Critics say plans to merge the development financial institutions will have dire consequences for micro, small and medium enterprises.
The proposed merger of BPMB, Exim Bank and SME Bank is expected to be wrapped up by year-end.
PETALING JAYA: The government’s proposal to merge development financial institutions (DFIs) has ruffled the feathers of some industry players, who claim there are solid grounds for the ongoing restructuring to be halted.
Their key grouse is that the single merged entity will have a reduced focus on the micro, small and medium enterprises (MSME), leading to dire consequences for the sector.
The proposal to consolidate and strengthen the DFI eco-system was first mooted by then finance minister Lim Guan Eng in 2019, and reiterated by Prime Minister Anwar Ibrahim during his Budget 2024 speech last October.
Phase 1 of the merger process, involving Bank Pembangunan Malaysia Bhd (BPMB), and Danajamin Nasional Bhd, was concluded in March last year. Phase 2 involving BPMB, SME Bank and Export-Import Bank of Malaysia Bhd (Exim Bank) is expected to be wrapped up by year-end, according to news reports.
A banking industry source questioned the need for a merger, saying the business mandate and focus for each of the three banks are different.
“BPMB focuses on large-scale projects, EXIM Bank targets medium-sized SMEs while SME Bank’s mandate is to develop and nurture MSMEs. The merger will likely result in reduced focus on the MSME sector and will have dire consequences on MSMEs.
“It is expected that no bank will fulfil the role that SME Bank has played in enhancing the performance and growth of Malaysian MSMEs,” he added.
The source also said the merger will likely result in layoffs, with more than 95% of staff in the three banks being Bumiputera.
“Layoffs resulting from the merger process will likely erode public confidence in the government and affect voting in upcoming elections,” he warned.
He also said the merger does not provide any advantages in terms of funding costs since all three banks still rely on sukuk/bonds and corporate deposits as sources of funds. “This means that funding costs will remain high, and competitive profit rates cannot be offered to MSMEs.”
The source also pointed out that SME Bank’s status as a Shariah-compliant DFI may be jeopardised as the leading bank, BPMB, and Exim Bank do not practice Shariah (Islamic) financing.
He noted that since its establishment in 2005, SME Bank’s achievements have been “remarkable”. “To date, approximately 25,000 MSMEs have been assisted with financing approvals amounting to RM45 billion.”
The three banks are fully owned by the Minister of Finance Incorporated. There are currently six DFIs in the country that are regulated by Bank Negara Malaysia under the Development Financial Institution Act 2002.
The other three are Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat), Bank Simpanan Nasional (BSN) and Bank Pertanian Malaysia Bhd (Agrobank).
Criticisms off the mark
However, two economists say critics of the DFI merger plan are barking up the wrong tree.
Geoffrey Williams said the negative scenarios raised by critics do not appear to be evidence-based and may be part of the normal pushback that happens in any change process.
“Vested interests always oppose change.”
He said all objections to the merger must be viewed in the reality of the current situation, adding that the DFIs’ assets under management (AUM) are too small.
“Based on 2023 data, BPMB (with RM26 billion), SME Bank (RM11 billion) and Exim Bank (RM8 billion) have only RM45 billion compared to the EPF at more than RM1 trillion. With such small funds, their impact is limited.
“The mandates (of the DFIs) have also outlived their usefulness and have been overtaken by market developments. Restructuring will allow the mandates to be refreshed,” he said.
Williams added the current structure has not served the MSME sector well, which is why MSMEs have funding issues.
“There are many programmes for MSMEs worth RM44 billion in Budget 2024. The issue is not a lack of funds but institutional and behavioural barriers that stop MSMEs using the funds,” he argued.
He said one such barrier involved the spread of funding sources across multiple ministries and agencies.
“It is too complicated and difficult to access.
“Behavioural barriers include the reluctance of MSMEs to take on loans, equity finance or grants. They want independence and do not want the risk of taking third party funds,” he explained.
Meanwhile, Malaysian Institute of Economic Research (MIER) head of research Shankaran Nambiar said the merger will help with scale and access to pooled capital.
“The resulting entity will have the benefit of mobilising a larger combined stock of capital which can then be efficiently and optimally allocated,” he said.
He also said there is no reason why the MSME sector should be neglected post-merger.
“A clear set of priorities can give due attention for the upliftment of small enterprises, and with the larger pool of capital it would be possible to do more.”
He said poor governance was one of the key issues that triggered the move to merge the DFIs.
“The merger is expected to weed out these elements, thereby increasing efficiency in decision-making,” he added.
