Speechs in the year
Tarikh/Date 	: 	28/08/91 
Tajuk/Title  	: 	ANNUAL DINNER OF 

    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
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
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-
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
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
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-
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
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