Malaysia's central bank admits huge forex losses
Malaysia's central bank admits huge forex losses
KUALA LUMPUR (Reuter): Malaysian central bank governor Jaffar Hussein said on Thursday the bank will give up forward foreign exchange trading after losing 15 billion ringgit (US$5.6 billion) over the last two years.
He told a news conference releasing Bank Negara's annual report that the bank lost 5.7 billion ringgit ($2.13 billion) in foreign exchange trading in 1993, after losing 9.3 billion ringgit ($3.48 billion) in 1992.
Asked if he was resigning from the bank, which has a global reputation for being adventurous in foreign exchange trading, Jaffar said he would do "whatever it takes".
"I suppose that is the most reasonable thing to do but if there is any development in that direction, you will soon know," he said.
Money dealers and financial analysts said Finance Minister Anwar Ibrahim was expected to announce Jaffar's resignation on Friday.
Attributing the losses to bad judgment, Jaffar said several people in the bank's treasury department had resigned.
He said the bank had wound down all its forward positions and would confine itself in the future to spot trading to manage its international reserves.
"An unfortunate chapter in the bank's history is now closed," he said in a preface to the annual report.
Insolvent
Speaking to reporters later, Deputy Governor Lin See Yan acknowledged the bank could be considered technically insolvent due to its forex losses, if not for its backing from the government.
"If you are a commercial bank you are in trouble if the shareholders don't back you," he said.
The bank's 1992 losses were largely a result of the collapse in sterling when Britain withdrew from the European Exchange Rate Mechanism. The report attributed the losses in 1993 to unwinding forward positions taken the year before.
Jaffar said the losses would be written off against future profits.
The bank reported an operating loss of 712 million ringgit ($263 million) in 1993 -- its first ever.
Jaffar said in the report the bank had to take forward foreign exchange positions to protect itself from "unilateral G-7 (Group of Seven industrialized nations) decisions" and "speculative gyrations" in the foreign exchange markets.
"At times the bank's actions have been regarded as unconventional, but these are unusual times where the conventional wisdom is often found wanting in providing the lead to meet the unusual challenges."
The bank's task of managing the country's reserves has become increasingly complex, due to the size of Malaysia's international reserves and gyrations in world foreign exchange markets.
Despite the huge losses Malaysia's international reserves actually surged over the past year, thanks to a huge inflow of foreign funds drawn by a buoyant stock market, high interest rates on deposits and a strong ringgit.
International reserves rose to 76.4 billion ($23.3 billion) at the end of 1993 from 47.19 billion ($18.4 billion) the year before, the report said.
Jaffar said the bank took an aggressive posture toward managing reserves. "In the absence of perfect foresight, mistakes will be made; indeed, mistakes were made."
He said the bank had installed new measures to make its trading activities more transparent to avoid costly errors in the future.