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Case Study Of Bank Negara Malaysia

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1.0 Introduction Non-bank financial intermediaries are financial institution besides banking system which offers financial product and services to certain market sectors. These institutions are not entitled to banking license and do not receive deposits from the customers and operating under the banking rules and regulations. All financial intermediaries play the role in manipulating savings and as well as enhancing the financial activities. Their functions of filling in the intermediation gaps also help to improve the competitiveness of commercial banks thus strengthening the financial system. Furthermore, the healthy and efficient growth of non-bank financial intermediaries shows the good development of the financial system. The contractual …show more content…

In the other word, it means NBFIs is free from the supervision by BNM. (Shrestha,2007) Thus, it induced a challenge to Malaysia financial system in term of regulation and supervision of these institutions. This became a serious problem when NBFIs are not supervised by it’s competent, and the loan granting process is getting influenced by the unethical and imprudent practice of the owner. In a result, it will threaten the soundness of the entire financial system. Secondly, the growth level of NBFIs will increase competition in the market. Thus, it produced an intensive competition of the market where it will cause the company to suffer for low profits, high risk investment and ethics problem. Consequently, the small company which unable to sustain the loss are forced to end their business. On the other hand, due to the increase of funding accessibility, the public may spend a lot in ineffective investment which leads to credit defaults. Thirdly, the growth level financial intermediate will lead to increase in the credit-deposit ratio on the financial system. Credit-deposit ratio shows how much deposit collected are extended as a loan. Depositors will be paid with interests; Thus, to ensure there is enough fund to pay the interest, investment has to be made by using the deposited money. Therefore, most of the financial institution will maximize the credit-deposit ratio in order to maximize the profits. Consequently, instability of financial system which then increased the level of volatility in the financial system will induce financial crisis (ex: Asian financial crisis of 1997). These is related to growing level of NBFIs because of the growing activities of NBFIs fueled the leading spree with the growth of deposit mobilization and shifted the deposit structure from demand deposit to time deposits which then result in increasing

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