This article first appeared in The Edge Financial Daily on December 24, 2019

KUALA LUMPUR: Bank Pembangunan Malaysia Bhd (BPMB) and Danajamin Nasional Bhd have received Bank Negara Malaysia’s (BNM) approval to commence negotiations under the first phase of the government’s proposed merger involving the country’s development financial institutions (DFIs).

BPMB said negotiations between the bank and Danajamin are expected to be completed within six months from BNM’s approval this month.

DFIs are under the regulatory purview of BNM.

“The government proposed in Budget 2020 that Bank Pembangunan, Danajamin, Export-Import Bank of Malaysia Bhd (EXIM Bank) and Small Medium Enterprise Development Bank Malaysia Bhd (SME Bank) would be restructured and merged to strengthen the DFI ecosystem.

“The merger is expected to lead to greater synergies to achieve development outcomes that would benefit all stakeholders, as well as fulfil the needs of the new economy,” said BPMB in a statement yesterday.

It said the restructuring plan will be implemented in two phases — the first phase involving the merger of BPMB and Danajamin, and the second phase to merge EXIM Bank and SME Bank into the earlier merged entity.

The development bank added that a ministry of finance-led steering committee will oversee implementation of the restructuring plan.

The steering committee comprises representatives from the ministry of economic affairs, ministry of entrepreneur development, ministry of international trade and industry besides representatives from Credit Guarantee Corp, BNM and the four DFIs.

“A working committee has also been established to support the steering committee in driving the implementation of the key integration aspects of the merger.

“The committee will also provide updates to the public as and when appropriate with regard to the progress of the merger,” said BPMB, which had a combined asset value of RM24.73 billion as at Dec 31, 2018.

EXIM Bank’s assets totalled RM11.99 billion, followed by SME Bank (RM9.83 billion) and Danajamin (RM2.75 billion).

These four entities have an aggregate guarantee portfolio of about RM6 billion.

DFIs provide a range of specialised financial products and services to suit the specific needs of the targeted strategic sectors. Ancillary services in the form of consultation and advisory services are also provided by DFIs to nurture and develop the identified sectors, said BNM on its website.

DFIs therefore complement the banking institutions and act as a strategic conduit to bridge the gaps in the supply of financial products and services to the identified strategic areas for the purpose of long-term economic development.

BPMB provides medium- to long-term financing to sectors vital to the nation’s socio-economic development, while EXIM Bank supports and promotes Malaysia’s external trade.

As the national financial guarantee insurer, Danajamin is tasked with developing the debt capital markets through credit enhancements for bond and sukuk issuances.

Meanwhile, SME Bank nurtures and serves the financing needs of small- or medium-sized enterprises — a segment which accounts for more than a third of the country’s gross development product.

RAM Rating Services Bhd said that the integration of resources, cultures and systems is critical to a merger of this scale.

“If well implemented, the proposed realignment of the strategic mandates of DFIs will support the nation’s aspirations in a new global digital economic landscape,” it said.