DFI merger a good idea but tough to implement

by NG MIN SHEN & ASILA JALIL/ pic by BLOOMBERG

THE proposal to merge four Malaysian development financial institutions (DFIs) is a good idea but will be difficult to implement, as potential job losses and Bumiputera narratives may impede the process.

During the recent tabling of Budget 2020, Finance Minister Lim Guan Eng said Bank Negara Malaysia (BNM) is proposing a two-phase restructuring plan to strengthen the country’s development finance ecosystem.

The plan entails forming a new financial institution by merging Bank Pembangunan Malaysia Bhd (BPMB), Danajamin Nasional Bhd, Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) and the Export-Import Bank of Malaysia Bhd (Exim Bank).

An industry expert said the merger would provide better economies of scale, with more focus on programme financing for small SMEs.

“Politically, however, it can be quite difficult since job functions will overlap, deciding on job cuts very hard to implement. From a commercial standpoint, they should have been merged a long time ago, but Bumiputera/Malay narratives are the main stumbling block,” he told The Malaysian Reserve (TMR) under condition of anonymity.

BPMB came under fire last year due to allegations that it gave loans to politically connected parties while being remiss in its lending practices.

Its chairman Datuk Zaiton Mohd Hassan — appointed in February 2019 to “clean up” the country’s oldest and largest development bank — has pledged to do just that while balancing BPMB’s developmental role without sacrificing prudential standards.

Malaysian Institute of Economic Research economist Dr Ahmad Fauzi Puasa said the merger would be good for the country’s overall development but requires a detailed layout on how the banks would function together.

Besides overlapping of tasks, the merged entity also needs to overcome problems regarding the various segments that each bank specialises in.

“Each bank has a market. The merging of four DFIs would make the overall institution bigger but they should be careful about the decisions they would be making to improve operations.

“There need to be a layout of their strategy and it has to align with what’s needed (within the banks),” he told TMR.

The institution would also need to expand its functions if it plans to retain all staff, Ahmad Fauzi added.

Details on the proposed merger remain scarce as neither the government nor BNM has revealed any further information since Budget 2020 announcement.

Meanwhile, Socio-Economic Research Centre ED Lee Heng Guie said the DFIs would be more efficient as a merged entity, as the central bank would have considered the optimisation of resources and increased efficiency of the workforce.

“In any merger, there will be some adjustments in terms of overlapping and rationalisation of the workforce,” he said.

However, there are concerns among sectors on their access to funding, should the merger materialise.

“Currently, each institution has a niche market with specialised services to suit specific sectors. There is concern among small groups and companies that the merger would deny their access to getting the help they need from these DFIs.

“They worry about the merger — will there be rationalisation of the landing facility,” Lee said.

It is still too early to gauge the impact of the merger to individuals or sectors involved with each separate bank, Lee added, but important aspects such as the welfare of those involved would have been considered by the banks.

BPMB has lauded the proposed merger as a “positive development” which will lead to greater synergies benefitting all stakeholders. The proposal will also fulfil the needs of the new economy, it said in a statement following the announcement in the budget.

Based on the banks’ 2018 annual reports, BPMB was the largest, with total assets of RM24.73 billion as at end2018. Exim Bank had total assets of RM11.99 billion, followed by SME Bank (RM9.83 billion) and Danajamin (RM2.75 billion).