Malaysia's bond market helps mitigate financial risks

Malaysia's early development of the corporate bond market helped to mitigate the effects of the Asian Financial crisis on the corporate sector of Malaysia, said Executive Deputy Chairman/Group CEO RAM Holdings Berhad Tan Sri Datuk C. Rajandram.

Addressing a breakfast presentation organized by the ACCA he said that the government of Malaysia decided to develop the bond market as the CB of Malaysia (Bank Negara Malaysia) was not in a position to support the next phase of development in Malaysia.

Therefore, starting in the early 1980's the government supported the development of the bond market as it was a more viable option than depending on the banking system for funds. Today as a share to GDP Malaysia has the third largest bond market among the East Asian countries while Japan and Korea are ranked the first and second largest bond markets in the region.

Another reason for Malaysia to develop the bond market was because the government was of the view that tapping local funds is much more viable than tapping foreign funds for long term infrastructure projects.

He said that subsequent corporate restructuring efforts have significantly reduced the financial distress and averted a spillover into the real economy.

In addition the 2009 global financial crisis did not cause a credit crunch or liquidity in the Malaysian bond market due to strong market integrity and soundness as reflected by the predominance of bonds with high credit ratings.

As a result of developing the bond market in Malaysia there has been a rapid growth and expansion of local currency bond markets in Asia.

The local bond markets have outgrown other financing sources, budget surplus in some countries while the other countries have reduced the deficits and most importantly increased private financing activities.

Rajandram said that there is a more balanced financial structure with the bond market shouldering more credit risks which has helped improve the resource allocation while reducing maturity and currency mismatches.