ANOTHER MEGA SCANDAL – A Whopping RM 8.4 Billion of Non-Performing Loans

By Matthias Chang

Unprecedented, Never-Before Financial Scandal !!Why has Bank Negara been keeping quiet all this while?

It is often said that the best time to announce bad news is just before the weekend or public holidays.

So it came as no surprise that CIMB Group Holdings Bhd (the country’s second largest financial group) decided to drop the bombshell that they have on their books a whopping RM 8.4 billion non-performing loans (NPLs) knowing that it will be a long weekend following tomorrow’s public holiday – Hari Raya Haji! How very clever.

But this scandal will not go away, that’s for sure!
This amount of NPL is historic and unprecedented in the Malaysian banking industry.

The New Straits Times reported that a special asset management vehicle will be set up to acquire the said NPLs – the Southeast Asia Special Asset Management Bhd which will be wholly owned by the group.

These NPLs represent 45,000 accounts which have been written down to RM 928 million net book value!

Why this announcement now?

These NPLs must have been in the bank’s balance sheet for quite some time. Recall that way back in early 2008, I had warned that Malaysian banks are in deep shits following the global financial tsunami, but the authorities, namely Bank Negara (Central Bank) and the Ministry of Finance denied that such was the state of health of our banks and declared that everything was under control and that NPLs were within tolerable limits.

It was gross misrepresentation. It was also irresponsible.

If CIMB is in such deep shits, expect other government controlled banks to be in a similar situation.

The decision of CIMB to park the NPLs in a special vehicle wholly owned by the group has not resolved the problem, as what this means is that the toxic waste has been transferred from the right pocket to the left pocket and by this sleight of hand, the bank is now deemed healthy!

If you believe this fairy tale, you might as well cease to be an investor and or trader in bank stocks!

But what is more frightening is that these NPLs’ net book value is a mere RM 928 million.

We can only draw one conclusion – these 45,000 accounts are not your ordinary loans to consumers (consumer banking) or small business loans (SME loans) because if it was so, there would be adequate securities in the form of landed properties (i.e. charges/mortgages) and or debentures.

I stand to be corrected, but these must be loans for “trading” either for the stock market or investments in debt instruments. Even if it is not and whatever may be the case, this huge black-hole is a scandal and the management must be brought to account for this sordid state of affairs. Heads must roll. CIMB is a GLC (government linked company) and therefore taxpayers’ monies are at stake.

The timing of this announcement, in the last quarter of 2009 is also significant. If as I had expected that the first quarter of 2010 leading to the 2nd quarter will be the start of the 2nd wave of the Global Financial Tsunami, then this tactical move by CIMB Bank is a pre-emptive move to cushion the inevitable fallout.

The Governor of Bank Negara must give a public explanation as to how she has allowed and or tolerated such a state of affairs and why no remedial actions were taken earlier. CIMB Group Holdings Bhd is the country’s second largest financial services provider and for this to happen at such a critical time is mind-boggling.

One cannot but conclude that whatever reforms and or so-called measures to ensure the continued good health of our banks are all talk, more talk and nothing else.

This issue must be debated in Parliament.

Bank Negara is the watch-dog of the banking industry. It is about time we have a watch-dog to oversee the watch-dog!

3 Responses to ANOTHER MEGA SCANDAL – A Whopping RM 8.4 Billion of Non-Performing Loans

  1. Davy says:

    Now you are talking some real sense,but “cleverly” had your eyes shut when “lap dogging” your Maha Guru Dr.M. Honesty is not an occasional thing,it is permanently engraved in a person’s psychic. Yours is suspect. And you do have an agenda ?

  2. max says:

    the average man in the street needs to provide all sorts of securities in order to meet the standard requirement for small/medium loans but here it seems they have written most of the NPL to its book value of RM 928mln. Why cant they use the securities they have to convert the NPL and recover what they can get?
    Thats because all these loans were probably made to individuals with connected links and now they want a special vehicle to load their burden.. typical of the ruling govt to wash their hands and pass the buck to the paying public. Time for change is ever so clear….

  3. Johnson Lee says:

    CIMB is another tool,just like the Polis,MACC,EC, Judiciary etc, of the corrupt BN/UMNO government to enrich the elites and well-connected at the expense of the country and poor rakyat. This massive plundering,stealing by BN/UMNO continues till today from the BMF scandal in 1985. Corruption and hypocrisy are a well-entrenched culture of BN/UMNO. Time and history have proven that very clearly.

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