Kuala lumpur: Malaysian banks and development financial institutions (DFIs) are rapidly adopting artificial intelligence (AI), but many remain cautious about using AI for high-impact business decisions.
According to BERNAMA News Agency, a new study by the Asian Institute of Chartered Bankers (AICB), Ecosystm, and the AICB Chief Risk Officers' Forum reveals that AI is increasingly being deployed in areas such as Know Your Customer onboarding, fraud detection, anti-money laundering and counter-financing of terrorism, and employee productivity. However, only 25 per cent of respondents trust AI-generated outputs enough to act on them in key business decisions, as noted in the AICB statement.
The study, titled 'AICB-Ecosystm AI in Practice: How Malaysia's Banks and DFIs are Adopting and Governing AI,' was launched alongside AICB's 4th Malaysian Banking Conference and 2nd Bank Audit Conference. It gathered responses from 87 senior leaders across Malaysian commercial, digital, and Islamic banks, as well as development financial institutions, supported by insights from executive roundtables and interviews.
AICB chief executive Edward Ling highlighted that Malaysian banks and DFIs are no longer questioning AI's role in financial services. He emphasized the importance of institutions having the judgement, ethics, governance, and professional capability to use AI responsibly in decisions impacting customers, risk, and institutional performance.
Chong Han Hwee, AICB Chief Risk Officers' Forum chairman and RHB Malaysia group chief risk officer, pointed out that AI introduces a new complexity dimension because its risks extend beyond the model. They emerge across the entire ecosystem, from data quality and human usage patterns to decisions informed by AI and how these factors evolve over time.
Ecosystm vice-president of industry insights Sash Mukherjee noted that as AI expands into higher-risk use cases, financial institutions seek greater clarity on model risk management, explainability, third-party AI, and data governance. She stressed that regulation alone will not keep pace with technology, and ongoing collaboration between industry and regulators is crucial to ensure governance frameworks evolve alongside AI innovation.
The study found that 44 per cent of Malaysian banks and DFIs are in the 'developing' stage of AI readiness, having moved beyond experimentation but still facing fragmented capabilities across data, skills, and operating models. Only 15 per cent have reached an 'established' level of readiness, and just 2 per cent are considered 'advanced,' where AI is fully integrated into decision-making and contributes directly to competitive differentiation.
Key challenges include establishing AI readiness, with only 26 per cent of institutions having a defined strategy linking AI to business goals. While 44 per cent are developing custom AI solutions, this increases the risk of fragmented initiatives that are difficult to scale or replicate. Additionally, 79 per cent report shortages in specialised AI technical skills, with only 20 per cent actively promoting AI-driven decision-making across the workforce.
AI governance remains a major constraint, with 53 per cent of organisations relying on fragmented or ad hoc governance rather than consistent, risk-based frameworks. Only 33 per cent have structured AI governance and model risk management, while just 27 per cent apply formal AI risk tiering to tailor oversight based on risk level.
AICB asserts that the findings provide an important benchmark for the financial sector as institutions transition from AI pilots to responsible, enterprise-wide implementation, emphasizing the institute's commitment to building industry capacity for the future of banking.