Bank Islam Malaysia
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| Bank Islam Malaysia Bhd (Bank Islam) | |
|---|---|
| Type | Public |
| Founded | 1 July 1983 |
| Headquarters | Kuala Lumpur, Malaysia |
| Key people | Dr. Abdullah Mohd Tahir, Chairman Noorazman A. Aziz, CEO BIMB Holdings Zukri Samat, MD |
| Industry | Islamic banking and finance |
| Website | http://www.bankislam.com.my/ |
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] Highest Profit Ever
Bank Islam Malaysia Berhad (Bank Islam), currently known as only Bank Islam reported its highest profit ever in its 24 year history with a profit before zakat and tax (PBZT) of RM255.49 million for financial year ended 30 June 2007 (FY2007).
The PBZT, achieved on an all time high income of RM1.03 billion, also marks the Bank’s full recovery from last two years’ of losses.
In FY2006, it reported a loss before zakat and tax of RM1.28 billion on an income of RM948.87 million. Based on the FY2007 financial performance, the Bank achieved a return on equity (ROE) of 24.5% and a return on asset (ROA) of 1.5%.
The Bank’s other financial indicators also improved in tandem. Total assets grew 30.9% to RM19.09 billion from RM14.60 billion, its risk-weighted capital ratio improved from -2.84% to 12.69%. (This compares with a minimum capital requirement of 8%). Earnings per share improved to 17.41 sen compared to a loss of 175.24 sen the year before.
[edit] Bounce back from humiliation
Dato’ Zukri, the current Managing Director attributed the remarkable recovery to the aggressive implementation of the five-component turnaround plan since last 2006 September to drive the Bank’s recovery. The plan included the implementation of strategic changes to grow new businesses and an intensive loan recovery programme, together with the vigorous re-branding exercise to change the mindset and the working culture, and the Bank’s approach to doing business in a market place that is increasingly more knowledgeable and sophisticated.
[edit] Logo Restructuring
The bank’s corporate logo restructuring had set the bank back by an estimated RM54 million (US$16.98 million). But the move also sparked controversy earlier this year with its contentious logo launched in August 2007, which to some read “Ban Islam”, instead of “Bank Islam”, due to the positioning of a stylized “K” in the word “Bank”
However, due to much furor from stakeholders, the bank has — if you look very closely! — changed its logo from a stylized “K”, to a crescent embracing the word “Islam” (see photo). Although the logo enhancement is anticipated to be a subtle move by the bank, it is expected to be relaunched during the bank’s 35th anniversary in the middle of this year.
The bank’s logo rationale reads: “The strength of Bank Islam lies in the word ‘Islam’. In this word rests the bank’s commitment to advocate a banking system based on Shariah principles. The Bank Islam logo incorporates a ‘crescent’ embracing the word ‘Islam’, signifying the bank’s unwavering commitment to uphold Shariah principles in all our values, activities and transactions.”
[edit] Gateway to Europe
With the strong support from its 40% owned by Dubai Islamic Investment Group, Bank Islam will gain entry into Europe's fast-growing Islamic financial services industry through its newly formed partnership with Britain-based European Islamic Investment Bank Plc (EIIB). Headquartered in London with a representative office in Bahrain, EIIB is the first independent syariah-compliant Islamic investment bank to be authorised and regulated by Britain's Financial Services Authority.
The firm started trading in April last year and reported a pre-tax profit of £1.9mil on revenue of £7.8mil for the year ended Dec 31, 2006. EIIB is listed on the Alternative Investment Market of the London Stock Exchange.
The tie-up would give Bank Islam an immediate presence in Britain and Europe without the need to set up physical infrastructure while providing EIIB with a platform to expand its business to Asia. This effort is believe to enable Bank Islam to boost its fee-based income by drawing on EIIB's expertise and capabilities in corporate finance and advisory services. Bank Islam is believe to be more aggressive in offering a range of innovative Islamic financial products, particularly in fee income generating areas such as Capital market, Treasury and Wealth/Asset management i like bank islam
[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 Islamic Investment Group. 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 produce their final report on how the bank could end up bearing such a huge debt, the first in their history of existence. This has led to a lot of speculation and particularly a scandal known as the Bosnian Scandal.
In October 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 Department 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 Islamic Investment Group, a subsidiary of the Dubai Group the 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. Bank Islam, Lembaga Tabung Haji and DF signed three agreements, constituting a shareholders agreement, between BIMB Holdings Berhad, Lembaga Tabung Haji (LTH), Dubai Islamic Investment Group 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 Islamic Investment Group.
The deal was awarded the "Cross Border Deal of the Year" from the Islamic Finance News Guide. The deal represents the most significant cross-border Islamic transaction to date, integrating two hubs of the Islamic market.
Former Dubai Invsetment Group's CEO Soud Ba'alawy, currently the Executive Chairman of Dubai Group, commented on this move:
- "We believe in the Malaysian market and this acquisition provides an excellent opportunity for Dubai Group to add one of the oldest and most reputable Islamic institutions to our portfolio, thus enabling Dubai Group 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 products, 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] Wiqa' Profit Rate Swaps (WPRS)
As and extension from WFRA, Bank Islam also introduce Wiqa' Profit Rate Swap (WFRA) in the Malaysia market. It is an agreement between 2 parties to exchange a series of profit payments denominated in a single currency for another series of profit payments denominated in the same currency, based on a notional principal amount over agreed tenor.
[edit] Islamic Cross Currencies Swap (ICCS)
Enhancing the capabilities for Islamic Hedging, Bank Islam has succefully initiated the first USD/MYR ICCS in the world with the introduction of ICCS in Malaysia market in June 2007, where the bank and its customers altering their exposure to interest-rate fluctuations, by swapping fixed-rate obligations for floating rate obligations.
This product heavily being used with the expectation of a change in interest rates or the relationships between them, where on the Islamic framework the existence of interest rates being eliminated with Profit Rate. Commodity Murabahah will be used as the main vehicle for ICCS and WFRA.
[edit] Commodity Murabahah
Commodity Murabahah is a trade–related transaction utilized to facilitate the origination of Bank Islam Treasury and other Banking products. The main structure of this transaction will be based on the actual trading of steel in London Stock Exchange through a nominated broker.
The trade entails a spot purchase of Shariah compliant commodities for immediate delivery and forward sale on deferred payment term (cost plus basis).
Commodity Murabahah has the following features:
- "Fixed rate of return"
- "Fixed maturity period"
- "Known risk profile"
[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.
[edit] Bank Islam Debit Card
Bank Islam Malaysia Bhd has targeted 80,000 new cardholders for its first debit card, Bank Islam Tourist Friend MasterCard Unembossed prepaid card, within one year of its launching. MasterCard Worldwide and SMarketForce Sdn Bhd jointly developed the syariah-compliant prepaid card. Bidding for the lucrative tourism sector, it targets China and Middle East market with its MasterCard prepaid card.
Bank Islam currently has 290,500 cardholders (FY 2007) for its credit cards that accounted for 1.9% of the market share. It targeted the credit card holders to increase to 460,000 by June 2008 through aggressive promotion. The bank participation with the Malaysian Tourism Ministry is believed to tag with the tourist arrivals to Malaysia, where as at May 2007 the volume is 8.9 million from all entry points and it's been estimated to increase up to 26 million tourists by 2010.
