Tuesday, Oct 30, 2001
Malaysian Rating Corporation Berhad (MARC) has assigned a financial institution rating of A (single A flat) and a short-term rating of MARC-1 to Bank Islam Malaysia Berhad (“the Bank”). The ratings 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 historically weak asset performance, which led to below average 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. Being an Islamic bank operating on the Shariah principle, it was also intended to provide a viable alternative banking medium for the whole population at large especially the Muslims. To date, the Bank has a network of 82 branches throughout Malaysia. In terms of market share, Islamic banking accounted for 6.9% of the banking system as at end-2000. In the Financial Sector Masterplan, Bank Negara Malaysia (BNM) has envisioned Islamic banking to constitute 20% of the banking market share in 2010.
As at end-June 2000, the Bank’s non-performing financing (NPF) ratio of 13.1% was higher than the commercial banking industry average. The Bank’s general provisioning ratio strengthened by 50 basis points (bp) to 2.0% of net financing, 50 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. BIMB’s gross customer financing assets grew by 16.5% during the fiscal year to June 2000 vis-à-vis the 1.3% growth recorded by the banking industry over the same period.
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 declined subsequently to 20.0% and 19.0% respectively at end-June 2000. The ratios are nevertheless strong in comparison to the commercial banking industry average of 13.0% and 11.0% respectively. The minimum RWCR requirement of the industry is 8.0%.
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. 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. Realising this fact, the Bank has been mindfully developing new floating rate financing products.
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, to be conservative and preferred by the Shariah principle.
The low customer financing asset composition has compounded the situation, leading to most profitability indicators remaining weak. Its high cost to income ratio of around 58% for the past three years is an area of concern with thinning margins in a more competitive banking industry, going forward.
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. Being an Islamic bank operating on the Shariah principle, it was also intended to provide a viable alternative banking medium for the whole population at large especially the Muslims. To date, the Bank has a network of 82 branches throughout Malaysia. In terms of market share, Islamic banking accounted for 6.9% of the banking system as at end-2000. In the Financial Sector Masterplan, Bank Negara Malaysia (BNM) has envisioned Islamic banking to constitute 20% of the banking market share in 2010.
As at end-June 2000, the Bank’s non-performing financing (NPF) ratio of 13.1% was higher than the commercial banking industry average. The Bank’s general provisioning ratio strengthened by 50 basis points (bp) to 2.0% of net financing, 50 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. BIMB’s gross customer financing assets grew by 16.5% during the fiscal year to June 2000 vis-à-vis the 1.3% growth recorded by the banking industry over the same period.
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 declined subsequently to 20.0% and 19.0% respectively at end-June 2000. The ratios are nevertheless strong in comparison to the commercial banking industry average of 13.0% and 11.0% respectively. The minimum RWCR requirement of the industry is 8.0%.
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. 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. Realising this fact, the Bank has been mindfully developing new floating rate financing products.
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, to be conservative and preferred by the Shariah principle.
The low customer financing asset composition has compounded the situation, leading to most profitability indicators remaining weak. Its high cost to income ratio of around 58% for the past three years is an area of concern with thinning margins in a more competitive banking industry, going forward.