By Aidila Razak
Tommy Thomas
A section in the yet to be gazetted Financial Services Act 2012 could be abused by the government to “threaten” bank owners, senior corporate lawyer Tommy Thomas said.
This is because Section 92 of the Act allows the government to force those who own more than ten percent of financial institutions to sell off their stakes to adhere to the permissible holding limit.
“The way Section 92 is drafted gives Ministry of Finance (MOF) and Bank Negara Malaysia (BNM) wide powers and it can be misused.
“It could be hanging like a Sword of Damocles over the heads of these bankers’ necks. MOF and BNM could use the section to threaten the owners who would then yield to do what the authorities want,” he said when contacted.
He said that forcing someone to sell their shares also contravenes Article 13 of the Federal Constitution, which deals with with compensation for property and acquisition of property.
Section 92 which deals with maximum permissible holdings simply reads: “No individual shall hold more than ten per cent of interest in shares of a licensed person.”
This contrasts with Section 46 of the Banking and Financial Section Act 1989 (Bafia) on maximum permissible holdings which has seven subsections. Some of them define circumstances where there can be exclusions for the 10 percent limit.
The new Act will replace the Bafia, the Exchange Control Act 1953, the Insurance Act 1996 and the Payment Systems Act 2003.
Those who could be impacted by Section 92 are Azman Hashim of Ambank (17 percent holdings), Quek Leng Chan of Hong Leong Financial Group (79 percent), Teh Hong Piow of Public Bank (24 percent), Tengku Noor Zakiah Ismail of K&N Kenanga (14 percent), Khatijah Ahmad of KAF Seagrott & Campbell (73 percent) and Hwang Lip Teik of Hwang-DBS (31 percent).
Owner-managed banks doing well
Calling Section 92 “wholly unnecessary”, he said that owner-managed banks have proven to be an effective model and can be partly-credited for the Malaysian financial sector’s escape of the 2007-2008 global financial crisis.
Among others, he said, owner-managed banks have shown that they have successfully controlled non-performing loans and bad debts, which were mistakes that led to the financial crisis in the United States.
Teh Hong Piow
“The main reason (Teh) has managed to control NPL’s is that for every RM100 Public Bank lends out, RM25 in a sense belongs to him so he cannot be reckless…It promotes prudence, and good risk management,” he said.
Agreeing with Thomas, CIMB Research analyst Winson Ng in areport said that Public Bank and Hong Leong Bank have loan impairment ratios of less than one percent and loan coverage of more than 100 percent as at Dec 12.
Ng noted that Ambank has “shown great improvement” since Australia’s ANZ bought a stake in the bank in 2007. Its impaired loan ratio was only 2.1 percent as at end-Dec 12 and it has a loan coverage of 123.5 percent.
He argues that the good track record indicates that a forced selldown is “unlikely”, especially considering that the individuals have been exempted from the cap, which existed in Bafia since 1989.
“There is less justification to enforce the 10 percent cap now than before. The reason for the introduction of the cap was the fear that the controlling individual shareholders may jeopardise the corporate governance of banks.
“This is less of a concern now as we have not witnessed any big losses for banks
due to irresponsible lending in the past decade,” he said.
More GLCs in banking sector?
While Ng does not believe that banks will be institutionalised, Thomas said Section 92 could pave the way for government-linked companies to buy into the banking sector.
Nazri Razak
He said this could see a crowding out in the sector and concerns of whether the banks could be properly led.
“Nazir Razak (of CIMB) has done brilliantly, but can we be assured that there will be five other Nazirs around?” he asked, stressing that he has no interest in any of the owner-managed banks.
When contacted BNM declined to comment on but said that it is currently engaging financial institutions on the new Act. It is also calling a press conference next week to brief the media on the matter.
You must be logged in to post a comment.