[ Laman Ehwal Semasa ReformIS ]
Date: 09 Aug 1999
Time: 00:23:29
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THEN THERE WERE SIX
A mega-merger plan sets Malaysia buzzing
By Assif Shameen
WHAT DOES A SWIFT denial tell you? In the case of the Malaysian central bank, it points to major complexities coloring its drive to consolidate the financial sector - politics and race. Bank Negara insists neither is a factor, that mergers will benefit all involved. But that's not how some pundits have it.
Many observers wondered why the rush when Bank governor Ali Abul Hassan Sulaiman declared on July 29 that local institutions would have to merge into six large banking groups by the end of September. That gave banks a mere eight weeks to cut deals and sign initial agreements.
Few dispute the need for restructuring. A total of 22 commercial banks, 12 merchant banks and 25 finance companies currently crowd the sector. Ali's plan will pare this down to half-a-dozen institutions in each of the three categories, led by six powerhouses - the so-called anchor banks. At SG Securities, Gan Kim Khoon sees the central bank's tough stance as a "necessary" response to local institutions' failure to merge voluntarily. It forces them to shape up for an inevitable liberalization.
"But there is no need to press the panic buttons the way they have," says Salman Khan of Goldman Sachs. Indeed, he reckons Malaysia has been quite successful at cleaning up its banks. It is removing bad loans from the system and recapitalizing banks through agencies such as Danaharta and Danamodal.
Ali is likely to have a hard time getting the parties to comply. One hurdle: reaching agreement on price. Unless the deals are valued appropriately, U.S. ratings agency Moody's believes the plan could worsen the short-term standings for some major banks. The six core institutions may find their financial strengths "degraded."
More controversial is the authorities' attempt to direct the configuration of these unions. Official leaks on the proposed match-ups have led to charges that the result will be a dilution of Chinese interests - and concentration of banking business in the hands of the groups linked to government leaders. Who are the Big Six? Malayan Banking, the nation's largest bank, along with Bank Bumiputra-Bank of Commerce, the merged Multi-Purpose-RHB banks, Perwira Affin Bank and the Chinese-controlled Public Bank and Southern Bank form the expected line-up.
Under this arrangement, observers say several well-managed institutions - including the Hong Leong and PhileoAllied banks, two rapidly expanding groups associated with former deputy premier Anwar Ibrahim - will be swallowed up by weaker but better-connected institutions. Other moves have ethnic Chinese businesses chafing: the number of banks under the community's control will shrink from 11 to two major ones.
Plenty of obstacles may hold up the merger program. Among them: the financing for smaller favored banks, like Multi-Purpose, which are taking over much larger institutions. The social backlash from branch closures and lay-offs may also prove daunting. Bank Negara shrugs off the problems. The sooner consolidation takes place, it says, the quicker banks can benefit from leaner, "re-energized" set-ups. But to skeptics, that's so much déjà vu. Last year, too, the government had grand ambitions to retain just six finance companies. The current tally: 25, down from a bloated 39.