BANK ISLAM MALAYSIA BERHAD

NOVEMBER 2012

BANK ISLAM MALAYSIA BERHAD 

Financial Institution Ratings

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, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS NOVEMBER 2012

BANK ISLAM MALAYSIA BERHAD – Rating Review

Analysts: Kwan Ji-Ling (603) 7628 1115 [email protected] Wong Yin Ching (603) 7628 1117 [email protected] Principal Activity: Islamic banking Rating Type: Financial Institution Ratings Ratings: A1/P1 [Reaffirmed] Rating Outlook: Stable Last Rating Action: 21 November 2011



Summary

RAM Ratings has reaffirmed the respective long- and short-term financial institution ratings of Bank Islam Malaysia Berhad (“Bank Islam” or “the Bank”) Malaysia’s first Islamic bank – at A1 and P1. The long-term rating has a stable outlook. The ratings consider Bank Islam’s strong branding in the Malaysian Islamic banking sphere, although its franchise and market position within the overall banking system (when compared to more-sizeable universal-banking groups) is still limited. The Bank is primarily a retail-focused Islamic bank, with a high level of concentration in unsecured retail financing; personal financing facilities make up approximately 30% of its financing portfolio. The ratings also reflect the backing of Lembaga Tabung Haji (“Tabung Haji”, Malaysia’s hajj pilgrims’ funds board), i.e. the Bank’s ultimate controlling shareholder, in the form of capital support and deposit placements. On this note, Bank Islam boasts a favourable liquidity position and commendable funding profile, with an exceptionally low financing-to-deposits ratio of 57% and a considerable proportion of low-cost deposits. The Bank’s capitalisation position is also sturdy. As at end-June 2012, its tier-1 and overall risk-weighted capital-adequacy ratios (“RWCARs”) stood at 14.4% and 15.6%, respectively (end-December 2011: 15.0% and 16.2%). Bank Islam charted a 19% financing growth in FYE 31 December 2011 (“FY Dec 2011”). Its financing-quality indicators had improved, with a gross impairedfinancing (“GIF”) ratio of 2.0% as at end-June 2012. Although the Bank’s rapidly expanding financing portfolio (with growth driven primarily by personal financing facilities) may lack seasoning, salary deductions or salary transfers from employers partially mitigate the risk of non-payment. Meanwhile, hefty write-offs on legacy financing have eased, with the Bank’s credit-cost ratio moderating to 0.3% in FY Dec 2011. Last year, the Bank’s pre-tax profits grew 40% year-on1 year (“y-o-y”) to RM469.6 million , supported by wide net financing margins. 1

With MFRS 139 restatements, Bank Islam’s pre-tax profits were RM492.5 million in FY Dec 2011 (an annualised 48% y-o-y growth). The Bank would have recorded a credit cost ratio of 0.2% while its tier-1 and overall RWCAR would have been 15.6% and 16.8% respectively, as at end-2011.

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, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

 Bank Profile Figure 1: Bank Islam’s shareholding structure, with major subsidiaries & associate

51%

Dubai Financial Group LLC

Lembaga Tabung Haji

BIMB Holdings Berhad 51%

30.5%

18.5%

Bank Islam Malaysia Berhad 100%

Al-Wakalah Nominees ( Tempatan) Sdn Bhd

100%

BIMB Investment Management Berhad

100%

Bank Islam Trust Company (Labuan) Ltd 100%

20%

Amana Bank Limited

BIMB Offshore Company Management Services Sdn Bhd

Source: Bank Islam

Notable market shares in the Malaysian Islamic banking sphere

Bank Islam is Malaysia’s first Islamic bank. It commenced operations in 1983, following the enactment of the Islamic Banking Act that same year. As at endSeptember 2012, the Bank had 125 branches nationwide. Bank Islam is the thirdlargest commercial Islamic bank in Malaysia, with an asset base of RM33.8 billion as at end-June 2012. In terms of financing and deposits, the Bank ranks a th nd respective 5 and 2 in the domestic Islamic banking industry, as at the same date. While Bank Islam commands notable market shares in the Islamic banking sphere, its market position and franchise are still limited in the overall industry compared to the universal-banking groups.

Consumer-banking segment – largest earnings contributor

Bank Islam’s business activities are segregated into consumer banking, commercial and corporate banking, and treasury operations. Consumer banking remains its largest earnings contributor, accounting for approximately half of the Bank’s revenue and profits (before operating expenses and taxes). The Bank also provides Ar-Rahnu (or pawnbroking) services.

Bank Islam Malaysia Berhad

2

Figure 2: Bank Islam’s segmental revenues in FY Dec 2011

Others 9%

Consumer Banking 50%

Treasury 29%

Corporate & Commercial Banking 12%

Source: Bank Islam

Tabung Haji may raise stake

Plans to assume parent’s listed status

The Bank’s current shareholding structure is a result of a recapitalisation exercise, following sizeable losses that had wiped out its shareholders’ funds and capital base in fiscal 2005 and 2006. Bank Islam had subsequently been recapitalised through a RM1.01 billion infusion that had led to the issuance of 2 new shares to Tabung Haji and Dubai Financial Group LLC. Tabung Haji, the hajj pilgrims’ funds board that in aggregate holds 44.5% of the Bank through direct (18.5%) and indirect (through a 51%-stake in BIMB Holdings Berhad (“BIMB Holdings”, an Islamic financial-services holding company) interests, is Bank Islam’s ultimate majority shareholder. In October 2012, BIMB Holdings received Bank Negara Malaysia’s approval to commence negotiations with Dubai Financial Group LLC on the potential acquisition of the latter’s 30.5%-stake in Bank Islam. Should this materialise, Tabung Haji’s effective interest in Bank Islam will increase to approximately 60%. RAM Ratings also notes plans for Bank Islam to assume the listed status of BIMB Holdings. The Bank completed a corporate exercise in February 2012, through which RM1.2 billion of historical accumulated losses had been written off against balances in its share-premium account and regulatory reserves. We understand that the listing exercise is expected to be completed in 2013, albeit still subject to market conditions and the receipt of the necessary approvals. All said, we do not envisage this to have any material credit impact on Bank Islam.

2

Dubai Financial LLC is the financial-services arm of Dubai Holdings, an investment-holding company held by the Dubai government.


3



Business Strategies

Sustainable Growth Plan ends this year

After a period of severe losses and a recapitalisation exercise, Bank Islam embarked on a 3-year Turnaround Plan between June 2006 and June 2009. This Turnaround Plan had involved the entry of a new management team, a largescale reorganisation exercise and a fundamental revamp of the Bank’s processes. Bank Islam’s current Sustainable Growth Plan, which commenced in 2009 and ends in December this year, aims to position it for domestic and regional growth through improvements in business innovation, risk management and franchise development.

To continue realigning balance sheet in 2013

Bank Islam will implement its Hijrah to Excellence plan in 2013. This new business plan focuses on the achievement of robust organic growth and service excellence. Among others, the Bank targets to chart an annual financing growth of 25% and to have its non-fund based income (which primarily comprises fee income) account for 20% of its earnings by 2015. To improve service levels, the management intends to inculcate a customer-centric business model and focus on product innovation. The realignment of the Bank’s balance sheet will continue next year, including the attainment of a higher composition of secured financing and a 60:40 ratio between floating- and fixed-rate financing (from the present 38:62). From a liability-management perspective, the Bank plans to focus on promoting retail deposits. Bank Islam is also making efforts to increase its corporate and commercial banking franchise - these two segments are expected to make up a larger 30% of its financing portfolio, going forward (end-June 2012: 24%). That said, the Bank will retain its consumer banking focus, with consumer financing accounting for the remaining 70% of its financing portfolio.

Close ties with Tabung Haji sharpen competitive advantage

Having been admitted to the Securities Commission’s panel of principal advisors, Bank Islam is able to advise on and submit corporate proposals, such as initial 3 public offerings and acquisitions, to the regulator for approval. The Bank’s close links with Tabung Haji have facilitated deal referrals and enhanced the placement capabilities of its corporate- and investment-banking division, which offers a suite of capital-market and advisory solutions to larger corporates by leveraging on its Shariah-structuring capabilities. Within the retail segment, Bank Islam’s relationship with Tabung Haji gives it access to cross-selling opportunities and alternative distribution channels.

3

The Bank had participated in TNB Janamanjung Berhad’s RM5.0 billion Islamic Securities Programme, Pembinaan BLT Sdn Bhd’s RM10.0 billion Islamic Medium-Term Notes Programme and DanaInfra Nasional Berhad’s RM8.0 billion Government-Guaranteed Islamic CP/MTN Programme.


4

Overseas expansion plans involve purchase of stakes in foreign Islamic banks

Bank Islam’s regional expansion plans include the acquisition of stakes in Islamic financial institutions in Indonesia and Bangladesh. In particular, the Bank has explored avenues to acquire a stake in an Indonesian Islamic bank. With the release of Bank Indonesia’s Financial Institution Ownership Policy in July 2012, the management is currently reassessing its planned inorganic growth in Indonesia. Elsewhere, Bank Islam also has a 20%-stake in Amana Bank Ltd 4 (“Amana Bank”, the first Islamic financial institution in Sri Lanka); the Bank provides technical advice on Shariah governance, product development and risk management to the latter.



Risk Profile

Rapidly expanding financing portfolio

As at end-December 2011, the Bank’s assets were valued at RM32.2 billion, after having charted a 6% y-o-y increase. The Bank also charted a 19% (or +RM2.3 billion) y-o-y financing growth last year, primarily driven by the expansion of its retail financing portfolio. In aggregate, retail financing had expanded RM1.7 billion, supported by increases in personal financing (+RM722 million), residential property financing (+RM532 million) and transport vehicle financing (+RM315 million).

Personal financing main growth driver

In the 6-month period ending FY Dec 2012, the Bank’s financing assets added another RM2.3 billion (+16%, from end-December 2011) to RM16.4 billion. Financing extended for personal purposes had been the main driver of this growth, having climbed RM1.1 billion during the same period. Following its stronger financing growth of late, the Bank’s financing assets have been accounting for an increasingly larger proportion of its assets (48% or RM16.4 billion as at end-June 2012 compared to 39% or RM11.9 billion as at endDecember 2010). RAM Ratings notes, however, that the Bank’s rapidly expanding financing portfolio (with growth driven primarily by personal financing facilities) may lack seasoning.

4

Bank Islam completed a share-subscription exercise for a 20%-stake in Amana Bank in February 2011. The 20%-interest had been paid for via RM21.3 million cash, along with a share swap, through which the Bank exchanged a 6.3%-stake in Amana Investment Limited for Amana Bank shares.


5

Figure 4: Bank Islam’s financing profile (as at end-June 2012) Finance, Education, insurance & health & business others activities 1% 1%

Other sectors 0%

Transport, storage & communications 1%

House financing 28%

Real estate 2% Construction 7% Wholesale & retail trade, hotels, restaurants 3%

Household sector 76%

Manufacturing 6%

Mining & quarrying 0%

Personal financing 30% Credit cards 3%

Purchase of passenger cars 13%

Others 2%

Primary agriculture 1%

Source: Bank Islam

Still primarily retail bank...

Financing facilities extended to individuals and the household sector (76%) formed a large component of Bank Islam’s financing assets as at end-June 2012 and, in aggregate, showed a GIF ratio of 1.6% (end-June 2011: 2.4%). By product type, personal financing facilities constituted the largest proportion of the Bank’s financing assets, followed by home financing (28%) and financing for the purchase of passenger cars (13%). Meanwhile, financing offered to corporates and small and medium-sized enterprises (“SMEs”) only made up a respective 19% and 3% of its total gross financing portfolio. In total, these non-retail portfolios had higher, albeit improving, GIF ratios. As at end-June 2012, the Bank’s non-retail portfolio showed a GIF ratio of 3.3% (end-December 2011: 4.5%). Financing extended to the construction sector posted a somewhat higher GIF ratio of 5.9%, partly due to a low-base effect and pre-2006 legacy financing.

...with sizeable proportion of unsecured retail financing

At the same time, unsecured retail financing accounted for a third (33%) of Bank Islam’s aggregate financing; these mainly comprised personal financing (30%). While the concentration on unsecured personal financing exposes the Bank to 5 non-payment risk, salary deductions or salary transfers from employers partially mitigate the risk of non-payment. A large portion (89%) of the Bank’s personal financing portfolio was repaid through these methods, as at end-June 2012. The personal financing facilities are mainly granted to employees of governmentlinked entities and large corporates, and posted a low GIF ratio of 0.7% as at end-June 2012 (end-June 2011: 1.7%).

5

Through the salary-deduction mechanism, the salaries of customers are paid into Bank Islam accounts. The Bank uses a direct-debit arrangement to deduct repayment amounts once the salaries have been credited into their Bank Islam accounts. Under the salary-transfer mechanism, employers deduct repayments from the salaries of their employees and subsequently, the employers will send cheques to Bank Islam. As at end-June 2012, personal financing repaid through salary deductions had a GIF ratio of 0.41% while personal financing repaid through salary transfers had a GIF ratio of 0.30%.


6

The Bank’s clientele vis-a-vis residential property financing largely consists of low-to-mid-end customers, with approximately 54% of the Bank’s outstanding residential property facilities extended for the purchase of properties valued at less than RM150,000 as at end-June 2012 (end-December 2011: 57%). Nonetheless, the GIF ratio of Bank Islam’s residential property financing portfolio has been easing, clocking in at 2.8% as at end-June 2012 (end-December 2011: 3.5%). The delinquency trends of this customer segment are likely to worsen in a non-conducive economic environment. On this note, the Bank continues to redirect its focus on higher-income customers. Figure 5: Selected financing-quality indicators Adoption of FRS 139. Financing classified as impaired the earlier of (i) 3 months past due, or (ii) when it exhibits signs of weakness

Non-performing financing on a 6 months past due classification

RM million

Financing for residential property purchases mostly for low-to-mid-end customers, but delinquency rates easing

18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0

30% 25% 20% 15% 10% 5%

FY June 2008

FY June 2009

18M Dec 2010

FY Dec 2011

1H FY Dec 2012

Gross financing (RM million)

10,458.83

10,711.00

12,284.73

14,565.30

16,773.91

Gross NPF/Impaired financing (RM million)

1,949.90

1,360.45

552.22

379.79

331.24

Financing 3-months past due

2,526.60

1,801.00

402.50

337.74

282.11

Gross NPF/GIF ratio

18.64%

12.70%

4.50%

2.61%

1.97%

Financing 3-months past due ratio

24.16%

16.81%

3.28%

2.32%

1.68%

1.16%

1.20%

0.33%

0.23%

Credit cost ratio *

n/a

0%

Source: Bank Islam. * Annualised n/a = not applicable

Table 1: Movements of impaired financing RM million At the start of the period Impact of the adoption of FRS139 Adjusted impaired financing opening balance (+) Classified as impaired during the period (-) Reclassified as not impaired during the period (-) Amount recovered (-) Amount written off Foreign exchange differences At the end of the period Source: Bank Islam

FY June 2009 1,949.90

18M Dec 2010 1,360.45

552.22

1H FY Dec 2012 379.79

--

675.07

--

--

1,949.90

2,035.52

522.22

379.79

228.43

315.24

549.08

199.96

(131.58)

(362.28)

(297.19)

(123.06)

(184.08) (540.03)

(311.45) (1,079.12)

(238.88) (187.14)

(52.13) (74.16)

37.81

(45.70)

1.70

0.85

1,360.45

552.22

379.79

331.24


FY Dec 2011

7

Better financingquality indicators

On the whole, the better credit quality of financing facilities extended to the household sector is a plus for the overall credit quality of Bank Islam’s financing portfolio. The Bank’s overall GIF ratio had eased to 2.0% as at end-June 2012 (end-December 2010: 4.5%), and now falls in line with the Malaysian banking 6 industry’s average . In this respect, previously persistent write-offs on impaired financing, mainly from its pre-2006 legacy financing facilities, have eased. Meanwhile, the Bank’s credit-cost ratio had moderated from historically lofty 7 levels to a healthy 0.3% as at end-FY Dec 2011 (for the 18 months ended 31 December 2010: 1.2% annualised). The management expects a credit-cost ratio of 0.3% for the current fiscal year.

High GIF coverage levels

Restructured and rescheduled accounts constitute about 4% of the Bank’s aggregate financing portfolio. Residential property financing facilities accounted for 56% of its total restructured and rescheduled facilities as at end-June 2012; these were mainly financing programmes with rescheduled instalment payments. As at end-June 2012, the Bank’s GIF coverage ratio stood at 126% (endDecember 2010: 77%), mainly due to large collective impairment allowances that reflect historically elevated delinquency rates on the Bank’s financing portfolio, before more recent revamping of its underwriting processes.

Healthy securities portfolio

Securities still feature prominently in Bank Islam’s balance sheet, accounting for 39% of its total assets as at end-June 2012. The Bank’s securities portfolio is generally viewed to be healthy. While Islamic private debt securities (“PDS”) comprised about 65% of Bank Islam’s total securities portfolio, these primarily consisted of government-guaranteed securities, quasi-government securities and securities with AAA and AA ratings. The latter accounts for 51% of the Bank’s PDS investments while government-guaranteed and quasi-government securities accounted for 43% of Bank Islam’s PDS holdings. Malaysian government investment issues and negotiable Islamic debt certificates were the second- and third-largest components of the Bank’s securities portfolio, with respective shares of 19% and 13% as at the same date. We note that the Bank has a policy of only investing in PDS with AAA and AA ratings. Meanwhile, the Bank has a negligible exposure to shares and unit trusts; these collectively make up less than 1% of its total securities holdings.

6 7

As at end-June 2012, the Malaysian banking industry gross impaired loan/financing ratio was 2.2%. Reflecting MFRS 139 restatements, the Bank’s credit cost ratio was 0.2% in FY Dec 2011.


8



Funding and Liquidity

Figure 6: Bank Islam’s funding and liquidity profiles 35,000

80%

30,000

70% 60%

RM million

25,000

50%

20,000

40% 15,000

30%

10,000

20%

5,000

10%

0 FY June 2008 FY June 2009

18M Dec 2010

FY Dec 2011

1H FY Dec 2012

Total deposits (RM million)

20,754.3

25,204.6

26,866.6

28,279.7

28,685.8

Liquid asset ratio

62.26%

67.38%

65.30%

56.90%

52.09%

CASA deposits to total deposits

39.89%

35.95%

39.69%

43.42%

41.77%

Financing-to-deposits ratio

43.66%

38.33%

44.15%

50.00%

57.02%

0%

Source: Bank Islam

Very liquid balance sheet

Bank Islam maintains robust funding and liquidity profiles, with a very liquid balance sheet. The Bank’s liquid-asset ratio of 52% as at end-June 2012 is still among the highest in RAM Ratings’ rated universe.

Financing-todeposits ratio inching closer to optimum levels

Bank Islam relies primarily on deposits for its funding needs; these made up 94% of its profit-bearing funding as at end-June 2012. In FY Dec 2011, the Bank’s deposit base added 5% to RM28 billion. With deposit growth trailing the expansion of its financing portfolio, the Bank’s financing-to-deposits ratio had increased to 57% as at end-June 2012. Nonetheless, this is still lower than the management’s optimum financing-to-deposits ratio of 70%–80%, and lower than the Islamic banking industry average financing-to-deposits ratio of 78% as at end-June 2012. In the meantime, the Bank maintains a sizeable (42%) proportion of low-cost current and savings account (“CASA”) deposits in its deposit base.

Highly dependent on non-retail deposits

Bank Islam relies substantially on deposits from corporates and governmentlinked entities; deposits from retail customers only account for 17% of its total deposits. As at end-June 2012, the Bank’s top 3 depositors made up 12% of its total deposits (end-December 2011: 11%). Tabung Haji is one of Bank Islam’s largest depositors. While depositor-concentration risk still exists, the Bank’s very liquid balance sheet and long-standing relationships with its depositors somewhat alleviate our concerns.


9



Financial Performance

Figure 7: Selected profitability indicators 800.0

30.0%

700.0

25.0%

600.0 20.0%

RM million

500.0 400.0

15.0%

300.0

10.0%

200.0 5.0%

100.0 FY June 2008

FY June 2009

18M Dec 2010

FY Dec 2011

1H FY Dec 2012

Pre-financing provision profits

309.40

359.16

709.19

513.59

296.30

Pre-tax profit

316.94

235.87

501.49

469.57

278.402

Net financing margins

3.10%

2.82%

3.08%

3.13%

3.31%

Returns on assets *

1.49%

0.92%

1.16%

1.50%

1.69%

Returns on equity *

27.11%

16.55%

16.44%

17.63%

19.32%

0.0%

Source: Bank Islam * Annualised

Robust net financing margins

In FY Dec 2011, the Bank’s pre-tax profit surged 40% (annualised) to RM469.6 8 million . The better showing was anchored by more robust financing income; Bank Islam’s net financing margin of 3.1% for the year was underpinned by a sizeable high-yielding personal financing portfolio and a large base of low-cost CASA deposits. At the same time, the Bank’s fee income also strengthened, with increases in gains from foreign-exchange-related transactions, gains from the sale of financial assets, and higher fees and commissions. Financing income continues to feature prominently in the Bank’s earnings profile, accounting for 80% of its gross income in FY Dec 2011. On the back of its healthier profit performance, the Bank’s returns on assets and equity climbed up to 1.5% and 17.6% in FY Dec 2011 (18 months ended 31 December 2010: 1.2% and 16.4% annualised). The Bank’s profitability is expected to improve further this year, amid moderating credit costs and financing growth.

8

With MFRS 139 restatements, Bank Islam’s 18M Dec 2010 and FY Dec 2011 pre-tax profits were RM499.46 million and RM492.47 million, respectively. This represents an annualised 48% y-o-y pre-tax profit growth in the 2011 fiscal year.


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

Capital Adequacy

Figure 8: Bank Islam’s capital base and capitalisation ratios 25,000

20%

RM million

20,000

15%

15,000 10% 10,000

5%

5,000 0 FY June 2008

FY June 2009

18M Dec 2010

FY Dec 2011

1H FY Dec 2012

Risk-weighted assets (RM million)

11,150.4

11,781.4

14,798.8

16,925.7

19,328.9

Capital base (RM million)

1,466.5

1,634.5

2,432.9

2,743.2

3,014.0

Tier-1 RWCAR

11.3%

12.3%

15.2%

15.0%

14.4%

Overall RWCAR

13.2%

13.9%

16.4%

16.2%

15.6%

0%

Source: Bank Islam. Note: Figures for capital base are net of proposed dividends.

Sturdy capitalisation

Bank Islam’s capitalisation levels are considered sturdy, with a high proportion of tier-1 capital. While slightly lower than the ratios as at end-December 2011 after its proposed dividends, the Bank still posted strong tier-1 and overall RWCARs of 14.4% and 15.6% as at end-June 2012 (end-December 2011: 15.0% and 9 16.2%) . These are expected to be able to adequately support its organic growth over the medium term. We note that the Bank maintains internal overall and tier1 RWCARs of at least 13% and 10%, respectively. Bank Islam has also adopted Bank Negara Malaysia’s Framework on Capital Adequacy for Islamic Banks - the equivalent of the standardised Basel II approach for conventional banks.

9

With MFRS 139 restatements, the Bank’s tier-1 and overall RWCAR were 15.6% and 16.8% respectively, as at end-December 2011.


11



Corporate Information – Bank Islam Malaysia Berhad

Date of Incorporation:

1 March 1983

Commencement of Business:

July 1983

Major Shareholders:

BIMB Holdings Berhad Dubai Financial Group LLC Lembaga Tabung Haji

Directors:

Dato’ Zamani Abdul Ghabi Dato’ Sri Zukri Samat Dato’ Paduka Ismee Ismail Johan Abdullah Zahari @ Mohd Zin Idris Zaiton Mohd Hassan Mohamed Ridza Mohamed Abdulla Abdullah Abdulrahman Abdullah Sharafi Mohammed Abdul Ghaffar Ghualoom Hussain Abdulla

Auditor:

KPMG Desa Megat & Co

Listing:

Not listed

Key Management:

Dato’ Sri Zukri Samat Dato’ Wan Ismail Wan Yusoh Hizamuddin Jamalluddin Maria Mat Said Jamilah Abdul Sallam Khairul Kamarudin Mashitah Hj Osman Norashikin Mohd Kassim Abdul Rashid Abdul Hamid Jaafar Abu Mizan Masram Mohd Nazri Chik Mujibburahman Abd Rashid Wahid Ali Mohd Khalil Malkit Singh Maan Ryan Liew Choon Ching Dato’ Norasni Ayob Jeroen PMM Thijs Leong David @ Leong Sze Khiong

Major Subsidiaries/ Associates:

BIMB Investment Management Berhad Bank Islam Trust Company (Labuan) Ltd Amana Bank Limited

Capital History:

Year

Remarks

2004 2005 2006 2007 2010

Balance brought forward Issuance of 100,000,000 shares Issuance of 280,000,000 shares Issuance of 845,490,000 shares Conversion of 540,000,000 convertible redeemable non-cumulative preference shares

51.0% 30.5% 18.5%

Managing Director General Manager, Strategic Relations General Manager, Strategic Planning General Manager, Legal & Secretarial General Manager, Human Resources Director, Business Development Director, Corporate Investment Banking Head, Treasury Head, Commercial Banking Head, Business Support Head, Recovery & Rehabilitation Head, Shariah Acting Head, Consumer Banking Chief Compliance Officer Chief Financial Officer Chief Technology Officer Chief Operating Officer Chief Risk Officer Chief Internal Audit


100% 100% 20% Amount (RM million) 100.00 280.00 845.49

Cumulative Total (RM million) 500.00 600.00 880.00 1,725.49

540.00

2,265.49

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FINANCIAL SUMMARY Bank Islam Malaysia Berhad – Group unaudited STATEMENT OF FINANCIAL POSITION (RM million)

30-Jun-08

30-Jun-09

31-Dec-10

30-Dec-11

30-Jun-12

Cash & Short-Term Funds Deposits & Placements with Financial Institutions Securities Purchased Under Resale Agreements Financial Investments at Fair Value Through Profit or Loss Financial Investments Available-For-Sale Financial Investments Held-To-Maturity Gross Financing & Advances Collective Impairment Provisions Individual Impairment Provisions Net Financing & Advances Statutory Deposits Investments in Subsidiaries/Associates/Jointly-Controlled Entities Goodwill & Intangibles Property, Plant & Equipment Other Assets Total Assets

9,948.77 193.65 0.00 54.51 3,437.22 161.53 10,458.83 (169.38) (1,228.13) 9,061.32 362.15 0.00 0.00 127.78 209.51 23,556.44

8,448.21 0.00 0.00 287.68 8,465.43 162.76 10,711.00 (170.84) (878.30) 9,661.86 139.73 0.00 0.00 127.71 197.75 27,491.13

2,519.70 352.80 0.00 2,279.45 12,763.02 215.94 12,284.73 (345.04) (79.06) 11,860.63 10.00 0.00 0.00 181.49 167.25 30,350.27

3,364.18 860.18 0.00 1,228.95 11,005.12 327.33 14,565.30 (348.56) (75.77) 14,140.97 912.00 21.18 0.00 200.85 125.68 32,186.45

2,753.77 300.00 0.00 741.04 12,058.08 264.94 16,773.91 (345.64) (71.79) 16,356.47 874.00 23.52 0.00 211.40 252.62 33,835.85

Customer Deposits Current Account Deposits Savings Account Deposits Investment Deposits Negotiable Instruments of Deposits Other Deposits Interbank Deposits Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Senior Islamic Securities Subordinated Islamic Securities Hybrid Capital Islamic Securities Other Sources of Funds Other Liabilities Total Liabilities Equity Share Capital Share Premium Treasury Shares Statutory Reserve Revaluation Reserve Available-For-Sale Reserve Other Reserves Retained Profits/(Accumulated Losses) Non-Controlling Interests Total Equity Total Liabilities + Total Equity

20,754.32 5,842.72 2,436.59 6,334.56 6,098.74 41.70 58.44 990.45 0.00 0.00 100.00 0.00 0.00 333.96 22,237.17 1,725.49 500.02 0.00 508.82 0.00 (82.61) 58.48 (1,390.94) 0.00 1,319.27 23,556.44

25,204.63 6,347.08 2,713.05 8,950.06 7,133.79 60.65 8.08 283.21 0.00 0.00 100.00 0.00 0.00 364.03 25,959.95 1,725.49 500.02 0.00 589.12 0.00 (9.54) 35.45 (1,309.36) 0.00 1,531.18 27,491.13

26,866.56 7,098.68 3,564.22 10,304.86 5,819.88 78.92 378.13 163.19 0.00 0.00 0.00 0.00 0.00 406.64 27,814.52 2,265.49 500.02 0.00 795.01 0.00 83.43 76.46 (1,185.13) 0.48 2,535.75 30,350.27

28,279.68 8,415.67 3,862.83 10,275.63 5,622.29 103.26 384.63 259.15 0.00 0.00 0.00 0.00 0.00 470.80 29,394.26 2,265.49 500.02 0.00 974.59 0.00 117.46 67.01 (1,132.38) 0.00 2,792.19 32,186.45

28,685.84 7,932.59 4,050.07 11,337.57 5,178.38 187.24 1,430.98 270.87 0.00 0.00 0.00 0.00 0.00 477.75 30,865.44 2,265.49 0.00 0.00 391.22 0.00 127.25 (10.55) 197.00 0.00 2,970.41 33,835.85

Additional Disclosure: Commitments & Contingencies Risk-Weighted Assets Tier-1 Capital Base * Total Capital Base *

9,322.36 11,150.39 1,257.11 1,466.50

7,693.38 11,781.36 1,443.61 1,634.46

13,081.29 14,798.76 2,250.46 2,432.91

9,286.10 16,925.67 2,539.65 2,743.25

10,591.37 19,328.91 2,779.35 3,014.05

Notes: * After proposed dividends


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FINANCIAL SUMMARY Bank Islam Malaysia Berhad – Group unaudited STATEMENT OF COMPREHENSIVE INCOME (RM million)

30-Jun-08

30-Jun-09

31-Dec-10 18 months

30-Dec-11

30-Jun-12 6 months

Financing Income 1,065.54 Financing Expense (424.39) Net Financing Income 641.15 Fee Income 70.45 Investment Income 4.65 Other Income 35.49 Gross Income 751.74 Personnel Expenses (216.46) Other Operating Expenses (228.04) Operating Income before Impairment Charges 307.23 Net Impairment Charges on Financing 7.55 Net Impairment Charges on Financial Investments 2.16 Net Impairment Charges on Commitments, Contingencies & Other Assets 0.00 Operating Income after Impairment Charges 316.94 Non-Recurring Items 0.00 Share of Associates/Jointly-Controlled Entities Profits/(Losses) 0.00 Pre-Tax Profit/(Loss) 316.94 Taxation & Zakat 72.66 Net Profit/(Loss) 389.60 Gain/(Loss) on Available-For-Sale Financial Investments 0.00 Changes in Cash Flow & Net Investment Hedges 0.00 Foreign Currency Translation Differences 0.00 Share of Other Comprehensive Income/(Loss) of Associates/Jointly-Controlled Entities 0.00 Income Tax Relating to Other Comprehensive Income/(Loss) 0.00 Other Components of Comprehensive Income/(Loss) 0.00 Total Comprehensive Income/(Loss) 389.60

1,137.35 (434.00) 703.36 86.46 18.30 32.59 840.70 (228.43) (248.45) 363.82 (123.29) (4.66) 0.00 235.87 0.00 0.00 235.87 (73.99) 161.88 0.00 0.00 0.00 0.00 0.00 0.00 161.88

1,939.74 (622.34) 1,317.40 164.68 51.69 28.97 1,562.74 (430.97) (402.85) 728.92 (207.70) (19.73) 0.00 501.49 0.00 0.00 501.49 (92.78) 408.71 92.97 0.00 41.01 0.00 0.00 0.00 542.69

1,429.81 (477.11) 952.71 131.12 67.98 37.41 1,189.21 (338.14) (305.45) 545.61 (44.02) (15.41) (15.23) 470.95 0.00 (1.38) 469.57 (111.42) 358.15 34.03 0.00 (9.45) 0.00 0.00 0.00 382.74

795.72 (271.64) 524.08 72.94 23.89 21.96 642.87 (182.20) (168.45) 292.21 (17.90) 0.39 1.36 276.06 0.00 2.34 278.40 (79.84) 198.56 9.79 0.00 (1.10) 0.00 0.00 0.00 207.25

0.00 0.00

(0.05) 19.11

0.06 125.40

0.00 44.69

Additional Disclosure: Net Profit/(Loss) Attributable to Non-Controlling Interests Dividends - Ordinary Shares & Preference Shares

0.00 0.00


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FINANCIAL RATIOS Bank Islam Malaysia Berhad – Group unaudited KEY RATIOS PROFITABILITY (%) Net Financing Margin Non-Financing Income to Gross Income Cost to Income Return on Assets Return on Risk-Weighted Assets Return on Equity ASSET QUALITY (%) Gross Impaired Financing Ratio Net Newly Classified Impaired Financing Ratio Financing Credit Cost Ratio Impairment Charge Ratio Gross Impaired Financing Coverage Ratio LIQUIDITY & FUNDING (%) Liquid Asset Ratio Interbank Deposits to Total Profit Bearing Funds Customer Deposits to Total Profit Bearing Funds CASA Deposits to Total Deposits Financing to Deposits Ratio CAPITALISATION & LEVERAGE (%) Internal Rate of Capital Generation Tier-1 Regulatory Risk-Weighted Capital Adequacy Ratio Overall Regulatory Risk-Weighted Capital Adequacy Ratio

30-Jun-08

30-Jun-09

31-Dec-10

30-Dec-11

30-Jun-12

3.10% 14.71% 59.13% 1.49% 3.03% 27.11%

2.82% 16.34% 56.72% 0.92% 2.06% 16.55%

3.08% 15.70% 53.36% 1.16% 2.52% 16.44%

* * *

3.13% 19.89% 54.12% 1.50% 2.96% 17.63%

3.31% 18.48% 54.55% 1.69% 3.07% 19.32%

18.64% (1.44%) (0.07%) (0.07%) 71.67%

12.70% (0.82%) 1.16% 0.76% 77.12%

4.50% (2.08%) * 1.20% * 0.64% * 76.80%

2.61% 0.10% 0.33% 0.22% 111.73%

1.97% 0.32% * 0.23% * 0.12% * 126.02%

62.26% 0.27% 94.75% 39.89% 43.66%

67.38% 0.03% 98.47% 35.95% 38.33%

65.30% 1.38% 98.02% 39.69% 44.15%

56.90% 1.33% 97.77% 43.42% 50.00%

52.09% 4.71% 94.40% 41.77% 57.02%

33.32% 11.27% 13.15%

11.36% 12.25% 13.87%

12.77% 15.21% 16.44%

8.74% 15.00% 16.21%

NA 14.38% 15.59%

*

*

* * *

Notes: * annualised NA = Not Available / Not Applicable

Note: All figures prior to FY Dec 2012 are before MFRS 139 adjustments. Bank Islam had adopted the MFRS 139 accounting policy with effect from 1 January 2012.


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FINANCIAL RATIOS Bank Islam Malaysia Berhad – Group KEY RATIOS PROFITABILITY (%) Net Financing Margin Non-Financing Income to Gross Income Cost to Income Return on Assets Return on Risk-Weighted Assets Return on Equity Non-Finance Income Profit Earning Assets

Total Financial Investments ASSET QUALITY (%) Gross Impaired Financing Ratio Net Newly Classified Impaired Financing Ratio Financing Credit Cost Ratio Impairment Charge Ratio Gross Impaired Financing Coverage Ratio Total Provisions Net Newly Classified Impaired Financing LIQUIDITY & FUNDING (%) Liquid Asset Ratio Interbank Deposits to Total Profit Bearing Funds Customer Deposits to Total Profit Bearing Funds CASA Deposits to Total Deposits Financing to Deposits Ratio Liquid Assets

Short-Term Funds Profit Bearing Funds Total Borrowings CAPITALISATION & LEVERAGE (%) Internal Rate of Capital Generation Tier-1 Regulatory Risk-Weighted Capital Adequacy Ratio Overall Regulatory Risk-Weighted Capital Adequacy Ratio

FORMULAE Net Finance Income / Average Profit Earning Assets Non-Finance Income / Gross Income (Personnel Expenses + Other Operating Expenses) / Gross Income Pre-Tax Profit/(Loss) / Average Total Assets Pre-Tax Profit/(Loss) / Average Total Risk-Weighted Assets Pre-Tax Profit/(Loss) / Average Total Equity Fee Income + Investment Income + Other Income Cash & Short-Term Funds + Deposits & Placements with Financial Institutions + Securities Purchased Under Resale Agreements + Total Financial Investments + Net Financing & Advances Financial Investments at Fair Value Through Profit or Loss + Financial Investments Available-For-Sale + Financial Investments Held-To-Maturity Total Impaired Financing / Gross Financing & Advances Net Newly Classified Impaired Financing / Average Gross Financing & Advances Net Impairment Charges on Financing / Average Gross Financing & Advances (Net Impairment Charges on Financing + Net Impairment Charges on Financial Investments) / (Average Gross Financing & Advances + Average Total Financial Investments) Total Provisions / Gross Impaired Financing Collective Impairment Provisions + Individual Impairment Provisions Newly Classified Impaired Financing - Recoveries on Impaired Financing - Impaired Financing Reclassified As Performing Liquid Assets / (Customer Deposits + Short-Term Funds) Interbank Deposits / Profit Bearing Funds Customer Deposits / Profit Bearing Funds (Current Account + Savings Account Deposits) / Customer Deposits Net Financing & Advances / Customer Deposits Cash & Short-Term Funds + Deposits & Placements with Financial Institutions + Securities Purchased Under Resale Agreements + Quoted Financial Investments (excluding Financial Investments Held-To-Maturity) Interbank Deposits + Bills & Acceptances Payable + Securities Sold Under Repurchase Agreements Customer Financial Deposits Institutions + Interbank + Quoted Deposits Securities + Bills (Excluding & Acceptances Financial Payable Investments Held-To-Maturity) + Securities Sold Under Repurchase Agreements + Total Borrowings Senior Islamic Securities + Subordinated Islamic Securities Hybrid Capital Islamic Securities + Other Borrowings (Net Profit/(Loss) - Dividends) / Average Total Equity (Tier-1 Capital Base - Proposed Dividends) / Risk-Weighted Assets (Total Capital Base - Proposed Dividends) / Risk-Weighted Assets


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CREDIT RATING DEFINITIONS Financial Institution Ratings A Financial Institution Rating ("FIR") is RAM Ratings' current opinion on the overall capacity of a financial institution to meet its financial obligations. The opinion is not specific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation.

Long-Term Ratings AAA

A financial institution rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term FIR assigned by RAM Ratings.

AA

A financial institution rated AA has a strong capacity to meet its financial obligations. The financial institution is resilient against adverse changes in circumstances, economic conditions and/or operating environments.

A

A financial institution rated A has an adequate capacity to meet its financial obligations. The financial institution is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories.

BBB

A financial institution rated BBB has a moderate capacity to meet its financial obligations. The financial institution is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category.

BB

A financial institution rated BB has a weak capacity to meet its financial obligations. The financial institution is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments.

B

A financial institution rated B has a very weak capacity to meet its financial obligations. The financial institution has a limited ability to withstand adverse changes in circumstances, economic conditions and/or operating environments.

C

A financial institution rated C has a high likelihood of defaulting on its financial obligations. The financial institution is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaultingon its financial obligations.

D

A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations.

Short-Term Ratings P1

A financial institution rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest shortterm FIR assigned by RAM Ratings.

P2

A financial institution rated P2 has an adequate capacity to meet its short-term financial obligations. The financial institution is more susceptible to the effects of deteriorating circumstances than thosein the highest-rated category.

P3

A financial institution rated P3 has a moderate capacity to meet its short-term financial obligations. The financial institution is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category.

NP

A financial institution rated NP has a doubtful capacity to meet its short-term financial obligations. The financial institution faces major uncertainties that could compromise its capacity for payment of financial obligations.

D

A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations.

For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the financial institution ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the financial institution ranks at the lower end of its generic rating category.


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Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2012 by RAM Ratings

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RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. RAM Ratings, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings will adequately disclose all related information in the report if there are such instances.


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