Tuesday, Aug 05, 2003
The ratings affirmation at A (A flat)/ MARC-1 reflect the Bank’s strategic importance in the development of Islamic banking as a viable alternative to the conventional banking system, further supported by a solid liquidity position, healthy capital base and sound management. These positives are however moderated by the Bank’s asset performance, which led to low profitability and efficiency measures.
The Bank commenced operations in July 1983 with the primary role of establishing and developing an Islamic financial system that is modern and competitive as an alternative to the more established conventional system. To date, the Bank has a network of 83 branches throughout Malaysia. In terms of market share, Islamic banking accounted for 8.9% of the banking system as at end-2002. In the Financial Sector Masterplan, Bank Negara Malaysia (BNM) has envisioned Islamic banking to constitute 20% of the banking market share in 2010.
BIMB’s gross customer financing assets continued to record double digit growth by 31% and 13% in FY 2001 and FY 2002 respectively in tandem with growth recorded by the Islamic banking industry. Net NPF ratio peaked at 13.1% as at end June 2000 before recording steady declines for the following two financial years to 10.8% as at end June 2002. Although approximating the Islamic banks’ average of 10.1%, the higher net NPF ratio of BIMB as compared to the Islamic banking system of 5.7% is a cause for concern. However, the Bank’s general provisioning ratio strengthened by 100 basis points (bp) to 3.0% of net financing, 150 bp above the 1.5% minimum regulatory requirement. Unlike its conventional peers, this amount is shared between the Bank and its Mudharabah depositors; hence mitigating the negative impact of NPF on the Bank’s capital adequacy.
The Bank’s paid-up capital was boosted to RM500 million following a restructuring exercise undertaken in 1997. Following the consistent growth in its financing assets over the years, its risk weighted capital ratio (RWCR) and core capital ratio has progressively reduced to 14.8% and 13.0% respectively at end-June 2002. The ratios are nevertheless above the minimum requirement of 8% and the commercial banking industry average of 12.8% and 11.7% respectively.
The Bank’s stable funding base has enabled it to reduce its dependency on the interbank market. The Bank’s net interbank assets have increased significantly to almost RM2.0 billion in FY 2000 before stabilizing to RM2.5 billion in FY 2001 and FY 2002. MARC also views favourably the fact that the Bank has recorded consistent positive interbank balances at least for the past four years; reflecting the stability and strength of its funding base. The bulk of the Bank’s customers financing assets are long term in nature, earning a fixed rate of return. However, a substantial amount of the Bank’s customer deposits tend to be short term, exposing the Bank’s profit margin to fluctuations in market rates.
Generally, the Bank’s profitability is understated and not directly comparable to its conventional peers as the Bank’s profit is recognised on a cash basis. However, with effect from FY 2003, the Bank will recognize its income on accrual basis in line with the requirement of MASBi-1 which comes into effect on and after 1st January 2003. In the short term, the change in accounting policy is expected to result in higher profit from financing although this may be offset by higher net NPFs recorded. The higher NPFs anticipated is due to the inclusion of profit portion of financing under accrual accounting as compared to the Bank’s previous accounting policy of recognizing the principal portion of financing under cash accounting.
The Bank commenced operations in July 1983 with the primary role of establishing and developing an Islamic financial system that is modern and competitive as an alternative to the more established conventional system. To date, the Bank has a network of 83 branches throughout Malaysia. In terms of market share, Islamic banking accounted for 8.9% of the banking system as at end-2002. In the Financial Sector Masterplan, Bank Negara Malaysia (BNM) has envisioned Islamic banking to constitute 20% of the banking market share in 2010.
BIMB’s gross customer financing assets continued to record double digit growth by 31% and 13% in FY 2001 and FY 2002 respectively in tandem with growth recorded by the Islamic banking industry. Net NPF ratio peaked at 13.1% as at end June 2000 before recording steady declines for the following two financial years to 10.8% as at end June 2002. Although approximating the Islamic banks’ average of 10.1%, the higher net NPF ratio of BIMB as compared to the Islamic banking system of 5.7% is a cause for concern. However, the Bank’s general provisioning ratio strengthened by 100 basis points (bp) to 3.0% of net financing, 150 bp above the 1.5% minimum regulatory requirement. Unlike its conventional peers, this amount is shared between the Bank and its Mudharabah depositors; hence mitigating the negative impact of NPF on the Bank’s capital adequacy.
The Bank’s paid-up capital was boosted to RM500 million following a restructuring exercise undertaken in 1997. Following the consistent growth in its financing assets over the years, its risk weighted capital ratio (RWCR) and core capital ratio has progressively reduced to 14.8% and 13.0% respectively at end-June 2002. The ratios are nevertheless above the minimum requirement of 8% and the commercial banking industry average of 12.8% and 11.7% respectively.
The Bank’s stable funding base has enabled it to reduce its dependency on the interbank market. The Bank’s net interbank assets have increased significantly to almost RM2.0 billion in FY 2000 before stabilizing to RM2.5 billion in FY 2001 and FY 2002. MARC also views favourably the fact that the Bank has recorded consistent positive interbank balances at least for the past four years; reflecting the stability and strength of its funding base. The bulk of the Bank’s customers financing assets are long term in nature, earning a fixed rate of return. However, a substantial amount of the Bank’s customer deposits tend to be short term, exposing the Bank’s profit margin to fluctuations in market rates.
Generally, the Bank’s profitability is understated and not directly comparable to its conventional peers as the Bank’s profit is recognised on a cash basis. However, with effect from FY 2003, the Bank will recognize its income on accrual basis in line with the requirement of MASBi-1 which comes into effect on and after 1st January 2003. In the short term, the change in accounting policy is expected to result in higher profit from financing although this may be offset by higher net NPFs recorded. The higher NPFs anticipated is due to the inclusion of profit portion of financing under accrual accounting as compared to the Bank’s previous accounting policy of recognizing the principal portion of financing under cash accounting.