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.