Photo for illustrative purposes only. Customers at a Tabung Haji counter in Johor, Malaysia, on July 22, 2019. Shutterstock

Islamic Finance

Malaysia’s Tabung Haji placed under central bank regulation as ‘interim solution’ – finance ministry

Malaysia’s Lembaga Tabung Haji, the pilgrimage fund board, has been placed under central bank regulation as an “interim solution” to improve the institution’s management and operations, the ministry of finance said on Thursday (July 22).

Founded in 1963 to provide services to Malaysia’s Muslims to save for the haj, Lembaga Tabung Haji has been operating as a statutory body governed by the Tabung Haji Act 1995. The savings deposits that it accepts are put into Shariah-compliant investments to generate returns.

Lembaga Tabung Haji has been under scrutiny in the last three years when an audit review by PwC in 2018 showed, among others, that the company’s management had manipulated the profitability of the fund, and did not prudently record some 549 million ringgit in impairment losses on investments.

The previous government led by Mahathir Mohamad set up a special purpose vehicle that took over 19.9 billion ringgit of what it said were “underperforming assets”, in exchange for 10 billion ringgit in sukuk and 9.9 billion ringgit in Islamic redeemable convertible preference shares.

The move allowed Lembaga Tabung Haji to move forward with a recovery and restructuring plan.

The current government under prime minister Muhyiddin Yassin has now committed itself to improve the overall management and operations of the institution due to its systemic importance, according to the ministry of finance in a statement on July 15.  

Lembaga Tabung Haji will be placed under the regulation of Bank Negara Malaysia, the central bank, until the findings of a Royal Commission of Inquiry is tabled for further government consideration.

The central bank’s current regulatory scope, pending the completion of the Inquiry, is focused only on deposit-taking, as well as risk and liquidity management, said the ministry of finance.

The Inquiry will study the audit findings from 2014 to 2018 as well as recovery measures implemented by Lembaga Tabung Haji based on the findings until 2020.

The ministry of finance also said the government has agreed to list Lembaga Tabung Haji as a prescribed Islamic financial institution under Section 223 of the Islamic Financial Services Act 2013 that falls under the purview of the central bank.

Lembaga Tabung Haji is of systemic importance to Malaysia’s financial system as it holds 82 billion ringgit ($19.4 billion) in deposits, equivalent to 10% of the country’s Islamic banking deposits, and is the biggest shareholder of Bank Islam Malaysia Berhad, said the ministry of finance.

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