KUALA LUMPUR (NewsRise) -- Malaysia's central bank and the financial services regulator of Indonesia signed a bilateral agreement that will give the lenders greater access and flexibility to operate in each other's markets.
The move, part of a broader economic integration initiative among the 10-member bloc of Southeast Asian countries, is expected to deepen cross-border financial links and boost regulatory cooperation between Malaysia and Indonesia.
"Under the agreement, it is envisaged that both Malaysian and Indonesian banks will have a greater role in facilitating cross-border trade and investment between both countries," Bank Negara Malaysia said in a statement to announce the pact with Indonesia's Otoritas Jasa Keuangan.
Malaysia is home to 27 local and foreign commercial banks that compete aggressively in a nation of 30 million people. That compares to 120 commercial banks in Indonesia catering to a population of over 250 million people.
Indonesian banks have long complained of restriction to freely operate in its more-prosperous neighbor even as several Malaysia banks, including Malayan Banking and CIMB Group holdings, have made headways in expanding in the archipelago.
Malaysia's central bank, which also regulates the banking industry, imposes relatively stricter rules that include shareholding limit and capital requirements of at least 300 million ringgit (about $74 million) for foreign banks to operate in the country.
Bank Mandiri, Indonesia's largest bank by assets, is the only Indonesian commercial bank with a presence in Malaysia although the lender hasn't been able to operate a full branch in the country.
"With the implementation of the agreement, Bank Negara Malaysia looks forward to the establishment of Indonesian Qualified ASEAN Banks in Malaysia," the central bank said.
Malaysia and Indonesia are both members of the Association of Southeast Asian Nations, or Asean, that has agreed to gradually integrate their financial services under the so-called Asean Financial Integration Framework.
The framework permits banks that meet certain criteria to be classified as one of the Qualified Asean Banks, to operate with greater access and flexibility in the region. That could allow a smaller bank from an Asean country to expand its businesses in other countries within the bloc.
"The increased banking and financial integration will further deepen the potential for mutually reinforcing growth and greater shared prosperity between both countries and within the region," Bank Negara Malaysia said.