Zeti Akhtar Aziz: Malaysia’s fast-changing financial landscape Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the 26th Annual Dinner 2005 of The Association of Merchant Banks, Kuala Lumpur, 3 December 2005. *  *  *  I am pleased to be here tonight on this special occasion of the 26th Annual Dinner of the Association of Merchant Banks in Malaysia. The year 2005 is a particularly significant year for the merchant banking industry in particular and for the financial sector more generally. While this decade has seen significant changes taking place in our financial landscape that followed from the restructuring, consolidation, greater investment in technology, deregulation, liberalisation and changes in the regulatory environment, the year 2005 has seen an intensification of the pace of change in the financial sector. Let me take this opportunity to discuss the macroeconomic environment which these changes are occurring, and discuss further some of the more recent changes that are taking place in the financial system. Our economy has been able to continue to benefit from the favourable external environment as the global economy demonstrates its robustness in an environment of high oil prices and rising global interest rates. On the domestic front, our overall performance was further reinforced with the expanding domestic demand. Latest indicators suggest that the growth momentum remains firmly on track, with an improved growth of 5.3% in the third quarter.
In this year in particular, we are seeing a strengthening of the international dimension of our financial sector. This essentially serves to strengthen our economic and financial inter-linkages with the global economy. Some notable developments in this direction include the liberalisation of the foreign exchange administration rules earlier this year to allow for greater flexibility and efficiency in foreign exchange transactions as well as to increase foreign participation in issuing ringgit papers in our bond market and thus contribute to contribute toward enhancing the depth of the market. Another major development this year was the move to a managed float exchange rate regime for the ringgit. This is essentially to better position the nation to respond and benefit from the structural changes occurring in the region and the global economy. Other further developments to strengthen our international integration include the increase in foreign participation in our domestic financial system. This includes the issuance of new licences for foreign Islamic banks to operate in Malaysia, the issuance of new stock-broking licences to foreign players as well as increases in the permitted foreign interest in our Islamic subsidiaries and investment banks. All this will serve to enhance the international integration of the domestic financial system. The launch of the ABF Malaysian Bond Index Fund is also aimed at promoting greater integration among the regional bond markets. On the domestic front, the year 2005 marks a significant milestone for the merchant banking industry.