KUALA LUMPUR, Monday [30 October, 2006]: Bank Islam Malaysia Berhad (Bank Islam) announced today that it is close to finalising a “total solution” to clean up its balance sheet and return to profitability.
Managing Director of Bank Islam, Dato’ Zukri Samat, announced this at a media briefing on its financial performance for the year ended 30 June 2006. The total solution would be a key factor in the overall turnaround plan, comprising five major components.
The five components are: recapitalisation & balance sheet restructuring, IT infrastructure revamp, a transformation programme, cost rationalisation exercise and human capital development.
The Bank is also seeking input and views on the “total solution” from the Dubai Investment Group (DIG) and Lembaga Tabung Haji (Tabung Haji) the new shareholders of the Bank.
Dato’ Zukri said he is confident both DIG and Tabung Haji will support the plan as it offers a total solution that will fully address the problems associated with the high-levels of non-performing financing that Bank Islam had to deal with in the last two financial years.
“The plan will enable us to put the non-performing financing issues behind us, and free up management to pursue the shareholders’ objective of growing Bank Islam to become one of the leading Islamic banking institutions in the region,” he added.
For the financial year ended 30 June 2006, Bank Islam recorded a total income of RM960.6 million but the provisions for non-performing financing amounted to RM1.48 billion. Its loss before tax and zakat came to RM1.27 billion, resulting in a net loss of RM1.29 billion.
The higher provisions made in FY2006 was largely due to the adoption of one-off prudent provisioning approach. The provisions took into consideration the following:
adherence to Bank Negara Malaysia’s GP8-i provisioning requirement
further deterioration of legacy loans
provisions for consumer financing resulting from softer economic conditions in this particular sector
The breakdown of the provision is as follows:
Financing provisions – RM1.142 billion
Commercial – RM644 million
Consumer – RM273 million
Labuan operations – RM180 million
Corporate- RM19 million
General provision – RM26 million
Non-Financing – RM340 million
Dato’ Zukri said the higher provision reflects a more prudent provisioning policy. “We have to adopt a more prudent approach and provide for what we have assessed to be real numbers. We have to make sure that there are no more major provisions. And barring major surprises in the global economic scenario, the Bank should be profitable in the current financial year ending 30 June 2007.”
“This is the result of the positive impact of the series of measures that have been implemented to deepen and strengthen the management of the bank, increase the robustness of the risk and credit management infrastructure and improve operational processes,” he added.
Dato’ Zukri said: “Moving forward, the Bank has a balance sheet that has been strengthened by the just completed RM1.01 billion capital injection which raised its risk-weighted capital ratio to 10.4%. At this level of RWCR, we can operate normally. However the total-solution which we are finalising would facilitate the Bank’s active pursuit of its goal of being the leading Islamic bank in the region.”
Under an agreement entered into as part of the recapitalisation exercise, the shareholders BIMB Holdings Berhad, Tabung Haji and DIG have agreed to use their best endeavours to make Bank Islam the leading domestic and international player in the Islamic banking sector.
He said Tabung Haji – the largest non-banking Islamic institution in the country will provide a lot of business synergies for the Bank in areas which it has identified as new market sectors. On the other hand, the Dubai Investment Group with its financial strength and sprawling business empire will provide a solid bridge to the Middle-East, the stronghold for Islamic banking, and regionally, where the growth of Islamic banking is outpacing conventional banking.
“Although the cleaning up is not yet complete, the measures put in place to improve and strengthen the operational structure and risk management framework, have started to make a difference. There are signs of recovery already. This, when combined with the total solution will enable Bank Islam to grow again.”
“Insya’ allah, we hope Bank Islam will recover its leading position domestically and become a beacon for Islamic banking internationally,’ he added.