Most Malaysians understand the value of savings, as evidenced by the bank account penetration rate, which was among the highest in Southeast Asia at 92 percent in 2020. With such a high percentage of financial inclusion among the population, there is no doubt that the banking sector in the country is one of the most important.
The banking industry in Malaysia is among the oldest in the region, dating back to the 19th century, where it was mostly centered in Penang, a strategic port city that facilitated many business activities. Since then, Malaysian banking has undergone major development and technological advancement. In the second quarter of 2023, the return on equity (ROE) of the banking system stood at 11.6 percent.
The banking landscape in Malaysia
Bank Negara Malaysia (BNM) is the central bank in Malaysia. It was first established in January 1959 and acts as a statutory government body to supervise banking institutions, as well as to promote monetary stability. Since Malaysia has a large Muslim population, the country has a dual banking system, conventional and Islamic.
Conventional banking consists of commercial and investment banks. Commercial banks are the most widely used among consumers. The total assets of commercial banks in Malaysia reached nearly 1.7 trillion Malaysian ringgit in 2022, compared to the investment banks, which recorded assets of around 50 billion Malaysian ringgit in the same year.
Meanwhile, Malaysian Islamic banking is relatively new compared to its conventional counterpart. The first Islamic bank in Malaysia started operating in 1983. Since then, the Sharia-friendly financial system in the country has become one of the most developed among other Muslim-majority countries. In 2021, Malaysia had the third largest Islamic banking assets in Asia, after Iran and Saudi Arabia.
Major local banks dominate
Some of the largest banks in the country are homegrown Malaysian banks, including Malayan Banking (Maybank), CIMB Bank, and Public Bank. These three banks were also ranked within the top six of the strongest brands in Malaysia in 2022, with Maybank in the leading spot. In that year, Maybank recorded total assets of more than 947 billion Malaysian ringgit. Malaysian banks have also expanded their banking business to the neighboring countries in Southeast Asia, as well as in the Asia-Pacific region.
With the current technology, banking services have also become more digital. The value of internet banking transactions in Malaysia has increased significantly in the last five years. Although online banking has started to gain traction, traditional banks are likely to still thrive in the country, especially with more than half of Malaysians still preferring traditional to digital banks.
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