Alternative Parties Reject Government Bank Merger Proposal

The Alternative Parties categorically reject the Barisan Nasional (BN) Governmentís recent bank merger proposal, and will abandon the scheme if it secures a mandate from the Malaysian electorate in the forthcoming general elections. Even if the BN wins, a strong opposition showing will reflect popular rejection of the governmentís irresponsible scheme. The BN scheme seeks to forcibly merge the existing banks and financial companies into six larger banks. We consider the scheme ill-conceived on several grounds.

1. 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 peopleís financial needs rather than simply adjust to globalised banking, whose shape is far from being inevitable.

2. 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 schemeís 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.

3. 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 systemís 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.

4. 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.

5. We do not propose the replication of any particular foreign system, but instead favour the voluntaryevolution 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 authoritiesí 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.

6. There is also considerable public concern that the bank merger proposal is politically motivated, mainly to eliminate those not politically favoured by the clique currently in control, especially those in the sector believed to be associated with former Finance Minister Anwar Ibrahim. In light of considerable recent evidence of selective prosecution, harassment and intimidation of some other Anwar associates, the merger proposal becomes all the more irresponsible and reprehensible as a weapon in political battles. While some Malaysian interests obviously stand to benefit from the envisaged bank consolidation, lacking strong connections to the BN leadership, most Malaysians (including genuine entrepreneurs) understandably have much cause for concern. The bank merger proposal seems likely to further concentrate ownership, control and influence in the banking sector at the expense of the public and Malaysian economic competitiveness. In particular, there is considerable concern that the dominant clique is using the financial restructuring process, especially the bank merger proposal, to control the financial sector more thoroughly than before.

7. In line with the principles of good corporate governance, we believe that a voluntary process is the best means to ensure that the interests of all stakeholders are adequately protected. The merger proposal rides roughshod over the interests of the owners and managers of most banks, and pays scant attention to the interests of minority shareholders. There is even less concern for the interests of other stakeholders, especially clients, customers and employees. Financial sector employees, who have taken the brunt of the recent financial crisis, are likely to suffer further from massive lay-offs and reduced pay.

Although it is clearly motivated by the haste and greed of the politically dominant clique before an election which may undermine their political status, we do not wish to politicise the bank merger issue, and instead call on the BN authorities to immediately abandon their ill-conceived proposal in favour of the superior and fairer approach we propose.

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Parti Keadilan Nasional               Parti Islam SeMalaysia                Parti Tindakan Demokratik                             Parti Rakyat Malaysia
     (KeADILan)                              (PAS)                               (DAP)                                          (PRM)

Kuala Lumpur, 22 August 1999