He said the sole aim was to strengthen the banking sector to ensure it remained competitive, especially to compete with foreign banks.
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.
This is particularly important as Bank Negara assurances that the accelerated bank mergers it announced on July 29 was not politically motivated and would be implemented fairly, with the interests of all affected groups safeguarded, have failed to make much of an impact.
Over the weekend, the media reported on the six lead banks which would spearhead the industry consolidation exercise, namely Malayan Banking, Bank of Commerce, Public Bank, Southern Bank, Perwira Affin Bank and Multi-Purpose Bank, all of which announced that they had been given the green light by Bank Negara to start merger negotiations with their respective groups of prospective partners.
Bank Negara has still to explain the rationale for its arbitrary decision to merge all the 21 domestic commercial banks, 25 finance companies and 12 merchant banks into six large domestic financial groups, each of which will have a commercial bank, a finance company and merchant bank.
Two weeks before his surprise announcement on July 29 to consolidate Malaysia’s 58 financial institutions into six groups, the Bank Negara Governor Tan Sri Ali Abul Hassan Sulaiman had issued a statement that as part of the consolidation of the financial institutions, the number of finance companies was expected to be reduced to 17 by the end of September and further cut to about 10 within the next 12 months from 39 at the time.
He said as at June 30, 12 finance companies have been absorbed by their parent commercial banks and two finance companies merged with their anchor financial companies, while eight finance companies were in the final stages of being merged or absorbed and were expected to be completed by end-September.
What is the reason for Bank Negara reaching such a drastic change of mind in a matter of two weeks to further reduce from ten to six finance companies in the consolidation of the financial sector?
Secondly, what are the Bank Negara’s credentials that it has the sole expertise and wisdom to pick the winners and losers in the banking institutions, as to decide on which are the best banks to be chosen as the six anchor banks?
Bank Negara’s record is not an unsullied one, whether in its supervision of banks or in prudential financial practices, or Bank Bumiputra would not have to be rescued three times in 12 years costing the public RM4.7 billion and Bank Negara would not have gained international notoriety as a rogue central bank engaged in foreign currency speculation resulting in RM20 - RM30 billion foreign exchange losses in the early nineties - representing the sweat, blood and tears of the Malaysian taxpayers.
What must be very unsettling is that the key player for Bank Negara’s colossal forex losses, who was then Bank Negara bank adviser and chiefly responsible for its forex forays and who lost billions of ringgit of taxypayers’ money to George Soros during the British sterling crisis in 1992, is now back in Bank Negara as its most experienced banking powerhouse.
Under these circumstances, can Bank Negara be fully trusted with regard to its judgement on the merger of banks and its assessment as to who should be picked as the winners and the losers in the financial sector?
There is also a crucial third question that has to be answered. While supporting in principle the consolidation of financial institutions to strenthen the financial sector, why should Bank Negara issue a fiat to merge all banks and finance companies - regardless of how healthy or professionally run certain small or medium-sized banks?
Apart from protecting the minority interests of banks and finance companies, there is also the need to safeguard the public interest. As banking is predominantly a local service to Malaysians - Bank Negara should ensure that bank mergers are not at the expense of consumer choice or even worse, to breed abuse of market power by the megabanks.
In this connection, the Sarawak Bank Employees Union (SBEU) has said that it is distrubed at the Bank Negara"s "over-ambitious, unrealistic" plan to force the merger of banks and financial institutions into six groups as mergers are not the be-all or cure-all of the banking industry.
The Union has rightly pointed out that experience in other countries suggest that the benefits of mergers have not outweighed costs by that much, and that savings through economies of scale do not necessarily translate into cost efficiency and lower costs for customers.
In Parliament on 15th July 1999, the second Finance Minister, Datuk Mustapha Mohamad said that the rise in the Kuala Lumpur Composite Index (KLCI) was not artificial but a real indicator of economic improvement in the country.
He said the Kuala Lumpur stock exchange was expected to be bullish as various indicators had showed that Malaysia’s economy had bottomed out and was well on the road to recovery.
When Mustapha said this in Parliament, the KLCI was at the 851 point. Two weeks later, on July 29, when the Bank Negara announced its forced merger plan, the KLCI had plunged by some 77 points to 774, but the Bank Negara’s merger plan had not been able to check the plunge, which has seen the composite index falling by another 71 points closing at 703.09 as at the end of trading last Friday. During intra-trading this morning, the index plunged by another 35 points to 668.03.
Is this an indication of adverse market reaction to the Bank Negara’s forced merger plan for the banks and finance companies - never mind Mustapha’s claim that the KLCI is a real indicator of the actual economic situation in the country?