Monday, Malaysian Prime Minister Najib Razak announced a liberalization plan for the financial services sector to attract foreign investment in the slowing economy.

Measures include raising foreign equity participation in Islamic and investment banks and insurance companies to 70% from 49%. Accordingly, existing domestic Islamic banks are given greater flexibility to enter into strategic partnerships with foreign players through increased foreign equity.

But the foreign equity limit for domestic commercial banks will remain at the current 30%.

Up to two Islamic banking licenses will be granted to foreign players to set up new Islamic banks with paid-up capital of at least US$1 billion this year. In 2009, two new commercial banking licenses will be offered to foreign players, and to a maximum of three in 2011.

Also, two new Islamic insurance licenses will be granted in 2009 to spur the development of the takaful industry and reinforce nation's position as an international Islamic financial hub.

To enhance operational flexibilities of foreign institutions operating in Malaysia, locally incorporated foreign commercial banks will be allowed to establish four new full-fledged branches with effect in 2010 and 10 microfinance branches with effect from this year.

Najib said these liberalization measures will be implemented over 2009 to 2012 and these steps are in line with the Government's initiative to promote structural change within the economy and diversify sources of growth to further drive economic expansion.

The services sector contributes 55% of the GDP in 2008 and accounts for 57% of the total employment in Malaysia.

Last week, the government had decided to immediately liberalize 27 services sub-sectors, with no equity condition imposed. These sub-sectors belong to health and social services, tourism, transport, business and computer and related services.

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