Banks Seek to Comply with Y2K Amid Financial Upheaval

Posted on November 6, 1998 
Filed Under AsiaBizTech, Julian

By Julian Matthews

November 6, 1998 (KUALA LUMPUR) — Malaysia is confident that its finance, banking and insurance companies will be Year 2000-compliant by Dec. 31, 1998, a full year before the Y2K computer software problem must be resolved.

But even as financial institutions strive to meet the government-imposed deadline, experts are concerned that it may be too late for their corporate customers.

A Securities Commission report indicated that only 93 companies or 12.7 percent of 734 companies listed on the Kuala Lumpur Stock Exchange were Y2K compliant as of Sept. 24. The official national registry of Y2K-compliant companies, which was set up in May on the Internet at www.y2k.gov.my, has yet to register a single company.

The government recently admitted that it may have underestimated the complexity of the Y2K problem.

Energy, telecommunications and posts minister Leo Moggie, who also heads the National Y2K Steering Committee, said the initial allocation of 30 million ringgit for the Malaysian Administrative and Management Planning Unit (Mampu) to tackle the Y2K bug for the public sector was “insufficient.”

Even a new allocation of 100 million ringgit (US$26.3 million) announced in the 1999 National Budget in October was said to be inadequate by computer vendors.

Alan Fung, executive director of the Association of the Computer Industry Malaysia, said the allocation was “far too small” to address the problem faced by the numerous ministries, departments and agencies.

On the banking front, most financial institutions have indicated that they are moving toward completion of their individual company-wide Y2K projects.

A recent survey conducted by Merrill Lynch & Co., Inc. to gauge Y2K readiness of banks in the Asia-Pacific region concludes that banks were generally well-prepared despite the economic slowdown.

Six major banks in Malaysia, it stated, are spending US$67.3 million to tackle the problem, and they will be compliant as early as December 1998 and as late as June 1999.

But the survey failed to acknowledge that Malaysia’s banking industry is in a state of unusual flux. Banks and financial companies in the country are either restructuring, merging or being absorbed by parent companies and some have very high levels of debt.

Also, the country is facing its first recession in a decade, and the financial crisis has spilled over into the political arena.

Last month, Prime Minister Mahathir Mohamad fired his finance minister Anwar Ibrahim, who was also deputy premier, and accepted resignations of the governor and deputy governor of the central bank, Bank Negara.

Mahathir also assumed the role of First Finance Minister and has instituted a series of drastic financial measures that have stunned the industry.

He has cut interest rates, set a fixed exchange rate of 3.80 ringgit per dollar, rendered the ringgit non-convertible abroad, and imposed curbs on short-term capital flows.

In the light of these and other developments, it is doubtful that the Year 2000 problem is a high-priority item among bank managers caught up in the financial and political upheaval. They must deal with regulatory changes on almost a daily basis.

Mergers also make it difficult to implement corporate Y2K strategies. For customers, the possibility of glitches causing chaos in the banking system in 2000 is a frightening and real possibility. Y2K consultants and solution providers predict that serious problems may arise.

“Although it is unlikely that the banking system will grind to a halt in Malaysia, service is expected to be far from perfect with delays in clearing checks and transferring money internationally,” an expert said.

Consultant Kenny Tay of Finet Associates Sdn Bhd said banks and financial institutions must consider the credit risk posed by borrowers who still think that the Y2K problem is a technical issue and not a business issue.

He urged banks and financial institutions to encourage borrowers to resolve the problem to minimize the potential threat to their own loan portfolios.

Although awareness is picking up, smaller companies still do not see the date roll-over problem as critical to their businesses.

“These companies are still waiting for the traditional silver bullet, something they can download free from the Internet, but this will not happen,” said Billy Chia, managing director of Y2K solutions provider Future Connections Sdn Bhd.

Chia, whose company sells the Australian-made Uniwell Millennium Bug Toolkit, estimates that 80 percent of Malaysia’s small and midsize companies running older generation PCs, up to speeds of 100Mhz, are affected and may need software fixes.

The economic crunch make matters worse for companies already struggling to keep their businesses afloat.

“Most companies have not budgeted for Y2K solutions and are reluctant to acknowledge that the expense is unavoidable, and the deadline is non-negotiable,” he said.

Published in Asia BizTech, Nov 06, 1998

by Julian Matthews, Asia BizTech Correspondent

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