- a new era - bank islam malaysia · •1970 – 1992 (establishment of enabling infrastructure)...

Strictly Private & Confidential

INVESTMENT ACCOUNT-i : - A NEW ERA

By Hizamuddin Jamalluddin Group Chief Strategy Officer

Strategic Management & Managing Director’s Office

TABLE OF CONTENTS

OUR JOURNEY

KEY DIFFERENCES (IBA 1983 vs IFSA 2013)

PRODUCT STRUCTURE & DISTINCT FEATURES

BENEFITS OF IA (BANK & INVESTORS’ PERSPECTIVE)

VALUE PROPOSITIONS & PITCH STRATEGY

Section 1

Section 2

Section 3

Section 5

Section 6


DEVELOPMENT OF ISLAMIC FINANCE - MALAYSIA

Instituting Foundation • 1970 – 1992 (Establishment of Enabling Infrastructure) • Islamic Banking Act 1983 – Establishment of Bank Islam Malaysia Berhad • Merely as an alternative to conventional banking

Institutional Building, Activity Generation & Market Vibrancy • 1993-2005 (Deepening, Creating Critical Mass & Liberalisation) • Ensuring greater access to Islamic finance

Strategic Positioning & International Integration with Global Financial System. • 2006 -2013 • Becoming hub of international Islamic finance

Advancing in Islamic Financing – Well Developed Marketplace • 2013 onwards • Islamic Financial Services Act 2013 – Moving from “Credit Intermediary” to

“Investment Intermediary” • Marketplace for Global Linkages • Moving to mainstream


http://www.google.com.my/url?url=http://www.bankinginfo.com.my/04_help_and_advice/0407_faqs/faq_islamic_banking.php?intPrefLangID=2&rct=j&frm=1&q=&esrc=s&sa=U&ei=bDghVOvuDJLkuQTl_4HYDA&ved=0CCkQ9QEwCg&usg=AFQjCNFNSJdx3cChCGAbUudwgNr9jgOHiA

MALAYSIAN ISLAMIC FINANCE INDUSTRY AS AT JUNE 2016

Assets 23.3% of total banking system Total Islamic banking asset : RM559 bil CAGR 2011-2015 of 13%

Financing Market share – 27.9% Total financing: RM409 bil^ CAGR 2011-2015 of 15.2% (^excluding DFIs)

Liabilities /Deposits Market share – 26.9% Total deposits : RM403 bil Total Investment Account: RM65 bil Overall : RM4681 bil CAGR 2011-2015 of 14.1%

… Islamic financing is expected to account for 40 per cent of total financing in 2020

Total Capital Ratio – 16.7% Liquidity Coverage Ratio – 112% Net Impaired Financing 1.1%


GROWTH OF INVESTMENT ACCOUNT

Strategic Management & Managing Directors’ Office

• 12 Islamic banking institutions are offering IA • 7 Domestic Islamic banks • 4 Foreign Islamic banks • 1 Islamic windows

• RM 35.2 bil (53%) of

outstanding IA is UA • UA includes with maturity

(term investment) & without maturity (daily investment)

• Majority of RA relates to placement by parent bank to Islamic subsidiary • Arrangement has been used

to provide specific corporate financing (matched funding)

2.1 RM62.0b (96.3%) financing comprise of 49% corporate financing and 51% consumer financing

3 4 5 9 17 19 24 24 27 29 31 35

30 29 29 31

30 28 28 29 28 29

31 31

-20%

0%

20%

40%

60%

80%

100%

-

10

20

30

40

50

60

70

Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Apr-16 May-16

Jun-16

M-o

-M IA

gro

wth

rat

e (%

)

Out

stan

ding

pri

ncip

al (R

M b

il)

UA RA UA Growth RA Growth

1 year after introduction, UA penetration increased significantly by 22.05% CMGR1 – 11.7% of total Islamic funds

1

2 Assets funded by IA is mainly financing

RM31.4

RM30.6

RM2.0

Consumer Financing

Corporate Financing

Interbank (liquidity)

Amount in bil

KEY DOCUMENTS FOR IA


ISLAMIC DEPOSIT VS INVESTMENT ACCOUNT


Islamic Deposit Investment Account

means a sum of money accepted or paid in accordance with Shariah - (a) on terms under which it will be repaid in full1, with or without any gains2, return or any other consideration in money or money’s worth, either on demand or at a time or in circumstances agreed3 by or on behalf of the person making the payment and person accepting it; or (b) under an arrangement, on terms whereby the proceeds4 under the arrangement to be paid to the person paying the sum of money shall not be less than such sum of money*

Key terms

1. Repayable in full or principal guaranteed

2. Returns payable is subject to the terms of contract

3. Repayment on demand or at maturity

4. Selling price (principal + profit) under sales contract

means an account under which, money is paid and accepted for the purposes of investment1, including for the provision of finance, in accordance with Shariah on terms that there is no express or implied obligation to repay the money in full2 and- (a) either only the profits, or both the profits or losses3, thereon shall be shared between the person paying the money and the person accepting the money; or

(b) with or without any return3;

Key Terms

1. Purpose for acquisition of investment, finance and/or trade in permissible assets (motivation to generate profit)

2. Repayment is subject to performance or principal non guaranteed

3. Profits are shared, while losses are borne by investors or shared Distinct definitions are aligned with Shariah contracts…

ISLAMIC BANKING BUSINESS/OPERATIONAL MODEL


OPERATIONALIZING AN INVESTMENT ACCOUNT


KEY DIFFERENCES


Mudharabah Deposit A/C Wakalah Deposit A/C

Repayable in full/ Guaranteed by PIDM

(RM250K)

Rank Parri Passu

General Pool (Both, bilateral credits & marketable securities)

On-demand or at maturity

Mudharabah IA Wakalah IA

Principal non-guaranteed Aims to preserve capital

IA ranked as secured creditor (via asset ring-

fenced)

Prescribed Assets as per Product Disclosure Sheet

Transactional IA - on demand

Term IA – at maturity

Pre IFSA (IBA 1983) IFSA 2013

Product

Principal

Rank under Liquidation

Underlying Assets

Withdrawal

KEY DIFFERENCES…cont


None

No Specific (part of overall oversight)

Profit Sharing Ratio (PSR) for Mudharabah

KYC

Based on single rate and subject to PSR

Fund Management Report on quarterly basis

Board Risk Committee/ Board Investment Com.

PSR for Mudharabah, Expected Rate of Return

for Wakalah

KYC & Suitability Assessment /New Board Resolution/

Minutes

Return to commensurate with the underlying risk

profile of the assets

Pre IFSA (IBA 1983) IFSA 2013

Reporting

Oversight

Rate of Return

On-Boarding

Expected Return

DEPOSIT TRANSITION PLAN – BANK ISLAM'S JOURNEY

• Effective date for Deposit Transition Policy (DTP) as directed by Bank Negara Malaysia (BNM).

Feb 2014 June 2014 April - May

2015 June 2015 April - May

2014

• Introduction of new product Term Deposit-i (Tawarruq) (TDT) on 30 April 2014.

• All new on lien

will be placed under TDT/marginal account effective 1 May 2014.

• New resolution for business clients to decide on deposit or investment account.

• Conversion of all

existing Mudarabah savings account (SA) to Wadiah SA.*

2 April 2015 • Launching of the

first Restricted Investment Account (RIA) in Malaysia i.e. TH RIA (Al-Ansar) by the Prime Minister of Malaysia.

25 May 2015 • Communication

with Al-Awfar SA customers’ to obtain consent for conversion.

1 June 2015 • Effectiveness of

BNM’s IA Policy. • Launching of 5

new IA: Al-Awfar

Account Special IA Waheed IA Interbank IA

(Mudarabah) Interbank IA

(Wakalah)

• Reclassification and conversion of Al-Awfar SA to Al-Awfar Account (IA) or Wadiah SA


http://web.bankislam.com.my/promo/events/020415-Al-AnsarLaunch.htm

http://www.google.com.my/url?url=http://www.pressreader.com/malaysia/the-malaysian-reserve/20150602/281565174366597/TextView&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjP4d-lorPLAhWNCI4KHYMrBoA4KBDBbggZMAI&usg=AFQjCNFfpolhQYukR-OvBFAbKcUwOf5KRA

EXPECTED RATE OF RETURN


CASA

Term Deposit Tawarruq

Waheed Investment A/C (Low Risk)

Waffiyah Investment A/C (Moderate Risk)

Low High

Investment Account Holders

Profit as per agreed PSR (IAH)

Invests IAH funds

Place investments with the Bank

Profit

Generates profit/ incurs loss

Loss

Loss to be borne by the customer

3c

Allocated Assets of the Bank

3a

1

2

3

3b

Profit as per agreed PSR (Bank)

STRUCTURE 1: INVESTMENT ACCOUNT (IA) MUDARABAH

Investment Account Holders

Profit payment (Note: Profit earned may be equal to or less than Expected Profit)

Appoints Bank Islam as Investment Agent

Profit

Generates profit/ incurs loss

Loss

Loss to be borne by the customer

3c

3b

Any excess retained as performance

incentive

Allocated Assets

of the Bank

3a

1

2

3

Invests IAH funds

STRUCTURE 2: INVESTMENT ACCOUNT (IA) WAKALAH

PRODUCT STRUCTURES & DISTINCT FEATURES


Al Ansar SME Financing •Restricted Investment Account - based on Wakalah •Specific mandate by investor (Risk Acceptance Criteria/

Underwriting Criteria, Recovery arrangement, etc) •Close-end Fund •Off Balance Sheet (MFRS 10)

Al Awfar Investment Account •URIA – based on Mudharabah (PSR 98:2) •Unique Selling Proposition – Opportunity to win cash prizes •Prescribe underlying assets – house financing portfolio (Low Risk) •Open -end Fund & Transactional Investment Accounts (unlimited

withdrawals) •On Balance Sheet Waheed-i Investment Account •URIA – based on Wakalah •USP – Competitive returns (higher than term deposits) •Prescribe underlying assets – house financing portfolio (Low Risk) (Fixed &

Float Rate) •Open-end Fund – Term Investment Account •On balance Sheet

PRODUCT STRUCTURES & DISTINCT FEATURES


Wafiyah Investment Account (Corporate) •URIA – based on Wakalah •USP – Higher returns than Waheed-i •Prescribe underlying assets – House financing + Personal Financing

(Moderate Risk) •Open-end Fund – Term Investment Account •On balance Sheet Special Investment Account •URIA – based on Mudharabah (PSR based expected rate of return) •USP – Competitive returns •Prescribe underlying assets – House financing •Open-end Fund – Term Investment Account •On balance Sheet

BIMB Invest Wafiyah •Money Market Fund •URIA - Wakalah •USP – taking the advantage of tax insentive •Prescribe underlying assets – House financing + Personal Financing

(Moderate Risk)

INVESTMENT ACCOUNTS – KEY FEATURES


KEY FEATURES RESTRICTED INVESTMENT ACCOUNT

TERM INVESTMENT ACCOUNT

TRANSACTIONAL INVESTMENT ACCOUNT

Product name Al Ansar Waheed Specific Investment

Account (SIA)

Al Awfar

Date of Launch 2 April 2015 1 June 2015 3 June 2015

Investor (s) / Customer’s Profile (Investor Account Holder)

Lembaga Tabung Haji

Corporate Entity Institutions Non-Individuals

Individual Retail Institutions

Fund Size RM200 mil Unlimited Unlimited (subject to availability of house financing assets)

Underlying Assets / Investment Portfolio

SME financing Existing Bank’s Assets (to be disclosed before offering)

House Financing Assets

Investment Risk High Medium (subject to underlying assets)

Low (given the underlying collateral and diversified profile)

INVESTMENT ACCOUNTS – KEY FEATURES…cont





Shariah Contracts Wakalah Wakalah Mudarabah

Mudarabah

Nature of Shariah Contract

Performance Incentive

Agency Fee Profit Sharing

Profit Sharing

Investment Objective / Motivation

To develop Muslim Bumiputera Economy + Expected Return

Commendable Return

To win the prizes i.e. – RM1 mil

Investment Tenure Up to 2020 (or upon fully drawdown of the fund, whichever earlier)

1 day to 1 year (Negotiable)

Unlimited

Withdrawal Upon maturity (as per the agreed term and conditions)

Upon Maturity On demand / unlimited

INVESTMENT ACCOUNTS – KEY FEATURES…cont





Capital/Principal Protection (Insured by PIDM)

No guarantee No guarantee (entitled to the asset tagged)

No guarantee (backed by house financing portfolio)

Minimum Placement/ Investment

RM10 mil per drawdown

RM500,000 RM100

Expected Return/ Profit Rate

3% ( or actual return if profit < 3%)

Based on agreed PSR

Based on agreed PSR

Profit Payment Frequency

Monthly distribution Upon maturity Monthly distribution

Fund Performance Reporting

Quarterly Quarterly Quarterly

Documentation Wakalah Agreement & Service Level Agreement

Specific Board Resolution & Transaction Doc.

Self Assessment Form (for Individual & SME) & Transaction Doc.

QUARTERLY REPORT


http://www.bankislam.com.my/home/assets/uploads/Term-Investment-FPR-231215-Final.pdf

BENEFITS TO INVESTMENT ACCOUNT HOLDER


Optimize Returns (Commensurate with underlying

risk profile)

Transparency (Reporting

frequency & Asset quality)

Flexibility (Tenure,

Expected Rate of Returns & Shariah

Contracts)

Aimed to preserve capital

(Tagged to specific assets)

New Asset Class

(i.e. Takaful Players)

http://www.google.com.my/url?url=http://legocityundercover.wikia.com/wiki/Construction_Worker&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwigwpfbvLTOAhVJOY8KHUqLBZ84FBDBbggtMAw&usg=AFQjCNG8SGlPkhedl-Tpn7N7GgljiEf8Sw

http://www.google.com.my/url?url=http://www.creativeminds.edu.my/v4/index.php/details-menu/106-architecture-2&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwigwpfbvLTOAhVJOY8KHUqLBZ84FBDBbggbMAM&usg=AFQjCNH9FRxpNw5VOEdv2NoKh3tklmmOig

VALUE PROPOSITION & PITCH STRATEGY


Unique Value Proposition

Risk Profile

(Safety)

Unlimited Withdrawals

Retail

Returns

Risk Profile

Flexibility

Business (SMEs &

Corp) Returns

Risk Profile

(Capital Preservation)

Stability

Institutions

KEY TAKEAWAY


Demand Product Knowledge

Require Customer Suitability

Assessment Avoid Miss-Selling

INVESTMENT ACCOUNT PLATFORM


http://web.bankislam.com.my/promo/events/170216-LaunchIAP.htm

INVESMENT ACCOUNT PLATFORM - A NEW MARKETPLACE


…an investment Intermediary instead of Trading Exchange

… sound like a regulated crowd funding

… similar to initial public offering - over or under subscription

…also similar concept to retail sukuk

… gateway for financial inclusion

… just imagine a “Covered Sukuk”

Funds from RIA is to finance venture

Provide funding through opening of RIA with

participating banks using IAP

POTENTIAL INVESTORS / IA HOLDERS

VENTURES

ISLAMIC BANK Restricted Investment

Account

1st leg 2nd leg

BROAD MECHANIC OF IAP


Obtain Information

Raise Funding

Administer & Manage

supported by

Banks

Features of IAP facilitate effective matching between sources of funds with diverse financing needs of the economy

Choose Investment

Track Performance

Distribute Profit

Report Progress

Promote & Advertise

Transparent | Easy-access | Secured | Wide-reach | Strong Governance

(Sources of fund) (Users of fund) Ventures Investors

• Strong roles played by banks, in line with their fiduciary duty

– Due-diligence

– Performance monitoring

– Suitability assessment

– Underwriting • Individual and institutional investors

• Islamic banks • Government (to

support target industries)

• Similar to current banking business

• Potential initial target: – Emerging Corporate – SMEs – Etc

Channel funds to ventures of their choice

Provide financing

– Ventures in innovative & new growth areas

Source : Bank Negara Malaysia

FUNDING STRUCTURE – IFSA 2013


Deposits Investment Accounts Shareholders’ Funds

Current Account Savings Account Term Deposit

Unrestricted Investment Account

Restricted Investment Account

Paid Up Capital Retain Earnings Tier II Capital Others

http://www.google.com.my/url?url=http://problogservice.com/2013/01/18/can-you-make-money-blogging-maybe/&rct=j&frm=1&q=&esrc=s&sa=U&ei=R7lrVfqqE4vIuASvpoHYBA&ved=0CDsQ9QEwEzgU&usg=AFQjCNEthMqJf47vAb_82hrmqc-VjIOvwA



NEW LOOK ON THE BALANCE SHEET

ASSETS LIABILITIES Cash & Short-term Funds Deposits from Customers

Financial Assets (HFT, AFS, HTM) i.e. PDS Investment Account of Customers (URIA/RIA) (i.e. Note 16 – Bank Islam Audited A/C 2015)

Financing (Consumer. Commercial & Corporate)

Deposit Placements of Banks & Financial Institutions

Investment in Subsidiaries Zakat & Taxation

Other Assets Other Liabilities

Equity

Total Assets Total Liabilities & Equity

Note X : Describes the funding structure i.e. URIA or RIA, the amount of funds applied to different Shariah contracts, and the underlying assets supporting the fund. As RIA is off balance sheet, the information presented is for disclosure purposes.

FINANCIAL DISCLOSURE – INVESTMENT ACCOUNT


FINANCIAL DISCLOSURE – INVESTMENT ACCOUNT…cont


STATEMENTS OF PROFITS OR LOSS INCOME


Note 2015 RM’000

2016 RM’000

Income derived from investment of depositors’ funds

XX

Income derived from investment of investment account funds

XX

Income derived from shareholders’ funds

XX

Income split into 3 categories:-

http://www.bankislam.com.my/home/assets/uploads/HalfYearlyResultended30June2016.pdf

STATEMENTS OF PROFITS OR LOSS INCOME


GROWTH POTENTIALS – ISLAMIC BANKING INDUSTRY

Strategic Management & Managing Directors’ Office

EPF Simpanan Shariah as “A New Catalyst”

Investment Account Platform

“ A New Marketplace”

Major Infra Projects Roll Outs

Cross Border Transactions -ASEAN Integrated Banking

Framework

Demand for Shariah Compliant Stocks –

Conversion / Cannibalisation

Corporate & Sovereign Refinancing of Maturing

Sukuk

Continuous Demand from Consumer Market

“Prohibition of Riba’”

Ocean Blue – Wakaf Development

Supportive Government Policies & Incentives

POTENTIAL CAREER IN ISLAMIC FINANCE


Very High Demand for Islamic Scholars

Overwhelming Opportunity as an

Islamic Banker (Beyond Borders)

Continuous Development /

Investment in Technical Competencies

Sustainable Growth Momentum for Islamic

Finance Experienced from the

Pioneer

http://viewer.zmags.com/legacy?magid=1025319

QUESTION & ANSWER – [email protected]

Islamic Bank of the Year - Asia by the European Global Banking & Finance Awards 2015

Best Islamic Bank in Malaysia by The International Banker Asia & Australasia Banking Awards 2015

Strongest Retail Bank in Malaysia by Cambridge IF Analytica, United Kingdom

Innovation in Retail Banking Malaysia by The International Banker Asia & Australasia Banking Awards 2015

Best Commercial Bank - Malaysia by CPI Financial, Dubai

Best Islamic Bank Malaysia & Award for Excellence in Shariah Compliant Banking by Wealth & Finance Intl’s 2015 Finance Awards

Highly Commended Award for Best Debit Card - UniDebit By Cards & Electronic Payments International (CEPI) Asia Summit & Awards 2015

Strongest Local Bank by Focus Malaysia (using Bloomberg methodology)


http://www.google.com.my/url?url=http://www.cimaglobal.com/Study-with-us/Islamic-finance-qualifications/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjYs4uB3cnKAhWFIKYKHTnNAMkQwW4IHTAE&usg=AFQjCNH8l-ONub1giD93jPKBmYP_Yv7rsg

http://www.google.com.my/url?url=http://www.the-european.eu/global-banking-and-finance-awards-2015/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjFut_k3cnKAhXhJKYKHTQ7AHgQwW4IGzAD&usg=AFQjCNHiyD67m-PoiFswuXZk1kf4u6akhw

http://www.google.com.my/url?url=http://internationalbanker.com/banking/the-international-banker-asia-australasia-banking-awards-2015/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwjZ37yMrIrLAhUIGI4KHdllCIgQwW4IFTAA&usg=AFQjCNH2_3K2P-TzNqSx_2nVY9cnnb3usw

http://www.google.com.my/url?url=http://www.focusmalaysia.my/&rct=j&frm=1&q=&esrc=s&sa=U&ved=0ahUKEwj6_5Lb0I3LAhWh5aYKHQXeBlsQwW4IFTAA&usg=AFQjCNGuFVpNBOQkHIYMueKmxNUeCz7mQw

DISCLAIMER

This presentation has been prepared by Bank Islam Malaysia Berhad(“Bank Islam”) for selected recipients for information purposes only. The information contained herein is believed to be correct as of the date of this presentation and is given in summary form and does not purport to be complete. Bank Islam does not make any representation or warranty, whether expressed or implied, as to the adequacy, accuracy or completeness of any such information, opinion or estimate contained and shall not be responsible or liable for any consequences of any reliance thereon by any recipient. Opinions and estimates constitute the judgment of Bank Islam as of the date of this presentation and are subject to change without notice. Bank Islam does not act as any recipient’s financial advisor or agent and the information contained herein is not intended to be relied upon as advice to any recipient and should not be construed as an offer or recommendation to buy or sell securities. This presentation does not purport to contain all the information that a prospective investor may require and the information contained herein does not take into account the investment objectives, financial situation or needs of every recipient hence it may not be appropriate for all persons. Each recipient is responsible to make his or her own independent assessment of the information provided herein and should not treat the information provided as advice relating to investment or related matters. Each recipient should consult his or her own advisers and must make his or her own independent decision regarding any investment. Certain statements contained in this presentation may be statements of future expectations and involve known and unknown risks and uncertainties. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Bank Islam does not have any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Each recipient should not place undue reliance on forward-looking statements, which is believed to be correct only as of the date of this presentation. This presentation is being furnished to each recipient solely for his or her information and may not be reproduced, redistributed, transmitted or passed on, directly or indirectly, to any other person or published electronically or via print, in whole or in part, for any purpose.

- a new era - bank islam malaysia · •1970 – 1992 (establishment of enabling infrastructure)...

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