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Published: Tuesday November 24, 2009 MYT 3:12:00 PM

Zeti: Liquidity management infrastructure needed for Islamic finance


KUALA LUMPUR: The ability of Islamic financial institutions to manage liquidity needs to be addressed urgently, says Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz.

She said the recent financial turmoil in advanced economies has clearly demonstrated the consequences of liquidity constraints and underscored the importance of a strong and well-developed liquidity management infrastructure.

In order to facilitate effective cross-border management of liquidity, Zeti said it required the development of shariah-compliant financial instruments and a well-developed international market infrastructure.

Thus, she said the Islamic Financial Services Board (IFSB), in collaboration with the Islamic Development Bank (IDB), established a liquidity management task force, early this year, to develop a liquidity management framework.

"We hope to have the framework in place sometime in 2010," she said at a Bank Negara conference on financial stability here Tuesday.

Zeti said it was also important that the regulatory and supervisory framework be strengthened.

Apart from the implementation of these prudential standards, she added that there was also a need to ensure the supervisory and legal infrastructure remained relevant to the rapidly changing Islamic finance landscape.

"In Malaysia, these efforts are also supported by a comprehensive financial safety net that includes a deposit insurance scheme which protects depositors.

"It also prompts effective resolution of the financial system to facilitate re-capitalisation of Islamic financial institutions as well as institute programmes to remove troubled assets from the books of financial institutions," she explained.

Malaysia, she said, has an efficient functioning Islamic money market which has accorded greater monetary flexibility in the Islamic financial system.

"While, the market is traded in the domestic currency, it has drawn wider participation from the international financial community," Zeti added.

The Governor said the Islamic banking system today has emerged as a vibrant financial system in Malaysia with Islamic banking assets accounting for 18.8 per cent of the total banking assets.

"As Islamic finance continues to become an integral part of the global financial system, there is scope for the current framework of cooperation to be strengthened and broadened to address the new challenges that have emerged," she added. - Bernama


For Bank Negara statements click here

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