Case 2: Malaysian Banks | Launching Asean SME digital trade platform

In1985 global commodity prices dropped sharply and they continued to fall until 1986. Inflation fell to an all time low of 0.2% in 1987

Revenues declined and property values went down due to overbuilding and forced selling in 1986.
Stock exchange market cap dropped by more than M$37bn
Banks faced rising levels of NPLs and bad debts.
Financial institutions suffered large operating and capital losses and had to take large provisions

The Central Bank rescued 3 ailing banks in 1986 (United Asia Bank, Perwira Habib Bank and Sabah Bank) and 24 Deposit Taking Cooperatives

It required the ailing institutions to recognize all losses and tighten their reporting requirements and the existing shareholders to inject as much capital as possible

Of the total losses of M$1.2bn of the 3 banks, 13% were covered by existing shareholders, 56% by the Central Bank through equity injection and 31% through subordinated loans from the Central Bank

Prompt recapitalization re-established public confidence. In 1987, capital increased by M$1.2bn for the 3 ailing banks, causing their capital adequacy ratio to increase to 5.2% from 2.8% in 1986. The number of financial institutions reduced from 47 to 40 as a result of stronger financial institutions absorbing the assets and liabilities of insolvent companies
The Malaysian economy rebounded strongly in 1987, with GDP growing over 5% in real terms
Stock exchange market cap rose 45% from the trough
Bad debt provisions fell by 28%