Interview: Mahendra Gursahani
To what extent is tighter liquidity a concern?
MAHENDRA GURSAHANI: There is a worry that things are slowing down, and the loosening of statutory reserve requirements (SRR) by Bank Negara Malaysia (BNM) is one measure that has been taken to try and encourage lending and loan growth. But even before BNM eased SRR, I do not think we were going through a liquidity crisis. What the measure did do was release a large chunk of money – RM1.6bn ($396.1m) – back into the economy. There was, and still is, sufficient liquidity.
The question is, what sort of liquidity, and where is it being trapped? By reducing SRR, BNM indicated that the banking sector could make better use of these funds, which would be more productive in the real economy. BNM has reduced SSR to as little as 1% in the past, so the central bank still has room if it finds that the economy needs extra liquidity or that banks are unable to lend as much as in the past due to the new liquidity coverage ratio requirements coming in.
Would you say that the wealth management segment offers the greatest opportunities for growth within the sector?
GURSAHANI: There are excellent opportunities in trade finance and the foreign exchange market, but we see wealth management as having an almost unlimited future within ASEAN and Asia generally. After Singapore, Malaysia is the second-largest wealth management centre in ASEAN. Within the region, the middle-class population is set to grow by some 400m people before 2020. It has been underserved in the past, and so the notion of a generation within ASEAN and Asia starting to think about wealth accumulation is a relatively new concept to many people.
The reality is that many parts of society where wealth creation is happening are not necessarily financially savvy, so there will be a role for banks to play in becoming trusted advisors and partners to people starting to think about investment opportunities. The next 30-50 years will see Asia become the focus of much of the world’s new wealth creation, and it has the demographics to support this.
What have been the impacts of outflows of foreign capital on Malaysia and other markets?
GURSAHANI: I think there has been an overreaction to some of the political and economic uncertainty, but the facts show that such outflows from Malaysia have not been significantly different to those observed in other emerging markets.
These markets are looking at each other and saying, “If we are going to be treated as a homogeneous group, then we will most certainly be affected by these big swings, as it is hard to discern who is better positioned to deal with them.” Malaysia just needs to differentiate itself, which it has managed to do very well so far. For example, if you look at the metrics that are used to make investment decisions, such as ease of doing business, Malaysia scores very highly relative to almost all other emerging markets.
How can Malaysia further strengthen its leadership position within Islamic finance?
GURSAHANI: Malaysia is the world’s largest local-currency issuer of sukuk (Islamic bonds). While the industry began with plain unsecured bonds, which were very much like conventional bonds, sukuk are now tailored to customers’ needs to a much greater extent. On the wholesale banking side of things, we are starting to see more foreign issuers coming to raise Malaysian ringgit sukuk, thus providing a new pool of liquidity and putting the country at the forefront of banking and Islamic financial services. However, in terms of retail banking, things are a little more complicated, as the segment is more supply-driven, when it really needs to be demand-driven. It is therefore important that retail operations are strengthened, as this arm of banking could help to boost liquidity.
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