DFIs’ merger comes with challenges

There will be some 1-off cost adjustments as the consolidation of the DFIs will be optimally run as a merged entity, a researcher says

by NUR HANANI AZMAN / Pic by TMR FILE PIX

THE merger of development financial institutions (DFIs) in the country and the realignment of strategic mandates will give Bank Pembangunan Malaysia Bhd (BPMB) a large capital base and economies of scale.

It will also support the development financing needs in a new economic and industrial landscape post Covid-19 recovery era as outlined in the 12th Malaysia Plan.

Socio-economic Research Centre ED Lee Heng Guie believes the consolidation of the DFIs would be optimally run as a merged entity in realigning the mandated roles and functions to achieve specific and targeted outcomes effectively.

He said in any consolidation and rationalisation move, there will be some one-off cost adjustments in terms of operational overlaps and rationalisation of the workforce.

“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 businesses and companies that the merger would cut their access to getting the help they need from the DFIs.

“We believe these challenges and concerns would be given due consideration and be addressed in ensuring the proposed merger is well executed,” he told The Malaysian Reserve.

BPMB on Sept 30 signed an agreement with Credit Guarantee Corporation Malaysia Bhd and the Minister of Finance Inc for the purchase of credit enhancement firm Danajamin Nasional Bhd.

The corporate exercise is part of the government’s medium-term plan to strengthen and align the mandates of DFIs to improve the national development finance ecosystem.

The first phase of the plan will see BPMB taking over Danajamin for an amount to be determined in due course.

The government proposed in Budget 2020 that BPMB, Danajamin, Export-Import Bank of Malaysia Bhd (EXIM Bank) and Small

Medium Enterprise Development Bank Malaysia Bhd (SME Bank) would be restructured and merged to strengthen the DFI ecosystem.

The merger of the entities is expected to lead to greater synergies to achieve development outcomes that would benefit all stakeholders.

The restructuring plan will be implemented in two phases — the first phase involving the merger of BPMB with Danajamin, and the second phase to merge EXIM Bank and SME Bank into the earlier merged entity.

Lee expects the merged DFIs will enhance lending capacity to industries and businesses, especially SMEs that are facing difficulties to get funding from financial institutions.

“These industries and businesses at times require the financiers to assume risks or look beyond the business risk horizon in terms of financing structure and business risk profile,” Lee said.

He added that the integration of resources, cultures and systems of the existing DFIs with differing strategic mandates is critical to ensure a successful merger with a scalable size to achieve economies of scale.