Monday, April 27, 2009

Banking Liberalisation - Not A Shortcut to Economic Recovery

The recent move to liberalise the financial sector is quite interesting. According to a report, Malaysia today raised the cap on foreign equity for investment banks and insurers to 70 per cent but retained a 30 per cent limit for local commercial banks in a mixed bag of incentives to boost the financial services industry.

Prime Minister Najib Razak also announced that Bank Negara will issue two new licences for foreign-owned Islamic banks that must each be capitalised at US$1 billion or more, and foreign trade banks in 2009. Three new commercial banking licences will also be further offered in 2011.

The government has decided to allow banks and financial institutions to employ skilled foreign workers. This is a good move to expand the human resource pool. However, the government should focus on attracting skilled Malaysian financial specialists who are now working in important a few regional and global financial hubs.

However, this decision will not create an immediate influx of foreign talents to our shores. Before the financial can grow, Malaysia has to become an important regional financial hub first. The lack of liquidity in the local equity market will not help to attract many new deals. A number of IPOs will still head for the Singapore, London or Hong Kong equity markets.

The commercial banking sector had gone through a consolidation barely a couple of years ago aftermath of the 1997 Asian financial crisis. I am not too sure if the government's decision to allow for 3 more new licenses by 2011 is a smart move or not. Can the domestic market accommodate a few more commercial banks? Can these banks be viable?

I would like to urge the government to look beyond just mere equity liberalisation as a strategy to overhaul the economy. We need to focus on building quality companies, skilled and productive workforce and enhancing the effectiveness, transparency and independence of our democratic institutions.

We should also focus on mindset and work culture change. Malaysian public and private sectors must learn to take more risk. We need to shorten the time to new product and services delivery. Companies and public agencies should focus on better client relationship management and service delivery quality.


Anonymous said...

You forgot to mention the need to wipe out corruption. As it is, there are people appointed to the cabinet are still tainted.

francis ngu said...

Your short observation leads one to some related points.

Charity begins at home. We should gain the confidence of Malaysian investor's capital first, and attract their funds parked locally and overseas. This is surely more in consonance with national interest.

Confidence-building among both local and foreign investors, requires meanigful reforms over an entire front as you have suggested, and I would say specifically, executive and judicial institutions.

Even having done so, we are in a frigid climate for new investment and risk-taking both globally and locally. Credit for new venture is
surely scrutinised by Scrooges among lenders. In short, we are acting and liberalising when the horse has bolted, after times of easier credit. Such measures should have come in the thick after the 1997 "recovery", or even pre-1997. However, one may say, better late than never.

There is indeed a case for further consolidation of banking to face future competition from foreign entities. The issuance of new banking licenses seems to be a BN policy flip-flop, considering that a couple of small but healthy banks even in my homestate, Sarawak, were taken out under the post 1997 consolidation exercise.

"Charity begins at home" and "ENTIRE FRONT REFORMS" again apply to critical human resource issues, pointing to the entire education, training and meritocracy debates.

Economic recovery is a long road, harder than post-1997. The world, especially third world giants, have moved on. We haven't got our formula yet.

David Jeremiah said...

While you have a point, we must remember THE GREATEST TRAIN ROBBERY has finally occured and the ENGINE has been derailed. The whole Global Economy is out of Line.
The SYSTEM must be Restudied.
Keep up your good job.
People like you are needed to wake up 1 Billion Middle Class Consumers world-wide who are being taken for A RIDE to GLOBAL BANKRUPTCY.
David Jeremiah