Costs and Benefits of Foreign Banks in Malaysia

INTRODUCTION

The world we live in is getting to be smaller because of globalization. Organizations and firms are moving outside of their nations of origin and put resources into other new nations. The banking sector due to globalization is putting resources into new regions and in new nations. In the South Asian region the local banks and a lot of foreign banks have contributed and invested and set up branches. A considerable measure of comparative components have can be seen in the distinctive economies despite the fact that there is differing qualities in these economies of South Asian nations. The economy of the nation where the bank is working impacts it enormously. The economy of the region, moreover the economy of the world impacts the banks exhibitions in the south Asian region. In Malaysia a considerable measure of multinational banks have likewise contributed alongside the presence of the domestic banks.  

It has been long time following the foreign financial institution has come to Malaysia. At the point when the early European traders came to Malaysian, the most oldest bank of Malaysia was set up to encourage their exchanging and trading which was over 100 years ago. From that point forward a considerable measure of foreign banks have taken after their strides and in this way foreign banks have gotten to be key players and consequently have had gigantic effect in the Malaysian economy. In Malaysia there are a few contrasts and a few similitudes between the local banks and domestic banks. The foreign banks in Malaysia hold a 27% market share of the banking sector. From 2002 to 2009, it has been observed that high level of efficiency has been shown by a large portion of the local banks, which implies which that most of the domestic banks with a score of efficiency of 1.00. In Malaysia foreign banks usually focus on the wholesale banking and the local banks usually focus on the retain banking as well as the wholesale banking. The local banks have more reach. They have more branches all around Malaysia. Foreign banks have lower interest margins, overhead expenses, and profitability than domestic banks in developed countries (consistent with Terrell’s (1986) findings), the opposite is true in developing countries. So that implies that the foreign companies to keep higher margins and are charging more to the customers. Foreign banks are associated with reductions in profitability, lower non-interest income, and overall expenses of domestic banks. There will be a considerable measure of cost and benefits to the Malaysian banking industry if a foreign bank from India puts resources or invests in Malaysia.

BENEFITS

The advantages to the economy because of banks from India like the Bank of India putting resources into Malaysia are of great amount. The fifth biggest beneficiary of FDI inflows in the world is Malaysia expressed in understanding to UNCTAD 2015 World Investment Report. Malaysia is up there in the main 15 nations where the multinational organizations feel it is favourable for them. There are considerable measures of advantages that can happen to the financial markets if foreign banks put invest in there. There will be development of their financial system, what associates with more complete, deeper, more stable, and better-regulated financial markets. As discussed in Levine (2001), economic growth is encouraged by a functioning financial system with more credit is the key. Governments, borrowers, speculators, and money related foundations are the four fundamental specialists of financial globalization. The nation is turning out to be all the more financially incorporated in light of the fact that every one of them is contributing. There may be some different advantages that Malaysia could accomplish which is, for example, a reduction in unemployment. As Bank of India and other Indian banks put resources into Malaysia it would decrease the unemployment level as more individuals land positions. Bank of India can make a bridge between Malaysian economy and other different economies. The government has put limitations on foreign banks setting up branches in commercial centers, semi urban and non urban ranges in this way this demonstrates the administration is empowering decentralization. So Bank of India and other foreign banks from India or South Asian foreign banks will need to listen to the Malaysian Government in setting up branches and selecting the area. This will make openings for job opportunities for the general population living in provincial ranges or rural areas.

There is lots of benefit that the local banks may get because of foreign banks, for example, the Bank Of India is investing into Malaysia. One of the greatest points of interest the local banks could pick up the entrance of nostro accounts. Since a local bank does not have any branches outside of the nation as they make associations with the foreign banks putting resources into the local market. So by keeping up a relationship they make an account with the foreign banks and along these lines to transfer money through them if any local client needs to send cash to another country. It can draw in attention to foreign investment hence foreign trade increment and non-natives and local people doing exchanges through the local banks. As the foreign organizations can utilize the skills of the parent organizations this can expand stability in the business sector along these lines helping the local firms. Because of rivalry, it can increase the quality of the services offered by the nearby Malaysian banks. Competition can offer the local firms some assistance with becoming more effective. The expansion in rivalry may drive the local banks to utilize more most recent technology accordingly to enhance their administrations and hence improve their services and thus prompt them to adopt modern era banking skills.