Bank Negara Malaysia warned Tabung Haji five times about its deteriorating finances and asset-liability mismatch before its eventual restructuring.
PETALING JAYA: Tabung Haji was warned five times by Bank Negara Malaysia about its deteriorating financial position before the institution was forced to undergo a restructuring exercise, the Dewan Rakyat was told today.
Minister in the Prime Minister’s Department (Religious Affairs) Dr Zulkifli Hasan said the central bank had raised concerns from 2014 over the impact of Tabung Haji’s practice of paying high profit distributions despite its already low reserves.
He said the warnings centred on the widening mismatch between the institution’s assets and liabilities, which could have posed a systemic risk to the country’s financial stability if left unresolved.
“Bank Negara issued five series of warning letters to the Tabung Haji chairman and the minister in charge of religious affairs at the time regarding the mismatch between Tabung Haji’s assets and liabilities,” he said when explaining the findings of the Royal Commission of Inquiry (RCI) into Tabung Haji.
Zulkifli said the warnings were not issued once or twice, but five times, with the authorities stressing that corrective action was needed to ensure the institution did not breach the law.
However, he said the warnings were not given due attention or acted upon by Tabung Haji’s management at the time.
He likened the situation to an emergency fund being depleted while spending continued at a high rate, eventually leaving the institution exposed to potentially severe consequences if depositors made large-scale withdrawals.
“The position of Tabung Haji at that time had the potential to create systemic risk to the stability of the country’s financial system,” he said.
The warnings were later followed by a reprimand from the Auditor-General over Tabung Haji’s 2017 financial statements.
Zulkifli said the Auditor-General had issued an emphasis of matter over changes to the impairment policy made twice in the same year, which he said resulted in higher reported profits for 2017.
Following the change of government in 2018, the new Tabung Haji board appointed PwC to reassess the institution’s financial position and performance based on applicable accounting standards.
Zulkifli said the reassessment revealed a critical situation, with the gap between Tabung Haji’s assets and liabilities exceeding RM10 billion by the fourth quarter of 2018.
He said the institution then had only three months to find a solution.
“If assets did not exceed liabilities at the end of the year, Tabung Haji could not declare a profit distribution for 2018 and risked facing panic withdrawals or a large-scale bank run,” he said.
He said efforts to secure standby financing as a precaution against possible mass withdrawals also failed.
The government, meanwhile, faced potential liabilities of about RM74.5 billion if Tabung Haji collapsed, as all deposits with the institution were fully guaranteed by the government.
Zulkifli said panic withdrawals eventually occurred in 2019, with net withdrawals of about RM6 billion recorded within a short period after a 1.25% hibah for 2018 was announced early that year.
He questioned how much larger the withdrawals might have been had no hibah been declared.
“In technical terms, Tabung Haji at that time was insolvent and needed to be rescued,” he said.
The financial position ultimately forced the Pakatan Harapan government to undertake what Zulkifli described as a bailout through a restructuring plan aimed at restoring Tabung Haji’s solvency and ensuring its long-term sustainability.
