chapter 1 pib1013

HISTORY AND
DEVELOPMENT OF
BANKING SYSTEM IN
MALAYSIA

CHAPTER 1

CHAPTER OVERVIEW

1.1. Introduction

1.2. Development of banking & banks in Malaysia

1.3. Responsibilities, role and economic importance of banks

1.4. The structure of financial system in Malaysia

1.5. The definition of banks

1.6. Types of banks

The banking system in Malaysia has a rich history
marked by significant transformations that mirror the
country's economic and social evolution. From its
early beginnings during the colonial
era to its current status ,
Malaysia's banking sector
has played a crucial role in
shaping the nation's
economic landscape.

Today, Malaysia's banking sector is
characterized by a diverse range
of institutions, including commercial
banks, Islamic banks, and investment
banks.

Development of banking & banks in
Malays ia

1867

1875

‘Straits Settlements’ were
established by standalone
British colony in Penang ,
Singapore & Malacca. The
growth of port facilities,
Mercantile Bank started its
operation. Later , this bank
became the subsidiary of the
Hong Kong Bank and now
HSBC.

Mercantile Bank (later a
subsidiary of the Hong Kong
Bank, and now HSBC) set up
office in Penang, Chartered
Bank (now Standard
Chartered

Hong Kong Bank was
established.

1875

Straits Settlement- The beginning

Multiple Choice

During Straits Settlements’ period, the growth of port facilities led to the establishment of which bank, which later became a subsidiary of the Hong Kong Bank and is now known as HSBC?

• Standard Chartered Bank

• Mercantile Bank

• Bank of America

• Royal Bank of Scotland

Multiple Choice

Which other bank, now known as Standard Chartered, also established its presence in penang?

• Bank of America

• Barclays Bank

• Chartered Bank

• Royal Bank of Scotland

Development of banking & banks in
Malays ia

1908 20th century.

Rubber trees quickly became
a major cash crop; by 1908, a
quarter of a million acres of
land were converted into
rubber plantations.

The tin and rubber business
were a major impetus for
growth of banks - local or
foreign

Natural res ources fuel commerce and banking

Multiple Choice

In 20th century, which businesses were major impetuses for the growth of the bank?

• Tin and Rubber

• Coffee and Sugar

• Cotton and Silk

• Tea and Spices

Development of banking & banks in
Malays ia

Late 1930s

1940s

strong room expand to
‘banking halls’ in
Peninsular Malaysia.
Banking Halls were a
place where bank officers
and customers interacted.

Post World War II, increase
the numbers of customers
included businessmen,
merchant and housewives.

banking halls expand
in Sabah and
Sarawak

1950s

Banking Halls – A look back in time

Early 1930s

‘strong room’ ( the
name for bank at that
time) to keep the
money

Development of banking & banks in
Malays ia

1960s 1980s

Computerization of banking
service began in Malaysia due
to rapid advancement in
technology and automation.

rapid technological advances in
all aspects of banking from
basic services to money
market.

The Era of Computer

Multiple Choice

What was the name of the bank in the early 1930s?

• Vault

• Safe House

• Strong Room

• Security Chamber

Multiple Choice

What is the best explanation of banking halls?

• A storage area for bank records and documents

• A lounge for bank staff to take breaks

• A secure room for counting cash and coins

• A place where bank officers and customers interacted

Multiple Choice

In what year did banking halls expand in Sabah and Sarawak?

• 1940s

• 1950s

• 1960s

• 1970s

Development of banking & banks in
Malaysia

1960s 1980s

Computerization of banking
service began in Malaysia due
to rapid advancement in
technology and automation.

rapid technological advances in
all aspects of banking from
basic services to money
market.

The Era of Computer

Multiple Choice

In what year did computerization of banking services begin?

• 1940s

• 1950s

• 1960s

• 1970s

Development of banking & banks in
Malays ia

The Firs t
Automated Teller
Machine (ATM)
1981

Bringing Banking
to customers
1970s

first ATM in Malaysia was
launched in Malaysia by
Maybank at it’s Ampang Park
branch.

introduce mobile banking
(buses) in rural area of
Malaysia

the evolution in local banking
practices and the growth of
internet and mobile banking in
Malaysia

Paradigm Shift
21s t century

Multiple Choice

In what year was mobile banking introduced in rural areas of Malaysia?

• 1940s

• 1950s

• 1960s

• 1970s

Multiple Choice

The first ATM in Malaysia was launched by Maybank at its Ampang Park branch. When did this event occur?

• 1971

• 1981

• 1992

• 2001

Res pons ibilities of Banks

Banks act as intermediaries,
channelling funds from savers to
borrowers, thereby facilitating the
flow of capital within the economy

By providing loans, banks create
credit, which increases the money
supply and stimulates economic
activity

Banks safeguard assets like
money, securities, and other
valuables, providing a secure
environment for customers' assets

Banks offer financial advisory
services to help clients make
informed decisions regarding
investments, loans, and other
financial matters

Financial
Intermediation Credit Creation

Payment Services

Banks offer essential payment
services, including electronic
transfers, checks, and debit/credit
card facilities.

Banks must adhere to local and
international regulations to ensure
financial stability, protect
customers, and prevent illegal
activities such as money
laundering and fraud

Custodial Services

Advisory Services

Regulatory
Compliance

Multiple Choice

Which of the following is not a responsibility of banks?

• Financial Intermediation

• Credit Creation

• Delivery Services

• Custodial Services

Multiple Choice

What is the best to describe credit creation?

• By providing loans

• Banks act as intermediaries

• Banks safeguard assets

• Banks offer essential payment services

Multiple Choice

Why banks need to comply with local and international regulations?

• ensure financial stability

• protect bank

• approve laundering

• approve fraud

Economic
Importance of
Banks

Development of Financial
Markets : Banks offer various
financial products and services,
enhancing market efficiency
and liquidity, and promoting a
robust financial market.

Economic Growth: Banks stimulate
economic growth by providing capital
for business expansion and innovation,
leading to increased productivity and
economic prosperity.

Employment Creation: Financing
new businesses and expanding
existing ones, banks contribute to
job creation, reducing
unemployment rates and improving
living standards.

Poverty Reduction: By providing
access to credit and financial
services, banks help individuals
improve their living standards and
support small businesses,
contributing to poverty reduction

Infras tructure Development: Banks
finance large infrastructure projects,
essential for economic development
and improving the quality of life.

Promotion of
Financial
Inclus ion: Banks
strive to include
underserved
populations in the
financial system,
ensuring broader
access to financial
services.

Economic Stability: Through effective risk
management and regulatory compliance,
banks contribute to the overall stability and
resilience of the economy, preventing
financial crises and ensuring sustainable
growth.

ACT AS
COMMERCIAL
BANKS’ BANKER

4

CONTROL AND
INFLUENCE THE
COUNTRY’S
CREDIT
SITUATION TO
ENSURE STABLE
ECONOMIC
GROWTH RATE

5

OBJ ECTIVES BNM

THANKS!

The s tructure of financial s ys tem in Malays ia

Financial Ins titutions

Financial Markets

Banking Sys tem

Money Market and Foreign Exchange

1.Money Market
2.Foreign Exchange Market
1. Bank Negara Malays ia

2. Banking Ins titutions
• Commercial Banks
• Finance Companies
• Merchant Banks
• Including Islamic Banks

Capital Markets

1.Equity Market
2.Bond Market

3. Others
• Discount Houses
• Representative Offices of Foreign Banks

Derivative Market

1.Commodity Futures
2.KLSE CI Futures
3.KLIBOR Futures

DEFINITIO N O F

A bank is a financial institution licensed
to receive deposits and make loans.

Banks may also provide financial
services, such as wealth management,
currency exchange, and safe deposit
boxes.

In most countries, banks are regulated
by the national government or central
bank.

BANK

The s tructure of financial s ys tem in Malays ia

Financial Ins titutions

Financial Markets

Non-Bank Financial Intermediaries

Off-Shore Market

1.Labuan Off-Shore Financial Center (IOFC)
2.Foreign Finance Authority

1 ·Employee Provident Fund and Pension
Fund

2. Insurance Companies (Including Takaful)

3. ·Development Finance Institutions

4. ·Savings Institutions

TYPES OF BANKS

COMMERCIAL
BANK

ISLAMIC
BANK

INVESTMENT
BANK

DEVELOPMENT
FINANCIAL
INSTITUTIONS
(DFIS)

TYPES OF BANKS

COMMERCIAL
BANK

Section 2, BAFIA 1989 define s a com m e rcial bank as an e ntity
that carries out banking businesses which in turn are defined as:
(a) Businesses that involve the following:
(i) accepting deposits for current accounts, deposit accounts,
savings accounts and other sim ilar accounts;
(ii) m aking paym ent to or collect cheques written by or paid by
the custom ers; and
(iii) providing financing through:
·lending;
·leasing;
·purchase of bills of exchange, prom issory notes, deposit
certificates, debentures or other tradable instrum ents; and
·acceptance of or guarantee for an individual’s liabilities.

TYPES OF BANKS

ISLAMIC
BANK

Islam ic banks are com m e rcial banks operating in accordance
with Islam ic law or Syariah Islam which forbids the elem e nt of
interest or usury.

At present, the re are two Islam ic banks in Malaysia, i.e. Bank
Islam Malaysia Berhad (BIMB) and Bank Muam alat Malaysia
Berhad

(BMMB).

BIMB

was

the

first

Islam ic

bank

that
operated unde r Islam ic Bank Act, 1983, followed by Bank
Muam alat Malaysia Berhad (BMMB) which was established in
20 0 1. The se two banks offer p roducts and se rvices sim ilar t o
those offe red by ordinary com m ercial banks except that they
follow the Syariah law.