Anwar can’t expect banks to be charitable

 

Opposition leader Anwar Ibrahim let loose last week – if that’s the word – when he, inter alia, asked the government to “call bank owners and say you (the banks) need to reduce profits, reduce it but not wipe it out. What is reducing RM8 billion to RM6 billion.”

To banks, and likeminded financial institutions, domestic or foreign: a heck of a lot. Anwar, yet again, is being naïve, desperate, and populist.

Banks’ responses will be for Anwar to take a hike. Certainly not, they’ll say, in Malaysia’s current business environment, and not at this juncture of the economic cycle (of a worsening recession). Without overstating it, the cycle could become longer.

For context, the present movement control order (MCO) has already been extended once. Associated with it is Prime Minister Muhyiddin Yassin’s wish for an “emergency”. Underlying both is the raw fact that the Covid pandemic in Malaysia is worsening.

And if the United Kingdom, Brazilian or South African variants of Covid - mutating faster and a worse killer than the Chinese Wuhan version - were to find its way into Malaysia, a far harder and longer MCO crackdown and emergency will become mere truism.

This time, order and sanity will be managed by the country’s security forces in much tougher ways. Perhaps this is just what’s needed to curb anti-commonsensical Malaysians, including sordidly selfish politicians, from devoutly flouting MCO rules.

But it also means businesses, big and small, will face a dogged lockdown for an undeterminable time. Employment levels will evaporate. Joblessness will become a long-term structural economic and socio-political problem.

The government’s haemorrhaging budget deficit and debt will explode, with Malaysians left to pay for these for a generation. And all these will show the Perikatan Nasional (PN) regime to be thoroughly out of its depth in strategically managing multi-fronted crises amidst deteriorating economic conditions.

Meanwhile, banks will be faced with the enormously arduous problem - not issue - of managing their bottom lines and balancing shareholder expectations and the banks’ thus far moral ambivalence towards customers and Malaysians in general. Besides, increasingly, banks operate on short-run outlooks.

If the economy takes a minus 10% plunge in gross domestic product, from around minus 7% presently, and Malaysians’ net incomes similarly crash or stagnate, it’s still unknown if the banks will become socially and morally cognisant that Malaysians are at the end of their tether. Banks, like businesses, are not created to be socially responsible citizens. And Anwar can’t legislate this.

Diehard capitalists

Can banks help the growing army of struggling Malaysians? Short answer: yes. With their up to RM8 billion quarterly profits, they can. But will they? Most unlikely.

Banks are owned by diehard capitalists. The sole religion of capitalists is to make money and hoarding it. If profits are re-invested, they’re designed to make even more money. More of it will be hoarded, probably offshore.

Banks don’t see themselves as charities. The first six-month loans moratorium came on the back of public service but knowing the suspension would last six months. Banks and the government would have tacked down this surety.

Besides, as former prime minister Dr Mahathir Mohamad had showed in the late 90s, his regime would underwrite banks from being marauded by larger local banks and especially foreign multinational ones. His bank consolidation then allowed smaller financial institutions to be gobbled up by bigger ones in the name of economic rationality and efficiency when in fact Mahathir had given his big bank cronies a leg up.

Banks are not leaders in policymaking. However, given their vast financial resources and their vital role in the national economy through credit-making, they can influence government policy 99% of the time to their economic advantage. The first moratorium was a political manoeuvre, as banks wanted to be seen to have a social conscience. Not the second time around.

If banks’ profitability is reduced, substantially or otherwise - apart from shareholder revolt, possible suspension or reduction of dividends, and sharemarket value plummets - they become takeover targets of the bigger ‘shark’ banks. These latter banks aren’t in the business of market competition but monopolisation. And it doesn’t matter if the monopolists are local or foreign. The erosion of competition will affect ordinary savers and borrowers, like it or not.

If Anwar’s crude populist stance against banks is taken at face value, he still won’t be helping Malaysians over the medium and long term. Banks, like Anwar, looks at the short-term political advantages. When banks are faced with uncertainty, they react, just as Anwar has been reacting. 

Even if banks agree to Anwar’s multi-billion-ringgit moratorium, it’ll come at a cost to customers down the track, perhaps by way of lifting banking fees and charges to recoup losses.

Or banks could, and probably would, lift interest rates where they’re not directly ‘signalled’ by Bank Negara. Lifting fees and charges erodes more spending, discretionary and otherwise. It’ll undermine consumer confidence and, in turn, business investment confidence as aggregate demand declines. But lifting interest rates at this juncture of the business and economic cycles will be madness, equivalent to amputating both hands of the critically-stricken economy.

So what does Anwar want?

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MANJIT BHATIA reads economics and international politics at New Hampshire in the US. - Mkini

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.