Malaysian banks are deploying Artificial Intelligence (AI) at breakneck speed. But ask them to quantify the risk exposure from unexplainable algorithmic decisions, and you’ll uncover the industry’s next major challenge.

When AI denies business loans to viable SMEs or flags legitimate transactions as suspicious – and banks can’t articulate why – the risk cascades: regulatory penalties, discrimination lawsuits, reputational damage and customer attrition. Yet most institutions are measuring AI performance without measuring AI explainability risk.

Malaysian banks are accelerating AI adoption at remarkable speed. According to the Asian Institute of Chartered Bankers, 57% of financial institutions are already in early-stage AI implementation. Bank Negara Malaysia (BNM) released its “Discussion Paper on Artificial Intelligence” in August 2025 and Oracle’s multi-agent AI investigators are transforming compliance workflows across institutions.

However, when AI denies a business loan or flags a transaction as suspicious, can the bank document the decision-making process well enough in the face of regulatory scrutiny? Not with vague references to “insufficient creditworthiness.” Can they provide specific, defensible reasoning that satisfies regulators, courts and increasingly sophisticated customers?

The answer, more often than anyone wants to admit, is no.

Quantifying the Explainability Risk Exposure

Hong Leong Bank’s partnership with DCAP Digital illustrates both promise and risk. The collaboration uses AI-powered credit scoring to assess underbanked SME borrowers, particularly in motorcycle financing where over 61,000 units were registered in May 2025 alone.

Without explainability infrastructure, banks could possibly face three compounding risks:

1. Regulatory risk when BNM demands justification for algorithmic decisions
2. Legal risk when rejected applicants claim discrimination
3. Reputational risk when customers migrate to competitors offering transparent decision-making

These AI systems analyse hundreds of data points to generate credit scores. When the algorithm says no, explaining which specific factors drove that decision becomes exponentially more complex than traditional credit assessments. More critically, without systematic documentation, banks can’t defend those decisions when challenged by regulators, courts or customers.

The Regulatory Compliance Challenge

Regulators globally are converging on explainability requirements. Singapore’s Monetary Authority (MAS) emphasises transparency and explainability in AI governance frameworks. The European Union (EU) AI Act mandates clear explanations for algorithmic credit decisions. Even as US federal oversight shifts, state regulators are affirming that “the algorithm decided” is no longer legally defensible.

Bank Negara’s AI governance discussion paper emphasizes fairness, transparency and accountability. The AICB’s AI Governance Framework includes explainability as a core principle. But principles and practical implementation are very different.

Consider the risk exposure: A pattern of AI-driven loan rejections disproportionately affecting specific sectors could trigger BNM investigations. Legal discovery in discrimination cases would force banks to produce documentation they don’t have. Reputational damage compounds when media coverage frames it as “algorithms discriminating against people.”

 

The Risk Management Gap

Explainability techniques like SHAP and LIME allow data scientists to reverse-engineer AI decisions. Financial institutions globally are integrating these tools into workflows.

But deploying explainability tools requires different skillsets than deploying AI models. Banks need internal teams capable of interrogating models, documenting their logic and translating technical explanations into language that risk officers, compliance teams and regulators understand.

The AICB’s Future Skills Framework notes that 40,000+ banking employees will see roles evolve due to automation. That’s a massive skills transformation while AI deployment accelerates and risk exposure accumulates.

Alternative Data: Expanding Credit Access While Multiplying Risk

Malaysia’s push toward alternative credit scoring adds risk complexity. Bank Negara’s Financial Sector Blueprint encourages “forward-looking and alternative data” for credit assessment – utility payments, e-commerce transactions, digital platform engagement.

Malaysia has a RM90 billion MSME funding gap partly because traditional assessments exclude businesses without conventional lending histories. Alternative data bridges that gap.

But it multiplies explainability risk. When banks deny credit based on “atypical digital payment patterns,” how do legal teams defend it when regulators investigate discrimination or plaintiff attorneys pursue class actions?

Building Risk-Resilient Explainability Infrastructure

Bank Negara’s discussion paper on AI addresses explainability, noting existing policies are “adequate for the time being” but may require enhancement as AI complexity increases.

Risk-mature institutions are treating explainability as first-line defence, investing in:

Explainability-by-design: Embedding SHAP, LIME or similar tools into AI workflows from the start, reducing regulatory scrutiny and legal discovery exposure.

Cross-functional risk teams: Pairing data scientists with compliance officers and legal counsel who can translate technical outputs into plain language, ensuring risk functions can defend decisions when challenged.

Documentation standards: Creating systematic records of how AI models make decisions. When regulators or courts ask “why did this happen?” two years from now, banks need retrievable, defensible answers.

Scenario and discrimination testing: Stress-testing AI systems for explainability and fairness. Identifying patterns that could be interpreted as discriminatory before they become regulatory issues.

The Gig Economy’s Exclusion Risk

1.2 million

Malaysia’s gig workers – Grab drivers, Foodpanda riders, freelancers – often struggle with traditional credit assessments

Many lack fixed salaries, consistent EPF contributions or audited financials that banks typically require.

Alternative credit scoring uses their digital footprints instead:

Payment patterns on e-wallets, transaction histories from Shopee, engagement metrics from delivery platforms, etc.

⚠ The Risk

When AI flags gig workers as higher credit risk based on “irregular income patterns” or “non-traditional employment,” banks face potential discrimination claims under the Gig Workers Bill 2025 – legislation that now explicitly protects gig workers from discrimination.

Can banks prove their AI didn’t systematically disadvantage an entire category of workers that Parliament granted statutory protections?

Many will find it tough to explain the algorithm’s logic even to themselves.

When Bank Negara demands justification or gig worker advocacy groups file complaints, vague responses become regulatory violations.

The explainability gap transforms financial inclusion tools into litigation liabilities.

Sources

The Edge Malaysia

CGC Digital – Future-Proofing Banks

The Risk Management Imperative

Banks that master AI explainability won’t just avoid regulatory penalties. They’ll gain competitive advantage in risk management and customer trust.

In a market where 57% of institutions are deploying similar AI technologies, differentiation won’t come from having AI. It’ll come from managing AI risks better than competitors.

Gartner forecasts that ‘death by AI’ legal claims will surge to over 2,000 cases by late 2026, driven largely by inadequate risk controls around opaque algorithmic systems. Banks can build explainability infrastructure now or scramble when the first regulatory investigation forces the issue.

Malaysia’s AI governance framework provides solid foundations. Bank Negara is asking the right questions. The industry is moving with appropriate urgency. But frameworks don’t manage risk. Implementation does.

The banks investing in explainability infrastructure now aren’t just preparing for compliance. They’re managing existential risks: litigation exposure from unexplainable decisions, regulatory penalties from inadequate governance and customer attrition from eroded trust.

The question isn’t whether Malaysian banks can master AI explainability. It’s whether they can afford not to, before the first discrimination lawsuit, regulatory investigation or reputational crisis forces the issue. Right now, most institutions are accumulating risk faster than they’re building defences.

Closing that gap isn’t a 2026 priority. It’s a 2026 survival requirement.

The post Can Malaysian Banks Explain Why AI Says No? appeared first on Bizruption Asia.

As the two largest economies in the world vie for dominance, Southeast Asian countries find themselves under increasing pressure to pick sides.

However, the Association of Southeast Asian Nations’ (ASEAN) trade relationships with both powers, particularly in manufacturing, technology, and services, means that individual member states could draw the ire of either side purely by pursuing their respective national interests.

ASEAN has been a beneficiary of a free, stable global environment

Stuck in the Middle

This is unprecedented for ASEAN. Even the first version of the Trump Administration was not this starkly demanding – a Hobson’s Choice of no return!

At stake for ASEAN is more than just economic stability with the largest trading partners. It could have consequential repercussions on the next generation of ASEAN growth.

While shifting supply chains represent finely balanced opportunities for Southeast Asia, the potential divergence, as well as the development of alternative digital, commerce, social media and even financial ecosystems foretells a dystopian, Orwellian future – a balancing act between two “Big Brothers”.

With China-made goods hit by more tariffs, we can expect multinationals to further move production to countries like Vietnam and Thailand, as they have previously, to avoid punitive measures.

Vietnam, in particular, is a major beneficiary, with its export-driven economy seeing a significant uptick in foreign direct investment (FDI) in recent years. Similarly, Malaysia and Thailand have enjoyed increased investments in manufacturing, especially in the electronics and automotive sectors. These shifts could bolster economic growth and create jobs in the region.

The potential economic growth would not only fatten and strengthen the ASEAN bloc’s coffers but also influence U.S. policy-making, according to experts in the region.

However, the risks are equally significant. If the trade war escalates or if geopolitical tensions worsen, Southeast Asia’s dependence on global supply chains could backfire.

The region’s reliance on the U.S. and China markets for exports, coupled with vulnerabilities in supply chain disruptions, could lead to greater economic instability. This exposure, especially in a volatile global environment, makes Southeast Asia highly susceptible to external shocks that could derail growth.

“ASEAN has been a beneficiary of a free, stable global environment,” said Sharon Seah, Senior Fellow and Coordinator at the ASEAN Studies Centre and the Climate Change in Southeast Asia Programme, ISEAS–Yusof Ishak Institute.

“But with the changes (Donald) Trump’s presidency will usher in, the biggest challenge for (the bloc) will be figuring out how to navigate these changes and find opportunities… to continue to thrive in unfamiliar territory,” she added.

Debt: The Economic Stress Test

While Southeast Asia’s trade and investment landscape is in flux, another major challenge is the rising levels of private debt, particularly household debt. According to Moody’s Ratings, higher interest rates have contributed to higher household debt, increasing asset risks, and weakening the credit profiles of ASEAN banking systems.

If a global or regional economic shock were to trigger a financial crisis, Southeast Asia’s high private debt levels could exacerbate the situation.

In countries like Thailand, where household debt has reached historic highs, even a mild economic downturn could result in widespread defaults, leading to a credit crunch and possibly deepening recession. Malaysia, with its reliance on both domestic and external debt, faces a similar risk.

For Eunmi Park, Kevin Cheng, Leilei Lu, R. Sean Craig, and Siang Leng Wong of the ASEAN+3 Macroeconomic Research Office, a large-scale crisis could have severe consequences for growth, employment, and social stability – particularly in light of the escalating climate crisis, which exacted devastating floods in the region in late 2024.

“With increased debt to GDP ratios, rising debt service burdens in a high interest rate environment could threaten financial stability, especially when regulatory forbearance and other pandemic support measures have been, or are still being, phased out,” they said.

The Double-Edged Sword of Tech Advancement

Competition between Washington and Beijing also forces Southeast Asia into an “either-or” choice with regard to technology.

For both consumers and businesses, there are the likes of Huawei, TikTok, Tencent, and Alibaba on one side and the Silicon Valley behemoths Meta, Google, and Apple on the other.

The question will be what makes the most sense for these stakeholders? How will the two options impact payment systems as well as popular consumer services like ridesharing and e-commerce? Which way will decision-makers go amid the possible risk of these technologies being conduits for industrial espionage?

Flourishing in 2025 and Beyond

For Southeast Asia to thrive in the face of these challenges, balancing long-term stability and short-term growth is imperative. Economic diversification, infrastructure development, and investment in human capital will be crucial in ensuring the region’s resilience.

The good news is that despite demographic changes and new consumer expectations, the region has the potential to emerge stronger to chart a course toward sustainable growth, even in an increasingly unpredictable world.

Cooperation and solidarity within the bloc will take on a new and more pronounced bearing in 2025. As the dust settles, ASEAN needs to seek greater collaboration with its Indo-Pacific partners looking to develop a self-sustaining geo-economy that serves a rapidly developing middle class in Southeast Asia and the Indo-Pacific.

Already, Australia is inviting in greater numbers Asian immigration to support its next generation growth and economy, while the migration of talent towards urban centres in Southeast Asia is set to only grow.

How the region as a whole and in partnership with other markets pivots and balances the impending geopolitical challenges will define a new order. It’s high time that historically stable Southeast Asian economies respond to the profound changes that lie in wait.

The post Can Southeast Asia Weather Geopolitical Fallout? appeared first on Bizruption Asia.

A much-vaunted China tariff engagement strategy — expected to be more pronounced than Trump’s first term — could fall either way for ASEAN. In anticipation, Vietnam, Thailand, Malaysia, and Indonesia have already implemented “anti-dumping tariffs” on Chinese goods and services.

One could see emerging nuances and shifts in strategic approaches

So, with the world divided, countries are bracing for the opportunities and fallout from changing economic, trade, and geopolitical dynamics.
For the upcoming quarter, as it develops bizruption.asia will be speaking with business leaders, industry captains, “think tankers”, policy analysts and many more to get a sense of what it takes to thrive in the current climate.

Trade and Economic Partnerships In Flux

Based on its last term, we can reliably expect the Trump administration to reevaluate existing regional cooperative partnerships and trade deals. How much undoing of the Biden administration’s covenants and commitments will the new administration undertake remains to be seen.

According to Thomas Daniel, Senior Fellow of Foreign Policy and Security Studies at the Institute of Strategic & International Studies (ISIS) Malaysia, the real impact is likely to be felt on a one-to-one basis between individual ASEAN member states and Washington.

“(O)ne could see emerging nuances and shifts in strategic approaches. Southeast Asian countries would try to either proactively engage the U.S. or keep a low profile depending on their strategic interests. Washington’s focus on bilateral relations with specific countries in the region would be based on trade, political, and security priorities,” he said.

He said tariffs and trade barriers pose a serious threat to Washington’s trade relationships with the region’s economies. Indeed, countries like Vietnam, who hold trade surpluses with the U.S., stand to suffer as a significant exporter of textiles, electronics, and footwear to the very lucrative U.S. market.

Findings from by ISEAS–Yusof Ishak Institute over the years shows that China is consistently perceived to be dominant in the region.

On the flip side, a more protectionist, “America First” administration prioritising bilateral trade deals may present unique opportunities. These deals could address trade and labour offshoring imbalances, as well as gaps in intellectual property laws. For the Philippines, home to one of the world’s largest Business Process Outsourcing (BPO) sectors, this could be a game-changer.

The country has long had a special relationship with the U.S., but its intellectual property management has ample room for improvement. Additionally, increased diversification of low-cost manufacturing and infrastructure markets may drive Washington to pursue opportunities in Southeast Asia amid anti-dumping laws that curb Chinese goods and services.

Meanwhile, the more advanced Singapore could leverage its status as a hub for tech, finance, and international arbitration to foster deeper ties with Washington. With Elon Musk, Vivek Ramaswamy, Peter Thiel and other tech billionaires set to play significant roles in the incoming administration, the U.S. could seek out trade opportunities in technology, digital services, and e-commerce.

As a result, the new administration may focus on expanding US involvement and investments in Southeast Asia, particularly next-generation technology including Web3, e-commerce, e-government and cybersecurity. It is highly unlikely that the Trump administration will pursue joined up, overarching, umbrella strategies, but may remain tactical in the short to medium term to score quick wins. It remains to be seen what fate awaits initiatives like the Build Back Better World (B3W), but a similar infrastructure investment strategy would energise funding and financing to strengthen U.S. businesses in the region.

Meanwhile, the more advanced Singapore could leverage its status as a hub for tech, finance, and international arbitration to foster deeper ties with Washington. With Elon Musk, Vivek Ramaswamy, Peter Thiel and other tech billionaires set to play significant roles in the incoming administration, the U.S. could seek out trade opportunities in technology, digital services, and e-commerce.

As a result, the new administration may focus on expanding US involvement and investments in Southeast Asia, particularly next-generation technology including Web3, e-commerce, e-government and cybersecurity. It is highly unlikely that the Trump administration will pursue joined up, overarching, umbrella strategies, but may remain tactical in the short to medium term to score quick wins. It remains to be seen what fate awaits initiatives like the Build Back Better World (B3W), but a similar infrastructure investment strategy would energise funding and financing to strengthen U.S. businesses in the region.

Key industry players such as AECOM, Liebert Corporation, Vertiv, Halliburton, Boeing operating in the region could benefit from U.S. protectionist policies that may have unseen economic expansionist policy effects akin to the post-Second World War Marshall Plan. This may provide a platform for U.S. tech companies like CISCO, AWS, Google, Meta, and Netflix to leverage the increased demand for solutions, with favourable trade agreements clearing the way for them to surge ahead in key markets.

But Washington’s tug of war with Beijing may also exacerbate friction around data privacy, cybersecurity, compliance and regulations, ensnaring the region’s growing middle class, who are major drivers of consumption of U.S. software and digital platforms.

China and the Indo-Pacific conundrum

With the new administration looking to counterbalance Chinese expansion in the Indo-Pacific, Southeast Asia could be the theatre where this great power battle plays out most sharply. The U.S. could push for, not only more favourable trade agreements with Southeast Asian countries, but possibly offer economic incentives and political coverage to reduce dependence on China, particularly in technology, infrastructure, and supply chains. How this plays out with Trump’s oft-stated isolationism remains to be seen.

Proactively maintaining them would make US intentions clear

Trying to counter Chinese supply chain influence could spark greater military involvement with key regional allies including the Philippines, Indonesia, Thailand, Malaysia, Singapore, as well as nearby Australia. For William Matthews, Senior Research Fellow of the Asia-Pacific Programme at Chatham House, defence partnerships will grow in importance for the U.S. strategic regional presence amid China’s growing military capabilities.

“Proactively maintaining them would make U.S. intentions clear. However, the other side of unintended ambiguity is that Beijing, long fearful of U.S. containment, perceives growing hawkishness as indicative of aggressive rather than defensive motives.”

Regardless, the region’s future is at an interesting inflection point; expect a period of speculation, dialogue, negotiation, and collaboration for Southeast Asia and the ASEAN bloc. These regional economies will also need to demonstrate agility and nimbleness in policy making to be resilient over the next four years.

Whether it is feast or famine, bust or boom, policy makers, industry captains, and leaders need to display sophistication and layered thinking in problem solving.

Interesting times for those of us on the sidelines!

The post 2025: A Year for ASEAN’s Pivot appeared first on Bizruption Asia.

However, the rapid recovery that began in the third quarter of 2020 is not consistent across the region. This “multispeed” recovery, as the IMF describes it, will help regional economic output to grow by 6.9% this year, but the outlook for each country is dependent on factors including infection rates, the scale and effectiveness of government response, and its reliance on industries such as tourism and commodities exports.

This does not mean that the road ahead will be easy. Analysts estimate that an end to the pandemic and full economic recovery could easily take several years. According to Bloomberg’s Vaccine Tracker, it will take about five and a half years to cover 75% of the population with a two-dose vaccine at the current rate of vaccinations per day globally.

Depending on the industry, the outlook for some business leaders might be rosier than others. As McKinsey notes, the most profitable industries this economic recession (e.g. semiconductors, pharmaceuticals, personal products, software, and media) have increased profits by riding the wave of megatrends, such as food and grocery e-delivery services, remote working, and a heightened interest in health and wellness, compared to industries, such as financial services, energy and utilities.

Managing Change

From Singapore to Mumbai, business leaders have no choice but to move forward from the disruption caused by the pandemic. Business continuity playbooks have given way to new strategic plans to address the post-pandemic world, but not without tough decisions about the future. The bottom line about any economic downturn, according to IWG SVP for ASEAN and South Korea Lars Wittig, is that, “You can’t try and sell the same old product the same old way.”

Lars Wittig, IWG SVP for ASEAN and South Korea

The same is true about company culture and structure. Traditional corporate hierarchies that were primarily driven by the C-suite are being replaced by a culture that protects its most valuable asset: employees. Remote working full time created some unintended consequences for employees like burnout from home and work life merging, social isolation, and other stresses associated with adapting to new technologies, processes and expectations.

This made it even more important for businesses to take steps to lower turnover and increase employee engagement. As a result, over two thirds of global CEOs reported to KPMG that their communications to employees improved during the crisis.

Not only has this prolonged arrangement required a mutual trust between employers and employees, the acceleration of distributed workforces has also demonstrated why it is so important to encourage a free flow of communication and innovation. Company leaders are seeing the productivity and performance impact that empowered, motivated employees are having on businesses during this time especially. Yet, these results were not possible without a change in leadership approach. Chitranjan Kaushik, COO of Ecofirst Services Limited, noted the necessary shift in leadership styles saying, “This cannot be command-based like in the office. Now I’m entering their space to get the work done and that’s where leadership has changed significantly. Now it’s more consultative and self-motivated.”

Chitranjan Kaushik, COO of Ecofirst Services Limited

Acknowledging this change is vital to ensure that employees are empowered in new working environments and encouraged to take part in transforming how business is done. Sajid Khan, general manager of Fiji Airlines in India, observed, “The passion has really come out, and I have seen ideas come up every single day.”

Sajid Khan, General Manager of Fiji Airlines in India

Encouraging collaboration between teams and disseminating frequent updates from empathetic leaders are helping organisations energise virtual teams in the new normal and ensure that employees are adapting to new business processes.

“We are in the practice of regularly meeting with our teams and have become more available to discuss concerns directly. Anybody is in direct touch with me and can connect to me in a better way,” said Kaushik.

While the future is unclear, companies are already looking beyond the pandemic. Changing the culture to focus on fostering engagement between employees at all levels of the organisation is dependent on how businesses choose to include their employees in the corporate vision and engage them in reaching objectives.

“A lot of CEOs today feel much closer to employees at every tier of their organisation. Even though we have been separated physically, we have never been so close. I say that because we have shared this calamity and mission to push through it,” Wittig said.

It’s clear that companies will not make it through this period without some form of reinvention. Companies that embrace change today and bring employees along on the journey will prosper because of—not in spite of—the biggest disruption of the century.

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