Plan to merge 4 DFIS can improve efficiencies

THE proposal to merge four development financial institutions (DFIS) in the country could create an entity with a larger balance sheet that, in turn, could result in greater efficiencies and better cost controls.

However, with these institutions serving different mandates, the operational side would be something that the government would need to address, according to industry players.

Another likely issue that could crop up with the proposed merger is staffing, where there will bound to be duplications and overlaps in some operations, post-merger.

Finance Minister Lim Guan Eng said in his Budget 2020 presentation that Bank Negara is proposing a two-phase restructuring plan for the country’s DFIS to form a new financial institution through the merger of Bank Pembangunan Malaysia Bhd, Danajamin Nasional Bhd, SME Bank and Export-import Bank of Malaysia Bhd to strengthen the development finance ecosystem.

He said that DFIS play an important role as public institutions that support the nation’s development goals and serve the needs and requirements of the new economy.

The possible merger of local DFIS in Malaysia’s already crowded and competitive banking space had been discussed sometime back, but did not take off.

DFIS, in turn, have come under scrutiny following recent scandals at some institutions such as Bank Pembangunan, which have since seen a revamp.

Bank Pembangunan in a statement says the proposal to strengthen the DFI eco-system is a “positive development.”

“Our business lines are complementary to the other institutions, and the proposal will lead to greater synergies that would benefit all stakeholders, as well as fulfill the needs of the new economy,” it adds.

DFIS in Malaysia were established in the 1960s and 1970s as specialised financial institutions with specific mandates to develop strategic sectors, spanning agriculture, infrastructure, small and medium enterprises, as well as export-oriented and high-technology industries.

Notably, in 2008, SME Bank was made a separate entity from its parent company, the Bank Pembangunan group.

For the year ended Dec 31, 2018, Bank Pembangunan’s net profit fell 21.5% to Rm167.31mil, due to higher allowance for impairment losses on loans and financing of Rm423.22mil versus Rm302.78mil a year earlier.

Last year, Bank Negara collaborated with the World Bank and DFIS to develop an enhanced performance measurement framework for DFIS.

The central bank said it sought to provide a sharper focus in the mandates of DFIS, while optimising performance and synergies.

It aims to capture the broader contributions of DFIS by moving beyond the narrow focus of financing growth indicators, and integrating developmental key performance indicators to measure the socio-economic impact of DFI operations.