On 14th July 1999, Bank Negara Governor, Tan Sri Ali Abul Hassan declared that the various efforts undertaken by the Government to restructure the banking system and encourage banking institutions to merge to achieve economies of scale and higher levels of efficiency "have begun to yield positive results" and he expressed confidence that "the banking sector should emerge stronger and more resilient to meet the chllenges in the years ahead".
However, two weeks later, on July 29, 1999, Ali took a somersault and summoned major shareholders of domestic commercial banks to his office to express his displeasure at the "dismal" result of the merger pace, issuing a diktat that all the 21 commercial banks, 25 finance companies and 12 merchant banks must be forced into "shot-gun" marriages into six banking groups led by six anchor banks.
All the 58 financial institutions were given strict deadlines to adhere
to:
Nonetheless, all the 58 financial institutions met the first deadline set by Bank Negara for stage one of financial services sector’s accelerated consolidation by signing merger MOUs by September 30, although with a lot of resentment, resistance and opposition.
The second Finance Minister, Datuk Mustapa Mohamed, who was in Washington to attend a World Bank seminar justified the forced merger plan into six banking groups, saying that it was important for the government to "move aggressively" in strengthening the banking system because "the WTO (World Trade Organisation) is knocking on our doors and asking us to liberalise our financial sector."
Mustapha was unaware that as he was justifying the forced merger plan in Washington and the 58 financial institutions forced to meet the Sept. 30 deadline for the signing of MOUs, the plan was being unscrambled.
It is now clear that when the Prime Minister, Datuk Seri Dr. Mahathir Mohamad left Kuala Lumpur on Sept. 30 for his overseas trip, which included the United Nations, the United Kingdom and Zimbabwe, he had realised that the Bank Negara’s forced bank merger plan cannot be sustained without paying high economic and political costs - undermining investor confidence as well as causing the Barisan Nasional to lose votes to the Barisan Alternative in the upcoming general election.
Mahathir hinted at the unscrambling of the forced bank merger plan on Oct. 2 during his stopover in London from New York enroute to Zimbabwe to attend the 1999 South Africa International Dialogue, when he admitted that the number of six anchor banks was an arbitrary one and that a non-anchor bank like Rashid Hussein Bhd. (RHB) can make a case for an upgrade to be a leading bank.
The Prime Minister virtually announced the unscrambling of the Bank Negara’s forced merger plan without any consultation or even informing either the Cabinet, the National Economic Action Council (NEAC), his Cabinet Ministers or the Bank Negara.
This was why Mahathir’s London statement caught his Cabinet colleagues by surprise, with the second Finance Minister caught completely flat-footed as almost at the same time, Mustapha was "clearing doubts among British businessmen on whether the timetable for the mergers of 58 financial institutions in Malaysia could be met".
Mustapha was then telling a seminar in Kuala Lumpur on Malaysia’s Recovery - The Way Forward that the Government did not expect the institutions to face any difficulty in adhering to the timetable, which was a realistic one and the government was "pleased with the progress of the mergers".
This is why Mustapha was so dumb-struck for the past ten days to find that while he was assuring British investors that the forced bank merger plan was definitely on schedule, the Prime Minister was announcing the unscrambling of the plan in London!
Yesterday’s statement by Mahathir that banks would be allowed to decide among themselves on the lead or anchor banks is a clear announcement of the burial of Bank Negara’s forced bank merger plan to consolidate the 58 financial institutions into six banking groups.
Mahathir said yesterday that the National Economic Action Council has decided to re-look at the number of lead banks and was not in a hurry to push for the mergers too quickly.
How long will the National Economic Action Council take to "re-look" at the number of lead banks for Malaysia? Whatever the answer, this can only mean that the MOUs signed by the 58 financial institutions have become meaningless for financial institutions who disagree with the Bank Negara’s shot-gun bank marriage plan and the five deadlines set by Bank Negara for the accelerated merger programme has become highly academic and non-binding.
With the NEAC is rethinking bank merger plans, DAP calls on the
government
to give serious consideration to the Barisan Alternative proposal
made on August 22, 1999 for a multi-tier banking system in which different
size banks co-exist and complement one another.
Mahathir said yesterday that the government was committed to reducing the number of banks in the country as the recent economic crisis had clearly shown that small banks are not viable.
This is untrue. The recent economic meltdown has shown that big financial institutions (eg BBMB, RHB Bank, Sime Bank, AMMB, AMFB,, MBF Finance etc) were the major failures and the Government has to step in to bail them out. They should not be further protected or rewarded because there is no guarantee that they will not fail again as in the case of BBMB which had to be bailed out three times in 12 years, involving RM4.7 billion of taxpayers’ monies.
While a bigger entity has an advantage in absorbing the shocks of turbulence, finally it is quality management, not just the size, that counts. This has been borne out by the fact that medium-sized banks like Hong Leong Bank, Southern Bank and Ban Hin Lee Bank have survived the Asian financial crisis better than the larger ones.
The DAP supports the creation of some big Malaysian banks but objects to forcing efficient small banks and finance companies to be merged with existing bigger entities, as bigness is not necessarily good and there is a niche for the so-called small or boutique banks. Not every financial institution must aspire to be a global player.
There must be a place under the Malaysian sun for smaller banks and finance companies which are run efficiently, innovatively and professionally, which will create more opportunities to the increased number of school leavers and graduates entering the job market.
(13/10/99)