Special Luncheon Address by YB Dato’ Seri Ahmad Husni Hanadzlah
Finance Minister II, Malaysia
at the World Capital Markets Symposium
Kuala Lumpur, Malaysia
11 August 2009


YBhg Tan Sri Zarinah Anwar, Chairman, Securities Commission Malaysia
YABhg Tun Dzaiddin Haji Abdullah, Chairman, Bursa Malaysia
YABhg Tun, Tan Sri-Tan Sri, Dato’-Dato’, distinguished guests, ladies and gentlemen


First of all, I would like to thank my hosts, the Securities Commission and Bursa Malaysia for inviting me to be here today. It is indeed an honour for me to join all of you this afternoon and to share with you some of my thoughts and ideas. I will try not take too long as I know we have a very good lunch to look forward to.

Ladies and gentlemen,


I don’t think I am understating it if I were to say that the last twelve months must have been very difficult for all of all of you. I thank you for your commitment and dedication to promote and preserve this global banking and finance industry of ours.


It is important for me to take this opportunity to extend, on behalf of the Government, our thanks and utmost appreciation to all the local banks and financial institutions for their efforts in ensuring the welfare of their employees, ahli ahli keluarga warga kerja kita, is secured in these dire economic times. This is indeed exemplary.

It is with no small pride that I note our banking and finance industry has remained very much intact without the devastating loss of employment and redundancies that one would see elsewhere.


I note that a number of you have travelled many miles to be at this inaugural symposium. Thank you for coming and taking the time to be here. We will certainly benefit from the knowledge and the friendship that you have extended to us. I hope you will return home with, at least, an equal reward.

Ladies and gentlemen,



In a short span of a decade Malaysia has experienced grave repercussions from two global financial crises. In 1997-1998, the speculative betting of our currency caused serious erosion to our liquidity position and this in turn brought corrosive effect to our real economy. As a nation, we pulled together and through perseverance, sacrifices, sheer hard work and, with God’s grace, alhamdulilah, we came through.


We are now once again affected by another crisis. Even though it originated in markets half a world away, the effect on our real economy is devastating. The fall-out from the credit crunch caused demand for our exports to fall, resulting in contraction in economic output. Our June 2009 exports suffered an annual decline of 22.6%, causing work shifts to be reduced, workers laid-off. Our year-on-year unemployment rate for the first quarter of this year alone, rose from 3.6% to 4.0%1. The human cost is indeed tragic.


Nevertheless, ladies and gentlemen, Malaysia’s financial markets, together with some of the other Asian markets have shown this time around to be robust and able to weather the storm. The reform measures we undertook a decade ago have proven its value in building and sustaining strength and resilience of our financial institutions, systems and markets. East Asian foreign reserves, in aggregate, are now the highest in the world, our NPLs are kept in check and inflation is kept at bay. We have put in place regulatory frameworks that ensured levels of prudent controls are in place. We have also built the capabilities of our regulatory institutions to be more alert to the tell-tale signs of market instabilities and contaminating externalities.


They say you would only know a man’s true character when he is down. Throughout our economic and economic and political history, we have proven ourselves to be a country of strong character; we are, as a people, pragmatic, resilient and resourceful. We emerged stronger ten years ago and we will do so again.

A local perspective on how crises have provided opportunities for economic reforms

Ladies and gentlemen,


The sharp decline in investments, especially foreign direct investment (FDI) in 1997-1998 led to a change in the Malaysian policy mindset. After three decades of maintaining consistently high national savings rate, we thought it was timely to promote domestic consumption in order to reduce our reliance on export markets for economic growth. This change in policy was possible due to our success on two fronts.


First, we have invested more than 40% of our GDP annually on building a comprehensive infrastructure of roads, ports and communications. This gave Malaysia the competitive edge to continue to attract foreign direct investments.


Second, the policy of growth with equity has created a strong and sustainable middle class, with a higher per capita income. In 2007, our poverty level dropped to 3.6%.


This policy shift to promote domestic consumption did not mean we abandon the encouragement to save. Instead, through the calibration and fine-tuning of available fiscal and monetary tools, we sought to achieve an efficient equilibrium between having an optimal level of savings and gaining greater consumer spending.


Today, private consumption as a share of GDP has reached 56%, compared to 45% in 1998. This structural change in the sources of economic growth has proven to be viable, helping to cushion the impact of the slump in exports in the current economic crisis.


In building our capacity for domestic consumption, we need to increase our per capita income equal to that of a high income economy. We can no longer rely on production inputs to create volume and economies of scale but build innovative practices and value-added components into the economy’s value chain.


We aim to have the Malaysian services sector to occupy 60.0% of our Gross Domestic Product (GDP) by the end of our Third Industrial Master plan period (2006-2020). This ambition would require the combination of having the various existing industry players in the sector to grow exponentially as well as getting new entrants into the market.

It is against this background I shall try to envision you the future development of the Kuala Lumpur capital market.

How will the capital market adjust to be a key-driver/enabler of the economic transformation process?

Ladies and gentlemen,


The origins of this present crisis renewed the debate on the extent of a regulator’s role in the marketplace. The theory that the market is an efficient clearing house and one that self-regulates is now held suspicious. We, in Malaysia, have never truly subscribed

to that idea. We have consistently placed prudent levels of rules and regulations to ensure orderly growth and timely development. Nevertheless, we are aware that we need to accelerate the speed of change and this we have demonstrated in the last few major announcements in regards to the liberalisation of the services sector. I can assure you that we will not hesitate to liberalise further as and when it is timely to do so.


As late as ten years ago, Islamic finance was only little more than a niche occupant in the world’s financial marketplace. Islamic products were mainly re-packaged conventional products meant for retail consumers. Since then, Islamic finance has evolved to a sophisticated viable alternative to the conventional mainstream with Singapore, Hong Kong and London announcing plans to become major centres for syariah-compliant financial products and services.


Malaysia’s leading position in Islamic finance has given the country a strong competitive advantage to establish itself as a regional financial centre. I take this opportunity to invite our foreign friends to come and share our expertise and knowledge of the field, which we have accumulated as a world pioneer for more than three decades now.


Managing the risks of internationalization – What have we learned?

Ladies and gentlemen,



ASEAN will progress towards greater market integration and the economic strength of India and China can only grow further. As a relatively small economy, we have to “punch above our weight”. In this regard, I congratulate our financial institutions whom have made successful inroads overseas, establishing Malaysian brands in the respective local markets. With the increase in trade and investment activities within the region, from South to North East Asia, the aggregate volume of cross-border transactions can only expand and this, in turn, will further promote Kuala Lumpur as a multi-currency regional centre of origination and distribution. This is our ambition.

Ladies and gentlemen,


A globalised market brings bountiful fruits but with it, too, its fair share of poison. Greater market integration will result in higher exposure to undesirable externalities. Contagion risks must be mitigated and systemic faults need to be contained. Therefore, the co-operation and mutual assistance initiatives between the region’s regulators and market participants must take a new emphasis in the exchange of not only risk management techniques and processes but also of dynamic information and alert systems. In this regard, I must commend our regulators in their efforts to continuously upgrade their linkages and network within their efforts to continuously upgrade their linkages and network within their international fraternities.


God governance and ethical market practices


I take pride standing here today to say that with the many challenges and adversities that came our way, we have prospered and we have grown and matured to take on the next set of challenges. We have developed our capital market as an efficient platform for intermediaries, such as all of you here today, to serve the building of this Nation. You have brought real development and tangible benefits to the improvement of millions of lives. From the creation of a world class infrastructure to building a strong middle-class, the local capital market has made it possible for Malaysia ready to leap into the next era of economic development.


As we move to a higher income economy, I would like to stress that we must never forget why we are here in the first place. There has to be a greater good for all that we do. Ethical practices, good governance and a wisely set moral compass must be the hallmark of our daily course. We do not sell things consumers do not understand nor do we spread risk in an unjust manner. Form must not take precedence before substance and we cannot legitimize what is immoral just because it is legal.


No amount of legislation can prevent a crime. For all the rules and regulations, laws and statutes we the Government can enact, the capital market needs to be ultimately self-governing. Self-governance, in this context, is defined as the self-imposed discipline taken to ensure that the outcome of any particular transaction is just and wise. While it is debatable whether the creation of profits for the sake of profits is immoral, I have no doubt that it will surely lead to greed and greed, ladies and gentlemen, is not good.

Islamic finance as a viable export product


It is this endeavour that makes Islamic finance an ideal export. This is our niche. This is our value proposition. Good ethics, a fair sense of justice and anchored in strong moral ground must be the platform that we stand on. This is CSR in its truest form, embedded in the products that we sell and practiced in our daily operations. As you very well know, the growth in ethical financial products has risen dramatically in the last several years. As at June 2009, Shariah-compliant unit trust in Malaysia held a total market value of RM52.3bn while socially-responsible investment (SRI) is estimated to reach USD3.0 trillion by 2011 in the USA alone.

Ladies and gentlemen,



Let us all work together to make the Kuala Lumpur capital market recognised and hold reputation as an ethical, dynamic and robust regional centre with dual systems of finance; with Islamic finance taking centre stage in terms of product development, innovation and origination; a market characterised by the extent of the depth and breadth of its expertise and experience.


I am confident each and every one of us here can contribute meaningfully to this nation building challenge and God willing, Insyallah, we shall succeed. On that note, thank you again for coming in today and please enjoy your lunch.

Wabillahitaufik Wassalamualaikum Warahmatullahi Wabarakatuh.

1 Economic Planning Unit as at April, 2009.