Bank Negara Malaysia (BNM) has recently issued a statement with regards to The Star newspaper article which claimed that it allegedly interfered in negotiations. The statement claimed that the article published in The Star on 26 August 2017 was “inaccurate and could cause confusion among the players of the banking industry”.
According to BNM, mergers and acquisitions in the banking industry are driven by the market which in turn, is based largely on commercial and business considerations. “While the central bank does not and will not interfere with the negotiations between any of the parties involved. BNM plays the role of an enabler in facilitating the merger process,” read the statement.
What role central banks play
Although the exact roles of central banks around the world differ according to the needs of each particular country, they lie along two main key paths, namely a) macroeconomic and b) microeconomic. In the first, the bank outlines guidelines to manage inflation and stability, while in the latter it acts as a commercial lender of last resort.
While central banks do not directly intervene in processes, it is often party to talks since as BNM has stated, it acts as an enabler and parties involved must gain BNM approval in many instances during merger talks during a specified timeframe.
Has BNM ever deviated from its key roles?
It should be noted that the primary objective of a central bank is the economic stability of the country and BNM last flexed major muscle during the great bank consolidation period in Malaysia during the 1999 to 2002 period.
Due to systemic weakness in the financial sector caused by too many financial institutions (FIs) servicing a limited economy, BNM crafted a major restructuring plan which forced 71 FIs to consolidate. The result was positive as by end 2006, the Malaysian banking industry consisted of a total of ten banks with at least RM100 billion in domestic banking assets, including four banks with assets more than RM10 billion
In conclusion, any allegations of BNM not driving an M&A sufficiently should not be looked at in that sense. Readers should take note that it is not the responsibility (and in fact, not the right) of the central bank to drive any M&A.