FORMER Bank Negara Malaysia (BNM) assistant governor and adviser Nor Mohamed Yakcop takes the stand as the third witness on the fifth day of the Royal Commission of Inquiry into the central bank’s colossal foreign exchange losses in the early 1990s.

Nor Mohamed was in charge of the bank’s foreign exchange activities during the time.

Earlier, former BNM governor Dr Zeti Akhtar Aziz was called to the stand, and she began her statement by saying that her first direct involvement in the bank’s reserve management was during her assignment to the London office where US$200 million was allocated for the central bank’s investments.

Zeti was posted to Bank Negara’s London representative office from 1989 to 1994 as the chief representative. 

According to the RCI’s first witness, former accounts manager at BNM Abdul Aziz Manaf, Dr Zeti had instructed him to gather information and prepare a report on the forex trading starting from 1989 to 1994.

The RCI panel earlier today heard statements from Ainum Mohamad Saaid, head of the advisory services in the legal chambers.

At the last sitting on August 30, former BNM deputy governor Lin See-Yan said he was not aware if Dr Mahathir Mohamad, who was then prime minister, was briefed on the losses incurred by the forex trading activities.

He told the panel that Anwar Ibrahim, who was then finance minister, was “unhappy” about the reports of the losses.

In the first three days of hearings, the panel has also heard from former senior auditor Kanason Pothinker that BNM ignored repeated warnings that leveraged foreign exchange trading were not compliant with rules and regulations.

Kanason, 78, said his team found the central bank’s traders were “heavily engaged in the trading of currencies” amounting up to RM50 million per day.

He told the panel that he sought assistance from, and was “verbally” informed that BNM’s forex trading was not in compliance with the Central Bank Malaysia Act of 1958.

The former central bank staff had also told the RCI that there was lax supervision over BNM’s foreign exchange department.

Abdul Murad Kalid, who was then assistant governor, alleged on the first day of the hearing that the central bank suffered forex losses of up to US$10 billion. 

The Malaysian Insight brings you live updates from the proceedings:

9.05am: First witness for the day is Ainum, head of the advisory services in the legal chambers.

In her statement, Ainum responded to claims by former senior auditor Kanason that she had told him not to question the legality of the forex trading at BNM.

“I do not recall saying ‘orang atasan cakap jangan campur tangan’,” she said.

9.30am: Ainum said that while the Attorney-General’s Chambers “did not give any specific answer or direction” to the legality of BNM’s forex trading, the bank’s ordinance did not allow for forex trading.

“As I can remember, what happened is we were given a few legal provisions, under those provisions of the Central Bank Ordinance, which stated that BNM cannot do trading. BNM does not have the authority to do any trading in forex.”

Panel member Kamaludin Md Said then asked Ainum if, to her knowledge in the 1990s, the losses incurred by BNM over its forex trading were only RM9.4 billion, to which she answered “Yes”. 

10.05am: Dr Zeti Akhtar Aziz, former BNM governor, is called to the stand to give her statement.

“In June 1993, Murad Khalid told Jaffar Hussein, who was then the governor of BNM, about forex trading done by BNM.

“He was told of the massive exposure of BNM forex transactions. Murad didn’t provide the details regarding forex trading.”

She said she became aware of the forex losses suffered by BNM in the period from 1988 to 1994. In January 1994, “there was news about the serious development regarding reserve management in BNM”.

“At that time I was still working in the London office and I called a senior official in BNM to find out about what had happened, and was told that BNM has suffered significant losses from reserve management.

“I instructed Abdul Aziz to prepare a report regarding accounting treatment of reserve management from 1988 to 1994.

“The total losses suffered by BNM in forex trading in the years 1988 and 1989 are RM3.503 billion and for the years 1991 till 1994, the losses were RM31.506 billion. Profit was RM2.473 billion in 1990.”

10.30am: Zeti said while she was in London, she reported monthly to Nor Mohamed, whom she said was the manager of the banking department as well as the adviser.

She said foreign exchange activity was placed under the bank department.

11.03am: Tajuddin Atan said Jaffar, as the governor, had the “ultimate authority” in managing BNM and reserve management. He then asked Zeti what she believed was the reason Jaffar allowed the forex trade to move into such high levels of losses.

Zeti: That impression of the governor gives too much power to the governor, but the governor has to take full accountability on what happened. That happens at the commercial bank as well.

That’s all about governance and accountability, but in the bank and financial institutions, that role of the board is very important and the role of management is important as well.

The board says that management never escalated the information up to the board, and the board did not know what the management were going through. 

To what extent did he (Jaffar) know, or whether he was part of it, it was not clear. But he took accountability of it in a very honourable way. 

10.55am: Saw Choo Boon asked Zeti if the situation faced by BNM from 1992 to 1994 would repeat itself today, to which she answered that it would not as there is in place a system of checks and balances.

Zeti: 25 years have gone since that occurrence, and during that period it has not recurred because of the practices and the checks and balances.

This is despite experiencing a financial crisis, a very severe one, the bank did not collapse and reserves were not depleted, the central bank rose to the occasion to manage the crisis.

11.19am: Gurdial Singh asked Zeti if the finance minister at that time acquired information related to the banking operations directly from the governor, to which she said he obtained information from both the governor and the BNM’s board.

11.33am: Session breaks for 15 minutes.

11.50am: RCI hearing resumes with third witness Nor Mohamed called to the stand.

12pm: Nor Mohamed said that prior to 1985, BNM was not active in external reserves management, including forex trading, given the “relative stability in the international foreign exchange market”.

12.30pm: Nor Mohamed said during his time at BNM, he did not report directly to the finance minister or prime minister regarding issues of external reserve management as it was not in his reporting line, and said he “has very careful” not to execute any trade by himself.

“I was responsible for forex trading by BNM since 1986,” he said, reading from his statement.

“The chief dealer and dealers are allowed to buy and sell foreign currency based on their limits.

“I have never executed any forex trading. I do not remember the highest amount reached by forex trading done in a day.”

12.45pm: Nor Mohamed said he would often report to Jaffar regarding forex trading.

“I disagree that all reports relating to forex were only reported to me. I disagree that I only report to Jaffar Hussein. 

“I do not remember the limit on forex trading that was set on me. I do not remember the profits and losses faced by forex.”

12.58pm: Hearing breaks for lunch, to resume at 2.15pm. 

2.33pm: Hearing resumes with RCI conducting officer Suhaimi Ibrahim pointing out that the central bank’s forex dealings were aggressive, which representted a policy shift.

Suhaimi asks Nor Mohamed, “shouldn’t the prime minister be informed” of such policy changes?

Nor Mohamed replies that he does not “know whatsoever” what then BNM governor Jaffar told Dr Mahathir, who prime minister at the time, regarding the policy shift. 

2.51pm: Suhaimi referred to an internal report by Bank Negara’s Internal Audit Department manager Wong Yew Sen, who had said there was execssive speculation in the foreign exchange market. 

“If I didn’t take speculative positions, (the currencies could move against the ringgit) and then I would have been accussed of not hedging in advance,” Nor Mohamed said. 

Asked why did he allow speculative trades, Nor Mohamed replied, “Because it was my job. Why? It’s for my country. 

“We should learn from mistakes. Bank Negara learnt from my mistakes.”

3.02pm: Suhaimi asks Nor Mohamed how forex traders were controlled since Bank Negara’s External Reserve Committee had agreed to a US$30 million limit on traders.

“If you don’t have any control, how do you know they’re trading within the limit?”

Nor Mohamed replies there is another division in the central bank’s banking department that monitors the traders’ limit. 

3.28pm: RCI panellist Tajuddin Atan ask Nor Mohamed what is his view on BNM’s policy on forex trading, if he was the one who decided on the active positions of the central bank’s trades and if this was reported to the finance minister or prime minister.

Nor Mohamed replies: “The decision to be active in reserve management, including forex, was made by the senior management, board of directors, governor and deputy governor, at that level in 1985.

“It was not made by me because I was not (in) a senior management (position). I was only a deputy manager. I only became a manager in 1986. The decision was not made by me.

“My view is it is an excellent decision because that was the right reaction to whatever (was) happening in the world. And I believe the expertise that comes from them would be useful. And the senior management, through its weekly meeting, was aware of the active reserve management. ERC was aware.

“Can you imagine a situation where we have a committee from 1985 to 1993, and this thing was going on and the deputy governor did not know what was going on?

“If you are not aware, what kind of deputy governor are you? The point is that, people were aware but how much they were aware, I do not know. But I tried my best to give information to them and others tried to give information as well.” 

3.38pm: Tajuddin asks Nor Mohamed since he did not report to the prime minister or finance minister on forex trading, did the deputy governor or governor do so.

“I do not know,” replies Nor Mohamed.

“On the basis of probability, most probably it (the information) goes to the prime minister and finance minister. BNM always discusses policies with them. That is the way BNM operates. In all probability, I think this was discussed, but personally, I do not know because nobody told me.” 

3.41pm: RCI proceedings end for the day with Nor Mohamed Yakcop’s testimony. Inquiry to resume tomorrow at 9am. – September 6, 2017.