Our Over Restricted Banking And Finance Industry Is Strangling The Economy. Please Liberalise, Deregulate and Open Up The Industry.

Here is Malaysia's lethargic GDP growth rates since 2000.

Our economy was killed by the Asian Financial Crisis of 1998 - 2001. As you can see our GDP growth see sawed quite violently from 2001 till about 2010. 

2001 to 2009 was particularly intense - with growth going from positive to negative rates over short periods of time. 

Since 2000 we have never been able to hit consistent high growth rates in excess of 7% and 8% which we used to have back in the 1980s and 1990s.

Since 2010 (under the worst Moron that ever became Prime Minister) the economy struggled to grow past 5% per annum. 

Now we cannot blame the Asian Financial Crisis forever. Other countries have also gone through crisis but they are doing better than us.

Something else happened over 1998 - 2002 etc which I believe is slowly but surely killing or seriously slowing our country's economic growth prospects. This is the "consolidation" of the country's banking and finance sector.

I feel truly privileged for having been a banker. Banking and credit (the lending of money) really makes the world go round. The banks do a fantastic service of collecting all the grandma's savings kept under the pillow, reorganising all that capital, and redeploying all that capital to more productive economic pursuits in the country's economy.

Without modern banking the whole world would not be where it is today. By banking I mean the entire concept of organising money savings and surpluses to be redeployed productively as credit and loans into the economy.

After the Asian Financial Crisis the banking system was "reorganised" or consoliated. Here is an old news release from July 1998 :

Guess who was the Finance Minister in July 1998?  Brader Anwar bin Ibrahim.

Before this "consolidation" the Malaysian banking and finance sector was very open,  competitive and innovative. Innovative meaning despite the over regulation by Bank Negara the banking and finance sector was able to meet its primary objective - mobilise the nations cash savings and surpluses and redeploy those cash assets into productive use in the economy. 

We have had banks failing and finance companies failing as well but my view is that was due to Bank Negara's incompetence. The regulatory mechanism was misplaced and too weak.  It was focussed on punishment and not prevention. Just like Bank Negara could not detect that RM2.6 billion illegal money laundering and stop it in time.

Anyway before we had the so called "consolidation" of the banking and finance sector the Malaysian economy had commercial banks, merchant banks, finance companies, leasing companies, credit and leasing companies, stock brokers (who were also licensed to extend margin financing), financial cooperatives  and other financial organisations.  Each one played its major role in extending credit into the economy.

I was particularly  attracted by the small town "credit and leasing" as well as the finance companies. They were restricted to giving  usually small loans which had to be secured. Many of these 'credit and leasing' and finance companies did business with small and medium sized local players who may not have proper audited accounts, annual reports etc. 

The managers of the credit or finance company would also be local guys who would know the local businesses and entrepreneurs. Lets say someone needed RM20,000 to buy an ice making machine, renovate his business premises etc then the local credit company would extend him a loan.   Documentation was the loan agreement.  

So there was tremendous impetus for small town entrepreneurs to venture into new businesses - there was fairly easy availability of credit.  SMEs did flourish  and the more successful ones eventually became corporate sized players. 

This was a very simple, fast and efficient system that we had that organised and redeployed capital in the Malaysian economy.  That is why our economy grew by those fantastic 7%, 9% and even 10% in the 80s and 90s.  

There was one "problem" though. This was almost entirely a Chinese business. Both the lenders and the borrowers in all the small towns were Chinese.  So when the ketuanan psychos appeared on the scene - advised by one really dumb mamak - they figured out that they could "kill" the Chinese economy by killing off the efficient credit system that  financed so much of Chinese businesses in the country.

Hence the so called "bank consolidation" too. There were other sides to the coin. Before you knew it  the finance companies disappeared, the cooperatives disappeared, the credit and leasing companies all disappeared. There are only a few left - including some owned by foreigners. 

Malaysias 52 commercial banks were forced into mergers and acquisitions such that we only have SIX anchor banks now. The myriad other financial institutions have also disappeared.  Banks do not have time to handle small loans of RM30,000 for Ah Chong to buy an ice machine or a new hydraulic ramp for his car repair business. 

So in no time the Ah Longs appeared on the scene. They fill in the huge vacuum created by the 'bank consolidation'. Ah Longs are not efficient lenders. They charge 18% or more interest per annum. This type of usurious rates kills business and the economy.  In the long run the Ah Longs destroy economic growth.  But the small people have little choice.  The 'consolidated' banks will not entertain their needs.

Eventually Ah Chong also quit his ice making business and went into new areas like human trafficking, illegal gambling, money lending (Ah Long) and anything else that gave the maximum return with minimal investment. 

He could have been making ice, exporting machine parts, furniture, clothing etc.  Please look at the first graph again. The Malaysian economy has never hit more than 6% growth after 2010.  It has usually been in the 4% growth area.

The Moron and his moron cohort used to say that ours was a "mature economy" so do not expect our 'mature economy' to achieve high growth rates anymore. Pi dah mabuk. Kepala bapak hang.  Malaysia is now a Third World country with strong Third World characteristics - corruption, lethargy, stupid leadership, etc which delivers weak economic growth. 

We have to liberalise, deregulate and open up our banking and financial sector ASAP.  If we do not do this on an urgent basis, we will NOT be able to generate sufficient economic growth.

Without strong economic growth, there will be higher and higher unemployment, especially among the Malays. Melayu miskin dulu.

And whatever economic growth we have will be property, construction, property, construction, real estate, property, construction, oil palm, mini markets, super markets, burgers, house cleaning services and other such industries that will employ the Banglas, Indons, Myanmars, Nepalis etc.

2000 loans of RM100,000 each to 2000 different SMEs will probably create much more economic activity, employment and economic trickle down effects in the country than one huge corporate loan of RM200 million. 

We have to replicate the banking and financial system which we already had that was very successful and which created so much economic growth in the economy.

So please deregulate the banking and financial services industry.  Let there be much, much more banks, (small banks, medium sized banks, large banks, finance companies, credit companies, etc).

We also need to create specialised housing banks which can focus on home mortgages.

We can have regional banks - limited by region (say Perlis, Kedah, Penang) or Selangor or Perak etc.  

The difference being their capital requirements can be made smaller.  If you have less capital but you want to run a bank then you can get a bank license which is restricted to a smaller region like just one or two States.   This is a very old model that has been implemented very successfully in the United States. 

What I am saying is that we have to think outside the box.  Malaysia will NEVER achieve high rates of GDP growth again if we do not liberalise the banking and financial sector.  I am 100% certain of this.