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ANALYSIS-Malaysia bank plan sets political ripples
03:19 a.m. Aug 22, 1999 Eastern
By Nelson Graves

KUALA LUMPUR, Aug 22 (Reuters) - An aggressive plan to merge Malaysia's banks has given Prime Minister Mahathir Mohamad an unexpected political  headache by infuriating a pivotal electoral faction -- ethnic Chinese.

Try as it might, Malaysia's government cannot put an end to talk that the  plan to combine 58 financial institutions into six will hit ethnic Chinese  interests and favour the Moslem Malay majority.

The merger plan has bankers, politicians and diplomats scratching their  heads, wondering why Mahathir, not known for political bloopers, would risk  alienating Chinese voters ahead of elections expected any time.

``A lot of Chinese are very angry,'' University of Malaya professor Jomo Sundram said.

``I think the guys behind it did not quite think of the political implications. I don't think this is malicious. It just shows insensitivity.''

Few quibble with the argument that Malaysia is overbanked, as the central  bank puts it, with 2,712 branches.

The government has leapt on an alliance linking Japan's Dai-Ichi Kangyo Band Ltd, Fuji Bank Ltd and Industrial Bank of Japan as proof the merger plan must go forward.

Despite a global trend towards consolidation and a 2003 deadline for liberalisation under the World Trade Organisation, Malaysia has the same number of commercial and merchant banks today -- 21 and 12, respectively -- as it did in 1980.

Now the financial institutions have been directed to sign memorandums of understanding before the end of September, the first step towards formal merger.

What rubs many Chinese the wrong way is the prospect of seeing the crown jewels among Chinese banks -- Hong Leong Bank and PhileoAllied Bank among them -- gobbled up by institutions run by Malays.

Not to mention the widespread conviction, denied by the government, that bankers close to jailed former finance minister Anwar Ibrahim will see their empires disappear.

The number of banks controlled by Chinese would fall to two from eight under the plan.

The chief executive officer of a bank said: ``This amounts to hurting the Chinese. It looks like a major political blunder. We can't understand how this came about.''

In a twist that has raised more than a few eyebrows, Multi-Purpose Bank, the smallest among the six proposed core banks with 7.2 billion ringgit ($1.9 billion) in assets, would swallow three bigger institutions including the newly merged RHB-Sime Bank, which is eight times larger.

Opposition leader Lim Kit Siang questioned whether the mergers would result in the concentration of banking in the hands of a ``few closely linked to the present powers that be.''

Grumblings of discontent have forced the central bank, Bank Negara, into denying there was a political agenda behind the plan or that Chinese interests would be hurt.

``We believe once the dust settles, everybody will see the benefits of the merger for the interest of the country in the long run,'' Bank Negara governor Ali Abul Hassan Sulaiman said.

But fall-out appears to have created a backlash among urban Chinese, diplomats and political analysts said.

A political analyst who asked not to be identified said: ``The perception among the Chinese is that they are being squeezed. They look up to banking institutions. That could cause a political problem.''

With many Malay voters angry over Anwar's sacking and jail sentence, the Chinese electorate will be more crucial than ever for Mahathir's Barisan Nasional coalition in polls.

Moslem Malays make up more than half the population, with the Chinese comprising about 30 percent.

Mahathir visited China last week in a trip his supporters hoped would please ethnic Chinese in Malaysia. But some said any favourable impact was lost amid controversy over the bank plan.

``Twenty years ago, a trip to China would impress Chinese voters back home,'' a newspaper editor said. ``But that's no longer the case. We don't see any electoral boost from this trip.''