KUALA LUMPUR (Jan 27): Bank Negara Malaysia will continue with its progressive foreign exchange (forex) administration rules to increase the regional players’ participation in the domestic financial market.

Its governor, Tan Sri Dr Zeti Akhtar Aziz said on Friday that measures would continue to be introduced to develop cross-border settlement infrastructures to enable more efficient and cost effective foreign currency trading and settlements.

Progressive efforts, she said, have helped transform Malaysia’s financial sector, of which a major dimension of the transformation was achieving greater regional integration.

Zeti noted that following a decade, institutional and financial infrastructure development focused on enhancing domestic capacity of the financial sector while evolving a more competitive environment.

“We have the foundations to take our financial sector to a new level of development that will focus on new areas that will further strengthen the competitiveness and efficiency of the financial sector and its potential role in facilitating Malaysia’s ongoing economic transformation and in strengthening our linkages in the region,” she said.

Zeti was speaking at the Fixed Income, Money Market and Derivatives Association of India (FIMMDA) and Primary Dealers Association of India(PDAI) 13th annual conference.

She also said the depth and breadth of Asian capital markets have drawn investors to expand their investment activities to this region.

“Even central banks, as traditionally conservative investors, are also venturing into investing part of their reserves, in each other’s markets. Bank Negara Malaysia, has since 2003, gradually embarked on investments in regional markets.  This includes investments in the Indian rupee market. As an approved Foreign Institutional Investor, we have also been able to actively participate in the Indian rupee market,” she said.

As for Malaysia, she said as the country evolves and the new financial landscape emerges, one prominent area of focus was the development of deep, liquid and efficient financial markets in particular, the development of the domestic bond market.

“Malaysia’s bond market has already grown to RM867 billion or 105% of GDP in 2011, and has become one of the largest debt securities market in Southeast Asia which has now been liberalised to allow issuance by foreign corporation and in multiple currency,” she said.

Malaysia’s thriving Islamic capital markets had seen more international issuers and investors operating in both the ringgit and foreign currency sukuk markets in Malaysia.

Zeti cited that there were new innovative structures for sukuk issuances including a world’s first issuance in Renminbi from Malaysia’s own sovereign wealth fund, Khazanah Holdings.

“The money and foreign exchange markets also continue to grow in depth and liquidity. The volumes transacted in the domestic money market and the foreign exchange market have now reached RM23.5 trillion and RM9.21 trillion trades respectively,” she said.

Zeti said there was a growing presence of new issuers, banks, institutions and investors in general, including a growing presence of regional players.

On Asia’s potential and regional integration, she said while the recent global financial crisis has provided Asia with challenges, Asia had managed to display the resilience in weathering a number of major shocks in the international financial markets.

Zeti pointed out the Asian financial systems proved they had the capacity to continue to function and to meet the demands of its significant investment requirements.

“Moreover, the trend towards greater regional financial integration will provide for a more effective and efficient channeling of the sizeable surplus funds to such activities within the region,” she said.

She added increased intra-regional economic and financial activities had taken place, underpinned by the strong demand from the growing middle class Asian population, which is projected to reach 3.3 billion by 2030.

She noted that intra-regional trade in Asia was more than 50% of total trade in the region, increasing from 32% in 1995. Intra-regional investment activities have also been on a rising trend.

Asia’s strong economic fundamentals and the positive growth prospects had prompted regional financial institutions to focus on the region.

Zeti said due to Asia’s high savings rate and of its massive requirement for infrastructure development, the region would benefit significantly from more effective and efficient intermediation of Asia’s surplus funds.

For instance, intra-regional cross-border portfolio investments increased to 28% of total assets holdings in 2011 compared with 21% in 2001.

“The gains from greater regional financial integration will be far-reaching as it will not only bring about a more efficient allocation of resources in the region but it will act as a catalyst for greater regional economic growth.

“Over the coming years, as growth experienced in the developed economies is expected to remain slow in the aftermath of the financial and debt crisis, the growth performance of Asia is expected to continue resulting in the region becoming a more important component of the global economy,” she said.