As I sat down with Rafiz Azuan Abdullah, the CEO of PIDM or Perbadanan Insurans Deposit Malaysia and asked my questions, it occurred to me that this man is truly at peace with doing a thankless job.
If you’re unfamiliar with what PIDM does, they are basically a government authority that provides protection for your deposits, as well as takaful and insurance benefits in the unlikely event a PIDM member institution fails.
For example, let’s say Bank X somehow goes bankrupt and you have RM10k saved there. As Bank X is a PIDM member bank, PIDM will make sure you get your RM10k back immediately.
The good news is there hasn’t been a financial institution failure in Malaysia since the Asian Financial Crisis which happened more than 20 years ago… which comes to the question: what does PIDM do when things are smooth sailing in the financial system?
Let me share with you my interview with Rafiz, and together we’ll find out what PIDM gets up to behind the scenes.
View this post on Instagram
#Q1 – What’s your background? How did you end up in PIDM?
“My background is in accounting and finance. I previously worked with Rating Agency Malaysia (RAM) and was part of the Corporate Debt Restructuring Committee (CDRC),” said Rafiz, throwing all these words around like it was nothing. “I joined PIDM in 2007, shortly after its establishment in 2005.”
In his previous roles, Rafiz was kept busy dealing with the aftermath of the 1997-98 Asian Financial Crisis. He has extensive experience and specialises in analysing financial institutions. Basically, he checked how big of a mess companies were in, then found ways to resolve and restructure them.
In his work as CEO of PIDM, he does two big things:
- Tells the public not to worry (because better mechanisms are in place now to tackle failing member institutions, if and when they do happen), and
- Works with other financial safety net players to prevent failures from happening, and at the same time, figure out ways to reduce the impact of a bank or takaful/insurance company failure if it does happen.
I was curious about the second part.
#Q2 – Is there going to be a financial crisis?
Since it’s not often that I get to interview heads of financial regulatory bodies, I had to ask the golden question: Are we in for a financial crisis anytime soon and, how ready is PIDM for it?
“It’s not a matter of ‘if’ but a matter of ‘when’,” said Rafiz, “and PIDM is ready for it regardless of when it happens.”
“In a situation involving a PIDM member bank failure, we have mechanisms in place to automatically process payments (reimbursements) to depositors and ensure continued access to financial services. During normal times, or business as usual, we do our best to assure people that their insured deposits are always safe.”
What else happens during business as usual, I asked?
“We encourage good risk management among our member institutions, which are both conventional and Islamic banks, and takaful and insurance companies. How we achieve this is by charging higher premiums to member institutions that take higher risks and vice versa.”
“To ensure a holistic view, we work and coordinate with Bank Negara Malaysia as they are the primary supervisor for the financial system.”
#Q3 – Where does the money to pay depositors come from?
I was too young during the 1997-98 financial crisis, but even I can picture how bad it must have been. I have seen those news stories showing angry mobs at banks in other parts of the world, demanding their money back.
It’s hard to imagine it, but not all countries around the world have PIDM-like agencies. Only 133 or so countries have this type of organisation. We’re one of the lucky ones.
I wondered where PIDM gets the money to reimburse to all affected depositors. We’re talking about at least a few hundred million RM they need to have on hand at all times, right?
“The money comes from the premiums paid by all of our member banks. It’s collected in a fund all this while, always ready to be used to reimburse depositors.”
(Rafiz explains that a similar fund is collected from levies paid by PIDM’s insurer members, which will be used to pay takaful certificate/insurance policy owners when they need to make claims on their eligible benefits in the event of an insurer member failure.
PIDM’s member institutions include conventional and Islamic banks, insurance companies and takaful operators. Here’s how to spot them.)
And is the pay-out process to depositors automatic?
“Yes, it is automatic. To ensure this, PIDM carried out internal simulations and continuously tests out the funds disbursement process. We check how long it takes and find ways to improve the process and speed. The mechanism is good, but it would be useless if people don’t know about it.”
“That’s why we have the public outreach component. The main thing is to prevent depositor panic. In case a PIDM member bank fails, for example, you need to know that you don’t have to barge into your bank to demand your money. The disbursement process is made automatically.”
#Q4 – PIDM has been called the firefighter equivalent in the Malaysian financial system. Is that a good analogy?
“We’ve been called a lot of things, and yes, firefighter is one of them,” he laughed, “but maybe a doctor is better? We advise our member institutions on how they can better manage their risks (prevention advice), but if needed we’re ready to dispense the medicine and perform the surgery too.”
#Q5 – Deposits protection is free and automatic under PIDM and covers depositors up to RM250,000 per depositor per member bank. Any plans to increase that amount?
“No, we have no plans to increase the amount as it is still adequate. With effect from 31 December 2010, the deposit protection was increased from RM60,000 to the current RM250,000,” Rafiz explained.
“We carried out a survey towards the end of last year and we found that the amount is sufficient to protect 97% of depositors in full. For deposit protection to be effective, it would need to protect at least 90% of depositors and PIDM has well exceeded this benchmark.”
Fair enough. But readers, you can get protection if you have more than RM250,000 – you just have to be clever about it. See the PIDM-approved deposit protection hacks under #6 in the What Does PIDM Do article.
#Q6 – What are some of the hardest parts of your job?
“Well we have different stakeholders and each of them comes with their unique challenges,” said Rafiz good-naturedly.
“With the public, it’s always the ‘it would never happen’ challenge. Things have been going well all this while so that makes it harder for them to remember the details about PIDM’s protection. The last big financial crisis was two decades ago. Many people didn’t live through that, or were too young then.”
“Plus, PIDM doesn’t have a call-to-action – all you have to do if something happens is to do nothing. So it’s not particularly exciting.”
(That’s cool with me. I can do nothing. I’m a pro at doing nothing.)
“We just have to keep reminding the public however way we can, whether it’s through a mass advertisement campaign or direct on-ground engagements. Our public awareness level for PIDM currently stands at 63%. We’re aiming for 65% going forward.”
“With the member banks and insurer members, on the other hand…,” he smiled, “They sometimes ask us why they need to continue paying premiums if nothing is happening. We just have to keep reminding them that it’s necessary to be prepared for any eventuality.”
Ha, I can somewhat relate to the banks and insurers here. It’s like the insurance policy you take when you’re healthy – you know it’s good for you but it may be hard to see the point of it until disaster strikes.
#Q7 – What projects are in the pipeline for PIDM?
“It’s mainly improving what we have in place,” said Rafiz, “We have ‘defence’ and ‘offence’ strategies.”
I asked further. The PIDM team considers ‘defence’ as improving legislation and the mechanisms put in place to ensure the protection of depositors and takaful certificate/insurance policy owners in the event of a failure.
“Our current system can do it within 3 working days, and we’re working towards implementing a seamless pay-out process,” said Rafiz.
On the other hand, the ‘offence’ part is the public awareness initiatives carried out by PIDM, both online and on the ground. “We are part of the newly-formed Financial Education Network or FEN as well, and we want to play a bigger part in contributing to a more financially-literate community.”
“Aside from that, we’d really like to improve on our online presence to reach out to young people like yourself, who are connected 24/7. We’re also developing several thought leadership articles on topics related, but not limited, to financial crises.”
Oh I would love to read that. I wonder all the time how a financial crisis happens, what are the red flags, etc. Many of the literature I’ve read on financial crises tend to relate to the US and I would appreciate articles and case studies that have a more Malaysian perspective to them.
Like I said in the beginning. What the PIDM team does is a thankless job, but someone has to do it, and I’m glad Malaysia is among the countries in the world with organisations like PIDM.
I want to thank Rafiz Azuan Abdullah and PIDM for having me to spread their public awareness initiatives. This is our fourth collaboration together, and each one has been a joy. Thank you for doing the work you do, and for protecting my money.
See our previous collaboration articles below:
- [SPONSORED] What Does PIDM Do and Why Should YOU Care?
- [SPONSORED] What Rich Malaysians Do With Their Money (That You Don’t)
- [SPONSORED] Malaysians Share Scams in Malaysia They Fell For (or Almost)
Go and follow PIDM’s Facebook page. Sometimes they organise contests and stuff. They will also produce more financial literature, so be sure to check that out.