Bias towards Westernised reform a worry

Datuk Seri Nazir Razak, group chief executive of CIMB Group, yesterday warned of a potential bias towards a Westernised regulatory reform in the global banking industry that may be detrimental to banks in emerging markets.

“If global banking reform is based on western reform, and this is applied to emerging markets, the costs could be transferred to consumers,” he told reporters after CIMB Group Holdings Bhd’s EGM here.

“Patients should not give out prescriptions,” Nazir said, referring to the financial malaise in the developed world’s banking sector relative to the ones in emerging market, but the developed economies were leading the regulatory reform.

He added that a healthy banking industry such as those in Malaysia was better equipped to define its own capital requirements than the ones in the west.

When contacted by The Edge Financial Daily, an analyst said: “Global banking reform proposals will see higher capitalisation of the banking industry. This raises the question of a trade-off between capitalisation and profitability.

“The fairly stable Malaysian banking industry will adopt capitalisation policies similar to those in foreign countries, which may be in a financial crisis right now. Some have voiced their dissatisfaction at the proposed changes,” said the analyst.

Meanwhile, in a report dated June 2010, PricewaterhouseCoopers said Malaysia’s larger banking groups were expected to continue to pursue regional mergers and acquisitions (M&A) as the domestic market gets more saturated.

This puts the spotlight on Malaysia’s “super-regionals”, Malayan Banking Bhd and CIMB, the nation’s two largest lenders.

In answer to this, Nazir said it was necessary to monitor the global banking reform and capital requirements before any Malaysian banks could undergo large transactions.

“There are no plans to acquire other banks at this time. We need to understand the landscape. Additionally, there are challenges in the banking environment to monitor, such as Basel III,” he added.

Basel III, which comes into effect at the end of 2012, indicates a preference for targets with high capital and liquidity positions. The analyst concurred, saying that the danger of banks embarking on acquisitions at this time was that the capital requirements remained unknown.

“Once the requirements are announced, the banks may find they are undercapitalised,” the analyst said.

Separately, Nazir also commented on the reported decline in foreign direct investments (FDIs) in Malaysia.

Based on the World Investment Report 2010, Malaysia’s FDIs inflow fell 81% to US$1.4 billion (RM4.47 billion) in 2009 from US$7.3 billion in 2008. FDI outflow, on the other hand, fell 47% to US$8 billion in 2009 from US$15 billion in 2008.

Malaysia paled in comparison to the average performance of the Southeast Asian region comprising 11 nations, including Timur Leste.

The Southeast Asian block registered a 22% reduction in FDI inflow to US$36.8 billion in 2009 from US$47.3 billion in 2008 against a 38% increase in FDI outflow to US$21.3 billion from US$15.4 billion for the same period.

“It is important that the government goes through the process of analysing the data. We should not jump to conclusions and must look at the quality and timing of the investments,” said Nazir, commenting on the decline in FDIs into Malaysia.


This article appeared in The Edge Financial Daily, July 27, 2010.