(Petaling Jaya, Wednesday): The shock announcement by Bank Negara that the country's fifth largest bank, Sime Bank, had incurred an astounding pre-tax loss of RM1.57 billion in the six months to Dec 31 last year and that it needs a fresh capital injection of RM1.2 billion has created a new crisis of confidence, as seen by the 30.46-point fall of the Kuala Lumpur Stock Exchange benchmark Composite Index, closing at 702.57 points at the end of morning’s trading as well as the weakening of the Malaysian ringgit, falling at one point to 3.8700 to the US dollar as compared to the close of 3.6700/900 to the US dollar yesterday.
The latest development in the banking and financial sector raises six important questions:
Firstly, as Bank Negara had repeatedly given assurances about the soundness of the Malaysian banking and financial system and stressed its responsibility to ensure that there is a prudent banking sector, how could the central bank allow the development of a situation where Sime Bank could incur an astounding pre-tax loss of RM1.57 billion in the six months to December 31 last year as to require a fresh capital injection of RM1.2 billion.
Secondly, can Bank Negara Governor Tan Sri Ahmad Mohd Don, who said yesterday that four financial institutions require capital injection, namely RM1.2 billion for Sime Bank, RM750 million for Bank Bumiputra, RM25 million for Cempaka Finance and RM7 million for Abrar Finance, make a categorical assurance that with the latest developments, Malaysia has seen the worst in the banking and financial sector, and that things can only get better and not worse? Or is the Bank Negara itself unable to state whether there could be further "time bombs" in the local banking and financial sector which would further undermine public confidence?
Thirdly, why has Bank Negara shied away from giving a proper public accounting of the crisis faced by Malaysia's banking sector, whether it is burdened by domestic loans at 170 per cent of gross domestic product - the highest ratio in south-east Asia - and that bad loans could peak late this year or early next, running at 6-10 per cent for stronger institutions and 10-20 per cent for those that have pursued more "aggressive" lending.
Fourthly, Ahmad Don said Sime Bank's loss was due to provisions totalling RM1.8 billion to cover bad and doubtful assets in its domestic and regional operations, including its stockbroking business, SimeSecurities. At the end of 1996, UMBC which was later renamed Sime Bank, was described as "the best thing to happen to Sime Darby". Sime Darby' half-year pre-tax profit was RM784.5 million for the period ended Dec 31, 1996. Its financial services division contributed RM227.2 million, or 30 per cent towards group profits, and its bank made up almost 90 per cent of that profit contribution. How had the entire scenario changed so drastically in a matter of 12 months?
Fifthly, it has been reported that Rashid Hussain Bhd. (RHB) has obtained approval from Bank Negara to proceed with negotiations for the acquisition of Sime Bank Bhd. for the purpose of a merger with RHB Bhd Bhd., and that RHB will issue new shares -- amounting to 20 per cent of its enlarged share capital -- to the Employees Provident Fund in exchange for cash to finance the acquisition of Sime Bank. Would the nine million EPF contributors be given the proper picture about banking and financial sector in the country before EPF funds are committed to enable RHB rescue Sime Bank? Can the government give a categorical assurance that there would be no use of public funds, including EPF funds, to bail out troubled companies, including banks, without full accountability and transparency?
Sixthly, Ahmad Don said Bank Bumiputra needed capital injection of RM750 million, and that the government would provide the need when the capital arises. This would make it the third time in 12 years that Bank Bumiputra has to be rescued at public expense - the first time in 1986 when Petronas had to pump in RM2.5 billion to bail it out of insolvency as the result of the RM2.5 billion Bumiputra Malaysia Finance (BMF) scandal, the second time in 1989, when Petronas pumped in another RM982 million after BBMB chalked up losses of RM1.06 billion that year largely due to a monumental provision of RM1.23 billion for non-performing loans. There had been no proper accounting as to who were the persons responsible for the astronomical non-performing loans, and now Bank Bumiputra has to be rescued a third time. This is completely unacceptable. Is the Government prepared to table a White Paper in Parliament on "The Three Bail-outs of Bank Bumiputra in 12 years"?
Malaysians are entitled to know whether the worst in the banking and financial sector has been reached and how there could be full accountability, transparency and responsibility for the billion-ringgit losses in the banking and financial sector as revealed such the shock announcements yesterday.