau (FMB) with the objective of expanding the current role of both the Banking Mediation\\nand Insurance Mediation Bureaus was issued in April 2003.\\nThe members of FMB will comprise:\\n•\\nCommercial banks, finance companies, merchant banks, and Islamic banks;\\n•\\nDevelopment financial institutions regulated under the Development Financial Institutions Act 2002;\\n•\\nPayment systems operators and issuers of designated payment instrument under the Payment\\nSystems Act 2003; and\\n•\\nInsurance companies, Takaful operators and Malaysian Nasional Reinsurance Berhad.\\nThe formation of the FMB is expected to facilitate the financial institutions in enhancing their customer\\nservice level and would cover a broad range of retail consumer complaints against all financial institutions\\nregulated by Bank Negara Malaysia.\\n\\n\\n128\\nPERFORMANCE OF THE BANKING SYSTEM\\nOverview\\nThe financial position of the banking system in 2003\\nwas strong. The key financial indicators of the\\nbanking system remained favourable with no signs of\\nvulnerabilities. The level of capitalisation was high,\\nnon-performing loans (NPLs) declined whilst\\nprofitability improved. Amidst ample liquidity and\\ncontinued recovery in business and consumer\\nsentiments, the banking institutions registered strong\\nlending activities. The strong performance of the\\nbanking system was characterised by:\\n•\\nHigh level of capitalisation attributable to higher\\nprofit and capital injections;\\n•\\nAmple liquidity in the financial system throughout\\nthe year;\\n•\\nStrong resumption in lending activities driven\\nprimarily by lending to the small and medium\\nenterprises, and household sector;\\n•\\nHigher profitability due to higher net interest\\nincome, lower provisioning and high recoveries;\\n•\\nNarrowing of interest margins as competition\\ncontinued to exert downward pressure on\\nlending rates amidst a more stable return on\\ndeposits;\\n•\\nImprovement in NPLs. There was a decline in new\\nNPLs, whilst recoveries and reclassifications to\\nperforming accounts remained strong; and\\n•\\nExposure to market risks remained within\\nprudential levels.\\nProfitability\\nAgainst the backdrop of improving economic\\nconditions, gross operating profits of the banking\\nsystem increased by 7% to RM11.8 billion in 2003,\\ndriven primarily by higher net interest income.\\nCommercial banks and finance companies posted\\ngrowth in gross operating profits of 7.7% and 9.7%\\nrespectively, while those of merchant banks declined\\nby 18.5%, mainly due to lower net interest income\\nand income generated from fee-based activities.\\nTotal loan loss provisions of the banking system\\ndeclined by 4% during the year, attributed mainly\\nto higher recoveries which grew by 10.1% or\\nRM384.8 million. The improved economic\\nconditions and debt restructuring exercises\\nundertaken over the years had strengthened the\\ndebt servicing capacity of borrowers, thus\\ncontributing to the higher recoveries. The decline in\\nloan loss provisions, coupled with the higher gross\\noperating profits, resulted in the preliminary\\nunaudited pre-tax profits to increase by 10.2% to\\nRM10.3 billion in 2003. Consequently, the return on\\nequity of the banking system increased to 17.1%,\\nwhilst the return on assets was 1.4%.\\nGiven the strong competition in the loan market and\\ngreater disintermediation from the capital market,\\ninterest income from loans and financing declined\\nmarginally by 1.1% in 2003. However, this was offset\\nby higher interest income earned from debt securities\\nheld and lower interest-in-suspense. By type of\\ninstitution, the commercial banks and finance\\ncompanies recorded increases in net interest income\\nof 6.4% and 5.9% respectively in 2003. The net\\ninterest income of merchant banks declined by\\n7.7%, a trend that has been prevalent for a number\\nof years as merchant banks started to shift their\\nbusiness focus from traditional fund-based activities\\nto fee-based activities.\\nAlthough fee-based income grew strongly by 9.9%,\\nas a percentage of total assets, it remained stable at\\n0.5%. Fee-based income from loan and financing\\nactivities rose by 11.8%, in tandem with the growth\\nin lending activities. Nevertheless, fee-based income\\nTable 4.6\\nBanking System1: Income and Expenditure\\nFor the calendar year\\n2002\\n2003p\\nAnnual change\\nRM million\\n%\\nInterest income net of\\ninterest-in-suspense\\n35,481\\n37,420\\n1,940\\n5.5\\n(Interest-in-suspense)\\n5,578\\n4,752\\n-826\\n-14.8\\nLess: Interest expense       17,763\\n18,673\\n910\\n5.1\\nNet interest income\\n17,718\\n18,748\\n1,030\\n5.8\\nAdd: Fee-based income\\n3,314\\n3,642\\n328\\n9.9\\nLess: Staff cost\\n4,698\\n4,981\\n284\\n6.0\\nOverheads\\n5,315\\n5,614\\n299\\n5.6\\nGross operating profit\\n11,019\\n11,795\\n776\\n7.0\\nLess: Loan loss provisions\\n5,497\\n5,276\\n-220\\n-4.0\\nGross operating profit\\nafter provisions\\n5,523\\n6,518\\n996\\n18.0\\nAdd: Other income\\n3,805\\n3,759\\n-46\\n-1.2\\nPre-tax profit\\n9,328\\n10,278\\n950\\n10.2\\nOf which:\\nCommercial banks\\n6,357\\n6,908\\n550\\n8.7\\nFinance companies\\n2,379\\n2,678\\n298\\n12.5\\nMerchant banks\\n591\\n692\\n101\\n17.0\\nReturn on assets (%)\\n1.3\\n1.4\\nReturn on equity (%)\\n16.3\\n17.1\\nCost to income2 (%)\\n47.6\\n47.3\\n1\\nExcludes Islamic banks.\\n2\\nOnly taking into account staff cost, overheads, net interest income and\\nfee-based income.\\np Preliminary.\\nNote: Total may not add-up due to rounding.\\n\\n\\nThe Financial Sector\\n129\\nfrom loans and financing only accounted for 0.2% of\\ntotal outstanding loans, far lower than the average\\nlevel recorded by foreign banks of around 0.5%. In\\nthe case of merchant banks, their total fee-based\\nincome declined marginally by 3.1% to\\nRM327.6 million. This was mainly due to lower\\nincome from corporate advisory and underwriting\\nactivities, which declined by 12.4% and 9.6%\\nrespectively, partly due to lower number of debt\\nrestructuring exercises undertaken in 2003.\\nThe rationalisation efforts undertaken consequent to\\nthe merger programme to improve operational\\nefficiency have begun to yield positive results, with\\ngross operating profits per employee improving from\\nRM125,500 in 2002 to RM134,800 in 2003.\\nMarketing expenses, however, increased by 7.4% as\\nbanking institutions intensified efforts to enhance\\nmarket share. Staff cost per employee also increased\\nmarginally from RM53,500 in 2002 to RM56,900 in\\n2003 given the better remuneration packages\\noffered by banking institutions to retain and reward\\ntheir staff.\\nInterest Margin\\nReflecting the banking system’s role as the main\\nprovider of funds to the economy, interest income\\nfrom loans and financing activities constituted 66%\\nof gross operating income of the banking system in\\n2003 (2002: 69%).\\nGross interest margin narrowed further in 2003 as\\nintense competition surrounding the bank lending\\nactivities continued to exert downward pressure on\\nlending rates amidst a more stable return on\\ndeposits. The gross interest margin, defined as\\ndifference between the average lending rate (ALR)\\nbanking institutions charged on loans and advances\\nand the rate banking institutions paid on deposits\\nand borrowed funds (average cost of funds or ACF),\\ndeclined by 21 basis points to 3.69 percentage points\\nfor the commercial banks (2002: 3.90 percentage\\npoints). Similarly, the gross interest margins for the\\nfinance companies narrowed to 5.70 percentage\\npoints from 6.08 percentage points at end-2002.\\nThe narrowing of the gross interest margin was due\\nto the larger decline in ALR, offsetting the marginal\\ndecline in the ACF. At end-2003, the ALR of the\\ncommercial banks stood at 6.11% per annum, whilst\\nthat of the finance companies was 9.11% per\\nannum (2002: 6.51% per annum and 9.75% per\\nannum, respectively). The decline in ALR reflected the\\n50 basis points reduction in the Bank Negara\\nMalaysia intervention rate in May 2003 that led to a\\ndecline in the base lending rate of 40 basis points.\\nNotwithstanding the 50 basis points reduction in the\\npolicy rate, the ACF declined by a lower margin (20\\nand 26 basis points for commercial banks and\\nfinance companies, respectively) as bulk of the\\ncommercial banks’ and finance companies’ funds\\ncomprises mainly fixed deposits, the interest rates of\\nwhich declined only marginally.\\nThe lending rates (excluding credit cards) on new\\nloans approved by the commercial banks averaged\\n5.59% per annum in 2003. Meanwhile, the average\\nlending rates on new loans approved by the finance\\ncompanies declined by 44 basis points to an average\\nof 6.64% per annum. During the year, the average\\nlending rates on newly approved business and SME\\nloans by the commercial banks declined to an\\naverage of 5.97% per annum and 6.40% per\\nannum, respectively (2002: 6.16% and 6.55% per\\nannum, respectively).\\nThe ALR, however, overstates the interest income\\nearned by the banking institutions as it recognises\\nthe accrued but unearned interest on non-\\nperforming loans (NPLs)  (that is interest-in-suspense\\nor IIS) even though the banking institutions continue\\nto incur costs on funds that are borrowed, mainly\\ndeposits, to finance these loans. In addition, the\\nbanking institutions also incur administrative costs in\\nmanaging and monitoring these loans. Net interest\\nmargin (gross interest margin after adjusting for IIS\\nand administrative costs) improved marginally for the\\ncommercial banks to 1.31 percentage points (2002:\\n1.25 percentage points) while the net interest margin\\nfor the finance companies remained at 3.14\\npercentage points. The improvement was due to\\nlower IIS and administrative costs. In tandem with\\ndeclining NPLs, the amount of IIS declined from\\nTable 4.7\\nWeighted Average Lending Rates for New Loans\\nApproved\\nCommercial banks Finance companies\\nAverage for the year (% per annum)\\n2002\\n2003\\n2002\\n2003\\nBusiness loans\\n6.16\\n5.97\\n7.46\\n7.30\\nof which: SMEs\\n6.55\\n6.40\\n7.40\\n6.99\\nHousehold loans1\\n4.78\\n4.81\\n7.02\\n6.53\\nof which:\\nPurchase of residential\\n  properties\\n4.42\\n4.46\\n4.49\\n4.00\\nPurchase of passenger\\n  cars\\nn.a.\\nn.a\\n7.16\\n6.70\\n1 Excluding credit card loans.\\nn.a. Not applicable.\\n\\n\\n130\\n1.16% to 0.93% of loans for the commercial\\nbanks, and from 1.56% to 1.28% of loans for the\\nfinance companies. In addition, both commercial\\nbanks and finance companies recorded lower\\noverheads and staff cost of 1.46% of interest-\\nrelated assets for the commercial banks and\\n1.28% for the finance companies in 2003\\n(2002:1.49% and 1.38% of interest-related assets,\\nrespectively).\\nWith growing competition in the loan market\\namongst the banking institutions as well as with\\nthe non-traditional players, the challenge is for the\\nbanking institutions to further improve operational\\nefficiencies and risk management capabilities. This\\nis important to sustain their revenue performance\\nand hence their returns.\\nLending Activity\\nLending indicators demonstrated increasing trends\\nduring the year despite the outbreak of the as well\\nStrengthened financial position of banking system enabled\\nincreased financing for private consumption and business\\nactivities.\\nas the uncertainty regarding the structure of excise\\nduty on cars. The issuance of new private debt\\nsecurities during the year also increased. The\\ndiversification in sources of financing, especially for\\nthe corporate sector, has resulted in a greater\\nproportion of lending by the banking system being\\nchannelled to the retail customers and small and\\nmedium enterprises, thus supporting the growth in\\nprivate consumption and business activity. The pre-\\nemptive actions by the Government contributed to\\nmitigate the effects of SARS on the economy. As\\nconsumer and business sentiments recovered,\\nbusiness activities regained growth momentum\\nwhilst consumer spending increased, thus\\nstimulating demand for additional financing.\\nNew loan approvals by the banking system\\nexpanded strongly backed by sustained demand. In\\n2003, the banking system received loan\\napplications totalling RM220 billion. At the close\\nof the year, more than 2.2 million applications\\namounting to RM151.4 billion were approved by\\nthe banking system, 11.2% higher than the\\namount approved in 2002. Averaging at RM12.6\\nbillion a month, this is the highest monthly\\naverage recorded for loan approvals since the\\nAsian financial crisis, exceeding the level recorded\\nin 2002. Loan applications rejected amounted to\\nRM26 billion, or 11.8% of applications received.\\nLoan disbursements expanded during the year at\\nan annual rate of 7.2% to amount to RM433.6\\nbillion. With disbursements surpassing repayments,\\noutstanding loans expanded by 4.8% to RM464.2\\nbillion as at end-2003. The amount of undrawn\\nloans rose by 3.6% to RM134.3 billion.\\nLending to Households\\nOutstanding loans for the household sector\\nexpanded by 12.5% to RM226.1 billion to account\\nfor 48.7% of outstanding loan portfolio of the\\nbanking system. As in the previous year, the\\nlending activities were mainly in mortgage\\nfinancing, purchase of passenger cars and credit\\ncard loans. Demand for new financing remained\\nstrong, due mainly to the low interest rates, stable\\nemployment conditions and competition among\\ncar manufacturers. This was further boosted with\\nthe various incentives provided by the Government\\nto house purchasers, including tax relief on interest\\npayments for first-time house owners who\\npurchased properties priced between RM100,000\\nto RM180,000 from developers, a RM600 cash\\npayment to borrowers in the lower income\\ncategory and the stamp duty exemption on loan\\nTable 4.8\\nBanking System1: Financing Activities\\nFor the year\\n2002\\n2003\\nAnnual\\ngrowth\\n(%)\\nRM billion\\nLoan approvals\\n136.1\\n151.4\\n11.2\\nLoan disbursements\\n404.3\\n433.6\\n7.2\\nLoan repayments\\n396.1\\n422.8\\n6.8\\nAs at end\\n2002\\n2003\\nAnnual\\ngrowth\\n(%)\\nRM billion\\nOutstanding loans\\n 443.0\\n464.2\\n4.8\\nTotal banking system financing2\\n468.9\\n496.5\\n5.9\\nTotal financing for the economy3\\n546.1\\n600.2\\n9.7\\n1\\nExcludes Islamic banks.\\n2\\nOutstanding banking system loans plus private debt securities held by the\\nbanking system.\\n3\\nOutstanding banking system loans plus outstanding private debt securities.\\n\\n\\nThe Financial Sector\\n131\\ndocuments for purchases of houses costing not\\nmore than RM180,000. In meeting the demand,\\nbanking institutions offered attractive financial\\npackages and adopted aggressive promotion\\nstrategies.\\nHigher applications were received during the year\\ntotalling RM95.8 billion (+19.4%), the bulk of which\\nwere applications to finance the purchase of residential\\nproperties and passenger vehicles as well as credit card\\napplications. New approvals expanded by 7.4% to\\namount to RM71.4 billion at interest rates averaging\\nbetween 4.32% and 5.09% per annum for the\\ncommercial banks and between 6.29% and 6.82% per\\nannum for the finance companies. Approvals for hire\\npurchase financing and credit cards recorded strong\\nincreases of 15.2% and 14.1%, respectively. Approvals\\nfor house purchases, however, rose only by 2.4% to\\nRM29.7 billion, mainly for the high-end properties,\\nwhich saw a number of new launches during the year.\\nSimilar to the increasing trend in approvals, there was\\nhigher disbursements to the household sector. Totalling\\nRM113 billion, this was an increase of 8.6% over the\\namount disbursed in the preceding year. A notable\\ntrend was the high utilisation of credit card lines during\\nthe year as card-based payments continued to gain\\ngreater acceptance by consumers and retailers.\\nUtilisation of credit card lines increased by 19.6% to\\nRM30.4 billion during the year. Despite the high\\nutilisation, outstanding credit card loans remained a\\nsmall proportion of 2.6% of outstanding loans.\\nLending to Businesses\\nLending to businesses remained encouraging\\nthroughout the year, supporting the stronger\\neconomic activities. The various forms of relief\\nintroduced by the Government to minimise the\\neffects of SARS had contributed favourably towards\\nsustaining demand for financing by the private\\nsector. To complement these measures, the banking\\ninstitutions stepped in to reschedule/restructure loans\\namounting to RM2.5 billion as well as extended new\\nfacilities for the affected businesses. The\\nestablishment of the RM1 billion Special Relief\\nGuarantee Facility in May 2003 also enabled\\nbusinesses affected by the SARS outbreak to access\\nnew financing at concessionary rates. At end-2003, a\\ntotal of RM40.3 million in working capital lines were\\nextended to 76 borrowers with guarantees totalling\\nRM32.2 million [Please refer to the Box on Banking\\nMeasures Introduced in 2003 for details].\\nFor the year as a whole, approvals for credit\\nfacilities to businesses increased by 13.5% to\\nRM76.5 billion, despite a decline of 5.1% in loan\\napplications. Loan approvals to businesses were\\nbroad-based, with approvals to businesses in the\\nmanufacturing (20.8%), construction (14.5%), and\\nwholesale and retail (13.3%) sectors accounting for\\nthe bulk of the new credit lines. Notably, approvals\\nto the wholesale and retail businesses rose by\\n28.6% to RM10.2 billion, whilst new facilities\\ngranted to hotels and restaurants grew by 83.4%\\ndemonstrating the continued support of the\\nbanking sector for these businesses amidst the SARS\\noutbreak. Lending rates on new business loans\\nremained favourable averaging between 5.51% and\\n6.42% per annum for the commercial banks and\\nbetween 6.94% and 7.64% per annum for the\\nfinance companies.\\nStronger economic activity led to higher\\ndisbursements to businesses. Disbursements to the\\nbusiness sectors of RM296.8 billion (+7.6%)\\naccounted for 68.5% of total loans disbursed by the\\nbanking system. Most of the funds were channelled\\nto the manufacturing sector (36.3%), and wholesale\\nand retail trade sectors (22.9%). Disbursements to\\nthese sectors rose by 4.9% and 9.2%, respectively.\\nWhile funds utilised by the construction sector were\\ngenerally lower during the year, funds utilised by the\\ngeneral and civil engineering contractors expanded\\nby 18.1% to RM9.4 billion. At end-2003,\\noutstanding loans to the business sectors declined\\nslightly by 2.2% on account of loan conversions into\\ndebt securities and large repayments (+8.4%).\\nMeanwhile, unutilised business lines declined by\\n3.6% at end-2003.\\nLending to Small and Medium Enterprises (SMEs)\\nThe banking system continued to support the SMEs,\\nchannelling more funds for their activities as\\nevidenced by the level of new financing extended\\nduring the year. This commitment was further\\nreinforced by the availability of dedicated SME units\\nin almost all the commercial banks. For some\\ninstitutions, the SME unit undertakes activities\\nbeyond the provision of financing, to include\\ndevelopmental and support services such as\\nidentifying and structuring financial products and\\nservices to meet the requirements of the SMEs,\\nconducting training and workshops, and providing\\nother advisory services such as financial and cash\\nmanagement.\\nDisbursements were also exceptionally strong,\\nconstituting 29% (RM86 billion) of total\\ndisbursements to the business sectors. This amount\\n\\n\\n132\\nrepresented an increase of 75.5% over the amount\\ndisbursed in the preceding year. Meanwhile,\\noutstanding loans to SMEs expanded by 8.8% to\\nRM80.2 billion, to account for 38.4% of\\noutstanding business loans at end-2003. During\\nthe year, nearly 75,000 SMEs obtained new credit\\nfacilities totalling RM25.5 billion at favourable\\nlending rates which averaged between 5.96% and\\n6.87% per annum for the commercial banks, and\\nbetween 6.57% and 7.38% per annum for the\\nfinance companies. This accounted for a third of\\ntotal approvals to the business sectors.\\nIn 2003, the allocations for two special funds were\\nincreased twice to meet the increased demand. The\\nallocation for the Fund for Small and Medium\\nIndustries 2 expanded by RM1.35 billion to\\nRM2 billion and the New Entrepreneurs Fund 2 by\\nRM0.65 billion to RM1.15 billion. On aggregate,\\nBank Negara Malaysia has allocated a total of\\nRM5.6 billion for five1 special funds for the SMEs in\\nthe different segments. Of this amount, a total of\\nRM5.2 billion has been approved as at end-2003.\\nIn tandem with efforts to improve the accessibility\\nof SMEs to financing, the SME Special Unit was\\nestablished in Bank Negara Malaysia in May 2003.\\nThe Unit began its operations focusing on\\ndisseminating information on the various sources\\nof financing available to SMEs; facilitating loan\\napplication process by SMEs; assisting viable SMEs\\nfacing difficulties in securing financing; and\\nproviding advisory services on their other financial\\nrequirements. In addition, the Unit looks into loan\\nrelated problems and complaints from SMEs. As at\\nend-2003, the Unit has received 1,789 requests for\\nassistance from the SMEs, of which 82% were\\nenquiries on information and sources of financing\\nand on the details relating to the special funds. To\\ncoordinate and further develop access to financing\\nby the SME sector, the scope of the Unit will be\\nexpanded to be the one-stop centre responsible for\\nall initiatives on SME financing and financial\\nservices [Please refer to the Box on Banking\\nMeasures Introduced in 2003 for details on the\\nexpanded role of the Unit].\\nTo resolve the NPLs of SMEs, the Small Debt\\nResolution Committee (SDRC) was established to\\nfacilitate the restructuring of NPLs of SMEs with\\nviable on-going businesses. Similar to the\\nCorporate Debt Restructuring Committee, the\\nSDRC undertakes an independent assessment on\\nloan restructuring requests by SMEs.\\nComplementing the independent assessment by\\nthe SDRC was the setting up of the Rehabilitation\\nFund for Small Businesses with an allocation of\\nRM800 million [Please refer to the Box on Banking\\nMeasures Introduced in 2003 for details].\\nLoan Profile\\nThe structure of the banking system loan portfolio\\nhas undergone significant changes since the Asian\\ncrisis, in terms of greater proportion of smaller-sized\\nloans and more diversified customer base as a result\\nof the greater focus on retail and SME sectors. This\\nhas improved the risk distribution within the\\nbanking system in particular, and the financial\\nsector in general. The proportion of outstanding\\nloans below RM100,000 constituted 30.9% of total\\noutstanding loans as at end-2003. Outstanding\\nloans of between RM100,000 to RM500,000 grew\\nby 14% to account for 24.4% of total loans at end-\\n2003. On aggregate, outstanding loans of below\\nRM1 million now accounted for 60% of total\\nbanking system loans, as compared to 48% during\\nthe pre-crisis period of 1996.\\nBanking Institutions and the Bond Market\\nNet proceeds from new PDS issued by corporations\\nrose substantially to RM45.8 billion, compared with\\nRM26.7 billion in the previous year. More than 60%\\nof the new issues took place in the first half of the\\nyear as the higher bond yields in the second half of\\n2003 resulted in many corporations deferring their\\nproposed issuance. At end-2003, outstanding PDS\\nrecorded a strong growth of 30.8% to RM136\\nbillion. Of this amount, 23.7% were held by the\\nbanking system. On aggregate, outstanding\\nbanking system loans and outstanding PDS grew at\\n9.7% to RM600.2 billion as at end-2003.\\nAsset Quality\\nNPLs declined further owing to the favourable\\neconomic conditions. The year saw a decline in\\nnew NPLs, whilst recoveries and reclassifications\\nto performing accounts were strong. The outbreak\\nof the SARS impacted the cash flows of some\\nbusinesses, particularly those in the tourism-related\\nindustries. The prompt actions from the\\nGovernment and the banking institutions,\\nhowever, contributed towards averting a\\nprotracted negative impact on the domestic\\neconomy.\\n1 Fund for Small and Medium Industries 2 (RM2 billion), New Enterpreneurs\\nFund 2 (RM1.15 billion), Fund for Food (RM1.3 billion), Bumiputera\\nEnterpreneurs Project Fund (RM0.3 billion) and Rehabilitation Fund for Small\\nBusinesses (RM0.8 billion)\\n\\n\\nThe Financial Sector\\n133\\nNet NPLs based on the 3-month classification\\ndeclined by 8.2% to RM38.3 billion as at end-2003.\\nConsequently, the net NPL ratio improved by 1.4\\npercentage points to 8.7%. On a 6-month\\nclassification, the decline in net NPLs was more\\ngradual at 3.1% to RM29.9 billion to account for\\n6.8% of total net loans at end-2003, compared with\\n7.4% as at end-2002. The loan loss coverage ratio\\nalso strengthened to 53.9% on the 3-month basis\\nand 59.1% on the 6-month basis. Including the value\\nof collateral, the coverage ratio strengthened further\\nto 157.9% on the 3-month basis and 163.8% on the\\n6-month basis.\\nImprovements in the level of NPLs were due to lower\\nincidence of new NPLs, write-offs of bad loans\\ncoupled with strong recoveries and reclassifications of\\nNPLs to performing loans. Reflecting the favourable\\ninvolving debts totalling RM9.3 billion were\\nimplemented. At end-2003, 14 cases with debts\\ntotalling RM7.3 billion have yet to be implemented.\\nTotal loans in arrears excluding NPLs, remained stable\\nthroughout the year, except for the temporary\\nincrease in June, possibly due to the effects of SARS.\\nAs such, loans in arrears remained almost unchanged\\nat RM78.1 billion at end-2003. Of this amount,\\n23.9% were loans in arrears of between 2 and less\\nthan 6 months. During the year, loans in this\\ncategory recorded a small decline of RM0.1 billion or\\n0.6% to RM18.7 billion to account for 4% of gross\\nloans at end-2003.\\nUnlike the banking crisis in the late 1980s where the\\npace of decline in the NPL ratio was more rapid,\\nrecovery in the NPLs since the Asian crisis has been\\nmore gradual. This was partly due to the more\\nstringent reclassification rules that were put in place\\nto prohibit evergreening of loans. In addition, growth\\nin the outstanding loans post-Asian crisis has been\\nmuch slower relative to the periods following the\\nmid-1980s economic recession primarily due to the\\ndeepening of the bond market.\\nNPLs for the business sectors declined substantially to\\naccount for 16.2% of total business loans as almost\\nall sectors recorded improvements. Sectors that\\nrecorded increase in NPLs include the retail trade,\\nrestaurants and hotels (+15.6%), and electricity, gas\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\n40\\n45\\n50\\nJ\\nF M A M J\\nJ\\nA S\\nO N D J\\nF M A M J\\nJ\\nA S\\nO N D\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n%\\n1\\n  Excludes Islamic banks\\nGraph 4.5 \\nBanking System1: Net Non-performing Loans\\nRM billion\\n2002\\n2003\\nNet NPLs (6-mths)\\nNet NPLs (3-mths)\\nNet NPL ratio (6-mths)\\nNet NPL ratio (3-mths)\\nGraph 4.6 \\nBanking System1: Ageing Profile of Loans in \\nArrears 2-<6 months\\n0\\n5\\n10\\n15\\n20\\n25\\nJ\\nF M A M J\\nJ\\nA S O N D J\\nF\\nM A M J\\nJ\\nA S O N D\\nRM billion\\n1  Excludes Islamic banks\\n2002\\n2003\\n2-<3mths\\n3-<4mths\\n4-<5mths\\n5-<6mths\\nEnhanced credit assessment infrastructure and practices ensure\\nbanking system exposure to households remain within prudential\\nlevel.\\neconomic conditions, the amount of new NPLs for the\\nyear fell by 3.2% to RM24.5 billion. Recoveries and\\nreclassifications remained strong at\\nRM22.6 billion in 2003 despite a slight decrease of\\n3.5%. This was due to high recoveries and\\nreclassifications of RM23.5 billion recorded in the\\npreceding year. Lower provisioning requirements\\nfollowing the declining NPLs, had enabled banking\\ninstitutions to write-off RM8 billion of loans in 2003.\\nDuring the year, two restructuring schemes under the\\nCorporate Debt Restructuring Committee (CDRC)\\n\\n\\n134\\nand water (+240%). The higher NPLs for these\\nsectors was due to the effects of SARS and delay in\\nthe implementation of a borrower’s restructuring\\nscheme respectively. These increases did not pose\\nany systemic risks as they accounted for only 5%\\nof banking system NPLs. Gross NPL ratio for both\\nthe manufacturing and construction sectors\\ndeclined significantly to 16.5% and 27.8%\\nrespectively following the implementation of the\\ndebt restructuring scheme of a conglomerate.\\nNonetheless, outstanding NPLs remained\\nconcentrated in these sectors, constituting 45.5%\\nof total business NPLs.\\nNPLs of SMEs also declined by RM0.6 billion to\\nRM11.7 billion as at end-2003 to account for\\n14.6% of total loans to SMEs (Jan 2003: 16.4%).\\nSignificant improvement was registered by the\\nconstruction sector which experienced a substantial\\ndecline of 55.2% in NPLs since end-January 2003.\\nAbout 42.9% of the NPLs of SMEs were loans in\\nthe manufacturing and construction sectors.\\nTable 4.9\\nBanking System1: Non-performing Loans and Loan Loss Provisions\\nAs at end\\n2002\\n2003\\nClassification\\n3-month\\n6-month\\n3-month\\n6-month\\nRM million\\nBanking system1\\nNon-performing loans\\n69,760.4\\n57,488.3\\n63,566.7\\n53,428.0\\nGeneral provisions\\n8,520.1\\n7,599.8\\n9,050.7\\n8,000.3\\nInterest-in-suspense\\n9,855.4\\n9,502.9\\n9,226.2\\n8,859.3\\nSpecific provisions\\n18,149.0\\n17,150.7\\n16,014.9\\n14,696.9\\nNet NPL ratio (%)2\\n10.1\\n7.4\\n8.7\\n6.8\\nTotal provisions/NPL (%)\\n52.4\\n59.6\\n53.9\\n59.1\\nCommercial banks1\\nNon-performing loans\\n47,957.3\\n40,012.4\\n44,649.2\\n37,669.8\\nGeneral provisions\\n6,423.7\\n5,503.0\\n6,895.7\\n5,844.6\\nInterest-in-suspense\\n6,686.2\\n6,483.0\\n6,237.1\\n6,071.0\\nSpecific provisions\\n12,970.8\\n12,392.2\\n11,737.8\\n10,845.2\\nNet NPL ratio (%)2\\n9.1\\n6.8\\n8.1\\n6.3\\nTotal provisions/NPL (%)\\n54.4\\n60.9\\n55.7\\n60.4\\nFinance companies\\nNon-performing loans\\n17,345.3\\n13,487.0\\n15,713.0\\n12,939.5\\nGeneral provisions\\n1,819.8\\n1,820.4\\n1,909.3\\n1,909.8\\nInterest-in-suspense\\n2,621.8\\n2,485.7\\n2,536.4\\n2,346.0\\nSpecific provisions\\n4,209.6\\n3,804.2\\n3,675.4\\n3,264.6\\nNet NPL ratio (%)2\\n11.2\\n7.6\\n9.4\\n7.2\\nTotal provisions/NPL (%)\\n49.9\\n60.1\\n51.7\\n58.1\\nMerchant banks\\nNon-performing loans\\n4,457.8\\n3,989.0\\n3,204.5\\n2,818.6\\nGeneral provisions\\n276.6\\n276.5\\n245.7\\n245.9\\nInterest-in-suspense\\n547.4\\n534.1\\n452.6\\n442.3\\nSpecific provisions\\n968.7\\n954.4\\n601.8\\n587.1\\nNet NPL ratio (%)2\\n24.6\\n20.8\\n21.5\\n17.9\\nTotal provisions/NPL (%)\\n40.2\\n44.2\\n40.6\\n45.2\\n1\\nExcludes Islamic banks.\\n2\\nNet NPL ratio = {(NPL less IIS less SP) / (Gross loans less IIS less SP)} x 100%.\\nNote: Total may not add-up due to rounding.\\nWhile household sector NPLs increased by\\nRM0.9 billion, the magnitude remained small. This\\nlargely reflected the higher NPLs for mortgage loans\\n(+15.6%) and credit cards (+32.1%). However, the\\ngross NPL ratios for household sector and mortgage\\nloans improved to 7.9% and 8.6% respectively.\\nMeanwhile, the gross NPL ratio for credit cards\\nremained small despite the increase to 4.7%. Higher\\nNPLs for mortgage loans and credit cards were\\nhowever moderated by lower NPLs for the purchase\\nof transport vehicles which declined by 10.3%. In the\\ncurrent environment, exposure to the household\\nsector still remains within prudential levels. In\\naddition, banking institutions now have real time\\naccess to comprehensive credit information of\\nborrowers, including retail borrowers, and therefore\\nthe risk of over-indebtedness of the retail customers\\nis mitigated.\\nWith prospect of stronger economic growth in 2004,\\nthe declining trend in NPLs is expected to continue.\\nAs the growth in outstanding loans is envisaged to\\n\\n\\nThe Financial Sector\\n135\\nremain steady and as bulk of the large problem loans\\nhave already been addressed, the magnitude of the\\ndecline in NPL ratio will depend on the strategies\\nadopted by banking institutions. This is with respect to\\nthe writing-off of legacy NPLs, in particular, where\\nrecovery prospects are limited and with respect to the\\nrecovery efforts by the special loan rehabilitation units\\nof banking institutions. While risk management\\npractices have improved, the capacity of the banking\\ninstitutions to effectively manage risks, the changes in\\nthe structure of loan portfolio and the nature of risks as\\na result of greater focus on retail and SME loans, as well\\nas the emergence of new growth areas, would\\nhowever, necessitate increased resources to monitor the\\nperformance of the smaller-sized loan accounts. Thus, a\\nmore robust and sound risk management framework\\nwould be critical to ensure that the risk management\\nstandards are able to effectively manage these risks at\\nall times and under all economic conditions.\\nLiquidity Management\\nLiquidity in the banking system remained ample\\nthroughout 2003, mainly due to improved export\\nperformance and continued inflow of foreign\\ndirect investments. Bank Negara Malaysia\\nconducted liquidity operations to absorb the excess\\nfunds through direct borrowings in the interbank\\nmarket and issuance of Bank Negara papers. Total\\nfunds absorbed from the banking system rose\\nTable 4.10\\nBanking System1: Non-performing Loans by Sector\\nAs at end\\nAs percentage of total\\nNPL by sector\\nChange\\nloans to the sector\\n2002\\n2003\\n2002/2003\\n2002\\n2003\\nRM million\\n%\\nBusiness enterprises\\n44,598.0\\n38,806.3\\n-13.0\\n18.4\\n16.2\\n   of which SME loans\\nn.a.\\n11,692.9\\nn.a.\\nn.a.\\n14.6\\nHouseholds\\n16,053.4\\n16,907.3\\n5.3\\n8.4\\n7.9\\nOthers\\n1,628.6\\n1,181.2\\n-27.5\\n16.8\\n11.1\\nTotal\\n62,279.9\\n56,894.8\\n-8.6\\nAgriculture, hunting, forestry and fishing\\n932.9\\n749.3\\n-19.7\\n8.2\\n7.3\\nMining and quarrying\\n158.9\\n143.1\\n-9.9\\n16.1\\n13.2\\nManufacturing\\n12,509.0\\n9,817.4\\n-21.5\\n21.0\\n16.5\\nElectricity, gas and water supply\\n422.5\\n1,440.7\\n241.0\\n6.6\\n28.7\\nWholesale and retail trade, restaurants and hotels\\n4,316.7\\n4,577.6\\n6.0\\n11.8\\n11.8\\nWholesale trade\\n1,851.8\\n1,728.8\\n-6.6\\n9.0\\n8.0\\nRetail trade\\n1,202.5\\n1,407.0\\n17.0\\n10.4\\n11.7\\nRestaurants and hotels\\n1,262.4\\n1,441.8\\n14.2\\n27.5\\n28.9\\nBroad property sector\\n26,817.5\\n25,802.1\\n-3.8\\n15.8\\n14.1\\nConstruction\\n9,404.6\\n7,831.4\\n-16.7\\n30.5\\n27.8\\nPurchase of residential property\\n8,484.1\\n9,808.3\\n15.6\\n8.7\\n8.6\\nPurchase of non-residential property\\n4,801.3\\n4,618.0\\n-3.8\\n17.9\\n16.5\\nReal estate\\n4,127.6\\n3,544.5\\n-14.1\\n29.9\\n25.7\\nTransport, storage and communication\\n1,406.5\\n1,139.2\\n-19.0\\n14.6\\n10.8\\nFinance, insurance and business services\\n3,105.3\\n2,328.1\\n-25.0\\n10.5\\n8.0\\nConsumption credit\\n2,359.4\\n2,497.0\\n5.8\\n9.5\\n9.2\\nPersonal use\\n1,867.6\\n1,879.0\\n0.6\\n13.4\\n12.9\\nCredit cards\\n434.2\\n573.8\\n32.1\\n4.1\\n4.7\\nPurchase of consumer durable goods\\n57.6\\n44.2\\n-23.2\\n15.9\\n13.3\\nPurchase of transport vehicles2\\n3,023.5\\n2,713.3\\n-10.3\\n5.2\\n4.2\\nPurchase of securities\\n4,372.8\\n3,777.5\\n-13.6\\n20.4\\n19.2\\nCommunity, social and personal services\\n1,226.3\\n728.3\\n-40.6\\n21.6\\n14.8\\n1\\nExcludes Islamic banks.\\n2\\nIncludes commercial vehicles.\\nn.a.  Not available.\\nNote: Total may not add-up due to rounding.\\nGraph 4.7 \\nLiquidity in the Banking System in 2003\\n0\\n20\\n40\\n60\\n80\\n100\\n120\\nJan\\nFeb\\nMar Apr\\nMay Jun\\nJul\\nAug Sep\\nOct\\nNov Dec\\nRM billion\\n2.60\\n2.65\\n2.70\\n2.75\\n2.80\\n2.85\\n% per annum\\nBank Negara Malaysia's total intervention\\nWeighted average overnight money interbank rate (RHS)\\nWeighted average 1-week interbank rate (RHS)\\n\\n\\n136\\nsteadily during the course of the first nine months\\nof 2003, but picked up significantly towards the\\nlast quarter of the year. As at end-2003, the total\\noutstanding interbank borrowings by Bank Negara\\nMalaysia and issuance of Bank Negara Bills and\\nNegotiable Notes amounted to RM95.4 billion as\\ncompared to RM64.7 billion as at end-2002. As a\\nresult of the liquidity operations conducted by\\nBank Negara Malaysia, interest rates remained\\nstable throughout 2003, with the weighted\\naverage overnight interbank rate ranging from\\n2.71% to 2.81% per annum and weighted\\naverage one week interbank rate ranging from\\n2.77% to 2.84% per annum.\\nIn terms of liquidity management by the banking\\ninstitutions, the banking system as a whole\\nprojected sufficient liquidity to meet any\\nunexpected withdrawals for a period up to one\\nmonth. As at end-2003, the cumulative liquidity\\nsurplus in banking system (excluding the two Islamic\\nbanks) was projected at RM59.7 billion to meet\\ndemands up to one week and RM95.5 billion for\\ndemands up to one month. Commercial banks,\\nfinance companies and merchant banks projected\\nlarge surpluses in the 1-month bucket amounting to\\n21%, 15% and 32% of their total deposit base\\nrespectively.\\nInterest Rate Risk\\nA significant portion of the banking system’s assets\\nand liabilities is interest rate sensitive. To assess the\\nbanking system’s exposure to interest rate risk, the\\nduration-weighted net position (DWP) approach\\nwas used to estimate the potential impact on\\neconomic value for a 100 basis point shift in interest\\nrates. The DWP approach generates a larger\\npotential loss as it attempts to evaluate on a present\\nvalue basis all current and future cash flow earnings\\nof banking institutions’ on- and off-balance sheet\\nitems across each item’s entire life. In 2003, the\\nbanking system’s DWP increased by 9.1% to\\nTable 4.11\\nBanking System1: Liquidity Projection as at\\n31 December 2003\\nCumulative\\nBuffer as\\nliquidity surplus\\n% of total\\n(RM billion)\\ndeposits\\n1 wk.\\n1 mth.\\n1 wk.\\n1 mth.\\nCommercial banks\\n44.4\\n77.4\\n12.1\\n21.0\\nFinance companies\\n8.6\\n12.1\\n10.4\\n14.5\\nMerchant banks\\n6.7\\n6.0\\n35.5\\n31.5\\nBanking system1\\n59.7\\n95.5\\n11.4\\n18.2\\n1\\nExcludes Islamic banks.\\nRM4.6 billion. The increase, however, had minimal\\nimpact on the banking system’s strong capital\\nposition as shown in the table.\\nFor the banking system as a whole, interest rate risk\\nwas concentrated in the more than five years to\\nmaturity bucket, accounting for more than\\nRM3.1 billion or 68% of total DWP as at end-2003.\\nHowever, there was a shift in the interest rate risk\\nconcentration to the shorter term maturity spectrum\\nin 2003, particularly in the more than one to five\\nyears maturity bucket. There was a significant\\nincrease of RM13.6 billion or 23% in fixed-rate\\nloans with remaining maturities of one to five years,\\nwhile fixed-rate loans with remaining maturities of\\nmore than five years rose moderately by RM3 billion\\nor 7.2%.\\nFor the commercial banks, the marginal increase of\\ntheir DWP of 3.6% to RM2.2 billion as at end-2003\\nresulted from a higher level of fixed-rate loans in\\nthe more than three years remaining maturity\\nbucket, which rose by 18.3% in 2003. The higher\\nlevel of fixed-rate loans extended by the commercial\\nbanks comprised primarily Islamic housing loans.\\nHoldings of fixed-rate securities with remaining\\nmaturities greater than two years had also increased\\nby 23% to RM28.9 billion as at end-2003. Some of\\nthese exposures were offset by increased long-term\\nfunding strategies particularly through the issuance\\nof long-term notes and the sale of loan assets to\\nCagamas.\\nThe finance companies’ higher DWP of\\nRM200 million in 2003, was mainly attributed to hire\\npurchase loans. These exposures were partially offset\\nby long-term fixed-rate funding sourced primarily\\nfrom the sale of loan assets to Cagamas. The interest\\nTable 4.12\\nBanking System1: Impact of 1% Rise in Interest\\nRate on Capital Strength\\nDuration-weighted net position\\nAs a percentage\\nImpact on\\nof Capital base\\n Risk Weighted\\n(%)\\nCapital Ratio\\n(percentage point)\\nAs at end\\n2002\\n2003\\n 2002\\n 2003\\n2002  2003\\nCommercial banks\\n-2,117 -2,194\\n-4.6\\n-4.2\\n-0.9\\n-0.9\\nFinance companies\\n-1,710 -1,911\\n-16.1\\n-16.7\\n-2.2\\n-2.2\\nMerchant banks\\n-392\\n-499\\n-8.9\\n-11.1\\n-3.2\\n-3.7\\nBanking system1\\n-4,219 -4,604\\n-6.9\\n-6.8\\n-1.3\\n-1.4\\n1\\nExcludes Islamic banks.\\nNote: Total may not add-up due to rounding.\\nRM million\\n\\n\\nThe Financial Sector\\n137\\nrate exposure arising from fixed-rate hire purchase\\nloans of the finance companies can be further\\nmitigated by greater utilisation of Cagamas facilities.\\nMergers between commercial banks and finance\\ncompanies would also allow such exposures to be\\nbetter managed. Simulating the exposures of the\\ncommercial banks and finance companies on the\\nbasis of their impending rationalisation, the impact\\non risk-weighted capital ratio (RWCR) was reduced to\\n1.4 percentage points compared with 2.2 percentage\\npoints if the finance companies operated on a stand\\nalone basis.\\nWithin the banking system, the merchant banks\\nregistered the highest percentage increase in DWP of\\n27% in 2003. This was due to the structural\\ntransformation of merchant banking business\\ntowards investment banking activities from the\\ntraditional loan-based institutions. Hence, as the\\nmerchant banking industry runs down its loan books,\\nthe significant increase in its holding of debt\\nsecurities with remaining maturities of above one\\nyear contributed to the increase in DWP\\n. The\\nmerchant banks’ holding of the more than one year\\ndebt securities rose by 25% or RM2.5 billion to\\nRM12.2 billion as at end-2003. Almost half of the\\nincrease was concentrated in the more than five\\nyears maturity bucket. Although long-term funding\\npositions to match these exposures remained at\\nRM3.8 billion, the relatively liquid nature of these\\nexposures would allow the merchant banks to adjust\\nthe profile of their interest rate exposure accordingly.\\nIn line with the Basel Committee on Banking\\nSupervision (BCBS)’s recommendation, banking\\ninstitutions will be required to incorporate their\\nmarket risk into the RWCR framework using the\\n“Standardised” approach, which include interest\\nrate and equity risks for trading book positions, and\\nforeign exchange rate risk for the entire banking\\ninstitution’s position. Based on the impact study of\\nthe proposed framework conducted on positions as\\nat end-2003, the potential loss from exposures to\\nGraph 4.8\\nBanking System1: Distribution of Duration-\\nWeighted Net Position as a Percentage\\nof Capital Base as at 31 December 2003\\nNo. of banking institutions\\nDuration Weighted Net Position/Capital Base\\n1  Excludes Islamic banks\\nCommercial banks\\nFinance companies\\nMerchant banks\\n>5% - 10%\\n>10% - 15% >15% - 20%\\n>20%\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\nUp to 5%\\nGraph 4.9\\nBanking System1 : Net Interest Rate Position \\nMismatches as at 31 December 2003 \\n-60.0\\n-40.0\\n-20.0\\n0.0\\n20.0\\n40.0\\n60.0\\n>1 - 3\\nmths\\n>3 - 6\\nmths\\n>6 - 12 \\nmths\\n>1 - 2 \\nyrs\\n>2 - 3 \\nyrs\\n>3 - 5 \\nyrs\\n>5 - 10\\nyrs\\n>10 - 15 \\nyrs\\nyrs\\nMismatches\\n(RM billion) \\nTenure range\\n  Commercial banks\\n  Finance companies\\n  Merchant banks\\nBanking system\\n1  Excludes Islamic banks\\n≤1\\nmth\\n>15\\nTable 4.13\\nBanking System1: Impact of Market Risk Capital Framework on Capital Strength as at 31 December 2003\\nRM million\\nof which:\\nInterest rate\\nEquities\\nForeign\\nposition risk position risk exchange risk\\nCommercial banks\\n1,434\\n972\\n62\\n377\\n-0.3\\n2.8\\nFinance companies\\n71\\n35\\n36\\nn.a.\\n-0.1\\n0.6\\nMerchant banks\\n828\\n644\\n123\\n14\\n-2.3\\n18.4\\nBanking system1\\n2,333\\n1,644\\n221\\n392\\n-0.3\\n3.4\\n1\\nExcludes Islamic banks.\\nn.a. Not applicable.\\nNote: Total may not add up due to rounding.\\nTotal market\\nrisk\\nImpact on Risk\\nWeighted\\nCapital Ratio\\n(percentage\\npoint)\\nTotal market\\nrisk/Capital\\nbase (%)\\n\\n\\n138\\nmarket risk amounted to RM2.3 billion or 3.4% of\\ncapital base, while the impact on the RWCR of the\\nbanking system as a whole was marginal.\\nBanking institutions’ interest rate risk in their trading\\nbooks accounted for over 70.8% or\\nRM1.7 billion of total market risk, of which 58.9%\\nand 39% were attributed to the commercial banks’\\nand merchant banks’ trading activities respectively.\\nEquities and foreign exchange risks of banking\\ninstitutions accounted for approximately 26.3% of\\ntotal market risk.\\nEquity Risk\\nExposure of the banking system to equity risk\\nremained insignificant, with overall outstanding\\nequity holdings representing only 0.4% of the\\nbanking system’s total assets as at end-2003.\\nBanking institutions increased their equity\\ninvestments by 30.6%, to RM3.5 billion as at\\nend-2003 from RM2.6 billion as at end-2002. This\\nwas attributed largely to the conversion of loans into\\nequity as a result of debt restructuring activities.\\nInvestments in quoted shares by the banking\\nsystem increased by 19.7% to RM2 billion from\\nRM1.7 billion during the year while investments in\\nunquoted shares registered a significantly higher\\nincrease of 50%. These were reflective of the\\nrestructuring activities undertaken by banking\\ninstitutions in 2003. As at end-2003, holdings of\\nunquoted shares accounted for 41.4% of the total\\nequity investments by the banking system compared\\nto 36.1% as at end-2002. In addition, banking\\ninstitutions’ holdings of quoted shares were\\npurchased directly from the market, which increased\\nby RM105 million or 20.3%. Shares held as a result\\nof underwriting declined by RM80 million or 88.6%,\\nreflecting the better performance of the stock market\\nin 2003.\\nThe finance companies registered the highest\\nincrease in the holding of equity investments within\\nthe banking system, that is by RM329 million, of\\nwhich 62.7% were unquoted shares. 94.7% of the\\nincrease in the holding of quoted shares by finance\\ncompanies was as a result of loans-to-equity\\nconversion. The same was true for the commercial\\nbanks as a group, where 54.6% of the increase in\\nequity holdings comprised unquoted shares, and the\\n25.7% increase in holdings of quoted shares was\\nalmost entirely due to loan conversion and debt\\nsatisfaction.\\nWith respect to the merchant banks, the substantial\\ndecline in equity holdings resulting from\\nunderwriting and loan conversion had offset the\\nsignificant increase of 96.7% in quoted shares\\nTable 4.14\\nBanking System1: Equity Exposure\\nEquity2\\nEquity2 /\\nPotential\\nholdings\\nCapital base\\n equity2 loss /\\n(RM million)\\n(%)\\nCapital base\\n(%)\\nAs at end\\n2002\\n2003\\n 2002\\n 2003\\n2002\\n 2003\\nCommercial banks\\n853.8\\n1,073.3\\n1.8\\n2.1\\n0.1\\n0.2\\nFinance companies\\n429.0\\n551.7\\n3.9\\n4.8\\n0.3\\n0.4\\nMerchant banks\\n410.7\\n402.3\\n9.0\\n8.9\\n0.7\\n0.7\\nBanking system1\\n1,693.5\\n2,027.3\\n2.7\\n3.0\\n0.2\\n0.2\\n1\\nExcludes Islamic banks.\\n2\\nAmount of investment in quoted shares.\\nGraph 4.10 \\nBanking System1 : Composition of Equity  \\nInvestments\\nUnquoted \\nshares \\n36.1%\\nUnquoted \\nshares  \\n41.4%\\nLoan \\nconversion \\n65.0%\\nUnderwriting\\n0.5%\\nDebt satisfaction  \\n3.8%\\nMarket purchase  \\n30.7%\\nAs at 31 December 2003\\nAs at 31 December 2002\\nLoan\\nconversion\\n61.2%\\nDebt satisfaction  \\n2.8%\\nMarket purchase\\n30.6%\\n \\nUnderwriting \\n5.4%\\nQuoted shares \\n63.9%\\nQuoted shares\\n58.6%\\n 1\\n  Excludes Islamic banks\\n\\n\\nThe Financial Sector\\n139\\npurchased directly from the market during the year.\\nCollectively, the merchant banks’ equity holdings\\nwere marginally lower in 2003 than in 2002.\\nEven as the equity holdings of the merchant banks\\nremained unchanged, they continued to record the\\nhighest level of equity exposure as their holdings\\nof quoted shares accounted for 8.9% of capital\\nbase as against 2.1% for the commercial banks\\nand 4.8% for the finance companies as at end-\\n2003. Individually, most banking institutions had\\nless than 2% of their capital base exposed to\\nequity risk.\\nAs at end-2003, the potential maximum loss for\\nthe banking system as a whole was lower at 7.9%\\ncompared to 8.2% in 2002. This was in terms of\\nequity value based on a 10-day volatility of the\\nKuala Lumpur Stock Exchange Composite Index\\n(KLSE CI) in 2003. Based on the estimated\\npotential maximum loss of KLSE CI, therefore,\\npotential loss to the banking system was estimated\\nto remain at 0.2% of capital base despite the\\nEquity as % of Capital Base\\nNo. of banking institutions\\nGraph 4.11 \\nBanking System1 : Distribution by Equity as a \\nPercentage of Capital Base as at 31 December 2003\\nCommercial banks \\nFinance companies \\nMerchant banks \\n1  Excludes Islamic banks\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n0-<2\\n2-<4\\n4-<8\\n8-<13\\n13-<20\\n≥20\\nincrease in the holdings of quoted shares. The\\npotential loss for the commercial banks and\\nfinance companies remained insignificant, at 0.2%\\nand 0.4% of their capital base respectively. The\\npotential loss for the merchant banks was\\nmaintained at 0.7% of the capital base.\\nForeign Exchange Risk\\nThe exposure of the banking system to foreign\\nexchange risk in 2003 remained within prudential\\nlevels. Throughout the year, the net open foreign\\ncurrency position (NOP) of the banking system\\nmoved within a narrow range of RM2.2 billion to\\nRM2.8 billion. As a percentage of the banking\\nsystem’s capital base, the NOP registered a decline\\nfrom 5.5% as at end-2002 to 4.7% as at end-2003.\\nThe banking institutions remained net foreign\\ncurrency forward purchasers in 2003 as exporters\\ncapitalised on the forward premiums which ranged\\nbetween 42 to 52 basis points for the one-month\\nforward rates. However, as the forward premiums\\nstabilised in 2003, the increase in the amount of\\nforward contracts purchased by the banking\\ninstitutions during the year was sustained at about\\nthe same level as in 2002. Forward foreign currency\\ncontracts purchased by the banking institutions rose\\nby RM7.2 billion or 53.2% in 2003 compared with\\nan increase of RM6.7 billion or 98.3% in 2002.\\nDemand for forward contracts by exporters remained\\nstrong in 2003.\\nTable 4.15\\nBanking System1: Foreign Currency Exposure\\nNOP\\nNOP/Capital base\\n(RM million)\\n(%)\\nAs at end\\n2002\\n2003\\n2002\\n2003\\nCommercial banks\\n2,786\\n2,574\\n 5.8\\n5.0\\nMerchant banks\\n73\\n50\\n1.6\\n1.1\\nBanking system1\\n2,859\\n2,624\\n5.5\\n4.7\\n1\\nExcludes Islamic banks.\\nJ\\nF\\nM\\nA\\nM\\nJ\\nJ\\nA\\nS\\nO\\nN\\nD\\n2003\\n-10.0\\n-5.0\\n0.0\\n5.0\\n10.0\\n15.0\\nRM billion\\n0.0\\n0.5\\n1.0\\n1.5\\n2.0\\n2.5\\n3.0\\n3.5\\n% p.a\\nGraph 4.12 \\nBanking System1: Components of Foreign \\nCurrency Exposure\\nNet open foreign currency position\\nNet foreign currency swap purchased \\nNet open foreign currency assets (including value spot and tomorrow) \\nNet outright forward foreign currency purchased \\nUS TBill secondary market rate (RHS)\\n3-month avg KLIBOR (RHS)\\n1  Excludes Islamic banks\\n\\n\\n140\\nTo manage their forward purchases and\\ncapitalize on the relatively cheaper USD\\nborrowings, banking institutions increased their\\nforeign currency liabilities by RM4.3 billion or\\n10.1% to RM46.7 billion as at end-2003. Banking\\ninstitutions, however, reduced their foreign\\ncurrency assets by RM3.3 billion to RM40.4 billion\\nas at end-2003 on account of diminishing returns.\\nOn a net basis, the banking system had a net\\nforeign currency liability of RM6.3 billion as at end-\\n2003 as against a net foreign currency asset\\nposition of RM1.2 billion as at end-2002.\\nThe banking system is expected to maintain a net\\nforeign currency liability position and remain a net\\nforward foreign currency purchaser in an\\nenvironment in which the interest rate differential\\nbetween USD and Ringgit is expected to remain\\npositive resulting in continued favourable forward\\npremiums.\\nCapital Strength\\nThe banking sector remained resilient and well-\\ncapitalised, with RWCR and core capital ratio sustained\\nconsistently above 13% and 10% respectively\\nthroughout the year. The capital base of the banking\\nsystem increased by RM4.5 billion, of which audited\\nprofits contributed RM1.2 billion, while capital raising\\nexercises by a number of banking institutions\\ncontributed another RM3.3 billion. These new capital\\ninjections offset the reduction in capital as a result of a\\nmerger of two large commercial banks during the first\\nhalf of 2003. In line with higher financing activities, risk-\\nweighted assets of the banking system grew by\\nRM28.3 billion or 5.9% to RM506.6 billion at\\nend-2003.\\nGraph 4.13 \\nBanking System1 : Distribution of Net Open \\nForeign Currency Position as at \\n31 December 2003\\n<-10\\n-10-<-2\\n-2-<2\\n2-<5\\n5-<10\\n≥10\\nNOP/Capital Base (%)\\nNo. of banking institutions\\nCommercial banks\\nMerchant banks\\n1  Excludes Islamic banks\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\nIn tandem with the higher profits and new issuance\\nof shares, total Tier-1 capital increased by 2.8% or\\nRM1.6 billion, to RM59.3 billion as at end-2003.\\nNevertheless, a higher increase in the risk-weighted\\nassets caused the core capital ratio to decline\\nmarginally to 10.7%. Meanwhile, total Tier-2 capital\\nrecorded a stronger growth of 14.4%, following the\\nissuance of subordinated debt by four banking\\ninstitutions, mainly to strengthen their capital\\nposition. Combined with the reduction in\\ninvestment in subsidiaries as a result of the merger\\nof two large commercial banks, the RWCR of the\\nbanking system strengthened further to 13.4%\\n(end-2002: 13.3%).\\nThe RWCR of commercial banks increased to 13.6%\\ndue to higher capitalisation and reduction in\\ninvestment in subsidiaries, while there was a decline\\nin capital base for merchant banks due to a\\nsignificant increase in the holdings of other banking\\ninstitutions’ shares by one merchant bank. This,\\ncombined with an increase in risk-weighted assets\\nof 2.4%, resulted in the RWCR of the merchant\\nTable 4.16\\nBanking System1: Constituents of Capital\\nAs at end\\nAnnual\\n2002\\n2003\\nchange\\nRM million\\nRM million\\n(%)\\nTier-1 capital\\n57,662.0\\n59,282.5\\n1,620.5\\n2.8\\nTier-2 capital\\n16,756.7\\n19,174.4\\n2,417.7\\n14.4\\nTotal capital\\n74,418.7\\n78,456.9\\n4,038.2\\n5.4\\nLess:\\nInvestment in\\nsubsidiaries and\\nholdings\\nof other banking\\ninstitutions’\\ncapital\\n11,016.4\\n10,591.9\\n-424.5\\n-3.9\\nCapital base\\n63,402.4\\n67,864.9\\n4,462.5\\n7.0\\nRisk assets:\\n0%\\n139,125.1 170,856.6\\n31,731.5\\n22.8\\n10%\\n15,544.0\\n16,849.8\\n1,305.8\\n8.4\\n20%\\n96,968.9 119,938.6\\n22,969.7\\n23.7\\n50%\\n102,628.2 117,511.0\\n14,882.9\\n14.5\\n100%\\n406,009.8 422,137.2\\n16,127.4\\n4.0\\nTotal risk-weighted\\nassets\\n478,272.1 506,565.5\\n28,293.5\\n5.9\\nRisk-weighted\\ncapital ratio (%)\\nBanking system1\\n 13.3\\n13.4\\n0.1\\nCommercial banks\\n13.2\\n13.6\\n0.4\\nFinance companies\\n12.0\\n11.3\\n-0.7\\nMerchant banks\\n19.0\\n18.4\\n-0.6\\n1\\nExcludes Islamic banks.\\nNote: Total may not add-up due to rounding.\\n\\n\\nThe Financial Sector\\n141\\nFINANCIAL SECTOR MASTERPLAN\\nThe Financial Sector Masterplan (FSMP) which was launched in March 2001 sets out the broad strategies\\nfor the development of the financial sector over a ten year period. The end objective is to evolve the\\nfinancial system into one which is competitive, resilient and dynamic. Efforts that were undertaken\\nduring the initial stage of the implementation of the FSMP were predominantly directed towards\\nenhancing the capacity and capability of domestic financial institutions in order to enhance their level of\\neffectiveness and competitiveness, strengthening the regulatory and supervisory framework, promoting a\\nsafe and efficient payments system as well as developing the framework on consumer education and\\nprotection.\\nDuring the first three years of the implementation of the FSMP, a total of 31 out of the 119\\nrecommendations have been fully implemented, with an additional 24 recommendations are being\\nimplemented on a continuous basis. Details of the recommendations which have been fully implemented\\nare as listed in the accompanying table.\\nCompleted Recommendations\\nBanking Sector\\nR3.4\\nLiberalise restrictions on salaries and staff mobility in the banking industry to enable the industry\\nto attract the best talent and reward them accordingly\\nR3.5\\nUplift restriction on employment of expatriates to attract the best international talents to meet\\nthe demand for expertise in specific areas of banking\\nR3.6\\nEstablishment of board committees, namely Nominating, Compensation and Risk Management\\nCommittees to further enhance corporate governance standards\\nR3.7\\nAllow group rationalisation through cross-selling of products and consolidation of back-office\\nprocesses as well as facilitate the merger of commercial banks and finance companies to further\\nenhance efficiency and competitiveness\\nR3.12\\nEncourage outsourcing of non-core functions to gain greater strategic focus and efficiency\\nR3.14\\nEncourage the development of new delivery channels to increase the range of products and\\nservices to further enhance competitiveness\\nR3.15.1 Introduction of a simpler product notification process to provide incentive for development of\\n  and\\nnew and innovative products, and outline clear set of guidelines providing criteria for product\\nR3.15.2  notification and specific product approval requirements\\nR3.21\\nIssuance of examination manuals for implementation of risk-based supervision with supervisory\\nfocus on high risk areas and greater attention on weak institutions\\nR3.28\\nAllow market forces to shape developments in the payments system to allow greater competition\\nand increase innovation in payments system\\nInsurance Sector\\nR4.1\\nRemove restrictions on outsourcing to enable insurers to further develop core competencies and\\neffective business strategies\\nR4.2\\nAllow eligible insurers to use the internet as a distribution channel to enhance competitiveness\\nand efficiency of the insurance industry\\nR4.6\\nRelax the restrictions on employment of expatriates to accelerate the development of skills and\\nexpertise in the industry\\nR4.16\\nIncrease the statutory minimum paid-up capital of insurers to enhance their financial\\nresilience and to accelerate the consolidation of the industry in order for domestic insurers to\\ncapture the size and scale needed to compete effectively in a more deregulated and\\nliberalised market\\nR4.18\\nEstablish board committees with specific responsibilities and enhance disclosure of compensations to\\ndirectors and senior management to ensure they act in a manner that will increase shareholder value\\n\\n\\n142\\nR4.19\\nRaise the entry requirements for the agency force to ensure the recruitment of more qualified\\nand competent agency force\\nR4.20\\nIntroduce additional compulsory exams as part of continuing education programmes for agents\\nto upgrade their knowledge and skills\\nR4.21\\nFurther strengthen performance-based supervision to maintain stability under more deregulated\\nand competitive market conditions\\nR4.26\\nIntroduce ‘best advice’ regulations to enhance consumer protection and professionalism in the\\nsale of life insurance products by insurance intermediaries\\nR4.27\\nStrengthen regulations on unfair trade practices to ensure sound business practices and fair\\ntreatment of consumers\\nR4.29\\nAllow financial and non-financial institutions to acquire interests in direct insurers to create\\nbusiness synergies\\nIslamic Banking and Takaful\\nR5.3\\nBuild strong management through the establishment of board committees, benchmarking and\\nemployment of experienced and qualified staff\\nR5.6\\nIncrease the number of takaful operators to accelerate the expansion of takaful industry\\nDevelopment Financial Institutions (DFIs)\\nR6.4\\nIntroduce a systematic framework for sourcing funds to ensure the appropriate and adequate\\nfunding for the operations of DFIs.\\nR6.7\\nEstablish a legislative framework to provide for the regulation and supervision of DFIs to ensure\\nthat DFIs’ policies and objective are consistent with the national policy objectives\\nAlternative Modes of Financing\\nR7.2\\nEstablish a RM500 million Venture Capital Fund to increase the availability of Venture Capital\\nfinancing and stimulate new ventures\\nR7.3\\nIntroduce further tax incentives for the Venture Capital industry to promote the growth of\\nVenture Capital\\nR7.4\\nLiberalise the MESDAQ listing requirements to facilitate the exit of Venture Capital companies\\nfrom their investments\\nLabuan International Offshore Financial Centre\\nR8.3\\nAdopt a consultative and market driven approach to create a conducive tax and business\\nenvironment to enhance the competitiveness and attractiveness of Labuan\\nR8.6\\nStrengthen Islamic banking and finance as well as takaful to develop Labuan with a strategic\\nfocus on Islamic products and services\\nR8.7\\nEnhance Labuan International Financial Exchange (LFX) to be a one stop financial exchange for\\nresidents and global companies\\nThe recommendations implemented and the various initiatives undertaken during the first three\\nyears of implementation have contributed towards enhancing capacity and capabilities of domestic\\nfinancial institutions, as well as providing a robust infrastructure to ensure overall stability of the\\nfinancial sector.\\nBANKING SECTOR\\nInitiatives that were undertaken during Phase 1 of the implementation of the FSMP were primarily\\nfocused on building the capacity and capabilities of domestic banking institutions to enhance their\\ncompetitiveness and building the infrastructure within which the banking institutions operate to promote\\nthe development of a more robust banking system. Attention was also accorded towards creating the\\nnecessary infrastructure for a more market-based consumer protection framework.\\n\\n\\nThe Financial Sector\\n143\\nOne of the key milestones for Phase 1 of the FSMP is to drive performance improvement. The industry-\\nwide benchmarking programme which was initiated in 2002 provided banking institutions with a tool to\\nenable more effective strategic focus and business planning and provided the relative ranking of each\\ninstitution in all areas of performance. The benchmarking exercise also enabled Bank Negara Malaysia to\\nassess the progress of the industry, particularly the performance improvements recorded by the domestic\\nfinancial institutions thereby determining the speed of transition and progress.\\nThe domestic banking institutions have steadily recorded improvements over the past three years yielding\\ndesirable results. The consolidation programme has resulted in larger and better capitalised domestic\\nbanking institutions. The average total assets and shareholders’ funds per domestic commercial banks\\nhave more than doubled from RM18.1 billion as at end-1999 to RM44.9 billion as at end-2003 and from\\nRM1.4 billion as at end-1999 to RM3.8 billion as at end-2003 respectively. The profitability levels have\\nincreased over the past three years. Return on average assets and return on average equity of the\\ndomestic banks have increased from 0.7% and 8.4% in 2001 to 1.2% and 13.4% in 2003 respectively.\\nPre-tax profit per employee had also increased significantly from RM50,196 in 2001 to RM108,728 in\\n2003. The cost to income ratio also declined from 41.2% in 2001 to 40.1% in 2003. Improved\\nmanagement of the operating costs had stabilised the operating expenses as a percentage of average\\nassets at RM1.42 per every RM100 of assets over the same time period.\\nThe banking institutions in Malaysia operate in an open environment. Both the domestic and foreign\\ncontrolled banking institutions are governed by the same set of legislations and regulations, with the\\nonly remaining restriction on foreign banks being in the area of branching. Foreign controlled banking\\ninstitutions nevertheless have a strong presence in the market, accounting for 26%, 27% and 25% of\\nthe commercial banking assets, loans and deposits markets respectively.\\nCompetition has resulted in the narrowing of gross interest margins of commercial banks from\\n4.14 percentage points in 2001 to 3.69 percentage points in 2003. In this more competitive\\nenvironment, the domestic banking institutions have been able to sustain their market share at 80%.\\nThe foreign banking institutions have expanded their loan market share mainly in housing loans. The\\ndomestic banking institutions continue to be the main provider of financing for businesses, particularly\\nfor the small and medium enterprises, where 83% of the loans to this sector were extended by the\\ndomestic banking institutions. The domestic commercial banks have also expanded their market share in\\nthe credit card business, which was previously the domain of the foreign controlled commercial banks to\\n47% of the market (2000: 43%).\\nTo enhance the level of operating efficiency and allow greater strategic focus on business operations,\\nbanking institutions can now outsource non-core operations to third party service providers. They are\\nalso permitted to rationalise common internal operations such as treasury function and human resource\\nmanagement. A number of banking institutions also cross-sell products and services within the same\\nbanking group. Strategic alliances between banks and other banking institutions as well as non-banking\\ninstitutions have also taken place to further enhance competition and innovation. One example is in the\\narea of bancassurance and the sale of unit trusts. In addition, domestic banking institutions have also\\nintroduced new services such as wealth management and structured deposit products.\\nTo enhance the delivery of products and services to customers, banking institutions have embraced\\ninnovative technology-based delivery channels such as internet and mobile banking. This widens the\\naccessibility of banking services and facilitates seamless connectivity in the delivery of financial products and\\nservices to customers through the operation of one-stop financial centres. Efficiency of the banking sector\\nhas also improved, with the average time taken by commercial banks to process housing loan applications\\nhaving declined from 4 days in March 2002 to 3.1 days and from 11 days to 9.5 days for new credit card\\napplications. With greater emphasis on customer relationship, the percentage of customer complaints that\\nare resolved within 14 days have improved from 82.1% in March 2002 to 87.6% in December 2003.\\n\\n\\n144\\nAs a result of the significant progress made by the domestic banking institutions, liberalisation of the\\nsystem has been brought forward in several areas. While the domestic banking institutions were allowed\\nto offer full internet banking services beginning 1 June 2000, the locally-incorporated foreign banks were\\npermitted to offer such services beginning 1 January 2002, earlier than was announced. The requirement\\nfor a non-resident controlled company to source at least 50% of its financing requirements from\\ndomestic banking institutions was also uplifted with effect from 1 April 2003.\\nA smooth functioning payments system which is efficient and effective is also important. As the\\npayments technology and the structure of the financial services industry change rapidly, it is necessary to\\nhave a payments system which responds to this new environment. To encourage greater innovation and\\ncompetition, Bank Negara Malaysia has shifted its role from being directly involved in the development\\nprocess to a more facilitative role, particularly in the retail payments system. Bank Negara Malaysia will\\nhowever, continue to ensure that minimum security standards are applied when any new systems are\\nintroduced. The Payment Systems Act 2003 was enacted to facilitate the development of payments\\nsystem and to ensure that it is secure and efficient.\\nAn important aspect of stability in the financial system relates to the ability of the system to undergo the\\ntransition to deregulation and increasing competition with no disruption in the level or reliability of\\nservices to customers. The customers also play an important role to drive performance improvement of\\nthe financial institutions. Crucial to this is active consumerism, which can only be attained with the public\\nhaving the necessary information and understanding of financial products and services. Towards this, a\\n10-year consumer education programme was launched to disseminate information to consumers\\nincluding information on consumer rights and responsibilities. In addition, efforts have also been put in\\nplace to encourage consumers to pursue formal administrative and legal redress for their grievances.\\nBanking institutions are required to set up dedicated complaint units to manage complaints received from\\ncustomers.\\nThe banking system remains the largest provider of funds to the private sector, providing support to the\\nvarious sectors of the economy. In line with the objective to develop a well-diversified financial system\\nwith well-functioning, deep and liquid markets, Bank Negara Malaysia continued to take an active role in\\nthe development of the bond market to meet the changing needs of the Malaysian economy. As a result,\\nthe bond market experienced a rapid growth since the Asian financial crisis. As at end-2003, the size of\\nthe bond market was equivalent to 87.6% of GDP\\n, compared with 46.9% in 1996. The private debt\\nsecurities (PDS) market has emerged as an important source of financing for the private sector since\\n1998. PDS outstanding represented 34.3% of GDP at end-2003.\\nTo enhance the liquidity in the secondary bond market, the Guidelines on Securities Borrowing and\\nLending (SBL) Programme under the Real Time Electronic Transfer of Funds and Securities System were\\nissued to support trading strategies for principal dealers and enhance the return on bond portfolio\\ninvestment for investors. Through SBL, principal dealers (PDs) can now participate as both borrower and\\nlender, which allow PDs to quote two-way prices more effectively and at the same time able to meet\\ncommitments of their treasury activities. In addressing the captive bond market issue and to promote the\\nsecondary trading, greater investment flexibility was accorded for insurance companies to invest in\\nMalaysian Government Securities and PDS.\\nTo increase the availability of risk management tools for market participants, more players were\\nallowed to undertake repo transactions with the licensed financial institutions. The Prudential\\nStandards on Asset Backed Securities Transactions by Licensed Institutions issued by Bank Negara\\nMalaysia in 2003 helped in creating greater awareness and participation in securitisation transactions.\\nUniversal brokers have been allowed to participate in fixed income market and thus engage the\\nservices of money-brokers. A broader investor base is an important factor in contributing to liquidity in\\nthe secondary market.\\n\\n\\nThe Financial Sector\\n145\\nConcerted efforts were also made to develop the Islamic financial markets to meet the demands of\\ninstitutional investors such as the issuance of Islamic based Government investment issues and the\\ndevelopment of a risk-free benchmark Islamic yield curve to help in the pricing and trading of Islamic\\nsecurities. To further develop the Islamic capital market, the Government had provided incentives such as\\ntax exemption for expenses incurred on the issuance of Islamic PDS. As a result of these efforts, the\\nIslamic PDS market has grown significantly. Total outstanding of Islamic PDS stood at RM69.1 billion, or\\n46% of total PDS outstanding as at end-2003.\\nMeasures that have been put in place over the past three years were implemented to ensure that the\\nbanking system will continue to support sustainable economic growth and to prepare the Malaysian\\nbanking sector for a more liberalised and global operating environment. The strategy for the banking\\nsystem on the latter has been one of gradualism. A managed and sequenced deregulation and\\nliberalisation process is adopted to ensure that financial reforms will be effectively implemented without\\ndestabilising implications on the system.\\nINSURANCE SECTOR\\nThe recommendations implemented in the first phase of the FSMP are aimed at building the capabilities\\nof domestic insurers to compete more effectively, strengthening the consumer protection framework and\\nraising corporate governance standards to further enhance the protection of policyholders and\\nshareholders value.\\nThe capacity-building initiatives and measures implemented under Phase 1 of the FSMP have brought\\nabout positive developments in the industry over the last three years. Significant progress was achieved in\\nthe consolidation of the industry, particularly in the more fragmented general insurance sector, following\\nthe increase in the minimum paid-up capital requirement for insurers from RM50 million to RM100\\nmillion in 2001. A total of 15 mergers and acquisitions involving a total of 28 general insurers (including\\nfour composite insurers) have been successfully completed since 1999. As a result, the average\\ncapitalisation of general insurers strengthened by 54.4% from RM92.2 million in 2000 to RM142.3\\nmillion in 2003, improving the competitive position, and therefore better able to take advantage of the\\nopportunities presented in the more open market environment.\\nDomestic insurers continued to maintain their dominant position in the general insurance sector, while\\nalso achieving productivity and profitability gains. As at end-2003, domestic insurers accounted for\\n73.3% of gross general insurance premiums, with the top five domestic insurers collectively controlling\\n31.8% of the total gross premiums in the industry. Employee productivity rose from RM498,857 in 2000\\nto RM797,923 in 2003. Overall profitability, as measured by gross premiums generated per employee,\\nalso improved, with domestic insurers sustaining a higher return on equity over foreign insurers (24.7%\\nas against 20.4% by foreign insurers for the year 2003).\\nIn the life insurance sector, significant attention was directed at developing new growth opportunities to\\nincrease the market penetration, and hence economies of scale. In this respect, domestic insurers secured\\na dominant position in bancassurance business, accounting for 76.6% of the total new insurance\\npremiums generated through banking institutions in 2003. The commitment of domestic insurers to\\nthe development of bancassurance was supported by the encouraging sales of non-credit related\\nproducts. Domestic insurers accounted for more than 80% of total non-credit related bancassurance\\nbusiness in 2003.\\nAs at end-2003, a total of 12 life insurers had been given approval to enter into bancassurance\\narrangements with banking institutions. Business generated through this alternative distribution channel\\nhas quadrapled since 2000 to reach RM1,859 million in 2003. Two domestic insurers have successfully\\nleveraged on the banking distribution network to become market leaders in bancassurance, with a\\ncombined market share of 36% of total bancassurance premiums generated in 2003. Bancassurance\\n\\n\\n146\\ncurrently accounts for more than 38% of total new life business premiums in the market and has been a\\nmajor factor contributing to the higher penetration of life insurance business in Malaysia which increased\\nfrom 31.5% in 2000 to 36.4% in 2003.\\nDomestic life insurers succeeded in making further inroads in investment-linked business, which has\\nemerged as a new growth area. The market share of investment-linked business attributed to domestic\\ninsurers has increased progressively from 16% in 2001 to 27.9% in 2003, contributing to a higher overall\\nnew business growth rate of 31.5% achieved by domestic life insurers in 2003, compared with 19.4%\\nregistered by foreign insurers.\\nThe capacity building initiatives under Phase 1 of the FSMP also introduced a more flexible operating\\nregime aimed at enabling domestic insurers to innovate, develop expertise and enhance efficiency\\nlevels. In this respect, the transfer of expertise to domestic insurers was facilitated by a more flexible\\npolicy on the appointment of expatriates. As at end-2003, a total of 42 expatriates were employed in\\nthe insurance industry to provide technical support in the areas of information technology,\\nunderwriting, actuarial and agency development. In the more flexible operating environment, an\\nincreasing number of insurers also leveraged on effective outsourcing strategies to lower costs while\\ndelivering higher service quality to their customers.\\nAs at end-2003, more than 30 insurers were engaged in outsourcing arrangements, primarily in back-end\\nsupport functions related to management information systems, data processing and customer service\\nsupport. Consumer access to insurance was also made more convenient with approval given to 18\\ninsurers to provide insurance over the internet, including eight insurers which are now able to offer\\nmotor insurance policies on-line through an interactive website. The process improvements enabled by\\nthese developments resulted in an overall improvement in the efficiency levels of domestic insurers.\\nDomestic life insurers registered a lower expense rate of 34.2% in 2003 (2000: 36.8%), while the\\ncombined management expense ratio of domestic general insures improved to 24% in 2003 (2000:\\n24.4%).\\nNotwithstanding the positive developments in the industry, domestic players with significant overall\\nmarket share have yet to emerge in the life insurance sector.  In the transition to the second phase of the\\nFSMP which envisages a level playing field between domestic and foreign players, the focus of policy will\\ncontinue to be directed at developing domestic insurers, in particular life insurers, to consolidate\\ndomestic strengths in the penetration of alternative distribution channels, promote further innovation\\nand facilitate strategic alliances.\\nThe implementation of specific measures under Phase 1 of the FSMP to promote greater market\\ndiscipline and strengthen corporate governance will support further performance improvements by\\ndomestic insurers. Enhanced disclosure requirements and the implementation of a comprehensive\\nconsumer education programme will empower consumers to make informed decisions on their choice of\\nfinancial products and services which in turn, will serve as a strong incentive for improved product and\\nservice offerings by insurers. The strengthened corporate governance framework underpinning these\\ninitiatives will also serve to ensure that the board of directors posses the appropriate qualifications and\\nexperience to enable them to provide effective strategic direction to insurers in the more challenging\\nenvironment. These measures supplement the changes being made to the regulatory framework and\\nconstitute important elements of a comprehensive approach to develop a robust, stable and dynamic\\ninsurance sector.\\nISLAMIC BANKING AND TAKAFUL\\nThe Islamic banking and takaful sector strengthened and expanded significantly during the first phase of\\nthe FSMP. The Islamic banking market share increased to account for 9.7% (2000: 6.9%) of total assets,\\n10.4% (2000: 7.4%) of total deposits and 10.3% (2000: 5.3%) of total financing of the banking system.\\n\\n\\nThe Financial Sector\\n147\\nThe takaful sector also expanded rapidly to constitute 5.7% (2000: 3.9%) of total assets and 6.0%\\n(2000: 3.9%) of total contributions of the insurance industry. Phase 1 also witnessed significant progress\\nbeing achieved in the development of the financial infrastructure for Islamic banking and takaful to\\nfunction efficiently and effectively in parallel with conventional banking and insurance.\\nA significant milestone was achieved in the legal infrastructure development with the assignment of a\\ndedicated High Court in 2003 to adjudicate all Islamic banking and finance cases. This development,\\nreinforced by the formation of the Law Review Committee to undertake a holistic review of the present\\ncommon law-based legislations will serve to establish an effective legal structure to cater for the unique\\nnature of transactions in Islamic banking and finance. To complement these initiatives, a preliminary\\nreview of the Islamic Banking Act 1983 and Takaful Act 1984 was also undertaken.\\nThe Shariah advisory structure was also strengthened with the amendment of the Central Bank of\\nMalaysia Act 1958 which conferred a legal stature to the Shariah Advisory Council at Bank Negara\\nMalaysia as the sole authority to decide on Shariah matters on Islamic banking and finance that fall\\nunder the purview of Bank Negara Malaysia. Guidelines will be issued to strengthen the structure of the\\nShariah Committees at the Islamic banking institutions and takaful operators and to define the\\ncomposition, roles and responsibilities of these Shariah Committees. With the guidelines in place, the\\noverall effectiveness of Shariah governance framework will be significantly enhanced.\\nThe regulatory framework has been enhanced to address the characteristics of Islamic banking and\\ntakaful as well as to strengthen institutional capacity and financial resilience of Islamic banking and\\ntakaful players. The introduction of the standard framework for the computation of the rate of return in\\nIslamic banking operations in 2001 provided greater transparency in the derivation of the rate of return\\nto ensure a more equitable distribution of income between the bank and its depositors. The framework\\nenhanced the capability of Islamic banking institutions to manage volatility in the rate of return more\\neffectively and to remain competitive relative to the conventional banking institutions. The issuance of\\nthe Guidelines on the Specimen Reports and Financial Statements for Licensed Islamic Banks (GP8-i) in\\n2003 further increased financial disclosure to promote a more effective role of market discipline.\\nThe capital position and financial resilience of the Islamic banking system strengthened significantly as a\\nresult of the regulatory requirement for conventional banking institutions participating in the Islamic\\nBanking Scheme (IBS banks) to observe the minimum risk-weighted capital ratio for their Islamic banking\\nportfolios. The minimum capital requirement of takaful operators would be raised from RM35 million to\\nRM100 million with effect from 31 December 2004 to position takaful operators at par with\\nconventional insurers.\\nThe benchmarking programme for performance measurement has also been put in place to enhance the\\nability of Islamic banking institutions and takaful operators to assess their relative efficiency and\\nformulate strategies to improve operational efficiency and to be at par with international best practices.\\nIn the area of corporate governance, the issuance of guidelines on the establishment of board\\ncommittees, minimum qualifications and training requirements for directors, as well as the roles and\\nresponsibilities of independent directors in 2003 aim to strengthen the management of Islamic banking\\ninstitutions and takaful operators as shareholders play a more active role in overseeing the effectiveness\\nof the board of directors and management.\\nThe issuance of the Guidelines on the Sell and Buy Back Agreement in 2002 enhanced the capacity of\\nIslamic banking institutions to better meet their liquidity requirements as part of the efforts to develop a\\ndeep Islamic financial market structure. The variable rate financing mechanism introduced in 2003\\nprovided a competitive tool for Islamic banking players in pricing product offerings to sustain their\\ncompetitive position in a dual banking environment and concurrently assist Islamic banking institutions to\\neffectively manage risks in pricing arising from asset and liability mismatches. The detail implementation\\n\\n\\n148\\nframework for mudharabah (profit-sharing) and musyarakah (profit and loss sharing) financing is in the\\nfinal stage of completion and is expected to further promote greater diversity in the mode of financing as\\nthe Islamic banking system advances into Phase 2 of FSMP\\n.\\nThe establishment of the Islamic Banking and Finance Institute Malaysia (IBFIM) in 2002 as an industry-\\nowned training and research institute was another important progress achieved. IBFIM will spearhead the\\ndevelopment of a pool of knowledgeable and competent Islamic bankers and takaful operators to meet\\nthe requirements of the Islamic financial industry. The organisation of the Islamic Banking and Takaful\\nWeek in 2001 and 2003 as well as the launching of the Consumer Education Programme have also\\nplayed an important role in enhancing the level of public literacy in Islamic banking and takaful.\\nConsumers are now more aware of the characteristics of Islamic banking and takaful, its underlying\\nShariah principles and concepts as well as the range of products and services offered by Islamic banking\\ninstitutions and takaful operators.\\nProgress has also been achieved in the development of the institutional infrastructure. Two additional\\ntakaful operators have been licensed. In Islamic banking, a review of the existing “window” institutional\\nstructure of the IBS banks is being undertaken to prepare an enabling structure that can assimilate these\\ndevelopments and thus strengthen the prudential regulatory and supervisory regime.\\nAs the progress of development has exceeded initial expectations in Phase 1, Bank Negara Malaysia has\\nbrought forward the liberalisation for the Islamic banking sector from Phase 3 to Phase 2, three years\\nearlier than envisaged by the FSMP\\n. The liberalisation of the Islamic banking sector will further hasten the\\npace of development and strengthen global integration to prepare the enabling environment for Malaysia\\nto evolve as a regional centre for Islamic banking and finance.\\nDEVELOPMENT FINANCIAL INSTITUTIONS\\nIn tandem with the strategic directions outlined in the FSMP\\n, efforts undertaken during Phase 1 of the\\nFSMP were focused on fostering a pool of efficient and effective DFIs to complement banking institutions\\nin providing financing to identified priority and strategic sectors in the economy.\\nDuring Phase 1 of FSMP\\n, strategies undertaken were centred mainly on strengthening the\\nregulatory framework and capacity building of the DFIs. These strategies and initiatives include the legal\\ninfrastructure and policy development to support an orderly and sound development of effective DFIs.\\nA comprehensive regulatory and supervisory framework to facilitate the overall policy development of\\nDFIs, especially in strengthening the financial and operational soundness of the DFIs was completed with\\nthe enactment of the Development Financial Institutions Act 2002 (the Act) in February 2002. The Act\\nprovides comprehensive mechanisms to ensure DFIs perform their mandated socio-economic functions.\\nFollowing the enactment of the Act, six DFIs were subjected to the regulatory and supervisory framework\\nembedded in the Act.\\nThe major policy framework on building the capacity of DFIs aimed to ensure that as specialised\\ndevelopment institutions, the institutions would have an effective role in supporting developmental\\nneeds of the nation. The DFIs are required to prepare and submit statement of corporate intent which\\nhighlight the planned business activities, implementation strategies and performance target within the\\nmandated roles and Government’s development objectives to ensure that DFIs remained focused on\\ntheir mandated roles.\\nPrudential measures, namely, the classification of impaired loans and loan loss provisioning requirement\\nhave been introduced to ensure that the impaired loans and potential losses are identified and recognised\\nin a timely manner, and loan assets and income are fairly and prudently stated. The maintenance of\\nminimum liquidity has been introduced to enhance the financial soundness of DFIs. The policy on\\n\\n\\nThe Financial Sector\\n149\\nminimum capital requirement has been initiated to ensure DFIs have the financial capacity to sustain their\\noperations. During Phase 1, regular on-site examinations of the six DFIs were conducted to assess the\\nDFIs’ performance in meeting the mandated roles.\\nTo further equip DFIs as specialised development institutions, measures were undertaken to enhance their\\nrole in providing non-financial services. A joint project with the Japan International Cooperation Agency\\nand selected DFIs was initiated to enhance the provision of advisory services of these DFIs to SMEs. The\\nproject will  formulate action and implementation plans to enhance the institutional capability, including\\nhuman resource skills.\\nTo strengthen corporate governance, guidelines were issued to assist the DFIs and their stakeholders in\\ninstituting effective governance structure and oversight of Board of Directors. The main areas addressed\\nin the guideline are duties and responsibilities of the board of directors, minimum requirements and rules\\ngoverning the appointment of directors and chief executive officers as well as the establishment of board\\ncommittees.\\nMoving forward, measures implemented will continue to be focussed on providing the enabling\\nenvironment for the DFIs to operate efficiently and effectively. Strategies in the near term will focus on\\ninstitutional development of the DFIs in the areas of risk management and the advisory and consultancy\\ncapability for other targeted customers, besides the SMEs. At the same time, efforts to promote\\ninstitutional efficiency of the DFIs through the formulation of performance indicators will also be\\nintensified to strengthen their financial and operational conditions.\\nMOVING FORWARD\\nThe measures that have been implemented thus far were aimed towards providing a strong foundation\\non which the financial sector will be developed in the future. In addition to the measures that were\\nimplemented in the banking, insurance, Islamic banking and takaful, and development financial\\ninstitutions sectors, significant strides have also been recorded in introducing alternative modes of\\nfinancing in the domestic financial system. Significant progress has also been made in the development\\nof Labuan as an international offshore financial centre. On the former, the Government has been in the\\nforefront in the development of the venture capital (VC) industry, a key step towards transforming\\nMalaysia into a knowledge-based economy. Initiatives such as the establishment of a one-stop centre for\\nthe VC industry, tax incentives and VC fund will continue to spur development in the industry. With the\\nrapid recognition and growing demand for Islamic finance, Labuan has strategically promoted itself as an\\nIslamic financial centre. Supported by the strong onshore Islamic financial sector, Labuan is well\\npositioned to participate in the growing global Islamic financial market.\\nAs we move forward, further efforts in institutional development will be undertaken, in particular, for the\\ndomestic financial institutions. This will be accompanied by gradual liberalisation, with the balance being\\nmade to ensure that the benefits will be maximised while any destabilising implications minimised. In\\naddition, a more diversified financial services landscape will emerge with the capital market, insurance\\nand venture capital having a significant role in the financial sector.\\n\\n\\n150\\nThe Proposed Deposit Insurance System in Malaysia\\nIn 2003, substantial progress was made towards finalising the features of the proposed deposit insurance\\nsystem for Malaysia, thus paving the way for its establishment. The improved strength, competitiveness\\nand resilience of the banking system following the comprehensive restructuring and capacity building\\ninitiatives support a positive environment for the effective implementation of a deposit insurance system\\nthat will contribute to the stability of the financial system.\\nAs an integral component of the financial safety net, the deposit insurance system will further strengthen\\nincentives for financial institutions to adopt sound financial and business practices and enhance public\\nconfidence in the financial system by providing explicit protection of deposits. The proposed features\\nunderpinning the Malaysian deposit insurance system fully support these objectives.\\nIn developing the design features, Bank Negara Malaysia has considered various models adopted in other\\ncountries that operate explicit deposit insurance systems, adapting them as appropriate, in order to\\nachieve a system that will function efficiently, equitably and in a manner that provides the appropriate\\neconomic incentives for all participants within the Malaysian context. Key elements of the proposed\\ndesign features include:-\\n(a) a legislated mandate for the agency responsible for the administration of the deposit insurance\\nsystem (hereafter referred to as ‘Agency’). This will ensure clarity of its role and responsibilities within\\nthe financial safety net and provide the basis for the statutory powers to be accorded to the Agency;\\nThe proposed mandate for the Agency is to:-\\n(i)\\nadminister the deposit insurance system;\\n(ii)\\nprotect depositors from the loss of their deposits up to the insured limit in the event of a\\nbank failure;\\n(iii)\\nstrengthen incentives for sound risk management in the banking industry; and\\n(iv)\\npromote or otherwise contribute to the stability of the financial system.\\nWithin its proposed mandate, the Agency will have the role, in certain circumstances, to\\nundertake the resolution of banking institutions, as may be required based on the assessment of\\nBank Negara Malaysia. In this role, the Agency will also be responsible to minimise the costs of\\nbank resolutions to the financial system, taking into account factors affecting financial system\\nstability.\\n(b) compulsory membership for commercial banks (including subsidiaries of foreign banks operating\\nin Malaysia) and finance companies licensed under the Banking and Financial Institutions Act 1989,\\nand Islamic banks licensed under the Islamic Banking Act 1983, to accept deposits (hereafter\\nreferred to as ‘member institutions’). This will avoid risks associated with adverse selection whereby\\nonly small and perceived weaker institutions participate in the system. This is important to enhance\\nthe viability of the deposit insurance system;\\n(c) protection up to the prescribed limit (for eligible deposits) for all depositors of member institutions.\\nProvisions will be made for the Agency to approve additional financial instruments as being eligible\\nfor deposit insurance to accommodate new types of deposit products that may be introduced in\\nfuture. Deposits that are not payable in Malaysia, foreign currency deposits, negotiable instruments of\\ndeposit or other bearer deposits, repurchase agreements and money market placements would not\\nbe insured;\\n\\n\\nThe Financial Sector\\n151\\n(d) an adequate basic level of protection provided for every depositor’s deposits in each member\\ninstitution. Depositors with deposits in more than one member institution will be insured separately\\nfor their deposits in each institution. Joint and trust deposits will also be separately insured, providing\\nadditional coverage within the system for depositors with such accounts. The deposit insurance limit\\nwill be set at a level that is sufficient to protect the vast majority of depositors in full. At the same\\ntime, the deposit insurance limit will retain sufficient incentives for the larger and institutional\\ndepositors to monitor the financial condition of member institutions. This is important to promote\\nsound financial and business practices, thereby further enhancing financial stability;\\n(e) equivalent protection for Islamic and conventional deposits which will be separately insured up\\nto the deposit insurance limit to avoid any competitive distortions between the Islamic and\\nconventional banking systems. In this respect, extensive consultations have been held with the\\nNational Shariah Advisory Council on elements of the deposit insurance system relating to Islamic\\ndeposits to ensure consistency and compliance with Shariah principles;\\n(f) annual premiums to be paid by member institutions to the deposit insurance fund to be based on\\nthe institution’s total insured deposits. The annual premiums will be borne entirely by member\\ninstitutions and should not result in the imposition of additional service charges, either explicitly or\\nimplicitly, on consumers. The deposit insurance fund may be used to reimburse the depositors of a\\nmember institution that is unable to meet its obligations to depositors or otherwise provide financial\\nassistance for the resolution of the institution. The annual premiums may be supplemented by\\nadditional premiums imposed on member institutions to cover any loss resulting from the\\nimplementation of resolution schemes; and\\nAn Islamic deposit insurance fund, funded by premiums collected on insured Islamic deposits,\\nwill be separately maintained to ensure that the coverage accorded to Islamic deposits fully\\ncomply with Shariah principles.\\n(g) the implementation of a differential premium system to determine the premiums payable by each\\nmember institution. Consistent with the Agency’s mandate to strengthen sound risk management\\npractices among member institutions, financial consequences (through higher premium rates) will be\\nattached to practices of member institutions that increase the risk of loss to the deposit insurance\\nsystem. In line with the basic structure of proven and tested rating systems employed in other\\ncountries, both qualitative and quantitative criteria will be taken into account to determine the\\npremium category in which a member institution is classified.\\nIt is envisaged that the deposit insurance system will be administered by a separate statutory body\\nestablished under an Act of Parliament to accord greater focus and clarity to the fulfilment of the deposit\\ninsurance mandate. The Agency will be supported by an independent board comprising relevant\\nrepresentatives from the public and private sectors. As separate components of the financial safety net,\\nappropriate institutional arrangements will also be put in place to facilitate effective co-operation and co-\\nordination of actions between Bank Negara Malaysia and the Agency.\\nFollowing a consultation process with the banking industry, the deposit insurance system will be\\nimplemented subsequent to the passing of legislation in Parliament, and the establishment of the\\nnecessary infrastructure.\\n\\n\\n152\\nTable 4.17\\nDiscount Houses: Sources and Uses of Funds\\nAnnual change\\n As at end-\\n2002\\n2003\\n2003\\nRM million\\nSources:\\nApproved capital funds\\n300\\n153\\n2,443\\nDeposits\\n4,834\\n3,847\\n23,751\\nInterbank borrowings\\n-1,370\\n-1,169\\n3,559\\nOthers\\n-185\\n-13\\n448\\nTotal\\n3,578\\n2,818\\n30,201\\nUses:\\nInvestment in securities:\\n2,876\\n809\\n24,055\\nGovernment debt securities\\n112\\n-571\\n1,329\\nMGS held\\n-364\\n-262\\n835\\nKhazanah bonds\\n-281\\n123\\n497\\nBNM bills\\n229\\n16\\n365\\nPrivate debt securities\\n-104\\n3,197\\n14,730\\nBankers acceptances\\n2,754\\n-2,752\\n3,237\\nNegotiable instruments of\\ndeposit\\n-125\\n752\\n848\\nCagamas debt securities\\n471\\n610\\n2,168\\nOthers1\\n-181\\n-567\\n882\\nInterbank placements\\n1,031\\n1,921\\n5,809\\nOthers\\n-329\\n87\\n337\\n2001\\n2002\\n2003\\nNumber of discount houses\\n7\\n7\\n7\\n1\\nIncludes Danaharta and Danamodal bonds.\\nTotal may not add up due to rounding.\\nbank industry to decline to 18.4% (end-2002:\\n19%). In the case of finance companies, the\\ncontinued strong demand for hire purchase\\nfinancing during the year led to a higher growth in\\nrisk-weighted assets as compared with the\\nmoderate growth in capital base, resulting in the\\nRWCR declining to 11.3% (end-2002: 12%).\\nThe higher expansion in loans contributed to the\\nincrease in total risk-weighted assets of the banking\\nsystem, which grew by 5.9% to RM506.6 billion.\\nThe increase was noted across all risk categories,\\nespecially at the 0% and 20% category.\\nThe increase in the 0% category by 22.8% to\\nRM170.9 billion, was mainly due to Bank Negara\\nMalaysia’s liquidity operations. In line with the\\nhigher lending for the purchase of residential\\nproperties, the assets in the 50% risk-weight\\ncategory increased by 14.5% to RM117.5 billion.\\nRisk-weighted assets in the 100% risk-weight\\ncategory grew by 4% or RM16.1 billion,\\nattributable to other loan financing.\\nGiven its strong level of capitalisation, the banking\\nsystem is well placed to efficiently and effectively\\nsupport economic activities, which augurs well for\\nthe growth of the economy in 2004.\\nOTHER FINANCIAL INSTITUTIONS\\nDiscount Houses\\nAmidst ample liquidity in the financial system, total\\nresources mobilised by the discount houses increased\\nfurther during the year by 10.3% or RM2.8 billion\\n(2002: 15% or RM3.6 billion).  Deposits (primarily in\\nthe form of short-term fixed deposits) continued to\\nbe the main source of funds, increasing by 19.3%\\n(2002: 32.1%).  With the stronger growth in\\ndeposits, discount houses were able to further wind\\ndown their interbank borrowings, which declined by\\n24.7% (2002: -22.5%).\\nThere was a marked shift in the allocation of funds\\nmobilised by the discount houses.  A significant\\ndecline in holdings of banker’s acceptances (BAs),\\ntogether with lower holdings of MGS and Khazanah\\nbonds, were offset by a large increase in holdings of\\nPDS.  PDS investments increased by RM3.2 billion or\\n27.7% in 2003 (2002: -RM0.9 billion or -0.9%) as\\ndiscount houses took advantage of the low PDS\\nprices in the second half of the year when market\\nsentiment turned more cautious on bonds.  The\\nincrease in deposit funds was also placed in the\\ninterbank market. Interbank placements rose by\\nRM1.9 billion or 49.4%, partly due to the\\ntemporary placement of funds in the interbank\\nmarket at the end of 2003 by a discount house,\\nwhose holdings of Danaharta bonds matured at the\\nsame time.\\nDiscount houses continued to expand their fee-\\nbased activities during the year.  The industry\\narranged, lead-managed and co-managed the\\nissuance of PDS worth RM9.8 billion (2002: RM8\\nbillion), while the total amount underwritten\\nincreased to RM2.6 billion (2002: RM1.9 billion) for\\n31 PDS issues (38 issuances in 2002).\\nProvident and Pension Funds\\nTotal resources of the 13 provident and pension\\nfunds (PPF) surveyed by Bank Negara Malaysia\\nincreased by 7.9% to RM266.4 billion in 2003.\\nAccumulated contributions, which accounted for\\n90.2% of the total resources of the PPF, grew by\\n9.2% in 2003 (2002: 8.5%). The increment was due\\nto increases of 16.2% in net contributions and\\n15.7% in dividends credited to contributors’\\naccounts during the year. The latter was made\\npossible by higher investment income in 2003. The\\nEmployees Provident Fund (EPF) remains the largest\\nPPF, accounting for 82.6% of the total resources of\\nthe PPF.\\n\\n\\nThe Financial Sector\\n153\\nThe strong increase in net contributions in 2003 was\\nthe result of both higher gross contributions and\\nlower withdrawals. Gross contributions increased by\\n1%, due mainly to the increase of 12.4% in the\\nnumber of contributors, which more than offset the\\nreduction in the employee contribution rate to EPF to\\n9% from 11% for a year, effective June 2003. The\\nreduction in the employee contribution rate was one\\nof the measures under the Economic Package\\nannounced by the Government in May 2003 to\\nstimulate consumption.\\nMeanwhile, withdrawals declined by 10.5% during\\nthe year due to the significant decline in withdrawals\\nby pensionable employees under the EPF’s\\nPensionable Employees Withdrawal Scheme, which\\nwas launched in 2000. The bulk of these withdrawals\\nwas made in 2001. Withdrawals for investment and\\nhousing purposes, however, increased by 8.7% and\\n2.1% respectively.\\nInvestment income of the EPF increased by 3.4%\\nto RM11.1 billion in 2003 due mainly to the\\nincrease in investment income from fixed income\\ninstruments by 3.4%. Investment in fixed income\\ninstruments contributed 77.4% of the total\\ninvestment income of the EPF in 2003. In line\\nwith the strong performance of the equity\\nmarkets, investment income from equities\\n(including income from external equity fund\\nmanagers) registered the highest increase\\n(17.1%) among all asset classes in 2003.\\nTable 4.18\\nProvident and Pension Funds:  Selected\\nIndicators\\n2002\\n2003p\\nRM million\\nAs at end-year\\nNumber of contributors (‘000)\\n18,436\\n20,718\\nof which:\\nEPF\\n10,335\\n10,490\\nSOCSO\\n7,912\\n9,997\\nAccumulated contributions\\n220,094\\n240,238\\nAssets\\n246,974\\n266,438\\nof which:\\nInvestments in MGS\\n77,387\\n91,589\\nDuring the year\\nGross contributions\\n24,000\\n24,233\\nWithdrawals\\n13,689\\n12,249\\nNet contributions\\n10,311\\n11,984\\nDividends credited\\n8,117\\n9,393\\nInvestment income\\n10,553\\n12,200\\np Preliminary\\nSource:\\nEmployees Provident Fund, Pension Trust Fund, Social Security\\nOrganisation, Armed Forces Fund, Malaysian Estates Staff Provident\\nFund, Teachers Provident Fund and seven other private provident and\\npension funds.\\nOthers\\nTotal Assets (RHS)\\nEquity \\nPrivate Debt\\nSecurities\\nMGS \\nLoans \\nDeposits & \\nMoney Market\\nGraph 4.14 \\nProvident and Pension Funds: \\nMajor Asset Composition\\n27.9\\n30.3\\n31.9\\n31.3\\n34.4\\n13.6\\n11.7\\n10.7\\n12.2\\n15.8\\n11.4\\n11.5\\n11.6\\n24.5\\n25.4\\n26.2\\n24.7\\n23.1\\n20.4\\n18.0\\n16.0\\n10.7\\n8.9\\n8.8\\n22.9\\n0\\n20\\n40\\n60\\n80\\n100\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\n0\\n50\\n100\\n150\\n200\\n250\\n300\\n% of total assets\\nHoldings of all asset classes, except deposits and\\nmoney market instruments, increased in 2003. Given\\nthe low interest rate environment, the decline in the\\nholdings of deposits and money market instruments\\nof PPF was part of an investment strategy to shift\\ninto assets which offered higher returns. In line with\\nthis strategy, the shares of loans and Malaysian\\nGovernment Securities (MGS) in total assets of the\\nPPF rose in 2003. The increase in the PPFs’ holdings\\nof MGS was also due to the higher issuance of MGS\\nin 2003. Investments in equities by PPF increased\\nmarginally by 1.6%, while overseas investment\\nincreased by 14.5%. The share of overseas\\ninvestment in total assets of the PPF, however,\\nremained small at 0.3%.\\nVenture Capital\\nIn 2003, the venture capital (VC) industry continued\\nto expand as an alternative source of financing to the\\neconomy. As a result of efforts taken by both the\\nGovernment and the private sector, the VC industry\\nrecorded further growth in terms of fund size,\\nnumber of investee companies, number of venture\\ncapital fund management companies (VCFMCs) and\\nventure capital companies/funds (VCCs). Total funds\\navailable for VC investment grew by 10.5% to\\nRM2.1 billion. As at end-2003, investee companies\\nthat received funding from VC sources, increased to\\n298 companies, with higher net investment of\\nRM878.7 million.\\nThe Government remained supportive of the\\ndevelopment of the VC industry through the\\nprovision of financing and incentives, which were\\n\\n\\n154\\nannounced in the Economic Package and the 2004\\nBudget. The Cradle Investment Programme (CIP), a\\nprogramme initiated under the Economic Package\\nannounced in May, was launched with an allocation\\nof RM100 million and was administered by the\\nMalaysia Venture Capital Management Berhad\\n(MAVCAP). The CIP was established in mid-2003 to\\nprovide pre-seed funding and entrepreneurial\\nsupport to generate new ideas and innovations by\\nindividuals, research institutes and institutions of\\nhigher learning. As at mid-March 2004, a total\\namount of RM1.2 million had been disbursed to\\nfinance 93 ideas and innovations.\\nMAVCAP continued to offer and subsidise the\\n“Ignite the Technopreneur Fire” series of workshops\\nto interested technopreneurs, which was aimed at\\naddressing issues of entrepreneurship like\\ntechnology assessment, commercialisation and\\nfinancing. These workshops helped to address\\ntechnopreneurs’ concerns on management, human\\nresources and operations. Another initiative was the\\n“Three M” (Monday Meeting of the Month)\\nmeeting, which was initiated and sponsored by\\nMAVCAP and jointly organised with the Malaysian\\nVenture Capital Association (MVCA). The monthly\\nforums were aimed at providing the opportunity for\\ntechnopreneurs and financiers to interact and\\ndiscuss issues of concern. Venture Accelerate 2003\\ntook on a new approach which aimed at\\naccelerating the development of promising\\nentrepreneurs into successful start-ups, via a strong\\nfocus on intensive mentoring and skills-building\\nover a 6-month period. The main objective was to\\nproduce quality entrepreneurs and, in turn,\\ngenerate a more vibrant and sustainable\\nentrepreneurial environment in Malaysia. The\\nprogramme was launched on 17 September 2003\\nand is expected to end in June 2004.\\nThe Venture Capital Consultative Council (VCCC),\\nwhich was established in 2002, contributed effectively\\nin developing further the VC industry. By providing a\\nconsultative forum for both public and private sectors\\ninvolved in the VC industry, the VCCC has addressed\\nseveral areas of concern, which affected the\\ndevelopment of the industry. Among others, key areas\\nof improvement attributable to the VCCC were\\naddressing tax incentive-related issues, streamlining\\ndata collection, ensuring constant dialogues between\\nthe public and private sector involved in the VC\\nindustry and initiating educational programmes.\\nA greater level of private sector involvement was\\nreflected in the increased funding for VC\\nTable 4.19\\nKey Statistics of Venture Capital Industry\\nAs at end-year\\n2002\\n2003\\nVenture capital funds (RM million)\\n1,953.1\\n2,118.1\\nNet investment1 (RM million)\\n862.6\\n878.7\\nLocal sources (RM million)\\nn.a.\\n769.0\\nForeign sources (RM million)\\nn.a.\\n109.6\\nNo. of venture capital companies/\\nfunds\\n38\\n43\\nNo. of venture capital fund\\nmanagement companies\\n29\\n31\\nNo. of investee companies\\n183\\n298\\nDuring the year\\n2002\\n2003\\nGross investment (RM million)\\n191.4\\n227.2\\nLocal sources (RM million)\\nn.a.\\n192.5\\nForeign sources (RM million)\\nn.a.\\n34.8\\nNo. of investee companies\\n80\\n115\\n1\\nGross investment less divestment activities.\\nn.a. Not available.\\nSource: Securities Commission\\nPension and provident\\nfunds\\n0.1% \\nOther private \\nsector entities\\n20.6%\\nPrivate individuals\\n6.3%\\nBanks\\n17.6%\\nForeign\\n1.1%\\nSource: Securities Commission\\nInsurance companies\\n0.11%\\nGraph 4.15\\nSources of Venture Capital \\n(% share, as at end-2003)\\nGovernment\\n 54.2%\\nTable 4.20\\nInvestment by Stages during 2003\\nNo. of Investee Companies\\n115\\nBusiness Stage\\nRM million\\n% share\\nSeed capital\\n        19.9\\n8.7\\nStart-up capital\\n        47.9\\n21.1\\nEarly stage\\n        17.2\\n7.6\\nExpansion, Growth\\n        81.4\\n35.8\\nBridge, Mezzanine, Pre-IPO\\n        20.3\\n8.9\\nManagement buy-out\\n        11.7\\n5.1\\nManagement buy-in\\n        16.8\\n7.4\\nCashing-out (Secondary purchase)\\n …\\n…\\nOther types of investment\\n        12.1\\n5.3\\nTotal\\n      227.2\\n100.0\\nSource: Securities Commission\\n\\n\\nThe Financial Sector\\n155\\nGraph 4.17\\nOutstanding Investment by Stages (% share)\\nAs at end-2001\\nAs at end-2002\\nAs at end-2003\\nSource: Securities Commission\\n0.0\\n5.0\\n10.0\\n15.0\\n20.0\\n25.0\\n30.0\\n35.0\\n40.0\\nOther types of investment\\nCashing-out (Secondary purchase)\\nTurnaround\\nManagement buy-in\\nManagement buy-out\\nBridge, Mezzanine, Pre-IPO\\nExpansion, Growth\\nEarly stage\\nStart-up capital\\nSeed capital\\ninvestments. Contributions from the private sector\\nrose by 18.9% to account for 45.8% of total funds\\nraised during the year (38.5% in 2002). VC funds\\nfrom foreign sources were small, amounting to\\nRM109.6 million as at end-2003. Almost 75% of VC\\nfunds from foreign sources were invested in the ICT\\nand life sciences sectors.\\nIn 2003, private sector initiatives undertaken to\\npromote VC investment were substantial, with the\\ntotal number of investee companies at the start-up\\nstage remaining high at 21.1% of total VC\\ninvestments in 2003. While remaining small, the\\ncumulative investment in the seed-capital stage also\\nincreased in 2003, reflecting an increase in the risk\\nappetite within the VC industry. At the same time,\\nthe Kuala Lumpur Stock Exchange (KLSE) provided an\\nTotal Investment: RM227.2 million\\nNumber of Investee Companies: 115\\nInformation and\\ncommunication\\ntechnology\\n45.7%  \\nLife sciences\\n26.8%\\nOthers\\n1.5%\\nManufacturing\\n26.1%\\nSource: Securities Commission\\nGraph 4.16\\nGross Investment in 2003 (% share of total)\\nTable 4.21\\nInvestment by Sectors\\nAs at end-2003\\nRM million\\n% share\\nManufacturing:\\n304.8\\n34.7\\nOf which,\\nWood and wood products,\\nincluding furniture\\n39.5\\n4.5\\nTransport equipment, automotive\\ncomponents\\n10.3\\n1.2\\nAdvanced manufacturing: electronics,\\nautomation systems, electro-optics,\\nadvanced materials\\n65.3\\n7.4\\nFabricated metal products, machinery\\nand equipment\\n19.9\\n2.3\\nElectrical and electronic products\\n(manufacture, assemble)\\n19.1\\n2.2\\nOthers\\n150.7\\n17.2\\nInformation and communication technology\\n326.0\\n37.1\\nLife sciences\\n147.3\\n16.8\\nElectricity, power generation, gas and water\\n15.6\\n1.8\\nWholesale, retail trade, restaurant and hotels\\n5.0\\n0.6\\nEducation\\n4.0\\n0.5\\nConstruction\\n0.1\\n0.0\\nTransport, storage and communications\\n1.4\\n0.2\\nFinancing, insurance, real estate and\\nbusiness services\\n9.8\\n1.1\\nOthers\\n64.7\\n7.4\\nTotal\\n878.7\\n100.0\\nSource: Securities Commission\\neffective exit mechanism for VC investments. This\\nwas evident with the higher number of initial public\\nofferings (IPOs) in 2003, by small companies with\\nhigh-growth potential.\\nDuring the year, most of the VC investments were\\nchannelled to the new growth sectors of information\\nand communication technology (ICT), life sciences\\n\\n\\n156\\nTable 4.23\\nIslamic Unit Trusts\\n2002\\n2003\\n2002\\n2003\\nGrowth (%)\\nNumber of Unit Trust\\nManagement Companies\\n27\\n27\\n17.4\\n0.0\\nNumber of Unit Trust Funds*\\n36\\n50\\n28.6\\n38.9\\nUnits in Circulation (billion)\\n5.8\\n8.6\\n35.1\\n49.1\\nNumber of Accounts\\n303,000 346,000\\n13.5\\n14.2\\nNet Asset Value (RM billion)\\n3.2\\n4.7\\n32.6\\n47.8\\nNet Sales (RM million)\\n980.4 1,169.9\\nRatio of NAV to KLSE Syariah\\nIndex market capitalisation (%)\\n1.2\\n1.3\\n* Refers to funds already launched.\\nSource: Securities Commission.\\nand advanced manufacturing. In value terms, the\\nsoftware, internet services and e-businesses sub-\\nsector received the highest amount of funding\\n(21.1% of total), followed by medical and\\nbiotechnology sub sector (15.5%). As at end-2003,\\nthe bulk of total outstanding investments of VCCs\\n(61.3%) were concentrated in the new growth\\nsectors of ICT, life sciences and advanced\\nmanufacturing sectors. Investments in other sectors\\namounted to RM340.1 million, with the\\nmanufacturing sector (excluding advanced\\nmanufacturing) accounting for 27.3% of total\\noutstanding VC investments. While domestic VC\\nfunds were mostly invested in the manufacturing\\n(38.1%), ICT (36.7%) and life-sciences (14.2%),\\nforeign VC investments concentrated on ICT (39.9%)\\nand life-sciences (34.8%) only.\\nUnit Trust Industry\\nThe unit trust industry continued to expand in 2003,\\nwith a larger number of new funds launched and\\ncontinued increase in the number of units in\\ncirculation. In line with the significant improvement\\nin the performance of the KLSE, the net asset value\\n(NAV) of the industry expanded by 30.5% in 2003.\\nAs a result of the intensified marketing efforts and\\nthe introduction of a greater variety of products by\\nthe unit trust management companies to cater to the\\ndiverse investor needs and preferences, gross sales of\\nunit trust funds increased by 37.5% in 2003. The\\ngross sales level remained consistently high\\nthroughout the year. However, due to high\\nrepurchases made during the second half of the year,\\nnet sales were slightly lower compared with 2002.\\nThis development was the result of portfolio\\nrebalancing exercises by investors in view of the\\nbetter performance of the equity market in the third\\nquarter. In September and October, net repurchase\\npositions were recorded. Nevertheless, given the\\ncontinued favourable sentiments and expectations of\\nbetter performance in equity investments, net sales\\nwere recorded in the fourth quarter.\\nOne segment of the unit trust industry that has\\ngrown significantly in recent years was the Islamic\\nunit trust. In 2003, 14 new Islamic funds were\\nlaunched (8 in 2002), bringing the total number of\\nIslamic funds to 50. The NAV for Islamic funds grew\\nsubstantially by 47.8% in 2003. The share of Islamic\\nfunds of total NAV of the unit trust industry rose to\\n6.7% from 6% in 2002.\\nIn the development of unit trust activities, Bank\\nNegara Malaysia has liberalised regulations pertaining\\nto investment abroad by the unit trust industry,\\nTable 4.22\\nUnit Trust Industry (Including Islamic Unit Trust\\nFunds) - Selected Indicators\\n2002\\n2003\\n2002\\n2003\\nGrowth (%)\\nNumber of Unit Trust\\nManagement Companies\\n39\\n36\\n5.4\\n-7.7\\nNumber of Unit Trust Funds*\\n175\\n217\\n17.4\\n24.0\\nNumber of New Funds Launched\\n26\\n42\\nUnits in Circulation (billion)\\n84.5\\n97.4\\n18.4\\n15.2\\nNumber of Accounts (‘000)\\n10,175\\n10,221\\n1.9\\n0.5\\nNet Asset Value (RM billion)\\n53.7\\n70.1\\n13.4\\n30.5\\nAverage Monthly Gross\\nSales (RM billion)\\n1.9\\n2.6\\nAverage Monthly\\nRepurchases (RM billion)\\n1.3\\n2.1\\nNet Sales (RM billion)\\n7.6\\n6.9\\nRatio of NAV to KLSE market\\ncapitalisation (%)\\n11.1\\n10.9\\n* Refers to funds already launched.\\nSource: Securities Commission.\\nGross Sales\\nRepurchases\\nNet Sales\\nGraph 4.18\\nUnit Trust Industry - Gross Sales, Repurchases \\nand Net Sales \\n-1,000\\n0\\n1,000\\n2,000\\n3,000\\n4,000\\n5,000\\n6,000\\nJ\\nF M A M J\\nJ\\nA S O N D J\\nF M A M J\\nJ\\nA S O N D\\n2002\\n2003\\nRM million\\n\\n\\nThe Financial Sector\\n157\\nwhich would accord flexibility for unit trust\\nmanagement companies to diversify their portfolio in\\norder to improve returns to investors. Effective 1 April\\n2004, unit trust management companies can freely\\ninvest in foreign assets up to 10% of NAV per fund\\nfor funds subscribed by residents, and up to the full\\namount of NAV for funds subscribed by non-\\nresidents. Unit trust funds of different companies\\nmay also be pooled to benefit from economies of\\nscale when investing abroad.\\nIn addition, the Securities Commission also revised\\nthe Guidelines on Unit Trust Funds on 1 April 2003.\\nKey improvements introduced included greater\\nflexibility for the issuance of specialised unit trust\\nproducts, faster assessment of applications for the\\nissuance of unit trust products, faster prospectus\\nregistration, streamlining approval process, and\\nenhancing disclosure and reporting requirements.\\nFINANCIAL MARKETS\\nOverview\\nIncreased activities in the money market reflected\\nhigher trading in both interbank deposits and money\\nmarket papers. The volume of transactions in the\\ninterbank market increased more significantly with\\n103.3% in terms of volume, and by 58.5% in terms\\nof value. In the bond market, low interest and ample\\nliquidity situation were significant factors that caused\\nincreased trading in the private debt securities (PDS)\\nmarket, particularly in the first half-year.\\nHigher turnover was also recorded in the derivatives\\nmarkets with the Crude Palm Oil (CPO) Futures market\\nemerging as the best performer. The stronger\\nperformance was due to imbalances in the global\\nvegetable oil market as production of major oilseeds\\nincreased only marginally, while demand, particularly\\nfrom India and People’s Republic of China, increased\\nsignificantly. Active trading of KLIBOR Futures was\\ninfluenced by expectations on the interest rate outlook.\\nTwo new derivatives products, the 3-year and 10-year\\nMGS Futures contracts, were introduced in 2003.\\nTotal funds raised in the capital market in 2003\\nwere significantly higher, with gross proceeds\\namounting to RM105.1 billion, compared with\\nRM69 billion in 2002. After accounting for\\nredemptions, net funds raised in the capital market\\nwere significantly higher, amounting to RM54\\nbillion (2002: RM23 billion). Net funds raised\\nthrough the PDS market accounted for a majority\\nshare of 69.6% (2002: 13.4%). The Federal\\nStrengthening economic fundamentals and improved prospects\\nfor the Malaysian economy led to substantially higher trading\\nactivities across all segments of the financial markets.\\nthe shift in market preference towards shorter-term\\nmoney market instruments.\\nIn the Kuala Lumpur interbank foreign exchange\\nmarket, the average daily volume of transactions\\nincreased during the year due to greater trade and\\ninvestment flows, as well as increased hedging\\nactivities to mitigate the impact from greater volatility\\nin international foreign exchange markets. While\\ntrading activity continued to be dominated by\\ntransactions in the ringgit against the US dollar, the\\nshare of euro and Japanese yen transactions against\\nthe US dollar increased in line with the higher\\ntransactions and hedging needs by market\\nparticipants to manage the volatility of the G3\\ncurrencies.\\nTrading activities were also higher in the equity, bond\\nand exchange-traded derivatives market. The KLSE\\nComposite Index (KLSE CI) rose by 22.8% while the\\naverage daily trading activities rose significantly by\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\nGraph 4.19\\nNet Funds Raised in the Capital Market by the \\nPublic and the Private Sectors\\nPublic sector\\nPrivate sector\\nGovernment continued to tap the domestic market\\nto finance most of its financing requirements, given\\nthe ample liquidity situation. Gross proceeds of\\nRM41.3 billion were raised, mainly through 13\\nissuances of Government Securities. The private\\nsector raised RM58.7 billion from the PDS and\\n\\n\\n158\\nGraph 4.20 \\nYields of Money Market Instruments\\n2.50\\n2.70\\n2.90\\n3.10\\n3.30\\n3.50\\n3.70\\n3.90\\n4.10\\n4.30\\n4.50\\nJ-02\\nF-02\\nM-02\\nA-02\\nM-02\\nJ-02\\nJ-02\\nA-02\\nS-02\\nO-02\\nN-02\\nD-02\\nJ-03\\nM-03\\nA-03\\nM-03\\nJ-03\\nJ-03\\nA-03\\nS-03\\nO-03\\nN-03\\nD-03\\n Yield (%) \\nF-03\\n3-month T-bills \\n1-year MGS\\n3-year MGS \\n5-year MGS\\nequity markets (RM49.5 billion in 2002). Companies\\nwith strong credit profiles continued to lock-in low\\nfinancing costs through the issuance of PDS. There\\nwas also an increase in issuance of asset-backed\\nbonds as well as convertible bonds, in light of\\nimproving interest in the equity market. The equity\\nmarket remained an important source of financing,\\nespecially for small and high-growth potential\\ncompanies. The number of IPOs offered on the KLSE\\nwas 58, the highest since 1998 and RM7.8 billion\\nwere raised from these new issues.\\nThe Government remains strongly committed to the\\nfurther development of a broad and liquid capital\\nmarket. Several measures and initiatives were taken\\nin 2003 to improve retail investors’ participation and\\nprotection, enhance market liquidity and efficiency,\\nease capital-raising exercise and listing policies and\\nstrengthen intermediation in the Malaysian capital\\nmarket. Details are contained in the box “Key\\nCapital Market Measures in 2003”.\\nMoney Market\\nIncreased activities in the money market in 2003\\nwere reflected mainly in higher trading of interbank\\ndeposits. Trading of money market papers increased\\nmarginally.\\nActivities in the interbank money market in 2003 were\\nmarked by two periods of changing market\\nexpectations. In the first half, trading in the market was\\nlargely influenced by concerns regarding the adverse\\nimpact of increased geopolitical uncertainties on\\neconomic growth following the war in Iraq. The\\noutbreak of SARS in the region further aggravated this\\nuncertain environment. As a result, most of the market\\nplayers took a view that the existing accommodative\\nmonetary policy stance will remain for an extended\\nperiod. Against the background of a low inflation, the\\nprevailing uncertainty increased the market’s preference\\nfor fixed-income instruments, especially in the higher-\\nyielding longer dated papers. From January to July\\n2003, the average monthly MGS volume traded was\\nhigher at RM27.6 billion compared with RM18.1 billion\\nin the same period of 2002. Nevertheless, the overall\\nTable 4.25\\nMoney Market1\\n2002\\n2003\\nVolume\\nAnnual\\nVolume\\nAnnual\\n(RM\\nchange\\n(RM\\nchange\\nbillion)\\n(%)\\nbillion)\\n(%)\\nTotal money market\\ntransactions\\n1465.1\\n-2.4\\n1538.4\\n5.0\\nInterbank deposits\\n1011.7\\n-4.1\\n1084.7\\n7.2\\nMoney market papers\\n453.4\\n1.8\\n453.7\\n0.1\\nBankers Acceptances (BAs)\\n51.3\\n-15.2\\n37.3\\n-27.3\\nNegotiable Instrument of\\nDeposits (NIDs)\\n36.7\\n7.0\\n43.1\\n17.4\\nMalaysian Government\\nSecurities (MGS)\\n244.1\\n11.0\\n231.4\\n-5.2\\nKhazanah bonds\\n15.5\\n-13.4\\n18.8\\n21.3\\nTreasury bills\\n8.4\\n-37.3\\n9.9\\n17.9\\nBank Negara Bills\\n54.4\\n-1.4\\n71.5\\n31.4\\nCagamas bonds\\n 29.2\\n12.7\\n25.6\\n-12.3\\nCagamas notes\\n13.8\\n-25.0\\n16.1\\n16.7\\n1\\nAll data are sourced from the Bond Information and Dissemination System,\\nexcept BAs and NIDs which are sourced from money market brokers.\\nTable 4.24\\nFunds Raised in the Capital Market\\n2002\\n2003p\\nRM million\\nBy Public Sector\\nGovernment Securities (gross)\\n16,266\\n41,262\\nLess Redemptions\\n8,900\\n18,600\\nLess Government holdings\\n0\\n0\\nEquals Net Federal receipts\\n7,366\\n22,662\\nKhazanah Bonds (net)\\n0\\n346\\nGovernment Investment Issues (net)\\n738\\n1,729\\nMalaysia Savings Bond (net)\\n464\\n-9\\nNet Funds Raised by Public Sector\\n8,568\\n24,728\\nBy Private Sector\\nShares\\n13,291\\n7,772\\nDebt securities\\nIssuance (gross)\\n36,195\\n50,975\\nLess Redemptions\\n34,137\\n33,189\\nEquals Net Issues\\n2,058\\n17,786\\nNet Funds Raised by Private Sector\\n15,349\\n25,558\\nTotal Net Funds Raised\\n23,917\\n50,286\\nShort-term papers and notes (net)1\\n-880\\n3,753\\nTotal\\n23,037\\n54,039\\n1\\nRefers to Commercial Papers, Cagamas Notes and Medium Term Notes.\\np Preliminary\\n\\n\\nThe Financial Sector\\n159\\nGraph 4.21\\nVolume of Traded MGS \\n0\\n5000\\n10000\\n15000\\n20000\\n25000\\n30000\\n35000\\n40000\\nJ-02\\nF-02\\nM-02\\nA-02\\nM-02\\nJ-02\\nJ-02\\nA-02\\nS-02\\nO-02\\nN-02\\nD-02\\nJ-03\\nF-03\\nM-03\\nA-03\\nM-03\\nJ-03\\nJ-03\\nA-03\\nS-03\\nO-03\\nN-03\\nD-03\\nRM million\\nMGS yields remained stable during this period as the\\ngreater demand for the longer dated papers, was offset\\nby the steady supply of the MGS to the market. During\\nthe first half of the year, net issuance of MGS\\namounted to RM13.3 billion.\\nNevertheless, the uncertain outlook proved to be\\ntemporary as business activities picked up steadily in\\nthe second half of the year. This prompted market\\nplayers to factor-in an expectation for an earlier\\nturnaround in the interest rate cycle in the near\\nfuture. The improving corporate performance amidst\\nstrengthening financial position of corporations and\\nthe better-than-expected GDP growth in the third\\nquarter, led to a shift in asset allocation towards\\nequity. The rising perception of market risk resulted\\nOvernight\\n1 week\\n6 months, 12 months and others\\nWeekend\\n1-3 months \\nGraph 4.22 \\nShare of Total Volume Traded: Interbank \\nDeposits\\n67.7\\n67.5\\n17.0\\n18.3\\n4.7\\n4.7\\n1.8\\n0.9\\n8.6\\n8.8\\n0\\n20\\n40\\n60\\n80\\n100\\n% share\\n2002\\n2003\\nKhazanah \\nTB\\nBAs \\nNIDs\\nMGS\\nBNB \\nCagamas Instruments\\n2003\\n2002\\n% share\\n100\\n80\\n60\\n40\\n20\\n0\\n2.2\\n4.1\\n9.5\\n8.2\\n9.2\\n15.8\\n51.0\\n1.9\\n3.4\\n8.1\\n11.3\\n9.5\\n12.0\\n53.8\\nGraph 4.23 \\nShare of Total Volume Traded: Money Market \\nInstruments\\nin lower volumes traded in the money market.\\nTrading in MGS was also relatively subdued during\\nthe period of August to November. This was caused\\nby concerns over the direction of interest rates\\nfollowing the upward adjustment in policy rates by\\ntwo central banks (Australia and United Kingdom)\\nand the brighter prospects for the US economy.\\nThese factors contributed to the upward shift in the\\nMGS term structure, with the yields on the 3-year\\nand 5-year MGS increasing by 94 and 129 basis\\npoints respectively.\\nThe volume of transactions in the interbank deposit\\nmarket also rose significantly in the second half of\\n2003. Trading on interbank deposits increased by\\n21.5% (-3.7% during the same period in 2002) in\\nthe second half of 2003 with a shift in the market’s\\npreference towards shorter-term money market\\ninstruments.\\nForeign Exchange Market\\nIn the Kuala Lumpur interbank foreign exchange\\nmarket, the average daily volume of interbank\\nforeign exchange transactions (spot and swap\\ntransactions) increased by 27% compared to 2002,\\narising from higher trade and investment flows. The\\nhigher volume of transactions also reflected higher\\nspot and swap trades following increased activity by\\nmarket participants to manage their exposure due to\\ngreater volatility in international foreign exchange\\nmarkets. Trading activity comprised mainly trade-\\nrelated transactions, as position-taking activity on the\\n\\n\\n160\\nringgit has been contained through the elimination\\nof the offshore ringgit market and through guidelines\\ngoverning the operating framework of banking\\ninstitutions.\\nBy composition, the Kuala Lumpur foreign\\nexchange market continued to be dominated by\\ntransactions in the US dollar against the ringgit,\\nwith the share of such transactions increasing to\\n81.7% of total transactions in 2003 from 80.8% in\\n2002. The dominance of US dollar transactions\\nagainst the ringgit reflects the significance of the\\nUS dollar in the Kuala Lumpur foreign exchange\\nmarket as well as the high usage of US dollars in\\nthe settlement of trade, services and capital\\naccount transactions. A notable development in\\n2003 was the significant increase in the share of\\neuro and yen transactions against the US dollar.\\nThe share of Euro transactions against the US\\ndollar more than doubled, while the share of yen\\ntransactions also increased markedly by 33%.\\nThese increases can be attributed largely to the\\nhigher transaction and hedging needs of market\\nparticipants to manage the significant volatility\\namong the G3 currencies during the course of\\nthe year.\\nEquity Market\\nIn 2003, the Kuala Lumpur Stock Exchange\\nComposite Index (KLSE CI) ended the year on a\\nstronger note, following stronger economic growth\\nand improved economic outlook. For the year as a\\nwhole, the KLSE CI registered a strong annual\\ngrowth of 22.8%, while average daily trading\\nactivities rose significantly by 103.3% in terms of\\nvolume and by 58.5% in value. The higher turnover\\nwas supported by both higher retail and\\ninstitutional participation.\\nThe performance of the KLSE in the first four\\nmonths was subdued, with sentiments affected\\nby uncertainties on the global economic outlook.\\nMarket sentiments turned more positive since\\nMay, driven by improved economic outlook,\\nstronger corporate earnings and significant\\nprogress achieved in corporate restructuring.\\n2003 \\n(RM323.6 billion) \\n81.7%\\n4.2%\\n2.9%\\n8.7%\\n2.6%\\nUS$/EURO\\nOthers\\nUS$/RM\\nUS$/SGD\\nUS$/YEN\\nGraph 4.25\\nTransactions in the Kuala Lumpur Foreign  \\nExchange Market by Currency\\n2002 \\n(RM270.6 billion)\\n80.8%\\n6.5%\\n1.1%\\n6.1%\\n5.5%\\nGraph 4.24 \\nVolume of Interbank Transactions in the \\nKuala Lumpur Foreign Exchange Market\\n0\\n200\\n400\\n600\\n800\\n1,000\\n1,200\\n1,400\\n0\\n200\\n400\\n600\\n800\\n1,000\\n1,200\\n1,400\\n1994 1995 1996 1997 1998 1999 2000 2001 2002 2003\\nRM billion\\nRM billion\\nSpot \\nSwap\\nTotal\\nNote: Data from 2002 onwards is based on the new Ringgit Operations \\n \\nMonitoring System (ROMS), whereas observations for previous years are \\n \\nbased on transactions of the eight Authorised Dealers\\nKLSE CI registered its strongest performance since 1999. Increased\\ndomestic participation was evident following the standardisation\\nof board lot sizes to 100 units.\\nPolicy measures introduced by the Government to\\npromote capital market developments also\\ncreated a more conducive environment for\\ninvestors.\\nThe Malaysian Exchange of Securities Dealing &\\nAutomated Quotation (MESDAQ) Market\\nComposite Index (MCI) was the best performing\\nindex in 2003. The MCI posted a substantial gain\\nof 82.9% (-5.5% as at end-2002). The strong\\nperformance of the index and higher trading\\nactivities were due to increased new listings of\\nsmall but high-growth potential companies. The\\nSecond Board Index also posted a significant gain\\nof 43.2%, reflecting investors’ preference for\\n\\n\\nThe Financial Sector\\n161\\n600\\n31-Dec\\n7-Jan\\n14-Jan\\n21-Jan\\n28-Jan\\n4-Feb\\n11-Feb\\n18-Feb\\n25-Feb\\n4-Mar\\n11-Mar\\n18-Mar\\n25-Mar\\n1-Apr\\n8-Apr\\n15-Apr\\n22-Apr\\n29-Apr\\n6-May\\n13-May\\n20-May\\n27-May\\n3-Jun\\n10-Jun\\n17-Jun\\n24-Jun\\n610\\n620\\n630\\n640\\n650\\n660\\n670\\n680\\n690\\n700\\nConcerns over uncertainties on global economic outlook\\ndue to increased geopolitical tensions, prior to the war in Iraq\\n21 May\\n* Government unveiled\\n   its Economic Package\\n* BNM reduced the 3-month\\n   Intervention Rate by 50 bps\\n   to 4.5%\\n12 March\\nWHO issued a global\\nalert on the SARS\\noutbreak\\n20 March\\nInvasion of Iraq\\n11 March\\n10 new measures to\\nenhance the capital market\\nwas announced\\n10 January\\nAnnouncement of the\\nestablishment of a new\\npublic sector-owned, fund\\nmanagement company\\n29 April\\nWHO issued a\\nstatement that SARS\\nwas over in many parts\\nof the region\\n28 May\\nAnnouncement of\\nGDP growth of 4% for\\n1Q 2003\\n26 May\\nThe exercise to\\nstandardise board lot\\nsizes to 100 units was\\nimplemented\\nFears over the outbreak of SARS in\\nthe region\\n26 June\\nUS Federal Reserve\\nlowered the Fed\\nFund rate by 25 bps\\nto 1%\\nGraph 4.26: Performance of the KLSE Composite Index (31 December 2002 - 30 June 2003)\\n1-Jul\\n8-Jul\\n15-Jul\\n22-Jul\\n29-Jul\\n5-Aug\\n12-Aug\\n19-Aug\\n26-Aug\\n2-Sep\\n9-Sep\\n16-Sep\\n23-Sep\\n30-Sep\\n7-Oct\\n14-Oct\\n21-Oct\\n28-Oct\\n4-Nov\\n11-Nov\\n18-Nov\\n25-Nov\\n2-Dec\\n9-Dec\\n16-Dec\\n23-Dec\\n30-Dec\\n600\\n620\\n640\\n660\\n680\\n700\\n720\\n740\\n760\\n780\\n800\\n820\\n840\\nGraph 4.27: Performance of the KLSE Composite Index (1 July - 31 December 2003)\\n2 July\\nKLSE CI breached\\nthe 700-mark to\\n703.25\\n5 August\\nBomb explosion\\nin Jakarta\\n28 August\\nAnnouncement of\\nGDP growth of 4.4%\\nfor 2Q 2003\\n4 September\\nPositive comments on\\nMalaysia by IMF Managing\\nDirector and expectations\\nof higher GDP growth for\\n2004, ahead of the 2004\\nBudget announcement\\n22 October\\nKLSE CI breached\\nthe 800-mark to\\n805.11\\n31 October\\n* Highest point reached\\n   at 817.12\\n* Smooth transition\\n   of leadership\\n29 October\\nListing of largest\\nIPO in 2003\\n8 October\\nStandard & Poor's\\nupgraded Malaysia's\\nlong-term foreign\\ncurrency sovereign\\ncredit ratings from \\nBBB+ to A-\\n28 October\\nSC announced \\na shorter time-to-\\nmarket for IPO to \\n13 days from  \\n25 days \\npreviously\\n12 September\\n2004 Budget announcement\\nYear end\\nrally\\n\\n\\n162\\nat 0.62 in the third quarter of 2003 (average of\\n0.61 between the third quarter of 1999 and the\\nthird quarter of 2003). The improvements in\\nprofitability, together with stable leverage and\\nlow interest rates, resulted in stronger debt\\nservicing capacity of the corporate sector. The\\ninterest coverage ratio, which measures the\\nnumber of times a company’s earnings before\\ninterest and tax exceeds its interest expense, rose\\nto 4.7 times in the third quarter of 2003, its\\nhighest level recorded since the third quarter of\\n1999.\\nEncouraged by improved market performance and\\nmore favourable investor sentiments in 2003, a\\nlarger number of smaller firms raised funds in the\\nKLSE Trading Volume \\nKLSE CI\\nSource: Kuala Lumpur Stock Exchange\\nSecond Board Index \\nMCI\\nGraph 4.28 \\nKuala Lumpur Stock Exchange Composite Index, \\nSecond Board Index, MESDAQ Market Composite \\nIndex and KLSE Trading Volume \\n50\\n70\\n90\\n110\\n130\\n150\\n170\\n190\\n210\\n230\\nIndex (Jan 2002=100)\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n20\\nVolume (billion units)\\nJan-02\\nFeb-02\\nMar-02\\nApr-02\\nMay-02\\nJun-02\\nJul-02\\nAug-02\\nSep-02\\nOct-02\\nNov-02\\nDec-02\\nJan-03\\nFeb-03\\nMar-03\\nApr-03\\nMay-03\\nJun-03\\nJul-03\\nAug-03\\nSep-03\\nOct-03\\nNov-03\\nDec-03\\nTable 4.27\\nKLSE: Performance of Sectoral Indices\\n2002\\n2003\\nAnnual change (%)\\nKLSE Composite Index\\n-7.1\\n22.8\\nEMAS\\n-4.8\\n24.4\\nSecond Board\\n-26.8\\n43.2\\nMESDAQ Composite Index\\n-5.5\\n82.9\\nIndustrial\\n0.1\\n31.3\\nConsumer Products\\n0.5\\n28.8\\nIndustrial Products\\n-2.5\\n23.4\\nConstruction\\n-14.9\\n24.6\\nTrading/Services\\n-6.1\\n18.3\\nFinance\\n-4.7\\n33.2\\nProperties\\n-9.8\\n38.8\\nMining\\n-5.1\\n74.8\\nPlantation\\n14.7\\n19.3\\nSyariah\\n-7.4\\n23.2\\nTechnology\\n-17.9\\n33.9\\nSource: Kuala Lumpur Stock Exchange\\nTable 4.26\\nKuala Lumpur Stock Exchange: Selected Indicators\\n2002\\n2003\\nPrice Indices:\\nComposite\\n646.3\\n793.9\\nEMAS\\n157.3\\n195.6\\nSecond Board\\n98.2\\n140.6\\nMESDAQ\\n83.3\\n152.3\\nTotal Turnover:\\nVolume (billion units)\\n55.6\\n112.2\\nValue (RM billion)\\n117.0\\n183.9\\nAverage Daily Turnover:\\nVolume (million units)\\n224.3\\n456.0\\nValue (RM million)\\n471.6\\n747.5\\nMarket Capitalisation (RM billion)\\n481.6\\n640.5\\nMarket Capitalisation / GDP (%)\\n133.5\\n163.4\\nTotal No. of Listed Companies:\\n865\\n906\\nMain Board\\n561\\n598\\nSecond Board\\n292\\n276\\nMESDAQ\\n12\\n32\\nMarket Liquidity:\\nTurnover Value / Average Market\\nCapitalisation (%)\\n23.2\\n33.4\\nTurnover Volume / Number of\\nListed Securities (%)\\n24.3\\n43.4\\nMarket Concentration:\\n 10 Most Highly Capitalised Stocks1 /\\nMarket Capitalisation (%)\\n34.0\\n31.6\\nAverage Paid-Up Capital of Stockbroking\\nFirms (RM million)\\n164.2\\n170.9\\n1\\nBased on market transactions only.\\nSource: Kuala Lumpur Stock Exchange\\nsmaller companies with higher potential for\\nearnings growth. Listed stocks on the Main Board\\nsaw more moderate price performances across all\\nsectors.\\nThe strong performance of the equity market was\\nsupported by improvements in earnings outlook\\nand sound financial health of corporates. From a\\nsample of 300 listed non-financial corporations\\n(representing almost 75% of total KLSE market\\ncapitalisation), cumulative profits for the first\\nthree quarters were 54% higher in 2003,\\ncompared with the same period in 2002.\\nAnnualised return-on-equity for the sample rose\\nto 7.3% in the third quarter of 2003, from 5.4%\\nin the third quarter of 2002. Stronger corporate\\nearnings were observed in most sectors as the\\nimpact of the SARS outbreak and geopolitical\\nuncertainties on businesses in the first half of\\n2003 was only confined to a few tourism-related\\ncompanies.\\nOther indicators of corporate health also showed\\npositive developments. Corporate indebtedness\\nremained stable, with aggregate debt-equity ratio\\n\\n\\nThe Financial Sector\\n163\\nBond Market\\nEquity Market\\nGraph 4.29 \\nFunds Raised by the Private Sector in the \\nCapital Market\\n5,000\\n0\\n10,000\\n15,000\\n20,000\\n25,000\\n30,000\\n35,000\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nGraph 4.30\\nPerformance of Selected Stock Market Indices\\n(% change from end-2002 to end-2003)\\nMalaysia KLCI\\nDow Jones IA\\nKorea KOSPI\\nSingapore STI\\nTaiwan TWSE\\nHong Kong HSI\\nNasdaq CI\\nIndonesia JCI\\nThailand SET\\nSource: Kuala Lumpur Stock Exchange\\n25.3\\n22.8\\n29.2\\n34.9\\n50.0\\n62.8\\n116.6\\n32.3\\n31.6\\n0\\n20\\n40\\n60\\n80\\n100\\n120\\n140\\n(%)\\nequity market. Total funds raised were, however,\\nlower at RM7.8 billion compared with RM13.3\\nbillion in 2002 due to the small size of the initial\\npublic offerings (IPOs). The new funds were\\nmainly raised through IPOs (51%) and rights issues\\n(29.4%). A total of 58 new companies was listed,\\nthe highest number since 1998. Of this total, 16\\nRecognising the importance of the capital\\nmarkets in raising capital to facilitate growth of\\nthe Malaysian economy, the Government and\\nrelevant authorities introduced new measures to\\nimprove retail investors’ participation and\\nprotection, enhance market liquidity and\\nefficiency, ease the process for capital-raising\\nIn 2003, 58 new companies were listed on the KLSE, the highest\\nsince 1998. Significantly improved market performance\\nencouraged smaller companies with growth potential to raise\\nfunds in the equity market.\\ncompanies were listed on the Main Board, 22 on\\nthe Second Board and 20 on the MESDAQ\\nMarket. Prices of 52 new listings traded at a\\nsizeable premium over the offer prices at the end\\nof the first day of trading, influenced mainly by\\nwidespread investor interests and more active\\nretail trading activities. The total number of\\ncompanies listed on the KLSE was 906 as at end-\\n2003, the second largest number of listed\\ncompanies on a stock exchange after Hong Kong\\nChina in the East Asian region, excluding Japan.\\nThe liberalisation of the listing policy to allow the\\nlisting of Malaysian businesses abroad and\\nforeign-based businesses with Malaysian\\noperations resulted in the listing of a large\\nforeign company on the KLSE. The IPO, which\\nraised RM2.03 billion, was the largest in 2003.\\nactivities and strengthen intermediation in the\\nMalaysian capital market. Details of these\\nmeasures are contained in the box ”Key Capital\\nMarket Measures in 2003”.\\nAs part of the demutualisation plan, the KLSE\\ncompleted on 5 January 2004 its conversion into a\\npublic company limited by shares, from a company\\nlimited by guarantee. The demutualisation was in\\nline with a recommendation in the Capital Market\\nMasterplan to enhance corporate, organisation\\nand governance structures. While there was no\\nsignificant diversion of the usual business practice,\\nKLSE’s stock exchange businesses were transferred\\nto a wholly-owned subsidiary, Malaysia Securities\\nExchange Berhad (MSEB). The demutualised KLSE\\nbecame the exchange’s holding company with\\nplans for listing on the exchange.\\n\\n\\n164\\nKey Capital Market Measures in 2003\\nCapital market measures introduced in 2003 were aimed at improving retail investors’ participation and\\nprotection, enhancing market liquidity and efficiency, easing the process for capital-raising and listing, and\\nstrengthening intermediation in the Malaysian capital market. The key measures were as follows:\\nEnhancing Investor Participation\\n•\\nEffective 17 March, the cap on stamp duty for all securities traded on the Kuala Lumpur Stock\\nExchange (KLSE) was reduced to RM200 per contract (previously capped at RM1,000 per contract).\\n•\\nOn 26 May, the exercise to standardise board lot sizes to 100 units from the previous 1000 units\\nfor all securities listed on the KLSE was completed.\\nIncreasing the Efficiency of the Capital-Raising Process\\n•\\nIn line with the reduction in the processing time for IPOs to less than three months from the present\\nsix to eight months, the time-to-market period (period beginning from the issue of prospectus to the first\\nday of listing) was also reduced to 13 days (from 25 days previously), effective 1 December 2003.\\n•\\nBeginning 12 March, all corporate proposals which required approvals from both the Foreign\\nInvestment Committee (FIC) and the Securities Commission (SC) would be processed by the\\nSC only. In cases where the SC’s approval was not required, the approval remained with FIC.\\n•\\nOn 18 November, a set of guidance notes on share splits for public listed companies was\\nintroduced. Among others, liberalisation included abolishing the requirements for the appointment of\\na principle adviser to submit proposals and for the approved share split exercise to be implemented\\nwithin three months.\\nStrengthening Investor Protection and Corporate Governance\\n•\\nOn 3 June, the SC issued the “Guide on Areas of Compliance and Internal Controls for\\nManagement Companies and Trustees” to assist fund management companies and trustees in\\nestablishing effective internal controls within their respective organisations. The Guide identified key\\nareas of compliance and internal controls.\\nEnhancing Restructuring of Distressed Companies\\n•\\nOn 18 June, the SC issued a set of criteria for delisted PN4 companies to seek re-listing on the\\nKLSE. The criteria, among others, allowed delisted PN4 companies to seek re-listing without the\\nrequirement for a general public offering, provided that the application was submitted within 12\\nmonths from the date of delistment.\\n•\\nOn 19 November, the SC announced a six-month extension of the deadline for under-capitalised\\npublic listed companies to increase their paid-up capital to at least RM60 million for Main Board\\ncompanies and RM40 million for Second Board companies. The new deadline is 30 June 2004.\\nLiberalisation of KLSE Listing Policies\\n•\\nEffective 11 March, the moratorium on the shareholding period for promoters (which includes\\noriginal owners and stakeholders of the companies) for all new IPOs/ Reverse Takeovers\\n(RTO) was reduced from four years to one year.\\n\\n\\nThe Financial Sector\\n165\\n•\\nOn 11 March, the SC issued a set of new guidelines to ease the listing process for large\\ncompanies. The new guidelines exempted large companies (with a minimum market capitalisation of\\nRM250 million and after-tax profits of at least RM8 million for the latest financial year) from the three\\nto five profits record requirement.\\n•\\nOn 19 September, the SC announced further liberalisation of the Guidelines on Issues/Offer of\\nSecurities to widen the breadth of listings in the Malaysian equity market. The revised listing policy\\nallowed Malaysian businesses abroad and foreign corporations with Malaysian operations\\nto list on the KLSE. The companies must also obtain the approval of Bank Negara Malaysia, where\\napplicable, for the use of proceeds from the issue/offering of securities.\\n•\\nAmendments to the share buy-back guidelines were made to allow flexibility for companies to\\nundertake share buy-back activities. With effect from 7 October, a listed company would be allowed\\nto appoint up to two stockbroking companies for the purpose of purchasing its own shares or reselling\\ntreasury shares on the exchange.\\nStrengthening the Role of Intermediaries\\n•\\nEffective 9 June, the SC implemented the minimum stockbroking commission rates structure. The\\nminimum commission rates would only apply to retail trades, while the rates applicable to institutional\\nand inter-broker trades would remain fully negotiable. The minimum commission rates announced\\nwere as follows:\\nCategory of trade\\nMinimum rate per contract\\nInter-broker and Institutional trades\\nFully negotiable\\nRetail trades valued above RM100,000\\n0.30%\\nRetail trades valued up to RM100,000\\n0.60%\\nE-broking transactions\\nUp to 30% discount\\n•\\nOn 20 November, the SC refined the Capital Adequacy Requirement (CAR) framework for\\nstockbroking companies. The enhancement was aimed at facilitating the re-engineering of business\\nmodels in the stockbroking industry and would enable stockbroking companies to utilise their capital\\nmore efficiently.\\n•\\nOn 10 December, the SC introduced the Guidelines on the Offering of Structured Products. The\\naim was to facilitate universal brokers, merchant banks, commercial banks, including Islamic banks,\\nand performance-guaranteed Special Purpose Vehicles to issue \\\"structured products\\\" to meet the\\nneeds of an increasingly sophisticated Malaysian capital market.\\nFurther Relaxation on the Uses of PDS Proceeds\\n•\\nOn 1 August, the SC liberalised rules on use of proceeds from private debt securities (PDS) to\\nallow such funds to be used to finance the development of hypermarkets. Prior to this, the\\n\\\"construction of hypermarkets\\\" fell under the definition of the \\\"construction of shopping complexes\\\"\\nwhich was previously not allowed to be funded through PDS proceeds.\\nEnhancing Skills and Professionalism\\n•\\nOn 1 April, the SC launched the Capital Market Graduate Training Scheme which was aimed at\\nincreasing the pool of graduates with skills and knowledge on the capital market.\\n\\n\\n166\\nBond Market\\nTotal funds raised in the ringgit bond market were\\nsignificantly higher in 2003. Gross issuance increased\\nby 74.8% due to higher issuance by both the public\\nand private sectors. After netting off redemptions\\nduring the year, total net funds raised in the bond\\nmarket amounted to RM42.5 billion (RM10.6 billion\\nin 2002). As a result, outstanding ringgit bonds rose\\nby 16.7% to RM319.4 billion, equivalent to 81.5%\\nof GDP. As corporate borrowers stepped up their net\\nissuances during the year, the outstanding Private\\nDebt Securities (PDS) increased by 14.4% to\\nRM170.2 billion or equivalent to 43.4% of GDP\\n, and\\naccounted for 53.3% of total bonds outstanding.\\nThe low interest rate environment and ample liquidity\\nsituation were significant factors influencing the\\ngrowth of the PDS market in 2003. Corporations,\\nparticularly those with strong credit profiles\\ncapitalised on the low interest rates through the\\nissuance of long-term debt securities at competitive\\ncosts. The favourable market conditions, particularly\\nin the first half of 2003 also prompted corporations\\nto refinance their existing debt through PDS.\\nIssuance of Malaysian Government Securities (MGS)\\nwas significant as the Government sourced the bulk\\nof its financing requirements from the domestic\\nGraph 4.31\\nBonds Outstanding\\n90\\n103\\n117\\n125\\n149\\n113\\n140\\n158\\n149\\n170\\n0\\n50\\n100\\n150\\n200\\n250\\n300\\n350\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM billion\\nPublic sector\\nPrivate sector\\nGraph 4.32\\nRatio of Bonds Outstanding to GDP\\n30\\n30\\n35\\n35\\n38\\n38\\n41\\n47\\n41\\n43\\n68\\n71\\n82\\n76\\n81\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n70\\n80\\n90\\n1999\\n2000\\n2001\\n2002\\n2003\\nPublic sector\\nTotal\\nPrivate sector\\n%\\nTable 4.28\\nFunds Raised in the Bond Market\\n2002\\n2003p\\nRM million\\nBy Public Sector\\nGovernment Securities (gross)\\n16,266\\n41,262\\nLess Redemptions\\n8,900\\n18,600\\nEquals Net Federal Receipts\\n7,366\\n22,662\\nGovernment Investment Issues (net)\\n738\\n1,729\\nKhazanah Bonds (net)\\n0\\n346\\nMalaysia Savings Bond (net)\\n464\\n-9\\nNet Funds Raised\\n8,568\\n24,729\\nBy Private Sector\\nPrivate Debt Securities (gross)\\n36,195\\n50,975\\nStraight Bonds\\n7,763\\n27,983\\nBonds with Warrants\\n300\\n0\\nConvertible Bonds\\n2,852\\n3,177\\nIslamic Bonds\\n13,829\\n8,143\\nAsset Backed Securities\\n1,916\\n3,487\\nCagamas Bonds\\n9,535\\n8,185\\nLess Redemptions\\n34,137\\n33,189\\nPrivate Debt Securities\\n28,770\\n28,037\\nCagamas Bonds\\n5,367\\n5,152\\nNet Funds Raised\\n2,058\\n17,786\\nNet Funds Raised in the Bond Market\\n10,626\\n42,515\\nPrivate Debt Securities, excluding\\nCagamas (gross)\\n26,660\\n42,790\\nNet Funds Raised in the Bond Market,\\nexcluding Cagamas\\n-2,110\\n14,753\\nNet Issues Short Term Securities,\\nCommercial Papers / Medium Term\\nNotes1\\n-880\\n3,753\\nTotal\\n9,746\\n46,268\\n1\\nRefers to Cagamas Notes, Commercial Papers, Medium Term Notes.\\np Preliminary\\nTotal funds raised in the ringgit bond market were\\nsignificantly higher in 2003. The low interest rate\\nenvironment and the ample liquidity situation were the main\\nfactors influencing the growth of the private debt securities\\nmarket in 2003.\\n\\n\\nThe Financial Sector\\n167\\nmarket. The ample liquidity situation enabled the\\nFederal Government to do so without crowding out\\nthe private sector. The Federal Government made\\ntwelve Malaysian Government Securities (MGS)\\nissuances, with gross proceeds totalling RM41.3\\nbillion. In addition, the size of the Government\\nInvestment Issues (GII) was gradually enlarged to\\nmeet the increasing market demand for such Islamic\\ninstruments. Including net issuances of Khazanah\\nbonds, the total outstanding public sector bonds rose\\nto RM149.3 billion, or equivalent to 38.1% of GDP\\n.\\nThe bond market in 2003 could be dichotomised\\ninto two distinct periods of market developments.\\nCommencing the year on a strong note, the\\nunderlying market conditions were favourable to\\nboth issuers and investors during the first half-year.\\nBond yields trended downwards, influenced largely\\nby concerns regarding the adverse impact of\\nincreased geopolitical uncertainties on the global\\neconomic outlook. The SARS outbreak further\\nfuelled market expectations that interest rates\\nwould remain low for an extended period. Demand\\nfor long-dated and higher yielding bonds was high\\nwhich resulted in a decline of 10-year MGS yields by\\n53 basis points and in turn caused the narrowing of\\nthe PDS credit spreads. With the declining yields\\nand strong demand for debt securities, corporations\\nincreased bond issuances during this period. As a\\nresult, the bulk of the corporate bonds (65.8%)\\nwere issued in the first half-year, with a large\\nportion of the proceeds being utilised for\\nrefinancing purposes.\\nBond yields, however, reversed direction and trended\\nupwards in the second half-year. Concerns over\\ngeopolitical risks and SARS outbreak proved to be\\nshort-lived. As signs of strengthening economic\\ngrowth became evident with market expectations\\nthat interest rate might rise, investors reduced bond\\nholdings. The rising yields of the US Treasury\\nsecurities also influenced the domestic bond yields.\\nAsset allocation shifted to the equity market\\nfollowing improved market sentiments in the equity\\nmarket. As a result, bond trading activities turned\\nsubdued with a 47.2% reduction in the trading\\nvolume, compared with the first half of the year.\\nConsequent from the sharp increase in the bond\\nyields, fund-raising activities through the PDS market\\nweakened in the third quarter of 2003, as some\\nimpending corporate issues were deferred.\\nNevertheless, the weak demand for bonds and the\\nfall in issuance were temporary. Bond yields stabilised\\nJan-03\\nFeb-03\\nMar-03\\nApr-03\\nMay-03\\nJun-03\\nJul-03\\nAug-03\\nSep-03\\nOct-03\\nNov-03\\nDec-03\\n2.5\\n3.0\\n3.5\\n4.0\\n4.5\\n5.0\\n%\\nJan 03: \\n3-year: 3.003 \\n5-year: 3.101 \\n10-year: 3.775 \\nJun 03: \\n3-year: 3.008 \\n5-year: 3.093 \\n10-year: 3.532 \\n4.850\\n4.278\\n3.755\\n \\n2.94\\nGraph 4.33 \\nTrends in MGS Yields\\nMGS 3-year\\nMGS 10-year\\nMGS 5-year\\n3-month interbank rates\\nGraph 4.34\\nYield Differentials for 3-year PDS vis-a-vis the \\n3-year MGS\\nJan-03\\nFeb-03\\nMar-03\\nApr-03\\nMay-03\\nJun-03\\nJul-03\\nAug-03\\nSep-03\\nOct-03\\nNov-03\\nDec-03\\nA\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n%\\nBBB\\nAA\\nAAA\\nGraph 4.35 \\nUtilisation of Proceeds \\n2002\\n2003\\n54.3\\n23.5\\n8.2\\n44.3\\n22.7\\n13.3\\n13.1\\n6.6\\n14.0\\n0.0\\n10.0\\n20.0\\n30.0\\n40.0\\n50.0\\n60.0\\nRefinancing\\nRestructuring\\nMerger and\\nacquisition\\nOthers\\nNew activities\\n% of total\\n\\n\\n168\\nin December following portfolio rebalancing activities\\nand strong buying interests of quality papers. The\\nrebound in issuances in December was partly due to\\nthe corporate issues which were postponed earlier.\\nThe low interest rate environment was the dominant\\nfactor influencing financing decisions of the\\ncorporate sector during the year, as reflected in the\\nhigher bonds issued for refinancing purposes (44.3%\\nof total bonds issued). The issuers were companies\\nfrom the transport, infrastructure, utilities and\\nconstruction sectors. The bulk of funds raised for\\nrestructuring purposes was raised by a conglomerate\\nin the manufacturing sector. During the year, total\\nfunds raised for merger and acquisition purposes\\naccounted for 13.3% of the total, and were mainly\\nraised by companies in the utilities and\\ntelecommunication sectors. Meanwhile, funds raised\\nfor new activities were lower and were mainly\\nchannelled to utilities-related infrastructure projects,\\nthe construction sector and, to a smaller extent, the\\nmanufacturing sector. The construction and real-\\nestate property companies utilised the proceeds\\nmainly for land acquisition, refinancing and working\\ncapital purposes.\\nDuring the year, the bulk of the new issues (52% of\\ntotal value) were for tenures between five to ten years,\\nin response to investors’ preference for short to\\nmedium-end PDS. On average, the issue size for PDS\\nincreased to RM602.5 million per issuer in 2003 from\\nRM494.7 million per issuer in 2002. Nevertheless, the\\nmaturity profile of the domestic market lengthened\\nfurther, with the longest tenure issued reaching 28\\nyears, compared with 26 years recorded in 2002.\\nIn terms of types of instruments, straight bonds were\\nthe most preferred form of debt securities,\\naccounting for 50.4% of total bonds issued.\\nMeanwhile, the improved sentiment in the equity\\nmarket led to higher issuance of convertible bonds.\\nIn recent years, commercial papers/medium-term\\nnotes gained more prominence, especially for the\\npurposes of financing working capital requirement.\\nTable 4.29\\nNew Issues of Private Debt Securities by Sector\\nSector\\n2002\\n2003p\\nRM million\\n% share\\nRM million\\n% share\\nAgriculture, hunting, forestry and fishing\\n971.9\\n3.6\\n993.1\\n2.3\\nMining and quarrying\\n0.0\\n0.0\\n0.0\\n0.0\\nManufacturing\\n1,776.8\\n6.7\\n9,072.4\\n21.2\\nConstruction\\n2,174.1\\n8.2\\n6,049.7\\n14.1\\nElectricity, gas and water supply\\n1,349.0\\n5.1\\n3,410.5\\n8.0\\nTransport, storage and communication\\n9,099.5\\n34.1\\n8,603.8\\n20.1\\nFinancing, insurance, real estate and business services\\n5,513.8\\n20.7\\n8,372.8\\n19.6\\nGovernment and others\\n4,644.5\\n17.4\\n6,288.1\\n14.7\\nWholesale and retail trade, restaurants and hotels\\n1,130.8\\n4.2\\n0.0\\n0.0\\nTotal\\n26,660.3\\n100.0\\n42,790.4\\n100.0\\np Preliminary\\n2002\\n2003\\nGraph 4.36 \\nPDS Issues by Tenure\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n1 - 5\\n5.1 - 10\\n10.1 - 15\\n15.1 - 20\\n20.1 - 28\\nYears\\n% of total value\\n2002\\n2003\\nGraph 4.37 \\nPDS Issues by Type of Instrument\\n7.8\\n0.3\\n2.9\\n13.8\\n1.9\\n9.5\\n1.8\\n28.0\\n0.0\\n3.2\\n8.1\\n3.5\\n8.2\\n4.6\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\nStraight\\nBonds\\nBonds\\nwith \\nWarrants\\nConvertible \\nBonds\\nIslamic \\nBonds\\nAsset \\nBacked\\nSecurities\\nCagamas\\nBonds\\nMedium\\nTerm \\nNotes\\nRM billion\\n\\n\\nThe Financial Sector\\n169\\nThese instruments allowed more flexibility for issuers\\nto take advantage of the low interest rates in the\\nshorter term by issuing commercial papers, while\\nwaiting for opportunities to lock-in favourable rates\\nin the medium-term as and when the yields began to\\ntrend upwards.\\nA wide range of Asset Backed Securities (ABS) were\\nissued during the year, which included those backed\\nby hire-purchase receivables, loans and innovative\\nissuance of Islamic principle ABS backed by mortgage\\nassets. In total, there were ten ABS (including one\\ncommercial paper ABS) amounting to RM7 billion,\\nsince the first issuance of ABS in 2001. The ABS\\nmarket is expected to develop further, given the tax\\nincentives announced in 2004 Budget.\\nDespite a challenging operating environment with\\nample liquidity in the banking system, Cagamas\\nBerhad maintained its position as an active issuer.\\nIn 2003, Cagamas issued 33 issues of debt\\nsecurities at a total value of RM17.9 billion\\n(including 15 short-term Cagamas notes of RM9.7\\nbillion). Most of the Cagamas bond and notes\\nwere issued during the second half of 2003, due\\nto the rising bond yields which had prompted the\\nfinancial institutions to be more active in hedging\\ntheir portfolios through the sale of loans and debts\\nto Cagamas. Taking into consideration the less\\nfavourable market sentiments during the second\\nhalf-year, Cagamas spaced out the issuances in\\norder to ensure an orderly market performance.\\nInvestors’ demand for Cagamas bonds throughout\\nthe year was firm, as evidenced by the weighted\\naverage over-subscription rate of 1.83 times and\\n2.38 times for Cagamas notes and Cagamas bonds\\nrespectively.\\nTotal trading activities in the ringgit bond market\\nincreased by 11.6% to RM436.8 billion, with\\nhigher activities in the first half of the year. In the\\nsecond half-year, trading activities were\\nconcentrated in shorter-end papers, given the\\nhigher risk premium and price volatility of long-\\ndated papers. The most actively traded papers\\nwere MGS, accounting for 53% of total trading\\nactivities and a liquidity ratio of 1.89 times its\\noutstanding amount. Demand for corporate bonds\\nincreased, and accounted for 22.6% of the total\\ntrading activities, compared with 14% in the\\nprevious year. Nevertheless, the corporate bond\\nmarket remained less liquid, with a liquidity ratio\\nof only 0.81 times, and trading activities were\\ncentred on bonds with high ratings and good\\ncredit quality.\\nGraph 4.38 \\nABS: Types of Underlying Assets (2001-2003)\\nPrivate debt \\nsecurities\\n9.1%\\nLoans \\n32.7%\\nProperty and \\nmortgage \\nreceivables \\n27.2%\\nHire purchase \\nreceivables \\n7.3%\\nOther\\nreceivables \\n23.7%\\nGraph 4.39\\nMonthly Trading Volume\\n0\\n10,000\\n20,000\\n30,000\\n40,000\\n50,000\\n60,000\\n70,000\\nRM million\\nJan-03 \\nFeb-03\\nMar-03\\nApr-03 \\nMay-03 \\nJun-03\\nJul-03\\nAug-03\\nSep-03\\nOct-03\\nNov-03\\nDec-03\\nGraph 4.40\\nTurnover of Selected Debt Securities (Jan-Dec 2003)\\n Total: RM436.8 billion\\nKhazanah bonds\\n4.3%\\nGovernment  \\nInvestment Issues \\n7.9%\\nOther unlisted bonds \\n20.3%\\nDanaharta \\n2.1%\\nDanamodal \\n4.2%\\nABS \\n2.0%\\nCagamas bonds \\n5.9%\\nMalaysian\\nGovernment \\nSecurities \\n53.0%\\nListed PDS \\n0.2%\\n\\n\\n170\\nRating profiles of long-term debt securities remained\\nhealthy. Both the Rating Agency Malaysia (RAM) and\\nthe Malaysian Rating Corporation Berhad (MARC)\\nundertook 116 new ratings, with total gross value of\\nRM41.9 billion. In terms of rating profiles, the issues\\nwere mainly distributed throughout the AAA, AA\\nand A categories, with the heaviest concentration in\\nthe single A category. During the year, RAM and\\nMARC conducted 204 rating reviews on the existing\\nlong-term debt securities, of which 161 issues were\\naffirmations/reaffirmations, 10 issues were upgrades\\nand 18 issues were downgrades. The higher number\\nof downgrades were partly due to companies in the\\ntourism-related sector, whose financial positions were\\nadversely affected by the outbreak of SARS.\\nOn the international front, market sentiments for the\\nMalaysia’s foreign currency sovereign bonds and\\ncorporate bonds remained positive due to\\nexpectations of an upgrade in sovereign ratings as\\neconomic fundamentals strengthened. Spreads for\\nMalaysian sovereign bonds narrowed significantly\\nduring the year. The first Malaysian sovereign Sukuk\\nbond issue which was listed in Luxembourg Stock\\nGraph 4.41\\nRating Distribution of Outstanding PDS\\n(As at end-December 2003)\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\n40\\n45\\nAAA\\nAA \\nA \\nBBB\\nBB\\nB\\nC\\nD\\n% \\nSource: RAM and MARC\\n% of total value\\n% of total value\\n% of total issues\\nTable 4.30\\nSovereign Spread Over US Treasury Benchmark\\nDec-02\\nMar-03\\nJun-03\\nSep-03\\nDec-03\\nMALAYSIA 09\\n183\\n180\\n123\\n101\\n85\\nMALAYSIA 11\\n145\\n150\\n83\\n70\\n36\\nCHINA 11\\n61\\n65\\n29\\n28\\n29\\nINDONESIA 06\\n348\\n288\\n284\\n173\\n185\\nKOREA 08\\n110\\n162\\n84\\n69\\n45\\nPHILIPPINES 10\\n478\\n500\\n382\\n343\\n353\\nTHAILAND 07\\n108\\n90\\n53\\n18\\n5\\nPETRONAS 06\\n204\\n198\\n145\\n126\\n117\\nSource: Bloomberg\\nExchange and Labuan International Financial Exchange\\nin July 2002 was also listed on the Bahrain Stock\\nExchange on 24 September 2003. The listing helped\\nto raise the profile of Malaysia to West Asian investors.\\nIn line with enhancing the development of the bond\\nmarket, efforts were taken in 2003 to accord greater\\ninvestment flexibility to insurance companies in\\ninvesting in debt securities, as well as to provide more\\nrisk management products. In November, Bank Negara\\nMalaysia increased the insurers’ limits on investment in\\nsecured and unsecured credit facilities which includes\\nPDS. In addition, the Malaysian Derivatives Exchange\\nintroduced two new products, the 3-year and 10-year\\nMGS futures, which added more hedging instruments\\nin the domestic financial markets.\\nExchange-traded Derivatives Market\\nIn 2003, higher turnover was recorded for all\\nexchange-traded derivative products on the\\nMalaysian Derivatives Exchange (MDEX), except for\\ntrading in the Kuala Lumpur Stock Exchange (KLSE)\\nOptions. Total turnover increased significantly by\\n55.3% to reach more than two million contracts.\\nFollowing the launch of two new products, the 3-\\nyear and 10-year MGS Futures Contracts, which\\nenhanced risk management opportunities for\\ninvestors, the MDEX now offers seven derivative\\nproducts.\\nAs in the previous year, the Crude Palm Oil (CPO)\\nFutures market emerged as the best performer on\\nthe MDEX in 2003. During the year, the price range\\nfor the benchmark 3-month CPO Futures contract\\nwidened to RM622 (2002: RM587), with the highest\\ndaily traded price at RM1,865 per tonne on 9\\nDecember.\\nGraph 4.42 \\nMDEX: Total Monthly Volume and Month-end  \\nOpen Interest\\nJ\\nF M A M J J A S O N D J F M A M J J A S O N D\\n2002\\n2003\\nContracts\\nContracts\\nTotal monthly volume\\nOpen interest (RHS)\\nSource: Malaysian Derivatives Exchange\\n0\\n50,000\\n100,000\\n150,000\\n200,000\\n250,000\\n300,000\\n0\\n10,000\\n20,000\\n30,000\\n40,000\\n50,000\\n60,000\\n70,000\\n80,000\\n\\n\\nThe Financial Sector\\n171\\nCPO futures prices began the year on a strong\\nnote, with the monthly prices averaging around\\nRM1,600 – RM1,635 per tonne before\\nconsolidating in the following months to average\\naround RM1,300 - RM1,480 per tonne. In the final\\nTable 4.31\\nPerformance of MDEX Products\\nProducts\\nTurnover\\nFactors affecting\\nperformances\\n2002\\n2003\\n2002\\n2003\\nNumber\\nAnnual\\nAverage\\nNumber\\nAnnual\\nAverage\\nof lots\\nchange\\ndaily\\nof lots\\nchange\\ndaily\\n(%)\\nvolume\\n(%)\\nvolume\\nCPO Futures\\n909,073\\n89.5\\n3,666\\n1,429,959\\n57.3\\n5,813\\n70.6\\n71.5\\nKLSE CI Futures\\n233,863\\n-18.7\\n943\\n331,218\\n41.6\\n1,346\\n18.2\\n16.6\\nOpen interest position\\n(as at end-year)\\n1,346\\n8,993\\nKLSE CI Options\\n1\\n-99.8\\n…\\n0\\n…\\n0\\n…\\n…\\n3-month KLIBOR\\nFutures\\n64,307\\n17.1\\n259\\n119,659\\n86.1\\n486\\n5.0\\n6.0\\nOpen interest position\\n(as at end-year)\\n21,114\\n18,977\\n3-year MGS Futures\\nn.a\\nn.a\\nn.a\\n781\\n-\\n3\\nn.a\\n…\\n5-year MGS Futures\\n80,419\\nn.a\\n324\\n118,635\\n32.2\\n482\\n6.2\\n5.9\\nOpen interest position\\n(as at end-year)\\n4,860\\n127\\n10-year MGS Futures\\nn.a\\nn.a\\nn.a\\n11\\n-\\n…\\nn.a\\n…\\nn.a. Not available.\\nSource: Malaysian Derivatives Exchange\\nShare of total\\nMDEX volume\\n(%)\\n• Strong CPO Futures prices.\\n• Better trading platform\\nwith switch to electronic-\\nbased system in 2002.\\n• Higher trading with\\nimplementation of cost-\\ncutting measures.\\n• Lack of liquidity and\\nknowledge by participants.\\n• Higher turnover mainly in\\nthe second half of 2003,\\nreflected the shift in market\\npreference from bond\\nmarket to short-term\\nmoney and interbank\\nmarkets instruments.\\n• Introduced in September\\n2003.\\n• Physical bond and bond\\nfutures markets experienced\\na correction in July 2003\\nfollowing expectations over\\nthe direction of global\\ninterest rates.\\n• Introduced in September\\n2003.\\nGraph 4.43 \\nCrude Palm Oil Futures\\nJ\\nF M A M J\\nJ A S O N D J\\nF M A M J\\nJ A S O N D\\n2002\\n2003\\nLots ('000)\\nPrice \\n(RM/tonne)\\nLots\\nOpen interest\\n3-month average futures prices (RHS)\\n0\\n30\\n60\\n90\\n120\\n150\\n180\\n0\\n300\\n600\\n900\\n1,200\\n1,500\\n1,800\\nquarter of the year, CPO prices regained its\\nstrength to record the highest level in four years,\\nto average around RM1,660 - RM1,790 per tonne.\\nThe strong price performance in 2003 was a\\nreflection of the imbalances in the global vegetable\\noils and fats markets, as the production of major\\noilseeds, especially soybean, rapeseed and\\nsunflower increased marginally, whilst demand\\nfrom the major consumers of edible oils had\\nincreased substantially during the year.\\nTrading activities in the KLSE Composite Index\\n(KLSE CI) Futures rose significantly in 2003. The\\nDerivatives Liquidity Ratio (DLR), which represents\\nthe ratio between the turnover value of futures\\nagainst the turnover value of underlying KLSE CI\\ncomponent stocks, increased significantly by\\n40.3% in 2003. The modification of the contract\\nsize from RM100 to RM50 and the increase in the\\ntick sizes for the prices of the products effectively\\nreduced the margin requirements and the cost of\\ntrade and thus encouraged more participation in\\n\\n\\n172\\nthe market. Trading activities by both domestic and\\nforeign institutional players accounted for 76% of\\ntotal trades.\\nTotal volume of the 3-month KLIBOR Futures\\nimproved significantly following the sharp fall in\\nbond prices and expectations that interest rates may\\nincrease. The higher turnover, mainly in the second\\nhalf-year, reflected the shift in market preference\\nfrom the bond market to short-term money market\\nand the interbank market instruments. Meanwhile,\\nthe total turnover of 5-year MGS Futures registered\\nan increase of 32.2% amidst expectations on the\\ndirection of global interest rates. Market sentiment\\nturned cautious in the second half of 2003. Domestic\\ninstitutions continued to be the major players in the\\nMGS and 3-month KLIBOR futures markets.\\nDEVELOPMENTS IN PAYMENT AND SETTLEMENT\\nSYSTEMS\\nDevelopments in 2003\\nIn November 2003, the Payment Systems Act was\\nenacted by Parliament and is a landmark\\nachievement for the Bank as it sets out a\\ncomprehensive regulatory oversight framework,\\nwhich is essential in governing the changing\\npayment landscape. The primary objective of the\\nBank is to ensure the security, safety and efficiency of\\nThe primary objective of the Bank is to ensure the security, safety\\nand efficiency of the payment systems in the country, and that\\nthere is continued public confidence in the use of payment\\ninstruments.\\nthe important payment systems in the country, and\\nthat there is continued public confidence in the use\\nof payment instruments. Of significance also is the\\nmigration towards the use of advanced technology\\nsuch as chip cards to provide safer payment modes.\\nDuring the year, domestic banking institutions had\\nreplaced their magnetic stripe ATM cards with the\\nchip based Bankcard, and with effect from 1\\nOctober 2003, all ATM transactions are carried out\\nusing the Bankcard. The Bankcard has three\\nstandard applications, that is, an ATM function, an\\ne-debit function and the MEPS Cash e-purse. The\\nlocally incorporated foreign banks are expected to\\nreplace their ATM cards with chip based cards by\\nMarch 2004. Presently, there has been no report of\\nany ATM fraud through the use of cloned chip\\nATM cards.\\nIn implementing a long-term measure to prevent the\\nfraudulent skimming of credit cards, the banking\\nindustry is currently conducting an industry wide\\nEuropay-Mastercard-Visa (EMV) chip migration of\\ntheir magnetic stripe credit cards. The magnetic\\nstripe cards are going to be replaced by end-2004,\\nand upgraded card acceptance devices will be\\ndeployed to accept EMV chip cards by end-2005. As\\nat end-2003, there were about 243,000 EMV chip\\ncredit cards issued and about 18,000 card\\nacceptance devices have been deployed to accept\\nthese EMV cards.\\nIn addition to the enhancement of security features\\nin the payment systems and instruments, technology\\nalso facilitates the development of more efficient\\npayment modes, compared to paper-based payment\\ninstruments such as cheques. Electronic funds\\ntransfer systems (EFT) are more efficient and faster\\nthan cheque processing systems, as well as, being\\nmore secure and capable of effecting finality of\\npayment with greater certainty. The Malaysian\\nElectronic Payment System (1997) Sdn Bhd, has\\ndeveloped several electronic payment systems, one of\\nwhich is the Financial Process Exchange (FPX) which\\nis targeted to be completed in early 2004. The FPX\\nwill enable users to make online payments to\\nfacilitate electronic commerce transactions using a\\nmulti-bank payment platform.\\nDue to its many benefits, the promotion of the\\nmigration from paper-based payment instruments to\\nelectronic payments is being accelerated. In\\nDecember 2003, this was discussed at the National\\nPayment Advisory Council, followed by a consultation\\nexercise with financial institutions. Three broad areas\\nwere proposed for the industry to consider on the\\nmeasures that would promote the migration to\\nelectronic payments.\\n(i)\\nFinancial institutions should offer efficient and\\ncost effective electronic payments that are accessible\\nand convenient for their customers to use.\\n(ii) Strategic incentives including pricing should be in\\nplace to facilitate the investment and\\ndevelopment of the e-payment infrastructure,\\nand make e-payments widely acceptable.\\n\\n\\nThe Financial Sector\\n173\\nPayment Systems Act 2003\\nIntroduction\\nThe Payment Systems Act 2003 (the Act) was gazetted on 7 August 2003 and came into effect on 1\\nNovember 2003. The introduction of the Act is in line with the recommendation in the Financial Sector\\nMasterplan for the adoption of a flexible, proactive and effective regulatory framework for the oversight\\nof payments system and to increase efficiency in the payment system. The introduction of the Act reflects\\nthe significance of payments system to the country’s economic activities and recognizes Bank Negara\\nMalaysia as the sole authority responsible for its oversight. An efficient and well functioning payments\\nsystem would support the creation of social and economic efficiency and is crucial for the smooth\\nfunctioning of the financial markets and in maintaining financial stability. In addition, the smooth\\noperation of the payments system is also essential for Bank Negara Malaysia to effectively conduct\\nmonetary policy.\\nThe objective of the Act is to ensure the safety and efficiency of the payment related infrastructure, and to\\nsafeguard public interest. The Act provides the legal framework to ensure that the financial system, and\\nthe public’s confidence in the payment systems is well protected. The Act provides the specific legislative\\nauthority for a more comprehensive and effective oversight of the payment system. Banking institutions as\\nwell as non-bank players offering payment systems and instruments would be governed by the Act.\\nNew oversight framework on payment system\\nThe Act was drafted to provide a balanced regulatory framework for the oversight of the payment system\\nin line with Bank Negara Malaysia’s objective and to promote market innovation. The Act outlines two\\ndifferent oversight regimes for two types of players namely, the operator of payment systems and the\\nissuer of designated payment instruments.\\nOversight on the operator of payment systems\\nThe Act defines a payment system as \\\"any system or arrangement for the transfer, clearing or settlement\\nof funds or securities\\\". Several arrangements including the clearing house recognised under the Securities\\nIndustry Act 1983 or clearing house licensed under the Futures Industry Act 1993 are excluded from the\\ndefinition of payment system. An operator of the payments system is required to submit documents and\\nobtain notification from Bank Negara Malaysia. These documents and information are important for the\\nestablishment of a surveillance mechanism that is capable of monitoring developments in the payment\\nsystem for the formulation of appropriate policies as and when required. Bank Negara Malaysia is also\\nempowered to prohibit the operation of any payment system in the event that it is necessary in the\\ninterest of the public, or the operation of such system is detrimental to the reliable, safe, efficient and\\nsmooth operation of the country’s payment systems.\\nThe Act empowers Bank Negara Malaysia to designate a payment system as a designated payment system\\n(DPS) if such a system poses systemic risks, or if the designation is necessary to protect the interest of the\\npublic. Only fit and proper persons can accept appointment as a director or chief executive officer of an\\noperator of a DPS. The operation of a DPS would be subjected to closer oversight by Bank Negara\\nMalaysia, including the requirement to establish good corporate governance. In addition, an operator of a\\nDPS is required to ensure that adequate operational arrangements are in place to ensure the smooth\\nfunctioning of these payment systems. This includes the establishment of rules and procedures setting out\\nthe rights and liabilities of the relevant parties including the financial risks that the parties might incur, as\\nwell as procedures for the management of credit risk and liquidity risk and measures to ensure the safety,\\nsecurity and operational reliability of the DPS.\\nTo ensure that a DPS can work effectively, it is necessary for all payment and settlement instructions that\\nare sent through the DPS be considered as final and irrevocable. The Act, therefore, provides that a\\npayment or settlement instruction sent through a DPS shall be final and shall not be revoked or reversed\\n\\n\\n174\\nfrom the time such an instruction is entered into the DPS. The operator of a DPS is required to establish\\nrules that determine the point of time that a payment or settlement instructions is deemed as final.\\nIn acknowledging that a DPS may also adopt netting arrangements in order to reduce settlement risks, the\\nAct gives legislative recognition to any netting arrangements that are entered into, in relation to the DPS,\\nto avoid any uncertainty with regards to such netting arrangements. The Act provides that netting\\narrangements adopted by participants of a DPS as well as finality of payment and settlement instructions\\nin a DPS prevail over insolvency laws.\\nOversight on the issuance of designated payment instruments\\nThe Act empowers Bank Negara Malaysia to designate a payment instrument as a designated payment\\ninstrument (DPI). These are instruments that are widely used or that should be regulated by Bank Negara\\nMalaysia in the interest of the public. Issuance of a DPI requires the prior approval of Bank Negara\\nMalaysia. Three payment instruments have been designated as a designated payment instrument, namely,\\nelectronic money, credit and charge instruments.\\nSimilar to DPS, issuers of DPIs are required to implement adequate corporate governance and operational\\narrangements to ensure the safety and reliability of these payment instruments. This includes the\\nrequirement to establish measures to ensure prudent management of funds collected from the users of\\nthe designated payment instruments and to ensure that such funds are available for repayment to the\\nusers.\\nPowers of Bank Negara Malaysia under the Act\\nBank Negara Malaysia is empowered under the Act to require an operator of a payment system or issuer\\nof a payment instrument to be an incorporated company. This requirement may be imposed where the\\ncorporate structure is necessary to provide more permanence, credibility and stature to the entity that will\\nbe required to comply with the Companies Act 1965 as well. To ensure effective supervision and\\nmonitoring of the payment systems in the country, Bank Negara Malaysia may require the operator of a\\npayment system or the issuer of a payment instrument to submit information on the payment system\\noperated or the payment instrument issued by them. Other powers conferred by the Act to Bank Negara\\nMalaysia include: -\\ni.\\nPowers of examination\\nThe Act empowers an examiner authorised by Bank Negara Malaysia to examine the premises and\\noffices, apparatus or documents, of an operator of a payment system or an issuer of a payment\\ninstrument or any other person falling within the purview of the Act.\\nii.\\nControl over DPS\\nThe Act imposes a duty on an operator of a DPS who is insolvent to immediately inform Bank Negara\\nMalaysia. Bank Negara Malaysia, by order published in the Gazette, may assume control of, or to carry\\non, the whole or part of a DPS’s property, business and affairs, as the case may be. Bank Negara\\nMalaysia may appoint a person to carry out such powers on its behalf by making an application to the\\nHigh Court to appoint a receiver or a manager to manage the company.\\niii. Investigation, search and seizure\\nThe Act empowers Bank Negara Malaysia to appoint its employee or any person as its investigating\\nofficer for offences under the Act. The investigation officer has the powers of entry into any premise,\\nsearch and seize property, apparatus, or documents and search of persons. The Act also empowers\\nBank Negara Malaysia to investigate, with the concurrence of the Securities Commission, clearing\\nhouses recognised under the Securities Industry Act 1983 or those licensed under the Futures Industry\\nAct 1993.\\n\\n\\nThe Financial Sector\\n175\\niv. Offences and enforcement\\nIn order to ensure an effective regulatory regime, the Act includes a schedule of offences that provides\\nfor penalties in the event that identified provisions of the Act are contravened. Offences under the Act\\nare assigned penalties in accordance with the severity of their potential effects, including systemic and\\nother risks.\\nConclusion\\nThe enactment of the Act serves to strengthen Bank Negara Malaysia’s oversight over payment systems\\nand instruments. The Act enables Bank Negara Malaysia to identify and monitor systemically important\\npayment systems and important payment instruments, which will be closely regulated under the Act,\\nwhile giving regulatory flexibility to operators of payment systems and issuers of payment instruments to\\nencourage innovation.\\n(iii) The financial industry should promote awareness\\nof the electronic payment options and encourage\\nconsumers to use electronic payments and\\ninstruments by enhancing their confidence in\\nusing these means of payments.\\nGeneral Payment Profile in Malaysia\\nIn the financial system, Malaysian consumers are\\nnotably heavy users of cheques compared to other\\npayment instruments. The breakdown by percentage\\nfor the value and volume of non-cash payment\\ntransactions in 2003 is as shown in Table 4.32.\\nWhilst the banking industry continues to invest\\nsignificantly in e-payment infrastructures, cheques\\nremained a significant payment instrument. In 2003,\\ncheques accounted for 96.7% of the total non-cash\\npayment value. Although the value of e-purse\\ntransactions is negligible in terms of total non-cash\\npayments, its volume accounted for 36.4% of total\\nnon-cash payments in 2003. E-purse transactions in\\nMalaysia constituted mainly toll payments, where the\\nTouch ‘n Go contactless card was used. Settlement of\\nretail related payments were made through the\\nfinancial institutions, whereby interbank fund\\ntransfers are mainly undertaken through the real-\\ntime gross settlement system (RENTAS).\\nTable 4.32\\nNon-Cash Payments in Malaysia\\nValue (%)\\nVolume (%)\\nCheques\\n96.67\\n34.04\\nCredit cards\\n2.48\\n27.68\\nCredit transfers (Giro)\\n0.63\\n0.24\\nCharge cards\\n0.16\\n1.42\\nE-purse - Toll payments\\n0.05\\n36.40\\n- Retail\\n0.00\\n0.00\\nDebit cards\\n0.01\\n0.22\\nIFTS Value\\nIFTS Volume\\nVolume (million)\\nValue (RM trillion)\\n0.0\\n0.2\\n0.4\\n0.6\\n0.8\\n1.0\\n1.2\\n1.4\\n1.6\\n1.8\\n2.0\\n1999\\n2000\\n2001\\n2002\\n2003\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\nGraph 4.44\\nRENTAS – IFTS Turnover\\nSSTS Value\\nSSTS Volume\\n0\\n20\\n40\\n60\\n80\\n100\\n120\\n140\\n1999\\n2000\\n2001\\n2002\\n2003\\n0.0\\n0.2\\n0.4\\n0.6\\n0.8\\n1.0\\n1.2\\nVolume ('000)\\nValue (RM trillion)\\nGraph 4.45\\nRENTAS – SSTS Turnover\\n\\n\\n176\\n135\\n140\\n145\\n150\\n155\\n160\\n165\\n170\\n175\\n180\\n185\\n1999\\n2000\\n2001\\n2002\\n2003\\n0.60\\n0.70\\n0.80\\n0.90\\n1.00\\n1.10\\n1.20\\nValue (RM trillion)\\nVolume (million)\\nGraph 4.46\\nVolume and Value of Cheques Cleared by \\nSPICK Centres \\nValue\\nVolume\\nIn 2003, in terms of value and volume, Interbank\\nFunds Transfer System (IFTS) saw an increase of\\n10.9% and 9.1% respectively, while Scripless\\nSecurities Trading System (SSTS) transactions saw a\\nsignificant increase of 28.6% and 18.3%\\nrespectively, when compared with 2002.\\nEfficiency Improvements\\nBank Negara Malaysia had introduced several\\nenhancements to improve RENTAS in 2003. These\\ninclude the following:\\n(i) RENTAS-STP\\nThe ‘Straight Through Processing’ (STP) module\\nwhich is linked to the RENTAS system was\\nintroduced to enable all processes in a payment\\ncycle beginning from payment initiation by\\ncustomers to interbank settlement is integrated\\nelectronically. Members are advised to implement\\nRENTAS-STP to improve the efficiency of their\\nbanking operations. The RENTAS-STP will reduce\\nhuman intervention, enabling operational cost\\nsavings and resulting in improved customer\\nservice. Presently, four members have\\nimplemented RENTAS-STP\\n.\\n(ii) Intra-day credit enhancement\\nIn August 2003, the RENTAS system was enhanced\\nto allow intra-day collateral securities to be valued\\non the net price basis after taking into account\\nmarket price movements, credit rating changes\\nand margin requirement. This method replaced the\\nearlier method of calculating the ‘haircut’ which\\nwas based on the nominal value and did not\\nreflect the fair value of the security. The intra-day\\ncredit enhancement has improved risk\\nmanagement, as the collaterals are now valued\\nbased on its fair value derived from the current\\nmarket prices.\\n(iii) Enhancement of RENTAS i-LINK\\nIn September 2003, Bank Negara Malaysia\\ncompleted Phase 2 of the RENTAS i-LINK\\nimplementation. This system provides a timely\\nand accurate real-time settlement information,\\nallows monitoring, enquiring and analysing\\ninformation pertaining to management of\\nliquidity, cash and security positions. With the\\nimplementation of these modules, the RENTAS\\nmembers are better able to monitor incoming\\nand outgoing cash/securities flows, to extend\\nvital RENTAS data to the front office for value-\\nadded analysis and to prepare management\\nreports and updating the RENTAS members’\\ndirectory online. This has allowed active\\nmanagement of information by members.\\n(iv) Universal Brokers (UBs) membership\\nAs a measure to support the development of the\\ncapital market, the UBs were allowed access to\\nthe SSTS modules of the RENTAS system, which\\nenables them to deal directly in the unlisted debt\\nsecurities together with the other members of\\nthe RENTAS system. Since October 2003, two\\nUBs have been admitted as members.\\nPayment Instruments and Channels\\nCheques\\nThe volume of cheques processed through the three\\nSistem Penjelasan Imej Cek Kebangsaan (SPICK)\\ncheque clearing centres operated by Bank Negara\\nMalaysia increased marginally by 2.0% from 176.4\\nmillion cheques in 2002 to 179.9 million cheques in\\n2003. The value of cheques cleared, however,\\nremained at about RM1.1 trillion in both years.\\nIn May 2003, the SPICK-KL (the largest of the\\nSPICK centres, the others being in Pulau Pinang\\nand Johor Bahru) was awarded the ISO 9001:2000\\ncertification for another three years, reflecting the\\ncommitment of the Bank towards providing quality\\nservice. During the year, efforts were continued to\\nfurther improve the efficiency of SPICK operations,\\nsuch as the replacement of the Compact Disc\\nProduction subsystem and upgrading the operating\\nsystem to Windows 2000. After the\\nenhancements, the overall SPICK operation for the\\n\\n\\nThe Financial Sector\\n177\\nthree centres showed an improvement in\\nperformance with the reduction of clearing time by\\nan average of 1.5 to 2 hours.\\nAs part of the Bank’s on-going effort to curb cheque\\nfraud, the Bank had in October 2003 issued a\\nconsultative paper on “Guideline on Minimum\\nSecurity Standards for Cheques” to the banking\\ninstitutions with the objective of enhancing the\\nsecurity features on cheques, cheque fraud detection\\nfacilities, security management in cheque printing\\nand the necessary advise to consumers on best\\npractices. The Guideline also covers the related\\ngovernance processes. Banking institutions will be\\nrequired to make the necessary changes to their\\nwork processes and upgrade their systems. The\\nGuideline will be enforced later in 2004.\\nIn 2003, the number of blacklisted offenders in Biro\\nMaklumat Cek (BMC) remained constant. As at end-\\n2003, the number of offenders stood at 49,389,\\nincluding 32,408 individuals compared with 48,814\\noffenders including 32,351 individuals at end-2002.\\nAccount holders, therefore, need to monitor their\\naccount balances carefully and ensure that sufficient\\nfunds are available before issuing cheques, as the\\nconsequences of being blacklisted in the BMC can be\\ndamaging.\\nGiro\\nBesides cheques, consumers can also use the Giro\\ncredit transfer to make payments. Giro transactions in\\n2003 are less significant compared to the cheque\\nvolume and value. Nevertheless, the volume and value\\nof Giro transactions as at end-2003 had increased\\nmarkedly by 114.8% and 57.8% when compared to\\nend-2002. Details on the credit transfer transactions\\nvia the Giro system are shown in Graph 4.47.\\nCredit, Charge and Debit cards\\nThe number of credit cards issued by the financial\\ninstitutions had increased in the recent three years,\\nfrom 2.8 million cards at end-2000 to 5.1 million\\ncards at end-2003. From 2002 to 2003, the total\\nvalue of credit card transactions rose by 16% and\\ncredit card remains as a preferred payment card. The\\nusage of charge and debit cards was insignificant\\ncompared to credit cards as shown in Table 4.33.\\nAs part of the Bank’s effort to ensure an adequate\\nlevel of prudential measure, consumer protection\\nand consumer education, the Bank had issued a\\n“Credit Card Guideline” in March 2003. The\\nrequirements in the Guideline among others,\\nstipulates a RM250 limit for consumers’ liability for\\nunauthorised transactions, bars credit card usage\\nfor unlawful activities such as illegal online betting,\\nrequires banks to provide an advisory to their\\ncardholders on the consequences of paying only the\\nminimum repayment amount and requires the\\nbanking institutions to utilise the Central Credit\\nReference Information System (CCRIS) in their credit\\nevaluation for processing applications.\\nElectronic Purse - MEPS Cash\\nMarketing programmes and awareness campaigns\\nhave been undertaken during the year to promote\\nthe use of electronic purse and electronic payment\\nchannels in the country. During 2003, the banking\\ninstitutions progressively upgraded their existing card\\n0\\n200\\n400\\n600\\n800\\n1,000\\n1,200\\n1,400\\n2000\\n2001\\n2002\\n2003\\nVolume ('000) \\nValue (RM billion) \\n0.0\\n1.0\\n2.0\\n3.0\\n4.0\\n5.0\\n6.0\\n7.0\\n8.0\\nGraph 4.47\\nInterbank Giro Transactions\\nValue\\nVolume\\nTable 4.33\\nPayment Cards\\n2002\\n2003\\nNo. of cards\\nVolume\\nValue\\nNo. of cards\\nVolume\\nValue\\n(million)\\n(million)\\n(RM million)\\n(million)\\n(million)\\n(RM million)\\nCredit cards\\n4.4\\n126.9\\n25,304.7\\n5.1\\n146.3\\n29,359.9\\nCharge cards\\n0.3\\n7.8\\n1,860.6\\n0.3\\n7.5\\n1,895.7\\nDebit cards\\nn.a.\\n1.0\\n74.2\\n2.8\\n1.2\\n87.4\\nn.a. Not available.\\n\\n\\n178\\nacceptance devices on a nationwide basis for\\nmerchants to accept MEPS Cash electronic purse.\\nMore than 12,000 terminals have been deployed at\\nvarious merchants by the financial institutions and\\nthird party acquirers. As the MEPS Cash scheme has\\nonly recently been deployed on a widespread basis,\\nthe volume of transactions has yet to reach a\\nsignificant level.\\nInternet Banking\\nThe Internet is becoming an increasingly important\\nchannel for banks to provide banking services to both\\nindividual consumers and businesses. During the year,\\nan Islamic bank and a locally incorporated foreign\\nbank began offering Internet banking services, making\\nthe number of banks offering transactional Internet\\nbanking services to 13 as at end-2003. Consumers\\nand businesses continued to show a growing interest\\nin using the Internet as a bill payment medium and for\\nconducting interbank fund transfers.\\nAccordingly, in their efforts to increase the adoption of\\nthis self-direct channel, the banks have increased the\\nrange of services offered via Internet banking including\\nfree online bill payment services and the ability to transfer\\nfunds to accounts in other banks. With more households\\nand businesses realising the convenience of Internet\\nbanking, the number of Internet banking subscribers\\ngrew from 1 million as at end-2002 to 1.7 million as at\\nend-2003. The total value of transactions conducted\\nthrough Internet banking by individual consumers had\\nincreased significantly from RM0.9 billion for the quarter\\nended 31 December 2002 to RM3.5 billion for the\\nquarter ended 31 December 2003.\\nBusiness Continuity Management\\nBusiness Continuity Management is the act of\\nanticipating incidents that will affect critical functions\\nand processes in the organisation and ensuring that\\nit is able to respond to any incident in a planned and\\nprepared manner. The Business Continuity Plan is the\\nprocesses and procedures an organisation put in\\nplace to ensure that essential functions can continue\\nafter and during a crisis. As part of the Business\\nContinuity Plan, the RENTAS, SPICK-KL and SWIFT\\noperations has a prescribed plan to ensure that these\\nservices, if disrupted, can be re-established swiftly\\nand smoothly.\\nIn 2003, monthly testing and several extended live\\nruns have been carried out to ensure that all\\noperation staff is familiar with the procedures at the\\nalternate site. During the testing periods, the Bank\\nworked closely with member banking institutions to\\nensure that operations run smoothly, despite a change\\nin location. This encourages close co-operation among\\nthe members to ensure that these systems operated\\nby Bank Negara Malaysia are well supported.\\nMALAYSIA’S ANTI-MONEY LAUNDERING AND\\nCOUNTER FINANCING OF TERRORISM (AML/CFT)\\nPROGRAMME\\nOverview\\nThe global community continues to intensify efforts\\nto enhance measures to detect and deter money\\nlaundering and terrorism financing. There has been\\ngreater co-operation among national agencies to put\\nin place the appropriate statutes and continue to\\nbuild capacity of personnel involved in implementing\\nthe AML/CFT initiatives.\\nIn Malaysia, Bank Negara Malaysia (the Bank) leads\\nvarious law enforcement agencies in combating\\nmoney laundering and terrorism financing. The Bank\\nis the secretariat to the National Co-ordination\\nCommittee to Counter Money Laundering (NCC),\\nwhich was established in 2000 to formulate AML/CFT\\nmeasures, co-ordinate the implementation of these\\nmeasures and to ensure that the national efforts are\\naligned with regional and international initiatives.\\nRepresentatives of member agencies in the NCC\\nmeet several times a year to co-ordinate their\\nconcerted efforts in fighting money laundering and\\nin countering terrorism financing. Each NCC member\\nis responsible to study and report on pertinent AML/\\nCFT issues to the NCC as well as implement, and\\nreport on the development of, any NCC decision.\\nUN International Convention for the\\nSuppression of the Financing of Terrorism\\nMalaysia is committed to criminalise the financing of\\nterrorism as called for under the UN International\\nConvention for the Suppression of the Financing of\\nTerrorism. Malaysia proposes to accede to the UN\\nConvention by making appropriate amendments to,\\nand provide new legislative provisions in, five pieces\\nof legislation, namely the Penal Code, Criminal\\nProcedure Code, Subordinate Courts Act 1948,\\nCourts of Judicature Act 1964 and the Anti-Money\\nLaundering Act 2001 (AMLA).\\nAnti-Money Laundering (Amendment) Act 2003\\nIn November 2003, the Parliament passed the Anti-\\nMoney Laundering (Amendment) Act 2003, which\\nwas gazetted as law on 25 December 2003. When\\nthis legislation is brought into force by a Ministerial\\norder, the short title of the AMLA would be changed\\n\\n\\nThe Financial Sector\\n179\\nto “Anti-Money Laundering and Anti-Terrorism\\nFinancing Act 2001”. The amending legislation\\nextends the Bank’s money laundering reporting\\nmechanism to include the reporting of suspected\\nterrorism financing, provides for measures to be taken\\nfor the detection and prevention of terrorism financing\\nas well as provides for the freeze, seizure and forfeiture\\nof terrorist property.\\nImplementation of the Anti-Money Laundering\\nAct 2001\\nThe money laundering reporting mechanism under the\\nAMLA covers financial institutions and certain\\ncategories of non-financial institutions, which are\\nconsidered to be of higher risk to money laundering or\\nterrorist financing activities. Our implementation\\napproach of extending the reach of the law\\nincrementally ensures that the reporting institutions are\\nwell prepared and able to effectively comply with their\\nobligations under the AMLA.\\nRecent AML/CFT Measures under the AMLA\\nExtending the List of Reporting Institutions\\nSince the AMLA came into force on 15 January\\n2002, the requirement to report suspicious\\ntransactions was invoked on banking and Islamic\\nbanking institutions, insurance companies and\\ntakaful operators, money changers and offshore\\nentities. In 2003, several other categories of\\nbusinesses have been included as reporting\\ninstitutions. To date, the reporting institutions under\\nthe AMLA are as follows.\\nOther non-financial institutions that are vulnerable to\\nmoney laundering and terrorism financing will be\\nbrought under the AMLA in stages.\\nIncrease Reporting Obligations\\nThe full-fledge reporting obligations under the\\nAMLA, such as record-keeping, retention of record,\\ncompliance programme and customer identification\\nrequirements have been invoked on the following\\ninstitutions:\\n•\\nCommercial banks, finance companies, merchant\\nbanks and Islamic banks with effect from 15\\nJanuary 2003;\\n•\\nDiscount houses, offshore banks, offshore trust\\ncompanies, offshore insurers, reinsurers, insurers,\\ninsurance brokers and takaful operators with\\neffect from 15 April 2003; and\\n•\\nMoney changers with effect from 1 October\\n2003.\\nThe Bank continues to work in collaboration with\\nthese reporting institutions through regular dialogue\\nsessions to ensure effective implementation of the\\nAMLA compliance programme. The banking industry\\nhas set up a Compliance Officers Networking Group\\n(CONG), which meets regularly to discuss AML/CFT\\ncompliance issues at the premises of the Institute of\\nBankers Malaysia. Officers of the Financial\\nIntelligence Unit (FIU) in the Bank attend CONG\\nmeetings by invitation only.\\nIncrease Predicate Offences\\nIn 2003, the number of money laundering predicate\\noffences has increased from 122 to 150 serious\\ncrimes from 23 pieces of legislation.\\nSuspicious Transaction Reports (STRs)\\nAs the competent authority mandated by the\\nMinister of Finance, the Bank receives STRs pursuant\\nto section 14(b) of the AMLA. Section 14(b) requires\\nthe reporting of suspicious transactions to the FIU in\\nthe Bank. The STRs are analysed and, where\\napplicable, shared with the relevant enforcement\\nagencies, which conduct their own surveillance and\\ninvestigations into these cases based on the Bank’s\\nfinancial intelligence.\\nCapacity Building\\nAwareness Programme\\nThe Bank continues to promote awareness among\\nrelevant stakeholders to ensure effective\\nimplementation of the AML/CFT measures. A\\nnationwide awareness programme for the banks,\\nincluding Bank Kerjasama Rakyat Malaysia Berhad,\\nTable 4.34\\nReporting Institutions under the AMLA\\nInvocation date\\nType of Reporting Institution\\nNumber of\\nInstitutions\\n(as at 31\\nDecember 2003)\\n15-Jan-02\\nCommercial banks\\n23\\nFinance companies\\n11\\nMerchant banks\\n10\\nIslamic banks\\n2\\n15-Apr-02\\nDiscount houses\\n7\\nOffshore banks\\n54\\nOffshore insurance companies\\n101\\nOffshore trust companies\\n18\\nInsurance companies\\n44\\nReinsurance companies\\n10\\nInsurance brokers\\n35\\nTakaful operators\\n4\\n1-Jun-02\\nMoney-changers\\n649\\n15-Jan-03\\nBank Kerjasama Rakyat\\nMalaysia\\n1\\nBank Simpanan Nasional\\n1\\nLembaga Tabung Haji\\n1\\nPos Malaysia Berhad\\n1\\nGenting Casino\\n1\\n Total reporting institutions\\n973\\n\\n\\n180\\nBank Simpanan Nasional and Lembaga Tabung Haji\\nwere conducted in August-October 2003. Dialogue\\nsessions with reporting institutions were also\\nconducted regularly to update and clarify any issues\\nrelating to the development of the AML/CFT\\nmeasures.\\nTraining Initiatives\\nThe Bank hosted several workshops to enhance the\\nknowledge and skills of both domestic and regional\\nstakeholders in the AML/CFT initiatives. Financial\\nsector experts from the United States, Australia, the\\nUnited Kingdom and international and regional bodies\\nsuch as the IMF, the World Bank and the Asia/Pacific\\nGroup on Money Laundering (APG) were invited to\\nshare their experiences and expertise at these\\nworkshops. The international training programmes\\norganised and hosted by the Bank were:\\n(i)\\nThe ASEAN Anti-Money Laundering Workshop\\n2003, held from 28–30 July 2003. The workshop\\nformulated strategies for the creation of a\\ncomprehensive anti-money laundering regime in\\neach ASEAN country, which included defining the\\ncore functions of a financial intelligence unit,\\nidentification of the agencies and the role of\\nenforcement agencies in the AML/CFT framework.\\n(ii) The Basic Analysis and Suspicious Transaction\\nReporting Workshop 2003, held on 25-29\\nAugust 2003. The workshop was co-hosted by\\nthe South East Asia Regional Centre to Counter-\\nTerrorism and the Bank. It focused on techniques\\nin basic analytical skills on collection, analysis and\\nsharing of information on suspected money\\nlaundering and terrorism financing submitted by\\nreporting institutions.\\n(iii) The APG Typologies Workshop, held from 8–9\\nDecember 2003. The workshop was attended by\\nparticipants from 34 member and observer\\njurisdictions of the APG. The workshop focussed\\non the sharing of trends and cases relating to\\nmoney laundering and terrorist financing. In\\naddition, various working groups to conduct in-\\ndepth study on cash couriers, terrorism financing\\nand corruption related issues were established.\\n(iv) The APG AML/CFT Assessment Training\\nWorkshop, held on 10–12 December 2003. This\\nworkshop trained the financial sector experts\\nfrom the APG member jurisdictions to conduct\\nassessment based on the IMF/ World Bank\\nMethodology for Assessing Compliance with\\nAML/CFT Standards.\\nChallenges Ahead\\nThe Financial Action Task Force reviewed its 40\\nRecommendations in June 2003. The revision\\nextended the reporting entities to designated non-\\nfinancial business and professions (DNFBP). The\\nDNFBP includes real estate agents, dealers in\\nprecious metals, dealers in precious stones, lawyers,\\nnotaries, other independent legal professionals,\\naccountants and trust and company service\\nproviders. The Bank will invoke the AMLA reporting\\nobligations on DNFBP in stages taking into\\nconsideration the readiness of these entities. The\\nBank recognises that the consultative process with\\nthe DNFBP and the relevant regulatory and\\nsupervisory authorities of the DNFBP as significant\\nto the successful implementation of the AMLA\\nreporting obligations.\\nThe amendments to the Penal Code to criminalise\\nterrorism financing and the amendments to the\\nAMLA require the development of appropriate\\ncounter-financing of terrorism mechanisms and\\nprocedures to ensure effective implementation of the\\nUN International Convention for the Suppression of\\nthe Financing of Terrorism. The Bank will work in\\ncollaboration with the NCC members to effectively\\nimplement the new legislative provisions.\\nMoney laundering trends constantly evolve and\\nhence, necessitate continuous training of law\\nenforcement personnel to upgrade their knowledge\\nand skills. The Bank will continue its leadership role in\\nthe fight against money laundering activities.\\n\\n\\n182-186\\nGrowing Significance of the Islamic Financial System\\n186-196\\nPolicy Thrust in 2003 \\n187-189\\nWhite Box: Introduction of Islamic Variable Rate Mechanism\\n190-193\\nWhite Box: The Framework of the Rate of Return\\n193-194\\nWhite Box: Guidelines on the Specimen Reports and \\nFinancial Statements for Licensed Islamic Banks (GP8-i)\\n196-201\\nPerformance of the Islamic Banking System\\nThe Islamic Financial System\\n\\n\\n182\\nGROWING SIGNIFICANCE OF THE ISLAMIC\\nFINANCIAL SYSTEM\\nThe Islamic financial system has evolved into a viable\\nand vibrant component of the overall financial\\nsystem, complementing the conventional financial\\nsystem. The Financial Sector Masterplan (FSMP)\\nprovides clear strategic focus to develop and\\npromote the expansion of the Islamic banking\\nsystem. Against the backdrop of a stronger economy\\nand strong macroeconomic fundamentals, Islamic\\nbanking activity experienced rapid growth to account\\nfor 9.7% of the total assets of the banking system in\\n2003 from 6.9% in 2000. The market share of\\ndeposits and financing also increased markedly to\\naccount for 10.4% (2000: 7.4%) and 10.3%\\n(2000: 5.3%) of the total banking system\\nimportant role in mobilising deposits and\\nproviding financing to facilitate growth. The\\nIslamic banking system is currently represented by\\n33 Islamic banking institutions, comprising two\\nIslamic banks and 31 conventional banking\\ninstitutions (nine commercial banks, four foreign\\nbanks, seven finance companies, four merchant\\nbanks and seven discount houses) offering Islamic\\nbanking products and services under the Islamic\\nBanking Scheme. These Islamic banking\\ninstitutions offer a comprehensive and broad\\nrange of Islamic financial products and services\\nranging from savings, current and investment\\ndeposit products to financing products such as\\nproperty financing, working capital financing,\\nproject financing, plant and machinery financing,\\nhire purchase, education financing and other\\nThe rapid progress of the domestic Islamic banking system,\\naccentuated by significant expansion and developments in Islamic\\nbanking and finance has become increasingly more important in\\nmeeting the changing requirements of the new economy.\\nrespectively. The rapid progress of the domestic\\nIslamic banking system, accentuated by significant\\nexpansion and developments in Islamic banking and\\nfinance has become increasingly more important in\\nmeeting the changing requirements of the new\\neconomy.\\nIn Malaysia’s dual banking environment, the Islamic\\nfinancial system operates in parallel with the\\nconventional financial system. The Islamic financial\\nsystem encompasses the Islamic banking system,\\nIslamic money market, Islamic insurance or takaful,\\nIslamic capital market and the specialised financial\\ninstitutions which provide alternative sources of\\nfinancing. The intra-dependency of these key\\nstructural components creates a comprehensive\\nenabling environment for the Islamic financial system\\nto effectively play its role as an efficient conduit to\\nmobilise resources and provide financing for\\nproductive economic activity. This structure also\\nenhances the resilience and robustness of the Islamic\\nfinancial system to withstand financial shocks and\\ncontributes to the overall stability of the Islamic\\nfinancial system.\\n•\\nThe Islamic banking system which forms the\\nbackbone of the Islamic financial system plays an\\nThe Islamic Financial System\\nfinancing products including trade finance\\nproducts. The ability of the Islamic banking\\ninstitutions to arrange and offer products with\\nattractive and innovative features at prices that\\nare competitive with conventional banking\\nproducts, has appealed to both Muslim and non-\\nMuslim customers, reflecting the capacity of the\\nIslamic banking system as an effective means of\\nfinancial intermediation. The extensive\\ndistribution network of Islamic banking\\ninstitutions, comprising 152 full-fledged Islamic\\nbanking branches and 2,065 Islamic banking\\ncounters (offering Islamic banking products), that\\nis also well supported by an efficient, secure and\\neffective payment system, has enhanced access\\nto banking services for the various sectors of\\nthe economy.\\n•\\nThe existence of an active Islamic interbank\\nmoney market is another important component\\nin the Islamic financial system. Under the\\nmudharabah (profit-sharing) interbank\\ninvestment (MII) mechanism, Islamic banking\\ninstitutions are able to raise funds to meet their\\nshort-term funding requirement based on profit-\\nsharing arrangement. Since its inception in\\n1994, the volume of MII increased from only\\n\\n\\n183\\nThe Islamic Financial System\\nRM0.5 billion in 1994 to RM283.8 billion in\\n2003. The availability of a broad spectrum of\\nshort and long-term Islamic financial instruments\\nsuch as Government Investment Issues (GII),\\nBank Negara Negotiable Notes (BNNN) and\\nIslamic private debt securities as well as the\\nactive trading of these instruments allow Islamic\\nbanking institutions to meet their investment\\nand liquidity needs. The GII and BNNN are also\\namong the instruments used by Bank Negara\\nMalaysia to manage liquidity in the Islamic\\nbanking system. The efficiency of the Islamic\\nmoney market is enhanced by the Real-Time\\nGross Settlement System (RENTAS) and the Fully\\nAutomated System for Tendering (FAST). RENTAS\\nfacilitates larger value interbank funds transfers\\nand scripless securities while FAST facilitates the\\ntendering process for Islamic securities including\\ngovernment securities, commercial papers and\\nprivate debt securities.\\n•\\nIn the Islamic capital market, funds are raised to\\nfinance long-term infrastructure and\\ndevelopment projects through the issuance of\\nIslamic private debt securities. The Islamic capital\\nmarket reduces over-dependence on the Islamic\\nbanking system for long-term financing and\\nallows Islamic banking institutions to diversify\\npart of the risks emanating from asset and\\nliability mismatches. The existence of the Islamic\\ncapital market plays an important role in\\nreducing potential source of financial\\nvulnerabilities and contributes to enhance the\\nrobustness and resilience of the Islamic financial\\nsystem, leading to greater financial stability. The\\nissuance of diverse Islamic financial instruments\\nranging from short-term Commercial Papers and\\nMedium Term Notes to long-term Islamic bonds\\nfacilitates Islamic banking institutions in meeting\\ntheir investment and liquidity needs. The\\ndifferent financial structures of the Islamic\\ninstruments also provide flexibility to issuers in\\nmanaging their distinct financing requirements.\\nMoreover, the Islamic financial instruments\\nattract a wider investor base, encompassing\\nboth Islamic and conventional institutional\\ninvestors, and thereby the funds raised can be\\ntapped at competitive cost. In addition, the\\nactive participation of Islamic banking\\ninstitutions in deal origination, underwriting and\\ncorporate advisory services expands the breadth\\nand depth of the Islamic capital market,\\ncontributing to increased effectiveness and\\nefficiency of the Islamic financial system.\\nThe availability of credit ratings by the external\\ncredit rating agencies such as the Rating Agency\\nMalaysia (RAM) and Malaysian Rating\\nCorporation Berhad (MARC) enhance price\\ndiscovery and efficiency of the market and\\nfacilitate efficient investment and financing\\ndecisions. The efficiency of the Islamic debt\\nsecurities market is further augmented by\\nsettlement and tendering systems such as\\nRENTAS and FAST as well as the Bonds\\nInformation Dissemination System that provides\\ncomprehensive market information on domestic\\ndebt securities.\\nTable 5.1\\nIslamic Banking System: Key Data\\nAs at end\\nAnnual\\nchange (%)\\n2002\\n2003p\\n2003p\\nNumber of financial\\ninstitutions\\n35\\n33\\n-5.7\\nCommercial banks\\n14\\n13\\n-7.1\\nFinance companies\\n9\\n7\\n-22.2\\nMerchant banks\\n 3\\n4\\n33.3\\nIslamic banks\\n2\\n2\\n0.0\\nDiscount houses\\n7\\n7\\n0.0\\nTotal assets (RM million)\\n68,070\\n82,196\\n20.8\\nCommercial banks\\n29,109\\n36,824\\n26.5\\nFinance companies\\n12,623\\n17,875\\n41.6\\nMerchant banks\\n1,430\\n1,716\\n20.0\\nIslamic banks\\n20,160\\n20,955\\n3.9\\nDiscount houses\\n4,748\\n4,826\\n1.6\\nTotal deposits (RM million)\\n53,306\\n60,212\\n13.0\\nCommercial banks\\n23,476\\n26,519\\n13.0\\nFinance companies\\n9,094\\n10,965\\n20.6\\nMerchant banks\\n684\\n852\\n24.6\\nIslamic banks\\n16,421\\n17,584\\n7.1\\nDiscount houses\\n3,631\\n4,292\\n18.2\\nTotal financing (RM million)\\n36,718\\n48,615\\n32.4\\nCommercial banks\\n16,706\\n22,324\\n33.6\\nFinance companies\\n10,050\\n15,746\\n56.7\\nMerchant banks\\n804\\n781\\n-2.9\\nIslamic banks\\n9,158\\n9,764\\n6.6\\nDiscount houses\\nn.a.\\nn.a.\\nn.a.\\nFinancing-deposits ratio (%)\\n68.9\\n80.7\\n11.8\\nCommercial banks\\n71.2\\n84.2\\n13.0\\nFinance companies\\n110.5\\n143.6\\n33.1\\nMerchant banks\\n117.5\\n91.7\\n-25.8\\nIslamic banks\\n55.8\\n55.5\\n-0.3\\nDiscount houses\\nn.a.\\nn.a.\\nn.a.\\nNumber of branches\\n138\\n152\\n10.1\\nCommercial banks\\n8\\n13\\n62.5\\nFinance companies\\n2\\n7\\n250.0\\nIslamic banks\\n128\\n132\\n3.1\\nNumber of counters\\n2,065\\n2,065\\n0.0\\nCommercial banks\\n1,335\\n1,410\\n5.6\\nFinance companies\\n730\\n646\\n-11.5\\nMerchant banks\\n–\\n9\\n–\\nn.a. Not applicable.\\np  Preliminary\\n\\n\\n184\\n•\\nIn the Islamic equity market, Islamic institutional\\ninvestors participate in capital raising exercise to\\nfinance business expansion of corporations. The\\nIslamic unit trusts provide investors access to\\nprofessional management of funds to maximise\\nreturns on different risk profiles. The\\ncomprehensiveness of the Islamic financial\\nsystem creates significant investment\\nopportunities for both Islamic and conventional\\ninvestors in managing their portfolios to meet\\nfinancial needs.\\n•\\nThe takaful industry adds significant synergies to\\nthe overall Islamic financial system. Takaful\\noperators, particularly in general takaful business,\\ncontribute to mitigate part of the risks of the\\nbanking system emanating from financing\\ntransactions and hence strengthen the resilience\\nof the Islamic financial system. In the family\\ntakaful business, takaful operators assume an\\nShariah framework. The Islamic banks are regulated\\nand supervised by Bank Negara Malaysia under the\\nIslamic Banking Act 1983 (IBA), while the conventional\\nbanks participating in the Islamic Banking Scheme (IBS\\nbanks) are regulated under the Banking and Financial\\nInstitutions Act 1989 (BAFIA). Islamic banking\\ninstitutions operate under a robust regulatory and\\nsupervisory framework based on international\\nstandards and best practices, at par with conventional\\nbanking institutions. For the IBS banks, the robustness\\nof the regulatory and supervisory framework includes\\nthe establishment of effective firewalls to ensure that\\nthere is complete segregation between Islamic\\nbanking and conventional banking portfolios in line\\nwith the dictates of the Shariah. This is to preserve the\\nintegrity and confidence in the Islamic banking system.\\n•\\nIslamic banks observe the Basel Capital Accord in\\nmaintaining a minimum risk-weighted capital\\nratio (RWCR) of 8% and a minimum core capital\\nThe comprehensiveness of the Islamic financial system creates\\nsignificant investment opportunities for both Islamic and\\nconventional investors in managing their portfolios to meet\\nfinancial needs.\\nimportant role as economic agents that mobilise\\nlong-term savings for long-term investments and\\neconomic growth. The role of takaful operators\\nas institutional investors has contributed to\\nstimulate the development of Islamic financial\\ninstruments and consequently adds depth to the\\nIslamic financial markets.\\n•\\nSpecialised non-bank institutions offering Islamic\\nfinancial products and services such as the\\ndevelopment financial institutions (DFIs) and\\nPilgrims Fund Board complement the Islamic\\nbanking system in expanding its reach to specific\\nstrategic economic sectors thereby enhancing the\\ncapacity of the Islamic financial system in its overall\\ncontribution to economic growth and development.\\nMeanwhile, the existence of ancillary institutions\\nsuch as the National Mortgage Corporation\\n(Cagamas Berhad) contributes to enhance resilience\\nof the Islamic financial system through securitisation\\nof the Islamic house financing and Islamic hire\\npurchase receivables in the portfolios of Islamic\\nbanking institutions.\\nEnsuring Financial Soundness and Stability\\nThe Islamic financial system operates under a robust\\nand comprehensive legal, regulatory, supervisory and\\nratio of 4%. The IBS banks observe the\\ncompliance to the RWCR framework for the\\nIslamic banking portfolio in addition to the\\ncompliance on a consolidated basis (for\\nboth Islamic banking and conventional\\nbanking portfolios).\\n•\\nTo ensure Islamic banks maintain sufficient\\nliquidity at all times, Islamic banks are required to\\nobserve the liquidity framework. Under this\\nframework, Islamic banks are required to manage\\ntheir liquidity positions in a dynamic manner\\nthrough the matching of short-term liquidity\\nrequirements arising from maturing obligations\\nwith maturing assets. In addition, Islamic banks\\nare required to maintain adequate liquidity\\nsurpluses to be able to sustain unexpected heavy\\nwithdrawals for at least one month. In the case\\nof the IBS banks, this liquidity framework is\\nobserved on a consolidated basis.\\n•\\nPrudent management of the Islamic banking\\nportfolio is pertinent to protect the interest of\\ndepositors in view of the profit and loss sharing\\nnature of Islamic banking operations. To inculcate\\nprudent financing practices, Islamic banking\\ninstitutions are required to provide adequate\\n\\n\\n185\\nThe Islamic Financial System\\nprovisioning for potential deterioration in asset\\nquality and observe the credit limit to a single\\ncustomer and its related corporations.\\n•\\nIslamic banking institutions observe the Central\\nBank’s guidelines on best practices in credit risk\\nmanagement and prohibition of financing to\\ndirectors, staff and their interested corporations\\nto prevent abuses, conflicts of interests and\\nirregular practices.\\n•\\nStrong corporate governance is essential to\\nensure that Islamic banking institutions are\\nmanaged by competent management who are\\nable to provide the strategic direction for the\\ninstitution as well as manage the operations of\\nIslamic banking institutions in an effective and\\nprudent manner. Islamic banks adhere to the\\nCentral Bank’s guidelines on corporate\\ngovernance pertaining to the appointment of\\ndirectors, the structure of the board, limitation\\non the number of directorships of directors and\\nchief executive officers, code of conduct for\\ndirectors and employees of banking institutions\\nas well as guidelines on minimum audit\\nstandards. To further strengthen the corporate\\ngovernance structure of Islamic banks,\\nadditional measures were introduced in 2003\\nrequiring Islamic banks to establish a nominating\\ncommittee, remuneration committee and risk\\nmanagement committee to ensure that the\\nshareholders play a more active role in\\noverseeing the effectiveness of the board of\\ndirectors and management. The guidelines\\nhighlighted the roles and responsibilities of\\nindependent directors, which include inter alia,\\nto provide effective oversight and enhance the\\nindependence of the board. The guidelines also\\nspecified the minimum qualifications and\\ntraining requirements for directors.\\n•\\nIn the preparation of financial statements,\\nIslamic banks are required to observe the\\nGuidelines on the Specimen Reports and\\nFinancial Statements for Licensed Islamic Banks\\n(GP8-i). The IBS banks disclose their Islamic\\nbanking operations in the Notes to the Accounts\\nof the principal financial statements as part of\\nGP8 of the conventional banks. To further\\nenhance transparency in the derivation of the\\nrate of return in Islamic banking business,\\nIslamic banking institutions are required to\\nobserve a standard framework for the\\ncalculation of the rate of return.\\n•\\nAnother important dimension in Islamic banking\\noperations is Shariah compliance. Under the IBA,\\nIslamic banks need to establish Shariah advisory\\nbodies. Central to these bodies is the Shariah\\nAdvisory Council (SAC) at Bank Negara Malaysia\\nas the sole authority to decide on Shariah\\nmatters on Islamic banking and financial\\nbusiness that fall under the purview of the\\nCentral Bank. The SAC at Bank Negara Malaysia\\nalso serves as the ultimate reference for Shariah\\nruling in court proceedings on Islamic banking\\nand finance cases.\\n•\\nThe Anti-Money Laundering Act 2001 (AMLA)\\nand guidelines on money laundering and “know\\nyour customer policy” protect the Islamic\\nbanking system from money laundering\\nactivities. AMLA provides comprehensive laws\\nfor the prevention, detection and prosecution of\\nmoney laundering, the forfeiture of property\\nderived from, or involvement in money\\nlaundering and the requirements for record\\nkeeping and reporting of suspicious transactions\\nby Islamic banking institutions.\\n•\\nTo reinforce the regulatory framework that has\\nbeen established to preserve financial stability,\\nIslamic banking institutions are subject to a\\nrigorous supervisory framework. Supervisory\\nactivities emphasise the vigilant monitoring of the\\nfinancial condition and soundness of Islamic\\nbanking institutions, the adoption of pre-emptive\\nstrategies to address any adverse trend or\\nweakness identified and the instilling of best\\npractices to enhance corporate governance\\nstructures as well as risk management systems.\\nThe supervisory process is premised on a forward-\\nlooking proactive risk-based model encompassing\\nboth dynamic off-site surveillance and on-site\\nexaminations. The off-site surveillance process\\nincludes the review and approval of financial\\nstatements to ascertain compliance with Bank\\nNegara Malaysia’s guidelines as well as close\\nmonitoring of Islamic banking institutions\\nthrough regular reporting and rigorous financial\\nand non-financial analysis for early detection of\\nany emerging problems. In 2003, on-site\\nexaminations were conducted on the Islamic\\nbanks, comprising the head offices, local and\\noffshore branches, based on the CAMELS rating\\nframework. In addition, stress testing remains an\\non-going exercise where the Islamic banking\\ninstitution’s current financial condition is\\nsubjected to simulated stress under alternative\\n\\n\\n186\\nadverse scenarios in order to detect potential\\nareas of vulnerability. The results of this stress test\\nform the basis for the implementation of pre-\\nemptive actions.\\nGlobal Integration of Islamic Financial System\\nThe significant progress achieved by the domestic\\nIslamic financial system has set the stage for its\\nintegration with the global market place. The\\ninitiatives on the global front to position the Islamic\\nfinancial system as a credible component of the\\nglobal financial system will contribute to further\\nstrengthen the development of the domestic Islamic\\nfinancial system.\\n•\\nThe establishment of the Islamic Financial Services\\nBoard (IFSB) in Kuala Lumpur to develop\\ninternational prudential regulatory standards in\\naccordance with the distinct features and risks of\\nIslamic financial institutions will contribute towards\\nensuring the soundness and stability of the Islamic\\nfinancial system. Since its establishment in 2002,\\nthe IFSB has attracted wide participation. As at\\nend-2003, the number of IFSB members has\\nand facilitate efficient liquidity management by\\nIslamic financial institutions. Malaysia\\nspearheaded the issuance of the first sovereign\\nglobal Islamic sukuk to give impetus to the\\ndevelopment of the IIFM. The global Islamic\\nbond served as a benchmark and catalyst that\\nspurred the issuance of subsequent global\\nIslamic bonds. The development of Islamic\\nfinance as an important niche activity in\\nMalaysia’s International Offshore Financial\\nCentre in Labuan complements the development\\nof the IIFM in the issuance, listing and trading of\\nforeign currency-denominated Islamic financial\\ninstruments as well as in forging linkages with\\nother Islamic financial centres to further expand\\nthe global reach of Islamic banking and finance.\\nPOLICY THRUST IN 2003\\nIn tandem with the overall objective of the FSMP to\\ncreate an efficient, progressive and comprehensive\\nIslamic financial system that can contribute\\nsignificantly to the effectiveness and efficiency of the\\nMalaysian financial sector, the Islamic financial policy\\nThe Islamic financial policy thrust in 2003 continued to be directed\\nat further strengthening the fundamental underpinning\\nfoundations of the Islamic banking system to support the sound\\nand progressive development of the Islamic banking industry.\\nincreased to 13 full members, three associate\\nmembers and 20 observer members. The IFSB has\\nmade progress in developing prudential standards\\non capital adequacy and risk management and will\\ncommence preparation of an additional standard\\non corporate governance. The participation of the\\nInternational Monetary Fund, the World Bank, the\\nAsian Development Bank and the Bank for\\nInternational Settlements in the IFSB will enhance\\nco-operation towards achieving the common goal\\nof international monetary and financial stability.\\n•\\nThe establishment of the International Islamic\\nFinancial Market (IIFM) in 2002 constitutes part\\nof the overall efforts to strengthen the efficacy\\nof the Islamic financial system as a component\\nof the global financial system in achieving\\nbalanced growth and development. The IIFM\\nprovides the infrastructure to facilitate the\\nmobilisation of foreign capital according to\\nShariah principles, stimulate the creation and\\ntrading of Islamic financial instruments, enhance\\ninvestment opportunities for global investors\\nthrust in 2003 continued to be directed at further\\nstrengthening the fundamental underpinning\\nfoundations of the Islamic banking system to support\\nthe development of a sound and progressive Islamic\\nbanking industry. The focus was on strengthening the\\ninstitutional financial infrastructure, enhancing the\\nregulatory framework, strengthening the Shariah and\\nlegal infrastructure as well as enhancing intellectual\\ncapital development and consumer education.\\nStrengthening Institutional Financial\\nInfrastructure\\nInstitutional Development\\nA comprehensive and well-developed financial\\ninfrastructure is key to enhancing the capacity and\\neffectiveness of the Islamic banking system\\npremised on its own principles, uniqueness and\\ncharacteristics.\\n•\\nOne feature of a well-developed financial\\ninfrastructure is the diversity of the players,\\nincluding the participation of foreign players in\\nthe Islamic financial landscape. Cognisant of this,\\n\\n\\n187\\nThe Islamic Financial System\\nBank Negara Malaysia has brought forward the\\nliberalisation of the Islamic banking sector. The\\npresence of full-fledged foreign Islamic banks in\\nMalaysia will generate spill over effects that will\\nenhance product diversity, spur financial\\ninnovation and support the overall development\\nof the Islamic financial system. It will also act as a\\nbridge between Malaysia and other global Islamic\\nfinancial markets, thus providing the enabling\\nenvironment for Malaysia to become a regional\\nhub for Islamic banking and finance.\\n•\\nAs the domestic Islamic banking industry\\nprogresses into a more advanced stage of\\ndevelopment, significant developments are\\nshaping the industry’s financial regulatory\\ninfrastructure, both on the domestic and\\ninternational fronts.\\n•\\nOn the domestic front, these included the\\nemergence of a different set of accounting\\nstandards for Islamic financial business to be\\nissued by the Malaysian Accounting\\nStandards Board (MASB) and the introduction\\nof the Deposit Insurance Scheme.\\n•\\nOn the international front, the Islamic\\nFinancial Services Board (IFSB) will be issuing\\na specific set of prudential regulatory and\\nsupervisory standards to govern Islamic\\nbanking operations globally.\\n•\\nAgainst this backdrop, Bank Negara Malaysia has\\nconducted a review of the existing “window”\\ninstitutional structure of the IBS banks to prepare\\nan enabling structure that can assimilate these\\ndevelopments and thus strengthen the prudential\\nregulatory and supervisory regime.\\nRisk Management\\nThe enhancement of risk management capabilities of\\nthe Islamic banking institutions is another important\\naspect in developing the institutional financial\\ninfrastructure.\\n•\\nA variable rate financing product under the concept\\nof bai’ bithaman ajil (deferred payment sale) was\\nintroduced in 2003 as an instrument to diversify the\\nfinancing portfolio of the Islamic financial\\ninstitutions from over-reliance on fixed-rate\\nfinancing as well as to mitigate the risk associated\\nwith funding mismatch.\\n•\\nMoving forward, to complement the bai’\\nbithaman ajil (BBA) floating rate financing\\nIntroduction of Islamic Variable Rate Mechanism\\nA significant achievement was made in 2003 in the area of risk management when the first variable\\nrate financing product was developed for the Islamic banking industry under the concept of bai’\\nbithaman ajil (deferred payment sale), or in short, BBA. This Shariah-compliant product was structured\\nby a working group comprising representatives from Bank Negara Malaysia and the industry to enable\\nthe Islamic financial institutions which operate in a dual banking environment to constantly match the\\ncurrent market financing rate in order to provide matching returns to their depositors, thereby\\nalleviating any mismatch risk. By doing this, the Islamic financial institutions are able to receive varying\\nincome streams from their financing activities, which will be distributed to the depositors at a more\\ncompetitive rate.\\nThe new instrument is an alternative to the existing mode of financing portfolio which is predominantly\\nfixed-rate in nature. In recent developments, the high leverage on fixed-rate financing became a topical\\nissue in Islamic banking as there has been an inadequate hedging mechanism through which Islamic\\nfinancial assets could grow and be protected from exposure to fluctuations in the financing rate. As at\\nend-December 2003, total fixed-rate financing accounted for 87.8% of total Islamic financing and a\\nlarge proportion of this financing, namely, house and other property financing-i and term financing-i,\\nwere predominantly on a longer term tenure, constituting 58.8% of total Islamic financing, as shown in\\nGraph 1. (The current method of variable rate financing offered by a few Islamic financial institutions is\\nimpractical as it involves multiple sub-agreements to reflect a change in the rate).\\nThis fixed-rate regime has resulted in a funding mismatch to the Islamic financial institutions because\\ntheir long-term financing was funded by short-term bank deposits which can give variable returns. As\\n\\n\\n188\\nthe banks had locked in their profit rates for the financing over a long period, any upward movement in the\\nmarket rates, therefore, may result in the Islamic banking institutions finding it difficult to give a satisfactory\\nreturn to their depositors. This is because the constant income stream from the financing is tied to a fixed\\nprofit rate which is relatively lower when compared to a conventional floating rate loan whose rate has risen.\\nInevitably, this situation would cause a switching of Islamic funds to conventional funds.\\nThe variable rate financing is designed to mitigate the mismatch risk currently faced by the Islamic\\nfinancial institutions by allowing them to vary the profit rate for the financing in order to raise the\\ndeposit rates. As a result, the depositors will obtain satisfactory returns vis-à-vis that in the conventional\\nbanking market, and hence, would not switch their deposits which otherwise could adversely affect the\\nIslamic banking operation. This new option reduces the vulnerabilities of the Islamic financial institutions\\nto exposure in market risk in a banking environment where the Islamic banking system and\\nconventional banking system operate side-by-side.\\nThe variable rate financing is an innovation to the existing BBA financing concept which is fixed-rate in\\nnature. Under the BBA, the selling price of the asset sold to the customer on deferred terms would be\\nfixed at a profit rate known as the ceiling profit rate which is higher than the profit rate under the fixed-\\nrate BBA financing where, in principle, the contractual selling price and instalments would be higher.\\nHowever, rebate known as ibra’ (a waiver of right to claim unearned profit) is required to be granted at\\nevery instalment, for example on a monthly basis, in order to reduce the monthly instalments to match\\nthat of the current market level.\\nAs illustrated in Graph 2, the financing is created upon the bank purchasing the asset from the customer for\\ncash which will be immediately sold back on deferred terms. Computed at a ceiling rate of 12% per annum\\nas in the example, the selling price (which is higher than under BBA fixed financing) will be agreed upon and\\nthe contractual repayment is to be made in equal monthly instalments of RM2,000 over the agreed period. If\\nthe base lending rate (BLR) plus margin used as benchmark in the pricing calculation is 10% per annum for\\nthe first month, the bank would give a monthly rebate of RM500, which represents the difference between\\nthe ceiling profit rate of 12% per annum and effective profit rate of 10% per annum. If in the fourth month,\\nthe market rate rises to 11% per annum, the bank would then only grant a monthly rebate of RM300.\\nGraph 1 \\nTotal Financing by Mode of Financing as at end-2003\\nOther fixed-rate \\nfinancing \\n32.6%\\nFixed-rate hire \\npurchase \\n29.0%\\nFixed-rate house \\nfinancing \\n26.2%\\nFloating rate \\nfinancing \\n12.2%\\n\\n\\n189\\nThe Islamic Financial System\\nIn practice, the rebate would be varied so that the effective profit rate (ceiling profit rate less rebate)\\nreflects the fluctuating market financing rate. Accordingly, the bank would be able to raise the\\nfinancing rate when there is a rise in market rate, hence, it can give better returns to its depositors. As\\nsuch, this justifies the setting of a high ceiling profit rate to buffer any rise in the market rate. However,\\nif the market rate rises beyond 12% per annum, the effective profit rate would remain at the ceiling\\nrate. The ceiling rate would provide some comfort to the customer that the effective profit rate would\\nbe capped at that rate.\\nTo govern this mode of financing, such rates are subject to a ceiling profit rate of four percentage point\\nabove the market’s BLR unless supported by findings that the market rate is forecasted to be volatile\\nand escalating. In setting the effective profit rate, the banks are required to observe the maximum profit\\nspread of 2.5 percentage point above the BLR. However, as a matter of policy, the effective profit rate\\ncannot transgress the ceiling profit rate even if the market rate rises above the latter, while any change\\nto the effective profit rate would need to be communicated to the customer prior to the change.\\nAt maturity, any difference in the amount between the selling price and the total repayments plus the\\nmonthly rebates granted, would be rebated. In addition to the rebates on instalments and at maturity\\nwhich have been made mandatory to be included in the financing agreement, rebates must also be\\ngranted in the event of early settlement or redemption, or termination of contract. Bank Negara\\nMalaysia has allowed rescheduling of the financing (where the period of financing can be extended) if\\nthe bank wishes to grant the option that the effective monthly instalment need not be increased if the\\neffective profit rate rises, on the condition that the financing agreement contains a rescheduling clause\\nand the total repayments are not in excess of the original selling price. The computation of capital\\nadequacy for the BBA variable rate financing will be accorded the same risk-weight as under the BBA\\nfixed-rate financing.\\nCurrently, this new mode of financing is applicable to house, property and term financing only and\\nwould be extended to other types of financing in due course. Undoubtedly, this new product is\\nexpected to grow significantly as it is a natural hedging product, particularly in view of the risk exposure\\nissues prevalent in Islamic banking today.\\nUnearned\\nprofit\\nBank’s\\npurchase\\ncost\\nGraph 2\\nBBA Variable Rate Financing\\nFinancing tenure (e.g. months)\\nMonthly \\nrebates \\ngranted\\nActual \\ntotal\\nrepayments \\n= \\npurchase \\ncost \\n+ \\nearned \\nprofit\\nProfit\\nrate\\n(%)\\n12\\n11\\n10\\nEnd of tenure\\nContractual \\nagreement\\nCeiling rate\\n2,000\\n1,700\\n1,500\\nSelling price \\nunder BBA \\nfixed financing\\nUnearned \\nprofit\\nRM\\nHigher \\nselling \\nprice \\nunder \\nBBA \\nvariable \\nrate\\nBank’s \\npurchase \\ncost\\n1             2            3             4             5  . . . . .\\nMonthly rebate given at each instalment \\nEffective monthly instalments\\n\\n\\n190\\nmechanism, another variable rate financing\\nproduct based on the concept of ijarah muntahia\\nbittamleek (leasing ending with ownership) is\\nbeing explored.\\nEnhancing Regulatory Framework\\nThe growing significance of the Islamic banking industry\\nrequires the development of an effective regulatory\\nframework to provide the enabling environment to\\nsupport the development of the industry.\\n•\\nIn 2003, Bank Negara Malaysia conducted a\\nreview on the Framework of the Rate of Return.\\nThe purpose was to further strengthen the\\nmethodology for deriving the rate of return to\\ndepositors, whereby the revised framework is to\\nprovide a greater degree of flexibility in the\\nimplementation of the framework.\\n•\\nThe Guidelines on the Specimen Reports and\\nFinancial Statements for Licensed Islamic Banks\\n(GP8-i) was issued in August 2003. The objective\\nwas to promote consistency and standardisation\\namongst the Islamic banks in complying with the\\nprovisions of the IBA and approved accounting\\nstandards, specifically MASB i-1 and the Shariah\\nrequirements. The Guidelines prescribed the\\nminimum requirements of the financial statements\\nthat the Islamic banks need to disclose.\\n•\\nIn the development of accounting standards for\\nIslamic financial business, the Malaysian Accounting\\nStandards Board has embarked on the preparation\\nof standards on leasing (ijarah), deferred payment\\nsale (BBA) and cost-plus (murabahah) in relation to\\nthe recognition, measurement and disclosure of\\nthese Islamic financial transactions.\\nThe Framework of the Rate of Return\\nTowards standardising the methodology on the calculation of distributable profits and the derivation of\\nthe rates of return to depositors in Islamic banks, Bank Negara Malaysia introduced the “Framework of\\nthe Rate of Return”. Among others, the objectives of the framework are to: -\\n(i)\\nSet the minimum standard in calculating the rates of return;\\n(ii) Level the playing field and provide the terms of reference for the Islamic banking institutions (IBIs) in\\nderiving the rates of return; and\\n(iii) Provide Bank Negara Malaysia with an effective yardstick to assess the level of efficiency of\\nthe IBIs.\\nPrior to the introduction of the framework, the IBIs adopted various methods in deriving the rates of\\nreturn. Such practice has led to large variations in the results and implications. For example, some IBIs\\ninclude all types of income in their computation while some exclude certain type of incomes. These\\nvariations have led to the following impediments in terms of: -\\n(i)\\nAssessment of the rates of return by Bank Negara Malaysia specifically to ascertain whether the\\nrates genuinely reflect the true performance of the IBIs or otherwise;\\n(ii) Regulation and supervision by Bank Negara Malaysia, particularly in assessing the prudence and\\nfairness in the distribution of profits to the depositors; and\\n(iii) Assessment by the IBIs of their funding cost, which in turn led to the distortion of rates of return in\\nthe retail and inter-bank markets.\\nThe standardisation of the rates of return was also aimed at addressing the information asymmetry\\nbetween the IBIs and the depositors by enhancing the level of transparency and ensuring that\\ndepositors would receive fair returns on their investment. The framework would detail the items, for\\nexample, the income and expense items that need to be reported and incorporated for the purpose of\\nthe calculation. In particular, the calculation table lists the expense items that need to be shared by the\\ndepositors and the bank; and items that are to be solely borne by the bank.\\nThe introduction of the framework is also to effectively support the application of mudharabah (profit-\\nsharing) contract in Islamic banking deposit-taking activities. Unlike conventional banking, which is\\n\\n\\n191\\nThe Islamic Financial System\\nbased on a lender-borrower relationship, the mudharabah contract is based on an investor-\\nentrepreneur relationship. In this system, the depositor assumes the role of capital provider while\\nthe bank assumes the role of the entrepreneur. The depositors’ funds are utilised for financing and\\ninvestment activities, and the profits generated from these activities are shared between the\\ndepositor and the bank based on the pre-agreed profit sharing ratio. In the event of a loss, it will\\nbe borne by the depositors. As the bulk of the deposits in Islamic banking are in the form of\\nmudharabah deposits, it places a higher degree of fiduciary risk on the management of the IBIs to\\nensure that the funds are utilised in the most efficient manner, as profits generated from the\\nfinancing and investments are distributed to the depositors in the most equitable manner. Towards\\nthis end, the framework was introduced, not only to standardise the methodology for the\\ncalculation of returns, but also to ascertain the actual and fair distribution of income to the\\ndepositors.\\nThe Framework\\nThe Framework of the Rate of Return comprises two main components, that is, the calculation and\\ndistribution tables. The calculation table prescribes the income and expense items that need to be\\nreported and sets out the standard calculation in deriving the net distributable income. Among the\\nimportant items in the calculation table is the provisions. Prior to the issuance of the framework,\\nthe provisions of the banking institutions participating in the Islamic Banking Scheme (IBS banks)\\nwere provided by the conventional banking operations. Under conventional banking operations, the\\nprovisions are solely borne by the bank. However, under the framework, the IBS banks are required\\nto distinguish their general and specific provisions, in accordance with the mudharabah contract,\\nwhereby the provisions in Islamic banking operations are shared by both the depositors and the\\nbank.\\nThe calculation table also introduced a new item known as Profit Equalisation Reserve (PER).\\nThe PER is an item that acts as a mechanism to mitigate the fluctuation of rates of return arising\\nfrom the flux in income, provisioning and total deposits. This would ensure that the rates of return\\nof the IBIs remained competitive and stable. The PER is appropriated out of the total gross income\\nand is shared by both the depositors and the bank.\\nThe second component of the framework is the distribution table. The table sets out the\\ndistribution of the net distributable income, derived from the calculation table among demand,\\nsavings and general investment deposits according to their structures (mudharabah or non-\\nTable 1\\nCalculation Table\\nRM million\\nIncome generated from asset items\\n(+) Net trading income\\n(+) Other income\\nTotal gross income\\n(-) Provisions and income-in-suspense\\n(-) Profit equalisation reserve\\n(-) Direct expenses\\nNet gross income\\n(-) Income attributable to:\\nSpecific investment account\\nIBCF/SHF1\\nNet income\\n(-) Income attributable to:\\nAmount due to designated FIs\\nIslamic negotiable instruments\\nNet distributable income\\n1\\nIslamic banking capital funds/ shareholders' funds.\\n\\n\\n192\\nmudharabah), maturities and the pre-agreed profit sharing ratios between the bank and depositors.\\nUnder the framework, Bank Negara Malaysia allowed the IBIs to adopt either the weightage or\\nwithout the weightage method, primarily to accord the system capacity of the IBIs.\\nThe IBIs are required to calculate their rates of return on a monthly basis and to declare their monthly\\nrates of return on a specified date. The following month would be the effective period of the\\ndeclared rates of return.\\nThe introduction of the framework has provided the IBIs with a standard approach in deriving the\\nrates of return and has enhanced the level of transparency. The framework has also improved the\\nefficiency level of the IBIs given that the rates of return are now reflective of the business acumen of\\nthe IBIs rather than the methodology of deriving the rates of return. The introduction of the PER has\\nalso reduced the volatility of the rates of return of the Islamic banking industry and enabled the IBIs\\nto manage their portfolio more efficiently. In tandem with the introduction of the framework, the\\nscope of the statistical submission has been broadened further to provide Bank Negara Malaysia with\\nan effective measurement tool to assess the efficiency of the IBIs in terms of profitability, prudent\\nmanagement and fairness.\\nBank Negara Malaysia has also undertaken a review of the framework in 2003 to promote capacity\\nenhancement and efficiency among the IBIs in managing their business operations. While the\\nfoundation of the framework remained unchanged, the revised framework will provide, among\\nothers, flexibility in determining the weightage assigned to each group of deposits, the profit sharing\\nratio of investment deposits, the provisioning of PER and the segregation of income from the funds\\nthat are managed under a consolidated fund or managed separately between shareholders’ and\\ndepositors’ funds. The reviewed framework will provide greater flexibility to the IBIs in managing their\\nportfolios and remain competitive in the market place.\\nTable 2\\nDistribution Table\\nDistributable profits\\nDepositors’ portion\\nType of deposit\\nADA1\\nWeightage\\nWADA2\\nRM\\n%\\nPSR3\\nRM\\n%\\nCurrent account\\nSavings account\\nGIA4\\n1-month\\n3-month\\n6-month\\n9-month\\n12-month\\nAbove 12-month\\nNDI5\\n1 Average daily amount of each type of deposit.\\n2 Weighted average daily amount.\\n3 Profit sharing ratio agreed by the bank and depositors.\\n4 General investment account.\\n5 Net distributable income transferred from Calculation Table.\\n\\n\\n193\\nThe Islamic Financial System\\nGuidelines on the Specimen Reports and Financial Statements\\nfor Licensed Islamic Banks (GP8-i)\\nThe Guidelines on the Specimen Reports and Financial Statements for Licensed Islamic Banks or GP8-i was\\nissued to the Islamic banks (IBs) in August 2003. It sets out the minimum requirements for the presentation\\nand disclosure of reports and financial statements of IBs. The GP8-i is to be adopted by the IBs for annual\\naccounts commencing 2004.\\nThe objective of the GP8-i is to provide the basis for presentation and disclosure of reports and financial\\nstatements of the IBs. GP8-i is also aimed at ensuring consistency and comparability of the reports and\\nfinancial statements amongst the IBs in complying with the provisions of the Islamic Banking Act 1983,\\nCompanies Act 1965, Shariah requirements and other Bank Negara Malaysia guidelines. As a comprehensive\\nguideline, GP8-i also incorporated the new requirements of MASB standards, specifically the MASB i-1:\\nPresentation of Financial Statements of Islamic Financial Institutions. The standard, which came into effect in\\n2003, was issued to streamline the disclosure and presentation of financial statements of the IBs and the\\nconventional banks that participate in the Islamic Banking Scheme (IBS banks).\\nPrior to the issuance of the GP8-i, the IBs observed the various provisions of the Companies Act 1965, the\\napplicable accounting standards and the Guidelines on the Specimen Financial Statement for the Banking\\nIndustry (GP8) which was formulated to facilitate the conventional banking operations. Some of the\\nrequirements have been modified for the IBs, particularly those under the GP8, to reflect the Islamic banking\\noperations such as the disclosure on the various Shariah concepts applied in financing.\\nSalient Features of GP8-i\\nThe salient features of the GP8-i, amongst others, are as follows:\\na)\\nPerformance Overview and Statement of Corporate Governance\\nIn promoting good corporate governance, IBs are required to report their performance overview and\\ncorporate governance practices. The performance overview requires the IBs to disclose their review on\\nperformance, measures, business plans and strategies, whilst the statement of corporate governance requires\\nIBs, among others, to disclose the composition and responsibilities of the Board, internal audit and control\\nactivities and risk management strategies and policies. These report requirements are important in providing\\nadditional information to users in evaluating the performance and conduct of an IB.\\nb)\\nDisclosure of Shariah Advisory Board/ Committee and Zakat Obligations\\nThe Shariah Advisory Board or Committee plays an important role in monitoring the compliance of\\nIslamic banking activities with the Shariah requirements. Given its importance, the IBs are required to\\ndisclose the functions and duties of their Shariah Advisory Board or Committee in monitoring the\\nactivities pertaining to Shariah matters under the Directors’ Report. With respect to the zakat\\nobligations disclosure, IBs are required to disclose the responsibility towards payment of zakat either on\\nthe business or shareholders or on behalf of depositors.\\nc)\\nReport of the Shariah Advisory Board/ Committee\\nThe IBs are required to report the conformity of the IB’s operations with the Shariah principles under the\\nReport of the Shariah Advisory Board/Committee. The Report, which is akin to the Auditors’ Report, will\\nenhance the credibility of the IB’s operation in complying with the Shariah principles.\\nd)\\nProfit Equalisation Reserves (PER)\\nPER is a mechanism introduced in the Framework of the Rate of Return to stabilise the rate of return to\\ndepositors. Disclosure of PER would reflect the capability of the IBs in managing the level of profit\\ndistribution to the mudharabah depositors. The IBs are required to disclose their policy on PER as well as\\nits movement (provision and write-back) during the financial year.\\n\\n\\n194\\nProduct Approval\\n•\\nIn tandem with the gradual progression towards\\na market-driven regulatory environment, Bank\\nNegara Malaysia issued the Guidelines on New\\nProduct Approval Requirements for Islamic\\nBanking Institutions (the Guidelines). These\\nreplace the existing product pre-approval\\nrequirements and came into effect on 2 January\\n2004. The Guidelines outline the notification and\\nspecific approval process for new products\\nsubmitted by Islamic banking institutions.\\nIn formulating the Guidelines, Bank Negara\\nMalaysia adopted the approach that “what is not\\nprohibited is allowed” on new Islamic banking\\nproducts. This was to provide greater clarity,\\ntransparency and speedy product approval. For a\\nnew product to qualify for automatic approval\\n(under notification process), the submission to\\nBank Negara Malaysia must be made at least 21\\ndays before its launch date. The definition of a\\nnew product has also been widened to include an\\nexisting approved product or service that is\\napplying a different or a new combination of\\nShariah concepts. In addition, the Islamic banking\\ninstitutions are required to submit a detailed\\nexplanation on the Shariah concepts used in the\\nproduct as endorsed by their Shariah committee.\\nThis is to ensure that a thorough research on the\\nproduct has been carried out by the Islamic\\nbanking institutions and thus, would not lead to\\nany detrimental effect on the customers and on\\nthe stability of the financial system. A new product\\nthat does not qualify for automatic approval\\nwould require specific approval from Bank Negara\\nMalaysia and may require, among others, the\\ndeliberation of the Shariah Advisory Council of\\nBank Negara Malaysia. The Guidelines place\\nsignificant emphasis on self-regulation, where the\\ne)\\nClassification of Deposits from Customers and Placements from Banks and Other Financial\\nInstitutions\\nThe IBs are required to disclose their deposits into two categories i.e. mudharabah and non-\\nmudharabah deposits. As the manager of public funds, the disclosure would provide additional\\ninformation on the risk profile of the IBs’ deposits portfolio to the public.\\nf)\\nPresentation of the Income Statement\\nPresentation of the Income Statement of the IBs is structured to reflect the nature of the Islamic\\nbanking operation, mainly on the application of mudharabah concept in the deposit-taking activities.\\nThe statement discloses the incomes and expenses that are either shared by the bank and depositors or\\nsolely belonged to the bank.\\nIslamic banking institutions are required to ensure\\nconsistency of the products introduced with the\\nGuidelines.\\n•\\nIn line with efforts to streamline the regulatory\\nframework of the credit card industry, Bank\\nNegara Malaysia issued the Credit Card-i\\nGuideline (the Guideline) in January 2004. This\\nwas an extension to the Credit Card Guideline\\nissued to the conventional banks in March 2003.\\nUnder the Guideline, the credit card-i can apply\\neither bai’ inah (sell and buy back arrangement)\\nor BBA (deferred payment sale) Shariah concept.\\nUnder the bai’ inah concept, the fund for the\\ncardholder’s spending limit is created upon the\\nbank buying back the asset from the cardholder\\nfor cash which it previously sold to the cardholder\\non deferred terms. Under the BBA concept, the\\nfund is created upon the bank purchasing the\\nasset from the cardholder for cash which will be\\nsold back to the cardholder on deferred basis.\\nThe Guideline also prescribes the treatment on\\npenalty and fee structure according to the\\nShariah principles. In terms of late payment\\ncharges, issuers of credit card-i are allowed to\\nimpose a compensation fee on the defaulters\\nsubject to specific terms and conditions imposed\\nby Bank Negara Malaysia. The terms and\\nconditions, among others, prohibit the Islamic\\nbanking institutions from compounding the\\ncompensation fee for late payment and monthly\\ncharges. This provision was intended to protect\\nthe customers as well as to streamline the penalty\\nstructure of credit card-i.\\nStrengthening Shariah and Legal Infrastructure\\nOne of the pre-requisites for a strong and stable\\nIslamic banking system is the existence of a\\n\\n\\n195\\nThe Islamic Financial System\\ncomprehensive Shariah and legal infrastructure. A\\nstrong Shariah framework combined with a sound\\nlegal structure would accelerate the pace of\\ndevelopment and innovation of the Islamic\\nbanking industry.\\n•\\nAs part of the efforts to strengthen the Shariah\\nframework for the Islamic financial industry, Bank\\nNegara Malaysia amended the Central Bank of\\nMalaysia Act 1958 (CBA) in 2003 to position the\\nShariah Advisory Council (SAC) of Bank Negara\\nMalaysia as the sole authority on Shariah matters\\npertaining to Islamic banking and finance that fall\\nunder the purview of Bank Negara Malaysia.\\nWith that stature, the SAC will serve as the\\nreference point for the court or arbitrator in\\ndispute resolution that involves Shariah issues on\\nIslamic banking and finance cases.\\n•\\nConsequent to this development, the role of the\\nShariah advisory bodies and Shariah consultants at\\nthe Islamic banks, the IBS banks and takaful\\ncompanies will be rationalised accordingly. Bank\\nNegara Malaysia is preparing a comprehensive\\nguideline on the new structure, roles and functions\\nof the Shariah committees of the Islamic banks, the\\nIBS banks and the takaful operators. The guideline\\nwould specify among others, the requirements for\\nthe appointment of the Shariah committee\\nmembers. In this regard, the Islamic financial\\ninstitutions are required to seek Bank Negara\\nMalaysia’s approval prior to the appointment of the\\nShariah committee members. The duties and\\nresponsibilities of the Islamic financial institutions\\nwould also be outlined in order to assist the Shariah\\ncommittee in carrying out its roles and functions\\neffectively. The guideline is expected to be issued in\\nthe first quarter of 2004.\\n•\\nA significant development in respect of legal\\ninfrastructure was the establishment of a\\ndedicated High Court to adjudicate all muamalat\\ncases in the Commercial Division of High Court\\nKuala Lumpur. In this regard, a directive (Practice\\nDirection No. 1 of 2003) was issued by the Chief\\nJudge Malaya to all legal practitioners in the\\ncountry to register Islamic banking and finance\\ncases at both the High Courts and the lower\\ncourts using a special code number. The\\nestablishment of the dedicated High Court for\\nIslamic banking and finance will expedite the\\nhearing of Islamic banking and finance cases and\\nfurther increase public confidence in Islamic\\nbanking and finance.\\n•\\nTo complement the court system, Bank Negara\\nMalaysia has identified arbitration as an\\nalternative dispute resolution mechanism for\\nIslamic banking and finance. Arbitration has been\\nacknowledged as an appropriate dispute\\nresolution mechanism especially for high-scale\\nfinancing facilities to reduce the court process\\nwhich can be time consuming. Towards this end,\\nBank Negara Malaysia is finalising an\\narrangement with an existing institutional\\narbitration centre to administer Islamic banking\\nand finance arbitration.\\n•\\nThe Financial Mediation Bureau (FMB) has been\\nestablished as a single mediation centre for both\\nbanking and insurance, including Islamic banking\\nand takaful. This Bureau replaces existing bureaus\\nfor the banking and insurance industry. The FMB\\nis expected to provide speedy and cost-effective\\nmediation for consumers to redress complaints\\non products and services offered by the financial\\ninstitutions.\\n•\\nIn addition to the dispute resolution mechanism,\\nthere is also a need to create a conducive legal\\nenvironment to cater for the unique nature of\\ntransactions in Islamic banking and finance. Bank\\nNegara Malaysia has formed the Law Review\\nCommittee in June 2003, comprising\\nrepresentatives from the Attorney General’s\\nChambers, Ministry of Finance, Malaysian Bar\\nCouncil, industry players and legal practitioners.\\nThe Committee will review the existing laws and\\nmake recommendations to the relevant\\nauthorities to enable smooth execution of Islamic\\nbanking and financial contracts. The review\\ncovers tax and stamp duty laws, company laws,\\nland laws and procedural laws.\\nEnhancing Intellectual Capital Development and\\nConsumer Education\\nThe creation of a large pool of talented bankers is\\ncritical for the development of a dynamic and\\ncompetitive Islamic banking industry.\\n•\\nTo achieve this objective, Islamic Banking and\\nFinance Institute Malaysia (IBFIM) has been\\nearmarked to spearhead efforts to create the\\npool of bankers who are both knowledgeable\\nand competent in Islamic banking and finance. In\\nthis respect, IBFIM will focus on enhancing its\\ncapacity in three key areas encompassing\\neducation and training, consultancy and advisory\\nas well as research and publications.\\n\\n\\n196\\n•\\nAs part of the objective to elevate consumer\\neducation and awareness in Islamic banking and\\nfinance, the Association of Islamic Banking\\nInstitutions Malaysia, under the auspices of Bank\\nNegara Malaysia, organised the Islamic Banking\\nand Takaful Week (IBTW 2003) from 26\\nSeptember to 2 October 2003. Activities\\norganised during the week included a three-day\\nexposition on Islamic banking and finance.\\n•\\nIn conjunction with the IBTW 2003, Bank Negara\\nMalaysia, together with participating Islamic\\nfinancial institutions, jointly hosted the\\nproduction of a television documentary\\nprogramme on Islamic banking and finance,\\nentitled “Kewangan Islam” (Islamic Finance). The\\n11-episode documentary programme, produced\\nby a local broadcasting station, portrayed the\\ndevelopment of the Islamic financial system in\\nMalaysia as well as products and services offered\\nby the Islamic financial institutions.\\nTo further increase public literacy in Islamic\\nbanking and finance, information booklets were\\npublished on “What is Islamic Banking?” and\\n“House Financing-i” as part of the Consumer\\nEducation Programme through “BankingInfo”.\\nThe booklets provide consumers with basic\\nknowledge and understanding on Islamic\\nbanking, the underlying Shariah principles and\\nconcepts, the range of Islamic banking products\\nand services as well as information on the\\nmechanics of house financing based on Shariah\\nprinciples.\\nPERFORMANCE OF THE ISLAMIC BANKING\\nSYSTEM\\nThe Islamic banking industry continued to register\\nstrong expansion during the year with increasing\\nmarket share in terms of assets, financing and\\ndeposits of the total banking system. The improved\\nperformance was characterised by strong\\ncapitalisation levels attributable to increases in capital\\nand profits as well as higher financing activities with\\nsignificant growth in financing for the purchase of\\ntransport vehicles and residential property. In\\naddition, asset quality recorded further improvement\\nwith a declining trend in net non-performing\\nfinancing ratio and high financing loss provisions.\\nCapital Strength\\nThe total capital base of the Islamic banking\\ninstitutions increased from RM5.1 billion as at end-\\n2002 to RM6.8 billion as at end-2003. New capital\\ninjections contributed RM1 billion to the increase in\\ncapital base in 2003 whilst the audited profits\\ncontributed another RM414.6 million. The new\\ncapital injections were due to the participation of a\\nmerchant bank in the IBS and the maintenance of\\nadequate capital by IBS banking institutions.\\nIn tandem with the new capital injection, total tier-1\\ncapital increased by RM1.4 billion or 31.1% to\\nRM5.9 billion, while total tier-2 capital recorded an\\nincrease of RM215.9 million following an increase in\\ngeneral provision for bad and doubtful financing. As\\nat end-2003, the Islamic banking system recorded a\\nstrong risk-weighted capital ratio (RWCR) of 13.1%\\nand core capital ratio of 11.4%.\\n%\\nRM billion\\nGraph 5.1\\nIslamic Banking System: \\nCapital Adequacy in 2003\\nCore capital ratio (%)\\nMonth\\nRisk weighted \\ncapital ratio (%)\\nCapital base\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\nJ\\nF\\nM\\nA\\nM\\nJ\\nJ\\nA\\nS\\nO\\nN\\nD\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\nTable 5.2\\nIslamic Banking System: Sources and Uses of\\nFunds\\nAnnual change\\n As at end\\n2002\\n2003p\\n2003p\\nRM million\\nSources\\nCapital and reserves\\n1,269\\n2,081           6,784\\nDeposits\\n6,200\\n6,906         60,212\\nFunds from other financial\\ninstitutions\\n271\\n2,541           6,985\\nOther liabilities\\n1,401\\n2,598           8,215\\nTotal\\n9,141\\n14,126         82,196\\nUses\\nCash\\n39\\n15              255\\nReserve with\\nBank Negara Malaysia\\n318\\n321           1,517\\nDeposits with other financial\\ninstitutions\\n-3,767\\n1,247           8,982\\nFinancing\\n8,517\\n11,897         48,615\\nSecurities\\n4,014\\n3,277         22,554\\nOther assets\\n20\\n-2,631\\n273\\np Preliminary\\n\\n\\n197\\nThe Islamic Financial System\\nThe RWCR of Islamic banks and IBS commercial\\nbanks stood at 11.8% and 14.3% respectively. The\\nRWCR of the IBS merchant banks as a group\\nincreased from 10.9% to 13.5% due to the increase\\nin the Islamic banking fund by two merchant banks\\namounting to RM80 million as well as the\\nparticipation of an additional merchant bank in the\\nIslamic Banking Scheme. As for the IBS finance\\ncompanies, the capital base increased by 33.2% or\\nRM479 million to RM1.9 billion during 2003.\\nMeanwhile, the risk-weighted assets expanded by\\n47.9% or RM4.9 billion to RM15.1 billion, mainly\\nfrom hire purchase financing, which resulted in a\\nmarginal decline in the RWCR by 1.4 percentage\\npoint to 12.7%.\\nTotal risk-weighted assets of the Islamic banking\\nsystem grew by 24.4% or RM10.1 billion to RM51.5\\nbillion as at end-2003. The increase was seen across\\nthe risk categories except for the 10% category\\nwhere there was reduction in interbank placements\\nwith discount houses and Cagamas mudharabah\\nbonds held. A large increase was recorded in the\\n100% and 50% risk categories (RM8.3 billion and\\nRM2.9 billion respectively) due to other financing and\\nend-financing of residential properties.\\nReflective of the strong capital position of the Islamic\\nbanking system in 2003, the RWCR and core capital\\nratio of the system remained consistently above 11%\\nand 9% respectively throughout the year.\\nAssets\\nAs at end-2003, the total assets of the Islamic\\nbanking sector increased by RM14.1 billion or 20.8%\\nto RM82.2 billion. A significant portion of the\\nincrease in total assets was attributable to the\\ngrowth in total financing of IBS commercial banks\\n(33.6%) and IBS finance companies (56.7%),\\nconstituting 78.3% of total financing. As in previous\\nyears, a notable trend observed during the year was\\nthe shift of funds from interbank deposits to\\ninvestment in securities to secure a higher rate of\\nreturn. Investment in securities of RM22.6 billion\\naccounted for 27.4% of total assets and marked an\\nincrease by RM3.3 billion or 17% during the year. In\\nterms of market share, the largest portion of Islamic\\nbanking assets remained with the IBS commercial\\nbanks with a share of 44.8%, followed by Islamic\\nbanks (25.5%) and the IBS finance companies\\n(21.8%). In terms of the growth in assets, IBS finance\\ncompanies recorded the highest growth of 41.6%,\\nfollowed by IBS commercial banks (26.5%) and\\nmerchant banks (20%).\\nFinancing Activities\\nTotal financing extended by the Islamic banking\\nsystem expanded by 32.4% or RM11.9 billion (2002:\\n30.2% or RM8.5 billion). The growth in financing was\\nlargely attributable to the significant growth in the\\nfinancing for the purchase of passenger vehicles and\\nresidential property of 60.8% and 33.3% respectively.\\nThe higher consumer demand was further expanded\\nby the attractive and competitive financing packages\\noffered by the Islamic banking institutions. Financing\\nbased on bai’ bithaman ajil (deferred payment sale)\\nconcept remained dominant, constituting 47.7% of\\ntotal financing while ijarah thumma al-bai’ (hire\\npurchase) constituted 27.6%.\\nAgainst the backdrop of strong demand from\\nconsumer spending and corporate financing, the\\nvalue of financing applications received by the Islamic\\nbanking institutions in 2003 increased by 8.8% to\\nRM26.3 billion. Responding to the strong demand\\nfor new financing, RM16.7 billion of new financing\\nwas approved during the year, whilst disbursements\\nposted a growth of 49.5%. Meanwhile, financing\\nTable 5.3\\nIslamic Banking System: Direction of Financing\\n \\nAnnual change\\nAs at end\\n2003p\\n2002\\n2003p\\nRM million\\nAgriculture, hunting,\\nforestry and fishing\\n-45.6\\n267.6       1,861.6\\nMining and quarrying\\n10.5\\n-11.0            63.5\\nManufacturing\\n807.8\\n505.6       4,386.8\\nElectricity, gas and water\\n-9.9\\n-284.8          248.9\\nCommunity, social and\\npersonal services\\n-139.2\\n89.4          303.3\\nBroad property sector\\n4,953.2\\n4,747.0\\n20,482.7\\nReal estate\\n103.5\\n142.6          811.9\\nConstruction\\n579.9\\n 655.3       2,933.5\\nPurchase of residential\\nproperty\\n3,916.9\\n3,581.4     14,344.2\\nPurchase of\\nnon-residential property\\n353.0\\n367.7       2,393.1\\nWholesale and retail trade,\\nrestaurants and hotels\\n251.2\\n410.6       1,797.0\\nTransport, storage and\\ncommunication\\n61.8\\n199.5       1,024.3\\nFinance, insurance\\nand business services\\n42.2\\n661.6       1,933.3\\nPurchase of securities\\n62.4\\n-14.1          920.9\\nConsumption credit\\n2,474.5\\n5,584.9\\n14,872.1\\nCredit cards\\n57.5\\n95.7          156.2\\nPersonal uses\\n374.7\\n575.5      1,637.1\\nPurchase of consumer\\ndurables\\n8.1\\n-9.2\\n54.1\\nPurchase of transport\\nvehicles\\n2,034.1\\n4,922.9\\n13,024.7\\nOthers\\n47.5\\n-258.7\\n720.9\\nTotal\\n8,516.4\\n11,897.6     48,615.3\\np Preliminary\\n\\n\\n198\\nrepayments increased by 26.3% during the year. On\\naverage, RM3 billion of financing were disbursed\\nmonthly in 2003, compared with RM2 billion in\\n2002. Given the favourable economic outlook,\\nstrong capital position and ample liquidity in the\\nas at end-2003. Islamic financing contributed 7.5%\\nof the total financing extended by the banking\\nsystem to the SMEs as at end-2003 as compared to\\n4.7% as at end-2002.\\nAsset Quality\\nThe asset quality of the Islamic banking industry\\ncontinued to improve during the year. As at end-\\nDecember 2003, the gross and net NPF ratios stood\\nat 8.6% (2002: 8.9%) and 5.5% (2002: 5.7%)\\nrespectively based on a 6-month classification. The\\nnet NPF ratio of the Islamic banking institutions was\\nsustained within the range of 5.3% to 5.6%\\nthroughout the year. Financing loss coverage\\nremained high at 53.7% of total NPF as at end-\\nDecember 2003. In terms of absolute amount,\\nfinancing loss coverage increased to RM2.4 billion\\nfrom RM2 billion in 2002. The income-in-suspense,\\ngeneral provision and specific provision set aside by\\nIslamic banking institutions increased by 43.7%,\\n33.7% and 3.9% respectively during the year.\\nOverall, the average general provision for Islamic\\nbanking industry stood at 1.9% of total net financing\\nreflecting the prudent stance of a number of Islamic\\nOther Islamic \\nconcepts \\n16.0%  \\nMusyarakah \\n0.5%\\nMurabahah \\n6.2%\\nIstisna' \\n0.6%\\nIjarah \\n1.4%\\nBai' Bithaman Ajil \\n47.7%\\nIjarah Thumma \\nAl-Bai' \\n27.6%\\nGraph 5.2\\nIslamic Banking System: \\nFinancing Concepts as at end-2003\\nGiven the favourable economic outlook, strong capital position\\nand ample liquidity in the Islamic banking system, the Islamic\\nbanking institutions are well positioned to sustain the growth\\nmomentum in financing activities in 2004.\\nbanking institutions in setting aside higher provisions\\nfor financing. This was further reinforced through the\\nseparate apportionment of general provision for the\\nIslamic banking financing portfolio of IBS banks\\nfollowing the introduction of the standard\\nframework for the calculation of the rate of return.\\nIslamic banking system, the Islamic banking\\ninstitutions are well positioned to sustain the growth\\nmomentum in financing activities in 2004.\\nThe Islamic banking sector also focused on providing\\nfinancing to small and medium-sized enterprises\\n(SMEs). The total financing provided by the Islamic\\nbanking institutions to the SMEs increased by 77.1%\\nfrom RM3.5 billion as at end-2002 to RM6.2 billion\\n0\\n2\\n4\\n6\\n8\\n10\\n12\\n14\\n16\\n18\\n%\\n2000\\n2001\\n2002\\n2003\\n1 Based on actual classification\\nGraph 5.3\\nIslamic Banking System: \\nNet Non-performing Financing Ratio1\\nIslamic banking system\\nCommercial banks\\nMerchant banks\\nIslamic banks\\nFinance companies\\nTable 5.4\\nIslamic Banking System: Financing Activities\\nFor the year\\nAnnual change\\n2002\\n2003p\\n(%)\\nRM million\\nFinancing approvals\\n       12,310      16,739\\n        36.0\\nFinancing disbursements\\n       24,187      36,162\\n        49.5\\nFinancing repayments\\n       20,776      26,241\\n        26.3\\nAs at end\\nAnnual change\\n2002\\n2003p\\n(%)\\nRM million\\nOutstanding financing\\n       36,718      48,615\\n        32.4\\np Preliminary\\n\\n\\n199\\nThe Islamic Financial System\\nThe broad property sector continued to account for\\nthe largest share, at 62.3% of the total NPF (2002:\\n59.7%). The high NPF in the broad property sector\\nreflected the increase of NPF in the residential\\nproperty and construction sectors of RM451 million\\nand RM174.5 million respectively. In addition, there\\nwas also an increase in NPF in transport, storage and\\ncommunication sector of RM108.2 million.\\nRates of Return\\nThe rates of return on investment deposits were\\ninfluenced by the asset yield, asset quality and the level\\nof total deposits of the Islamic banking institutions.\\nDuring the year, in tandem with favourable financing\\ngrowth and asset quality, the rates of return to the\\ninvestment account depositors recorded stable\\n2.00\\n2.50\\n3.00\\n3.50\\n4.00\\nJ\\nF\\nM\\nA\\nM\\nJ\\nJ\\nA\\nS\\nO\\nN\\nD\\nMonth\\n(%)\\nGraph 5.4\\nIslamic Banking System:\\nTrend of Rate of Return to Depositors\\n1-month\\n3-month\\n6-month\\n12-month\\nTable 5.5\\nIslamic Banking System: Non-performing Financing and Financing Loss Provisions\\nAs at end\\n2002\\n2003p\\nClassification\\nClassification\\n3-month\\n6-month\\n3-month\\n6-month\\nRM million\\nIslamic banks\\nGeneral provisions\\n209.1\\n       209.1\\n       209.1\\n       170.5\\n       170.5\\n       170.5\\nIncome-in-suspense\\n133.2\\n       142.2\\n       133.2\\n       178.2\\n       186.9\\n       178.2\\nSpecific provisions\\n 395.4\\n       436.4\\n       395.4\\n       406.7\\n       434.9\\n       406.7\\nNon-performing financing\\n1,396.4\\n    1,933.0\\n    1,396.4\\n    1,575.5\\n    2,002.2\\n    1,575.5\\nNet NPF ratio (%)3\\n10.1\\n         15.8\\n         10.1\\n         10.8\\n         15.1\\n         10.8\\nTotal provisions/ NPF (%)\\n52.8\\n         40.8\\n         52.8\\n         47.9\\n         39.6\\n         47.9\\nCommercial banks2\\nGeneral provisions\\n250.0\\n       226.5\\n       247.9\\n       400.9\\n       379.7\\n       300.8\\nIncome-in-suspense\\n113.0\\n         78.1\\n       111.4\\n       213.3\\n       130.1\\n       207.1\\nSpecific provisions\\n222.4\\n       222.4\\n       222.3\\n       280.3\\n       284.4\\n       309.3\\nNon-performing financing\\n 1,300.0\\n    1,604.2\\n    1,085.0\\n    1,991.7\\n    2,274.4\\n    1,653.7\\nNet NPF ratio (%)3\\n 5.9\\n           7.9\\n           4.6\\n           6.9\\n           8.5\\n           5.2\\nTotal provisions/ NPF (%)\\n45.0\\n         32.9\\n         53.6\\n         44.9\\n         34.9\\n         49.4\\nFinance companies2\\nGeneral provisions\\n202.2\\n       202.2\\n       202.2\\n       316.7\\n       316.6\\n       318.7\\nIncome-in-suspense\\n129.8\\n       158.7\\n       126.3\\n       150.8\\n       155.8\\n       149.8\\nSpecific provisions\\n279.4\\n       748.9\\n       238.3\\n       274.9\\n       296.7\\n       274.5\\nNon-performing financing\\n751.5\\n       919.0\\n       671.1\\n       832.3\\n    1,058.7\\n       805.1\\nNet NPF ratio (%)3\\n3.6\\n           0.1\\n           3.2\\n           2.7\\n           4.0\\n           2.5\\nTotal provisions/ NPF (%)\\n81.4\\n       120.8\\n         84.5\\n         89.2\\n         72.6\\n         92.3\\nMerchant banks2\\nGeneral provisions\\n12.2\\n         12.2\\n         12.2\\n         12.1\\n         12.1\\n         12.1\\nIncome-in-suspense\\n15.6\\n         15.6\\n         15.6\\n         20.6\\n         20.7\\n         20.6\\nSpecific provisions\\n33.6\\n         33.6\\n         33.6\\n           5.4\\n           5.4\\n           5.4\\nNon-performing financing\\n127.7\\n       127.7\\n       127.7\\n       125.6\\n       128.3\\n       125.6\\nNet NPF ratio (%)3\\n10.4\\n         10.4\\n         10.4\\n         13.2\\n         13.5\\n         13.2\\nTotal provisions/ NPF (%)\\n48.1\\n         48.1\\n         48.1\\n         30.3\\n         29.8\\n         30.3\\nIslamic banking system\\nGeneral provisions\\n673.5\\n       649.9\\n       671.3\\n       900.2\\n       879.0\\n       802.0\\nIncome-in-suspense\\n 391.7\\n       394.6\\n       386.6\\n       562.9\\n       493.5\\n       555.6\\nSpecific provisions\\n930.7\\n    1,441.3\\n       889.6\\n       967.2\\n    1,021.4\\n       995.8\\nNon-performing financing\\n3,575.5\\n    4,583.9\\n    3,280.2\\n    4,525.1\\n    5,463.6\\n    4,159.9\\nNet NPF ratio (%)3\\n6.4\\n           7.9\\n           5.7\\n           6.4\\n           8.4\\n           5.5\\nTotal provisions/ NPF (%)\\n55.8\\n         54.2\\n         59.4\\n         53.7\\n         43.8\\n         56.6\\n1\\nFinancing classified as NPF based on individual banking institution’s NPF classification policy i.e. 3-month or 6-month classification.\\n2\\nRefers to Islamic banking portfolio of conventional banking institutions participating in Islamic Banking Scheme and represents a subset of the figures reported under\\nthe total banking system for commercial banks, merchant banks and finance companies.\\n3\\nNet NPF ratio = (NPF less IIS less SP) / (Gross financing less IIS less SP) x 100%.\\np Preliminary\\nActual1\\nActual1\\n\\n\\n200\\nmovement across the different tenures. The rates for 1-\\nmonth and 3-month ranged between 2.56% to 2.72%\\nand 2.63% to 2.85% respectively. The stable\\nmovement was also influenced by the changes made to\\nthe profit sharing ratio of each deposit tenure and the\\nexistence of the Profit Equalisation Reserve that enabled\\nIslamic banking institutions to manage the volatility of\\nthe rates.\\nProfitability\\nIn line with the moderate growth in total financing, the\\nIslamic banking sector recorded an increase in net\\nfinance income of RM555 million at the operating level.\\nNotably, the non-finance income of the Islamic banking\\nsector registered an increase of RM232 million or\\n46.9%. The Islamic banking sector posted higher profit\\nbefore provision that amounted to RM2.3 billion (2002:\\nRM1.7 billion). After allocating financing loss provisions,\\nthe Islamic banking sector recorded profit before tax for\\nthe calendar year 2003 that amounted to RM977.2\\nmillion (2002: RM947.8 million). Despite the increase in\\nprovisions that amounted to RM1.3 billion, a higher\\nprofit before tax was recorded as the increase in finance\\nand non-finance income more than offset the increase\\nin provisions. The higher financing loss provisions\\ncharged by the Islamic banking institutions were partly\\ndue to the increase in NPF and Profit Equalisation\\nReserve.\\nLiquidity\\nThere was ample liquidity in the Islamic banking\\nsystem throughout 2003. Total deposits recorded a\\nmoderate growth of 13% or RM6.9 billion to reach\\nRM60.2 billion as at end-2003. The IBS commercial\\nbanks and the Islamic banks accounted for the major\\nshare (73.2%) of total deposits in the Islamic banking\\nsector (2002: 74.8%). The IBS merchant banks\\nrecorded the highest growth rate in deposits (24.6%)\\nfollowed by the IBS finance companies (20.6%).\\nInvestment deposits (general and special) continued\\nto capture a major portion of the deposits,\\naccounting for 58.5% of the total. During the year,\\nsavings and demand deposits grew by 26.6% and\\n19.6% respectively mainly due to the increase in the\\nretail customer base. In terms of the maturity profile\\nof general investment deposits, 52.6% of the general\\ninvestment deposits continued to be concentrated at\\nthe shorter end of the spectrum, mainly in the one-\\nto three-month tenure as the incremental return\\nbetween the shorter and longer placement tenures\\nremained small. The average deposit rates remained\\nstable in year 2003.\\nIn terms of liquidity position, the two Islamic banks\\nhad sufficient liquidity to meet any unexpected\\nwithdrawals for a period of up to one month. This\\nrepresented surplus liquidity above the minimum\\nrequirement of 3% and 5% for the up-to one-week\\nand one-week to one-month time buckets\\nrespectively. The financing-to-deposits (FD) ratio of\\nTable 5.7\\nIslamic Banking System:\\nDeposits by Type and Institution\\n \\nAnnual change\\nAs at\\nend\\n2003p\\n2002\\n2003p\\nRM\\n%\\nRM\\n%\\nRM\\nmillion\\nmillion\\nmillion\\nDemand deposits\\n2,727\\n42.2\\n1,796\\n19.6  10,980\\nIslamic banks\\n834\\n31.9\\n693\\n20.1\\n4,143\\nCommercial banks\\n1,893\\n49.3\\n1,103\\n19.2\\n 6,837\\nSavings deposits\\n1,275\\n30.7\\n1,442\\n26.6   6,866\\nIslamic banks\\n308\\n21.2\\n190\\n10.8\\n 1,952\\nCommercial banks\\n897\\n42.1\\n1,145\\n37.8\\n 4,175\\nFinance companies\\n70\\n12.5\\n107\\n16.9\\n 739\\nInvestment deposits\\n2,463\\n7.4\\n-741\\n-2.1  35,227\\nIslamic banks\\n909\\n8.9\\n93\\n0.8 11,183\\nCommercial banks\\n-1,032\\n-7.6 -2,351\\n-18.7  10,227\\nFinance companies\\n1,419\\n20.3\\n614\\n7.3\\n 9,019\\nMerchant banks\\n7\\n1.9\\n213\\n56.5\\n 590\\nDiscount houses\\n1,160\\n49.2\\n690\\n19.6\\n 4,208\\nOther deposits\\n-266\\n-8.9\\n4,410\\n161.6\\n 7,139\\nIslamic banks\\n-5\\n-4.0\\n187\\n157.1\\n 306\\nCommercial banks\\n-314\\n-12.8\\n3,148\\n147.6\\n5,281\\nFinance companies\\n-59\\n-50.9\\n1,150 2,017.5\\n 1,207\\nMerchant banks\\n4\\n1.3\\n-46\\n-15.0\\n 261\\nDiscount houses\\n108\\n2,160.0\\n-29\\n-25.7\\n84\\np Preliminary\\nTable 5.6\\nIslamic Banking System: Income and Expenditure\\nFor the\\ncalendar year\\n2002 2003p\\n2003p\\nRM\\nRM\\n%\\nmillion\\nmillion\\nFinance income net of\\nincome-in-suspense\\n3,196\\n3,870\\n674\\n21.1\\n(Income-in-suspense)\\n373\\n306\\n-67\\n-18.0\\nLess:\\nFinance expense\\n1,569\\n1,688\\n119\\n7.6\\nNet finance income\\n1,627  2,182\\n555\\n34.1\\nAdd:\\nNon-finance income\\n495\\n727\\n232\\n46.9\\nLess:\\nStaff cost\\n199\\n229\\n30\\n15.1\\nOverheads\\n269\\n384\\n115\\n42.8\\nProfit before provisions\\n1,654\\n2,296\\n642\\n38.8\\nLess:\\nFinancing loss & other\\nprovisions\\n706\\n1,319\\n613\\n86.8\\nPre-tax profit\\n948\\n977\\n29\\n3.1\\nReturn on assets (%)\\n1.4\\n1.2\\nReturn on equity (%)\\n20.2\\n14.4\\np Preliminary\\nAnnual change\\n\\n\\n201\\nThe Islamic Financial System\\nthe Islamic banking institutions has shown a\\nfavourable trend. The FD ratio increased from 68.9%\\nas at 31 December 2002 to 80.7% as at end-2003\\ndue to the more rapid increase in the total financing\\nbase compared with deposits during the period.\\nIslamic Interbank Money Market (IMM)\\nDuring the year, liquidity in the IMM was ample. The\\nexcess liquidity, however, was maintained at an\\nappropriate level following a series of liquidity\\noperations undertaken by Bank Negara Malaysia.\\nApart from using wadiah interbank deposits to\\nabsorb liquidity, the RM2 billion worth of\\nGovernment Investment Issues (GIIs) and RM1 billion\\nin Bank Negara Negotiable Notes (BNNNs) were\\nissued, which helped stabilise liquidity conditions.\\nThe active management of the surplus liquidity\\nposition through the issuance of government and\\nBank Negara Islamic papers has correspondingly\\nreduced the amount of funds absorbed by Bank\\nNegara Malaysia through direct acceptance of\\nwadiah interbank deposits. The average daily amount\\noutstanding absorbed through wadiah interbank\\ndeposits declined by 61.3% from RM6.2 billion in\\n2002 to RM2.4 billion in 2003.\\nThe increase in the supply of GII and BNNN\\ncontributed significantly to higher trading in these\\ninstruments. Trading in GIIs recorded an increase of\\n511.9% (RM30.2 billion) and in BNNNs recorded an\\nincrease of 300% (RM6.6 billion). The increase in the\\nsupply of Government papers has promoted active\\nsecondary market trading in the IMM. In addition,\\nBank Negara Malaysia also introduced a new\\nmeasure whereby principal dealers are required to\\nperform the role of market makers for GIIs and\\nBNNNs. This measure has put in place the price\\ndiscovery process to facilitate trading in the primary\\nand secondary market.\\nTrading in interbank deposits and other instruments\\nsuch as trade bills in the IMM also registered\\npositive growth. During the year, the mudharabah\\ninterbank investments recorded a moderate increase\\nof 14.9% totalling to RM283.8 billion (2002:\\nRM247 billion). Trading of Negotiable Islamic Debt\\nCertificates (NIDCs) also registered a positive\\ngrowth. Islamic banking institutions have intensified\\nthe issuance of Islamic negotiable instruments of\\ndeposit to mobilise longer-term deposits (a maturity\\ntenure of more than 6 months) by issuing NIDCs.\\nThis initiative spurred active trading of NIDC in the\\nIMM, which recorded a triple-digit growth of 425%.\\nHowever, in absolute terms, the trading of NIDC\\nremained relatively small. The trading of short-term\\ntrade bills also showed an encouraging growth of\\n40.3%, from RM24.8 billion in 2002 to RM34.8\\nbillion in 2003, emanating from the increase in\\ntrade financing activities.\\n0\\n1\\n2\\n3\\n4\\n5\\n6\\n7\\n8\\nJan\\nFeb\\nMar\\nApr\\nMay\\nJun\\nJul\\nAug\\nSep\\nOct\\nNov\\nDec\\nRM billion\\nGraph 5.5 \\nGII - Trading Volume\\nTrading volume\\nMonth\\n0.0\\n0.5\\n1.0\\n1.5\\n2.0\\n2.5\\n3.0\\n3.5\\n4.0\\n4.5\\n5.0\\nJan Feb Mar Apr May Jun\\nMonth\\nJul Aug Sep Oct Nov Dec\\nYield %\\nAverage rates \\n5-year - \\n 3.618 \\n4-year - \\n 3.450 \\n3-year - \\n 3.264 \\n2-year - \\n 3.090 \\n1-year - \\n 2.886\\nGraph 5.6 \\nGII - Average Yield to Maturity\\nTable 5.8\\nIslamic Interbank Money Market\\n2002\\n2003p\\nAnnual change\\nRM billion\\nRM billion\\n%\\nIslamic Funds\\nMudharabah Interbank\\nInvestments*\\n247.0\\n283.8\\n36.8\\n14.9\\nIslamic Papers\\nGovernment Investment\\nIssues\\n5.9\\n36.1\\n30.2\\n511.9\\nBank Negara Negotiable\\nNotes*\\n2.2\\n8.8\\n6.6\\n300.0\\nShort-term Trade Bills*\\n24.8\\n34.8\\n10.0\\n40.3\\nNegotiable Islamic Debt\\nCertificates*\\n0.8\\n4.2\\n3.4\\n425.0\\nTotal\\n280.7\\n367.7\\n87.0\\n31.0\\n* Volume transacted through brokers.\\np Preliminary\\nDuring 2003, the trading of Islamic private debt\\nsecurities (IPDS) increased by 59.7% to RM60.7 billion\\nfrom RM38 billion in 2002. This higher increase\\nemanated from new issues of IPDS amounting to\\nRM8.1 billion, and strong trading sentiments in the first\\nhalf of the year. The year 2003 also witnessed the issue\\nof the first asset-backed securities that were structured\\non Islamic principles amounting to RM986 million.\\n\\n\\n\\n\\nDevelopment\\nFinancial Institutions\\n204\\nIntroduction\\n204-208\\nPolicies and Measures\\n208-220\\nPerformance of Development Financial Institutions\\n\\n\\n204\\nINTRODUCTION\\nGuided by the main strategic directions and road\\nmap for development financial institutions (DFIs) in\\nthe Financial Sector Masterplan (FSMP), continued\\nefforts were made to further develop the DFIs under\\nthe Bank’s purview in 2003. Policy strategies\\nundertaken during the year remained focused on\\nareas related to enhancing the regulatory framework\\nand capacity building of the DFIs. Several initiatives\\nformulated in 2002 to further strengthen the\\nfinancial soundness and operational structure of the\\nDFIs were implemented during the year.\\nAdopting the phased and prioritised approach, a\\nnumber of prudential measures were put in place to\\nenhance the financial and operational soundness of\\nthe DFIs, to ensure efficient and effective\\nimplementation of their mandated roles in the\\nPOLICIES AND MEASURES\\nBuilding capacity and capability of DFIs\\n•\\nEnhancing advisory capacity of DFIs to SMEs\\nAs specialised institutions mandated to\\npromote certain identified economic sectors,\\nDFIs need to complement financing facilities\\nwith non-financing facilities, in particular\\nadvisory and consultancy services to their\\ntargeted customers. To build capacity of the\\nDFIs in providing advisory services, the Bank\\ninitiated a joint project with the assistance of\\nthe Japan International Cooperation Agency\\nand selected DFIs to enhance the capacity of\\nthe institution to provide advisory services to\\nSMEs. The project aims to provide action and\\nimplementation plans to improve the advisory\\nservices provided by DFIs to the SMEs.\\nSeveral prudential measures and initiatives were undertaken in\\n2003 to enhance the financial and operational soundness of DFIs\\nand to ensure effective implementation of their mandated roles.\\neconomy. These include Guidelines on Liquidity\\nRequirements, Corporate Governance Standards on\\nDirectorship, Credit Card Operations, and\\nClassification of Impaired Loans and Provisioning for\\nBad and Doubtful Debts. In addition, as part of the\\ninitiatives to further enhance the monitoring of\\nactivities and financial performance of the DFIs, a\\ncomputerised reporting system would be\\nimplemented in early 2004.\\nTo further equip the DFIs for their role as\\nspecialised institutions, initiatives on enhancing\\nadvisory capability of DFIs to small and medium\\nenterprises (SMEs) were commenced in 2003. At\\nthe same time, policy on minimum capital\\nrequirement was initiated to ensure DFIs have the\\nfinancial capacity to sustain their operations.\\nRecognising the wide outreach of selected DFIs, a\\nprogramme to enhance access to financing for\\nmicro enterprises was also launched and\\nimplemented by these DFIs. The objective of this\\nprogramme is to unlock the potential of the large\\nnumber of small businesses in promoting domestic\\nsources of economic growth.\\nMonitoring of DFIs’ Activities and Performance\\n•\\nDevelopment Financial Institutions Statistical\\nSystem\\nTo enhance the ability to measure the\\nperformance of DFIs, accurate information in a\\ntimely manner is important. Towards this end,\\nthe Bank had, in mid-2003, embarked on a\\nproject to develop a computerised reporting\\nsystem to capture and generate statistical data\\non DFIs. The system known as the Development\\nFinancial Institutions Statistical System or DFISS,\\nwill collect relevant information from DFIs via\\nonline. To address the uniqueness of each DFI,\\nthe DFISS will capture both generic and specific\\ninformation relating to their businesses.\\n•\\nSupervisory Activities\\nThe Bank adopts a two-pronged risk-based\\nsupervisory approach encompassing regular on-\\nsite examinations and off-site surveillance. With\\nthe risk-based approach, supervisory attention\\nand resources were directed to areas that pose\\nhigher degree of risks. Supervisory efforts were\\nDevelopment Financial Institutions\\n\\n\\nDevelopment Financial Institutions\\n205\\nprimarily concentrated on ensuring that the\\nDFIs were operationally and financially sound.\\nThe on-site examinations by the Bank on the DFIs\\nin 2003, inclusive of their subsidiaries, have\\nenabled the Bank to assess the operating\\nconditions and financial positions of the DFIs. As\\na result of these examinations, measures have\\nbeen taken to promote the efficiency and\\neffectiveness of individual DFIs. Capital adequacy\\nwas also assessed to ensure sustainability of the\\nDFIs in performing their mandated roles.\\nThe on-site examinations had in addition, focused\\non building institutional capacity and placing\\nsound infrastructures in the DFIs. In this regard,\\nemphasis was placed on instilling best practices in\\ncorporate governance structures and risk\\nmanagement systems. The importance of\\ncorporate governance cannot be over-\\nemphasised for the overall health of the DFIs, as\\nit would ensure accountability and provide\\nincentives for the Board and management to put\\nin place effective risk management systems. As\\npart of establishing the effectiveness of the\\nBoard, an essential ingredient in corporate\\ngovernance, interviews were conducted with the\\ndirectors of DFIs to promote understanding of the\\nroles and responsibilities as well as the\\ncommitment of the directors to the development\\nof the institutions. As most DFIs were involved in\\nlending activities, DFIs were also required to give\\nattention to discipline in risk management,\\nespecially in credit risk management. The DFIs\\nwere strongly encouraged to have in place a\\ncomprehensive risk management system with\\nappropriate management oversight to identify,\\nmeasure, control and monitor risks with emphasis\\non the uniqueness of the targeted sectors. Data\\nintegrity and information technology capacity\\nwere also assessed to ensure safe and sound\\ninformation technology operations in supporting\\nthe DFI’s business activities.\\nTo complement the on-site examinations, on-\\ngoing off-site surveillance was undertaken to\\nregularly monitor the financial health of the DFIs\\nfor early detection of any problems arising in\\nthese institutions. This included rigorous analysis\\nof financial data, ratios and trends concerning\\nthe important areas of capital adequacy, asset\\nquality, management, earnings performance and\\nliquidity position. For a more effective and\\nconsultative supervisory process, arising from the\\nexamination of the DFIs, the Bank also conducted\\nand engaged in dialogues and meetings with the\\nBoard of Directors and management of the DFIs\\nto discuss issues following the supervisory\\nfindings.\\nAchievement of the DFIs’ mandated roles was\\nalso assessed particularly as these DFIs were\\nestablished as specialised development financial\\ninstitutions to achieve national socio-economic\\nand developmental goals. The DFIs needed to be\\nmore dynamic and proactive in enhancing the\\nrange of facilities offered through product and\\nservice innovation as well as broaden their\\nactivities by providing value-added advisory/\\nconsultancy services and technical assistance to\\ntheir customers. The DFIs were also encouraged\\nto proactively develop key productivity indicators\\nand other financial analysis for self-assessment on\\ntheir achievement of mandated roles.\\nA rating framework was used in the supervisory\\nprocess to assess the DFIs, both in terms of\\nperformance of their mandated objectives as well\\nas the overall financial condition. A structured\\nrating framework for the DFIs was developed\\ntaking cognisance of the mandated core business\\nactivities and the underlying impact on the\\nmanagement and financial elements of the\\ninstitutions.\\nStrong corporate governance and risk\\nmanagement practices would enable DFIs to be\\nmore dynamic in the performance of the\\nidentified mandated roles. In supervising the DFIs,\\nattention is given to the need to balance the high\\nrisk inherent in the portfolios with effective risk\\nmanagement, the fulfilling of the mandated roles\\nand at the same time remaining financially viable.\\nStrengthening Financial Conditions and\\nOperational Structure\\nDuring the year, the Bank also issued the following\\nprudential policies and measures to enhance the\\nsoundness of the financial conditions of the DFIs:\\n•\\nGuideline on Liquidity Requirements\\nIn 2003, minimum liquidity requirements were\\nimposed on two DFIs, namely Bank Simpanan\\nNasional (BSN) and Bank Kerjasama Rakyat\\nMalaysia Berhad (Bank Rakyat), given both\\n\\n\\n206\\ninstitutions mobilise substantial funds through\\ntheir deposit-taking activities from the public.\\nThese DFIs were required to maintain a minimum\\nlevel of liquid assets as part of the measures to\\nmitigate liquidity risks. The Bank has formulated\\ntwo types of liquidity frameworks to be used in\\ndetermining the minimum level of liquid assets to\\nbe maintained by Bank Rakyat and BSN.\\nUnder the Liquid Assets Ratio Framework, BSN is\\nrequired to maintain at all times a minimum\\nliquidity ratio of at least 10% of designated\\nassets in proportion to its total eligible liabilities.\\nFor Bank Rakyat, the New Liquidity Framework\\n(NLF) which is similar to that imposed on\\nbanking institutions, is used to determine the\\nlevel of liquid assets to be maintained. Under\\nthis framework, the liquidity needs of Bank\\nRakyat are assessed based on its ability to\\nmatch its short-term liquidity requirement\\narising from maturing obligations against\\nmaturing assets. The NLF is designed to assess\\nliquidity at three levels. The first level assesses\\nthe sufficiency of liquidity in the normal course\\nof business over the next one week to 12\\nmonths. The second level assesses whether a\\nfinancial institution has sufficient liquidity\\nsurplus and reserves to meet sudden liquidity\\nwithdrawal shocks. The third level assesses a\\nfinancial institution’s general funding structure,\\nin particular, assesses the degree of\\ndependency on particular markets. To ensure\\nthat there is sufficient liquidity to meet its\\nliability obligations in the near term, Bank\\nRakyat is required to maintain adequate\\nliquidity surplus not only to meet expected\\nobligations but also to sustain unexpected\\nheavy withdrawals for at least one month.\\nThe minimum liquidity requirement for the other\\nDFIs will be imposed in stages.\\n•\\nGuideline on Corporate Governance\\nStandards on Directorship\\nAs part of the on-going efforts to promote strong\\ncorporate governance structures and practices in\\nDFIs, the Guideline on Corporate Governance\\nStandards on Directorship for DFIs was issued on\\n23 September 2003. This guideline aims to assist\\nthe DFIs and their stakeholders in instituting\\neffective governance structure and oversight of\\nboard of directors. The guideline outlines the\\nduties and responsibilities of the board of\\ndirectors, minimum requirements and rules\\ngoverning the appointment of directors and chief\\nexecutive officer (CEO) and the establishment of\\nboard committees.\\nDuties and responsibilities of the Board\\nThe guideline specifies the main duties and\\nresponsibilities of the Board. The Board is\\nresponsible for supervising the affairs of the\\nDFIs and to be fully informed of the institution’s\\ncondition and management policies in ensuring\\nthat the institution is soundly managed. In this\\nregard, the Board is responsible for the\\nselection and appointment of qualified and\\ncompetent senior executives to administer the\\naffairs of the institution. Specific for DFIs, the\\nBoard is responsible in steering the institution\\nin achieving its mandated roles to provide\\nfinancial services and facilities for which the\\ninstitution was established for. Other main\\nduties and responsibilities of the board of\\ndirectors include ensuring that DFI’s strategic\\nfocus are clearly defined, establishing and\\nensuring the effective functioning of Board\\ncommittees, and setting up effective internal\\ncontrol system and internal audit functions to\\nimprove accountability.\\nMinimum qualification standard and training\\nrequirements for directors\\nThis minimum qualification standard and training\\nrequirements for directors aim to ensure that\\nboard of directors of DFIs possess the necessary\\nqualifications, skills and experience to effectively\\ndischarge their governance responsibilities.\\nDirectors of DFIs are expected to have an\\nunderstanding of the nature of business and the\\ncurrent issues and the regulatory changes in their\\nidentified targeted sectors.\\nAppointment of CEO and directors\\nThis guideline emphasises the need to appoint\\nappropriate candidates as CEO or directors to\\nensure the sound operation of a DFI. Candidates\\nmust be suitably qualified with appropriate\\nexperience, calibre and impeccable integrity, in\\naddition to being familiar with the operations,\\nstate of the internal controls, requirements of\\nregulations and current policies affecting the DFI\\nto ensure smooth running of the day-to-day\\noperations of the institution. The guideline also\\nclarifies the ‘fit and proper’ criteria as set out in\\nthe Development Financial Institutions Act 2002\\n(DFIA).\\n\\n\\nDevelopment Financial Institutions\\n207\\nOn the policy with regard to appointing\\npractising lawyers and accountants as directors of\\na DFI, the guideline indicates that such\\nappointments can be made provided that they\\nare not employed by or are not partners in a legal\\nfirm or accounting firm, which are on the panel\\nof lawyers or engaged to conduct audit of or\\nconsultancy work for that particular DFI.\\nDirectorship in other corporations\\nThe CEO is not permitted to hold any executive\\nposition in another corporation to ensure focus on\\nthe management of the institution. Directorships in\\nsubsidiaries and associate companies of the DFI\\nshould not exceed five at any one time. The Board\\nshould set policies on the maximum number of\\ndirectorships that can be held by other staff of the\\nDFI. To ensure that the non-executive director\\nparticipates and is actively involved in the\\nmanagement and affairs of the DFI, attendance\\nmust be at least 75% of the Board meetings.\\nSize and composition of the Board\\nThe guideline prescribes that DFIs are required to\\nhave at least seven directors on its board to\\nensure adequate number of directors to represent\\nthe interest of various stakeholders. In addition,\\nthere must be sufficient number of independent\\ndirectors to provide a balanced view and opinion\\nin the Board. The guideline also restricts the\\nmaximum number of executive directors on the\\nBoard to two.\\nBoard committees\\nTo assist the Board in discharging its\\nresponsibilities effectively, the Board is required to\\nset up four board committees with specific\\nfunctions and responsibilities. The setting up of\\nthese committees at the board level facilitates\\nactive involvement of the Board in various policy\\nformulation and to provide oversight and\\ndirection on critical aspects of the organisation.\\nThe four committees are: Audit and Examination\\nCommittee, Nomination Committee,\\nRemuneration Committee, and Risk Management\\nCommittee. The guideline provides the terms of\\nreference, composition, minimum qualification\\nwhere necessary and conducts of the respective\\ncommittees.\\n•\\nGuideline on Credit Card Operations for\\nBank Simpanan Nasional\\nAs part of the process to further increase the\\nawareness with regard to the products and\\nbanking services and to implement the measures\\non consumer protection, a Guideline on Credit\\nCard Operations which was issued to the banking\\ninstitutions was also extended to BSN being one\\nof the credit card issuers. The guideline was\\neffective from 28 July 2003.\\nUnder the guideline, BSN is required to comply\\nwith the requirements on the minimum age and\\nincome requirements, placement of fixed deposit,\\nprudent lending, minimum monthly payment,\\nfees and charges, and classification of impaired\\nloans/financing and provisioning for bad and\\ndoubtful debts with immediate effect. The\\ncompliance with the requirements pertaining to\\nterms and conditions, statement on minimum\\nmonthly payment, minimum disclosure on fees\\nand charges, supplementary cardholder’s liability,\\nliability for lost or stolen credit card, and\\nconsumer awareness and education program\\nwere effective from 28 January 2004.\\n•\\nGuideline on Classification of Impaired Loans\\nand Provisioning for Bad and Doubtful Debts\\nThis guideline was issued pursuant to Section 41\\nof DFIA to all DFIs under the Bank’s purview\\nexcluding the Malaysia Export Credit Insurance\\nBerhad (MECIB) on 13 March 2003. The guideline\\nsets out the minimum standards on classification\\nof impaired loans and advances and provisioning\\nrequirements for such assets of DFIs. The\\nguideline aims to ensure that impaired assets and\\npotential losses are identified and recognised in a\\ntimely manner, and loan assets and income are\\nfairly and prudently stated.\\nThe guideline stipulates minimum categories of\\nclassification for impaired loans, amount of\\nspecific provision to be set aside for different\\ncategories of impaired assets, treatment of\\ninterest income of impaired assets, and general\\nprovision to be set aside for the loan portfolio.\\nThe impaired assets are categorised according to\\nthe degree of recoverability of the loans. Loans\\nwith no probability of recovery are accorded with\\n‘bad’ classification, ‘doubtful’ when the chances\\nof recovery are improbable and with high risk of\\nultimate default, and ‘substandard’ when there is\\nmore than the normal risk of loss.\\nThe guideline requires DFIs to suspend all interest\\naccrued when the loan/financing is classified. On\\nminimum provisioning requirements, the\\nguideline requires the DFIs to maintain loan loss\\n\\n\\n208\\nprovision at a level that is adequate to absorb\\npotential loan/financing losses. The provisions\\nrequired are in the form of specific provision and\\ngeneral provision. While specific provision refers\\nto provision for loan losses of specific loan\\naccounts, general provision refers to provision for\\nloan losses of the overall loan portfolio. For the\\nspecific provision, the DFIs are required to\\ngradually build up the provision for potential loan\\nlosses according to the degree or category of\\nclassified assets. DFIs are required to provide 10%\\nof the uncovered exposure for loans classified\\nsubstandard, 50% for doubtful classification, and\\neventually full provision for loans classified bad.\\nThe DFIs are also required to set aside provisions\\nfor off-balance sheet items where the DFIs face\\ncredit risk from failure of counter-parties to fulfill\\ntheir contractual obligations.\\nThe guideline requires the DFIs to review the\\nadequacy of both specific and general provision\\nregularly at least every 6 months. This is to\\nensure that the provisions set aside are\\nconsistent with current information on the\\ncollectibility of the loans. In addition, the DFIs’\\nassessment of the adequacy of the provisions\\nneed to be performed in a systematic and\\nconsistent manner, in conformity with the\\nobjective criteria and be supported by adequate\\ndocumentation.\\nThe guideline also emphasises active involvement\\nof the Board of Directors and management in\\nensuring that approval and formulation of policy\\non classification of impaired loans and\\nprovisioning policy of the DFIs is consistent with\\nthe minimum standards that have been set.\\n•\\nCircular on Use of Generic Names and “i”\\nIndicator for Islamic Banking Products\\nTo increase awareness in Islamic products and\\nservices offered by banking institutions and to\\nstreamline and standardise the generic names\\nfor Islamic banking products, the Bank issued a\\nguide on the use of standardised generic\\nnames to financial institutions offering Islamic\\nbanking products. The Bank requires all\\nbanking institutions including DFIs that provide\\nIslamic banking products and services to use\\nstandardised generic names as set out in the\\nlist and to use “i” indicator for marketing and\\nadvertising of Islamic banking products in all\\nmedia, brochure and product pamphlet, and\\nother printed forms or promotion events.\\n•\\nCircular on Permission for New Products and\\nServices\\nOn 26 April 2003, a Circular on  Permission for\\nNew Products and Services was issued with the\\nobjectives to ensure that DFIs remained focus on\\ntheir mandated activities and at the same time\\navoid undertaking unnecessary risks in\\nperforming their mandated role. In addition, it\\naimed to ensure that the products meet the\\ncustomers’ requirements.\\nPERFORMANCE OF DEVELOPMENT FINANCIAL\\nINSTITUTIONS\\nThe financing activities of the DFIs improved in 2003,\\nin tandem with the overall growth of the economy.\\nTable 6.1\\nDevelopment Financial Institutions1 : Sources and\\nUses of Funds\\nAnnual Change\\nAs at end\\n 2002\\n2003\\n2003\\nRM million\\nSources:\\nShareholders’ funds\\n999\\n1,592\\n9,498\\nPaid-up capital\\n596\\n1,180\\n7,193\\nReserves\\n321\\n-122\\n1,395\\nRetained earnings\\n82\\n534\\n910\\nDeposits accepted\\n492\\n2,585\\n42,383\\nBorrowings\\n1,111\\n2,100\\n16,076\\nGovernment\\n2,250\\n2,481\\n11,356\\nMultilateral /\\n  International agencies\\n113\\n-399\\n3,036\\nOthers\\n-1,252\\n18\\n1,684\\nOthers\\n1,779\\n369\\n11,135\\nTotal\\n4,381\\n6,646\\n79,092\\nUses:\\nDeposits placed\\n3,456\\n1,393\\n17,113\\nInvestments\\n-2,700\\n1,874\\n21,142\\nof which:\\nGovernment securities\\n-219\\n66\\n3,562\\nShares\\n1,328\\n-629\\n5,799\\nQuoted\\n847\\n-3\\n5,323\\nUnquoted\\n481\\n-626\\n476\\nLoans and advances\\n4,956\\n3,106\\n32,548\\nFixed assets\\n595\\n99\\n3,706\\nOthers\\n-1,926\\n174\\n4,583\\nTotal\\n4,381\\n6,646\\n79,092\\nContingencies:\\nGuarantee\\n-182\\n493\\n3,653\\nExport credit insurance\\n3\\n-26\\n125\\nTotal\\n-179\\n467\\n3,778\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri &\\nTeknologi Malaysia Berhad, Bank Kerjasama Rakyat Malaysia Berhad, Bank\\nSimpanan Nasional, Export-Import Bank of Malaysia Berhad, Malaysia Export\\nCredit Insurance Berhad, Malaysian Industrial Development Finance Berhad,\\nSabah Development Bank Berhad, Borneo Development Corporation (Sabah)\\nSendirian Berhad, Borneo Development Corporation (Sarawak) Sendirian Berhad,\\nBank Pertanian Malaysia, Credit Guarantee Corporation Malaysia Berhad, Sabah\\nCredit Corporation and Lembaga Tabung Haji.\\n\\n\\nDevelopment Financial Institutions\\n209\\nThe DFIs provided financing to strategic sectors and\\nsub-sectors of the economy. These included\\nagriculture, capital-intensive and high technology\\nindustries, shipping, infrastructure, manufacturing,\\nexport, Bumiputera entrepreneurs, co-operatives as\\nwell as home ownership and property development\\nat the state level, namely in Sabah and Sarawak. In\\n2003, two DFIs, namely BSN and Bank Pertanian\\nMalaysia (BPM), were appointed by the Government\\nto implement the micro credit scheme, which was\\npart of the Government's Economic Package\\nannounced in May 2003.\\nFinancing Activity\\nTotal loans outstanding of the DFIs increased at an\\nannual rate of 10.5% or RM3.1 billion (2002: 20.2%\\nor RM5 billion) to RM32.5 billion as at end-2003, led\\nby lending to the infrastructure sector by Bank\\nPembangunan dan Infrastruktur Malaysia Berhad\\n(Bank Pembangunan) and retail financing by Bank\\nRakyat.\\nIn terms of overall sectoral distribution, consumption\\ncredit rose strongly by 20.1% representing 24.8% of\\ntotal loans outstanding of the DFIs. Loans\\noutstanding to the construction, and transport,\\nstorage and communication sectors as a group\\nincreased by 3.8%, representing 26% of total loans.\\nGrowth was also recorded in the agriculture and\\nmanufacturing sectors, at 10.2% and 8.9%\\nrespectively, contributing 21.3% to total loans\\noutstanding of the DFIs. In regard to credit insurance\\nand credit guarantee, total outstanding insurance\\nand guarantee coverage provided by the relevant\\nDFIs increased by 14.1% to RM3.8 billion as at the\\nend of the year, contributed by significantly higher\\nguarantee coverage provided by the Credit\\nGuarantee Corporation Malaysia Berhad (CGC).\\nLending by six DFIs that are under the purview of\\nDFIA increased during the year. Bank Pembangunan's\\nfinancing of the infrastructure sector and Bumiputera\\nSMEs increased by 11% and 4.6% respectively. In\\naddition, the bank provided advisory services and\\ntraining to the SMEs. Retail financing provided by\\nBank Rakyat to its members rose strongly by 20.8%\\nwhile BSN registered a strong increase of 15.8% in\\nits lending activities due to loans extended under the\\nmicro credit scheme. Meanwhile, the Export-Import\\nBank of Malaysia Berhad (EXIM Bank) recorded\\ngrowth of 2.1% in its lending activities. Declines in\\nlending/underwriting activities were, however,\\nrecorded by Bank Industri & Teknologi Malaysia\\nBerhad (Bank Industri) and MECIB by 7.6% and\\n9.9% respectively, due primarily to capital\\nconstraints. For the deposit-taking DFIs, savings\\nmobilised by BSN increased by 0.1% whilst that by\\nTable 6.2\\nDevelopment Financial Institutions1 : Direction of\\nLending\\nAnnual Change\\nAs at end\\n 2002\\n2003\\n2003\\nRM million\\nAgriculture, forestry\\nand fishery\\n214\\n302\\n3,266\\nMining and quarrying\\n44\\n6\\n96\\nManufacturing\\n209\\n298\\n3,654\\nElectricity, gas and water\\nsupply\\n119\\n170\\n624\\nImport and export,\\nwholesale and retail trade,\\nrestaurants and hotels\\n-378\\n166\\n406\\nBroad property sector\\n2,140\\n567\\n8,408\\nConstruction\\n1,444\\n228\\n4,019\\nPurchase of residential\\nproperty\\n191\\n162\\n2,948\\nPurchase of non-\\nresidential property\\n124\\n50\\n443\\nReal estate\\n381\\n127\\n998\\nTransport, storage and\\ncommunication\\n1,502\\n80\\n4,443\\nFinance, insurance and\\nbusiness services\\n480\\n96\\n1,876\\nConsumption credit\\n1,312\\n1,351\\n8,067\\nOthers\\n-686\\n70\\n1,708\\nTotal\\n4,956\\n3,106\\n32,548\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri &\\nTeknologi Malaysia Berhad, Bank Kerjasama  Rakyat Malaysia Berhad, Bank\\nSimpanan Nasional, Export-Import Bank of Malaysia Berhad, Malaysian Industrial\\nDevelopment Finance Berhad, Sabah Development Bank Berhad, Borneo\\nDevelopment Corporation (Sabah) Sendirian Berhad, Borneo Development\\nCorporation (Sarawak) Sendirian Berhad, Bank Pertanian Malaysia, Credit\\nGuarantee Corporation Malaysia Berhad, Sabah Credit Corporation and\\nLembaga Tabung Haji.\\nTable 6.3\\nDevelopment Financial Institutions1 : Non-\\nperforming Loans and Loan Loss Provisions\\nAs at end\\n 2002\\n2003\\nRM million\\nGeneral provisions\\n614\\n667\\nInterest-in-suspense\\n1,152\\n1,224\\nSpecific provisions\\n2,163\\n2,135\\nNon-performing loans\\n5,028\\n4,934\\nPercent (%)\\nGross NPL ratio2\\n17.7\\n15.7\\nNet NPL ratio3\\n6.8\\n5.6\\nTotal provisions/NPL\\n78.1\\n81.6\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri &\\nTeknologi Malaysia Berhad, Bank Kerjasama Rakyat Malaysia Berhad, Bank\\nSimpanan Nasional, Export-Import Bank of Malaysia Berhad, Malaysian Industrial\\nDevelopment Finance Berhad, Sabah Development Bank Berhad, Borneo\\nDevelopment Corporation (Sabah) Sendirian Berhad, Borneo Development\\nCorporation (Sarawak) Sendirian Berhad, Bank Pertanian Malaysia, Credit\\nGuarantee Corporation Malaysia Berhad and Sabah Credit Corporation.\\n2 Gross NPL ratio = (NPL / Gross loans*) x 100%.\\n* Excluding loans under ECR scheme.\\n3 Net NPL ratio = (NPL less IIS less SP) / (Gross loans* less IIS less SP) x 100%.\\n* Excluding loans under ECR scheme.\\n\\n\\n210\\nBank Rakyat increased strongly by 16.8% partly due\\nto attractive returns offered by the bank.\\nGross NPLs of the DFIs declined by RM94.1 million to\\nRM4.9 billion as at the end of the year, resulting in\\nan improvement in the gross NPL ratio to 15.7%\\ncompared with 17.7% a year ago. Nevertheless, the\\ngross NPL levels of most DFIs remained high, ranging\\nfrom 9% to 46.1% of total loans outstanding. All\\nDFIs under the purview of DFIA classified a loan or\\nfinancing account in default for six months or more\\nas non-performing.\\nAs a group, the DFIs have made provisions\\namounting to RM4 billion to cover potential loan\\nlosses. The net NPL amount and ratio of the DFIs\\nstood at RM1.6 billion or 5.6% respectively as at\\nend-2003 (2002: RM1.7 billion or 6.8%).\\nSources of Funding\\nTotal deposits mobilised by the deposit-taking DFIs\\nincreased by 6.5% to RM42.4 billion as at end-2003.\\nDeposits from individuals recorded a growth of 5.4%\\n(RM1.1 billion), accounting for the largest share of\\ntotal deposits mobilised (51.2%). Lembaga Tabung\\nHaji and BSN remained dominant in mobilising\\nsavings from individuals, with the former recording\\nan increase of 9.9%, while the latter registering a\\ndecline of 5.8% in 2003. Deposit placements by\\nbusiness enterprises, and the Government and\\nGovernment agencies accounted for 33.9% and\\n12.1% respectively of total deposits.\\nBorrowings from the Government, which amounted\\nto RM11.4 billion as at end-2003 (2002: RM8.9\\nbillion), represented 14.4% of total resources.\\nBorrowings from the Government were used\\nprimarily to enhance access to financing. The\\noperations of the DFIs were also funded by\\nshareholders’ funds totalling RM9.5 billion or 12% of\\ntotal resources.\\nIn 2003, four DFIs recorded pre-tax/zakat losses\\ntotalling RM34.8 million, mainly due to poor asset\\nquality. The remaining 10 DFIs recorded pre-tax/zakat\\nprofits totalling RM715.7 million.\\nBank Pembangunan dan Infrastruktur Malaysia\\nBerhad\\nBank Pembangunan dan Infrastruktur Malaysia\\nBerhad’s (Bank Pembangunan) primary roles are\\npromoting the participation of the Bumiputera\\ncommunity in business and industry, and providing\\nfinancing for infrastructure projects, in particular\\nGovernment-identified projects. Bank Pembangunan\\nregistered an increase in its lending activities in 2003.\\nBank Pembangunan also provides advisory services,\\nentrepreneurial training and project consultancy\\nservices to enhance the business capabilities of\\nBumiputera SMEs. As part of the efforts to promote\\nthe development of a viable and resilient Bumiputera\\nCommercial and Industrial Community, Bank\\nPembangunan introduced two new packages known\\nas \\\"Premis SMI\\\" or \\\"SMI Premises\\\" and \\\"Groombig\\\"\\nin 2003. Under the \\\"SMI Premises\\\" package, apart\\nfrom low rental rates for its factory complexes, Bank\\nPembangunan also provides loans, advisory services\\n(which include financial, corporate and technical\\nadvice), training and matching grants (whereby Bank\\nPembangunan provides grants amounting to 70% of\\ntotal project cost). As at end-2003, Bank\\nPembangunan rented 229 of the 368 factory units to\\nSMEs. In the case of the \\\"Groombig\\\" package,\\nwhich is aimed at enhancing the performance of the\\nlarger sized SMEs, the entrepreneurs were provided\\nwith loans, advisory services and training. In 2003, a\\ntotal of 29 companies were identified to participate\\nin this programme.\\nTotal loans outstanding to Bumiputera SMEs\\nincreased by 4.6% (2002: -5.6%) to RM1.3 billion as\\nat end-year. Overall, including lending to non-\\nBumiputera SMEs, total loans outstanding to SMEs\\nstood at RM1.6 billion, an increase of 5.9% over the\\nlevel at end-2002.\\nGraph 6.1\\nBank Pembangunan dan Infrastruktur \\nMalaysia Berhad: \\nDirection of Lending as at 31 December 2003 \\nOthers \\n10.2%\\nManufacturing\\n8.7%\\nUtilities\\n6.0%\\nConstruction \\n33.2%\\nTransport &  \\ncommunication \\n41.9%\\n\\n\\nDevelopment Financial Institutions\\n211\\nLoans to finance infrastructure projects recorded a\\nslower growth of 11% in 2003 compared with\\n56.5% in 2002. The outstanding loans for\\ninfrastructure projects totalled RM8.6 billion as at\\nend-2003, accounting for 84.5% of total loans\\noutstanding. These were mainly to finance\\nGovernment-identified infrastructure projects. The\\nloan increase was attributed largely to loans\\nextended to the transport and communication\\n(RM80.8 million), construction (RM331.2 million) and\\nutilities (RM163.3 million) sectors. Overall, the loan\\nportfolio of Bank Pembangunan increased by 10.2%\\nto RM10.2 billion as at end-2003, representing\\n68.5% of Bank Pembangunan’s total assets.\\nAs at end-2003, Bank Pembangunan managed 26\\nGovernment funds. Loan approvals and loan\\ndisbursements under these funds increased by\\n203.8% (+RM334.6 million) and 63.4% (+RM82\\nmillion) respectively. The Tourism Infrastructure Fund\\nand Special Tourism Fund 2 were the main\\nbeneficiaries with approvals of RM132.5 million and\\nRM187.2 million respectively.\\nGross NPLs increased to RM912.6 million\\nrepresenting 9% of total loans as at end-2003 (2002:\\nRM769.8 million or 8.3%), attributed largely to\\nhigher NPLs for infrastructure loans. The gross NPL\\nratio of infrastructure loans rose to 4.2% (2002:\\n2.6%), while the level of NPLs for SME loans declined\\nto 35% (2002: 38.2%). The net NPL ratio of Bank\\nPembangunan showed a marginal decline from\\n3.2% to 3.1%.\\nDuring the year, the investment portfolio decreased\\nby 36.6% (RM574.4 million) following the disposal\\nof private debt securities (PDS) and Government debt\\nsecurities. Investments in PDS of RM757.5 million\\nformed the largest component of Bank\\nPembangunan’s investment which stood at RM995.4\\nmillion as at end-2003. Deposits placed with financial\\ninstitutions increased to RM2.6 billion (2002: RM1.5\\nbillion) to account for 17.5% of total assets.\\nThe main sources of funding were borrowings from\\nthe Government (RM4.2 billion), deposits from\\nGovernment agencies and public enterprises (RM3.8\\nbillion), borrowings from multilateral and\\ninternational agencies (RM1.4 billion), debt securities\\nissued (RM1 billion) and Government grants and\\nsubsidies (RM644.7 million), accounting for 74.3% of\\nBank Pembangunan’s total resources. During the\\nyear, Bank Pembangunan’s shareholders’ funds\\nincreased by RM234 million to RM2.5 billion. Bank\\nPembangunan’s paid-up capital rose to RM1.6 billion\\nfollowing additional capital injection of RM400\\nmillion by the Government.\\nBank Industri & Teknologi Malaysia Berhad\\nThe lending activities of Bank Industri & Teknologi\\nMalaysia Berhad (Bank Industri) declined in 2003, by\\n7.6% (2002:-9.3%) to RM837.3 million as at end-\\nyear. The maritime sector (comprising shipping,\\nshipyard and marine-related industries) was the main\\nrecipient of the loans, representing 56.6% of total\\nloans outstanding, while the manufacturing sector\\naccounted for the remaining loans. As at end-2003,\\ntotal loans outstanding accounted for 19.8% of Bank\\nIndustri’s total assets of RM4.2 billion.\\nLoan approvals declined by 4.7% (2002: +17.7%),\\ngiven that in 2003, the utilisation of the New Ship\\nFinancing Facility was restricted to financing of\\nmerchant vessels only. The approvals for the\\nmanufacturing sector meanwhile continued to record\\npositive growth. During the year, lending activities of\\nBank Industri were also constrained by the level of its\\nshareholders’ funds.\\nBank Industri managed 13 Government funds during\\n2003, representing 34.9% of the total loans of Bank\\nIndustri. Loan approvals and loan disbursements\\nunder the funds continued to fall markedly, by\\n31.3% and 28% respectively, as most of the funds\\nhave been fully utilised.\\nGross NPLs decreased by RM1.4 million to RM323.6\\nmillion as at end-2003. However, due to a significant\\nGraph 6.2\\nBank Industri & Teknologi Malaysia Berhad: \\nDirection of Lending as at 31 December 2003 \\nShipyard \\n14.4%\\nManufacturing \\n43.4%\\nShipping\\n36.7%\\nMarine-related \\nindustries \\n5.5% \\n\\n\\n212\\ncontraction in the loan base, the gross NPL ratio\\nincreased to 38.6% (2002: 35.8%). Loans to the\\nmaritime sector accounted for 56.6% of total NPLs\\nwhile the manufacturing sector accounted for the\\nbalance. The net NPL ratio fell marginally to 18.4%\\nfrom 18.9% a year ago.\\nInvestment in subsidiaries (RM1 billion) and loans and\\nadvances to subsidiaries (RM840.7 million) formed\\nthe largest component (44.2%) of the bank’s assets\\nas at end-2003. The investment and advances were\\nmainly in four subsidiaries, namely MECIB, EXIM\\nBank, Global Maritime Ventures Berhad and BI Credit\\nand Leasing Berhad.\\nBorrowings formed the largest source of funding for\\nBank Industri, amounting to RM2.3 billion (54% of\\ntotal resources) as at end-2003, of which 52.7%\\nfrom the Government and 47.3% from multilateral\\nand international agencies. Another major source of\\nfunding was deposits placed by Government and\\nGovernment agencies, totalling RM678.3 million. The\\nshareholders’ funds of Bank Industri rose to RM280.2\\nmillion as at end-2003 (2002: RM164.3 million)\\nmainly from the capital injection of RM80 million by\\nthe Government in June 2003 as part of the\\nGovernment’s Economic Package.\\nExport-Import Bank of Malaysia Berhad\\nFinancing activities of Export-Import Bank of Malaysia\\nBerhad (EXIM Bank) to promote the export of\\nMalaysia's goods and services recorded an increase of\\n2.1% to RM2.1 billion in 2003. New loans approved,\\nhowever, recorded a marked increase of 24.5% or\\nRM92.8 million, reflecting the significant growth of\\nMalaysian exports during the year. The two major\\nactivities were financing provided under the Export\\nCredit Refinancing (ECR) scheme (54.2% of total\\nloans) and financing of overseas projects (41.6%),\\nwhile export financing constituted 4.2%. The bank\\nalso provided export guarantee of RM172.3 million,\\na decline of 2.1% from the previous year.\\nDuring the year, financing of overseas projects fell\\nfurther to RM866.2 million, constrained by the small\\nsize of the bank's shareholders' funds. Nearly half of\\nthe total was channelled to projects undertaken in\\ncountries in the African continent and another\\n36.9% in South-East Asia. Meanwhile, the sole\\nguarantee issued was for a project undertaken in\\nSouth-East Asia. Consistent with its mandated role\\nto promote the diversification of Malaysia’s export\\nmarkets, loans to non-traditional markets accounted\\nfor 60.4% of the total principal loans outstanding\\nas at end-2003. For project financing, 63.7% was\\nchannelled to non-traditional markets, while 32.4%\\nof the export financing was channelled to the same\\nmarkets.\\nEXIM Bank is the designated agency to manage the\\nECR scheme which is funded by the Government as\\npart of the efforts to promote exports. Competitive\\nrates are offered to banks participating in the\\nscheme for on-lending to exporters. EXIM Bank\\ndisbursed a total of RM6.6 billion to exporters under\\nthe ECR scheme, an increase of 7.5% from the level\\nin 2002,in line with the growth in Malaysia's exports\\nand the increase in the customer base by 7% to\\n1,760 exporters. The major users of the facility were\\nexporters in the palm oil products, rubber products,\\nchemical products and textiles industries.\\nLoans outstanding formed the largest asset of EXIM\\nBank amounting to a share of 60.3% whilst deposit\\nplacements accounted for 37.5% of EXIM Bank’s\\ntotal assets.\\nGross NPLs improved during the year, to RM439.9\\nmillion (2002: RM450.9 million), representing\\n46.1% of total loans outstanding, excluding loans\\nprovided under the ECR scheme (2002: 46.7%).\\nProject financing accounted for the largest\\ncomponent of NPLs at 92.6%. The net NPL ratio\\ndeclined to 2.3% after significant provisioning of\\nRM436.3 million.\\nThe bank sourced its funds through borrowings from\\nthe Government, international agencies and its\\nparent company, apart from its shareholders' funds\\nof RM238.2 million. As at end-2003, borrowings\\nfrom the Government amounted to RM2 billion,\\nGraph 6.3\\nExport-Import Bank of Malaysia Berhad:\\nCredit Facilities as at 31 December 2003\\nExport\\nfinancing\\n4.2%\\nProject\\nfinancing\\n41.6%\\nECR scheme\\n54.2%\\n\\n\\nDevelopment Financial Institutions\\n213\\ninternational agencies RM298.2 million and, its\\nparent company RM369.7 million. These borrowings\\naccounted for 78% of the bank’s total resources.\\nBorrowings from the Government were utilised solely\\nfor the ECR scheme.\\nFollowing the signing of Multilateral Letter of Credit\\nConfirmation Facility Agreements with seven Asian\\nexport-import financing institutions in 2002 in order\\nto promote trade within the region, EXIM Bank\\nsigned Bilateral Letter of Credit Confirmation Facility\\nAgreements with Korea EXIM Bank and India EXIM\\nBank, to further enhance Malaysia's bilateral trade\\nwith the respective countries.\\nMalaysia Export Credit Insurance Berhad\\nThe activities of the Malaysia Export Credit\\nInsurance Berhad (MECIB), which provides insurance\\ncover and guarantee facilities to facilitate exports\\nand overseas investment, continued to decline in\\n2003. Total insurance coverage and guarantees\\nissued amounted to RM496.6 million as at end-\\n2003, a decline of 9.9% (2002: -13.3%), although\\ncoverage under short-term credit insurance facilities\\nincreased by 12.9% in tandem with Malaysia’s export\\ngrowth. Of the total coverage, 74.7% was\\nguarantees issued and the remaining were export\\ncredit insurance covers. The guarantee coverage\\nwere largely medium- and long-term exposures\\nwhile the export credit insurance cover was mainly\\nshort-term in nature. MECIB faced capital\\nconstraints to engage in large medium- and long-\\nterm business.\\nNon-traditional markets accounted for 40.8% of the\\ntotal guarantee and insurance coverage, reflecting\\nMECIB’s role in supporting Malaysia’s export market\\ndiversification efforts. Exposure to countries in East\\nAsia accounted for 46.9% of the total exposure,\\nfollowed by Africa 12.7% and South Asia 12%.\\nMECIB funded its activities solely from its\\nshareholders' funds, which improved slightly to\\nRM76.6 million as at end-2003 (2002: RM45.6\\nmillion). The loss percentage, indicating the ratio\\nof claims paid to premiums received, improved to\\n29.3% as at the end of 2003, compared with the\\nlevel of 55.3% recorded at the end of 2002.\\nThe main assets of MECIB were investments in\\nsecurities and deposits placed with financial\\ninstitutions, accounting for 45.1% and 40.3% of\\ntotal assets respectively.\\nBank Kerjasama Rakyat Malaysia Berhad\\nBank Kerjasama Rakyat Malaysia Berhad (Bank\\nRakyat) or People’s Cooperative Bank of Malaysia\\nregistered strong growth both in financing and\\ndeposit mobilisation activities. Bank Rakyat’s assets\\nincreased significantly by 17.7% to RM17.1 billion\\nas at the end of the year. Financing formed the\\nmajor portion (58.2%) of total assets, followed by\\ndeposit placements (24.5%) and investment in\\nsecurities (14.2%).\\nFinancing activities grew strongly by 16.9% to\\nRM10 billion, with borrowings by members, which\\naccounted for 77.7% of total financing\\noutstanding, increasing by 20.8%. Demand for\\nconsumption credit continued to register a\\nsignificant growth of 18.6% to RM6.9 billion as at\\nend-year. Financing extended to the property sector\\ngrew by 15.8% to RM1.9 billion, reflecting primarily\\nGraph 6.4\\nMalaysia Export Credit Insurance Berhad:\\nContingent Liabilities as at 31 December 2003\\nShort-term\\nguarantee\\n1.8%\\nMedium-and\\nlong-term\\nguarantee\\n72.9%\\nMedium-and\\nlong-term\\ninsurance\\n0.4%\\nShort-term\\ninsurance\\n24.9%\\nGraph 6.5\\nBank Kerjasama Rakyat Malaysia Berhad:\\nDirection of Financing as at 31 December 2003\\nOthers \\n1.8%\\nAgriculture \\n0.6%\\nProperty \\n19.1%\\nGeneral \\ncommerce \\n4.7%\\nShare financing \\n1.1%\\nPurchase of \\nmotor vehicles \\n2.8%\\nConsumption\\ncredit \\n68.9%\\nManufacturing \\n1%\\n\\n\\n214\\nstrong demand for residential properties. Financing\\nof motor vehicles also registered strong growth of\\n136% although its share remained small at only\\n2.8%. In terms of sectoral distribution, consumption\\ncredit accounted for 68.9% of the financing\\noutstanding whilst 19% and 4.7% were extended to\\nthe property sector and general commerce\\nrespectively. New financing approved and disbursed\\nremained relatively unchanged at RM3.6 billion and\\nRM3.7 billion respectively (2002: RM3.6 billion and\\nRM3.5 billion respectively).\\nThe gross non-performing financing (NPF) ratio fell\\nmarginally to 10.7% from 11.4% while the\\noutstanding gross NPF increased slightly to RM1.1\\nbillion from RM974.2 million. The property sector\\nand consumption credit contributed 39.8% and\\n35.4% respectively, to total gross NPF. In terms of net\\nNPF, the ratio was 5.2%.\\nBank Rakyat’s financing operations were largely\\nfunded by deposits, totalling RM13.1 billion and\\nrepresenting 76.6% of the bank’s total resources.\\nDeposits placed by business enterprises accounted for\\na major share (66.7%), of which two-thirds was from\\nprivate enterprises while the remaining from public\\nenterprises. Deposits mobilised from individuals saw a\\nsignificant growth of 39.3% (RM454.9 million), raising\\nits share of total deposits to 12.3% (2002:10.3%),\\nattracted by the high rate of return offered by Bank\\nRakyat. Similarly, deposits of cooperatives rose strongly\\nby 54.1% in 2003 although its share was only 2.6%\\nat RM339 million. Overall, deposits mobilised by Bank\\nRakyat continued to register a strong growth of\\n16.8% (RM1.9 billion) due primarily to the favourable\\nreturns offered by the bank.\\nBank Rakyat’s shareholders’ funds rose from RM1.8\\nbillion to RM2.5 billion as at end-2003. This was\\nattributed to higher members’ shares and\\nsubscription funds, which increased to RM1.3 billion\\n(2002: RM0.9 billion). Bank Rakyat’s improved\\nprofitability in 2003 further enlarged the bank’s\\nshareholders’ funds. During the year, the individual\\nmembership of Bank Rakyat increased by 86,770 to\\n629,907 while cooperative membership increased by\\n84 to 1,067. The high dividend rate of 15% declared\\nby Bank Rakyat in 2002 and the privilege loan rate\\noffered to members attracted additional\\nmembership.\\nBank Simpanan Nasional\\nSavings mobilised from small savers by Bank\\nSimpanan Nasional (BSN) or National Savings Bank\\ndeclined while deposits from business enterprises\\nrose sharply by 54.9%. Retail loans to small\\nborrowers increased in 2003, consistent with the\\nrole of the savings bank to meet the financing\\nneeds of small borrowers. In June 2003, BSN was\\nappointed by the Government to implement the\\nmicro credit scheme. As at the end of 2003, BSN\\noperated through 398 branches covering both the\\nurban and rural areas, and supported by 591\\nATMs.\\nTotal deposits outstanding increased marginally by\\n0.1% or RM4.9 million during the year to RM9.4\\nbillion. Savings from individuals continued to\\naccount for the largest component (71.3%) of the\\ndeposit base although such savings declined by\\n5.8% or RM411.4 million to RM6.7 billion,\\ncompared with growth of 4.1% or RM284.1\\nmillion in 2002. The increase of deposits from\\nbusiness enterprises was in part due to the\\nrequirement for micro credit borrowers to open an\\naccount with BSN. In terms of type, more than\\none-half of the deposits was in the form of savings\\ndeposits, 36.3% fixed deposits and the remaining\\nin the form of general investment deposits.\\nThe deposits were mainly invested in securities,\\nwhich amounted to RM5.5 billion (49.8% of total\\nassets) as at end-2003, of which RM2.8 billion\\nwere investments in Government securities. The\\nbalance was utilised to finance lending operations.\\nTotal loans outstanding registered strong increase of\\n15.8% (2002: -7.4%) to RM2.4 billion, reflecting the\\nloans provided under the micro credit scheme which\\nGraph 6.6 \\nBank Simpanan Nasional: \\nTotal Deposits Accepted as at 31 December 2003 \\nIndividuals \\n 71.3%\\nGovernment \\nagencies \\n10.9% \\nPrivate-controlled \\nbusiness \\nenterprises \\n10.3%\\nGovernment-\\ncontrolled \\nbusiness \\nenterprises \\n6.0%  \\nFinancial \\ninstitutions \\n1.5%\\n\\n\\nDevelopment Financial Institutions\\n215\\nwas launched in June 2003 as part of the\\nGovernment’s Economic Package. As at end-2003, a\\ntotal of RM415.6 million had been extended under\\nthe micro credit scheme, accounting for 17% of total\\nloans outstanding. BSN received 102,432 loan\\napplications under the scheme, of which 60,364\\napplications amounting to RM541.8 million and\\nRM430.8 million were approved and disbursed\\nrespectively. The micro credit borrowers were\\ninvolved mainly in food stall business, retail trading\\nand business services. Meanwhile, more than 90% of\\nthe loans outstanding, excluding micro credit, was\\nextended to individuals mainly in the form of\\nconsumer loans and for purchase of residential\\nproperty.\\nGross NPLs decreased marginally by RM21.9 million\\nto RM297.4 million as at the end of 2003, attributed\\nto a decline in NPLs of credit card loans. NPLs of Giro\\nHousing Loans increased marginally by 1% to\\nRM158.6 million while NPLs of motor vehicle loans\\nfell slightly by 1.2% to RM112.5 million. The gross\\nNPL ratio improved to 12.2% as at end-2003 (2002:\\n15.1%) largely due to an expansion in the loan base.\\nNet NPLs decreased to 6.6% amounting to RM154.6\\nmillion.\\nIn 2003, BSN’s reserves strengthened following the\\ncapital injection of RM100 million by the\\nGovernment under the Economic Package.\\nBank Pertanian Malaysia\\nFinancing activities of Bank Pertanian Malaysia (BPM)\\nor Agriculture Bank of Malaysia increased\\nsignificantly in 2003. Under the Eighth Malaysia Plan\\n(8MP), BPM had been mandated to manage various\\nagricultural financing schemes with the objective to\\nenhance the performance of the agriculture sector in\\nthe economy. In 2003, BPM received an allocation of\\nRM44.5 million for three financing schemes namely,\\nFood Production Credit, Bumiputera Commercial and\\nIndustrial Community Scheme and Agricultural\\nMechanisation and Automation Scheme. In addition,\\nas part of the Government’s Economic Package, BPM\\nwas appointed to implement the micro credit\\nscheme.\\nTotal loans outstanding increased strongly by 16.2%\\nto RM2.7 billion as at end-2003 following the\\nlaunching of the micro credit scheme. Since its\\nlaunch in June 2003, BPM received a total of 30,004\\napplications under the scheme and approved 17,237\\napplications with a value of RM199.3 million as at\\nend-2003. A total of RM194 million had been\\ndisbursed to borrowers, mainly involved in agrobased\\nprojects, agriculture marketing, crop cultivation and\\nlivestock rearing.\\nOf the loans outstanding, a major part (60.5% or\\nRM1.7 billion) was extended to the oil palm, food\\ncrop and livestock industries. Meanwhile, small\\nfarmers accounted for 43.8% (RM1.2 billion) of loans\\noutstanding. As at end-2003, loans outstanding\\nrepresented 45.6% of BPM's total assets of RM6\\nbillion.\\nBPM approved 27,735 loan accounts, and disbursed a\\ntotal of RM709.2 million during the year. Small farmers\\ncontinued to be the main target group with 98.4% of\\nthe total loan applications approved. Although the\\nnumber of applications approved increased during the\\nyear, in terms of value, the amount approved showed a\\ndecline of 7.9% to RM709.2 million, as most of the\\nloans were small in size.\\nGross NPLs amount and ratio on a 12-month\\nclassification basis improved further to RM889.2\\nmillion and 32.4% respectively (2002: RM894.3\\nmillion and 37.8% respectively). Net NPLs stood at\\nRM326.4 million or 15% of total net loans.\\nInvestments formed the second largest component of\\nthe total assets of BPM at 31.9% or RM2 billion\\nmainly in PDS (37.2% of total investment), unit trusts\\n(29.6%) and promissory notes/commercial papers\\n(25.3%).\\nThe major source of funds for BPM was deposits of\\nRM3.8 billion mobilised through its network of 119\\nbranch offices and 4,907 mobile units nationwide.\\nGraph 6.7\\nBank Pertanian Malaysia:  \\nDirection of Lending as at 31 December 2003\\nOthers\\n21.4%\\nRubber\\n1.5%\\nTobacco\\n2.6%\\nForestry\\n3.3%\\nLivestock\\n15.1%\\nFishery\\n10.7%\\nFood crops\\n20.1%\\nOil palm\\n25.3%\\n\\n\\n216\\nThis represented 62.5% of BPM's total resources.\\nBorrowings from the Government totalled RM1.1\\nbillion, accounting for 18.7% of total resources.\\nThese were mainly to fund the various financing\\nschemes introduced by the Government. As at end-\\n2003, BPM managed 11 funds with loans\\noutstanding amounting to RM206.4 million or\\n10.8% of the total loans of BPM.\\nIn 2003, BPM's shareholders' funds strengthened\\nfollowing the capital injection of RM200 million by\\nthe Government under the Economic Package and\\nthe profit recorded in the financial year 2003.\\nMalaysian Industrial Development Finance\\nBerhad\\nFinancing activities of Malaysian Industrial\\nDevelopment Finance Berhad (MIDF) recorded a\\nmarginal increase in 2003. During the year, MIDF was\\nappointed as the implementing agency for the new\\nSoft Loan Scheme for Factory Relocation\\nadministered by the Small and Medium Industries\\nDevelopment Corporation (SMIDEC). Consistent with\\nthe growing demand for Islamic financing products,\\nMIDF introduced Islamic financing in October 2003,\\noffering a wide range of Shariah compliant schemes.\\nLoans outstanding grew by 6.4% to RM1.1 billion as at\\nend-2003. Loan disbursements increased significantly to\\nRM312.3 million (2002: RM240.6 million). The loans\\noutstanding were mainly for the manufacturing sector\\n(82.4%), with the major beneficiaries being the\\nfabricated metal products and machinery industry\\n(17.2%), basic iron and steel and non-ferrous products\\nindustry (16%), and wood products industry (15.4%).\\nMeanwhile, loans outstanding to SMEs accounted for\\n50.1% of total loans.\\nDuring the year, loan approvals increased to RM493.7\\nmillion (2002: RM409.6 million), of which 85.3% was\\nfor manufacturing establishments and 19.1% was for\\nBumiputera projects.\\nAsset quality of MIDF improved significantly. Based\\non 3-month classification, the gross NPL amount and\\nratio improved to RM337.9 million (2002: RM524.9\\nmillion) and 29.8% (2002: 49.2%) respectively, due\\nto resolution of some NPL cases totalling RM195.4\\nmillion.\\nMIDF managed a total of ten Government and\\nGovernment agencies funds with total loans\\noutstanding of RM328.6 million, an increase of\\n34.3%. Loans approved under the special loan\\nschemes decreased to RM151.4 million (2002:\\nRM190.2 million) while loans disbursed increased to\\nRM134.8 million (2002: RM116.6 million).\\nThe main sources of funds were shareholders’ funds\\nand borrowings. As at end-2003, total shareholders’\\nfunds increased by 26.8% to RM1.3 billion (2002:\\nRM1 billion) following the issue of new shares,\\naccounting for 46.1% of total resources. Meanwhile,\\nborrowings accounted for another 40.2% of total\\nresources. This included RM641.6 million sourced\\ndirectly or indirectly from the Government to be on-\\nlent for socio-economic purposes. MIDF also raised\\nfunds from the capital market amounting to\\nRM528.8 million as at end-2003 for its other\\ncorporate lending activities.\\nGraph 6.8\\nMalaysian Industrial Development Finance Berhad:\\nDirection of Lending as at 31 December 2003\\nNon-manufacturing\\n17.6%\\nManufacturing\\n82.4%\\nPlastic products\\n7.1%\\nWood products\\n15.4%\\nNon-metallic\\nmineral products\\n10.1%\\nBasic iron & steel and\\nnon-ferrous products\\n16.0%\\nFabricated metal\\nproducts\\n& machinery\\n17.2%\\nElectrical & electronic\\nproducts\\n8.1%\\nOthers\\n18.9%\\nFood, beverages\\n& tobacco\\n7.2%\\n\\n\\nDevelopment Financial Institutions\\n217\\nCredit Guarantee Corporation Malaysia Berhad\\nThe principal objective of the Credit Guarantee\\nCorporation Malaysia Berhad (CGC) is to assist SMEs\\nenhance their access to credit facilities. There was a\\nsignificant increase in guarantees issued in 2003,\\ncontributing to facilitating financing to SMEs by\\nbanking institutions.\\nIn 2003, CGC launched the revised and liberalised\\nNew Principal Guarantee Scheme and Islamic\\nBanking Guarantee Scheme to facilitate SMEs\\nobtain higher financing. CGC also introduced the\\nSpecial Relief Guarantee Scheme to provide\\ncoverage for working capital provided by banking\\ninstitutions for businesses affected by the Severe\\nAcute Respiratory Syndrome, especially those\\ninvolved in the tourism industry. In addition, CGC\\nhas engaged consultants under its Business Advisory\\nService Entity plan to assist SMEs, particularly in\\npreparing business plans and financial documents.\\nMeanwhile, an online posting of Direct Access\\nGuarantee Scheme (DAGS) loans for bidding by the\\nbanking institutions was launched to facilitate\\nfinancing to SMEs.\\nTotal guarantees outstanding recorded a strong\\ngrowth of 18.3% (2002: –3.9%) to RM3 billion as at\\nend-2003. This was mainly attributed to the strong\\nperformance of DAGS and the Flexi Guarantee\\nScheme (Flexi Guarantee). Since the introduction of\\nDAGS in 2000, guarantees outstanding of this\\nscheme continued to rise markedly, by 120.4% in\\n2003 to RM718.3 million, as the revised programme\\nenabled more SMEs to gain access to the scheme.\\nGuarantees outstanding for the Flexi Guarantee also\\nexpanded significantly, by 108.5% or RM262.6\\nmillion to RM547.6 million as at end-2003. This was\\na turnaround from a decline of 25.4% or RM89.2\\nmillion experienced in 2002. The high growth of\\nFlexi Guarantee reflected mainly the higher demand\\nfor loans extended under the Fund for Small and\\nMedium Industries 2 (FSMI 2) and New\\nEntrepreneurs Fund 2 (NEF 2).\\nBorrowers with loan size of below RM250,000\\ncontinued to be the main beneficiary, accounting\\nfor 41.2% of total guarantees outstanding. They\\nwere followed by borrowers with loans of between\\nRM250,000 and RM500,000 (25.5%) and those\\nwith loan size of between RM500,000 to RM1\\nmillion (24.7%). Guarantees for loans of above RM1\\nmillion formed 8.6% of guarantees outstanding.\\nThe general business sector remained the largest\\ngroup that benefited from guarantee coverage,\\naccounting for three quarters of total loans\\nguaranteed, followed by the manufacturing\\n(23.3%) and agriculture (1.3%) sectors.\\nTotal provisions for claims increased by 38.1% or\\nRM119.5 million to RM433.5 million as at end-2003,\\nresulting from higher loans guaranteed turning non-\\nperforming which increased by 28.4%. Meanwhile,\\nclaims payable by CGC decreased by 16% to RM96.3\\nmillion (2002: RM114.6 million).\\nIn addition to providing guarantee coverage, the\\nCGC also implemented a number of loan schemes\\ncreated by the Government for the SMEs. These\\nloans were extended by CGC to banking\\ninstitutions for on-lending to the SMEs. As at end-\\n2003, loans outstanding under the schemes\\ndeclined to RM915.8 million (2002: RM988.7\\nmillion). Of this, four major special loan schemes\\nnamely, FSMI 2, Fund for Small Entrepreneurs,\\nNEF 2, and Islamic NEF 2 as a group amounted to\\nRM908.7 million or 99.2% of loans outstanding.\\nOf the total loans outstanding under these\\nschemes, 73.2% or RM670.1 million were\\nchannelled to SMEs in the business services sector,\\nwhile 22.4% or RM205 million was for SMEs in the\\nmanufacturing sector.\\nGross NPL amount and ratio for the loans extended\\nby the banking institutions under the schemes\\ndeclined to RM86.8 million (2002: RM139.6 million)\\nand 9.5% (2002: 14.1%) respectively. The major\\nGraph 6.9 \\nCredit Guarantee Corporation Malaysia Berhad: \\nGuarantee by Sector as at 31 December 2003\\nGeneral business \\n75.4%\\nManufacturing\\n23.3%\\nAgriculture \\n1.3% \\n\\n\\n218\\ncomponent of the gross NPLs was contributed by\\nloans to the business services sector, accounting for\\n66.3%.\\nThe shareholders’ funds remain unchanged at RM2.1\\nbillion as at end-2003, with paid-up capital of RM1.6\\nbillion.\\nLembaga Tabung Haji\\nThe deposit mobilisation activities of Lembaga\\nTabung Haji (LTH) or Pilgrims Fund Board increased\\nsignificantly in 2003, in tandem with the improved\\nperformance of the economy. To further improve\\nservices to its depositors, LTH has recently teamed up\\nwith four major banks to provide Internet banking\\nfacilities to its customers, enabling depositors with\\nthese banks to transfer funds into their savings\\naccounts with LTH. LTH signed a Memorandum of\\nUnderstanding with an estate agent company to\\nprovide accommodation for the pilgrims during Haj\\npilgrimage through a long-term tenure arrangement.\\nThis was part of continuous efforts by LTH to\\nenhance the quality of its services.\\nTotal deposits mobilised by LTH increased by 9.9% to\\nRM11.3 billion while the number of its depositors\\nincreased by 4.1% to 4.7 million. For the year 2003,\\nLTH had announced a bonus payout of 4% to its\\ndepositors (2002: 3.5%).\\nMeanwhile, total investments made up RM8.1 billion\\nor 66.2% of total assets. Investment in shares,\\namounting to RM3.8 billion, formed the largest\\ncomponent in investment portfolio, followed by\\ndeposit placements with financial institutions of\\nRM1.5 billion, investments in subsidiaries and\\nassociate companies and investment in PDS of RM1.3\\nbillion each. LTH also provided financing to its\\nsubsidiaries involved in agriculture and construction\\nactivities, and other companies totalling RM1.7 billion,\\nan increase of 24.2%.\\nSabah Development Bank Berhad\\nAfter a year of strong expansion, the lending\\noperations of the Sabah Development Bank Berhad\\n(SDB) slowed down by 5.6% to RM1.2 billion as at\\nend-2003 (2002: RM1.3 billion). The decline in loans\\noutstanding was mainly attributed to the decline in\\nloans extended to Government-controlled business\\nenterprises. Significant declines were registered in\\nloans extended to the business services,\\nmanufacturing and agriculture sectors.\\nWhile the number of loan approvals remained\\nrelatively unchanged, the total value of loans\\napproved was substantially lower at RM250.6 million\\n(2002: RM794.3 million), as credit facilities were\\nextended mainly for small development projects.\\nTotal loans disbursed also declined to RM184.3\\nmillion (2002: RM271.3 million). Meanwhile, loan\\nrepayments increased to RM316.3 million (2002:\\nRM223.7 million), contributing to the decline in loans\\noutstanding.\\nA total of 43.3% of the loans outstanding was\\nextended to the real estate sector, while 10.6% was\\nchannelled to the construction sector and 9.6% to\\nthe business services sector. Loans remained the\\nGraph 6.10\\nLembaga Tabung Haji:\\nInvestments as at 31 December 2003\\nPrivate\\ndebt securities\\n15.8%\\nInvestment in\\nsubsidiaries and\\nassociates\\n16.0%  \\nShares\\n47.3%\\nDeposits\\nplaced\\n18.7%\\nOther\\ninvestment\\n2.2%\\nGraph 6.11 \\nSabah Development Bank Berhad: \\nDirection of Lending as at 31 December 2003 \\nOthers \\n22.8%\\nBusiness services \\n9.6%\\nConstruction \\n10.6%\\nReal estate \\n43.3%\\nManufacturing \\n5.6%\\nAgriculture, \\nforestry & fishery \\n8.1%  \\n\\n\\nDevelopment Financial Institutions\\n219\\nlargest asset component of SDB, accounting for\\n75.3% of total assets of RM1.6 billion.\\nGross NPL amount and ratio improved to RM492\\nmillion and 39.7%, respectively (2002: RM542.2\\nmillion or 41.3%). A major share (69%) of the NPLs\\ncomprised loans extended to the real estate and\\nbusiness services sectors. The net NPL ratio was lower\\nat 4.6% (2002: 5.8%).\\nThe main source of funds were deposits from the\\nGovernment and Government-controlled business\\nenterprises (RM354 million) and borrowings from\\nfinancial institutions (RM536.6 million). These\\namounted to RM890.6 million or 54.1% of total\\nresources. The bank’s shareholders’ funds increased\\nto RM251.5 million (2002: RM233.2 million).\\nSabah Credit Corporation\\nThe lending activities of the Sabah Credit\\nCorporation (SCC) picked up strongly in 2003. Loans\\noutstanding increased by 18.9% (2002: -1.8%) to\\nRM632.8 million. Total loans approved and disbursed\\nincreased significantly to RM236.5 million (2002:\\nRM80.1 million) and RM223.8 million (2002: RM84.8\\nmillion) respectively.\\nThe strong expansion of 70.9% or RM253.6 million\\nin the lending operations was mainly on account of a\\nstrong demand for consumption credit, of which\\nabout two-thirds were executive loans and the\\nremaining was channelled for hire purchase facilities.\\nHousing loans, which declined marginally by 1.2% to\\nRM289.6 million, remained the largest loan\\nGraph 6.12\\nSabah Credit Corporation: \\nDirection of Lending as at 31 December 2003\\nIndustrial \\ndevelopment \\n11.1% \\nOthers \\n1.8%\\nAgriculture \\n1.3%\\nHousing \\n45.8%\\nHire purchase \\n13.2%\\nExecutive \\nloans \\n26.8%\\ncomponent. Loans outstanding accounted for 94.5%\\nof total assets (RM658.8 million) as at end-2003.\\nGross NPL ratio, based on a 4-month classification,\\nimproved to 13.6% (2002: 16.1%). A substantial share\\nof the NPLs (61.1%) was attributed to loans extended\\nto low cost housing. On a net basis, the NPL ratio was\\nslightly higher at 4.6% (2002: 4.1%).\\nBorrowings from the State Government (RM328.8\\nmillion) and banking institutions (RM156.2 million),\\naccounted for a combined share of 73.3% of total\\nresources.\\nBorneo Development Corporation (Sabah)\\nSendirian Berhad\\nProperty development activities in Sabah undertaken by\\nthe Borneo Development Corporation (Sabah) Sendirian\\nBerhad (BDC Sabah) slowed down in 2003. This was\\nreflected in the decline of 2.1% in property\\ndevelopment expenditure and progress billings to\\nRM98.2 million.\\nAs experienced in the previous two years, no new loan\\napplications were received by BDC Sabah due to\\ncompetitive lending rates offered by banking\\ninstitutions. Loans outstanding declined to RM9.5\\nmillion, following repayments of RM1.9 million in 2003\\n(2002: RM1.7 million). Of the amount outstanding,\\n75.2% was accounted for by loans to individuals, while\\nbusiness enterprises accounted for the balance.\\nGross NPLs, which stood at RM2.4 million or 25.4% of\\nloans outstanding, increased from the previous year\\n(2002: RM2.1 million or 20.1%). Loans for the\\npurchase of non-residential property constituted 94.7%\\nof total NPLs.\\nBDC Sabah sourced its funding mainly through\\nborrowings from financial institutions, which\\namounted to RM75.7 million or 77.1% of total\\nresources. The shareholders’ funds declined to RM5.2\\nmillion.\\nBorneo Development Corporation (Sarawak)\\nSendirian Berhad\\nProperty development and construction activities\\nundertaken by the Borneo Development Corporation\\n(Sarawak) Sendirian Berhad (BDC Sarawak) for the\\nState Government, recorded a significant increase in\\n2003. The amount of stocks and work-in-progress\\nincreased sharply by 49.9% (2002: -18.1%) to\\nRM50.3 million as at end-2003, representing the\\nlargest (58.2%) asset component of BDC Sarawak.\\n\\n\\n220\\nThe end-financing activities declined further as\\nborrowers continued to redeem their loans due to\\ncompetitive lending rates offered by banking\\ninstitutions. As a result, loans outstanding declined\\nto RM1 million as at end-2003 (2002: RM1.4 million).\\nMeanwhile, the investment portfolio, which\\naccounted for 12.4% of total assets of RM86.4\\nmillion, increased by 6.4% (2002: -38.8%) to\\nRM10.7 million.\\nShareholders’ funds (RM38.7 million) and borrowings\\nfrom financial institutions (RM20.3 million) remained\\nthe major source of funds to BDC Sarawak, with a\\ncombined share of 68.3% of total resources.\\n\\n\\nExternal Relations\\n222\\nEconomic Surveillance\\n222-223\\nInternational Financial Architecture\\n223\\nExternal Relations with the IMF\\n223-224\\nIslamic Banking\\n224\\nCombating Money Laundering and Terrorist Financing\\n224-229\\nFinancial Sector Liberalisation\\n229-232\\nRegional Co-operation\\n231\\nWhite Box: Asian Bond Market Initiative\\n232\\nBilateral Co-operation\\n232\\nTechnical Assistance and Information Exchange\\n\\n\\n222\\nExternal Relations\\nDiscussions at regional and international fora during\\n2003 focussed on promoting growth, enhancing\\nmacroeconomic surveillance, strengthening\\ncapacities, and deepening regional financial\\ncollaboration. To take these agenda forward, Bank\\nNegara Malaysia continued to participate actively in\\nall key international and regional fora.\\nEconomic Surveillance\\nThe surveillance initiatives undertaken by the regional\\ngroupings, including the ASEAN+3, South-East Asian\\nCentral Banks (SEACEN), and Executives Meeting of\\nEast-Asia and Pacific (EMEAP), were aimed at\\ncomplementing surveillance activities of the\\ninternational financial institutions. The meetings\\nfocussed on macroeconomic policy management,\\nmonetary and financial stability issues as well as\\nexchange of experiences in financial sector reforms.\\nIn addition to the regional fora, surveillance issues\\nwere also discussed at meetings of the Bank for\\nInternational Settlements (BIS).\\nBank Negara Malaysia hosted the Sixth Meeting of\\nthe Working Party on Monetary Policy in Asia in\\nKuala Lumpur on 5-7 November 2003. The Meeting,\\nchaired by the BIS, was attended by senior officers\\nfrom 20 central banks and monetary authorities from\\nthe Asian and G10 economies. The Working Party, a\\ngroup initiated by the BIS, meets annually to review\\nrecent global and regional economic developments\\nand outlook, and its implications for monetary and\\nfinancial policies.\\nMalaysia participated in several initiatives by the\\nmultilateral financial institutions to strengthen the\\nfinancial sector, in particular, in the work to\\nstrengthen risk management in financial institutions.\\nAt the International Monetary Fund (IMF), Malaysia\\nled the South-East Asia (SEA) Voting Group Office in\\nthe meeting of experts on the guide for compiling\\nfinancial soundness indicators. The compilation\\nwould provide guidance to member countries on the\\nconcepts, definitions, data sources and techniques\\nEconomic surveillance discussions covered macroeconomic policy\\nmanagement, monetary and financial stability issues and\\nstrengthening banking systems. Further progress was seen in the\\narea of developing codes and standards to strengthen financial\\nsystems.\\nfor the compilation and dissemination of the core\\nand encouraged sets of financial soundness\\nindicators. The set of data that member countries are\\nencouraged to compile and disseminate include 27\\nindicators on deposit taking institutions, other\\nfinancial corporations, non-financial corporate sector,\\nhouseholds, market liquidity and real estate markets.\\nAt the BIS, Malaysia was part of the regional initiative\\nto enter into a consultative process in relation to the\\nBasel Accord to take account of the special\\ncharacteristics of banking operations in emerging\\nmarket economies, particularly those from the\\nregion. Bank Negara Malaysia, as Chairman of the\\nEMEAP Working Group on banking supervision,\\ncompiled and conveyed the views of member\\ncountries of the EMEAP group to the Basel Committee\\non Banking Supervision (BCBS). In August 2003, Bank\\nNegara Malaysia organised dialogue sessions between\\nthe BCBS and regulators from EMEAP member\\ncountries and India, as well as between the banking\\nindustry of these countries and the BCBS. The Bank\\nalso facilitated the participation of the domestic\\nbanking sector in the Quantitative Impact Survey that\\nwas conducted by the BIS during the year.\\nInternational Financial Architecture\\nThe work on reform of the International Financial\\nArchitecture (IFA) during 2003 focussed mainly on\\ncrisis prevention measures, particularly through\\ndeveloping a voluntary code of conduct for crisis\\nresolution. While there was continued opposition to\\nthe IMF proposal of sovereign debt restructuring,\\nefforts to develop a Code of Good Conduct for parties\\ninvolved in sovereign debt restructuring made some\\nprogress on including collective action clauses (CACs)\\nin international sovereign bonds.  While there was no\\ngeneral acceptance to the inclusion of the CACs,\\nmembers were willing to accept such inclusions\\nprovided the Code could accommodate country-\\nspecific circumstances, by providing a degree of\\nflexibility in its application. Malaysia had, since 2000,\\nissued bonds that included CACs.\\n\\n\\nExternal Relations\\n223\\nA set-back in the IFA reform process was in the area of\\nup-front IMF liquidity support. After the 1997 Asian\\nFinancial Crisis, the IMF introduced the Contingent\\nCredit Line (CCL) facility. The objective was to provide\\nfront-loaded financial support. Access, however, was\\nconfined only to member countries with strong\\neconomic policies, which face short-term balance of\\npayments problems arising from unexpected external\\ndevelopments. The facility has not been used by\\nmember countries since it was introduced in 1999.\\nThe IMF finally conceded to discontinue the CCL from\\nend-November 2003 when all efforts to improve the\\ndesign, access and implementation procedures had\\nnot resulted in a scheme that would be practical in\\nassisting member countries.\\nAnother area lacking progress in the IFA reform\\nefforts was in redressing the governance of the IMF.\\nLack of consensus on according higher\\nrepresentation in IMF decision making process to\\nnon-G10 countries resulted in the 12th General\\nReview of Quotas being concluded in January 2003,\\nwithout any adjustment to the IMF quotas.\\nDeveloping and emerging economies continued to\\nview adjustment of the IMF’s quota structure as\\ncritical since the current IMF quotas did not reflect\\nthe increased significance and importance of the\\nemerging market economies in the world economy.\\nThis issue would be pursued during the 13th General\\nReview of Quotas, which covers the period from\\nFebruary 2003 to January 2008. Developing and\\nemerging economies are expected to maintain their\\nposition on the realignment of the IMF quotas to\\npromote a more balanced voting structure at the IMF,\\nin line with the principle that relative voting strength\\nof members must reflect their relative economic\\nposition in the global economy.\\nNotwithstanding the failure of developing countries\\nto secure higher quotas in the IMF, the SEA Voting\\nGroup in the IMF and the World Bank set up two\\nfocus groups to improve the effectiveness and\\nefficiency of the Voting Group Offices in\\nrepresenting members’ interests and in participating\\nin policy discussions at the IMF and the World Bank\\nExecutive Boards.  Bank Negara Malaysia was tasked\\nto lead in the area of improving the work process at\\nthe IMF SEA Group Office. The final report of the\\nThe IMF’s Article IV report on Malaysia concluded that the country\\nwas well placed in the near term to benefit from the projected\\nglobal upturn, with the outlook biased on the upside.\\nFocus Group was endorsed by the Governors of the\\nSEA Group at the IMF/World Bank meeting in Dubai\\nin September 2003. A new rotation scheme,\\ncommencing from November 2004 to October\\n2016, was also approved with Malaysia securing\\ngreater representation at senior positions. Under\\nthis rotation framework, Malaysia will assume the\\npost of Executive Director and lead the SEA Group\\nOffice for a period of two years from November\\n2004 to October 2006.\\nExternal Relations with the IMF\\nMalaysia continued to engage the IMF during the\\nannual Article IV consultations on Malaysia’s\\nmacroeconomic performance and policy issues for\\n2003 and expectations for 2004. The IMF’s\\nassessment of the management of the economy for\\n2003 was published as a public information notice\\nfollowing the conclusion of the IMF Executive Board’s\\ndiscussions on Malaysia. The Managing Director of\\nthe IMF visited Malaysia in September.\\nHe noted the progress of reforms had enabled\\nMalaysia to sustain economic growth in spite of\\nweaknesses in the external environment.\\nMalaysia continues to maintain its net creditor status\\nin the IMF. Since September 2002, in line with\\nMalaysia’s strong balance of payments and\\ninternational reserves position, Malaysia has been\\nincluded in the IMF’s operational budget’s Financial\\nTransaction Plan (FTP).  Under the FTP\\n, selected IMF\\nmembers with strong balance of payments and\\ninternational reserve positions may be called upon to\\nprovide foreign exchange resources to support the\\nIMF’s financial operations.  Under the FTP\\n, Malaysia\\nwas called upon to transfer SDR45 million for the\\nperiod March to May 2003.\\nIslamic Banking\\nIn the area of Islamic banking and finance, Bank\\nNegara Malaysia played an active role in the Islamic\\nFinancial Services Board (IFSB), particularly through\\nthe IFSB Council and Technical Committee meetings.\\nDuring the year, the IFSB finalised the guidelines for\\nthe preparation of prudential standards for Islamic\\nfinancial institutions, and initiated the process of\\npreparing two standards, namely the standard on risk\\nmanagement and standard on capital adequacy. In\\n\\n\\n224\\nthis connection, the IFSB conducted two workshops\\non risk identification in October 2003 in order to\\nimprove the understanding of the risks faced by\\nIslamic financial institutions. These workshops were\\nattended by participants from Islamic banking\\ninstitutions in Bahrain, Iran, Jordan, Kuwait, Malaysia,\\nPakistan, Qatar, Saudi Arabia and Sudan.\\nIn 2003, the Central Bank of Egypt, Central Bank of\\nJordan, Qatar Central Bank and Ministry of Finance,\\nBrunei Darussalam, became full members of the IFSB.\\nThree international organisations, namely, the Bank\\nfor International Settlements, International Monetary\\nFund and the World Bank, became associate\\nmembers of the IFSB, while the Asian Development\\nBank became an observer. At end February 2004, the\\nIFSB had 36 members, comprising 13 full members, 3\\nassociate members and 20 observers.\\nCombating Money Laundering and Terrorist\\nFinancing\\nMalaysia continued to be at the forefront of global\\nefforts to combat money laundering activities and\\nthe financing of terrorism. During the year, the\\nMalaysian Parliament passed the Anti-Money\\nLaundering (Amendment) Act 2003 to extend the\\nscope of the Anti-Money Laundering Act 2001\\n(AMLA) to include measures to be taken to prevent\\nterrorism financing offences and provisions to freeze,\\nseize and forfeit terrorist properties.\\nIn July 2003, Bank Negara Malaysia was admitted as\\na member of the Egmont Group of Financial\\nIntelligence Units. The Egmont Group provides a\\nforum to expand and exchange information on\\nfinancial intelligence, improve expertise and\\ncapabilities of personnel, and foster better\\ncommunication among financial intelligence units.\\nWithin the Asia/Pacific Group on Money Laundering\\n(APG), Malaysia became a member of the APG\\nSteering Group for a period of one year, up to June\\n2004. The Steering Group plays an advisory role in\\nthe areas of key governance issues in the APG,\\nwhich include the revision of the Financial Action\\nTask Force (FATF) standards and modalities to meet\\nthe increased international pressure for countries to\\ncomply with the revised standards.\\nIn line with the liberalisation path charted under the Financial\\nSector Masterplan, Malaysia implemented further unilateral\\nliberalisation in the banking and insurance sectors in 2003.\\nMalaysia participated in the training and technical\\nassistance needs analysis that was conducted by\\nconsultants commissioned under the Asia-Europe\\nMeeting (ASEM) Anti-Money Laundering Project.\\nThe report on Malaysia was finalised in February\\n2003, with the ASEM consultants’ conclusion being\\nthat Malaysia’s anti-money laundering system was\\nwell developed, integrated and supported by\\ncapable and professional staff across a number of\\nagencies. The ASEM consultants had acknowledged\\nMalaysia’s efforts in constructing an effective system\\nas well as the development of sound legislation,\\neffective institutions and well-trained staff.\\nFinancial Sector Liberalisation\\nWorld Trade Organisation\\nIn 2003, negotiations to further liberalise the services\\nsector, including financial services, at the World Trade\\nOrganisation (WTO) continued to focus on the\\n“request and offer” phase, which began on 28\\nMarch 2001. The negotiations were generally based\\non requests for market opening submitted by\\nmember countries to a trading partner and offers\\nsubmitted by the trading partner. These were\\nconducted through bilateral discussions between\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\n40\\n1999\\n2000\\n2001\\n2002\\n2003\\nYear\\nNo. of commercial banks\\n0\\n5\\n10\\n15\\n20\\n25\\n30\\n35\\nPercent (%)\\nGraph 7.1\\nForeign Participation in the Malaysian \\nCommercial Banking Sector\\nTotal no. of commercial banks (including the two Islamic banks)\\nNo. of fully foreign-owned banks\\nNo. of domestically-owned banks with foreign interest\\nAverage foreign share (%) of equity across domestically-owned \\nbanks with foreign interest\\nForeign share (%) of total commercial bank assets \\n(comprising share of fully foreign-owned banks and other \\nforeigners via equity participation in domestically-owned banks)\\n\\n\\nExternal Relations\\n225\\nGraph 7.2\\nForeign Participation in the Malaysian Insurance \\nIndustry\\nTotal no. of insurers\\nNo. of foreign-owned insurers\\nAggregate foreign market share (%) of \\ngeneral insurance premiums\\nAggregate foreign market share (%) of \\nlife insurance premiums\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n70\\n1999\\n2000\\n2001\\n2002\\n2003\\nYear\\nNo. of insurers\\n0\\n10\\n20\\n30\\n40\\n50\\n60\\n70\\n80\\n90\\nPercent (%)\\nmembers. The deadline for completion of\\nnegotiations is 1 January 2005.\\nTable 1:\\nFinancial Services Liberalisation Measures Since 2000\\nYear\\nBanking Sector\\n2000\\n•\\nThe maximum total credit facilities that could be obtained by non-resident controlled\\ncompanies (NRCCs) from foreign-owned banking institutions in Malaysia was increased from\\n40% to 50% in December 2000.\\n•\\nLicensed Offshore Banks in the Labuan International Offshore Financial Centre (Labuan\\nOffshore Banks) would be allowed to invest in ringgit assets/instruments in Malaysia for their\\nown accounts, though not on behalf of their clients.\\n•\\nLicensed commercial banks, including the foreign-owned banks, and Bank Islam Malaysia\\nBerhad in Malaysia (licensed banks) were allowed to extend in aggregate an intra-day\\noverdraft facility of not exceeding RM200 million and an overnight facility of not exceeding\\nRM10 million to non-resident stockbroking companies and non-resident global custodian\\nbanks to finance funding gaps due to inadvertent delay in relation to settlement for trade on\\nthe KLSE. In addition, they can also enter into short-term currency swap and/or outright\\nforward contracts to cover for purchase of shares on the KLSE.\\nNon-banking financial sector (excluding insurance)\\n•\\nThe maximum foreign equity limits in a stockbroking company and a financial leasing\\ncompany were increased to 49% from 30% effective 1 July 2000.\\nBanking Sector\\n2001\\n•\\nForeign-owned banking institutions were allowed to set up communicative websites from\\n1 January 2001.\\nThe Fifth Ministerial Conference (5th MC) to\\nundertake a mid-term review of the progress of\\nmultilateral trade negotiations under the Doha\\nDevelopment Agenda (DDA), including for\\nnegotiations on trade in financial services, ended\\nwithout consensus. There were wide differences in\\nthe positions of developed and developing country\\nmembers on the new issues of trade and investment,\\ntrade and competition policy, transparency in\\ngovernment procurement and trade facilitation.\\nNotwithstanding this outcome, the 5th MC agreed on\\nthe need for member countries to continue working\\non outstanding issues of the DDA. These\\nnegotiations are ongoing among trade negotiators\\nin Geneva.\\nMalaysia has maintained an undertaking of\\nprogressive liberalisation of financial services as part\\nof the overall measures to further develop the\\ndomestic financial sector.  In line with the\\nliberalisation path charted under the Financial Sector\\nMasterplan, Malaysia has taken several steps to\\nunilaterally liberalise the banking and insurance\\nsectors in 2003 (see Table 1).\\n\\n\\n226\\n•\\nBanking institutions (including the foreign-owned banks) in Malaysia were allowed to extend\\ncredit facilities in ringgit to finance the purchase and/or construction of one immovable\\nproperty for non-residents who participate in the Silver Hair Programme implemented by the\\nImmigration Department of Malaysia.\\n•\\nFinancial institutions (including the foreign-owned banks) were allowed to extend up to three\\ncredit facilities in ringgit to non-residents to finance the purchase or construction of any\\nproperty in Malaysia (excluding for the purchase of land), subject to their own internal credit\\nassessment guidelines.\\n•\\nBanking institutions (including the foreign-owned banks) in Malaysia were allowed to effect\\ntransfers involving External Accounts and another External Account and/or Resident Account\\nof different account holders by way of:\\n(a) Automated Teller Machine transfer up to RM5,000 per person/company, per day, per bank\\nfor any purpose;\\n(b) Internet-bank transfers up to RM5,000 per person/company, per day, per bank for any\\npurpose; and/or\\n(c) Cheques up to RM5,000 per cheque for any purpose.\\nInsurance sector\\n•\\nAll insurers with the requisite minimum risk management and security systems in place were\\nallowed to offer the full range of life and general insurance products through the internet\\nwith effect from April 2001.\\nBanking Sector\\n2002\\n•\\nForeign-owned banking institutions were allowed to offer transactional internet banking from\\n1 January 2002.\\n•\\nInternal credit lines used solely to facilitate drawing against uncleared cheques, granted by\\nlicensed banks (including the foreign-owned banks) to NRCCs, were excluded from the\\ncomputation of the NRCC’s total domestic credit facilities. Licensed banks were also permitted\\nto allow NRCCs to overdraw their current accounts for amounts of up to RM500,000 per\\naccount for a period not exceeding 2 working days.\\n•\\nBanking institutions (including the foreign-owned banks) in Malaysia were allowed to extend\\nadditional ringgit credit facilities to any non-resident up to an aggregate of RM5 million per\\nnon-resident to finance projects undertaken in Malaysia. Prior to this, credit facilities in ringgit\\nto a non-resident, for purposes other than purchases of three immovable properties or a\\nvehicle, were limited to RM200,000.\\nInsurance sector\\n•\\nThe areas in which insurers may employ expatriates were expanded to include, in addition to\\nthe fields of specialised underwriting, actuarial and information technology previously\\nprovided for, other areas involving product research and development, risk management and\\ninvestment.\\nBanking Sector\\n2003\\n•\\nLicensed banks (including the foreign-owned banks) in Malaysia were allowed to extend\\noverdraft facilities in ringgit not exceeding RM500,000 in aggregate to a non-resident\\ncustomer, provided such overdraft facilities are covered by fixed deposits placed by the non-\\nresident customer with the licensed banks in Malaysia. These overdraft facilities were in\\naddition to all ringgit credit facilities allowed to be extended freely by banking institutions\\nsince 21 November 2002.\\n\\n\\nExternal Relations\\n227\\n•\\nThe 50% limit on the maximum total credit facilities that could be obtained by NRCCs from\\nforeign-owned banking institutions in Malaysia was removed on 1 April 2003.\\n•\\nThe overnight limit for foreign currency account (FCA) to retain receipts arising from export of\\ngoods (export receipts) for Approved Operational Headquarters (OHQ) was increased to\\nUSD70 million from USD10 million. The maximum overnight limit on export FCA of other\\nresident exporters was also raised to USD70 million.\\n•\\nResidents may invest in investment products that are linked to foreign currency denominated\\nderivatives that are offered by licensed banks (including the foreign-owned banks) in Malaysia.\\nThe foreign currency funds used for the investment that are utilised from the residents’ FCA\\nwill be earmarked and computed as part of the aggregate overnight balances of the FCA of\\nthe residents.\\n•\\nAllow up to three new Islamic banking licences to qualified foreign players.\\nInsurance sector\\n•\\nEffective 17 April 2003, foreign-owned insurers with foreign shareholding not exceeding 51%\\nwere allowed to open not more than two branch offices in one year.\\nBanking Sector\\n2004\\n•\\nTo enhance cash flow management for supporting value chain expansion in Malaysia, licensed\\nbanks (including foreign-owned banks) can retain higher amount of foreign currency funds\\nfor residents in FCA:\\n-\\nUp to a maximum of USD100 million (previously USD70 million) of export receipts.\\n-\\nAny amount of non-export receipts for residents with domestic borrowing (previously\\nneed approval).\\n-\\nUp to USD150,000 for education/employment purpose (previously USD100,000).\\n•\\nLabuan Offshore Banks are allowed to maintain FCA for residents:\\n-\\nUp to USD0.5 million of non-export receipts for residents without domestic borrowing\\n(previously need approval).\\n-\\nUp to USD150,000 for education/employment purpose (previously USD100,000).\\n-\\nAny amount overseas foreign currency funds for resident individuals.\\n•\\nTo enhance access to ringgit funds for business requirements in Malaysia, the various limits for\\nbanking institutions lending to non-residents in ringgit have been consolidated to one single\\naggregate limit of RM10 million for use in Malaysia for any purpose (excluding stockbroking\\ncompany, custodian bank and correspondent bank).\\n•\\nThe extension of property loans in ringgit by residents, including licensed banks, to non-\\nresidents now includes the purchase of land (previously not allowed).\\n•\\nLicensed banks are allowed to extend an aggregate overnight overdraft facility of RM200\\nmillion (increased from RM10 million) to a non-resident stockbroking company or a non-\\nresident custodian bank to facilitate settlement for purchase of shares listed on the KLSE.\\n•\\nResident individuals employed or staying abroad with foreign currency funds sourced from\\nabroad are allowed to invest in any foreign currency assets, including those offered by\\nlicensed banks, approved licensed merchant banks and Labuan Offshore Banks.\\n•\\nMultilateral Development Bank and foreign multinational corporation issuers of ringgit-\\ndenominated bonds in Malaysia may enter into forward foreign exchange contracts with\\nonshore licensed banks to hedge their currency risks arising from the issuance of the ringgit\\ndenominated bonds. Non-resident investors subscribing to these issues can also hedge their\\nforeign exchange risks.\\n\\n\\n228\\nChina\\nSingapore\\nThailand\\nDate Agreement came into effect\\nNegotiations concluded\\nAgreements under negotiations\\nProposed (negotiations not started)\\nChile, New Zealand and Singapore\\nEuropean Free Trade Association (EFTA) comprises Switzerland, Iceland, Liechtenstein and Norway\\n1\\n2\\nUSA\\nBilateral Free Trade Arrangements (FTA)s\\nfor Selected Regional Countries since 2001\\nJuly 2003 \\nNovember 2002 \\nJanuary 2003 \\nJanuary 2004 \\nJanuary 2004 \\nJanuary 2001 \\nSri Lanka\\nPeru\\nPacific Three1\\nNew Zealand\\nMexico\\nKorea\\nJordan\\nJapan\\nIndia\\nHong Kong\\nEFTA2\\nCanada\\nBahrain\\nAustralia\\nASEAN\\nSource: Various publications\\nIncreased foreign presence is also through strategic\\nalliances between foreign players and local\\nentities. These included bancassurance and\\noutsourcing arrangements undertaken by\\ndomestic-owned financial institutions with foreign\\npartners.\\nASEAN Framework Agreement on Services and\\nProposed Free Trade Arrangements\\nLiberalisation of financial services among the\\nASEAN countries is also being effected under the\\nASEAN Framework Agreement on Services (AFAS).\\nA third round of negotiations on financial services\\nunder the AFAS which began in 2002 is expected\\nto be concluded by 2004. Under this round,\\nASEAN member countries will make further\\nGeneral Agreement for Trade in Services (GATS)-\\nplus commitments on financial services, that is,\\nundertake liberalisation measures beyond those\\nmade under the GATS.\\nApart from the AFAS, financial services\\nliberalisation would be covered within the scope of\\ntrade arrangements currently pursued by Malaysia\\nwith partner countries to promote freer trade and\\ninvestment regimes. Malaysia has commenced\\nnegotiations on establishing free trade\\narrangements (FTA)s with the People’s Republic of\\nChina (under the proposed ASEAN-China free\\ntrade area) and Japan. The proposed FTAs would\\ncomplement  existing trade liberalisation initiatives\\nunder the WTO and other regional economic\\nintegration arrangements, namely, the ASEAN Free\\nTrade Area for goods, the AFAS for services and\\nthe ASEAN Investment Area for investment\\nliberalisation.\\n\\n\\nExternal Relations\\n229\\nJapan\\nChina\\n2003\\nYEAR\\n2002\\n2004\\n2\\nNovember 2002\\nASEAN-China\\nFramework Agreement\\nsigned\\n1 \\n3\\n4\\nNovember 2002\\nASEAN-Japan Joint\\nDeclaration  signed\\nOctober 2003\\nASEAN-Japan Framework\\nfor Comprehensive\\nEconomic Partnership\\nsigned\\nDecember 2003\\nAgreed to start\\nbilateral\\nnegotiations in\\n2004\\nJanuary 2004\\nBilateral\\nnegotiations\\nstarted\\nJune 2004\\nTo conclude negotiations\\non trade in goods\\n2003\\nNegotations on FTA\\nongoing\\n1 Malaysia participates with other ASEAN countries in negotiations on the proposed ASEAN-China Free Trade Area.\\n2 The ASEAN-China Framework Agreement on Comprehensive Economic Co-operation was signed on 4 November 2002 to serve as a basis \\nfor the countries to start negotiations on establishing a free trade area between ASEAN and China.\\n3 The ASEAN-Japan Joint Declaration on Comprehensive Economic Partnership (CEP) was signed on 5 November 2002 to develop a \\nconcrete framework to realise such a partnership between ASEAN and Japan.  While considering a framework for the realisation of \\nthe CEP between ASEAN and Japan as a whole, the Joint Declaration does not preclude bilateral economic partnerships between Japan \\nand individual ASEAN countries.  \\n4 The Framework was signed on 8 October 2003 and provides for consultations among ASEAN and Japan to start from early 2004 on areas \\nof facilitation, co-operation, and trade and investment liberalisation, among others.\\n     \\nProgress of Malaysia's Negotiations on Proposed Free Trade Arrangements (FTA)s with China and Japan\\nRegional Co-operation\\nThe momentum of collaborative efforts to strengthen\\nand deepen regional co-operation picked up in 2003,\\nwith much of the focus being on developing regional\\nfinancial markets and enhancing regional financial\\nstability. These efforts include the strengthening of\\nFurther strengthening of regional co-operation with the\\nexpansion of bilateral swap arrangements under the Chiang Mai\\nInitiative (CMI); enhanced regional surveillance; and new\\ninitiatives to deepen and broaden Asian bond markets.\\nMiyazawa Initiative, provide Malaysia with access to\\na total of US$6 billion in financing.\\nAn effective surveillance mechanism is essential to\\nthe effectiveness of the CMI arrangement. To\\nimprove regional surveillance, the ASEAN+3 finance\\nshort-term financial support, particularly through the\\nbilateral swap arrangement; regional surveillance\\nunder the ASEAN+3 forum; and initiatives to meet\\nthe region’s long-term funding requirements through\\nthe development of bond markets.\\nFurther progress was made among the ASEAN+3\\ncountries in the expansion of the bilateral swap\\narrangement network under the Chiang Mai Initiative\\n(CMI). To date, 16 bilateral swap arrangements with\\na combined value of US$35.5 billion have been\\nconcluded, and would be available to ASEAN+3\\nmember countries. Of the 16 bilateral swap\\narrangements, Malaysia had signed three\\nagreements. The three, together with Malaysia’s\\nUS$2.5 billion agreement with Japan under the New\\nforum adopted new mechanisms to enhance the\\nsurveillance processes undertaken under the CMI\\narrangement. In this connection, the exchange of\\neconomic reviews and policy dialogues among the\\nASEAN+3 countries were further deepened and\\nbroadened with an in-depth analysis of topical\\nregional issues that would strengthen the region’s\\npeer review process. Meanwhile, regional\\nsurveillance of capital flows in the Asian region was\\nfurther strengthened in 2003 and in early 2004\\nthrough data exchange and assessments of\\ndevelopments among members of the SEACEN\\nExpert Group on Capital Flows.\\nThe year 2003 witnessed two significant events\\ntowards the development of bond markets in Asia\\n\\n\\n230\\nABMI under \\nASEAN + 3\\nTo identify issues & \\nimpediments to regional \\nbond market development\\n                                     Asian Bond Fund\\n                                     under EMEAP\\nUS$1 billion Fund\\n– invest in US$ denominated\\nbonds issued by Asian\\nsovereign & quasi-issuers in\\nEMEAP economies (except\\nJapan, Australia and\\nNew Zealand)\\nSUPPLY\\nDEMAND\\nObjective\\nBroadening & deepening bond markets in the region\\nwith the launch of the US$1 billion Asian Bond\\nFund (ABF) and the Asian Bond Market Initiative\\n(ABMI). The development of deeper and more liquid\\nbond markets will assist in channelling the large\\npool of savings in Asia to fund productive\\ninvestment in the region. Together, these initiatives\\nsignal strong official support to expand  regional\\nbond markets. Under the ABMI, six working groups\\nhave been tasked to identify the necessary\\ninfrastructure and impediments that need to be\\nremoved in order to encourage  the growth of\\nregional bond markets.\\nWhile the voluntary working groups under the\\nABMI aim to address supply-side measures deemed\\nnecessary for active participation of both bond\\nissuers and investors, the ABF complements the\\nABMI on the demand-side by taking the first step\\ntowards facilitating the channelling of a portion of\\nofficial reserves held by the Asian economies back\\ninto the region. The ABF concept is being studied to\\ninclude bonds denominated in regional currencies.\\nTogether, the ABMI and the ABF reflect\\nstrengthened efforts by the public sector to broaden\\nand deepen the regional bond markets.\\nKorea\\nJapan\\nPeople’s\\nRepublic\\nof China\\nMalaysia\\nIndonesia\\nPhilippines\\nPeople's Republic\\nof China\\nKorea\\n5 October 2001\\n(US$1 billion)\\n1\\n26 July 2002\\n(US$1 billion)\\n2\\n9 October 2002\\n(US$1.5 billion)\\n1 \\n17 February 2003\\n(US$3 billion)\\n1\\n27 August 2001\\n(US$3 billion)\\n1 \\n9 August 2002\\n(US$1 billion)\\n29 August 2003\\n(US$1 billion)\\n2\\n1\\n30 July 2001\\n(US$3 billion)\\n1 \\n11 June 2002\\n(US$1 billion)\\n2\\n6 December 2001\\n(US$2 billion)\\n1 \\n28 March 2002\\n(US$3 billion)\\n2\\n24 June 2002\\n(US$2 billion)\\n2\\n4 July 2001\\n(US$2 billion)\\n1 \\n24 December 2003\\n(US$1 billion)\\n30 December 2003\\n(US$1 billion)\\n10 November 2003\\n(US$1 billion)\\n1 \\n1 \\n1 \\nSingapore\\nThailand\\nBilateral Swap Arrangement Agreements under the Chiang Mai Initiative\\nDates indicate when the agreements were signed. The maximum drawing amount for each agreement is indicated in parentheses. The combined \\ntotal size of the 16 bilateral swap arrangement (BSA) agreements is US$35.5 billion (based on the overall availibility under the BSAs, where the maximum \\ndrawing amount under two-way swap arrangements is counted twice to reflect the swap amount available to both parties under the agreement). \\n1 A one-way swap arrangement where the requesting country under the agreement can request the swap-providing country to enter into a swap transaction. \\n2 A two-way swap arrangement where either party could request the other party to enter into a swap transaction under the agreement. \\n  \\nAgreements signed between the Plus Three countries (People's Republic of China, Japan and Korea) and ASEAN countries \\n  \\nAgreements signed among the Plus Three countries \\n\\n\\nExternal Relations\\n231\\nAsian Bond Market Initiative\\nSignificance of the ABMI\\nThe Asian Bond Market Initiative (ABMI), launched under the ASEAN+3 Finance Ministers’ forum, is a\\ncomprehensive approach to develop a regional bond market in East Asia. Its aim of creating a deep, broad\\nand liquid bond market in Asia would further enhance the efficiency of channelling Asian savings into\\nlong-term investments in the region. A deeper Asian bond market will also improve the management of\\nmaturity mismatches present in financing economic activities, facilitate management of currency and\\ninterest rate risks, and improve the overall efficient allocation of capital.\\nFollowing the Chiang Mai Initiative, the ABMI is the most significant ASEAN+3 regional financial co-\\noperation project. Essentially, it reflects the collective effort of the ASEAN+3 finance, central bank and\\nmonetary authorities to improve the financial infrastructure and initiate appropriate policies in supporting\\nregional bond market development.  Implementation of the ABMI is through a structured approach. Six\\nvoluntary working groups have been set up to identify issues and impediments to bond market\\ndevelopment in a range of areas through regular meetings (see chart). Studies are also being undertaken\\nby these working groups to recommend modalities for regulatory and legal frameworks that will facilitate\\ncross-border issuance and investment within the region. The working groups also consult regularly with\\nkey private sector stakeholders, such as multilateral development banks, financial intermediaries and\\nmarket participants.\\nMalaysia’s commitment\\nMalaysia is fully committed to the successful development of the ABMI and Bank Negara Malaysia is an\\nactive member in all the working groups. Malaysia chairs the Working Group on Foreign Exchange\\nTransactions and Settlement Issues (Bank Negara Malaysia), and co-chairs the Working Group on Technical\\nAssistance Co-ordination with Indonesia and the Philippines (Securities Commission). In leading the\\nWorking Group on Foreign Exchange Transactions and Settlement Issues, it has been acknowledged that\\nthe creation of a deep and liquid bond market in Asia needs to be complemented with a sound and\\nefficient bond settlement system mechanism. Efforts are, therefore, being directed towards establishing a\\nconducive and enabling environment to facilitate foreign exchange transactions and to address issues\\nrelated to timely and cost-effective settlement of cross-border transactions.\\nAs part of the work programme, the Working Group organised a Symposium on Foreign Exchange\\nTransactions and Settlement Issues in Kuala Lumpur on 20 October 2003 to deliberate on issues pertaining\\nto foreign exchange transactions and settlement issues in cross-border bond transactions.\\nSingapore\\nand Japan\\nAsian Bond Market Initiative (ABMI)\\nASEAN+3 Finance Ministers\\nMinisters\\nendorsed the\\nABMI on 7\\nAugust 2003\\nChair country\\nComprising\\nASEAN+3\\nMinistry of\\nFinance,\\nCentral Bank\\nand Securities\\nCommission\\nofficials\\nCreating New\\nSecuritised\\nDebt\\nInstruments\\nThailand\\nKorea\\nMalaysia\\nChina\\nIndonesia, the\\nPhilippines\\nand Malaysia\\nASEAN+3 Finance and Central Bank Deputies\\nVoluntary Working Groups\\nCredit\\nGuarantee\\nMechanisms\\nForeign\\nExchange\\nTransactions\\nand Settlement\\nIssues\\nLocal and\\nRegional\\nRating\\nAgencies and\\nDissemination\\nof Information\\non Bond\\nMarket\\nTechnical\\nAssistance\\nCoordination\\nIssuance of Bonds\\nDenominated in Local\\nCurrency by Multilateral\\nDevelopment Banks,\\nForeign Government\\nAgencies and Asian\\nMultinational\\nCompanies\\n\\n\\n232\\nIncreased focus of bilateral co-operation was in the area of\\ntrade and financing, including the use of gold in financing\\nbilateral trade.\\nMalaysia accords a high priority to regional co-\\noperation in training to strengthen domestic\\ncapacities in the financial sector and macroeconomic\\nmanagement. In this regard, Bank Negara Malaysia\\nhas supported the activities of the SEACEN Research\\nand Training Centre, which undertakes intensive\\ncentral banking training, especially in bank\\nsupervision, macroeconomic policy formulation,\\nfinancial stability assessment, and financial reforms.\\nIn 2003, the SEACEN Centre extended its training to\\n16 non-members while continuing to provide\\ntraining to its members, which expanded to 12, with\\nthe admission of the Ministry of Finance, Brunei\\nDarussalam1. The SEACEN Centre also extended its\\ncollaboration with Japan, and regional groupings and\\ninternational institutions such as the Asia-Pacific\\nEconomic Co-operation (APEC), BIS, IMF and the\\nWorld Bank. The closer collaboration with a wider\\ngroup of countries and institutions has facilitated the\\nCentre’s work in ensuring broad-based training of\\ncentral bankers given the rapid changes in the global\\nfinancial markets.\\nBilateral Co-operation\\nIn enhancing bilateral co-operation in trade and\\nfinancing, progress was made on Malaysia’s proposal\\nfor the Gold-based Trade Payments Arrangement\\n(GTPA). The GTPA enables a debtor country to settle\\nits bilateral trade balance using gold.\\nPromotion of the GTPA was also undertaken through\\ncollaboration with the Islamic Development Bank\\n(IDB). As a result of this collaboration, member\\ncountries of the IDB unanimously endorsed the GTPA\\nand agreed to enter into bilateral negotiations in\\norder to operationalise the scheme. Subsequently,\\nthe GTPA was adopted by the Organisation of the\\nIslamic Conference (OIC) countries’ Heads of State/\\nGovernment at the 10th OIC Summit in October\\n2003, as contained in the Putrajaya Declaration. On-\\ngoing discussions with bilateral trading partners on\\nGTPA commenced in 2003.\\nTechnical Assistance and Information Exchange\\nBank Negara Malaysia continued to encourage\\ncapacity building through technical assistance and\\ninformation exchange among central banks and\\nmonetary authorities. In 2003, Bank Negara Malaysia\\nreceived 14 foreign participants from 13 central\\nbanks, under the sponsorship of the Malaysian\\nTechnical Co-operation Programme (MTCP), to\\nattend Bank Negara Malaysia’s central banking and\\nbanking supervision courses.\\nBank Negara Malaysia also participated in\\ncollaborative capacity-building efforts under various\\nregional fora in areas such as banking supervision,\\nalternative remittance systems, domestic bond\\nmarket development, and Islamic banking and\\ninsurance. The development of takaful and\\nretakaful in Islamic countries was actively promoted\\nby Bank Negara Malaysia, particularly through the\\norganisation of international seminars and\\nworkshops, provision of training and consultancy\\nservices as well as sharing of technical expertise\\nby the Malaysian takaful operators. These\\ninitiatives had contributed to the establishment of\\ntakaful operators in several Developing-8 (D-8)\\nmember countries, namely Bangladesh, Indonesia\\nand Nigeria.\\n1 Effective 1 April 2004, SEACEN’s membership will increase to 13 members,\\nwith the admission of the Reserve Bank of Fiji. The other SEACEN members\\nare the Ministry of Finance, Brunei Darussalam; Bank Indonesia; The Bank of\\nKorea; Bank Negara Malaysia; The Bank of Mongolia; Central Bank of\\nMyanmar; Nepal Rastra Bank; Bangko Sentral ng Pilipinas; Monetary\\nAuthority of Singapore; Central Bank of Sri Lanka; Central Bank of China,\\nTaipei; and Bank of Thailand.\\n\\n\\nOrganisation and \\nHuman Resource\\n234-238\\nOrganisation Development – Overview\\n238-240\\nRisk Management in Bank Negara Malaysia\\n241\\nOrganisation Structure\\n\\n\\n234\\nORGANISATION DEVELOPMENT - OVERVIEW\\n2003 marked the third year of the Bank’s 5-year\\nKnowledge-Based Organisation (KBO) strategic\\ndevelopment initiative. The initiative was launched in\\n2000 to enable the Bank to leverage on the\\napplication of knowledge as a critical resource to\\nenhance productivity and organizational\\nperformance. The Bank’s KBO development efforts\\nincorporate human resource management, training\\nand learning management, knowledge management,\\ninformation and communication technology\\nmanagement, corporate governance, information\\nsecurity management and office space management.\\nNew initiatives implemented in 2003 focused on\\ncontent management, improvements to the facilities\\nand systems available for learning and training,\\nintegration of key and critical information and\\ncommunication technology systems as well as the\\nconceptualization of the organisation performance\\nmeasurement system.\\nThe Bank also conducted an independent\\norganisation climate survey to assess the progress\\nachieved over the previous three years. The results\\nindicated that the Bank’s organisation development\\ninitiatives had created a more effective organisation\\nin terms of leadership, operational efficiency,\\nknowledge management, communications, career\\ndevelopment, compensation and work-life balance.\\nHuman Resource Management\\nThe Bank continued to enhance the existing human\\nresource policies and practices, in particular, placed\\nsharper focus on performance measurement and\\nrewards management. With the increase in the\\nBank’s responsibilities over the recent three years, the\\nstaff strength has also increased. Also, arising from\\nthe changing composition of the workforce in terms\\nof background, experience and age structure, the\\nhuman resource policies have been realigned to the\\nchanging requirements to be relevant.\\nCognizance of the changing challenges, there has\\nbeen a gradual shift to greater emphasis on\\nperformance-based rewards, opportunities for\\nlearning and development and improved amenities to\\nenhance the quality of working life. Greater flexibility\\nand wider choice of reward options were developed\\nto better position the institution to retain top talent,\\nOrganisation and Human Resource\\nimprove staff productivity, and at the same time be\\nflexible enough to meet changing staff aspirations at\\ndifferent stages in their career paths. The\\nintroduction and implementation of flexi benefits\\nplan, mentoring programmes and active recognition\\nprogrammes aim to accommodate these objectives.\\nIn 2003, the Bank introduced new awards for\\nCultural and Professional Development while a\\nCareer Management Unit was established to\\nstructure and assist long-term career planning by\\nstaff. The list of approved professional qualifications\\nfor sponsorship by the Bank was also expanded.\\nTogether with the other organisation development\\ninitiatives, such as competency and knowledge\\nmanagement, more personalized training and wider\\navailability of learning resources, the human resource\\nmanagement approach has constantly evolved to\\nmeet the varied priorities of a dynamic workforce.\\nConsequently, a performance-based culture has\\nincreasingly been embedded in the Bank.\\nIn terms of capacity, the total staff strength of the\\nBank increased by 3.5% to 2,295 as at end of 2003.\\nStaff turnover rate remained low at less than 2%.\\nIn terms of occupational safety and health, the Bank\\nrecognizes that while work and career fulfillment can\\nhave an effect on employee productivity and\\ncommitment, health and safety also contributes to\\nenhancing the effectiveness of an organisation. During\\n2003, the Bank embarked on and completed more\\nstructured safety audit programmes. Apart from\\nensuring high standards of safety in the office\\nenvironment, the Bank provided more avenues for staff\\nto improve their health and fitness.  The Bank\\nconducted health talks to enhance awareness on issues\\nrelated to stress management, SARS, diabetes and\\nosteoporosis. A long-term programme covering the\\nenvironment, personal resources and health practices is\\nalso being initiated. This five-year programme will be\\nimplemented in stages, beginning from 2004.\\nTraining and Learning Management\\nThe Bank’s drive to promote organisational learning\\nto facilitate a performance-based culture is reflected\\nthrough a number of initiatives implemented in\\n2003. A programme is now in place that ensures that\\nthe workforce in the organisation has a responsibility\\nto learn and develop. The learning experience and\\ntraining is integrated with performance planning and\\nevaluation to ensure that the returns on expenditure\\n\\n\\nOrganisation and Human Resource\\n235\\non staff development is maximised. Technology has\\nbeen, and will be used more extensively in improving\\nthe delivery of content for learning throughout the\\nBank. A Learning Management System has been put\\nin place to provide tools for staff to gauge their\\nlearning requirements, explore the type of content\\navailable, design a personal learning agenda and\\nconduct learning more effectively. The anticipated\\noutcome is the development of a culture more\\ninclined to online learning, and the capacity to\\nintegrate individual learning with individual staff\\nperformance management.\\nThe Bank’s investment in staff training amounted to\\nRM8 million during the year 2003, an increase of\\n45% compared to 2002.  On average, this amounted\\nto RM3,500 per employee, an increase of 40% from\\n2002.  An average of 12 training man-days per staff\\nwas achieved for year 2003 (2002 - 11 training man-\\ndays).  Bank-wide training programmes organised by\\nthe Human Resource Development Centre (HRDC)\\naccounted for 46% of total investment in staff\\ntraining with the programmes oriented towards the\\nbuilding of core functional and management skills\\nand ICT and leadership skills.\\nInformation and Communication Technology\\nManagement\\nThe use of Information and Communication\\nTechnology (ICT) solutions was expanded and\\nenhanced to facilitate the development of a\\nperformance driven Knowledge Based\\nOrganisation (KBO). The Bank has embarked on a\\ntechnology blueprint for central ICT-Knowledge\\nManagement (KM) services. This framework is to\\nprovide focus for action to address ICT and KM\\ninfrastructure needs and include information and\\ntechnology integration. The emphasis is not only in\\nautomating the organisation, but more\\nimportantly, connecting people to people, and\\nmore rapid access to well-organised information\\nacross all relevant spectrum for sound analysis and\\ndecision-making. The ultimate aim is to create an\\norganisation with highly knowledgeable and\\ncollaborative people where ICT is leveraged\\nextensively to serve stakeholders.\\nThe Virtual Discussion Room (VDR), Departmental\\nHomepages (DHP) and other collaboration and\\ncommunication services introduced in 2002 continue\\nto mature with steady growth in usage and content.\\nIn 2003, a new channel – the Corporate Portal\\n(Kijang.Net) – was introduced to provide a single\\nwindow that facilitates awareness and\\ncommunication through access to on-line electronic\\ninformation services and application systems in the\\nBank, as well as polls and surveys.\\nThe Bank will continue to strengthen the security,\\nreliability and resilience of the ICT infrastructure.\\nTowards this end, a new state-of-the-art Data Centre\\noffsite from the Bank’s Head Office is being planned.\\nRemote access facilities were also implemented to\\nprovide greater flexibility for work and improved\\nlifestyles among staff as part of the Bank’s Work-Life\\nBalance initiative.\\nInformation Security Management\\nIn 2003, a revised Information Security Policy was\\nintroduced to optimize the use of the Bank’s\\nintellectual capital and to facilitate easy access to\\ninformation and widespread knowledge sharing to\\nadd value to the Bank without compromising on\\ncontrols governing use of sensitive data.\\nThe Information Security policy was benchmarked\\nagainst the British Standard 7799 and other\\ninternational best practice. The broad framework\\nencompasses three decision drivers, namely\\nTechnology, Strategy and Usage; Business Initiatives\\nand Processes; and Risk Management.  The three\\ndrivers define the Information Security framework\\nused in safeguarding the Bank’s information assets.\\nThe framework will guide security standards within\\nthe information and communication technology\\nenvironment, and in the adoption of appropriate\\nbusiness rules, procedures and staff education\\nprogrammes to raise awareness about information\\ndisclosure practices.\\nThe Information Security Management Unit was\\nestablished in 2003 to implement the Information\\nSecurity policy through appropriate enforcement,\\nmonitoring and recovery processes. The Unit\\ncollaborates closely with the Corporate Governance\\nUnit as well as the Information Technology Services\\nDepartment, which is responsible for data and\\ncommunications network management. The\\nInformation Security Policy is expected to promote\\ngreater knowledge sharing within the Bank by\\ndefining the rules of disclosure for restricted\\ninformation.\\nKnowledge Management\\nThe Bank’s knowledge management practices\\nachieved another milestone in 2003 with the\\nimplementation of a Knowledge Management\\nMeasurement Framework.  The framework will be\\n\\n\\n236\\nused to guide future efforts in designing the Bank’s\\nKM practices by measuring the Bank’s progress\\nagainst four criteria – Continuity & Stability,\\nCompetency and Productivity, Innovation &\\nResponsiveness.  The framework reinforces the\\nBank’s existing processes for promoting the\\nidentification, acquisition, application and retention\\nof knowledge in the organisation.\\nDuring 2003, the Bank initiated a series of\\nknowledge audits to assess knowledge gaps within\\nthe Bank. The knowledge audits, as well as various\\nother indicators are fed into the KM measurement\\nframework to enable more effective monitoring of\\nthe progress of KM initiatives. The Bank’s Library\\nUnit leads the knowledge audits, as well as review\\nand implement programmes to improve content\\nmanagement. This includes the Corporate\\nTaxonomy project which is now under way to map\\nThe successful implementation of new ICT tools,\\nchanges to HR practices, development of a\\n‘knowledge centric’ library and re-engineering of\\ntraining and learning methodologies marks the\\nBank’s transition into Phase 3 of the KM Roadmap.\\nChanges to behavior and culture oriented towards\\nthe proactive use of personal and organisation\\nknowledge to deliver concrete results in a prompt\\nmanner are expected to yield the desired results\\nover the next few years.\\nOffice Space Management\\nThe Bank has begun to implement a new office\\nspace design and layout that incorporates elements\\nof flexibility, efficiency, comfort and ergonomics that\\nwill improve the working conditions for the staff, as\\nwell as provide enabling and broader range of\\nfacilities to assist a knowledge worker.\\nAn open plan office concept was adopted to\\nand structure the ‘information domain’ of the Bank.\\nThe ‘information domain’ refers to all the types of\\ninformation relevant to the Bank, in terms of\\nsubject, media (document or digital database),\\nconfidentiality (public, confidential or secret) and\\nrelationship with other information within the Bank.\\nThe corporate taxonomy will enable effective and\\nefficient searching, storing and communication of\\ninformation within the Bank. Given the exponential\\ngrowth in information today, this project will be a\\nmajor milestone in enabling the ease of access and\\nproductive use of the knowledge-bank within\\nthe Bank.\\nenhance flexibility, effective use of space and\\nharmonisation as part of space management. The\\nrestrictions to individual and acoustical privacy were\\nmanaged through low partitions and creation of\\nadditional spaces for small group discussions.\\nFacilities for teamwork and collaboration were\\nmade widely available by having dedicated\\nprojectors and network devices in all meeting\\nspaces. Variable lighting, ergonomically structured\\nchairs and workstations with ample storage space\\ncontributed to workplace safety and staff\\nconvenience.\\n• KM Strategy\\n• KM Infrastructure\\n• Knowledge Processes\\n• Repositories\\n• Knowledge Policy\\n• Knowledge\\n \\nSharing\\n \\nCulture\\n• Knowledge\\n \\nCulture\\n• Learning\\n \\nOrganisation\\n• Knowledge Permeating\\n• Intellectual\\n \\nCapital\\n \\nMeasurement\\nPhase 1\\nInitial\\nPhase 2\\nAwareness\\nPhase 3\\nReuse and Leverage\\nPhase 4\\nInstitutionalise\\nORGANISATION\\nOPERATIONAL\\nEFFICIENCY AND\\nEFFECTIVENESS\\n...enhance our\\nreputation as a\\nprofessional,\\ncredible and\\nresponsive\\nknowledge-\\nbased Central\\nBank\\nACHIEVING SUSTAINABLE SUPERIOR PERFORMANCE BY\\nLEVERAGING ON KNOWLEDGE\\nKM ROADMAP 2001 - 2005\\n\\n\\nOrganisation and Human Resource\\n237\\nThe Bank’s approach in dealing with office space\\nmanagement as an issue integral to organisation\\ndevelopment has led to solutions that not only\\naddress space requirements, but also ensure that\\nthe physical space within the Bank reflects the\\nvalues espoused by the Bank as a knowledge-based\\norganisation.\\nCorporate Governance\\nIn performing its functions as decreed by the\\nCentral Bank of Malaysia Act 1958, the Bank is\\nguided by its overall mission, aspiration and shared\\nvalues. In addition to the Central Banking Act, other\\nlegislations have also extended the objects and\\npowers of the Bank as well as the specific manner\\nin which the functions are undertaken. Collectively,\\nthe legislative framework shapes the Bank’s\\ngovernance and functional structure that enables\\nthe institution to undertake its roles and\\nresponsibilities.\\nIn compliance with the Act, 12 Board Meetings\\nwere held during the year. In addition, the following\\nsenior management meetings were held - 4 Board\\nAudit Committee Meetings, 54 Management\\nCommittee Meetings, 4 Reserve Management\\nCommittee Meetings, 4 Risk Management\\nCommittee Meetings, 8 Monetary Policy Committee\\nMeetings, 17 Financial Stability Committee\\nMeetings and 6 Payment System Meetings. During\\nthe year, 2 Board Briefings to the Prime Minister and\\nMinister of Finance were conducted to present the\\nBank’s assessment of the banking system, the\\nfinancial sector and outlook for the economy. The\\nBank also provided an assessment of the\\ndevelopments and challenges facing the banking\\nsystem, the financial sector and the overall\\neconomy, and proposed recommendations to\\naddress these challenges.\\nAwards\\nThe Board congratulates the Governor, Tan Sri Dato’\\nSri Dr. Zeti Akhtar Aziz for the award as ‘The Asia’s\\nBest Central Bank Governor’ for 2003 by\\nEuromoney Institutional Investor plc, a UK-based\\nfinancial publication house and ‘Global Central\\nBank Governor’ for the year 2004 by The Banker,\\na monthly magazine published by the Financial\\nTimes Business Limited.\\nThe Board extends its congratulations to Dato’ Ooi\\nSang Kuang on being conferred the Darjah Yang\\nMulia Pangkuan Negeri (D.M.P\\n.N.) on the\\noccasion of the birthday of His Excellency, the Yang\\nTerutama Yang di-Pertua Negeri Pulau Pinang on 12\\nJuly 2003.\\nThe Board also congratulates Encik Yahaya bin Haji\\nBesah on being conferred the Darjah Johan Negeri\\n(D.J.N.), Puan Woo Seok Hooi and Puan Khairani\\nbinti Rejab on being conferred the Pingat Jasa\\nKebaktian (P\\n.J.K.) on the occasion of the birthday of\\nHis Excellency, the Yang Terutama Yang di-Pertua\\nNegeri Pulau Pinang on 12 July 2003, Encik Mohd\\nYunos bin Haji Salih, Encik Abdullah bin Lebai\\nAhmad, Puan Helen Jeniffer Buma and Encik Loh\\nKam Fatt on being conferred the Pingat Mahkota\\nPerlis (P\\n.M.P\\n.) on the occasion of the birthday of His\\nRoyal Highness, the Tuanku Raja of Perlis on 17 May\\n2003, Encik Abdul Rajap bin Abidin on being\\nconferred the Pingat Jasa Kebaktian (P\\n.J.K.) on the\\noccasion of the birthday of His Excellency, the Yang\\ndi-Pertuan Negeri Melaka on 11 October 2003, Encik\\nYap Bee Fatt, Encik Saari bin Rajap dan Encik\\nNasaruddin bin Zakaria on being conferred the\\nPingat Jasa Kebaktian (P\\n.J.K.) on the occasion of\\nthe birthday of His Royal Highness, the Sultan of\\nPahang Darul Makmur on 24 October 2003 and\\nEncik Kunchi Raman a/l C V Kluva Chary on being\\nconferred the Pingat Jasa Kebaktian (P\\n.J.K.) on\\nthe occasion of the birthday of His Royal Highness\\nthe Sultan of Kedah Darul Aman on 19 January\\n2003.\\nAs in previous years, the Bank continued to reward\\ndeserving staff with its formal Recognition Awards.\\nDuring the Bank’s annual dinner held on 13\\nSeptember 2003, a total of eight awards were\\nissued for Academic Achievement, Excellent\\nPerformance, Excellent Team Performance,\\nLeadership, Innovation, Quality Service, Sport and\\nCultural.\\nRetirement\\nThe Board wishes to place on record its appreciation\\nand gratitude to the 24 retirees who have rendered\\nloyal and dedicated service to the Bank. The staff\\nwho retired from the services of the Bank in 2003\\nare listed in Table 8.1.\\nThe Board of Directors would also like to extend its\\ngratitude to all Bank staff for their dedication and\\ncommitment in the year 2003. The Board looks\\nforward to the continued commitment and\\nprofessionalism of all staff in the year ahead in\\nstriving for performance excellence in this\\nchallenging and fast changing economic and\\nbusiness environment.\\n\\n\\n238\\nTable 8.1\\nList of Retirees\\nNo\\nName\\nDepartment/Branch\\n1\\nPuan Rafiah binti Salim\\nGovernor’s Office\\n2\\nEncik Che Sab bin Ahmad\\nSpecial Investigation\\n3\\nEncik Low Koon Seng\\nGovernor’s Office\\n4\\nCik Tan Sook Peng\\nInternational\\n5\\nEncik Wong Yew Sen\\nInsurance Supervision\\n6\\nPuan Gan Choon @ Gan Soo Mei\\nStatistical Services\\n7\\nPuan Ti Thiow Chen @ Ti Teow Kim\\nForeign Exchange Administration\\n8\\nEncik Mukhtar bin Yusof\\nMalaysian Electronic Payment System\\n9\\nEncik Che Norudin bin Che Alli\\nSecurity\\n10\\nPuan Fahimah binti Haji Yaacob\\nForeign Exchange Administration\\n11\\nEncik Ismail @ Awang Sulong bin Abu Bakar\\nHuman Resource Management\\n12\\nEncik John Teo\\nForeign Exchange Administration\\n13\\nEncik Sidek bin Sabli\\nInsurance Regulation\\n14\\nEncik Tan Ewe Lee\\nPayment Systems\\n15\\nPuan Maznah binti Haji Ali\\nBank Regulation\\n16\\nEncik Md Hanafiah bin Mohd Zin\\nBank Regulation\\n17\\nEncik Abdul Rajap bin Abidin\\nSecurity\\n18\\nEncik Aladdin bin Ibrahim\\nSecurity\\n19\\nCik Loo Yuk Ng @ Loh Yee Ee\\nStatistical Services\\n20\\nPuan Siti Norzini binti Abdullah @ Joyce Koh\\nIT Services\\n21\\nEncik Thyagarajah a/l Gurusamy\\nPPPM Shah Alam\\n22\\nEncik Yap Bee Fatt\\nForeign Exchange Administration\\n23\\nEncik Doraimuthu a/l Changlimuthu\\nBNM Pulau Pinang\\n24\\nPuan Fatimah binti Moin\\nFinance\\n25\\nEncik Sol Ong @ Mohamad Sol bin Sebli\\nBNM Kuching\\n26\\nEncik Sulaiman bin Abu Kassim\\nHuman Resource Development Centre\\nRISK MANAGEMENT IN BANK NEGARA\\nMALAYSIA\\nThe Bank’s risk management framework provides\\nfor independent oversight at the supervisory and\\noperational levels; establishes policies and\\nprocesses for good practices; promotes\\norganisation wide communication; and emphasises\\ncontinuous improvement.\\nRisk Management Structure\\nWith the formation of the Risk Management\\nCommittee (RMC) in 2002, the risk management\\nstructure had evolved further. In 2003, the role of\\nthe departments in operationalising the risk\\nmanagement framework was brought into greater\\nfocus. At the same time, the relationship of the\\nRisk Management Unit (RMU) with the\\ndepartments and its support functions for the\\nRMC were sharpened. The other key components\\nof the risk management structure are the Middle\\nOffice and the Internal Audit Department. During\\n2003, the RMU assumed the function of a\\ncentralised business continuity management of\\nthe Bank.\\nRisk Management Practices\\nIn providing supervisory risk management\\noversight, the RMC sets the standards and imposes\\nrequirements that ensure that appropriate risk\\nmanagement practices are embedded into\\nstrategic initiatives, policy formulation and\\noperations of the Bank. In 2003, the RMC\\ncontinued the assessments of departmental reports\\non the areas of potential risk and controls, risk\\nissues, risk events that occurred and their\\nmanagement. The RMC also engaged in discussion\\nwith the Department Heads on policy and strategic\\nfocus and the approaches to managing existing\\nand potential risks.\\n\\n\\nOrganisation and Human Resource\\n239\\nAt the functional level, the Department Heads have\\ndirect responsibility for ensuring that risk\\nmanagement practices are integral to daily\\noperations. The departments are required to make an\\nannual declaration to Management on their review\\nof the risk profiles of their operations to form an\\nassessment of the adequacy of departments’ risk\\nmanagement.\\nDuring the year, the RMU provided technical support\\nand performed its coordination and oversight role.\\nSpecifically, the RMU assisted the departments in\\ntheir management reporting by providing guidance\\non the approach and reporting requirements. It also\\ncontinued to monitor and report on the status of the\\nannual declaration. Regular audit by the Internal\\nAudit Department ensured that policies and\\nprocedures were being adopted. The aim is to\\nprovide Management with timely and relevant\\ninformation, to ensure that the key risks are\\nidentified and addressed and that decisions are\\nimplemented to achieve their objectives.\\nPolicy Risk\\nPolicy risk is managed through a structured\\nframework and process for policymaking and\\nimplementation. Major components of the\\nframework are the internal committees and working\\ngroups for cross-functional consultation and\\ndeliberation. The high-level committees include the\\nMonetary Policy Committee, Financial Stability\\nCommittee and Management Committee which are\\nchaired by the Governor. The working groups, whose\\nmembership comprises Assistant Governors and\\nDepartment Heads, ensure that all information and\\nexpertise are tapped in the design and formulation of\\npolicy. In certain cases, the consultation process\\nincludes external stakeholders. A policymaking\\nchecklist is also in place to ensure that all implications\\nhave been taken into account in the deliberation of\\nthe policy content and that the procedural\\nrequirements have been met.\\nThe  policymaking mechanism is designed to increase\\nthe prospect of achieving balanced and well-\\nconsidered policies. It has provided a formal channel\\nfor the alternative perspectives to be taken into\\naccount at all stages of the policy formulation from\\nthe conceptualisation through to the development\\nand the issuance of a policy. Since 2002, the\\ncommunication aspects of policy implementation\\nhave been centralised in the Corporate\\nCommunication Department and have continued\\nefforts to strengthen and extend the external\\ncommunication to become an integral part of the\\nwork to enhance the effectiveness of policy.\\nFinancial Risk\\nThe main risks in managing the external reserves,\\nincluding market, credit and operational risk, are\\nmonitored independently by the Middle Office, a unit\\nseparate from the dealing function. The Middle\\nOffice assesses the risks by monitoring economic and\\nfinancial developments affecting major asset classes\\nand sizable market developments that could have\\nimplications on the Bank’s external reserves portfolio.\\nThe Middle Office also monitors compliance with the\\ninvestment guidelines, credit policies and operational\\nprocedures. This is carried out through periodic\\nreview and evaluation of reserve management\\nactivities, taking into account market developments\\nand dynamics. Reserve management activities are\\nalso subjected to independent checks by the Back\\nOffice, and compliance checks of the internal and the\\nexternal auditors.\\nEnterprise Operational Risk\\nThe operational risk management approach of the\\nBank requires ownership of risks, self-assessment,\\ncontinual review, escalation of key risk issues and\\naccountability for control improvement and issue\\nresolution.\\nManagement fosters the risk management culture\\nand its risk tolerance levels for the operational\\ncontrol environment. The RMU establishes and\\nmaintains the overall operational risk management\\nframework. The Department Heads have the primary\\nresponsibility for managing the risks arising from\\ntheir operations and ensuring that an effective\\noperational control environment is in place in their\\nbusiness areas. Management considers the periodic\\ndepartment reports derived from self-assessment and\\ndrawn up from a line perspective, against the overall\\nBank perspective and goals. The resulting\\ncomprehensive coverage of operational risk and\\nevent database is a valuable source of information\\nfor in-depth risk analysis and control effectiveness\\nevaluation.\\nDuring the year, the risk management methodology\\nand toolkit for risk identification, assessment and\\nreporting were reviewed. Several proposals for\\nrevision were made to incorporate current best\\npractices. The changes were to enhance the\\nrobustness of the self-assessment methodology and\\nimprove the reporting process as well as the\\nmonitoring of risks and action plans to control risks.\\n\\n\\n240\\nKnowledge management initiatives continued to be\\npursued, leveraging on information technology, to\\nharness implicit and explicit information and to allow\\nfor greater accessibility to the users. More extensive\\nuse was made of the Bank’s and the departments’\\nwebsites to disseminate information. At the same\\ntime, the Information Security Policy and Standards\\nwas enforced to enhance maintenance of\\ninformation integrity and confidentiality.\\nBusiness Continuity Management\\nThe Bank has established procedures for business\\ncontinuity across all critical departments. The threat\\nof disruption to monetary and financial system\\nstability resulting from unexpected events is\\nmanaged through the running of a remote recovery\\ncentre and the maintenance of a dedicated\\nCommand Centre at the Head Office. During crisis,\\nessential personnel are divided into two teams. One\\nteam operates from the Head Office, while the\\nother team operates at the Bank’s Recovery Centre.\\nThe back up facilities of key systems undergo\\nregular live-run exercises to provide continuous\\nassessment of the Bank’s state of readiness to\\nrespond to unforeseen situations. The facilities and\\nprocedures, together with the crisis management\\nmachinery are in place to deal with unexpected\\ndisruptions and challenges. This aspect of risk\\nmanagement is given priority recognising the\\ngrowing need to expect the unexpected. As part of\\nthe strengthening of the Bank’s business continuity\\nmanagement the Business Continuity Unit (BCU) is\\nnow placed under the RMU. The BCU would have\\nfull-time staff with the necessary expertise to\\nsupervise, coordinate and maintain the Bank’s\\ncontingency arrangements, plans and programmes.\\n\\n\\nOrganisation and Human Resource\\n241\\nSecretary to the Board\\nMohd Nor bin Mashor\\nGovernor's Office\\nNg Chow Soon\\nCorporate Communications\\nAbu Hassan Alshari bin Yahaya\\nInternal Audit\\nYahaya bin Haji Besah\\nBank Regulation\\nNor Shamsiah binti Mohd Yunus\\nInsurance Regulation\\nDonald Joshua Jaganathan\\nIslamic Banking and Takaful\\nBakarudin bin Ishak\\nDFI Regulation\\nChe Zakiah binti Che Din\\nRisk Management\\nTeo Kee Tian\\nASSISTANT GOVERNOR\\nDato' Mohd Razif bin Abd. Kadir\\nREGULATION\\nDEPUTY GOVERNOR\\nDato' Mohd Salleh bin Haji Harun\\nBank Supervision I\\nAzizan bin Haji Abd Rahman\\nBank Supervision II\\nChung Chee Leong\\nInsurance Supervision\\nSani bin Ab. Hamid\\nInformation Systems Supervision\\nRamli bin Saad\\nPayment Systems\\nAhmad Hizzad bin Baharuddin\\nAhmad Hizzad bin Baharuddin\\nProperty and Services\\nZulkifli bin Abd Rahman\\nSpecial Investigation\\nKamari Zaman bin Juhari\\nFinancial Intelligence\\nKoid Swee Lian\\nASSISTANT GOVERNOR\\nDatuk Zamani bin Abdul Ghani\\nSUPERVISION\\nBOARD OF DIRECTORS\\nGOVERNOR\\nDr. Zeti Akhtar Aziz\\nIT Services\\nHong Yang Sing\\nHuman Resource Management\\nMainor bin Awang\\nHuman Resource Development Centre\\nLim Lai Hong\\nStrategic Planning\\nMior Mohd Zain bin Mior Mohd Tahir\\nCorporate Services\\nMohd Nor bin Mashor\\nSecurity\\nAhmad bin Mansur\\nCurrency Management and Operation\\nHor Weng Keng\\nBranches (6)\\nLondon Rep. Office\\nNew York Rep. Office\\nASSISTANT GOVERNOR\\nDato' Mohamad Daud bin Hj. Dol Moin\\nORGANISATIONAL DEVELOPMENT\\nDEPUTY GOVERNOR\\nDato' Ooi Sang Kuang\\nASSISTANT GOVERNOR\\nVacant\\nINVESTMENT AND OPERATIONS\\nInvestment Operations and Financial Market\\nMuhammad bin Ibrahim\\nFinance\\nAbdul Aziz bin Abdul Manaf\\nASSISTANT GOVERNOR\\nDatuk Latifah Merican Cheong\\nECONOMICS\\nMonetary Assessment and Strategy\\nV. Vijayaledchumy\\nLegal\\nGopala Krishnan Sundaram\\nEconomics\\nDr. Phang Hooi Eng\\nInternational\\nWan Hanisah binti Wan Ibrahim\\nForeign Exchange Administration\\nMahdi bin Mohd. Ariffin \\nStatistical Services\\nChan Yan Kit\\nBANK NEGARA MALAYSIA\\nBANK NEGARA MALAYSIA\\nOrganisation Structure\\n\\n\\n\\n\\nBalance Sheets as at 31 December 2003\\nAnnual Accounts\\n\\n\\n245\\n245\\nCERTIFICATE OF THE AUDITOR GENERAL\\nON THE FINANCIAL STATEMENTS OF BANK NEGARA MALAYSIA\\nFOR THE YEAR ENDED 31 DECEMBER 2003\\nI have audited the financial statements of Bank Negara Malaysia for the year ended 31 December 2003. These\\nfinancial statements are the responsibility of the management. My responsibility is to express an opinion on these\\nfinancial statements based on my audit.\\n2.\\nThe audit has been conducted in accordance with the Audit Act 1957 and in accordance with approved\\nauditing standards. Those standards require the audit be planned and performed to obtain reasonable assurance\\nwhether the financial statements are free of material misstatement. This audit includes examining, on a test\\nbasis, evidence supporting the amounts and disclosures in the financial statements. Evaluation is also made on\\nthe accounting principles used and the overall financial statements presentation.\\n3.\\nIn my opinion, the financial statements give a true and fair view of the financial position of Bank Negara\\nMalaysia as at 31 December 2003 and of the results of its operations for the year then ended in accordance with\\napproved accounting standards.\\n(DATUK DR. HADENAN BIN ABDUL JALIL)\\nAUDITOR GENERAL\\nPUTRAJAYA\\n10 MARCH 2004\\n\\n\\n246\\nSTATEMENT BY CHAIRMAN\\nAND ONE OF THE DIRECTORS\\nWe, Zeti Akhtar Aziz and Oh Siew Nam being the Chairman and one of the Directors of Bank Negara Malaysia,\\ndo hereby state that in the opinion of the Board, the financial statements are drawn up so as to give a true and\\nfair view of the state of affairs of Bank Negara Malaysia as at 31 December 2003 and of the results of operations\\nfor the year ended on that date.\\nOn behalf of the Board,\\nOn behalf of the Board,\\nZETI AKHTAR AZIZ\\n OH SIEW NAM\\nCHAIRMAN\\nDIRECTOR\\n5 MARCH 2004\\n5 MARCH 2004\\nKUALA LUMPUR\\nKUALA LUMPUR\\n\\n\\n247\\n247\\nDECLARATION BY THE OFFICER PRIMARILY RESPONSIBLE\\nFOR THE FINANCIAL MANAGEMENT OF BANK NEGARA MALAYSIA\\nI, Abdul Aziz Abdul Manaf being the officer primarily responsible for the financial management of Bank Negara\\nMalaysia, do solemnly and sincerely declare that the financial statements, are to the best of my knowledge and\\nbelief, correct and I make this solemn declaration conscientiously believing the same to be true and by virtue of\\nthe provisions of the Statutory Declarations Act, 1960.\\nSubscribed and solemnly declared\\n)\\nby the abovenamed at Kuala Lumpur\\n)\\nthis 5 March 2004.\\n)\\nBefore me,\\n\\n\\n248\\nBank Negara Malaysia\\nBalance Sheet as at 31 December 2003\\n2003\\n2002\\nRM\\nRM\\nLIABILITIES\\nNote\\nAuthorised Capital\\nRM200,000,000\\nPaid-up Capital\\n3\\n100,000,000\\n100,000,000\\nGeneral Reserve Fund\\n4\\n5,864,876,290\\n5,398,963,841\\nOther Reserves\\n5\\n36,442,290,538\\n24,744,032,881\\nCurrency in Circulation\\n29,445,445,674\\n27,137,417,900\\nDeposits:\\nCommercial Banks, Finance Companies\\nand Merchant Banks\\n98,498,572,386\\n69,864,345,027\\nFederal Government\\n4,905,179,432\\n13,827,163,949\\nOthers\\n6\\n6,312,202,946\\n5,613,870,679\\nBank Negara Papers\\n13,385,045,306\\n12,280,763,725\\nAllocation of Special Drawing Rights\\n7\\n785,160,395\\n718,346,440\\nOther Liabilities\\n 5,093,884,077\\n 2,512,656,290\\n200,832,657,044\\n162,197,560,732\\nProfit and Loss Appropriation Account for the Year Ended 31 December 2003\\n2003\\n2002\\nRM\\nRM\\nTransfer to General Reserve Fund\\n465,912,449\\n331,941,108\\nAmount Payable to Federal Government\\n1,000,000,000\\n500,000,000\\n1,465,912,449\\n831,941,108\\nNotes on the following pages form part of these financial statements.\\n\\n\\n249\\n249\\n2003\\n2002\\nRM\\nRM\\nASSETS\\nNote\\nGold and Foreign Exchange\\n8\\n166,139,324,237\\n127,515,059,930\\nInternational Monetary Fund Reserve Position\\n3,652,006,672\\n3,315,547,927\\nHoldings of Special Drawing Rights\\n684,961,188\\n585,019,336\\nMalaysian Government Papers\\n9\\n98,521,225\\n29,384,948\\nDeposits with Financial Institutions\\n2,893,714,989\\n2,902,228,350\\nLoans and Advances\\n8,946,108,379\\n8,015,270,790\\nDeferred Expenditure\\n10\\n-\\n570,720,918\\nOther Assets\\n11\\n18,418,020,354\\n19,264,328,533\\n200,832,657,044\\n162,197,560,732\\n2003\\n2002\\nRM\\nRM\\nNet Profit\\n1,465,912,449\\n831,941,108\\n1,465,912,449\\n831,941,108\\nAnnual Accounts\\n\\n\\n250\\nNotes To The Financial Statements - 31 December 2003\\n1. Principal Activities of the Bank\\nThe Bank’s principal roles and responsibilities are as follows:\\n(a) achieving monetary stability;\\n(b) promoting a stable financial system;\\n(c) ensuring an efficient payment system;\\n(d) issuing currency in Malaysia; and\\n(e) acting as a banker and a financial adviser to the Federal Government.\\n2. Accounting Policies\\n(a) Gold, Securities and Investments\\nGold, securities and investments are stated at cost and provisions have been made for diminution in\\nvalue as at 31 December 2003.\\n(b) Foreign Currency Translation\\nAssets and liabilities in foreign currencies have been revalued into ringgit at rates of exchange ruling on\\nthe balance sheet date. Transactions in foreign currencies during the year have been translated into\\nringgit at rates of exchange ruling on value dates.\\nThe International Reserves comprising Gold and Foreign Exchange, International Monetary Fund Reserve\\nPosition and Holdings of Special Drawing Rights at 31 December 2003 was RM170,476.3 million\\nequivalent to US$44,862.2 million.\\n3. Paid-up Capital\\nThe entire issued and paid-up capital of RM100 million is owned by the Government of Malaysia.\\n4. General Reserve Fund\\n2003\\n2002\\nRM\\nRM\\nAs at 1 January\\n5,398,963,841\\n5,067,022,733\\nTransfer from Net Profit\\n465,912,449\\n331,941,108\\nAs at 31 December\\n5,864,876,290\\n5,398,963,841\\n5. Other Reserves\\nOther reserves comprise the Exchange Rate Fluctuation Reserve and the Contingency Reserve.\\n6. Deposits - Others\\nA substantial part of these deposits comprises deposits from Federal Statutory Authorities.\\n7. Allocation of Special Drawing Rights\\nInternational Monetary Fund (IMF) member countries are allocated Special Drawing Rights (SDR) in\\nproportion to their subscriptions to the IMF. The allocation represents a dormant liability of the Bank\\nto the IMF, against which assets are received in SDR from the IMF. The net cumulative of the allocation\\nwas RM785,160,395 equivalent to SDR139,048,000.\\n\\n\\n251\\n251\\n8. Gold and Foreign Exchange\\n2003\\n2002\\nRM\\nRM\\nForeign Securities\\n131,488,613,346\\n100,151,230,400\\nForeign Deposits\\n20,113,541,612\\n14,195,692,918\\nBalances with Other Central Banks, Bank for\\nInternational Settlements (BIS) and IMF\\n2,510,527,105\\n2,696,527,431\\nOthers\\n12,026,642,174\\n10,471,609,181\\n166,139,324,237\\n127,515,059,930\\n9. Malaysian Government Papers\\n2003\\n2002\\nRM\\nRM\\nMalaysian Government Securities\\n98,521,225\\n29,384,948\\n10. Deferred Expenditure\\nThis represents the net deficiency arising from foreign exchange transactions in 1993. The Government has\\nundertaken to make good this deficiency as and when required to do so by the Bank. As at 31 December\\n2003, the amount has been fully amortised over a period of 10 years beginning from 1994.\\n11. Other Assets\\nOther assets include investments in shares and bonds of RM18,306,865,784 acquired under section 30(1)(j)\\nand section 30(1)(oo)(i) of the Central Bank of Malaysia Act 1958 (Revised - 1994).\\n12. Contingent Liabilities\\nTotal contingent liabilities as at 31 December 2003 amounted to RM5,128,030,073. These comprise:\\n(a) an amount of RM5,045,320,650 which represents the obligation of the Bank to pay in full, in SDR or\\nother convertible currencies, the amount of Malaysia’s quota in the IMF under the Articles of\\nAgreement; and\\n(b) an amount of RM82,709,423 which represents the uncalled portion of the 3,000 units of shares held by\\nthe Bank in BIS. The amount is based on the nominal value (in gold francs) of the uncalled portion and\\ngold price as at the balance sheet date.\\n13.\\nIncome Tax\\nThe Bank is exempted from payment of income tax and supplementary income tax as set out in the Income\\nTax (Exemption) (No. 7) Order 1989.\\nAnnual Accounts\\n\\n\\n\\n\\nAnnex\\n\\n\\nContents\\n1.\\nForeign Exchange Administration Policies\\nP1\\n2.\\nFunds and Guarantee Facility Administered/Funded by Bank Negara Malaysia: Fund Utilisation\\nP9\\n3.\\nLicensed Banking Institutions (as at 31 December 2003)\\nP10\\n4.\\nFinancial Institutions Offering Islamic Banking Services  (as at 31 December 2003)\\nP12\\n5.\\nNational Shariah Advisory Council Members for Islamic Banking and Takaful\\n– Session 2001-2003\\nP14\\nKey Economic and Financial Statistics\\nChapter 1: The Malaysian Economy in 2003\\nA.1\\nGross Domestic Product by Kind of Economic Activity in Constant 1987 Prices\\nP17\\nA.2\\nGrowth in Manufacturing Production (1993=100)\\nP18\\nA.3\\nProduction of Primary Commodities\\nP19\\nA.4\\nGNP by Demand Aggregates\\nP20\\nA.5\\nSavings-Investment Gap\\nP21\\nA.6\\nBalance of Payments\\nP22\\nA.7\\nPrincipal Markets for Manufactured Exports\\nP24\\nA.8\\nPrincipal Export Markets for Electronics\\nP25\\nA.9\\nPrincipal Export Markets for Electrical Products\\nP25\\nA.10\\nPrincipal Export Markets for Chemicals and Chemical Products\\nP26\\nA.11\\nPrincipal Export Markets for Manufactures of Metal\\nP26\\nA.12\\nPrincipal Export Markets for Optical and Scientific Equipment\\nP27\\nA.13\\nPrincipal Export Markets for Petroleum Products\\nP27\\nA.14\\nExport Prices of Major Commodities\\nP27\\nA.15\\nPrincipal Export Markets for Palm Oil\\nP28\\nA.16\\nPrincipal Export Markets for Rubber\\nP28\\nA.17\\nPrincipal Export Markets for Saw Logs\\nP29\\nA.18\\nPrincipal Export Markets for Sawn Timber\\nP29\\nA.19\\nPrincipal Export Markets for Crude Oil\\nP30\\nA.20\\nPrincipal Export Markets for LNG\\nP30\\nA.21\\nExternal Debt and Debt Servicing\\nP31\\nA.22\\nGross Overseas Investment by Country\\nP32\\nA.23\\nConsumer Price Index (2000=100) Sub-groups of Food\\nP33\\nA.24\\nProducer Price Index (1989=100)\\nP33\\nA.25\\nSupply of Office Space, Retail Space, Condominiums and Apartments in the Klang Valley\\nP34\\nA.26\\nAverage Monthly Rentals for Prime Office and Retail Space in the Klang Valley\\nP34\\nChapter 2: Monetary and Fiscal Developments\\nA.27\\nBroad Money (M3)\\nP35\\nA.28\\nMoney Supply: Annual Change and Growth Rates\\nP35\\nA.29\\nInterest Rates (%)\\nP36\\nA.30\\nConsolidated Public Sector Finance\\nP37\\nChapter 3: Outlook and Policy\\nA.31\\nMajor Industrial Countries: Key Economic Indicators\\nP38\\nA.32\\nEast Asia: Key Economic Indicators\\nP39\\n\\n\\nAnnex\\nChapter 4: The Financial Sector\\nA.33\\nSources and Uses of Funds of the Financial System\\nP40\\nA.34\\nCommercial Banks: Commitments and Contingencies\\nP41\\nA.35\\nFinance Companies: Commitments and Contingencies\\nP42\\nA.36\\nMerchant Banks: Commitments and Contingencies\\nP43\\nA.37\\nCommercial Banks: Income and Expenditure\\nP44\\nA.38\\nFinance Companies: Income and Expenditure\\nP44\\nA.39\\nMerchant Banks: Income and Expenditure\\nP45\\nA.40\\nCommercial Banks: Lending Guidelines to the Priority Sectors\\nP45\\nA.41\\nFinance Companies: Lending Guidelines to the Priority Sectors\\nP46\\nA.42\\nCommercial Banks: Direction of Lending\\nP47\\nA.43\\nFinance Companies: Direction of Lending\\nP48\\nA.44\\nMerchant Banks: Direction of Lending\\nP49\\nA.45\\nCommercial Banks: Non-performing Loans by Sector\\nP50\\nA.46\\nFinance Companies: Non-performing Loans by Sector\\nP51\\nA.47\\nMerchant Banks: Non-performing Loans by Sector\\nP52\\nA.48\\nIslamic Banking System: Sources and Uses of Funds\\nP53\\nA.49\\nIslamic Banking System: Commitments and Contingencies\\nP53\\nA.50\\nIslamic Banking System: Income and Expenditure\\nP54\\nA.51\\nIslamic Banking System: Financing Activities\\nP55\\nA.52\\nIslamic Banking System: Financing to Small and Medium-Sized Enterprises\\nP55\\nA.53\\nIslamic Banking System: Direction of Financing\\nP56\\nA.54\\nIslamic Banking System: Non-performing Financing by Sector\\nP57\\nA.55\\nBanking System: Selected Indicators\\nP58\\nA.56\\nBanking System: Key Data\\nP59\\nA.57\\nHousing Credit Institutions\\nP60\\nA.58\\nOutstanding Housing Loans\\nP61\\nA.59\\nApproved Housing Loans\\nP61\\nA.60\\nLeasing Companies: Sources and Uses of Funds\\nP62\\nA.61\\nLeasing Companies: Income and Expenditure\\nP62\\nA.62\\nLeasing Companies: Financing by Sector\\nP63\\nA.63\\nFactoring Companies: Sources and Uses of Funds\\nP63\\nA.64\\nFactoring Companies: Income and Expenditure\\nP64\\nA.65\\nFactoring Companies: Financing by Sector\\nP64\\nA.66\\nCapital Market Debt Securities: Amount Outstanding\\nP65\\nA.67\\nUrban Credit Co-operative Societies\\nP66\\nChapter 5: Development Financial Institutions\\nA.68\\nDevelopment Financial Institutions: Sources and Uses of Funds\\nP67\\nA.69\\nDevelopment Financial Institutions under DFIA: Sources and Uses of Funds\\nP68\\nA.70\\nDevelopment Financial Institutions: Direction of Lending\\nP69\\nA.71\\nDevelopment Financial Institutions under DFIA: Direction of Lending\\nP70\\nA.72\\nBank Industri & Teknologi Malaysia Berhad\\nP70\\nA.73\\nExport-Import Bank of Malaysia Berhad\\nP71\\nA.74\\nMalaysia Export Credit Insurance Berhad\\nP71\\nA.75\\nBank Simpanan Nasional\\nP72\\nA.76\\nBank Kerjasama Rakyat Malaysia Berhad\\nP72\\nA.77\\nBank Pembangunan dan Infrastruktur Malaysia Berhad\\nP73\\nA.78\\nOther Development Financial Institutions: Core Activities\\nP73\\nA.79\\nDevelopment Financial Institutions: Selected  Data\\nP74\\nA.80\\nDevelopment Financial Institutions: Government Special Funds\\nP75\\nA.81\\nDevelopment Financial Institutions: Bank Negara Malaysia Funds\\nP76\\nA.82\\nDevelopment Financial Institutions: Funds from Multilateral and International Agencies\\nP77\\n\\n\\nAnnex\\nP1\\nForeign Exchange Administration Policies\\nForeign exchange administration rules were further liberalised and simplified in April 2004 (refer to the White\\nBox: ”Liberalisation and Simplification of Foreign Exchange Administration Rules” in Chapter 3). All regulations\\ncontinue to be applied uniformly to transactions with all countries, except Israel, Serbia and Montenegro for\\nwhich special restrictions apply. Foreign exchange administration regulations are also applied where appropriate\\nto prevent recourse to the Malaysian banking system for money laundering and terrorist financing. With the\\nlatest changes, the following are the rules affecting foreign exchange transactions:\\nI\\nCurrent Account Transactions\\n(a)\\nPayments for Import of Goods and Services\\n• There is no restriction on payments to non-residents for import of goods and services. Such payments\\nmust be made in foreign currency except currencies of Israel, Serbia and Montenegro.\\n• There is no restriction for residents to enter into a forward foreign exchange contract with onshore\\nlicensed banks or approved merchant banks to buy foreign currency against ringgit to make payment\\nfor import from a non-resident.\\n(b)\\nProceeds Arising from Export of Goods (Export Proceeds)\\n• All export proceeds are required to be repatriated back to Malaysia in accordance with the payment\\nschedule as specified in the sales contract, which should not exceed six months from the date of\\nexport.\\n• Export proceeds must be received in foreign currency and must be sold for ringgit or retained in export\\nforeign currency account (FCA) with onshore licensed banks. The aggregate overnight limits range\\nbetween USD30 million and USD100 million, depending on the average monthly export receipts.\\nHigher limits may be allowed on a case-by-case basis.\\n• Residents may enter into a forward foreign exchange contract with an onshore licensed bank to sell\\nforeign currency export proceeds for ringgit or another foreign currency, provided the maturity of the\\nforward contract is not later than six months after the intended date of export.\\n• Only resident exporters with annual gross exports exceeding RM50 million equivalent are required to\\nsubmit quarterly reports to the Controller of Foreign Exchange (the Controller).\\n(c)\\nImport and Export of Currency by Travellers\\n• Import and export of ringgit up to RM1,000, including demonetised RM1,000 and RM500 notes, and\\nexport of foreign currency up to an equivalent of RM10,000 by residents are allowed. Resident\\ntravellers are required to obtain permission from the Controller and declare in the Traveller’s Declaration\\nForm (TDF) when they –\\n- Carry into or out of Malaysia, ringgit notes exceeding RM1,000.\\n- Carry out foreign currency notes including traveller’s cheques, exceeding the equivalent of RM10,000.\\nPermission is given within one day of application.\\n• There is no restriction for non-residents to bring in any amount of foreign currency and/or traveller’s\\ncheques. Declaration in the Arrival/Departure Card (IMM.26) issued by the Immigration Department is\\nonly required for amounts in excess of the equivalent of USD2,500.\\n\\n\\nP2\\n• Non-residents would need to seek permission from the Controller if the amount of foreign currency to\\nbe carried abroad exceeds the amount brought into Malaysia, provided the amount to be taken out is\\nmore than the equivalent of USD2,500.\\n• Non-residents must obtain permission from the Controller and declare ringgit exceeding RM1,000\\nbeing brought into or out of Malaysia.\\nII\\nCapital Account Transactions\\n(a)\\nForeign Direct Investment\\n• There is no restriction on repatriation of capital, profits, dividends, interest and rental income by foreign\\ndirect investors.\\n(b)\\nInvestment Abroad by Residents\\n• Onshore licensed banks and approved merchant banks may invest abroad as long as they comply with\\nthe Banking and Financial Institution Act 1989 or Islamic Banking Act 1983 and their approved foreign\\ncurrency net open position limit. Remittances for investment abroad must be made in foreign currency.\\n• Residents, other than onshore licensed banks and approved merchant banks, are required to seek prior\\npermission from the Controller to remit funds in excess of RM10,000 equivalent in foreign currency for\\noverseas investment purposes. Permission is based on a set of transparent criteria.\\n• However, resident individuals may invest any amount in foreign currency in securities under the\\nEmployee Share Option/Purchase Scheme offered by their employers’ overseas parent or related\\ncompanies.\\n• Resident individuals employed or staying abroad with own foreign currency funds sourced from abroad\\nmay invest in any foreign currency assets, including those offered by onshore licensed banks and\\nlicensed offshore banks in Labuan.\\n• Resident unit trust management companies may invest abroad up to the full amount of the Net Asset\\nValue (NAV) subscribed by non-residents and up to 10% of the NAV per fund subscribed by residents.\\nDifferent funds of a unit trust management company or funds of different companies may be pooled\\nto benefit from economies of scale when investing abroad. Such investments are required to be in line\\nwith the Securities Commission’s prudential guidelines.\\n• Resident insurance companies and takaful operators may invest abroad up to 5% of their margin of\\nsolvency (MOS) and up to 5% of their total assets respectively.\\n• Resident insurance companies and takaful operators may also invest abroad up to 10% of the NAV of\\nthe investment-linked funds that they market. These investments are required to comply with prudential\\ninsurance and takaful regulations issued by Bank Negara Malaysia.\\n• Resident fund/asset managers may invest abroad up to the full amount of investments by their\\nnon-resident clients and up to 10% of investments by resident clients. These funds by different\\ncompanies may be pooled to benefit from economies of scale when investing abroad. Such\\ninvestments should be based on the mandate of their clients and in compliance with the Securities\\nCommission’s prudential guidelines.\\n(c)\\nForeign Currency Credit Facilities Obtained by Residents\\n• Residents may obtain credit facilities in foreign currency up to the equivalent of RM5 million in\\naggregate from onshore licensed banks, licensed merchant banks and non-residents.  Any amount\\nexceeding the permitted limit would require the prior permission of the Controller. Where the aggregate\\namount exceeds the equivalent of RM1 million, the resident is required to provide the Controller with\\ninformation on the credit facilities.\\n\\n\\nAnnex\\nP3\\n• Residents may also obtain trade financing of any amount in foreign currency from onshore licensed\\nbanks and licensed merchant banks provided the tenure of the credit does not exceed 12 months.\\n• There is no restriction for repayment of credit facilities obtained as long as such credit facilities have\\nbeen obtained in accordance with the relevant foreign exchange administration rules.\\n(d)\\nExtension of Credit Facilities to Non-Residents\\nForeign Currency Credit Facilities\\n• Onshore licensed banks may extend credit facilities in foreign currency to non-residents for any purpose.\\nHowever, credit facilities extended for the purchase or construction of immovable property in Malaysia\\nwould be subject to similar requirements as for ringgit credit facilities outlined below.\\nRinggit Credit Facilities\\n• Non-bank residents may extend credit facilities in ringgit to a non-resident not exceeding an aggregate\\nof RM10,000.\\n• Resident stockbroking companies may extend margin financing facilities to non-resident clients for the\\npurchase of shares listed on Malaysia Securities Exchange Berhad (MSEB), provided they comply with\\nall the relevant regulations imposed by MSEB.\\n• Onshore licensed banks may extend ringgit overnight overdraft facilities in aggregate not exceeding\\nRM200 million to a non-resident stockbroking company or a non-resident custodian bank. The facilities\\nare strictly for financing funding timing gaps due to unforeseen or inadvertent/technical administration\\nerrors or time zone delays in relation to settlement of trades on MSEB.\\n• Residents, bank or non-bank, may extend up to a maximum of three property loans in ringgit to a\\nnon-resident to finance/refinance the purchase or construction of any immovable property in Malaysia,\\nexcluding for the purchase of land only, subject to their own internal credit assessment guideline. All\\npurchases of immovable properties are subject to the guidelines issued by the Foreign Investment\\nCommittee (FIC). Details of the guidelines can be found at http://www.epu.jpm.my/.\\n• In addition, banking institutions may extend credit facilities in ringgit up to the aggregate limit of\\nRM10 million to a non-resident (excluding a non-resident stockbroking company, custodian bank and\\ncorrespondent bank) for any purpose for use in Malaysia, other than to finance the purchase or\\nconstruction of immovable property.\\nPrior permission of the Controller is required for the extension of credit facilities exceeding the\\naggregate limit.\\nSwap/Forward\\n• Onshore licensed banks are allowed to enter into –\\n(i)\\nShort-term currency swap arrangements with non-resident stockbrokers and non-resident\\ncustodian banks to cover payment for their share purchases on MSEB; and\\n(ii) Outright ringgit forward sales contract with non-residents for the same purpose.\\nThe permission is subject to the condition that such contracts are based on firm commitment and\\nnot on anticipated purchases, and for maturity period of up to three working days with no rollover\\noption.\\n• Onshore licensed banks and approved merchant banks may enter into forward foreign exchange\\ncontracts with residents to purchase any foreign currency receivables against ringgit from the residents\\nup to the tenure of the underlying transaction, provided the transaction is supported by firm\\nunderlying commitment to receive such currency.\\n\\n\\nP4\\n• Onshore licensed banks and approved merchant banks may also enter into forward foreign exchange\\ncontracts with residents to purchase any foreign currency yet to be received by the resident for another\\ncurrency up to the tenure of the underlying transaction, provided the transaction is supported\\nby firm underlying commitment.\\n• For forward purchase of export proceeds, the maturity date of the forward foreign exchange contract\\nshould not be later than six months after the intended date of export.\\n• For forward foreign exchange contract involving two foreign currencies, the use or retention of the\\nforeign currency being purchased must comply with the current foreign exchange administration rules.\\n• Onshore licensed banks, approved merchant banks and licensed offshore banks in Labuan may enter\\ninto interest rate swaps with residents, provided the transaction is supported by firm underlying\\ncommitment.\\n• A resident company which has sold forward foreign currency receivables for ringgit, may temporarily\\nretain up to the amount of foreign currency receipts received earlier than the maturity date of the\\nforward foreign exchange contract in its FCA with onshore licensed banks, pending maturity of the\\nforward foreign exchange contract.\\n• Multilateral Development Banks (MDBs), where Malaysia is a member, and foreign multinational\\ncorporations (MNCs) wishing to enter into forward foreign exchange contracts with onshore licensed\\nbanks to hedge the currency risks of the MDB and MNC issuers arising from the issuance of ringgit-\\ndenominated bonds would be considered based on the merits of each case.\\n• Onshore licensed banks may enter into forward foreign exchange contracts with non-residents who\\ninvest in ringgit-denominated bonds issued by MDBs and MNCs to hedge their currency risk arising\\nfrom the investment in the ringgit-denominated bonds.\\n(e)\\nPortfolio Investments\\n• There is no restriction for non-resident portfolio investors to repatriate their principal sum and profits\\nout of the country at any time.\\nIII\\nRinggit Credit Facilities to Non-Resident Controlled Companies\\n• There is no restriction for residents, including foreign-owned banking institutions in Malaysia, to extend\\ncredit facilities in ringgit to a Non-Resident Controlled Company (NRCC) operating in Malaysia up to an\\naggregate limit of RM50 million per corporate group or on single entity basis and any amount of short-\\nterm trade financing where the tenure does not exceed 12 months. Residents are required to obtain\\nprior permission from the Controller to extend ringgit credit facilities exceeding RM50 million in\\naggregate to a NRCC. The NRCC has to comply with the 3:1 gearing ratio requirement between its\\ndomestic debt and eligible capital funds only for amounts that exceed RM50 million. Higher gearing\\nwill be allowed on a case-by-case basis.\\nIV\\nIssuance of Ringgit Private Debt Securities\\n• Residents may raise domestic credit facility through the issuance of ringgit Private Debt Securities\\nregardless of amount, provided the proceeds are not used for financing of investment abroad and/or\\nfor refinancing of offshore borrowing. The issuance of Private Debt Securities must also be in accordance\\nwith the Exchange Control Guideline on Private Debt Securities. The amount issued by the NRCC would\\nbe included as part of the NRCC’s total domestic credit facilities and the rule on the 3:1 gearing ratio\\nwould apply.\\n• Applications for issuance of ringgit bonds in Malaysia by MDBs, where Malaysia is a member, and\\nMNCs would be considered based on the merits of each case.\\n\\n\\nAnnex\\nP5\\nV\\nForeign Currency Accounts of Residents\\n• Resident exporters may open foreign currency accounts (FCA) with onshore licensed banks to retain\\nbetween USD30 million and USD100 million foreign currency export proceeds depending on their\\naverage monthly export receipts.\\n• The permissible aggregate overnight limits are as follows –\\nAverage Monthly Export Receipts\\nAggregate Overnight Limit\\n(USD million)\\nExceeding RM100 million\\n100\\nExceeding RM50 million up to RM100 million\\n60\\nUp to RM50 million or for new exporters\\n30\\n• In addition, resident exporters are given the option to merge their export and non-export FCA in\\naccordance with overnight limits imposed on export FCA.\\n• Resident companies with or without domestic credit facilities may open FCA with onshore licensed\\nbanks to retain foreign currency receivables, other than export proceeds, with no overnight limit.\\n• Resident companies with or without domestic credit facilities may open FCA to retain foreign currency\\nreceivables, other than export proceeds, up to an aggregate overnight limit of USD500,000 with\\nlicensed offshore banks in Labuan.\\n• Resident companies may also temporarily retain in their onshore FCA, proceeds that have been sold\\nforward for ringgit and received earlier than maturity date of the said forward contract.\\n• Resident individuals may open FCA solely to facilitate education and employment overseas up to an\\naggregate overnight limit of –\\n(i)\\nUSD150,000 with onshore licensed banks;\\n(ii) USD150,000 with licensed offshore banks in Labuan; and\\n(iii) USD50,000 with overseas banks.\\n• Resident individuals with foreign currency funds overseas may maintain FCA, onshore or offshore,\\nwithout limit imposed on the overnight balance of the accounts.\\n• Resident individuals in Malaysia who have foreign currency funds are free to invest in any foreign\\ncurrency products offered by onshore licensed banks.\\nVI\\nForeign Currency Accounts of Non-Residents\\n• Onshore licensed banks and licensed merchant banks may open FCA for non-residents.\\n• There are no limits on the FCA of non-residents and no restrictions on the inflow and outflow of funds\\nthrough the FCA of non-residents.\\nVII\\nExternal Accounts of Non-Residents\\n• Financial institutions may open accounts in ringgit known as External Accounts for non-residents.\\nThere is no overnight limit on External Accounts. A non-resident may make ringgit cash withdrawal of\\nany amount from the External Account.\\n• Non-residents may use ringgit funds in the External Account for the following purposes –\\n- Purchase of foreign currency excluding the currencies of Israel, Serbia and Montenegro;\\n- Purchase of ringgit assets in Malaysia;\\n\\n\\nP6\\n- Payment for goods and services for own use in Malaysia;\\n- Payment of administrative and statutory expenses incurred in Malaysia;\\n- Payment under a non-financial guarantee (where the External Account holder is making payment\\nupon the guarantee being called upon);\\n- Extension of ringgit credit facilities to staff in Malaysia in accordance with the terms and conditions\\nof employment;\\n- Repayment of ringgit credit facilities permitted by the Controller or in accordance with terms and\\nconditions of employment; and\\n- Payments to resident beneficiary for any purpose other than the following –\\n: Payment for the import of goods and services;\\n: Extension of ringgit credit facilities to residents other than as permitted by the Controller;\\n: Settlement under financial guarantees; and\\n: Payment on behalf of a third party.\\n• The sources of funds in the ringgit External Accounts may be from –\\n- Sale of foreign currency excluding the currencies of Israel, Serbia and Montenegro;\\n- Sale of ringgit assets;\\n- All income derived in Malaysia including salaries, wages, royalties, commissions, fees, rental,\\ninterest, profits or dividends;\\n- Proceeds from ringgit credit facilities permitted by the Controller or in accordance with the terms and\\nconditions of employment;\\n- Proceeds from repayment of ringgit credit facilities permitted by the Controller or in accordance with\\nthe terms and conditions of employment;\\n- Transfers from -\\n: another External Account of the same account holder of any amount;\\n: another External Account and/or Resident Account of different account holders by way of –\\no\\nAutomated Teller Machine transfer up to RM5,000 per person/company, per day, per bank for\\nany purpose;\\no\\nInternet-bank transfers up to RM5,000 per person/company, per day, per bank for any\\npurpose.\\n- Deposit of ringgit notes of an aggregate not exceeding RM10,000 per day; and\\n- Deposit of cheques up to RM5,000 per cheque for any purpose.\\n• Ringgit funds in the External Accounts may be converted into foreign currency and repatriated or used\\nin Malaysia for permitted purposes.\\n• There is no restriction on the operation of the External Accounts of non-residents working or studying\\nin Malaysia (including their spouse, children and/or parents who are currently residing in Malaysia),\\nCentral Banks, Embassies, Consulates, High Commissions, Supranational or International organisations\\nrecognised by the Malaysian Government. Such persons or organisations can use funds in the External\\nAccounts for all purposes, including the permissible purposes referred above.\\n\\n\\nAnnex\\nP7\\nVIII\\nSpecial Status Granted to Selected Companies\\n(a)\\nOffshore Entities in the Labuan International Offshore Financial Centre\\n• Entities incorporated or registered under the Offshore Companies Act 1990 in the Labuan International\\nOffshore Financial Centre are declared as non-residents for foreign exchange administration purposes.\\n• Offshore entities in Labuan may deal in foreign currency other than the currencies of Israel, Serbia and\\nMontenegro with non-residents.\\n• All offshore entities may maintain External Accounts with resident banks to facilitate the defrayment\\nof statutory and administrative expenses in Malaysia.\\nOffshore insurance entities in Labuan may also use their External Accounts to facilitate the receipt of\\ninsurance premiums and for payment of claims arising from insurance and reinsurance of domestic\\ninsurance business.\\n• Licensed offshore banks in Labuan may receive payments in ringgit from residents arising from fees,\\ncommissions, dividends or interest from deposit of funds.\\n• Licensed offshore banks in Labuan may invest in assets/instruments in Malaysia for their own account\\nprovided investments are transacted directly with resident banking institutions or resident brokers. The\\ninvestments must not be financed by ringgit borrowings.\\n(b)\\nMultimedia Super Corridor Companies\\n• Companies operating in Multimedia Super Corridor (MSC) which are incorporated as separate legal\\nentities, are given exemption from foreign exchange administration regulations upon the companies\\nbeing awarded the MSC status by the Multimedia Development Corporation. The exemption granted to\\nthe MSC companies is solely for transactions undertaken on their own account. However, prior\\npermission should be obtained to deal with Specified Persons and in Restricted Currencies of Israel,\\nSerbia and Montenegro. In addition, the MSC companies are also required to submit the necessary\\nstatistical forms/reports/statements for monitoring purposes.\\n(c)\\nApproved Operational Headquarters\\n• Approved Operational Headquarters (OHQs) may –\\n(i)\\nOpen FCA with onshore licensed banks to retain export proceeds in foreign currency up to an\\naggregate overnight balance equivalent to USD100 million, regardless of the amount of export\\nreceipts.\\n(ii) Open FCA with onshore licensed banks, licensed offshore banks in Labuan or overseas banks\\nfor crediting foreign currency receivables, other than export proceeds, with no limit on the\\novernight balances.\\n(iii) Obtain domestic credit facilities in ringgit not exceeding RM50 million, provided the ringgit\\nfunds are used in Malaysia.\\n(iv) Obtain any amount of foreign currency credit facilities from onshore licensed banks and licensed\\nmerchant banks in Malaysia, and from any non-resident, provided the OHQ does not on-lend to, or\\nraise the funds on behalf of, any resident. Proceeds from such foreign currency credit facilities can\\nbe extended to their related companies overseas or invested abroad provided their aggregate\\ndomestic credit facilities in ringgit does not exceed RM50 million.\\n\\n\\nP8\\n(d)\\nApproved International Procurement Centres\\n• Approved International Procurement Centres (IPCs) may –\\n(i)\\nRetain any amount of export proceeds in FCA maintained with onshore licensed banks for\\napproved IPC activities only.\\n(ii) Enter into forward foreign exchange contracts with onshore licensed banks to hedge exchange\\nrisk based on projected volume of export.\\n(e)\\nApproved Regional Distribution Centres\\n• Approved Regional Distribution Centres (RDCs) may –\\n(i)\\nRetain any amount of export proceeds in FCA maintained with onshore licensed banks for\\napproved RDC activities only.\\n(ii) Enter into forward foreign exchange contracts with onshore licensed banks to hedge exchange\\nrisk based on projected volume of import and export.\\n\\n\\nAnnex\\nP9\\nFunds /  \\nGuarantee Facility\\nTerminated Funds\\nShip Financing Facility \\nFund for Food \\nBumiputera Entrepreneurs Project  Fund \\nFund For Small and Medium Industries 2 \\nNew Entrepreneurs Fund 2 \\nRehabilitation Fund for Small Businesses \\nSpecial Relief Guarantee Facility8\\n30-Oct-92\\n600\\n1,3003\\n3003\\n2,0001,3\\n1,1502,3\\n800\\n04-Jan-93\\n10-Feb-00\\n15-Apr-00\\n15-Jul-01\\n01-Nov-03\\n21-May-03\\n06-Feb-88\\n18-Jun-90\\n29-Oct-93\\n10-Mar-90\\n05-Feb-91\\n01-May-98\\n04-Jan-93\\n02-Jan-98\\n12-Dec-89\\n23-Nov-98\\n03-Jul-01\\n01-Jan-91\\n29-Feb-92\\n31-Oct-95\\n31-Dec-97\\n04-Aug-99\\n04-Aug-99\\n03-Apr-00\\n03-Apr-00\\n15-Jul-01\\n01-Nov-03\\n01-Nov-03\\n  1,000\\n38\\n6,946\\n596\\n1,929\\n1,336\\n–\\n  –\\n38\\n8,176\\n893\\n3,527\\n1,952\\n0\\n  73\\n0\\n1,230\\n297\\n1,598\\n616\\n0\\n  73\\n577\\n1,296\\n317\\n1,049\\n652\\n–\\n –\\n –\\n –\\n577\\n1,411\\n438\\n2,285\\n1,077\\n0\\n  40\\n0\\n115\\n121\\n1,236\\n425\\n0\\n  40\\n543\\n1,299\\n362\\n1,588\\n807\\n0\\n341\\n698\\n92\\n1,410\\n771\\n0\\nEnterprise Rehabilitation Fund \\nAbandoned Housing Projects Fund \\nFund to Accelerate the Construction \\n    of Low-Cost Houses \\nSpecial Fund for Tourism\\nIndustrial Adjustment Fund\\nSpecial Scheme for Low and Medium\\n    Cost Houses \\nBumiputera Industrial Fund \\nFund for Small and Medium Industries \\nNew Entrepreneurs Fund \\nRehabilitation Fund for Small and Medium\\n    Industries \\nEntrepreneurs Rehabilitation and\\n    Development Fund\\n 5003\\n 2003\\n 1,8503\\n 1,2503\\n 3303,4\\n 104\\n 600\\n 500\\n 100\\n 100\\n 1,000\\n1   The allocation was increased from RM650 million to RM2,000 million in 2003 \\n2   The allocation was increased from RM500 million to RM1,150 million in 2003\\n3   Revolving funds \\n4   Unutilised allocations were transferred to Rehabilitation Fund for Small Businesses \\n5   Approval withdrawn by banks/borrowers and/or amount required were reduced by banks/borrowers \\n6   Additional funding requirements \\n7   Borrowers’ outstanding loan balances with the lending institutions \\n8   A guarantee scheme through Credit Guarantee Corporation Malaysia Berhad funded by Bank Negara Malaysia to assist businesses affected by the Severe Acute Respiratory Syndrome (SARS)\\nFunds and Guarantee Facility Administered/Funded by Bank Negara Malaysia: Fund Utilisation\\nDate \\nestablished\\nFund \\nallocation \\n(RM m)\\nFund \\nallocation \\n(RM m)\\nNumber of applications approved\\nNumber of applications approved\\nAmount approved (RM m)\\nTotal disburse- \\nments as at \\nend 2003 \\n(RM m)\\nOutstanding \\nas at end \\n20037\\n(RM m)\\nTotal disburse- \\nments as at \\nend 2003 \\n(RM m)\\nOutstanding \\nas at end \\n20037\\n(RM m)\\nAnnual \\nchange\\nAnnual \\nchange\\nTotal as at end\\nAnnual \\nchange\\nDate \\nestablished\\nDate \\nterminated\\n2002\\n2003\\n2002\\n2003\\n2002\\n2003\\nAmount approved (RM m)\\nTotal as at end\\nAnnual \\nchange\\n2002\\n2003\\nTotal as at end\\nTotal as at end\\n764\\n894\\n74\\n331\\n54\\n297\\n194\\n25\\n203\\n95\\n98\\n660\\n95\\n99\\n5,426\\n3,825\\n3,140\\n297\\n21\\n764\\n74\\n54\\n194\\n25\\n96\\n99\\n5,420\\n3,126\\n322\\n33\\n0\\n0\\n0\\n0\\n0\\n-25\\n0\\n-65\\n-145\\n25\\n12\\n1,432\\n323\\n2\\n896\\n331\\n297\\n203\\n95\\n604\\n95\\n3,776\\n1,421\\n352\\n3\\n26\\n0\\n0\\n0\\n0\\n-565\\n0\\n-495\\n-115\\n29\\n1\\n850\\n346\\n297\\n203\\n95\\n579\\n91\\n3,724\\n1,396\\n306\\n1\\n109\\n12\\n0\\n43\\n14\\n13\\n51\\n2,097\\n445\\n236\\n1\\n\\n\\nP10\\nLicensed Banking Institutions (as at 31 December 2003)\\nCommercial Banks\\n1. ABN AMRO Bank Berhad\\n2. Affin Bank Berhad\\n3. Alliance Bank Malaysia Berhad\\n4. AmBank Berhad\\n5. Bangkok Bank Berhad\\n6. Bank of America Malaysia Berhad\\n7. Bank of China (Malaysia) Berhad\\n8. Bank of Tokyo-Mitsubishi (Malaysia) Berhad\\n9.\\n10.\\nBumiputra-Commerce Bank Berhad\\n11.\\nCitibank Berhad\\n12.\\nDeutsche Bank (Malaysia) Berhad\\n13.\\nEON Bank Berhad\\n14.\\nHong Leong Bank Berhad\\n15.\\nHSBC Bank Malaysia Berhad\\n16.\\nJ.P\\n.\\n Morgan Chase Bank Berhad\\n17.\\nMalayan Banking Berhad\\n18.\\nOCBC Bank (Malaysia) Berhad\\n19.\\nPublic Bank Berhad\\n20.\\nRHB Bank Berhad1\\n21.\\nSouthern Bank Berhad\\n22.\\nStandard Chartered Bank Malaysia Berhad\\n23.\\nThe Bank of Nova Scotia Berhad\\nUnited Overseas Bank (Malaysia) Berhad\\nIslamic Banks\\n1. Bank Islam Malaysia Berhad\\n2. Bank Muamalat Malaysia Berhad\\n1  Merged with Bank Utama (Malaysia) Berhad with effect from 1 May 2003\\n\\n\\nAnnex\\nP11\\nFinance Companies\\n1. AFFIN-ACF Finance Berhad\\n2. Alliance Finance Berhad\\n3. AmFinance Berhad\\n4. Bumiputra-Commerce Finance Berhad\\n5. EON Finance Berhad\\n6. Hong Leong Finance Berhad\\n7. Kewangan Bersatu Berhad\\n8. Mayban Finance Berhad\\n9. Public Finance Berhad\\n10. RHB Delta Finance Berhad\\n11. Southern Finance Berhad\\nMerchant Banks\\n1. Affin Merchant Bank Berhad\\n2. Alliance Merchant Bank Berhad\\n3. AmMerchant Bank Berhad\\n4. Aseambankers Malaysia Berhad\\n5. Commerce International Merchant Bankers Berhad\\n6. Malaysian International Merchant Bankers Berhad\\n7. Public Merchant Bank Berhad\\n8. RHB Sakura Merchant Bankers Berhad\\n9. Southern Investment Bank Berhad\\n10. Utama Merchant Bank Berhad\\n\\n\\nP12\\nFinancial Institutions Offering Islamic Banking Services\\n(as at 31 December 2003)\\nIslamic Banks\\n1. Bank Islam Malaysia Berhad\\n2. Bank Muamalat Malaysia Berhad\\nParticipating Banks in the Islamic Banking Scheme\\nCommercial Banks\\n1. Affin Bank Berhad\\n2. Alliance Bank Malaysia Berhad\\n3. AmBank Berhad\\n4. Citibank Berhad\\n5. EON Bank Berhad\\n6. Hong Leong Bank Berhad\\n7. HSBC Bank Malaysia Berhad\\n8. Malayan Banking Berhad\\n9. OCBC Bank (Malaysia) Berhad\\n10. Public Bank Berhad\\n11. RHB Bank Berhad\\n12. Southern Bank Berhad\\n13. Standard Chartered Bank Malaysia Berhad\\nFinance Companies\\n1. Affin-ACF Finance Berhad\\n2. AmFinance Berhad\\n3. EON Finance Berhad\\n4. Hong Leong Finance Berhad\\n5. Mayban Finance Berhad\\n6. Public Finance Berhad\\n7. Southern Finance Berhad\\n\\n\\nAnnex\\nP13\\nMerchant Banks\\n1. Affin Merchant Bank Berhad\\n2. Alliance Merchant Bank Berhad\\n4. Commerce International Merchant Bankers Berhad\\n3. AmMerchant Bank Berhad\\nDiscount Houses\\n1. Abrar Discounts Berhad\\n2. Affin Discount Berhad\\n3. Amanah Short Deposits Berhad\\n4. CIMB Discount House Berhad\\n5. KAF Discounts Berhad\\n6. Malaysia Discount Berhad\\n7. Mayban Discount Berhad\\nDevelopment Financial Institutions Offering Islamic Banking\\nFacilities\\n1. Bank Kerjasama Rakyat Malaysia Berhad\\n2. Bank Simpanan Nasional\\n3. Bank Pembangunan dan Infrastruktur Malaysia Berhad\\n4. Bank Industri & Teknologi Malaysia Berhad\\n\\n\\nP14\\nNational Shariah Advisory Council Members\\nfor Islamic Banking and Takaful – Session 2001-2003\\n1. Yang Amat Arif Dato’ Sheikh Ghazali Abdul Rahman\\n-\\nChairman\\nDirector General\\nShariah Judiciary Department Malaysia\\n2. Datuk Haji Md. Hashim Haji Yahaya\\n-\\nDeputy Chairman\\nAcademic Fellow\\nInternational Islamic University Malaysia\\n3. Sohibus Samahah Dato’ Haji Hassan Haji Ahmad\\n-\\nMember\\nMufti of Pulau Pinang\\n4. Dato’ Dr. Abdul Monir Yaacob\\n-\\nMember\\n-\\nMember\\nDirector General\\nInstitute of Islamic Understanding Malaysia\\n5. Dato’ Dr. Abdul Halim Ismail\\nExecutive Director\\nBIMB Securities Sdn. Bhd.\\n6. Assoc. Prof. Dr. Mohd Daud Bakar\\n-\\nMember\\nDeputy Rector\\nStudent Affairs & Discipline\\nInternational Islamic University Malaysia\\n7. Assoc. Prof. Dr. Joni Tamkin Borhan\\n-\\nMember\\nDepartment of Shariah and Economics\\nAcademy of Islamic Studies\\nUniversity of Malaya\\n\\n\\nAnnex\\nKey Economic and\\nFinancial Statistics\\nAnnex\\n\\n\\nAnnex\\nP17\\n1999\\n2000\\n2001\\nRM million\\nAgriculture\\n17,596\\n18,062\\n17,897\\nMining and quarrying\\n15,344\\n15,385\\n15,258\\nManufacturing\\n56,840\\n67,250\\n63,346\\nConstruction\\n6,926\\n6,964\\n7,108\\nServices\\n106,293\\n113,409\\n119,962\\nLess: Imputed bank service charges\\n14,896\\n15,832\\n17,678\\nPlus: Import duties\\n5,319\\n4,721\\n4,746\\nGDP at purchasers' prices1\\n193,422\\n209,959\\n210,640\\nAnnual change (%)\\nAgriculture\\n0.5\\n2.6\\n-0.9\\nMining and quarrying\\n6.9\\n0.3\\n-0.8\\nManufacturing\\n11.7\\n18.3\\n-5.8\\nConstruction\\n-4.4\\n0.6\\n2.1\\nServices\\n4.5\\n6.7\\n5.8\\nLess: Imputed bank service charges\\n6.7\\n6.3\\n11.7\\nPlus: Import duties\\n20.1\\n-11.2\\n0.5\\nGDP at purchasers' prices\\n6.1\\n8.5\\n0.3\\n2002\\n2003p\\n2004f\\n18,438\\n19,453\\n15,826\\n16,581\\n65,908\\n71,311\\n7,275\\n7,417\\n124,939\\n130,030\\n18,614\\n19,570\\n5,537\\n5,489\\n219,309\\n230,710\\n19,952\\n17,494\\n78,550\\n7,525\\n136,727\\n20,851\\n5,158\\n244,555\\n3.0\\n5.5\\n3.7\\n4.8\\n4.0\\n8.2\\n2.3\\n1.9\\n4.1\\n4.1\\n5.3\\n5.1\\n16.7\\n-0.9\\n4.1\\n5.2\\n2.6\\n5.5\\n10.2\\n1.5\\n5.2\\n6.5\\n-6.0\\n6.0 ~ 6.5\\n1     Numbers may not necessarily add up due to rounding \\np  Preliminary\\nf   Forecast\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\nTable A.1\\nGross Domestic Product by Kind of Economic Activity in Constant 1987 Prices\\n\\n\\nP18\\nTable A.2\\nGrowth in Manufacturing Production (1993=100)\\n2000\\n2001\\n2002\\n2003\\n2001\\n2002\\n2003\\nIndex\\nAnnual change (%)\\nExport-oriented industries\\n223.3\\n200.1\\n210.2\\n-10.4\\n5.0\\nElectrical machinery, apparatus\\nappliances and supplies\\n272.4\\n229.2\\n247.8\\n-15.9\\n8.1\\nElectronics\\n337.2\\n269.1\\n305.2\\n-20.2\\n13.4\\nElectrical products\\n171.2\\n166.6\\n158.2\\n-2.8\\n-5.1\\nRadio and television sets\\n186.3\\n170.6\\n157.4\\n-8.4\\n-7.8\\nCables and wires\\n172.6\\n180.6\\n145.8\\n4.6\\n-19.2\\nManuf. of office, computing\\nand accounting machinery\\n261.2\\n227.1\\n176.1\\nManuf. of refrigerating, exhaust,\\nventilating and air-conditioning\\nmachinery\\n113.2\\n132.3\\n161.8\\n16.9\\n22.2\\nTextiles and wearing apparel\\n129.6\\n118.8\\n111.4\\n-8.3\\n-6.2\\nWood and wood products\\n103.6\\n104.9\\n98.6\\n1.2\\n-6.0\\nChemicals and chemical products1\\n247.9\\n228.7\\n235.0\\n-7.7\\n2.7\\nRubber products1\\n174.2\\n180.0\\n183.5\\n3.3\\n2.0\\nOff-estate processing\\n186.6\\n200.9\\n215.1\\n7.7\\n7.1\\nOthers\\n129.1\\n106.2\\n115.1\\n-17.7\\n8.3\\nDomestic-oriented industries\\n172.1\\n184.1\\n190.4\\n7.0\\n3.4\\nConstruction-related products\\n168.4\\n176.1\\n182.9\\n4.6\\n3.8\\nNon-metallic mineral products\\n156.3\\n171.3\\n180.0\\n9.6\\n5.1\\nBasic iron and steel and\\nnon-ferrous metal\\n183.5\\n182.3\\n186.6\\n-0.7\\n2.4\\nTransport equipment\\n199.3\\n237.1\\n251.9\\n19.0\\n6.2\\nFood products\\n148.3\\n154.7\\n168.2\\n4.3\\n8.7\\nBeverages\\n134.2\\n138.5\\n121.9\\n3.2\\n-11.9\\nTobacco products\\n174.9\\n164.4\\n148.0\\n-6.0\\n-10.0\\nPetroleum products\\n166.3\\n198.3\\n190.2\\n19.3\\n-4.1\\nFabricated metal products\\n192.6\\n200.0\\n201.7\\n3.9\\n0.8\\nPaper products\\n162.0\\n165.0\\n186.2\\n1.9\\n12.8\\nTotal\\n209.7\\n195.8\\n204.7\\n235.3\\n271.7\\n351.3\\n147.1\\n134.4\\n128.8\\n156.6\\n180.6\\n109.0\\n99.5\\n283.8\\n217.9\\n240.5\\n120.9\\n202.0\\n201.6\\n197.5\\n206.7\\n238.0\\n183.0\\n147.3\\n153.8\\n194.7\\n216.5\\n201.2\\n226.1\\n-6.6\\n4.5\\n1 As of second quarter of 2001, chemicals and chemical products and rubber products were reclassified as export-oriented\\nindustries rather than domestic-oriented industries given that about three-quarters of the total output are related to export\\ndemand\\nSource: Department of Statistics, Malaysia\\n-13.1\\n-22.5\\n11.9\\n9.6\\n15.1\\n-7.0\\n-14.6\\n-11.7\\n11.6\\n-2.2\\n0.9\\n20.8\\n18.7\\n11.8\\n5.1\\n6.1\\n10.2\\n9.7\\n10.8\\n-5.5\\n8.8\\n20.8\\n3.9\\n2.3\\n7.4\\n8.0\\n10.5\\n-11.1\\n\\n\\nAnnex\\nP19\\nTable A.3\\nProduction of Primary Commodities\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\nVolume\\nAnnual change (%)\\nCrude palm oil\\n(‘000 tonnes)\\n10,554 10,842 11,804 11,909\\n26.9\\n2.7\\n8.9\\n0.9\\nRubber\\n(‘000 tonnes)\\n769\\n615\\n547\\n589\\nSaw logs\\n(‘000 cu. metres)\\n21,776 23,074 18,923 20,649\\n0.5\\n6.0\\n-18.0\\n9.1\\nCocoa\\n(‘000 tonnes)\\n84\\n70\\n58\\n48\\nCrude oil\\n(‘000 bpd)\\n691\\n681\\n666\\n698\\n-4.7\\n-1.5\\n-2.1\\n4.9\\nNatural gas\\n(mmscfd)\\n3,952\\n4,367\\n4,542\\n4,674\\n6.2\\n10.5\\n4.0\\n2.9\\nTin-in-concentrates\\n(‘000 tonnes)\\n7.3\\n6.3\\n5.0\\n4.2\\n13,355\\n698\\n21,381\\n36\\n736\\n4,916\\n3.6\\n12.1\\n18.4\\n3.5\\n-24.0\\n5.4\\n5.2\\n-14.2\\n27.6\\nSource: Malaysian Palm Oil Board\\nDepartment of Statistics, Malaysia\\nForestry Departments (Peninsular Malaysia, Sabah & Sarawak)\\nMalaysian Cocoa Board\\nPETRONAS\\nMinerals and Geoscience Department Malaysia\\n-13.2\\n-20.0\\n-11.1\\n7.7\\n-7.2\\n-16.0\\n-17.9\\n-17.4\\n-14.1\\n-21.2\\n-15.2\\np  Preliminary\\n\\n\\nP20\\nTable A.4\\nGNP by Demand Aggregates\\n1999\\n2000\\n2001\\n2002\\n2003p\\n2004f\\nat Current Prices\\n(RM million)\\nConsumption\\n158,100\\nPrivate consumption\\n125,056\\nPublic consumption\\n33,044\\nInvestment\\n65,841\\nPrivate investment\\n31,375\\nPublic investment\\n34,466\\nChange in stocks1\\n1,476\\nExports of goods and services\\n364,861\\nImports of goods and services\\n289,514\\nGDP at purchasers' value\\n300,764\\nNet factor payments abroad\\n-20,886\\nGNP at purchasers' value\\n279,878\\nat Constant 1987 Prices\\n(RM million)\\nConsumption\\n107,862\\nPrivate consumption\\n84,377\\nPublic consumption\\n23,485\\nInvestment\\n51,568\\nPrivate investment\\n24,574\\nPublic investment\\n26,994\\nChange in stocks1\\n1,254\\nExports of goods and services\\n212,085\\nImports of goods and services\\n179,347\\nGDP at purchasers' value\\n193,422\\nNet factor payments abroad\\n-13,628\\nGNP at purchasers' value\\n179,794\\np  Preliminary\\nf   Forecast\\n1   Includes statistical discrepancy\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\n181,031\\n145,355\\n35,676\\n87,729\\n44,102\\n43,627\\n5,378\\n427,004\\n358,530\\n342,612\\n-28,909\\n313,703\\n192,741\\n150,644\\n42,097\\n83,345\\n34,528\\n48,817\\n-3,268\\n389,256\\n327,765\\n334,309\\n-25,623\\n308,686\\n209,521\\n159,506\\n50,015\\n83,764\\n30,066\\n53,698\\n1,251\\n415,040\\n348,918\\n360,658\\n-25,061\\n335,597\\n223,706\\n169,813\\n53,893\\n87,089\\n30,785\\n56,304\\n-1,456\\n450,592\\n367,918\\n392,012\\n-22,614\\n369,398\\n242,669\\n186,244\\n56,425\\n87,807\\n34,479\\n53,328\\n3,048\\n502,550\\n418,030\\n418,044\\n-24,715\\n393,329\\n119,238\\n95,370\\n23,868\\n64,840\\n32,596\\n32,244\\n2,785\\n246,158\\n223,062\\n209,959\\n-19,271\\n190,688\\n125,549\\n97,630\\n27,919\\n63,050\\n26,120\\n36,930\\n-1,778\\n227,685\\n203,866\\n210,640\\n-17,642\\n192,998\\n133,282\\n101,946\\n31,336\\n63,249\\n22,702\\n40,547\\n1,677\\n237,904\\n216,802\\n219,309\\n-17,253\\n202,057\\n140,927\\n107,111\\n33,816\\n64,960\\n22,956\\n42,004\\n-607\\n253,006\\n227,577\\n230,710\\n-15,302\\n215,408\\n150,968\\n115,739\\n35,229\\n65,202\\n25,596\\n39,606\\n2,742\\n283,598\\n257,954\\n244,555\\n-17,020\\n227,535\\n\\n\\nAnnex\\nP21\\nf  Forecast\\nTable A.5\\nSavings-Investment Gap\\n1999\\n2000\\n2001\\n2002\\n2003p\\n2004f\\n(RM million)\\nPublic gross domestic capital formation\\n34,466\\n43,627\\n48,817\\n53,698\\n56,304\\nPublic savings\\n50,694\\n55,391\\n53,534\\n63,496\\n66,313\\nDeficit/surplus\\n16,228\\n11,764\\n4,717\\n9,798\\n10,009\\nPrivate gross domestic capital formation\\n32,851\\n49,480\\n31,260\\n31,317\\n29,329\\nPrivate savings\\n64,517\\n69,969\\n54,230\\n52,013\\n70,081\\nDeficit/surplus\\n31,666\\n20,489\\n22,970\\n20,696\\n40,752\\nGross domestic capital formation\\n67,317\\n93,107\\n80,077\\n85,015\\n85,633\\n(as % of GNP)\\n24.1\\n29.7\\n25.9\\n25.3\\n23.2\\nGross national savings\\n115,211\\n125,360\\n107,764\\n115,509\\n136,394\\n(as % of GNP)\\n41.2\\n40.0\\n34.9\\n34.4\\n36.9\\nBalance on current account\\n47,895\\n32,252\\n27,687\\n30,494\\n50,761\\n(as % of GNP)\\n17.1\\n10.3\\n9.0\\n9.1\\n13.7\\n53,328\\n61,305\\n7,977\\n37,527\\n79,596\\n42,068\\n90,855\\n23.1\\n140,900\\n35.8\\n50,045\\n12.7\\n Includes the change in stocks. Previously, the change in stocks was distributed between the public and private sector gross\\n domestic capital formation\\np  Preliminary\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\n1\\n1\\n\\n\\nP22\\nTable A.6\\nBalance of Payments\\n2000\\nItem\\nRM million\\nGoods1\\n374,033\\n 294,889\\n 79,144\\nTrade account\\n 373,270\\n 311,459\\n 61,811\\nServices\\n 52,971\\n 63,641\\n-10,670\\nTransportation\\n 10,646\\n 22,382\\n-11,736\\nTravel\\n 19,043\\n 7,885\\n 11,158\\nOther services\\n 22,794\\n 32,824\\n-10,030\\nGovernment services n.i.e.3\\n 488\\n 550\\n-62\\nBalance on goods and services\\n 427,004\\n 358,530\\n 68,474\\nIncome\\n 7,547\\n 36,456\\n-28,909\\nCompensation of employees\\n 1,301\\n 2,276\\n-975\\nInvestment income2\\n 6,246\\n 34,180\\n-27,934\\nCurrent transfers\\n 2,872\\n 10,185\\n-7,313\\nBalance on current account\\n 437,423\\n 405,171\\n 32,252\\n% of GNP\\n10.3\\nCapital account\\n–\\n–\\nFinancial account\\n-23,848\\nDirect investment\\n 6,694\\nAbroad\\n-7,699\\nIn Malaysia\\n 14,393\\nPortfolio investment\\n-9,395\\nOther investment\\n-21,147\\nOfficial sector\\n 3,936\\nPrivate sector\\n-25,083\\nBalance on capital and\\nfinancial account\\n-23,848\\nErrors and omissions\\n-12,107\\nof which:\\nExchange revaluation\\ngain (+) / loss (-)\\n-5,335\\nOverall balance\\n(surplus + / deficit -)\\n-3,703\\nBank Negara Malaysia\\ninternational reserves, net4\\nRM million\\n113,541\\nUS$ million\\n29,879\\nReserves as months of\\nretained imports\\n 4.5\\n1\\nAdjusted for valuation and coverage to the balance of payments basis. Imports include military goods which are not\\nincluded in trade data\\n2\\nInclude undistributed earnings of foreign direct investment companies. The counterpart of these earnings is shown as\\nreinvested earnings under “Direct Investment” in the Financial Account\\n3\\nInclude transactions of foreign military and diplomatic establishments\\n4\\nAll assets and liabilities in foreign currencies have been revalued into ringgit at rates of exchange ruling on the balance \\nsheet date and the gain/loss has been reflected accordingly in the Bank’s account\\ne  Estimate\\nf   Forecast\\nNote: Numbers may not necessarily add up due to rounding\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\n2001\\n334,326\\n 264,472\\n 69,854\\n334,284\\n 280,229\\n 54,055\\n54,929\\n 63,295\\n-8,366\\n10,443\\n 21,795\\n-11,352\\n26,081\\n 9,933\\n 16,148\\n17,932\\n 31,119\\n-13,187\\n473\\n448\\n25\\n389,255\\n 327,767\\n 61,488\\n7,018\\n 32,641\\n-25,623\\n 1,395\\n 2,409\\n-1,014\\n5,623\\n 30,232\\n-24,609\\n2,040\\n 10,218\\n-8,178\\n398,313\\n 370,626\\n 27,687\\n9.0\\n-14,791\\n1,091\\n-1,014\\n2,105\\n-2,466\\n-13,416\\n7,114\\n-20,530\\n-14,791\\n-9,234\\n-4,060\\n3,662\\n117,203\\n30,843\\n5.1\\n+                   -                 Net\\n+                   -                Net\\n\\n\\nAnnex\\nP23\\n2002\\n2003e\\n2004f\\nRM million\\n 358,504\\n286,387\\n72,117\\n398,998\\n301,297\\n97,701\\n357,682\\n303,063\\n54,619\\n398,882\\n317,746\\n81,136\\n56,536\\n62,532\\n-5,996\\n51,594\\n66,620\\n-15,026\\n10,847\\n22,419\\n-11,572\\n10,514\\n23,787\\n-13,273\\n 27,049\\n 9,947\\n 17,102\\n 22,423\\n 10,816\\n 11,607\\n 18,166\\n29,408\\n-11,242\\n18,206\\n31,225\\n-13,019\\n474\\n758\\n-284\\n452\\n793\\n-341\\n 415,040\\n348,919\\n66,121\\n450,592\\n367,917\\n82,675\\n8,129\\n33,190\\n-25,061\\n13,116\\n35,730\\n-22,614\\n 1,653\\n2,832\\n-1,179\\n2,170\\n3,120\\n-950\\n 6,476\\n30,358\\n-23,882\\n10,946\\n32,610\\n-21,664\\n 2,513\\n13,079\\n-10,566\\n 1,929\\n11,229\\n-9,300\\n  425,682\\n395,188\\n30,494\\n465,638\\n414,876\\n50,761\\n9.1\\n13.7\\n–\\n–\\n-11,941\\n-12,063\\n 4,935\\n-7,238\\n 12,173\\n-6,506\\n-10,370\\n 4,720\\n-15,090\\n-4,362\\n 6,627\\n 14,191\\n 131,394\\n34,577\\n5.4\\n 4,242\\n-5,172\\n9,414\\n4,176\\n-20,481\\n-11,210\\n-9,271\\n360\\n443,429\\n346,991\\n94,438\\n443,297\\n366,765\\n76,532\\n59,121\\n71,039\\n-11,918\\n12,410\\n27,034\\n-14,624\\n 27,127\\n 12,084\\n 15,043\\n19,120\\n31,267\\n-12,147\\n464\\n654\\n-190\\n502,550\\n418,030\\n84,520\\n13,700\\n38,415\\n-24,715\\n2,164\\n3,125\\n-961\\n11,537\\n35,290\\n-23,753\\n 2,062\\n11,823\\n-9,761\\n518,312\\n468,267\\n50,045\\n12.7\\n 11,927\\n 39,059\\n 170,453\\n44,856\\n6.8\\n+                  -               Net\\n+                 -                Net\\n+                  -                 Net\\n-12,063\\n-11,941\\n\\n\\nP24\\nTable A.7\\nPrincipal Markets for Manufactured Exports\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nASEAN\\nSingapore\\nThailand\\nIndonesia\\nPhilippines\\nBrunei Darussalam\\nEU\\nUnited Kingdom\\nGermany\\nNetherlands\\nOthers\\nUnited States\\nJapan\\nHong Kong China\\nChinese Taipei \\nKorea\\nThe People’s  \\n  Republic of China\\nAustralia\\nCanada\\nWest Asian Countries\\nLatin American\\n  Countries\\nRest of the World\\nTotal\\n65,004\\n48,390\\n8,396\\n3,415\\n4,170\\n633\\n44,837\\n11,438\\n6,955\\n13,880\\n12,564\\n68,058\\n28,027\\n13,395\\n12,835\\n5,481\\n5,660\\n5,924\\n2,262\\n5,042\\n2,242\\n12,963\\n271,730\\n26.8\\n20.1\\n3.2\\n1.6\\n1.7\\n0.2\\n14.5\\n3.5\\n2.7\\n4.4\\n3.9\\n23.3\\n11.2\\n5.0\\n3.6\\n2.3\\n2.5\\n2.2\\n0.9\\n1.8\\n1.3\\n4.6\\n100.0\\n72,140\\n52,483\\n9,816\\n4,983\\n4,113\\n745\\n40,894\\n8,355\\n7,176\\n13,609\\n11,754\\n65,830\\n32,413\\n14,327\\n9,767\\n6,692\\n 11,266\\n 5,862\\n1,977\\n6,885\\n3,436\\n13,827\\n285,316\\n26.1\\n18.5\\n4.1\\n1.9\\n1.4\\n0.2\\n12.7\\n2.6\\n2.3\\n3.7\\n4.1\\n24.0\\n9.3\\n6.3\\n3.8\\n2.6\\n4.6\\n2.0\\n0.7\\n2.0\\n1.0\\n4.9\\n100.0\\n82,705\\n57,647\\n13,513\\n6,287\\n4,324\\n934\\n41,194\\n8,123\\n8,065\\n10,336\\n14,670\\n75,035\\n28,818\\n24,765\\n11,575\\n7,143\\n17,445\\n7,123\\n2,160\\n7,549\\n2,959\\n18,479\\n326,950\\n25.2\\n17.6\\n4.1\\n1.9\\n1.3\\n0.3\\n12.6\\n2.5\\n2.5\\n3.2\\n4.4\\n22.9\\n8.8\\n7.6\\n3.5\\n2.2\\n5.3\\n2.2\\n0.7\\n2.3\\n0.9\\n5.8\\n100.0\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\n25.0\\n10.3\\n23.9\\n3.1\\n1.3\\n1.5\\n0.2\\n16.5\\n4.2\\n2.6\\n5.1\\n4.6\\n4.9\\n4.7\\n2.0\\n2.1\\n2.2\\n0.8\\n1.9\\n0.8\\n4.9\\n100.0\\n17.8\\n74,165\\n35,763\\n85,210\\n10,166\\n5,064\\n5,537\\n675\\n  46,057\\n11,067\\n8,682\\n13,843\\n12,465\\n15,795\\n11,421\\n7,363\\n7,979\\n7,054\\n2,900\\n5,717\\n4,169\\n14,315\\n317,908\\n63,768\\n18.4\\n1.8\\n1.4\\n2.9\\n25.3\\n3.4\\n0.3\\n14.3\\n100.0\\n2.5\\n4.8\\n4.1\\n3.9\\n2.1\\n0.7\\n23.1\\n11.4\\n5.0\\n3.4\\n2.3\\n2.4\\n1.2\\n4.9\\n78,859\\n708\\n38,493\\n302,275\\n12,355\\n55,996\\n7,836\\n7,064\\n11,084\\n12,509\\n13,994\\n5,906\\n1,991\\n72,427\\n28,253\\n19,031\\n11,409\\n7,867\\n5,992\\n3,022\\n15,031\\n5,629\\n4,171\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\n\\n\\nAnnex\\nP25\\nTable A.8\\nPrincipal Export Markets for Electronics\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nUnited States\\n41,660\\n28.8\\n42,378\\n25.4\\n34,793\\n24.9\\n42,281\\n26.8\\nSingapore\\n28,621\\n19.8\\n 41,048\\n24.6\\n30,335\\n21.7\\n33,079\\n21.0\\nChinese Taipei \\n9,153\\n6.3\\n7,289\\n4.4\\n6,520\\n4.7\\n 7,863\\n5.0\\nJapan\\n12,621\\n8.7\\n15,970\\n9.6\\n13,502\\n9.7\\n11,209\\n7.1\\nHong Kong China\\n6,506\\n4.5\\n8,017\\n4.8\\n7,470\\n5.3\\n 12,525\\n7.9\\nOthers\\n44,132\\n30.4\\n48,595\\n29.1\\n41,000\\n29.4\\n42,914\\n27.3\\nTotal\\n144,885\\n100.0\\n166,791\\n100.0\\n139,632\\n100.0\\n157,663\\n100.0\\n45,352\\n27.1\\n32,067\\n19.1\\n 8,061\\n4.8\\n10,479\\n6.3\\nThe People's \\n  Republic of China\\n2,192\\n1.5\\n3,494\\n2.1  \\n6,012\\n4.3\\n7,792\\n4.9\\n9,028\\n5.4\\n 18,041\\n10.8\\n44,592\\n26.5\\n167,620\\n100.0\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\nTable A.9\\nPrincipal Export Markets for Electrical Products\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nUnited States\\n13,817\\n27.5\\n17,358\\n27.3\\n17,324\\n28.6\\n17,427\\n31.7\\nSingapore\\n7,958\\n15.9\\n 8,665\\n13.6\\n8,120\\n13.4\\n7,442\\n13.6\\nUnited Kingdom\\n1,542\\n3.1\\n1,601\\n2.5\\n1,435\\n2.4\\n 1,400\\n2.6\\nJapan\\n6,778\\n13.5\\n9,337\\n14.7\\n9,207\\n15.2\\n7,584\\n13.8\\nHong Kong China\\n2,263\\n4.5\\n2,992\\n4.7\\n2,534\\n4.2\\n 2,483\\n4.5\\nOthers\\n14,218\\n28.4\\n18,983\\n29.9\\n16,854\\n27.6\\n14,007\\n25.5\\nTotal\\n50,162\\n100.0\\n63,638\\n100.0\\n60,675\\n100.0\\n54,890\\n100.0\\n16,379\\n29.3\\n8,539\\n15.3\\n 1,351\\n2.4\\nGermany\\n1,662\\n3.3\\n1,794\\n2.8\\n1,865\\n3.1\\n 1,410\\n2.6\\n 1,438\\n2.6\\n6,848\\n12.2\\nThe People's \\n  Republic of China\\n865\\n1.7\\n1,428\\n2.2\\n1,770\\n2.9\\n1,579\\n2.9\\n2,137\\n3.8\\n 2,403\\n4.3\\n15,167\\n27.1\\n55,927\\n100.0\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nRM \\nmillion\\n% \\nshare\\nThailand\\n1,059\\n2.1\\n1,480\\n2.3\\n1,566\\n2.6\\n 1,558\\n2.8\\n 1,665\\n3.0\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\n\\n\\nP26\\nTable A.10\\nPrincipal Export Markets for Chemicals and Chemical Products\\n1999\\n2000\\n2001\\n2002\\n2003p\\nSingapore\\n1,454\\n13.1\\n1,900\\n12.7\\n1,646\\n11.1\\n1,736\\n10.1\\nHong Kong China\\n993\\n8.9\\n1,373\\n9.1\\n1,176\\n7.9\\n1,239\\n7.2\\nJapan\\n1,199\\n10.8\\n1,586\\n10.6\\n1,566\\n10.5\\n1,750\\n10.2\\nUnited States\\n922\\n8.3\\n1,426\\n9.5\\n1,218\\n8.2\\n1,042\\n6.1\\nChinese Taipei \\n409\\n3.7\\n671\\n4.5\\n620\\n4.2\\n882\\n5.1\\nThailand\\n680\\n6.1\\n976\\n6.5\\n1,164\\n7.8\\n1,387\\n8.0\\nIndonesia\\n617\\n5.6\\n1,153\\n7.7\\n999\\n6.7\\n1,302\\n7.6\\nThe People’s\\nRepublic of China\\n647\\n5.8\\n1,054\\n7.0\\n1,533\\n10.3\\n2,294\\n13.3\\n2,929\\n13.8\\n2,165\\n10.2\\n2,125\\n10.0\\n1,771\\n8.3\\n1,551\\n7.3\\n1,532\\n7.2\\n1,060\\n5.0\\n960\\n4.5\\n7,143\\n33.7\\n21,236\\n100.0\\nOthers\\n4,184\\n37.7\\n4,872\\n32.4\\n4,957\\n33.3\\n5,596\\n 32.4\\nTotal\\n11,105\\n100.0\\n15,011\\n100.0\\n14,879\\n100.0\\n17,228\\n100.0\\nCountry\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nRM\\nmillion\\nshare\\n%\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\nTable A.11\\nPrincipal Export Markets for Manufactures of Metal\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nSingapore\\n2,155\\n2,270\\n27.4\\n24.3\\nUnited States\\n633\\n8.0\\n687\\n755\\n445\\n5.2\\n495\\n476\\n23.2\\n2,134\\n20.3\\n2,289\\n9.0\\n1,016\\n7.4\\n837\\n4.9\\n558\\n6.3\\n714\\n3.9\\n443\\n7.4\\n486\\n8.5\\n594\\n5.5\\n665\\n5.8\\n504\\n4.1\\n398\\n2.8\\n368\\n39.9\\n3,430\\n8.0\\n644\\n8.8\\n736\\n26.3\\n2,020\\n5.7\\n501\\n4.3\\n360\\n3.6\\n240\\n34.8\\n3,475\\n374\\n310\\n2,994\\n5.5\\nJapan\\n667\\n8.5\\n6.8\\nThe People’s\\nRepublic of China\\n341\\n4.3\\n7.6\\nThailand\\n458\\n5.8\\n5.7\\nIndonesia\\n314\\n4.0\\n4.5\\n3.8\\n432\\n3.6\\n403\\n40.8\\n4,611\\n100.0\\n11,303\\n2.8\\n217\\n3.3\\n240\\n288\\nKorea\\n279\\n3.5\\n2.5\\nHong Kong China\\n447\\n5.7\\n4.2\\nOthers\\n2,568\\n32.8\\n     38.9\\nTotal\\n7,862\\n8,618\\n8,692\\n8,796\\n100.0\\n100.0\\n100.0\\n100.0\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\n\\n\\nAnnex\\nP27\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nRM\\nmillion\\n%\\nshare\\nRM\\nmillion\\n%\\nshare\\nRM\\nmillion\\n%\\nshare\\nRM\\nmillion\\n%\\nshare\\nRM\\nmillion\\n%\\nshare\\nUnited States \\n1,141 \\n23.6 \\n1,999 \\n29.3 \\n2,132 \\n27.3 \\n1,874 \\n23.0 \\n2,007 \\n21.8\\nSingapore \\n696 \\n14.4 \\n859 \\n12.6 \\n1,110 \\n14.2 \\n1,572 \\n19.3 \\n1,749 \\n19.0 \\nJapan \\n765 \\n15.8 \\n1,004 \\n14.7 \\n1,163 \\n14.9 \\n1,186 \\n14.6 \\n1,393 \\n15.1\\nNetherlands \\n140 \\n2.9 \\n291 \\n4.3 \\n415 \\n5.3 \\n511 \\n6.3 \\n649 \\n7.0\\nThe People's\\n Republic of China \\n84 \\n1.7 \\n173 \\n2.5 \\n232 \\n3.0 \\n199 \\n2.4 \\n455 \\n4.9\\nHong Kong China \\n284 \\n5.9 \\n342 \\n5.0 \\n408 \\n5.2 \\n429 \\n5.3 \\n442 \\n4.8\\nGermany \\n361 \\n7.5 \\n584 \\n8.6 \\n437 \\n5.6 \\n408 \\n5.0 \\n405 \\n4.4\\nOthers \\n1,363 \\n28.2 \\n1,573 \\n23.0 \\n1,905 \\n24.5 \\n1,972 \\n24.1 \\n2,113 \\n23.0\\n  \\nTotal \\n4,834 \\n100.0 \\n6,825 \\n100.0 \\n7,802 \\n100.0 \\n8,151 \\n100.0 \\n9,213 \\n100.0\\nTable A.12\\nPrincipal Export Markets for Optical and Scientific Equipment\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\nTable A.13\\nPrincipal Export Markets for Petroleum Products\\n1999\\n2000\\n2001\\n2002\\n2003p\\nCountry\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nRM\\n%\\nmillion\\nshare\\nSingapore\\n1,337\\n2,457\\n29.6\\n39.9\\nUnited States\\n108\\n2.4\\n239\\n1,371\\n746\\n9.2\\n119\\n921\\n34.6\\n3,043\\n38.3\\n3,605\\n5.6\\n525\\n19.5\\n1,836\\n2.9\\n274\\n4.3\\n408\\n2.9\\n274\\n270\\n3.3\\n188\\n11.8\\n1,001\\n11.0\\n412\\n2.4\\n188\\n1.3\\n257\\n257\\n31.2\\n2,274\\n2.9\\n276\\n16.9\\n991\\n30.2\\n2,906\\n1.5\\n201\\n2.8\\n110\\n36.0\\n2,637\\n231\\n2,927\\n2.5\\nJapan\\n576\\n12.8\\n13.1\\nThe People’s\\nRepublic of China\\n505\\n11.2\\n5.4\\nAustralia\\n249\\n5.5\\n2.5\\n355\\n7.9\\n3.4\\n2.9\\n23.6\\n2,224\\n100.0\\n9,416\\n4.4\\n0.5\\n366\\n41\\nKorea\\n101\\n2.2\\n3.4\\nHong Kong China\\n1,282\\n28.4\\n29.8\\nOthers\\nTotal\\n4,513\\n8,131\\n8,408\\n7,620\\n100.0\\n100.0\\n100.0\\n100.0\\nSource: Department of Statistics, Malaysia and Bank Negara Malaysia\\np  Preliminary\\nTable A.14\\nExport Prices of Major Commodities\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\nAnnual change (%)\\nPalm oil (RM/tonne)\\n1,615\\n1,122\\n944\\n1,367\\n-31.8\\n-30.5\\n-15.9\\n44.9\\nRubber (sen/kg)\\n238\\n263\\n230\\n269\\n-16.7\\n10.4\\n-12.7\\n17.0\\nSaw logs (RM/cu. metre)\\n395\\n384\\n315\\n359\\n14.8\\n-2.9\\n-17.9\\n13.9\\nSawn timber\\n(RM/cu. metre)\\n996\\n1,050\\n943\\n990\\n5.8\\n5.4\\n-10.2\\n5.0\\nCrude oil  (US$/barrel)\\n18.18\\n29.58\\n25.53\\n24.81\\n1,617\\n379\\n366\\n926\\n30.27\\n29.9\\n62.7\\n-13.7\\n-2.8\\n18.3\\n41.0\\n1.9\\n-6.5\\n22.0\\nSource: Department of Statistics, Malaysia\\np  Preliminary\\n\\n\\nP28\\nTable A.15\\nPrincipal Export Markets for Palm Oil\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\n('000 tonnes)\\n% share\\nThe People's\\nRepublic of China\\n783\\n1,023\\n1,364\\n1,940\\n8.7\\n11.5\\n13.0\\n17.9\\nIndia\\n2,402\\n2,029\\n2,066\\n1,670\\n26.8\\n22.9\\n19.7\\n15.4\\nEuropean Union\\n1,071\\n988\\n1,610\\n1,478\\n12.0\\n11.1\\n15.4\\n13.6\\nNetherlands\\n637\\n530\\n1,028\\n847\\n7.1\\n6.0\\n9.8\\n7.8\\nItaly\\n100\\n121\\n155\\n127\\n1.1\\n1.4\\n1.5\\n1.2\\nSweden\\n67\\n76\\n100\\n102\\n0.8\\n0.8\\n1.0\\n0.9\\nUnited Kingdom\\n39\\n25\\n51\\n50\\n0.4\\n0.3\\n0.5\\n0.5\\nOthers\\n228\\n236\\n276\\n352\\n2.6\\n2.6\\n2.6\\n3.2\\nMiddle East\\n1,217\\n1,168\\n1,236\\n1,449\\n13.6\\n13.2\\n11.8\\n13.4\\nPakistan\\n1,028\\n1,075\\n1,143\\n1,059\\n11.5\\n12.1\\n10.9\\n9.8\\nSingapore\\n468\\n358\\n423\\n441\\n5.2\\n4.0\\n4.0\\n4.1\\nUnited States\\n124\\n178\\n208\\n270\\n1.4\\n2.0\\n2.0\\n2.5\\nJapan\\n356\\n353\\n379\\n434\\n4.0\\n4.0\\n3.6\\n4.0\\nBangladesh\\n53\\n98\\n178\\n230\\n0.6\\n1.1\\n1.7\\n2.1\\nKorea\\n190\\n198\\n241\\n218\\n2.1\\n2.2\\n2.3\\n2.0\\nMyanmar\\n145\\n124\\n115\\n114\\n1.6\\n1.4\\n1.1\\n1.1\\nOthers\\n1,127\\n1,271 \\n1,503\\n1,551\\n12.5\\n14.5\\n14.5\\n14.1\\nTotal\\n8,964\\n8,863\\n10,466 10,854\\n2,502\\n1,650\\n1,648\\n974\\n98\\n106\\n90\\n380\\n1,749\\n1,105\\n489\\n231\\n430\\n272\\n211\\n159\\n2,063\\n12,509\\n20.0\\n13.2\\n13.2\\n7.8\\n0.8\\n0.8\\n0.7\\n3.1\\n14.0\\n8.8\\n3.9\\n1.8\\n3.4\\n2.2\\n1.7\\n1.3\\n16.5\\n100.0\\n100.0\\n100.0\\n100.0\\n100.0\\nSource: Department of Statistics, Malaysia\\np  Preliminary\\nCountry\\nTable A.16\\nPrincipal Export Markets for Rubber\\n('000 tonnes)\\n% share\\nEuropean Union\\n356\\n350\\n318\\n309\\n36.2\\n35.8\\n38.7\\n33.3\\nGermany\\n100\\n107\\n119\\n119\\n10.2\\n10.9\\n14.5\\n12.8\\nBelgium\\n48\\n51\\n44\\n30\\n4.8\\n5.2\\n5.4\\n3.2\\nItaly\\n36\\n33\\n30\\n28\\n3.7\\n3.4\\n3.6\\n3.0\\nUnited Kingdom\\n51\\n35\\n25\\n24\\n5.2\\n3.6\\n3.0\\n2.6\\nNetherlands\\n17\\n17\\n12\\n15\\n1.7\\n1.7\\n1.5\\n1.6\\nOthers\\n104\\n107\\n88\\n93\\n10.6\\n11.0\\n10.7\\n10.1\\nThe People’s\\nRepublic of China\\n66\\n94\\n85\\n129\\n6.7\\n9.6\\n10.3\\n13.9\\nUnited States\\n111\\n101\\n66\\n81\\n11.3\\n10.3\\n8.0\\n8.7\\nKorea\\n84\\n73\\n58\\n59\\n8.5\\n7.5\\n7.1\\n6.4\\nIran\\nTurkey\\n26\\n30\\n24\\n24\\n2.7\\n3.1\\n2.9\\n2.6\\nChinese Taipei \\n15\\n11\\n12\\n14\\n1.6\\n1.1\\n1.5\\n1.5\\nJapan\\n25\\n21\\n18\\n14\\n2.5\\n2.1\\n2.2\\n1.5\\nOthers\\n262\\n255\\n181\\n253\\n26.5\\n26.1\\n22.0\\n27.3\\nTotal\\n984\\n978\\n822\\n928\\n100.0\\n100.0\\n100.0\\n100.0\\nSource: Department of Statistics, Malaysia\\np  Preliminary\\nCountry\\n39\\n43\\n60\\n45\\n305\\n129\\n19\\n29\\n22\\n12\\n94\\n207\\n76\\n69\\n25\\n14\\n10\\n191\\n945\\n48\\n4.0\\n4.4\\n7.3\\n4.8\\n32.3\\n13.7\\n2.0\\n3.1\\n2.3\\n1.3\\n9.9\\n21.9\\n8.0\\n7.3\\n2.6\\n1.5\\n1.1\\n20.2\\n100.0\\n5.1\\n2001\\n2001\\n2000\\n2000\\n1999\\n1999\\n2003p\\n2002\\n2002\\n2003p\\n\\n\\nAnnex\\nP29\\nSource: Department of Statistics, Malaysia\\nTable A.17\\nPrincipal Export Markets for Saw Logs\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\n('000 cubic metres)\\n% share\\nJapan\\n2,280\\n2,184\\n1,375\\n1,641\\n33.9\\n33.7\\n28.4\\n32.2\\nThe People’s\\nRepublic of China\\n1,680\\n1,405\\n1,071\\n1,106\\n25.0\\n21.7\\n22.2\\n21.7\\nIndia\\n838\\n873\\n985\\n998\\n12.4\\n13.5\\n20.4\\n19.5\\nChinese Taipei \\n919\\n898\\n669\\n651\\n13.6\\n13.8\\n13.8\\n12.7\\nHong Kong China\\n440\\n541\\n417\\n188\\n6.5\\n8.3\\n8.6\\n3.7\\nKorea\\n393\\n301\\n175\\n159\\n5.8\\n4.6\\n3.6\\n3.1\\nThailand\\n95\\n102\\n28\\n39\\n1.4\\n1.6\\n0.6\\n0.8\\nOthers\\n93\\n180\\n114\\n322\\n1.4\\n2.8\\n2.4\\n6.3\\nTotal\\n6,738\\n6,484\\n4,834\\n5,104\\n1,356\\n1,338\\n1,371\\n694\\n103\\n140\\n60\\n446\\n5,508\\n100.0\\n100.0\\n100.0\\n100.0\\n24.6\\n24.3\\n24.9\\n12.6\\n1.9\\n2.5\\n1.1\\n8.1\\n100.0\\np  Preliminary\\nCountry\\nSource: Department of Statistics, Malaysia\\nTable A.18\\nPrincipal Export Markets for Sawn Timber\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\n(‘000 cubic metres)\\n% share\\nThailand\\n490\\n563\\n532\\n590\\n17.4\\n19.6\\n22.1\\n23.8\\nChinese Taipei\\n213\\n226\\n170\\n183\\n7.6\\n7.9\\n7.0\\n7.4\\nNetherlands\\n273\\n270\\n197\\n194\\n9.7\\n 9.4\\n8.2\\n7.8\\nThe People’s\\nRepublic of China\\n149\\n137\\n151\\n173\\n5.3\\n4.8\\n6.3\\n7.0\\nJapan\\n237\\n239\\n187\\n200\\n8.4\\n8.3\\n7.8\\n8.1\\nHong Kong China\\n143\\n132\\n135\\n151\\n5.1\\n4.6\\n5.6\\n6.1\\nSingapore\\n247\\n219\\n185\\n160\\n8.8\\n7.6\\n7.7\\n6.5\\nKorea\\n144\\n129\\n120\\n98\\n5.1\\n4.5\\n5.0\\n4.0\\nRepublic of Yemen\\n70\\n114\\n83\\n59\\n2.5\\n3.9\\n3.4\\n2.4\\nBelgium\\n71\\n69\\n52\\n64\\n2.5\\n2.4\\n2.2\\n2.6\\nUnited Arab Emirates\\n78\\n82\\n66\\n59\\n2.8\\n2.9\\n2.7\\n2.4\\nUnited Kingdom\\n69\\n55\\n52\\n55\\n2.4\\n1.9\\n2.2\\n2.2\\nGermany\\n39\\n31\\n23\\n30\\n1.4\\n1.1\\n1.0\\n1.2\\nOthers\\n595\\n610\\n458\\n458\\n21.0\\n21.1\\n18.8\\n18.5\\nTotal\\n2,818\\n2,876\\n2,411\\n2,474\\n627\\n214\\n222\\n177\\n196\\n108\\n188\\n92\\n70\\n97\\n55\\n52\\n43\\n675\\n2,816\\n100.0\\n100.0\\n100.0\\n100.0\\n22.2\\n7.6\\n7.9\\n6.3\\n7.0\\n3.8\\n6.7\\n3.3\\n2.5\\n3.4\\n1.9\\n1.8\\n1.5\\n24.1\\n100.0\\np  Preliminary\\nCountry\\n\\n\\nP30\\nTable A.19\\nPrincipal Export Markets for Crude Oil\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\nSource: Department of Statistics, Malaysia\\n2003p\\n(‘000 tonnes)\\n% share\\nIndia\\n2,387\\n2,161\\n1,690\\n2,462\\n13.5\\n13.0\\n11.2\\n15.2\\nThailand\\n2,306\\n2,890\\n2,797\\n2,358\\n13.0\\n17.3\\n18.6\\n14.6\\nJapan\\n2,004\\n1,299\\n1,457\\n2,131\\n11.3\\n7.8\\n9.7\\n13.2\\nKorea\\n2,540\\n2,292\\n2,190\\n1,838\\n14.3\\n13.7\\n14.5\\n11.4\\nThe People’s\\nRepublic of China\\n299\\n705\\n838\\n1,723\\n1.7\\n4.2\\n5.6\\n10.6\\nAustralia\\n2,087\\n1,760\\n1,852\\n1,687\\n11.8\\n10.6\\n12.3\\n10.4\\nIndonesia\\n1,658\\n1,060\\n753\\n956\\n9.4\\n6.4\\n5.0\\n5.9\\nNew Zealand\\n603\\n565\\n487\\n604\\n3.4\\n3.4\\n3.2\\n3.7\\nMyanmar\\n633\\n595\\n453\\n561\\n3.6\\n3.6\\n3.0\\n3.5\\nPhilippines\\n553\\n527\\n362\\n511\\n3.1\\n3.2\\n2.4\\n3.2\\nSri Lanka\\n353\\n473\\n400\\n485\\n2.0\\n2.8\\n2.7\\n3.0\\nUnited States\\n1,143\\n1,054\\n704\\n412\\n6.4\\n6.3\\n4.7\\n2.5\\nSingapore\\n626\\n626\\n215\\n203\\n3.5\\n3.8\\n1.4\\n1.3\\nOthers\\n533\\n665\\n879\\n261\\n3.0\\n3.9\\n5.7\\n1.5\\nTotal\\n17,725 16,672 15,077 16,192\\n3,396\\n3,097\\n1,440\\n1,271\\n2,013\\n2,248\\n1,290\\n321\\n–\\n466\\n425\\n839\\n467\\n640\\n17,913\\n100.0\\n100.0\\n100.0\\n100.0\\n19.0\\n17.3\\n8.0\\n7.1\\n11.2\\n12.5\\n7.2\\n1.8\\n–\\n2.6\\n2.4\\n4.7\\n2.6\\n3.6\\n100.0\\np  Preliminary\\nCountry\\nSource: Department of Statistics, Malaysia\\nTable A.20\\nPrincipal Export Markets for LNG\\n1999\\n2000\\n2001\\n2002\\n2003p\\n1999\\n2000\\n2001\\n2002\\n2003p\\n(‘000 tonnes)\\n% share\\nJapan\\n10,070\\n11,076\\n11,308\\n10,782\\n66.7\\n71.8\\n73.3\\n71.8\\nKorea\\n3,210\\n2,498\\n2,255\\n2,304\\n21.3\\n16.2\\n14.6\\n15.4\\nChinese Taipei\\n1,753\\n1,802\\n1,860\\n1,857\\n11.6\\n11.7\\n12.1\\n12.4\\nOthers\\n0.4\\n0.3\\n–\\n0.4\\nTotal\\n15,088\\n15,430\\n15,423\\n15,007\\n100.0\\n100.0\\n100.0\\n100.0\\n71.8\\n15.4\\n12.5\\n0.3\\n100.0\\np  Preliminary\\nCountry\\n55\\n54\\n–\\n64\\n12,494\\n2,687\\n2,167\\n17,402\\n54\\n\\n\\nAnnex\\nP31\\nTable A.21\\nExternal Debt and Debt Servicing1\\n1999\\n2000\\n2001\\n2002\\n2003p\\nRM million\\nMedium and long-term debt:\\nGross borrowing\\nFederal Government\\nNFPEs\\nPrivate sector\\nRepayment and prepayment\\nFederal Government\\nNFPEs\\nPrivate sector\\nNet borrowing\\nFederal Government\\nNFPEs\\nPrivate sector\\nOutstanding debt\\nFederal Government\\nNFPEs\\nPrivate sector\\nCurrency composition (% share)\\nU.S. dollar\\nJapanese yen\\nOthers\\nShort-term debt:\\nOutstanding debt\\nBanking sector2\\nNon-bank private sector\\nTotal external debt:\\nTotal external debt (US$ million)\\n% GNP\\nAnnual change (%)\\nTotal servicing (including short-term \\n   interest payment)\\nof which:\\nMedium and long-term debt\\nRepayment (excluding\\nprepayment)\\nFederal Government\\nNFPEs\\nPrivate sector\\nInterest payment\\nFederal Government\\nNFPEs\\nPrivate sector\\nDebt service ratio (% of exports of \\n  goods and services)\\nTotal debt\\nMedium and long-term debt\\nFederal Government\\nNFPEs\\nPrivate sector\\n1    Data on MAS was included under private sector up to 2000 and under NFPEs from 2001 \\n2    Excludes currency and deposits held by non-residents with resident banking institutions\\np  Preliminary\\nNote: Numbers may not necessarily add up due to rounding\\nSource: Ministry of Finance and Bank Negara Malaysia\\n21,410\\n23,390\\n31,550\\n23,853\\n4,763\\n4,767\\n7,030\\n10,465\\n6,080\\n7,719\\n11,311\\n3,655\\n10,567\\n10,903\\n13,209\\n9,732\\n16,152\\n17,941\\n22,323\\n23,104\\n1,840\\n3,903\\n735\\n2,445\\n2,230\\n3,836\\n10,447\\n6,942\\n12,082\\n10,203\\n11,141\\n13,717\\n5,259\\n5,448\\n9,227\\n749\\n2,923\\n864\\n6,295\\n8,020\\n3,850\\n3,883\\n865\\n-3,287\\n-1,515\\n701\\n2,068\\n-3,985\\n139,706\\n143,465\\n149,346\\n153,587\\n18,369\\n18,821\\n24,328\\n36,283\\n57,021\\n59,566\\n67,415\\n64,330\\n64,315\\n65,077\\n57,604\\n52,974\\n100\\n100\\n100\\n100\\n20\\n18\\n15\\n14\\n8\\n22,427\\n17,600\\n24,072\\n32,055\\n12,661\\n9,271\\n11,926\\n21,894\\n9,766\\n8,329\\n12,147\\n10,162\\n162,133\\n161,065\\n173,419\\n185,643\\n42,667\\n42,385\\n45,636\\n48,853\\n57.9\\n51.3\\n56.2\\n55.3\\n-4.6\\n-0.7\\n7.7\\n7.0\\n23,312\\n25,043\\n26,954\\n28,020\\n15,726\\n16,370\\n19,612\\n20,780\\n1,840\\n3,903\\n735\\n2,445\\n2,230\\n2,506\\n7,886\\n6,942\\n11,656\\n9,962\\n10,991\\n11,393\\n6,058\\n7,117\\n6,345\\n6,484\\n883\\n1,187\\n1,150\\n1,879\\n2,755\\n3,408\\n3,574\\n3,430\\n2,420\\n2,522\\n1,621\\n1,174\\n6.3\\n5.8\\n6.8\\n6.7\\n5.8\\n5.4\\n6.6\\n6.5\\n0.7\\n1.2\\n0.5\\n1.0\\n1.3\\n1.4\\n2.9\\n2.5\\n3.8\\n2.9\\n3.2\\n3.0\\n7\\n7\\n6\\n74\\n75\\n78\\n77\\n20,969\\n3,144\\n5,157\\n12,668\\n28,892\\n6,854\\n12,437\\n9,602\\n-7,923\\n-3,710\\n-7,279\\n3,066\\n152,788\\n37,284\\n59,558\\n55,946\\n100\\n13\\n10\\n34,462\\n24,597\\n9,865\\n187,250\\n49,276\\n50.7\\n0.9\\n28,287\\n21,491\\n3,861\\n10,017\\n7,612\\n6,149\\n1,930\\n3,287\\n932\\n6.1\\n6.0\\n1.2\\n2.9\\n1.8\\n77\\n\\n\\nP32\\n–\\nTable A.22\\nGross Overseas Investment by Country1   \\n1999\\n2000\\n2001\\n2002\\n2003\\nCountries\\nRM million\\nCayman Islands\\nBermuda \\nMauritius\\nIsle of Man\\nLabuan2\\n125\\n349\\n37\\n2,082\\n906\\n4,014\\n3,924\\n513\\n553\\n532\\n270\\n153\\nUnited States\\n5,714\\nSingapore\\n15\\n1,683\\n–\\n…\\n1\\n398\\n313\\n100\\n...\\nSudan\\n 435\\nHong Kong China\\n400\\n410\\n125\\n1,057\\nUnited Kingdom\\nIndonesia\\nNamibia\\n201\\n134\\n58\\n83\\n…\\n–\\n304\\n...\\nThe People's Republic of China\\n292\\n536\\n158\\n…\\n2,920\\n1,635\\n \\n151\\nThailand\\nEgypt\\nAustralia\\n1,099\\n172\\n28\\n45\\n306\\n...\\n900\\nChad\\nJapan\\nBahrain\\n \\n2\\n46\\n142\\nKorea\\n28\\nPakistan\\n104\\n4\\n5\\n...\\n122\\n8,523\\n4,720\\n3,164 \\n4,625\\n142\\n50\\n88\\n2\\n101\\n928\\nNetherlands\\nVietnam\\n59\\nPhilippines\\nIndia\\n29\\n76\\n77\\nGermany\\nIreland\\nOthers\\n     of which: \\nTotal\\n13,391\\n13,809\\n13,107\\n16,424\\n1   Refers to direct equity investment, purchase of real estate and extension of loans to non-residents abroad. Includes capital \\n   invested or loans extended by the foreign-owned companies in/to their parent companies abroad. For the purpose of \\n   compiling balance of payments statistics, capital invested in or loans extended to parent companies abroad must be offset \\n   against the capital invested in or loans extended to Malaysia by the parent companies abroad. At present, the Cash BOP \\n   Reporting System is not able to segregate this type of transaction\\n2  Labuan IOFC is treated as a non-resident for exchange control purposes\\nSource: Cash BOP Reporting System, Bank Negara Malaysia\\n73\\n16\\n14\\n100\\n33\\n192\\n14\\n–\\n–\\n…\\n…\\n28\\n21\\n531\\n43\\n22\\n156\\n209\\n54\\n–\\n159\\n104\\n109\\n2,392\\n2,972\\n1,130\\n1,647\\n1,622\\n2\\n1\\n36\\n7\\n420\\n787\\n59\\n82\\n420\\n386\\n–\\n–\\n–\\n–\\n175\\n994\\n492\\n520\\n600\\nChinese Taipei\\n30\\n10\\n28\\n34\\n666\\n844\\n138\\n167\\n215\\n225\\n243\\n266\\n356\\n117\\n120\\n137\\n100\\n51\\n3,996\\n87\\n66\\n54\\n57\\n79\\n10,590\\n933\\n\\n\\nAnnex\\nP33\\nTable A.23\\nConsumer Price Index (2000=100) Sub-groups of Food\\nWeights \\n(%)\\n2000\\n2001\\n2002\\n2003\\nAnnual change (%)\\nFood\\n33.8\\n1.9\\n0.7\\n0.7\\nof which:\\nFood at Home\\n24.1\\n1.7\\n0.4\\n0.2\\nRice, bread and other cereals\\n5.5\\n0.3\\n0.2\\n0.1\\nMeat\\n3.4\\n3.8\\n0.0\\n-1.3\\nFish\\n4.9\\n5.4\\n3.5\\n1.0\\nMilk and eggs\\n2.1\\n-1.4\\n-0.2\\n1.0\\nOils and fats\\n0.8\\n-1.5\\n-6.4\\n1.8\\nFruits and vegetables\\n5.0\\n-0.7\\n-1.0\\n0.2\\nSugar\\n0.5\\n-0.2\\n-0.1\\n-1.9\\nCoffee and tea\\n0.8\\n0.0\\n0.1\\n0.4\\nOther foods\\n1.1\\n1.1\\n-0.2\\n0.3\\nFood away from home\\n9.7\\n2.6\\n1.3\\n2.0\\n1.3\\n1.6\\n0.4\\n2.4\\n1.3\\n2.2\\n4.4\\n2.5\\n0.2\\n1.6\\n0.5\\n0.7\\nSource: Department of Statistics, Malaysia\\nTable A.24\\nProducer Price Index (1989=100)\\nWeights\\n(%)\\n1999\\n2000\\n2001\\n2002\\n2003\\nAnnual change (%)\\nDomestic Economy\\n100.0\\n-3.3\\n3.1\\n-5.0\\n4.4\\nof which:\\nFood and live animals chiefly for food\\n14.9\\n-2.3\\n0.4\\n0.4\\n0.4\\nBeverages and tobacco\\n2.1\\n10.2\\n0.4\\n1.8\\n3.9\\nCrude materials, inedible except fuels\\n18.0\\n-2.7\\n1.3\\n-5.9\\n7.0\\nMineral fuels, lubricants and\\nrelated materials\\n18.8\\n14.2\\n33.9\\n-10.6\\n0.0\\nAnimal and vegetable oils and fats\\n8.5\\n-29.4\\n-31.9\\n-17.6\\n46.5\\nChemicals and related products N.E.C. \\n4.4\\n1.5\\n1.0\\n-1.1\\n-0.7\\nManufactured goods classified \\n  chiefly by material\\n10.8\\n-0.9\\n0.9\\n-0.5\\n-0.2\\nMachinery and transport equipment\\n18.3\\n-0.5\\n-0.1\\n-0.1\\n-0.3\\nMiscellaneous manufactured articles\\n3.6\\n1.4\\n0.9\\n-0.6\\n-0.3\\nCommodities and transactions not  \\n  classified elsewhere in the S.I.T.C. \\n0.6\\n-0.9\\n0.4\\n10.3\\n2.6\\nLocal Production\\n79.3\\n-3.9\\n3.6\\n-6.1\\n5.7\\nImports\\n20.7\\n-0.6\\n1.1\\n-0.3\\n-0.7\\n5.7\\n-0.2\\n0.9\\n7.5\\n11.4\\n15.7\\n1.4\\n1.8\\n0.1\\n0.9\\n0.5\\n6.8\\n0.8\\nSource: Department of Statistics, Malaysia\\n\\n\\nP34\\nTable A.25\\nSupply of Office Space, Retail Space, Condominiums and Apartments in the Klang Valley1 \\nCondominiums \\nand Apartments\\nOffice Space\\nRetail Space\\nYear\\nSquare  \\nmetres\\nSquare  \\nmetres\\nOccupancy\\nrate2 (%)\\nOccupancy\\nrate2 (%)\\nUnits\\n1993\\n332,246\\n91.5\\n130,345\\n97.3\\n18,232\\n1994\\n192,808\\n94.3\\n117,340\\n98.5\\n9,331\\n1995\\n362,851\\n94.9\\n341,091\\n96.1\\n17,822\\n1996\\n296,742\\n95.5\\n136,964\\n92.8\\n14,568\\n1997\\n869,394\\n94.9\\n362,574\\n90.5\\n5,473\\n1998\\n1,158,776\\n79.9\\n364,027\\n61.7\\n14,151\\n1999\\n265,645\\n76.2\\n89,787\\n76.6\\n9,547\\n2000\\n1,374,452\\n76.9\\n218,562\\n78.5\\n5,466\\n2001\\n2003 (Jan-Sep)\\n 177,576\\n74.7\\n95,663\\n79.9\\n17,067\\n 2002\\n200,195\\n75.5\\n141,644\\n83.0\\n20,465\\n92,800\\n77.2\\n190,175\\n83.3\\n19,060\\n1   Refers to Kuala Lumpur and Selangor\\n2   Refers to end period\\nSource: NAPIC, Valuation and Property Services Department \\nYear\\nTable A.26\\nAverage Monthly Rentals for Prime Office and Retail Space in the Klang Valley1\\nPrime Office Space\\nPrime Retail Space\\nRM/sq.m\\nAnnual change (%)\\nRM/sq.m\\nAnnual change (%)\\n1998\\n46\\n-19.3\\n162\\n-39.3\\n1999\\n42\\n-8.7\\n175\\n8.0\\n2000\\n48\\n14.3\\n194\\n10.9\\n2001\\n48\\n0.9\\n215\\n11.0\\n2002\\n2003\\n45\\n-6.7\\n226\\n5.0\\n45\\n0.0\\n226\\n0.0\\n1  Refers to Kuala Lumpur and Selangor\\nSource: CH Williams Talhar & Wong Sdn. Bhd.\\n\\n\\nAnnex\\nP35\\nTable A.27\\nBroad Money (M3)\\nAnnual change\\nAs at end \\n2003\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nBroad money (M3)1\\n33,131\\n21,906\\n13,022\\n31,607\\nCurrency2\\n6,019\\n-1,949\\n-92\\n1,751\\nDemand deposits\\n12,403\\n7,623\\n2,882\\n6,718\\nBroad quasi-money\\n14,709\\n16,232\\n10,232\\n23,138\\nFixed deposits\\n29,745\\n8,207\\n-358\\n12,648\\nSavings deposits\\n7,908\\n6,380\\n4,454\\n5,590\\nNIDs\\n-21,864\\n-932\\n600\\n3,575\\nRepos\\n-2,461\\n-314\\n4,186\\n2,507\\nForeign currency deposits\\n1,382\\n2,890\\n1,350\\n-1,182\\nFactors Affecting M3\\nNet claims on Government\\n2,248\\n4,388\\n-1,542\\n11,538\\nClaims on Government\\n-2,906\\n3,326\\n4,165\\n-867\\nLess: Government deposits\\n-5,155\\n-1,062\\n5,707\\n-12,405\\nClaims on private sector\\n-9,792\\n25,968\\n20,335\\n27,737\\nLoans\\n-20,377\\n21,566\\n17,081\\n19,288\\nSecurities\\n10,585\\n4,402\\n3,255\\n8,449\\nNet external operations\\n31,391\\n7,336\\n6,741\\n1,237\\nBank Negara Malaysia3\\n19,164\\n1,633\\n7,722\\n7,564\\nBanking system\\n12,227\\n5,703\\n-980\\n-6,327\\nOther influences\\n9,284\\n-15,786\\n-12,513\\n-8,905\\n48,502\\n2,232\\n11,187\\n35,083\\n17,065\\n5,602\\n1,965\\n8,016\\n2,435\\n12,878\\n3,890\\n-8,988\\n32,424\\n21,723\\n10,701\\n19,467\\n27,131\\n-7,664\\n-16,267\\n549,627\\n25,943\\n77,358\\n446,326\\n327,308\\n62,458\\n10,977\\n33,177\\n12,406\\n8,494\\n32,836\\n24,342\\n567,482\\n475,605\\n91,877\\n136,271\\n138,097\\n-1,826\\n-162,620\\n1   Excludes interplacements among banking institutions\\n2   Excludes holdings by banking system\\n3   Includes exchange rate revaluation loss/gain\\nTable A.28\\nMoney Supply: Annual Change and Growth Rates\\nM35\\nM23\\nM11\\nDeposits \\n with other \\nbanking \\ninstitutions4\\nDemand\\ndeposits\\nNarrow \\nquasi-money2\\nTotal\\nTotal\\nTotal\\nCurrency\\nRM m\\nRM m\\nRM m\\nRM m\\nRM m\\nRM m\\nRM m\\n%\\n%\\n%\\n%\\n%\\n%\\n%\\n1999 33,131\\n8.3\\n40,666 13.7\\n19,313 35.7\\n6,534 35.8 12,778 35.6\\n21,354\\n8.8\\n-7,535\\n-7.2\\n2000 21,906\\n5.0\\n17,564\\n5.2\\n4,769\\n6.5\\n-2,517 -10.2\\n7,287 15.0\\n12,795\\n4.9\\n4,342\\n4.5\\n2001 13,022\\n2.9\\n7,810\\n2.2\\n2,512\\n3.2\\n-115\\n-0.5\\n2,627\\n4.7\\n5,298\\n1.9\\n5,213\\n5.1\\n2002\\n2003\\n31,607\\n6.7\\n21,030\\n5.8\\n8,344 10.3\\n1,749\\n7.9\\n6,595 11.3\\n12,686\\n4.5\\n10,577\\n9.9\\n48,502\\n9.7\\n42,497 11.1\\n13,009 14.6\\n2,204\\n9.2 10,805 16.6\\n29,488 10.0\\n6,005\\n5.1\\n1   Currency in circulation and demand deposits of the private sector placed with commercial banks and Islamic banks\\n2   Comprising savings and fixed deposits, negotiable instruments of deposits (NIDs), repos and foreign currency deposits of the\\n   private sector placed with commercial banks and Islamic banks\\n3   M1 plus narrow quasi-money\\n4   Comprising fixed deposits and repos of the private sector placed with finance companies, merchant banks and discount\\n   houses. Also includes saving deposits with finance companies, NIDs with finance companies and merchant banks, foreign\\n   currency deposits placed with merchant banks and call deposits with discount houses. Excludes interplacement among the\\n   banking institutions\\n5   M2 plus deposits placed with other banking institutions\\n\\n\\nP36\\nTable A.29\\nInterest Rates (%)\\nAverage rates at end-year\\nAverage rates at end-month in 2003\\n1999\\n2000\\n2001\\n2002\\nJan.\\nFeb.\\nMar.\\nApr.\\nMay\\nJun.\\nJul.\\nAug.\\nSep.\\nOct.\\nNov.\\nDec.\\n3-month interbank\\nCommercial banks\\nFixed deposit:\\n3-month\\n12-month\\nSavings deposit\\nBase lending rate (BLR)\\nFinance companies\\nFixed deposit:\\n3-month\\n12-month\\nSavings deposit\\nBase lending rate (BLR)\\nTreasury bills\\n(91 days)\\nGovernment securities\\n(1 year)\\nGovernment securities\\n(5 years)\\n3.18\\n3.33\\n3.95\\n2.76\\n6.79\\n3.49\\n4.13\\n3.50\\n7.95\\n2.71\\n3.37\\n5.21\\n3.25\\n3.48\\n4.24\\n2.72\\n6.78\\n3.52\\n4.27\\n3.44\\n7.95\\n2.98\\n3.36\\n4.80\\n3.27\\n3.21\\n4.00\\n2.28\\n6.39\\n3.22\\n4.01\\n2.94\\n7.45\\n2.73\\n2.93\\n3.18\\n3.13\\n3.20\\n4.00\\n2.12\\n6.39\\n3.20\\n4.00\\n2.65\\n7.45\\n2.82\\n2.94\\n3.15\\n2.91\\n3.20\\n4.00\\n2.10\\n6.39\\n3.20\\n4.00\\n2.58\\n7.45\\n2.80\\n2.89\\n3.10\\n2.86\\n3.20\\n4.00\\n2.07\\n6.39\\n3.20\\n4.00\\n2.58\\n7.45\\n2.80\\n2.89\\n3.12\\n2.90\\n3.20\\n4.00\\n2.04\\n6.39\\n3.20\\n4.00\\n2.57\\n7.45\\n2.79\\n2.89\\n3.10\\n2.86\\n3.20\\n4.00\\n2.04\\n6.39\\n3.20\\n4.00\\n2.51\\n7.45\\n2.79\\n2.88\\n3.08\\n2.86\\n3.00\\n3.69\\n1.95\\n6.00\\n3.02\\n3.72\\n2.25\\n6.90\\n2.78\\n2.87\\n3.05\\n2.88\\n3.00\\n3.70\\n1.92\\n6.00\\n3.01\\n3.72\\n2.22\\n6.90\\n2.77\\n2.88\\n3.09\\n2.88\\n3.00\\n3.70\\n1.92\\n6.00\\n3.00\\n3.68\\n2.22\\n6.90\\n2.77\\n2.95\\n3.63\\n2.90\\n3.00\\n3.70\\n1.87\\n6.00\\n3.00\\n3.68\\n2.23\\n6.90\\n2.82\\n2.93\\n3.93\\n2.86\\n3.00\\n3.70\\n1.87\\n6.00\\n3.00\\n3.68\\n2.23\\n6.90\\n2.82\\n2.92\\n3.94\\n2.88\\n3.00\\n3.70\\n1.87\\n6.00\\n3.00\\n3.68\\n2.22\\n6.90\\n2.77\\n2.86\\n4.44\\n2.87\\n3.00\\n3.70\\n1.86\\n6.00\\n3.00\\n3.68\\n2.19\\n6.90\\n2.78\\n2.93\\n4.38\\n2.87\\n3.00\\n3.70\\n1.86\\n6.00\\n3.00\\n3.68\\n2.18\\n6.90\\n2.77\\n2.93\\n4.28\\n\\n\\nAnnex\\nP37\\nTable A.30\\n1999\\n2000\\n2001\\n2002\\n2003e\\nRM million\\nGeneral government\\nRevenue\\n70,887\\n96,763\\n% growth\\n2.2\\n5.6\\nOperating expenditure\\n54,274\\n75,450\\n% growth\\n8.0\\n4.4\\nCurrent surplus\\n16,612\\n21,312\\nNFPEs\\nRevenue\\n98,242\\n126,275\\n% growth\\n33.8\\n20.4\\nOperating expenditure\\n61,596\\n80,951\\n% growth\\n24.4\\n23.8\\nCurrent surplus\\n36,646\\n45,324\\nPublic sector current surplus\\n53,258\\n66,637\\n% of GDP\\n17.7\\n18.5\\nNet development expenditure\\n46,422\\n69,125\\n% growth\\n-0.8\\n15.7\\nGeneral government\\n20,964\\n36,828\\n% growth\\n22.4\\n3.2\\nNFPEs\\n25,458\\n32,297\\n% growth\\n-14.2\\n34.4\\nOverall balance\\n6,835\\n-2,488\\n% of GDP\\n2.3\\n-0.7\\nGeneral government\\n-4,352\\n-15,515\\nNFPEs\\n11,187\\n76,002\\n7.2\\n64,445\\n18.7\\n11,556\\n112,929\\n14.9\\n71,725\\n16.4\\n41,204\\n52,761\\n15.4\\n50,439\\n8.7\\n27,079\\n29.2\\n23,360\\n-8.2\\n2,322\\n0.7\\n-15,522\\n17,844\\n91,633\\n20.6\\n72,299\\n12.2\\n19,334\\n104,876\\n-7.1\\n65,392\\n-8.8\\n39,484\\n58,818\\n17.6\\n59,724\\n18.4\\n35,692\\n31.8\\n24,032\\n2.9\\n-906\\n-0.3\\n-16,358\\n15,452\\n13,026\\n110,408\\n14.1\\n84,809\\n12.4\\n25,600\\n149,183\\n18.1\\n104,556\\n29.2\\n44,627\\n70,227\\n17.9\\n71,951\\n4.1\\n43,727\\n18.7\\n28,225\\n-12.6\\n-1,725\\n-0.4\\n-18,127\\n16,402\\ne  Estimate\\nSource: Ministry of Finance, state governments and non-financial public enterprises\\nConsolidated Public Sector Finance\\n\\n\\nP38\\nTable A.31\\nMajor Industrial Countries: Key Economic Indicators\\n1999\\n2000\\n2001\\n2002\\n2003e\\n2004f\\nAnnual change (%)\\nREAL GDP\\nMajor Industrial Countries\\n3.4\\n3.9\\n1.0\\n1.5\\n2.2\\nUnited States\\n4.1\\n3.8\\n0.3\\n2.4\\n3.1\\nJapan\\n0.2\\n2.8\\n0.4\\n-0.4\\n2.7\\nEuro Area\\n2.8\\n3.5\\n1.5\\n0.9\\n0.4\\nGermany\\n2.0\\n2.9\\n0.8\\n0.2\\n-0.1\\nUnited Kingdom\\n2.4\\n3.1\\n2.1\\n1.7\\n2.3\\nINFLATION\\nMajor Industrial Countries\\n1.4\\n2.2\\n2.2\\n1.5\\n1.8\\nUnited States\\n2.2\\n3.4\\n2.8\\n1.6\\n2.3\\nJapan\\n-0.3\\n-0.9\\n-0.7\\n-0.9\\n-0.3\\nEuro Area\\n1.1\\n2.1\\n2.4\\n2.3\\n2.0\\nGermany\\n0.6\\n1.4\\n1.9\\n1.3\\n1.0\\nUnited Kingdom1\\n2.3\\n2.1\\n2.1\\n2.2\\n2.8\\n(% of labour force) \\nUNEMPLOYMENT\\nMajor Industrial Countries\\nUnited States\\n4.2\\n4.0\\n4.8\\n5.8\\n6.0\\nJapan\\n4.7\\n4.7\\n5.0\\n5.4\\n5.3\\nEuro Area\\n9.4\\n8.5\\n8.0\\n8.4\\n9.1\\nGermany\\n8.4\\n7.8\\n7.9\\n8.6\\n9.5\\nUnited Kingdom\\n6.0\\n5.5\\n5.1\\n5.2\\n3.0\\n(% of GDP)\\nCURRENT ACCOUNT BALANCE\\nMajor Industrial Countries\\nUnited States\\n-3.2\\n-4.2\\n-3.9\\n-4.6\\n-5.1\\nJapan\\n2.6\\n2.5\\n2.1\\n2.8\\n2.9\\nEuro Area\\n0.4\\n-0.5\\n0.2\\n0.9\\n0.8\\nGermany\\n-1.1\\n-1.4\\n0.0\\n2.3\\n2.4\\nUnited Kingdom\\n-2.2\\n-2.0\\n-1.3\\n-0.9\\n-1.0\\nFISCAL BALANCE\\nMajor Industrial Countries\\nUnited States\\n1.2\\n2.1\\n0.7\\n-2.2\\n-4.3\\nJapan\\n-8.7\\n-7.2\\n-6.7\\n-6.3\\n-6.1\\nGermany\\n-1.3\\n1.3\\n-1.1\\n-1.5\\n-1.9\\nUnited Kingdom\\n1.2\\n4.1\\n0.9\\n-1.4\\n-2.6\\n2.9\\n3.9\\n2.0\\n1.6\\n1.2\\n2.3\\n1.3\\n1.3\\n-0.6\\n1.6\\n0.6\\n2.5\\n5.7\\n5.4\\n9.2\\n9.8\\n5.2\\n-4.7\\n2.9\\n0.8\\n2.1\\n-0.9\\n-4.2\\n-5.4\\n-1.7\\n-2.8\\n1    Refers to Retail Price Index excluding mortgage interest\\ne  Estimate\\nf  Forecast\\nSource:   IMF World Economic Outlook, September 2003\\n              OECD Economic Outlook, December 2003\\n              Datastream, National Sources\\n\\n\\nAnnex\\nP39\\nTable A.32\\nEast Asia: Key Economic Indicators\\n1999\\n2000\\n2001\\n2002\\n2003e\\n2004f\\nREAL GDP\\nAnnual change (%)\\nRegional Countries\\n 6.7\\n7.8\\n4.1\\n6.2\\n6.2\\nThe People’s Republic of China\\n7.1\\n8.0\\n7.3\\n8.2\\n 9.1\\nKorea\\n10.9\\n9.3\\n3.1\\n6.3\\n2.9\\nChinese Taipei\\n5.4\\n5.9\\n-2.2\\n3.6\\n3.2\\nSingapore\\n6.4\\n9.4\\n-2.4\\n2.2\\n1.1\\nHong Kong China\\n3.4\\n10.2\\n0.5\\n2.3\\n3.3\\nMalaysia\\n6.1\\n8.5\\n0.3\\n4.1\\n5.2\\nThailand\\n4.4\\n4.6\\n1.9\\n5.4\\n6.7\\nIndonesia\\n0.8\\n4.9\\n3.4\\n3.7\\n4.1\\nPhilippines\\n3.4\\n4.4\\n3.0\\n4.4\\n4.5\\nCONSUMER PRICES\\nAnnual change (%)\\nRegional Countries\\n1.3\\n1.2\\n2.4\\n1.3\\n1.8\\n-2.9\\n0.4\\n0.7\\n-0.8\\n 1.2\\n0.8\\n2.3\\n4.1\\n2.7\\n3.5 \\n0.2\\n1.3\\n0.0\\n-0.2\\n-0.3\\n0.0\\n1.3\\n1.0\\n-0.4\\n0.5\\n-4.0\\n-3.8\\n-1.6\\n -3.0\\n-2.6\\n2.8\\n1.6\\n1.4\\n1.8\\n1.2\\n0.3\\n1.6\\n1.6\\n0.7\\n1.8\\n24.0\\n3.8\\n11.5\\n11.9\\n6.6\\n6.7\\n4.4\\n6.1\\n3.1\\n3.4 \\n4.0 ~ 5.0 \\nCURRENT ACCOUNT BALANCE\\n( % of GDP)  \\nRegional Countries\\nThe People’s Republic of China\\n1.6\\n1.9\\n1.5\\n2.8\\n1.4\\nHong Kong China\\n7.3\\n5.4\\n7.5\\n10.8\\n13.9\\nFISCAL BALANCE2\\n( % of GDP) \\nRegional Countries\\nKorea\\n-2.6\\n1.4\\n1.8\\n1.0\\n1.3\\nChinese Taipei\\n-1.3\\n-3.2\\n-6.6\\n-3.0\\n-2.3\\nPhilippines\\n-3.8\\n-4.0\\n-4.0\\n-5.2\\n-4.6\\n6.6 ~ 6.8\\n 8.3\\n5.2\\n4.7\\n3.5 ~ 5.5\\n6.0\\n6.0 ~ 6.5\\n6.3 ~ 7.3\\n4.0 ~ 5.0\\n4.9 ~ 5.8\\n2.4 ~ 2.7\\n 3.0\\n3.0\\n0.4\\n0.5 ~ 1.5\\n-1.0\\n1.5\\n1.0 ~ 2.0\\n4.5 ~ 6.5\\n1.3\\nKorea\\n6.0\\n2.7\\n1.9\\n1.3\\n1.6\\n1.8\\nChinese Taipei\\n2.9\\n2.9\\n6.4\\n9.1\\n8.5\\n8.8\\nSingapore\\n25.9\\n16.7\\n19.0\\n21.5\\n23.7\\n23.0\\n14.3\\nMalaysia\\n15.9\\n9.4\\n8.3\\n8.5\\n 12.9\\n 12.0\\nThailand\\n10.2\\n7.6\\n5.4\\n6.0\\n5.3\\n4.8\\nIndonesia\\n 4.1\\n5.3\\n4.9\\n4.3\\n2.7\\n1.9\\nPhilippines\\n10.0\\n11.3\\n1.8\\n5.4\\n2.6\\n1.9\\nThe People’s Republic of China\\n-2.1\\n -2.8\\n-2.6\\n-3.0\\n-2.7\\nn.a.\\nn.a.\\nn.a.\\nSingapore\\n3.4\\n2.5\\n-1.8\\n0.1\\n -1.1\\n n.a.\\nHong Kong China\\n0.8\\n-0.6\\n-5.0\\n-4.9\\n-4.0\\nn.a.\\nMalaysia\\n-3.2\\n-5.8\\n-5.5\\n-5.6\\n-5.3\\nn.a.\\nThailand\\n-3.3\\n-2.2\\n-2.4\\n-1.4\\n0.3\\nn.a.\\nIndonesia\\n-2.1\\n-5.1\\n-2.3\\n-1.7\\n-1.9\\nn.a.\\nn.a.\\n1\\n Refers to composite prices\\n2\\n Refers to central government balance\\ne\\n Estimate\\nf\\n Forecast\\nn.a. Not available\\nSource: National Sources \\n              CEIC\\n              IMF World Economic Outlook, September 2003\\nThe People’s Republic of China\\nKorea\\nChinese Taipei\\nSingapore\\nHong Kong China1\\nMalaysia\\nThailand\\nIndonesia\\nPhilippines\\n\\n\\nP40\\n9,417.1\\nTable A.33\\nSources and Uses of Funds of the Financial System\\n1999\\n2000\\n2001\\n2002\\n2003p\\nRM million\\nSources of Funds:\\nCapital, reserves and profit\\n113,197.9\\n120,990.7\\n123,863.2\\n134,871.7\\nCurrency\\n30,483.1\\n26,708.9\\n25,385.4\\n27,137.4\\nDemand deposits\\n75,077.8\\n83,205.3\\n92,129.0\\n87,539.5\\n1\\n486,187.1\\n503,079.1\\n508,836.0\\n547,135.3\\n49,282.5\\n45,385.0\\n44,971.3\\n44,767.7\\n117,586.8\\n110,791.5\\n102,161.7\\n122,405.2\\n312,338.3\\n339,770.3\\n354,996.6\\n372,884.1\\nOther deposits  (of which):\\nPublic sector\\nOther financial institutions2\\nPrivate sector\\nForeign\\n6,979.5\\n7,132.3\\n6,706.4\\n7,078.3\\nBorrowings\\n31,949.8\\n34,820.5\\n37,380.8\\n44,948.0\\n69,576.7\\n67,603.3\\n68,552.4\\n70,836.8\\n52,792.3\\n51,355.6\\n53,448.2\\n46,973.0\\nFunds from other financial institutions\\nDomestic2\\nForeign\\n16,784.4\\n16,247.7\\n15,104.2\\n23,863.8\\nInsurance, provident and pension \\n  funds\\n213,892.6\\n236,640.1\\n256,000.6\\n274,384.5\\nOther liabilities\\n153,893.9\\n190,138.4\\n193,163.0\\n208,266.6\\nTotal Liabilities\\n1,174,258.9\\n1,263,186.3\\n1,305,310.4\\n1,395,119.8\\nUses of Funds:\\nCurrency\\n8,834.4\\n5,336.7\\n7,369.8\\n178,785.1\\n183,470.2\\n177,108.1\\n187,883.0\\n164,139.5\\n162,274.1\\n156,669.0\\n166,670.3\\nDeposits with other financial institutions\\nDomestic\\nForeign\\n14,645.6\\n21,196.1\\n20,439.1\\n21,212.7\\n16,458.1\\n16,572.4\\n16,286.0\\n19,001.8\\n3,702.3\\n4,260.4\\n4,063.5\\n5,680.0\\nBills\\nTreasury\\nCommercial\\n12,755.8\\n12,312.0\\n12,222.5\\n13,321.8\\n489,449.9\\n512,428.5\\n531,745.7\\n560,459.4\\n4,418.4\\n5,529.4\\n5,188.8\\n10,191.1\\n25,672.1\\n26,450.3\\n25,984.9\\n23,746.4\\n456,557.7\\n477,954.0\\n498,374.6\\n524,393.4\\nLoans and advances\\nPublic sector\\nOther financial institutions\\nPrivate sector\\nForeign\\n2,801.7\\n2,494.8\\n2,197.4\\n2,128.5\\n244,851.6\\n281,460.8\\n321,280.5\\n342,111.4\\n75,441.0\\n88,197.3\\n103,714.8\\n104,354.9\\n1,516.1\\n1,233.9\\n2,183.0\\n3,189.7\\n162,996.8\\n186,728.5\\n208,854.7\\n226,671.9\\nSecurities\\nMalaysian government\\nForeign\\nCorporate\\nOthers\\n4,897.7\\n5,301.1\\n6,528.0\\n7,894.9\\nGold and forex reserves\\n113,765.9\\n109,835.5\\n113,542.3\\n127,515.1\\nOther assets\\n121,531.2\\n150,584.5\\n140,011.1\\n150,779.3\\nTotal Assets\\n1,174,258.9\\n1,263,186.3\\n1,305,310.4\\n1,395,119.8\\n158,808.6\\n29,445.4\\n92,094.8\\n617,353.0\\n40,583.0\\n161,350.9\\n406,032.3\\n9,386.8\\n48,035.6\\n88,877.7\\n61,867.4\\n27,010.3\\n297,068.8\\n232,378.1\\n1,564,062.0\\n6,264.4\\n224,560.8\\n209,345.0\\n15,215.8\\n16,751.2\\n3,539.8\\n13,211.4\\n600,844.8\\n8,816.3\\n23,436.8\\n566,251.7\\n2,340.0\\n393,321.3\\n124,285.8\\n3,469.4\\n258,980.3\\n6,585.8\\n166,139.3\\n156,180.2\\n1,564,062.0\\n1\\nEquals savings, fixed and other (NIF,  LPHT, etc.) deposits + NIDs + repos\\n2\\nEffective 1998, the statutory reserves of banking institutions have been reclassified as “Funds from other financial\\ninstitutions” instead of “Other deposits from other financial institutions”\\np Preliminary\\n2\\n\\n\\nAnnex\\nP41\\nTable A.34\\nCommercial Banks1: Commitments and Contingencies\\nAs at end\\n1999\\nRM \\nmillion\\n%\\nshare\\n2000\\nRM \\nmillion\\n%\\nshare\\n2001\\nRM \\nmillion\\n%\\nshare\\n2002\\nRM \\nmillion\\n%\\nshare\\n2003\\nRM \\nmillion\\n%\\nshare\\nAssets sold with recourse and commitments with\\n  drawdown \\n12,091.4\\n131,915.7\\n17,296.9\\n48,348.1\\n13,174.3\\n6,914.2\\n17,959.4\\n1,858.1\\n9,954.6\\nCredit extension commitments\\nDirect credit substitutes\\nForeign exchange related contracts\\nInterest rate related contracts\\nTrade-related contingencies\\nTransaction-related contingencies\\nUnderwriting obligations\\nOthers\\nTotal\\n259,512.7\\n4.7\\n50.8\\n6.7\\n18.6\\n5.1\\n2.7\\n6.9\\n0.7\\n3.8\\n100.0\\n4.0\\n44.4\\n4.8\\n27.3\\n5.2\\n4.8\\n6.0\\n0.5\\n3.1\\n100.0\\n11,282.3\\n159,824.0\\n13,894.6\\n81,445.1\\n32,667.8\\n13,465.3\\n19,025.6\\n1,768.1\\n11,293.9\\n344,666.6\\n3.3\\n46.4\\n4.0\\n23.6\\n9.5\\n3.9\\n5.5\\n0.5\\n3.3\\n100.0\\n2.7\\n39.9\\n3.0\\n20.4\\n21.6\\n4.2\\n4.9\\n0.5\\n2.8\\n100.0\\n2.9\\n35.8\\n3.0\\n21.4\\n25.7\\n4.1\\n4.3\\n0.4\\n2.4\\n100.0\\n13,818.0\\n169,490.0\\n14,156.4\\n101,331.6\\n121,497.6\\n19,404.9\\n20,448.1\\n1,818.4\\n11,600.3\\n473,565.2\\n11,440.7\\n167,530.0\\n12,705.8\\n85,361.0\\n90,528.5\\n17,438.5\\n20,639.0\\n1,952.0\\n11,838.6\\n419,434.0\\n12,249.3\\n137,597.3\\n14,999.8\\n84,506.6\\n15,987.1\\n14,785.5\\n18,485.7\\n1,664.4\\n9,518.3\\n309,794.0\\n1 Excludes Islamic banks\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nP42\\nTable A.35\\nFinance Companies: Commitments and Contingencies\\nAs at end\\n1999\\nRM \\nmillion\\n%\\nshare\\n2000\\nRM \\nmillion\\n%\\nshare\\n2001\\nRM \\nmillion\\n%\\nshare\\n2002\\nRM \\nmillion\\n%\\nshare\\n2003\\nRM \\nmillion\\n%\\nshare\\nAssets sold with recourse and commitments with\\n  drawdown \\n5,536.1\\n9,654.0\\n968.6\\n0.0\\n667.0\\n0.0\\n18.8\\n0.0\\n306.5\\nCredit extension commitments\\nDirect credit substitutes\\nForeign exchange related contracts\\nInterest rate related contracts\\nTrade-related contingencies\\nTransaction-related contingencies\\nUnderwriting obligations\\nOthers\\nTotal\\n17,150.9\\n32.3\\n56.3\\n5.6\\n0.0\\n3.9\\n0.0\\n0.1\\n0.0\\n1.8\\n100.0\\n41.8\\n49.2\\n3.1\\n0.0\\n5.1\\n0.0\\n0.2\\n0.0\\n0.5\\n100.0\\n9,990.7\\n8,779.9\\n198.3\\n0.0\\n1,389.0\\n0.0\\n40.7\\n0.0\\n32.6\\n20,431.3\\n48.9\\n43.0\\n1.0\\n0.0\\n6.8\\n0.0\\n0.2\\n0.0\\n0.2\\n100.0\\n53.0\\n34.6\\n0.5\\n0.0\\n11.8\\n0.0\\n0.1\\n0.0\\n0.0\\n0.0\\n100.0\\n51.4\\n36.5\\n0.5\\n0.0\\n11.6\\n0.0\\n0.1\\n0.0\\n0.0\\n100.0\\n13,010.2\\n9,241.1\\n136.3\\n0.0\\n2,929.0\\n0.0\\n15.9\\n0.0\\n25,332.6\\n13,983.8\\n9,136.1\\n141.6\\n0.0\\n3,109.0\\n0.0\\n29.1\\n0.0\\n0.0\\n26,399.5\\n8,186.1\\n9,640.4\\n611.0\\n0.0\\n1,007.0\\n0.0\\n41.6\\n0.0\\n105.4\\n19,591.7\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nAnnex\\nP43\\nTable A.36\\nMerchant Banks: Commitments and Contingencies\\nAs at end\\n1999\\nRM \\nmillion\\n%\\nshare\\n2000\\nRM \\nmillion\\n%\\nshare\\n2001\\nRM \\nmillion\\n%\\nshare\\n2002\\nRM \\nmillion\\n%\\nshare\\n2003\\nRM \\nmillion\\n%\\nshare\\nAssets sold with recourse and commitments with\\n  drawdown \\n302.0\\n4,967.8\\n4,310.6\\n707.7\\n9,372.8\\n0.1\\n1,014.5\\n717.0\\n76.5\\nCredit extension commitments\\nDirect credit substitutes\\nForeign exchange related contracts\\nInterest rate related contracts\\nTrade-related contingencies\\nTransaction-related contingencies\\nUnderwriting obligations\\nOthers\\nTotal\\n21,469.1\\n1.4\\n23.1\\n20.1\\n3.3\\n43.7\\n0.0\\n4.7\\n3.3\\n0.4\\n100.0\\n0.6\\n16.0\\n8.2\\n3.8\\n61.0\\n0.0\\n3.4\\n6.4\\n0.5\\n100.0\\n1,425.5\\n2,639.7\\n1,325.1\\n1,320.1\\n39,658.8\\n0.1\\n790.4\\n1,617.5\\n80.0\\n48,857.2\\n2.9\\n5.4\\n2.7\\n2.7\\n81.2\\n0.0\\n1.6\\n3.3\\n0.2\\n100.0\\n2.2\\n2.7\\n1.3\\n1.9\\n89.7\\n0.0\\n1.0\\n1.2\\n0.1\\n55.4\\n100.0\\n1.3\\n2.0\\n1.0\\n1.2\\n93.0\\n0.0\\n0.7\\n0.9\\n0.0\\n100.0\\n1,595.2\\n2,444.0\\n1,228.6\\n1,459.9\\n115,332.1\\n0.0\\n818.2\\n1,138.9\\n124,072.3\\n1,736.0\\n2,089.1\\n1,039.3\\n1,506.6\\n70,701.1\\n0.0\\n749.0\\n937.5\\n44.1\\n78,802.7\\n161.0\\n4,114.8\\n2,111.4\\n964.7\\n15,686.3\\n1.2\\n886.0\\n1,653.5\\n118.3\\n25,697.1\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nP44\\nTable A.37\\nCommercial Banks : Income and Expenditure\\n1\\nFor the financial year\\nFor the calendar year\\n2000\\n2001\\n2002\\n2001\\n2002\\n2003p\\nRM million\\nInterest income net of\\ninterest-in-suspense\\n25,416.7\\n24,969.7\\n25,472.5\\n 25,055.5\\n(Interest-in-suspense)\\n3,148.8\\n3,488.2\\n4,087.2\\n3,759.7\\nLess:     Interest expense\\n13,455.8\\n12,961.4\\n13,341.4\\n12,808.6\\nNet interest income\\n11,960.9\\n12,008.4\\n12,131.0\\n12,247.0\\nAdd:     Fee-based income\\nAdd:     Other income\\n2,304.3\\n2,429.6\\n2,552.7\\n2,871.8\\nGross operating profit\\n     \\n7,677.0\\n7,171.9\\n7,033.2\\n7,255.3\\nGross operating profit\\n     after provision\\n3,472.8\\n1,168.7\\n837.6\\n3,447.9\\n2,648.7\\n3,475.6\\n3,669.4\\n2,909.4\\nLess:     Loan loss provisions\\n4,204.3\\n6,003.2\\n6,195.6\\n3,807.4\\nLess:     Staff cost\\n3,299.6\\n3,624.3\\n3,768.7\\n3,688.1\\nOverheads\\n3,288.6\\n3,641.8\\n3,881.9\\n4,175.3\\nPre-tax profit\\n6,121.4\\n4,644.3\\n25,157.7\\n3,959.0\\n12,876.2\\n12,281.5\\n2,827.1\\n7,357.1\\n3,372.8\\n2,986.8\\n3,984.2\\n3,635.1\\n4,116.4\\n6,359.7\\n4,507.1\\n6,357.3\\n 26,533.4\\n3,169.2\\n13,505.2\\n13,028.2\\n3,213.2\\n7,811.8\\n4,255.5\\n2,652.3\\n3,556.3\\n3,907.9\\n4,521.8\\n6,907.8\\n1  Excludes Islamic banks\\np Preliminary\\nNote: Numbers may not necessarily add up due to rounding\\nTable A.38\\nFinance Companies: Income and Expenditure\\nFor the financial year\\nFor the calendar year\\n2000\\n2001\\n2002\\n2001\\n2002\\n2003p\\nRM million\\nInterest income net of\\ninterest-in-suspense\\n9,002.4\\n7,637.4\\n8,865.2\\n 8,824.1\\n(Interest-in-suspense)\\n1,153.7\\n1,161.5\\n1,330.6\\n1,521.6\\nLess:     Interest expense\\n4,867.1\\n3,375.8\\n3,947.5\\n3,884.2\\nNet interest income\\n4,135.3\\n4,261.6\\n4,917.7\\n4,939.8\\nAdd:     Fee-based income\\nAdd:     Other income\\n116.9\\n224.8\\n132.9\\n104.2\\nGross operating profit\\n     \\n2,660.7\\n3,036.6\\n3,259.9\\n3,242.6\\nGross operating profit\\n     after provision\\n979.0\\n1,664.9\\n1,600.8\\n1,871.7\\n482.5\\n369.2\\n520.0\\n507.7\\nLess:     Loan loss provisions\\n1,681.7\\n1,371.6\\n1,659.1\\n1,370.9\\nLess:     Staff cost\\n683.6\\n663.0\\n772.9\\n783.0\\nOverheads\\n907.9\\n786.8\\n1,017.8\\n1,018.5\\nPre-tax profit\\n1,461.5\\n2,034.1\\n9,299.7\\n1,452.4\\n4,094.5\\n5,205.1\\n103.0\\n3,412.2\\n1,887.8\\n524.2\\n1,524.4\\n802.1\\n1,093.9\\n2,412.0\\n2,120.8\\n2,379.4\\n 9,250.6\\n1,361.7\\n4,020.8\\n5,229.8\\n101.1\\n3,558.4\\n2,161.1\\n516.6\\n1,397.3\\n812.7\\n959.8\\n2,677.7\\np Preliminary\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nAnnex\\nP45\\nTable A.39\\nMerchant Banks: Income and Expenditure\\nFor the financial year\\nFor the calendar year\\n2000\\n2001\\n2002\\n2001\\n2002\\n2003p\\nRM million\\nInterest income net of\\ninterest-in-suspense\\n1,803.4\\n1,783.7\\n1,728.8\\n 1,601.0\\n(Interest-in-suspense)\\n421.7\\n313.8\\n311.9\\n296.8\\nLess:     Interest expense\\n1,205.2\\n1,176.9\\n1,146.7\\n1,070.1\\nNet interest income\\n598.2\\n606.8\\n582.1\\n530.9\\nAdd:     Fee-based income\\nAdd:     Other income\\n288.3\\n296.3\\n277.8\\n338.2\\nGross operating profit\\n     \\n622.2\\n580.1\\n537.1\\n521.2\\nGross operating profit\\n     after provision\\n108.8\\n-314.6\\n-405.5\\n203.1\\n439.6\\n624.6\\n700.3\\n388.3\\nLess:     Loan loss provisions\\n513.4\\n894.7\\n942.6\\n318.2\\nLess:     Staff cost\\n147.3\\n204.9\\n204.2\\n226.5\\nOverheads\\n116.9\\n118.1\\n118.6\\n121.3\\nPre-tax profit\\n548.4\\n310.0\\n1,714.3\\n328.1\\n1,138.7\\n575.5\\n306.2\\n549.9\\n178.3\\n488.3\\n371.6\\n214.8\\n117.0\\n666.6\\n294.8\\n591.3\\n 1,636.5\\n220.9\\n1,146.6\\n489.9\\n327.6\\n424.6\\n101.9\\n590.2\\n322.7\\n260.6\\n132.2\\n692.1\\np  Preliminary\\nNote: Numbers may not necessarily add up due to rounding\\nTable A.40\\nCommercial Banks1: Lending Guidelines to the Priority Sectors\\nLoans to Bumiputera\\ncommunity\\nTotal outstanding loans\\n(RM billion)\\nTotal outstanding loans (%)\\nNon-compliance\\n(no. of institutions)\\nHousing Loan\\nCommitments2\\nTotal number of houses\\n(units)\\nNon-compliance\\n(no. of institutions)\\n1   Excluding performance of Islamic banks\\n2   Compliance date for 2000 Lending Guideline in respect of housing loan commitments has been extended\\n   from end-December 2001 to end-December 2002\\n3   Target achieved as at 31 December 2003\\nTarget\\nCompliance Date of 31 December 2002\\nAchieved3\\nAchieved\\n170,571\\n3\\nTarget\\n94.8\\n30.0\\nAchieved\\n93.1\\n29.4\\n12\\nTarget\\n112,515\\n32,825\\n78,114\\n20.6\\n9.07\\nLoans to Small\\nand Medium Enterprises\\nTotal loans approved\\n  (RM billion)\\n2000 Lending Guidelines 2002 Lending Guidelines\\n2003/2004 Lending Guidelines\\n(Compliance Date of \\n31 December 2004)\\n\\n\\nP46\\nTable A.41\\nFinance Companies: Lending Guidelines to the Priority Sectors\\nLoans to Bumiputera\\ncommunity\\nTotal outstanding loans\\n(RM billion)\\nTotal outstanding loans (%)\\nNon-compliance\\n(no. of institutions)\\nHousing Loan\\nCommitments1\\nTotal number of houses\\n(units)\\nNon-compliance\\n(no. of institutions)\\n1   Compliance date for 2000 Lending Guideline in respect of housing loan commitments has been extended from \\n   end-December 2001 to end-December 2002\\n2   Target achieved as at 31 December 2003\\nTarget\\nCompliance Date of 31 December 2002\\nAchieved\\nAchieved\\n46,989\\n3\\nTarget\\n27.8\\n30.0\\nAchieved2\\n44.4\\n47.9\\n1\\nTarget\\n31,200\\n5,675\\n18,935\\n1.92\\n6.8\\nLoans to Small\\nand Medium Enterprises\\nTotal loans approved\\n  (RM billion)\\n2000 Lending Guidelines 2002 Lending Guidelines\\n2003/2004 Lending Guidelines\\n(Compliance Date of \\n31 December 2004)\\n\\n\\nAnnex\\nP47\\nTable A.42\\nCommercial Banks1: Direction of Lending\\nAs at end\\n2003\\n  2002\\nLoans by Sectors\\nAgriculture, hunting, forestry and fishing\\n10,278.1\\n3.0\\nMining and quarrying\\n835.1\\n0.3\\nManufacturing\\n56,750.3\\n16.8\\nElectricity, gas and water supply\\n5,985.7\\n1.8\\nWholesale and retail trade, restaurants and hotels\\n32,892.1\\n9.7\\nWholesale trade\\n19,351.1\\n5.7\\nRetail trade\\n9,868.3\\n2.9\\nRestaurants and hotels\\n3,672.7\\n1.1\\nBroad property sector\\n144,345.1\\n42.7\\nConstruction\\n24,189.9\\n7.2\\nPurchase of residential property\\n86,246.4\\n25.5\\nPurchase of non-residential property\\n22,551.3\\n6.7\\nReal estate\\n11,357.5\\n3.4\\nTransport, storage and communication\\n7,608.2\\n2.3\\nFinancial, insurance and business services\\n27,524.0\\n8.1\\nFinancial services\\n19,830.7\\n5.9\\nInsurance\\n588.4\\n0.2\\nBusiness services\\n7,104.9\\n2.1\\nConsumption credit\\n23,436.5\\n6.9\\nPersonal uses\\n13,541.7\\n4.0\\nCredit cards\\n8,990.2\\n2.7\\nPurchase of consumer durables\\n368.5\\n0.1\\nPurchase of passenger cars\\n536.0\\n0.2\\nPurchase of securities\\n15,707.8\\n4.6\\nPurchase of transport vehicles\\n465.5\\n0.1\\nCommunity, social and personal services\\n4,552.2\\n1.4\\nOthers\\n7,860.9\\n2.3\\nTotal loans outstanding2\\n338,241.5\\n100.0\\n9,292.4\\n2.6\\n942.1\\n0.3\\n56,666.8\\n15.9\\n4,630.5\\n1.3\\n34,878.6\\n9.8\\n20,472.9\\n5.8\\n10,448.7\\n2.9\\n3,957.0\\n1.1\\n160,346.9\\n45.0\\n22,453.8\\n6.3\\n101,829.3\\n28.6\\n24,240.1\\n6.8\\n11,823.7\\n3.3\\n8,233.1\\n2.3\\n27,296.2\\n7.7\\n19,990.1\\n5.6\\n192.1\\n0.1\\n7,113.9\\n2.0\\n25,627.6\\n7.2\\n14,188.3\\n4.0\\n10,577.6\\n3.0\\n351.5\\n0.1\\n510.1\\n0.1\\n14,546.8\\n4.1\\n726.4\\n0.2\\n3,807.7\\n1.1\\n9,014.0\\n2.5\\n356,009.1\\n100.0\\n1    Including lslamic banks\\n2    Including loans sold to Cagamas\\nNote: Numbers may not necessarily add up due to rounding\\nRM million\\n% share\\nRM million\\n% share\\n\\n\\nP48\\nRM million\\n% share\\nTable A.43\\nFinance Companies: Direction of Lending\\nAs at end\\n2003\\n2002\\nLoans by Sectors\\nRM million\\n% share\\nAgriculture, hunting, forestry and fishing\\n562.9\\n0.6\\nMining and quarrying\\n113.0\\n0.1\\nManufacturing\\n2,513.9\\n2.5\\nElectricity, gas and water supply\\n50.1\\n0.1\\nWholesale and retail trade, restaurants and hotels\\n3,466.0\\n3.5\\nWholesale trade\\n1,361.7\\n1.4\\nRetail trade\\n1,576.1\\n1.6\\nRestaurants and hotels\\n528.1\\n0.5\\nBroad property sector\\n25,880.9\\n25.8\\nConstruction\\n5,504.1\\n5.5\\nPurchase of residential property\\n14,042.2\\n14.0\\nPurchase of non-residential property\\n4,895.8\\n4.9\\nReal estate\\n1,438.7\\n1.4\\nTransport, storage and communication\\n1,785.2\\n1.8\\nFinancial, insurance and business services\\n1,419.2\\n1.4\\nFinancial services\\n271.5\\n0.3\\nInsurance\\n16.5\\n0.0\\nBusiness services\\n1,131.2\\n1.1\\nConsumption credit\\n56,880.5\\n56.6\\nPersonal uses\\n789.5\\n0.8\\nCredit cards\\n1,601.2\\n1.6\\nPurchase of consumer durables\\n38.9\\n0.0\\nPurchase of passenger cars\\n54,450.9\\n54.2\\nPurchase of securities\\n3,950.5\\n3.9\\nPurchase of transport vehicles\\n2,570.1\\n2.6\\nCommunity, social and personal services\\n962.0\\n1.0\\nOthers\\n317.6\\n0.3\\nTotal loans outstanding1\\n100,471.7\\n100.0\\n569.4\\n0.5\\n106.3\\n0.1\\n2,766.3\\n2.6\\n50.8\\n0.1\\n3,638.1\\n3.4\\n1,428.8\\n1.3\\n1,626.0\\n1.5\\n583.3\\n0.6\\n25,533.5\\n23.9\\n5,333.9\\n5.0\\n14,647.6\\n13.7\\n4,409.8\\n4.1\\n1,142.1\\n1.1\\n1,651.8\\n1.5\\n1,381.0\\n1.3\\n237.3\\n0.2\\n14.5\\n0.0\\n1,129.2\\n1.1\\n63,585.1\\n59.5\\n958.9\\n0.9\\n1,658.8\\n1.6\\n21.3\\n0.0\\n60,946.1\\n57.0\\n3,637.4\\n3.4\\n2,577.4\\n2.4\\n1,065.8\\n1.0\\n366.7\\n0.3\\n106,929.6\\n100.0\\n1  Including loans sold to Cagamas\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nAnnex\\nP49\\nTable A.44\\nMerchant Banks: Direction of Lending\\nAs at end\\n   2003\\n  2002\\nLoans by Sectors\\nRM million\\n% share\\nRM million\\n% share\\nAgriculture, hunting, forestry and fishing\\n807.4\\n6.0\\nMining and quarrying\\n69.2\\n0.5\\nManufacturing\\n2,012.1\\n14.9\\nElectricity, gas and water supply\\n779.8\\n5.8\\nWholesale and retail trade, restaurants and hotels\\n705.2\\n5.2\\nWholesale trade\\n156.5\\n1.2\\nRetail trade\\n148.3\\n1.1\\nRestaurants and hotels\\n400.4\\n3.0\\nBroad property sector\\n3,859.9\\n28.6\\nConstruction\\n2,495.3\\n18.5\\nPurchase of residential property\\n77.1\\n0.6\\nPurchase of non-residential property\\n209.0\\n1.6\\nReal estate\\n1,078.4\\n8.0\\nTransport, storage and communication\\n363.0\\n2.7\\nFinancial, insurance and business services\\n938.3\\n6.9\\nFinancial services\\n768.2\\n5.7\\nInsurance\\n0.0\\n0.0\\nBusiness services\\n170.2\\n1.3\\nConsumption credit\\n40.3\\n0.3\\nPersonal uses\\n21.1\\n0.2\\nPurchase of consumer durables\\nPurchase of passenger cars\\n19.1\\n0.1\\n0.0\\nPurchase of securities\\n1,981.6\\n14.7\\nPurchase of transport vehicles\\n0.3\\n0.0\\nCommunity, social and personal services\\n203.9\\n1.5\\nOthers\\n1,720.0\\n12.8\\nTotal loans outstanding1\\n13,481.0\\n100.0\\n1   Including loans sold to Cagamas\\nNote: Numbers may not necessarily add up due to rounding\\n0.0\\n652.3\\n5.9\\n47.7\\n0.4\\n1,667.9\\n15.1\\n384.7\\n3.5\\n655.3\\n5.9\\n97.4\\n0.9\\n92.8\\n0.8\\n465.1\\n4.2\\n2,858.8\\n25.9\\n1,708.0\\n15.5\\n78.2\\n0.7\\n150.0\\n1.4\\n922.6\\n8.3\\n845.3\\n7.7\\n633.1\\n5.7\\n535.2\\n4.8\\n0.0\\n0.0\\n97.9\\n0.9\\n57.0\\n0.5\\n35.5\\n0.3\\n21.5\\n0.2\\n0.0\\n1,709.4\\n15.5\\n0.5\\n0.0\\n98.4\\n0.9\\n1,432.6\\n13.0\\n11,042.9\\n100.0\\n0.0\\n\\n\\nP50\\n1   Excludes Islamic banks \\n2   Includes commercial vehicles \\nNote: Numbers may not necessarily add-up due to rounding\\nTable A.45\\nCommercial Banks1: Non-performing Loans by Sector\\nNPL by sector\\nRM million\\nAs at end\\nAs percentage of total loans to the sector  \\n%\\n1999\\n2000\\n2001\\n2003\\n2002\\n2000\\n2001\\n2002\\n2003\\nBusiness enterprises\\nHouseholds \\nOthers\\nAgriculture, hunting, forestry and fishing\\nMining and quarrying\\n26,337.1\\nManufacturing\\nElectricity, gas and water supply\\n160.4\\n533.8\\n6,765.7\\nWholesale and retail trade, restaurants  \\n   and hotels  \\n31.0\\nWholesale trade\\nRetail trade \\nRestaurants and hotels\\n1,656.6\\nBroad property sector\\nConstruction \\nPurchase of residential property\\nPurchase of non-residential property \\nReal estate\\nTransport, storage and communication \\nFinance, insurance and business services\\n12,598.3\\nConsumption credit\\n5,185.6\\n   Personal use\\n3,198.2\\nCredit cards \\nPurchase of consumer durable goods \\n2,071.0\\nPurchase of securities\\nCommunity, social and personal services\\n1,809.2\\n1,433.6\\n163.0\\n1999\\n6,436.8\\n3,633.1\\n1,081.3\\n895.2\\n2,143.5\\n1,289.0\\n2,997.1\\n212.5\\n450.6\\n1,957.4\\n548.0\\n677.6\\nTotal\\n33,451.5\\n28,164.7\\n150.4\\n556.3\\n7,714.6\\n179.5\\n1,869.6\\n13,818.5\\n5,395.4\\n3,342.8\\n2,539.9\\n2,016.7\\n1,661.6\\n64.5\\n6,865.3\\n4,021.8\\n1,057.6\\n1,094.6\\n2,540.4\\n1,090.8\\n2,387.7\\n290.6\\n409.8\\n2,192.1\\n491.7\\n630.6\\n35,660.6\\n37,022.8\\n173.8\\n737.6\\n10,662.9\\n208.7\\n1,924.1\\n18,951.2\\n7,366.9\\n4,939.3\\n3,806.0\\n1,986.3\\n1,621.2\\n52.5\\n8,616.2\\n4,219.0\\n1,127.9\\n1,166.9\\n2,839.0\\n796.1\\n3,856.6\\n312.6\\n226.7\\n2,927.7\\n892.3\\n1,273.1\\n46,912.1\\n32,900.4\\n109.2\\n825.7\\n10,857.5\\n196.3\\n1,630.5\\n18,635.3\\n6,508.3\\n6,425.2\\n2,916.7\\n2,082.7\\n1,675.4\\n43.1\\n9,882.3\\n3,524.6\\n1,007.9\\n886.2\\n2,785.1\\n751.5\\n2,361.8\\n364.1\\n179.7\\n2,389.6\\n868.8\\n1,150.0\\n43,932.7\\n28,993.1\\n101.3\\n672.1\\n8,634.9\\n1,316.8\\n1,570.5\\n17,713.1\\n5,065.8\\n7,523.5\\n2,538.9\\n2,198.4\\n1,681.5\\n39.2\\n11,017.8\\n3,823.9\\n1,248.2\\n1,005.2\\n2,584.9\\n776.7\\n1,808.7\\n477.7\\n135.1\\n2,321.6\\n508.4\\n866.9\\n40,877.8\\n12.6\\n14.8\\n7.3\\n12.5\\n0.5\\n9.9\\n11.7\\n19.9\\n6.6\\n17.8\\n10.7\\n12.1\\n21.1\\n8.6\\n12.1\\n12.2\\n19.6\\n10.0\\n12.6\\n11.0\\n5.0\\n26.4\\n12.9\\n9.9\\n10.5\\n13.2\\n13.1\\n6.0\\n13.7\\n2.6\\n10.5\\n11.8\\n21.3\\n5.7\\n21.4\\n10.8\\n13.8\\n9.3\\n7.9\\n12.9\\n11.5\\n25.6\\n12.0\\n12.5\\n8.4\\n4.9\\n37.4\\n14.4\\n10.5\\n6.9\\n17.6\\n17.4\\n7.4\\n19.1\\n4.8\\n10.6\\n14.7\\n30.3\\n7.0\\n30.1\\n9.9\\n13.2\\n12.1\\n8.7\\n13.4\\n12.0\\n29.5\\n13.3\\n10.5\\n13.0\\n4.3\\n18.9\\n20.7\\n19.5\\n15.6\\n15.9\\n13.6\\n8.2\\n19.7\\n3.5\\n8.6\\n13.3\\n28.5\\n7.7\\n25.8\\n9.3\\n12.8\\n13.3\\n8.6\\n10.8\\n10.3\\n24.2\\n12.8\\n10.0\\n8.7\\n4.1\\n30.8\\n15.5\\n19.3\\n15.0\\n14.0\\n10.9\\n7.4\\n15.7\\n28.7\\n7.8\\n11.4\\n24.0\\n7.6\\n21.6\\n9.0\\n12.3\\n12.6\\n8.4\\n11.1\\n12.1\\n25.5\\n11.1\\n9.6\\n6.7\\n4.6\\n27.1\\n16.2\\n13.6\\n9.8\\nPurchase of transport vehicle2 \\n\\n\\nAnnex\\nP51\\n1 Includes commercial vehicles\\nTable A.46\\nFinance Companies: Non-performing Loans by Sector\\nNPL by sector\\nRM million\\nAs at end\\nAs percentage of total loans to the sector  \\n%\\n1999\\n2000\\n2001\\n2003\\n2002\\n2000\\n2001\\n2002\\n2003\\nBusiness enterprises\\nHouseholds\\nOthers\\nAgriculture, hunting, forestry and fishing\\nMining and quarrying\\n8,012.4\\nManufacturing\\nElectricity, gas and water supply\\n70.0\\n117.2\\n1,031.5\\nWholesale and retail trade, restaurants \\n   and hotels  \\n16.8\\nWholesale trade\\nRetail trade\\nRestaurants and hotels\\n255.1\\nBroad property sector\\nConstruction\\nPurchase of residential property\\nPurchase of non-residential property\\nReal estate\\nTransport, storage and communication\\nFinance, insurance and business services\\n4,979.5\\nConsumption credit\\n1,989.4\\n   Personal use\\n1,211.9\\nCredit cards\\nPurchase of consumer durable goods\\n550.3\\nPurchase of securities\\nCommunity, social and personal services\\n268.0\\n178.8\\n26.5\\n1999\\n6,318.2\\n546.4\\n174.8\\n116.5\\n1,227.8\\n564.0\\n841.4\\n62.7\\n3,973.5\\n1,729.6\\n192.6\\n7,904.3\\n59.4\\n120.3\\n768.1\\n15.9\\n153.9\\n5,910.6\\n2,060.3\\n1,712.2\\n587.0\\n313.7\\n210.8\\n15.8\\n6,205.9\\n511.8\\n210.0\\n147.9\\n1,551.1\\n750.2\\n554.7\\n87.2\\n3,507.6\\n1,344.7\\n253.2\\n9,026.6\\n70.3\\n100.0\\n870.8\\n16.7\\n158.0\\n6,919.0\\n2,328.8\\n1,801.9\\n789.8\\n354.7\\n239.4\\n18.5\\n6,046.7\\n568.2\\n203.4\\n206.7\\n1,998.5\\n735.3\\n637.0\\n96.8\\n3,203.0\\n1,374.2\\n224.2\\n8,474.9\\n45.6\\n59.9\\n859.1\\n17.8\\n191.5\\n6,900.2\\n2,139.7\\n2,058.7\\n756.6\\n264.6\\n180.0\\n14.5\\n5,747.9\\n610.7\\n189.1\\n230.1\\n1,945.2\\n616.7\\n604.0\\n70.1\\n2,843.7\\n1,161.7\\n238.8\\n7,498.8\\n37.5\\n55.2\\n644.4\\n5.9\\n148.5\\n7,084.4\\n2,234.4\\n2,284.7\\n598.3\\n287.1\\n186.0\\n5.0\\n5,605.6\\n536.1\\n152.3\\n235.3\\n1,967.1\\n339.5\\n433.8\\n96.1\\n2,578.1\\n911.5\\n190.7\\n25.4\\n27.4\\n14.8\\n31.6\\n22.6\\n21.2\\n18.9\\n27.3\\n10.2\\n32.2\\n12.0\\n17.9\\n19.4\\n13.0\\n15.3\\n11.2\\n14.7\\n22.0\\n24.1\\n37.8\\n5.7\\n12.7\\n25.1\\n19.6\\n28.2\\n31.8\\n16.4\\n26.6\\n26.9\\n13.7\\n23.3\\n33.6\\n13.8\\n38.4\\n13.8\\n26.3\\n15.1\\n11.2\\n15.6\\n13.0\\n27.3\\n29.2\\n36.1\\n28.2\\n6.4\\n9.2\\n22.8\\n27.5\\n33.6\\n40.0\\n15.6\\n29.0\\n35.5\\n11.8\\n26.6\\n38.7\\n13.8\\n51.2\\n14.4\\n26.5\\n46.8\\n9.2\\n17.0\\n13.5\\n40.9\\n36.8\\n39.5\\n43.7\\n6.4\\n6.7\\n28.7\\n23.5\\n34.3\\n40.4\\n10.6\\n34.2\\n35.6\\n14.1\\n26.7\\n38.9\\n14.7\\n52.6\\n10.9\\n22.8\\n37.2\\n7.6\\n17.6\\n12.0\\n43.6\\n39.7\\n34.5\\n42.6\\n4.4\\n5.0\\n29.4\\n24.8\\n31.3\\n35.3\\n9.7\\n23.3\\n11.7\\n10.4\\n27.7\\n41.9\\n15.6\\n52.4\\n10.9\\n19.4\\n23.3\\n6.8\\n14.7\\n9.4\\n40.3\\n44.6\\n20.6\\n31.4\\n5.8\\n4.1\\n25.1\\n17.9\\nNote: Numbers may not necessarily add-up due to rounding\\n84.6\\nTotal\\n14,415.2\\n145.2\\n14,255.4\\n220.7\\n15,294.0\\n135.6\\n14,358.4\\n94.0\\n13,198.4\\n12.5\\n30.9\\n56.4\\n42.7\\n25.6\\nPurchase of transport vehicle1\\n\\n\\nP52\\n1 Includes commercial vehicles\\nNote: Numbers may not necessarily add-up due to rounding\\nTable A.47\\nMerchant Banks: Non-performing Loans by Sector\\nNPL by sector\\nRM million\\nAs at end\\nAs percentage of total loans to the sector  \\n%\\n1999\\n2000\\n2001\\n2003\\n2002\\n2000\\n2001\\n2002\\n2003\\nBusiness enterprises\\nHouseholds\\nOthers\\nAgriculture, hunting, forestry and fishing\\nMining and quarrying\\n3,131.7\\nManufacturing\\nElectricity, gas and water supply\\n0.0\\n39.5\\n475.7\\nWholesale and retail trade, restaurants \\n  and hotels  \\n54.2\\nWholesale trade\\nRetail trade\\nRestaurants and hotels\\n48.4\\nBroad property sector\\nConstruction\\nPurchase of residential property\\nPurchase of non-residential property\\nReal estate\\nTransport, storage and communication\\nFinance, insurance and business services\\n1,372.0\\nConsumption credit\\n852.0\\n   Personal use\\n25.9\\nCredit cards\\nPurchase of consumer durable goods\\n417.9\\nPurchase of securities\\nCommunity, social and personal services\\n6.7\\n6.7\\n0.0\\n1999\\n70.6\\n93.1\\n20.0\\n24.7\\n76.2\\n229.0\\n354.2\\n0.0\\n0.1\\n1,058.9\\n10.4\\n2,464.6\\n0.4\\n25.9\\n383.1\\n57.5\\n35.2\\n1,144.9\\n565.5\\n0.4\\n510.8\\n12.9\\n12.9\\n0.0\\n155.5\\n195.9\\n32.8\\n127.9\\n68.2\\n79.6\\n87.9\\n0.0\\n0.0\\n901.8\\n38.9\\n3,597.7\\n0.5\\n86.5\\n891.5\\n133.4\\n45.4\\n1,477.3\\n807.5\\n0.7\\n577.8\\n13.2\\n13.2\\n0.0\\n333.3\\n197.4\\n33.1\\n118.8\\n91.3\\n63.6\\n187.2\\n0.0\\n0.1\\n878.9\\n121.6\\n3,222.7\\n4.1\\n47.3\\n792.5\\n208.4\\n29.8\\n1,282.0\\n756.6\\n0.2\\n454.3\\n12.2\\n12.2\\n0.0\\n343.0\\n181.4\\n5.6\\n146.1\\n70.9\\n38.4\\n139.4\\n0.0\\n0.1\\n821.5\\n118.7\\n2,314.5\\n4.4\\n22.0\\n538.1\\n118.0\\n9.8\\n1,004.6\\n531.2\\n0.1\\n407.3\\n11.5\\n11.5\\n0.0\\n220.2\\n217.6\\n6.5\\n201.3\\n65.9\\n22.9\\n85.6\\n0.0\\n0.1\\n544.4\\n29.2\\n20.2\\n0.0\\n5.3\\n20.3\\n6.8\\n14.1\\n24.1\\n23.6\\n24.8\\n25.5\\n17.9\\n18.0\\n0.0\\n4.0\\n7.8\\n8.5\\n4.0\\n22.4\\n18.2\\n22.2\\n0.0\\n0.6\\n36.5\\n2.3\\n17.7\\n0.5\\n2.5\\n17.2\\n8.2\\n12.6\\n23.9\\n18.3\\n0.5\\n36.1\\n35.2\\n35.3\\n0.0\\n9.3\\n20.7\\n15.4\\n28.2\\n30.2\\n8.2\\n7.1\\n0.0\\n0.3\\n27.5\\n10.2\\n30.4\\n0.5\\n10.0\\n40.4\\n29.3\\n26.3\\n33.7\\n28.8\\n0.9\\n45.8\\n40.4\\n40.5\\n0.0\\n21.2\\n24.5\\n17.4\\n26.8\\n36.9\\n10.7\\n18.2\\n0.0\\n1.1\\n40.0\\n33.1\\n30.3\\n5.9\\n5.9\\n39.4\\n26.7\\n19.0\\n33.2\\n30.3\\n0.3\\n42.1\\n57.4\\n57.5\\n0.0\\n19.9\\n25.7\\n3.7\\n36.5\\n33.9\\n10.6\\n14.9\\n0.0\\n0.6\\n41.5\\n58.2\\n26.8\\n9.1\\n3.4\\n32.3\\n30.7\\n10.0\\n35.1\\n31.1\\n0.2\\n44.1\\n32.4\\n32.5\\n0.0\\n15.4\\n562.1\\n464.1\\n453.4\\n423.2\\n283.9\\n35.1\\n26.4\\n37.2\\n38.2\\n28.7\\n33.2\\n7.0\\n43.3\\n43.9\\n2.7\\n13.5\\n0.0\\n0.4\\n31.8\\n29.7\\nTotal\\n3,764.4\\n3,084.2\\n4,384.4\\n3,988.9\\n2,818.6\\nPurchase of transport vehicle1\\n\\n\\nAnnex\\nP53\\nTable A.48\\nIslamic Banking System: Sources and Uses of Funds\\nSources\\nCapital and reserves\\n4,703\\n6.9\\nDeposits\\nFunds from other\\nfinancial institutions\\nOther liabilities\\nTotal\\nUses\\nCash\\nReserves with\\nBank Negara Malaysia\\nDeposits with other\\nfinancial institutions\\nFinancing\\nSecurities\\nOther assets\\nTotal\\n1     Denotes the interbranch balances pending settlement\\np  Preliminary \\n2002\\nAs at end\\nIslamic \\nBanks\\nIslamic \\nBanks\\nIBS \\nBanks\\nIBS \\nBanks\\nTotal\\nRM million\\n2003p\\nRM million\\nTotal\\n%\\nshare\\n%\\nshare\\n1,398\\n16,421\\n555\\n1,786\\n3,305\\n36,885\\n3,889\\n3,831\\n53,306\\n78.3\\n4,444\\n6.5\\n5,617\\n8.3\\n200\\n20,160\\n47,910\\n68,070\\n100.0\\n40\\n240\\n0.3\\n549\\n647\\n1,196\\n1.8\\n3,215\\n4,520\\n7,735\\n11.4\\n9,158\\n27,560\\n36,718\\n53.9\\n5,721\\n13,556\\n19,277\\n28.3\\n1,317\\n1,587\\n2,904\\n4.3\\n20,160\\n47,910\\n68,070\\n100.0\\n6,784\\n8.3\\n1,523\\n17,584\\n113\\n1,734\\n5,261\\n42,628\\n6,872\\n6,481\\n60,212\\n73.2\\n6,985\\n8.5\\n8,215\\n10.0\\n231\\n20,954\\n61,242\\n82,196\\n100.0\\n24\\n255\\n0.3\\n587\\n930\\n1,517\\n1.9\\n3,239\\n5,743\\n8,982\\n10.9\\n9,764\\n38,851\\n48,615\\n59.2\\n5,764\\n16,790\\n22,554\\n27.4\\n1,369\\n-1,0961 \\n273\\n0.3\\n20,954\\n61,242\\n82,196\\n100.0\\nTable A.49\\nIslamic Banking System: Commitments and Contingencies\\nAssets sold with recourse\\nand commitments with\\ndrawdown\\n48\\n8.9\\nCredit extension\\ncommitments\\n1,215\\n5,348\\n6,563\\nDirect credit substitutes\\n448\\n373\\n4.8\\nForeign exchange related \\ncontracts\\n156\\n0.9\\nTrade-related contingencies\\n986\\n5,290\\nTransaction-related\\ncontingencies\\n899\\n443\\n1,342\\n7.8\\nUnderwriting obligations\\n–\\n315\\n315\\n1.8\\nOthers\\n31\\n181\\n1.2\\nTotal\\n3,783\\n13,433\\n100.0\\np Preliminary\\nAs at end\\n2003p\\n2002\\nIslamic\\nBanks\\nIBS \\nBanks\\nRM million\\nIslamic \\nBanks\\nTotal\\n% \\nshare\\nIBS \\nBanks\\nTotal\\n% \\nshare\\nRM million\\n1,483\\n1,531\\n821\\n156\\n6,276\\n212\\n17,216\\n–\\n36.5\\n38.1\\n45\\n8.6\\n1,418\\n8,287\\n9,705\\n503\\n357\\n3.7\\n189\\n0.8\\n1,103\\n6,429\\n1,157\\n634\\n1,791\\n7.8\\n60\\n510\\n570\\n2.5\\n64\\n392\\n2.0\\n4,539\\n18,559\\n100.0\\n1,950\\n1,995\\n860\\n189\\n7,532\\n456\\n23,098\\n–\\n32.6\\n42.0\\n\\n\\nP54\\nTable A.50\\nIslamic Banking System: Income and Expenditure\\nFinance income  net of\\n1\\nincome-in-suspense\\n627.9\\n1,768.6\\n(Income-in-suspense)\\n201.1\\nLess:   Finance expense\\n291.2\\nNet finance income\\n336.7\\nAdd:   Non-finance income\\n77.2\\nLess:\\nProvisions\\n129.4\\nStaff cost\\n105.9\\nOverheads\\n102.3\\nPre-tax profit\\n76.3\\n1 Finance income includes income from securities\\np Preliminary\\nFor the financial year\\nFor the calendar year\\nRM million\\nIslamic\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\n2003p\\n2002\\n2003p\\n2002\\nIBS\\nBanks\\n2,396.5\\n154.0\\n355.1\\n848.2\\n1,139.4\\n920.4\\n1,257.1\\n215.5\\n292.7\\n377.4\\n506.8\\n51.2\\n157.1\\n83.1\\n185.4\\n624.2\\n700.5\\n596.9\\n2,266.5\\n51.6\\n265.4\\n331.5\\n82.5\\n125.6\\n104.7\\n131.3\\n52.4\\n2,863.4\\n141.9\\n193.5\\n966.5\\n1,231.9\\n1,300.0\\n1,631.5\\n356.9\\n439.4\\n759.2\\n884.8\\n73.5\\n178.2\\n144.0\\n275.3\\n680.2\\n732.6\\n1,096.0\\n2,300.9\\n3,195.7\\n201.2\\n171.9\\n373.1\\n625.2\\n1,144.8\\n1,568.8\\n470.8\\n1,156.1\\n1,626.9\\n116.1\\n378.9\\n495.0\\n143.7\\n562.3\\n139.0\\n60.0\\n199.0\\n148.5\\n120.6\\n269.1\\n155.7\\n792.1\\n947.8\\n706.0\\n925.1\\n2,944.8\\n3,869.9\\n95.0\\n210.8\\n305.8\\n403.0\\n1,285.5\\n1,688.5\\n522.1\\n1,659.3\\n2,181.4\\n111.9\\n615.4\\n727.3\\n163.3\\n1,155.7\\n145.2\\n83.3\\n228.5\\n196.0\\n188.0\\n384.0\\n129.5\\n847.7\\n977.2\\n1,319.0\\n\\n\\nAnnex\\nP55\\nTable A.51\\nIslamic Banking System: Financing Activities\\nFinancing approvals\\nFinancing disbursements\\nFinancing repayments\\n2,056.1\\np  Preliminary\\nFor the year\\n2003p\\n2002\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nRM million\\n2003p\\n2002\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nRM million\\nAs at end\\n10,253.7\\n12,309.8\\n1,999.2\\n14,740.0\\n16,739.2\\n7,242.9\\n16,944.4\\n24,187.3\\n8,114.9\\n28,046.6\\n36,161.5\\n6,561.0\\n14,214.9\\n20,775.9\\n7,680.7\\n18,560.6\\n26,241.3\\nOutstanding financing\\n9,158.2\\n27,559.5\\n36,717.7\\n9,764.5\\n38,850.8\\n48,615.3\\nTotal outstanding \\n    financing\\nTotal non-performing\\n    financing \\n823.2\\np  Preliminary\\n2003p\\n2002\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nRM million\\n2,674.4\\n3,497.6\\n1,759.0\\n4,407.2\\n6,166.2\\n–\\n–\\n–\\n322.9 \\n289.1 \\n612.0\\nTable A.52\\nIslamic Banking System: Financing to Small and Medium-Sized Enterprises\\nAs at end\\n\\n\\nP56\\nTable A.53\\nIslamic Banking System: Direction of Financing\\nAs at end\\n2003p\\n2002\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nRM million\\nAgriculture, hunting,\\nforestry and fishing\\n267.3\\n 1,326.7\\n1,594.0\\n4.3\\nMining and quarrying\\n29.5\\n 45.0\\n74.5\\n0.2\\nManufacturing\\n1,659.5\\n2,221.7\\n3,881.2\\n10.6\\nElectricity, gas and water\\n390.6\\n 143.1\\n533.7\\n1.5\\nCommunity, social and\\npersonal services\\n39.5\\n 174.4\\n213.9\\n0.6\\nBroad property sector\\n4,682.6\\n11,053.1 15,735.7\\n42.8\\nReal estate\\n52.5\\n 616.8\\n669.3\\n1.8\\nConstruction\\n1,318.2\\n960.0\\n2,278.2\\n6.2\\nPurchase of residential\\nproperty\\n2,451.9\\n8,310.9 10,762.8\\n29.3\\nPurchase of non-\\nresidential property\\n860.0\\n 1,165.4\\n2,025.4\\n5.5\\nWholesale, retail,\\nrestaurants and hotels\\n391.6\\n 994.8\\n1,386.4\\n3.8\\nTransport, storage and\\ncommunication\\n100.1\\n 724.7\\n824.8\\n2.2\\nFinance, insurance and\\nbusiness services\\n158.0\\n 1,113.7\\n1,271.7\\n3.5\\nPurchase of securities\\n248.0\\n 687.0\\n935.0\\n2.5\\nConsumption credit\\n900.7\\n 8,386.5\\n9,287.2\\n25.3\\nCredit cards\\n27.8\\n 32.7\\n60.5\\n0.2\\nPersonal uses\\n409.9\\n 651.7\\n1,061.6\\n2.9\\nPurchase of consumer\\ndurables\\n44.7\\n 18.6\\n63.3\\n0.2\\nPurchase of transport\\nvehicles\\n418.3\\n 7,683.5\\n8,101.8\\n22.1\\nOthers\\n290.8\\n 688.8\\n979.6\\n2.7\\nTotal\\n9,158.2\\n27,559.5 36,717.7\\n100.0\\n202.2\\n 1,659.4\\n1,861.6\\n3.9\\n15.0\\n 48.5\\n63.5\\n0.1\\n1,529.7\\n2,857.1\\n4,386.8\\n9.0\\n43.0\\n 205.9\\n248.9\\n0.5\\n63.7\\n 239.6\\n303.3\\n0.6\\n5,305.2\\n15,177.5 20,482.7\\n42.1\\n90.6\\n 721.3\\n811.9\\n1.7\\n1,328.5\\n1,605.0\\n2,933.5\\n6.0\\n3,022.2\\n11,322.0 14,344.2\\n29.5\\n863.9\\n 1,529.2\\n2,393.1\\n4.9\\n405.9\\n 1,391.1\\n1,797.0\\n3.7\\n152.8\\n 871.5\\n1,024.3\\n2.1\\n261.6\\n 1,671.7\\n1,933.3\\n4.0\\n226.7\\n 694.2\\n920.9\\n1.9\\n1,431.4  13,440.7 14,872.1\\n30.6\\n90.3\\n 65.9\\n156.2\\n0.3\\n562.0\\n 1,075.1\\n1,637.1\\n3.4\\n40.3\\n 13.8\\n54.1\\n0.1\\n738.8  12,285.9 13,024.7\\n26.8\\n127.3\\n 593.6\\n720.9\\n1.5\\n9,764.5\\n38,850.8 48,615.3\\n100.0\\np Preliminary\\n%\\nshare\\nIslamic\\nBanks\\nIBS\\nBanks\\nTotal\\nRM million\\n%\\nshare\\n\\n\\nAnnex\\nP57\\nTable A.54\\nIslamic Banking System: Non-performing Financing by Sector1\\nAs at end\\nNPF by sector\\n2003p\\n2002\\n2002\\n%\\n2003p\\nIslamic \\nBanks\\nIBS \\nBanks\\nTotal\\nRM million\\nIslamic \\nBanks\\nIBS \\nBanks\\nTotal\\nAgriculture, hunting, forestry and fishing\\n34.4\\n42.2\\n76.6\\n-0.3\\n 4.8\\nMining and quarrying\\n4.7\\n0.2\\n4.9\\n2.0\\n6.6\\nManufacturing\\n208.3\\n165.5\\n373.8\\n-2.1\\n9.6\\nElectricity, gas and water\\n1.7\\n0.1\\n1.8\\n 127.8\\n0.3\\nCommunity, social and personal services\\n13.0\\n28.7\\n41.7\\n7.9\\n19.5\\nBroad property sector\\n706.9\\n1,426.5\\n2,133.4\\n32.2\\n13.6\\nReal estate\\n0.9\\n267.9\\n 268.8\\n6.2\\n40.2\\nConstruction\\n278.8\\n144.3\\n 423.1\\n41.2\\n18.6\\nPurchase of residential property\\n256.9\\n737.0\\n993.9\\n45.4\\n 9.2\\nPurchase of non-residential property\\n170.3\\n277.3\\n 447.6\\n10.1\\n22.1\\nWholesale, retail, restaurants and hotels\\n88.6\\n56.3\\n 144.9\\n42.4\\n10.5\\nTransport, storage and communication\\n31.4\\n79.1\\n 110.5\\n97.9\\n13.4\\nFinance, insurance and business services\\n25.9\\n4.3\\n30.2\\n35.8\\n 2.4\\nPurchase of securities\\n88.4\\n111.3\\n199.7\\n-29.4\\n21.4\\nConsumption credit\\n178.8\\n256.3\\n435.1\\n19.8\\n4.7\\nCredit cards\\n0.2\\n2.2\\n2.4\\n229.2\\n4.0\\nPersonal uses\\n126.3\\n39.2\\n165.5\\n17.6\\n15.6\\nPurchase of consumer durables\\n6.3\\n0.6\\n6.9\\n-34.8\\n10.9\\nPurchase of transport vehicles\\n46.0\\n214.3\\n260.3\\n20.7\\n3.2\\nOthers\\n14.3\\n8.6\\n22.9\\n247.2\\n2.3\\nTotal\\n1,396.4\\n2,179.1\\n3,575.5\\n32.0\\n44.4\\n76.4\\n4.8\\n0.2\\n5.0\\n202.2\\n163.9\\n366.1\\n4.1\\n...\\n4.1\\n27.8\\n17.2\\n45.0\\n865.3\\n1,955.6\\n2,820.9\\n0.1\\n285.4\\n 285.5\\n359.8\\n237.8\\n 597.6\\n317.6\\n1,127.3\\n1,444.9\\n187.8\\n305.1\\n 492.9\\n66.4\\n139.9\\n 206.3\\n51.3\\n167.4\\n 218.7\\n31.6\\n9.4\\n41.0\\n59.5\\n81.5\\n141.0\\n226.8\\n294.3\\n521.1\\n4.8\\n3.1\\n7.9\\n140.9\\n53.7\\n194.6\\n4.3\\n0.2\\n4.5\\n76.8\\n237.3\\n314.1\\n3.7\\n75.8\\n79.5\\n1,575.5\\n2,949.6\\n4,525.1\\n26.6\\n4.1\\n7.9\\n8.4\\n 1.6\\n14.8\\n13.8\\n35.2\\n20.4\\n10.1\\n20.6\\n11.5\\n21.4\\n2.1\\n15.3\\n3.5\\n5.1\\n11.9\\n8.3\\n2.4\\n11.0\\n1  Based on actual classification\\np Preliminary\\nChange\\nAs percentage of total\\nfinancing to sector\\n\\n\\nP58\\n \\n \\n1   Excludes Islamic banks\\n2   Based on Malaysian operations only\\n3   Cost = Staff cost and overheads (excluding loan loss provisions)\\nPre-tax profit /\\n      Average assets (%)\\nPre-tax profit / \\n      Average shareholders' funds (%)\\nPre-tax profit /\\n      Average employee (RM'000)\\nCost3 incurred per ringgit of revenue \\n      earned4 (sen) \\nCost3 incurred per ringgit of net interest\\n      income4 (sen)\\nOverheads to staff \\n      cost ratio (%)\\nStaff cost\\n      per employee (RM'000) \\nLoan deposit\\n      ratio5 (%)\\nLoans per office\\n      (RM million)\\nDeposits per office5\\n      (RM million)     \\nCommercial banks1\\nFinance companies\\nAs at calendar year end\\nMerchant banks\\nBanking system1\\n1999\\n2000\\n2001\\n2002\\n2003\\n1999\\n2000\\n2001\\n2002\\n2003\\n1999\\n2000\\n2001\\n2002\\n2003\\n1999\\n2000\\n2001\\n2002\\n2003\\n1.3\\n16.5\\n84.1\\n38.1\\n54.9\\n41.4\\n87.9\\n164.3\\n186.8\\n104.2\\n1.4\\n17.4\\n94.5\\n39.0\\n54.7\\n49.8\\n87.7\\n175.4\\n200.1\\n98.4\\n114.6\\n0.9\\n10.7\\n63.4\\n41.5\\n62.6\\n54.8\\n101.0\\n89.6\\n190.7\\n213.0\\n113.2\\n1.2\\n14.3\\n95.4\\n43.6\\n64.2\\n55.4\\n88.4\\n201.7\\n228.1\\n115.7\\n1.2\\n14.7\\n103.9\\n44.6\\n64.7\\n58.8\\n83.3\\n205.6\\n246.7\\n162.4\\n-0.8\\n-14.5\\n-43.1\\n37.9\\n44.5\\n27.8\\n88.5\\n84.3\\n95.2\\n123.5\\n1.7\\n33.2\\n91.6\\n31.2\\n35.7\\n36.7\\n100.4\\n90.2\\n89.8\\n131.7\\n1.8\\n31.0\\n102.9\\n32.1\\n36.4\\n37.5\\n108.0\\n106.0\\n98.2\\n130.1\\n1.9\\n29.1\\n127.0\\n32.5\\n36.5\\n41.8\\n111.1\\n133.1\\n119.8\\n118.1\\n2.0\\n32.9\\n143.7\\n30.3\\n33.9\\n43.6\\n115.8\\n146.7\\n126.6\\n125.2\\n-0.4\\n-4.9\\n-70.1\\n26.0\\n60.4\\n56.5\\n72.9\\n857.7\\n1,175.9\\n70.0\\n1.5\\n16.8\\n248.6\\n19.6\\n43.6\\n70.0\\n70.1\\n789.1\\n1,125.5\\n58.1\\n0.8\\n7.4\\n124.8\\n20.7 \\n55.5\\n86.4\\n57.6\\n768.8\\n1,334.6\\n53.6\\n1.4\\n13.1\\n244.5\\n27.7\\n65.5\\n93.6\\n51.3\\n792.9\\n1,547.1\\n50.7\\n1.6\\n14.4\\n284.9\\n27.9\\n80.2\\n107.3\\n37.6\\n649.4\\n1,725.4\\n0.8\\n10.5\\n50.7\\n37.4\\n52.6\\n38.6\\n87.2\\n141.9\\n162.7\\n101.7\\n1.4\\n19.3\\n97.7\\n36.2\\n49.3\\n47.4\\n89.0\\n151.1\\n169.7\\n104.2\\n1.0\\n13.1\\n73.9\\n38.2\\n55.0\\n51.8\\n91.2\\n166.1\\n182.1\\n113.1\\n1.3\\n16.3\\n106.3\\n40.3\\n56.5\\n53.5\\n90.6\\n184.3\\n203.4\\n112.7\\n1.4\\n17.2\\n117.4\\n40.5\\n56.5\\n56.9\\n86.4\\n191.1\\n221.0\\nTable A.55\\nBanking System1,2: Selected Indicators\\n4   Net of interest-in-suspense\\n5   Including NIDs and repos\\n\\n\\nAnnex\\nP59\\nTable A.56\\nBanking System1: Key Data\\nAs at end\\n1999\\n2000\\n 2001\\n2002\\n2003\\nNumber of institutions\\n68\\n62\\n47\\n45\\n- Commercial banks1\\n33\\n31\\n25\\n24\\n- Finance companies\\n23\\n19\\n12\\n11\\n  - Merchant banks\\n12\\n12\\n10\\n10\\nRisk-weighted capital ratio (%)\\n12.5\\n12.5\\n13.0\\n13.2\\n- Commercial banks1\\n12.8\\n12.3\\n12.8\\n13.2\\n  - Finance companies\\n10.8\\n11.5\\n12.1\\n12.0\\n  - Merchant banks\\n14.5\\n17.1\\n19.6\\n19.0\\nOffice network\\n2,749\\n2,713\\n2,557\\n2,403\\n- Commercial banks1\\n1,767\\n1,758\\n1,664\\n1,631\\n  - Finance companies\\n960\\n933\\n874\\n755\\n  - Merchant banks\\n22\\n22\\n19\\n17\\nATM network\\n3,883\\n3,906\\n3\\n8\\n3,983\\n4,027\\n- Commercial banks1\\n3,302\\n3,346\\n3,378\\n3,476\\n  - Finance companies\\n581\\n560\\n605\\n551\\nNumber of banks with internet services\\n–\\n12\\n- Commercial banks1\\n12\\nPersons served per office\\n- Commercial banks1\\n12,854\\n13,256\\n13,959\\n14,899\\n  - Finance companies\\n23,659\\n24,920\\n26,474\\n32,185\\nNumber of employees\\n92,630\\n93,290\\n90,288\\n87,747\\n- Commercial banks1\\n69,714\\n70,226\\n67,398\\n65,866\\n  - Finance companies\\n20,543\\n20,725\\n20,488\\n19,430\\n  - Merchant banks\\n2,373\\n2,339\\n2,402\\n2,451\\n44\\n23\\n11\\n10\\n13.4\\n13.6\\n11.3\\n18.4\\n2,430\\n1,684\\n729\\n17\\n4,184\\n3,707\\n477\\n12\\n12\\n15,026\\n33,536\\n87,521\\n66,458\\n18,634\\n2,429\\n1 Excludes Islamic banks\\n–\\n3\\n8\\n\\n\\nP60\\nTable A.57\\nHousing Credit Institutions\\nLending\\nrate for new\\nhousing loans (%)\\n2002\\n2003\\n2002 2003\\nCommercial banks\\n4.41\\n1,594\\nFinance companies\\n4.51\\n746\\nTreasury Housing\\n1970\\nTo  provide housing loans to \\nGovernment employees\\n4.0\\nLoans Division\\nMalaysia Building\\n1950\\nTo be the nation’s single largest\\nprovider of property finance and\\nto contribute to the continuous\\ngrowth of the nation\\n3.5 ~ 8.5\\n22\\n–\\nSociety Berhad\\nBorneo Housing Mortgage\\n1958\\nTo provide housing loans mainly\\nto Sabah and Sarawak State\\nGovernment employees\\n4.5 ~ 8.9\\n2\\nFinance Berhad\\nSabah Credit Corporation\\n1955\\nTo  improve the social economic\\ndevelopment of Sabah through\\nloans mainly to the property,\\nagriculture and business sectors\\n8.0 ~ 10.5\\n11\\nBank Kerjasama Rakyat\\n1954\\nA co-operative society which\\ncollects deposits and provides\\nconventional banking facilities\\nas well as according to Syariah\\nprinciples\\n7.11 \\n98\\nMalaysia Berhad\\nBank Simpanan Nasional\\n1974\\nTo promote and mobilise savings\\nparticularly from small savers\\nand to inculcate the habit of\\nthrift and savings \\n4.71\\n4.51\\n4.01\\n4.0\\n2.0 ~ 6.5\\n7.5 ~ 8.5\\n8.0 ~ 10.5\\n7.41 \\n4.01\\n421\\n1,700\\n672\\n22\\n–\\n2\\n11\\n100\\n398\\n1  Average\\nSource: Bank Negara Malaysia and various housing credit institutions\\nYear of\\nestablishment\\nObjective\\nNo. of\\nbranches\\n–\\n–\\n\\n\\nAnnex\\nP61\\nTable A.58\\nOutstanding Housing Loans\\n2002\\n2003p\\n2003p\\n2002\\n2002\\n2003p\\nRM million\\nAnnual change (%)\\n% share\\nCommercial banks\\n86,246\\n18.0\\n68\\nTreasury Housing Loans Division\\n22,172\\n13.9\\n17\\nFinance companies\\n14,042\\n7.7\\n11\\nBank Kerjasama Rakyat Malaysia Berhad\\n1,108\\n-13.0\\nBank Simpanan Nasional\\n1,133\\n-11.7\\nMalaysia Building Society Berhad\\n1,236\\n-1.0\\nBorneo Housing Mortgage Finance Berhad\\n650\\n3.9\\nSabah Credit Corporation\\n293\\n-0.8\\nTotal\\n126,880\\n101,829\\n24,754\\n14,648\\n1,371\\n1,058\\n1,207\\n680\\n290\\n145,837\\n15.0\\n18.1\\n11.6\\n4.3\\n23.7\\n-6.6\\n-2.4\\n4.7\\n-1.0\\n14.9\\n100\\np\\nPreliminary\\n… Negligible\\nSource: Bank Negara Malaysia and various housing credit institutions\\n1\\n1\\n1\\n1\\n...\\n70\\n17\\n10\\n100\\n1\\n1\\n1\\n...\\n...\\nTable A.59\\nApproved Housing Loans\\n2003p\\n2003p\\n2003p\\n2002\\nRM million\\nAnnual change (%)\\n% share\\nCommercial banks\\n26,795\\n6.8\\n77\\nTreasury Housing Loans Division\\n5,051\\n23.6\\n15\\nFinance companies\\n2,410\\n26.2\\nBank Kerjasama Rakyat Malaysia Berhad\\n403\\n-3.1\\nMalaysia Building Society Berhad\\n113\\n-67.7\\n…\\nBorneo Housing Mortgage Finance Berhad\\n85\\n12.9\\nBank Simpanan Nasional\\n78\\n-51.0\\n…\\nSabah Credit Corporation\\n30\\n-19.2\\n…\\nTotal\\n34,965\\n27,943\\n4,738\\n2,090\\n567\\n364\\n88\\n65\\n19\\n35,874\\n8.9\\n4.3\\n-6.2\\n-13.3\\n40.6\\n221.4\\n3.4\\n-16.4\\n-36.3\\n2.6\\n100\\np\\nPreliminary\\n… Negligible\\nSource: Bank Negara Malaysia and various housing credit institutions\\n...\\n7\\n1\\n78\\n13\\n1\\n…\\n…\\n100\\n…\\n6\\n2\\n2002\\n2002\\n\\n\\nP62\\nAs at the end of 2003, 292 leasing companies and 28 factoring companies had registered with Bank Negara\\nMalaysia. However, only 114 leasing companies and 15 factoring companies submitted statistics pertaining to\\ntheir operations to the Bank. Total assets of the 114 leasing companies and 15 factoring companies amounted to\\nRM21.2 billion and RM2.1 billion respectively at the end of 2003. Nevertheless, of the 114 leasing companies,\\nonly 37 were pure leasing companies, while of the 15 factoring companies, only 10 were pure factoring\\ncompanies. The remaining companies only undertook leasing and factoring business as part of their overall\\nbusiness activities.\\nTable A.60\\nLeasing Companies : Sources and Uses of Funds\\n1\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nSources\\nCapital and reserves\\n654\\n839\\n839\\n770\\nBorrowings from financial institutions\\n1,898\\n1,711\\n1,923\\n2,141\\nInter-company borrowings\\n1,296\\n1,316\\n1,343\\n1,454\\nOthers\\n2,400\\n2,447\\n2,400\\n2,684\\nTotal\\n6,248\\n6,313\\n6,505\\n7,049\\nUses\\nCash and bank balances\\n266\\n191\\n229\\n225\\nInvestments\\n308\\n279\\n309\\n323\\nReceivables\\n3,056\\n3,107\\n3,014\\n3,118\\nLeasing\\n1,537\\n1,495\\n1,423\\n1,420\\nFactoring\\n17\\n209\\nHire purchase\\n1,261\\n1,331\\n1,275\\n1,307\\nOthers\\n254\\n273\\n299\\n182\\nOthers\\n2,618\\n2,736\\n2,953\\n3,384\\n1,554\\n1,759\\n1,375\\n2,342\\n7,030\\n198\\n387\\n2,370\\n1,508\\n204\\n503\\n155\\n4,074\\n1 Statistics shown are for pure leasing companies only\\nNote: Numbers may not necessarily add up due to rounding\\n4\\n8\\nTable A.61\\nLeasing Companies : Income and Expenditure\\n1 \\nDuring the period\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nIncome\\nIncome from\\n329\\n315\\n313\\n302\\nLeasing\\n225\\n223\\n217\\n212\\nFactoring\\n3\\nHire purchase\\n102\\n90\\n85\\n76\\nOthers\\n11\\nOthers\\n265\\n224\\n188\\n306\\nTotal\\n594\\n539\\n501\\n607\\nExpenditure\\nInterest paid\\n289\\n180\\n187\\n165\\nFinancial institutions\\n253\\n156\\n166\\n155\\nBlock discounting\\n36\\n24\\n21\\n10\\nBad debts written off and provision\\n195\\n33\\n108\\n35\\nOthers\\n183\\n168\\n165\\n199\\nTotal\\n667\\n381\\n460\\n398\\nPre-tax Profit\\n-73\\n158\\n41\\n209\\n326\\n226\\n6\\n75\\n20\\n200\\n526\\n141\\n134\\n7\\n5\\n183\\n329\\n197\\n1 Statistics shown are for pure leasing companies only\\nNote: Numbers may not necessarily add up due to rounding\\n1\\n2\\n0\\n2\\n9\\n1\\n\\n\\nAnnex\\nP63\\n25\\n8\\nTable A.62\\nLeasing Companies : Financing by Sector\\n1\\nDuring the period\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nSector\\nAgriculture\\nMining and quarrying\\n17\\nManufacturing\\n111\\n0\\n3\\n3\\n17\\n317\\n172\\n102\\nElectricity\\n0\\nGeneral commerce\\n27\\n89\\n266\\n125\\nProperty sector\\n29\\n61\\n50\\n38\\nConstruction\\n24\\n57\\n46\\n36\\nReal estate\\n2\\nResidential property\\n0\\nTransport and storage\\n16\\n83\\n805\\n54\\nBusiness, insurance and other services\\n35\\n147\\n113\\n121\\nConsumption credit\\nOthers\\n83\\n26\\n108\\n128\\nTotal\\n312\\n771\\n1,535\\n585\\n1 Statistics shown are for pure leasing companies only\\nNote: Numbers may not necessarily add up due to rounding\\n3\\n1\\n3\\n5\\n0\\n0\\n0\\n3\\n0\\n0\\n0\\n4\\n4\\n14\\n9\\n126\\n0\\n106\\n207\\n179\\n28\\n0\\n53\\n116\\n53\\n695\\n0\\n25\\nTable A.63\\nFactoring Companies : Sources and Uses of Funds\\n1 \\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nSources\\nCapital and reserves\\n89\\n116\\n164\\n164\\nBorrowings from financial institutions\\n247\\n324\\n445\\n293\\nInter-company borrowings\\n256\\n697\\n600\\n416\\nOthers\\n385\\n896\\n658\\n1,092\\nTotal\\n977\\n2,033\\n1,867\\n1,964\\nUses\\nCash and bank balances\\n0\\n2\\n0\\n0\\n4\\n0\\n4\\n30\\n5\\n25\\n45\\n255\\n202\\n234\\nInvestments\\n35\\nReceivables\\n928\\n1,458\\n998\\n1,170\\nLeasing\\n4\\nFactoring\\n808\\n1,312\\n872\\n1,111\\nHire purchase\\nOthers\\n118\\n142\\n122\\n55\\nOthers\\n14\\n295\\n622\\n525\\n81\\n267\\n267\\n425\\n1,040\\n0\\n14\\n24\\n602\\n4\\n542\\n57\\n401\\n1 Statistics shown are for pure factoring companies only\\nNote: Numbers may not necessarily add up due to rounding\\n\\n\\nP64\\nTable A.64\\nFactoring Companies : Income and Expenditure\\n1\\nDuring the period\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nIncome\\nIncome from\\n47\\n47\\n37\\n38\\nLeasing\\n0\\n0\\n0\\n6\\n0\\n9\\n8\\n2\\n0\\nFactoring\\n38\\n38\\n29\\n29\\nHire purchase\\n0\\n9\\n0\\n8\\nOthers\\nOthers\\n15\\n99\\n129\\n28\\n297\\nTotal\\n62\\n146\\n166\\n335\\nExpenditure\\nInterest paid\\n42\\n17\\nFinancial institutions\\n0\\n0\\n0\\n42\\n28\\n28\\n17\\nBlock discounting\\n0\\nBad debts written off and provision\\n202\\n14\\n28\\n14\\nOthers\\n41\\n49\\n33\\n45\\nTotal\\n285\\n91\\n89\\n76\\nPre-tax Profit\\n-223\\n55\\n77\\n259\\n31\\n0\\n24\\n0\\n6\\n75\\n106\\n15\\n15\\n0\\n5\\n17\\n37\\n68\\n1 Statistics shown are for pure factoring companies only\\nNote: Numbers may not necessarily add up due to rounding\\nTable A.65\\nFactoring Companies : Financing by Sector\\n1\\nDuring the period\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nSector\\nAgriculture\\n0\\n0\\n0\\n0\\nMining and quarrying\\nManufacturing\\n71\\n76\\n66\\n57\\nElectricity\\nGeneral commerce\\n133\\n127\\n140\\n179\\nProperty sector\\n222\\n245\\n270\\n103\\nConstruction\\n174\\n195\\n222\\n76\\nReal estate\\n48\\n50\\n48\\n27\\nResidential property\\n0\\nTransport and storage\\nBusiness, insurance and other services\\n86\\n77\\n51\\n50\\nConsumption credit\\nOthers\\n23\\n25\\n541\\n513\\nTotal\\n567\\n584\\n1,096\\n927\\n1 Statistics shown are for pure factoring companies only\\nNote: Numbers may not necessarily add up due to rounding\\n0\\n0\\n0\\n0\\n3\\n6\\n8\\n5\\n3\\n4\\n3\\n2\\n0\\n0\\n0\\n23\\n20\\n20\\n1\\n46\\n120\\n43\\n36\\n1\\n6\\n37\\n18\\n286\\n0\\n1\\n3\\n17\\n22\\n\\n\\nAnnex\\nP65\\nTable A.66\\nCapital Market Debt Securities1: Amount Outstanding\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003p\\nRM million (nominal value)\\nMalaysian Government Securities\\n78,336\\n89,050\\n103,450\\n 109,550\\nGovernment Investment Issues\\n2,000\\n4,000\\n4,000\\n5,000\\nKhazanah Bonds\\n8,980\\n10,000\\n10,000\\n 10,000\\nMalaysia Savings Bonds\\n359\\n379\\n0\\n464\\nDanaharta Bonds\\n10,344\\n11,140\\nDanamodal Bonds\\n11,000\\n11,000\\nCagamas Bonds\\n13,019\\n17,312\\n18,427\\n22,595\\nOther Corporate Bonds\\n78,632\\n100,494\\n117,674\\n103,951\\nMedium Term Notes\\n681\\n1,726\\n2,910\\n4,450\\nTotal\\n203,370\\n245,081\\n278,601\\n278,150\\n1  Refer to debt securities with an original maturity period of more than one year\\np Preliminary\\n11,140\\n11,140\\n11,000\\n11,000\\n 130,800\\n7,000\\n 11,000\\n455\\n25,628\\n136,002\\n8,596\\n328,021\\n8,539\\n–\\n\\n\\nP66\\nTable A.67\\nUrban Credit Co-operative Societies1\\nAnnual change\\nAs at end \\n2003\\n2002\\n2003\\nAnnual \\nchange (%)\\nNumber\\nTotal co-operative societies\\n41\\nDeposit-taking co-operatives\\nOther credit co-operatives\\n41\\n0\\n1\\n(‘000)\\nTotal members\\n92\\nDeposit-taking co-operatives\\nOther credit co-operatives\\n91\\nRM million\\n% share\\nSources of funds\\nShare subscriptions\\n123.0\\nReserves\\n71.9\\nBorrowings\\n85.2\\nSundry creditors\\n17.3\\nSavings and deposits\\n13.5\\nSurplus\\n8.9\\nTotal\\n319.8\\nUses of funds\\nInvestments\\n74.8\\nShares\\n39.5\\nFixed and savings deposits\\n28.5\\nReal estates\\n3.9\\nOthers\\n2.9\\nLoans to members\\n114.3\\nFixed assets\\n72.7\\nOther assets\\n37.2\\nCash and bank balances\\n7.8\\nOthers\\n13.0\\n11\\n11\\n0\\n1,506\\n-18,166\\n-19,672\\n71.7\\n27.9\\n15.3\\n7.1\\n22.1\\n988.6\\n1,132.7\\n50.7\\n3.1\\n41.3\\n8.7\\n-2.4\\n61.4\\n11.9\\n0.8\\n1,035.0\\n-26.8\\n424\\n418\\n6\\n345,834\\n1,274,473\\n928,639\\n1,096.8\\n242.7\\n155.6\\n115.2\\n177.5\\n1,588.2\\n3,376.0\\n462.9\\n136.1\\n197.1\\n106.2\\n23.5\\n1,513.7\\n224.9\\n34.7\\n1,129.0\\n10.8\\n2.7\\n2.7\\n0\\n0.4\\n-1.7\\n-2.1\\n7.0\\n13.0\\n10.9\\n6.5\\n14.3\\n164.9\\n216.6\\n12.3\\n0.8\\n2.1\\n10.0\\n-0.6\\n4.2\\n5.6\\n2.2\\n11.0\\n-71.3\\n100\\n98.6\\n1.4\\n27.1\\n100.0\\n72.9\\n32.5\\n7.2\\n4.6\\n3.4\\n5.3\\n47.0\\n100.0\\n13.7\\n4.1\\n5.8\\n3.1\\n0.7\\n44.9\\n6.7\\n1.0\\n33.4\\n0.3\\n1  Urban credit co-operative societies, which comprise of employees credit societies, thrift and loan societies and thrift and \\n investment societies, were established primarily to provide consumer credit and serve as an investment channel for members\\n2  Refers to total loans outstanding\\nSource: Department of Co-operative Development Malaysia\\n2\\n\\n\\nAnnex\\nP67\\n1\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\n4,701.3\\n6,314.2\\n6,906.6\\n7,905.3\\n4,168.9\\n5,258.5\\n5,416.9\\n6,012.4\\n1,054.6\\n1,216.6\\n1,196.2\\n1,517.0\\n-522.2\\n-160.9\\n293.5\\n375.9\\n27,492.1\\n34,752.2\\n39,305.7\\n39,797.6\\n11,058.1\\n11,825.4\\n12,866.0\\n13,977.0\\n6,140.2\\n6,238.3\\n6,625.7\\n8,875.4\\n2,760.9\\n3,034.8\\n3,321.7\\n3,434.3\\n2,157.0\\n2,552.3\\n2,918.6\\n1,667.3\\n6,543.5\\n8,470.4\\n8,987.6\\n10,766.5\\n49,795.0\\n61,362.2\\n68,065.9\\n72,446.4\\n7,210.5\\n11,493.2\\n12,265.2\\n15,720.7\\n16,352.5\\n17,506.6\\n21,968.0\\n19,268.1\\n2,072.0\\n2,497.1\\n3,715.0\\n3,495.8\\n4,250.9\\n4,759.8\\n5,099.4\\n6,427.4\\n3,885.1\\n4,203.5\\n4,478.5\\n5,325.6\\n365.8\\n556.3\\n620.9\\n1,101.8\\n18,736.8\\n21,998.0\\n24,486.3\\n29,442.4\\n1,870.2\\n2,090.2\\n3,011.6\\n3,606.7\\n5,625.0\\n8,274.2\\n6,334.8\\n4,408.5\\n49,795.0\\n61,362.2\\n68,065.9\\n72,446.4\\n4,228.3\\n4,211.8\\n3,342.4\\n3,160.1\\n136.1\\n204.5\\n148.3\\n151.5\\n4,364.4\\n4,416.3\\n3,490.7\\n3,311.6\\n9,497.6\\n7,192.3\\n1,395.1\\n910.2\\n42,382.6\\n16,076.5\\n11,356.3\\n3,035.7\\n1,684.5\\n11,135.3\\n79,092.0\\n17,113.4\\n21,141.7\\n3,562.0\\n5,798.6\\n5,322.5\\n476.1\\n32,548.1\\n3,706.0\\n4,582.8\\n79,092.0\\n3,652.7\\n125.6\\n3,778.3\\nTable A.68\\nDevelopment Financial Institutions : Sources and Uses of Funds\\nSources:\\nShareholders’ funds\\nPaid-up capital\\nReserves\\nRetained earnings\\nDeposits accepted\\nBorrowings\\nGovernment\\nMultilateral/International\\n    agencies\\nOthers\\nOthers\\nTotal\\nUses:\\nDeposits placed\\nInvestments\\nof which:\\nGovernment securities\\nShares\\nQuoted\\nUnquoted\\nLoans and advances\\nFixed assets\\nOthers\\nTotal\\nContingencies:\\nGuarantee\\nExport credit insurance\\nTotal\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri & Teknologi Malaysia Berhad, Bank Kerjasama\\nRakyat Malaysia Berhad, Bank Simpanan Nasional, Export-Import Bank of Malaysia Berhad, Malaysia Export Credit Insurance\\nBerhad, Malaysian Industrial Development Finance Berhad, Sabah Development Bank Berhad, Borneo Development\\nCorporation (Sabah) Sendirian Berhad, Borneo Development Corporation (Sarawak) Sendirian Berhad, Bank Pertanian\\nMalaysia, Credit Guarantee Corporation Malaysia Berhad, Sabah Credit Corporation and Lembaga Tabung Haji\\n\\n\\nP68\\nTable A.69\\nDevelopment Financial Institutions  under DFIA : Sources and Uses of Funds\\n1\\n2\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nSources:\\nShareholders’ funds\\n3,188.8\\n3,417.0\\n3,942.7\\nPaid-up capital\\n2,526.4\\n2,552.0\\n2,675.5\\nReserves\\n637.0\\n732.7\\n885.1\\nRetained earnings\\n25.4\\n132.3\\n382.1\\nDeposits accepted\\n15,953.1\\n20,911.6\\n25,102.5\\nBorrowings\\n6,802.3\\n7,822.4\\n8,283.4\\nGovernment\\n3,177.8\\n3,310.8\\n3,420.3\\nMultilateral/International\\n    agencies\\n2,247.0\\n2,562.9\\n2,891.7\\nOthers\\n1,377.5\\n1,948.7\\n1,971.4\\nOthers\\n3,330.1\\n4,656.5\\n5,418.8\\nTotal\\n29,274.3\\n36,807.5\\n42,747.4\\nUses:\\nDeposits  placed\\n4,282.4\\n6,585.6\\n7,849.9\\nInvestments\\n7,376.4\\n7,126.4\\n10,713.7\\nof which:\\nGovernment securities\\n1,731.2\\n1,920.1\\n3,340.0\\nShares\\n1,492.3\\n1,511.4\\n2,282.9\\nQuoted\\n1,444.1\\n1,433.9\\n2,203.8\\nUnquoted\\n48.2\\n77.5\\n79.1\\nLoans and advances\\n13,643.5\\n16,866.4\\n18,962.1\\nFixed assets\\n855.0\\n865.4\\n836.8\\nOthers\\n3,117.0\\n5,363.7\\n4,384.9\\nTotal\\n29,274.3\\n36,807.5\\n42,747.4\\nContingencies:\\nGuarantee\\n998.3\\n806.8\\n673.4\\nExport credit insurance\\n136.1\\n204.5\\n148.3\\nTotal\\n1,134.4\\n1,011.3\\n821.7\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri & Teknologi Malaysia Berhad, Bank\\nKerjasama Rakyat Malaysia Berhad, Bank Simpanan Nasional, Export-Import Bank of Malaysia Berhad and Malaysia Export\\nCredit Insurance Berhad\\n2 Development Financial Institutions Act 2002\\n4,739.6\\n3,246.0\\n863.0\\n630.6\\n25,869.3\\n8,865.4\\n5,261.7\\n3,135.1\\n468.6\\n6,848.4\\n46,332.7\\n10,257.2\\n9,981.2\\n3,216.2\\n2,040.6\\n1,939.8\\n100.8\\n22,827.5\\n1,377.4\\n1,879.4\\n46,322.7\\n575.4\\n151.5\\n726.9\\n5,977.6\\n4,125.0\\n745.9\\n1,106.7\\n26,977.3\\n10,723.4\\n7,541.7\\n2,811.1\\n370.6\\n7,184.7\\n50,863.0\\n10,836.0\\n10,962.9\\n3,370.5\\n1,775.1\\n1,705.2\\n69.9\\n25,515.4\\n1,433.3\\n2,115.4\\n50,863.0\\n543.3\\n125.6\\n668.9\\n\\n\\nAnnex\\nP69\\nTable A.70\\nDevelopment Financial Institutions : Direction of Lending\\n1\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nAgriculture, forestry and fishery\\n2,260.3\\n2,584.9\\n2,750.2\\n2,964.3\\nMining and quarrying\\n44.7\\n47.4\\n46.1\\n90.0\\nManufacturing\\n3,272.8\\n3,086.1\\n3,147.6\\n3,356.6\\nElectricity, gas and water supply\\n34.8\\n265.0\\n335.0\\n453.8\\nImport and export, wholesale and retail\\ntrade, restaurants and hotels\\n532.6\\n522.1\\n618.0\\n240.4\\nBroad property sector\\n4,097.8\\n4,687.0\\n5,700.3\\n7,840.6\\nConstruction\\n1,151.6\\n1,613.7\\n2,346.9\\n3,790.5\\nPurchase of residential property\\n2,102.5\\n2,090.6\\n2,593.7\\n2,785.2\\nPurchase of non-residential property\\n188.8\\n163.1\\n268.8\\n393.4\\nReal estate\\n654.9\\n819.6\\n490.9\\n871.5\\nTransport, storage and communication\\n1,166.4\\n2,028.9\\n2,860.6\\n4,362.1\\nMaritime\\n992.0\\n801.5\\n733.1\\n530.4\\nFinance, insurance and business services\\n1,053.0\\n1,213.0\\n1,300.7\\n1,780.5\\nConsumption credit\\n4,006.6\\n5,084.5\\n5,404.2\\n6,716.1\\nof which:\\nPurchase of motor vehicles\\n674.0\\n997.6\\n819.2\\n816.5\\nCredit card\\n33.5\\n42.9\\n47.8\\n48.0\\nPurchase of securities\\n290.1\\n330.0\\n356.2\\n173.2\\nOthers\\n985.7\\n1,347.5\\n1,234.3\\n934.4\\nTotal\\n18,736.8\\n21,997.9\\n24,486.3\\n29,442.4\\n3,265.9\\n96.1\\n3,654.4\\n624.2\\n406.3\\n8,407.9\\n4,019.0\\n2,947.7\\n443.0\\n998.2\\n4,442.5\\n473.3\\n1,876.0\\n8,066.6\\n884.0\\n23.7\\n136.2\\n1,098.7\\n32,548.1\\n1  Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri & Teknologi Malaysia Berhad, Bank\\n Kerjasama Rakyat Malaysia Berhad, Bank Simpanan Nasional, Export-Import Bank of Malaysia Berhad, Malaysian Industrial\\n Development Finance Berhad, Sabah Development Bank Berhad, Borneo Development Corporation (Sabah) Sendirian\\n Berhad, Borneo Development Corporation (Sarawak) Sendirian Berhad, Bank Pertanian Malaysia, Credit Guarantee\\n Corporation Malaysia Berhad, Sabah Credit Corporation and Lembaga Tabung Haji\\n\\n\\nP70\\nTable A.71\\nDevelopment Financial Institutions  under DFIA  : Direction of Lending\\n1\\n2 \\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nAgriculture, forestry and fishery\\n301.7\\n397.0\\n454.4\\n459.6\\nMining and quarrying\\n29.5\\n33.5\\n34.5\\n80.5\\nManufacturing\\n2,118.2\\n2,154.2\\n2,204.2\\n2,130.2\\nElectricity, gas and water supply\\n34.8\\n265.0\\n335.0\\n453.8\\nImport and export, wholesale and retail\\ntrade, restaurants and hotels\\n235.9\\n135.2\\n129.0\\n125.9\\nBroad property sector\\n3,415.7\\n4,054.7\\n5,078.2\\n6,846.8\\nConstruction\\n943.9\\n1,427.6\\n2,192.1\\n3,641.3\\nPurchase of residential property\\n1,783.8\\n1,779.8\\n2,288.0\\n2,480.3\\nPurchase of non-residential property\\n186.3\\n160.9\\n267.3\\n391.3\\nReal estate\\n501.7\\n686.3\\n330.8\\n333.9\\nTransport, storage and communication\\n974.9\\n1,871.1\\n2,746.5\\n4,321.6\\nMaritime\\n992.0\\n801.5\\n733.1\\n530.4\\nFinance, insurance and business services\\n944.6\\n1,096.8\\n1,198.0\\n877.6\\nConsumption credit\\n3,959.3\\n5,037.5\\n5,339.6\\n6,567.8\\nof which:\\nPurchase of motor vehicles\\n626.7\\n950.6\\n754.6\\n 741.2\\nCredit card\\n33.5\\n42.9\\n47.8\\n48.0\\nPurchase of securities\\n290.1\\n330.0\\n356.2\\n173.2\\nOthers\\n346.8\\n689.8\\n353.4\\n260.1\\nTotal\\n13,643.5\\n16,866.3\\n18,962.1\\n22,827.5\\n395.1\\n79.5\\n2,375.4\\n624.2\\n307.3\\n7,402.1\\n3,852.1\\n2,648.1\\n440.6\\n461.3\\n4,398.7\\n473.2\\n1,077.4\\n7,813.0\\n 800.2\\n23.7\\n136.2\\n433.3\\n25,515.4\\n1 Refers to Bank Pembangunan dan Infrastruktur Malaysia Berhad, Bank Industri & Teknologi Malaysia Berhad, Bank\\nKerjasama Rakyat Malaysia Berhad, Bank Simpanan Nasional and Export-Import Bank of Malaysia Berhad\\n2 Development Financial Institutions Act 2002\\nTable A.72\\nBank Industri & Teknologi Malaysia Berhad\\nYear of establishment\\n1979\\nObjectives\\nThe principal activity of Bank Industri & Teknologi Malaysia Berhad \\nis to finance capital intensive and high technology industries \\nin priority sectors such as shipping industry and manufacturing.\\nLoans Approved (RM million)\\nLoans Disbursed (RM million)\\nSector\\n2003\\n2002\\n2003\\n2002\\nMaritime\\n202.1\\n47.0\\nShipping industry\\n143.2\\n20.2\\nShipyard industry\\n25.5\\n17.1\\nMarine-related industries\\n33.4\\n9.7\\nManufacturing\\n99.9\\n79.7\\nof which:\\nHigh technology\\n22.2\\n14.5\\nTotal\\n302.0\\n76.3\\n57.4\\n1.2\\n17.7\\n211.4\\n16.8\\n287.7\\n126.7\\n83.7\\n52.8\\n17.5\\n13.4\\n54.6\\n6.1\\n138.3\\nSource: Bank Industri & Teknologi Malaysia Berhad\\n\\n\\nAnnex\\nP71\\nObjectives\\nTable A.73\\nExport-Import Bank of Malaysia Berhad\\nYear of establishment\\n1995\\nEstablishing an institutional support mechanism to facilitate the\\nexports of goods and services by providing medium and long\\nterm credit to Malaysian exporters and investors, as well as foreign\\nbuyers of Malaysian goods. Effective January 1998, the Export\\nCredit Refinancing facility was transferred  from Bank Negara\\nMalaysia to Export-Import Bank of Malaysia Berhad.\\nLoans Approved (RM million)\\nLoans Disbursed (RM million)\\nFacility\\n2003\\n2003\\n2002\\n2002\\nBuyer credit facility\\n144.4\\n43.0\\nOverseas investment credit facility\\n50.9\\n17.3\\nSupplier credit facility\\n168.2\\n190.6\\nExport of  services financing facility\\n15.0\\nExport credit refinancing\\n6,149.0\\n6,149.0\\nOthers\\n–\\n–\\n–\\nTotal\\n6,527.5\\n22.8\\n239.4\\n209.1\\n–\\n6,611.2\\n–\\n7,082.5\\n10.7\\n40.7\\n109.4\\n–\\n6,611.2\\n–\\n6,772.0\\n6,399.9\\nSource: Export-Import Bank of Malaysia Berhad\\nTable A.74\\nMalaysia Export Credit Insurance Berhad\\nYear of establishment\\n1977\\nObjectives\\nSupport and strengthen Malaysian exports through the provision of\\nexport credit insurance facilities to exporters to cover against \\ncommercial and non-commercial risks and issuing guarantees for\\nbanks and financial institutions to facilitate access to export \\nfinance, and encouraging reverse investment by Malaysian investors \\nthrough the provision of political risk insurance for investment.\\nContingent Liabilities\\nBusiness Coverage\\n(RM million)\\n(RM million)\\nAs at end-2002\\nAs at end-2003\\n2002\\n2003\\nShort-term Policies\\nComprehensive policies\\n114.8\\nBanker’s  export finance insurance policy\\nBank letter of credit policy\\nSpecific policies\\nBond indemnity support\\nSub-total\\nMedium and Long-term Policies\\nSpecific policies\\nBuyer credit guarantee\\n375.7\\nBond indemnity support\\n23.1\\nSub-total\\n433.5\\nTotal\\n550.9\\n1,225.1\\nSource: Malaysia Export Credit Insurance Berhad\\n0.6\\n0.5\\n–\\n34.7\\n117.4\\n1.5\\n847.2\\n377.9\\n0.2\\nOversea investment insurance\\n–\\n–\\n375.7\\n2.0\\n–\\n–\\n3.2\\n–\\n844.0\\n121.4\\n331.4\\n23.2\\n364.0\\n496.6\\n1,412.2\\n8.9\\n–\\n–\\n1.9\\n132.6\\n2.3\\n1,102.2\\n310.0\\n23.1\\n7.5\\n8.4\\n276.5\\n2.0\\n–\\n–\\n24.9\\n–\\n1,077.3\\n\\n\\nP72\\nTable A.75\\nBank Simpanan Nasional\\nYear of establishment\\n1974\\nObjectives\\nBank Simpanan Nasional is a savings bank, incorporated under the \\nNational Savings Bank Act 1974 and focuses on retail banking and\\npersonal finance especially for small savers.\\nDeposits Accepted\\n(RM million)\\nInterest Rate /\\nRate of Return (%)\\nDeposits facility\\nAs at end-2002\\nAs at end-2003\\n2002\\n2003\\nSavings deposits\\nFixed deposits\\nGIRO deposits\\n1.30 ~ 2.30\\nIslamic deposits\\n294.0\\n2.21 ~ 4.88\\nPremium savings certificates\\n1.50\\nTotal\\nRM million\\nInvestments\\nAs at end-2002 As at end-2003\\nQuoted shares\\nMalaysian Government Securities\\nPrivate debt securities\\nSubsidiary companies\\n437.8\\nAssociate companies\\n231.8\\nTotal\\n9,430.2\\nNumber of branches\\n421\\nNumber of account holders (‘000)\\n 11,230\\nNumber of automatic teller machine (ATM)\\n593\\nSource: Bank Simpanan Nasional\\n1,478.2\\n785.6\\n1.30 ~ 4.50\\n1,639.6\\n4,573.0\\n437.8\\n231.8\\n398\\n 11,365\\n591\\n1,923.7\\n671.1\\n1,510.5\\n4,774.9\\n1,231.7\\n3,741.6\\n3,341.4\\n821.5\\n292.4\\n9,435.2\\n1,163.9\\n3,478.6\\n3,595.9\\n904.4\\n3.20 ~ 4.00\\n1.30 ~ 2.30\\n1.96 ~ 3.40\\n1.50\\n1.30 ~ 4.50\\n3.00 ~ 3.70\\nTable A.76\\nBank Kerjasama Rakyat Malaysia Berhad\\nYear of establishment\\n1954\\nObjectives\\nBank Kerjasama Rakyat Malaysia Berhad mobilises savings and\\nprovides financing services to its members as well as\\nnon-members.\\nFinancing Outstanding  (RM million)\\nAs at end-2002\\nAs at end-2003\\nSector\\nMembers\\nNon-members\\nMembers\\nNon-members\\nAgriculture\\n48.0\\n14.0\\nPurchase of property\\n980.1\\n658.6\\nGeneral commerce\\n33.5\\n487.7\\nPurchase of securities\\n21.8\\n119.8\\nPurchase of motor vehicles\\n117.6\\n0.6\\nConsumption credit\\n5,078.4\\n700.2\\nManufacturing\\n–\\n–\\nConstruction\\nOthers\\n–\\n122.3\\n9.8\\n124.7\\nTotal\\n6,401.7\\nSource: Bank Kerjasama Rakyat Malaysia Berhad\\n2,115.4\\n45.2\\n11.7\\n1,228.3\\n670.1\\n46.4\\n424.7\\n15.8\\n101.5\\n278.3\\n0.7\\n6,120.0\\n735.3\\n–\\n100.3\\n–\\n–\\n–\\n178.4\\n7,734.0\\n2,222.7\\n\\n\\nAnnex\\nP73\\nTable A.77\\nBank Pembangunan dan Infrastruktur Malaysia Berhad\\nYear of establishment\\n1973\\nObjectives\\nTo increase the participation and involvement of the Bumiputera\\ncommunity in business and industry through financing and equity\\nparticipation and to provide financing for infrastructure projects,\\nin particular Government-identified projects.\\nLoans Approved (RM million)\\nLoans Disbursed (RM million)\\nSector\\n2002\\n2003\\n2002\\n2003\\nInfrastructure\\n2,790.1\\n2,997.6\\nGovernment programmes\\n1,551.1\\n2,177.2\\nPrivate programmes\\n1,239.0\\n820.4\\nSME  \\n728.8\\n534.8\\nof which:\\nBumiputera\\n638.2\\n449.4\\nTotal\\n3,518.9\\n4,753.8\\n2,883.0\\n1,870.8\\n1,086.8\\n1,059.6\\n5,840.6\\n3,532.4\\n1,589.8\\n853.9\\n735.9\\n649.7\\n526.4\\n2,239.5\\nSource: Bank Pembangunan dan Infrastruktur Malaysia Berhad\\nTable A.78\\nOther Development Financial Institutions : Core Activities\\n1\\nAs at end\\n1999\\n2000\\n2001\\n2002\\n2003\\nRM million\\nLending Activity\\nAgriculture\\nManufacturing\\n1,154.6\\n931.8\\n943.3\\n1,226.4\\nBroad property sector\\n682.2\\n632.3\\n622.2\\n993.8\\nConstruction\\n207.6\\n186.1\\n154.8\\n149.2\\nPurchase of residential property\\n318.7\\n310.7\\n305.7\\n305.0\\nPurchase of non-residential property\\n2.7\\n2.2\\n1.5\\n2.1\\nReal estate\\n153.2\\n133.3\\n160.2\\n537.5\\nConsumption credit\\n47.3\\n47.0\\n64.6\\n148.4\\nOthers\\nTotal\\n5,093.3\\nOther Activities\\nDeposits accepted\\n11,538.9\\n13,840.6\\n14,203.2\\n13,928.3\\nof which:\\nSavings\\n8,471.4\\n10,066.9\\n11,161.9\\n11,134.4\\nGuarantee issued\\n1 Refers to Malaysian Industrial Development Finance Berhad, Sabah Development Bank Berhad, Borneo Development Corporation\\n(Sabah) Sendirian Berhad, Borneo Development Corporation (Sarawak) Sendirian Berhad, Bank Pertanian Malaysia, Credit\\nGuarantee Corporation Malaysia Berhad, Sabah Credit Corporation and Lembaga Tabung Haji\\n1,958.6\\n2,187.9\\n2,295.8\\n2,504.8\\n1,250.6\\n1,332.6\\n1,598.3\\n1,741.6\\n5,131.6\\n5,524.2\\n6,615.0\\n3,230.0\\n3,405.0\\n2,669.0\\n2,584.7\\n1,279.1\\n1,005.8\\n166.9\\n299.6\\n2.4\\n536.9\\n253.6\\n15,405.3\\n12,160.4\\n2,870.9\\n1,623.3\\n7,032.7\\n3,109.4\\n\\n\\nP74\\nTable A.79\\nDevelopment Financial Institutions: Selected Data\\nAs at end\\n2002\\n2003\\nDFIs under DFIA1:\\nBranch\\nATM\\nStaff\\nBranch\\nATM\\nStaff\\nBank Pembangunan dan Infrastruktur\\nMalaysia Berhad\\n13\\n603\\nBank Kerjasama Rakyat Malaysia Berhad\\n98\\n104\\n2,752\\nBank Simpanan Nasional\\n421\\n593\\n5,043\\nBank Industri & Teknologi Malaysia Berhad\\n276\\nExport-Import Bank of Malaysia Berhad\\n80\\nMalaysia Export Credit Insurance Berhad\\n63\\nSub-total\\n532\\n697\\n8,817\\nOther DFIs: \\nBank Pertanian Malaysia\\n143\\n144\\n2,309\\nMalaysian Industrial Development Finance\\nBerhad\\n224\\nSabah Development Bank Berhad\\n82\\nBorneo Development Corporation (Sabah)\\nSdn Bhd\\n23\\nBorneo Development Corporation (Sarawak)\\nSdn Bhd\\n41\\nCredit Guarantee Corporation Malaysia Berhad\\n12\\n251\\nSabah Credit Corporation\\n11\\n207\\nLembaga Tabung Haji\\n119\\n1,408\\nSub-total\\n292\\n144\\n4,545\\nTotal\\n824\\n841\\n13,362\\n13\\n100\\n398\\n–\\n–\\n–\\n511\\n119\\n7\\n–\\n–\\n–\\n17\\n11\\n119\\n273\\n784\\n–\\n111\\n591\\n–\\n–\\n–\\n695\\n142\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n142\\n837\\n640\\n2,804\\n5,069\\n303\\n73\\n60\\n8,949\\n2,349\\n228\\n83\\n18\\n37\\n272\\n206\\n1,543\\n4,736\\n13,685\\n1 Development Financial Institutions Act 2002.\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n7\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n\\n\\nAnnex\\nP75\\nTable A.80\\nDevelopment Financial Institutions: Government Special Funds\\nLoans (RM million)\\nApproved\\nDisbursed\\nOutstanding\\nas at end\\n2002\\n2003\\n2003\\n2003\\n2002\\n2002\\nBank Pembangunan dan Infrastruktur Malaysia Berhad\\nFund for Publication\\n0.5\\n0.3\\n0.7\\nFund for Film Industry\\n16.7\\n17.4\\n13.0\\nVenture Capital Fund\\n0.2\\n4.7\\n6.6\\nTourism Infrastructure Fund\\n10.0\\n6.8\\n6.8\\nSmall Scale Enterprises1\\n5.9\\nNew Entrepreneurs Fund 2\\n53.6\\n59.2\\n43.1\\nFund for Small and Medium Industries 2 \\n8.5\\n6.0\\nSeed Capital Scheme\\n20.3\\n23.3\\n57.8\\nGraduate Entrepreneurs Fund\\n1.0\\n2.7\\n7.2\\nTerengganu Entrepreneurs Fund\\n15.1\\n5.2\\n3.3\\nFinancing Scheme for Indian Rural Economic Development\\nFinancing Scheme for Rural Economic Development\\n6.1\\n8.0\\n29.1\\n0.5\\n0.2\\n0.2\\nFood and Furniture Scheme\\n–\\n0.6\\n20.3\\nSpecial Fund for Tourism\\nThird Window Financing Scheme (Tanmiah1)\\nFinancing Programme for Wholesalers and \\n Distributors (Tanmiah2)\\n–\\n–\\n–\\n–\\n–\\n–\\nBank Kerjasama Rakyat Malaysia Berhad\\nFinancing Scheme for Rural Economic Development\\n8.9\\n7.3\\n8.9\\nBank Industri & Teknologi Malaysia Berhad\\nNew Ship Financing Facility\\n54.7\\n22.2\\n39.0\\nHigh Technology Fund\\n22.3\\n14.5\\n33.0\\nEasy Financing Scheme - PAKSI\\n2.5\\n3.7\\n10.2\\nWomen Entrepreneurs Fund\\n7.0\\n4.7\\n7.5\\nNew Technology Investment Fund\\n–\\n–\\n–\\nExport-Import Bank of Malaysia Berhad\\nExport Credit Refinancing (ECR) Scheme2\\n6,149.0\\n6,149.0\\n1,076.1\\nMalaysian Industrial Development Finance Berhad\\nSoft Loan for Small and Medium Enterprises\\n78.8\\n30.0\\n30.0\\nBank Pertanian Malaysia\\nAgricultural Mechanisation and Automation Scheme\\n3.0\\n2.3\\n6.1\\nBumiputera Commercial & Industrial Community Scheme\\n8.9\\n9.2\\n11.0\\nCredit Scheme for Paddy\\n32.7\\n31.6\\n29.5\\nCommercial Agriculture Graduate Entrepreneurs Scheme\\n0.7\\n0.3\\n0.7\\nModernisation Automation Scheme1 \\n–\\n–\\n16.0\\nSpecial Fund for Terengganu-based \\n Small and Medium Enterprises\\n–\\n–\\n–\\nMalaysian Industrial Energy Efficiency Improvement Project\\n–\\n–\\n–\\nSpecial Fund for Fishery\\n7.6\\n9.9\\n17.1\\nLow Intensity Tapping System\\n0.6\\n0.1\\n0.1\\nOil Palm Replanting Scheme\\n32.9\\n17.5\\n19.7\\n–\\n–\\n0.2\\n–\\n1.5\\n4.0\\n–\\n0.6\\n7.6\\n132.5\\n9.2\\n16.3\\n4.9\\n–\\n118.7\\n90.1\\n8.9\\n5.9\\n27.1\\n13.8\\n56.1\\n5.4\\n2.8\\n8.0\\n11.0\\n17.3\\n10.6\\n5.6\\n5.3\\n29.5\\n–\\n0.2\\n0.3\\n19.9\\n1.6\\n2.4\\n187.2\\n3.5\\n–\\n–\\n33.4\\n33.2\\n–\\n–\\n–\\n–\\n–\\n14.5\\n11.0\\n9.0\\n15.6\\n4.2\\n21.4\\n49.9\\n16.8\\n6.1\\n34.3\\n–\\n0.8\\n7.8\\n–\\n3.2\\n8.3\\n30.0\\n–\\n–\\n6,611.2\\n6,611.2\\n1,128.7\\n46.8\\n37.5\\n62.9\\n1.6\\n4.0\\n9.0\\n16.7\\n9.5\\n16.2\\n4.4\\n31.2\\n27.3\\n0.5\\n0.6\\n0.9\\n–\\n–\\n15.3\\n1.2\\n0.8\\n0.8\\n2.0\\n–\\n–\\n1.1\\n1.1\\n16.2\\n0.2\\n0.2\\n0.2\\n31.6\\n10.9\\n30.0\\n1 Fund has been fully utilised\\n2  Inclusive of funds from Bank Negara Malaysia and these funds are channelled through 24 participating  banks\\n–\\n–\\n–\\n–\\n6.2\\n4.6\\n\\n\\nP76\\nTable A.81\\nDevelopment Financial Institutions: Bank Negara Malaysia Funds1\\nLoans (RM million)\\nOutstanding\\nApproved\\nDisbursed\\nas at end\\n2002\\n2003\\n2002\\n2003\\n2002\\n2003\\nBank Pembangunan dan Infrastruktur Malaysia Berhad\\nNew Entrepreneurs Fund2\\n5.8\\n141.2\\nNew Entrepreneurs Fund 2\\n81.7\\n38.7\\n58.2\\nFund for Small and Medium Industries2\\n–\\n–\\n1.3\\n119.5\\nFund for Small and Medium Industries 2 \\n12.6\\nBumiputera Industrial Fund2\\n–\\n–\\n–\\n–\\n0.1\\n0.6\\n–\\n–\\n–\\n5.1\\n8.6\\n–\\n–\\n–\\n21.1\\nIndustrial Adjustment Fund2\\n0.3\\nRehabilitation Fund for Small and Medium Industries3\\n3.9\\n36.4\\nFund for Food\\n1.6\\n5.7\\nSpecial Fund for Tourism2\\n9.6\\nBank Industri & Teknologi Malaysia Berhad\\nNew Entrepreneurs Fund2\\n6.0\\nFund for Small and Medium Industries2\\n46.6\\nFund for Small and Medium Industries 2\\n5.1\\nBumiputera Industrial Fund2\\n0.1\\nIndustrial Adjustment Fund2\\n14.6\\nRehabilitation Fund for Small and Medium Industries3\\n8.0\\nShip Financing Facility\\n3.4\\n0.7\\n356.4\\nMalaysian Industrial Development Finance Berhad\\nNew Entrepreneurs Fund2\\n0.7\\n9.1\\nNew Entrepreneurs Fund 2\\n11.3\\nFund for Small and Medium Industries2\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n–\\n9.1\\n11.1\\n2.1\\n5.5\\n7.9\\n–\\n0.2\\n1.8\\n47.6\\nFund for Small and Medium Industries 2 \\n13.1\\nBumiputera Industrial Fund2\\n2.5\\nIndustrial Adjustment Fund2\\n3.7\\nRehabilitation Fund for Small and Medium Industries3\\n3.9\\nBank Pertanian Malaysia\\nFund for Small and Medium Industries2\\n–\\n–\\n–\\n8.8\\n90.1\\nRehabilitation Fund for Small and Medium Industries3\\n15.2\\nFund for Food\\n282.2\\n195.9\\n464.2\\nCredit Guarantee Corporation Malaysia Berhad4\\nNew Entrepreneurs Fund 2\\n418.0\\n243.1\\n299.2\\nFund for Small and Medium Industries 2\\n569.3\\n106.5\\n–\\n–\\n–\\n4.1\\n–\\n17.9\\n–\\n–\\n–\\n–\\n– \\n–\\n–\\n–\\n–\\n–\\n3.1\\n–\\n–\\n–\\n–\\n22.1\\n–\\n–\\n121.0\\n–\\n–\\n294.4\\n0.3\\n115.1\\n0.9\\n–\\n–\\n–\\n–\\n0.3\\n4.4\\n–\\n–\\n–\\n20.2\\n15.9\\n–\\n–\\n–\\n5.1\\n–\\n0.9\\n–\\n4.2\\n1.2\\n–\\n0.5\\n171.0\\n71.4\\n99.9\\n452.1\\n128.9\\n167.6\\n108.2\\n19.9\\n0.3\\n39.9\\n5.1\\n8.1\\n2.2\\n–\\nNew Entrepreneurs Fund 2\\n–\\n1.1\\n1.8\\n0.5\\n0.5\\n22.9\\n–\\n9.9\\n4.6\\n341.1\\n7.9\\n13.8\\n6.5\\n25.5\\n19.4\\n31.4\\n1.7\\n3.7\\n2.9    \\n84.9\\nFund for Small and Medium Industries 2 \\n–\\n–\\n–\\n6.8\\n3.1\\n3.0\\n14.1\\n551.1\\n350.4\\n450.0\\n1  Bank Negara Malaysia fund for the ECR scheme administered by EXIM Bank is merged with the Government fund in Table A.83 \\n2  Funds have been fully utilised \\n3  Fund was closed on 1 November 2003 and replaced by Rehabilitation Fund for Small Businesses\\n4  Administers and channels the funds through various lending institutions\\n\\n\\nAnnex\\nP77\\nTable A.82\\nDevelopment Financial Institutions: Funds from Multilateral and International Agencies\\nLoans (RM million)\\nApproved\\nDisbursed\\nOutstanding\\nas at end\\n2002\\n2003\\n2002\\n2003\\n2002\\n2003\\nBank Pembangunan dan Infrastruktur Malaysia Berhad\\nASEAN-Japan Development Fund-Overseas Economic\\nCooperation Fund1\\n20.3\\n15.1\\n64.3\\nJapan Bank for International Cooperation-Fund for Small and\\nMedium Scale Industry Promotion Programme1\\n3.1\\n10.5\\n45.0\\nJapan Bank for International Cooperation-Fund for Small and\\nMedium Industries\\n3.6\\n33.2\\n92.6\\nJapan Bank for International Cooperation 1- JEXIM1\\n–\\n742.5\\n1,182.1\\nIslamic Development Bank\\n–\\n14.9\\n48.9\\nBank Industri & Teknologi Malaysia Berhad\\n–\\n–\\n–\\n27.0\\n15.2\\n–\\n–\\n2.7\\n–\\n–\\n–\\n143.3\\n30.8\\n–\\n–\\n–\\nASEAN-Japan Development Fund-Overseas Economic\\nCooperation Fund1\\n8.8\\nThe Export-Import Bank of Japan1\\n26.9\\nOverseas Economic Cooperation Fund-Fund for\\n    Small and Medium Scale Industry Promotion Programme1\\n25.9\\nJapan Bank for International Cooperation 3001\\n151.8\\nJapan Bank for International Cooperation 2001\\n55.8\\nJapan Bank for International Cooperation-Fund for Small and\\nMedium Industries1\\n60.5\\n23.6\\n52.2\\nExport-Import Bank of Malaysia Berhad\\nJapan Bank for International Cooperation 3001\\n268.9\\nJapan Bank for International Cooperation 2001\\n168.0\\nMalaysian Industrial Development Finance Berhad\\nJapan Bank for International Cooperation-Fund for Small and\\nMedium Industries\\n46.0\\n53.5\\n136.2\\nASEAN-Japan Development Fund-Overseas Economic\\nCooperation Fund\\n37.8\\n14.0\\n40.8\\nJapan Bank for International Cooperation-Fund for Small and\\nMedium Scale Industry Promotion Programme\\n3.0\\n6.0\\n16.9\\n48.8\\n–\\n–\\n–\\n–\\n–\\n52.3\\n-\\n–\\n–\\n–\\n45.9\\n22.0\\n30.8\\n–\\n5.4\\n25.1\\n17.8\\n33.2\\n44.1\\n15.7\\n–\\n–\\n–\\n39.5\\n6.4\\n–\\n–\\n–\\n26.0\\n47.4\\n24.2\\n–\\n20.3\\nBank Pertanian Malaysia\\nASEAN-Japan Development Fund-Overseas Economic\\nCooperation Fund1\\n134.0\\n78.5\\n50.5\\n110.5\\n1,191.5\\n49.0\\n5.1\\n29.3\\n21.6\\n161.8\\n43.9\\n64.3\\n227.5\\n142.2\\n152.3\\n51.1\\n12.1\\n48.7\\n1 Fund has been fully utilised\",\"difficulty\":\"hard\",\"domain\":\"Single-Document QA\",\"length\":\"long\",\"question\":\"Considering the sustained global economic recovery and the increasing significance of intra-regional trade and investments in Asia, analyze the potential risks and consequences for Malaysia’s economic resilience if the country were to face a sudden reversal in capital flows due to global shocks, while maintaining its pegged exchange rate regime. What measures could be implemented to mitigate the potential effects?\",\"sub_domain\":\"Governmental\"}","display_format":"text","language":"","answer_status":"published","assets":[],"source_url":"https://huggingface.co/datasets/zai-org/LongBench-v2","history":"initial import","indexing_mode":"noindex","subproblems":[],"grids":[]}