Bank Islam may end IT deal with Swiss firm

By Habhajan Singh & Halim Wahab
Bank Islam Malaysia Bhd is believed to be on the verge of terminating its core banking system contract entered into just over a year ago, potentially causing the bank to incur losses to the tune of millions of ringgit.
Sources say Bank Islam, the nation's first Islamic bank, has run into issues over the agreement signed with Swiss banking software maker Temenos Group AG in October 2007.
"The bank is facing some interpretation issues. If not resolved soon, it could derail its IT platform revamp," a source told The Malaysian Reserve.
A decision to change course now for its core banking system would have substantial financial implications for Bank Islam, with some industry executives familiar with such work estimating that the bank may end up forking out up to RM30 million.
However, a bank official who spoke on the condition of anonymity, said any losses would be "much less" than RM30 million and would not breach the amount previously allocated for the bank's total IT revamp.
In March 2008, Bank Islam managing director Datuk Zukri Samat said the bank had allocated some RM100 million to revamp its IT system, including the bank's core banking system, which was due to be completed by 2010.
Bank Islam is 51%-owned by public-listed BIMB Holdings Bhd, which also controls Islamic insurer Syarikat Takaful Malaysia Bhd.
When contacted, Bank Islam declined to provide figures on how much it had paid for the Temenos T24 system, or how much it is likely to fork out should it decide to rope in another vendor.
"Our IT infrastructure revamp programme is on track," Zukri said in an emailed statement.
In mid-2006, after two consecutive disastrous financial years — the bank reported a net loss of RM507.8 million for the financial year ended June 30, 2005, and a net loss of RM1.31 billion the following year — a new management team led by Zukri unveiled a five-pronged turnaround plan.
Once the revamp programme was set in motion, Bank Islam began looking at upgrading its IT infrastructure, a vital ingredient for a bank that is big in the retail segment.
In October 2007, Temenos announced that its system had been selected to replace Bank Islam's two in-house systems — a Silverlake core banking platform and an i-Flex Internet banking system — which the bank has operated over the last 10 years.
Meanwhile, the issue of replacing the core banking system was also raised by shareholders at the annual general meeting of the bank's parent BIMB on Dec 17. Among the key stakeholders are the Dubai Investment Group (DIG), a member of United Arab Emirates' (UAE) Dubai Holding, whic h emerged as one of Bank Islam's major shareholders following a recapitalisation exercise after the massive losses in 2005 and 2006.
"It had created a bit of an issue at the bank," said one banker familiar with the matter.
Among the questions raised were whether the bank had made the right call when it brought in the new platform and if it was financially prudent to switch to another platform at this juncture.
According to a media release by Temenos, the T24 is a functionally rich, scalable, integrated, modular banking system. It is understood that Bank Islam was Temenos' first major break for core banking system sales in Malaysia.
Silverlake, the industry rival that it replaced at Bank Islam, is said to have better knowledge of customisation to local needs as it counts a number of local Islamic financial banks as its customers, including Affin Islamic Bank Bhd and OCBC Al-Amin Bank Bhd.
(This story appeared in The Malaysian Reserve on Jan 29, 2009. The Malaysian Reserve is a daily business/finance newspaper published out of Kuala Lumpur, with a sectoral page on Islamic finance on Mondays, edited by Habhajan Singh)