Elsewhere, banking in the 1980s and 1990s has been a story of rationalizations and mergers. But with the Malaysian economy growing in double-digits, there was no need to follow the same plot. Under its regional and global trade agreements, Kuala Lumpur is committed to liberalizing its financial services industry by 2005. Foreign banks, which control a third of banking assets, will be allowed to open new branches, putting further pressure on local groups. The consolidation is necessary for a stronger, more competitive sector, says analyst Tan Bong Loo of Salomon Brothers in Hong Kong.
Many Malaysian banks are overstaffed.
Cost cutting is an important driver of rationalization, says Wan Hamdan. Though Malaysian banks have been building up a presence abroad, their reputation in overseas markets is still tarnished by the rash loans Bank Bumiputra made in the 1980s to onetime Hong Kong property tycoon George Tan, recently convicted for fraud after a lengthy case. Other Asian countries are recognizing that their banks, grown fat but uncompetitive behind high protectionist walls, will have to confront new rivals. In the Philippines, for example, the central bank has also been championing mergers. Not that rationalizations are going to happen overnight.