KUALA LUMPUR (Aug 27): CIMB Group Holdings Bhd (KL:CIMB) has completed a pilot to test the settlement of tokenised sukuk using tokenised deposits in a controlled environment, paving the way for broader use cases enabled by blockchain technology.

These use cases include instant or atomic settlement for cross-border transactions, and the democratisation of investment assets — such as allowing bonds to be sold in amounts retail investors can easily afford.

The pilot project was conducted through CIMB Islamic Bank Bhd in relation to a RM1.68 billion issuance under CIMB Islamic's existing RM10 billion senior sukuk wakalah programme, with tenors of five, seven, 10 and 15 years.

Of the total issuance, RM1.38 billion was represented in tokenised form and subscribed by 12 institutional investors, while the remaining RM300 million was issued as traditional sukuk.

The order book was 1.73 times covered. The pricing date was Aug 19 and the settlement date Aug 27, according to Sylvia Wong, regional head of tokenisation at CIMB Group Wholesale Banking.

The difference between CIMB's pilot and the earlier pilot by Khazanah Nasional Bhd is that the former involved the settlement of tokenised sukuk and tokenised deposits, which means the financial asset and the cash were both settled on-chain, or on the blockchain — though the tokens mirror legal records that remain in the traditional system.

A tokenised deposit is a bank deposit recorded as a digital token on a blockchain. Put simply, it represents commercial bank money digitally.

Meanwhile, Khazanah's tokenised sukuk, which settled in mid-May, was paid for in fiat currency, or the ringgit, using traditional rails instead of a blockchain. In other words, the financial asset was settled on-chain while the cash was settled via the traditional route.

"For our pilot, we created tokenised deposits to settle the tokenised sukuk, so both of these settlements are on the blockchain," said Wong, adding that the chain used for the settlement is called CIMB Blockchain Connect.

The digital asset custodian (DAC) used in the pilot — the firm that safeguards clients' tokenised assets — is not one of the two DACs registered with the Securities Commission Malaysia (SC).

"For this pilot, we cleared with the SC that a DAC licence is not required. We just need the ability to custodise these assets and the deposits," said Wong when asked during the press conference.

Wong said the key point of the pilot is atomic settlement, where the buyer's money and the seller's asset change hands at the same instant.

She further explained that the term isn't meaningful to individuals, as they can already transfer and settle smaller amounts of funds instantly via existing payment infrastructure such as DuitNow.

Settlement is far from instantaneous in the institutional market, however. When a large amount of money is sent overseas — whether for a child's education or other purposes — it takes days, as the funds flow through traditional rails and processes involving several banks.

"Now, with blockchain technology, if everyone is on the same blockchain, it happens literally instantaneously," she said.

The pilot nonetheless adopts a digital twin approach, which means the on-chain token mirrors the traditional legal records rather than replacing them; the process is not conducted entirely on-chain.

"The technological capability [for atomic settlement] is there, but are we ready to go [completely] instantaneous? We may not be ready just yet. Imagine, it is fine if it is RM100, but it is a different story if the amount is RM100 million, for a bank.

"Banks are looking for less friction, but not frictionless for now," she said.

Adopting a digital twin model means banks like CIMB are investing to test tokenised solutions using blockchain technology. As traditional legal records and processes still run in parallel, this has yet to translate into cost savings.

However, as more processes move on-chain over the years, it could make banking operations faster and more efficient. Tokenisation could also democratise asset classes by making more of them easily available to retail investors.

According to a press release, the pilot was undertaken as part of CIMB's participation in Bank Negara Malaysia's Digital Asset Innovation Hub, which provides a controlled environment for financial institutions to test new digital asset applications.

CIMB has also been engaging with the SC on the development of tokenised capital market products. 

The completion of the pilot was announced at Menara CIMB in Kuala Lumpur, at an event attended by Finance Minister II Senator Datuk Seri Amir Hamzah Azizan.

Amir Hamzah said the pilot demonstrated how Malaysia could build on its established strength in Islamic finance and capital markets as financial infrastructure becomes increasingly digital.

"Malaysia has developed deep capabilities in both Islamic finance and the capital markets. The next step is to ensure that these strengths continue to evolve alongside changes in technology and the way financial transactions are conducted.

"This pilot is important because it moves tokenisation beyond theory and tests how digital financial assets and commercial bank money can work together in a controlled environment.

"The objective is not digitalisation for its own sake, but to explore whether technology can make financial markets more efficient, transparent and connected while preserving strong standards of governance, investor protection and shariah compliance."

Novan Amirudin, group chief executive officer of CIMB Group, said the pilot provided the bank and regulators with practical insights into the operational, legal and regulatory requirements involved in tokenised financial transactions.

"This pilot allows us to test how tokenised financial assets can operate alongside existing market infrastructure and, importantly, how tokenised deposits can be used for settlement.

"The potential benefits are practical. Greater automation and faster settlement could reduce friction in financial transactions, improve liquidity management and increase capital efficiency. 

“The experience gained from this pilot will help us assess how these capabilities can be developed further in Malaysia and, potentially, across regional and cross-border applications."

During the press conference, Ahmad Shahriman Mohamad Shariff, CEO of Group Islamic Banking, CIMB, said an equally significant achievement of the pilot was convincing major fund management firms and government agencies to set up the infrastructure needed to settle CIMB's tokenised sukuk with tokenised deposits.

"If they were to choose, it is easier for them to settle [with cash] in fiat [currency], as that's business as usual for them. But in order to join the pilot, they have to set up their own infrastructure.

"While we are trying to encourage people to explore [tokenisation] and onboard them, there's a fair amount of work on their side [to be completed] as well. And we are very glad and happy to see the responses. It was well-received," he said.