pb303 poli

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CHAPTER 4
FINANCE COMPANIES AND INVESTMENT
BANKS

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3. DEFINITION
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Under the BAFIA 1989, a “finance company” is defined as “a
person who carries on finance company business”. “Finance
company business” in turn is defined as:
A. “the business of receiving deposits on deposit account,
saving accounts or other similar account;
B. i) the lending of money
ii) leasing business; or
iii) the business of hire-purchase, including that of which is
subject to the Hire-Purchase act 1967; or
C. the lending of money
such other business as the Central Bank with the approval
of the Minister of Finance, may prescribe”.

4. FACTS
1.
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Finance companies form the second largest group
of deposit-taking institutions in Malaysia
Finance companies are allowed to carry out
transactions in the short and medium-term credit
markets, but not allowed to accept current
account deposits, to deal in gold and foreign
exchange, to grant overdraft and to grant loans
without collateral.

5. REGULATION
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Finance companies were initially governed by
BNM through the Finance Companies Act 1969.
(former known as Borrowing Companies Act 1960)
2.
This enactment safeguard the interest of the
depositors and also strengthened the financial
institutions.

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SOURCES AND USES OF FUNDS/
STRUCTURE OF ASSETS AND LIABILITIES
Sources of funds/
Structure of liabilities
Uses of funds /
Structure of assets
Deposits
- Fixed deposits
- Saving deposits
Interbank money market
To grant loan for
- hire purchase and
leasing of motor vehicles
- agricultural equipments
- industrial and
construction equipments
- other consumer
durables

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STATUTORY REQUIREMENTS
The operations of the finance companies
also have an important bearing on the
monetary and credit situation of the
country. Therefore, finance companies are
also required to observe statutory reserve
and liquidity requirements

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SERVICES
Finance companies specializing in consumption
credit comprise mainly hire purchase finance,
leasing finance, housing loans and personal
loans. Other services include:1.
2.
3.
4.
5.
6.
Saving and fixed deposits
Hire-purchase and Leasing
Housing and real estate financing
Floor Stocking
Factoring Corporate Financing
Local money market activities.

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EXAMPLE OF FINANCE COMPANY
1.
2.
3.
4.
5.
Maybank Finance Berhad
Eon Finance Berhad
Hong Leong Finance Bhd
Public Finance Berhad
Arab-Malaysian Finance
Berhad

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INVESTMENT BANK IN MALAYSIA
 Investment
bank is introduced by BNM on March
2005- to strengthen Malaysian Fin. Sector
 All discount houses were absorbed by the merchant
banks by the end of 2006.
 The new framework required the merchant banks,
stock-broking companies and universal brokers to be
transformed into investment banks latest by first
quarter of 2007
 Investment banks is licensed to perform investment
banking functions by Securities Commission and
BNM.

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ROLE OF INVESTMENT
BANKS

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INVESTMENT BANKS??
Investment
banking means the business of providing credit
facilities, providing consultancy and advisory services relating
to corporate and investment matters of making investments on
behalf of customers
The
main function – to provide services to corporate sectors
such advisory and management services, stock broking
services, loan syndication, portfolio management and others.
It
plays important role – to complement banking system by
providing avenue for individuals and corporations to source
funding for their business activities as well as diversifying their
portfolio investment.

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INVESTMENT BANK?

Investment banks help companies and governments and their agencies to
raise money by issuing and selling securities in the primary market.

They assist public and private corporations in raising funds in the capital
markets (both equity and debt) as well as in providing strategic advisory
services for mergers, acquisitions and other types of financial transactions.

The investment banking industry plays an important intermediation function
in all market economies.

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INVESTMENT BANKS IN MALAYSIA….

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SOURCES AND USES OF FUNDS
SOURCES OF FUNDS
USES OF FUNDS
1. Deposits from customers
2. Deposits and placement of
banks and other financial
institutions
3. Balance due to clients and
brokers
4. Borrowing
1. Loan, Advances And Finance
2. Deposit Placement With Financial
Institutions
3. Security Held For Trading
4. Security Held For Maturity
5. Security Available For Sale
6. Statutory Deposit With BNM
7. Investment Into Subsidiary
Companies
8. Property, Plant And Equipment.

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PRODUCTS AND
SERVICES

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CORPORATE FINANCIAL & ADVISORY
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The management and underwriting of public and
private securities.
Identification of investors for new ventures or for the
expansion of established business.
Handling of public and private companies‟ mergers,
acquisitions and restructuring.
Undertaking of industry research or project feasibility
studies.
Undertaking of share valuations for various purposes.
Private placements of debt and equity.

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INFO: UNDERWRITING
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
Underwriting - guarantee that all the issued shares will
be sold.
If there is any portion that is unsold, the underwriting
institutions themselves will take it up.

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PORTFOLIO AND INVESTMENT SERVICES

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Nominee and registration services including
custodianship of all types of securities.
Trading of stocks, shares, Government bonds and
money market securities.
Management of corporate and private portfolio, trusts
and pension funds.
Share register and share registration services.
Management of investment portfolios.
Management of investment and unit trusts and
property trust funds.
Fund management funds.

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CORPORATE BANKING
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Management of syndicated and consortium facilities
in local and foreign currencies.
Provision of trade financing facilities.
Syndication and provision of guarantee facilities.
Management and underwriting of commercial papers.
Provision and arrangement of short, medium and
long-term loans in Malaysia and overseas.
Provision of bridging finance and project finance.
Provision of factoring and leasing facilities.
Capital market issues.
Block discounting of hire-purchase agreements.

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INFO: SYNDICATED LOAN
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When the value of loan required by a company is too
large, it is possible that the company may be unable to
obtain it from one single financial institutions.
Investment bank will help to arrange the loan from
several financial institutions. Such loans are called
syndicated loan.
The aim of the syndicated loan is to reduce risks and
exposure of each of the syndicate participants.

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FUND-BASED ACTIVITIES

Banking Services


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Acceptance of call and fixed deposits.
Term loans
Investment banks also offer a number of other
services which are provided by commercial banks.
Investment banks cannot accept current or demand
deposits.