BANK ISLAM EYES HIGHER 2024 PROFITS ON FUND-BASED INCOME GROWTH, COST EFFICIENCY - GROUP CEO

By Zairina Zainudin and Karina Imran

KUALA LUMPUR, June 30 (Bernama) -- Bank Islam Malaysia Bhd (Bank Islam) is optimistic about achieving a higher net profit for the financial year ending Dec 31, 2024, banking on better growth in fund-based income coupled with its cost optimisation strategy and resource efficiency.

Group chief executive officer Datuk Mohd Muazzam Mohamed said the country’s first Islamic banking group had recorded strong profit in the first quarter of this year, and this momentum is expected to continue into the remaining quarters.

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He said the group aims for its net income margin (NIM) to be closer to about 2.2 per cent this year, significantly contributing to the fund-based income, the main portion of Bank Islam’s total income.

"Whatever improvement we can get in our NIM – the driver for fund-based income – will improve our net profit,” he told Bernama in an exclusive interview.

In the first quarter ended March 31, 2024, Bank Islam’s net profit rose 9.4 per cent to RM129.17 million from RM118.09 million in the same quarter a year ago, thanks to higher net income and lower net allowance for impairment on financing, offset by higher total overheads.

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For the 2023 financial year, Bank Islam’s net profit rose 12.5 per cent year-on-year (y-o-y) to RM553.1 million due to higher non-fund-based income.

Its net fund-based income decreased by 0.4 per cent or RM8.3 million y-o-y as the NIM was lower by 16 basis points to 2.12 per cent for FY2023 due to the higher cost of funds despite the growth in financing.

Unchanged OPR Provides Support

Mohd Muazzam attributed Bank Islam’s optimism to better first-quarter earnings and increased consumption expenditure, driven by higher projections in the country’s economic growth rates.

He maintained the group’s targeted financing growth of 7.0 to 8.0 per cent this year, supported by the overnight policy rate (OPR) remaining unchanged for the latest quarter.

“The momentum of financing growth will pick up in the latter part of the second quarter and the second half of the year, which is why we are still aiming for 7.0 to 8.0 per cent growth.

“We have always been growing at almost double the industry rate. In shaa Allah, we will continue to be able to beat the industry average this year,” he said.

Bank Negara Malaysia left its OPR on hold at 3.0 per cent for the sixth consecutive meeting on 9 May.  Many analysts expect the central bank to keep this key rate unchanged until year-end.

Meanwhile, Malaysia’s economy recorded better-than-expected first-quarter growth of 4.2 per cent from 2.9 per cent in the fourth quarter of 2023, driven by stronger private expenditure and a positive turnaround in exports.

Mohd Muazzam opined that the diesel subsidy rationalisation would not immediately impact the bank’s retail sector due to the Budi MADANI programme, which aims to partly mitigate higher living costs, especially among the non-T20s.  

Retail Sector to Drive Growth

Asked about the bank’s growth prospects, Mohd Muazzam said it would come from the retail sector, where 75 per cent of the bank’s portfolios are retail financing assets and 25 per cent non-retail.

“The retail sector will continue to be our engine of growth, led by home financing, particularly for owner-occupied properties of RM750,000 and below.

“The bank’s credit quality remains robust, so we will continue to focus on home financing, with the second component of our retail financing being personal financing.

“It has shown good traction, with growth fuelling private consumption, of which our personal financing sector is a beneficiary. We continue to be competitive in the market,” he said.

Mohd Muazzam noted that the fastest-growing sector in Bank Islam’s retail portfolio is vehicle financing, which is about RM2 billion in size. 

This segment was revived just 18 months ago by implementing new credit metrics, focusing on the target market, and offering the latest car models.

“We have one of the best financing packages for electric vehicles,” he said, adding that the bank will capitalise on the government’s focus on energy transition, such as solar panels for residential housing.

Bank Islam also aims to lead Shariah environmental, social, and governance (ESG) initiatives in its non-retail portfolio, including green energy, energy transition, waste management, and water management.

Prudent Cost Strategies

Mohd Muazzam emphasised that Bank Islam has been proactively implementing cost optimisation and resource efficiency strategies to manage its costs better, acknowledging that rising operating expenditure (OPEX) “to me is inevitable.”

He believed the increase in OPEX would also be felt by any organisation given market uncertainties, such as geopolitical tensions and volatile US dollar performance, which have caused a slowdown in the global economy.

Nevertheless, Bank Islam’s three-year cost optimisation and resource efficiency (CORE) programme has enabled it to contain the cost pressures on its OPEX.

“Certain portions of our OPEX are tied to US dollars – for instance, our IT maintenance providers, some of which are internationally based.

“Even though our transactions with them are in ringgit, at the end of the day, their cost is also tied to the US dollar. So naturally, when the ringgit weakens against the US dollar, the cost goes up,” he said.

He said Bank Islam has set a target to reduce OPEX by RM100 million over three years under this CORE programme, of which 2024 is the first year of the current round.

Repurpose Assets for Greater Efficiency

Mohd Muazzam said that based on the bank’s observation over the last eight years, customers’ usage of branches has changed, with traditional basic transactions now done digitally, primarily via its Internet Banking (www.bankislam.biz), GO by Bank Islam mobile banking app, and ATMs.

“Transactions at our branches are now largely advisory.

“So, we are transitioning our branches to be more advisory-based rather than just handling basic transactions, as customers are also shifting,” he explained.

In response to changing customer behaviour, Bank Islam currently has 135 branches nationwide, compared to 145 branches three years ago.

Some branches are being relocated or closed to better suit customers’ needs, as basic transactions such as fund withdrawals, transfers, and deposits are mostly done via Bank Islam’s digital channels.

“We do not have a specific plan to close a set number of branches. Any branch closures or relocations are based on several factors, including revenue, transaction volume, customer traffic, and the ability to meet local customer needs.

“We will continue to monitor our branch operations, considering location suitability, demographics, and changing customer behaviours,” he reiterated.

He also shared that Bank Islam has been actively introducing upskilling programmes for its staff, enabling them to perform advisory work. 

This includes enrolling them in necessary certification programmes, as certain advisory products require licenses, added Mohd Muazzam.

-- BERNAMA