Study: Malaysian banks embrace AI, but few trust it for critical decisions

 

MALAYSIAN banks and development financial institutions (DFIs) are accelerating the adoption of artificial intelligence (AI), but most remain reluctant to rely on AI for high-impact  business decisions, according to a new industry report.

The “AICB-Ecosystm AI in Practice: How Malaysia’s Banks & DFIs are Adopting and Governing AI” report found that while AI is increasingly being deployed for customer onboarding, fraud detection, anti-money laundering, counter-financing of terrorism, and employee productivity, only 25% of organisations trust AI-generated outputs sufficiently to make key business decisions.

The study was jointly conducted by the Asian Institute of Chartered Bankers (AICB), the AICB Chief Risk Officers’ Forum and Ecosystm, and launched alongside AICB’s 4th Malaysian Banking Conference and 2nd Bank Audit Conference.

It surveyed 87 senior leaders from commercial banks, digital banks, Islamic banks and development financial institutions, supplemented by executive interviews and industry roundtables.

AICB chief executive Edward Ling said the conversation had shifted beyond whether AI should be adopted to how it could be deployed responsibly.

“Malaysia’s banks and DFIs are no longer asking whether AI has a role in financial services,” he stated.

“The question now is whether institutions have the judgement, ethics, governance and professional capability to use AI responsibly in decisions that affect customers, risk and institutional performance.”

The report found that 44% of financial institutions are in the “Developing” stage of AI readiness, having progressed beyond pilot projects but still facing fragmented capabilities across data, skills and operating models.

Only 15% have reached an “Established” level of AI maturity, while just 2% are considered “Advanced”, where AI is fully embedded in decision-making and delivers a competitive advantage.

The study also highlighted several barriers to broader AI adoption. Only 26% of organisations have a clearly defined AI strategy aligned with business objectives, while 44% are already developing custom AI solutions, raising concerns over fragmented initiatives that may be difficult to scale.

At the same time, 79% of respondents cited shortages of specialised AI talent, and only 20% said their organisations actively encourage AI-driven decision-making across the workforce.

AI governance also remains a significant challenge. More than half (53%) of respondents rely on fragmented or ad hoc governance frameworks, while only 33% have established structured AI governance and model risk management.

Just 27% apply formal AI risk-tiering to determine oversight based on the risk level of different AI applications.

Chairman of the AICB Chief Risk Officers’ Forum and RHB Malaysia group chief risk officer Dr Chong Han Hwee noted that AI risks extend beyond the technology itself.

“AI introduces a new dimension of complexity because its risks do not reside solely within the model. They emerge across the entire ecosystem, from data quality and human usage patterns to the decisions informed by AI and how these factors evolve over time,” he remarked.

Meanwhile, Ecosystm vice-president of industry insights Sash Mukherjee said financial institutions are increasingly seeking greater clarity on AI governance, explainability, third-party AI and data management.

“Regulation alone will not keep pace with the technology. Ongoing collaboration between industry and regulators will be equally critical to ensure governance frameworks evolve alongside AI innovation,” he stressed.

According to AICB, the findings provide a benchmark for Malaysia’s banking sector as institutions transition from AI experimentation to enterprise-wide implementation while strengthening governance, risk management and workforce capabilities. ‒  Focus Malaysia