Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : HOTEL SHANGRI-LA, KUALA LUMPUR
Tarikh/Date : 21/08/89
Tajuk/Title : MAJLIS MAKAN MALAM TAHUNAN
INSTITUSI-INSTITUSI KEWANGAN
Yang Berbahagia Tan Sri Basir Ismail,
Pengerusi Persatuan Bank-bank Dalam Malaysia;
Yang Berhormat Dato' Paduka Daim Zainudddin,
Menteri Kewangan;
Dif-dif Kehormat;
Tuan-tuan dan puan-puan.
Saya mengucapkan terima kasih kepada Ahli Jawatankuasa
Penganjur Majlis Makan Malam Tahunan Institusi-institusi
Kewangan Malaysia kerana sekali lagi menjemput saya dan
isteri saya ke Majlis Makan Malam ini.
2. Ini adalah kali ke lapan saya menghadiri Majlis
Institusi Kewangan ini. Pada majlis-majlis yang lalu saya
telah mengambil kesempatan untuk memberikan pandangan dan
pendapat saya mengenai keadaan ekonomi serta peranan dan
prestasi institusi-institusi kewangan di negara ini.
Seperti dahulu, saya bercadang untuk meneruskan amalan itu
dalam Majlis pada malam ini.
Ladies and gentlemen,
3. Over the last couple of years, much attention has been
focussed on the state of the Malaysian economy. Economists
have been pre-occupied with second-guessing the strength as
well as the sustainability of the economic recovery. Today,
there is no longer any doubt that the recovery is fully
entrenched. Latest data released by the Department of
Statistics confirmed that real GDP growth accelerated to
8.7% last year, the best performance since 1979. All
indicators point to continued strong growth over the next
few years. This year, first quarter real growth was about
7.5%, the second quarter growth rate was closer to 8%. This
better-than-expected economic outturn is now well on track,
with a strong revival across all sectors of the economy.
4. More importantly, the initially export-led expansion is
being reinforced by rising domestic demand as incomes and
profits improve. Consumer demand, in particular, has been
expanding strongly. To a large extent, this represents the
inevitable release of pent-up demand during the 1985/86
recession. As a result, car sales are booming after a
prolonged slump. Imports of consumer products are growing
at double-digit rates, and business is equally brisk in the
wholesale and retail trade. In terms of private investment,
the indicators are equally encouraging, especially in the
manufacturing sector. As sales orders mount and profits
increase, manufacturers are becoming more confident of
business prospects. This is increasingly being translated
into higher outlays for capital expansion in plant and
equipment, as reflected in the surge in imports of
investment goods.
5. Clearly, all signs point to a sustained expansion for a
wide cross-section of the economy over the next couple of
years. Not with standing the sharp rise in imports, the
balance of payments is expected to remain favourable, with
perhaps a small surplus over the medium term. We can also
look forward to further progress on the fiscal front as the
Government continues to consolidate its expenditure
programme.
6. Although the economic prospects are favourable, this is
no time for complacency. A lot is riding on the ability of
the major industrial economies to "engineer" what is called
a soft-landing for the world economy. Even as the IMF talks
of continued good times ahead for world commodity prices,
the decline in the price of our rubber, palm oil and tin in
recent months is a cause for concern. We cannot afford to
subject ourselves to the vagaries of the world trading
environment. While conditions remain favourable, we should
redouble our efforts to reduce our reliance on commodities
and the external stimuli and instead promote domestic
sources of growth. In this regard, banks have an important
role to play in channelling the large inflows of liquidity
from our buoyant exports into productive investment in the
domestic economy.
Ladies and gentlemen,
7. The banking system must thus be anchored on a solid and
unshakable foundation and this foundation must be reinforced
continuously to support the rapidly expanding economy. As
you are well aware, the banking system had gone through the
"acid test" during the turbulent years of 1985-86. There is
no doubt that appropriate surgery has been performed on the
major weak links in the system, which surfaced during the
severe recession. The system is now stronger and more
capable of withstanding future shocks. With the coming
into force of the Banking and Financial Institutions Acts,
Bank Negara would have the power to intervene and supervise
the financial system better. It is not the desire of the
Government to have more regulations but supervision is
necessary in order to effectively promote monetary stability
and a sound financial structure. We must all remember that
it is the Government that is called upon to provide the
safety net whenever banks are threatened with insolvency.
8. Moreover, I am certain that the financial institutions
would have become wiser and more prudent after experiencing
the bursting of the "speculative bubble". The lessons have
been costly and it would be worthwhile to remember them,
particularly in the present mood, when the economy is on the
upturn again. Management must impress these lessons and
principles upon the new officers who will be future leaders
of their institutions. These officers may not have had
first hand knowledge or experience of the recent turbulent
period of banking not only in Malaysia, but the world over.
9. With the economic outlook distinctly bright, the
banking community should take the opportunity to build up
their reserves in order to reinforce their ability to
support a more prosperous and more sophisticated economy.
The best and easiest time for the banks to raise capital is
when they have surplus capacity and do not really need it.
Moreover, the build-up in capital and reserves during the
upturn of the cycle will not only enable them to grow in
the future, but more importantly will place them in good
stead to withstand shocks and absorb any unforseen losses
during future downturns.
10. Bank Negara has recently introduced a risk-based
capital ratio, formulated along the lines of the Basle
capital framework to be observed by all licensed banks and
finance companies. It is my hope that, with the new risk-
based capital framework, banks will be more sensitive in
structuring their balance sheet. Adequate capital and
prudent assets and liabilities management will go a long way
in avoiding the mistakes and excesses of the past.
Ladies and gentlemen,
11. We are now in the third year of economic recovery with
the pace growing stronger. Within this broad
development, I wonder whether the financial institutions,
especially the banks are moving along at the same pace. If
we take a cursory glance at their financial statements, we
see apparent gains and consolidation. However, a major part
of the profits had actually come from recoveries of bad
debts. I do not have any quarrel with the banks' efforts to
collect what is legitimately theirs, but I wonder whether it
has not become an obsession amongst them to emphasise
recoveries of past due loans at whatever expense.
12. I have heard that banks are too insistent on recovering
their old loans. During the recession, interest had
accumulated because borrowers could not get the cash to
service their loans. On top of that, the banks had imposed
heavy penalty interests for such default. When things became
better, borrowers who came forward to repay get a shock
when they were informed of the amount owed. Even for those
who propose to pay the whole amount of the original loan
together with accumulated interests, some banks refuse
absolutely to waive the penalty interest or even a part of
it. These banks seem bent on getting their pound of flesh
even if it prevents their clients from making a recovery and
remaining as their clients. This is the kind of short-term
thinking that does not seem to reflect maturity.
13. The banks and the country as a whole will not gain from
acts which prevent good borrowers who willingly come
forward to pay their loans from recovering quickly. We need
such businessmen who are able and honest enough to pay their
debts as soon as they can. They are responsible debtors.
They should be rewarded rather than penalised. They should
be helped to recover and to remain good clients of the banks
concerned. They are truly assets to the banks and the
banking system as compared to those who would avoid paying
back loans for as long as they can.
14. Malaysia is short on good businessmen and paymasters.
It is in everyone's interest to rehabilitate these people.
I hope that banks will be more businesslike in dealing with
them. The faster these people recover and go on with
their business the better it will be for our economy as a
whole.
15. At the same time banks must not be harsh on those of
their clients who fell on hard times because of the
recession. The collaterals they put up depreciated with the
recession and they were unable to pay up. Many were made
bankrupt because of their failure and are now unable to
restart their business. Yet with the economic recovery their
former properties have appreciated. Had they been given
time it is possible that they would repay the banks with the
recovery of prices of their collaterals. But they have been
made bankrupts and are now not able to repay banks with
their limited earnings. And of course they cannot do any
business as they cannot raise any capital. They are now
useless to the banks, to themselves and to the nation. It
is to me such a waste. Some of them who misused funds
deserve to be bankrupted. But those who failed through the
property depreciation do not deserve to be so punished.
16. Speaking of collaterals, the banking community still
seems to regard them as the only worthwhile guarantees for
loans. This is strange because we have seen that
collaterals in the form of properties or shares can so
depreciate as to be almost useless. This was what happened
during the recession. Despite the collaterals being, in
many instances, worth more than the loan given out, banks
found themselves unable to recover the collateral supported
loans during the recession. The collaterals had not only
depreciated but there were also no buyers.
17. Unfortunately when the property appreciated during the
recovery some bankers paid themselves off together with
interest and penalties. Their clients recovered very little
from the appreciation of the value of the collaterals.
While repayments in installments should be charged the full
penalties, repayments in full deserve to have their
penalties written off or reduced. Indeed even interests
deserve to be reconsidered.
18. Banks should really depend less on collaterals but
more on the soundness of company management and
profitability of projects. This is especially so when
dealing with new enterprises and new products. If we are
ever to move into non-traditional businesses, banks must be
prepared to study projects or enterprises with a view to
evaluating their potential. Obviously these businesses are
not going to have a track record. But if they are not to be
given any loan because they have no collaterals and no track
record, how is there going to be new businesses and
entrepreneurs?
19. Admittedly it is risky business to finance a venture
with no track record and no collateral. But banking is also
a business and banks must also take risks. More than that
banks must be prepared to lose money or to share losses.
Banks are not entirely without blame when businesses go
sour.
20. A few years back, at an annual dinner such as this, I
suggested that banks should take up shares and actively
participate in business. Then if the enterprises borrow from
the banks they will be in a position to oversee the
management. They will be able to halt any wild ventures at
least through the boards. Certainly they can make sure that
money is not misused.
21. As I remember it the suggestion was welcomed by the
banking fraternity. But I know of no banks which have
actually taken shares in companies and participated in their
management. I do hope that this is because banks have
their hands full running their normal business. I also hope
that they will take up this suggestion in the near future.
Ladies and Gentlemen,
22. At a recent exhibition of Malaysian science and
inventions, a number of the brainchildren of Malaysian
inventors seem to cry for production and marketing. If in
addition our researchers take seriously the suggestion to
identify products which can be copied and modified through
reverse engineering, it would seem that there is a great
scope for the start-up of many new enterprises. But of
course such new enterprises would require venture capital.
23. A seminar was recently held in Kuala Lumpur on venture
capital. If the seminar succeeded in convincing banks to
the need to support new ventures, possibly involving new
inventions or reversely-engineered products, we may yet see
the emergence of new manufacturing activities in Malaysia by
Malaysians. At the moment of course new technologies are
only employed by foreign manufacturers with reputation and
track records. Yet at one stage these foreign big names
must have been small and unknown. They must have had some
banking backers in their early days to be where they are
today. Cannot our small new entrepreneurs be accorded the
same backing by our banks?
Ladies and Gentlemen,
24. For banks to venture into what are to them unchartered
seas, they must prepare themselves thoroughly. An ability
to understand cash-flows alone is apparently quite
inadequate. Banks must have people who look beyond pure
money lending. They must understand the management of
businesses, particularly new manufacturing businesses. They
must also have officers acquainted with some current
technology.
25. Thus equipped they will be able to make better
evaluations and to take the kind of risks involved in
providing venture capital, directly or indirectly. We need
this kind of banking skills and risk taking if we are ever
to escape from the traditional areas of business -
commodity production, properties, construction and running
kedais. We cannot go on relying on these limited areas of
business because, in the final analysis, they are all
commodity-based. And there is no way we can control
commodity prices. I am not asking banks to be imprudent.
They must be prudent but not to the extent of stifling
entrepreneurship in this country.
26. I realise fully that banks have been badly bitten
during the recent recession. They know that even with
collaterals they can still lose their money. They know that
some business people including valuers do overvalue
collaterals. Leasing companies have had very bad experience
indeed. Once the money is given out the lenders lose sight
of it. Since banks and other financial institutions cannot
possibly supervise the way all their loans are being
expanded, the role of the auditors becomes extremely
important. The auditors are there to ensure that the
directors and managers manage their money properly.
27. In our system the auditors are supposed to be appointed
by the shareholders at the annual general meeting. In
actual fact it is the management and the boards of directors
which appoint the auditors. This being so the auditors
often feel themselves beholden to the management and the
boards. This is not healthy. Banks which often have more
money at risk than the shareholders should really have a
proportionate say in the appointment of auditors. The
auditors should be beholden to the banks as well as to the
shareholders. This way the banks will have some supervision
over the money they have lent to the businesses. This would
reduce their risks and consequently their reluctance to
finance enterprises.
Ladies and Gentlemen,
28. We should also not forget that insurance companies too
need to move along a similar direction. For too long, the
insurers have stayed in the background. The time has now
come for the insurance industry to move closer to the
forefront of economic activities to seriously consider
providing commercial insurance cover to the hitherto
"averse" risks such as crop, livestock and fishery
insurance; to upgrade risk management techniques so as to
take on the more sophisticated megarisks of marine, aviation
and energy; to pool resources together so as to retain
domestically as much as possible the large premiums, a
substantial proportion of which is now paid overseas, a big
contributor to our invisibles, to package the most
cost-effective insurance products for the salary earners and
businessmen alike. All these are for the national good while
not diminishing the profitability of the insurance
companies.
Ladies and gentlemen,
29. We all feel that Malaysia is experiencing an upturn in
the economy. We see evidence of it everywhere. We see more
traffic jams, more frequent full house notices by hotels,
more people eating out, more clubs and golfers, more crowds
at shopping malls, more smog and indeed more of everything.
All these sound good to businessmen and to bankers. But for
all these growth to be accommodated and sustained everyone
must tidy up his act and upgrade facilities and services.
30. Today Malaysia's population is 17.4 million. When we
became independent there were only 5 million Malayans. The
increase is rapid, very rapid. Assuming we have a
population growth of 2% and we have more than that, there
will be more than 340,000 new Malaysians every year or
without compounding 1 million every three years. These
people will have to be fed, clothed and housed through
employment. They have to be transported and entertained.
Doing these alone would mean more business.
31. The Government in anticipating these needs have set in
motion plans and policies designed for accelerated economic
growth. We are expanding vast sums on needed
infrastructures. The State Governments, you may have
noticed, are very much more active in attracting local and
foreign investments and generally boosting the economy.
Even local authorities have adopted very positive attitudes.
32. For all these economic growth for a burgeoning
population to take place, capital will be needed. The
financial institutions must play their role. They must be
more innovative and open-minded. They must help our
business people seize opportunities as they appear. They
must not look merely at their immediate profits but also at
the long-term returns they will get as the population
increasesand businesses grow along with it.
33. We do not want our rapidly growing population to result
in the lowering of our standard of living. Per capita
income must increase even as the population increases. While
exports will continue to contribute more and more to our
economic growth, the health of the nation's economy would be
better protected if domestic demands also grow to reduce
dependence on export.
34. Money must move. It must not remain static. Every
time money changes hands wealth is created. The faster
money moves the greater will be the wealth created. The
financial institutions, the custodians of the nation's money
must help this process, must give guidance, must provide
expertise and must be more adventurous. They must not let
their money stagnate in their vaults for any longer than
they can help. They, more than everyone else, must keep
money moving and consequently growing.
Ladies and gentlemen,
35. We have preached public and private sector cooperation.
We have recently begun preaching a three-way cooperation
between the Government, the businesses and the workers to
heighten economic growth. Now we want to suggest the
participation of another important partner to make it a
foursome. We would like to see the financial institutions
throw their full weight behind the other three so that we
will take off on a sustained economic growth path for
the betterment of all of us.
36. As you enjoy your dinner tonight try also to digest and
absorb some of the special menu I have just cooked up for
you. God willing we will build together a better Malaysia.
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