Worries grow over Malaysia's Sime Bank

Worries grow over Malaysia's Sime Bank

By Madhav Reddy

KUALA LUMPUR (Reuters): Sime Bank's woes confirm widespread concern that Malaysia's financial sector has been hit hard by Asia's crisis and raise fears more banks are ailing in the shadows.

Analysts said on Wednesday that the abrupt news of big losses at conglomerate Sime Darby's banking unit threw a harsh spotlight on the financial sector.

"It was kind of becoming unbelievable that there were no casualties after the bloodbath we saw in stock and currency markets in the last eight months," said an analyst with a European research firm in Singapore.

There could be more institutions in trouble despite central Bank Negara's assurances, the analyst said.

"To use a cliche, this could just be the tip of the iceberg," he said.

James Moss, banking analyst at Vickers Ballas, said: "The danger here is that we have been made to believe it's a one-off thing. What else is out there?"

In an ironic twist, analysts said the central bank may have done itself a favor by quickly disclosing problems at Sime Bank, government-run Bank Bumiputra Malaysia Bhd and two small finance companies.

The apparent willingness to go public with the sour news showed Bank Negara was keeping a promise to be more transparent, and could help the country's attempts to rebuild investor confidence in its battered economy, they said.

Bank Negara said on Tuesday that Sime Bank, Malaysia's fifth biggest, needed 1.2 billion ringgit ($320 million) in fresh capital to restore its financial health.

It said the country's second biggest bank, Bank Bumiputra Malaysia Bhd, could need 750 million ringgit in capital, which its majority shareholder, the government, has promised to provide if required.

Bank Negara Governor Ahmad Mohamed Don said two small finance companies could also be heading for trouble. But he assured depositors and investors that the country's banking system was healthy.

"We are confident that the banking system remains resilient in facing any challenges that may arise," he said, adding that while individual financial institutions could be facing some problems, the system was very strong.

Some analysts said it was possible that the troubles, as the central bank claimed, were limited to the four institutions but that did not mean bad loans would not increase.

They said Malaysia's corporate sector remained one of the most highly leveraged in the region, partly because of easy lending to influential businessmen pushing ventures in line with the government's ambitious growth targets.

David Roche, president of consultants Independent Strategy, told Reuters Financial Television that Malaysia had done the right thing by tightening fiscal policy and announcing problems in the banking sector.

"But we are now going to see the bankruptcy problem take a toll on the banking sector and on the whole corporate sector," he said.

"We started seeing signs of that yesterday with one bank being named," he said. "I think you are going to have a lot more of that."

Mehdee Reza, banking analyst at Credit Suisse First Boston in Hong Kong, said: "I think, yes, the sector is definitely in pain. I do not think the big groups have as high NPLs (non-performing loans) as Sime but it's a barometer of the sector."

Some analysts said expectations of such problems in the financial sector had prompted Bank Negara to push for mergers among financial institutions.

It has set March 31 as the deadline for finance companies to draw up merger plans. It also wants commercial banks to merge but has said they would not be held to the March 31 deadline. ($1=3.76 ringgit)