Malaysia' central bank Bank Negara Malaysia (BNM) relaxed its regulations on Wednesday, allowing banking institutions to be more flexible in investment in shares and interests-in-shares.

"With effect from Jan. 3, 2007, all licensed banking institutions that have the capacity and capability and that meet the supervisory standards set by Bank Negara Malaysia will be given the flexibility to determine their own internal policy governing their equity related activities," the bank said in a press release here.

Under the new framework, banking institutions, including licensed branches of foreign banking institutions, could determine the type of their investment in shares and interest-in-shares and the internal limits on exposure to the individual counter limits, instead of the existing limit of 5 percent prescribed by BNM, the bank said.

The types of shares that an institution can invest in also are expanded to include all listed shares, preference shares, unlisted shares and foreign equities.

In addition, a banking institution is also allowed to hold shares of another banking institution, but subject to a maximum limit of 5 percent of the licensed institution's paid-up capital.

However, as a prudential safeguard, BNM requires banking institutions to observe an overall investment in shares and interest-in-shares limit of 25 percent of the institutions' capital base.

The bank hoped that the regulation would put banking institutions in a better position in capturing investment opportunities locally and abroad, while the risks continue to be prudently managed.

The new policy is one of the steps of Malaysia's transition into a more deregulated environment. It is also part of BNM's continuous efforts to create a greater enabling environment to further boost the banking sector.

BNM officials said that the bank may further relax the rule, but currently has not set a time limit.