(Petaling Jaya, Wednesday): Prime Minister Datuk Seri Abdullah Badawi’s admission when presenting the Budget 2006 that economic growth for 2005 will be 5%, and not be 6% as predicted by Bank Negara Governor Tan Sri Dr Zeti Akhtar Aziz, underlines how serious the economy has declined in the face of rising oil prices. DAP expresses concern at the 2006 Budget’s failure to address the twin problems of reviving the economy and arresting high inflation rate may not even cause the smaller estimate of 5% economic growth to be achieved.

Fund managers have highlighted fears that the economy is in trouble by highlighting that the domestic economy, excluding the export sector, is actually in recession with a negative growth rate of 7.6%. The export market is booming because of demand for Malaysia’s manufactured goods, commodities such as oil palm, rubber and petroleum. Should the export market be affected by rising fuel prices up to US$ 100 a barrel, then Malaysia’s economy may crash.

The latest announcement by Bank Islam of losses of RM 456 million for the financial year ending 30 June 2005 as compared to RM85.7 million profit last year shows a distinctive pattern of poor corporate performance and declining economic growth. What is more shocking is that non-performing loans rose nearly 150% to RM 2.2 billion from RM 900 million last year. To suddenly record non-performing loans of RM2.2 billion as compared to RM 900 million in 2004 shows something is very wrong in Bank Islam that requires a revamp and shake-up of Bank Islam.

This is similar to Government-Linked Corporations (GLCs) like MAS, Sime Darby, Malaysian Industrial Development Finance Bhd (MIDF), Proton, Telekom Malaysia Bhd and Commerce Asset Holdings Bhd(CAHB). 

o    For the second quarter ended June 30, 2005  CAHB group’s net profit fell to RM150.29 million from RM269.67 million a year earlier as a net result of lower total income by RM76.60 million and higher allowances for losses on loans by RM250.40 million despite lower overheads by RM34.70 million. CAHB which controlled Bumiputra-Commerce Banking group, second-quarter revenue dipped to RM1.07 billion from RM1.09 billion from a year earlier.

o    Net profit of MIDF for the half year ended June 2005 more than halved to RM52.9 million;

o    The 107% drop in Proton Holdings Bhd’s net profits resulting in RM 12.35 million losses in its first quarter ended June 30, 2005 as compared with a net profit of RM166.47 million in the previous corresponding quarter. Proton suffered a loss despite a 6.8% rise in revenue to RM2.05 billion from RM1.92 billion a year earlier caused by operating costs jumped by more than 20% to RM2.12 billion.

o    Sime Darby Bhd posted a 13% drop in net profit to RM801.21 million for the year ended June 30, 2005 from RM918.70 million previously despite a 25% increase in revenue to RM18.65 billion;

o   The 45% drop in first half profits of Telekom Malaysia Bhd In 2005 of RM 801 million from RM 1,459 Million in 2004; and

o    Malaysian Airlines RM 281 million losses in its first quarter ended June 30 2005.

To prevent financial institutions from facing this situation, Bank Negara has introduced the national insurance scheme for bank deposits and interests at RM 60,000 per bank replaces the implicit guarantee of bank deposits by Bank Negara with the explicit guarantee from insurance. This will provide coverage for 95% of account holders in full and 35% of the value of total deposits.

Clearly Bank Negara’s confidence in the soundness of our local banks is not what it should be by providing for such insurance of bank deposits as shown by the RM9.7 billion in non-performing loans by CAHB banking group alone and RM 2.2 billion non-performing loans in Bank Islam.  Bank Islam has confirmed that much of the bad loans were given out to companies in Sarajevo and South Africa. Sadly no one has been punished for causing the bad loans to jump to RM 2.2 billion.

There is a need to carry out a full review on the credit administration and approvals at Bank Islam and take action against those responsible. Bank Islam’s holding company, BIMB Holdings Ltd, is owned by Lembaga Tabung Haji, Permodalan Nasional Bhd, and the Employees Provident Fund, which collectively holds 61.2% of its shares. Since Bank Islam is publicly owned, its management has a duty to explain and account to Malaysians for its poor performance.

                                                                               
(12/10/2005)