A pair of local banks have taken foreign minority shareholders and two more are talking to foreign partners. The central bank is injecting new money into the system by purchasing government bonds from the Financial Institutions Development Fund, set up to help ailing lenders. Unfortunately, loans to recession-wracked domestic companies are souring faster than the banks can deal with them. MORE Consolidation is now the government watchword. The number of finance companies has been slashed from more than 40 to eight.
Similar rationalization needs to take place among banks as the country enters recession.
At least three banks have been recapitalized and at least six more need cash infusions. Blame exposure to Malaysia's corporate sector, which is as highly geared as any in the region. Loan portfolios are overextended in real estate, construction projects, and stock-purchase financing. The government has set up an asset management agency to purchase bad loans from banks, as well as an equity-injection group and a committee to oversee loan workouts between lenders and borrowers. The protectionist government is loath to sell off its financial industry to outsiders, and foreign-owned banks are prohibited from adding branches.