Bank Negara should allay widespread concerns about ulterior agendas
in the forced bank mergers by explaining the rationale for the selection
of Multi-Purpose Bank as one of the six core banks
(Petaling Jaya, Monday): Bank
Negara should allay widespread concerns about ulterior agendas in the forced
bank mergers by explaining the rationale for the selection of Multi-Purpose
Bank as one of the six core banks.
by Lim Kit Siang
Multi-Purpose Bank has had a chequered banking and political history.
When Lim Thian Kiat’s Multi-Purpose Holdings Bhd (MPHB) empire was dismantled
into three core entities and parcelled out to three separate parties in
a complex restructuring plan revealed at the end of June, MPHB’s 70 per
cent stake in Multi-Purpose Bank was sold to Malaysian Plantations
The restructuring involved a new major shareholder in Malaysian
Plantations Bhd., a RM2 company Paradigm Capital Sdn. Bhd, which would
buy over Kamunting Corporation Bhd.’s 27 per cent stake in Malaysian Plantations
and the emergence Chan Chin Cheung as a new board member of Malaysian Plantations
Chan Chin Cheung is a director of Renong Bhd., a company associated
with all UMNO businesses and therefore a close friend of Daim Zainuddin.
This is why a foreign publication has said that Malaysian Plantations
Bhd, "until recently an obscure golf resort manager, is living proof that
political connections still rule the roost in Malaysia".
Bank Negara must explain the basis for the selection of Multi-Purpose
Bank as one of the six anchor banks, allowing it to swallow three bigger
institutions including the newly-merged RHB-Sime Bank, which is eight times
larger than Multi-Purpose Bank with RM7.2 billion in assets.
The Multi-Purpose Bank episode is the latest example highlighting what
is wrong with corporate governance in Malaysia, where corporate moves are
motivated by political expediency rather than shareholder interests.
This lack of transparency and corporate good governance is one reason
why there is increasing opposition to the Bank Negara’s forced bank merger
This is also why the four Opposition parties, namely DAP, KeADILan,
PAS and PRM have come out with a joint statement yesterday opposing the
forced bank merger plan with the following five reasons:
While we recognise the need for banking system consolidation in the face
of imminent international financial liberalisation, we are opposed to the
means by which the authorities are approaching the problem. While market
forces alone cannot be relied upon to achieve and protect our national
interests, we favour market-based incentives to induce Malaysian
banks to serve the best interests of the nation, the public as well as
balanced and sustainable economic growth. For example, more attractive
variations of the incentive package in the earlier two-tier banking system
can induce a greater degree of desirable banking system consolidation.
The government should also work to ensure that the Malaysian financial
system better serves national economic priorities and the people’s financial
needs rather than simply adjust to globalised banking, whose shape is far
from being inevitable.
Reflecting its generally non-consultative and authoritarian approach to
the public policy matters, there has not been any convincing rationale
for the proposal, especially its specific features. The six bigger
banks envisaged have been seemingly arbitrarily dictated by the authorities
with little attempt to persuasively convince stakeholders of the scheme’s
superiority and real merits, besides allaying genuine concerns about its
deficiencies and adverse consequences. There is no evidence that
the larger banks will be better able to deal with the challenges ahead
since not all problems can be overcome with some economies of scale, especially
since the envisaged banks will still be puny by international standards.
Considering some of the groupings and lead banks envisaged, at least some
of the forced mergers are likely to fail, thus worsening the Malaysian
financial system’s already weakened condition. There are many indications
of the likelihood of such failure, due to cultural, institutional and personnel
incompatibilities as well as the poorly conceived incentives offered, which
cannot motivate all the stakeholders concerned to ensure successful mergers.
Furthermore, before and during the recent banking crisis, most of the smaller
banks fared relatively better than the larger banks. In the wake
of the likely problems, foreign banks will probably become more dominant
in the Malaysian banking sector as they are best placed to take advantage
of the likely uncertainties due to the adverse consequences of the ill-conceived
bank merger proposal.
Instead of the dictated mergers to be agreed upon in such a rush, we favour
the development of a multi-tier banking system, in which different size
banks would co-exist and complement one another. 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.
The many successful multi-tier national banking systems in other countries
give us confidence of the viability of such systems.
We do not propose the replication of any particular foreign system, but
instead favour the voluntary evolution of such a system in this country,
considering the history and recent strengths and weaknesses of Malaysian
banking. Owners and managers of banks are not unaware of the major
challenges looming ahead, and recognise the need to change with the times
and new circumstances. But the forced nature, timing, tight schedule
and insensitivity of the merger proposal does not inspire confidence that
the authorities have a superior understanding of the problems, options
and solutions. The authorities’ various recent failures have only
further undermined public confidence in their ability to address the challenges
faced by the banking system in particular and the economy more generally.
Hence, there is widespread suspicion and rejection of the proposal, not
only for the features of the scheme envisioned, but also for its accelerated
schedule and coercive nature.
*Lim Kit Siang - Malaysian Parliamentary
Opposition Leader, Democratic Action Party Secretary-General & Member
of Parliament for Tanjong