Bank Islam Malaysia · PDF fileOctober 2014 Bank Islam Malaysia Berhad ... healthier...

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the securi ty’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

16

FINANCIAL INSTITUTION RATINGS

Bank Islam Malaysia Berhad Financial Institution Ratings

Proposed Subordinated Sukuk Murabahah Programme

of up to RM1.0 billion

October 2014

The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the securi ty’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.

CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS October 2014

Bank Islam Malaysia Berhad Initial Rating & Rating Update

Ratings

Financial Institution Ratings:

AA3/Stable/P1 Reaffirmed

Proposed Subordinated Sukuk Murabahah Programme of up to RM1.0 billion:

A1/Stable Assigned

Last Rating Action

26 August 2014

Issue Details

Islamic Contract

Murabahah (via Tawarruq arrangement)

Profit Margin

To be determined

Tenure

Up to 30 years

Lead Arranger

Bank Islam Malaysia Berhad

Trustee

Malaysian Trustees Berhad

Shariah Advisor


Security

None

Analysts

Chan Yin Huei

(603) 7628 1180

[email protected]

Peter Kong

(603) 7628 1029

[email protected]

Related Criteria and Methodology

i. Financial Institutions, December 2008

ii. Rating Bank Securities, November 2013

RAM Ratings | Financial Institution Ratings


2

Rating Action Basis

The reaffirmation of the financial institution ratings (FIR) is based on Bank Islam’s improved

asset quality despite a more challenging operating environment, its strong profit performance,

healthy capitalisation, and a conservative funding and liquidity profile. The ratings also

incorporate our expectation of extraordinary support from its ultimate shareholder, Lembaga

Tabung Haji (Tabung Haji or the Fund) in times of need.

The subordinated Sukuk Murabahah to be issued under the Proposed Subordinated Sukuk

Murabahah Programme (the Proposed Sukuk) will be Basel III-compliant and will qualify as tier-

2 regulatory capital. The sukuk is rated 1 notch below Bank Islam’s long-term FIR, in

accordance with our methodology, Rating Bank Securities published in November 2013.

Under the principal terms and conditions of the Proposed Sukuk, Bank Islam has the option of

including the subordinated notes in the consolidated total capital of BIMB group, under which

the non-viability of the respective entities will be included in the non-viability event. Pending

Bank Negara Malaysia’s issuance of a capital-adequacy framework for financial holding

companies, the A1 issue rating does not take into consideration the said option. If the option

were to be applied, it would be a condition precedent to Bank Islam procuring written

confirmation from RAM that the rating will remain unchanged.

Rating Drivers

+ Significant support from Tabung Haji. Tabung Haji holds 54.4% effective stake in Bank

Islam. The Fund has demonstrated its support through capital injections and the acquisition of a

larger stake in the Bank. The 2 entities enjoy close ties; Tabung Haji consistently places

sizeable deposits with the Bank while some of the Fund’s branches have been converted to

Bank Islam branches. The Bank is also regarded as Tabung Haji’s preferred bank for its

investee companies in corporate advisory work, in areas such as IPOs and M&As.

+ Improving asset-quality indicators. Bank Islam’s asset-quality indicators have been

improving on the back of strengthened risk management and an enlarged financing base. Its

gross impaired-financing (GIF) ratio clocked in at a low 1.2% as at end-March 2014 while its

credit-cost ratio only came up to 0.3%. The Bank has robust reserve coverage, as exemplified

by its GIF coverage ratio of 175.7% as at the same date.

+ Healthy liquidity and funding profile. Bank Islam’s financing-to-deposits (FD) ratio only came

up to 69.0% as at end-March 2014. Low-cost current- and savings-account (CASA) deposits

formed 39.5% of total deposits as at end-March 2014, i.e. above the industry average of 26.5%.

Its liquid-asset ratio of 39.7% is commendable and moderates the high level of depositor-

concentration risk in its books.

+ Broad margins from lucrative personal-financing portfolio. The Bank’s net financing

margin (NFM) has consistently hovered above 3.0%, on account of its lucrative personal-

financing portfolio and large base of low-cost deposits.

- Smaller franchise. Bank Islam’s market position vis-à-vis larger universal-banking groups is

comparatively limited while its shares of the overall banking system’s financing (2.0%) and



3

deposits (2.4%) are still small.

- Highly concentrated on unsecured financing. Bank Islam has been expanding rapidly in the

personal-financing segment, which now accounts for a third of its financing portfolio.

Nonetheless, growth has been noticeably curtailed since July 2013, when Bank Negara

Malaysia (BNM) imposed a cap on the maximum tenure for personal financing. Risk of non-

payment is partially mitigated by the salary-transfer and salary-deduction arrangements which

are term as package financing. Package financing accounts for 90% of Bank Islam’s financing

portfolio.

Rating Outlook: Stable

The stable outlook reflects our expectation that Bank Islam will maintain its asset-quality

indicators at healthy levels given the Bank’s sound risk management, supported by its healthy

funding and liquidity profile. We also expect that the Bank will continue receiving a significant

degree of support from its ultimate shareholder, Tabung Haji.

Rating Triggers

Upside potential: An improvement in size and franchise, financing-portfolio diversity and

healthier non-financing income could trigger a positive rating action. As the Bank is among the

smaller domestic commercial banks, however, this is viewed as more of a longer-term

prospect.

Downward pressure: A change in Tabung Haji’s propensity and capacity to extend

extraordinary support to Bank Islam could trigger a rating action. This is, however, unlikely at

present. Bank Islam’s ratings could also face downward pressure if its asset-quality indicators

deteriorate substantially and its credit fundamentals no longer commensurate with its current

ratings.



4

Bank Profile

Bank Islam is wholly-owned by BIMB Holdings Berhad and ranks among the smallest commercial

banks in Malaysia. The Bank accounts for a respective 2.0% and 2.4% of the overall banking

system’s financing and deposits. Bank Islam is majority-owned by Tabung Haji. The Fund has a

54.4% effective stake in the Bank, following the completion of BIMB’s acquisition of all the remaining

Bank Islam shares it had not owned from Dubai Financial Group and Tabung Haji on 19 December

2013. The RM2.9 billion purchase of additional Bank Islam shares by BIMB had been funded by a

RM1.8 billion rights issue and a 10-year RM1.7 billion Islamic sukuk, which had been fully subscribed

for by Tabung Haji.

As at end-December 2013, Tabung Haji held RM49.5 billion of net assets, of which members’

contributions amounted to RM45.7 billion. The Fund is entrusted with managing contributions from the

Muslim community as well as their pilgrimage activities. The Fund also provides Shariah-compliant

investment services to Muslim depositors. As such, Bank Islam’s operations are regarded as an

extension of Tabung Haji’s function as a non-bank savings institution for Muslims, complementing its

operations with an array of Shariah-compliant banking services. The Fund is governed by the Tabung

Haji Act 1995 (which has replaced the Lembaga Urusan Tabung Haji Act 1969).

Table 1: History of financial support from Tabung Haji

Year Details

2006 Tabung Haji injected RM186 million in Bank Islam following the latter’s RM1.0 billion

recapitalisation exercise.

2009 Subscribed for Bank Islam RM540.0 million of Islamic redeemable, convertible non-cumulative

preference shares, which qualified as tier-1 capital.

2013 Fully subscribed for BIMB’s RM1.7 billion sukuk, which was issued to fund the acquisition of the

49%-interest in Bank Islam that BIMB did not own.

Various sources

Based on RAM’s interaction with Tabung Haji, the Fund views Bank Islam as a core, long-term and

strategic investment. The Bank makes sizeable contributions to the Fund through BIMB and we

believe that Tabung Haji will maintain a controlling stake in the Bank in the forseeable future. Tabung

Haji’s well-demonstrated track record of capital infusions into the Bank to fund business expansion, as

well as in times of distress leads us to opine that Bank Islam will receive extraordinary support from its

ultimate shareholder if needed.

Support from Tabung Haji is also manifested through steady and sizeable deposit placements with

Bank Islam. The Bank also enjoys deal referrals from the Fund’s investee companies in corporate

advisory work, in areas such as IPOs and M&As. The Fund’s depositors are able to perform their

Tabung Haji-related transactions at Bank Islam’s branches. Some of these branches had previously

been Tabung Haji outlets, which have been converted to Bank Islam branches, highlighting the close

ties between these 2 entities.

Bank Islam is a consumer bank. Financing for households accounted for 75.2% of its financing

portfolio as at end-March 2014. At the same time, personal and house financing facilities constituted

83.3% of its consumer financing, followed by vehicle financing (14.0%). The Bank primarily targets

government employees and executives, with a small but expanding business-financing portfolio. Bank

Islam intends to take advantage of its close rapport with government agencies and government-linked

entities to gradually enlarge the proportion of business financing to 30% (end-March 2014: 24.8%).



5

Bank Islam’s operations are predominantly based in Malaysia. However, the Bank is keen to establish

a presence in Indonesia by acquiring a stake in an Indonesian bank.

Peer Comparison

Table 2: Peer comparison

Bank Islam Affin Bank Alliance Bank

FY Dec 2012 Dec 2013 Dec 2012 Dec 2013 Mar 2012 Mar 2013

Total assets (RM mil) 37,422.9 42,811.4 52,105.0 56,437.1 39,685.5 43,654.0

Gross loans/financing (RM mil) 19,948.1 24,242.5 34,015.6 36,751.8 25,040.7 28,249.4

Pre-tax profit/(loss) (RM mil) 597.4 677.3 703.2 762.2 679.5 714.4

Gross impaired loan/financing ratio (%) 1.6 1.2 2.2 1.9 2.5 2.1

Loan/Financing credit cost ratio (%) 0.4 (0.1) (0.1) (0.2) (0.0) (0.1)

Gross impaired loan/financing coverage

ratio (%) 142.6 175.8 70.8 74.2 87.7 82.5

Net interest/financing margin (%) 3.4 3.1 2.0 2.0% 2.5 2.4

Non-interest/financing income / Gross

income (%) 19.3 19.4 21.8 19.7 26.3 27.7

Return on risk-weighted assets (%) 3.0 2.8 2.0 2.1 2.8 2.6

Customer deposits / Interest/Profit

bearing funds (%) 96.3 95.6 86.8 89.4 92.0 93.0

Loans/Financing to deposits ratio (%) 59.9 63.7 81.1 78.6 76.0 77.1

Common equity tier 1 capital ratio (%) n/a 13.0 n/a 10.6 n/a 10.6

Total capital ratio (%) 14.0 14.1 13.7 13.0 15.1 14.8

Risk Profile

Figure 1: Gross financing by sector (end-March 2014)

Primary agriculture1%

Manufacturing 3%

Electricity, gas & water

2%

Wholesale & retail, 3.09%

Construction7%

Real estate2%

Transport, storage & communications

2%

Finance, insurance & business activities

3%

Education, health & others

2%

House f inancing29%

Personal f inancing33%

Purchase of passenger cars11%

Credit cards & others2%

Households75%

Source: Bank Islam

Healthy asset quality. On the back of its strong financing growth, the Bank’s GIF ratio had

eased further to 1.2% as at end-March 2014. Its net newly classified impaired-financing ratio

and credit-cost ratio of a respective 0.5% and 0.3% are low, but may edge up as the portfolio

seasons. The Bank’s reserve coverage is also robust, as exemplified by its GIF coverage ratio

of 175.7%. Bank Islam’s investment portfolio, which makes up 32.9% of its total assets, carries



6

low credit risk and is largely for liquidity management.

Figure 2: Selected asset-quality indicators

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

-

5,000

10,000

15,000

20,000

25,000

30,000

End-Dec 2010

End-Dec 2011

End-Dec 2012

End-Dec 2013

End-Mar 2014

Gross f inancing 12,284.7 14,565.3 19,948.1 24,242.5 25,488.6

Gross impaired f inancing 552.3 379.9 308.7 285.3 299.4

GIF ratio 4.5% 2.6% 1.5% 1.2% 1.2%

GIF ratio (industry) 3.4% 2.7% 2.0% 1.9% 1.8%

Credit cost ratio 1.22% 0.16% 0.38% -0.07% 0.27%

RM

m

illi

on

Source: Bank Islam

Figure 3: Selected GIF ratios (based on financing purpose)

0.7%

2.0%

0.9%

1.1%

0.4%

2.3%

1.2%

1.4%

0.7%

1.3%

1.3%

1.7%

3.2%

1.8%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

Residential

Non-Residential

Purchase of Transport Vehicles

Credit Cards

Personal Use

Working Capital

Overall

End-Mar 2014 (industry) End-Mar 2014 End-Dec 2013 End-Dec 2012

Source: Bank Islam

Sizeable proportion of unsecured retail financing. Personal financing expanded 27% in

fiscal 2013 (fiscal 2012: +60%) and accounted for a third of its financing portfolio. However, q-

o-q growth has moderated noticeably to single digits after BNM imposed a cap on the

maximum tenure for such financing in July 2013. While banks’ exposure to unsecured financing

typically renders them more sensitive to adverse macroeconomic factors, Bank Islam’s

personal-financing facilities are mainly granted to employees of government agencies and

government-linked entities. The vast majority of such financing facilities are granted with salary-

deduction or salary-transfer mechanisms,1 which partially mitigate the risk of non-payment.

1 Under the salary-deduction mode, the salaries of customers are paid into Bank Islam accounts and the Bank directly

debits repayment once their salaries have been credited. Under the salary-transfer mechanism, employers deduct repayments from the salaries of their employees and subsequently remit payments to Bank Islam.



7

These package financing accounts for 90% of the Bank’s personal financing portfolio. The

overall GIF ratio of this portfolio was kept low at 0.4% as at end-March 2014.

Expanding secured financing via residential mortgages. Mortgage financing surged 30% in

fiscal 2013, as the Bank sought to enhance its share of secured financing to a more optimal

50% (the ratio of unsecured to secured financing currently stands at 56:44). Bank Islam mainly

finances residential property within the low-to-medium-cost spectrum; properties valued at

RM150,000 and below (upon origination) constituted about 30% of its portfolio in mid-2014. The

GIF ratio of its residential property portfolio had eased to 0.7% as at the same date (industry:

1.4%), on the back of an enlarged base. Nonetheless, the proportion of rescheduled and

restructured (R&R) facilities remained high albeit decreasing, at 7.5% of its residential property

financing portfolio (end-December 2012: 9.6%, end-December 2013: 8.2%). Half of these R&R

facilities relates to accounts that were classified as delinquent due to administrative delays2.

Excluding these, the Bank’s R&R portfolio would account for a lower 3.8% of its residential

property financing portfolio.

De-emphasising vehicle financing. Bank Islam’s vehicle-financing portfolio, which is

dominated by new national cars, is of sound quality. Even so, the Bank held back the

expansion of this portfolio in fiscal 2013 amid unattractive margins and more onerous

procedures in relation to vehicle repossession;3 this trend is expected to continue in 2014.

Funding & Liquidity

Still-comfortable FD ratio. Relative to the banking industry average, Bank Islam’s FD ratio

only came up to 69.0% as at end-March 2014. Given the Bank’s targeted financing growth of

20%-25% per year under its strategic roadmap for 2013-2015, this ratio is expected to gravitate

closer to its goal of 75%. Although we expect Bank Islam’s deposit-gathering efforts to intensify,

this may be challenging amid keen competition. Meanwhile, the Bank aims to maintain its

double-digit deposit growth by leveraging on its close rapport with government agencies.

Funding-cost advantage from large CASA base. Customer deposits are Bank Islam’s core

funding source, fulfilling 95%-97% of its funding needs. Notably, low-cost CASA deposits made

up 39.5% of its deposit base as at end-March 2014 (industry: 26.5%). Individual deposits,

which are a more diversified and stable funding source, have been increasing but are still small

at 15.8% of the Bank’s deposit base.

Healthy liquidity profile. Its liquid-asset ratio of 39.7% stayed commendable as at the same

date. The Bank’s deposit base remains concentrated, with the top 10 depositors accounting for

about 30% of its total deposits. However, our concerns are moderated by Bank Islam’s liquid

balance sheet and long-standing relationships with its depositors. Tabung Haji has consistently

ranked among its largest customers, accounting for 10% of its deposits as at end-March 2014;

these deposit placements have been stable.

2 Salary deductions and remittance of payments by employers which were delayed due to administrative reasons.

3 Among others, the repossession of a vehicle now requires the customer’s consent, must be conducted during office

hours and the vehicle can only be seized from the customer’s premises.



8

Financial Performance

Figure 4: Selected profitability indicators

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

FY Dec 2010^

FY Dec 2011 FY Dec 2012 FY Dec 20131Q FY Dec

2014

Gross income (RM million) 1562.7 1189.2 1397.4 1465.6 382.4

Prof it before tax (RM million) 499.5 492.5 597.4 677.3 167.0

ROA (%) 1.2% 1.6% 1.7% 1.7% 1.6%

NFM (%) 3.1% 3.1% 3.4% 3.1% 3.1%

RM

mil

lio

n

Source: Bank Islam

^ 18 months

Commendable profit performance in recent years. Bank Islam’s profit before tax

strengthened to RM677.3 million in fiscal 2013, driven by healthier net financing income and

RM15.0 million of net impairment write-backs due to recoveries. This translated into an ROA of

1.69% and ROE of 21.1%, which compare favourably against the corresponding industry

averages.

Broad margins. Bank Islam enjoys wide NFMs on account of its lucrative personal-financing

portfolio and large base of low-cost deposits. Although affected by competition, its NFM has

been kept above 3%, underlining the management’s active pricing adjustments and efforts to

optimise its FD ratio. In anticipation of a rate increase by BNM, the Bank has increased its

personal-financing pricing and further emphasised CASA deposits at the start of the fiscal year.

We expect any further margin compression to be manageable in line with the Bank’s efforts to

optimise its FD ratio.

Narrow revenue base. Bank Islam derives a substantial portion of its revenue from financing

activities. Non-financing income only made up 19% of its gross income in 1Q FY Dec 2014 –

small relative to its larger commercial-banking peers. While promising, the Bank’s investment-

banking unit faces significant competition from other bank-backed investment outfits, which are

able to ride on their parents’ larger balance sheets and franchises to secure sizeable capital-

market deals. At present, the main contributors of Bank Islam’s non-financing income are

investment income as well as fees from credit and debit cards, bancatakaful4 and Ar-Rahnu

(Islamic pawnbroking) operations.

High costs. Bank Islam’s cost-to-income ratio stood at a high 52.0% for 1Q FY Dec 2014, and

is expected to stay elevated in the near term. Rising operating costs are expected as the Bank

continues to invest in human capital, branding and infrastructure to support its growth amid an

increasingly more competitive environment.

4 Through arrangement with its sister company, Syarikat Takaful Malaysia Berhad, whereby Bank Islam earns a 10% cut

through fees.



9

Capitalisation

Strong capitalisation. Bank Islam’s CET-1 and total capital ratios stood at a sturdy 12.8% and

13.9%, respectively, as at end-March 2014. We expect its capitalisation ratios to remain strong

in spite of the Bank’s plans to continue expanding over the medium term, either organically or

through acquisitions. While the acquisition of an Indonesian bank would have an impact on

Bank Islam’s capitalisation, we note that it has set a minimum CET-1 capital ratio of 10.0%,

which is considered strong. We also do not discount an equity-raising exercise if such an

acquisition materialises.

Ready support from ultimate shareholder. While not immediately required, capital support

from Tabung Haji is envisaged to be readily extended if needed. Despite the recent change in

Bank Islam’s shareholding structure, we believe that dividend payouts will remain unchanged

and supportive of growth. Bank Islam has stated a dividend payout ratio of up to 50% of its pre-

tax profit, unless its total capital ratio falls below its internal threshold of 12.5%.



10

Bank Information

Date of Incorporation

1 March 1983

Commencement of Business

July 1983

Major Shareholders as at 31 December 2013

BIMB Holdings Berhad (100%)

Directors

Dato’ Zamani Abdul Ghani

Dato’ Sri Zukri Samat

Tan Sri Ismee Ismail

Johan Abdullah

Zahari @ Mohd Zin Idris

Datuk Zaiton Mohd Hassan

Mohamed Ridza Mohamed Abdulla

Tan Sri Dato’ Dr. Abdul Shukor Haji Husin

Auditor

KPMG Desa Megat & Co

Listing

Not listed

Key Management

Dato’ Sri Zukri Samat (Managing Director) Hizamuddin Jamalluddin (General Manager/Head, Strategic

Management & Managing Director’s Office) Khairul Kamarudin (Director, Business Development) Norashikin Mohd Kassim (Director, Treasury) Mujibburahman Abd Rashid (General Manager/Head,

Consumer Banking) Abdul Rashid Abdul Hamid (General Manager/Head,

Commercial Banking) Zaharin Mohd Ali (Head, Corporate Banking) Mizan Masram (Head, Recovery & Rehabilitation) Dato’ Norasni Ayob (Chief Operating Officer, Operations) Wahid Ali Mohd Khalil (Chief Operating Officer, Business

Support) Malkit Singh Maan (Chief Financial Officer) Ryan Liew Choon Ching (Chief Technology Officer) Dato’ Wan Ismail Wan Yusoh (General Manager/Head,

Strategic Relations) Maria Mat Said (General Manager/Head, Legal & Secretarial) Razman Ismail (General Manager/Head, Human Resources) Azmir Abdul Malek (Head, Corporate Communication) Mohd Nazri Chik (General Manager/Head, Shariah) Jeroen PMM Thijs (Chief Risk Officer

LMohamed Iran Moriff Mohd Shariff (Chief Internal Audit)

Nik Azmir Nik Anis (Head, Compliance)

Major Subsidiaries

BIMB Investment Management Berhad (100%)

Bank Islam Trust Company (Labuan) Ltd (100%)



11

Appendix

Figure 1a: Bank Islam’s corporate structure (as at 31 December 2013)

Source: Bank Islam

Figure 2b: Bank Islam’s corporate structure (as at 29 March 2013)

Source: Bank Islam

100.0%

10.0% 54.4% 5.1%

BIMB Holdings Berhad (Listed)

Permodalan Nasional Berhad

Lembaga Tabung Haji

Employee Provident Fund

Amanah Saham Bumiputra

Bank Islam

5.1%

100.0% 100.0% 100.0%

100.0% 100.0%

51.3%

8.5% 51.3%

BIMB Holdings Berhad (Listed)

Lembaga Tabung Haji

Permodalan Nasional Berhad

Employee Provident Fund

Amanah Saham Bumiputra

BIMB Investment Management

Berhad

BIMB Foreign Currency Clearing Agency Sdn Bhd

BIMB Islam Trust Company

(Labuan) Ltd

Al-Wakalah Nominees

(Tempatan) Sdn Bhd

Farihan Corporation Sdn Bhd

6.7%

100.0% 100.0% 100.0%

100.0% 100.0%

Bank Islam

Dubai Financial Group

5.1%

30.5%

BIMB Investment Management

Berhad

Al-Wakalah Nominees

(Tempatan) Sdn Bhd

BIMB Foreign Currency Clearing Agency Sdn Bhd

Farihan Corporation Sdn Bhd

BIMB Islam Trust Company

(Labuan) Ltd

18.5%



12

Financials

unaudited

STATEMENT OF FINANCIAL POSITION (RM million) 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Mar-14

Cash & Short-Term Funds 2,519.70 3,364.18 1,657.87 3,600.34 1,290.78

Deposits & Placements with Financial Institutions 352.80 860.18 38.04 130.58 110.61

Securities Purchased Under Resale Agreements 0.00 0.00 0.00 0.00 0.00

Financial Investments at Fair Value Through Profit or Loss 2,279.45 1,228.95 1,610.56 1,216.90 1,265.11

Financial Investments Available-For-Sale 12,763.02 11,005.12 12,916.06 12,416.92 12,458.73

Financial Investments Held-To-Maturity 215.94 327.33 178.29 63.33 62.43

Gross Financing & Advances 12,284.73 14,565.30 19,948.12 24,242.52 25,488.56

Collective Impairment Provisions (347.07) (327.69) (313.33) (365.38) (381.47)

Individual Impairment Provisions (79.06) (75.77) (126.99) (136.20) (144.57)

Net Financing & Advances 11,858.60 14,161.84 19,507.80 23,740.95 24,962.52

Statutory Deposits 10.00 912.00 1,059.90 1,297.10 1,401.00

Investments in Associates/Jointly-Controlled Entities 0.00 21.18 22.91 0.00 0.00

Goodwill & Intangibles 0.00 0.00 0.00 0.00 0.00

Property, Plant & Equipment 181.49 200.85 222.98 209.55 206.12

Other Assets 203.54 125.68 208.49 135.70 162.33

Total Assets 30,384.53 32,207.32 37,422.89 42,811.37 41,919.63

Customer Deposits 26,866.56 28,279.68 32,550.99 37,245.00 36,158.76

Current Account Deposits 7,098.68 8,415.67 8,963.89 9,888.12 9,176.68

Savings Account Deposits 3,564.22 3,862.83 4,457.53 4,674.48 5,104.31

Investment Deposits 10,304.86 10,275.63 15,096.98 20,671.20 19,276.56

Negotiable Instruments of Deposits 5,819.88 5,622.29 3,954.03 1,923.18 2,510.21

Other Deposits 78.92 103.26 78.56 88.02 91.00

Interbank Deposits 378.13 384.63 860.28 1,529.98 1,679.65

Bills & Acceptances Payable 163.19 259.15 385.14 170.60 135.95

Securities Sold Under Repurchase Agreements 0.00 0.00 0.00 0.00 0.00

Senior Islamic Securities 0.00 0.00 0.00 0.00 0.00

Subordinated Islamic Securities 0.00 0.00 0.00 0.00 0.00

Hybrid Capital Islamic Securities 0.00 0.00 0.00 0.00 0.00

Other Sources of Funds 0.00 0.00 0.00 0.00 0.00

Other Liabilities 442.42 476.03 523.52 538.96 517.63

Total Liabilities 27,850.30 29,399.49 34,319.93 39,484.54 38,491.99

Equity Share Capital 2,265.49 2,265.49 2,265.49 2,298.17 2,298.17

Share Premium 500.02 500.02 0.00 52.28 52.28

Treasury Shares 0.00 0.00 0.00 0.00 0.00

Statutory Reserve 795.01 974.59 505.65 751.47 811.40

Revaluation Reserve 0.00 0.00 0.00 0.00 0.00

Available-For-Sale Reserve 83.43 117.46 121.41 (8.01) (30.02)

Other Reserves 0.00 (9.46) 1.09 (20.90) (18.36)

Retained Profits/(Accumulated Losses) (1,110.20) (1,040.27) 209.32 253.82 314.17

Non-Controlling Interests 0.48 0.00 0.00 0.00 0.00

Total Equity 2,534.23 2,807.84 3,102.97 3,326.84 3,427.64

Total Liabilities + Total Equity 30,384.53 32,207.32 37,422.89 42,811.37 41,919.63

Additional Disclosure:

Commitments & Contingencies 13,544.29 9,423.11 10,928.79 11,211.68 10,761.20

Risk-Weighted Assets 14,798.76 16,925.67 22,493.68 25,472.01 26,520.15

Common Equity T ier-1 Capital n.a. n.a. n.a. 3,302.22 3,403.02

T ier-1 Capital 2,325.40 2,631.76 2,911.03 3,302.22 3,403.02

Total Capital 2,503.29 2,829.45 3,145.89 3,580.38 3,693.84



13

Financials

unaudited

STATEMENT OF COMPREHENSIVE INCOME (RM million) 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Mar-14

18 months 3 months

Financing Income 1,939.74 1,429.81 1,720.47 1,960.60 506.00

Financing Expense (622.34) (477.11) (593.05) (779.47) (192.69)

Net Financing Income 1,317.40 952.71 1,127.42 1,181.13 313.31

Fee Income 164.68 131.12 155.85 168.86 40.12

Investment Income 51.69 67.98 56.27 29.20 (2.85)

Other Income 28.97 37.41 57.89 86.45 31.82

Gross Income 1,562.74 1,189.21 1,397.42 1,465.64 382.40

Personnel Expenses (430.97) (338.14) (391.32) (443.26) (112.32)

Other Operating Expenses (402.85) (305.45) (333.61) (356.11) (86.41)

Operating Income before Impairment Charges 728.92 545.61 672.50 666.26 183.67

Net Impairment Charges on Financing (209.73) (21.12) (66.07) 15.01 (16.63)

Net Impairment Charges on Financial Investments (19.73) (15.41) 0.58 (9.21) 0.00

Net Impairment Charges on Commitments, Contingencies & Other Assets 0.00 (15.23) (11.36) 5.57 0.00

Operating Income after Impairment Charges 499.46 493.85 595.65 677.63 167.04

Non-Recurring Items 0.00 0.00 0.00 0.00 0.00

Share of Associates/Jointly-Controlled Entities Profits/(Losses) 0.00 (1.38) 1.73 (0.35) 0.00

Pre-Tax Profit/(Loss) 499.46 492.47 597.38 677.28 167.04

Taxation & Zakat (92.27) (117.14) (170.12) (191.56) (46.77)

Net Profit/(Loss) 407.19 375.33 427.26 485.73 120.27

Gain/(Loss) on Available-For-Sale Financial Investments 92.97 34.03 3.95 (129.42) (22.01)

Changes in Cash Flow & Net Investment Hedges 0.00 0.00 0.00 0.00 0.00

Foreign Currency Translation Differences 41.01 (9.45) 10.54 (21.99) 2.54

Share of Other Comprehensive Income/(Loss) of Associates/Jointly-Controlled Entities 0.00 0.00 0.00 0.00 0.00

Income Tax Relating to Other Comprehensive Income/(Loss) 0.00 0.00 0.00 0.00 0.00

Other Components of Comprehensive Income/(Loss) 0.00 0.00 0.00 0.00 0.00

Total Comprehensive Income/(Loss) 541.17 399.91 441.76 334.31 100.80

Additional Disclosure:

Net Profit/(Loss) Attributable to Non-Controlling Interests (0.05) 0.06 0.00 0.00 0.00

Dividends Paid 19.11 125.40 146.63 195.40 0.00



14

Financials

unaudited

KEY RATIOS 31-Dec-10 31-Dec-11 31-Dec-12 31-Dec-13 31-Mar-14

PROFITABILITY (%)

Net Financing Margin 3.08% * 3.13% 3.37% 3.06% 3.08% *

Non-Financing Income to Gross Income 15.70% 19.89% 19.32% 19.41% 18.07%

Cost to Income 53.36% 54.12% 51.88% 54.54% 51.97%

Return on Assets 1.15% * 1.57% 1.72% 1.69% 1.58% *

Return on Risk-Weighted Assets 2.51% * 3.10% 3.03% 2.82% 2.57% *

Return on Equity 16.38% * 18.44% 20.21% 21.07% 19.78% *

ASSET QUALITY (%)

Gross Impaired Financing Ratio 4.50% 2.61% 1.55% 1.18% 1.17%

Net Newly Classified Impaired Financing Ratio (2.08%) * 0.10% 0.47% 0.60% 0.52% *

Financing Credit Cost Ratio 1.22% * 0.16% 0.38% (0.07%) 0.27% *

Impairment Charge Ratio 0.65% * 0.13% 0.21% (0.02%) 0.17% *

Gross Impaired Financing Coverage Ratio 77.17% 106.23% 142.63% 175.80% 175.71%

LIQUIDITY & FUNDING (%)

Liquid Asset Ratio 65.30% 56.90% 47.93% 44.47% 39.71%

Interbank Deposits to Total Profit Bearing Funds 1.38% 1.33% 2.55% 3.93% 4.42%

Customer Deposits to Total Profit Bearing Funds 98.02% 97.77% 96.31% 95.63% 95.22%

CASA Deposits to Total Deposits 39.69% 43.42% 41.23% 39.10% 39.50%

Financing to Deposits Ratio 44.14% 50.08% 59.93% 63.74% 69.04%

CAPITALISATION (%)

Internal Rate of Capital Generation 12.73% 9.36% 9.50% 9.03% n.a.

Common Equity T ier-1 Capital Ratio n.a. n.a. n.a. 12.96% 12.83%

Tier-1 Capital Ratio 15.71% 15.55% 12.94% 12.96% 12.83%

Total Capital Ratio 16.92% 16.72% 13.99% 14.06% 13.93%

Notes:

* annualised

n.a. = not available / not applicable



15

Financials

KEY RATIOS FORMULAE

PROFITABILITY (%)

Net Financing Margin Net Finance Income / Average Profit Earning Assets

Non-Financing Income to Gross Income Non-Finance Income / Gross Income

Cost to Income (Personnel Expenses + Other Operating Expenses) / Gross Income

Return on Assets Pre-Tax Profit/(Loss) / Average Total Assets

Return on Risk-Weighted Assets Pre-Tax Profit/(Loss) / Average Total Risk-Weighted Assets

Return on Equity Pre-Tax Profit/(Loss) / Average Total Equity

Non-Finance Income Fee Income + Investment Income + Other Income

Profit Earning Assets Cash & Short-Term Funds + Deposits & Placements with Financial Institutions

+ Securities Purchased Under Resale Agreements + Total Financial Investments

+ Net Financing & Advances

Total Financial Investments Financial Investments at Fair Value Through Profit or Loss + Financial Investments Available-For-Sale

+ Financial Investments Held-To-Maturity

ASSET QUALITY (%)

Gross Impaired Financing Ratio Total Impaired Financing / Gross Financing & Advances

Net Newly Classified Impaired Financing Ratio Net Newly Classified Impaired Financing / Average Gross Financing & Advances

Financing Credit Cost Ratio Net Impairment Charges on Financing / Average Gross Financing & Advances

Impairment Charge Ratio (Net Impairment Charges on Financing + Net Impairment Charges on Financial Investments) /

(Average Gross Financing & Advances + Average Total Financial Investments)

Gross Impaired Financing Coverage Ratio Total Provisions / Gross Impaired Financing

Total Provisions Collective Impairment Provisions + Individual Impairment Provisions

Net Newly Classified Impaired Financing Newly Classified Impaired Financing - Recoveries on Impaired Financing

- Impaired Financing Reclassified As Performing

LIQUIDITY & FUNDING (%)

Liquid Asset Ratio Liquid Assets / (Customer Deposits + Short-Term Funds)

Interbank Deposits to Total Profit Bearing Funds Interbank Deposits / Profit Bearing Funds

Customer Deposits to Total Profit Bearing Funds Customer Deposits / Profit Bearing Funds

CASA Deposits to Total Deposits (Current Account + Savings Account Deposits) / Customer Deposits

Financing to Deposits Ratio Net Financing & Advances / Customer Deposits

Liquid Assets Cash & Short-Term Funds + Deposits & Placements with Financial Institutions

+ Securities Purchased Under Resale Agreements

+ Quoted Financial Investments (excluding Financial Investments Held-To-Maturity)

Short-Term Funds Interbank Deposits + Bills & Acceptances Payable + Securities Sold Under Repurchase Agreements

Profit Bearing Funds Financial Institutions + Quoted Securities (Excluding Financial Investments Held-To-Maturity)Customer Deposits + Interbank Deposits + Bills & Acceptances Payable

+ Securities Sold Under Repurchase Agreements + Total Borrowings

Total Borrowings Senior Islamic Securities + Subordinated Islamic Securities

Hybrid Capital Islamic Securities + Other Borrowings

CAPITALISATION (%)

Internal Rate of Capital Generation (Net Profit/(Loss) - Dividends) / Average Total Equity

Common Equity T ier-1 Capital Ratio Common Equity T ier-1 Capital / Total Risk-Weighted Assets

T ier-1 Capital Ratio T ier-1 Capital / Total Risk-Weighted Assets

Total Capital Ratio Total Capital / Total Risk-Weighted Assets



16

Transaction Structure

The Proposed Sukuk will have a programme limit of RM1.0 billion and a tenure of up to 30 years from

the date of first issuance. Each sukuk will have a tenure of not less than 5 years and up to 30 years

from its issuance date.

Figure 1: Islamic transaction structure

Source: Bank Islam

Salient points of the Proposed Sukuk:

1 Under an agency agreement, the Trustee, on behalf of the Sukuk holders, will appoint the

Facility Agent as a buying and selling agent (Wakil) for the purchase and sale of Shariah-

compliant commodities (excluding ribawi items in the category of medium of exchange such

as currency, gold and silver) (the Commodities) from time to time.

2 Under another agency agreement, the Issuer will appoint the Facility Agent as a selling agent

for the sale of the Commodities from time to time.

3 Pursuant to a commodity murabahah agreement, the Issuer will request the Wakil to

purchase the Commodities by issuing a Form of Transaction Request (FTR) to the Wakil. The

Issuer will irrevocably undertake to purchase the Commodities from the Wakil, at a selling

price (the Selling Price) to be paid on a deferred basis. The Selling Price comprises the

Purchase Price and a profit portion, based on the yield-to-maturity for the relevant

subordinated sukuk murabahah.

4 Pursuant to the FTR, the Sukuk holders will pay the Purchase Price of the Commodities to

the Wakil, and this will be equivalent to the relevant subordinated sukuk murabahah

proceeds.

5 Upon receipt of the Purchase Price from the Sukuk holders, the Wakil will then purchase the

Commodities from commodity sellers, on a spot basis.

6 Upon completion of the purchase, the Wakil will sell the Commodities to the Issuer at the

Selling Price on deferred-payment basis, and the Wakil will permit the Issuer to take

immediate constructive possession of the Commodities.



17

7a & 7b The Issuer will issue and the Sukuk holders will subscribe for the relevant subordinated sukuk

murabahah, which will evidence the Sukuk holders’ entitlement to receive the Selling Price.

8 Subsequently, the Facility Agent, on behalf of the Issuer, will sell the Commodities to

commodity buyers on a spot basis, at an amount equivalent to the Purchase Price. The Issuer

will use the proceeds from the sale of the Commodities to finance its Islamic banking

activities, working-capital requirements and other corporate purposes, and/or, if required, to

redeem any outstanding subordinated sukuk murabahah issued under the Proposed Sukuk.

The preceding transaction structure of the Proposed Sukuk is not exhaustive. Investors will need to

refer to the Principal Terms and Conditions for a comprehensive understanding of the terms and

conditions.



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