KUALA LUMPUR (Sept 23): The rapid growth of Islamic banking and takaful in Malaysia highlights the need for recovery and resolution processes to align with shariah requirements, according to Bank Negara Malaysia (BNM) governor Datuk Seri Abdul Rasheed Ghaffour.
Speaking at the National Resolution Symposium 2024, organised by the Malaysia Deposit Insurance Corporation (PIDM), Abdul Rasheed emphasised the importance of integrating shariah considerations into mechanisms like asset sales, liquidity support, and restructuring efforts for Islamic financial institutions.
“For example, the unique features of Islamic financial products must be carefully considered during a resolution to ensure customers’ rights are preserved, particularly for shariah contracts that entail Islamic banks carrying on fiduciary roles while ownership of assets belongs to customers,” he said.
Abdul Rasheed further noted that adherence to shariah principles in recovery and resolution efforts ensures consistency with Islamic values, mitigates legal and reputational risks, as well as promotes market confidence in the Islamic financial system.
Echoing this sentiment, PIDM chairman Datuk Seri Dr Zukri Samat said: “As we strive to sharpen Malaysia’s global leadership in Islamic finance, we must intensify efforts to anchor on shariah principles — to ensure that the resolution of Islamic member institutions can be conducted in an orderly and shariah-compliant manner."
PIDM, as the resolution authority for its member institutions, and BNM jointly developed separate policy frameworks for recovery and resolution planning to strengthen the crisis preparedness and resilience of Malaysian financial institutions.
Recovery planning, led by BNM, ensures that banks can respond effectively to financial distress and are capable of restoring viability during times of severe stress. Resolution planning, led by PIDM, ensures that banks can be resolved in a prompt and orderly manner without severe disruption to the financial system.
Last year, PIDM issued resolution planning requirements to its member banks. This initiative will be implemented in phases sequentially to BNM’s implementation of recovery planning, guided by the principle of proportionality, depending on the bank’s size and complexities.