Bank Pembangunan Malaysia Berhad (BPMB)
Signing Ceremony for the proposed Islamic & Conventional Medium Term Notes Programmes of up to RM7.0 billion in nominal value
YB Tan Sri Nor Mohamed Yakcop
Minister of Finance II
Impiana KLCC Hotel & Spa
24th January 2006
Y.Bhg Dato' Abdul Rahim Mohd Zin
President and Managing Director of Bank Pembangunan Malaysia Berhad
Mr. Charon Mokhzani
Deputy Chief Executive CIMB Bhd
Mr Zarir J. Cama
Chief Executive Officer, HSBC Bank Malaysia Bhd
Distinguished Guests, Ladies & Gentlemen
Assalamualaikum warahmatullahi wabarakatuh and good morning
Saya berasa gembira dan bersyukur kerana dapat hadir di majlis menandatangani perjanjian pada pagi ini. Saya juga ingin mengucapkan terima kasih kepada Bank Pembangunan Malaysia Bhd, CIMB dan HSBC kerana menjemput saya.
2. Majlis pada hari ini adalah satu peristiwa penting bagi sektor perusahaan kecil dan sederhana kerana sebahagian daripada dana yang dikumpul akan digunakan bukan sahaja untuk mengisi keperluan operasi Bank Pembangunan tetapi juga SME Bank.
Ladies and Gentlemen,
3. The successful merger between the former Bank Pembangunan & Infrastruktur Malaysia Berhad and Bank Industri dan Teknologi Malaysia Berhad will undoubtedly enhance the roles played by the development financial institutions (DFIs) in the growth of Malaysia's economy. DFIs have played a significant role by financing the enhancement of strategic sectors vital in the development of Malaysia's economy, but not adequately served by commercial banking institutions.
4. With combined assets of more than RM22 billion and a capital base of RM4.0 billion, the Group will definitely be in a better position to provide financial assistance to not only the SME industry, but also to the infrastructure, maritime, capital-intensive and high technology industries. This would enable Malaysian corporates to better compete in the worldwide market and spearhead Malaysia's progress in the dynamic global market.
5. I am happy to note that Bank Pembangunan has chosen to tap the debt capital market for its funding requirements. Reflecting market acceptance of the corporate bond market as a cost-efficient source of funding for Malaysian corporates, a total of RM63.2 billion worth of private debt securities proposals was approved by the Securities Commission (SC) in 2005. Of this amount, 70 percent was structured according to Islamic principles. The size of the outstanding corporate bond market now stands at RM200 billion.
6. The robust growth in the domestic bond market is also a direct function of investors' confidence in the bonds issued and in the integrity of the intermediaries in the market. In developing the corporate bond market as a viable source of cost efficient funding, it is essential that we maintain constant vigilance to ensure that investor interest is protected at all times. In this area, I am pleased to announce two key measures aimed at enhancing the professional standards of the intermediaries in the bond market.
7. The first measure concerns the credit rating agencies (CRAs) that play a critical role, as their rating opinions affect investors' decisions and bond prices in the market. It is imperative that the credibility of domestic CRAs be maintained through a formula of high standards of due diligence, independence, transparency, and accuracy of credit assessment as well as timely dissemination of rating information to the market. Towards this end, the SC will introduce a greater oversight framework over CRAs through a system of recognition.
8. The recognition will be dependent on the CRAs fulfilling a list of minimum standards expected of them, as well as compliance with the IOSCO Code of Conduct Fundamentals For Credit Rating Agencies. Following this, only credit ratings from CRAs that meet these recognition criteria will be accepted by the SC for domestic corporate bond issues.
9. The second measure, aimed at further improving transparency in the market, is the establishment of bond pricing agencies. These agencies play an important role as an independent and objective source of bond valuation. The introduction of bond pricing agencies, which must be registered with the SC, will represent a step forward in promoting price transparency in the domestic bond market and enhancing investor confidence. The bond pricing agencies are expected to develop fair value prices for all tradable bonds using methodology that takes into account the structure of the bond issues, prevailing market conditions and industry sector of the issuer.
10. The availability of the independently derived bond prices daily is important, particularly to the unit trust industry, as this will facilitate its compliance with daily mark-to-market requirement. Furthermore, the availability of a common source of fair value pricing for OTC bond issues, especially the illiquid corporate bonds, will promote consistency and comparability in the net assets value of unit trust funds which invest in OTC bonds. This measure will enhance unit trust investors' confidence in particular, and bond market investors' confidence in general.
11. In addition to these two measures, efforts are also currently underway to further strengthen market practices and standards of intermediaries. These measures will be announced at a appropriate time once they have been finalized.
12. The Government had in 2004 encouraged the issuance of ringgit-denominated bonds by highly rated international issuers with the release of a facilitative regulatory framework for multilateral development banks and multilateral financial institutions. Following the success of the bond issues by these supranational agencies and to satisfy investor demand for more high credit quality bond issues, the Government will soon extend this policy initiative to bond issues by sovereigns and near-sovereign agencies.
13. Near-sovereign agencies are entities that are owned and controlled by foreign governments and enjoy credit enhancement from their respective governments for their fund-raising exercise. In this context, a similar framework of facilitative approval process will be introduced for sovereigns and near-sovereigns rated AA by international credit rating agencies, with step-up exemptions from trustee and trust deed provisions for sovereigns and near-sovereigns, which are rated AAA.
Ladies and Gentlemen,
14. Coming back to the agenda of the day, the Programme which has been structured for Bank Pembangunan is to enable it to tap into both the conventional and Islamic market, as and when the need arises. With a Programme size of RM7.0 billion, Bank Pembangunan will further add to the liquidity in the domestic debt capital market. The Programme with tenure of 30 years will allow Bank Pembangunan to structure their bond issuances to match both their requirements and market's appetite at the point of issuance.
15. The AA investment grade rating accorded reflects the rating agency's confidence in Bank Pembangunan's repayment capability. By tapping the debt capital market with a high credit rating, Bank Pembangunan would be able to enjoy attractive funding rates and pass this benefit to developmental sectors that may not have been able to source for funding at such cost-effective rates.
Ladies and Gentlemen,
16. Once again, I would like to take this opportunity to thank Bank Pembangunan Malaysia, CIMB and HSBC for inviting me to this function.
Ministry of Finance