Recovery due to highly focused five-component turnaround plan
KUALA LUMPUR, Friday [6 April, 2007]: Bank Islam Malaysia Berhad (Bank Islam) has turned around with a Profit Before Zakat and Tax (PBZT) of RM165.8 million in the first six months of its financial year ended 30 June, 2007 (FY2007).
The PBZT represents an improvement of 484% over the loss of RM43.2 million reported in the corresponding period ended 31 December 2005. This was achieved on revenues of RM467.8 million.
Managing Director Dato’ Zukri Samat who announced the results at a media briefing today, said the positive performance translates into a return on shareholders’ equity of 17.6%, compared to a negative return previously.
He attributed the sharp earnings recovery to the implementation of the Bank’s turnaround plan, which includes the implementation of strategic changes to grow new businesses and an aggressive loan recovery programme.
“The effectiveness of these strategic changes has been amply demonstrated in the first half of our earnings. Forty percent of the RM165.8 million profit came from operations, and the balance came from loan recoveries,” he added.
He said the return to profitability after two years’ of losses, puts the Bank back on track to capitalize on the incentives recently unveiled by the Government to accelerate and deepen the development of the Malaysian Islamic Financial Centre. “Moving forward, we will have our dedicated loan recovery unit continue to do what they do best while we reposition the Bank to take advantage of existing and new opportunities arising from the development of Malaysia as an international Islamic financial centre. In addition, we have begun our re-branding exercise to enhance our brand and to improve on our service delivery, as part of our overall strategy to stay competitive.”
“Given all these initiatives, we expect our future earnings to be driven by growth of our existing and new businesses,” he added.
Dato’ Zukri also provided an update of each of the five components of the turnaround plan unveiled at the last media briefing. They are:
1. Recapitalisation and balance sheet restructuring The capital injection of RM1.014 billion from Dubai Investment Group (DIG) and Lembaga Tabung Haji (LTH) which was completed on 16 October, 2006, resulting in a positive shareholders’ funds of RM944.3 million as at 31 December 2006. This compares with a deficit of RM277.8 million as at 30 June 2006.
The Risk Weighted Capital Ratio (RWCR) improved to 11.7% as at 31 December 2006, from a negative 2.84% as at 30 June 2006. (This compares with a minimum capital requirement of 8%).
A Carve Out Plan has been formulated to address legacy non-performing finances. The execution of this plan is expected to take place before the end of the financial year.
2. IT Infrastructure Revamp The Bank’s Board has approved a new IT Blueprint for a bank-wide IT system. The system will be modular as well as scalable. An IT consultant has been appointed in February 2007 and the system is expected to be fully completed by June 2008.
3. Transformation programme The programme is designed to enhance the effectiveness and competitiveness of the Bank through the transformation of the organization and business operations. Apart from recruiting new talents for vacant key positions, the Bank has established a Corporate Investment Banking division and beefed up its Treasury Management and Cash Management divisions.
The re-branding exercise which was launched in February 2007 with the appointment of a branding consultant is expected to be completed by July 2007. As part of the re-branding, branches would be re-modelled to enhance delivery systems. In addition, a Customer Satisfaction Index (CSI) has been developed to enable the Bank to measure customer satisfaction and to identify the areas for further improvement.
4. Cost Rationalisation exercise Cost rationalistion is always ongoing as part of the Bank’s goal to manage cost effectively. Towards this objective, several other initiatives will be implemented. These are the outsourcing of non-critical operations, the relocation of branches to more strategic locations and the disposal of non-core assets.
5. Human Capital Developmnent A key feature of this programme is the implementation of a performance-linked reward system to attract and retain high quality talent. In addition, the Bank has also initiated structured training programmes for the staff and started to plan for management succession.
Dato Zukri said the strong financial performance in the first six months has demonstrated the effectiveness of strategies of the turnaround plan.
“We will continue to make strategic changes necessary to take the Bank to another level of growth and position it to compete with the best in the industry, locally and globally,” he added.