This article first appeared in The Edge Malaysia Weekly on December 30, 2019 - January 5, 2020

BANK Negara Malaysia has had three different governors over the last decade — an interesting state of affairs considering that there have only been nine governors since the central bank was set up some six decades ago, in January 1959.

The changes in leadership were fraught with drama, but the central bank itself remained unshakeable and functioned normally.

Tan Sri Zeti Akhtar Aziz, who was the central bank governor for 16 years, retired in April 2016 when the Barisan Nasional government was still in power.

There were tense moments in the lead up to Zeti’s retirement.

For one, there had been much concern over who would succeed her as some of the speculated contenders were politicians. They included Tan Sri Mohd Irwan Serigar Abdullah, the then Treasury secretary-general who was also on the board of advisers at the scandal-plagued 1Malaysia Development Bhd (1MDB), and Datuk Awang Adek Hussein, the then Malaysian ambassador to the US. Investors would have baulked at a political appointee as the institution needs to be apolitical in order to work well. The Central Bank of Malaysia Act 2009 legislates Bank Negara’s independence.

For another, there was much talk — for almost a year before Zeti actually retired — that she was under pressure to resign due to her and the central bank’s part in a special task force investigating a RM2.6 billion money trail into then prime minister Datuk Seri Najib Razak’s bank account.

Zeti, however, was no quitter. In August 2015, she came out to say that she fully intended to stay in office until her term ended in April 2016.

In the end, the market heaved a sigh of relief as Zeti handed over the baton to in-house candidate Tan Sri Muhammad Ibrahim, the most senior of her three deputy governors at the time, ensuring a smooth transition and policy stability. (In Malaysia, the governor is appointed by the Yang di-Pertuan Agong.)

Muhammad assumed the position on May 1, 2016. As it turns out, however, his expected five-year term was cut short after he voluntarily resigned in June 2018, a month after the Pakatan Harapan government came to power.

This was over Bank Negara’s controversial purchase of a 22.5ha piece of land from the Ministry of Finance for RM2.066 billion in December 2017 — the amount was confirmed to have been used by the previous government to pay interest on 1MDB’s debts in a bailout of the fund. Muhammad relinquished his post but defended the deal, saying that everything done was above board and the bank had no way of knowing how the government would use the funds.

Interestingly, around the same time of the land purchase, deputy governor Sukudhew (Sukhdave) Singh, a highly respected, long-serving employee, resigned unexpectedly from the bank. In a cryptic farewell email message to colleagues that went viral, he hinted that there was friction among the bank’s high-ranking officials. He said he was leaving as certain professional standards that he deemed important were not being met.

Present governor Datuk Nor Shamsiah Mohd Yunus was subsequently appointed on July 1, 2018. A former deputy governor at Bank Negara, Nor Shamsiah left the bank not long after Muhammad became governor, when her term ended in November 2016. She had been the one spearheading the bank’s investigation into the 1MDB money trail.

In October last year, Bank Negara commissioned an independent party to review the processes of the land deal and to come up with its own findings. The review was supposed to have been completed this year. So far, there has been no update from the central bank.

Tan Sri Zeti Akhtar Aziz

Governor from May 2000 to April 2016

It was the end of an era when Zeti stepped down as the first female governor after 16 years. She was a career central banker who spent a solid 35 years with Bank Negara Malaysia.

With a gentle demeanour and steely grit, Zeti firmly steered the economy and banking system through some of their roughest patches, notably the 1997/98 Asian financial crisis when she was the head of economics. She saw a tough banking consolidation through, under which 54 domestic banks were whittled down to 10 banking groups. Today, there are eight.

But, over the last decade, arguably the 1Malaysia Development Bhd debacle, which started unfolding in the media from 2015, proved to be her greatest challenge. Critics at the time felt that she could have been more outspoken and done more. Last year, she took issue with former premier Datuk Seri Najib Razak’s claim in an interview that she had known of the RM2.6 billion that had flowed from overseas into his personal bank account in 2013.

In a rare move, she came out with a written statement to say that this was false. She maintained that what had actually transpired was that Najib — and later, another Cabinet minister — had requested her to issue a statement in 2015 to say that Najib had done nothing wrong in his account. She said she had refused to do so, as she did not have prior knowledge that such transactions had occurred.

It was also under Zeti’s watch in the last decade that Bank Negara implemented the Financial Services Act 2013 and the Islamic Financial Services Act 2013 that gave the regulator more power to bring about better governance and checks and balances among financial institutions.

After the change in government in May last year, Zeti, 72, became a member of the Council of Eminent Persons that advised the administration on economic and financial matters. She was made group chairman of Permodalan Nasional Bhd in July last year.

Tan Sri Muhammad Ibrahim

Governor from May 2016 to June 2018

Muhammad’s two years at the helm of Bank Negara Malaysia were brief but notable. Easily recognisable by his mop of white hair, he rose through the ranks at the central bank, having joined in 1984.

Just two months into his leadership, Bank Negara cut the overnight policy rate, startling market observers and bankers who were used to some advance signalling prior to any interest-rate adjustment — a factor that marked the style of his predecessor, Tan Sri Zeti Akhtar Aziz.

It was the central bank’s first interest-rate cut since the 2008/09 global financial crisis, and while a cut was on the cards given weakening global growth prospects, the timing nevertheless came as a surprise. In an interview with Bernama shortly after, Muhammad said the cut was a pre-emptive move as Bank Negara “saw a window of opportunity”.

Muhammad also drew controversy when he introduced radical measures to clamp down on offshore ringgit speculation in late 2016 — foreign banks had to commit to stop trading the ringgit in the offshore non-deliverable forward market — while also introducing some measures to develop the onshore market. A year later, there was a sense that he was vindicated as the ringgit strengthened to become Asia’s second-best-performing currency.

Muhammad also grabbed headlines for his strong views that property developers — not banks — were to blame for the average Malaysian’s inability to own a home given the unaffordable prices.

In the end, it was the controversial RM2.066 billion land acquisition from the government (see “Drama-fraught leadership changes at Bank Negara”) that sealed his fate. Despite his insistence that the deal was above board, observers felt it was strange that a deal between the central bank and the government was done at market price, among other things. In a farewell memo to staff, he explained that he could not “in good conscience” continue as governor if it affected the bank’s image and reputation.

Datuk Nor Shamsiah Mohd Yunus

Governor since July 2018

Nor Shamsiah’s return to Bank Negara Malaysia was well-received by the market, considering that she had been with the bank for over 30 years before she left in November 2016. She had also worked closely with Tan Sri Zeti Akhtar Aziz.

It is worth noting that she had led the central bank’s investigations into 1Malaysia Development Bhd before they were abruptly halted in 2015. Her most recent role was at the US-based International Monetary Fund, where she was the assistant director of the monetary and capital markets department.

Her appointment as governor came at an important time for the country, taking place barely two months after the historic general election that led to a change in government for the first time since independence.

Upon taking office, Nor Shamsiah made several changes to the organisational structure in a bid to strengthen it. For example, the Financial Intelligence and Enforcement Department was put under the oversight of a deputy — instead of assistant — governor. And the position of chief of staff, a role created by her immediate predecessor, was axed in order to promote better lines of communication between departments.

She came in at a time of rising external headwinds, including from US-China trade tensions and geopolitical risks, which has been weighing on local economic growth. In May, the bank cut the overnight policy rate by 25 basis points to 3%. The market expects at least one more rate cut next year.

Last month, the statutory reserve requirement was cut, for the first time since February 2016, by 50bps to 3%, a move Nor Shamsiah says is not a sign that the supply of ringgit will tighten.

Next year, the market will be looking forward to the award of licences for virtual banks — or banks with no physical presence — following the central bank’s release of a virtual banking framework by the end of this year.

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