On July 14, 1999, the Bank Negara Governor, Tan Sri Ali Abul Hassan summoned major shareholders of domestic commercial banks to his office on July 29 and issued his diktat that all the 21 commercial banks, 25 finance companies and 12 merchant banks must be forced-merged into six banking groups led by six anchor banks, together with a time-frame of five deadlines, starting with MOUs to be signed by all the 58 financial institutions with their partners by Sept. 30 and commencement of business of the merged entities by April 1, 2000.
In the ensuing two months, Bank Negara and the first and second Finance Ministers repeatedly declared that there would be no backtrack from the government decision to merge the 58 financial institutions into six banking groups.
On 30th September, 1999, Bank Negara issued the following press
release announcing the successful compliance with the first deadline:
Bank Negara Malaysia had on 29 July 1999 announced a bank merger and consolidation programme, which required all the domestic banking institutions to sign Memorandums of Understanding (MOUs) with the anchor banking institutions by 30 September 1999. In this regard, Tan Sri Dato’ Seri Ali Abul Hassan bin Sulaiman, Gabenor Bank Negara Malaysia, wishes to announce that by 29 September 1999, all domestic banking institutions have signed the MOUs with respect to the merger programme."
However, four days after the 58 financial institutions had signed their MOUs with a lot of reluctance, resistance and resentment, the Bank Negara’s forced bank merger proposal ran aground when the Prime Minister admitted in London on October 2, 1999 that the number of six anchor banks was an arbitrary figure. The forced bank merger MOUs of the 58 financial institutions will go down in bank merger history as the shortest-lived MOUs anywhere in the world!
What most shocked market confidence is not so much the arbitrary choice of the number six but the arbitrary selection of the six banks to be anchor banks, especially the Multi-Purpose Bank which would swallow three bigger institutions, including the newly-merged RHB-Sime Bank with RM7.2 billion in assets.
The White Paper should make public the criteria used by Bank Negara to choose Maybank, Bank of Commerce, Bumiputra-Commerce Bank, Public Bank, Southern Bank, Perwira Affin Bank and Multi-Purpose Bank to be the lead banks, how the other banks were eliminated as candidates as anchor banks and whether the same or new criteria will be used for the selection of new anchor banks as announced by the Prime Minister.
The White Paper should also clarify the confusion emanating from the different statements made by Mahathir himself in the past ten days on the issue. Earlier Mahathir had intimated that more anchor banks would be allowed but in his speech to the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) in Klang on Tuesday, the entire Bank Negara’s forced merger plan appeared to have been scuttled.
Mahathir said in Klang that banks would be allowed to decide among themselves on the lead or anchor banks under Bank Negara’s accelerated merger programme, that they should decide as soon as possible, and that if for some reason the banks are not able to comply with the merger deadline, the authorities would not "ram it on them".
Mahathir said the government did not want to decide on something that would damage the confidence in the banking industry as the loss of confidence in this sector might cause a run on banks. He said the authorities did not have to be too rigid with the deadlines, adding that financial institutions have until next year to decide on how to execute the merger exercise.
These vague and self-contradictory statements by Mahathir have created vast ambiguities on the issue of the consolidation of banks and financial institutions to face the challenges of globalisation and liberalisation, and the White Paper should clarify as to whether what it all meant was that the forced bank merger plan would only be resuscitated after the next general election!
Other areas the White Paper should address are the position of the MOUs signed by the 58 financial institutions and whether the other four deadlines for the forced bank merger plan, namely due diligence, signing of sales and purchase agreements, securing of approvals from the regulatory authorities and shareholders and finally, the commencement of business as merged entities have been clearly scrapped.
(14/10/99)