Sunday 04 Jun 2023
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This article first appeared in The Edge Malaysia Weekly, on November 30 - December 6, 2015.


THE RM53.7 million penalty slapped on AMMB Holdings Bhd (AmBank Group) by Bank Negara Malaysia for what the banking group says was “non-compliance with certain regulations” is believed to be unprecedented in Malaysia’s banking history.

Never before has the regulator imposed such a fine on a Malaysian banking group for compliance breaches, industry veterans tell The Edge.

But details of what AmBank Group’s actual offence is remains shrouded in secrecy. Neither the group nor the central bank has been forthcoming with that information, leaving stakeholders in the dark.

Sources tell The Edge that the compliance breaches have to do with transactions linked to 1Malaysia Development Bhd and SRC International Sdn Bhd.

“This news came as a negative surprise to us as, based on our knowledge, there have not been any disclosed incidences of Malaysian banks being subject to a Bank Negara penalty such as this in the past. This would create negative sentiment on the stock in the near term,” CIMB Research says in a note to clients a day after AmBank Group disclosed the penalty last Monday.

AmBank Group’s announcement to Bursa Malaysia about the penalty was vague and lacked details, prompting the stock exchange to demand for more information a day later.

In its Monday filing, it said only that it has “agreed” to pay RM53.7 million to Bank Negara and that the fine was with respect to non-compliance with certain regulations by its subsidiaries AmBank (M) Bhd and AmBank Islamic Bhd.

The penalty pertains to action pursuant to section 234 of the Financial Services Act (FSA) 2013 and section 245 of the Islamic FSA 2013, it said. Both sections 234 and 245 are in relation to administrative actions that the central bank can take in the event a breach is committed under the respective acts.

Upon being pressed by Bursa for details of the non-compliance, AmBank Group said: “Bank Negara’s action for the non-compliance came about because of weaknesses in our reporting systems and processes in place at the time, as well as inadequate skills on the part of some of our staff.

“The non-compliance did not result in financial losses either to AmBank Group, save for the penalty, or to its customers. Bank Negara has not placed any restrictions on the business operations of AmBank Group,” it said in a filing last Friday night.

On being asked by Bursa about the remedial actions it has taken, AmBank Group said it has strengthened its organisational structure in the area of compliance in order to improve its systems and processes.

“To strengthen the compliance function, AmBank Group has recruited a number of senior and experienced officers. For all of its staff, AmBank Group has increased and enhanced training and awareness programmes and, at the same time, senior management and the respective boards have heightened the oversight and improved the check and balance processes,” it said.

Industry observers say the two statements by the group on the matter raise even more questions than provide answers on what happened. Apart from the lack of transparency on what actually transpired to warrant the Bank Negara fine, there is also the matter of who should take responsibility for it.

Rumours are rife that a few individuals within the banking group have been told to go on leave.

In its Monday filing, AmBank Group also said it agreed with Bank Negara to a four-year programme of work towards achieving market best practices. It will set aside an average of RM25 million a year for four years for investments in systems, infrastructure and training to achieve this.

“It’s good the group is taking steps to improve its systems and processes, but that doesn’t answer what actually happened and I’m sure stakeholders are wondering what’s going on,” says a senior banker.

Both Bank Negara and AmBank Group declined to comment for this article.

Banking sources say the breaches may be related to the Anti-Money Laundering Act and Exchange Control Act, and that the penalty amount suggests there were multiple breaches.

Incidentally, last Monday — the day of the group’s revelation about the penalty — was Datuk Sulaiman Mohd Tahir’s first day on the job as group CEO of AMMB and CEO of AmBank. Sulaiman was formerly the head of CIMB Bank Bhd.

The previous head of AMMB, Ashok Ramamurthy, stepped down on April 1 to return to Australia to take on a senior executive role at Australia and New Zealand Banking Group Ltd (ANZ). ANZ is the single largest shareholder in AMMB with a 23.78% stake.

It is understood that T C Kok, the long-serving CEO of AMMB’s investment banking subsidiary AmInvestment Bank Bhd, left the group earlier this month upon the end of his contract and reaching the retirement age of 60. Pushpa Rajadurai — managing director for wholesale banking coverage — is now its acting CEO.

Sulaiman will have his work cut out improving the group’s image after several setbacks this year.

Earlier in July, AmBank Group came under the spotlight when the Wall Street Journal alleged in an article that nearly US$700 million may have moved through government agencies and state-linked companies to Prime Minister Datuk Seri Najib Razak’s personal accounts in the group.

The Malaysian Anti-Corruption Commission says the money was a donation from the Middle East. Najib has denied taking the money for personal gain.

Meanwhile, AMMB’s share price has not fared too badly despite the recent developments. The counter fell by 3 sen a day after it disclosed the penalty. But on a week-on-week basis, it gained 1.1% or 5 sen to RM4.64 last Friday.

Bloomberg data shows that most analysts have a “hold” call on the stock, with the average target price at RM4.97.

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