This article first appeared in The Edge Malaysia Weekly on July 8, 2024 - July 14, 2024

BANK Muamalat Malaysia Bhd, which is 70% owned by Tan Sri Syed Mokhtar Albukhary-controlled DRB-Hicom Bhd (KL:DRBHCOM), says there are no definite plans for the Islamic lender to go for a listing.

“While a public listing remains a possibility on the table, it is not currently a definite plan,” chief financial officer Amirul Nasir Abdul Rahim tells The Edge in an emailed response to questions on the company’s growth plans.

“The bank is considering various alternatives and will continue to assess the market landscape, economic conditions and shareholder expectations to determine the optimal path forward. Each decision will be guided by our commitment to deliver sustainable value and growth for our shareholders.”

Citing sources, The Edge reported in February that DRB-Hicom had called banks and other financial institutions for a request for proposals geared towards a flotation exercise.

Over the years, many have wondered if Bank Muamalat would go down the M&A route, given that Bank Negara Malaysia requires DRB-Hicom to pare its stake in the bank to at least 40%. That was the condition set by the central bank when it allowed DRB-Hicom to acquire the 70% stake from Bukhary Capital Sdn Bhd — an entity also controlled by Syed Mokhtar — in a RM1.069 billion deal in November 2008.

It has been almost 16 years and the condition has yet to be fulfilled. Past attempts at M&A did not pan out, and the bank had in previous years told reporters that it may consider a listing as a pare-down option.

The bank’s 30% shareholder is sovereign wealth fund Khazanah Nasional Bhd, which is understood to be open to letting go of its stake as it is considered a non-core holding.

Nevertheless, analysts note that Bank Muamalat’s options to acquire or merge with other small to medium Islamic lenders are more limited now following Malaysian Industrial Development Finance Bhd’s merger with Malaysia Building Society Bhd last October. Among the standalone Islamic banks left are Kuwait Finance House (M) Bhd and Al Rajhi Banking & Investment Corp (M) Bhd.

DRB-Hicom’s banking business, via Bank Muamalat, accounted for 11.8% of the conglomerate’s RM4.33 billion revenue in the first quarter of this year. It was the group’s second-largest revenue contributor after its automotive business (70.3%).

According to Bank Muamalat’s audited financial statements for the year ended Dec 31, 2023 (FY2023), its connected party exposures accounted for 6.1% (RM2.48 billion) of total credit exposures, none of which was non-performing or in default.

Bank Muamalat is the smallest of three independent local Islamic banking institutions in Malaysia, with total assets of RM39.4 billion as at March 31, 2024. It was formed in October 1999 when the Islamic banking assets and liabilities of three local banks at the time — Bank Bumiputra Malaysia, Bank of Commerce Malaysia and BBMB Kewangan — were merged.

In FY2023, its net profit fell 4.9% to RM211.81 million. Like most banks that year, it experienced an increase in funding costs amid the intense competition for deposits in the industry, which led to a compression in its net profit margin.

Its gross impaired financing (GIF) ratio, at 0.93% as at end-2023, was much better than the industry average of 1.69%.

The bank’s gross financing grew at a faster rate of 17.7% to RM28.56 billion last year, following a 16.3% expansion in the previous year.

Amirul expects Bank Muamalat’s financing to continue growing at a double-digit rate this year. This is stronger than the 5% to 6% growth anticipated for the industry.

He says the bank’s growth this year will be primarily driven by home and personal financing, but it will also focus on high-yield products such as Ar Rahnu (Islamic pawnbroking) and credit cards.

“This is very much in line with the present state of the economy where better gross domestic product growth this year would result in higher demand for financing among retail customers as well as corporate and commercial clients,” he adds.

In 1QFY2024, Bank Muamalat’s net profit grew 34.3% year on year to RM45.01 million on the back of higher income. Notably, it made a higher allowance for impairment losses of RM26.68 million compared with just RM19.14 million a year earlier, which it attributed mainly to a decline in asset quality from the corporate segment.

“Increasing allowances for impairment loss on financing is the norm while the bank has been growing aggressively and we expect it to stabilise in the following quarters,” Amirul says.

“While EPF Account 3 will boost consumption, expect limited inflation impact, hence marginal impact on impairment for the rest of 2024.”

Meanwhile, the bank expects to close FY2024 with a GIF ratio that remains below the industry average. “While cost remains elevated, we expect positive JAWS (banking jargon for income growth exceeding expense growth) to continue from strong revenue growth,” Amirul says.

It projects that Bank Negara will likely keep the overnight policy rate steady at 3% this year, given that the upside risk to inflation is “highly visible”.

As at March 31 this year, about 33% of its gross financing portfolio of RM29.55 billion was in home financing, while 28.6% was in personal financing. 

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's App Store and Android's Google Play.