A year in the hot money seat

With so much power and responsibility, it’s only natural that all eyes are constantly on the head of Malaysia’s central bank

by NG MIN SHEN/ pic by MUHD AMIN NAHARUL

THE central bank is an institution that holds great importance in any country. It conducts monetary policy, manages currency and inflation, and oversees the commercial banks, among other roles.

For Malaysia, that authority is Bank Negara Malaysia (BNM), which functions as an overseer in “ensuring the safety, reliability and efficiency of payment systems infrastructure”, while safeguarding public interest, according to its official website.

With so much power and responsibility, it’s only natural that all eyes are constantly on its chief.

Just a little over a year ago, Datuk Nor Shamsiah Mohd Yunus (picture), a former BNM deputy governor who left at the end of her term in November 2016, was appointed as governor of BNM following the early resignation of Tan Sri Muhammad Ibrahim in June last year.

Nor Shamsiah’s appointment was largely met with approval from all quarters, given her prior experience with the bank which included spearheading the investigation into 1Malaysia Development Bhd’s (1MDB) money trail, as well as her next stint with the International Monetary Fund before being called back to lead Malaysia’s monetary authority.

Her appointment also came at a pivotal time for the country — this was less than three months after the historic 14th General Election, where Malaysia elected a new government for the first time since independence.

It was clear that Malaysians had just about enough of the corruption so deeply embedded at the administration level that it had become commonplace elsewhere as well.

Nor Shamsiah’s predecessor, Muhammad, stepped down three years ahead of the end of his term, after it was revealed that the proceeds from a RM2 billion land deal orchestrated by BNM under his leadership were used to pay off part of 1MDB’s debts.

It was thus imperative that someone with the knowledge, skills and integrity required to lead a central bank be selected to succeed Muhammad.

Since Nor Shamsiah took office in July last year, quite a few changes have been made to strengthen the organisational structure of BNM.

Just two weeks after her appointment, the Financial Intelligence and Enforcement Department was placed under the oversight of a deputy governor. It was previously led by an assistant governor.

The position of chief of staff, a role created in 2016 by Muhammad, was also removed. Previously, the chief of staff held responsibilities for the governor’s office, strategic communications and strategic management departments.

Furthermore, the economics and monetary policy departments are now overseen by an assistant governor, who then reports directly to the governor.

The two departments previously reported to a deputy governor. Changes in portfolios were also made among some of the assistant governors and directors of departments, while three assistant governors have been given extra roles as directors in departments.

Within the walls of BNM, Nor Shamsiah is seen to have adopted a meritocracy-based approach to staff recruitment. A source close to the bank said several young persons who have shown great promise, good ethics and dedication have been moved up the ranks, irrespective of age and experience.

“As long as you’re good, your race and age don’t matter. You are recognised purely for your hard work and talent,” the source told The Malaysian Reserve (TMR).

In October last year, Nor Shamsiah halved the threshold for cash transactions that must be reported to BNM to RM25,000 from RM50,000 previously.

The change, which became effective on Jan 1, 2019, was done in order to address black market cash payments in Malaysia — a timely move in light of the use of cash in 1MDB’s fund flows.

“Looking to the future, Nor Shamsiah plans to strengthen the country’s use of technology, recognising that it can be implemented for a range of services.

“Tying in to her plans on strengthening the country’s regulatory landscape, the move towards digital payments is hoped to reduce dependence on cash and tackle financial crime,” BNM said.

This was in a statement released in January this year, announcing that Nor Shamsiah had been named the Central Banker of the Year 2019 for the Asia-Pacific region by British monthly financial magazine The Banker, which is owned by The Financial Times Ltd.

On the policy side, BNM in May elected to cut the Overnight Policy Rate (OPR) to 3% from 3.25% previously, marking the first OPR reduction in nearly three years. While some economists hadn’t expected an OPR cut so early in the year, the move was not entirely a surprise, given the increasing downside risks to growth and the US Federal Reserve’s increasingly hawkish stance.

The central bank has also said it expects to have a virtual banking framework ready by year-end.

While Malaysia may not be the frontrunner in keeping up with financial technology (fintech) — Hong Kong has already issued eight virtual banking licences, while Singapore is planning to issue up to five — it’s certainly a step in the right direction, indicating that the regulator is not completely shutting down the concept of virtual banks.

Indeed, one shouldn’t ignore the potential of virtual banks, as much as they could threaten the livelihood of traditional lenders. Industry experts have long called for banks to join fintech players, rather than try to defeat them. They said traditional banks could even pool their longstanding history and transactions data with virtual banks’ value-added and convenient services in order to attract all segments of society.

As technology advances, so do cyber security threats, which often involve money. To that end, BNM and the financial industry are establishing the Financial Threat Intelligence Platform which is expected to be operationalised before end-2019.

Given that there were over 10,000 cyber security attacks on corporations and individuals in Malaysia last year — up 35% from 2017, according to the Malaysian Computer Emergency Response Team — the central bank’s emphasis on financial safety is most welcome.

“The need to formulate a cohesive, coherent and comprehensive national strategy on cyber security is an urgent need. In the digital age, higher order risks of cyber attacks and operational disruptions are magnified in ways that we have yet to fully comprehend,” Nor Shamsiah said, while announcing the aforementioned platform.

Considering the massive responsibility that comes with her role, the governor has done well, Asian Strategy and Leadership Institute’s Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam (picture) said.

“I think she has held the helm in a very steady way. In fact, she’s consolidating further the strength of BNM, which has a very good reputation for governance at home and worldwide — it’s one of our best institutions.

“I think she’s the right choice and is doing the right things,” he told TMR.

Ramon stressed on the importance of looking at the bigger picture, at a time when complaints from borrowers have risen, particularly with regard to obtaining housing loans.

“You must look at the broad policy and direction, and her management and implementation of best practices. On that score, she has done well.

“If she carries on like this, and adapts more and more best practices from around the world, I think we should be heading strongly in the right direction,” he said.

So, what else needs to be done, one might ask?

“I think, continue the good work and make it sustainable. And, of course, make it adjustable to dynamic changes which can be quite unexpected with world uncertainties,” Ramon said.

As long as the central bank holds steadfast to its policy of meritocracy, it will be able to keep up with the latest developments and challenges.

“BNM has a multiracial composition and their scholars are exceptionally good. So, when you go for merit and quality and fairness, you can’t go wrong,” he added.