DAP calls for an independent Financial Commission to be solely responsible on banking mergers where ministers, including the  Prime Minister, have no final say on the issue

Media Statement
by Lim Kit Siang

(Petaling Jaya, Tuesday): The intervention by the Prime Minister, Datuk Seri Dr. Mahathir Mohamad against the Bank Negara’s arbitrary, high-handed and even autocratic decisions to merge all the 21 domestic commercial banks, 25 financial companies and 12 merchant banks into six banking groups and its choice of the six anchor banks has both positive and negative aspects.

Positive because with  the Prime Minister’s intervention  and his announcement that the number six was "arbitrarily" chosen, and can be varied if a non-anchor bank can make a case for an upgrade, the  stalemate caused by the Bank Negara’s authoritarian decision on shot-gun bank  mergers has temporarily been broken.

This has vindicated the stand taken by the DAP and the Barisan Alternative opposing the Bank Negara’s forced merger plan and advocating  a greater consultative process and  more market-based incentives to bring about the consolidation of the banking industry to strengthen the financial sector to meet the challenges of globalisation.

The backdown from Bank Negara’s original  forced merger plan  is another example of the important contribution being made by the Barisan Alternative, which has compelled the Barisan Nasional government to be more responsive and sensitive to what is right and good for the public interest rather than those of certain vested interests.

If the Barisan Nasional does not have to worry about  the coming general election, particularly alienating significant sections of the Malaysian society,  and having to  compete with the Barisan Alternative for voter support,  there would have been no modification of the Bank Negara’s forced merger plan.

On 7th August 1999, I had stressed that Bank Negara must convince the public that its forced merger plan to  consolidate the banking and financial sector observe the following principles:

In the last two months, Bank Negara has not been able to convince Malaysians that these principles  of transparency and corporate good governance are being  strictly adhered to in its forced bank merger plan. In fact, it had been conspicuously silent to my direct question demanding explanation as to why Multi-Purpose Bank was selected as one of the six core banks, allowing it to swallow three bigger institutions including the newly-merged RHB-Sime Bank, which is eight times larger than Multi-Purpose Bank with RM7.2 billion in assets.

Mahathir’s admission   that the number six was "arbitrarily" chosen has made nonsense of the earlier claim by the Second Finance Minister Datuk Mustapa Mohamed that the government will stick to its decision to have only six anchor banks as  the selection of these financial groups were based on synergies in their business activities, branch distribution and  market-oriented factors.

It has also exposed the Bank Negara Governor Tan Sri Ali Abul Hassan who had said that the creation of the six major financial groups would form the new financial architecture in the local banking to ensure that the sector was able to promote sustainable economic growth as having "feet of clay".

After Bank Negara’s sullied record, not only as a rogue central bank when it was engaged in foreign currency speculation resulting in RM20-RM30 billion foreign exchange losses and 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, what makes Bank Negara think it could play god to pick the winners and losers in the financial sector?

It is a matter of grave concern that up to now, Bank Negara has not been able to give satisfactory assurances with regard to the possible retrenchment of 15,000 to 20,000 workers in the financial sector as a result of the forced bank mergers.

Mahathir’s intervention, however, has its  serious negative aspects. It shows a most unhealthy system of governance where only the Prime Minister himself could force a review of Bank Negara’s plan of shot-gun marriages for banks.

Why is this so.  Everybody knows that the Bank Negara Governor cannot be all that powerful, and that the only reason why the bank forced merger plan had become unquestionable or even untouchable, whether in or out of  the Cabinet, until the intervention by the Prime Minister is because of its full support by the First Finance Minister, Tun Daim Zainuddin.

Daim, who had been a major corporate and even banking player during his intermission as Finance Minister, is not seen as  totally uninterested in the forced merger plan in view of his connections and associations with banks selected as anchor banks.

This is most unsatisfactory and unacceptable.  The independence and professionalism of Bank Negara has become too compromised to command unquestioned public confidence as during the time of  its first governor, Tun Ismail bin Mohamad Ali.

DAP calls for an independent Financial Commission to be solely responsible on banking mergers where ministers, including the Prime Minister, have no final say on any banking merger to ensure that there are no hidden motives or ulterior agendas.

The time has come for politics, especially any cronyism agenda, to be strictly and effectively removed from any decision-making in the supervision and monitoring of the financial sector.


*Lim Kit Siang - Malaysian Parliamentary Opposition Leader, Democratic Action Party Secretary-General & Member of Parliament for Tanjong