Other perfection steps
Banking & Finance
Malaysia has a well-developed and diversified banking and finance market, underpinned by a robust regulatory framework and a mature dual banking system comprising both conventional and Islamic financial institutions. The country is widely recognised as a global leader in Islamic finance and has positioned itself as a significant hub for cross-border financial activity within the ASEAN region.
As at March 2026, the Malaysian banking landscape comprises twenty-four (24) commercial banks, sixteen (16) Islamic banks, one (1) international Islamic bank, ten (10) investment banks, three (3) digital banks, and two (2) Islamic digital banks, a number of which are foreign-owned. These institutions provide a comprehensive suite of conventional banking, Islamic banking, investment banking, and digital banking services. In addition, several development financial institutions (“DFIs”) have been established by the Malaysian government under the Development Financial Institutions Act 2002 (“DFIA”) to develop and promote key sectors of strategic importance, including agriculture, small and medium enterprises (“SMEs”), and the export sector.
Sources of financing available to businesses in Malaysia include bilateral and syndicated loan funding, development finance, export credit and funding from debt issuances (both bonds and sukuk). The types of loan funding offered by local financial institutions are broadly comparable to those available in other major jurisdictions. Foreign currency facilities may be subject to certain thresholds and requirements set out in the Financial Services Act 2013 (“FSA”) and Islamic Financial Services Act 2013 (“IFSA”), and the relevant exchange control notices issued by Bank Negara Malaysia (“BNM”).
Common lender types in Malaysian financings include the major domestic banks (such as Malayan Banking Berhad, CIMB Bank Berhad, Public Bank Berhad, and RHB Bank Berhad), regional banks with a strong ASEAN presence, and international banks with Malaysian subsidiaries (including HSBC Bank Malaysia Berhad, Standard Chartered Bank Malaysia Berhad, Citibank Berhad, and several Japanese banks such as MUFG Bank (Malaysia) Berhad and Sumitomo Mitsui Banking Corporation Malaysia Berhad). The domestic banks tend to dominate Ringgit-denominated lending, particularly in bilateral facilities, while the international and Japanese banks play a more prominent role in larger syndicated facilities, project and infrastructure financings, and cross-border transactions. Non-bank lenders, including private credit funds and institutional investors, have an emerging but still limited presence in the Malaysian lending market compared to more developed jurisdictions.
Types of Financial Institutions
Commercial Banks
There are twenty-four (24) licensed commercial banks in Malaysia, comprising a mix of domestically incorporated institutions and locally incorporated subsidiaries of foreign banks. These banks provide the full range of conventional banking services, including corporate lending, trade finance, treasury operations, and retail banking. A full list of licensed commercial banks is maintained on BNM’s website. Several commercial banks, including BNP Paribas Malaysia Berhad, Citibank Berhad, Deutsche Bank (Malaysia) Berhad, MUFG Bank (Malaysia) Berhad, Mizuho Bank (Malaysia) Berhad, Sumitomo Mitsui Banking Corporation Malaysia Berhad and United Overseas Bank (Malaysia) Bhd, are also approved to operate Islamic banking windows.
Key foreign bank subsidiaries operating in Malaysia include BNP Paribas Malaysia Berhad, Bank of China (Malaysia) Berhad, Citibank Berhad, Deutsche Bank (Malaysia) Berhad, HSBC Bank Malaysia Berhad, J.P. Morgan Chase Bank Berhad, MUFG Bank (Malaysia) Berhad, and Standard Chartered Bank Malaysia Berhad, among others.
Note: The Bank of Nova Scotia Berhad ceased its business and operations in Malaysia with effect from 5 June 2024. As at March 2026, India International Bank (Malaysia) Berhad is undergoing a member’s voluntary liquidation.
Islamic Banks
There are sixteen (16) licensed Islamic banks operating in Malaysia. These institutions conduct banking business in accordance with Shariah principles and are regulated under the IFSA. In addition, there is one foreign international Islamic bank – PT. Bank Muamalat Indonesia, Tbk – licensed to conduct Islamic banking business in international currencies other than Ringgit with residents and non-residents.
Note: Alkhair International Islamic Bank Bhd (later renamed AKIIM Sdn Bhd) surrendered its banking licence to BNM in 2019 and the entity was subsequently converted into a private limited company before entering voluntary liquidation.
Investment Banks
There are ten (10) licensed investment banks in Malaysia, including Affin Hwang Investment Bank Berhad, AmInvestment Bank Berhad, CIMB Investment Bank Berhad, Maybank Investment Bank Berhad, and MBSB Investment Bank Berhad (formerly MIDF Amanah Investment Bank Berhad, rebranded in July 2025 following MBSB Berhad’s acquisition of its parent company). Investment banks are licensed under the FSA and primarily provide corporate advisory, debt and equity capital markets, and structured finance services. Several investment banks, including CIMB Investment Bank Berhad, KAF Investment Bank Berhad, Kenanga Investment Bank Berhad, Maybank Investment Bank Berhad, and MBSB Investment Bank Berhad, are also approved to operate Islamic banking windows.
Digital Banks
Malaysia has recently licensed three (3) digital banks (Boost Bank Berhad, GX Bank Berhad, and YTL Digital Bank Berhad (Ryt Bank)) and two (2) Islamic digital banks (AEON Bank (M) Berhad and KAF Digital Bank Berhad). These institutions represent a new category of licensed bank, aimed at expanding financial inclusion and offering technology-driven banking services.
Development Financial Institutions
DFIs are institutions established by the Malaysian government to develop and promote key sectors of strategic importance. Certain DFIs are prescribed under the DFIA and supervised by BNM, including Bank Pembangunan Malaysia Berhad, SME Bank, Export-Import Bank of Malaysia Berhad, Bank Kerjasama Rakyat Malaysia Berhad, Bank Simpanan Nasional, and Bank Pertanian Malaysia Berhad. Several of these DFIs, including Bank Pembangunan Malaysia Berhad, SME Bank, Export-Import Bank of Malaysia Berhad, and Bank Simpanan Nasional, are also approved to operate Islamic banking windows. A number of additional DFIs, including Credit Guarantee Corporation Malaysia Berhad, Lembaga Tabung Haji, Sabah Development Bank Berhad, Sabah Credit Corporation Berhad, Borneo Development Corporation (Sabah) Sdn Bhd, and Borneo Development Corporation (Sarawak) Sdn Bhd, operates outside the scope of the DFIA.
ASEAN Regional Framework on Cross Border Cloud Computing
Regulatory Authorities
The banking and financial services industry in Malaysia is overseen by three (3) principal regulatory bodies.
Bank Negara Malaysia
Bank Negara Malaysia is the Central Bank of Malaysia established in 1959 under the then Central Bank of Malaya Act 1958 (now known as the Central Bank of Malaysia Act 2009 (“CBMA”)) to act as the authority responsible, amongst others, to:
- act as financial adviser, banker and financial agent of the Malaysian government;
- regulate the banking and financial services industry and ensure stability of the country’s financial system;
- ensure prudent conduct of monetary policy; and
- manage domestic liquidity and exchange rates.
BNM is the key regulator for most if not all financial institutions in Malaysia and wields a wide range of powers, from issuing general guidelines to all financial institutions to specific directions to a specific entity, to maintain the stability of the financial system. It reports to the Minister of Finance, Malaysia (“Minister”) and keeps the Minister informed of matters pertaining to monetary and financial sector policies and issues.
Securities Commission Malaysia
The Securities Commission Malaysia (“SC”) is a statutory body established in 1993 under the Securities Commission Act 1993 to regulate fund raising activities (debt and equity) and to encourage and promote the development of the securities and derivatives markets in Malaysia. The SC’s regulatory functions include supervising exchanges, clearing houses and central depositories;
- acting as the registering authority for prospectuses of corporations;
- being the approving authority for corporate bond issues;
- regulating all matters relating to securities and derivatives contracts;
- regulating the take-over and mergers of companies;
- regulating all matters relating to unit trust schemes;
- licensing and supervising all licensed persons;
- encouraging self-regulation; and
- ensuring proper conduct of market institutions and licensed persons.
The SC is vested with investigative and enforcement powers and it reports to the Minister.
Labuan Financial Services Authority
The Labuan Financial Services Authority (“LFSA”) was established in 1996 under the Labuan Financial Services Authority Act 1996. The LFSA is the statutory body responsible for the development and administration of the Labuan International Business and Financial Centre (“Labuan IBFC”). Labuan IBFC offers a wide range of business and investment structures facilitating cross-border transactions, business dealings and wealth management needs.
Key Legislation
Financial Services Act 2013
The principal legislation governing the banking and financial services industry in Malaysia is the Financial Services Act 2013, which sets out the provisions relating to the banking and financial services industry and the exchange control regime of Malaysia. BNM is empowered under the FSA to issue guidelines, standards, and notices on a wide range of matters relating to the industry, from capital adequacy frameworks to prudential limits and standards (e.g. statutory reserve requirements, liquidity framework, and best practices for credit risk management) to financial reporting. The guidelines, standards, and notices may contain guidance which are encouraged to be adopted or requirements which must be complied with.
Under the FSA, persons who wish to operate commercial or investment banks must apply for a licence from the Minister, while those who wish to carry on business of money-broking or financial advisory must apply to BNM to do so. Under the FSA, the Minister’s approval is required if the acquisition/disposal of shares in a licensed person (such as a bank) exceeds any multiple of 5%, or if such acquisition or disposal of interest in shares of the licensed person will result in the interest in shares of the acquirer exceeding 50% or the person disposing of the same, falling below 50% or in any way results in a loss of control over the licensed person.
The FSA also introduces the concept of a financial holding company and empowers BNM to exercise oversight over financial groups for the purposes of promoting the safety and soundness of the banking and financial services industry. Certain prudential requirements that apply to licensed institutions (such as banks) now also apply to financial holding companies, and BNM may specify standards on prudential matters to the holding company.
BNM is also empowered to safeguard the balance of payments position and the value of the currency of Malaysia. In addition to the provisions of the FSA, BNM issues exchange control notices to regulate the money market and foreign exchange market.
Islamic Financial Services Act 2013
The Islamic Financial Services Act 2013 is a significant legislation in Islamic banking, finance and investment in Malaysia, which sets out the regulatory framework for Malaysia’s Islamic financial sector with the principal regulatory objectives of promoting financial stability and compliance with Shariah. Similar to the FSA, IFSA equips the BNM with regulatory and supervisory powers. Islamic financial institutions are regulated by the IFSA to promote financial stability and compliance with Shariah principles. Under the IFSA, all persons undertaking Islamic banking business are required to hold valid licences issued by the Minister.
In promoting compliance with Shariah, IFSA imposes a duty on Islamic financial institutions to ensure compliance with Shariah at all times and also empowers the BNM to issue standards on Shariah requirements to facilitate institutions in complying with Shariah. The Islamic financial institutions are required to comply with the rulings of the Shariah Advisory Council established under the CBMA.
Under the IFSA, all licenced Islamic financial institutions are required to establish an internal Shariah committee to ensure that all the relevant activities, business and affairs are Shariah-compliant. Any person appointed to the Shariah committee of any financial institution must meet certain requirements set by BNM and must also have obtained the prior approval of BNM. All Islamic financial products offered by any financial institution must be approved by its internal Shariah committee.
Capital Markets and Services Act 2007
The Capital Markets and Services Act 2007 (“CMSA”) is one of the main pieces of legislation governing fund raising activities in the debt and equity markets in Malaysia. It is a comprehensive piece of legislation which prescribes the law inter alia on who may offer capital market services and the licensing regime, prohibited conduct in the market, and regulations on the issuances of securities and take-overs and mergers.
The SC is empowered under the CMSA to issue guidelines and practice notes that the SC considers desirable. The SC has continuously issued such guidelines and practice notes and has consistently updated those guidelines to ensure that they are market standard and also reflect international best practices.
Companies Act 2016
The Companies Act 2016 (“CA 2016”) is the principal legislation governing the incorporation, management, and regulation of companies in Malaysia. Of particular relevance to banking and finance transactions, the CA 2016 contains provisions on the registration of charges, financial assistance restrictions, and the corporate insolvency regime.
Anti-Money Laundering and Counter-Terrorism Financing
Malaysia’s anti-money laundering and counter-terrorism financing regime is principally governed by the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (“AMLA”). AMLA applies to all reporting institutions, including licensed banks, Islamic banks, investment banks, and other financial institutions. Reporting institutions are required to conduct customer due diligence (including know-your-customer checks), monitor transactions for suspicious activity, and file suspicious transaction reports with BNM. Foreign lenders participating in Malaysian financings may find that Malaysian borrowers and obligors are subject to these requirements, which can affect onboarding timelines and the information required as part of the conditions precedent process. BNM also issues sector-specific guidelines on Anti-Money Laundering and Countering Financing of Terrorism compliance, which are updated from time to time.
Lending Structures and Documentation
Common Facility Types
The Malaysian lending market supports a full range of facility types commonly seen in international banking practice. These include:
- bilateral term loans and revolving credit facilities;
- syndicated loan facilities (including club deals);
- bridging and acquisition finance facilities;
- project finance facilities;
- trade finance facilities (including letters of credit and bankers’ guarantees);
- export credit agency-supported facilities; and
- working capital facilities.
The Syndicated Lending Market
Syndicated lending is well established in Malaysia, particularly for larger corporate and infrastructure financings. Documentation is typically based on Asia Pacific Loan Market Association (“APLMA”) standards, adapted for Malaysian law and market practice.
Malaysian syndicated transactions generally fall into two categories. Club deals, typically involving three (3) to eight (8) relationship banks, are common for medium-sized corporate facilities and are usually pre-arranged with limited or no general syndication. Broadly syndicated facilities, underwritten by one or more mandated lead arrangers, are used for larger infrastructure, project finance, and acquisition transactions. Domestic banks – particularly Maybank, CIMB, and RHB – anchor most Ringgit-denominated syndications, while international and Japanese banks feature prominently in cross-border and foreign currency deals.
Secondary loan trading exists but is less liquid than in markets such as the US, UK, or Hong Kong. Transfer provisions typically permit assignments and novations, subject to borrower consent (not to be unreasonably withheld) and, in some cases, facility agent consent. Transfers to non-resident lenders may trigger BNM’s foreign exchange administration requirements.
Intercreditor and Subordination Arrangements
Intercreditor arrangements are typically documented through intercreditor agreements or common terms agreements, depending on transaction complexity. In multi-tranche financings (e.g. senior secured combined with mezzanine or subordinated debt), the intercreditor agreement will typically address priority of claims, payment waterfalls, enforcement standstills and release mechanics, and senior lender direction rights. Where a financing includes both conventional and Islamic tranches, intercreditor arrangements must ensure parity between the two.
Documentation Standards
Loan documentation is generally prepared in English and follows international practice. For bilateral facilities, Malaysian banks typically use their own standard forms. For syndicated facilities, APLMA-based documentation is the market standard, with customary Malaysian law adaptations.
Key Malaysian-specific documentation considerations include:
- BNM’s foreign exchange administration provisions;
- Shariah-compliance wrappers (for Islamic financings);
- Malaysian security perfection and registration requirements; and
- gross-up and tax indemnity provisions for Malaysian withholding tax.
Typical Covenant Packages
Covenant packages in Malaysian loan facilities are broadly consistent with international practice and APLMA standards. Typical financial covenants include leverage ratios (debt to EBITDA), interest coverage ratios, debt service coverage ratios, and minimum net worth tests. Information undertakings typically require delivery of audited annual and unaudited quarterly financial statements, compliance certificates, and notification of defaults and material adverse changes. General undertakings commonly include negative pledges, restrictions on disposals, limitations on further indebtedness, and restrictions on mergers and restructurings. Domestic banks may accept lighter covenant packages for established relationship borrowers.
Pricing and Benchmarks
Ringgit-denominated loans are commonly priced on a cost of funds basis determined by the lending bank or, by reference to the Kuala Lumpur Interbank Offered Rate (KLIBOR). Following global benchmark reform, market participants should confirm with arranging banks whether any transition to alternative reference rates is in progress. Foreign currency loans are priced by reference to international benchmarks (e.g. Term SOFR for USD, EURIBOR for EUR).
Typical Transaction Timelines
Transaction timelines are broadly comparable to other developed Asian jurisdictions. A straightforward bilateral secured financing can typically be completed within four to six weeks from mandate. A syndicated facility with a full security package may take eight to twelve weeks, depending on complexity.
Key timeline drivers include:
- BNM regulatory approvals (where applicable), which may take several weeks;
- land registry filings for real estate charges, which can involve processing delays, particularly in Sabah and Sarawak;
- registration of charges with Companies Commission of Malaysia (“CCM”), which must be completed within thirty (30) days of creation; and
- preparation and execution of security documents, including any notarisation, attestation, or stamp duty adjudication.
Conditions Precedent
Typical conditions precedent include:
- constitutional documents and corporate authorisations;
- legal opinions from Malaysian counsel;
- perfection of security (including CCM and land registry registrations);
- BNM’s foreign exchange compliance (where applicable);
- regulatory approvals and consents;
- payment of stamp duty; and
- customary due diligence documents (insurance, material contracts, financials).
Security
Overview and Typical Security Packages
Security can be taken over a wide range of assets in Malaysia. Guarantees may be granted by individuals or corporate entities. Security or guarantees in favour of non-residents may require BNM registration or approval under the foreign exchange administration rules.
A typical security package includes:
- debenture (fixed and floating charges over assets and undertaking);
- charges over real estate;
- share charges;
- assignments of material contracts;
- assignments of insurance policies and receivables; and
- charges over bank accounts.
The scope of a security package varies by transaction type. Corporate term loans typically require a debenture and, where applicable, real estate charges. Project financings typically include assignments of material project documents (concession agreements, construction contracts, offtake agreements, insurance), together with share charges and account charges. Acquisition financings typically include share charges over the target, a debenture over target group assets, and assignments of shareholder loans, subject to the financial assistance restrictions (see Financial Assistance section below).
Forms of Security by Asset Class
The form of security differs from one asset to another. The types of assets and the common forms of security over these assets are set out below.
Real Estate
Real estate is land, which is statutorily defined (land) to include the surface of the earth and all substances forming that surface; the earth below the surface and substances therein; buildings on land and anything attached to land or permanently fastened to anything attached to land (whether on or below the surface); all vegetation and other natural products, whether or not requiring the periodical application of labour to their production (whether on or below the surface); standing timber, trees, crops and other vegetation growing on land; and land covered by water.
The most common forms of security over real estate are as follows:
Charges
Charges can be created over real estate to secure a debt, annuity or any other amount other than a debt. Where a charge is created over land, the chargee acquires a legal interest in the land. However, the chargor retains ownership of the land. A chargee can enforce his security by way of a sale of the land if the chargor defaults. Charges are the predominant form of security taken by banks and financial institutions when financing the purchase and development of real estate.
Statutory liens
Liens are usually used when the loan is for a small amount and is required for a short duration. A lien is created when the registered owner or lessee of land has an intention to create the lien, and as security for a loan, deposits the issue document of title or duplicate lease with the lender. The lender then applies for entry of a lien-holder’s caveat.
Assignments
Absolute assignments of the borrower’s rights, title and interests in a sale and purchase agreement are usually effected in favour of banks and financial institutions financing the purchase of real estate, where the title documents to the real estate were not yet issued.
Tangible movable property
Examples of tangible movable property include aircraft and ships; motor vehicles; plant and machinery; stock-in-trade; and equipment.
The most common forms of security over tangible movable property are as follows:
Statutory Mortgages
Security is created over aircraft and ships by a statutory mortgage in accordance with the Civil Aviation Regulations 2016 and the Merchant Shipping Ordinance 1952 (as amended by Merchant Shipping Ordinance (Amendment) Act 2016).
Debentures
A debenture is a security document that is usually entered into when creating a fixed and floating charge over the assets and undertaking of a borrower. It is common for tangible movable property such as plant and machinery, motor vehicles (which are not the subject of a hire-purchase agreement) and equipment to be charged by way of a fixed charge in a debenture. However, stock-in-trade is charged by way of a floating charge to enable the borrower to continue to deal with it. Where specific property is the subject of a charge, it is common for a list containing details of such property to be attached to the debenture.
Financial instruments
The financial instruments over which security is most commonly granted are shares and debt securities (for example, bonds). Security can be granted over the security provider’s rights in shares, both certificated (for example, unlisted shares in private companies) and non-certificated (for example, shares in listed companies), owned by the security provider, and bonds and other tradable/untradeable debt securities. A fixed charge cum assignment is the most common form of security created over certificated and non-certificated (listed) shares and debt securities.
Claims and receivables
Common types of claims and receivables include debts and other rights to the payment of money; rights to require (in project financing, for example) performance of a non-financial obligation; rights to claim under insurances; and cash deposited with banks. Security is created over claims and receivables by an assignment by way of security.
Cash deposits
It is common to grant security over cash deposits by charging and assigning the bank accounts that contain the deposit in favour of the lender/security holder. Where the lender is the account bank, it is common to reinforce that charge by granting set-off rights to the lender with respect to the deposit. Where the deposit is in the form of a fixed deposit, the security holder usually takes possession of the fixed deposit certificate.
Intellectual property
The common types of intellectual property in Malaysia are industrial designs; patents; trademarks; and copyright. Security over intellectual property can be taken by way of assignment; or by a fixed charge. A registered industrial design can be the subject of a security interest in the same way as other personal or movable property (section 29(5), Industrial Designs Act 1996). Under the Trademarks Act 2019, registered trademarks are recognised as personal property and may be assigned or charged as security. The Patents Act 1983 and the Copyright Act 1987 do not contain equivalent express provisions. In practice, intellectual property is rarely taken as a separate security class in Malaysian financings and is typically captured under debentures creating fixed and floating charges over the assets and undertaking of the security provider.
Fixed and Floating Charges — Key Features
A fixed charge has the immediate effect of appropriating a specific asset to the satisfaction of a debt in the event of default, depriving the chargor of the right to deal with the charged asset without the consent of the chargee.
A floating charge is a charge over a class of assets that allows the chargor to deal with the assets in the ordinary course of business until a crystallisation event occurs (such as an event of default, the appointment of a receiver, or the commencement of winding-up proceedings), at which point the floating charge crystallises into a fixed charge over the then-existing assets. Upon crystallisation, the chargor can no longer deal with those assets.
A key distinction for lenders is that floating charges rank behind preferential creditors (including employees and statutory bodies) in an insolvency, whereas fixed charges do not. The proper characterisation of a charge as fixed will generally depend on the degree of control the lender exercises over the relevant assets.
Security Perfection and Registration
Perfection requirements vary depending on the type of security and the nature of the asset:
Registration with CCM
Under the CA 2016, charges created by a company must be registered with the CCM within thirty (30) days of the creation of the charge. Failure to register within the prescribed period renders the charge void against a liquidator and any creditor of the company, although the underlying debt remains enforceable as an unsecured obligation. Late registration may be possible with a court order, but this is discretionary and may not protect against intervening interests. In practice, the 30-day period is strictly observed. The CCM registration process is conducted online through CCM’s electronic filing system, and registration is typically completed within a few business days of submission, provided all documents are in order.
Land registry filings
Charges over real estate must be registered at the relevant land registry or land office under the National Land Code (“NLC”) (for Peninsular Malaysia) or the equivalent legislation in Sabah and Sarawak. Registration is essential to create a valid legal charge over the land. The land regimes in Sabah and Sarawak operate under separate legislation (the Sabah Land Ordinance (Cap. 68) and the Sarawak Land Code (Cap. 81) respectively), which may differ in certain procedural respects from the NLC. Processing times at state land offices can vary significantly and may be a material timeline consideration, particularly in rural or less developed areas. Stamp duty must typically be adjudicated and paid before a charge instrument can be presented for registration at the land office.
Other perfection steps
Assignments of receivables and contractual rights are typically perfected by giving notice of the assignment to the relevant obligor. Security over shares in listed companies held through the central depository system (Bursa Malaysia Depository) is perfected by recording the charge in the securities accounts maintained by the depository. Possession of share certificates is relevant for unlisted shares.
Consequences of defective or late perfection
The consequences of failing to perfect security are significant. An unregistered charge is void against a liquidator and creditors of the company, meaning the lender would rank as an unsecured creditor in an insolvency. An unregistered charge over land will not create a valid legal interest. Late registration with CCM requires a court order and is subject to the court’s discretion – the court will consider, among other things, whether any prejudice would be caused to other creditors. As a matter of market practice, legal opinions delivered in connection with a financing typically confirm that all required registrations have been completed and that the security interests are valid and perfected.
Priority of Security Interests
The priority of competing security interests in Malaysia is generally determined by the date of registration (for registrable charges) and the date of creation (for other interests). A fixed charge will generally rank ahead of a floating charge over the same assets, even if the floating charge was created first, unless the floating charge contains a negative pledge clause and the subsequent fixed chargee had actual notice of it.
Guarantees
Guarantees are commonly used in Malaysia and can be granted by individuals or corporate entities. A guarantee’s main terms must be in writing and signed by or on behalf of the guarantor to be enforceable. The beneficiary of the guarantee must provide consideration for the guarantor’s promise.
In practice, guarantees in Malaysian corporate financings may be upstream (subsidiary guaranteeing parent), downstream (parent guaranteeing subsidiary), or cross-stream (sister company guarantees). For upstream and cross-stream guarantees, the question of corporate benefit is typically considered, having regard to the duties of directors under the CA 2016 to act in the best interests of the company. Guarantees are commonly authorised by the board of directors of the guarantor, and in some cases shareholder approval is also obtained. Where the guarantee supports the acquisition of shares in the guarantor’s own holding company or the guarantor itself, the financial assistance restrictions under the CA 2016 may also be relevant (see Financial Assistance section below).
Release of Security
To release a charge registered over real property, the lender must execute a discharge of charge form prescribed by the relevant real estate legislation and file the form at the relevant registry or land office. Notification must also be lodged with CCM for the release of the charge through the filing of forms prescribed by the CA 2016. A lender can release a lien over real estate by giving a notice in writing to the Registrar of Titles to withdraw the lien-holder’s caveat on the real estate.
For other types of security, when outstanding sums are settled in full, the assignee usually executes a deed of receipt and re-assignment in favour of the assignor, and the assignee also revokes any power of attorney registered at the High Court.
Financial Assistance
Statutory Restrictions
Sections 123 to 126 of the CA 2016 restrict a company from providing financial assistance for the acquisition of its own shares or those of its holding company. This includes loans, guarantees, security, release of obligations, and any assistance that would reduce the company’s net assets. These restrictions are particularly relevant in leveraged buyout transactions. Where a target company or its subsidiaries will provide security or guarantees to support acquisition debt, the financial assistance rules must be carefully analysed and appropriate exemption or whitewash procedures followed.
Exemptions and Whitewash Procedures
The CA 2016 provides limited exemptions, including where financial assistance is given in the ordinary course of commercial dealing or where a solvency-based whitewash procedure is followed. The whitewash requires directors to make a solvency statement confirming the company will remain solvent after giving the assistance, shareholder approval by special resolution (requiring at least 75% of votes cast), and compliance with prescribed timing requirements.
Practical Implications for Lenders
Non-compliance with the financial assistance provisions under the CA 2016 may affect the enforceability of the relevant transaction. In practice, guarantees or security from the target group are typically implemented only after completion of the whitewash, which may result in a temporary gap between acquisition completion and the provision of downstream security. This timing is generally factored into the credit assessment for such transactions. Listed targets may face additional requirements under the CMSA and Bursa Malaysia Listing Requirements.
Foreign Exchange Administration
Overview
BNM is empowered under the FSA to safeguard the balance of payments position and the value of the Ringgit. In addition to the provisions of the FSA, BNM issues exchange control notices to regulate the money market and foreign exchange market. Malaysia’s foreign exchange administration rules, set out in the FSA and BNM’s Foreign Exchange Policy Notices (“FEP Notices”), are among the most frequently encountered regulatory considerations for international lenders and cross-border investors.
Key Rules for Cross-Border Lending
Borrowing in Ringgit
As a general rule, resident entities may obtain Ringgit financing from licensed onshore banks. There are restrictions on borrowing in Ringgit from non-residents and from offshore sources. Non-residents are generally not permitted to obtain Ringgit credit facilities from onshore banks except in limited circumstances approved by BNM.
Borrowing in foreign currency
Residents may borrow in foreign currency from licensed onshore banks and from non-resident lenders, subject to BNM thresholds. Foreign currency borrowings by residents from non-resident lenders in excess of certain aggregate thresholds require BNM approval or notification, depending on the nature and amount of the borrowing. The applicable thresholds are set out in FEP Notices and are updated from time to time. As a general indication, resident corporates (other than licensed financial institutions) may borrow in foreign currency from non-residents up to certain aggregate limits without BNM approval, but borrowings in excess of those limits require prior BNM approval. As BNM has periodically adjusted these limits in response to market conditions, the specific thresholds and any applicable exemptions current at the time of a particular transaction may need to be verified.
Security for non-resident lenders
Security or guarantees granted in favour of non-residents may be required to be registered with, or may require the prior written approval of, BNM. This is a critical consideration in cross-border lending, as failure to comply can affect the repatriation of funds offshore.
Repatriation of funds
Proceeds of foreign currency borrowings must generally be used for permitted purposes. Repayment of foreign currency facilities and repatriation of investment proceeds are generally permitted, subject to compliance with the applicable FEP Notices.
Hedging
Residents are required to manage foreign exchange risk in accordance with BNM’s guidelines. Hedging of foreign currency exposures must be conducted through licensed onshore banks.
Practical Considerations for Foreign Lenders
Whether BNM approval or notification is required for a particular transaction structure is generally considered at an early stage. The applicable thresholds and requirements are updated from time to time by BNM. Transaction timelines typically factor in the time required for any BNM approval process, which in practice may take several weeks. Facility agreements commonly contain conditions precedent requiring evidence of BNM approval or notification (where applicable) prior to drawdown.
Cross-Border Lending
Cross-Border Lending by Foreign Lenders
Foreign lenders not licensed in Malaysia may lend to Malaysian borrowers on a cross-border basis without a local banking licence, provided they do not establish a physical presence or otherwise carry on banking business requiring a licence under the FSA or IFSA. Such facilities must comply with FEP Notices. In practice, this occurs through direct offshore lending or syndicated facilities where Malaysian banks act as arrangers, with foreign banks participating as offshore lenders.
Labuan as an Offshore Lending Centre
The Labuan IBFC provides an alternative structure for cross-border lending into Malaysia. Labuan-licensed entities, including Labuan banks and Labuan leasing companies, may provide financing in currencies other than Ringgit to Malaysian residents, subject to compliance with Labuan legislation and BNM’s foreign exchange administration requirements.
Labuan entities benefit from a favourable tax regime, including a low effective tax rate on business activity conducted in, from, or through Labuan. However, Labuan entities are subject to substance requirements, and the tax treatment of Labuan entities has been the subject of legislative changes in recent years. The interaction between Labuan tax rules and the tax position of the Malaysian onshore borrower is typically a relevant consideration in structuring such transactions.
Withholding Tax on Interest
Interest payments made by a Malaysian resident to a non-resident lender are generally subject to Malaysian withholding tax at the prevailing rate (which, as at March 2026, is 15% under the Income Tax Act 1967, subject to applicable double taxation treaty relief). It is market practice for facility agreements to include gross-up and tax indemnity provisions requiring the borrower to gross up payments so that the lender receives the amount it would have received had no withholding been required. The current withholding tax rates and the availability of treaty relief may vary depending on the lender’s jurisdiction of tax residence.
Malaysia has an extensive network of double taxation agreements. In many cases, the rate of withholding tax on interest payments may be reduced to 10% or lower under the applicable treaty. The availability of treaty relief should be confirmed on a lender-by-lender basis, and the facility agreement should contain mechanics for the provision of tax residency certificates and other documentation required to claim treaty relief.
Stamp Duty
Overview
The Stamp Act 1949 imposes stamp duty on a range of instruments, including loan and facility agreements, debentures, charges, security documents, and guarantees. Both ad valorem and fixed duty may apply, depending on the nature of the instrument.
Practical Considerations
Stamp duty must be paid within the time prescribed by the Stamp Act 1949 (generally within thirty (30) days of execution for instruments executed in Malaysia; and for instruments executed outside Malaysia, within thirty (30) days upon receipt of the document (whether electronically or physically) in Malaysia). Unstamped or insufficiently stamped instruments are not admissible as evidence in court proceedings (subject to the payment of the deficient duty and any applicable penalty). Stamp duty costs and adjudication timelines are typically factored into the overall transaction budget and timetable.
Enforcement of Security
Overview
Enforcement of security in Malaysia may be pursued through several mechanisms, depending on the type of security and the nature of the secured asset.
National Land Code
A chargee under a land charge can enforce its security by way of a sale of the land if the chargor defaults. Enforcement may be effected by judicial sale (through an order for sale obtained from the court) or, in certain circumstances, by the exercise of the chargee’s statutory power of sale under the National Land Code. Practical timelines for enforcement over land can be lengthy, particularly where the chargor disputes the claim.
Receivership
A secured creditor holding a debenture creating fixed and floating charges may appoint a receiver and manager over the charged assets. Receivership is a commonly used enforcement mechanism in Malaysia, allowing the secured creditor to realise the charged assets without resort to the court. The power to appoint a receiver is typically granted by the debenture itself, and the appointment takes effect upon the occurrence of a specified event of default. The receiver and manager acts as agent of the company (not the lender) and has powers to manage the business, realise assets, and distribute proceeds to the secured creditor. Receivership is generally the most efficient enforcement mechanism available to a debenture holder.
Judicial sale and foreclosure
The court may order a sale of charged assets or, in certain cases, foreclosure (i.e. vesting of the charged property in the chargee).
Set-off
Where a lender holds security over cash deposits at the lender’s own bank, enforcement may be by way of set-off.
Practical Considerations
Enforcement proceedings in Malaysia can be protracted, particularly where the debtor raises challenges or the assets are complex. As a matter of practice, security documents commonly contain clear enforcement powers and strict compliance with perfection requirements is observed.
Costs of Enforcement
The costs of enforcement vary depending on the mechanism used and the complexity of the case. Court fees, solicitors’ fees, auctioneer’s fees (in the case of a judicial sale), and receiver’s fees and expenses are the principal cost items. In receivership, the receiver’s remuneration and expenses are typically payable from the charged assets in priority to distributions to the secured creditor. Indemnity provisions in security documents commonly require the chargor to bear the costs of enforcement.
Capacity, Authority, and Corporate Matters
Corporate Capacity
The CA 2016 abolished the doctrine of ultra vires for companies incorporated in Malaysia. A company incorporated under the CA 2016 has full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction. This means that the validity of a transaction entered into by a company cannot be challenged on the basis that it is beyond the company’s capacity.
Directors’ Duties and Authority
Directors of a Malaysian company owe statutory and fiduciary duties to act in the best interests of the company. In the context of a financing transaction, the entry into the facility and the granting of security is typically authorised by the board of directors (and, where required, by shareholders). The question of corporate benefit is particularly relevant for guarantees and security given by a company to support the obligations of a related entity.
Execution of Documents
Under the CA 2016, a company may execute a document by affixing its common seal (if it has one) or, more commonly, by having the document signed by two authorised directors, or one director and one secretary, or in such other manner as approved by the board of directors. The applicable execution requirements are set out in the company’s constitution.
Islamic Finance
Dual Banking System
Malaysia’s unique financial system is of a dual nature, comprising both the Islamic financial system and the conventional financial system operating in parallel. A main feature of the conventional system is the payment of interest on deposits and loans, which is prohibited under Shariah principles. The Islamic financial system, which has been operating in Malaysia for over thirty (30) years, provides an interest-free banking system regulated by Shariah principles as an alternative. BNM is the regulator for both the Islamic and conventional systems and allows for a level playing field for both to operate.
Key Shariah Governing Bodies
Shariah Advisory Council
The Shariah Advisory Council (“SAC”) is the highest Shariah authority in Islamic finance in Malaysia, established by BNM pursuant to the CBMA. Its members comprise qualified Shariah scholars with authority to issue religious rulings on financial transactions. All rulings made by the SAC prevail over any rulings made by any other Shariah body or committee in Malaysia.
Malaysia International Islamic Financial Centre
Malaysia International Islamic Financial Centre was launched in 2006 to promote Malaysia as an international Islamic finance hub, with a focus on sukuk origination, international Islamic banking, international Takaful, human capital development, and Islamic fund and wealth management.
Bursa Suq Al-Sila
Malaysia International Islamic Financial Centre was launched in 2006 to promote Malaysia as an international Islamic finance hub, with a focus on sukuk origination, international Islamic banking, international Takaful, human capital development, and Islamic fund and wealth management.
Key Shariah Concepts
The following table provides a summary of the key Shariah concepts commonly encountered in Islamic financing transactions:
Wadiah (Safekeeping)
In this contract or arrangement, a person leaves or deposits his property with the financial institution for safekeeping or protection. This concept is commonly used in deposit-taking activities, custodial services and safe deposit boxes.
Wakalah (Agency)
Wakalah refers to a contract whereby a person (the principal) appoints another person as his agent to act on his behalf, usually for a fee. An illustration of this type of contract is in property financing, where the buyer is required to pay the seller and the financial institution, as the agent for the buyer (as principal), pays the purchase price to the seller in return for a fee for services rendered. This concept is usually employed along with other Shariah concepts when Islamic financial institutions structure their products.
Mudarabah (Trade Partnership)
This is a type of contract where one of the parties contributes the capital (the investor) and the other party provides the expertise, labour and entrepreneurial skill (the entrepreneur). Profit earned is split between the parties, but any losses suffered are borne by the investor. This concept is present in certain types of deposit-taking activities, where the investor is the depositor and the financial institution is the entrepreneur. Profit is divided based on a pre-agreed ratio and any loss is borne by the depositor as investor.
Musharakah (Joint Venture)
In this concept, both parties contribute or invest capital. Profit is shared based on a pre-agreed ratio, and losses are borne by both parties based on the proportion of capital contribution. This concept is present in contract financing and may be used as part of the Shariah structure for home financing (that is, the portion where the capital is contributed by both the financial institution and the customer in the form of 90% purchase price and 10% down payment, respectively).
Murabahah (Cost plus Profit)
Murabahah involves the sale of goods at a price including a profit margin, with both cost price and profit disclosed and agreed between the parties before entering into the transaction. Financing by way of this concept involves the sale of an asset by the financial institution to the customer in return for deferred payments consisting of both cost and profit, and the asset is then sold by the customer for the cost price equivalent to the amount of financing required. This concept is commonly employed in sukuk (Islamic bond) issuances, with a commodity as the underlying asset, and all commodity trades conducted via a dedicated electronic platform called the Bursa Suq Al-Sila.
Ijarah (Lease)
Ijarah is where an asset is purchased by the financial institution and leased to the customer, who has to pay periodic payments to the financial institution in return for the use of the asset. This is a common concept in motor vehicle financing products.
Types of Islamic Financing
The types of financing provided by Islamic financial institutions in Malaysia are substantially similar to those provided by commercial banks, and may be broadly categorised as follows:
- deposit facilities, such as current accounts and savings accounts based on Wakalah or Mudarabah;
- trade financing facilities such as letters of credit based on Wakalah contracts, Musharakah contracts and Murabahah contracts, letters of guarantee and working capital financing based on Murabahah contracts.
- corporate financing facilities such as project financing based on Mudarabah, floating facilities based on Ijarah, sukuk issuances based on Murabahah; and
- consumer financing such as home financing involving the principles of Musharakah and Ijarah and vehicle financing based on Ijarah.
All Islamic banking and finance products offered by Islamic financial institutions operating in Malaysia must first be approved by the SAC.
In addition, offering of certain corporate financing products such as Ringgit or foreign currency-denominated private debt securities, sukuk, structured products or asset-backed securities have to comply with additional guidelines issued by the SC. The Guidelines on Unlisted Capital Market Products Under the Lodge and Launch Framework and the Guidelines on Islamic Capital Market Products and Services, both issued by the SC set out the requirements that must be observed for purposes of making available the securities. For instance, the name of Ringgit-denominated sukuk must not be misleading and must reflect the underlying Shariah principle, such as sukuk that are structured under the Murabahah principle must be named Sukuk Murabahah and a Shariah adviser must be appointed.
Contribution Note
This chapter of the Guide to Doing Business in Malaysia was authored by the Partners listed, with the assistance of Tan Shu Yee (Senior Associate, Christopher & Lee Ong) and Aaron Tan (Senior Associate, Christopher & Lee Ong).
For more information, click here to read more Doing Business Guide.
Notice
The contents of this Guide are owned by CLO and subject to copyright protection under the laws of Malaysia and, through international treaties, in other countries. No part of this Guide may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose) without the prior written permission of CLO.
Please note also that whilst the information in this Guide is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business or operational requirements. It is to your advantage to seek legal advice for your specific situation.
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