Let banks decide on merging, govt shouldn’t get involved, say economists

PETALING JAYA: An economist has cautioned against PAS’ call for a fresh round of bank mergers, saying such decisions should be decided by the financial institutions themselves rather than the government.

Yesterday, PAS central economic, real estate and entrepreneur development committee vice-chairman Mazli Noor called for a fresh round of bank mergers due to the current tightness in the liquidity of the financial system.

Mazli said an industry-wide merger could see the merged entities achieve economies of scale, stabilise the industry and protect consumers.

Speaking to FMT, Yeah Kim Leng of Sunway University’s Business School said bank mergers had been talked about for years following the successful industry consolidation after the Asian financial crisis in the late 1990s.

This consolidation, he said, enabled the industry to withstand the 2007-2009 global financial crisis.

Still, he said, in more recent times, the authorities had wisely taken a “hands-off” approach to mergers and acquisitions and allowed industry players to decide for themselves.

“A government-imposed industry consolidation is unlikely to yield an optimal outcome and could prove costly to taxpayers as well as shareholders.

“Weaker banks unable to survive will likely sell out, with price, valuation and strategic fit being the sticking points,” he said.

On fears that weaker banks could collapse unexpectedly, Yeah said this was less of a concern due to Bank Negara Malaysia’s strong regulatory oversight.

Carmelo Ferlito, from the Institute for Democracy and Economic Affairs, shared similar sentiments, saying decisions on mergers should be left to the financial institutions.

“How can the government know how big a bank should be for the good of the economic system?” he asked.

He said while the current economic situation could lead banks to merge, this decision should only come from the financial institutions themselves.

On whether a merger would be good or not, Ferlito said bigger banks could provide support for the country’s economic system.

“But, from another perspective, higher consolidation may lead to less competition and therefore fewer options for the customers.”

Another economist, Barjoyai Bardai of Universiti Tun Abdul Razak, said there was no harm in exploring the possibility of mergers, including merging the country’s four biggest banks – Maybank, Public Bank, CIMB and Hong Leong Bank.

This, he said, could see the creation of one of the 10 biggest banks in Asia and it could become a regional powerhouse, given that each of these four banks had their respective strengths.

“On the downside, the smaller local banks will not be able to survive,” he said.

Barjoyai believes banks should merge not due to the tightness in the liquidity of the financial system but due to the growth of digital banking.

“In 10 to 15 years, banks may not exist the same way they do now. I believe digital banking will be the order of the day and smaller banks may not be able to do this as well as the bigger banks.

“So I feel that our banks should now merge, capitalise on what they have and focus on digital banking to become market leaders in this area,” he said.

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