Oleh/By		:	DATO' SERI DR. MAHATHIR BIN MOHAMAD 
Tempat/Venue 	: 	HOTEL HILTON, KUALA LUMPUR 
Tarikh/Date 	: 	30/10/84 
Tajuk/Title  	: 	MAJLIS MAKAN MALAM TAHUNAN BERSAMA 
			PERSATUAN BANK-BANK DAN INSTITUSI-
			INSTITUSI KEWANGAN MALAYSIA 




Yang Berbahagia Datuk Jaaffar Hussein, Pengerusi Persatuan Bank-Bank
Malaysia; Yang Berhormat Menteri-Menteri; Dif-Dif Kehormat; Tuan-tuan dan
puan-puan, Saya mengucapkan terima kasih kepada Jawatankuasa Penganjur
Majlis Makan Malam Tahunan Bersama Persatuan Bank-Bank dan
Institusi-Institusi Kewangan Malaysia kerana menjemput saya dan isteri
saya ke Majlis ini. Seperti biasa apabila seseorang itu dijemput ke majlis
jamuan makan ia selalunya diminta untuk memenuhi salah satu syarat
jemputan itu, iaitu menyampaikan sepatah dua kata.

Ladies and Gentlemen,

2. I am honoured to be invited once again to address the leaders of the
nation's financial community. This annual affair is a good opportunity to
take stock of our progress in the past year in the financial and economic
fields and to consider how to meet the challenges ahead. Having recently
returned from a visit to Italy and the United States, I have been
impressed how the indicators suggest that the major industrial countries
are recovering from the recession. Indeed, output growth in the industrial
world is expected to increase by almost 5% in 1984, the best performance
in eight years. As in the past, the economic recovery continues to be
dominated by the strong performance of the United States economy, although
there are increasing signs that most of Europe is also improving
slowly. However, even in the United States, doubts still remain about the
sustainability of the recovery process because of large budget deficits
and trade imbalances, which have been financed by capital from outside
drawn by high interest rates. Some Italians likened the United States
economy to the famous leaning tower of Pisa, clearly lop-sided but
surprisingly stable -- so far at least. Nevertheless, all economists seem
to agree that no lop-sided economy, however stable, can defy gravity too
long, and there is a very real danger that the present recovery may give
way to another recession in 1986 and beyond if major steps are not taken
by the industrial countries to correct their structural imbalances and
address the problem of high interest rates and anarchic foreign exchange
markets.

3. The dilemma of the international economic order today is that political
ideology in the major industrial countries is at divergence with
practice. Everyone professes to be for free trade, but practices
protectionist measures of one form or the other, including voluntary
restraint of exports and non-tariff barriers. The inability of the large
nations to co-ordinate their economic and monetary policies in an
increasingly inter-dependent world has led to the present uncertainties in
international trade and investments. Few nations are taking the long view
to invest in the developing countries because of the international debt
crisis, and high interest rates offered in the United States. Unless
corrected, this combination of protectionist measures, continuing high
interest rates, and the painful adjustments by the developing countries to
such measures, could plunge the world into another phase of recession as
witnessed in the 1930s. We in Malaysia, therefore, must take cognisant of
the world environment, and plan accordingly our long-term strategies to
overcome the barriers to trade. We can only do so if we increase our
productivity and efficiency so that we not only produce more goods that
the world wants, but also cheaper and better quality goods, even though
competition increases in the medium term.

4. As announced earlier this year, the Government is reviewing all its
policies within the framework of the preparations for the Fifth Malaysia
Plan period 1986-90 and beyond, to promote growth and trade, increase
national efficiency, reduce poverty and improve income distribution with
price and monetary stability, in line with the objectives of the New
Economic Policy. Indeed, in addressing the problems of the balance of
payments, the key issues facing the nation will be the need to find
additional resources for development, primarily from domestic savings and
funds which are domestically generated. The recent budget strategy of tax
cuts is but the first phase in our national programme to make our country
attractive and competitive financially and to provide incentives for
hardwork and the taking of risks. It should also lessen the demand for
higher pay for those executives and employees in the higher income
(particularly for a fair portion of their earnings will now be retained by
them). In a very tangible way the various tax cuts represent a revision of
pay. The Government is committed to the control of public sector
expenditure, in line with available resources, and to provide the
framework and infrastructure for private sector dynamism and initiative to
flourish. In the true spirit of Malaysia Incorporated, the Government will
seek trade initiatives within the international trade environment to
assist the private sector to export competitively. But, the private sector
must respond, not timidly with more and more demands for greater
Government assistance, but with vision, initiative and daring, to
penetrate new markets with new products and services.

5. The Administration is further committed to maintaining a stable
economic environment for business to flourish and expand. I regard this as
the underpinning of a robust economy. The recent Budget clearly
demonstrates that we are determined to bring about a business climate that
is conducive to enterprise and initiative, and to the willingness to work
hard for a better living. The history of modern civilization teaches us
that the greatest growth occurs in societies where men have an eye to spot
the economic opportunities for profit and have the energy to stir
themselves to seize it. The disincentive due to high marginal tax rates is
a matter of the past. We now provide an environment that offers greater
reward for effort, skill, responsibility and risk.

6. Over the next two years, we can see that with a reduced tax burden, the
nation could grow between 6 to 7 per cent annually, with price stability
and a reasonably bouyant external sector. The public sector deficits are
being corrected and the balance of payments should improve over time. What
is needed now, is to place our manufacturing and agricultural industries
in a strongly competitive position so that the nation is ready for the
next stage of export growth in the second half of the 1980s. This is where
the financial sector can come in to help.

7. Over the last four years, since the nation began to be affected by the
international recession, the financial sector has consistently
out-performed the rest of the economy, with value-added rising at an
average of 7.3% annually, compared with 6.4% for the nation as a whole and
6.2% for the manufacturing sector. Since 1979, employment in the
commercial banks alone have risen by an average of 12.9% annually to reach
nearly 35,000 persons by the end of 1983. Total assets rose from $25
billion over the same period to $60 billion, while total revenue rose at
the same average rate of 24% annually to $5.3 billion in 1983.

Similarly, pre-tax profits of the banks doubled from $342 million in 1979
to nearly $700 million in 1982. Since 1981, these profit have risen at an
annual rate of about 22%. The rates of increase in profits have remained
consistently high even during the recent supposedly lean 'recessionary'
years.

This trend of growth was also reflected in the accumulation of profits
among finance companies and merchant banks. In 1983, for example, their
pre-tax profits rose by 42% and 45% respectively. On the whole,
productivity in the banking sector has improved steadily over the last
five years. 

Total assets per employee of the banks have increased by nearly 50% to
$1.7 million in 1983, while assets per ringgit of staff cost had improved
by 15% over the same period. Net profits per employee has also increased
by 31%. Malaysia has now a fairly sophisticated financial system, with
gross financial assets nearly double that of national income, compared
with just under 50% at the time of independence. Nevertheless, much
remains to be done to improve financial services, particularly in the
rural areas. The productivity of banks is also uneven. In 1982, for
example the domestic banks earned only $19,000 net profit per employee,
compared with $32,000 for the foreign banks, despite staff costs per
employee of the foreign banks being higher by nearly 40%. 

Today, the domestic banks dominate the banking scene in mobilised and
67.2% of the bank credit extended. But being big is not necessarily the
most efficient. Certainly the domestic banks have not been as profitable
as the 'smaller' foreign banks. It is now timely for the domestic banks in
particular to take stock. Indeed, no financial institution can afford to
be complacent in an increasingly competitive environment.

8. While the banking sector must strive to improve productivity, it must
not be forgotten that the banking system is a service sector,
complementary to the well-being of mining, manufacturing and
agriculture. The early 1980s have not been easy years for the banks
despite their continuing profitability. The international recession had
made them more adaptable and to some extent, more responsive to changing
needs and rising expectations. The years ahead will see new
challenges. Increasingly, the banks will be called upon to appraise and
finance projects that are clearly unorthodox. For example, there will be
requests to provide equity finance. For most bankers, this is something
new since they have been traditionally trained to believe that domestic
banking is all about money transmission and the provision of working
capital via the overdraft facility. Then, there is venture capital, a new
request by entrepreneurs spurred on by the projects of high risks and the
burning desire for a "window on technology". In ventures like these, the
financial element should not be overemphasised. What matters really is the
quality of management in the final analysis. Bad management is often
Bankers need to develop a keen eye to be able to spot good management
capabilities. In essence, bankers will increasingly need to evaluate
ventures on the basis of projected cash flows rather than the balance
sheet position. Banks will need to be more involved in assessing the
design of the projects they are asked to finance. This will doubtless put
new demands on banks in terms of shifts in the type and quality of
personnel. In addition to new challenges in lending, there will be other
demands for changes. Technical innovation in the retail deposit market, in
payments clearance and in electronic funds transfer, will also put
increasing pressures on bankers and the banking industry
generally. Bankers should welcome and be alive to these innovations, and
continually seek to improve and upgrade the service which they provide,
particularly to business, in a rapidly changing and more competitive
environment.

Ladies and Gentlemen, 

9. I would like at this point to touch on the anarchy in the world's
monetary system. There was a time when the exchange rates between the
currencies of various countries were fixed. If there was to be a change in
the rate of any one currency, it was premeditated and it was announced. Of
course, there was some artificiality in this system. But by and large it
was orderly.

10. Now that system no longer applies. Governments are frequently
powerless to determine the value of their own currencies. Despite reserves
being held in different currencies in order to reduce the effect of
collapse of any one currency, the fluctuation continues. Money is now just
another commodity to be traded as one trades rubber or tin or palm
oil. And as such it comes under the machination of speculators.

11. While the fluctuation in the price of the usual commodities has only
limited economic effect, the movement in the value of money can affect the
total economy of a nation. This being so, it is dangerous for the
unscrupulous to be allowed into the trading of currencies. Indeed, it is a
dangerous trade for we can never be sure that even banks will not be
tempted to depress the value of money and raise it again in order to make
a 'fast buck'. In fact, I strongly suspect that the recent pressure on the
ringgit was artificially contrived at by people whose greed has overcome
their commitment to ethics. If the culprit is caught, the Government will
make sure that suitable punishment will be meted out. This Government does
not believe that devaluation will solve its economic problems. Only high
productivity will.

12. I would like to make a plea to the banks in Malaysia and abroad which
deals in the ringgit to live up to the trust placed in them and adhere
rigidly to good financial ethics. In the long run it will pay to do so.

Ladies and Gentlemen, 

13. Success depends ultimately on good management. The achievements of the
nation have been due to the successes of the nation's managers and the
sound management of our economy. The recent losses suffered on account of
the BMF affair demonstrate all too clearly that without adequate attention
to sound management and effective supervision, serious mistakes can
occur. The nation cannot afford such losses, nor should we expect to. I
would like to reiterate that action will be taken against the wrong-doers,
but the lesson must be driven home. The managers of our financial
institutions, just as the managers of our public and private enterprises,
must be totally committed and involved in the affairs of institutions
under their charge. Hence, you will notice that we have separated the
non-executive Chairmen from the Chief Executive Officers in some public
enterprises. The management of our financial institutions must at all
times be professional in carrying out their duties. This means that the
Boards of Directors of our financial institutions must at all times be
alert to the effectiveness and competence of their staff. The senior
officers, including Board members, must choose effective and competent
personnel at all levels; they must supervise on a "hands-on" basis the
affairs of their institutions; they must devise effective management
information systems and follow sound and prudent policies in meeting their
objectives. Most of all, no organisation can function well with
self-serving officers and leaders. These must be weeded from the
system. Just as I expect the administrators in Government to be fully
informed and be on top of the state of affairs and policies in their
charge, so would I expect the senior bankers and their Boards to be fully
aware of the health of their financial institutions and the direction they
are steering over the short and long term. In the pursuit of profit,
bankers must never lose sight of their basic responsibility as trustees of
the financial assets of the community in which they serve. Public
accountability of their behaviour helps in inculcating this trust, which
must be seen to be upheld to instill continuing public confidence in the
banking system.

Ladies and Gentlemen, 

14. I do not wish to lecture my hosts. But the financial community has a
special responsibility to society. The standing of the nation, the value
of the ringgit, and the confidence of the public here and abroad, rests on
the competence, professionalism and integrity of the leaders of our
financial agencies. Such is the responsibility that you bear and such is
the trust placed on you. You must never, never, abuse them. If for any
reason you abuse them, you do so at your peril.

Ladies and Gentlemen, 

on that note I thank you for your hospitality.