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A case of banks and bad loans

 | June 12, 2012

A press conference later this week is expected to reveal how the Finance Minister had approved banks signing agreements with debt collectors to sell non-performing loans.


A few weeks ago when I was discussing the global financial crisis that happened many years back and the non-performing loans (NPL) resulting from it, a contact asked me a very pointed question.

He asked what if our financial institutions – foreign and local banks – knowingly, and with the collusion of Ministry of Finance (MoF) and those in government, had breached the 1989 Banking and Financian Act (Bafia)?

And what if these banks and the NPL, amounting to billions of ringgits, required the collusion of their lawyers as well?

And what if their criminality was resolved through a political solution which compromises the integrity of MOF and Bank Negara?

Banks in Malaysia have always had problems with NPL. Some banks worked within their own structure to recover the NPL but most banks used debt collection agencies to recover their debts.

Debt collection became a lucrative business and like all things Malaysian, “good business opportunities” have their attractions to the rich, the powerful and the politically connected.

Collusion between those in the banks, debt collection agencies and politicians fed each other. Thugs and gangsters become the enforcement arm necessary to ensure the collection of these debts and as they say, in every cloud there is a silver lining. In the misery of those who were in debts, these agencies thrived.

The banks used these arrangements legally and the debt collection agencies received their remunerations via commissions and fees agreed to between themselves and the banks.

But like in all things under this Barisan Nasional regime, these “arrangements” soon morphed into a situation where the banks “sold” these NPL to the debt collection agencies under sales and purchase agreements – something that Bafia does not allow these banks to do.

One prominent bank did just that. The bank appointed a prominent legal firm to prepare a sales and purchase agreement to sell that NPL to the debt collection agency.

To do this they have to go through a “vesting order” giving the rights of the NPL to the debt collection agency. This, under the Bafia, the bank cannot do.

If the prominent legal firm had knowingly abetted the bank, then the legal firm has done something illegal too.

Many other banks followed in the footsteps of the prominent bank and started selling NPL through the sales and purchase agreements to debt collection agencies, all acting in breach of the law.

A political solution

However in 2009, a political solution was reached to protect the banks. Approval was apparently given by the Finance Minister to the banks – via a letter – to do precisely what was stated to be unlawful under the law.

Thus the Finance Minister (who is also the Prime Minister) made legal what the banks were doing illegally.

Banks are regulated by Bank Negara and the issuance of their licence is by the Ministry of Finance. There are other checks and balances that strictly outline what they can and cannot do.

This NPL caper happened because MOF and Bank Negara failed in their duty to police the banks and the collusion of Barisan Nasional politicians in covering up this failure is just standard operating procedure for this government.

The Finance Minister’s act in approving the actions of the banks in selling NPL raises some questions:

Has the minister the power to do so contrary to what Bafia regulates?

Does his approval validates all illegal act done prior to the letter?

Why should the minister condone this practice by approving this practice? Is nepotism a factor?

Were the MOF and Bank Negara aware of these practices? If “yes”, why did they condone it, and if “no”, why were they not aware of it?

This is another one of those questionable issues that keeps coming out of the woodwork – and they do keep coming out because these are things you cannot just sweep under the carpets.

Reveal-all press conference

Like most of Umno’s deeds, their motives are questionable because those affected by the decisions made by the minister seems to be his cronies or those connected to BN politicians.

We also know that in these debt collection agencies, criminal elements lurk just below the surface as they are the ones used to retrieve these debts – and so to what extent are these criminal elements able to influence the decision-making of those in MOF, Bank Negara and in the government?

For now this story is just about to break. A press conference is expected to be held on Thursday to reveal details on this collusion between the Finance Minister and the banks in breaching the law.

We wait for relevant documents to confirm these sales and purchase agreements of the NPL between the banks and the debt collection agencies.

We wait for disclosures of the amount of ringgit involved.

We wait for the names of companies, individuals in MOF, Bank Negara and in the government to be revealed.

CT Ali is a reformist who believes in Pakatan Rakyat’s ideologies. He is a FMT columnist.


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