PUTRAJAYA – In her testimony to the Royal Commission of Inquiry (RCI) here today, Former Bank Negara Malaysia (BNM) Governor Tan Sri Zeti Akhtar Aziz conceded that the foreign exchange (forex) losses scandal of the 1990s remains a dark episode in the history of the central bank.
“The bank did suffer losses amounting to RM31 billion through forex trading between 1991 and 1994. This episode, that was experienced 25 years ago, is always remembered and there are ongoing efforts to stop it from happening again,” said Zeti, who was the seventh Governor of BNM from 2000 to 2016.
She also made the surprising admission that she only learned of the massive losses through the media in Jan 1994, while based in London.
Zeti had earlier explained that before her time as Governor, there was only one committee to oversee the business undertakings of the bank, inclusive of forex trading.
“During that time, only the Audit Committee existed. But from 2009 onwards, we created two more committees, which were the Risk Management Committee and the Governance Committee.
“Members of each Committee are only independent directors. That means none of us (at BNM) are represented on the board. These three committees are there to serve as the checks and balances of the bank, and from 2009 onwards, it was significantly different than it was (previously),” she said.
Zeti revealed in her earlier testimony that she was assigned as the Head of BNM’s London Representative Office in 1989 to sometime in the mid-1990s.
“My direct involvement in the Reserve Management (began) when I was assigned to the London Representative Office,” she said, adding that the London office was allocated US$200 million for investment purposes.
“The London office did not initially undertake any forex transactions, but this was later changed. However, the forex activity was to support investment activities, and not to take positions on any currencies,” she said.
Zeti added that three years later, the amount allocated to both the London and New York offices was increased from US$200 million to US$500 million. That level has been maintained to this day.
She also shared that the US$200 million allocated for the London office represented only one per cent of the bank’s total reserves at that moment.
Zeti also recalled that sometime in June 1992, former Deputy Governor Datuk Abdul Murad Khalid told the late Governor Tan Sri Jaafar Hussein of the massive forex exposure the bank was experiencing at a London apartment. Former Assistant Governor Datuk Awang Adek was also present.
“Murad did not have the full details then, but Jaafar responded by saying that this was probably gross positions that were known by the counterparties that Bank Negara traded with.
“These counterparties would not be aware of the net positions of the Bank, and he was of the view that the net position was very much less,” she said.
Zeti went on to say that she only learned of the losses in Jan 1994 through media reports, considering that she was still positioned in London at that point.
“Because I was based in London, I did not have access to that data, as the London and New York operations were separate from the headquarters in Kuala Lumpur,” she said.
In spite of the massive forex losses, Zeti nevertheless stressed that BNM did not collapse, but in fact rose stronger than ever.
“The bank did not collapse and our reserves were not depleted, despite the losses made. At its lowest, our reserves were at US$20 billion, and now it has risen to some US$100 billion from the years that the bank was declared insolvent, the 1998 Asian Financial Crisis and other myriad external economic challenges,” she added.
Zeti was the 16th witness to be called up in the ongoing RCI probe into the forex trading losses of some RM31 billion in the 1990s. – NST