Bank Negara Malaysia, the Malaysian central bank and regulator, has been talking to sellsiders about doing away with the current prohibition on Malaysian banks buying collateralized debt obligations.
The exact status of the talks could not be ascertained, but bankers are quietly confident the regulator will green light an easing. "Discussions [have been] going on and the regulators are aware of development in other regimes in Asia," said a credit head at a bulge bracket house in Hong Kong, adding he believes the market could open by year-end.
This coincides with growing market liberalization, which for instance has been easing capital controls for foreign investment (DW, 4/1). Dealers said international houses have been in talks with Bank Negara about first allowing domestic banks to buy into CDOs. Regulatory officials at the central bank did not respond to messages by press time. Banks in the country are mostly restricted to investing in domestic corporate and government debt.
Market officials feel that the while the market won't be massive, it should have greater potential than neighbor Thailand, given its larger banking sector. Thailand cleared domestic banks to invest in such products in 2004 (DW, 10/29). The commercial banking sector in malaysia has over MYR799 billion (USD210 billion) in assets. Structurers said allowing CDO investments will increase diversification as well as boost yields of Malaysian banks investment portfolios.
Another credit official at an international house noted he has met with the regulators in recent months in regards to credit derivative product enquiries. "The feedback has been positive--they want to make sure they build this market right," he said.
"This will be great," said an official at Malaysia's CIMB in Kuala Lumpur. He continued, "We're always looking at new products and services and CDOs would not be something we would close our eyes on."
