Big Banks and Small Banks

1.      In today’s Financial Edge Daily, Affin’s Deputy Chairman, Tan Sri Lodin Wok Kamaruddin commented that despite the hype of mega merger between CIMB-RHB-MBSB and possibility of more consolidation of banking groups, there is still a relevancy of having smaller banks to serve the Rakyat.

2.      I’ve discussed this matter with my think tank and I believe that consolidating the remainder banks is bad for the Rakyat, in particular the Small and Medium Enterprises (SMEs). Reason being is bigger banks have their own market segment to cater and with such capacity, bigger banks can compete at regional and world stage.

3.      If we’re looking back at the Financial Market Blue Print, having a mega bank can help us securing more deals that before this too far for our local bankers to touch, such as the Ali Baba listings and many exotic securitization of assets and M&As. In the Blue Print, Malaysia envisioned itself as global financial hub with Kuala Lumpur has the same status as Singapore, Hong Kong, London and New York.

4.      Perhaps, we can become one by leveraging the fast growing demand of Islamic Finance and Islamic Capital Market. Both Bank Negara Malaysia and Securities Commission are continuously reviewing current regulations and working hard to create a conducive and nurturing eco-system for the big financial players to see Malaysia as irresistible place to create value.

5.      Having said that, one should not forget the impact to local businesses and credit market for our own Rakyat. Two of the smallest local banking groups, Affin and Alliance have declared their intention to not involve in any further mergers. They believe in their unique positioning and serving highly niche market segment. Obviously, they can’t compete with the big guns like merged CIMB-RHB-MBSB and others like Maybank, Public and Hong Leong, in terms of domestic investment banking deals, but their existence provide hope for the smaller businesses and aspiring entrepreneurs.

6.      Being small also give them an advantage of being efficient and fast. Rationalizing and upgrading their internal process could be done fast and manageable compare to trans-countries operation.

7.      I am for more banks in the local market. In matured economy, banks provide liquidity and provide credit to the Rakyat. Referring to the film “Too Big To Fail”, Paul Giamatti, who played The Fed’s Chairman, Ben Bernanke “The depression may have started because of a stock market crash, but what hit the general economy was a disruption of credit. Average citizens unable to borrow money, to do anything. To buy a home, start a business, stock their shelves. Credit has the ability to build a modern economy, but lack of credit has the ability to destroy it, swiftly and absolutely”

8.      I am not saying that I am supporting the bankers. I believe the power to create money by the privately-held National Banks like the Federal Reserves and Bank of England is an abomination to the world economy. But in Malaysia’s context of banking sector, having more banks, community banks, smaller banks are better for the Rakyat. They will compete in the domestic markets, provide interesting packages with competitive rates to woo clients. Access to credit is high and economy will get bigger.

9.      Let the smaller banks cater the domestic market and the merged CIMB-RHB-MBSB, the mega Islamic bank, Maybank and Public Bank ramp up their capabilities to become regional champion and one day side by side with big names like JP Morgan, Morgan Stanley, Goldman Sachs, Credit Suisse, Citibank, HSBC and ICBC of China. Let the smaller banks grow organically.