LAST month, Bank Negara Malaysia (BNM) governor Nor Shamsiah Mohd Yunus reportedly said the central bank is in the advanced stages of assessing the applications for digital banks and it target to announce the digital banks with the publication of BNM’s annual report at the end of March 2022.

She also said BNM had received 29 applications and as it intends to license a maximum of five, it needs to thoroughly evaluate each and every single application.

In the Licensing Framework for Digital Banks policy document issued by BNM on December 31, 2020, it states that BNM will assess the shareholders of the applicants with regard to factors set out in schedule 6 of the Financial Services Act (FSA) and Islamic Financial Services Act (ISFA), which states among others the following:

“The character and integrity of the applicant, or if the applicant is a body corporate, its reputation for being operated in a manner that is consistent with the standards of good governance and integrity”.

Schedule 7 of the FSA and IFSA – List of Prohibited Business Conduct – further states the following:

1. Engaging in conduct that is misleading or deceptive, or is likely to mislead or deceive in relation to the nature, features, terms or price of any financial service or product.

2. Inducing or attempting to induce a financial consumer to do an act or omit to do an act in relation to any financial service or product by –

– making a statement, illustration, promise, forecast or comparison that is misleading, false or deceptive;

– dishonestly concealing, omitting or providing material facts in a manner which is ambiguous; or

– recklessly making any statement, illustration, promise, forecast or comparison which is misleading, false or deceptive.

3. Exerting undue pressure, influence or using or threatening to use harassment, coercion, or physical force in relation to the provision of any financial service or product to a financial consumer, or the payment for any financial service or product by a financial consumer

Paragraph 12 of the licensing procedures policy document also states the applicants must outline measures to address customers’ queries or complaints.

One of these applicants was BigPay, a portfolio company in the Capital A group of business (formerly AirAsia Group Bhd), who announced on July 1 last year that they have put together a strong consortium of strategic partners, which includes Malaysian Industrial Development Finance Bhd and Ikhlas Capital to support its application for a digital bank licence.

Capital A Bhd was classified as a Practice Note 17 (PN17) company following its failure to secure an extension of relief period from Bursa Malaysia on January 14, 2022.

The PN17 classification or its predecessor PN4 was introduced by Bursa Malaysia to companies listed on Bursa subsequent to the financial crisis that struck the nation in 1997, where many listed companies were forced into a financial distress status after the stock market fell almost 54% within a few days. Firms that enter the financial distress status generally are faced with either a liquidity issue, which could be temporarily or a debt overhang. The classification also is to allow and alert investors of companies in financial distress as early as possible at the onset before it develops into a more serious issue.

Obviously it is not a simple accounting and structuring issue, as the founder of AirAsia put it. Maybe the other 25 other companies classified as PN17 together with AirAsia Group Bhd and AirAsia X will agree and concur with this statement. Does Bursa Malaysia, the Securities Commission and the Audit Oversight Board agree too?

What is an accounting and structuring issue and not the liquidity or profitability of the company is the RM33 billion that AirAsia X will write back to profits in the next quarter pursuant to the completion of its debt restructuring.

If the triggering of the PN17 status is merely due to a lease AirAsia never paid and should not be in the profits and losses as claimed by the founder, why is Ernst & Young, the external auditor, insisting that the company carry this amount in their books?

If it is a lease AirAsia never paid, then this is consistent with the past behaviour of the AirAsia group in its long running dispute with Malaysia Airports (Sepang) Sdn Bhd (MASSB) over outstanding passenger service charges, aircraft parking and landing charges, as well as aerobridge charges, check-in counter-charges, and late payment charges, which ended with the Court of Appeal dismissing an appeal by the low-cost carrier to strike out MASSB’s claim after many years.

It was ironic that AirAsia X argued that the increased charges could not be justified due to “substandard facilities and services they strongly believe should not be imposed on passengers with higher fares”.

AirAsia Group demonstrated the same substandard services when it either ignored or refused to respond and state publicly on whether they will refund the amount of approximately RM600 million owed to customers who, due to the pandemic, were not able to fly. These passengers did not demand for the refund. Granted that unlike KLM, which has a blanket no-refund policy, the refund was an option given by the AirAsia Group to for them to either opt for a cash refund or take a credit voucher. Capital A has yet to respond to these passengers, who have taken to social media to voice their frustrations.

At the onset of this pandemic, the group claimed they handled more than half a million of queries from their customers, which apparently is 10 times their normal volume. Subsequently, the group moved response from queries by customer to virtual chat box “Ava”. Although AirAsia posted screenshots showing how to navigate the chat box’s service flow, with expanded customer service on the airline’s live chat as well as social media including Facebook, Twitter and WeChat, customers still found the virtual chat box difficult to use.

This was especially when the mechanism failed to offer a satisfactory resolution and the customers wanted to reach a human for response.

A casual check on any social media group posts will reveal continued public dissatisfaction on their queries from the AirAsia group support centre. If this can happen at the group level, what assurance can BigPay give to address customer queries or complaints adequately?

Yes, Capital A and BigPay may be able to meet all other requirements set out in the Licensing Framework by BNM for Digital Banks and qualify for a licence. Yes, the AirAsia Group has contributed significantly to the economy and employment of Malaysians. Yes they have led and contributed to more Malaysians flying.

But if their corporate behaviour is in shortfall of schedule 6 and 7 of the FSA and IFSA, the finance minister and BNM will find it difficult to award a licence to the consortium led by BigPay.

In view of recent developments, BNM might also want to know the sustainability of the holding company, Capital A Bhd on how and where would they source for new funds to replace the RM500 million the group has rejected for the bonds to be guaranteed by Danajamin. Yes, the amount is for Capital A and BigPay is adequately capitalised in accordance with the framework but any issues that affect the sustainability of the business of Capital A definitely would have an impact of the sustainability and viability of BigPay as a licensed digital bank.

No amount of corporate or legal gymnastics will be able to explain away the corporate behaviour of the holding company of this applicant.

Will BNM delay this announcement to enable Capital A to emerge from their PN17 status for the award of the licence or does it believe the above corporate behaviour is acceptable and will not influence their decision to award the digital bank licence to the consortium? – March 22, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.