This article first appeared in The Edge Financial Daily on April 13, 2018

KUALA LUMPUR: Malaysian banks focusing on regional expansion appear to be moving in the opposite direction from a trend of global banks scaling back on overseas operations, according to the World Bank.

“Regional banks such as CIMB and Maybank are becoming stronger and their cross-border activities are growing, while some of the global banks are actually scaling down and deleveraging in Malaysia,” said Jose de Luna-Martinez, the lead financial sector specialist at the World Bank.

This may be because regional banks feel more connected to customers in the region since a large portion of their base comprises retail deposits, he explained.

“Their clients also are doing more cross-border activities, giving these regional banks more stability,” de Luna-Martinez told reporters at the launch of the World Bank’s Global Financial Development Report (GFDR) 2017/2018 yesterday.

Despite the decreased activity of global players, Malaysia is still recognised as an attractive destination for international banks because it has been adopting the best standards of regulatory and supervisory practices, de Luna-Martinez said.

“Malaysia is very dynamic; it’s growing very rapidly and it’s a good place for international banking activities.”

The World Bank yesterday updated its gross domestic product growth forecast for Malaysia to 5.4% from 5.2% previously.

Speaking at the launch, Bank Negara Malaysia deputy governor Abdul Rasheed Ghaffour said continued openness and integration are key to growth of the banking sector in Asean.

“Boundaries are not only undesirable, they may hinder global growth,” Abdul Rasheed said, adding the central bank remains open to international banks that are able to contribute towards the development of Malaysia as a host country.

The withdrawal of global banks from the region could be due to constraints from their home countries, said Ata Can Bertay, a research economist in the World Bank’s development research division.

The GFDR report showed that developed countries, or “the North”, were shown to have scaled back international operations following the 2008 global financial crisis in tandem with a general backlash against globalisation.

“While banks from high -income countries drove exits, developing country banks continue their international expansion, accounting for the bulk of new entries into foreign markets,” the World Bank said.

One positive flowing from this appears to favour less established borrowers, as the report also revealed that more financial-sector practitioners across the world believed global banks contributed to international shock transmissions and “cherry-picked” the most profitable and established borrowers compared to regional banks.

“Our findings show that regional banks seem to contribute more to development and stability than global banks,” Bertay said.

Meanwhile, when asked about the possible impact of growing trade protectionsim in the international banking system, Donald Hanna, CIMB Group Holdings Bhd’s group chief economist, said that political structures do affect the banking operations in a country.

“When we think about regulatory frameworks and globalisation, we also have to keep in mind that the nature of the political framework that you are dealing with still matters,” he observed in a panel discussion.

Bertay later told the media: “One of our findings [in the report] is that politics plays an important role for regulatory and supervisory changes and how they are applied across borders, but it’s a very complex issue.”