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2007
(Issue No. 131)
Synopsis
A Note on the 1999-2002 Malaysian Banking Consolidation
by Dr Rubi Ahmad
In this article, a brief history of the 1999-2002 Malaysian banking consolidation is presented together with the economic rationale for the mergers. These were guided mergers where the government encouraged one financial institution, typically a weaker entity, to merge with another, typically a stronger entity. Guided mergers are widely accepted by Malaysian and other Asian policy-makers as a strategy to resolve banking problems. In the case of Malaysia, such an initiative came from the Malaysian government and its regulatory agencies in the aftermath of the 1997 East Asian financial crisis. Similarly, government pressures and intervention have also been used in Europe, Japan and the US to strengthen banking groups. For instance, mergers were used in the US to resolve its savings and loan crisis in the 1980s, and in Sweden and Norway to resolve their debt crises in the 1990s.
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Impact of Financial Liberalisation on the Productive Efficiency of the Banking Industry in Malaysia
by Matarr Njie
The study employs a two-stage analyses using the DEA-type Malmquist index on a panel of 15 Malaysian banks to estimate the productivity and efficiency changes for the country’s banking industry in the period between 1999 and 2005. It finds that: (1) technical efficiency, pure technical efficiency and total factor productivity had increased by 3.83%, 1.1% and 3.69% respectively; and (2) government intervention is among the drivers of efficiency in the banking industry in Malaysia. The latter result suggests that, contrary to popular theory, periodic government interventions in a country’s banking industry can be justified on efficiency grounds.
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Corporate Governance of Banks in Malaysia
by Dr Lum Chee Soon & Philip T N Koh
This study considers the state of corporate governance in the domestic banking system in Malaysia, and the progress and success of regulatory reforms implemented to improve the internal corporate governance mechanisms in the domestic banking institutions in the post-1997 crisis period. A unique contribution of this study is that it provides first-hand evidence on the domestic banking system’s corporate governance structure. Based on the Asian Development Bank Institute questionnaire surveys of the board of directors, this study presents, for the first time, the observed perceptions of board members about their overall responsibilities, accountability and role in enhancing their board’s effectiveness. These micro-level results reveal very encouraging evidence about the changes that have been made in the defining roles of CEOs/controlling owners and the independent directors in board committees and related party transactions, as well as in the areas of public disclosure and risk management processes. Some evidence has emerged from the survey questionnaires that the rapid enhancement of regulatory norms such as Bank Negara Malaysia’s regulatory guidelines, Guidelines on Directorship in the Banking Institutions (GP1) and Guidelines on the Specimen Financial Statements for the Banking Industry (GP8), have resulted in structural changes being made in the domestic banking institutions’ internal governance mechanism. Board directors are now more conscious that disclosures, transparency and board independence are prerequisites for their effectiveness in propagating governance in their banking institutions, especially in those financial conglomerates with complex and opaque ownership structures. At the public policy level, the task of striking a balance between the use of various regulatory policy instruments and market discipline to make the practice of good corporate governance a norm in the domestic banking system will become more challenging to Bank Negara in the post-merger period. These are issues that should be of interest to the banking community in Malaysia.
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