MBSB to become Islamic bank in five years

KUALA LUMPUR: Malaysia Building Society Bhd (MBSB), which called off plans to merge with CIMB Group Holdings Bhd and RHB Capital Bhd earlier this year, said it must become an Islamic financial institution within five years and that the logical way forward is via a merger with an Islamic lender.
MBSB president and CEO Datuk Ahmad Zaini Othman said it is not in talks with any banks for a merger and acquisition (M&A) exercise currently but hinted that it is looking at something to happen this year or next year.
"It's our vision (to become an Islamic bank), which is part of our five-year business plan. It's a must. We need to transform and move to that new environment. When the merger didn't take place, we reactivated the business plan, and that business plan has always been with Islamic banking in mind," he told reporters after MBSB's AGM here yesterday.
Zaini said 80% of MBSB's portfolio consists of the Islamic business and an M&A exercise logically requires it to merge with an Islamic lender, in line with its aspiration. There have also been market talks of a possible merger between MBSB and Bank Islam Malaysia Bhd but MBSB had earlier denied it.
"We just came out from an aborted merger. There are still a lot of bruises. Eight months wasted. We need time to consolidate our position. We need to close our gaps (of becoming a full fledged bank in line with the regulatory framework) first and it (merger) will fall in place.
"It all depends on the shareholder (EPF) and they would evaluate and see what's best for the organisation and we take it from there," said Zaini.
He said the new M&A would require more aggressive capital management but MBSB is fine with that as its major shareholder (EPF) is there to support, so long as MBSB can provide the right return on equity.
"In terms of capital requirement, we're already there. RM1 or RM2 billion is small change," said Zaini.
Meanwhile, he said MBSB plans to cut its 1,500 workforce by 10% and has reduced 100 contract staff beginning this year.
"The business of personal financing has shrunk somewhat because of the new regulations and what we intend to do is reduce our temporary workforce that is on contract basis. As and when the contract ends, we would not renew them.
"For permanent staff, we would look at it on a case-to-case basis in terms of the optimal structure and will also look at their KPI (key performance indicators) and retain those who are able to perform and meet their targets; and streamline as we move along," said Zaini.
MBSB is targeting a realistic loan growth of 7% to 8% this year, compared with 3% last year as it was "distracted" by the three-way merger with eight months of "hibernation" in 2014. It is also eyeing a revenue growth of 4% to 5% this year.
"The dynamics of the environment is going to be a bit of a challenge. We intend to look at the quality of loan growth rather than just outright growth. We're putting a bit more emphasis on risk management framework and we want to be more active in terms of collection and NPL (non-performing loan) management."
He added that MBSB aims to reduce its NPL ratio to 3% this year, from 4.1% in 2014 and 5.4% in 2013.
"We're putting more emphasis in our corporate business – property related facilities, contract financing. We recently put in place a plantation financing programme and industrial hire purchase and this is an area of growth that is sustainable," Zaini said, adding that it is also actively looking at private financing federal government contracts.