LONDON, 5 November 2007 — Hong Leong Islamic Bank (HLIB) in Malaysia is a bank with a difference. It is not your archetypal Islamic bank owned by Muslim Malay shareholders or any of the government agencies.
It is part of a diversified industrial conglomerate involved in financial services, real estate, manufacturing and the hotel sector, primarily owned by one Malaysian Chinese family, which owns 65 percent of the group.
In Malaysia's fast-growing Islamic finance sector, HLIB, owned by one of the most conservative but diversified financial services groups in the country, Hong Leong Bank (HLB) Group, is making waves and in some respects leading the sector, especially in Islamic mortgages and insurance (Takaful).
"The ownership of the bank has not made any difference. This is a sensible market. The customers are interested in products with quality of service and price. We service all customers irrespective of ethnic background or religion. We are not selling according to religious belief, but according to quality products at the right price. I recently read that Bank Islam Malaysia would like to attract the local Chinese market. This shows you how the Islamic banking industry is crisscrossing the ethnic and religious divide," Khalid Bhaimia, managing director of HLIB, said.
In reality, and perhaps uniquely in Malaysia, non-Muslims are major uptakers of Islamic finance products. Banks such as HLIB, OCBC, and even the Malaysian cooperative bank, Bank Rakyat, report a 70 percent uptake by Chinese customers, for instance, of Islamic financial products.
When HLIB got its full Islamic banking license from Bank Negara Malaysia, the central bank, in March 2005, it initially focused on retail banking and financing small-and-medium-sized enterprises. Before that
HLIB operated as an Islamic window at HLB till March 2005.
The current strategy, according to Bhaimia, is to transform HLIB into a full service Islamic bank, with greater emphasis on wholesale banking - corporate finance, investment banking and wealth management. Takaful is an important part of this services strategy. Indeed the bank has established a joint venture, Hong Leong Tokio Marine Takaful, with Japan's Tokio Marine Insurance Company, one of the world's largest insurance companies.
Tokio Marine is targeting the Islamic insurance markets and has already set up similar ventures in Dubai, Singapore, Indonesia, and Saudi Arabia.
In the Kingdom, Tokio Marine is joining forces with SAMBA Financial Services Group, and is in the process of establishing a Takaful joint venture following its license approval from SAMA. According to Atsuhiko Ayabe, General Manager, Research and Development, Hong Leong Tokio Marine Takaful, the group is also exploring Takaful joint ventures in other GCC and Middle East markets.
Malaysia's Islamic banking sector is going through a massive transformation. There are 9 Islamic banks including three foreign-owned ones. Three local windows Maybank, Public Bank and Alliance Bank will also go down the subsidiary route. Foreign banks such as HSBC, Standard Chartered and Citibank are also seeking Islamic banking licenses. The Malaysia Islamic Financial Center (MIFC) is also attracting offshore players.
HLIB's Bhaimia is confident that the Islamic banking sector will achieve the 20 percent market share target of the total banking system by 2020 set by the Malaysian government. He is also confident that the local sector will attract growing funds from the GCC countries. The recent signing of the Iskandar Development Region first phase investment involves a total of $1.2 billion investment from Kuwait Finance House, Dubai's Millennium International Corporation, Mubadala Investments and Aldar Properties - both from Abu Dhabi.
HLIB has a capital of RM500 million and a net worth RM600 million, which makes its risk weighted capital ratio (RWCR) about 17 percent. "Because we are a very conservative bank, our portfolio is extremely clean," Bhaimia said. "Our non-performing financing (NPF) assets are less than 1 percent, which is one of the lowest in the sector. We tend to look at a long-term sustainable model. When we decided to switch from a retail to full service banking model, we brought in teams to ensure the viability of the model to profitability." HLIB said it has one of the widest distribution networks in the country through HLB's 185 branches, through electronic banking and telemarketing.
Bhaimia is not overly concerned about the brain drain of Islamic bankers from Malaysia to the GCC countries. This brain drain is slowing down, and Malaysian Islamic bankers are no longer moving merely because of financial incentives, but because of a desire to progress in their career and gain experience through learning. "Many of the new generation of Islamic bankers in Malaysia are prepared to sacrifice some of the financial incentive in order to learn more about Islamic banking. Historically people moved primarily for financial reasons only," Bhaimia said, who was formerly the CEO of Dallah Albaraka (UK) Limited.
HLIB has a 60-strong staff who manage RM6.5 billion in total assets.
Bhaimia sees four major developments in the sector over the next year or so. There will be more product innovation in all areas, although such products take time to develop and roll out. The knowledge of market players, investors and consumers of Islamic banking will expand. Malaysian Islamic banking will go more cross-border, with Middle East transactions coming to the region, and Malaysian transactions going to the GCC. And Islamic banking education and training will proliferate much more.
"The Islamic banking sector in Malaysia now employs more than 9,000 people. Universities in Malaysia offer degrees and programs. I am optimistic that a year down the road we will have a more knowledgeable market place," Bhaimia added.
