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The authors wish to thank Papa N’Diaye, Olaf Unteroberdoerster, staff at Bank Negara Malaysia, and seminar participants at the IMF and the University of Quebec at Montreal for useful comments and suggestions.
Bank Bumiputra was created to promote the economic development of the indigenous population.
Foreign banks had minority interest in ten domestic commercial banks, three finance companies, and seven merchant banks.
To qualify for Tier I, paid-up capital had to reach at least RM 500 million, and other undisclosed conditions based on CAMEL ratings had to be met.
For a review of the Malaysian crisis (and of the other Asian crises) see, for instance, Lindgren and others (1999).
In our sample, four banks close their accounts at dates other than the end of the calendar year. In these cases, we have used the date closest to December 31.
The values of non-performing loans, total loans, and total assets have been corrected for non-performing loans sold to Danaharta.
We conduct sensitivity analyses by assuming that the difference between the paid amount and the resale value of the NPLs is 30, 40, or 50 percent, respectively. The results remain broadly unchanged, though quantitatively they become stronger for higher such percentages.
The Thai bank performed considerably worse than the other Asia-oriented foreign banks. The results, however, are robust to the exclusion of this potential outlier.
This is consistent with Laeven (1999), who finds that before the crisis foreign banks in East Asia invested less in risky assets than domestic banks. Laeven does not differentiate among foreign banks of different regional orientation.
The values for the variables—non performing loans, total loans, and total assets—have been corrected for non-performing loans sold to Danaharta.