[yaoyao]

Bank Islam suffers RM500m loss!

Article Summary:
Source: New Straits Times - 7 October 2005


New management takes big hit to move ahead afresh

Malaysia’s pioneering Bank Islam Malaysia Berhad is expected to report a RM500 million loss tomorrow — the first time it will go into red territory in its 22-year history.

The new management team is seeking to start afresh by confronting a longstanding problem — a bad loan portfolio accumulated since the Asian financial crisis in 1997.

Executives familiar with the bank’s financial situation said recently appointed Chief Executive Officer Datuk Noorazman Aziz is expected to announce losses at bank level of close to RM500 million and also make a provision of RM750 million for bad debts.

Its four subsidiaries, however, continue to be profitable and are expected to turn in a profit of RM110 million. This means that at group level, BIMB should register a loss of RM370 million to RM390 million.

Noorazman is also expected to announce that the bank’s non-performing loans (NPL) totalled close to 20 per cent of the bank’s assets — far above the market average of about eight per cent.

The executives said Bank Islam would "take the big hit" to move ahead afresh.

"The NPLs have been building up since the crisis in 1998. Danaharta could not take the loans off Bank Islam’s books then because it could not take Syariah-compliant loans," the executives said.

Even as of last year, Bank Islam’s NPLs stood at about 14 to 15 per cent but the clincher came when the bank decided to make its Labuan bank, which was governed by the Labuan Offshore Financial Services Authority (LOFSA), into a subsidiary and took all the loans onto its book.

It then found that the Labuan bank had given out close to RM450 million in loans to companies in Sarajevo and South Africa that had long turned sour. This pushed total NPLs to almost 21 per cent.

The sources said the new management team presented the findings to the board of directors. After much deliberation, they decided to make the necessary provisions and begin with a fresh slate.

* It is very likely that the bank will also have to make a fresh cash call on its shareholders to meet the required minimum capital needs.
* Bank Islam’s shareholders are Permodalan Nasional Berhad (PNB) with 32 per cent, Tabung Haji (30 per cent), Employees Provident Fund (six per cent) and LTAT (> five per cent).
* It is understood that two Middle-East based investors are keen to take up a stake in Bank Islam and there are indications that some of the current shareholders may sell out their shares. The majority stake will, however, remain in Malaysian hands, the executives said.
* Sources said that the Government was disappointed at the lack of risk controls and mismanagement that had led to the huge bad loans portfolio. It had asked the new management to investigate the events leading up to the current situation and ensure that any wrongdoing was punished.

However, it agreed to the reforms and clean-up to be started by the new management team.

Sources said Noorazman was expected to announce the results and the plans going forward within the next two days.

Bank Islam is a name synonymous with Islamic banking in Malaysia. It started operations as Malaysia’s first Islamic bank on July 1, 1983, and was established primarily to cater for the financial needs of Muslims in the country.

as taken from
http://www.bankislam.com.my/cms/defa..._articleID=140

[yaoyao]

I wonder if this will give fear to investors hoping to bounce on Singapore's hopes to become an Islamic Banking Hub...

its seldom that we see banks making losses, regardless of situation

[chipmunk]

Originally Posted by yaoyao

I wonder if this will give fear to investors hoping to bounce on Singapore's hopes to become an Islamic Banking Hub...

its seldom that we see banks making losses, regardless of situation

Islamic banks has limited growth due to the fact that they can only invest in those businesses that are allowed in their islamic law. So they cant invest in company such as Singapore CASINO pte ltd, Asia pacific brewery etc kind of companies.

[yaoyao]

Originally Posted by chipmunk

Islamic banks has limited growth due to the fact that they can only invest in those businesses that are allowed in their islamic law. So they cant invest in company such as Singapore CASINO pte ltd, Asia pacific brewery etc kind of companies.

I agree.
But I am also thinking they can survive without those as there are also other venues to consider.
However, this incident has really raised serious doubts to the potential and management of Islamic Banking.