Tabung Haji- a case of impious conduct?

The dust on the Tabung Haji issue has not settled down. It is still controversial. Some members of the opposition party have accused TH of doing creative accounting.

Utusan Malaysia has accused MP Rafizi Ramli of going after cheap publicity. He has done a detailed analysis on Tabung Haji. He has sent it out on the internet. He has criticized the accounting done by Tabung Haji.

 Tabung Haji has denied it has done creative accounting. Utusan Malaysia joined in the chorus. It says what I have stated about cheap publicity.

Utusan Malaysia also said Rafizi was not sincere. If the MP was sincere, says Utusan, he would have met up with Tabung Haji officials. Then the officials can explain to him. In the case of some PAS leaders, TH did so. After hearing the explanation and shown some of the business projects TH is undertaking, the PAS leaders said they were satisfied.

The proof of Rafizi’s sincerity is in the detailed accounting analysis. We must accept it as being the same as the sincerity shown by PAS people. He showed it by concrete analysis. So people can understand them. PAS shows its sincerity by meeting up Tabung Haji officials.

Some people can be easily assured by a narration based on faith. So, many will accept the PAS way of doing it. Others who also have faith, want their camels outside, to be tied.  While we have faith in the assurances given by God fearing people, we want to be further assured by concrete analysis.  Why not study Rafizi’s analysis with an open heart? All Tabung Haji needs to do, is to respond to Rafizi’s analysis if it is sincere.

This is not an issue about sincerity. The issue is about prudent financial management of an institution that looks out after the real Malay interest. Malays have got billions in the form of savings. Small compared to the money put in by institutional investors but big to individual investors.  They faithfully saved money to perform the 5^th pillar of Islam.

But if Tabung Haji makes bad investments or spends money unwisely, then it will have less money to provide quality services. It will have not enough to subsidise pilgrims going to Haj.  Tabung Haji subsidises up to RM9000 per pilgrim. Prudent financial management was the main issue raised by Bank Negara Malaysia.

 Size does matter.
The main issue is the size of reserves which is said to be unable to sustain the size of and profile of risks. Why are reserves regarded as important? We will explain shortly. 
The letter from Bank Negara suggests that Tabung Haji ought to have put more aside as reserves from each year’s profit.

The fact that the levels have gone negative or greatly reduced, implies that Tabung Haji has not done so. This is very risky says Bank Negara.

Reserves are required to meet emergency needs. They are needed to act as buffer for TH in lean years so that at least, TH has enough to cover it overheads and operates for a number of months. It ought to have sufficient money to cover the dividends and bonuses.

So what is the size of reserves?  That is what BNM is asking TH to answer. How much does THG need to run its business a month? RM500 million? How much is needed to operate for 6 months? RM3 billion. How much is the average amount paid as dividends and bonuses? RM3 billion. That would suggest a level of reserves to be around RM6 billion.

This level can sustain 6 months of operations and cover 1 year of bonuses and dividends.

We will look at the 2014 balance sheet. Admittedly this is historical. We would like to look at the 2015 balance sheet. It is not yet published.

From the 2014 figures we can see the amount of reserves. We have set them out in the Table below.

The amount is stated after deducting dividends given. For Tabung Haji as a group, the reserves amount was RM1.149 billion. For Tabung Haji alone, it was negative RM351 million.  

Table 1: 2014 figures for Tabung Haji Group and Tabung Haji.

description	THG	TH
Reserves	1.149	(0.351)
Profits before tax	4.560	2.98
tax	0.257	-
Profit after tax	4.30	2.98
Minority interests	2.514	2.442
Nett Profits	1.790	0.546

Now, let us look at the profit and loss figures. Again, the numbers are from the 2014 accounts. As a group, Tabung Haji made RM4.56 billion in profits. Tabung Haji alone made RM2.98 billion in profits before tax. For the year ending 2014, THG paid RM257.15 million tax while Tabung Haji paid no tax.  After paying taxes, the profit after tax for THG was RM4.305 billion. For Tabung Haji alone, it was RM2.978 billion.

What were the net profits? To arrive at the net figures, we have to deduct minority interests and write downs for shares and other investments. For THG, the fugure was 2.514 billion and for TH it was RM2.442 billion. So the net profits for THG and TH respectively were RM1.790billion and RM546million.

What did THG do in 2014? It made a profit of RM4.3 billion. From this amount they ought to have deducted RM2.514 billion. This means that the net profit was only RM1.79bilion. This is the current year’s profit. This profit must now be added to the amount of distributable reserves which for 2014, was RM202.711 million. That would have made the amount available for dividends and bonus pay-outs as RM2 billion.

And how much did Tabung Haji pay out as dividends in 2015? They paid RM3.2 billion. Which means, the pay-outs exceeded the level of distributable reserves and current profits by RM1.2 billion.

If TH uses the same principle for 2016, then there is cause for worry. The golf loving minister announced the current year’s profit of RM3.5 billion. Not all can be ploughed back into reserves. It has not set aside for minority interests such as losses in the share market and reduced asset values. If these are deducted for and the balance added to the distributable reserves, the amount paid out may also exceed what is prudently sanctioned.

The net profit is therefore not RM3.53 billion as the minister ignorantly announced. Not all the reserves can be taken out. Only the distributable reserves as TH correctly said. If the dividend and bonus payouts exceed the payable amount, then THG‘s reserves may remain greatly reduced or even negative. Then the worry expressed by Bank Negara remains. TH remains recalcitrant. 
The BNM letter also warned of the possibility of TH running to the government to help it out? Did it?