Bank Islam Malaysia
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The Bank Islam Malaysia (Bank Islam Malaysia Berhad, or BIMB) started operations as Malaysia’s first Islamic bank on July 1, 1983. BIMB was established primarily to assist the financial needs of the country's Muslims and to further extend its services to the whole population at large.
BIMB was set up with an initial authorized capital of RM 500 million and paid in capital of RM 79.9 million, the bank has gradually increased its authorized and paid-in capital to RM 2 billion and RM 563 million respectively. It was listed on the main board of the Kuala Lumpur Stock Exchange (Bursa Malaysia Berhad) on January 17, 1992.
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[edit] First Loss
Bank Islam in November 2005 for the first time in their history reported a loss of RM480 million (US$127,000,000), largely the result of high non-performing loans from its Labuan offshore unit. It closed its financial year with a total provision of RM774 million, and total non-performing loans of RM2.2 billion. The huge losses emerged when Bank Islam converted its Labuan office from a subsidiary to a branch in December 2004, and the affair has cast doubt on the effectiveness of Malaysia's regulatory and supervisory control of its banking system.
In a statement, Bank Islam explained that an internal investigation into the affair, led by the bank's management team under managing director, Dato’ Noorazman A. Aziz, who was appointed in April 2005 to help clean up the bank's books, is already underway, but no formal outcome have been reported yet. Preliminary investigation has resulted that, the problem rose due to the bank’s poor credit evaluation, and insufficient depth and breadth in processing loans with the bank's risk management frame was not properly established. Huge non-performing loans also being detected mainly from the lending activities that was directed at the housing, car financing, and corporate financing markets which without proper purposes.
[edit] Biting the bullet
Many critics do not favour Noorazman move which "biting the bullet" although declaring huge net loss was a noble and transparent move, but this bravery might jeopardize the image of the bank, as well the Islamic Finance overall. But,in his short period of time, Noorazman has taken huge effort in turning around Bank Islam. With his creditable past experience as the Head of Corporate and Treasury of Citibank Malaysia, he has brought his creditability and transforming the bank's working culture with new management team and experts from all over Malaysian financial institution especially from Citigroup, introducing new Credit Rating and Risk Management framework, centralizing the bank's approval center, revamping the bank's IT system and enhancing the bank’s human capital intervention with the introduction of the bank’s first Management Associates programme known as the BMAP. Noorazman also play an important role in wooing foreign investors to take a stake in the bank in improving the bank's capital, notably the agreement with Dubai Investment Group (DIG). In April 2006, he has been named winner of the first Asian Banker Achievement Award 2005 for Islamic Finance.
Dato' Noorazman left Bank Islam Berhad in the of June 2006, to be the group Managing Director of BIMB Holdings, parent group of Bank Islam. This move was considered by most of economist and analyst as a further step taken by government of Malaysia to strengthen Malaysia potential to be the global Islamic Financial hub, where Noorazman being tip to cater the whole functions of the BIMB Holding, not only in managing Bank Islam but in the same time other BIMB Holding subsidiaries notably the "Takaful" services. Noorazaman being replaced by Dato' Zukri Samat, former Managing Director of Danaharta and Khazanah Nasional in July 2006.
[edit] Bosnian Scandal
Despite all the changes and revamping efforts after 2005 and with the arrival of Dato' Zukri, Bank Islam still couldn't came with their final report on how the bank could end up bearing such a huge debt, first in their history of existence. This have lead to a lot of speculations and particularly a scandal known as the Bosnian Scandal.
In Otober 2005 , the Malaysia business daily, The Edge quoted Bank Islam CEO Noorazman Aziz saying that Bank Islam Malaysia Bhd unveiled a comprehensive plan to tackle its whopping RM2.2 billion(about USD 600 million) worth of non-performing loans (NPLs). But little light was shed on how these bad loans arose in the first place, and more pertinently, who were responsible. Noorazman A Aziz, the bank's managing director and CEO since April 2005, narrowed down the cause to Bank Islam Labuan Offshore Branch . Noorazman confirmed news reports that some RM450 million (about USD 113 million) of the bad loans was made to companies in Sarajevo and South Africa.
A July 2003 story published in the "Slobodna Bosna" magazine of Bosnia suggests that Bank Islam Malaysia is holding or has held deposits worth about EUR 300 million for the benefit of the Third World Relief Agency (TWRA). The story further suggests that these funds have been now made available to Bomsal , a Malaysian - Bosnian joint venture ,for the construction of a toll highway. Bosmal itself has confirmed that it had received a financial facility from Bank Islam, for the highway as well as other development projects in Sarajevo.
The subject matter of that story and the claims made on the Bosmal website were put to Bank Islam and the responses received were :
[edit] First Response
Bank Islam Malaysia Berhad is unable to comment or disclose the business dealing as we are governed by the Offshore Banking Act 1990, which clearly spells out client's confidentiality
[edit] Second Response
Kindly contact Corporate Communications Dept of the Central Bank of Malaysia. We are unable to entertain your question as we are guided by the Banking Secrecy Act.
Market talk is that these companies are involved in construction and housing projects, and that more funds may need to be ploughed in to complete these projects before the borrowers can repay their debt. That EUR 300 million loan does not seem to appear anywhere in Bank Islam's books,and Bank Islam has refused to deny this assertion. As well the amount is way above Bank Islam's single customer lending limit.
[edit] Dubai Connection
In June 2006, Dubai Financial (DF), a subsidiary of the Dubai Investment Group (DIG) a global financial investor of Dubai Holding declared that they have taken a 40 per cent stake in Bank Islam, Malaysia's oldest Shar'iah compliant bank. The transaction is subject to approval of Bank Negara for the shares to be issued free from encumbrances and will be completed within October 2006.
Bank Islam, Lembaga Tabung Haji and DF signed three agreements, constituting a shareholders agreement, between BIMB Holdings Berhad, Lembaga Tabung Haji (LTH), Dubai Financial LLC and Bank Islam Malaysia Berhad; a subscription agreement between the bank, its holdings company and majority shareholder Tabung Haji; and a separate subscription agreement between the bank, its holdings parent and Dubai Financial LLC.
DIG CEO Soud Ba'alawy commented on this move as: "We believe in the Malaysian market and this acquisition provides an excellent opportunity for Dubai Financial to add one of the oldest and most reputable Islamic institutions to our portfolio, thus enabling Dubai Financial to build on its strategic direction to grow within the Islamic banking sector."
[edit] Pioneer in Islamic Finance Services
Taking its position and reputation as the first Islamic Bank in Malaysia and one of the pioneer in the world, Bank Islam has taken numerous effort to be an innovative vehicle for the government of Malaysia in establishing Malaysia as the vital Global Islamic Finance Hub. In the effort to clean up the tarnish image due to the loss declaration in 2005, Bank Islam has introduce several product, considered to be the first in the world in order to sustain their customer's loyalty and perceptions
[edit] Wiqa’ Forward Rate Agreement (WFRA)
Considered to be first of its kind, in August 15, 2006 Bank Islam Malaysia Berhad (Bank Islam) and Standard Chartered Bank Malaysia Berhad (StanChart) broke new ground in Islamic finance with the introduction of a shariah-compliant financial hedging tool to facilitate their in-house risk management and in the same time ensures that customers have access to hedge profit rates risks whilst enhancing their (customer) balance sheet management.
The deal is in the form of a Wiqa’ Forward Rate Agreement (WFRA) which enables a floating rate based profit payment to be exchanged for a fixed profit payment for a specific period of time, or vice versa. With this type of services, both banks can better manage their portfolio of risks as they benefit from lessened exposure from either fixed or floating rate because of WFRA, which will enable both banks to better predict financial results and improve their balance sheets where it allows either Bank Islam or StanChart to participate or exit the floating or fixed rate payments over shorter periods of time and make adjustments in the specific duration.
By having WFRA, Bank Islam is the first bank in the world to minimize their risk exposure to fixed rate payments, by swapping some of them with a conventional bank (non Shariah-compliant) for floating rate payments.
[edit] Bank Islam Card
Bank Islam is the first bank in Malaysia to introduce Credit Card Chip Based (SMART Chip), with the introduction of Bank Islam Card. The Bank Islam Card is based on 3 Shariah concepts, considered to be the first in the world:
- Bai Inah - The sale of the land by the bank on a deferred payment basis, which the bank then buys back the land by cash at a lower price
- Wadiah - Guaranteed safe custody of cash by cardholder, which allows the cardholder to make use of the cash.
- Qardhul Hassan - It is the over limit usage of cash by the cardholder. The cardholder will not be levied with extra charges or fees but will be required to repay the over limit amount used.
On the first akad(negotiation), the bank sells the land to the customer at a principal price plus profit. On the second akad, the Bank purchases the land from the customer at the principal price only, whereby the Bank will then disburse the cash proceeds directly into the customer's Wadiah marginal account created and maintained by the Bank. The cardholder is allowed to use the cash in the Wadiah account for retail purchases and cash withdrawals. In cases where cardholder makes purchases over the financing limit and have exceeded their available balances, the Bank in its jurisdiction, will decide whether to give the cardholder Qardhul Hassan or not on a case-to-case basis.
[edit] Services of Bank Islam Card
The services offered by the Bank Islam Card include: (1) Retail purchases, (2) Cash withdrawal facilities at Bank Islam ATMs, (3) Easy payment accessibility and cash withdrawals at any Bank Islam branches and ATMs, (4) Transfer of balance service; (5) Emergency cash withdrawal and emergency card replacement when overseas; and (6) 24 hours customer service.
[edit] Features of Bank Islam Card
Based on the Shariah contract that free from riba (interest) and gharar. It has a contract tenure of three to five years, with profit margins fixed for the tenure. The card accepts transactions from halal (permissible by Islamic law) sales merchants only and has a financing limit on par with that offered by other issuers.
[edit] Latest SMART Chip Technology
Benefits of the Bank Islam Card include: (1) Free group family Takaful coverage (save 3% per annum); (2) profit rebate (save 0.5% - 2.5% per annum); (3) no compounding elements (save 1.6% per annum); (4) Cash Withdrawal Fee (RM 12 for every RM 1,000 or part thereof performed at Bank Islam's ATM); (5) Balance Transfer Fee (RM 6.20 per request for any amount);(6) Annual Fee Waiver for the whole contract for principal cardholder (save RM 130 for Gold Card and RM 60 for Classic Card per annum); (7) Convenient payment facilities through Internet Banking, Cash Deposit Machines, Interbank GIRO and SMS Banking.
