ASEAN+3 Workshop on Reform and Development of Banking Sector in China 1 Role and Development of DANAHARTA Ahmad Zuhairi Mohd Amin Bank Negara Malaysia 24 May 2005

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 2 Agenda 1.Background and Overview 2.Approach 3.Progress 4.Going Forward

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 3 Background and Overview Pengurusan Danaharta Nasional Berhad ("Danaharta") was established by the Malaysian Government in June 1998 to address the non- performing loans ("NPLs") problem plaguing the banking system during the Asian financial crisis. The NPL resolution agency, euphemistically known as the national asset management company ("AMC"), was established as a pre- emptive measure to avert a failure in the banking system. Danaharta's objectives are: –to remove NPLs from the banking system to allow banks to concentrate on their core business of lending to viable borrowers (completed in March 2001) –to maximise recovery from its NPL portfolio (ongoing till 2005)

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 4 Background and Overview (continued) Danaharta started removing NPLs from the financial system in September 1998 and completed the task in March This was done via two modes: Acquired NPLs Danaharta acquired NPLs from almost 70 financial institutions ("FIs") nationwide Total fair purchase price of NPLs: RM8.94 billion Payment: Via issuance of zero-coupon Danaharta bonds and cash Managed NPLs Danaharta was assigned the NPLs of the now defunct Sime Bank Berhad Group ("Sime Bank Group") and Bank Bumiputra Malaysia Berhad ("BBMB Group") to manage on the Government’s behalf. Total price paid by Danaharta: Nil

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 5 Agenda 1.Background and Overview 2.Approach 3.Progress 4.Going Forward

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 6 Remove NPLs from banking system Maximise recovery value of NPLs Asset management approach Viable loans Restructuring Rehabilitation Management of borrower Management of collateral Non viable loans Approach

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 7 Approach (continued) In dealing with the NPLs, Danaharta adopts the true AMC approach that is to actively manage each loan account to attain maximum recovery. Every NPL account is reviewed to determine the most appropriate recovery strategy. With the implementation of the recovery strategies, recoveries are then received in the form of cash and non-cash assets i.e. securities, properties and restructured loans. Ultimately, all non-cash recovery assets will be converted into cash, part of which would be distributed to the FIs that had sold NPLs to Danaharta (as required by the surplus sharing arrangements agreed upon during NPL acquisition) and to the Government (in respect of the Managed NPLs).

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 8 Agenda 1.Background and Overview 2.Approach 3.Progress 4.Going Forward

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 9 “More than 90% of total lifetime recovery target collected” Danaharta expects to collect about RM30 billion over its lifetime. As at the end of 2004, Danaharta had already collected more than 90% of the total lifetime recovery target of approximately RM30 billion, which is equivalent to a recovery rate of 59% – comprising 50% for acquired NPLs and 65% for managed NPLs. By 31 December 2004, it had received recovery amounting to RM29.03 billion, of which 81% had been converted into cash. Danaharta had a total cash and cash equivalents of RM0.96 billion as at 31 December Danaharta had also redeemed RM billion of the RM11.14 billion bonds it issued.

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 10 Agenda 1.Background and Overview 2.Approach 3.Progress 4.Going Forward

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 11 Going forward… Danaharta is targeting to wind down its operations by end Nevertheless, Danaharta's efforts will continue to strive to achieve maximum recovery from its NPLs. Going forward, Danaharta will focus on collecting recovery, converting non-cash recovery assets into cash and redeeming the final tranches of bonds amounting to RM0.795 billion matured on 31 March Being a national AMC, Danaharta is likely to record a loss at its close, which will be a cost to be borne by the Government. However, this cost is small compared to the greater losses Malaysia would have suffered economically and socially had the banking system in the country collapsed. Nonetheless, Danaharta strives to minimise its eventual cost through maximizing the NPL recovery value.

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 12 For more information… Please visit the following website; Bank Negara Malaysia (Central Bank of Malaysia) Pengurusan Danaharta Nasional Berhad

ASEAN+3 Workshop on Reform and Development of Banking Sector in China 13 Thank you