British banking group HSBC today said a "sudden invasion" of Malaysia by foreign banks is unlikely when the financial sector is liberalised in 2007.

Foreign banks might have more operational flexibility but may "not necessarily gain" because there are in effect limits to liberalisation, HSBC Bank Malaysia chief executive Zarir Cama told reporters.

"There is no place which liberalises totally and just says, it's a free for all now and that anybody can come in and do whatever they want to," he said after the launch of a RM76 million (US$20 million) regional processing centre.

"There is a certain framework even within liberalisation and Malaysia has its own framework so I don't believe that there is a great worry that suddenly from 2007, all the banks here will be taken over.

Specific strategy needed

"I don't believe there is going to be a sudden invasion of foreign banks."

In any case, "not every foreign bank has that strategy" in mind, he added.

Cama said financial liberalisation would open the door for foreign banks like HSBC, which currently has 36 branches in the country, to expand its network and reposition its branches.

"But it doesn't necessarily mean that suddenly somebody is going to open 100 branches because there are other banks already in different places. You've got to play to your strengths, you've got to have a specific strategy," he said.

Cama said greater competition would benefit local banks, which had become more efficient after 54 banks and finance houses merged into 10 "anchor" groups two years ago under government pressure.

"If anything, the greater threat (HSBC) faces from the liberalisation and competition that comes with it is from the local banks who have grown bigger and better, rather than those who come in and start from scratch," he added.

Big gulf

Prime Minister Dr Mahathir Mohamad, who is also finance minister, has said the government was wary of the possibility of a "huge foreign bank coming to Malaysia and dominating everything."

At the same time, he said the government would leave it to local banks to chart new mergers, which were necessary as foreign banks were already doing more business than them.

Analysts say a big gulf still separates the small and big banks among the 10 local groups and a further overhaul to create fewer but stronger players is inevitable to cope with competition.

The central bank, which oversaw the banking restructuring, envisages further consolidation to leave between six and eight banks. - AFP