Zeti Akhtar Aziz: The Malaysian bond market
Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the Launch of
AmBank's Malaysia Corporate Bond Handbook Commodity Murabahah House, Kuala
Lumpur, 18 August 2009.
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It is my pleasure to be here today on this occasion of the launch of the Malaysia Corporate
Bond Handbook. The handbook, which is the first comprehensive guidebook for bond
investors, is an initiative that will contribute towards improving the visibility and the
development of the Malaysian bond market. Our bond market continues to be dynamic, with
continued new developments that enhance Malaysia's position as a centre of origination for
securities. In addition, a deeper and more liquid domestic bond market is also important for
the development of a vibrant regional bond market which would in turn allow for a part of the
savings in the region to be recycled and re-invested in the region.
Growth and development of the Malaysian bond market
The Malaysian bond market has experienced significant transformation over the recent
decade and is now well positioned to have a more significant role to support the changing
requirements of the economy in our next stage of development. Initiatives introduced by
Bank Negara Malaysia to spur the development of the domestic bond market started as far
back as 1986. The establishment of Cagamas Berhad, the national mortgage corporation
was the first institution that the Bank established as part of the efforts to develop the
domestic bond market. This was followed with the establishment of other institutions, which
included the Securities Commission and the domestic rating agencies. The Bank also put in
place a comprehensive and modern depository, delivery and settlement system to facilitate
the issuance, trading and settlement of debt securities in the market.
Mechanisms to increase liquidity in the market to enhance the overall price discovery
process were also introduced through the provision of updated market information. In
addition, measures were also introduced to release the captive holdings and to facilitate the
efficient borrowing and lending of securities. More flexible foreign exchange policies was also
implemented to facilitate capital raising and investment by non-residents to further accelerate
the development of our domestic bond market.
Today, the Malaysian bond market is the largest in the ASEAN region, accounting for nearly
90 percent of our gross domestic product. Corporations now have access to more innovative
and sophisticated financing solutions through the bond market to meet their diverse funding
requirements. Financing through the bond market by the corporate sector now accounts for
58 percent of their total financing compared to 33 percent prior to the Asian financial crisis,
when there was greater reliance on the banking system for financing. With the advent of new
financing instruments and supporting infrastructure, trading activity in the secondary market
have also increased by more than three fold, with the trading volume now amounting to
RM516 billion.
A key development of the Malaysian financial market is the enormous growth of the sukuk
market. As a pioneer in the global sukuk market, Malaysia has remained firmly established
as one of the largest issuers of sukuk, with 62 percent of the world's outstanding sukuk
having originated in Malaysia. Malaysia's lead is also reflected in the innovative and
competitive structures that have been pioneered such as the exchangeable sukuk
musharakah and sukuks based on istisna' and ijarah. All these augurs well for Malaysia to
evolve as an International Islamic financial hub and as a centre of sukuk origination.
Riding through the global financial market uncertainties
The enhanced resilience of our financial system during this challenging international financial
environment can be attributed to the comprehensive reform measures undertaken over this
decade which has contributed to reduce the impact of the global financial crisis on our
financial system and our economy. The domestic financial markets have remained orderly
despite experiencing greater volatility, higher outflows and lower trading volume at the height
of the crisis. The financial sector has also remained solid and has continued its
intermediation function without disruption throughout this period.
A number of pre-emptive measures has also been initiated to ensure continued access to the
bond market for funding. This includes the establishment of Danajamin Nasional Berhad, a
national financial guarantee insurer to provide credit enhancement for viable corporations to
raise financing from the bond market. This initiative is expected to enhance the prospects for
companies to tap the bond market. Within three months of its operations, two submissions
have been received with 30 more in the pipeline. These applications amount to a credit
enhancement to raise RM8.4 billion of bonds. A further initiative in this direction is the
resumption in the operations of the Corporate Debt Restructuring Committee (CDRC), to
facilitate the restructuring of debts, including private debt securities of the larger viable
corporations.
Renewed optimism in the financial market
It is now more than two years since the onset of the global financial crisis. The effects of the
crisis on the Asian economies began to be felt in the second half of 2008. Measures to
stabilise the financial systems in the advanced countries and the implementation of massive
fiscal and monetary stimulus on a global scale have begun to contribute towards a gradual
improvement in economic activity in most countries.
Conditions in the domestic economy have also shown signs of improvement in the second
quarter, with the decline in the industrial production index and in retrenchments being at a
much slower pace. As labour market conditions stabilises and the business and consumer
sentiments turn positive, and as this is reinforced by the accelerated implementation of the
fiscal stimulus packages, the continued access to financing and the lower rate of inflation will
cumulatively improve conditions in the domestic economy in the second half of 2009 and into
2010.
Signs of optimism have also started to emerge in the bond market. The recent narrowing of
spreads between benchmark issuances and triple A rated papers indicate that risk aversion
has now eased. In the primary market, new corporate bond issuance has increased by about
40 percent to RM28.4 billion in the second quarter of this year. In the secondary market, the
recent average daily trading volume has also increased by more than 50 percent.
Demand for higher-yielding securities are also beginning to rise ahead of the recovery in the
global economy. In addition, in view of the prospects for an earlier recovery in Asia, global
investors in the current uncertain international environment will increasingly be looking at
Asian financial markets for investment opportunities. This trend is already being observed
through the substantial inflow of funds dedicated for emerging markets since the middle of
April this year with an estimated average inflows of USD 144 million per week compared to
the net outflow recorded in the early part of the year. This positive trend enhances the
opportunity for Malaysia to further expand its bond market.
Timely issuance of corporate handbook by AmBank
The corporate handbook being launched by AmBank today therefore comes at an important
juncture in the development of the bond market. Encapsulating the profiles of 100
conventional and sukuk issuers in the Malaysian bond market, it is indeed a commendable
effort by AmBank to provide this comprehensive information to foreign and domestic
investors to facilitate their investment decisions.
On this note, I wish to congratulate AmBank on the official launch of the Malaysian corporate
bond handbook and to all those involved in its successful publication.