Given the recent spotlight on development financial institutions (DFIs), Section 119 of the Development Financial Institutions Act 2002 (DFIA) should be reviewed and the loan process made more transparent.
Section 119 of DFIA covers secrecy and is meant to protect bank customers from having their private information publicised. To put it another way, defaulters of loans with DFIs are not publicised because of this section of the Act, which is similar for commercial banks.
However, there is a big difference between commercial banks and DFIs. Commercial banks are purely bottom-line driven while DFIs have an additional function to nurture businesses in strategic areas selected by the government and even to give loans without collateral. Because of the support DFIs offer in developing the economy — sometimes undertaking higher risks — they get benefits in the form of lower funding rates, government guarantees or special tax treatment.
The problems stem from politically-well connected culprits who probably arm-twist executives at DFIs into giving out loans for questionable ventures. Worse still, some are said to have taken loans without any intention of paying back the borrowed sums.
Hence, there is a need for greater transparency to prevent such bad loans. For instance, at Bank Pembangunan Malaysia Bhd (BPMB), the gross impaired loans, financing and advances ratio stood at a high 12.15%, compared with below 3% at commercial banks. A number of loans given to politically well-connected individuals have not been settled.
At present, when borrowers of DFIs default, many get off lightly. But if the defaulters are made known publicly and if the loan process made more transparent, perhaps the high rate of non-performing loans can be prevented.