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Jun 2017 22

Malaysia’s CPI up 3.9%

PETALING JAYA: Malaysia’s consumer price index (CPI) measuring headline inflation rose a lower than expected 3.9% in May compared to a year ago as fuel prices fell.Economists had expected a 4.1% rise in the CPI, which...

PETALING JAYA: Malaysia’s consumer price index (CPI) measuring headline inflation rose a lower than expected 3.9% in May compared to a year ago as fuel prices fell.

Economists had expected a 4.1% rise in the CPI, which includes volatile food and fuel prices. Core inflation, which excludes food and fuel, rose 2.6%.

The CPI rose 4.4% in April and to an eight-year high of 5.1% in March. Compared to April, headline inflation was 0.5% higher.

Statistics Department data showed that the transport gauge that includes fuel was 13.1% higher in May compared to April’s 16.7%. Other groups that contributed to the CPI included food and non-alcoholic beverages, recreation services and culture, health, restaurants and hotels as well as housing and utilities.

 
 
 

Nomura Holdings Inc senior economist Euben Paracuelles said in a report that the May inflation data supports the view that March marked the peak for inflation this year.

He expects inflation to moderate throughout the rest of the year with full-year headline inflation of 4% compared to Bank Negara’s 3% to 4% range.

Meanwhile, Citigroup Inc economist Kit Wei Zheng said the rise in core inflation has now gone above the central bank’s comfort threshold of 2.3% to 2.5%.

Bank Negara’s measure of everyday price inflation and perceived price inflation, which both captures price increases in frequently purchased items that make up 60% of the CPI basket, has been persistently higher than headline CPI. Kit said this could be seen as a proxy for elevated inflation expectations.

“With the output and private consumption gap likely to turn positive in 2017, alongside a pick-up in wage growth, we suspect Bank Negara’s benign view of demand-pull inflation could be challenged within the next six to 18 months,” he added.

Kit said Malaysian policymakers face more pressure to raise benchmark interest rates compared to the rest of Asean.

“The precise timing remains uncertain however, and we see a risk that moderating headline inflation could give room to postpone a hike into 2018,” he said.

Source: The Star

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Jun 2017 21

Malaysian bank credit profiles stable amid growing challenges

PETALING JAYA: A combination of slower growth and higher leverage in Malaysia increases credit risks for the country’s banks, S&P Global Rating said. “Malaysia’s economic expansion shifted to a lower gear two years...

PETALING JAYA: A combination of slower growth and higher leverage in Malaysia increases credit risks for the country’s banks, S&P Global Rating said. 

“Malaysia’s economic expansion shifted to a lower gear two years ago, and the momentum has not returned. A weak energy sector, subdued global demand, and tightened domestic spending continue to drag on growth,” said S&P Global Ratings credit analyst Rujun Duan. 

Meanwhile, however, corporate and household indebtedness has been steadily rising in an environment of low interest rates and easing credit conditions.

“In 2016, the Malaysian banks we rate reported weak earnings growth, and we expect their full year profitability to remain sluggish in 2017, 

 

“A weakening bank earnings trend comes on the back of slower loan growth, tight margins, and weakening asset quality in a few areas, such as commodities-related overseas loan portfolios and household credit. 


“In addition, banks face potential risks due to their exposure to industries with structural or cyclical difficulties, such as commercial real estate and automobiles.

“Heightened leverage in households and the corporate sector, low commodity prices, and oversupply in commercial property add to asset-quality 
vulnerabilities,” she said. 

The international rating agency said in its view, however, a number of counterbalancing factors support Malaysian banks credit profile. 

Industry-wide impaired loan ratios are hovering around a historical low of 1.6%. Capital and liquidity buffers are more than ample to absorb increased stresses. 

Separately, it believe prudential measures implemented by the regulators and tighter underwriting standards enforced by banks will also help to keep credit risks at bay.

Heightened volatility in the Malaysia’s exchange rate has a limited direct impact on the country’s banks. This is because ringgit assets make up the bulk of bank balance sheets in Malaysia, and foreign currency liabilities are well matched by foreign currency assets. 

Prudent oversight from the regulator also helps to mitigate the relevant risks, S&P Global noted. 

Despite the clear merits of a more consolidated banking sector for Malaysia, the research agency said a number of stumbling blocks could make consolidation a protracted process, especially in a slowing growth environment. Obstacles include difficulties in extracting synergies from deals, or agreeing on retrenchments and restructuring.

Source: The Star

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Jun 2017 13

Ringgit marginally higher at opening

KUALA LUMPUR, June 13 — The ringgit opened marginally higher this morning on higher interest for the local currency, a dealer said.At 9am, the local unit was quoted at 4.2630/2670 against the greenback from last Friday's 4....

KUALA LUMPUR, June 13 — The ringgit opened marginally higher this morning on higher interest for the local currency, a dealer said.

At 9am, the local unit was quoted at 4.2630/2670 against the greenback from last Friday's 4.2635/2665.

FXTM Research Analyst Lukman Otunuga said caution still lingered in the air as traders were alert of macroeconomic events that could spark extreme volatility in the market.

“With political uncertainty in the United States and soft economic data weighing heavily on the US dollar, the outlook remains tilted to the downside,” he said.

Lukman noted that investors were still questioning US President Donald Trump's impeachable offence by sharing classified information with Russia and attempting to interfere with US-Russia relations.

Against a basket of major currencies, the ringgit was traded lower except against the British pound.

It slipped marginally against the Singapore dollar to 3.0798/0838 from 3.0795/0827 and depreciated versus the yen to 3.8755/8805 from 3.8615/8653 last Friday.

The local unit edged up to 5.3987/4042 from 5.4291/4351 compared with the British pound and declined against the euro to 4.7716/7769 from 4.7628/7674 last Friday.

The foreign exchange market was closed yesterday for the Nuzul Al-Quran public holiday. — Bernama

Source: Malay Mail

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Jun 2017 6

Malaysia’s exports still grow at a robust pace

Expansion due to strong E&E demand, higher commodity pricesPETALING JAYA: Malaysia’s exports continued to grow at a robust pace in April, thanks to a strong demand for electrical and electronic (E&E) products and...

Expansion due to strong E&E demand, higher commodity prices

PETALING JAYA: Malaysia’s exports continued to grow at a robust pace in April, thanks to a strong demand for electrical and electronic (E&E) products and higher commodity prices.

Although the country’s export growth had eased to 20.6% in April, compared with 24.1% in the preceding month, the pace came in within the Bloomberg consensus estimate.

With the steady growth in exports, Malaysia’s trade surplus increased to its highest value year-to-date at RM8.8bil in April. Imports during that month expanded at a slower pace of 24.7%, compared with 39.4% in March.

According to AllianceDBS Research chief economist Manokaran Mottain, the solid expansion in exports thus far indicates that Malaysia’s gross domestic product (GDP) growth in the second quarter of this year would still remain strong.

“In view of the expansion in exports, especially exports of manufactured goods, we reckon that the second-quarter GDP growth could still be strong,” Manokaran said in his report yesterday.

He expected the second-quarter GDP growth to range between 4.8% and 5.2% this year, pushing the full-year forecast to 4.8%.

“Export growth remains solid mainly due to the strong performance of E&E exports and the continued rebound in the oil and gas shipment, which contributed 7.9% and 2.1% to export growth, respectively. The double-digit export growth continues to be sustainable for the sixth consecutive month and has been the longest positive growth streak since January 2016,” Manokaran pointed out.

Noting that import growth in Malaysia thus far this year had been driven by the buying of capital goods, Manokaran said the trend could be indicative of robust infrastructure and investment projects in the country.

“One plausible explanation for the surge in capital imports could be to support the various infrastructure projects in the pipeline, as well as various investment projects coming into effect this year,” he explained.

Meanwhile, MIDF Research said global indicators suggested that Malaysia’s trade performance would remain strong through the remaining year.

“Business and consumer confidence in the developed and emerging economies indicates an optimistic outlook for the coming months,” MIDF Research said in its report.

The brokerage pointed to the expansion in China’s manufacturing and non-manufacturing purchasing manager’s indices in May and the University of Michigan’s consumer sentiment for the United States that rose to its four-month high of 97.1 in May as examples.

“Based on the current trends, we believe robust global demand will maintain and support Malaysia’s trade performance in the near term... we foresee Malaysia’s external trade continuing to record double-digit growth in May, given the sustained favourable external environment,” MIDF Research explained.

In addition, it said the risks of protectionism and geopolitical risks were receding, while major economies were undergoing a gradual economic recovery.

“An improvement in commodity prices will provide better prospects for Malaysia’s exports in 2017, especially for the commodities-based sector. Hence, we opine that our external trade performance will perform significantly better in 2017,” MIDF Research said.

It expected Malaysia’s export growth to average 8.5% in 2017, compared with only 1.1% last year.

RHB Research expected Malaysia’s export growth to average 10% this year.

“We are of the view that the recovery in global trade remains on track, indicated by the strong pick-up in exports across the region since late last year,” the brokerage said in its report.

“Given that the export performance for the first quarter of 2017 had exceeded expectations, we are forecasting exports to grow by 10% this year, from 1.1% in 2016, on account of a recovery in demand for commodity products, aided by higher prices, a pick-up in global semiconductor sales in late 2016, translating into higher E&E exports and an improving global trade outlook on the back of stronger global growth prospects,” it added.

Source: The Star

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Jun 2017 5

Ringgit firmer vs US$, pound sterling early Monday

KUALA LUMPUR: The ringgit extended last week's gains to open higher against the US dollar on MOnday, prompted by continued buying support in the emerging currencies, including the local note, a dealer said. At 9.10 am,...

KUALA LUMPUR: The ringgit extended last week's gains to open higher against the US dollar on MOnday, prompted by continued buying support in the emerging currencies, including the local note, a dealer said.
 

At 9.10 am, the local unit was quoted at 4.2670/2710 against the greenback from Friday''s close of 4.2790/2820.


Against a basket of major currencies, the ringgit traded mostly lower.

It slightly weakened against the Singapore dollar to 3.0878/0918 from 3.0873/0901 on Friday and depreciated against the yen to 3.8622/8669 from 3.8380/8417.

The local unit strengthened against the British pound to 5.4899/4968 from 5.5062/5105 last week but went down against the euro to 4.8102/8151 from 4.8015/8053. - Bernama

Soruce: The Star

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Jun 2017 2

Corporate earnings grow

PETALING JAYA: After two years of disappointment, corporate earnings in the first quarter of 2017 grew, as banks and technology firms benefited from stronger economic growth.At least one analyst described the first-quarter...

PETALING JAYA: After two years of disappointment, corporate earnings in the first quarter of 2017 grew, as banks and technology firms benefited from stronger economic growth.

At least one analyst described the first-quarter results as the fastest growth in recent years.

Analysts reckoned that the encouraging start to the first-quarter corporate earnings growth in 2017 after two years of decline heralds a positive outlook for corporates.

 
 
 

“This year is the first time we could see a positive growth in corporate earnings after two years of consecutive decline,” CIMB Investment Bank head of equity research Ivy Ng told StarBiz.

She said that from CIMB’s universe of stocks, first-quarter corporate earnings grew 11% year-on-year (y-o-y), the fastest growth since the first quarter of 2013.

However, the research house expects corporate earnings to grow 8% this year, lower than its earlier forecast of between 9% and 10%.

This is because it expects the corporate earnings momentum to taper off in the later part of the year.

“The first quarter is usually the strongest quarter, and there is also a low base effect from last year,” Ng said.

Nonetheless, she said the ratio of companies that underperformed was higher than the outperformers.

“There could be an earnings downgrade in some segments of our universe of stocks,” she said.

Among the companies that underperformed in the first quarter were in the automotive and transportation sectors.

For the coming quarters, Ng reckoned that companies in the construction and utility sectors would be the research house’s top picks.

MIDF Research has also lowered its corporate earnings forecast for this year to 10.7% from 11.2%, as it expects the growth momentum to soften in the coming quarters.

“The first-quarter results were in line, with good export numbers and a weaker ringgit. Sectors such as technology and manufacturing surprised the market,” said MIDF head of research Mohd Redza Abdul Rahman.

He added that the banking sector performed well in the first quarter, backed by a higher-than-expected loan growth of above 5%.

“Moving into the second half of the year, we expect exporters to continue to do well, especially with the stable ringgit againt the US dollar,” Redza said.

Banking stocks, which have gained favour among foreign investors since the beginning of the year, have been the main driver of the rally in the local stock market.

Bursa Malaysia’s leading indicator, the FBM KLCI, has soared 7% year-to-date led by the banking sector, which makes up the largest component of the benchmark index.

Four out of the five largest public-listed banking groups have seen a huge increase in their profits during the quarter, in line with analyst expectations.

However, moving further into the year, several research houses have lowered their expectations on the banking sector on modest earnings and loan growth, and asset quality concerns.

UOB Kay Hian said it has downgraded Malayan Banking Bhd and Affin Holdings Bhd to a “hold” and “sell”, respectively.

“Sharp share price outperformance and pockets of asset quality concerns were the drivers of our downgrades.

“As for CIMB Group Holdings Bhd, we would advocate a ‘sell into strength’ strategy, as valuations are no longer appealing,” it said in a report.

It has upgraded Hong Leong Bank Bhd to a “buy” on the back of a solid recovery in earnings and attractive valuations.

Meanwhile, CIMB Research said although the industry’s loan growth increase at end-April was a tad higher than its 5%-6% projection, it expected the loan growth to moderate in the coming months.

“The growth in the industry’s loan applications and approvals moderated from 6.4% and 28.9% y-o-y, respectively, in March to less than 1% y-o-y (for both) in April.

“This was mainly due to the slowdown in the indicators for residential mortgages. Also, the approvals of working capital loans even contracted 9.2% y-o-y in April compared to a surge of 35.5% y-o-y in March,” it said in a sector report.

Source: The Star

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Jun 2017 1

RHB-AMMB to begin merger talks

PETALING JAYA: After more than a year of speculation, RHB Bank Bhd and AMMB Holdings Bhd are to begin talks for a merger.Both banks will make an announcement about this today.RHB and AMMB had requested for a...

PETALING JAYA: After more than a year of speculation, RHB Bank Bhd and AMMB Holdings Bhd are to begin talks for a merger.

Both banks will make an announcement about this today.

RHB and AMMB had requested for a suspension in the trading of their shares yesterday evening, “pending a material announcement”.

Sources said that the banks would announce that they had received the nod from Bank Negara to initiate merger talks.

 
 
 

If the deal materialises, then the merged entity would end up becoming the country’s fourth-largest bank by asset size.

According to banking sources, RHB is likely to be the acquiring bank, making an offer to the shareholders of AMMB that may involve cash and shares.

AMMB’s major owner is Australia and New Zealand Banking Group Ltd (ANZ) of Australia with a 23.78% stake, while its second-largest shareholder is founder Tan Sri Azman Hashim, who has an effective stake of 12.97%.

RHB, meanwhile, is 41%-owned by the Employees Provident Fund (EPF).

Both banks have a common shareholder in the EPF, with the pension fund also holding a 10.04% stake in AMMB, according to Bloomberg data.

The other substantial shareholders of RHB are Aabar Investments PJS with a 17.75% stake and OSK Holdings Bhd with 10.13%.

Based on the figures as at the end of last year, the combined assets of RHB-AMMB stood at RM368.3bil, trailing behind Public Bank Bhd’s RM389.73bil. RHB is currently the fourth-largest lender, while AMMB is the sixth largest based on asset size.

In terms of branch network, RHB has 278 branches, while AMMB’s totals 175 branches.

An analyst said while RHB and AMMB would make a good fit, both banks are operating in the same space that would see duplications that could likely cause potential layoffs.

AMMB had in the recent past been seen as a merger and acquisition candidate, considering that its major shareholder ANZ reportedly had a plan to exit from the banking group as part of a larger plan to exit from minority banking stakes in the region.

Last year, the Melbourne-based bank made a A$260mil (RM773.07mil) impairment loss on its stake in AMMB, which was read as a signal of its intention to dispose of its strategic stake. ANZ had bought into AMMB in 2006 in two tranches averaging RM3.63 a share or RM2.58bil, which translated into a price-to-book (P/B) ratio of 1.96 times.

According to banking sources, Azman may also be more open to selling, as he is retiring from almost all his positions within the banking group over the next two years.

The veteran banker is also said to have a say in who takes up the ANZ stake, as he has the first right of refusal to it.

Over at RHB, its previous banking deal was the proposed three-way merger deal involving itself, CIMB Group Holdings Bhd and Malaysia Building Society Bhd.

However, the deal was called off in January 2015 because RHB’s substantial shareholder Aabar had reportedly sought a high exit price.

AMMB closed up 11 sen to RM5.21 and is trading at a P/B value of 0.98 times. RHB was last done at RM5.39, which translated to a P/B of 0.97 times.

Meanwhile, earlier in the day, AMMB reported a 20% increase in earnings to RM335.81mil from RM280.02mil a year ago, boosted by higher net interest income for its fourth quarter ended March 31.

Its revenue came in at RM2.14bil compared with RM2.10bil a year ago. Earnings per share was at 11.17 sen compared with 9.32 sen previously.

The banking group has announced a dividend of 12.6 sen a share.

Source: The Star

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May 2017 31

RM ends at 4.28 against USD

KUALA LUMPUR: The ringgit closed easier today as traders were still unimpressed with the outcome of the Organisation of the Petroleum Exporting Countries (OPEC) meeting last week, which had a negative impact on the foreign...

KUALA LUMPUR: The ringgit closed easier today as traders were still unimpressed with the outcome of the Organisation of the Petroleum Exporting Countries (OPEC) meeting last week, which had a negative impact on the foreign exchange market, a dealer said.

At 6 pm, the local unit was quoted at 4.2810/ 2840 against the greenback from Monday’s close of 4.2705/2735.

The dealer said oil prices again slipped below US$50 per barrel and currency traders were likely to continue selling at this level.

FXTM Vice-President for Corporate Development and Market Research Jameel Ahmad said the negative impact on the oil market was not due to a lack of effort from the side of OPEC, but it is more linked to the belief that US Shale producers would turn the volume up on increased production.

“The ongoing threat to investor sentiment, when it comes to the oil markets, is that no matter what OPEC tries to do to rebalance the ongoing oversupply in the markets, US Shale producers will be able to offset the efforts by increasing inventories from their side,” he said.

Against other major currencies, the ringgit was traded lower.

It fell against the Singapore dollar to 3.0881/0909 from 3.0858/0891 on Monday and declined to 3.8540/8574 from 3.8345/8386 versus the Japanese yen.

The local unit depreciated against the British pound to 5.5032/5088 from 5.4825/4872 and vis-a-vis the euro it dropped to 4.7789/7839 from 4.7770/7816. --BERNAMA

 

Source: New Straits Times

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May 2017 30

Bank Negara kicks off fintech sandbox

PETALING JAYA: Bank Negara has approved four firms to operate within its “regulatory sandbox”, marking a significant milestone in the growth of financial technology (fintech) in Malaysia.Bank Negara opened applications for...

PETALING JAYA: Bank Negara has approved four firms to operate within its “regulatory sandbox”, marking a significant milestone in the growth of financial technology (fintech) in Malaysia.

Bank Negara opened applications for parties intending to create innovative ways to improve the quality, efficiency and accessibility of financial services in Malaysia last year, in line with global trends.

It also saw the central bank creating a unit called the Financial Technology Enabler Group (FTEG) which would oversee the entry of technological innovations in financial services.

Companies operating in the sandbox will be allowed to commercially launch their services albeit within limits set by the central bank and under close watch by the regulator.

 
 
 

FTEG’s website posted the names of the four approved participants in the sandbox, which cover the areas of insurance and money transfers which in turn are areas hotly pursued by fintech startups globally.

GoBear Ltd and GetCover Sdn Bhd are described as being both financial advisers and insurance aggregators while WorldRemit Ltd and MoneyMatch Sdn Bhd are allowed to conduct remittance services while the latter is also enabled to provide money changing services.

Fintech differs from other areas of technology innovation because it operates in a highly regulated space. In other words, without the approval of the relevant bodies, innovative financial solutions may not be allowed to operate in those markets.

However regulatory standards differ in each country although there are efforts by some regional bodies to standardise regulations.

Interestingly, two of the four getting into the Bank Negara sandbox are foreign-owned entities namely GoBear and WorldRemit. GetCover and MoneyMatch are Malaysian owned start-ups.

So what new financial services are the players going to bring to the market? GoBear is owned by Dutch investors seeking to provide an independent comparison website for insurance and financial products in Asia.

It has a presence in Singapore, Thailand and Malaysia and plan to get into The Philippines, Vietnam and Indonesia.

GetCover will be offering a free mobile application that allows users to buy motor insurance directly from insurers. It is expected to be the first of its kind in the market.

GetCover’s aim is to leverage on the efficiencies of digital distribution channels to benefit end-consumers.

The idea is to make it easier for consumers to research insurance products available in the market and for providers to streamline operations and save distribution costs.

Paul Khoo, founder and CEO of GetCover has been quoted by the media as saying that the global insurance industry has not seen a lot of innovation and that only a very small number of users currently buy motor insurance online.

According to Khoo, GetCover intends to provide a fully automated transactional platform which will drive down costs and provide consumers with more cost savings. He added that due to strategic tie-ups that GetCover has pursued, it would be able to extract relevant data when consumers key in their basic information, enabling a seamless purchase of the insurance product by the consumer.

Meanwhile MoneyMatch is a local startup allowed entry into the sandbox to provide cross border remittances and money changing services.

MoneyMatch is creating its own platforms to match individual buyers and sellers of currencies. It also aim to cater to the SME market which do a lot of cross border transfers in the normal course of business.

When contacted, co-founder Naysan Munusamy said: “We’re really grateful to Bank Negara for being so forward thinking in allowing us to bring our unique fintech solutions to the Malaysian market which will bring down the cost of remittance and money changing to end consumers.

“We’re gearing up for our official launch soon. We are confident of making a positive impact on the financial services industry.”

Meanwhile WorldRemit was started by refugee turned entrepreneur Ismail Ahmed and has to-date raised more than US$145mil (RM620mil) in funding and the company helps mainly foreign workers send cash to 142 countries.

The London-based firm has reportedly been valued at US$500mil (RM2.1bil) in its latest funding round.

WorldRemit is among the many remittance companies – including incumbents such as Western Union and startups like itself and TransferWise – that are chasing to capture the global remittance market that the World Bank estimated was worth US$610bil (RM2.6 trillion) in 2016.

Source: The Star

Language English
May 2017 29

Zukri: Islamic banking sector ripe for M&As

PETALING JAYA: There are too many Islamic banks in the country which means that this segment of the local financial sector is ripe for merger and acquisition (M&A) activities, according to outgoing Bank Islam managing...

PETALING JAYA: There are too many Islamic banks in the country which means that this segment of the local financial sector is ripe for merger and acquisition (M&A) activities, according to outgoing Bank Islam managing director Datuk Seri Zukri Samat.

Zukri is also advocating direct listings of such banks.

“The industry is overcrowded... I hope there will be some M&As among Islamic banks to create a couple of mega Islamic banks that can rival the size and capabilities of conventional banks,” he said.

There are 16 Islamic banks in Malaysia of which two are full-fledged banks, eight are subsidiaries of conventional banks and the remaining, foreign banks.

 
 
 

The 59-year-old Zukri, credited with helping to turn around the once ailing Bank Islam was given a grand send-off by his colleagues last Friday after spending 11 years at the country’s oldest Islamic lender.

“Hopefully the industry will grow beyond Malaysian shores with careful strategic positioning. I hope to see the creation of mega Islamic banks that can potentially become regional champions particularly under the Asean banking integration framework,” he told StarBiz.

While there have been several M&A attempts in the Islamic banking space in recent years, all have fallen through.

In 2011, Bank Islam itself had attempted but failed in a merger with Bank Muamalat that is owned by DRB-Hicom Bhd. Following the effects of the Asian financial crisis in the late 1990s, Bank Negara had called for a consolidation of the country’s then almost 60 financial institutions of which over 20 were local commercial banks.

Today, the country has eight local banking groups.

Nevertheless, while consolidation has happened in the conventional banking industry, new licences had been issued within the Islamic banking space to more Islamic banks like Bank Muamalat, Kuwait Finance House, Asian Finance Bank and Al Rajhi Bank.

On the issue of direct listings of Islamic banks, Zukri said more of such companies being listed would lead to the creation of a new asset class which can appeal to syariah investors.

Zukri joined the BIMB Holdings Bhd-controlled Bank Islam in June 2006 when the bank was technically bankrupt.

Bank Islam is wholly-owned by BIMB while in turn Lembaga Tabung Haji (LTH) controls 52.5% of BIMB.

It is also one of LTH’s core investments.

“Bank Islam suffered RM480mil and RM1.3bil losses in 2005 and 2006 making it technically a bankrupt bank as shareholder’s funds were in negative territory.

“I was aware of the fact that Bank Islam is the first Islamic bank in Malaysia and the failure to manage it may have caused a systemic risk to the banking system in general and Islamic banking in particular,” he said.

Taking on the mammoth task of turning things around, Zukri and his team implemented a three-year plan, which contained two broad strategic objectives to be achieved within a three year timeframe, to return the bank to profitability and position the bank for sustainable growth.

“Within 12 months, the bank recovered and posted its highest profit up until that time of RM256mil while net non-performing financing had also declined sharply to 8.8%, from 12.2% posted in the previous year.”

At the end of 2016, the bank posted a pre-tax profit of RM720mil with net non-performing financing at -0.75%.

The biggest challenge in his view was changing the work culture at the bank.

Zukri who was executive director of investment at Khazanah Nasional Bhd and managing director at Pengurusan Danaharta Nasional Bhd before assuming his position at Bank Islam said “nothing could have prepared me for the difficulty in executing change in the working culture.”

“Although Bank Islam is a private sector-owned entity, the bank used to be run very much like a public sector organisation. So, when we started to implement new policies such as pay-by-performance, sales culture and injecting new blood from other organisations there was a lot of resistance, it was not easy.”

“Continuous communication was what we practised so everyone was on the same page on the progress the bank was making.”

The challenges in the banking industry are aplenty, he said.

“Regulatory requirements such as Basel III and Internal Capital Adequacy Assessment Process or ICAAP were introduced mainly to achieve financial stability... I see this as another form of competition for capital and premium assets.”

He also pointed out that the rapid emergence of companies doing the business of lending using financial technology (fintech) only means that banks have no choice but to embrace the new development.

“Some estimate that fintech may take up to 40% of the banking business going forward, so it makes sense for banks to collaborate with or invest in a fintech company.

While it is not yet known who will replace Zukri, it is learnt that after a careful selection process, one name has been submitted to Bank Negara for approval.

Notably, Bank Islam’s parent company BIMB is at the same time contemplating a group-wide restructuring, something that it has been mulling for years, partly to fulfil regulatory compliance requirements.

Source: The Star

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