Frankly Speaking: Nov 8-Dec 6, 2010

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Wake up to the graft issueThe latest global report on corruption, the Transparency International Corruption Perceptions Index, places Malaysia in 56th position out of 178 countries surveyed. The ranking is based on a score of 4.4 points on a scale of 0 to 10, with the higher number indicating less corruption. Essentially, there has been no change compared with last year.
It may be tempting to see the finding as a positive sign that the country has managed to stop the downward slide in the index over several years. Considering that just five years ago, Malaysia was at 39th spot among 163 countries, the drop in ranking should be a wake-up call for the nation.
However, considering that corruption has been targeted as one of the National Key Result Areas for reform, along with reducing crime, improving public transport, improving the lives of the poor and enhancing the quality of education, it is in fact disappointing that there has been no improvement despite the additional attention that has been focused on the problem.
Furthermore, much has been made of empowering the former Anti-Corruption Agency by reconstituting it as the Malaysian Anti-Corruption Commission. The time is rapidly passing for it to bring about a sea change in the national integrity stakes.
It bears reiterating that perceptions of endemic corruption, both at the petty level and higher up, will seriously erode confidence in the country’s attractiveness as a business destination.
It is highly disappointing that some quarters are still in denial about the seriousness of the problem and choose to carp about the methodology of the survey and insinuate a bias against developing countries and the region.
Such posturing is only self-defeating. The cure will be harder to administer the longer it is delayed.

LTV cap alone is not enoughBank Negara Malaysia’s announcement of a 70% ceiling on the loan-to-value ratio for property financing last week came as no surprise. This move has been on the cards for a couple of months now.
But it is not a blanket cap, as was widely expected. The ceiling is applicable only to loans given out to a borrower for the purchase of a third house and beyond. This is to ensure that genuine house buyers are not affected.
So, compared with Singapore and China, Bank Negara’s LTV ratio cap is “mild”. Perhaps it’s because property prices in Malaysia have not escalated by the same quantum as those in those countries.
Even then, prices of residential properties in the country’s hot spots have risen significantly, and are still rising, making urban housing increasingly unaffordable for the general population.
However, while the cap on the LTV ratio is a step in the right direction to prevent a build-up in asset bubbles, policymakers must be cognisant of the fact that banks, developers and borrowers can still get around the restriction.
As an industry observer points out, developers can raise prices, then give rebates; or a buyer of multiple units can make use of other people to take the loans. Banks can come up with innovative financing schemes to meet loan growth targets.
It must be remembered that when there is so much cheap liquidity sloshing around, speculation is inevitable.
Perhaps, to ensure that the LTV ratio ceiling is truly effective, it must be accompanied by closer monitoring of all the parties concerned, from the developer to the borrowers and banks. To make that happen, the relevant government agencies need to work closely together.

Satang’s on-off audit committeeLast Monday, Satang Holdings Bhd dissolved its audit committee because its “only member of the committee with Malaysian Institute of Accountants (MIA) qualification had decided to resign”. When questioned by Bursa Malaysia, Satang said it would reconstitute the committee with new members in the near future.
However, following a stern warning from Bursa, which said the rationale for dissolving the audit committee was “unacceptable”, Satang immediately reconstituted the committee on Wednesday. Then last Thursday, Satang informed Bursa that Ernst & Young (E&Y) had not commenced an investigation involving its managing director Malim Mohamed due to a lack of funds. E&Y was supposed to conduct the said investigation on Oct 18.
To recap, the board had engaged E&Y on Sept 1 to investigate alleged irregularities in the company. Interestingly, the investigation was called for by the board based on a report presented by the audit committee.
Oddly, while it can’t afford E&Y’s services, Satang’s board had in the meantime requested a written quotation from “another reputable firm of accountants” to undertake the investigation “in order to minimise costs”.
The two seemingly separate incidents reflect the confusing state of affairs within Satang — namely, the said investigation and the relationship between its board, managing director and audit committee.
And one of the most pressing questions arising from this recent to and fro between Satang and the exchange is: Why did the board dissolve the audit committee while an investigation was supposed to be carried out on irregularities in the company brought up by the very same committee in the first place?

This article appeared in Corporate page of The Edge Malaysia, Issue 831, Nov 8-14, 2010