Malaysia’s Banks Are Adopting AI But Few Trust It For Decisions

Malaysian banks are deploying artificial intelligence for tasks ranging from customer onboarding to fraud detection, but only one in four financial institutions trust AI enough to use its outputs in decision-making, highlighting the governance and talent challenges slowing adoption, a new industry study showed.

The survey, conducted by the Asia Institute of Chartered Bankers (AICB), research firm Ecosystm and the AICB Chief Risk Officers’ Forum, found that just 25% of financial institutions in Malaysia would make decisions based on AI-generated outputs despite growing investment in the technology.

The findings underscore a broader challenge facing banks globally: while lenders are rapidly integrating AI into operational processes to improve efficiency and reduce costs, most remain reluctant to allow the technology to influence higher-risk decisions because of concerns over accuracy, explainability, regulatory compliance and accountability.

The study found that Malaysian banks are already using AI in customer verification, or know-your-customer (KYC) onboarding, fraud detection, anti-money laundering (AML) monitoring and counter-terrorism financing compliance, where machine learning models can analyse large volumes of transactions more quickly than traditional rule-based systems.

However, institutional readiness remains limited.

Among nearly 90 banks and development financial institutions surveyed, 44% said they were still in the “developing” stage of AI readiness, while only 17% described themselves as having reached established or advanced levels of AI maturity.

Only 26% of institutions said they had a defined AI strategy, suggesting many banks are experimenting with isolated use cases rather than implementing enterprise-wide AI programmes aligned with business objectives and risk management.

The study also pointed to significant workforce constraints, with 79% of respondents reporting AI talent shortages or immature internal capabilities.

Just one-third, or 34%, said they had “meaningful in-house AI capability,” while only 33% reported having structured AI governance and model risk management frameworks in place.

Those governance frameworks are becoming increasingly important as regulators worldwide require banks to demonstrate that AI models are transparent, auditable and subject to human oversight, particularly when used in areas such as lending, compliance and financial crime detection.

Malaysia’s findings broadly mirror trends across Asia-Pacific, where financial institutions have accelerated AI investment but continue to struggle with implementation.

A separate Money20/20 white paper found that although 61.2% of financial organisations across the Asia-Pacific region have adopted AI and machine learning technologies, 35.3% remain in the exploratory phase and 3.5% have yet to adopt the technologies altogether.

The results suggest that while AI has become an operational tool across much of the banking sector, widespread trust in the technology for decision-making is likely to depend on stronger governance, more mature risk controls and greater investment in skilled personnel.

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