The Merger of Finance Companies in Malaysia

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FIN 426
Banking Operation and Documentation
Assignment 1
“The finance company in Malaysia are no longer exist”

Prepared By:
ZURAINI BINTI SAMSURI
2010889082
EMBF5C

PREPARED FOR:
EN. HASBULLAH BIN OTHMAN

Nowadays, there are no more finance companies in Malaysia. This situation occurred due to Asian financial crisis in mid year of 1997. Start with Thailand whereas Thai government has decided to float Thai Baht due to financial crisis. A few days later, the crisis spread out to Malaysia and Malaysia currency Ringgit was attacked by speculators. The Prime Minister during that time Dato’ Seri Dr. Mahathir Mohammad has claimed money broker George Soros is the cause of the crisis and he taking drastic action with imposed strict capital controls and introduced RM 3.80 equal to USD$ 1.00. The Asian Financial Crisis was a period of financial crisis that gripped much of Asia and raised fears of a worldwide economic meltdown due to financial collapsed. The crisis left many Malaysian banking institutions with high levels of non-performing loans (NPL) it also has given big impact to the financial institution. Debtors are failed to settle their debt because of losing job. During that time, Malaysia has too much financial institution that operates same services and function and the resources are wasted from this sector. On 29 July 1997 the Governor of Bank Negara Malaysia (BNM) announced a merger programmed for domestic banking institutions under BNM their agencies. The merger will ensure that the domestic banking institution will be able to withstand pressures and challenges arising from globalization and from an increasingly competitive global environment. The rescues planned from International Monetary Fund (IMF) to effectively close the small financial institutions are totally declined. Malaysia did not believe that the IMF prescription of closing down the problem bank was the way to go, therefore do it their own way. The policies and strategies using monetary policy, fiscal policy and restructuring of financial sector then implemented. Malaysia’s response to the crisis, part of financial sector’s restructuring involved an industry-wide bank consolidation program within which the Malaysian banking sector underwent a comprehensive merger exercise. BNM was planning to merge a certain financial institution into six anchor bank but this plan was not well accepted by the shareholders and players of the banking sector. Due to few circumstances and after more thought was given to the plan, over a period of two years BNM finally forced the merger of 58 financial institutions comprising commercial banks, merchant banks and finance companies into 10 domestic groups. The ten anchor banks are Malayan Banking Bhd, Bumiputra-Commerce Bank Bhd, RHB Bank Bhd, Public Bank Bhd, Arab-Malaysian Bank Berhad, Hong Leong Bank Bhd, Perwira Affin Bank Berhad, Multi-Purpose Bank Berhad, Southern Bank Bhd and EON Bank Bhd. The anchor bank system was to consolidate the financial system to improve competitiveness and to reduce the number of bankruptcies in the financial system. Furthermore, government also provides some tax credit incentive to the financial institutions that involve in merger processes. Meaning, government has put some sacrificing and risk in the national income by given some tax incentive. The merger also allows for smaller financial institution to participate in larger bank activity. One of the finance companies affected from this situation is MBf Finance (Malaysia Borneo Finance). Before the crisis, MBf Finance is the biggest finance company in Malaysia with 153 branches and has almost 10 percent of Malaysia’s population as customers. Their credit card services are used in Taiwan, Indonesia and Philippines. MBf Finance has shown their non performing loan (NPL) because of the crisis but MBf Finance like the other finance companies has struggled as the country economic collapse has force their borrowers into default. Some...
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