For this reason, they are demanding a broader range of products and services at more competitive prices through more efficient and convenient channels. Corporate customers have also become more performance-oriented and are demanding both competitively priced credit facilities and world-class financial advisory services. In this environment, the challenge is for banking institutions to anticipate and respond quickly to the differentiated demands and expectations of customers to sustain their competitive advantage. With growing customer expectations for continuous availability of services, the ability to continue to provide critical banking services at all times will also be crucial in the pursuit of building and maintaining their competitive edge. In conjunction with this, banking institutions must be able to quickly recover mission critical functions and assets during a major interruption to ensure efficient and reliable services to their customers. Technological advancement, which has increased the complexity of banking business and which has led to the emergence of increasingly innovative products and distribution channels, also presents opportunities for the banking sector. With ICT, financial services are being delivered to places and markets without requiring physical branch networks through a growing array of alternative delivery channels, including Internet, ATMs, and even mobile phones. The challenge to banking institutions is to effectively leverage on the opportunities offered by technology to innovate products and services aimed at attaining greater efficiency, reliability and competitiveness. While the efficiency of electronic means of doing banking is acknowledged, banking institutions should recognise the need for them to meet customer expectations for more personalised and quality services.

Banking institutions are facing competition not only from each other but also from non-traditional competitors such as non-bank financial intermediaries as well as from alternative sources of financing, such as the capital markets. Indeed, the Malaysian capital markets have broadened and deepened, and are now playing a more pronounced role than before in the financial intermediation process. In this respect, the challenges to the banking sector are manifold. On the funding side, consumers' continued interest in diversifying their investments in search of higher returns, have seen funds flowing directly into the financial markets instead of going into banking institutions' deposits. At the same time, companies are increasingly meeting their financing needs in the equity and bond markets, thereby reducing their reliance on banking institutions. This is evidenced by the growth of outstanding private debt securities or PDS in the market by 10.7% to RM160 billion as at end of 2004, accounting for approximately 25% of the total financing channeled to the economy. The challenge to banking institutions is to enhance their competitive edge by being cost efficient without compromising on the quality of their services. On the other hand, the disintermediation process also offers opportunities to banking institutions. In particular, they can enhance their income by cross-selling mutual funds products and increasing their role as advisors, arrangers, underwriters and brokers for corporate financing arrangements. There is also bancassurance and bancatakaful in the area of cross-selling.