Gov't guarantees bank deposits 'til Dec 2010

Malaysia has issued a guarantee for all bank deposits until December 2010, following the lead of several other nations in a measure to maintain the stability of its financial system.

"These measures are pre-emptive and precautionary, since Malaysian financial institutions are well-capitalised with ample liquidity, and confidence of depositors remains intact," the central bank said in a statement.

The move was announced late yesterday in tandem with a similar measure in Singapore and follows action to protect banks in Australia, Hong Kong, New Zealand and several European countries.

Bank Negara said that with immediate effect, the guarantee would cover all ringgit and foreign currency deposits with domestic and locally incorporated foreign banking institutions.

Insurance companies and takaful operators, which provide products that mimic insurance but comply with Islamic law, would also have access to the liquidity facility.

Bank Negara: More Measures If Necessary

The central bank said that if there was any further destabilising fallout from the global crisis, it would take additional measures to protect the financial system.

"In addition to ensuring adequate liquidity in the banking system at all times, (it) would also guarantee interbank obligations of banking institutions and facilitate efficient access to capital for banking institutions to maintain capital adequacy at target levels well above the minimum standards."

Authorities around the world have been scrambling to shore up public confidence in the global financial system by nationalising banks, guaranteeing deposits and putting together massive bank bailout packages.

Central bank governor Zeti Akhtar Aziz said this week that the Malaysian economy, which posted a strong performance in the second quarter, would not be severely affected by the US subprime crisis.

"I want to emphasize that ... the impact on Malaysia would be less pronounced than what we experienced previously, because we are a more diversified economy and more importantly we have a stronger domestic economy (now)," she said.

S'pore Set Aside US$101 Bil

Singapore said it had set aside US$101 billion to guarantee all bank deposits in the city-state until the end of 2010, but insisted the banking system remained sound.

Singapore, like Hong Kong, is a regional financial centre and one Singapore-based bank, DBS, is Southeast Asia's largest lender.

"The government has decided to take precautionary action to avoid an erosion of banks' deposit base and ensure a level international playing field for banks in Singapore," the city-state's authorities said.

Hong Kong on Tuesday said it would guarantee all bank deposits and set up an emergency capital fund for the city's banking industry, but insisted the sector remained stable despite global turmoil.

Financial secretary John Tsang said that retail deposits in the Chinese territory would be fully guaranteed until 2010, following similar moves by other governments.

European Union nations have already committed more than US$2.4 trillion to fighting the crisis by buying bank shares and providing loan guarantees to keep credit markets moving.

The United States has a US$700 billion rescue plan, and Washington announced on Tuesday that US$250 billion from that would be used to take stakes in nine major banks.