Foreign banks operating in Malaysia would be allowed to establish up to four additional branches from the beginning of next year, the Bank Negara said in a statement, ending a freeze on new branches that lasted for several years.
The move to relax the rules was the first of a "phased approach of branching liberalisation, in line with the broad strategies outlined in the Financial Sector Masterplan," it said.
Foreign banks operating in Malaysia have been restricted in the number of branches they can operate in an attempt to protect local rivals.
A sweeping program launched in 2001 merged Malaysia's 54 banks and finance houses into 10 groups and the central bank wants a second wave of consolidation to leave between six and eight banks ahead of full market liberalisation in 2007.
The government has said more mergers were crucial for local banks to survive because foreign banks operating here were already doing more business despite operational limitations.