Call on Bank Negara and government to give serious consideration to the Barisan Alternative proposal for a multi-tier banking system in which different size banks would co-exist and complement one another

Media Statement
by Lim Kit Siang

(Petaling Jaya, Thursday): Bank Negara Governor Tan Sri Ali Abul Hassan Sulaiman announced yesterday that all banking institutions will now be given the flexibility to form their own merger groups and to choose their own leader in each group to lead the merger process.

Bank Negara’s official announcement dropping its controversial programme of      forced bank marriages did not come as a surprise, as the Prime Minister had already scuttled the plan as far back as Oct. 2 when he admitted in London that the choice of six anchor banks was "arbitrary" and that the mergers in the banking sector would not be too rigid, whether in terms of the number of anchor
banks or the deadline for the completion of the bank merger exercise.

What was a surprise however was that Bank Negara took such a long time to announce the scuttling of its forced bank merger plan - 17 long days after the Prime Minister had first hinted at its abandonment, or more than a week since the National Economic Action Council (NEAC) had officially dropped the Bank Negara plan.

This is an inordinately long time for Bank Negara to come out with its official announcement on its bank mergers position - especially after it had set rapid-fire deadlines for the 58 banks and  finance companies to merge into six banking groups in nine months by April 1 next year, which would have been a dubious world record by itself!

On July 29, Ali summoned major shareholders of domestic commercial banks to his office  and set five rapid-fire deadlines for 58 financial institutions to be merged into six banking groups in nine months.

When Ali announced on 30th Sept. that his first rapid-fire deadline  of two months for all the 58 financial institutions to sign Memorandums of  Understanding (MOUs) with their merger  partners, this was to be the greatest achievement of the  fifth Bank Negara Governor, a person with no absolutely no previous banking experience.

But it has turned out to be his greatest failure as even before the ink on the bank merger MOUs were dry, the whole Bank Negara forced bank merger plan was already being scuttled as indicated by Mahathir’s remarks in London on Oct. 2.

As a result, Ali has achieved another dubious world record - the most short-lived bank merger MOUs in the world.

Ali said the banking institutions are required to revert to Bank Negara by  end-January 2000 on their respective merger groupings as well  as the agreement in principle from the major shareholders of the  banking institutions in the group.

"Upon BNM's approval in principle of the new merger groupings,  the domestic banking institutions would be allowed to terminate  the MOUs signed with the earlier partners and they should then  proceed to complete all aspects of the merger exercise by  end-December 2000," he said.

Is Ali seriously suggesting that the bank merger MOUs signed by the banking institutions by Sept. 30 can still be valid against the wishes of the banking institutions, should new bank merger negotiations reach a dead end?

The 58 financial institutions have now been  reduced to 55 following the merger
 between Bank of Commerce and Bank Bumiputra Malaysia  Bhd. -  20  commercial banks, 23 finance companies and 12 merchant  banks.

It would be more neat and tidy for the Bank Negara Governor to announce that all the bank merger MOUs signed by the 55 financial institutions have no binding effect, as a result of the scuttling of Bank Negara’s forced bank merger plan.

It is most unfortunate that Ali has resorted to the threat  that Bank Negara would again come out with  a forced bank merger plan "in the event that the shareholders of the banking institutions do  not make full use of the flexibility accorded to merge among  themselves".

Bank Negara and the government should seriously consider the proposal by Barisan Alternative for a multi-tier banking system as is to be found in other countries.

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.

If Bank Negara rejects a multi-tier banking system for Malaysia, it should give reasons for this decision.


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