The document provides an overview of Malaysia's National Key Economic Area (NKEA) for Financial Services. It discusses 4 entry point projects to strengthen the core of the financial services sector, including revitalizing equity markets, deepening and broadening bond markets, transforming development financial institutions, and creating an integrated payment ecosystem. The document also outlines 10 business opportunities across commercial banking, insurance, Islamic banking, investment banking, asset/wealth management, and other sub-sectors that could potentially deliver a gross national income impact of RM121 billion by 2020.

1. National Key Economic Area
Financial Services (FS)
Farisan Mokhtar
Associate Director, NKEA Financial Services
0

2.  Overview of NKEA
 Entry Points Projects
 2012 Looking Forward
1

3. Introduction
The financial services sector is the bedrock of the high income economy
The Financial Services Sector is both:
An enabler of
other sectors of ... as well as a
the economy... growth engine in
its own right
Above all, our desired transformation from a middle-income to a high-income economy will not
be possible unless we ensure that there is an abundance of debt and equity financing options
to invest in new and expanding businesses envisaged under our New Economic Model.
2

4. NKEA Overview
Incremental GNI (2020)
RM billions
Oil, Gas & Energy 131
Palm Oil & Rubber 125
Financial Services 121
Wholesale & Retail 108
Tourism 67
Business Services 59
E&E 53
CCI 36
Healthcare 35
Education 34
Agriculture 29
Greater KL/KV 1 392
1 Other NKEA GNI impact that directly contributes to Greater KL/KV’s GNI
3

5. Financial Services are one of the largest
and fastest growing sectors in Malaysia.
It is currently the 2nd highest contributing sector.
The AMBITION:
To grow the sector 3x by 2020.
The TARGET:
Incremental GNI impact of RM121bn by 2020, and Creation
of 363k jobs by 2020
4

6. Financial services encompass full range of solutions
catering to different financial needs
Micro finance /
Development Retail banking
Finance Inst (DFIs)
Investment mgmt
Venture Capital &
(asset & wealth
Private Equity
mgmt)
Insurance & Financial
services sub- Business banking
Takaful
sectors
Capital market Islamic banking
5

7. Starting position
The financial services sector is crucial to Malaysia's economy
#2 sector in GNI contribution today Robust growth over the past decade
GNI per capita (RM) 2,171 6,732 2000 – 2009 Historical GDP growth rate (%)
Health services & products 8.8
206 Business services 7.9
272 224 Telecommunications 7.8
276 Financial Services 7.1
374
375 Education 6.8
537 Tourism 6.3
583 Wholesale & retail 6.2
598 Palm oil & related products 6.0
1,116 Agriculture 4.8
Automotive & assembly 4.5
Real estate 4.5
Livestock & fisheries 4.5
Utilities 4.3
Oil &
Total
retail
oil
Telco
Others
gas
Wholesale
Education
Automotive
Finance
Agriculture
Electronics
services
Tourism
Palm
Transport & storage 3.5
Metal products & heavy equipment
1.9 3.4
Construction
Rubber & plastic products 1.5
Oil & gas, energy & petroleum 1.4
Forestry & related products 0.1
Electrical & electronics -0.8
Baseline Gross National Income of RMXbillion in 2009 -2 0 2 4 6 8 10
%
Developed clear areas of strength
Strong, well-regulated industry with
proven resilience to external shocks Leadership position in some niches High level of financial inclusion
• Post the Asian Financial Crisis, Islamic finance • #1 largest sukuk issuance • More than 80% banking penetration
Malaysia has enhanced institutional • #3 largest Islamic finance
capacity and strengthened the market globally • In 2009, the penetration of deposit
regulatory and supervisory framework • World's first e2e Syariah- accounts and loan accounts in Malaysia
compliant trading platform are 3,300 deposit accounts per 1,000
• Malaysian banks emerged relatively • Largest no. of Islamic adults and 1,100 loan accounts per
unscathed from global crisis Commodities fund mgrs in the world 1,000 adults, respectively.
– Strong capital base
– Credit quality remained strong • World's largest derivative • Ranked #1 for 3 years in a row from for
– Long growth holding up exchange dealing in crude access to credit by the World Bank
palm oil contracts
6

8. Case for change
However, the Malaysian domestic market is maturing
Going forward, need to look externally and develop new engines of growth to become developed nation
Nascent / Early Fast emerging Maturing Developed
Stage of
country • GDP growth ~3-5%
develop- • Most FS sectors growing in line
with GDP
ment • Players fight for share to grow
• GDP growth ~4-7% • Banking penetration >80%
• FS sectors growing slightly
above GDP
• High GDP growth • Industry consolidation beginning
• High growth (2-3x GDP growth) • Competition heats up
• Industry opening up to foreign • Banking penetration ~30-80%
• Low GDP growth
competition
Key • High political/economic instability
• Banking penetration ~10-30%
characteris- • Limited accessibility
tics • State own FS assets
• Banking penetration >10%
Micro banking
Retail banking
Corporate banking
Opportuni- Capital markets
ties
Insurance
Payments
Wealth mgmt / asset mgmt
Source: BCG Analysis
7

9. Case for change
The financial services sector faces a few challenges in pursuing growth
Lack of liquidity Competition from
Lack of scale and diversity in other financial Low levels of
capital markets centers financial literacy
• Some segments e.g. • Malaysia's capital • Low level of financial
investment banking markets suffers from awareness ...
and brokerages lack of liquidity – Highest level of
remain highly – Malaysia’s household
fragmented liquidity ranking Regional debt/GDP in Asia
in Asia has compe- – Lack of
• Lack of scale means dropped from tition preparedness for
that many players 3rd in 1996 to retirement
lack the resources 14th in 2010. – Low penetration
and expertise to Turnover velocity% of some key
scale-up in domestic 100 90 84 financial services
markets, let alone to 67 60 (e.g. insurance, e-
establish a 36 payment)
meaningful position Rise of
0 India
in regional markets. SET HKEX SGX IDX Bursa
• .... while increasing
and complexity/sophistica
• Malaysia lacks the • Also, high degree of China tion of products
critical mass to concentration in the
attract significant market, in terms of • Recent scandals
levels of investment. investors, products eroded trust in the
or currency. financial sector
8

10. 10 high impact projects across 4 themes
ENABLER in a high income ENGINE OF GROWTH
economy contributing to GNI of RM192B
Strengthen Serve high-income Go on the
Seed new growth
the core population offensive
5 • Insure our population
1• Revitalize equity 8 • Accelerate asset 9 • Create regional
markets management industry champions
6 • Develop private
Entry point 2• Deepen and broaden pension industry
projects bond markets 10• Become the
3• Transform DFIs undisputable global
7 • Spur growth of wealth Islamic Finance Hub
4• Create integrated management
payment eco-system
Asset/
Business Commercial Insurance Islamic Investment Other FS
Opportunities wealth
Banking and Takaful Banking Banking sub-sectors
mgmt
Robust, market-oriented legal and regulatory framework with efficient and effective enforcement
Competitive tax environment
Government-industry co-operation to drive financial sector strategy
Enablers
World class business and financial infrastructure
Compelling branding and promotion
Financial literacy
Human capital 9

11. Overview of Financial Services EPPs and BOs
Private
GNI RM 121bn, Jobs 363k, Funding RM 255bn GNI (2020) Jobs Investments
Investments
RM billions ‘000s RM billions
%
1 Revitalize equity markets 5.8 13 1.55 100%
Entry Point
Projects 2 Deepen and broaden bond markets 0.3 1 0.48 100%
3 Transform DFIs 2.1 - 0.79 100%
4 Create integrated payment ecosystem 2.8 8 0.72 71%
5 Insure our population 1.7 9 0.07 50%
6 Develop private pension industry 4.1 2 0.07 50%
7 Spur growth of wealth management 2.4 6 0.55 100%
8 Accelerate asset management industry 2.8 7 0.72 100%
9 Regional champions 5.8 -9 28.39 100%
10 Undisputed global Islamic Finance Hub 7.9 13 38.33 97%
35.8 50 71.67 87%
1 Commercial banking 31.6 71 69.78 88%
Business
Opportunities 2 Insurance and Takaful 16.2 53 20.97 90%
3 Islamic Banking 15.5 52 75.63 87%
4 Investment Banking 6.5 18 13.75 85%
5 Asset / wealth management 1.7 7 1.48 86%
6 Other FS sub-sectors 13.8 112 2.17 90%
85.3 313 183.78 88% 10

12. In total, Financial Services can potentially deliver
beyond original target by RM 31bn
250
200
13.8 Over target
RM 30.6bn
(RM bn)
150
85.3
7.9
100 4.1 2.4 2.8 5.8
192.2
0.3 2.1 2.8 1.7 161.6
5.8
57.4
50
0
Insurance
Wealth mgmt
DFIs
Asset mgt
Islamic finance
E-payment
GNI 2009
GNI 2020
Bond Markets
Business opps and
Private pension
Capital Markets
GNI Target 2020
Multiplier
Regionalization
BAU
EPPs BOs & BAU
RM 35.8bn RM 85.3bn 11

13.  Overview of NKEA
 Entry Points Projects
 2012 Looking Forward
12

14. Strengthening the core
EPP # 1: Revitalize equity markets
5.8bn ~13k 0 1.5bn Improve attractiveness Enhance Integrate with
Case for change of Bursa intermediary leading exchanges
Relatively low liquidity
Liquidity Improvement Liberalisation of Strategic alliance
Turnover velocity%
90 84 • GLICs to further diversify stock broking with leading regional
100 67 60 36 portfolio industry exchanges
0 • Increase free • Phase I (2010- • SGX
SET HKEX SGX IDX Bursa
float of GLCs 2012): complete • HKEX
...as well as scale and growth • List more GLCs consolidation,
Market cap (USD T) Growth% • ASEAN
2.5 50 standardise
Allow volatility approved Continue to pursue
• Liberalise number of activities agreements to increase
0.0 0
HKEX SGX Bursa IDX SET Proprietary Day • Phase II (2013- linkage with buy side and
Traders 2015): Fully intermediary base
Aspirations • Allow intraday liberalise • Cross-listing
Vibrant capital markets that attracts short selling brokerages by • Cross membership
quality listings and investors opening up • Remote access
Trading
Product offerings licensing • Mutual recognition
Market cap
(RM B) velocity % • List more ETFs • Phase III (2016-
100
• Create REIT from selected 2020): Move to
60
GLIC/GLC property assets principle-based
10,000 50 31 supervision
5,471
960
0 0
2009 2020 2009 2020
13

15. Strengthening the core EPP # 2: Deepen and broaden
bond markets
0.3bn ~ 1.4k 0 0.48bn
Case for change Widen the • Encourage major GLICs/institutional
• Low participation by credit investors to further diversify their
foreign issuers/investors . spectrum
Supply • Enhance positioning of investment to lower rated bonds
Malaysia as a regional
Sukuk hub • Intensify promotional efforts to attract
• Narrow investor base and Increase foreign investors to :
focused on AAA/AA. participation  invest in Malaysian bond markets
Demand • Minimal retail of foreign
participation in the bond  Issue Non RM Sukuk
market issuers
Aspirations
Deep and broad fixed-income market with Increase • Develop retail fixed income
active secondary market
retail market
2,000 Total 2,000 Total value participation
outstanding of bond
bond (RM B) traded (RM B)
1,000 883 1,000
618
268
64
2009 2020 2009 2020 14

16. Strengthening the core
EPP # 3: Transform DFIs
2.1bn Limited 0 0.79bn
Revisit •Revisit mandate and align operations
Case for change
DFI
Evolution of DFIs and FIs resulting in some of each DFIs
degree of overlap
mandates
Varying degree on emphasis towards •Refine detailed policy for board composition
business sustainability Improve and expertise requirement
operations &
Select DFIs have relatively small economies •Strengthen performance based and
of scale
promote
self- sustainability culture
Only few DFIs provide value add service to
customer
sustainability •Improve overall productivity level
of DFIs •Enhance risk management
Aspirations
Effective and accountable DFIs to support
developmental needs
NPL (%)
Clear mandates
Value add •Extend offerings to include advisory and
10 6.8
5
6.0 services value add service for all DFIS
0 Sustainable
2009 2020
ROA (%) Efficient Emphasis on •For all new financing starting in 2011,
operations
3 2.3 2.5 Islamic do "Islamic first" for financing that
2 Providing value- finance
1 added support is feasible to be done in Islamic way
2009 2020
Italic = already championed by regulators
15

17. Strengthening the core EPP # 4: Create integrated
payment eco-system
2.8bn1 ~ 8k 0.1bn 0.62bn
Integrated payment Pan-ASEAN regional
Case for change backbone (switch)
Centralized analytics
payment backbone
Cost per trn (RM) 1 – 5 years 1 – 7 years 1 – 10 years
5
Lower 2.0
0.9 0.5
cost 0.1 Create integrated Develop centralized Expand partnership
0 1 6 7
domestic switch Malaysia analytics with other countries
Cheque Cash ATM Internet
/ mobile
E-pmt Drive consumer
Migration 100 2 5 1 8 Create pan-ASEAN
Cheque adoption through
at modest 8 consortium for
93 91 Cash 2
selective payment switch
pace 0
2005 2009
forced mandating
Immobilize large
Aspirations Expand merchant denomination ringgit
3 acceptance on notes
Frequency of transactions (%)
domestic switch
100 1 8 E-pmt 9
37
Chequeless 0 Cheque Conduct study to
society
91 Charge customer actual
63 Cash enable people perform
0 4 cost of cheque
payment transactions
2009 2020 transaction.
using universal
RENTAS Switch identifier
Centralized Implement intensive
Malaysia M'sia
Analytics
education and
Analytics 5
Tax Other
awareness
system systems program
Italic = already championed by regulators
16
1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector

18. Serving a high-income population
EPP # 5: Insuring our population
1.7bn ~ 9k 0.03bn 0.04bn
Improve Tax Employee Insurance
Case for change
Treatment Scheme
•Life insurance penetration in
Malaysia of 2.8% below world • Segregate EPF & insurance Term life insurance
average contribution • Basic coverage, low premium
•Only 40% pop. with disposable
inc. >RM3K can afford life • Additional RM2K tax relief for • For death/permanent
insurance insurance disability
•RM6K relief for EPF
contributions and life RM'0003
6
Critical illnesses (Optional)
insurance insufficient • Basic coverage for C.I. (e.g.,
15 Current Proposed
6 6
Aspirations 12 kidney failure, terminal
Adequately insured population with 10 illness)
peace of mind knowing their protection 10
needs are met Insurance Hospitalization benefits
Medical &
Life insurance Total life policies over education (Optional)
penetration (% GDP) population (%)
5
5 4 100 • Daily cash hospital benefits
75
EPF & life
3
47 insurance
EPF in the event of
50
0
hospitalization
0 0
2009 2020 2009 2020
17

19. Serving a high-income population EPP # 6: Accelerate private
pensions
4.1bn ~ 2k 0.03bn 0.04bn
Case for change Develop Private Retirement Planning
Provide Incentives
2 million self-employed not Pension Funds Education
covered by EPF
Voluntary shift of
Target segment contributions above 12% – Awareness
Most EPF members exhaust into PPFs campaigns
their lump sums within 3-5 Active EPF contributors Revise EPF Voluntary withdrawal of – Online retirement
contribution EPF savings
years planning tool
EPF retirees policy to from Acc. I & II
promote Option to withdraw EPF – Training/seminar
Aging population increases Self-employed investment savings for PPFs if >RM1
in PPFs Mn in Acc. I
strain on the system
Introduce PPFs as
alternative option to unit
Aspirations Customiz- trusts
Regulatory
ed features New RM6K relief for PPF
Model pension system with vibrant framework Enhance tax
to suit contributions
private pension industry to govern system for
target Extend tax exemption for
PPF ops. PPFs
segments pension inc. to PPFs
Strong multi-pillar
pension framework
Zero First Second Third Fourth
pillar pillar pillar pillar pillar
Non- Mandatory Mandatory Voluntary Informal
contributo- contributions defined contributions sources of
ry benefits linked to contribution support
earnings
Fund assets Fund participants
USD 38B ~3 M people
18

20. Serving a high-income population EPP # 7: Spur growth of wealth
management
2.4bn ~ 6k 0 0.55bn • Review definition of HNWI and allow for marketing
Increase of products without approval
Case for change
products • Streamline approval process for retail products
Sizable amount Significant available • Encourage local players to compete with new
of Malaysian offshore
liquid wealth wealth products
15% - RM 5 mil & above
Encourage • Implement a "tiered returns" model for EPF amount
10% - RM 1 mil to 13% Offshore
RM 5 mil withdraw >RM1M to encourage withdrawal
27%
- RM100k to EPF amount – Proceeds from investment using withdrawn
RM 1mil 87% Onshore
47% >RM1M amount to be tax-exempted
2009 2009
• Attract top 10 wealth management houses to be
Aspirations Attract located in Malaysia by providing tax break for the
Attractive wealth management destination expertise first 10 years on income
and bringing back offshore Malaysian
wealth
• Increase number of Shariah financial planners
WM AuM (RM B)
Carve a through training and education
600
niche in • Exploit synergies with Islamic asset management
400 355
Islamic firms to leverage on the growing products pool
200
17
0
2009 2020
Italic = already championed by regulators 19
1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector

21. Seed new growth EPP # 8: Accelerate asset
management
2.8bn ~7k 0 0.72bn
Current Desired Current vs desired level of
AUM (RM Bn) outsourcing
Case for change
0% 5% 10% 15% 20%
EPF 371
Concentrated industry – top 5
KWAP 65
accounted for 55% of AuM
SOCSO 16
Strong regional competition – Increase LTAT 7
S’pore AuM has been growing GLICs' Tabung Haji 24
twice as fast outsource
49
PNB
mandate 50 Bn
Opportunity to capture growing Outsourced
Increase GLICs outsourcing portion on average from 5%
segments
to 15% of total portfolio
• Each mandate must be sufficiently attractive (i.e.
RM1-2M)
Aspirations • Firms must locate at least 6FTEs (including 2
A thriving regional asset portfolio managers) and bringing additional capital
management hub • Allow EPF member to withdraw up to 50% of
Stimulate
account 1 if total amount in account 1 exceeds 120k
2,000 1,740 retail
• Expand list of approved unit trusts managers to
AuM (RM B) market
include stock brokers and foreign fund managers
1,000
Carve a • Provide incentives for foreign sourced fund
302 nice in • Leverage on mandate to attract top funds in Islamic finance
Islamic • Strengthen domestic fund management demand pool via the
0 fund growth of wealth management industry
• Position Malaysia as Islamic product innovation hub
2009 2020
Italic = already championed by regulators 20
1. Exclude impact from creation of centralized analytics, whereby the benefit will be towards economy at large and not specific to FS sector

22. Go on the offensive EPP # 9: Create regional
champions
5.8bn ~9k 0 28.39bn
•G2G lobby to relax host country restriction
Case for change Expand •Support to strong local banks for landscape
Loan Growth (%) internationally
changing acquisitions
Domestic 20 13
10
in meaningful
7 •Provide additional incentives for banks to
growth has 10 manner
slowed down 0
2001- 2005- Nominal regionalize
2005 2009 GDP '05-
'09
ROA (%)
Profitability 2
1.4 1.2
also has come
1 Push •Explore possibility of initiating a more
down
0 integrated integrated banking framework for ASEAN
2005 2009
ASEAN region (esp. for banks licensing requirements)
Aspirations banking
Source of net income for framework
(%) M'sian banks
100
16 30 Foreign
Expansion •GLICs to take up stakes in attractive markets
84 70
Domestic
Beyond beyond just following outward FDI/ trade flow
ASEAN in
0 •Explore feasibility of merger among top
2010 2020 attractive
Malaysian bank in the top 3 in markets financial institutions either within Malaysia or
ASEAN by market in ASEAN to create regional champion
capitalization
21

23. Go on the offensive EPP # 10: Global Islamic
finance hub
7.9bn ~12k 0.2bn 38.33bn
Case for change Undisputable Global Islamic Hub
M'sia already 3rd largest
Islamic mkt Islamic Intellectual Center Islamic Capital Center
Most key countries still •Codify & standardize • Create mega i-bank and
underpenetrated Shariah guidelines expand internationally
• Shift DFIs emphasis towards
Malaysia has the reputation & Islamic finance
competitive advantage
•Push for global
convergence and • Lead creation of global
Aspirations Islamic liquidity mgmt, incl.
mutual recognition
Undisputable Global leader in Islamic more FX instruments
Finance • Develop Islamic fund industry
Islamic bank world Takaful world • Further develop non-Sukuk
mkt share (%) mkt share (%) •Become CoE and capital market, e.g. i-REIT
20 20
reference points (Refer to EPP 1)
13
8 20
11 5 Overseas for Islamic finance
2
11 15 Domestic research, development
0 • Expand Takaful products
0 and education
2009 2020 2009 2020 overseas
• Strengthen Malaysia retakaful
M'sian Islamic Bank is among the
World's top 5 capacity
Italic = already championed by regulators 22

24.  Overview of NKEA
 Entry Points Projects
 2012 Looking Forward
23

25. What’s in store for 2012 …..
 Listing of FGVH (FELDA) and Integrated Healthcare (Khazanah);
 Increase GLICs sell down and free float in Bursa Malaysia;
 Retail investors participation in bonds market;
 Private Pension Scheme launched;
 Mobile Banking Platform roll-out;
 Regional expansion by Malaysian banks;
 Islamic Mega Bank fully operational.
24

26. 25