KUALA LUMPUR: Bank Negara Malaysia has warned that it will penalise Malaysian registered banks — both local and foreign — that facilitate ringgit transactions on the offshore non-deliverable forwards (NDF) market.
“We will penalise them if they facilitate offshore NDF trading as they are breaching the Foreign Exchange Administration rules. We can also take criminal or administrative action (against them),” said assistant governor Adnan Zaylani Mohamad Zahid at a briefing, here, yesterday.
He said the central bank had issued reminders to local banks not to facilitate offshore NDF.
“The NDF market has driven up the onshore rates five to six sen higher. It is a situation we cannot tolerate and we are taking serious measures to address it.”
Adnan said offshore NDF trading was illegal in Malaysia, although it could be carried out in other countries.
He said the central bank could not prosecute those involved in offshore trading as the activity was outside its jurisdiction.
“There is no restriction for people to transact in the offshore market.
“It’s a choice that banks and institutions have to make. We can’t enforce anything beyond our jurisdiction.”
Adnan said the central bank would strengthen enforcement to ensure that local financial institutions were not involved in the NDF market.
One way to tackle the situation
is expanding the flexibility of
the onshore market by making it more attractive.
Adnan said this could be done by making the onshore market the market of choice for residents and non-residents and attracting some offshore NDF market players to come onshore.
“This is the strategy, going forward, which is to accommodate the demand of non-resident investors, which will eventually increase the depth and breadth of the foreign exchange and bond markets.”
Despite the uphill task as Malaysia was an open market, Adnan said the central bank had a policy to maintain the ringgit as a non-internationalised currency and avoid potential speculation.
He said Bank Negara would continue to advise banks not to follow offshore NDF rates in the future.
“We will not fix the ringgit to face-off against the illegal NDF but will continue to monitor the activities closely,” he added.