KUALA LUMPUR: CIMB Group Holdings Bhd's former chairman Datuk Seri Nazir Razak may have emerged as a frontrunner to be Bank Pembangunan Malaysia Bhd's new chairman.
Sources said Nazir could play a big part in the creation of a super development finance institution (DFI) from a merger of Bank Pembangunan, Danajamin Nasional Bhd, Export-Import Bank of Malaysia Bhd (Exim Bank) and SME Bank.
They added that Datuk Zaiton Mohd Hassan had seen off her two-year contract as chairman last month, with the Ministry of Finance and Bank Negara Malaysia still deciding on her replacement.
"Changes are afoot at bank Pembangunan as Zaiton's tenure ended last month. A successor is imminent as the government is pushing again for the merger of the country's DFIs," a source said.
The source said the ministry was receptive to Nazir's appointment, although Bank Negara had recommended that Zaiton stay as the chairman.
When contacted, Bank Pembangunan confirmed that Zaiton had retired from the board after having served her term last month.
Nazir was not immediately available for comment.
Sunway University Business School economics Professor Dr Yeah Kim Leng said DFIs had evolved and carved specific niches in the country's well developed banking and financial eco-system.
"DFIs' developmental role and functions are, however, continuously under threat by the commercial and investment banking conglomerates, many of which are government-linked companies (GLCs)," he told the New Straits Times.
Unless these DFIs can offer cost advantages and unique lending expertise and skills to sectors less coveted by the commercial banks, their role and relevance would continue to diminish, Yeah added.
"It is important to undertake periodic review of their (DFIs) existence, specifically with the view of consolidating their small capital base to compete more effectively with the commercial banks and to undertake the more challenging developmental role, for example, in sustainable development and green financing, risky technology ventures and social enterprises and venture financing," he said.
Yeah said the post pandemic restructuring presented a good opportunity to review and reorientate the DFIs' purpose and role towards rural development, poverty alleviation and social financing schemes, focusing particularly the vulnerable segments of the population.
"Financing such activities are typically more challenging and avoided by the commercial banks due to the high inherent risk and social nature.
"DFIs with financial backing from the government are better placed to provide such socially oriented finance but with a strong focus on sustainability and market incentives so that they do not need to be bailed out by the government as prevalent across most countries," Yeah added.
Malaysian Rating Corp Bhd senior economist and head of research Firdaos Rosli said DFIs' merger would be good amid the high non-performing loans and corporate governance issues currently.
"Bank Negara has issued a draft for enhancing corporate guarantee requirements for DFIs with no active politicians on boards and greater responsibilities of directors," he told the NST.
Firdaos said a merger could improve the DFI sector's economies of scale – improve efficiency, reduce approval process, able to cater financing facility more wholly, easier oversight, benefit from stronger government support (ratings, guarantee) and leaner process.
"However, there are cons to the move since bigger is not necessarily better. There are issues to be addressed first such as the cost of acquisition, larger NPL portfolio, each bank has its own niche market, hard to harmonise (avoiding cannibalisation), among others," he said.
Although it is sensible for DFIs to grow bigger, the rating agency was neutral on the merger proposal for now.
"It makes sense for DFI to grow bigger and expand internationally so that Malaysia can advance its economic interests at the regional or global level," he added.
According to Bank Negara, DFIs are specialised financial institutions established by the government with specific mandate to develop and promote key sectors that are considered of strategic importance to the overall socio-economic development objectives of the country.
These strategic sectors include agriculture, SMEs, infrastructure, maritime, export-oriented sector as well as capital-intensive and high-technology industries.