- conservatism is a sound principle

As recent as only two years ago, when someone described a bank as being ‘conservative’, one would conjure a negative impression of the particular bank. It implies that the bank is backward, conventional, not innovative etc. Banks were proud of being thought of as ‘aggressive’, which implies that they are forward looking, bold, innovative and unconventional etc. But, how quickly the pendulum has swung since the US subprime loan woes which brought about the present global financial crisis. This can be seen from the World Economic Forum Global Competitiveness Report 2008-2009 which gives ranking of the world’s bank systems in terms of their soundness as below:

Rankings

Top 20	Bottom
Canada	124. Kazakhtan
Sweden	125. Cambodia
Luxembourg	126. Burundi
Australia	127. Chad
Denmark	128. Ethiopia
Netherlands	129. Argentina
Belgium	130. East Timor
New Zealand	131. Kyrgyz Republic
Ireland	132. Lesotho
Malta	133. Libya
Hong Kong	134. Algeria
Finland
Singapore
Norway
South Africa
Switzerland
Namibia
Chile
France
Spain

The survey shows that Canada has the world’s soundest banking system followed closely by Sweden, Luxembourg and Australia. It is a well known fact that for decades banks in these countries have very stringent lending criteria and conservative investment policies. Conversely, banks which are bold and aggressive now found themselves in big trouble with many of them need to be bailed out by their governments. For example, Britain, which once ranked in the top five, has slipped to 44th place behind El Salvador and Peru. And the United States, where some of Wall Street’s biggest financial names have collapsed in recent weeks, rated only 40, just behind Germany at 39, and smaller states such as Barbados, Estonia and even Namibia, in South Africa.

Conservatism has its merits. Perhaps arising from this financial crisis, a new breed of Wall Street financial wizards will, embrace what today’s ‘enlightened’ accountant is practicing, i.e. principles are sounder than rules.

- congratulations

I learned of the September 2008 Malaysian Institute of Accountants Qualifying Examination (MIA-QE) results recently. I would like to take this opportunity to congratulate the candidates whom I know personally have passed the Advanced Financial Accounting and Reporting (AFAR) paper. They are Tan Few Lan, Normala Shamsudin, Chan Yat Sen, Visvanathan, Serene Koh Wee San, Shuhaily binti Ahmad, William Lo and Yeong Lai Mei. I know they have put in tremendous amount of efforts and sacrifices into their preparations. You truly deserve your achievement and you are well on your way to becoming a Chartered Accountant. And for those who did not make it, I offer my sincere commiseration. Better luck next time. A special thank to Anna Teh for her kind cooperation and selflessness in assisting her fellow candidates, including offering her house to them for group projects.

- Malaysian Banks are more resilient against financial crisis

Presently, there are a total of 22 commercial banks, comprising of 9 domestic banks and 13 locally incorporated foreign banks operating in Malaysia. Commercial banks constitute the largest and most important group of all financial institutions in Malaysia with total assets of approximately RM1,231 billion as at 30 June 2008. So, how are Malaysian banks affected by the financial crisis now ravaging the banking industries of the US and Europe?

Relatively unscathed actually. Our banking sector remains resilient, well capitalized with low loan to asset ratios in mortgage financing. Here some interesting statistics produced by ABM (Association of Banks in Malaysia):

• banks in Malaysia are mainly domestic focused with more than 90 per cent of total assets in Ringgit-denominated assets.
• most of the banks’ investments / assets are concentrated in the ASEAN region.
• credit extension is more diversified today between business and household loans with no heavy exposure to any single segment.
• there has been an improvement in banks’ assets quality, that being the 3-month Non-Performing Loan ratio to 2.5 per cent in August 2008 versus a high of 11.5 per cent in 2001.
• industry capitalization is also strong with risk-weighted capital ratio at 13.2 per cent in August 2008, exceeding the 8 per cent minimum requirement.
• industry loan loss coverage is at a comfortable 95.2 per cent.

We do not have a liquidity crunch. Liquidity level in our banking system is healthy as backed by the following data generated by ABM:

• loan to deposit ratio stood at 74.5 per cent as at end August 2008, as compared to the high 90 per cent seen in the1997-98 financial meltdown.
• stable and low 3-month domestic inter-bank rates, and relatively narrow spreads against the 3-month Malaysian Government Securities (MGS) yields are indicative of the robustness of our banking system.
• Malaysia has a savings rate of 37 per cent which is high by international standards.
• Bank Negara Malaysia’s strong external reserves of US$119 billion in mid September 2008.

Malaysian banks are now more resilient against financial crisis. Thanks to years of continuous reforms, enhancements in corporate governance practices and risk management standards, and a stringent supervisory and surveillance system by Bank Negara Malaysia: http://www.bnm.gov.my/. Lessons well learned from the 1997-98 Asian financial crisis.

- women on top

I have just finished reading my November 2008 issue of ‘accountancy’ journal. It becomes quite obvious to me that there is a conspicuous shift of gender into the world of accountancy and finance. Increasingly women are occupying the very top echelon of the finance profession. I remember when I first embarked on my accountancy studies, female students made up perhaps not more than 30% of the total accounting student population. Today, girls are pursuing a professional qualification in accounting/finance in droves. And indications are that this trend will continue.

The November ’08 ‘accountancy’ journal runs a story on one such female finance professional. Her name is Stacey Cartwright, chief financial officer of global luxury brand Burberry. With her finance director father as a role model, she set her first very deliberate foot on the career ladder when she chose to study accounting and economics at the London School of Economics. Far from being hindered by the fact she was a woman, Cartwright believes that her gender has worked in her favour. “I think it makes you stand out from all the grey suits,’ she says.

Following is her brief CV:

• When born : 1963
• Where : West Midlands
• Qualifications : BSc (economics and accounting), LSE; ACA (ICAEW)
• Work : Various financial roles for Granada Group plc, chief financial officer,
• Egg plc, executive vice president and chief financial officer, Burberry plc.
• Life : Travel, eating out, cycling, tennis
• Most played artist on her iPod : Santana

- short term solution

Beginning 1 January 2009, the 5.5 million active contributors to the Employees Provident Fund (EPF) can opt for a voluntary 8% contribution instead of the current mandatory 11%. The reduction will be effective for two years. If all contributors choose to reduce their contributions, the 3% reduction would amount to RM4.8 billion.

It is estimated that a 35-year old with a monthly salary of RM3,000, would be able to take home an extra RM90 in his monthly pay packet. An employee earning RM5,000 per month, will take home an extra RM150. However, although it is only for a 2 year-period, an employee who opts for the reduction, actually loses out at the end, as computed by financial analysts.


Firstly, he will lose out on compound interest. Assuming that a 5% dividend is paid out annually by the EPF with the compound element over a period of 20 years until he turns 55, he will be RM5,500 poorer when he retires. And if his monthly income for the next two years is RM5,000, he would lose out on a total savings of RM9,200 in his EPF upon his retirement.

Secondly, with the reduction of EPF contribution, he will declare more income in his tax return that is taxable and may fall into a higher income tax bracket.

The above measure is supposed to help Malaysians tide the rise in prices of goods and services, brought about by the current global financial crisis. It is intended to stipulate our economy so that we would not be fallen into a recession. ‘The spill over effect of this is that financial markets and stocks can stabilize, so massive wealth destruction can be stopped’ says an economist!. But, newspapers published in recent weeks paint a different picture of the state of our economy. It was reported that our economy is still healthy, resilient and insulated against the possibility of a recession. Our banks are still lending. Price of crude oil has retreated to below USD65 in recent weeks.

The EPF has raised concerns about Malaysians not having enough savings to see them through 20 years past retirement, much less lead a comfortable life. In a study by the EPF last year, the average contributor has only RM106,000 in his savings while one would need a projected sum of about RM747,000 (taking inflation into consideration) if one were to live for 25 years after retirement. How many Malaysians have pension funds? So, is there really a need to reduce EPF contribution?

To the contrary, something needs to be done to cater for our growing aging population. Prices of essential goods and services keep on increasing by more than the inflation rate. We do not have a free health care system. Young people of today have different lifestyles and expectations. Already burdened with low incomes, it is difficult for them to look after themselves and their immediate families. It would be pressure and challenge for all; the wage earners, the government and society at large.

- new terminologies

A revised IAS 1- Presentation of Financial Statements was issued in September 2007. It changes much of the terminology used in IAS and IFRSes. Soon, we would be greeted with new terminology terms. Better get into the habit of referring the statements by their new terms. Some important terminology changes are:

Old Terminology	New Terminology
Balance Sheet	Statement of financial position
Income statement	Statement of comprehensive income
Cash flow statement	Statement of cash flow statement
Recognized in the income statement	Recognized in profit or loss
‘On the face of’	‘in’
‘Reporting date’	‘end of the reporting period’
‘Each balance sheet date’	‘the end of each reporting period’
‘Events after the balance sheet date’	‘Events after the reporting period’

- Sovereign Wealth Fund’s major cross-border equity investments

(2007-2008 1Q)

		Transaction Value
Sovereign Wealth Fund	Acquired Company	USD billion	% of firm value
GIC of Singapore	UBS	9.8	8.6
Abu Dhabi Investment Council	Citigroup	7.6	4.9
GIC of Singapore	Citigroup	6.9	4.4
Investment Corporation of Dubai	MGM Mirage	5.1	9.5
China Investment Company	Morgan Stanley	5.0	9.9
Temasek (Singapore)	Merril Lynch	5.0	11.3
Qatar Investment Authority	Sainsbury	3.7	25.0
KIA (Kuwait)	Merril Lynch	3.4	7.0
China Development Bank	Barclays	3.0	3.1
China Investment Company	Blackstone	3.0	10.0
Investment Corporation of Dubai	London Stock Exchange	3.0	28.0
Temasek (Singapore)	China Eastern Air	2.8	8.3
SAFE (China)	Total	2.8	1.6
SAFE (China)	British Petroleum	2.0	1.0
KIC (Korea)	Merril Lynch	2.0	4.3
Temasek (Singapore)	Barclays	2.0	1.8
Qatar Investment Authority	London Stock Exchange	2.0	2.0
Temasek (Singapore)	Standard Chartered	2.0	5.4
Undisclosed “Middle East Investor”	UBS	1.8	1.6
Abu Dhabi Investment Council	Carlyle Group	1.4	7.5
Investment Corporation of Dubai	Och-Ziff Capital Mgt	1.3	9.9
Investment Corporation of Dubai	Mauser Group	1.2	100.0
Investment Corporation of Dubai	Alliance Medical	1.2	100.0
GIC of Singapore	Myer Melbourne	1.0	100.0
China Citic Securities	Bear Stearns	1.0	6.0
Borse Dubai	Nasdaq	1.0	19.9
Investment Corporation of Dubai	Standard Chartered	1.0	2.7
Investment Corporation of Dubai	Almatis	1.0	100.0
GIC of Singapore	Merrill Lynch Fin Centre	1.0	100.0
Investment Corporation of Dubai	Barney’s New York	0.9	100.0
Investment Corporation of Dubai	EADS	0.8	3.1
GIC of Singapore	Hawks Town	0.8	100.0
Investment Corporation of Dubai	ICICI Bank Ltd	0.8	2.9
Temasek (Singapore)	Tokyo Westin	0.7	100.0
Mubadala Development Comp (UAE)	Advanced Micro Devices	0.6	8.0
GIC of Singapore	West Quay Shop Centre	0.6	50.0
Investment Corporation of Dubai	Sony	0.5	1.0
Qatar Investment Authority	OMX	0.5	10.0
GIC of Singapore	British Land	0.3	3.0
Investment Corporation of Dubai	Metropole Hotel	0.3	100.0
GIC of Singapore	Kungshuset	0.2	100.0
SAFE (China)	C’mon Bank of Australia	0.2	0.3
SAFE (China)	Australia & NZ Bank Group	0.2	0.3
SAFE (China)	National Australia Bank	0.2	0.3
GIC of Singapore	Roma Est Shop Centre	0.1	50.0
Temasek (Singapore)	9You Online Games	0.1	9.4
Total		91.8

Sources: Company websites and media reports