Saturday March 16, 2013
Bank Islam’s makeover pays off
By DANIEL KHOO
WHAT started out as an uphill task for Bank Islam Malaysia Bhd managing director Datuk Seri Zukri Samat to turnaround and reverse the flagging fortunes of the bank is finally paying off financially and economically.
Looking back at the years, Zukri acknowledges that it was not an easy task to change things including the way it does business with its stakeholders.
Today, Bank Islam is proud to call itself the biggest standalone Islamic bank by financial asset size in the country, giving it the needed edge to reach its customers.
Zukri gave an in-depth view and explanation on how the bank had cleaned up its books and put its house in order after the turmoil that it had gone through and its key business plans, moving forward.
“I joined Bank Islam on June 9, 2006. At that time, the bank was in a big mess in a way. Back then, in the financial year ended June 2005, Bank Islam recorded a loss of close to about RM400mil.
“And on June 30, 2006 right after I came on board, we announced another set of results which was very bad, a loss close to about RM1.2bil to RM1.3bil,” he tells StarBizWeek in an interview.
“Technically speaking, within the two years, (our) capital had been completely wiped out. I was tasked for a total overhaul of the bank. After my appointment, we had to come up with a turnaround plan to put the bank on the right (growth) path once again,” Zukri says.
To illustrate the problem, just take a peek at its bad debts then. At the height of the crisis, the bank's non-performing loans (NPLs) climbed to as high as 20% on a gross basis which came from two sources: its Labuan outfit (Bank Islam Labuan Ltd) with foreign currency financing and back here with NPLs mostly in the automotive and property segments.
“At that time, we managed to convince two new shareholders, the Dubai Investment Group and Lembaga Tabund Haji, to pump in capital amounting to RM1.014bil in October 2006.
“We also had to tackle many issues, clean up the books and deal with staff morale, which was very low,” he says.
He notes that during the crisis, Bank Islam did not sold much of its bad debt to national asset management firm Pengurusan Danaharta Bhd. It was only a “very little amount”, he says.
“At that time, NPLs for the bank's car financing portfolio was very high. For every three cars we financed, one went missing'. So much so we had to take the decision to stop financing this segment for a while. Nine months later, we restarted the business after finding out what happened,” Zukri says.
Bank Islam today counts its key competitive strengths as being the biggest standalone Islamic bank by asset size in the country and is widening its appeal to include a more diversified portfolio of customers while still keeping its traditional core Malay-Muslim segment.
“Our customers are increasingly diversified and our workforce as well. Today, we not only have Chinese and Indians with us but including mat sallehs' as well.
“It is an achievement for us to be able to attract talent regardless of race and religion, as we realised we need talent from all sorts of people. As long as you can contribute to the bank, you will be hired,” Zukri says.
Financially, meanwhile, the bank's target this year is to increase its asset size by 15% against the industry's forecast of 12% for loans growth.
“It sounds robust but we believe we can do it. Last year, we grew our portfolio by 38% and the year prior by 20%. We hope there will a corresponding increase in profit growth as well. Financing is key for the Islamic banking business,” he says.
Zukri says there is a possibility the bank will need to call for additional capital sometime next year to beef up its organic growth targets. With this in mind, the company is aiming to open another six branches to widen its base to 133 by the end of this year.
“We (the board) will talk to our shareholders to see which is the best way forward to raise capital. At this juncture, we have not decided which mechanism we will use. The board has acknowledged there is this need,” Zukri says.
He notes the listing of the bank is on the cards and is a medium-term group agenda that is likely to be implemented anytime until next year.
“This is one option that we are looking at and this matter had been discussed among shareholders and board of directors,” he says.
Moving forward, the bank expects consumer banking operations to drive it growth, with sizeable expansion seen in all domestic sub-segments despite the backdrop of compressed consumer financing margins.
“House financing (RM5.6bil) constitutes 37% of consumer banking. Consumer banking is our main (growth) driver, constituting 74% of total portfolio. Personal financing constitutes 41% of consumer portfolio or RM6.1bil.
“Most of these are direct tie-ups with government-linked companies with direct salary deductions. The man on the street constitutes 10% of our total personal finance portfolio,” Zukri says.
The vehicle segment to-date constitutes about 17% of its total loans portfolio.
Moving forward, the bank sees itself deriving most of its income from Malaysia but will keep an eye for opportunities in markets such as Indonesia.