Malaysia Central Bank Chief Guards Against Another 1MDB

(Bloomberg) -- Malaysia’s central bank is strengthening safeguards to avoid a repeat of the 1MDB scandal, Governor Nor Shamsiah Mohd Yunus said in a wide-ranging interview.

In her first formal sit-down with international media, Shamsiah talked about topics from her stance on crypto-currencies to gold-backed tenders suggested by Prime Minister Mahathir Mohamad. Here’s a selection of her comments:

Malaysia Central Bank Chief Guards Against Another 1MDB

What is your overall message to foreign investors?

“Our financial markets are well developed, our bond market is liquid and sometimes that itself can create volatility because investors can have Asean exposure by investing in Malaysia, but if there’s risk of sentiment then it’s easy for them to exit from the Malaysian market and reduce the Asean exposure. But this is the volatility that comes with having a deep financial market. We have an open door policy. In this day and age we need to collaborate; we need to open the channels of communications and discussions, because ultimately that’s what everyone wants. A conducive macroeconomic condition will enable investors to benefit from growing business opportunities and also for consumers to improve their livelihood.”

Are Malaysian banks doing enough to support the economy?

“The numbers speak for itself. Loan disbursements for the first quarter of this year is at the highest level as compared to the five-year average, but loan applications have been moderating since November last year. When you look at the outstanding amount, loan growth has been slowing because applications have been moderating. Repayments have been on the rise. It is a demand factor because loans are driven by the general macroeconomic environment. Now you have a situation where the economy is growing at a slower pace. The banks have been very supportive of businesses and households in their lending activities. They have to be responsible in their lending activities. Actually they would be competing with each other to lend to borrowers who are creditworthy.”

What safeguards are needed to prevent another 1MDB?

“We cannot allow another 1MDB event to recur. This 1MDB affair has put a spotlight not just on Malaysia but also on banks in a number of other countries. And that is why we have the Financial Action Task Force (FATF) recommendations. In countries that are assessed against that raft of recommendations, FATF wants to see the areas of improvement a country needs to undertake in order to strengthen controls against money laundering. You should read the report on Malaysia and the report of other countries. Most authorities have taken action against their regulatees. It was a useful exercise for us because we did recognize that while we have a good preventive framework, there are areas that we need to strengthen. These include controls and governance in the banks as well as the prosecution system in Malaysia that needs to target more on high-risk crimes.”

What’s your stance on digital and crypto-currencies?

“Our stance has always been to reduce the amount of cash in the economy and promote e-payments. We have seen the e-payments per capita increase dramatically in Malaysia. The usage of checks have declined. There is no compelling need to introduce cryptocurrencies. We have entered into a collaborative regulatory arrangement with the Securities Commission on the regulation of crypto-assets. The SC would be the primary regulator regulating digital exchanges.”

Would a gold-backed currency help mitigate volatility?

“There is recognition at the IMF that over-dependence on the U.S. dollar can be a source of vulnerability. The IMF is looking at how to reduce the over-dependence on the U.S. dollar to ensure that this does not pose a risk to the economy. This is not unique to Malaysia but even the IMF recognizes that this needs to be addressed.”

Are you considering lending rules for environmental risk?

“Climate risk is one risk that the banks need to understand as it can translate into a financial risk. We have seen a number of instances where climate risk had resulted in losses. To ensure that we have a sustainable environment, the banks can play a role to ensure that we preserve the environment for the future generation. One of the initiatives that we’re working with the Securities Commission is on a taxonomy and understanding the transformation of climate-related risk.”

©2019 Bloomberg L.P.

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