The new Bank Negara governor will have big shoes to fill
AFTER 16 years at the helm of Bank Negara as governor, Tan Sri Dr Zeti Akhtar Aziz will punch out as a career central banker in April. Her tenure as the governor is one decorated with accolades, including financial magazine Euromoney’s “Central Bank Governor of the Year” in 2005.
In 2011, she was even named as a possible candidate to head the International Monetary Fund.
Zeti will come to be known as the governor who injected much-needed discipline into the banking system, especially by executing a financial sector masterplan that has strengthened and deepened the industry. But change is at hand. The question of who will replace the 68-year-old Zeti as central bank chief has generated much debate.
The debate and speculation is odd, considering that under her stewardship, Bank Negara has already put in place a robust succession plan, where a plan to name candidates to replace key positions in the bank was set in motion.
Insiders reckon that Zeti’s choice is the central bank’s second-in-command, Datuk Muhammad Ibrahim. Also a career central banker, Muhammad Ibrahim rose through the ranks, gathering experience and expertise in various facets of the administration and running of Bank Negara.
Under the succession planning programme, the process of finding a successor to a governor is undertaken by the Governance Committee of the central bank, which comprises independent directors from the private sector.
Potential candidates from within and outside the central bank will be vetted by this committee before the Government picks a candidate and seeks the King’s endorsement.
Such a selection process differs from past convention. Zeti, like her predecessors, was appointed by the Prime Minister. She, in turn, is said to have hoped that her successor would have been picked by end-January, at least three months before her tenure ends.
Her account of the selection of the new governor differs from what the Government thinks.
“The Government will decide soon. The position is up to the Government to decide,” said Prime Minister Datuk Seri Najib Tun Razak in a recent report.
That there has been no official word on the new central bank chief has already caused a sense of unease among many quarters, especially the business and investment communities.
As economist Prof Datuk Mohamed Ariff Abdul Kareem points out, perception that the choice of the next central bank head may be subjected to political influence could erode our efforts to rebuild investor confidence.
“This is especially so at a time when our ringgit has been unfairly punished not because of economic fundamentals, but perception surrounding domestic issues like 1Malaysia Development Bhd (1MDB),” says Ariff of the International Centre for Education in Islamic Finance. He adds: “The central bank under Zeti’s leadership has remained autonomous and she is internationally respected for her ethics and expertise. It is only expected that the market will be looking for her replacement to have similar experience and credibility.”
The importance of the central bank
A central bank is like no other entity, given its role as a watchdog of the country’s financial system and the authority in shaping monetary policy.
It is recognised that Bank Negara has been one of the best-run institutions in Malaysia.
Parallels can be drawn with other well-run and independent institutions in Malaysia in the form of Petroliam Nasional Bhd (Petronas). Interestingly, Petronas too had a changing of the guard fairly recently and while the confirmation of the appointment of its new president and chief executive Datuk Wan Zulkiflee Wan Ariffin took a bit longer than expected, it was part of the group’s succession plan.
Petronas has also continuously strived to maintain its independence on how it manages its financial resources, warning that anything else would lead to a “slippery slope” damaging its longevity.
Picking a candidate who has come up from rank and file, which is how Zeti and some of her predecessors rose to become governors, will for one boost staff morale within the institution.
Many observers reckon that with the country now facing a trust deficit, Bank Negara is seen as one of the more trustworthy institutions.
A promotion from within will calm the markets, knowing that there would be some consistency in policy-making. It is also a chance on the part of the Government to demonstrate that there is no (political) interference.
Promoting an internal person also sends the message that the Government encourages succession planning within key institutions and Government-linked companies.
Besides Muhammad Ibrahim, two other deputy governors, namely, Datuk Nor Shamsiah Mohd Yunus and Sukhdave Singh, have also been named as possible candidates under the central bank’s succession plan. It has been widely reported that there are other “outside” contenders for the job of central bank governor. Of them, the one which stands out the most is Minister in the Prime Minister’s Department in charge of Economic Planning Datuk Seri Abdul Wahid Omar. Wahid brings with him a wealth of corporate experience, including banking experience as the former chief executive officer (CEO) of Malayan Banking Bhd (Maybank). He has also been actively playing a role in addressing the local and foreign investment community on the fundamental strength of Malaysia’s economy, in an effort to counter the negative perception the country is facing.
The other two outside candidates are reported to be the Malaysian ambassador to the United States, Datuk Awang Adek Hussin, and the secretary-general of the Treasury at the Finance Ministry Tan Sri Mohd Irwan Serigar Abdullah.
To be fair, there have been instances where Bank Negara governors have been chosen from outside the central bank. Bank Negara’s fourth governor Tan Sri Jaffar Hussein, for example, hailed from Maybank and so was his successor Tan Sri Ahmad Mohd Don.
However, Jaffar was deemed responsible for the huge foreign-exchange losses that the central bank incurred in 1992 and 1993 which led to his resignation in 1994.
Meanwhile, Tan Sri Ali Abul Hassan Sulaiman, who replaced Ahmad Don, was formerly the head of the Government’s Economic Planning Unit (EPU). Among the key criteria of a central bank head is independence. Having a bird’s eye view without being unduly influenced by outside vested interests is paramount in making the right decisions for the banking industry and the economy.
Bank Negara’s former deputy governor, Tan Sri Lin See-Yan, says one should learn from the past in picking the right candidate to head the central bank as it alerts to the skill sets that would make a good central banker.
Lin says besides asserting independence and being well-versed with the intricacies of monetary policy and the banking system, a central banker has to be able to take a “helicopter view of things”.
“He or she must also be able to command the respect of all stakeholders from the Government to the man-in-the-street who is affected by the direction of interest rates, which the central bank decides.” Lin says that Bank Negara has remained “an autonomous agent within the Government. It’s best to err on the side of caution and pick someone who does not carry baggage”.
He notes that the Banking Act dictates that politicians are not allowed to sit on banks’ boards.
Likewise, the same standard should be applied to the central bank.
Former deputy secretary-general of the Ministry of Finance Tan Sri Ramon Navaratnam says that central banks play key roles in promoting economic growth, financial stability and ensuring equitable income distribution. “It is, therefore, important that you get the right governor who is competent with high integrity. The person should also have an open-mind and listen to the Government, business community and non-Governmental organisations to feel the pulse of the nation.“Most importantly, he or she has to be an individual of strong character who can resist political pressure and make decisions for the long-term good of the country. We have had that tradition at Bank Negara starting from Tun Ismail Mohamed Ali to Tan Sri Abdul Aziz Taha and now Zeti.”Zeti has faced many tests in her 16 years at the helm, but it is perhaps her professionalism over the sovereign wealth fund 1MDB controversy and probe that has caught the eye of many.
Notes Ramon: “A good central banker learns to manage but keep away from controversies thinking always of national interest rather than parochial interest.”It was during this testing time that the ringgit tumbled to a 17-year low close to RM4.50 to the US dollar, emerging as the worst performer among regional currencies.
Bank Muamalat chairman and former Securities Commission chief Tan Sri Munir Majid says that it is unlikely a political appointee will be put in place because there is full awareness of the importance and sensitivity of the (governor’s) post. He adds whether the candidate comes from inside or outside the bank is not such a critical factor as long as he or she is qualified and a person of high integrity and objective, although it is understandable that those within might prefer someone from the inside. But ultimately the character of the person appointed will be the litmus test of performance and ability to persuade or insist, he says.
“There were times before the appointment of the present governor when the appointment of those from outside (despite their professional credentials and experience) did not work out perfectly for various reasons, including a perceived too close an association with respective political leaders. At this time that kind of perceived association would be too huge a risk to take,” Munir says.
Aberdeen Islamic Asset Management Sdn Bhd CEO Gerald Ambrose says the immediate challenge for the new head would be maintaining investor confidence, contain the ringgit volatility and support growth, while keeping inflation under control.
Rising to the occasion
As a person, Zeti comes across as very feminine, demure and soft-spoken, albeit with a sharp sense of humour. But heading the country’s powerful regulatory authority of banking and monetary policies is certainly not a job for the meek or weak and in Zeti’s own words, is one which “requires nerves of steel”.In 1998, Zeti, who was then assistant governor, was dragged into the centre of a controversial plan to implement capital controls to pull Malaysia out of its economic malaise after Thailand had devalued its baht, which set off a plunge in regional currencies.
Her boss Ahmad Don, a well-respected economist, didn’t think capital controls was the way to go and took the drastic step, along with his deputy Datuk Fong Weng Pak, of resigning in protest of the Government’s decision.
Zeti was then asked by the country’s leadership to take on the role of acting governor. The country’s successful implementation of capital controls and the ringgit peg at RM3.80 to the US dollar, amid criticism that the move flew in the face of conventional wisdom of a free market, etched her name in the banking scene, both domestically and globally. The currency peg was subsequently scrapped on July 21, 2005. Shortly after implementing the peg, the Government appointed Ali Abul Hassan to head Bank Negara, while Zeti was made deputy governor. Two years later in May 2000, Zeti was made the country’s seventh and first woman governor.
She is largely credited with having steered the economy all the way through the global financial crisis in 2007 with policies that were accommodative of growth like keeping interest rates stable over time and at the same time having to deal with strong personalities like ex-premier Tun Dr Mahathir Mohamad.
Under her stewardship, the country’s banking industry was consolidated to 10 banks and is now on a much stronger footing. She played a key role in the formulation and implementation of the financial sector master plan, a blueprint aimed at making the sector more competitive, plus the development of Islamic finance also gained momentum.
In 2009, she won more powers and autonomy for the central bank through The Central Bank Act of 2009 with a mandate to ensure financial stability.In July 2013, the bank enforced the wide-reaching Financial Services Act 2013 (FSA) that gives the regulator stronger powers aimed at creating better governance and checks and balances among Malaysia’s financial institutions.
One guiding principle that has made Zeti a successful central banker is her inclination to speak her mind without fear or favour, note banking insiders.
In 2005, Bank Negara rejected a proposal for the Datuk Seri Sulaiman Abdul Rahman Taib, to be re-appointed as executive chairman of RHB Capital Bhd . Sulaiman, the son of the former long-serving Chief Minister of Sarawak Tun Abdul Taib Mahmud, had held that position for two years previously after the takeover of RHB by Cahya Mata Sarawak’s Utama Banking group. He was later redesignated as a non-independent non-executive director of the banking group.
In November last year, in an unprecedented move in banking history, Bank Negara slapped an RM53.7mil penalty on AMMB Holdings Bhd for what the banking group said was “non-compliance with certain regulations.” It is reportedly believed that the compliance breaches had to do with transactions linked to 1MDB. Zeti, though, has her fair share of detractors. One example is the imposition of stricter lending rules in housing loans that Bank Negara has imposed on commercial banks in recent years. The move was meant to curtail excessive speculation in the housing market. “But it has come about too strong and too fast, impacting property sales in a big way. The central bank should have acted earlier and in a more gradual way,” opines one head of research of a local stock-broking outfit.
Some investment bankers reckon that the central bank under Zeti’s stewardship has been too constraining in facilitating mergers and acquisitions. In one cited case, a foreign institution was looking to sell its block of shares in a local bank but despite bringing in a list of potential buyers which included foreign funds and institutions who were willing to pay a high price, the central bank directed the seller fund to speak with local banks, only to see their exit.
On the flip side, it is understood that Bank Negara and Zeti were exercising their powers in the interest of local banking consolidation, which has a higher purpose of creating local giants before protection barriers are brought down. The central bank could also have been influenced by past experience where a particular foreign fund was allowed to take a stake in a local bank, only to turn out to be not such a suitable shareholder.
On a more personal note, people who have worked with Zeti describe her as kind and generous and always concerned about the people’s welfare. “As the governor, she is seen as being able to see the bigger picture, something she always wanted us all to be able to do, and constantly stressed the importance of understanding the impact of our actions and decisions and to never forget who we all ultimately work for, which is the nation and all its people,” says a central bank employee. Having spent her 36-year working life at the central bank, Zeti will surely leave the institution with mixed feelings and a multitude of memories.
For Zeti’s successor, meanwhile, hers will surely be big shoes to fill in matching her legacy, and will have their work cut out for them amid slowing growth.