FORMER Bank Negara Malaysia (BNM) governor, the late Jaafar Hussein, was unaware of the “magnitude” of the central bank’s forex losses, which former assistant governor Abdul Murad Khalid alleges to be at least US$10 billion (then RM25 billion).

Murad, who took over as manager of BNM’s Banking Department in April 1992, told the Royal Commission of Inquiry (RCI) today that he learned of the heavy losses incurred by the central bank’s Foreign Exchange Department only in May that year.

He said he had informed Jaafar in June that year of the losses.

“I only learned privately of the forex losses,” Murad told the five-member RCI panel, led by Petronas chairman Mohd Sidek Hassan.

He said the central bank had US$20 billion in its reserve, but had a total exposure of “seven to eight times the reserve”.

Murad spoke about the leveraged forex trading that BNM’s traders engaged in.

“This is more or less gambling, hoping that whatever you buy increases its price before you sell.

“The transactions were closed to the management. The governor was not aware. Only one or two people were in the know about the total exposure.”

He said losses were not necessarily captured in the central bank’s profit and loss (P&L) statements.

“Ten transactions may be successful (in generating profit), but 90 other transactions, you hide. You allow it to roll over. You hide the true transactions from the governor.

“I can tell you that the governor was not informed at all of the magnitude of the transactions.”

RCI panel member Tajuddin Atan said he “refused to accept that the institution of that magnitude” could have no knowledge of the losses, and said there must have been procedures to inform the governor and deputy governor.

Murad said: “The governor was aware of this (the losses), but he was not aware of the magnitude.”

He said when he took over, he found that the central bank’s trading arm had RM150 billion in open positions.

“Forward transactions were not reported to the Accounts Department. The dealers just went ahead. So, the hole just got bigger and bigger.

“If a foreign bank requires a settlement, that’s when the Accounts Department knows (that there has been a loss).”

Sidek said: “I’m not schooled in all these, unlike you bankers. To have that kind of loss… that can happen in our house, I find that a bit odd unless we close our eyes and our ears (to all this).

“I somehow cannot reconcile that only one single person knew about the losses. I think many people knew about the enormity of the exposure.”

Asked why the losses were not captured in P&L statements and made public, Murad said: “To me, it’s political. You want to show the losses?”

He maintained that BNM’s reserve would have an additional RM100 billion today if not for the losses incurred 25 years ago. – August 21, 2017.