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Lim Chong Heng; August 2007

In year 2001, the Bank Negara Malaysia superintends the Malaysia’s bank merger, seen as a healthy consolidation of the local banking sector. The merger process involved 54 Malaysian banks and financial companies merged into ten anchor banking groups, with further intention to merge the ten banking groups into six banking groups in near future. This action will help the government to strengthen the banking sector after the Asian Financial Crisis and prepare for the financial liberalization in year 2007 as well as enable Malaysia local banks to be able to compete with foreign bank. Year 2007 witness the “second round” of the banking merger, started by Malaysia’s second largest bank, Bumiputra-Commerce Holding taking over Southern Bank for RM6.2 billion. After the merger, only nine anchor banks remain, which are Maybank, CIMB, Public Bank, RHB, AMBank, Hong Leong Bank, Affin Bank, EON Bank and Alliance Bank. Besides merger directive, the Bank Negara Malaysia also liberal on the foreign bank’s intentions to takeover the local banks such as ANZ banking group owning the majority stake in AMMB Holding while Kuwait Finance House, one of the world’s largest Islamic bank submitting bid to takeover the Rashid Hussain Berhad, which control the RHB banking group [Note: Rashid Hussain Berhad was sold to Malaysian Employer Provident Fund and will be taken private soon].

The consolidation enhanced efficient, especially in management and the use of automation and technological innovations. Banks also able to expand their services and customer base, thus increasing the volume of sales while saving operation cost. As a result, local banks will able to withstand pressure and accept new challenges arising from the globalization. The Financial Master Plan 2007 outlines the needs of the Bank Negara Malaysia narrowing down the scope of controlling the foreign bank and reduces the protection to local banks in Malaysia. In past 30 year, Bank Negara Malaysia sets restrictions for foreign banks to build up branches in Malaysia, for example foreign banks were allowed maximum of four branches and capped foreign equity ownership. However, continues liberalizations of our financial sector are expected to complete change these scenario. Comparing the local banks with top five banking groups in the world is like David versus Goliath. The average assets of top five banking groups in the world are 40 times the average assets of top five local banking groups as shown in Table 1. Thus, allowing openness and free competition, the foreign banks can easily beat the local banks. Besides, in view of the huge capital of foreign banks, it helps to facilitate marketing and launching of new products, expanding customer base and embarking on high technology in their operation. Therefore, are local banks prepared to face foreign competition? Are mergers so far sufficient? Will mergers or partnership with foreign banking groups beneficial?

On one hand, investments from established foreign banks can be a good source of capital and allow management expertise transfer for our bank. Smart partnership with foreign banks may also enable cross marketing of products at both local and foreign markets. However, on the other hand, inflow of foreign investments leads to ownership issues and remittance of profit earned from local consumers.

As a conclusion, merging among local banks and accepting equity partnership with foreign banking groups are two face of a coin, yielding both benefit and harm. However, in this globalization are, openness is the theme while economic protection getting vast condemnation. Only the fittest will survive, but whom – the foreign Goliath or our local David?

Main | Malaysian Economy | Asian Crisis | Teaching Subjects  

Har Wai Mun @ 2007