Parti Keadilan Rakyat (PKR) treasurer Khalid Ibrahim today described the acquisition of RHB Banking Group by the state-run Employees Providence Fund (EPF) as "an eminently illogical decision".

In a statement dated yesterday, the former corporate figure said this acquisition will undoubtedly jeopardize the livelihoods of millions of ordinary Malaysians.

"To acquire a banking group without any banking experience is an eminently illogical decision. The CEO of EPF himself, Azlan Zainol, has admitted that EPF does not possess expertise in the banking industry," he said.

Khalid said that EPF as a normal fund manager, should not own more than 10 percent in equity investments.

"It is important for EPF to retain its function as an investor alone, and not become involved in the management of any company.

"EPF needs to retain its conservative nature because it is the only long term capital providence fund that is responsible for the welfare of its 9 million members," he stressed.

Last week, EPF beat two rivals for Utama Banking Group Bhd's 32.8 percent stake in RHB after increasing its offer to RM2.25 billion from 2.20 billion.

He pointed out EPF's equity investments have resulted in severe financial failures in the last few years, including staggering financial losses incurred when they investment into Malaysia Building Society Berhad (MBSB).

Khalid stressed that although EPF can control RHB through ownership of equity, EPF simply does not have the capacity to manage a banking group with such immensely heavy debts.

'Diversify your investments'

The debts of the RHB banking group have run in excess of RM3.4 billion as of August 2006, and it is presumed that these debts will be taken over by EPF.

This was due to the buy over of United Malayan Banking Corporation (UMBC) from Sime Darby in 1995 proved to be a failure.

The debts incurred by UMBC were then transferred to Sime Darby, a plantations company, and were thereafter assumed by the RHB banking group after the merger of the two banks in 1998.

Khalid - the former chief executive of Kumpulan Guthrie Bhd and former group chief executive of government-linked plantations company Permodalan Nasional Bhd (PNB) - said EPF was better off diversifying it's investments.

He noted that with a 75 percent stake in RHB, EPF will not be able to act fairly towards other banks, and this will increase the risk profile of EPF significantly.

"EPF should instead emulate the investment principles of (famous investor) Warren Edward Buffet's approach in investing in low-value securities that guarantee returns on investment and not to interfere in the management of any company.

"This practice would allow EPF to sell or exchange equity without any conflicts of interest." he pointed out.

Khalid also criticised that this takeover will displace the founding principles of EPF as a fund manager that needs to ensure good financial returns to its members within a 25 to 30 year period.

He elaborated that the early years after its formation in the 1950's, the EPF was required to invest 70 percent of its assets in securities or government bonds which reflected the natural need for EPF to be conservative in its investments.

"From the 1980's onwards, government bonds were reduced when privatisation was introduced, and this forced EPF to transfer its investments to equity. Despite so, it remained as a passive investor.

"By the 1990's, EPF investments in government bonds had been reduced to about 30 percent whereas investments in equity had risen from 2 percent in 1990 to 19 percent in 2005," he explained.

Government warned

He warned that the government should not use EPF to reduce the number of banks in order to raise banks' capacity to compete on an international level, as per the national banking policy.

"The buy over of RHB by EPF will not reduce the number of banks in this country.

"To achieve this, the government, through Bank Negara, should direct some banks in the country to merge with the RHB banking group, as happened in the 1990's,"

Khalid then added: "Should the government stubbornly decide to use EPF to acquire RHB, against all economic and financial logic, this act will undoubtedly jeopardize the livelihoods of millions of ordinary Malaysians."

Following the takeover, EPF said it would not directly manage the banking operations of the bank.

"EPF will have minimal representation as we want to leave it to professional directors and professional management to oversee the running of the bank," EPF said in a statement.