Liberalise banking sector some more, economist urges

PETALING JAYA: A veteran economist has urged Putrajaya to further liberalise the country’s banking sector, two decades after a major banking consolidation in the wake of the Asian financial crisis.

Ramon Navaratnam suggested that the government allow entry to more foreign banks, and that new local banks be set up. He added that local banks were now strong and well capitalised.

Navaratnam, who chairs the Asian Strategy and Leadership Institute Centre for Public Policy Studies, told FMT the banking system provides “lubricant” for the economy.

“It is the heart which pumps blood for businesses to grow,” he said. “If there is not enough blood pumped into the system, it cannot function properly.”

In the past, he said, consolidation was necessary as it gave local banks more business and enabled smaller banks to survive through better economy of scale.

“Now all the banks in the country are strong enough on their own, with some even operating in other parts of the region. They can also compete more effectively with foreign banks,” the former Treasury deputy secretary-general said.

He added that removing the shackles of “protectionism” and encouraging more players to enter the industry would allow “everyone” to benefit from greater competition and better services, and help drive economic growth.

Former finance ministry secretary-general Sheriff Mohd Kassim said increased competition might mean that some banks would not survive. However, he said this was the nature of competition.

“But with more competition, banks will offer more innovative and better financial solutions for the market,” he told FMT.

He added that it was good to have a number of smaller banks instead of “just a few giants”.

But Ali Salman, who heads the Institute for Democracy and Economic Affairs, disagreed.

“In Malaysia, out of 26 banks, 18 are foreign-owned, which are predominantly operated by the private sector.

“In this scenario, the entry of new banks, even if the banking sector is further liberalised, will remain infeasible given the scale of the Malaysian market.”

He also warned against associating economic growth solely with mega projects. He said if mega projects were motivated by non-economic factors, a temporary boom could prove catastrophic.

He opined that neither an increase in banks nor infrastructure could provide the impetus for growth, saying this would instead be spurred by attracting new investments, especially through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

He said growth could also come from opening government procurement, Putrajaya divesting in its government-linked companies, and greater investments in human capital. - FMT