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
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.