Foreign Banks Headed For An Exit In Malaysia?

by Mike Elliot | Monday, Nov 21, 2016 | 151 views
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Foreign Banks Malaysia- Foreign banks tried to find a way of complying with the clamp down on offshore ringgit trading, a move that’s been considered by the broader markets as a form of capital controls.
This week, onshore banks sent Form letters to their local counterparts requesting their compliance officers to sign the commitments to terminate transacting ringgit in NDF markets then send back the letters to the central bank, Reuters reported.
“Bank Negara Malaysia and banks in the country have discrepancies now. This is a form of indirect capital control… soon there could be a large number of people leaving Malaysia”, a banker in one of the foreign banks in Malaysia said.

The fall of ringgit

On Thursday, the Malaysian currency recorded an almost 1 percent decline to a 4.3850 low against the US dollar. NDF markets have continued to record widening offshore spreads as bond yields continued to rise with the 10 year benchmark yield trading 17 basis points up at 4.22 percent. In last week alone, it has risen by a margin of almost 60 basis points.
Normally, the Hong Kong and Singapore liquid NDF markets are used by investors to trade ringgit in exchange for dollars due to the enormous restrictions present in those particular domestic markets.
Hong Kong and Singapore rank at fourth and third positions with $437 billion and $517 billion respectively on overall daily average gross revenue of foreign exchange offshoots. This is the findings of the latest survey conducted by the Bank of International Settlements. US ranks top followed in second position by UK.

The looming exit

Even though foreigners are allowed open access to the domestic stock markets and bond in Malaysia, offshore trading of ringgit and or related derivatives is proscribed. Certain foreign banks in the country reported that they are not allowed to exit their investments from the country only until they agree to sign the letter.
The country’s central bank requested all financial institutions to issue detailed plans if they intended to carry out ringgit trading onshore and get assistance from the Malaysian counterparts for forex transactional needs.

 

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