Speech by Parliamentary Opposition Leader, DAP Secretary-General and MP for Kota Melaka, Lim Kit Siang, at the Dewan Rakyat on Thursday, 24th Oct. 1985 on the Finance Companies Amendment Bill 1985
DAP calls on Finance Minister, Daim Zainuddin, to announce in tomorrow’s Budget Speech the establishment of a $50 million Salvage Fund to help and save the depositors of Setia Timur Credit & Leasing (M) Sdn. Bhd.
Yesterday, during the debate on the amendments to the Banking Act, the DAP Chairman and MP for Seremban, Dr. Chen Man Hin and I spoke about the Setia Timur crisis, where around 13,000 to 15,000 depositors who had deposited some $40 to $50 million in Setia Timur Credit & Leasing (M) Sdn. Bhd., are unable to get their monies back.
The Setia Timur Credit & Leasing (M) Sdn. Bhd., which had more than 32 branches in Wilayah Persekutuan, Selangor, Pahang, as well as in Negri Sembilan and Perak, had operated as an unlicensed finance company, attracting deposits with 24 per cent per annum, or two per cent interest per month.
Most of the depositors are small-timers, such as house-wives, hawkers, workers, taxi-drivers, although there are also businessmen. The crisis occurred when there was a run on Setia Timur because of its inability to meet payments.
The Finance Ministry and the Bank Negara had come into the picture for three weeks, but nothing concrete had come out of it, with the depositors getting no assurance that their monies are protected, except that the Bank Negara and the Police are co-operating I investigations.
This is not good enough. In actual fact, studying the Finance Companies Act 1969, it is clear that the Ministry of Finance and Bank Negara, when drafting the principal Act, had through an ‘oversight’ failed to make provisions to safeguard the interests of people in the shoes of the depositors of Setia Timur Credit Leasing (M) Sdn. Bhd.
Section 29 of the Finance Companies Act 1969 gave the Bank Negara the powers, where it has reason to suspect that any person is carrying out finance business in the Federation, to inspect under conditions of secrecy the books, accounts and transactions of the person for the purpose of ascertaining whether he had contravened the offence of Section 3 of unlawfully carrying out a finance business.
Section 3(2) provides that any person who contravenes the Act in carrying out an unlicensed finance business shall be guilty of an offence liable to a fine not exceeding $5,000 or three years’ jail or both.
But the Act is silent on what action the Bank Negara could take to protect the depositors of an unlicensed finance company or business.
In the case of a licensed company, where the Bank Negara is of the opinion that it is “likely to become unable to meet its obligations or is about to suspend payment” of “is carrying on its business in a manner detrimental to the interest of its depositors”, the Bank Negara, under Section 33, can do the following:
- require the licensed finance company to take such steps as the Bank Negara considers necessary or expedient;
- appoint a person to advise the company in the proper conduct of business;
- assume control of and carry on the business of the company; and
- wind up the company by way of petition to Court.
But these powers of the Bank Negara are exercisable, if I am not mistaken, only over licensed Finance Companies but not unlicensed Finance Companies. If this is so, then this is a major loophole for which the Finance Ministry and Bank Negara must take full responsibility.
When a unlicensed finance company like Setia Timur Credit & Leasing (M) Sdn Bhd operates for some three years, taking deposits of $40 million to $50 million in more than 32 branches throughout the country from 13,000 to 15,000 depositors, public interest require the protection of the interest of the depositors – who will invariably be the small-timers – rather than the securing of conviction, which entails $5,000 fine – which is chickenfeed!
Surely, the Bank Negara and Finance Ministry could not have been blind to the operations of Setia Timur Credit & Leasing (M) Sdn. Bhd. which had openly advertised for depositors with the offer of 24 per cent interest per annum, or the Bank Negara and Finance Ministry officials would be guilty of gross incompetence and irresponsibility.
This is why I say the Bank Negara and Finance Ministry must come forward to help and save the life-savings of many small-time depositors.
The Setia Timur Credit & Leasing (M) Sdn. Bhd.’s managing director, Datuk Cheng Chong Siew, had suggested the formation of a holding company converting all depositors into shareholders, and converting all their deposits into shares for the company.
I do not want to comment on the feasibility of this shareholding proposal, but whatever the salvage plan, the Bank Negara must come in as a public custodian of the interests of the depositors, and assume governmental responsibility for any Salvage Plan.
I am not so much interested in Section 3 of the Finance Companies Act about the offence of operating an unlicensed finance company. What I am concerned is what the Bank Negara can do to save the life-time earnings of the depositors in Setia Timur Credit & Leasing Co., as well as other Credit & Leasing Companies whose depositors may be faced with the same plight.
If Bank Negara and Finance Ministry had provide for greater safeguards to protect the interests of depositors of unlicensed finance companies, and not just think about convicting them of an offence, then the Setia Timur crisis would not be so big. It is for this reason that I seriously call on the Government to set up a $50 million Salvage Fund to help and save the depositors of the Setia Timur company as well as other Credit and Leasing Companies in the same plight, and I hope that in views of the urgency, the Finance Minister, Daim Zainuddin, could announce in his Budget speech tomorrow the good news of establishment of such a Fund. $50 million is a small sum, and more justifiably allocated, then the $2.5 billion of public funds lost in the BMF loans scandal in Hong Kong.