Malaysia's bid for BRICS membership to spur banking overhaul

However, challenges abound when moving away from U.S. and SWIFT reliance.

Malaysia’s bid to become a member of BRICS could change how the local banking system operates, with a senior official from a local banking association touting the potential to break away from U.S. influence.

For Mohd Prasad Hanif, Secretary General of the Association of Development Finance Institutions Malaysia (ADFIM), joining BRICS will reduce the impact of U.S. decisions and sanctions, particularly on the geopolitical front.

“Now, the BRICS alternative system will essentially enhance the economic sovereignty and stability for member countries by reducing the impact of U.S. economic policies and sanctions,” Hanif told attendees of the Asian Banking & Finance Forum 2024’s Kuala Lumpur leg.

In mid-June, Malaysian Prime Minister Anwar Ibrahim declared his intention to apply for BRICS membership, with the application sent in August. If successful, Malaysia will become part of an intergovernmental organization that includes China, Russia, India, South Africa, and the UAE, among other nations.

This means possibly moving away from reliance on SWIFT—a move that presents both opportunities and challenges.

“This system can lower transaction costs. Of course, when you have a competing alternative system to SWIFT, you'll be able to negotiate better costs by avoiding currency conversion and intermediary banks, fostering greater economic cooperation among those nations,” Hanif noted.

Having an alternative trade settlement system can also spur financial innovation and inclusion by leveraging fintech advancements to improve access to financial systems, the Secretary General said.

“It also provides resilience against Western countries, allowing member countries to pursue independent foreign policies without financial repercussions,” Hanif said.

Increased economic cooperation with BRICS can lead to more diversified investment opportunities and the development of new financial products, he added.

Many challenges abound, the biggest being the need for substantial investment in technology, regulatory frameworks, and financial infrastructure.

“Coordinating financial regulations and policies amongst diverse BRICS countries could be difficult and potentially lead to inefficiencies and conflicts as well,” Hanif said.

Malaysia will also need to carefully balance its relations between Western countries and BRICS.

However, “The challenges of currency volatility and liquidity risks associated with using local currency can increase the complexity of financial transactions and risk management for banks,” Hanif warned, adding that the potential for geopolitical tensions within BRICS could create an uncertain regulatory environment.