Oleh/By : DATO SERI DR MAHATHIR BIN MOHAMAD
Tempat/Venue : SHANGRI-LA HOTEL, KUALA LUMPUR
Tarikh/Date : 12-10-2001
Tajuk/Title : THE 22ND ANNUAL DINNER OF THE
ASSOCIATION OF MERCHANT BANKS
IN MALAYSIA
Versi : ENGLISH
Penyampai : PM
I wish to thank the Association of Merchant Banks,
for inviting me to their Annual Dinner. Normally, on
auspicious occasions like this, we ought to be
celebrating our success and achievements over the past
year. Today, however, we gather here in a rather
serious mood as we struggle against the many problems
currently assailing our country. It does not help that
as we try to adjust to the changes of globalisation
there should be an economic downturn in the US
aggravated by the horrendous attack on the US financial
and military centres. The far-reaching effects of the
terrorist attacks could not have been foreseen by the
perpetrators. They go beyond the US and cause economic
disruptions worldwide. A worldwide recession is
entirely possible. But for us the concern is for our
own economy and the need to insulate it as much as
possible.
2. Over a month ago we celebrated the 44th
anniversary of our independence. We reminded ourselves
how hard it was for our forefathers to gain
independence for the country. We hoisted and waved the
`Jalur Gemilang', buoyed by a renewed sense of
patriotism and unity. We planted the flags everywhere
- on buildings, motor vehicles, trees and homes. But
all of these would become meaningless if we are not
able to insulate ourselves and maintain economic
independence despite a world which has become too
interdependent.
3. Despite the vicious attacks by the currency
manipulators we have been able to regain our financial
independence and strength. We had fixed our exchange
rate against the U.S. dollar and contrary to the dire
predictions of all and sundry our economy and our
currency have not collapsed. The exchange rate has
been sustained and there is no black market in the
Ringgit. Unlike many countries all transactions in
Malaysia are done in Ringgit including payments for
hotel bills by tourists. Attempts to force the
Government to devalue the Ringgit has failed. The
strong Ringgit in relation to the currencies of the
region has not affected our trade. The fall in the
volume of trade is not confined to Malaysia, but the
balance of payment remains in our favour.
4. Government borrowings are still manageable and
within limits. Thus it is possible for the Government
to pump money into public works etc in order to
mitigate the effect of a downturn due to declines in
exports and Foreign Direct Investments. It would not
have been possible to do this if the Government had
wasted money in the past. Contrary to the allegation
of Government detractors, the management of Government
finances is actually conservative and prudent. We
believe that we can continue to be conservative and
prudent, the so-called mega projects notwithstanding.
After this assertion there will be many who would like
to see us fall flat on our faces.
5. But of course sound Government finance cannot be
achieved and maintained if the economy and in
particular the banking system are not themselves sound.
As a small country we have had to protect our banks
from competition with the foreign banks. Except for
those British banks which were established during the
colonial period and which have continued to operate
branches all over the country, foreign banks are
allowed to operate from only one office in Kuala
Lumpur. They are therefore unable to enjoy as much
local business as they would. Even then some of those
foreign banks are already more profitable than local
banks.
6. But the days when we can protect local banks seem
to be numbered. With WTO, globalisation, borderless
world and regionalisation of markets, foreign banks are
going to operate in Malaysia more freely and enjoy the
same status as national banks. Whether local banks
survive or not depends on their ability to compete and
their size. We have forced the mergers of local banks
so that now there are only 10. But still they are not
big enough. I am afraid that they will never be big
enough unless they allow themselves to be a part of the
giant multinationals. National identity would then be
foregone.
7. This unfortunately will remove whatever economic
clout the Government has. These huge international
banks are not likely to accept Government directives to
give more loans to small businesses, support housing
and property development, give priority to certain
industries, help bumiputera achieve economic parity,
reduce lending to certain sectors etc. Instead they
are likely to follow the dictates and policies of the
countries they regard as their home base. And such
policies can be detrimental to the growth strategies of
our own country. In other words we will lose our
financial and economic independence and with that we
will for all practical purposes be a colony once again.
8. The challenge for us, the challenge for the
Malaysian banking system, is how to survive and prosper
as relatively small banks. Firstly the Malaysian banks
must learn to survive without depending on Government
protection. Skills will have to be developed
particularly in the field of personal service.
9. Big banks are notorious for being very impersonal,
for looking only at the bottom line, for snatching away
the umbrella when it rains, for being interested only
in big clients. They don't care for their clients
especially if they are small. It is of course
dangerous to be too friendly with clients. It may
result in your lending imprudently. But being friendly
can mean giving good financial advice, warning the
clients on their ventures and even helping them with
their feasibility studies. If you do this the clients
will be loyal to you and when they grow big they will
not desert you and transfer their business to big
foreign banks.
10. Assuming that you are now upgrading your skills
and developing a new philosophy, I would like to point
out that under current economic conditions where growth
will come from domestic sources, bank financing is
crucial to lubricate the economy. Banks must,
therefore, ensure that credit is appropriately
channeled to stimulate consumption and investment.
Given the ample liquidity and the relatively low
interest rates, banks should not have difficulties in
providing credit. Monetary policy will continue to
provide a conducive environment for economic activity.
11. To achieve this, Bank Negara Malaysia has
instituted a host of measures to improve and strengthen
the capacity and capability of the local players. As I
have mentioned, the merger programme of the banking
institutions has been virtually completed with 52 out
of 54 domestic institutions being consolidated into 10
banking groups. To instill greater synergy into their
operations, these banking groups have been allowed to
cross-sell financial products and services of their
subsidiaries. Banking institutions should fully
utilise the flexibility to conduct cross-selling and to
market new products to customers.
12. To complement the merger programme, the minimum
amount of capital funds unimpaired by losses was raised
to RM2 billion for domestic banking groups and RM300
million for the locally incorporated foreign banks.
With the enlarged capital base, the Malaysian banking
sector is in a relatively better position to face
future challenges and absorb further shocks.
13. The ability of banks to absorb losses is not
unlimited. Therefore, certain other key elements need
to be in place, such as the need to practise good
corporate governance. Also there must be effective
risk management. We have already witnessed banks that
had failed owing to negligent management and excessive
risk taking. As custodians of public funds, banks have
a duty to develop an adequate regime of in-house
surveillance and proper system of internal controls.
If the Government seems unduly strict with banks it is
because bank failures are very costly for the people
and the Government.
14. As you are well aware, earlier this year, we had
unveiled the Financial Sector Masterplan. The
objective is to develop a more resilient, competitive
and dynamic financial system with a core of strong and
forward looking domestic financial institutions that
are ready to face the challenges of liberalisation and
globalisation. Banking institutions should strategise
as to how they can achieve the objectives of the
Financial Sector Masterplan. The Board of Directors
and management must ensure that the necessary
infrastructure comprising processes, systems and
people, is in place.
15. As envisaged in the Financial Sector Masterplan,
all domestic banking institutions, including the
merchant banks, would from 2004 onwards have to compete
with the foreign institutions already operating in
Malaysia. By the year 2007, those foreign institutions
who are not here yet will also be in the contest. The
attempt to put off this eventuality may not succeed.
So it is better to be prepared.
16. In the world of banking and finance, level playing
field is not enough. Even if all are subjected to the
same regulations, those which are big in terms of
financial resources, technological sophistication,
world wide branch networks, innovative products and the
experience of operating in different environments will
prevail over the small and the weak. Where money is
concerned customer loyalty and patriotism is not going
to count for much. But with skill and sympathetic
service the locals can still hope to survive.
Benchmarking yourself against the foreign banks from
now on, you may be able to maintain your institutions
and hold out.
17. Looking around for a competitive advantage, we see
Islamic banking as an area in which we have developed
certain expertise. Islamic banking is not likely to
replace conventional interest-based banking but there
are signs that Islamic banking is beginning to be
generally accepted even by non-Muslims. Islamic
bankers must continuously think up new and innovative
products. The Government strongly backs Islamic
Banking and in order to expand Islamic Banking Malaysia
is bidding to be the permanent base for the proposed
Islamic Financial Services Organisation (IFSO). The
primary purpose of IFSO is to develop and disseminate
uniform prudential, disclosure and regulatory standards
to govern risks in Islamic financial products. The
setting and harmonisation of such standards would not
only promote a level playing field and foster industry
development, but would also enhance the basis for more
effective supervision of institutions offering such
products and improve the prospects for better risk
management. In essence, Islamic banking is being
developed to be in tandem and operate on par with
conventional banking.
18. For merchant banks, as outlined in the Financial
Sector masterplan, the next important step is for you
to forge mergers with the stockbroking companies and
discount houses and evolve into full-fledged investment
banks whose businesses can be enhanced through
synergies between investment banking and securities
activities. The merchant banks should thus gear
themselves to complete the transformation process into
investment banks successfully so that they will be able
to play a more meaningful role in the development of
our economy.
19. With the enormous challenges ahead and urgent
tasks at hand, we must start bridging the huge gaps
between our country and the developed nations.
Needless to say, the stakes are very high. If we are
prepared to work hard, success has its just rewards.
Thank you very much for your attention.
Sumber : Pejabat Perdana Menteri
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