Bank Negara powerless against 1MDB’s game theory


The Malaysian Insider

by Wenger Khairy

bank negara

The one thing I really like about the 1MDB issue is that the longer it drags on, the bigger it gets and the more people it will drag down with it. And the beauty is that the problem about 1MDB is symptomatic of the problem of the country, which is letting the rich people play games amongst themselves while the poor people fight each other.

The issue now is that 1MDB is seeking yet another loan extension as it is unable to repay RM 2 billion loan that has already been extended 3 times. Under Bank Negara’s own rules, 1MDB’s consistent failure to repay the RM 2 billion syndicated short term bridging loan means that the lending banks should classify the loan as a Non Performing Loans (NPLs) because the company has been unable to repay its contractual loan commitments. However, Bank Negara has time and time again bent the rules in 1MDB’s favour by allowing the banks to grant extension after extension in a valiant effort to prevent the loan from sinking to the “Classified” loans category.

1MDB

However, we cannot blame Bank Negara for once again throwing their rule book out and agreeing to relax their rules in favour of 1MDB. After all, the Federal Reserve, the Bank of England and the ECB have themselves done all sorts of nonsense to save the banking sector and financial sector. Secondly, banking is very much accounting game. There are no prizes for RHB and Maybank if they decide to refuse 1MDB’s request for a loan extension.

On the contrary, 1MDB has the banks pinned down so much so that they have no choice but to agree to 1MDBs request because simply they would lose much more if they decide to be firm against 1MDB and say “show me the money.” This is because they would immediately have to consider the likelihood that 1MDB is “koyak” and make a provision against 1MDB, which could amount to hundreds of millions ringgit. This would eat into their profit and affect their bonuses.

In fact 1MDB has set up one heck of a “game theory” style bargaining opportunity. Bank Negara knows that were it to refuse the banks request for extending the loan to 1MDB, then Bank Negara runs the risk of “shooting its own foot.” This is because should Bank Negara refuse the request and ask the banks to declare the RM 2 billion 1MDB loan as an NPL, it would trigger an event of default on all the other billions of ringgit and US Dollar loans. That will be very big news which could even bring about the same kind of crisis that happened in 1998.

In conclusion, we can be certain of Bank Negara’s actions. 1MDB is just too big for them to beat around. All the talk about “something is going to jail” is just empty threats. When push comes to shove, Bank Negara has to rollover when 1MDB says “extend loan”. I believe that Zeti was telling a joke when she said that under her watch, the regulators have prevented any one borrower from becoming a risk to the industry and even to the country. The only thing was that nobody was laughing because we really do not want a comedian to be in charge of our banking system. – January 28, 2015.

Related:

Who owns Bank Negara?

The central bank in most if not all countries in the world is a privately owned institution, which print, issue and owns the national currency.

1MDB may seek ‘shocking’ 3rd postponement of RM2b loan..

1MDB loan postponed1MDB is holding Maybank Bhd and RHB Bank hostage by seeking an extension for its overdue RM2 billion loan.

 

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