This article first appeared in The Edge Malaysia Weekly on June 10, 2024 - June 16, 2024
KUWAIT Finance House (M) Bhd (KFH Malaysia) CEO Mohd Hazran Abd Hadi is leaving the bank after almost five years at the helm, raising questions about what’s next for one of the country’s smallest Islamic banks.
Hazran is departing to pursue “personal endeavours”, according to an email KFH Malaysia recently sent out to staff, the content of which was sighted by The Edge. When contacted, the bank confirmed that he would be leaving.
The bank has appointed Ida Aizun Husin, its senior vice-president of corporate banking, as acting CEO. Hazran has been working closely with her on handover matters in the past months and will be supporting her in the role until the end of June, the email said.
Hazran, who helped the bank return to profitability in 2021 after two years of losses, had been with KFH Malaysia since 2010. He held several roles over the years, including that of chief financial officer, before being appointed as the acting CEO in August 2019 and later confirmed in the role in February 2020.
KFH Malaysia, one of only two remaining standalone foreign Islamic banks in the country — the other being Al Rajhi Banking & Investment Corp (M) Bhd — has struggled to gain market share in an increasingly competitive market since setting up operations here in August 2005.
There are currently 17 Islamic lenders in Malaysia, of which six are foreign. And last month, a new Islamic digital bank — Aeon Bank — was added to the mix, making it a crowded market where net financing margins (NFMs) have also been on a decline.
Given the challenges, industry observers believe that a corporate exercise — most likely an M&A — will eventually be on the cards for KFH Malaysia.
Nevertheless, its Middle Eastern shareholder, Kuwait Finance House — the largest bank in Kuwait and the second largest Islamic bank in the world — has deep pockets and can continue supporting the bank for as long as it wants to. Earlier this year, the bank merged with Ahli United Bank of Kuwait.
As at its latest financial filing on its website for the first nine months of the financial year ended Dec 31, 2023 (9MFY2023), KFH Malaysia’s total assets stood at RM7.46 billion, having dwindled from RM10.79 billion in FY2016.
Its 9MFY2023 net profit dipped to RM42.33 million from RM45.04 million in the same period a year earlier, though operating revenue improved to RM270.88 million from RM261 million. In FY2022, its net profit rose to RM78.1 million from RM73.69 million in FY2021. It reported a net loss of RM12.78 million in FY2020 and RM80.97 million in F2019.
As at Sept 30 last year, its gross financing book stood at RM3.75 billion, with the bulk of it in residential, personal use and working capital financing.
“[In Malaysia], we forecast that Islamic banks’ NFM will contract by a high single-digit in 2024 due to rising competition for property financing — even though the policy rate has peaked and deposit competition appears to have subsided. Return on assets could decline by 10 basis points to 0.9%, by our estimates,” said S&P Global Ratings in a report last month.
Islamic banks’ higher share of term deposits and corporate deposits make their funding costs highly sensitive to interest rate increases, it noted.
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