The 14th Annual Merchant Banks' Dinner, Kuala Lumpur, 4 December 1993

Most, if not all, of you have good reasons to celebrate tonight. I believe this has been a very successful year for the merchant banking industry. The assets of merchant banks have grown from about RM15 billion in December 1992 to about RM18 billion in October this year. The fee-based income of the industry has expanded by more than 25 percent, due mainly to fees earned from trading operations, syndication of consortium loans and corporate advisory fees. We are happy that the fee-based income earned represented about 45 percent of the merchant banks' net income for the first half of 1993, well above the 30 percent minimum required by Bank Negara. The merchant banks' corporate activities have continued to expand, as indicated by the 29 new listings on the Kuala Lumpur Stock, not to mention the numerous issues of private debt securities, restructurings, and mergers and acquisitions exercises.

Despite the already excellent results, I believe many of you also know that things could have been even better. This has indeed been a superlative year for the overall Malaysian economy, and no one should be surprised if the merchant banking industry's profits reflect the economy's health and dynamism. Under the circumstances, we may perhaps tend to look away from any failings or shortcomings. It may even seem a churlish thing to say on this occassion, but we must also recognize that we have some way to go before we can rival the merchant banking industry of some our trading partners and competitors.

At the present time, we may not be thinking too much about competition. The industry enjoys, if I may say so, a sheltered existence under our present regulations. But this situation may not remain indefinitely. We are under pressure to further liberalize, in the context of pursuing a successful conclusion of the Uruguay Round. Limbering up for competition, therefore, is what wemust begin to do. Gearing up for the challenges of future years is the task that faces us all.

Independent of any pressure from any quarter, we happen to sincerely believe that healthy competition is always good for the consumer. All our industries, not only the merchant banking industry, must continue to improve their perfomance in order to take full advantage and build upon the current bullish conditions of the economies in our region. The services sector generally, and the merchant banking industry in particular, must therefore be more adventurous and innovative. I believe we have not been aggressive enough to venture into the international market place, putting together cross-border deals and packages. We have not been proactive in expanding our client base. There is hardly any marketing and canvassing in the industry, as the clients are expected to drop in on us in order that they may fulfill certain regulations and requirements. There is discernible want of innovativeness, so that we rarely see new financial products appearing in the local market. Our merchant banks also not seen to be taking advantage of the benefits of the latest and most sophisticated information technology in their operations.

I believe the industry needs to deploy a bigger portion of its handsome profits to develop our human resources and to allocate more funds on skills training and research and development. There is a need, expressed in some quarters, for merchant banks to offer corporate advisory services, for example, in a more proactive manner. They must not be in the position merely to react to the questions and queries of their corporate consumers, but to anticipate problems and offer solutions even before the corporate consumers become aware of those potential problems.

There rapid rise of East Asia as the world's economic powerhouse has naturally attracted the attention of the rest of the world. It will not be very long before all of the countries in the region will have to open our doors to competition in the financial services sector. If not for anything else, we have to be consistent in our approach to global trade.

Indeed, many new and exciting challenges will unfold in the years ahead. All these will translate into opportunities knocking on your doors and those of other financial institutions. Merchant banks would have to be more dynamic and forward looking in order to manage change and grasp emerging opportunities, so that a premium can only be earned by those who truly master the situation.

Thank you.