After a painful and unforgettable lesson taught by the Asian financial crisis in 1997 – 1998, the Malaysian government has been working to reform and consolidate the country’s once weak and undersized financial institutions. The ultimate goal is to prepare banks for the increased foreign competition that will come with the liberalization measures of the Financial Sector Master Plan initiated by Bank Negara Malaysia (BNM—the central bank) that will guide the sector through 2010.
Overview of Current Banking Sector – Financial Sector Master Plan
BNM directed its first “master plan” at the banking sector in July 1999. It originally called for banks to apply to the central bank to become one of six “anchor banks”, or consolidated groups of domestically owned banks. After several revisions, the central bank adjusted the number of anchor banks to ten and set a deadline of end-2000 for mergers among Malaysia’s domestic banking institutions, which then numbered 58.
Six of the ten anchor banks formed by the end-2000 deadline and, after two extensions, negotiations over the creation of the remaining banks were wrapped up in February 2002. The anchor banks are Maybank , Bumiputra-Commerce Bank, RHB Bank, Public Bank, AmBank, Hong Leong Bank, Southern Bank, EON Bank, Affin Bank and Alliance Bank.
In addition to compulsory mergers, the central bank used stricter capital requirements to beef up lending institutions. Anchor banks were required to have minimum shareholders’ funds of M$2bn and assets of at least M$25bn by end-2001. For foreign-owned banking institutions, they had to raise capital funds to M$300m by the same deadline.
Within a year of the completion of the first round of mergers, both Mr Mahathir and Zeti Akhtar Aziz, the governor of the central bank, pointed out that a second round of mergers would take place around 2006 and reduce the number of anchor banks to three or four. Abdullah Badawi and Ms Aziz have said that this second round will be...