Najib Tun Razak : A Trust Betrayed!

In Malaysians what ever laws, rules, regulations, checks and balances put in place in any corporation, in any statutory body, in any government entity, there will be a provision that allows  the relevant Minister to overrule these enactments so that the Minister can come in as a referee in the last resort and resolve the situation.


The inherent flaw of this provision is the presumption that a Minister will make a decision in the best interest of the organization! UMNO and Barisan Nasional Ministers are most likely to err on the side of their vested self interest rather then ours when it comes to decision making! 

This is about a trust betrayed. The trust we place in Najib as Minister of Finance and the betrayal of that trust for political and financial expedience and gain. What I will now do is to tell you how Najib Tun Razak, our Minister of Finance betrayed our trust by the decisions he made pertaining to Non Performing Loans’s of our Banks.

Let us start from the beginning:

Banking and Financial Institutions in Malaysia are governed by BAFIA : The Banking and Financial Institution Act which regulates what they can and cannot do.

Under the Banking and Financial Institution Act of 1989, Malaysian Financial institutions are not permitted to dispose of any of their assets, including NPLs, without an application to and approval from the Minster of Finance.

In 1997 lending by Banks in Malaysia in three sectors accounted for 45% of the Banks total lending.

·     Property : 20% of lending.

·     Consumption credit: 33% of lending.

·     Purchase of securities: 10% of lending.

At the onset of the Global Financial Crisis, the value of Non Performing Loans (NPL) was 15 billion ringgits. By December 1998, NPL had quadrupled to 60.5 billion ringgits. 

NPL : “A loan is nonperforming when payments of interest and principal are past due by 90 days or more, or at least 90 days of interest payments have been capitalized, refinanced or delayed by agreement, or payments are less than 90 days overdue, but there are other good reasons to doubt that payments will be made in full”

These loans were for mostly for the purchase of homes, cars and for credit cards for consumers consumption. These NPL meant that people in Malaysia were unable to pay for their homes, their cars and household debts increased because of the loss of income and credit during the GFC.   

What happens when you default on your loan?

• The bank issue letters of demand.  
• If you do not pay the bank will summon you to court for 1st mention to ask you whether you admit to the debt claimed by the bank. 
• If you admit, a consent judgement is entered whereby you then renegotiate with your bank to settle the debt.
• If you still do not pay the bank shall apply to seize your assets and properties.
• Bank's debt collectors and agencies have no right to threaten and beat you up.  
• Your EPF, Pension, SOCSO and Insurance money cannot be seized.

How do Banks deal with NPL’s when they cannot collect the outstanding debt from the borrowers?

Banks can sell these NPL’s to companies willing to purchase these non performing loans (NPL) and earn profits using specific strategy to do so. Usually property is the real value for purchasing non performing debt. In non-assets NPL’s the debt often relates to credit cards or personal loans used for immediate consumption items. Attempting to purchase this debt for $.10 or $.20 on the  ringgit can be profitable if the company settles for $.30 or $.40 on the ringgit with borrowers.

However under the Banking and Financial Institution Act of 1989, Malaysian Financial institutions are not permitted to dispose of any of their assets, including NPLs, without an application to and approval from the Minster of Finance.


This did not stop Local and Foreign banks from selling their NPLs to debt collection agencies.


Debt Collection became a lucrative business and like all things Malaysian, ‘good business opportunities’ has its own attractions to the rich, the powerful and the politically connected. Collusion between those in the Banks, Debt Collection Agencies and Politicians fed of 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. 
CT ALi

In 2009 the Minister of Finance, Najib Tun Razak, issued the following letter:

The letter gives 'blanket approval' to the Banks to sell their NPL's subject to the banks following "Guidelines on the Disposal/Purchase of Non-Performing Loans by Banking Institutions (NPL Guidelines)"  


Now here is the thing:  The Malaysian Courts have accepted the blanket approval and upheld the vesting orders i.e. according to the court its legal. Section 50 of Bafia also bulletproofs the vesting order! 

I'm not a constitutional lawyer but section 49(9)(a) limits what BNM and the MOF can do. They cannot recommend or approve of transfers to non-licensed instituitions. The exemption doesn't exempt the minister or BNM from their limitations, it merely exempts licensed institutions. If the primary legislation says BNM and MOF cannot do this, can subsidiary legislation overrule this, especially when it does not explicitly say that the MOF and BNM are no longer bound by 49(9)(a) i.e. BNM still cannot recommend and MOF cannot approve?  Can any constitutional/public lawyer out there give a proper answer to this please? 

The letter is dated 7th September 2009 however the Minister had given approval on 6th July 2007  - 

ONE YEAR AND TEN MONTHS

 AFTER THE FACT

Why did the Minister took so long to confirm the decision that he made on the 6th July 2007 to allow the Banks to sell their NPL's?

Was it because by July 2009 the practice of Banks selling their NPL's to vested interest that included the Banks, MOF  Politicians and their cronies was so prevalent that the Minister of Finance had to find a political solution to make legal what was being done by the Banks illegally and backdated the letter to cover all the illegals NPLs already sold to the Debt Collection Agencies?

The Minister of Finance then becomes party to Banks,  Debt Collection Agencies and other vested interest colluding to make money at the expense of the Rakyat! 


As I have said at the start of this posting : "Lending were for the purchase of Homes, Cars and Credit Cards for consumers consumption. These NPL meant that people in Malaysia were unable to pay for their homes, their cars and household debts increased because of the loss of income and credit during the GFC."   

So in effect these Banks, Debt Collection Agencies, Politicians and their cronies are making money out of the miseries of our people who are in debt because of the Global Financial Crisis and with that Letter Najib made if legal.  

And the effect on our people?

You see it all around you! All those pieces of paper fluttering in the breeze fixed to bus stops,street signs, trees and any empty space announcing the auctions of houses at bargain prices! The miseries of our people losing their homes through no fault of their own.  

In 2007 Malayan Banking Bhd (Maybank) sold two tranches of bad loans worth 424.8 million ringgit, netting about 256 million ringgit from the sale. Standard Chartered purchased those loans. The loans were mainly secured by residential properties located across Malaysia.

In November 2009 CIMB Group Holdings Bhd had RM 8.4 billion non-performing loans (NPL) on their books. This represented 45,000 accounts which had been written down to RM 928 million net book value.

A special asset management vehicle, the

Southeast Asia Special Asset Management Bhd, wholly owned by CIMB was set up to acquire the NPLs.

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!

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.

Maththias Chang

And the list goes on! 

As Minister of Finance Najib Razak must tell us why he gave 'blanket approval' for the Banks to sell their NPL's in 2007 but only confirmed that approval with a letter in 2009! Was MOF and Bank Negara complicit in Najib's decision? 

This matter has started to unravel. 

We have copies of agreements between Banks and Debt Collection Agencies owned by the Banks themselves if not by those involved with the Banks and by people known to the Minister of Finance and to Barisan Nasional.    

We have evidence that information about their clients and customers were divulged by these Banks and Financial Institutions to third and even fourth parties and the collusion of EPF and Telekoms in this criminal acts.

What this NPL situation confirms once again is that this UMNO led Barisan Nasional government puts the acquisition of material wealth ahead of their obligation and duty of care to the people of our Nation! 

Even if one of our Rakyat loses their home because of that "blanket approval" that Najib gave in 7th September 2009 letter - that is one Rakyat too much!   

It would have been more prudent if Bank Negara, MOF and the government made the Bank reduce personal debts level as recommended by IMF. 

And more worrying it is not only the foreign debt collectors that are being invited into our country - some of these so-called debt collectors are global investment funds specializing in NPL's - one of which is Cargill CVI Global Value Fund - the beneficiary of which is the CVI Global Value Fund. 


No wonder we have billions of our ringgits flowing out of our country......RM60b as the Malay Mail said yesterday and counting. 

We must question Najib’s ‘niat’ or intention in writing that letter giving blanket approval for the sale of these NPLs?

There is a word  for it - mala fide - bad intentions. It is a question of ethics and morality.It is also vulture economics at its purest but as all things in Malaysia "THE MINISTER DECISION IS FINAL" ...or is it?


Here is BNM press release on this - you decide!

Ref No : 06/12/03

Embargo : For immediate release  

Sale of Non-Performing Loans by Malaysian banks

We refer to a recent news report on the sale of non-performing loans (NPLs) to foreign parties by banking institutions that is inaccurate and misleading.
Banking institutions can dispose off their NPLs as part of the bank's risk management practice. Disposal of NPLs provides the flexibility for banks to manage their loan portfolio effectively and efficiently to maximize recovery to protect depositors' interest.
Any recovery action must be in accordance with the law.
Banking institutions are permitted to sell their NPLs to non-banking institutions provided that the sale of NPLs is made in accordance with the requirements of the Guidelines on the Disposal/ Purchase of Non-Performing Loans by Banking Institutions which are issued under the Banking and Financial Institutions Act 1989.
The Guidelines sets out certain requirements that must be met by any banking institution proposing to sell NPLs :

• Banks can only sell to locally incorporated companies which the purchaser is majority owned by domestic shareholders as the purchaser is subject to a foreign equity cap of 49%.
• Banks are also required to undertake necessary measures to inform the borrower of the sale of the NPLs;
• Sale of NPLs that is made in accordance with requirements of the Guidelines do not contravene the BAFIA.
• Sale of NPL does not affect any debt restructuring agreements.

The amount of NPLs sold in the news report is grossly overstated. Since 2005, NPLs sold by banks is less than RM 3.0 billion.

Bank Negara Malaysia
20 June 2012

© Bank Negara Malaysia, 2012. All rights reserved.