Strictly Private & Confidential Page 1
INVESTMENT ACCOUNT-i : - A NEW ERA
By Hizamuddin Jamalluddin Group Chief Strategy Officer
Strategic Management & Managing Director’s Office
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TABLE OF CONTENTS
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OUR JOURNEY
KEY DIFFERENCES (IBA 1983 vs IFSA 2013)
PRODUCT STRUCTURE & DISTINCT FEATURES
BENEFITS OF IA (BANK & INVESTORS’ PERSPECTIVE)
VALUE PROPOSITIONS & PITCH STRATEGY
Section 1
Section 2
Section 3
Section 5
Section 6
Strategic Management & Managing Director’s Office
DEVELOPMENT OF ISLAMIC FINANCE - MALAYSIA
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Instituting Foundation • 1970 – 1992 (Establishment of Enabling Infrastructure) • Islamic Banking Act 1983 – Establishment of Bank Islam Malaysia Berhad • Merely as an alternative to conventional banking
Institutional Building, Activity Generation & Market Vibrancy • 1993-2005 (Deepening, Creating Critical Mass & Liberalisation) • Ensuring greater access to Islamic finance
Strategic Positioning & International Integration with Global Financial System. • 2006 -2013 • Becoming hub of international Islamic finance
Advancing in Islamic Financing – Well Developed Marketplace • 2013 onwards • Islamic Financial Services Act 2013 – Moving from “Credit Intermediary” to
“Investment Intermediary” • Marketplace for Global Linkages • Moving to mainstream
Strategic Management & Managing Director’s Office
MALAYSIAN ISLAMIC FINANCE INDUSTRY AS AT JUNE 2016
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Assets 23.3% of total banking system Total Islamic banking asset : RM559 bil CAGR 2011-2015 of 13%
Financing Market share – 27.9% Total financing: RM409 bil^ CAGR 2011-2015 of 15.2% (^excluding DFIs)
Liabilities /Deposits Market share – 26.9% Total deposits : RM403 bil Total Investment Account: RM65 bil Overall : RM4681 bil CAGR 2011-2015 of 14.1%
… Islamic financing is expected to account for 40 per cent of total financing in 2020
Total Capital Ratio – 16.7% Liquidity Coverage Ratio – 112% Net Impaired Financing 1.1%
Strategic Management & Managing Director’s Office
GROWTH OF INVESTMENT ACCOUNT
Page 6 Strategic Management & Managing Directors’ Office
• 12 Islamic banking institutions are offering IA • 7 Domestic Islamic banks • 4 Foreign Islamic banks • 1 Islamic windows
• RM 35.2 bil (53%) of
outstanding IA is UA • UA includes with maturity
(term investment) & without maturity (daily investment)
• Majority of RA relates to placement by parent bank to Islamic subsidiary • Arrangement has been used
to provide specific corporate financing (matched funding)
2.1 RM62.0b (96.3%) financing comprise of 49% corporate financing and 51% consumer financing
3 4 5 9 17 19 24 24 27 29 31 35
30 29 29 31
30 28 28 29 28 29
31 31
-20%
0%
20%
40%
60%
80%
100%
-
10
20
30
40
50
60
70
Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16
Jun-16
M-o
-M IA
gro
wth
rat
e (%
)
Out
stan
ding
pri
ncip
al (R
M b
il)
UA RA UA Growth RA Growth
1 year after introduction, UA penetration increased significantly by 22.05% CMGR1 – 11.7% of total Islamic funds
1
2 Assets funded by IA is mainly financing
RM31.4
RM30.6
RM2.0
Consumer Financing
Corporate Financing
Interbank (liquidity)
Amount in bil
KEY DOCUMENTS FOR IA
Strategic Management & Managing Director’s Office
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ISLAMIC DEPOSIT VS INVESTMENT ACCOUNT
Strategic Management & Managing Director’s Office
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Islamic Deposit Investment Account
means a sum of money accepted or paid in accordance with Shariah - (a) on terms under which it will be repaid in full1, with or without any gains2, return or any other consideration in money or money’s worth, either on demand or at a time or in circumstances agreed3 by or on behalf of the person making the payment and person accepting it; or (b) under an arrangement, on terms whereby the proceeds4 under the arrangement to be paid to the person paying the sum of money shall not be less than such sum of money*
Key terms
1. Repayable in full or principal guaranteed
2. Returns payable is subject to the terms of contract
3. Repayment on demand or at maturity
4. Selling price (principal + profit) under sales contract
means an account under which, money is paid and accepted for the purposes of investment1, including for the provision of finance, in accordance with Shariah on terms that there is no express or implied obligation to repay the money in full2 and- (a) either only the profits, or both the profits or losses3, thereon shall be shared between the person paying the money and the person accepting the money; or
(b) with or without any return3;
Key Terms
1. Purpose for acquisition of investment, finance and/or trade in permissible assets (motivation to generate profit)
2. Repayment is subject to performance or principal non guaranteed
3. Profits are shared, while losses are borne by investors or shared Distinct definitions are aligned with Shariah contracts…
ISLAMIC BANKING BUSINESS/OPERATIONAL MODEL
Strategic Management & Managing Director’s Office
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OPERATIONALIZING AN INVESTMENT ACCOUNT
Strategic Management & Managing Director’s Office
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KEY DIFFERENCES
Strategic Management & Managing Director’s Office
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Mudharabah Deposit A/C Wakalah Deposit A/C
Repayable in full/ Guaranteed by PIDM
(RM250K)
Rank Parri Passu
General Pool (Both, bilateral credits & marketable securities)
On-demand or at maturity
Mudharabah IA Wakalah IA
Principal non-guaranteed Aims to preserve capital
IA ranked as secured creditor (via asset ring-
fenced)
Prescribed Assets as per Product Disclosure Sheet
Transactional IA - on demand
Term IA – at maturity
Pre IFSA (IBA 1983) IFSA 2013
Product
Principal
Rank under Liquidation
Underlying Assets
Withdrawal
KEY DIFFERENCES…cont
Strategic Management & Managing Director’s Office
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None
No Specific (part of overall oversight)
Profit Sharing Ratio (PSR) for Mudharabah
KYC
Based on single rate and subject to PSR
Fund Management Report on quarterly basis
Board Risk Committee/ Board Investment Com.
PSR for Mudharabah, Expected Rate of Return
for Wakalah
KYC & Suitability Assessment /New Board Resolution/
Minutes
Return to commensurate with the underlying risk
profile of the assets
Pre IFSA (IBA 1983) IFSA 2013
Reporting
Oversight
Rate of Return
On-Boarding
Expected Return
DEPOSIT TRANSITION PLAN – BANK ISLAM'S JOURNEY
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• Effective date for Deposit Transition Policy (DTP) as directed by Bank Negara Malaysia (BNM).
Feb 2014 June 2014 April - May
2015 June 2015 April - May
2014
• Introduction of new product Term Deposit-i (Tawarruq) (TDT) on 30 April 2014.
• All new on lien
will be placed under TDT/marginal account effective 1 May 2014.
• New resolution for business clients to decide on deposit or investment account.
• Conversion of all
existing Mudarabah savings account (SA) to Wadiah SA.*
2 April 2015 • Launching of the
first Restricted Investment Account (RIA) in Malaysia i.e. TH RIA (Al-Ansar) by the Prime Minister of Malaysia.
25 May 2015 • Communication
with Al-Awfar SA customers’ to obtain consent for conversion.
1 June 2015 • Effectiveness of
BNM’s IA Policy. • Launching of 5
new IA: Al-Awfar
Account Special IA Waheed IA Interbank IA
(Mudarabah) Interbank IA
(Wakalah)
• Reclassification and conversion of Al-Awfar SA to Al-Awfar Account (IA) or Wadiah SA
Strategic Management & Managing Director’s Office
EXPECTED RATE OF RETURN
Strategic Management & Managing Director’s Office
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CASA
Term Deposit Tawarruq
Waheed Investment A/C (Low Risk)
Waffiyah Investment A/C (Moderate Risk)
Low High
Investment Account Holders
Profit as per agreed PSR (IAH)
Invests IAH funds
Place investments with the Bank
Profit
Generates profit/ incurs loss
Loss
Loss to be borne by the customer
3c
Allocated Assets of the Bank
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3a
1
2
3
3b
Profit as per agreed PSR (Bank)
STRUCTURE 1: INVESTMENT ACCOUNT (IA) MUDARABAH
Investment Account Holders
Profit payment (Note: Profit earned may be equal to or less than Expected Profit)
Appoints Bank Islam as Investment Agent
Profit
Generates profit/ incurs loss
Loss
Loss to be borne by the customer
3c
3b
Any excess retained as performance
incentive
Allocated Assets
of the Bank
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3a
1
2
3
Invests IAH funds
STRUCTURE 2: INVESTMENT ACCOUNT (IA) WAKALAH
PRODUCT STRUCTURES & DISTINCT FEATURES
Strategic Management & Managing Director’s Office
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Al Ansar SME Financing •Restricted Investment Account - based on Wakalah •Specific mandate by investor (Risk Acceptance Criteria/
Underwriting Criteria, Recovery arrangement, etc) •Close-end Fund •Off Balance Sheet (MFRS 10)
Al Awfar Investment Account •URIA – based on Mudharabah (PSR 98:2) •Unique Selling Proposition – Opportunity to win cash prizes •Prescribe underlying assets – house financing portfolio (Low Risk) •Open -end Fund & Transactional Investment Accounts (unlimited
withdrawals) •On Balance Sheet Waheed-i Investment Account •URIA – based on Wakalah •USP – Competitive returns (higher than term deposits) •Prescribe underlying assets – house financing portfolio (Low Risk) (Fixed &
Float Rate) •Open-end Fund – Term Investment Account •On balance Sheet
PRODUCT STRUCTURES & DISTINCT FEATURES
Strategic Management & Managing Director’s Office
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Wafiyah Investment Account (Corporate) •URIA – based on Wakalah •USP – Higher returns than Waheed-i •Prescribe underlying assets – House financing + Personal Financing
(Moderate Risk) •Open-end Fund – Term Investment Account •On balance Sheet Special Investment Account •URIA – based on Mudharabah (PSR based expected rate of return) •USP – Competitive returns •Prescribe underlying assets – House financing •Open-end Fund – Term Investment Account •On balance Sheet
BIMB Invest Wafiyah •Money Market Fund •URIA - Wakalah •USP – taking the advantage of tax insentive •Prescribe underlying assets – House financing + Personal Financing
(Moderate Risk)
INVESTMENT ACCOUNTS – KEY FEATURES
Strategic Management & Managing Director’s Office
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Product name Al Ansar Waheed Specific Investment
Account (SIA)
Al Awfar
Date of Launch 2 April 2015 1 June 2015 3 June 2015
Investor (s) / Customer’s Profile (Investor Account Holder)
Lembaga Tabung Haji
Corporate Entity Institutions Non-Individuals
Individual Retail Institutions
Fund Size RM200 mil Unlimited Unlimited (subject to availability of house financing assets)
Underlying Assets / Investment Portfolio
SME financing Existing Bank’s Assets (to be disclosed before offering)
House Financing Assets
Investment Risk High Medium (subject to underlying assets)
Low (given the underlying collateral and diversified profile)
INVESTMENT ACCOUNTS – KEY FEATURES…cont
Strategic Management & Managing Director’s Office
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Shariah Contracts Wakalah Wakalah Mudarabah
Mudarabah
Nature of Shariah Contract
Performance Incentive
Agency Fee Profit Sharing
Profit Sharing
Investment Objective / Motivation
To develop Muslim Bumiputera Economy + Expected Return
Commendable Return
To win the prizes i.e. – RM1 mil
Investment Tenure Up to 2020 (or upon fully drawdown of the fund, whichever earlier)
1 day to 1 year (Negotiable)
Unlimited
Withdrawal Upon maturity (as per the agreed term and conditions)
Upon Maturity On demand / unlimited
INVESTMENT ACCOUNTS – KEY FEATURES…cont
Strategic Management & Managing Director’s Office
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Capital/Principal Protection (Insured by PIDM)
No guarantee No guarantee (entitled to the asset tagged)
No guarantee (backed by house financing portfolio)
Minimum Placement/ Investment
RM10 mil per drawdown
RM500,000 RM100
Expected Return/ Profit Rate
3% ( or actual return if profit < 3%)
Based on agreed PSR
Based on agreed PSR
Profit Payment Frequency
Monthly distribution Upon maturity Monthly distribution
Fund Performance Reporting
Quarterly Quarterly Quarterly
Documentation Wakalah Agreement & Service Level Agreement
Specific Board Resolution & Transaction Doc.
Self Assessment Form (for Individual & SME) & Transaction Doc.
QUARTERLY REPORT
Strategic Management & Managing Director’s Office
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http://www.bankislam.com.my/home/assets/uploads/Term-Investment-FPR-231215-Final.pdf
BENEFITS TO INVESTMENT ACCOUNT HOLDER
Strategic Management & Managing Director’s Office
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Optimize Returns (Commensurate with underlying
risk profile)
Transparency (Reporting
frequency & Asset quality)
Flexibility (Tenure,
Expected Rate of Returns & Shariah
Contracts)
Aimed to preserve capital
(Tagged to specific assets)
New Asset Class
(i.e. Takaful Players)
VALUE PROPOSITION & PITCH STRATEGY
Strategic Management & Managing Director’s Office
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Unique Value Proposition
Risk Profile
(Safety)
Unlimited Withdrawals
Retail
Returns
Risk Profile
Flexibility
Business (SMEs &
Corp) Returns
Risk Profile
(Capital Preservation)
Stability
Institutions
KEY TAKEAWAY
Strategic Management & Managing Director’s Office
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Demand Product Knowledge
Require Customer Suitability
Assessment Avoid Miss-Selling
INVESTMENT ACCOUNT PLATFORM
Strategic Management & Managing Director’s Office
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INVESMENT ACCOUNT PLATFORM - A NEW MARKETPLACE
Strategic Management & Managing Director’s Office
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…an investment Intermediary instead of Trading Exchange
… sound like a regulated crowd funding
… similar to initial public offering - over or under subscription
…also similar concept to retail sukuk
… gateway for financial inclusion
… just imagine a “Covered Sukuk”
Funds from RIA is to finance venture
Provide funding through opening of RIA with
participating banks using IAP
POTENTIAL INVESTORS / IA HOLDERS
VENTURES
ISLAMIC BANK Restricted Investment
Account
1st leg 2nd leg
BROAD MECHANIC OF IAP
Strategic Management & Managing Director’s Office
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Obtain Information
Raise Funding
Administer & Manage
supported by
Banks
Features of IAP facilitate effective matching between sources of funds with diverse financing needs of the economy
Choose Investment
Track Performance
Distribute Profit
Report Progress
Promote & Advertise
Transparent | Easy-access | Secured | Wide-reach | Strong Governance
(Sources of fund) (Users of fund) Ventures Investors
• Strong roles played by banks, in line with their fiduciary duty
– Due-diligence
– Performance monitoring
– Suitability assessment
– Underwriting • Individual and institutional investors
• Islamic banks • Government (to
support target industries)
• Similar to current banking business
• Potential initial target: – Emerging Corporate – SMEs – Etc
Channel funds to ventures of their choice
Provide financing
– Ventures in innovative & new growth areas
Source : Bank Negara Malaysia
FUNDING STRUCTURE – IFSA 2013
Strategic Management & Managing Director’s Office
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Deposits Investment Accounts Shareholders’ Funds
Current Account Savings Account Term Deposit
Unrestricted Investment Account
Restricted Investment Account
Paid Up Capital Retain Earnings Tier II Capital Others
NEW LOOK ON THE BALANCE SHEET
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ASSETS LIABILITIES Cash & Short-term Funds Deposits from Customers
Financial Assets (HFT, AFS, HTM) i.e. PDS Investment Account of Customers (URIA/RIA) (i.e. Note 16 – Bank Islam Audited A/C 2015)
Financing (Consumer. Commercial & Corporate)
Deposit Placements of Banks & Financial Institutions
Investment in Subsidiaries Zakat & Taxation
Other Assets Other Liabilities
Equity
Total Assets Total Liabilities & Equity
Note X : Describes the funding structure i.e. URIA or RIA, the amount of funds applied to different Shariah contracts, and the underlying assets supporting the fund. As RIA is off balance sheet, the information presented is for disclosure purposes.
FINANCIAL DISCLOSURE – INVESTMENT ACCOUNT
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FINANCIAL DISCLOSURE – INVESTMENT ACCOUNT…cont
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STATEMENTS OF PROFITS OR LOSS INCOME
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Note 2015 RM’000
2016 RM’000
Income derived from investment of depositors’ funds
XX
Income derived from investment of investment account funds
XX
Income derived from shareholders’ funds
XX
Income split into 3 categories:-
http://www.bankislam.com.my/home/assets/uploads/HalfYearlyResultended30June2016.pdf
STATEMENTS OF PROFITS OR LOSS INCOME
Strategic Management & Managing Director’s Office
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GROWTH POTENTIALS – ISLAMIC BANKING INDUSTRY
Strategic Management & Managing Directors’ Office Page 35
EPF Simpanan Shariah as “A New Catalyst”
Investment Account Platform
“ A New Marketplace”
Major Infra Projects Roll Outs
Cross Border Transactions -ASEAN Integrated Banking
Framework
Demand for Shariah Compliant Stocks –
Conversion / Cannibalisation
Corporate & Sovereign Refinancing of Maturing
Sukuk
Continuous Demand from Consumer Market
“Prohibition of Riba’”
Ocean Blue – Wakaf Development
Supportive Government Policies & Incentives
POTENTIAL CAREER IN ISLAMIC FINANCE
Strategic Management & Managing Director’s Office
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Very High Demand for Islamic Scholars
Overwhelming Opportunity as an
Islamic Banker (Beyond Borders)
Continuous Development /
Investment in Technical Competencies
Sustainable Growth Momentum for Islamic
Finance Experienced from the
Pioneer
QUESTION & ANSWER – [email protected]
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Islamic Bank of the Year - Asia by the European Global Banking & Finance Awards 2015
Best Islamic Bank in Malaysia by The International Banker Asia & Australasia Banking Awards 2015
Strongest Retail Bank in Malaysia by Cambridge IF Analytica, United Kingdom
Innovation in Retail Banking Malaysia by The International Banker Asia & Australasia Banking Awards 2015
Best Commercial Bank - Malaysia by CPI Financial, Dubai
Best Islamic Bank Malaysia & Award for Excellence in Shariah Compliant Banking by Wealth & Finance Intl’s 2015 Finance Awards
Highly Commended Award for Best Debit Card - UniDebit By Cards & Electronic Payments International (CEPI) Asia Summit & Awards 2015
Strongest Local Bank by Focus Malaysia (using Bloomberg methodology)
Strategic Management & Managing Director’s Office
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DISCLAIMER
This presentation has been prepared by Bank Islam Malaysia Berhad(“Bank Islam”) for selected recipients for information purposes only. The information contained herein is believed to be correct as of the date of this presentation and is given in summary form and does not purport to be complete. Bank Islam does not make any representation or warranty, whether expressed or implied, as to the adequacy, accuracy or completeness of any such information, opinion or estimate contained and shall not be responsible or liable for any consequences of any reliance thereon by any recipient. Opinions and estimates constitute the judgment of Bank Islam as of the date of this presentation and are subject to change without notice. Bank Islam does not act as any recipient’s financial advisor or agent and the information contained herein is not intended to be relied upon as advice to any recipient and should not be construed as an offer or recommendation to buy or sell securities. This presentation does not purport to contain all the information that a prospective investor may require and the information contained herein does not take into account the investment objectives, financial situation or needs of every recipient hence it may not be appropriate for all persons. Each recipient is responsible to make his or her own independent assessment of the information provided herein and should not treat the information provided as advice relating to investment or related matters. Each recipient should consult his or her own advisers and must make his or her own independent decision regarding any investment. Certain statements contained in this presentation may be statements of future expectations and involve known and unknown risks and uncertainties. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Bank Islam does not have any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Each recipient should not place undue reliance on forward-looking statements, which is believed to be correct only as of the date of this presentation. This presentation is being furnished to each recipient solely for his or her information and may not be reproduced, redistributed, transmitted or passed on, directly or indirectly, to any other person or published electronically or via print, in whole or in part, for any purpose.
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