By Sumathi Wong & Habhajan Singh
EONCAP Islamic Bank Berhad (EonCap Islamic), with a good handle on motor vehicle financing which is the mainstay of its parent company, is also looking at cracking open new growth areas, especially on the personal financing front. One recent area that it has explored is personal financing for members of the armed forces and the civil service, a potentially large captive market.
"Personal financing is very peculiar and specialised for the armed forces and recently we launched personal financing which is open to civil servants," said EonCap Islamic chief executive officer and executive director Foziakhatoon Amanulla Khan. She explained that personal financing for the armed forces and the civil service has thus far received a good response.
"This move also allows us to grow our current and saving's accounts," she said.
EonCap Islamic's motor vehicle financing, called Hire Purchase-i (Auto Aitab) with the underlying contract based on the Shariah principle of Al-Ijarah Thumma Al-Bai (Aitab), remains its main engine of growth.
"Aitab or EonCap's car financing still remains the biggest contributor along with mortgage financing," she told The Malaysian Reserve in a recent interview.
In an earlier report in June, The Malaysian Reserve had reported that EonCap Islamic is not perturbed that its car financing sector remains the biggest contributor to its financing portfolio despite falling car sales due to the contracting economy. The Islamic bank was confident of its car financing segment in view of low non-performing rates (NPR) and a good mix of cars under financing.
"We do see a slowdown, but it is fine. Our non-performing loans ratio is fantastic. In fact, we are below average within the industry's non-performing loans ratio. We are at about 2%," Fozia had then told this newspaper.
She was responding to a question on whether management was concerned that the economic contraction would cause a potential slowdown within its financing front as car financing is a major component in its portfolio.
EonCap Islamic is a wholly owned subsidiary of EON Bank Bhd, which in turn is a wholly owned subsidiary of EON Capital Bhd. The group's Islamic assets expanded by 15.7% to RM7.1 billion and its gross Islamic financing advanced by 3.3%, according to EON Capital's annual report for the financial year ended Dec 31, 2008.
In 2008, the report said EonCap Islamic's Aitab and mortgage products continued to grow at the projected level of 7.9% and 2.1% respectively. It added that total deposits and assets have increased by 5.5% and 15.7% respectively, contributing 15% to EON Bank's total deposits and assets.
At the same time, Fozia said the bank is also growing its ar-rahnu product — pawn broking.
"We had that many years ago, but it's just that it was not emphasised and we didn't have the right people to manage it. Now, we are relaunching it, so we hope to get the right response," she said.
EonCap Islamic had also, in the last one or two years, set up its corporate banking team and investment banking team. "They handle fee-based activities as well as corporate financing and SME financing. We do have exposure to corporate financing. It is small at the moment but it's growing. It's about 25% of our asset base. Our total asset size is about RM6.3 billion," she said.
She said parent Eon Bank was already offering Islamic retail products, in particular mortgage and Aitab.
"When they set it up as a subsidiary in April 2006, it was transferred to the balance sheets. For a start the retail banking the size for our portfolio is 75% retail and 25% corporate or commercial. The 75% retail is where the largest chunk is Aitab and mortgage. But in addition to our mortgage and Aitab, we have grown our personal financing segment.
On its staffing and branches, she said its staff strength is about 100 at the head office, with five full-fledged Islamic branches in Alor Setar, Kuala Terengganu, Kota Bahru, Putrajaya and the Kuala Lumpur main branch.
"We do plan to open up more branches in the future, but the timing is not yet fixed. With the current economic situation, we may have to relook at our strategy.
"We want to look at strategic locations when the time is right to open branches. While some may disagree, I think it's a good time for us to embark on opening branches, but we have to be very selective on the location," she said.
(This story appeared in The Malaysian Reserve on July 20, 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)
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