This article first appeared in The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

STANDARD Chartered Saadiq Bhd (StanChart Saadiq) is working towards maintaining a solid double-digit growth in financing and customer deposits this year in a bid to expand its business in Malaysia more strongly.

Last year, the Islamic lender’s net financing assets grew 24.6% to RM6.91 billion, while its customer deposits (including investment accounts) expanded 24.3% to RM4.79 billion.

“We are hoping to maintain the same [double-digit] growth trajectory for this year in financing and deposits. If we’re able to maintain that, I think that would be an excellent outcome,” its CEO Bilal Parvaiz, who was appointed to the role in mid-March this year, tells The Edge in a recent interview. He took over from Mohd Suhaimi Abdul Hamid who stepped down to pursue other opportunities.

Notably, StanChart Saadiq’s growth in financing and deposits last year was much higher than that of the industry, albeit coming from a low base. The Islamic banking industry’s financing and deposit growth stood at 7.9% and 6.8% respectively last year.

A point of interest is that StanChart Saadiq’s CASA (current account savings account) ratio to total deposits is the highest in the industry, at about 85%. According to Bilal, this was by design as the lender had, a few years ago, the foresight to prioritise chasing after CASA deposits — a relatively cheaper source of funding for banks — rather than wholesale deposits. Back in 2020, its CASA ratio was 65%.

“Where we really stand out in the market is our CASA ratio of 85% — that’s an industry high. I think the next highest bank, based on disclosed numbers, is around 48%. Most banks have very wholesale-led deposits. You see a lot of wholesale funding coming in, which is relatively chunkier and costlier. So, knowing this, we made a conscious decision to evolve towards growing CASA and having more CASA base,” Bilal explains.

“If we are able to maintain our financing growth trajectory and still have that 80%-plus CASA ratio, that would be an ideal of where we want to go.”

Banks, especially Islamic banks, faced acute funding pressures in the last two years amid strong competition in the fixed-deposits space which, combined with a relatively low CASA ratio, led to a decline in their net profit margin (NPM). Most now have a strategy to ramp up their CASA ratio.

“Our NPM from 2022 to 2023 was flattish and we expect it to stay around the same level this year, given our strong CASA composition,” Bilal says.

The bank has been holding up well on the asset quality front, he says. Bilal expects its gross impaired financing (GIF) ratio to improve this year from 3.9% as at last year.

“The targeted repayment assistance [during pandemic times] has all been settled, so from here onwards we expect improvement in our GIF. We have no specific areas of concerns. We do continue to monitor our portfolio and do vigorous stress-testing to make sure that we are able to react in a timely manner should we encounter any scenario that could negatively affect the GIF ratio.”

StanChart Saadiq — the Islamic banking arm of the country’s oldest bank, Standard Chartered Bank Malaysia Bhd (StanChart) — is one of 17 Islamic lenders in the highly competitive Malaysian market. Its total assets stood at RM11.62 billion as at end-March, which makes it relatively small. For perspective, the largest standalone Islamic bank, Bank Islam Malaysia Bhd had total assets of RM90.98 billion, while one of the smaller lenders, Al Rajhi Banking & Investment Corp Malaysia Bhd, had RM16.73 billion.

However, StanChart Saadiq’s strength lies in its international network.

“We have been in operation for more than 30 years — last year was our 30th year — and over the years, we have grown and expanded into the largest international Islamic banking network by geographic footprint and product depth,” Bilal claims.

In its financial year ended Dec 31, 2023 (FY2023), StanChart Saadiq reported a 9.7% increase in net profit to RM72.6 million on the back of a 5.7% increase in net income to RM205.94 million. In 1QFY2024, its net profit fell by a marginal 0.8% year on year to RM13.01 million due to higher operating expenses.

This year, it is aiming for double-digit top-line growth in net income, Bilal says.

Speaking about StanChart Saadiq’s growth strategy, Bilal shares that within the consumer banking business, which it now calls wealth and retail banking (WRB), the priorities are to continue expanding liabilities and deposits in order to have a more sustainable funding base; grow the Islamic wealth management business; and, pivot towards digital partnerships. Within WRB, the focus is on affluent customers.

On wealth management, he says there are particularly promising prospects in Malaysia. “You have a growing market of Malaysians that are looking to diversify their investments, going into shariah, looking for protection for their income, protection for their family. So, we are investing in that. We have a number of funds that we distribute and we’re looking at onboarding more funds, more partners, to bring the international proposition to Malaysian clients.”

He declines to disclose the size of the bank’s current assets under management.

As for the pivot to digital partnerships to provide Islamic offerings, he notes: “It creates a very nimble and cost-efficient solution and it helps us to scale our offering.”

The bank also plans to grow its small and medium enterprise business further. In June, StanChart and StanChart Saadiq entered into a portfolio guarantee agreement with Credit Guarantee Corp Malaysia Bhd for a new RM300 million tranche of financing for SMEs, of which RM100 million will be Islamic.

As for the corporate and investment banking business, Bilal says a key priority is for StanChart Saadiq to be the banker to all kinds of Islamic institutions, including other banks, not just in Malaysia but across the globe, as they look to manage risk and liquidity.

Bilal reveals that StanChart Saadiq plans to set up more Saadiq wealth centres in Malaysia. At present, there are 23 StanChart branches in the country — out of which customers can get both conventional and Islamic products and services — and two Saadiq wealth centres.

“The wealth centres are very focused, targeting specific sets of clients and helping them with the necessary advisory and so on. Right now, we have two in the Klang Valley, and we’re studying where else to open — it could be within the Klang Valley or the north, south or even east Malaysia. We don’t have a number in mind yet [as to how many to open],” he says.

Meanwhile, asked if StanChart Saadiq would consider mergers and acquisitions to grow more quickly, he says: “As a bank we continue to look at opportunities which are in line with our strategy, that’s all I can say.”

Bilal, who joined StanChart Saadiq in 2014 from the group’s global Islamic office in Dubai, was previously the head of Islamic corporate, commercial and institutional banking, and the so-called country champion for sustainable finance, prior to becoming the CEO. 

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