While the DAP supports the consolidation of the banking industry and the creation of some big Malaysian banks to strengthen the financial institutions in the country, strong-armed pressures by Bank Negara to create forced marriages in the merger of banks may cause more harm than good at the end of the day.
Bank Negara should explain the rationale for its arbitrary decision to consolidate the dozens of financial institutions into six major groups from September.
The proper role of the Government is to set the rules and regulations for the orderly functioning of the financial institutions rather than be the match-maker for the merger of financial institutions.
Bank Negara should concentrate on supervising the financial institutions to prevent them from straying into massive losses and thus compelling government bailouts in order to protect the interest of the depositors.
It should take timely and appropriate actions against such top management without fear or favour. It should not disturb healthy financial institutions which have shown proven ability to conduct their businesses against all odds such as the recent economic downturn.
Bank Negara’s decision to merge and create six core banking groups seems to stem from the concept that "big is beautiful -- efficient and competent" when "small (banks and finance companies) can be beautiful" if they are managed by competent and innovative professionals as proven by some banks and finance companies.
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 billions of ringgit.
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.
In the exercise to consolidate the banking and financial sector, it
is important that the following principles are observed:
The DAP is very disturbed by reports that Bank Negara has arbitrarily created six lead banks and wants to force the rest to merge with them, when some of these lead banks are not the best examples of prudent, professional or innovative financial institutions.
(7/8/99)