Are there too many banks in Malaysia?

Wednesday April 20, 2011


IN reference to the article titled “Catalyst for banking merger” by Risen Jayaseelan that appeared in StarBiz on April 12, I would like to question the view that there are too many banks in Malaysia.

If the view is based on balance-sheet strength, then it is an outdated view. Look at the Western banks such as Citi Group, RBS, Lloyds and many more. Did their big balance sheet help them to weather the credit issues? Or did it make it more difficult for them to achieve their return-on-equity targets, thus possibly driving the banks into more risky behaviour?

One could also argue that big banks are “riskier” than smaller banks because of heavier systemic risks the larger banks pose. The recommendation from Britain’s Independent Commission on Banking (Vickers Commission) does seem to confirm this and suggests additional capital buffers for large banks.

To quote The Economist, “On capital, the commission reckons that the minimum that systemically important banks should set aside as buffers ought to rise to 10% from the 7% proposed by Basel III”.

Credit issues should be addressed by transparency, proper controls by the central banks and ultimately, having competent people in the banks. Mergers for “balance sheet reasons” only make sense if the strong ones merges or acquires the weak ones to eliminate the weakest links in the banking system.

There is nothing wrong with having healthy small and medium-sized banks. They offer more choices for their customers. At the same time, there can be the bigger banks in the country with regional aspirations.

Mergers and acquisitions (M&As) for banks should be driven by cost synergies, better opportunities and competition. In other words, M&As should be driven by market forces and not by unfounded calls by non-stakeholders of the banks.

http://biz.thestar.com.my/news/story.asp?file=/2011/4/20/business/8515405&sec=business