Bank Closures And Monopolies : Explaining Some Weak Understanding.

Recall a few days ago I posted that Maybank and CIMB will be closing a total of 92 branches this year? I also said that we must abolish all the monopolies and oligopolies that the government has created over time in this country.

Well it has come to my knowledge that some influential person disagreed with some (not all) of what I said. "Influential person" meaning the person "heads" a group of influential folks. Here are the points raised and my comments in brackets.

I disagree with Outsyed  on some points.

"On closing down bank branches by Maybank and CIMB, this is not new. A few years ago Standard  Chartered Bank  closed down several branches where it was  uneconomic bcos fewer and fewer customers are now  going to the  branches to see the front office  tellers to  take,  deposit and transfer money.  They use the ATM machines and on line banking. Only a few old people go to the branches for customer service. Not worth to operate the branches for the dying breed."  

My comments :  Obviously this observation is by a non business person who has no experience "operating" any real business. Getting appointed to the Board of listed companies does not immediately make anyone a business person. Bank branches make the least profit from withdrawals and transfers. That would be the "old people" business who have savings accounts at banks.  Still banks get cheap funds from FDs, savings accounts and unused funds in current accounts which the banks use to fund their lending  operations.

Real business people need the bank everyday to deposit their cash earnings. Say a nasi kandar mamak or local supermarket collects RM20,000 cash a day. They cannot put RM20,000 under their pillow every day.  They have to put it in a bank. So if a bank branch closes it simply means the kedai mamaks and local supermarkets in that area are also not earning enough sales and cash.   

But bank branches make the most money from business clients who go to the bank for business loans, overdrafts, term loans, Letters of Credit, Trust Receipts, Bankers Acceptances, Bank Guarantees, Forex lines and such.   If a bank branch has to close it means all these banking activities have become not viable in that area. It shows that businesses are failing in that area.

If a bank closes one or two branches then it is most likely due to the branch being located in the wrong place. There could be little space for parking or a newer township has come up where business has shifted to the new township. In such cases an old bank branch located in an old place may close. But they will shift to a better location. Not close permanently.

But when two different banks decide (at the Board of Directors level) that they will close 42 branches or 50 branches in one year then that is because ALL those branches are facing difficult business conditions at ALL those locations.  It is because businesses are failing throughout the country. 

As for Chartered Bank it is a foreign bank. Foreign banks are not allowed to open new branches. They can only close old branches and relocate to new premises. But that too is a long approval process and foreign banks face many obstacles.  (Especially when the Khazanah boys were calling the shots.) An inability to relocate quickly enough could all affect a bank's bottom line. Or the businesses in their area too were slowing down.

Online banking is now about 20 years old in Malaysia. No bank branch has closed because of online banking. Online banking is just transferring money.  But businesses still need to deposit physical cash (and cheques too) into bank branches.  

"On removing the monopolies, I agree but for certain sectors which are strategic like electricity,  telecom, highways, ports, airports  they should not be entirely privatised."

My comments :  Quite an unthinking comment.  The commenter seems to equatemonopolies with privatisation.  How so?  You can privatise companies without creating a monopoly. Just break them up into three or four.  You can also have monopolies even without privatisation - aka government monopolies. They can be equally bad.

But TNB, Telekom, the toll highways, ports in Johor, Klang, Penang, the FOUR oil and gas supply bases, the airports have ALL been privatised from a long time ago.  They are regulated (like any other business) and the government may have a share in some of them but n'theless they have all been privatised. More about this below.   

"The danger about privatising them is that a desperate owner may sell the company to a foreign buyer.  For example, do we want TNB or PLUS to be owned by China ?" 

My comments :  

Again the commenter seems to not know much about business or even economics. Foreigners have always owned a substantial stake in our economy especially in the Bursa listed companies. Electronic manufacturing contributes the largest part of our manufactured exports (and to our GDP). This sector is almost fully owned by foreigners. So what are the dangers?  They have been here for 50 years and have employed millions of Malaysians. What is so special about TNB or PLUS?

Foreigners controlled a large chunk of the banking sector.  The banking industry served the economy well. Now after the 'bank consolidation' the economy is tanking.  If you are a small businessman, try getting a loan from any of the 'six anchor banks'. 

You are also too late.  You should read the newspapers.  Some of the IPPs have already been sold to China. 

"KUALA LUMPUR: 1Malaysia Development Bhd's (1MDB) sale of its power assets under Edra Global Energy Bhd to  China General Nuclear Power Corporation and its subsidiaries for RM9.83bil cash has been completed."

And that Water Agreement with Singapore. One company is making tons of (monopoly) money by buying really cheap treated water from Singapore and selling it at much higher prices in Johor.  It is a listed company.  And Singapore has long ago bought a substantial stake in this listed company.  

Which is exactly the point. TNB, PLUS etc are listed companies. How exactly are you going to prevent foreigners from buying shares in our Bursa listed companies?  

Foreigners can use proxies and you will never know who really owns a listed company.

I think OUTSYED should put on his thinking hat, sometimes. 

Tan Sri, I think you just need to think.