Prime Minister Najib Razak told reporters he is raising the foreign ownership cap in insurance companies and investment banks - known as noncommercial banks - from 49 percent at present to 70 percent.
"These liberalization measures are in line with the government's initiatives to promote structural change within the economy and diversify sources of growth to further drive economic expansion," said Najib, who is also the finance minister.
"In enhancing our international linkages and taking the financial sector to a new level of performance it will contribute to our overall economy," he said.
Foreign banks to get licences to operate locally
Najib said the government will issue licenses to five new foreign commercial banks, which are the traditional lenders serving the public, by 2011.
Currently, there are 13 locally incorporated commercial banks, including Citibank, Standard Chartered and HSBC.
Although they are fully owned by foreign entities, they are restricted in their operations and can only run a certain number of branches. Still, the foreign banks control 25 percent of the domestic banking market.
The foreign banks are also not allowed to own more than 30 percent of domestic commercial banks.
Najib said this rule will remain unchanged to allow the local financial services sector to flourish. He said the government will issue six new licenses to foreign financial bodies in 2009 and three in 2011.
Of the six licenses, two will be given to foreign Islamic banks with a paid up capital of at least $1 billion, two to foreign commercial banks with specialized expertise and two to Islamic family insurance companies.
In 2011, up to three licenses will be issued to world class foreign commercial banks, he said.