Thursday 28 Mar 2024
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KUALA LUMPUR (Oct 2): The issuance of securities by government-related or quasi-government entities should be subject to the same amount of governance procedures that are applied to issuances by private corporations.

According to Bank Muamalat Malaysia Bhd chief executive officer Datuk Haji Mohd Redza Shah Abdul Wahid, this is to ensure that issues surrounding the scandal-plagued 1Malaysia Development Bhd (1MDB) do not repeat.

"From my observation of the 1MDB issue, one of the key things was that government-related or pseudo-government organisations are exempted [from disclosing adequate information] when issuing securities, such as the issuance of a prospectus when a Government Guarantee is in place.

"It is probably time for [the banking sector] to rethink on this, do you exempt an organisation just because [it is] government related or pseudo government? 1MDB has proven that no exemptions should be given," he told reporters on the sidelines of the General Council for Islamic Banks and Financial Insitutions (CIBAFI) — World Bank Conference on Corporate Governance of Islamic Financial Institutions today.

He added that if there is inadequate information provided when securities are to be issued, problems will start to arise.

"This is where I think the boards of various banks need to rethink [on these issuances]… the fact is, it is their right to reject such transactions if the information provided to them is insufficient… we have learnt from 1MDB on that.

"This is food for thought. It doesn't require regulations, but it is up to the banks now as information should be key in order for governance processes to take hold," he said.

During his keynote address, Mohd Redza said the first bond issuance by 1MDB that took place in 2009 (when it was known as the Terengganu Investment Authority) was a 30-year government-guaranteed Islamic Medium Term Notes.

"At the heart of Islamic finance, we talk about tangibility and transparency. Unfortunately because this was a government-related agency, information and cashflows took a back seat and government guarantees were highly relied upon.

"Perhaps one day, research will be done on the use of Islamic instruments and its weakness on addressing governance issues," he told a roomful of Islamic finance professionals.

On a separate matter, Mohd Redza said there are no pressures for consolidation in the Islamic banking industry.

"The Islamic banking landscape is competitive, which is good for consumers. Generally, there has been good performance among [Islamic] banks. If these circumstances change, then there may be a need to look at mergers. But at the moment, we believe there is no pressure for Islamic financial institutions to merge and everyone is quite happy with their market share," he said.

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