Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR (K.L)
Tarikh/Date : 28/08/91
Tajuk/Title : ANNUAL DINNER OF
FINANCIAL INSTITUTIONS
Once again, I would like to thank the organising com-
mittee of this Annual Dinner of Financial Institutions for
inviting my wife and I tonight.
2. This year, marks a special occasion - the birth of a
new period in the Merdeka era. With the ending of the New
Economic Policy (NEP), we are poised to chart the new path
for the future of our country. Tonight, I would like to fo-
cus, if I may, on the perception of the role of the finan-
cial community in the nation's plan to build a prosperous
and fully developed nation by the year 2020.
3. A couple of months ago, I had outlined the National De-
velopment Policy (NDP) for the decade of the 90's. The NDP
forms part of a longer term vision wherein by the year 2020
Malaysia should be a fully developed nation. The term de-
veloped nation is likely to create in the minds of people
the western model of an industrialised nation with a high
per capita income. What we would like to attain is not just
income but a society which balances material gains with in-
tellectual and moral values.
4. We must aim for a quality of life in which the pursuit
of wealth will be tempered by concerns for the environment,
for good human relations, and for a wholesome life that is
not devoted to the pursuit of pleasure alone. Far too often
a community achieves a high degree of development only to
disintegrate because of excesses brought about by material
wealth.
5. Perhaps this sounds too idealistic and therefore una-
chievable. But if we do not strive for the ideal, we are
likely to founder much sooner if not fail altogether.
6. We have seen many great civilisations develop only to
wither and degenerate because of an obsession with wealth,
power and pleasure. We cannot guarantee that if we should
attain our target this will not happen to us. But at least
while we are still unaffected by success, we should try to
instill the values which will help keep our feet firmly on
the ground.
7. We see today among the advanced developed nations a
laxity and a dirth of moral values which spawn permissive
cultures, breed politicians who misuse power and position
and businessmen and financiers who cheat on a massive scale,
cause the breakdown of the family and the institution of
marriage, create mindless impersonal welfare states where
people expect to get something for nothing and horrendous
crimes which include mass murders and even cannibalism. If
this is what we are heading for we may well ask ourselves
whether it is worth the effort. Indeed, there are already
people who are opposed to progress and will strive to stop
us because of their fears of a materialistic, hedonistic and
Godless society.
8. All these may seem heavy fare at a dinner for bankers
and financiers. Lest you think I am preaching too much, let
me remind you of the current BCCI affair, the insider
tradings of Ivan Boesky and others, the scandal which now
racks Salomon Brothers, NOMURA Securities; the bankruptcies
of some of the biggest and most respected banks, and closer
to home the BMF affair. Clearly in the financial world,
economic development often leads to deterioration of morals.
9. We will not be able to avoid all these but with early
reminders and the inculcation of good ethical values contin-
uously, we hope to avoid the worst of this disease.
10. I would like to warn those who are inclined towards
crime that the penalty would be very severe when they are
caught. The Government would not be deterred by collapsing
share markets or runs on the banks. It is noted that the
recent investigations regarding insider trading had ad-
versely affected the share market. Fortunately we have
found no evidence of such activities. If the share market
has not recovered it is due to the rumour-mongers, those
ubiquitous parasites which plague the Malaysian political
and economic life.
11. Now having said all these essentials, let me return to
the role of banks and financial institutions in the progress
towards a developed Malaysian nation. Clearly their role
will be crucial and the demands on them will be heavy. If I
may I would like to outline the qualities which the nation
has a right to expect of them.
12. First and at odds with the Shylock image of the indus-
try, banks must be caring and service-oriented. Despite the
introduction of sophisticated banking products and technol-
ogy, a banking institution is basically a middleman between
the savers and the borrowers. What has actually changed in
all these years is not the underlying function of banking,
but merely the method and instruments used in achieving this
function. As the banking system enters the 21st century,
real advancement in banking will continue to be measured by
how far bankers are able to bring their intermediary func-
tion closer to the needs of society in the most efficient
manner.
13. Whichever way you look at it, the well-being of the
banking industry hinges on how the banks interact with the
depositors who entrust their hard-earned savings to them on
the one hand and on the other hand, the entrepreneurs who
depend on the banks for funds to turn an "idea" into a prof-
itable venture. Banks simply cannot operate without the
support of savers and borrowers and one sure way to ensure
continuous support is to provide a better and better stand-
ard of service. Primarily, it is the quality of service,
not products per se, that all levels of bank staff, from
chief executives to the tellers, should strive to provide at
all times. Unquestionably, much more can be done to improve
the quality of basic banking services in Malaysia -- shorter
customer queues, speedier loan processing, fair and balanced
terms and conditions, sympathy and understanding and a smile
even when saying "No". Banking should always be guided by
prudence and not whether someone up high is said to have ap-
proved.
14. Speculative activities are a part of the modern finan-
cial scene. But banks should be judicious in lending money
for speculative deals and purchase of overpriced shares.
Banks must know from their 1985 experience that such loans
can turn sour at short notice. At such times banks tend to
withdraw their umbrella, become impatient, impose penalties,
seize collaterals and bankrupt their clients. While these
actions may be legitimate and will save the banks, it is
worthwhile to remember always that bankrupts are not only a
burden to themselves but to the nation as well. As a devel-
oping nation we cannot afford this.
15. Today, we still hear about the rural population being
cheated by illegal deposit-takers to the tune of millions of
ringgit. This is very disturbing indeed, particularly in
the light of our present concern to enlarge the pool of do-
mestic savings available to fund the country's expanding in-
vestment needs. Despite having branches in rural areas, the
banking industry has yet to fully reach out to these people
to offer their services. While some of these depositors may
be just plain greedy, the fact is that most of them are sim-
ple trusting people who are attracted by the apparent evi-
dence of others getting rich quick through these
get-rich-quick schemes. It is difficult for them to appre-
ciate that the game will not last forever especially when a
continuous stream of depositors make it possible for the
scam to work for considerable length of time.
16. The Government can and will take legal action, unpopu-
lar though this may be. The final answer, however, lies in
proper education and understanding of the workings of the
scam by the ordinary folk. But sympathetic and public-
spirited bankers can play a role by a more friendly approach
towards potential depositors and indeed by helping with the
process of education. Clearly there is a lot of money which
is not being wisely invested. The efforts of the banks will
result in this money being made available to them for pru-
dent lending. So the banks' efforts will actually pay divi-
dends. And the community and nation will be much healthier
financially when the Government and the bankers work in con-
cert to eliminate these unscrupulous criminals.
17. The second characteristic which the banking system
should possess is the commitment to support productive ac-
tivities in the country. A banker must realise that his
volume of business and success hinge on the health of the
economy. Thus, the banking industry must ensure that, at
all times, sufficient credit at reasonable cost is directed
to finance productive activity, that is, activity which gen-
erates real wealth, value-added goods and services, and
gainful productive employment.
18. Under the Sixth Malaysia Plan, the manufacturing sector
is poised to play a prominent role in order to diversify our
economic base and to reduce our dependence on commodity-
based export revenue. High value-added manufacturing ex-
ports are expected to form a greater proportion of our
export revenue in the coming years. The banking system must
be prepared to fund large-scale industrial investments by
the private sector. Under the Sixth Malaysia Plan, over
M$200 billion ringgit of private investment will be re-
quired. It is the responsibility of the banking industry to
ensure that the scarce savings of the nation are not di-
verted to finance non-productive speculative investment and
conspicuous consumption, but are channelled effectively and
efficiently to genuine entrepreneurs who have the capability
to undertake industrial projects. The banking industry must
enhance its financial capabilities and technical know-how to
evaluate and arrange innovative financing packages for in-
creasingly more complex, hi-tech and large-scale industrial
projects. Banking institutions would have to co-operate, if
necessary, to arrange large loan syndications and be more
innovative in utilising the capital market to complement the
demand for funding. Without the whole-hearted commitment of
the banking system in this regard, it would be difficult for
Malaysia to achieve a developed nation status by the year
2020.
19. Of equal importance, however, is the commitment of the
banking system to finance the smaller feeder industries.
Malaysia is undoubtedly rich in natural resources and the
small-scale industries are capable of transforming basic raw
materials into simple components for eventual use by the
larger industries. The stage has also been reached where
these small industries should import raw materials for proc-
essing. Although low-key, these industries are crucial and
provide the necessary ground support for the production of
competitive Malaysian-made products. The drive towards an
industrialised economy would necessarily require the forma-
tion of more small and medium scale industries (or SMIs) and
to upgrade existing ones.
20. However, being small and often without a proven track
record, the capital market is beyond the reach of the SMIs.
We need the sincere and unrelenting assistance and commit-
ment of the banking industry to help free the SMIs, partic-
ularly those which are hi-tech and innovative, from the
funding constraints which are presently retarding their
growth.
21. I am certain the banking industry will respond posi-
tively to the challenge and reinforce their commitment to
support the nation's productive ventures. I would urge the
banking sector to step up their efforts and increase lending
to the manufacturing sector, particularly as the manufactur-
ing sector's contribution to GDP is expected to increase to
as high as 32% by the end of the Sixth Malaysia Plan period.
Clearly, the mobilisation of private funds, both in the form
of risk capital as well as bank credit, for investment in
manufacturing projects needs to be enhanced considerably.
Otherwise, it could slow down the process of industrial de-
velopment.
22. Moving on to the third element, we need a modern
Malaysian banking sector that is sophisticated, competitive
and efficient. Essentially, the benefits of a more compet-
itive and efficient banking sector would be derived from a
narrower spread between the lending and deposit rates. A
more attractive lending rate would stimulate greater loan
demand for investment and, hence, contribute to greater eco-
nomic activity. A more attractive deposit rate, on the
other hand, would encourage greater domestic savings through
the banking system, and allow more funds to be mobilised for
industrial and other economic development. To put it in an-
other way, banking inefficiency and dependence on large mar-
gins will retard economic growth and obstruct our progress
towards a developed nation. As such, it is a matter of na-
tional importance for each and every banking institution in
the country to strive to improve its own productivity and
efficiency in all aspects of its operations.
23. The Government, through the Central Bank, has over many
years systematically and purposefully dismantled the various
structural barriers and levelled the playing field to en-
hance competition in the system.
24. All in all, the operating boundaries have widened con-
siderably. While new business opportunities are available,
deregulation has also allowed more market players into each
activity. Not only will competition come from players
within the system, non-bank financial institutions, like the
development financial institutions, the National Savings
Bank and the building societies, would also attempt to
encroach further into the turf of the pure banking sector.
All these factors point towards escalating competition in
the financial sector in the years ahead. My hope is that
the competitive forces will be healthy and generate improve-
ments in bank efficiency for the good of the nation.
25. As I have mentioned earlier, the banking system would
have to respond to the increasingly sophisticated needs of
the Malaysian corporate sector and consumers. Therefore,
the fourth characteristic which should be a feature of a
modern Malaysian banking system is innovativeness. We have
now reached a stage where market forces would be the best
stimulant for the development of our banking system. Inno-
vations which are able to satisfy the market needs best must
be encouraged, and banks which are able to provide and de-
liver these products efficiently will enjoy greater success.
Financial innovations which provide value-added enhancement
to the function of intermediation will have the support of
the authorities and the market. Banking institutions must
provide the main thrust and impetus towards bringing about
innovations, creativity and dynamism in developing all fac-
ets of the financial markets so as to help reduce the pri-
vate sector's overall cost of doing business in the country.
However, I must caution that innovations which ignore basic
banking practices are non-progressive and, in the long run,
could be counter-productive as the stability and soundness
of the banking system could be shakened. Banking insti-
tutions must, therefore, be more discerning and focus their
attention on "value-added" financial innovation rather than
"rule-avoidance" acrobatics.
26. Financial innovations, including securitisation and fi-
nancial futures, which have demonstrated their economic use-
fulness in the developed financial centres are likely to
feature more prominently in the Malaysian banking scene in
the coming years. The phenomenon of increasing
securitisation, particularly the development of a viable
secondary corporate bond market, and the emergence of a via-
ble financial futures market are all essential for the
Malaysian financial system to evolve into a strongly market-
oriented centre, where both the surplus and deficit
units are able to manage the deployment of funds as well as
the distribution of risks effectively and efficiently.
With a strongly market-oriented financial system, the risk-
bearing capacity of the economy would be greater and this
would help increase capital formation, savings and stable
economic growth.
27. Technology in banking will undoubtedly become more per-
vasive in the years ahead. However, it would be a grave
mistake, if developments are to be blindly led by technology
and not by clear banking objectives. Banks need a coherent
business strategy to, firstly, identify the markets that
they are trying to serve; secondly, define the services that
they wish to provide to each part of the market; and
thirdly; choose the best mechanism for the delivery of the
service. Technology determines only the delivery mech-
anisms. The banking industry must distinguish between the
banks' service, on the one hand, and the technical mech-
anisms for the delivery of those services, on the other.
The introduction of new technology in banking should not be
out of line with the banking services required by the soci-
ety. Otherwise, technological innovation would only lead to
unnecessary complexity and adversely affect the quality of
service provided by the banks.
28. Over and above all the four quality elements which I
have just mentioned, the fifth and perhaps the most impor-
tant characteristic is the ability to withstand shocks, that
is, to be stable and resilient. Without a stable banking
system to keep the national savings intact and continuously
provide the flow of credit to industry and trade, the nation
cannot progress and prosper.
29. Following the severe recession of 1985-86, the Govern-
ment had deployed considerable human and financial resources
to re-build and strengthen all the weak links in the banking
system. The ailing banking institutions had been rehabili-
tated or absorbed by stronger banking institutions. Fur-
ther, smaller and weaker banking institutions are also
encouraged to consolidate and merge into larger and stronger
banking entities to enable them to play a more meaningful
role in the challenging years ahead. There is a global
trend for the smaller financial institutions to merge. In-
deed, even the giants are merging. The trend is clear and
appears to be irreversible. Many Japanese banks have taken
this route and the pressure to merge has also affected banks
in the United States.
30. For the Malaysian banking system, we should expect the
consolidation process to be more vigorous in the years
ahead.
31. On the part of the authorities, the supervisory frame-
work will be continually developed and strengthened to pre-
serve a safe and stable operating environment. The
stability of the Malaysian banking system, like any other
banking system, ultimately hinges on public confidence in
the safety of their deposits. The banking industry must
conduct its business with the highest degree of integrity
and financial prudence would continue to be the cornerstones
of banking stability no matter how modern and sophisticated
the system has become. The staff of a banking institution
are its greatest asset. The standard of their skills,
professionalism, commitment to serve, and above all honesty
and integrity would decide whether a bank will be a great, a
mediocre or a "has been" bank. Therefore, as we proceed to-
wards the year 2020, banks must never lose sight of the im-
portance of quality staff. Banking institutions should
continuously train and upgrade the skills of their staff and
nurture a corporate culture where honesty, professionalism
and integrity are second nature to the staff.
32. The Malaysian vision of a modern banking system - one
which is caring and service-oriented, committed to support-
ing productive activities; competitive and efficient; inno-
vative and sophisticated; and, last but not least, stable
and resilient - is not over-idealistic. These qualities of
a dynamic banking system are, God willing, achievable. If
Malaysia is to make the progress towards developed nation
status, short-term gains must be subordinated to the longer
term vision. And anything long-term must involve
sacrificies and prudence--qualities which the whole nation
must have and the banking sector in even larger measure, if
we fully subscribe to the Malaysian vision.
33. With these almost indigestible food for thoughts, I
thank you for your kind attention and wish you a pleasant
evening.
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