Oleh/By : DATO' SERI DR. MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR (K.L)
Tarikh/Date : 26/08/92
Tajuk/Title : THE ANNUAL DINNER OF
FINANCIAL INSTITUTIONS
Saya mengucapkan berbanyak terima kasih kepada
jawatankuasa penganjur Majlis Makan Malam Institusi-
Institusi Kewangan Malaysia kerana menjemput saya dan isteri
saya ke majlis yang dihadiri oleh ahli-ahli kewangan. Saya
berasa gembira dapat sekali lagi bersama-sama tuan-tuan dan
puan-puan pada malam ini dan saya ingin berkongsi pendapat
mengenai beberapa perkara yang bersangkutan dengan industri
kewangan dengan tuan-tuan dan puan-puan.
2. This year represents the sixth consecutive year of
steady and strong growth for the Malaysian economy. The
current phase of economic expansion began in 1987 after a
prolonged period of difficulties in the early 1980s and the
deep recession of 1985-86. Over this phase of buoyant eco-
nomic performance, our economy has experienced rapid in-
crease in output; substantial rise in per capita income;
high degree of industrialisation; and numerous opportunities
for new jobs and profits. All these speak well of our ef-
forts in the past to modernise and develop the economy, and
augur well for the achievement of our stated vision of a
fully developed country by the year 2020.
3. Naturally, in the run-up to our present status, the
economy has begun to show some signs of strains. This is
only to be expected. Rapid growth brings with it certain
problems, for growth implies change and change needs adjust-
ments. Consequently, consumption spending has been rising
persistently, and national savings have been on the decline.
The labour market has tightened progressively and wages have
been trending upwards. Imports have been accelerating while
the external payments position has remained subdued. The
bullish demand sentiments and increasing supply constraints
have had discernible effects on prices and inflationary
pressures.
4. Many, including international observers and analysts,
have considered the current challenges facing Malaysia as
being the "happy problems" brought about by economic suc-
cess. While we take solace in the fact that the "unhappy
problems" would be much more daunting, the current problems
must be managed well nonetheless. Determination and resolve
are equally needed as if the problems arise from failures.
5. If there is any lesson at all to be learnt from the
present sluggishness in the economic performance of most ma-
jor industrial countries, it is the fact that excesses which
accompany economic expansion are not sustainable, and sooner
or later must be reversed. Subsequently, as individuals and
companies are compelled to reduce their levels of indebt-
edness and institutions to rebuild their balance sheets,
these industrial countries were plunged into a pervasive and
prolonged period of economic weakness.
6. It is precisely for this reason, i.e. to prevent the
excesses of economic behaviour in Malaysia, that we have in-
stituted tight money management in order to moderate spend-
ing, particularly for conspicuous consumption. We want to
encourage greater savings, and if needs be, to induce forced
savings, in order to narrow the existing resource gap and
ensure long-term stability, as well as to provide a steady
flow of non-inflationary funding for the growing investment
requirements under the Sixth Malaysia Plan. To prevent ex-
cesses in the financial system, we need to ensure that the
strengthening of prudent supervision as a complement to mar-
ket discipline does not lag behind the radical changes in
financial structures. It is imperative that a proper bal-
ance be struck in providing a tight safety net which ensures
public confidence in the financial system, while at the same
time moving further ahead towards deregulation. Regulation
are abhorred until, of course, someone gets hurt. Then the
Government will be questioned as to why it failed to regu-
late.
7. At the working level, workers and producers alike must
take cognisance of the increasing supply constraints in the
economy and to improve productivity and upgrade their
competitiveness in the overseas markets. Workers, for in-
stance, should not indulge in the old-fashioned wasteful
confrontational labour practices which would lead to a wage-
price spiral, which does not really benefit anyone except
our external competitors. Producers too must not exploit
the imperfections in the market regime to generate "fat"
profits at the expense of consumers. Our ability to keep
inflation low depends on the willingness of everyone to pro-
tect the integrity of an efficient price discovery mech-
anism.
8. The tendency to profit from reduced cost while respond-
ing to increased cost by immediately increasing prices
should be resisted. Reduced cost of imports due to appreci-
ation of the ringgit, for example, should be passed on to
the consumers as much as increased cost are passed on. By
passing on reduced cost, inflation can be better controlled.
Low inflation reduce pressures for higher wages, among other
things and this will benefit both the importers of raw mate-
rials as well as the producers of manufactured goods. The
net result is that we will remain competitive in the domes-
tic as well as the export market. Profiteering under what-
ever circumstances will result in a backlash that will hurt
everyone. Even if costs go up, it is better to counter
through improved efficiency rather than increased prices.
The reason the Japanese are unbeatable is because when oil
prices went up and when the Yen was revalued upwards, they
did not follow this with corresponding upward revision of
prices.
9. Maybe this is expecting too much of the Malaysian busi-
ness community. But if good economic sense cannot be made
to prevail, Government may have to step in. This is not a
good solution as the implementation of regulations is seldom
free from abuse. When this happens, the community and the
nation will suffer.
10. Low inflation is something Malaysians take for granted.
Malaysians also consider that inflation must be dealt with
by the Government through laws, regulations and fiscal meas-
ures. But there is a limit to what the Government can do.
In the final analysis it is the people who must play the
principal role. For this, they need to know the causes of
inflation and the role they themselves must play. Perhaps
the financial community can promote a better understanding
of the role everyone must play through systematic programmes
in the media, particularly through television. No one wants
to spend a hundred ringgit to buy a bar of chocolate which
presently sell for only one ringgit. Yet this is the story
of many currencies not only in the developing countries but
even in the developed ones. We will go the same way if we
are not careful.
11. With increasing competition and rapid changes in the
economic environment globally, adjustments have to be made
where necessary in order to stay ahead of others. In this
regard, our producers and exporters should not be discour-
aged at the recent developments in the exchange rate of the
ringgit. Currency movements should not be regarded as the
principal determinant of export competitiveness. In any
case it should be remembered that the present exchange rate
is the same as the rate about five years ago. At that time
we were still competitive. We should be as competitive now.
12. In a wide open economy like Malaysia, the appreciation
of the ringgit should result in substantially lower import
prices. The servicing of external debt will also be
cheaper. This should in turn benefit both producers who
rely on imported raw materials and other inputs in the pro-
duction process, as well as consumers who consume in large
measure imported goods. Equally, imported plant and machin-
ery will be cheaper. As I have said, importers and traders
must pass on the benefits of lower import prices down the
line, and should not take advantage of the strong ringgit
and regard it as windfall profits. The Government views se-
riously the need to strictly enforce the competitive pricing
behaviour among traders, to bring down costs in the economy
for the benefit of producers and consumers alike. In this
regard, any remaining barriers and rigidities preventing the
free flow of goods and services in the country will need to
be liberalised or deregulated. At the same time, the pric-
ing behaviour and the efficiency of the price discovery
mechanism will have to be closely monitored and improved
upon.
13. Furthermore, producers must take advantage of the pres-
ent economic situation to shift into more capital intensive
and high technology production processes. It is heartening
that a shift in this direction is gradually taking place in
recent months, based on the profile of the flow of new in-
vestments. Indeed, investments are on average bigger in
size, and this represents a welcome change which ought to
result in higher productivity, as well as ease the growing
tightness in the labour market.
14. It appears that there is an increasing tendency for top
management of banking institutions to preoccupy themselves
with what they consider to be the major banking issues,
namely asset/liability management, information technology
and profitability, at the expense of such run-of-the-mill
banking activities as service to customers, inculcating the
savings habit, the security aspects of their operations and
their most basic function of lending. Bankers must not for-
get that they are intermediaries. Their main function is
intermediation. Without the confidence of depositors and
borrowers, they have nothing to intermediate. Utmost care
and attention must therefore be given to the basic areas of
banking for these very fundamental reasons.
15. Banking deals in a highly desirable and liquid commod-
ity -- money -- and money business calls for security and
trust. It is of paramount importance that all aspects of
banking operations are accorded security surveillance with
equal stringency. Bank customers need to be assured that
bankers act in their best interest; not their own self-
interest. Secondly, banking is predicated on the mainte-
nance of depositor confidence and this will evaporate where
the assets of a banking institution, which in the main are
concentrated in loans, threaten the ability of the bank to
meet its obligations to depositors. The tenets of sound
banking lie in security, sensitivity and surveillance.
Bankers are expected to deliver them all.
16. The vulnerability of banking institutions to incursions
into its security and control system by persons bent on ac-
quiring wealth through dishonest means is best illustrated
by several recent events. The "MIDF cheque scam" high-
lighted the fact that routine banking transactions which are
normally carried out safely as a matter of course may not be
safe enough when assailed by determined persons acting in
concert to defraud the bank. Quite obviously, nothing
should be taken for granted and bank staff have to be vigi-
lant at all times in supervising everyone including their
own colleagues. It is reassuring to note that many banking
institutions have instituted additional screening checks on
the identity of persons they deal with. The public will
have to put up with the inconvenience of more stringent
checks as it is in their own best interest. Customers can-
not enjoy safety of their deposits if they are unwilling to
put up with stringent procedures in their daily transactions
at banking institutions. But, a sensible balance needs to
be maintained. Cumbersome procedures and delays can be
counter-productive. Banking involves the management of
risks -- all risks, not just credit risk. It is time bank-
ers do the jobs for which they are well paid.
17. Technology has been a boon to modernising and enhancing
our productivity and quality of life. In banking, it has
shortened considerably the processing time involved in many
routine banking transactions and improved tremendously the
capacity of banks to cope with the volume, scope and the in-
creasing complexity of their transactions. However, auto-
mation, computerisation and the electronic transfer of funds
have also given rise to new avenues for defrauding banking
institutions.
18. Banking institutions have to be alert to the potential
of such frauds. Last year, banking institutions reported
193 cases of frauds involving approximately $600 million
ringgit, compared to 778 cases involving less than $30
million ringgit reported in 1990. And this does not include
credit card fraud which, in 1991 alone, registered 14,006
cases involving $17 million ringgit. Fortunately, the bank-
ing industry was able to detect many cases of fraud and re-
covered much of the losses. Consequently, actual losses
totalled about $25 million ringgit or less than 5 per cent
of the total amount of $600 million ringgit in frauds com-
mitted in 1991.
19. There is no room for complacency as any laxity would
only entice the criminally inclined to test the controls of
an institution. Furthermore, public confidence could be af-
fected if they begin to question whether all their trans-
actions through the banking system can be conducted safely.
The banking industry cannot afford such doubt to creep in as
it will eventually undermine the nation's payments system.
20. There have been calls to impose harsher penalties on
white collar criminals and these are currently being studied
by the Government. However, the law by itself cannot be the
sole means of countering society's ills. In these days of
the educated criminal, a really determined crook can defraud
banks, institutions or individuals. The only real and ef-
fective protection against crime is the moral and ethical
value system of the society. A society which cares little
for honesty and integrity will always be assailed with a lot
of crimes, including those by the casual criminals.
21. Given that insider fraud is increasingly rampant, the
control should start at the point of entry to an institu-
tion: that is at the recruitment level. To weed out poten-
tially unsuitable characters, particular emphasis should be
paid to character, temperament, attitude and disposition.
Management must also be alert to external pressures affect-
ing staff performance and behaviour. A caring corporate
culture should be instilled. Similarly, genuine grievances
of employees should not be ignored. Management must also
keep a vigilant watch for vices among the staff, such as
drug addiction, gambling or a penchant for luxuries beyond
their means.
22. As custodians of public funds, the financial sector
necessarily has to display very high standards of financial
discipline and integrity. Management must be seen to deal
firmly and uncompromisingly with any infringement of these
standards, however small they may be. Dishonesty by a bank
employee undermines the very foundation of banking. In the
final analysis, the scale of fraud in an organisation is a
reflection of the ability of its managers to manage. Deal-
ing with fraud calls for a tough, yet fair and unambiguous
policy by top management. They must make it patently clear
that dishonesty will not be tolerated.
23. Financial institutions have the onerous responsibility
of safeguarding public confidence in the financial system
and are expected to play their rightful role in the battle
against white collar crime. Granted banks cannot control
the desire to steal, but banks can surely control and limit
the opportunities to steal. These controls and limits need
not always be considered in terms of cost, but should be
weighed against the potential benefits.
24. Malaysia is in a critical phase of economic develop-
ment. To attain our cherished vision of a developed nation
by the year 2020, bankers should be more supportive of
innovators and entrepreneurs who have the vision and the
dynamism to create, but little or no collateral. Malaysian
bankers of this era must also venture far beyond the tradi-
tional collateral-based financing into the more adventurous
domain of project and venture capital financing. It is not
suggested that bankers should be reckless. Of course, they
must be guided by the underlying time-tested principles of
good lending. What I am saying is that bankers should take
calculated risks in the less well-trodden paths, and not
rely on the comfort of following in the footsteps of others.
Calculated risks must be taken or your business is not bank-
ing.
25. Inilah pendapat saya mengenai beberapa perkara
berkaitan dengan industri Kewangan. Saya mengucapkan terima
kasih di atas perhatian tuan-tuan dan puan-puan. Sekali
lagi saya mengucapkan terima kasih kerana menjemput saya ke
Majlis ini.
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