EonCap Islamic explores new avenues of growth

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)

Unicorn Malaysia eyes deals worth RM1b to triple profit

By Sumathi Wong
Unicorn International Islamic Bank Bhd (Unicorn Malaysia) hopes to secure deals worth up to US$300 million (RM1.06 billion) this year and is optimistic of at least tripling its current year’s profit.
"We are not going for billion-dollar projects, but (rather) projects ranging from US$50 million to US$100 million as they are more manageable," Unicorn Malaysia chairman Datuk Vaseehar Hassan Abdul Razack said.
Its corporate and investment banking segments will continue to drive the Islamic bank's ambitions to achieve this target. For its first full financial year last year, it made a profit of RM812,546.
He was speaking to reporters after the signing of a RM101 million joint Islamic financing deal with Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) for the Citta Mall project, which is being developed by Puncakdana Sdn Bhd and SEB Asset Management. According to Vaseehar, the US$50-US$100 million segment is a niche market for Unicorn Malaysia to focus on.
He said: "We have about three or four mandates in hand, but it's too premature for us to name (any) until we successfully complete them."
Some of the areas that the bank is considering are the oil and gas and shipping industries. The bank, Vaseehar added, is open to talks with Malaysian companies that have plans to go regional.
He noted that Unicorn Malaysia is also looking to collaborate with more local Islamic banks for tie-ups similar to the one inked with Bank Rakyat. Unicorn Malaysia is a wholly-owned subsidiary of Unicorn Investment Bank BSC of Bahrain.
It offers a full range of non-Malaysian ringgit banking under the Malaysia International Islamic Financial Centre (MIFC). The bank focuses on four core areas namely investment banking, corporate banking, treasury and strategic mergers and acquisitions.

(This story appeared in The Malaysian Reserve on July 22, 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)

Shariah banking jobs still in demand

By Habhajan Singh
Islamic finance jobs are still in demand and experts in the field are still having a field day moving around. The present financial turmoil has certainly impacted the conventional banking and insurance sector, with bankers and financial experts dropping off the radar in the Middle East, for example.
However, on the Islamic finance front, the situation does not seem that dire, with the job market still having vacancies, and key players having the luxury of job mobility.
A scan on Islamic finance related jobs listed on the various web portals show an impressive list, provided the candidates are armed with the required skills in this field, which now boasts some 250 Islamic financial institutions globally.
The legal sector features prominently, with law firms looking to rope in lawyers with expertise in Islamic finance, to be based in places like Dubai and Riyadh in Saudi Arabia.
Almost a year ago, The Malaysian Reserve spoke to two Islamic bankers on the prospects of the job market. Both have since moved on. Then chief operating officer of Asian Finance Bank Bhd Daud Vicary Abdullah has gone back to the consulting world, rejoining Deloittee, while Yakub Bobat, who spearheaded the establishement of HSBC Amanah Malaysia Bhd, a stand-alone subsidiary, is now with an Islamic bank in Saudi Arabia.
In March, Malaysian Industrial Development Finance Bhd (MIDF) announced the appointment of Mohamad Safri Shahul Hamid as its new deputy chief executive officer of MIDF Amanah Investment Bank Bhd. He was with Deutsche Bank Dubai and previously at CIMB Islamic Bank Bhd.
The appointment signals MIDF Investment's move to tap the growing Shariah-approved financing, including cutting sukuk deals.
Safri's colleague in Dubai is also now in Kuala Lumpur. Ali Zaidi left Deutsche Bank Dubai to join Maybank Investment Bank Bhd in March as its executive vice president, and has been tasked with promoting capital structures other than sukuk.

Experts Wanted

The most interesting job found in The Malaysian Reserve's scan is an opportunity to lead an Islamic bank across Africa. The bank, based in the United Arab Emirates (UAE), is looking for a president of an Islamic bank.
"This is an ideal opportunity for an entrepreneurial individual who is looking for a platform to prove ability to manage and grow a business," it said in an advertisement found online.
Who fits the bill? The ideal candidate should "have at least 17 years experience, be one who clearly understands banking (especially corporate and retail), a strategic individual who will be able to visualise a clear path with the ability to enhance valuation of the business".
It would definitely help if the candidate has had some exposure to the African market, understands Islamic banking and has managed sizeable teams with a proven track record, it added.
Meanwhile, a specialist Islamic finance firm is looking for an experienced Islamic finance product structurer for its Dubai office. The job responsibilities include finding innovative new solutions to make conventional products Shariah-compliant and structuring multiasset Islamic finance products for Islamic clients in the GCC region (pricing, preparation of pitch books, modelling).
The person is also expected to redraft and implement conventional products underpinning documentation in order to make them Shariah-compliant.
An Islamic bank in the Middle East has also advertised for an Islamic banking IT project manager to be based in Qatar. Not For Saudi In April, a news agency reported that a growing number of investment bankers whose jobs have been axed due to the global financial crisis are leaving conventional banking to move into Islamic finance. Executives from Islamic banks told the news agency that the number of applications from conventional bankers wanting to enter the industry, seen as having huge growth potential, was rising sharply.
"It's totally changing. I'm seeing CVs from the London market, also the Far East, and more than anywhere else, from Dubai," head of private equity at Bahrain-based Islamic investment bank Gulf Finance House (GFH) Nabeel Kazerooni told Reuters. But there was one blip on the radar.
Based on a report picked up by Bloomberg, Saudi Arabia does not need more university graduates with degrees in Islamic studies entering the workforce, Okaz reported, citing the director of the Jazan University Mohammed Ali al-Hazaa.
The Jeddah-based newspaper cited al-Hazaa as saying that the Saudi job market is "saturated" with graduates with degrees in Shariah law and more would only increase unemployment in the kingdom.
In Malaysia, however, demand for Islamic finance talent will only increase should the regulator's plan to allow the setting up of two Islamic mega banks take shape. In April, under the liberalisation of the financial sector, the government offered two new mega Islamic banking licences to foreign players with minimum paid-up capital of US$1 billion (RM3.54 billion).
On July 8, Bank Negara Malaysia (BNM) governor Tan Sri Dr Zeti Akhtar Aziz told reporters that several financial institutions from the Middle East and Western countries have shown interests in setting up Islamic banks in Malaysia, whose closing date is in October.

(This story appeared in The Malaysian Reserve on July 13, 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)

Ithmaar Bank sees net profit plunge 88% amid global slowdown

Established in 1984, Ithmaar Bank (Ithmaar) is a regional banking and financial services group, whose services include investments, private, retail & commercial banking, private equity, Islamic insurance & assurance, equipment leasing and real estate development.
It has an operational presence and investments across the MENA and Asian region. Moreover, in a view to broaden its GCC presence, Ithmaar was also cross listed on the Kuwait Stock Exchange in 2008.
Financial
During 1Q09, Ithmaar’s net profit plunged 88% to US$3.83 million (RM13.71 million) from US$32.01 million in 1Q08 on falling operating income, rising impairment provisions and foreign currency translation loss.
The bank’s total operating income declined 51.1% to US$49.26 million in 1Q09 from US$100.76 million in 1Q08 on falling interest rate and non-interest incomes. Its annualised net interest margin and net spread decreased 260 bps and 120 bps to 1.1% and 2.4% in 1Q09, respectively. As a result, net interest income plummeted 58.2% to US$9.39 million in 1Q09.
Moreover, fees and commission income and income from fund management and services fell 20.2% and 54.5% to US$7.55 million and US$2.19 million in 1Q09, respectively. Income from investment properties was lower by 60.4% qo-q at US$24.46 million from US$61.74 million q-o-q.
However, the bank reported a trading income of US$1.82 million as against a trading loss of US$0.25 million in 1Q08. On the expenses side, its operating expenses decreased 21.8% to US$31.85 million on account of a 20.5% decline in staff costs and a 39.6% fall in general and administrative expenses, countered by a 14.4% increase in depreciation and amortisation expenses.
However, share of profit of associated companies rose to US$9 million from US$0.67 million during the same quarter of the last year on the increase in its total associates.

Outlook and Valuation

Driven by the ongoing financial crisis and subsequent global economic slowdown, consolidated balance sheet of wholesale banks witnessed a negative growth of 3.8% to reach US$188.9 billion in 2008. This negative growth has continued and assets have further declined to US$179.9 billion in 1Q09. However, the industry is wellsupported by the regulator, which encourages innovation while providing sound regulatory framework.
Moreover, Fitch expects the writedowns would continue to impact across the Bahraini retail and wholesale banking sectors along with an "adequate" profitability for 2009. Background Ithmaar was established in Bahrain on Aug 13, 1984, as Faysal Investment Bank of Bahrain EC (Fibec).
Until 2003, Fibec was a wholly-owned subsidiary of Shamil Bank (Shamil) with a Shariah-complaint investment banking licence granted by the Bahrain Monetary Agency (BMA).
In 2003, Shamil sold Fibec to Dar al-Maal al-Islami Trust (DMI) and then DMI changed its name from Fibec to Ithmaar Bank. The bank went public in 2006 and got listed on Bahrain Stock Exchange.
Moreover, with an aim to expand its GCC presence, Ithmaar is now cross listed on the Kuwait Stock Exchange in 2008. During 2003, with the acquisition of certain investments from DMI for US$46 million, Ithmaar indirectly acquired a 49% and 28% interest in Faisal Finance (Switzerland) SA and Faysal Bank Limited of Pakistan, respectively.
Moreover, in the same year, it purchased a 40% stake in Solidarity Company BSC for a total consideration of US$40 million and a 23% stake in Faisal Islamic Bank of Egypt for US$34 million from DMI. Ithmaar acquired Shamil in two parts — a 60% stake was acquired in 2006 in consideration of 100% shareholding in the Islamic Investment Company of the Gulf (IICG) Bahamas to DMI, and in 2007, it bought the remaining 40% with share swap ratio of 12:10.

-- Extracts from Bahrain-based Taib Research

(This story appeared in The Malaysian Reserve on July 13, 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)

BNM gets queries on Islamic bank licenses

By Lee Cherng Wee
Several financial institutions from the Middle East and Western countries have shown interests in setting up Islamic banks in Malaysia, according to Bank Negara Malaysia (BNM).
"We received several enquiries and had discussions on the process of submitting the applications. The closing date is in October," said BNM governor Tan Sri Dr Zeti Akhtar Aziz in a press conference after opening the Malaysia-UK Islamic Finance Forum yesterday.
In April, under the liberalisation of the financial sector, the government offered two new mega Islamic banking licences to foreign players with minimum paid-up capital of US$1 billion (RM3.54 billion).
Zeti added that out of the enquirers, two have stated their intention to partner local financial institutions. Earlier in her opening speech, Zeti noted that Islamic financial assets account for 17% of total assets of the local banking system and the daily average volume transacted in Malaysia’s Islamic money market is RM6 billion.
When asked about the interest rate, the governor said current interest rates is at an appropriate level but does not rule out a further rate cut due to uncertainties in the external environment.
"We see our domestic economic conditions being stable and certain sectors show a t rend towards posit ive growth, but the external environment remains very uncertain, therefore from time to time we will review the outlook particularly the external environment and from there we will decide on the interestrate policy," she said.

On the economy, Zeti said the second quarter performance will be similar to the first quarter with improvement expected in the second half of this year.
The government’s stimulus package has been aggressively implemented and the central bank expects to see the effects in the third and fourth quarters, she added.
"We have never relied on the exchange rate to gain competitiveness. In the immediate and short term we see volatility in our exchange rate, just like we see volatility in the major currencies in the international financial system that is determined by financial flows across borders.
"However, over the medium term our exchange rate will continue to reflect our underlying fundamentals and as our underlying fundamentals are expected to improve then the currency can also be expected to strengthen gradually overtime," said Zeti when commenting on the ringgit.

(This story appeared in The Malaysian Reserve on July 9, 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 Malaysia eyes 50% market share in 2-3 years

By T Vignesh
Syarikat Takaful Malaysia Bhd (Takaful Malaysia) expects to capture slightly more than half of the takaful industry's total asset market share in the next two to three years despite the current economic crisis. Managing director Datuk Mohamad Hassan said the industry's total assets have reached RM12 billion and the company's share currently stands at RM4.05 billion.
"We are confident of achieving slightly more than the current takaful market rate, which is between 22% and 25% per annum," he told reporters after a signing ceremony with Standard Financial Planner Sdn Bhd (SFP) in Kuala Lumpur yesterday.
Takaful Malaysia became the first in the takaful industry to add professional financial advisors to its existing portfolio of distribution channels following the appointment of SFP to market its products. SFP has a nationwide network of more than 300 representatives of whom 75 are licensed financial advisors with Bank Negara Malaysia.
Mohamad Hassan said that this will enhance the penetration of the company's family and general insurance products into the middle-upper Malaysian market, thereby makes Takaful Malaysia's products more accessible to a wider customer base.
He said the company is confident of the selection of SFP due to its position as a market leader and largest independent financial advisory group in Malaysia. S FP is also the first financial planning group in Malaysia to hold both Financial Advisors (FA) and Corporate Unit Trust Advisor (CUTA) licences.
At the signing ceremony, SFP's CEO Alfred Sek said the past ten years have witnessed fresh changes to the financial planning industry and its delivery of financial advice in Malaysia.
He said that Takaful Malaysia will greatly benefit from this arrangement as its potential customers will develop full confidence in the products offered, through high quality independent advice from these Financial Advisors.
Meanwhile, Takaful Malaysia has plans to undertake a rebranding exercise to reflect its fresh characteristics in conjunction with its 25th anniversary this year.

(This story appeared in The Malaysian Reserve on July 9, 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)

Exim Bank to introduce takaful products next yr

Export-Import Bank of Malaysia Bhd (Exim Bank) is poised to expand its reach further by offering better options to customers via the introduction of Shariah-compliant products.
Islamic financing has been identified as a new area of growth for the bank in view that Malaysia is expanding trade involving the Organisation of Islamic Countries (OIC) member states.
The bank has envisaged that by end-2009, it would have sufficient Shariah-compliant banking products to cater for the needs of its growing global customers, said managing director/CEO Mohd Fauzi Rahmat. "We are also planning to introduce takaful (Islamic insurance) products by next year," he said in a statement on Monday.
Exim Bank supports the financing needs of Malaysian companies and investors with operations in four continents across two dozen countries worldwide. Asean and Middle East will continue to be major contributors to the bank's portfolio with about two-third of its exposures while Africa, Europe and Asia Pacific make up the rest.
According to Fauzi, the bank is committed to continue its drive to support local exporters and investors extending their international business by providing banking facilities and insurance coverage particularly those that significantly contribute to the extension and enlargement of Malaysia's export volume, value and markets.
While the bank recognise that 2009 would be more a challenging year amidst global economic uncertainties, it would continue to provide support to its existing and potential customers and partners who are willing to take the challenge and participate in the still significant global trade and investments and to be ready for future businesses when the economy picks up.
In 2008, Exim Bank approved a total of RM460.3 million direct loans and guarantees to customers in various sectors including construction, investment, manufacturing and commodity trading.
In addition, the Export Credit Refinancing, extended via participating financial institutions and by far the single largest product of the bank by volume, contributed a total of RM9.5 billion in loan disbursements compared with RM8.4 billion in the previous year.
In trade credit insurance, it has a total of RM2.43 billion business in force in 2008, against RM2.78 billion in 2007. As for commercial and political risk insurance business, the bank approved RM120 million worth of business last year reflecting it cautious approach in light of the global economic crisis.
The total Malaysian exports insured for 2008 amounted to RM2.55 billion and is spread over 72 countries primarily across Asia and Africa.
"Exim Bank maintained a positive and stable performance for both banking and insurance businesses although a more selective approach has been adopted to respond to the current global economic situation," Fauzi said.
To strengthen its capacity to undertake more businesses, the shareholders' funds of Exim Bank has increased to RM2.8 billion in 2008 from RM839 million a year ago. This would go a long way in ensuring that Exim Bank continues to thrive as a vibrant and active Development Financial Institution for Malaysian exporters and investors over the medium and long-term.

(This story appeared in The Malaysian Reserve on July 8, 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)