Protecting depositors is key to financial system stability so both the regulators and the industry must stay vigilant against new risks.
FOR the most part, Malaysian banks are more than just financial institutions. To the average person, it is a trusted vault for their life savings.
Regulations are in place to ensure our deposits are secured, and there are mechanisms to help troubled financial institutions get back on their feet.
But if a bank were to falter despite all these measures, depositors can continue to access their money in the bank or get their money back – thanks to a safety net that we have.
This safety net is Perbadanan Insurans Deposit Malaysia (PIDM), a government authority whose primary purpose is to protect depositors, as well as takaful and insurance policy owners.
The safeguard was not always there. It took a major financial crisis that hit most of East Asia and South-East Asia to forge the shield that protects our money now.
As we mark our 20th anniversary today, this is as good a time to reflect on the events that led to our birth, and how we can continue to protect depositors, as well as takaful certificate and insurance policy owners, meaningfully and with confidence.
How it all began
When the 1997-1998 Asian Financial Crisis hit, our currency was among the first to feel the brunt of the impact. The value of the ringgit took a dip, raising the cost of imports and shuttering many companies.
Word of banks failing to meet their obligation to depositors fed the rumour mill, causing worry to the public.
The government reacted quickly. In 1998, it set up Pengurusan Danaharta Nasional Bhd to mop up non-performing loans (NPLs) in the banking system, and Danamodal Nasional Bhd to recapitalise and strengthen the banking sector.
Both entities were closed several years later – Danamodal in February 2004 and Danaharta in December 2005 – when their respective mandates were fulfilled.
Praise from the World Bank for our success in containing the crisis was a fitting end to a challenging period. It was made that much more remarkable by our decision at the initial stages to not adopt the International Monetary Fund strategy.
The lessons learned from that turbulent period continue to shape what we do at PIDM today.
The crisis taught us that hesitation comes at a heavy cost. In such times, swift action to protect depositors is paramount.
We also recognised that the global financial landscape was evolving faster than ever. To stay prepared, we needed to continuously strengthen our framework, infrastructure and capabilities to protect financial consumers and maintain financial system stability.
That became the backbone of the Financial Sector Masterplan 2001-2010 and PIDM’s establishment in 2005.
PIDM’s first task was to administer the Deposit Insurance System to protect depositors. Five years later, its role was expanded to cover the Takaful and Insurance Benefits Protection System (TIPS), thereby extending a similar protection to owners of takaful certificates and insurance policies.
The coverage for each depositor at each member bank was also raised to RM250,000 from just RM60,000 initially.
As of today, we have grown our funds to RM7bil for us to carry out any resolution of any failed member financial institutions if it happens, but I am happy to note that in the 20 years since PIDM was set up, we have not come to that.
But, as they say, we must not rest on our laurels.
The road ahead
Since then, the banking landscape has changed substantially. The advent of technology has led to so many new possibilities, but it has also exposed us to new risks.
For instance, it used to take days for a run on a bank to clean out its vault. Today – as we have seen in the failures of Silicon Valley Bank and Credit Suisse – it takes mere hours.
Hence the need for all stakeholders to always be on our toes and be ready for any eventuality.
The key that ties everything together is resolution planning – customised ‘living wills’ that PIDM, together with member banks, draws up during business-as-usual as part of PIDM’s overall pre-emptive planning and preparatory efforts.
We must continue to enhance our capabilities, and we urge all stakeholders to do the same.
As for the role of PIDM, our ‘constant’ in an ever-changing world is to build on our readiness so we can step in swiftly, confidently and effectively if called into action.
Twenty years is by no means a long time, but it has been enough to shape who we are today. And we will continue to be the protector that serves Malaysians for decades to come.
Datuk Seri Zukri Samat is chairman of Perbadanan Insurans Deposit Malaysia.
