Banking is a riskier enough a business as it already is.

Unless management integrity is consistently high and a tight leash is kept on rank and file to minimise corruption, and with the constant pressure to do more and more business in a competitive environment, credit culture will incline to deteriorate, resulting in non-performing loans (NPL).

Besides, the risk of one failed mega-loan wiping out the profits of many smaller loans is an occupational hazard. There are also factors that cannot be controlled by the best of bank management if cyclical property or equity markets fall, NPL rates will loom exponentially.

These are factors that the Employee Provident Fund (EPF) should be careful about when it buys further into Rashid Hussain Berhad (RHB) - increasing its existing 32% equity stake by another of Utama Banking Group (UBG)'s 33% stake and the mandatory general offer to follow.

When one purchases a substantial stake in a bank, albeit indirectly, it is important to be circumspect because there is a limit to whether due diligence conducted on existing loan assets of target company will adequately disclose their potential to turn into NPL a year or two down the road when the property or equity markets cool.

Banking thus is inherently a risky business especially one related to RHB banking group that has, to say the least, a chequered history of needing capital infusions, beginning from the time of UMBC being taken over and renamed Sime Bank by Sime Darby (which exited with a loss), and then by Rashid Hussein Group (which required restructuring in the aftermath of the Asian Currency Crisis), before now, UBG.

It may be asked if banking is giving such good returns on investment, why is UBG divesting its 33% equity stake?

If EPF were justifying its present bid for UBG's 33% equity stake on grounds of protecting its existing 32% equity stake, it implies that the value of the existing EPF's 32% holding in RHB is probably lower than its original acquisition price, making it an irresistible inference that EPF, with deep pockets, is investing further in RHB to restore it to financial health.

All this is very noble and beneficial to RHB Banking group but is it beneficial to EPF and its contributors who depend on its prudent management of their toil of working life as a buffer in old age?

EPF is a custodian of employees' (public) funds in relation to contributors of whom it stands in position as trustee with fiduciary duties it is not a bailout agency of last resort for banking industry.

So the rationale why EPF should try to own and operate indirectly a bank in competition with EON Capital, which has more experience in banking through EON Bank, is itself somewhat unclear, if not, unwise.

EPF investment panel should also be mindful that it has to manage the EPF's funds within - and cannot fall short of - the investment criteria as laid down by its founding charter, the EPF Act, in particular section 26, of which the last I hear, requires of the approved company for investment a three-year record of at least 5% yield prior to investment.

Presently, RHB controls RHB Capital which in turn controls RHB Bank. Now RHB Bank may be showing profit but I am not too sure whether by virtue of that alone RHB, two tiers up, is making sufficient in last three years for dividend payout to satisfy the dividend yield requirements as mandated by the EPF Act.

With RM2.2 billion at stake, EPF cannot afford the risk - after the completion of the acquisition and the new professional team has been appointed and moved in - of some disgruntled EPF contributor or minority shareholder of RHB applying subsequently to court to impugn and nullify its acquisition for being ultra vires its founding charter.

However the probability is that, with the vast resources of EPF, it would have already a team of competent legal and financial advisors to look into and preempt this risk.