BIMB takes on a 3D approach to growth
F Saad 
Bank Islam’s investment account, which reported RM5.3 bil in deposits last year, will provide it with additional capital savings

BIMB Holdings Bhd, the country’s largest Islamic banking group in asset size, saw much uncertainty over its new leadership last year.

However, it is preparing for growth this year under its new CEO Khairul Kamarudin.

Khairul says BIMB aims to grow its banking and takaful businesses organically

Khairul says the banking group, which derives its income from its two main operating subsidiaries – Bank Islam Malaysia Bhd and Syarikat Takaful Malaysia Bhd, has taken on a “3-D” approach moving forward.

It will concentrate on future growth, deposits, defensive strategy (striking a balance between assets growth and asset quality), and becoming digitally focused.

He says the group aims to grow its banking and takaful businesses organically while maintaining a prudent position.

Nonetheless, the banking and takaful businesses will leverage on each other’s strengths.

“For Bank Islam, we have a sustainable business model that focuses on responsible growth. Going forward, we need to strike a balance between profit margin, asset quality, impact on Malaysian Financial Reporting Standards 9 (MFRS 9), funding mix, capital requirements and growth.

“Ultimately, growing responsibly will enhance our corporate value,” Khairul tells FocusM.

MFRS 9 is a new accounting standard which will come into effect this year and have a significant impact on banks.

The new standard requires banks to change the way they make loan loss provisions.

Under MFRS 9, banks will have to make provisions in anticipation of future losses rather than the current practice of making provisions only when loans have been classified as impaired.

This is where lenders will have to make provision for any new loan they extend, including undrawn facilities.

While Bank Islam will remain a retail bank, it will have greater exposure to the real economy, particularly by growing its SME portfolio.

For SME banking, Bank Islam is targeting the mid-sized market and developing digital platforms tailored to the segment’s needs.

“It requires the bank to carefully enhance its delivery infrastructure, collection culture, and correctly positioning itself in the marketplace.

“However, we will still remain cautious and guided, which is why we are developing a new credit scoring method for the industry.

“Ultimately, we hope that the growth in both consumer and SME financing can have spillover effects on our takaful business,” he says.

Khairul was appointed CEO in June last year, following the retirement of Datuk Zukri Samat.

He joined Bank Islam in 2005 and was director of business development before becoming deputy CEO in 2015.

For consumer banking, Bank Islam’s focus on the timely and convenient collection will place it ahead of the curve, says Khairul.

“Consumer banking is well positioned to grow, given the proven business model [salary deduction at source].

“Our strong credit and collection infrastructure will continue to position consumer banking as the engine for growth.

“In addition, a strong risk management discipline, experienced credit team and high-quality portfolio have helped us maintain strong credit performance. We will continue to stay focused on this measure in the future,” he says.


Digital platform

The banking group recently partnered with US-based fintech company Cognizant to improve customer experience and deepen its digital platform reach. This will allow it room for greater productivity and efficiency.

BIMB was impacted by high operating expenditure last year, with marketing expenses increasing 27% year on year.

Last year, Bank Islam as BIMB’s banking arm achieved a net income margin of more than 2.5%, which is the industry’s highest.

It was achieved thanks to its higher composition of low-cost current and savings accounts, which comprised more than 30% of customer deposits.

Bank Islam has also managed to sustain above industry average financing growth, which, for the last three years in terms of compound annual growth rate is 18.2% against the banking industry’s 7.6%.

“Despite the robust financing growth, we have managed to preserve asset quality with our focus on selective assets growth.

“In terms of this, Bank Islam has a strong and healthy portfolio where our gross impaired financing is relatively low, hovering around 1% for the past three years compared with the banking industry ratio of 1.6%.

“For Syarikat Takaful, we have a lower net claim ratio arising from a unique proposition of 15% cash back on no claims and stringent underwriting,” says Khairul.


Game changer

Bank Islam’s investment account, which reported RM5.3 bil in deposits last year, will provide the bank with additional capital savings.

This is because the bank will incur lower Perbadanan Insurans Deposit Malaysia (PIDM) cost as well as tawaruq brokerage fees, compared with traditional deposit funding.

As an offshoot of this, the Investment Account Platform (IAP), will allow investors to fund new ventures, much like crowd-funding.

“Moving forward, the IAP will be a game changer where entrepreneurs can submit a venture to one of the six participating Islamic banks.

“The venture will then go through an evaluation process where it will be assigned a rating by RAM Holdings Bhd.

“The venture will then be listed on the IAP where investors can fund it,” Khairul says.

As for Syarikat Takaful, it will continue to be a market leader in family takaful through distribution channels in Bank Islam, RHB Bank Bhd, and Affin Bank Bhd.

BIMB has also laid the foundations for a holistic growth pattern through the implementation of value-based intermediation (VBI).

In July last year, Bank Negara Malaysia proposed several strategies to strengthen the roles and impact of Islamic banking institutions.

VBI aims to deliver the intended outcomes of shariah through practices, conduct and offerings that generate positive and sustainable impact on the economy, community and environment, without compromising financial returns to shareholders.

Some banking experts have said VBI will make Islamic banking more palatable to the international market, given its environmentally-friendly approach and emphasis on ethics to drive income.

BIMB is Malaysia’s only shariah-compliant listed financial institution.

Driven by consumer financing growth for its Q3 ended Sept 30, last year, BIMB posted a 30.55% net profit jump to RM183.43 mil from RM140.61 mil in the previous corresponding period.

Revenue grew 43.7% to RM912.74 mil from RM874.54 mil previously, although its corporate banking segment fell 20.4% (RM3.59 bil).

RHB Research analyst Stephanie Cheah in a Dec 4 report says: “Its [BIMB] strong earnings were largely on the back of net write-back of impairments due to higher loan recoveries.

“On the flip side, its gross impaired loans ratio ticked up to 1.07% with stresses mainly from the education and health sectors.”

BIMB’s share price has underperformed its peers due to concerns over the potential sale of its 59.9% stake in Syarikat Takaful Malaysia.

MIDF Research analyst Imran Yassin Yusof in his Dec 4 report says: “We continue to like the group for its healthy asset quality and the robustness of its operations. Moving ahead with digital will also ensure sustainability.”

This article first appeared in Focus Malaysia Issue 267.