THE merger of three banks has been a central issue within the financial sector this past year.
The merger involving the country’s development financial institutions (DFI) concerns Bank Pembangunan Malaysia Berhad (BPMB); Export-Import Bank of Malaysia Berhad (Exim Bank) and Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank).
This merger is supposed to be completed at the end of the year, following the successful merger of BPMB and Danajamin Nasional Berhad in March of last year.
The question, however, is if these entities are going to be subsidiaries or if they are going to be swallowed up by BPMB into one mega bank.
For context, the proposal for consolidation was first mooted by then finance minister Lim Guan Eng in 2019 under the Tun Dr Mahathir Mohamad administration of 2018-2020.
Over the course of three years from 1999 to 2002, Mahathir’s first administration had overseen the merger of over 50 banks and financial institutions into 10 banks.
The consolidation was to regain better controls over banks and the financial sector following the 1997 financial crisis, among others reasons.
Current Prime Minister Datuk Seri Anwar Ibrahim had reinforced the need for the BPMB-led consolidation during his Budget 2024 speech last October.
Among others, he cited better fiscal management and efficiency, as well as governance, as reasons for the exercise.
The concerns from the financial community and SMEs, however, is that each institution has its own unique value proposition.
Danajamin is the sole Malaysia entity that gives financial guarantees to companies.
EXIM Bank, as its name suggests, focuses on financing cross-border business as well as medium-sized SMEs.
SME Bank is mandated to assist in the development of SMEs and start-ups by providing financial assistance in the form of loans as well as advisory services.
BPMB, meanwhile, has within its sights large-scale projects but with the primary mandate to achieve the Bumiputra agenda of successful Malay entrepreneurship.
With an asset value of RM27 billion, BPMB may be well equipped to take on the merger as Exim Bank’s asset value is RM6.6 billion, while SME Bank’s is over RM12.3 billion. Danajamin has the least with RM2.7 billion.
“These entities must remain subsidiaries of BPMB,” said a senior financial expert.
One can understand his concerns. As spelt out above, each financial institution was set up to help Malaysian businesses. And this includes the little guy with big dreams.
Each institution has its own unique offering that caters specifically towards the development of Malaysian businesses and entrepreneurs.
With BPMB’s big picture approach there are fears that the little person will be lost and pushed further down the pecking order as priorities are big business and big money.
Priorities may be skewed towards large scale investments and businesses while the small, struggling enterprise that is seeking just RM200,000 will end up competing with the big players.
Which is why the essence of why these DFIs were set up in the first place must not be lost.
Would the merger result in BPMB taking on all the NPLs (Non-Performing Loans)?
EXIM Bank for instance, was the subject of the Auditor General’s Report two years ago having been laid with RM2.3 billion in NPLs.
Furthermore, what of the 322 Exim Bank staff and the 1,100 at SME Bank? Will they be absorbed into the new entity or will witness a mass culling?
Some analysts suggest politics is at play with SME Bank supervised by the Ministry of Entrepreneur and Cooperatives Development, while Exim Bank comes under the Ministry of Investment, Trade and Industry.
However, they all still have to abide by Bank Negara with all three being owned in one way or another by the Ministry of Finance.
Meanwhile, BPMB also is dogged by an unenviable record of bad loans which were subject to investigations by the police and graft busters.
There was the RM400 million loan granted to Aries Telecoms (M) for fibre optic cable installation which was instead funnelled to other parties.
There was also the undertaking of Borcos Shipping Sdn Bhd, which involved RM337 million, only for the company to go bankrupt.
Then, there was of course the RM450 million that went to the Asian Broadcasting Network (ABN) to launch a cable television station. ABN is owned by Tan Sri Kenneth Eswaran, known to be close to then Prime Minister Datuk Seri Najib Razak and his wife Datin Seri Rosmah Mansor.
Bearing in mind that BPMB is mandated to help Bumiputera businesses, the ABN issue is a stark reminder that vested interests can easily scuttle objectives.
It is critical to get the right people. Several former executives of BPMB have already been in the crosshairs of investigators following massive fraud and financial impropriety.
Now with three other financial institutions as part of the BPMB ecosystem, what measures are in place to ensure more will not be lost?
With the second phase of the merger about to be concluded, it is only right that some of these questions, as trivial or bothersome as some might think they might be, are answered.
Not in bombastic technical speak, but in simple language to reassure the man in the street that his interests will still be protected in the spirit of Malaysia Madani. — September 14, 2024
Terence Fernandez is Editor in Chief of Big Boom Media which publishes Scoop