In less than three months, the government has undergone three policy flip-flops on the consolidation and merger of banks and financial institutions in the country.
On 14th July 1999, Bank Negara Governor, Tan Sri Ali Abul Hassan had issued a statement declaring 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 challenges 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
After the imposition of capital controls in September last year, Bank Negara’s forced bank merger plan was the next biggest blow to investor confidence, especially because of its non-consultative, authoritarian and arbitrary manner and the total lack of accountability and transparency to dispel concerns about cryonism or an ulterior political agenda.
Nonetheless, all the 58 financial institutions met the first deadline set by Bank Negara for stage one of the 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, another flip-flop was in the works resulting in the scuttling of the bank forced merger plan.
It is now clear that after 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 came to realise 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) could 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 was why Mustapha was so dumb-struck for about two weeks 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!
Mahathir had said that the National Economic Action Council had 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 had said 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.
The Barisan Alternative, in a policy statement on August 22, 1999 declaring the opposition of DAP, Keadilan, PAS and PRM to the Bank Negara’s forced bank merger plan, had counter-proposed a multi-tier banking system, in which different size banks would co-exist and complement one another.
While recognising the need for banking system consolidation in the face of imminent international financial liberalisation, the Barisan Alternative stated that there is considerable evidence that many smaller local or regional banks continue to serve their clients and the economy more effectively than impersonal larger banks.
What is intriguing is that Mahathir blamed foreigners for the Bank Negara’s forced merger plan, as he had said: "We are not in a hurry although unsolicited foreign advisers have urged us to do it quickly."
Who are these "unsolicited foreign advisers" who had mistakenly urged the Bank Negara to formulate its disastrous accelerated bank merger plan? Is it Salomon Smith and Barney Holdings Inc. or other Jewish financial advisers?
Instead of depending on the "unsolicited" views of foreign advisers, DAP calls for the establishment of a Malaysian Special Task Force to study and make recommendations within three months on bank mergers and consolidation of financial services sector in Malaysia.
The terms of reference of the Task Force on the future of Malaysian
financial services sector should include the following five areas:
In 1987, the National Trust Fund Bill was passed by Parliament to set up a National Trust Fund aimed at saving up funds from volatile and fluctuating industries that are based on depleting natural resources such as petroleum, tin and other minerals - starting with a RM100 million contribution from Petronas.
For the past 12 years, there has been no accounting either to Parliament or the nation as to how much money the fund now holds or how it has used the money - although figures ranging from RM15 to RM20 billion have been mentioned.
Under the legislation passed by Parliament in 1987, Bank Negara is responsible for the day-to-day administration of the National Trust Fund.
Bank Negara has a very sullied record, not only as a rogue central bank when it was engaged in foreign currency speculation until it lost RM20-RM30 billion to other currency speculators including George Soros in the early nineties but also for its failure to prevent colosssal bank losses as in the case of Bank Bumiputra, which required three massive bail-outs in 12 years totalling RM4.7 billion. Its reputation has now reached a new nadir after the shocking statutory declaration by former Bank Negara assistant governor, Abdul Murad, telling the nation and the whole world that Malaysian central bankers are not the very epitome of rectitude and honesty but could even be more crooked than the most dishonest and unscrupulous private bankers.
The Finance Minister should give a full report to Parliament on the National Trust Fund, its present financial position, its annual increase of contributions and the identity of the contributors, how the funds had been used, and who is responsible for the management of the fund.
There was a recent report suggesting that Petronas is managing the National Trust Fund, and if so, there should be a full explanation for the breach of the National Trust Fund Act making Bank Negara responsible for its day-to-day administration. If Bank Negara is still responsible for the Fund, to state who are the Bank Negara officers who are administering it.
Up to now, the government has refused to take effective measures to improve off-budget transparency to reduce the problem of ‘contingent liabilities’ and the economic burden posed by non-financial public enterprises (NFPEs).
The government should require that all their accounts (including Petronas and Khazanah Holdings) be presented to Parliament and hence to the people to ensure greater accountability. I call on the Finance Minister to give a full accounting of Petronas and Khazanah Holdings apart from the National Trust Fund in during the winding-up of the budget debate.
Over RM60 billion - equivalent to almost two-thirds the federal government’s total debt - has been disbursed thus far by Danaharta and Danamodal since last year, but this huge amount does not even appear in the Economic Report or the Budget! There should also be a full and regular report to Parliament on Danaharta and Danamodal to ensure accountability.