Thursday, June 21, 2012

BAFIA Breach - Bank Negara in Denial?

The Malay Mail carried the front page story on Monday 18 June that local banks are disposing of their non-performing loans (NPLs) or bad debts to companies owned by foreign entities.  Under the Banking & Financial Institutions Act 1989 (BAFIA), “banks can only sell to locally incorporated companies which the purchaser is majority owned by domestic shareholders as the purchaser is subject to a foreign equity ap of 49%”.

The Bank Negara (BNM) has chosen to issue a flat denial to the report claiming it was “inaccurate and misleading”.

BNM statement said that “banking institutions can dispose of their NPLs as part of the bank’s risk management practice.  Disposal of NPLs provides the flexibility for banks to manage their loan portfolios effectively and efficiently to maximize recovery to protect depositors’ interest. Any  recovery action must be in accordance with the law.”

However, in today’s Malay Mail frontpage report, evidence was provided of several such companies who bought NPLs from local financial institutions where it is clear that the ownership breached the 49% limit.  Sinesinga Sdn Bhd for example, is 75% owned by Standard Bank London Holdings PLC.  Similarly, another company, Resolution Alliance Sdn Bhd is 55% owned by Standard Chartered Bank (Hong Kong) Limited.  What’s more, all 3 directors of Resolution Alliance are foreigners.

When posed these questions during the Supplementary Budget Bill 2012 debate yesterday, the Deputy Finance Minister Datuk Seri Dr Awang Adek refuses to give a straight answer as to whether the BAFIA has been breached, and was only willing to repeatedly emphasize “in his experience as an ex-Bank Negara official… I am confident (“yakin”) all necessary approvals would have been obtained by the local financial institutions from Bank Negara, because they would not act otherwise”.

Despite the seriousness of the matter, which has been reported since Monday, the Finance Ministry is obviously still completely clueless over the matter.  In fact, there are even questions as to whether the above companies who are acting as debt collecting agencies are in fact licensed to do so in Malaysia.

What is worse is the accusation by The Malay Mail in its Monday report that “a foreigner, who is the son in-law of a prominent local banker, owns the majority of shares in one such debt collection agency, which had procured a vesting order from a premier locally based foreign bank.”

The above raises the issue of serious conflict of interest, criminal breach of trust and even fraud and must be investigated by the relevant authorities.  Such incidences jeopardises the integrity of our financial institutions and the trust investors and consumers place in our banking system.  It also raises the question as to whether BNM is willing to act independently and expediently without fear or favour, or would it prefer to get cosy and collude with the movers-and-shakers of the local banks.

BNM must not sweep the issue under the carpet while the Finance Ministry cannot come to Parliament completely clueless and ignorant.
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