Sunday, September 27, 2009

Only 1 in 4 FT companies pay business zakat

By Habhajan Singh
Some 4,000 companies registered in the Federal Territories (FT) are eligible to pay business zakat estimated around RM46 million, but at the moment only one in four are fulfiling their zakat obligations.
Pusat Pungutan Zakat (PPZ) MAIWP, the body entrusted to oversee the collection of zakat in the FT, has set its sight on reaching out to these eligible corporations to encourage them to fulfil their zakat obligations.
PPZ, established by the Federal Territory Islamic Religious Council, is better known locally by its Malay acronym MAIWP, and began operations in 1991.
It practises a corporate style of management combined with a computerised collection system, proactive marketing and customer-oriented approach.

In a recent interview, PPZ general manager Mohd Rais Ali identified reaching out to the board of directors of these eligible corporations as one of its challenges in the coming years.
He said that an internal survey showed that there are 43,266 companies registered in the FT, which covers Kuala Lumpur, Putrajaya and Labuan. Out of this, it identified 13,055 companies with Muslim shareholders to be eligible to pay business zakat.
In 2008, 1,060 companies paid zakat on business.
"That's only 27%. If all companies pay (business zakat), PPZ can collect RM45.92 million," he told The Malaysian Reserve.
Zakat on business is levied at the rate of 2.5% on the zakatable assets of a business, which include the value of the net current asset and the short-term investment as shown in the balance sheet. Last year, total collection for zakat nationwide was RM1.03 billion, with PPZ collecting RM206 million. Besides business zakat, the other types of zakat include zakat on income, savings, shares, gold, crops, livestock and self (zakat fitrah). PPZ's business zakat amounted to RM28.7 million in 2008.

On the payment mode, Mohd Rais said that zakat through salary deduction is the most popular means and it contributes to about 70% of the organisation's collection.
"It's almost a fixed income (for us). We get some RM12 million from about 40,000 payers annually. Of course, the 20-80 pareto rule applies here, as well," he said. The pareto principle, also known as the 80-20 rule, states that, for many events, roughly 80% of the effects come from 20% of the causes.
Business management thinker Joseph M Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who observed that 80% of the land in Italy was owned by 20% of the population. When dealing with PPZ, he said most employers now bank in direct their zakat payments, making the transaction cashless.

PPZ, set-up via a company named Hartasuci Sdn Bhd, is placed under a foundation cal led Yayasan Taqwa Wilayah Persekutuan and is controlled by MAIWP.
Its basic responsibilities are to collect zakat for the council and raise zakat awareness amongst Muslims. Since its inception, PPZ has experienced many changes and improvements in its administration by passing bureaucratic procedures as well as adopting a customer-oriented and pro-active marketing approach.
"We provide multiple channels for people to fulfil their zakat requirements. Since 1991 until now, we have introduced various modes of collection. We have, for example, zakat through salary deduction and cheques.
"At on time, you had to personally go to Baitumal Malaysia offices. Today, you can walk into any bank branch or post office to make the payment. We have also started kiosks at selected mosques," he said.

PPZ's board of directors, chaired by Datuk Mustafa Abdul Rahman, includes Datuk Che Mat Che Ali, Dr Sohaimi Mohd Salleh and Dr Didi Indra Tjahja. Some of senior management team members are Abdul Hakim Amir Osman (operation manager), Mohammed Hassan (assistant operation manager), Azhan Ismail (finance, investment & development manager) and Azrin Abdul Manan (management & human resource manager).

(This story appeared in The Malaysian Reserve on Sept 28, 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)

Takaful Ikhlas appoints new board members

Takaful Ikhlas Sdn Bhd has appointed Yahaya Besah and Dr Syed Musa Syed Jaafar Alhabshi to the company's board of directors effective Aug 20, the takaful provider said in a recent statement. Yahaya, 58, chairs the board's risk management committee and sits on its audit committee and the remuneration committee. He graduated from the University Science of Malaysia with a Bachelors Degree in Social Science. His last position in Bank Negara Malaysia was director special projects (deposit insurance) before he retired in 2006. Dr Syed Musa, 48, who chairs the board's remuneration committee, is currently the principal consultant at Amanie Business Solutions Sdn Bhd. He joined the Shariah finance outfit in 2006 when he left University Tun Abdul Razak as head of its centre for graduate studies and dean in its business administration faculty. Prior to that, he was with International Islamic University Malaysia (IIUM).

UK Tories would maintain Islamic finance focus: REUTERS

The UK Conservative Party would foster the development of Islamic finance as much as the Labour government, if it comes to power after next year's general election, an Islamic finance expert linked to the Party said.
Mohammed Amin, partner and head of the UK Islamic Finance practice at PricewaterhouseCoopers (PwC), said at a conference on Wednesday: 'All the ways (in which) Labour has supported Islamic finance would be every bit as valuable under David Cameron (Conservative Party leader) as prime minister, reports Reuters (London: Sept 17, 2009).
Speaking at an Islamic finance conference in London as the vice-chairman of the Conservative Muslim Forum, an affiliate of Cameron's party working to encourage support from the Muslim community, he said: "The next conservative government would be very supportive of Islamic finance."
In April the budget 2009 changed the tax regime to facilitate Islamic-debt issuance and encourage the growth of London as an Islamic finance hub. Rules were changed to remove fiscal penalties to UK companies willing to issue sukuks, or Islamic bonds, effectively ending a regime which would have double-taxed the transactions needed to set up a sukuk, the report said.
The government however shelved its plans to launch a sovereign sukuk last November, citing the troubled market conditions in the wake of the Lehman Brothers collapse, it added.
The report added Amin said the Conservative party had been quiet about the Islamic finance field because there was 'no political mileage' in highlighting the achievements of the Labour government.

The steady rise of Islamic finance: BBC

One of the world's leading experts on Islamic finance, Sheikh Hussain Hassan, argues the whole crisis in Western banking could have been avoided if these basic sharia principles had been followed.
"$600 trillion were wasted on options, futures and derivatives, all gambling. Sharia prohibited these kind of risks 14 centuries back," he said in an article posted on the BBC website.
The article noted that London has become one of the biggest centres for Islamic finance in the world, with five Islamic banks, and many others in the high street offering Islamic financial products, or "windows" as they are known, adding that the growth of Islamic finance has been an unexpected outcome of the attacks on the World Trade Center of 11 September 2001.
Farmida Bi, a partner at London-based law firm Norton Rose, told the report that London has attracted this kind of investment because the British government wooed Islamic money in the wake of 9/11, at the expense of the US.
"It was really September 11th that made being a Muslim a political statement and not just a matter of personal faith," she said.
"And with the Patriot Act, which made investments in the US difficult for many Islamic investors, there was a significant increase in Islamic investors choosing to invest in Islamic institutions and Islamic products."

Brunei bank holds Islamic finance seminar

Bank Islam Brunei Darussalam Bhd (BIBD) conducted a one-day public seminar on Islamic finance on Sept 27 at Bandar Seri Begawan attended by some 300 participants.
The function was officiated by the bank's acting chairman and Brunei's Minister of Energy Mohammad Daud, reports Borneo Bulletin.
Dr Umer Chapra, a research adviser at the Islamic Research and Training Institute (IRTI) of the Islamic Development Bank (IDB), made presentations on "The Islamic Vision of Development in the Light of Maqasid Shari'ah" and "The Global Financial Crisis: Can Islamic Finance Help?".
BIBD's managing director Javed Ahmad delivered the closing remarks.
BIDB, which became fully operational on July 3, 2006, was the result of a merger a year earleir between the Islamic Bank of Brunei Bhd (IBB) and the Islamic Development Bank of Brunei Bhd (IDBB).
It has 14 branches at all the four districts, according to information on its website.
BIBD subsidiary include Takaful BIBD Sdn Bhd, which provides insurance coverage and investments, and BIBD At-Tamwill Berhad, which provides fixed deposits, vehicle hire purchase and consumer product financing.
The bank's shariah advisory board is chaired by Brunei's deputy state mufti Awang Suhaili Mohiddin. Its members are Awang Metussin Awang Baki, Masnon Ibrahim, Awang Mazanan Yusof and Awang Shukri Ahmad.

France seeks to woo Islamic finance: AFP

As France debates whether to ban the burqa, the government is leading a drive to attract billions in investment from Muslim countries by turning Paris into the European capital of Islamic finance. The French parliament this month has approved changes to legislation to allow Islamic "sukuk" bonds to be issued and the Qatar Islamic Bank has applied to be the first such bank to open in France, reports AFP.

Home to Europe's biggest Muslim minority, France is hoping to unseat London as the European hub for Islamic banking, offering products that comply with Sharia law and meet the needs of big investors mostly from Gulf countries. But the drive is raising hackles, with some opposition politicians accusing the government of undermining France's much prized secularism to accommodate wealthy interests, the report said.
"When rich Muslims are concerned, we welcome them. But when they are poor, we put them on planes and deport them. This is all very upsetting," it quoted Socialist deputy Henri Emmanuelli.

After failing to garner enough votes to derail the bill, the Socialist opposition is challenging the legality of the new legislation on Islamic finance before the Constitutional Council. "We must not allow principles of Sharia law, or the ethics of the Koran to be introduced into French law," said Emmanuelli.

The report added that economists argue that money raised through Islamic finance could help spur France's nascent recovery with tools that are seen as financially sounder than the high-risk derivatives that led to the 2008 global meltdown.
Elyes Jouini, an author of a report presented to the government last year, estimates that France could tap into 120 billion euros in capital from Islamic finance by making adjustments to its tax and banking laws.

Only seven billion euros of those would be raised domestically among France's five million Muslims.
"There are extremely important financial reserves in Gulf countries and southeast Asia and these countries are ready to invest anywhere but they have specific rules in terms of ethics and in terms of the choice of investment," said Jouini, the report said.

Selamat hari raya, Eid ki mubarak

Greetings to Muslim brothers and sisters. Hope you had a blast of the Eid, and a blessed year ahead.

Wednesday, September 16, 2009

Top Shariah scholars in GCC: Funds@Work

By Habhajan Singh
Local Islamic finance expert Dr Mohamed Daud Bakar and Pakistan retired Supreme Court justice Sheikh Muhammad Taqi Al Usmani feature as two prominent Shariah scholars from beyond the Middle East region who play key Shariah advisory roles in the region.
Malaysia's Dr Mohamed Daud sits on 22 boards in the Gulf Cooperation Council (GCC) while Muhammad Taqi has eight board positions, according to a recent study of Shariah scholars as at end-2008 in Bahrain, Dubai, Kuwait, Qatar, Saudi Arabia and Abu Dhabi.
The top 10 scholars, with 15 or more Shariah board positions, share 253 positions leading to slightly above 25 positions per scholar, concluded the study by research based strategy consultant Funds@Work AG. The analysis covered 131 companies from Bahrain, Dubai, Kuwait, Qatar, Saudi Arabia and Abu Dhabi with 498 Shariah board positions.
It noted that 121 scholars from 19 different countries (Bahrain, Dubai, Kuwait, Qatar, Saudi Arabia, UAE/Abu Dhabi, Malaysia, Sudan, Iran, Pakistan, Yemen, Jordan, Tunisia, Lebanon, Turkey, South Africa, Indonesia, and the UK) were identified based on legal documents and other information highlighting their involvement in Shariah boards of various service and product providers as well as industry bodies.
The selection process left 94 scholars on 467 board positions and it leads to an estimated number of five board positions per scholar. Disregarding all scholars with less then three actual board positions, the study found that this leaves 400 positions for 38 scholars, leading to 10.5 expected board positions per scholar. Looking at the top 20 scholars (six or more board positions) leaves 339 board positions, equaling 17 expected board positions per scholar.
The Top 10 scholars (15 or more positions) share 253 positions leading to 25.3 positions per scholar, it concluded. On distribution, the study said the numbers indicate that about 54 (68%) of all Shariah board positions throughout the GCC are shared by only 11 (21%) of the active scholars, if board positions of the top 10 (Top 20) are summed up.
Shaikh Nizam Mohammed Saleh Yaquby from Bahrain, Shaikh Dr Abdul Satar Abdul Karim Abu Ghuddah (Saudi Arabia) and Dr Mohammed Eid Elgari (Saudi Arabia) alone make up 50% of the positions of the Top 10, or 26%, of the total amount of board memberships in the GCC, it noted.
The other names that crop up are Dr Abdulaziz Khalifa Al-qassar from Kuwait, Sheikh Abdulla Sulaiman Al Manea from Saudi Arabia and Sheikh Dr Hussein Hamid Hassan from Dubai.
The study, entitled "Shariah Scholars in the GCC — A Network Analytic Perspective" was meant to shed light on the Shariah landscape and give insights into Shariah scholars' engagements in institutions in the GCC and beyond, the outfit said. It analysed existing documents to get insights into Shariah boards and their members as well as their links to institutions across the region.
By mapping existing relationships, it hoped to get a "solid overview of their involvement", it added. The research team noted that as corporate governance related topics will most likely play a more dominant role in the Shariah market in the future, especially in the GCC, it would like to highlight the structural situation in the current market in order to give industry participants unique insights into the existing web of relationships.
"Although we only focus on snapshots of information we are convinced that the enclosed information can be of help in getting a solid idea of the Shariah landscape in the GCC and beyond and help in formulating futuregGovernance standards to assist the industry to thrive to the next level of development," the study concluded.

(This story appeared in The Malaysian Reserve on Sept 14, 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)

Ekuinas to avoid 'sin' stocks

Malaysian Government-linked private equity fund management company Ekuiti Nasional Bhd (Ekuinas) is not a Shariah fund, but it has refrained from investing in 'sin' sectors like gaming and alcohol, reports The Star (September 5, 2009).
The report quoted its CEO Abdul Rahman Ahmad as saying that industries like property and construction were ruled out because "there’s enough interest and companies in these sectors."
The targeted companies for investment should be existing medium-sized firms with high potential for growth. "We don’t need to specify the number of years and the level of revenue or profit that the company needs to generate, as long as we’re convinced that the company is sound and has demonstrated enough track record," Rahman told the newspaper.
The newly set up outfit expects to identify its initial investments in six months. The selection process would also consider the specific industry and its business cycle. "You can’t really have one-size-fits-all basis type of requirement," he said.
Ekuinas, which has an initial fund size of RM500mil that will eventually be enlarged up to RM10bil, expects to generate double-digit returns on investments, with average size of RM50mil over three to five years of investment horizon, the report added.

Loans growth strengthens but Q2 provision for loan losses higher: STAR

The recent financial performance of Islamic banks, although relatively weaker than in previous years due to the challenging economic conditions in the past 12 months, remains in line with expectations, according to analysts. An analyst with a local stockbroking firm saw improvement in net profit year-on-year and quarter-on-quarter due to higher income, reports The Star (September 7, 2009).
Loans growth also strengthened in the second quarter with CIMB Islamic Bank Bhd recording growth of 21.9% over the previous quarter, followed by Maybank Islamic Bhd (+7.1%), Alliance Islamic Bank Bhd (+6.5%), RHB Investment Bank Bhd (+6%) and Public Islamic Bank Bhd (+5.1%). However, the analyst noted that Islamic banks’ provisions for loan losses had risen in the second quarter with the possibility of further increases going forward, the report said.
The unnamed analysts told the newspaper that allowance for losses on financing and advances of Islamic banks in the second quarter jumped some 56% to RM279.7mil versus the previous corresponding period. "However, non-performing assets ratio has improved to an average of 1.95% in the second quarter against 2.24% in the first quarter," she was quoted as saying.
It also quoted Malaysian Rating Corp Bhd (MARC) vice-president/head of financial institutions ratings Anandakumar Jegarasasingam as saying financing activities by Islamic banks continued to register double-digit growth of 11.5% during the first seven months of 2009 compared with the low 3.6% posted by the commercial banking sector. "Given the increased popularity of the Islamic banking model and its still relatively small size in the broader financial sector, this growth trend is expected to continue into 2010," he said.

As for profitability, Anandakumar pointed out that income from financing activities had increased in tandem with growth in financing activities but non-financing-based income, such as fees and commissions, were impacted by the decline in business activities.
Provisions made in 2008 and the first half of 2009 were generally higher for most Islamic banks.
Anandakumar said the Islamic banking sector’s loss coverage of non-performing financing facilities increased from 65% at end-December 2006 to 83% at end-December 2008, and remained at that level at end-July 2009.
“This increase in provisions could be attributed to the banks’ desire to shore up their loss reserves as a buffer against an anticipated increase in delinquencies that are likely in view of the weak economic conditions and, in the case of some of the newer banks, as a result of the seasoning in their financing portfolio,” he added.
He expects some increase in delinquencies over the next two to three quarters.
This, in tandem with the likely pressure on income streams due to competition and lower macro interest rates, is likely to impact expansion in profitability.
On propects for Islamic banking, analysts expect such operations to continue to improve in the country as banks are putting more emphasis on growing the division.
A banking analyst with another research arm said: “The Islamic banking business has helped pull up the financials of banks such as AMMB Holdings Bhd, Malayan Banking Bhd and Public Bank Bhd in the recent second-quarter results.
“Moreover, there is strong interest for issuance of sukuk as an alternative to funding. I expect stronger contributions from this division going forward.”

Shariah officer for banking div

A Malaysian bank described as focussed on driving globalisation of Malaysian industries and nation's export development through provision of financial and country risk advisory services is looking for a Shariah officer for its banking division.
Role: Provide advise on Shariah matters and provide support to all division and department on validity & compliance with Shariah principles and issues which impact the bank operations. Also conceptualise, design and propose introduction of new Islamic compliant facilities, products and practices, whislt serving secretarial and liason functions on sh matters to management & external parties.
[Source: Select head hunter advertisement in The Star, Sept 5, 2009]

Thursday, September 10, 2009

Local Shariah banks wary of offering qard

By Habhajan Singh
Local Islamic bankers are in favour of offering qard hassan, or benevolent loan, but are reluctant to proceed aggresively as they fear that they may not be able to generate profit or recover their financing cost, a study found.
Qard hassan -- a non-bearing interest loan provided particularly to help the customers, stakeholders or society members at large who are in need of help -- is pracically non-existent in the local banking landscape, save for its use in card services by three Islamic banks.
The three players deploying the qard hassan concept are Bank Muamalat Malaysia Bhd, Al-Rajhi Banking & Investment Corporation (M) Bhd and Kuwait Finance House (M) Bhd (KFH Malaysia), according to the study by International Islamic University Malaysia (IIUM).
The survey, conducted by Dr Muhammad Akhyar Adnan and Dr Noraini Mohd Arifin from IIUM's accounting department, also noted that total outstanding qard hassan value was 'very much less than any other products or services rendered'.
In 2007, the study cited that the outstanding balance of qardh hassan in Bank Muamalat was only RM5.65 million, Al-Rajhi (RM2.84 million) and KFH Malaysia (RM33,000). In comparison to the total outstanding financing, these are only 0.1%, 0.15% and 0.001% respectively for each of the three banks.
A year later, in 2008, an inspection of the various bank's annual reports by The Malaysian Reserve shows some increase in the numbers for qard contracts with Bank Muamalat at 27.49 million, Al Rajhi Malaysia3.44 million and KFH Malaysia at3.16 milion. (In its 2008 annual report, Bank Muamalat stated RM13.49 million for qard hassan loan for 2007.
The KFH Malaysia 2008 annual report also showed up the use of the qard contract for the bank's demand deposit. In 2008, it stood at RM261.20 million, down from the year before at RM468.25 million, at the bank level.
The fact that qard does not feature prominently in the Islamic banking transaction is not a surprise as banks are generally driven by profit. Qardh, on the other hand, is a debt or borrowing contract between two parties in which repayment of the borrowed amount must be of the same.
Commenting on qard, Bank Negara Malaysia's (BNM) booklet on 'Resolutions of Shariah Advisory Council of Bank Negara Malaysia' has this to say: "Since qardh hasan concept is essentially benevolent in nature, it is improper to implement it in commercial transaction with profit orientation. Thus, the Council has made in-depth srcutiny on the terminology to modify it according to the current needs."
It noted that in the early stage of Islamic banking development in this country, several products were introduced based on qardh hasan, such as government investment certificate and benevolent loan. Now, the application has been expanded to include other products such as rahn, credit card and charge card.
It has also been used to structure liquidity management instrument for Islamic banking institution, noted the central bank guide for Islamic banking.
On this front, BNM Shariah council resolution on Dec 29, 2005 permitted the liquidity management instrument based on qardh, which is a contract of interest free loan between Islamic financial institution and Bank Negara Malaysia to facilitate the need of short-term loan.
Nevertheless, it added, that the central bank as the borrower can pay back more than the borrowed sum in the form of hibah provided it is at sole discretion of borrower and there is no pre-condition clause.
The IIUM survey found that majority of its respondents (90.2%) agreed that qard 'enhances a corporate social responsibility', with 85% respondents agreeing that Islamic banks should offer the qardh.
When asked what were the problems to launch qard, the survey gathered six main reasons. In its order of prevalence, they were: Not able to generate any profit, not able to cover the financing, high administrative and transaction costs, high risk, no support from top management, and, no demand from customers.
The survey, according to Dr Muhammad Akhyar and Dr Noraini, brought out a paradox with a good number of respondents in support of launching the qard, but at the same time still thinking about profiting from the product.
"No wonder than if most of Islamic banks do not implement this product," the wrote in a paper made available to The Malaysian Reserve. (The paper will be published the next Monday's edition of the Islamic finance sector pages).
When asked by under what circumstances should Islamic banks offer qard, Dr Muhammad Akhbar replied: "In Islamic point of view, profit is not the only thing to be targeted by a commercial company. This view has also been shared now even by capitalistic or conventional companies. It is why the CSR is becoming popular recently among them. The offer of qard, might be one of forms of CSR."
KFH Malaysia's current account has 'call account' or 'demand account' that is offered based on the principle of qardh. The bank says that under this Shariah principle, the money deposited into this account is not subject to any risk in investment nor is exposed to profit or loss. When demanded, the bank will pay you the total sum or part thereof standing to the credit of the customer's account.
At Al Rajhi, its charge card which 'offers you all the convenience of a card with none of the pitfalls of credit' is based on qard, where the bank pays for your purchases on a qard or loan basis, and the card holder pays back in full on the due date.

Retail questioned as France pushes Islamic Finance: Reuters

France's quest to create a new European hub for Islamic finance could soon yield results for wholesale banking and Islamic bonds, but concerns over the image of Islam may put the brakes on retail banking. Since launching a drive to develop Sharia-compliant financing and draw Middle Eastern capital to France around two years ago, Paris has made large strides on the legal and fiscal front, with much of the framework already set, according to an analysis by Reuters.
The report says expectations are growing that it might be a matter of months before a firm or local authority issues France's first sukuk bond, which pays no interest but offers returns on underlying physical assets, and licences Islamic banks, adding that the country's tiny Islamic finance market has so far largely involved Sharia-compliant property deals, a far cry from neighbouring Britain, which has spent the past five years positioning itself as a major Islamic banking centre.
Whether the size of the French market can really top 100 billion euros ($144 billion) in time, as suggested by two French professors in a 2008 report, is debatable. But analysts reckon there will be a stream of Sharia-compliant property or corporate financing deals and some sukuk issues over the coming two years in a country which has over five million Muslims, Europe's largest such community, it added.
"On the retail side, I think there is a very big question mark," the report quotes Anouar Hassoune, senior credit officer with Moody's.
"Otherwise 18 months is doable in terms of concrete activity and it could go quicker than that."
Beyond possible reticence on the part of the French body that issues banking licenses to go for retail before the wholesale side has been tested, the report noted that thousands of bank staff will need to be trained in the coming years. It then noted that the 'biggest challenge' posed by retail banking is overcoming prejudices towards Islamic finance in a nation that prizes its secular traditions and where some think the general public will mix the notion of religion with banking.
That could explain hesitancy on the part of French banks, which have developed Islamic finance for overseas markets but steered clear of it at home, some analysts said, it added.
The analysis quoted an unnamed industry expert as saying: "The crux of the problem is that nobody wants it except for the Muslims and the Muslims have no power in France. They are not organised enough and have no lobbying power to see Islamic retail banking see the light of day."
What may happen? The article suggests that if Islamic retail were to emerge, it would probably start with a partnership between a French and overseas bank, and would need to be carefully marketed. "You can't have a bank called the French Islamic Bank. It would be best to talk about alternative financing," Jean-Paul Laramee of the French Institute of Islamic Finance was quoted in the analysts.

Wednesday, September 2, 2009

Bank Islam to start 3-yr sustainable growth plan

Bank Islam Malaysia Bhd marked the conclusion of its Turnaround Plan on an upbeat note, posting a profit before zakat and tax (PBZT) of RM233.1 million for the financial year (FY) ended June 30, 2009.
The bank also achieved all the performance targets and implemented all five pillars of its threeyear programme as scheduled. Managing director Datuk Zukri Samat said following the successful completion of the Turnaround Plan, marked by healthy profits over three consecutive FYs, the bank will now embark on a three-year Sustainable Growth Plan (SGP).
"We will focus on six pillars to drive our growth under the SGP. Heading the list is business innovation; which will be followed by robust risk management; the strengthening of our enabling infrastructure; building capability and capacity; franchise development and last but not least, inorganic growth and corporate expansion," he said in a statement yesterday.
The SGP will build on the achievements of the Turnaround Plan, especially in the last financial year, and is aligned with Bank Islam's pursuit to be a global leader in Islamic banking.
In FY09, despite the difficult economic conditions associated with the global recession triggered by a global financial crisis, the bank achieved a PBZT of RM233.1 million compared with the record PBZT of RM308.3 million in FY08.
The 24% lower profit is due mainly to the high base effect given an exceptionally high oneoff financing recovery amount of RM127.95 million registered in fiscal 2008. Zukri said the FY09 financial performance was particularly encouraging as operating profit surged 28% to RM359.2 million from RM280.2 million a year ago on the back of net financing growth of 6.6% to RM9.7 billion and deposit growth of 21.4% to RM25.2 billion.
Total income during the year rose 10% to RM1.27 billion from RM1.15 billion, with the nonfund based income accounting for 11% of total income, a significant increase in contribution from 8.1% in FY06.
Bank Islam's capitalisation and asset quality indicators remained solid in FY09. To date, Bank Islam has received RM324 million from BIMB Holdings Bhd and Lembaga Tabung Haji under the first tranche of the fresh capital injection exercise. Post-overall capital injection, the RWCR is projected to be strengthened further to 18%.
The bank's asset quality also improved considerably with the continuous decline in its net nonperforming financing ratio to 4.9% (FY08: 7.8%) and the rise in its financing loss coverage ratio to 80.8% (FY08: 75.8%). In line with the lower PBZT, the bank's profitability indicators such as the Return on Equity (ROE) and Return on Assets (ROA) declined in FY09 to 16.5% (FY 08: 26.5%) and 0.9% (FY08: 1.5%) respectively.
However, the cost-to-income ratio dropped slightly to 56.7% (FY08: 60.8%) notwithstanding the bank's continued investment for the purpose of branch remodeling and network expansion, enhancements to its IT infrastructure and talent development.
All business divisions performed well, with the Consumer Banking division remaining the largest contributor, representing 66% or RM7.1 million of the bank's total financing portfolio.
The non-fund based income also posted a huge jump of 46.7% to RM131 million with contributions mainly from the Corporate Investment Banking, Treasury and Consumer Banking divisions.
Zukri said in the current FY, the bank plans to leverage on the gradually improving economic conditions by diversifying its revenue lines particularly in the non-fund based income generating businesses of corporate investment banking, treasury operations and consumer banking.

(This story appeared in The Malaysian Reserve on Sept 03, 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)

Corston-Smith plans RM1b Islamic fund

Malaysia’s Corston-Smith is planning a US$282.5 million Islamic fund as it sees growing demand for companies with good governance after high profile financial frauds hit investor confidence globally, said a top executive, reports Reuters (Sept 2, 2009).
The report quotes Shireen Muhiudeen, founder and managing director of Corston-Smith Asset Management as saying: "I think the financial crisis clearly has elevated the reason why governance is so important. There’s a great parallel between Islamic finance and corporate governance and transparency."
Syariah, a legal framework that regulates both public and private life, prohibits financial transactions from being purely speculative activity. The Islamic law also bans the charging of interest, equating it with usury, and prohibits investment in businesses that trade in alcohol, pork, arms, pornography or gambling.
Corston-Smith’s new fund will target international pension groups as potential investors, said Shireen.
“We are speaking to quite a few large pension funds around the world and shortlisted by a few government groups internationally,” she said.
Corston-Smith’s existing portfolio of about RM90 million (US$25.41 million) comprises Southeast Asian companies mainly from the oil and gas, oil palm plantation, retail, resource-based and manufacturing sectors, she said.
Corston-Smith invests in these sectors because it believes they will be the direct beneficiary of Asia’s large population and growing economy.
“If you look at the Asean region, we got a very large population, and a very large population that’s under 30. As a young population, playing on the consumers is important,” said Shireen, who has been in the fund management industry for 22 years.
UK fund manager Hermes owns 30 per cent of Corston-Smith.

BNM announces issuance of Syariah parameter reference 1

KUALA LUMPUR, Aug 28 (Bernama) -- Bank Negara Malaysia announced today the issuance of the Syariah Parameter Reference 1 or Murabahah Parameter (SPR1) to all Islamic financial institutions under its purview.
SPR1 is the first in a series of Syariah parameters to be issued as guidance and reference to all Islamic financial institutions, the central bank said in a statement.
Other Syariah parameters currently being developed are Ijarah, Mudarabah, Musharakah, Istisna' and Wadiah, it said.
The SPR1 has been endorsed by Bank Negara's Syariah Advisory Council and marks a key advancement in the bank's efforts to promote greater harmonisation in the development of the Islamic finance industry.
The Syariah parameters initiative aims to define the essential features of Islamic financial products and services based on the underlying Syariah contracts that are endorsed by the Syariah boards and adopted by Islamic financial institutions, Bank Negara said.
The issuance of Syariah parameters as standard documents will facilitate comprehensive understanding of the principles and the basis for adopting Syariah contracts, it said.
The parameters also aim to clarify the concepts, principles and conditions of Syariah contracts, and to provide focus on the features of the Syariah contracts that form the basis of Islamic financial products and services.
Other objectives include to provide the basis for decisions on matters relating to conditions, mechanisms and the implementation of Syariah contracts, to facilitate Islamic finance professionals and practitioners in the design and development of Islamic financial products and services, and to facilitate the formulation of policies and guidelines on contracts adopted by Islamic financial services industry.
Bank Negara said the SPR1 will serve as an important reference document, particularly for Islamic financial institutions, Syariah advisors, academia, researchers, students and members of the public who have interest in Islamic finance.
The SPR1 outlines the main Syariah requirements in the contracts and provides examples, methods and models for practical application of the contract, it said.
In addition, the SPR1 will contribute to further harmonisation in the interpretation and application of Syariah views and opinions, especially among Syariah committee members, the bank said.
In this regard, the Syariah parameter document provides an important reference for Syariah committee members to arrive at Syariah decisions pertaining to Islamic financial transactions, products and services, it said.
To ensure the robustness of the Syariah Parameter Reference 1, Bank Negara has conducted extensive research and compiled various fatwas as well as views of several local and international Syariah boards.
The concept paper was presented to its Syariah Advisory Council and subsequently circulated to the industry, academia, international bodies and other relevant stakeholders for feedback and comments, it said. -- BERNAMA