KUALA LUMPUR (July 22): The Ministry of Finance (MoF) has clarified that the decision to place Lembaga Tabung Haji (TH) under the regulation of Bank Negara Malaysia (BNM) is an interim solution until the findings of the Royal Commission of Inquiry (RCI) are presented to the government for further actions.

As such, the ministry said the move will not change the nature of TH as an agency responsible to manage Malaysian pilgrims, and that it will continue to function as stipulated under the Tabung Haji Act 1995 (Act 535).

"MoF is aware of the differences in the mandate and role of TH compared to other banking institutions.

"Thus, the ministry would like to emphasise that BNM's regulatory scope at present, pending the completion of the RCI, is focused only on deposit taking, as well as risk and liquidity management, with a different regulatory framework from the general rules imposed on other banking institutions," MoF said in a statement today.

Given that the government guarantees the depositors' savings in TH under Act 535, MoF said it is the responsibility of the government that the savings are better regulated to ensure prospective pilgrims will be able to perform the hajj, and TH can continue to generate income from shariah-compliant investments.

"The regulatory improvement of TH is in line with the government's intention for TH to return to its original mandate of managing depositors' savings for the purpose of performing hajj, in addition to savings for investment," it said.

MoF also noted that TH is an important financial institution to the Malaysian financial system, considering that its total deposits now reach RM82 billion, and its close interconnectedness with the financial system, especially as the largest shareholder of Bank Islam Malaysia Bhd.

The RM82 billion, MoF said, represents 10% of the total deposits within the country's Islamic banking system and that it needs to be well governed with checks and balances mechanisms in place, as the deposits are placed in Islamic banking institutions.

"The sudden withdrawal of deposits could trigger liquidity problems for Islamic banking institutions and turmoil in the Malaysian Islamic financial system," MoF warned.

On top of that, the ministry also stressed that the move will not jeopardise the shariah-compliant status of TH's investments, as it pointed out that BNM has a Shariah Advisory Council comprising shariah scholars and individuals who are knowledgeable, experienced and internationally recognised.

"By leveraging on the council's expertise, the perception that the concept of usury will be used to reap the best returns from various investments for the benefit of depositors should not arise at all. All these efforts are aimed at further protecting the rights of depositors and ensuring that all investments made by TH are based on shariah principles," it said.

"This interim solution is essential to fully protect the rights and interests of depositors while waiting for the RCI findings to be presented," MoF added.

The Cabinet in a meeting last week agreed to undertake a revamp of TH to improve its operations and management, including incorporating a new operating model for the pilgrim fund, which will be reviewed jointly by the Prime Minister's Department, MoF and BNM.

Separately, Deputy Prime Minister Datuk Seri Ismail Sabri Yaakob announced that the government would set up an RCI under the Commissions of Enquiry Act 1950 (Act 119) to investigate TH issues.

The RCI is to review TH's audit findings by consultants from 2014 to 2018, as well as the recovery measures undertaken by the pilgrim fund up until 2020 — based on the findings of the consultants.

This is not the first time TH is placed under BNM's supervision. From Jan 1, 2019, the pilgrim fund's deposits came under the central bank's supervision after it was found to be in breach of Act 535.

This came as the government announced a rescue and restructuring plan for TH, involving setting up a special-purpose vehicle, Urusharta Jamaah Sdn Bhd (UJSB), to take over the fund's underperforming assets.

UJSB completed he transfer of non-performing assets valued at RM9.36 billion held by TH in December 2018, following financial malpractice by the previous management.

The transfer from TH to UJSB was carried out in exchange for RM19.9 billion, consisting of two tranches of sukuk and RM300 million cash. The difference of RM10.3 billion between the RM19.9 billion consideration and the RM9.36 billion market value of assets was borne by the government.