ARTICLES
Early post-independence Malay entry into business: Achievements and failures

Dr Thillainathan Ramasamy,1 Board Member, Institute for Democracy and Economic Affairs (IDEAS)

A crucial aim of the Malaysian government since the launch of the New Economic Policy (NEP) in 1971 has been to eliminate, or reduce, economic differences in ownership and control of business—as well as in employment and education—between the Malays and other Bumiputera on the one hand; and the non-Malays—predominantly Chinese and Indians—on the other. Promoting Malay entry into “business”—taken to cover industry and commerce, including manufacturing and trading; plantations; mines; and banking—as managers of existing state-owned enterprises (SOEs), or as developers and operators of new SOE ventures, and later as business owners, has been a key aim of the government’s race-based affirmative action agenda.

From independence in 1957 until 1971, Malays were increasingly appointed as managers and directors of SOEs, although the SOEs did not go into new manufacturing and trading ventures. From the NEP’s launch until the mid-1980s, the government mounted an aggressive takeover of foreign-owned plantations and tin mines. It also imposed quotas on the allocation of shares on preferential terms in favour of Malays in companies making an initial public offering of shares or venturing into manufacturing. And it continued to strongly push Malays into banking, primarily through the growth and takeover of existing banks.

In promoting Malay entry into business, the government broadened its aim to include the creation of a class of Malay owners as well as managers. The NEP encouraged the use of SOEs to promote the entry of Malays to develop and operate businesses in the ‘modern sector’. Under its privatization agenda, the government went further, by privatizing or corporatizing government-owned enterprises or government-provided facilities or services, such as independent power producers, toll roads, and water treatment plants (Thillainathan and Cheong, 2024).

This article reviews the government role in bringing about Malay entry into business across different sectors, largely pre-19852. It also assesses how Malay managers emerged dominant in the plantation and banking industries, and how they performed relative to Chinese-managed enterprises. An entity is taken to be Malay managed if its chief executive and most directors on its board are Malays. With a typical SOE, the proportion of managers and employees who are Malays may be well above 50 per cent, though it may have crossed that threshold only over time.

Before 1985, there was no marked difference in the performance of Malay-managed plantation companies from those managed by Chinese, and none failed. Conversely, in the banking sector a disproportionate share of the banks that failed were Malay managed, even well into the late 1990s. Of the business sectors into which Malays have attempted to enter, plantations and banking stand out, not only because the measures adopted for entry were aggressive, but also because the operational ‘playing field’ was, in the main, level.

The pre-NEP era (1957–1970): Emergence of Malays as SOE managers

Well before the NEP, the Malaysian government had promoted Malay entry into business—as developers and operators of rubber, oil palm, and irrigation schemes, and into banking. Pre-NEP, the emerging Malay managerial class was evident in enterprises owned and operated as SOEs, providing services such as water and electricity, telecommunications, broadcasting, transport, education, health care and waste disposal, as well as facilities such as airports, seaports, highways, railways, and drainage and irrigation.

With independence and the launch of the Malayanization programme, an increasing number of Malays gradually took over from the departing British the running of existing or newly formed SOEs, which were then organized as departmental enterprises or statutory bodies, such as the National Electricity Board (NEB), the Telecommunication Department of Malaysia, and Malayan Railways, as well as schools and hospitals. Some of these SOEs were monopolies, such as the Telecommunication Department of Malaysia, and others were open to competition from the private sector, such as the NEB and Malayan Railways, with the latter facing stiff competition from the fast-growing road-transport industry. The first Malaysians appointed as chief executives of the NEB in 1964 and of the Port Klang Authority in 1965 were both Malays, contributing to the growth and performance of Malaysia as a highly open and internationally competitive economy. Malayan Railways, Telekom Malaysia, and an increasing number of schools and hospitals also had a Malay head before 1971.

Plantations and tin mining were the mainstay of the economy in the early post-independence era, with many estates and mines owned and controlled by foreign interests. Increasingly, the alienation of land for plantation development was reserved for the Federal Land Development Authority (FELDA), a statutory body. FELDA gradually emerged as the world’s largest plantation developer of rubber and oil palm smallholdings, with Malay managers awarding contracts competitively and operating the holdings efficiently as ‘estates’, with the further aim of resettling and tackling poverty among rural Malays. Irrigation schemes for the double cropping of padi across the country were developed by a Malay-managed statutory body or a departmental enterprise (Tate, 1989 and 1990; Lim, 2004; Rajasingam, 2020).

Bank Bumiputra opened its first branch in Lebuh Ampang, Kuala Lumpur in March 1966, where it later built its headquarters.
Source:
https://pekhabar.com/h-i-d-s-perasmian-pembukaan-bank-bumiputra-malaysia-berhad/


Before the NEP, banks were almost exclusively owned and operated by foreign or Malaysian-Chinese interests. The government established Bank Bumiputra Malaysia (BBMB) in 1965—in response to a resolution passed at the First Bumiputera Economic Congress of that year—aiming to spearhead Malay entry into banking and increase Malay participation in the country’s economy. Because of a bank run on Malayan Banking (Maybank) in 1966, owing to mismanagement and rifts between its major shareholders, the government took over control from its founder Khoo Teck Puat in 1966, retaining control
(Choi, 2014).

The NEP period

Initially, the NEP’s attempt to create a class of Malay managers in industry and commerce was unsuccessful (Thillainathan, 1976). Later, the government launched an aggressive campaign to acquire foreign-owned plantations and tin mines, and encouraged the entry of Malays into banking. It supported Malay entry into certain sectors by applying affirmative measures, such as restrictive licensing practices that imposed barriers to non-Malay entrance, and government subsidies.

Malay entry into industry and commerce

Soon after the launch of the NEP, the government established SOEs to stimulate Malay participation in the modern sector, including in manufacturing where just 1.2 per cent was Malay owned during 1974–75 (Sieh Lee, 1982). A few SOEs, such as Perbadanan Nasional Berhad (Pernas), the key vehicle used for the Malayanization programme, ventured into commerce as well, trading with China for example (Low, 1985), but was unsuccessful. Pernas did, however, succeed when it was appointed sole distributor by multinational corporations to procure government business, especially in manufacturing and construction, acting as a junior partner. It was able to tap captive government business or enjoy monopoly power. It was also involved in banking and acquired a 30 per cent stake in United Malayan Banking Corporation (UMBC). 

Pernas had another role—pioneering the takeover of, or accumulation of sizeable stakes in, foreign-owned tin mines and plantations. It was the trailblazer for Permodalan Nasional Bhd, which in 1981 mounted a ‘dawn raid’ on Guthrie and Company (see below). The government authorized Permodalan Nasional Bhd to use its shareholdings in the acquired companies as the underlying shares to float unit trust funds to mobilize Malay savings on a massive scale from 1981. This authorization continued a trend. From the mid-1970s, Malay business groups, chambers, and associations had been pressing the government to divest profitable assets at cost to their members—firmly voiced during the Third Bumiputera Economic Congress in June 1980 (Jesudason, 1989; Thillainathan and Cheong, 2024).

At the state level, many State Economic Development Corporations (SEDCs) ventured into industry or commerce between 1971 and 1985, but most failed dismally despite receiving sizeable federal development allocations (Jesudason, 1989; Gomez, and Jomo 1997; Jomo and Wee, 2004). A few, such as the Selangor SEDC, which went into property development, and the Johor SEDC, which ventured into plantations and health care, were, however, successful.

Political parties, too, went into business. For the ruling United Malays National Organisation (UMNO), promoting entry of Malays into business was a secondary consideration—the main one was to raise money to help it retain power. The country’s first prime minister, Tunku Abdul Rahman, did this in 1961 by persuading friendly individuals to take over Utusan Melayu Press, the leading Malay-language newspaper, and an important propaganda weapon3. Under the second prime minister, Tun Abdul Razak, reducing UMNO’s reliance on the Malayan Chinese Association—its coalition partner—as a source of funds was also a priority, as was heeding UMNO Youth’s demand to acquire the Malaysian operations of the Singapore-based Straits Times Press. The shares in the restructured New Straits Times Press (Malaysia) (NSTP) were bought in 1972 and held under a new vehicle, Fleet Holdings (by then with only informal links to UMNO).

Permodalan Nasional Bhd (PNB) Head Office in Kuala Lumpur.
Source:
PNB, 2017


Fleet Holdings spread its wings under the country’s fourth prime minister, Dr Mahathir, and from 1984 under Daim Zainuddin, UMNO’s treasurer (see below). In 1982, it became a controlling shareholder of another public limited company (PLC), hotel and property group Faber Merlin Malaysia (Searle, 1999). In 1986, it acquired Commerce International Merchant Bankers (CIMB); and the following year it took up significant interests in a string of other PLCs. With its aggressive growth, including the development of the Putra World Trade Centre (which included UMNO’s party headquarters), Fleet Holdings became highly leveraged.

To service Fleet Holdings’ mounting debt burden in a high interest rate environment, UMNO used its state powers to award companies under its control, or that of its nominees, a concession to operate a television channel and a major toll road—namely TV3 and the North–South Expressway—on favourable terms (Gomez, 1990; Wain, 2012). The award of the toll road concession was challenged on the grounds that it was conflicted4, but Malaysia’s Supreme Court dismissed the challenge on 15 July 1988 (Searle, 1999).

But, starting from April 1990, UMNO’s businesses were restructured to minimize political fallout from continuing controversies. The outcome involved the takeover of the toll road concession and the banking and insurance business by Halim Saad under Renong. Roxy Electric Industries, which had been renamed Technology Resources Industries, was taken over by Tajuddin Ramli, a Malay owner-manager. In January 1993, Renong sold its controlling stakes in media companies NSTP and TV3 to Realmild Sdn, controlled by four NSTP executives, for RM800 million in a management buyout (Searle, 1999).

UMNO’s entry into business led to challenges and divestments, with politically connected Malay managers taking over the concessions as the new owner-operators, as with toll operator PLUS and a leading national telecommunications company CELCOM, or conducting a management buyout, as with NSTP and TV3. For PLUS, about 50 per cent of the North–South Expressway had been handed to it by the Malaysian Highway Authority at the start of its operations in 1994. It enjoyed a guaranteed minimum traffic volume, a substantial long-dated loan at a below market interest rate, and a long holiday period on repayments (Thillainathan, 2021). 

Malay owner-managers pre-1985

Pre-1985, Malaysia produced at least four dominant Malay owner-managers (see just below). Some others who became influential owner-managers post-1985 started around the first half of the 1980s, such as Azman Hashim, Halim Saad, Rashid Hussain, Syed Mokhtar, and Tajuddin Ramli.

Syed Kechik Syed Mohamed

A confidante of Tun Mustapha, Chief Minister of Sabah, Founding Director of Sabah Foundation5, and Chairman of Sabah Land development Board, Syed Kechik enjoyed a meteoric rise in Sabah from the mid-1960s to the mid-1970s as he built a fortune from the extraction of timber from the 270 square miles of land allocated to three companies in which he had an interest, and from property development by the company he and his partners owned, to which large tracts of land had been alienated by the state. In 1976, Syed Kechik was, however, forced to take up residence in Kuala Lumpur when his patron was
displaced as Chief Minister of Sabah.

In Kuala Lumpur he continued to focus on property development and invest in real estate but also ventured into banking. In 1978, he acquired a 30 per cent interest in Development & Commercial Bank. His attempt in the early 1980s to wrest majority control of the Bank failed because he could not obtain the required regulatory approval (Searle, 1999). He also lost out to the Fleet Group in his bid for the TV3 licence, and failed to obtain approval for a huge property development by Sri Hartamas in Kuala Lumpur. ‘With assets reported to be worth RM800 million, Syed Kechik then appeared to represent the beginnings of a new class of independent Malay entrepreneurs.’ However, he was ‘increasingly marginalized from the new centres of power’ (Searle, 1999, pp. 134–135). With over-exposure to the property sector and the share market, and his failure to secure the required government approvals—lacking the political patronage he enjoyed during his phenomenal rise in Sabah—he failed to survive the mid-1980s’ economic crisis, which was accompanied by a collapse in property and share prices.

Ibrahim Mohamed

Ibrahim Mohamed was an owner-manager who scaled the heights of corporate Malaysia. During the 1970s, Ibrahim had built a powerful network of relationships with top politicians and business leaders. He helmed, jointly with Singaporean Brian Chang, the flagship Promet Bhd. It recorded a meteoric trajectory ‘whose profits trebled in 3 years, from RM41 million in 1981 to RM115 million in 1983, by which time it was the 14th largest company on the Kuala Lumpur Stock Exchange with a market capitalization exceeding RM100 million … but by 1985 it made a loss of RM92 million, while the company’s stock fell from RM11 a share in late 1981 to 80 sen a share in 1986, and its indebtedness to 18 banks soared to over RM100 million’ (Searle, 1999, pp. 157–159). In February 1986, he lost a corporate tussle with his partner when the banks forced his removal from the company. in November 1986 they placed the company in receivership and froze its assets.

In 1976, Ibrahim succeeded in acquiring a PLC, General Ceramics, and sold it in 1977 to its Chinese managing director who made it profitable. When he purchased a second but indebted PLC, Associated Plastics Industries (API) using his sale proceeds, it became a target of market speculation and its trading was suspended by the Kuala Lumpur Stock Exchange on suspicion ‘that API shares were being cornered by its directors’ (Searle, 1999, p. 156). Three years after Ibrahim’s Promet exit, he restructured API and renamed it Uniphoenix Corporation Bhd, but was unable to stem its losses. He exited the corporate world ‘when in August 1993 he pleaded guilty to selling 825,000 shares in … United Paper Holdings Bhd, he did not own and was fined RM500,000’ (Searle, 1999, p. 160).

Daim Zainuddin

Having achieved success as a property developer in Kuala Lumpur from the early 1970s, Daim Zainuddin was appointed chairman of Peremba—the commercial arm of the Urban Development Authority—to spearhead the entry of Malays as developers and owners of commercial properties in metropolitan areas. His most prominent development, with the Kuok group, was in Kuala Lumpur’s golden triangle, which includes the Shangri La hotel, as well as two office and apartment blocks. Daim also had oversight of UMNO companies from 1982 (Wain, 2012, p. 119). Daim had an exceptional capacity to carry out highly risky, lucrative deals, as illustrated by the way he handled the controlling stakes he exercised over UEP, the Subang Jaya developer, from December 1982 as well as in UMBC, Malaysia’s third-largest bank, from 1984. He was then wearing a government and personal hat, and it was when the economy was slipping into the 1985–86 economic crisis.

UEP was ‘effectively controlled two-thirds’ by government-owned Peremba and Daim’s family company (Searle, 1999, p. 140). Around mid-1983, by injecting its Subang View hotel, UEP gained an 11 per cent stake in Faber Merlin, which a month earlier had come to be controlled by UMNO’s Fleet Holdings on terms which were deemed favourable to UEP. In January 1985, Daim and Peremba sold a 32 per cent stake in UEP in exchange for shares in Sime Darby. The latter firm’s minority shareholders were unhappy, as the run-up in UEP’s share price after Daim’s acquisition had made UEP’s share price higher than Sime Darby’s. The share swap gave Daim a 7 per cent stake in Sime Darby (Searle, 1999, p. 139).

Daim acquired his initial 41 per cent stake in UMBC from Multi-Purpose Holdings Bhd a week before he became finance minister in July 1984. He increased his stake to 50.3 per cent in June 1985 by buying the preferential rights issue that Pernas, the other joint controlling shareholder, chose to forgo. Daim managed to comply with a 1986 cabinet directive, requiring all ministers to divest their PLC shares, by selling his stake in its entirety to none other than Pernas in December 1986. ‘Bankers indicated that the sale enabled Daim’s family companies to realize a cash gain of almost RM100 million on their initial purchase of UMBC in 1984 through the share swap with Malaysia French Bank’ (Searle, 1999, p. 274).

Shamsuddin Abdul Kadir

Shamsuddin Abdul Kadir of Sapura Holdings was an owner-manager who was a success in manufacturing. He started his career in the Telecommunication Department of Malaysia in 1959 but joined the private sector in 1971. Sapura won virtual control of the domestic market by producing made-in-Malaysia telephones from 1977 by entering into technology-transfer agreements with reputable foreign companies. It started off in 1975 by supplying, installing, and maintaining public payphones and by being one of the first local turnkey contractors to lay cables. In September 1984, Sapura acquired Malayan Cables, a PLC, to assure itself of cable supply to support its multimillion-ringgit cable-laying business and injected into Malayan Cables its principal operating company, ‘which had already begun to diversify its product range by the manufacture of public payphones, feature phones, PABXs [private automatic branch exchanges], main distribution frames and miniature protector connectors’ (Searle, 1999, p. 171).

With corporatization in 1987, as Syarikat Telekom Malaysia became more cost conscious, Sapura turned to manufacturing specialist telecommunications products to penetrate niche markets worldwide, either under licensing or on a joint-venture basis with the likes of GEC Plessey Telecommunications Ltd and Sumitomo. The Sapura Group had, by 1991, two PLCs in its stable, namely Uniphone Telecommunications Bhd and Sapura Telecommunications Bhd, and ‘the contribution of exports to company profits leapt from RM2 million in 1989 to RM170 million in 1993’ (Searle, 1999, p. 173).

Malay entry through takeover of plantations and tin mines

From the mid-1970s, the government started its aggressive programme to buy foreign-owned plantations and tin mines. It mounted a hostile takeover of Guthrie and Company, a large British-owned rubber and oil palm plantation conglomerate, on the London Stock Exchange in 1981, having earlier acquired a 30 per cent stake through Sime Darby—controlled by Pernas—after the latter narrowly failed in a takeover attempt of the company. The takeover was characterized as a ‘dawn raid’, even though it did not violate the Takeover Code of the United Kingdom (UK), although later there was a change in the takeover rules (Yacob and White, 2010). The purchases were at market prices and therefore did not constitute a ‘back-door’ nationalization.

In mining, Malaysia’s decision not to renew expiring British mining leases may have helped depress share prices of tin companies targeted for acquisition (Jesudason, 1989). From the late 1970s, the British-owned Chartered Consolidated and London Tin were gradually taken over by Pernas.

These acquisitions gave Malays a direct role in governing and managing plantations and tin mines, at a time when Malaysia was the world’s top producer of rubber and tin. The acquisition of plantations could not have been better timed, coinciding with a reversal in the terms of trade in favour of commodities (Young, Bussink, and Hassan 1980). With increasing competition from synthetic rubber and the higher international price of palm oil, many plantation managers switched from rubber to oil palm cultivation.

Malays emerged as dominant players in the plantation sector, owing to the massive FELDA-developed acreage and aggressive government takeovers of foreign-owned plantations, including of Guthrie and Company and of Harrisons and Crosfield, which were then, with Sime Darby, the three largest plantation companies by acreage owned (Low, 1985; Jesudason, 1989). Malay managers remained the dominant players in the plantation industry into the new millennium. Of Malaysia’s top 10 plantation companies, the market share of the three Malay-managed companies—Felda Global Ventures Holdings (FGVH), Sime Darby, and Tradewinds Plantations—was 14.8 per cent, whereas that of the seven non-Malay-managed companies was 12.5 per cent (FGVH, 2012, pp. 69–73).

Quantifying Malay entry into business

An attempt is made to quantify the size of Malay business entry, and what form it took, whether as manager or owner-manager. The available data are for the top 80 PLCs in 1974 by market capitalization (Tan, 1982; Perkins and Woo, 1998), and by the scale of operation for an entity that is not a PLC or a company. With the aggressive takeover of foreign-controlled PLCs—subsequently taken over by the Malaysian government by 1977—the share of listed Malay-managed SOEs shot up. Based on a lower threshold to identify the ultimate controlling shareholder, it rose to 24 per cent by 1977—excluding Singapore-controlled and registered PLCs. The share of listed Malay-managed SOEs increases to 34.5 per cent if the estimate includes all UK-controlled plantation and mining PLCs that were taken over by Malaysian government interests by the mid-1980s (Table 1).

Table 1: Malay participation in PLCs as owner-manager or manager before and after the Asian Financial Crisis (AFC)

Sources: Data for the mid-1970s are based on Tan (1982) and Perkins and Woo (1998), those for 1993 are from Perkins (1998), and those for 2010 from Hassan (2012). 


Notes:
i) The Before takeover case only includes PLCs that were SOEs in 1974. After takeover case I, as given in Perkins and Woo, includes PLCs that were foreign controlled in 1974 but that had been taken over by the Malaysian government by 1977. After takeover case II also includes all other UK-owned plantation and tin-mine PLCs but that had been taken over only by the mid-1980s. The share of market capitalization of Malay-managed SOEs has been calculated by Perkins and Woo from data given in Tan (1982) by excluding Singapore-controlled and -registered PLCs that had a cross-listing on Bursa Malaysia (previously, the Kuala Lumpur Stock Exchange).
ii) The After-takeover percentage of Malay-managed SOEs is likely to be overstated as the threshold used by Tan (1982) to identify the ultimate controlling shareholder is a lot lower than what was used by Hassan. The number in data column 1 is likely to be understated compared with what is captured in data column 3 as utilities such as Tenaga National Bhd and Telekom Malaysia Bhd only became PLCs after corporatization and privatization in the early 1990s.
iii) The data for 1993 in Perkins and Woo are estimates of the shareholding of institutions and unit trusts at 10.4 per cent and 17.6 per cent. Only after the AFC were new rules introduced, which required a shareholder to disclose its holdings and not hide behind a nominee if its stake exceeded 2 per cent. It is unclear what threshold was used in determining who is an ultimate controlling shareholder of a PLC, so caution must be exercised with these data.
iv) The choice of PLCs by Tan (1982) and Hassan (2012) was based on market capitalization, with Hassan adhering to the methodology of Berle and Means (1932) and La Porta et al. (1998). A PLC is taken to be owner- or part owner-managed by a Malay even where the stake of the ultimate controlling shareholder is below 50 per cent, provided that the rest of the shares are widely held.

Performance of Malay-managed plantations

To assess the performance of Malay- versus Chinese-managed plantations, two key measures are used and applied to the four biggest industry players for 2010 and 2021–2022—Malay-managed FGVH and Sime Darby Plantation (SDP), and Chinese-managed IOI Corporation (IOI) and Kuala Lumpur Kepong (KLK) (Table 2). On the palm oil extraction rate, the performance of all four companies was better than the Malaysian average with FGVH exceeding it by 0–3 per cent over the period. The performance of IOI and KLK exceeded the average by 5–9 per cent with that of SDP marginally better, ranging at 7–8 per cent. On yield per mature area, all four PLCs performed better than the Malaysian average in 2010, with the outperformance of FGVH and SDP at 10–22 per cent, and that of KLK and IOI at 23–35 per cent. The outperformance in 2011 was less marked, at 1–9 per cent for FGVH and SDP, and that for KLK and IOI at 13–20 per cent.


The disparity in the performance of Malay- versus Chinese-managed companies widened between 2010 and 2021–2022. During the pandemic, FGVH underperformed the Malaysian average by 6–7 per cent. Conversely, SDP’s outperformance of 7–20 per cent was significantly below that of IOI and KLK, which ranged between 25 and 38 per cent. The giant Malay-managed plantation PLCs are not performing as well as the Chinese-managed ones on yield. Even a business that enjoys increasing return to scale (which is not the case with agriculture) can become too big to manage if it expands beyond a certain size, as is no doubt the case with FGVH and SDP. Further yields will be affected if replanting is slow. This is more likely to be the case with FGVH/Felda Group. Under its model, cash-constrained smallholders still play a significant role as co-owners. This is less so with the other major plantation groups. And FGVH/Felda Group, operating only in Malaysia, has also faced a more acute labour shortage.

Table 2: Performance of top PLCs as a ratio of the Malaysian average

Sources: Ratios for 2010, 2021, and 2022 were calculated from unpublished data provided by Ching Weng Jin, Equity Research House Head, Public Investment Bank. Those for 2011 are based on data in FGVH (2012).
Note: The variation in average price between plantation houses is due to differences in the share of output that is hedged and produced in Indonesia which, unlike Malaysia, imposes a restriction on exports from time to time. 


Malay entry into banking via licensing and takeover, 1957–1998

Banking is another industry where, by the mid-1980s, Malays emerged as the dominant local players—from almost non-existence at independence. In 1957, the same major local banks were operating in Malaysia and Singapore, and these were almost wholly owned and operated by Chinese. Today, these same banks continue to play a key role in Singapore, but not in Malaysia. The size of five of these Malay-managed or state-controlled banks—BBMB, Maybank, UMBC, Bank Utama, and Sabah Bank—as a share of the total assets of the 22 local banks, was estimated at 61.1 per cent as at end-September 1983, and 57.1 per cent as at end-September 1988.6  This overwhelming market share was due to the massive difference in size of three of the Malay-managed banks versus the rest. This great size disparity is readily apparent from the distribution by asset size of banks, and of the 22 banks, eight started operations before independence and tended to have lower asset sizes in 1983 than those established post-independence (Table 3).

Table 3: Local Malaysian banks by start of operations and asset size, end-September 1983 and 1988
Sources: BNM (1984 and 1989).


Until the NEP’s launch, a bank licence was issued to any qualified party, without consideration of race or nationality. The priority was to ensure that the country’s financial system supported its economic development. The only Malay-managed bank to be issued a licence before the NEP was BBMB, in 1965.7 From 1971, the licensing and takeover of banks were regulated much more tightly with greater priority accorded to Malay entry—no new banking licences were issued to a non-Malay group. Only two Chinese groups, apart from the Multi-Purpose Group, were allowed to take over an existing bank, both previously Chinese controlled: Hong Leong Bank (HLB) and Phileo Allied Bank.

Performance of the banking sector

The aggressive promotion of Malay entry into banking was characterized by massive failures until the late 1990s due to management weaknesses, inadequacies in regulatory oversight, and the AFC. Banks such as BBMB were allowed to grow at breakneck pace, which eventually harmed borrowers and banks, especially those with asset–liability mismatches. With the significant improvement in Malay-managed banks’ performance in the new millennium and taking account of global trends, the central bank has become less restrictive on entry, as is apparent from its licensing of Islamic and digital banks.

During the colonial period, the founding of the first and only Malay-owned bank in 1947, Malay National Banking Corporation, occurred about 100 years after the founding of the first Western-owned bank, the Oriental Bank (in 1846), and about 50 years after the founding of the first Chinese-owned bank, the Kwong Yik Banking Corporation (in 1903), which ceased operations in 1952 (Lim, 1967, p. 233). Now most local banks are government owned and/or Malay managed. No failed government or Malay banks have been taken over by non-Malays. Conversely, almost all failed non-Malay banks (unable to restructure and recapitalize as required by the central bank) have not remained in non-Malay hands, starting with Maybank, now the largest bank, and this was so even with UMBC.

Rationalization and consolidation that continued into the new millennium have also reduced Malaysia’s 58 domestic banking institutions—21 commercial banks, 25 finance companies, and 12 merchant banks—into six ‘Core Banking Groups (later in response to protests, changed to ten Core Banking Groups)’ (Choi, 2014, p. 112). And the well-run smaller banks, which are mostly Chinese owned or managed, had to submit themselves to enforced takeover by the bigger banks. These takeovers were not well received—even when the bigger banks making the acquisition were Chinese owned or managed—on the grounds that any consolidation exercise should be market driven and that a market-driven approach may provide a continued role for niche banks.

Malaysia’s banking industry has been affected by two severe banking crises, one in the mid-1980s and one in the late 1990s (the AFC). Singapore was also exposed to economic crises in those years, but the Singapore banks faced a serious banking problem only during the AFC, but even then no banks had to be taken over by the government, either because they were better regulated—the extent of mismanagement was a lot less than in Malaysia as no affirmative action programme was in place to impose a constraint on hiring—or the banks were better capitalized. The size of the non-performing loans in Malaysia, including loans sold to Cagamas (a national mortgage company) and Danaharta (a national asset management company), reached 25.6 per cent of the banking system’s gross loans in 2000 (IMF, 2001, p. 73). Singapore’s non-performing loans in the same period reached a high of only 8 per cent in 2001.

Since the onset of the AFC in 1997 and the resulting restructuring and recapitalization of the failed banks, almost all Malay owned or managed, there have been no bank failures, and the country’s banking industry is robust. There are also plenty of qualified Malays to fill senior positions, and the quality of board membership has improved substantially with the central bank’s mandated banking and governance programmes that directors must undergo. Improvements in bank regulation, with the central bank sharing the monitoring and surveillance responsibility with PIDM (Malaysia Deposit Insurance Corporation), have also been credited with the marked change in banks’ financial position and performance. It is around 25 years since the last banking crisis. But given that banking is a highly leveraged and high-risk business, vigilance is necessary, especially with the unexpected failure of many global banks during the global financial crisis.

After the mandated bank consolidation exercise of 1999, and two market-based mergers thereafter, among the main players, there are now only three Chinese-managed banks—PB, HLB, and Alliance Bank—and four Malay-managed banks—Maybank, CIMB Bank, RHB Bank, and Affin Bank. AmBank, another major bank with ANZ Bank and Azman Hashim as its two substantial shareholders, has had a Malay and a non-Malay as the chief executive officer at different times.

Return on equity (ROE) was higher for all key banking PLCs in 2010 than the average in the 2021–2022 pandemic years (Table 4). In 2010, Chinese-managed PB was a distinct outperformer with an ROE of 27.1 per cent and HLB, another Chinese-managed bank, performed marginally better than the Malay-managed Maybank, CIMB Bank, and RHB Bank, with the ROE in the range of 15–16.4 per cent. The laggards in 2010 were Alliance Bank and Affin Bank, with an ROE of 11.4 per cent and 9.4 per cent respectively. During the pandemic years, Affin Bank was the worst performer with an ROE of only 5.4 per cent in 2021 but it was the best performer in 2022 among the Malay-managed banks with an ROE of 12.6 per cent. The ROE of the Chinese-managed banks over the two years ranged from 9.9 to 12.8 per cent whereas that of the Malay-managed banks (apart from Affin Bank) ranged from 8.1 per cent to 10.2 per cent. These ROEs and those for the other key banking PLCs show that the performance gaps between Chinese- and Malay-managed banks are not therefore dichotomous.

Table 4: Performance indicators of key banking PLCs 
Source: The ratios for 2010, 2021 and 2022 were calculated from unpublished data provided by Ching Weng Jin, Equity Research House Head, Public Investment Bank Bhd.
Note: a Malay managed. b Chinese managed. na = not available.


Concluding remarks

Malay entry into business as managers, or owner-managers, started soon after independence and was greatly boosted after NEP implementation with the help of restrictive licensing practices and an array of government support schemes and subsidies. Until 1986, entry was primarily as a manager of an SOE, organized as a departmental enterprise, a statutory body, or as a company, and only to a limited extent as an owner-manager. Although many were effective in building and operating facilities to provide key intermediate inputs, few succeeded in growing and sustaining large-scale businesses.

Two key sectors into which Malay entry was actively promoted were plantations and banking. By 1985, more than 50 per cent of plantations operating as, or along the lines of, an estate were Malay managed. Of the local banks, the market share of the five Malay-managed banks by size of assets was well over 50 per cent.

Malays managers played a key role as developers of rubber and oil palm schemes to resettle rural households with uneconomic farm holdings, as well as by developing and operating irrigation schemes to enable double-cropping by padi growers. They were better placed to manage plantations because the industry is a price taker in world markets, and marketing was less of a challenge. Given over-dependence on labour and rising wages, the government assisted the plantation sector to manage costs by allowing relatively free entry of lower-wage foreign workers. The continued levy of a research cess to develop better clones and agronomic practices enabled the industry to remain competitive through productivity growth and disease resistance.

Malay entry into banking as managers started before the NEP, first with the setting up of BBMB in 1965, and soon after with the takeover of the then Chinese-controlled Maybank. The rise of Malays as the dominant players was marked by failures and successes. Weak and fraudulent management accounted for the massive failure of BBMB, which had been allowed to grow too quickly. Its operations began only in 1966 but by 1981 it had already overtaken Bangkok Bank as Southeast Asia’s biggest bank. Despite banking being a high-risk business, however, post-AFC, there have been no bank failures, with most now run by Malays.

The initial attempt to create a class of Malay managers in manufacturing and trading was, with few exceptions, such as Sapura Holdings, generally a failure. This was partly because the Malay managers who were chosen to run these enterprises lacked the required know-how to compete in activities that were also open to international competition.

A key factor in the later successful Malay entry into business was the growing pool of better trained and more capable talent. The government invested heavily in human capital, channelling the more able Malay students into well-staffed and well-equipped residential schools and subsequently sponsoring their admission to top-flight international universities. As second- and third-tier Malay students were also fully sponsored for studies locally or abroad, there was an increasing pool of eligible graduates to choose from, to correct mistakes made in initial streaming. Developing the right managerial and entrepreneurial skills in this way will continue to remain a challenge in an increasingly competitive and evolving world.


Further reading:
Bank Negara Malaysia [BNM], 1979, 1984, and 1989, Money and Banking in Malaysia. Kuala Lumpur: BNM.
Berle, A. and G. C. Means. 1932. The Modern Corporation and Private Property. New York: Harcourt, Brace and World, Inc.
Choi, S. H. 2014. I Remember, A Memoir. Singapore: Partridge Publishing.
Felda Global Ventures Holdings. [FGVH] 2012. Prospectus. Kuala Lumpur: FELDA.
Gomez, E. T. 1990. Politics in Business: UMNO’s Corporate Investments. Kuala Lumpur: Forum.
Gomez, E. T. and Jomo K. S. 1997, Malaysia’s political economy, Politics, patronage and profits, Cambridge: Cambridge University Press.
Hassan, B. W. 2012. Ownership and Control of Public Listed Companies in Malaysia: The Impact of the New Economic Policy. MSc Dissertation. University of Malaya.
International Monetary Fund [IMF], 2001. Malaysia: From Crisis to Recovery. Washington, DC: IMF.
Jesudason, J. V. 1989. Ethnicity and the Economy, The State, Chinese Business and Multinationals in Malaysia. Singapore: Oxford University Press.
Jomo, K. S. and Wee, C. H. 2004. Affirmative action and exclusion in Malaysia: ethnic and regional inequalities in a multicultural society. Background paper for the Human Development Report 2004.
La Porta, R., de Silanes, F.L., Shleifer, A., and Vishny, R. 1998. Law and Finance. Journal of Political Economy, 106(6), 1113–1155.
Lim, C. Y. 1967. Economic Development of Modern Malaya. Kuala Lumpur: Oxford University Press.
Lim, G. T. 2004. My Story. Subang Jaya: Pelanduk Publications.
Low, K. Y. 1985. The Political Economy of Corporate Restructuring in Malaysia A Study of State Policies with reference to Multinational Corporations. MSc Thesis. University of Malaya.
Permodalan Nasional Berhad. 2017. Annual Report. Kuala Lumpur: PNB
Perkins, D. H. and Woo, W. T. 1998. ‘Malaysia in Turmoil: Growth Prospects and Future Competitiveness’. University of California at Davis. https://faculty.econ.ucdavis.edu/faculty/woo/davosmal.html
Rajasingam, M. 2020. Navigating Turbulent Times. Petaling Jaya: Strategic Information and Research Development Centre.
Searle, P. 1999. The Riddle of Malaysian Capitalism, Rent-seekers of Real Capitalists? Honolulu: University of Hawaii Press. 

Shakila Yacob, and White, N. J. 2010. ‘The “Unfinished Business” of Malaysia’s Decolonisation: The Origins of the Guthrie “Dawn Raid’’’, Modern Asian Studies, pp. 1–42.
Sieh Lee, M. L. (1982). Ownership and Control of Malaysian Manufacturing Corporations, Kuala Lumpur: University of Malaya Cooperative Bookshop Publications.
Tan, T. W. 1982. Income Distribution and Income Determination in West Malaysia. Kuala Lumpur: Oxford University Press.
Tate, M. 1989. Power Builds the Nation, Vol I: The Formative Years. Kuala Lumpur: Tenaga Nasional Berhad.
______ 1990. Power Builds the Nation, Vol II: Transition and Fulfilment. Kuala Lumpur: Tenanga Nasional Berhad.
Thillainathan, R. 1976. An Analysis of the Effects of Policies for the Redistribution of Income and Wealth in West Malaysia, 1957-1975. PhD Thesis. The London School of Economics.
______ 2021. Privatisation of toll roads to promote Malay entry into business: A critical review of distribution stance, returns, risk and Governance. Malaysian Journal of Economic Studies, 58 (1), pp. 145–174.
Thillainathan, R. and Cheong, K. C. 2024 (forthcoming). Malay Entry into Business and Scaling the Heights of Corporate Malaysia in the post-1985 period - An Assessment.
Wain, B. 2012. Malaysian Maverick: Mahathir Mohamad in Turbulent Times. 2nd Edition. Palgrave Macmillan.
Young, K., W. C. F. Bussink, and Hassan P. 1980. Malaysia: Growth and Equity in a Multi-Racial Society. Baltimore: John Hopkins Press.



My deep gratitude to P. Balasundram, Manu Bhaskaran, Ching Weng Jin, Terence Gomez, Lee Kiong Hock, Shyamalah Nagaraj, Wan Moh Firdaus Wan Mohd Fuaad, Yong Chee Kong, and John Zinkin for their helpful observations. The views expressed are mine alone and do not necessarily reflect the views of the institutions to which I am associated with.
2 Malay entry into business post-1985, with the dawn of the corporatization and privatization era, is covered in Thillainathan and Cheong (2024).
3 Wain (2012, p. 118), however, states that the shares were held by individuals who had no written arrangements with UMNO, and ‘the company was not part of the party’s investments’. UMNO’s direct majority stake in Utusan Melayu was disclosed in 1994 when the company was publicly listed.
4 There were questionable transactions between SOEs, UMNO ‘controlled’ companies, and companies that were connected to parties who were entrusted with the responsibility to exercise oversight over the former (Gomez, 1990; Searle, 1999; Wain, 2012).
5 Sabah Foundation, as owner of 3,500 square miles of the best timber land in the state, used the proceeds from timber extraction to award scholarships to needy students and raise the living standards of members of its indigenous community.
6 The 1983 estimate is approximate because the controlling interest in UMBC was acquired by Daim Zainuddin from Multi-Purpose Holdings only in 1985.
7 Access to credit may also have been a key consideration, as a priority lending requirement to Malays and other Bumiputera was imposed on all banks only from the early 1970s (BNM, 1979).


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