This article first appeared in The Edge Malaysia Weekly on November 27, 2023 - December 3, 2023

MANY of the country’s development financial institutions (DFIs) and government-linked companies (GLCs) have become too risk averse and are just “cruising”, says Tan Sri Nazir Razak.

“One concern I have of GLCs and DFIs today is that [they] are no longer taking risks. There’s a lot of cruising going on, because I think there is a [fear] of making even one mistake. This is dangerous. That’s why a lot of GLCs have kind of slowed down,” said the former chairman of Bank Pembangunan Malaysia Bhd (BPMB), a DFI, and CIMB Group Holdings Bhd, a GLC.

He expressed this view during a panel discussion on the past, present and future of the country’s DFIs at BPMB’s 50th anniversary forum in Kuala Lumpur on Nov 22.

Nazir, who led CIMB for 15 years as group CEO prior to becoming chairman, pointed out that 15 to 20 years ago, Malaysian GLCs had managed to “conquer” the region through moves such as mergers and acquisitions.

“That is because we took risks. We knew that if we evaluated something honestly, properly, with all the facts, and made decisions based on what is best for the company, then … it would be okay.

“But, these days, there is [the fear] that if you make one mistake, it could be used against you. So, suddenly people say, I don’t want to make any mistakes. [But if] you run a company and don’t want to make mistakes, then you’re not going to take any risks. This is why I think some our major corporate engines are slowing down — because they are too risk-averse,” he said.

Panel speaker Jonathan Woetzel, a China-based senior partner at consulting firm McKinsey & Co, pointed out that risk-taking is necessary and part of the process of growth and development. Woetzel said: “GLCs and DFIs exist in that space between public and private, so, necessarily, they need to take risks. They need to innovate, explore new opportunities, highlight new models for good things. The most important thing is how one takes risk — whether one, in fact, learns from [the] risks that one has taken and tries not to repeat the mistakes of the past, and puts in safeguards. And, do so in an open and transparent way.

“By avoiding risk, or influencing people not to take risks, we are in fact becoming a more risky institution.”

During the discussion, Nazir — who was BPMB chairman for two years until April 22, helping the DFI move on from its chequered past of weak governance that had led to heavy losses — also stressed the importance of keeping politics out of DFIs. “One thing I found at BPMB when we were hiring people was that, actually, many Malaysians really like the idea of working at a place like ours. Though we don’t pay that well [compared with other banks], they feel they can contribute to the nation and they think the agenda of the organisation is the correct one. So, people are willing to work at such organisations. The problem is that, very quickly, politics gets in the way and then people get very demoralised.

“This is where I worry about the culture of some of the DFIs, where many of the really good talents have kind of felt that there’s no point working so hard because, at the end of the day, it’s the politics that really drives decisions. We need to extract politics from DFIs. That is what has destroyed many DFIs in the past.”

Nazir and a few other speakers at the forum, including Bursa Malaysia Bhd chairman Tan Sri Wahid Omar, strongly urged that the planned consolidation of DFIs should happen as soon as possible.

In 2019, the government had mooted the consolidation of BPMB, Danajamin Nasional Bhd, Export-Import Bank of Malaysia Bhd (Exim Bank) and Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) under one entity, through a phased approached. In March this year, after almost two years, BPMB officially completed its merger with Danajamin, following the transfer of the latter’s business and undertakings to the former.

The second phase of the DFI consolidation — which will see BPMB  merged with SME Bank and Exim Bank — has yet to happen. Nazir had joined BPMB in 2021 with a view to overseeing the planned consolidation of the DFIs.

“I implore the government — get this merger executed as soon as possible,” Nazir said, adding that BPMB is still too small to compete effectively. “It needs economies of scale.”

He pointed out that most countries the size of Malaysia have two or three DFIs, whereas Malaysia has 12.

As at end-2022 BPMB had total assets of RM27.02 billion.  It made a higher net profit of RM211.71 million for the financial year ended Dec 31, 2022, compared with RM176.44 million a year earlier. 

>Wahid, former CEO of Malayan Banking Bhd, said of the planned merger: “We need to get on with it. Follow through [with the merger plan], execute well and appoint the right people.”

During his Budget 2024 speech last month, Prime Minister Datuk Seri Anwar Ibrahim called for the restructuring of DFIs through the merger of BPMB, SME Bank and Exim Bank. 

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