Bank Negara Malaysia Eases Foreign Exchange Policy for Multi-lateral Development Banks and Qualified Development Financial Institutions

On 15 November 2024, Bank Negara Malaysia (“BNM”) announced an important liberalisation of Malaysian’s foreign exchange control rules for Multilateral Development Banks (“MDBs”) and Qualified Non-resident Development Financial Institutions (“DFIs”). MDBs are financial institutions whose membership consists of sovereign states while DFIs are financial institutions established (usually by governments) to support the development of a nation.

The liberalisation allows MDBs and DFIs to:

• issue ringgit-denominated debt securities for use in Malaysia; and
• provide ringgit financing to resident entities in Malaysia

Amendments to BNM’s Foreign Exchange Notices

BNM’s Foreign Exchange Notice Nos. 2 and 5 have been amended to facilitate the foreign exchange control liberalisations.

The amendments are aimed at facilitating participation by MDBs and DFIs in the Ringgit debt market and financing of investments in key growth areas in Malaysia.

Impact of Foreign Exchange Control Liberalisations

BNM has traditionally regulated the Ringgit debt markets by limiting the ability to lend in Ringgit primarily to 50+ licensed onshore banks, investment banks and development financial institutions in Malaysia.

With the easing of the foreign exchange rules, international MDBs and Qualified DFIs can now borrow in Ringgit by issuing Ringgit debt securities (both conventional bonds and Islamic sukuks) in any amount. This gives another avenue for MDBs and Qualified DFIs to source for Ringgit liquidity, which may be used by such financing institutions to provide Malaysian customers financing facilities denominated in Ringgit, without BNM’s prior approval.

This liberalisation allows MDBs and Qualified DFIs to tap Malaysia’s robust Ringgit bond and sukuk market to raise Ringgit financing with Malaysia’s Islamic securities market being the largest globally. Additionally, it opens up another avenue of Ringgit financing for Malaysian residents, potentially  benefitting major infrastructure projects in Malaysia through the availability of Ringgit financing from international financiers for domestic projects.

If you have any questions or require any additional information, please contact  Loo Tatt King or the partner you usually deal with in Zaid Ibrahim & Co. (in association with KPMG Law).

This alert is for general information only and is not a substitute for legal advice.