Bank Islam to beef up corporate financing

KUALA LUMPUR: Bank Islam Malaysia Bhd is targeting to shift its ratio of retail financing assets and corporate financing assets to 70:30 by year-end, from 76:24 now, but noted that beefing up its corporate segment would be challenging.
Its chief strategy officer Hizamuddin Jamalluddin (pix) said the 70:30 target is part of the Hijrah to Excellence plan from 2013 to 2015 to diversify its portfolio, where the asset concentration is not skewed towards retail.
"We want to have a combination of big corporates. Sometimes we value big corporates because we can benefit through the value chain. The moment you finance corporate (entities), you're able to reap the benefit of their vendors or chain of suppliers," he said at a media briefing here yesterday.
However, he said retail banking, which has registered a strong growth of over 20% year-on-year, has always performed better than corporate banking.
"For example, when we finance our customers, they take up project financing upfront and towards the completion of the project, they will issue a sukuk (Islamic bond) to refinance their exposure and that is the greatest challenge in meeting the 70:30 portfolio," explained Hizamuddin.
He said 2015 remains a challenging year but the bank reiterated that it is looking at a 15% financing growth, higher than the banking industry's 7% to 8% loan growth, based on the current size of its balance sheet.
"The greater challenge for the banking industry is to garner cheaper source of funding. In the current competitive environment, every bank is now experiencing compression in net interest margin. We emphasize service excellence, looking at continuously innovating new products that meet our customers' demand," said Hizamuddin.
Earlier, he said the implementation of the Islamic Financial Services Act 2013 (IFSA) that requires the re-classification of existing deposit products based on the underlying syariah contracts to differentiate between deposit and investment accounts will not affect the bank's income.
Under the IFSA 2013, all existing Islamic deposit products that apply the syariah contracts of mudarabah, musharakah and wakalah are now classified as investment products. Hence Bank Islam is engaging with its customers for the conversion of accounts by June 30.
"If they're not eligible for an investment account, they will be moved to the deposit account. Today we've not seen (any) sign of deterioration and we think we'll be able to garner more."
The bank has come up with three investment accounts, which are restricted investment account, term investment account and transactional investment account.
Under the term investment account, it introduced the Special Investment Account (mudarabah) and Waheed Investment Account (wakalah) that have been re-designed and reclassified in accordance to IFSA 2013. Meanwhile, the Al-Awfar Account, which was previously offered as a savings product, has been re-designed with new terms and features and reclassified as an investment account and will be available on June 3, 2015.
For term investment account, it is targeting RM2 billion in fund size in the first six months while for the transactional investment account, it hopes to maintain its existing RM2 billion fund size with the Al-Awfar Account.
Under the restricted investment account, the Al-Ansar product has been launched in April 2, 2015.