4VES-1_041140597_TMA-2.docx - QUESTION 1(a In 1970s Malaysia government started issuing bonds to meet the needs of massive funds in the market to

4VES-1_041140597_TMA-2.docx - QUESTION 1(a In 1970s...

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QUESTION 1 (a) In 1970s, Malaysia government started issuing bonds to meet the needs of massive funds in the market to achieve the country’s development agenda, it cause the growth of Malaysian bond market. By the mid-1980s, a new financing pattern emerge to consolidate the public sector activities and promote the private sector as the engine of growing up Malaysia’s economy due to shift in public policy. During that period, there are obviously happened decline in public sector borrowing and increase in private sector financing. Private sectors are increasing heavily relied on banking system for its financing needs, which led government to pursue the development of bond market as key strategic priority. In 1997s, the ratio of bank credit to GDP (Gross domestic product) in Malaysia was high at 149%, it proven large portion of private sector immediate go through banking system. Well, the ratio of bank deposit to GDP was high at 154%. Therefore, banks were able to finance their lending activities from their deposits. Thus, private sector provided active support for the development of bond market process. In 1997s- 98s, banking sector was heavily exposed to the economic crisis, it was very caution for banks in extending every of the new credits. During that period, loan growth was low and it even not able to achieve the target which is 8% that proposed by government. Government learnt from the lesson of Asian financial crisis, they set up its efforts to development bond market and offer the private sector the alternative sources of finance and reduce the percentage of funding mismatches. Thus, it was greater need of more efficient fund raising framework for example comprise intermediate credit, term and currency risk on leveraged balance sheets to diversify away from the historical source of indirect financing by financial
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institutions. And it is urgent to encourage private sector to tap into the market for funding. Therefore, for the past 15 years, the efforts to develop in Malaysian bond market have been fruitful. A high-level National Bond Market Committee (NBMC) was established by the government is 1999s to make sure Malaysian Bond Market are well co-ordinated. NBMC is to providing a guideline and strategic to well develop in bond market. The main issuers of the public debts are the government of Malaysia, central bank (bank Negara Malaysia) and quasi government institutions. Ina another side, private debts are issues by financial institutions, non-financial corporations and national mortgage corporation. The major investors in Malaysia Bond Market is employees’ provident fund (EPF), Unit trust, Pension funds, insurance companies and so on. QUESTION 1(b) The first advantage to invest in Malaysian Bond Market is Fiscal incentive.
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  • Winter '16
  • Winnie Wong
  • Malaysian Bond Market

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