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

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Media Statement
by Lim Kit Siang  

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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 Bhd.

 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 Bhd.

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 proposal.

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.

(23/8/99)