Onus on Bank Negara Governor  to prove that his  dictat on forced bank mergers on July 29 did not have political and other agendas as two weeks earlier he was satisfied with progress of bank mergers

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Media Statement
by Lim Kit Siang  

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The onus is therefore on the Bank Negara Governor to prove that his dictat on forced bank mergers on July 29, 1999 did not have political and other agendas when on July 14, 1999, in a statement on "Progress of Banking Sector Restructuring",  Ali said:
 

"As the crisis has exposed in clearest terms the vulnerability of small financial institutions, on-going efforts continued to be made to encourage financial institutions to merge and consolidate. Bank Negara Malaysia has always encouraged banking institutions to merge in order to achieve economies of scale and higher level of  efficiency, and the recent economic crisis has given the opportunity for Bank Negara Malaysia to accelerate the consolidation and rationalisation process of the banking sector. As at 30th June 1999, 12 finance companies have been absorbed by their parent commercial banks whilst 2 finance companies have been merged with their identified anchor finance companies.  Eight finance companies are in the final stages of being merged/absorbed and are expected to be completed by end-September 1999.  With the completion of the merger programme, the number of finance companies would reduce from 39 to 17 by end-September 1999. Bank Negara Malaysia expects to see the finance company industry consolidate even further to about 10 within the next 12 months.

"Mergers among commercial banks and merchant banks have also progressed satisfactorily.  The merger between Sime Bank Berhad and RHB Berhad was successfully completed on 30th June 1999.  The merger between Bank of Commerce (M) Berhad with Bank Bumiputra Malaysia Berhad is also on track with the finalisation of the share exchange ratio and the scheme is now awaiting the necessary approvals from the respective shareholders and regulatory agencies.  The merger between BSN Commercial Bank Berhad with Perwira Affin Bank Berhad is expected to be completed in 1999. In addition, the commercial banking industry will be further rationalised with the expected merger between Southern Bank Berhad with Ban Hin Lee Berhad."

Ali concluded his statement on a very upbeat note, stating that the various efforts undertaken by the Government to restructure the banking system "have begun to yield positive results" and expressing his confidence that "the banking sector should emerge stronger and more resilient to meet the challenges in the years ahead".

However, two weeks later, 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 financial institutions must be forced into "shot-gun" marriages into six banking groups led by six anchor banks.

This raises the question whether the Bank Negara Governor was acting professionally and had the authority of the independence of his office from any form of political pressure, when within two weeks, he could take such a dramatic somersault in his position on bank mergers.

Ali should act with greater openness and transparency as his flip-flop on the bank merger issue in a matter of two weeks has sent out very negative signals to investors that the Malaysian authorities have no respect whatsoever for the right of minority shareholders.

The Bank Negara Governor should explain the criteria for the selection of the six anchor banks and the decision that the domestic financial sector should be reduced to six core groups, when only last October, Parliament was informed that the government had decided that eight financially strong local banks capable of competing in the international arena would emerge from the merger process.

What is the rationale for the slashing of eight domestic banking groups to six in a matter of less than a year?

(22/8/99)