KUALA LUMPUR (July 27): Former Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz told the High Court on Thursday (July 27) that prior to the central bank's investigations into 1Malaysia Development Bhd (1MDB), she had sent several letters to Datuk Seri Najib Razak expressing concern over 1MDB's debts, but received no response.

She said it was unusual for the then prime minister, who was also the finance minister at the time, to not respond to her letters.

Zeti, who turns 76 next month, said one of the letters she sent to Najib was dated July 23, 2014, which detailed 1MDB’s high and increasing debt levels, the repayment challenges faced by the group, and the restructuring of a loan from domestic banks.

“The letter highlighted the group’s significant exposure to foreign exchange rate fluctuations. Cumulatively, it could have potential implications for Malaysia's sovereign ratings and the government’s overall fiscal position in the event of a default by 1MDB.

“In the said letter, BNM also urged Najib to increase the transparency around 1MDB’s debts and operations, and to contain any further increase in its debt levels,” she said.

Zeti, the 46th prosecution witness, then said she again wrote to Najib on Jan 16, 2014, on behalf of BNM, to express concern about 1MDB and the implications a default would have for the government’s fiscal position.

“In the event that the loan due by 1MDB was not repaid within the extended deadline granted by the lenders, the lenders could then proceed to declare an event of default. In the said letter, BNM highlighted that in such an event, it could result in the immediate crystallisation of an equivalent of RM16.6 billion in contingent obligations of the government, arising from the explicit guarantees that had been provided for the debts.

“These are government guaranteed debts, which are obligations of the government that must be met. In addition, there could be a possible consequent downgrading of Malaysia's sovereign rating," she said.

Zeti also testified that the letters had been received by Najib at his Ministry of Finance office.

The former central bank governor pointed out BNM, at the time, had no knowledge of the fact that the funds meant for investment by 1MDB had been remitted into accounts that were unrelated to 1MDB’s investment declaration.

“In fact, at that material time, BNM did not have knowledge that the funds in Najib’s accounts were from 1MDB,” she said, adding this was only known following an arrangement of exchange of information among foreign authorities, and a subsequent confidential disclosure BNM received on March 15, 2015, involving a foreign entity that had transferred a major sum to fugitive businessman Low Taek Jho or Jho Low.

During the examination in chief by deputy public prosecutor Ahmad Akram Gharib, Zeti reiterated that there had been no response from Najib, despite the warnings highlighted by the central bank via the letters that were hand-delivered to Najib's office.

She said BNM actually raised concern over 1MDB’s debts as early as 2013 — prior to the issuance of the two letters — as 1MDB's debts had been noted by BNM's Financial Stability Committee (FSC), which meets four times a year and one its agendas is the discussion of any corporates with debts exceeding RM2 billion; 1MDB was first on the list.

Zeti said 1MDB is considered a systemically important organisation to the country because if something happens to 1MDB, it would have rampant implications for the financial markets and the economy. Therefore, 1MDB has been under BNM's radar.

“This was also highlighted to Najib, who also attended the FSC meeting in his capacity as the minister of finance,” the former central bank governor added.

Akram: That was why you also voiced your concern by writing these two letters (in July 2014 and January 2015).

Zeti: Yes.

Akram: You did not receive any response from Najib. Is this normal?

Zeti: It is not normal, as there had been other letters (not related to 1MDB) which BNM sent, and we received a response from Najib. But in this, I did not recall receiving any response.

Zeti was the BNM governor from 2000 to 2016. She will be continue being re-examined by the prosecution on Aug 14 before judge Datuk Collin Lawrence Sequerah.

The Edge is covering the trial live here.

Users of The Edge Markets app may tap here to access the live report.

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