MALAYSIA – OUTLOOK OF ISLAMIC FINANCE INDUSTRY Hizamuddin Jamalluddin Group Chief Strategy Officer BIMB Holdings Berhad EXPERTS SPEAKER ROADSHOW 2016 21 July 2016 Strictly Private & Confidential
BRIEF HISTORY Islamic Financial Services Act 2013 CIMB – Expert Speaker Roadshow 2016 Page 2
DEVELOPMENT OF ISLAMIC FINANCE - MALAYSIA 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 Strategic Positioning & International Integration with Global Financial System. • 2006 -2013 • Becoming hub of international Islamic finance Institutional Building, Activity Generation & Market Vibrancy • 1993-2005 (Deepening, Creating Critical Mass & Liberalisation) • Ensuring greater access to Islamic finance 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 CIMB – Expert Speaker Roadshow 2016 Page 3
KEY SUCCESS INGREDIENTS Enabling Environment Governance Business Modality Education & Market Readiness Key Business/Operation Resources Infrastructure Financial Products & Services CIMB – Expert Speaker Roadshow 2016 Page 4
ENABLING ENVIRONMENT Central Bank as Political Will – “ Champion ” “ As a National Agenda ” Building Critical Mass Local Sponsor – “ Passion to Succeed ” Industry Incentives Regulatory Single Banking System Supervisory vs Dual Banking System Framework (Islamic Financial Service Authority) Interbank Money Legislative, Legal & Market Shariah Framework Central Bank as Law of Land “ Lender or Buyer of the Last Resort ” (Taxation, Stamp Duty, etc to (to address liquidity position or cater for Shariah Contracts absorb surplus) CIMB – Expert Speaker Roadshow 2016 Page 5
ISLAMIC FINANCIAL SERVICES ACT 2013 – IN A NUTSHELL Forceful Governance / Refined Ownership, Control Oversight Framework Demands Strong Capital & Financial Group/ Holding Adequacy Ratio (Board/SSC Composition & Company Responsibilities) Takaful Framework – Differentiates Deposit & Promotes Responsible Risk Separation of Life & Investment Account Sharing Business Model General Takaful Greater Transparency in Robust Risk Management More Extensive & Intrusive Product Offerings & Capability & Capacity Regulation Customers’ Protection CIMB – Expert Speaker Roadshow 2016 Page 6
FUNDING STRUCTURE OF ISLAMIC BANK – IFSA 2013 Deposits Investment Accounts Shareholders’ Funds Current Account Unrestricted Investment Paid Up Capital Savings Account Account Retained Earnings Term Deposit Restricted Investment Others Account CIMB – Expert Speaker Roadshow 2016 Page 7
NEW LOOK ON THE BALANCE SHEET – IFSA 2013 ASSETS LIABILITIES Cash & Short-term Funds Deposits from Customers Financial Assets (HFT, AFS, HTM) i.e. PDS Investment Account of Customers (URIA/RIA) (Note X) Financing (Consumer. Commercial & Deposit Placements of Banks & Financial Corporate) 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. CIMB – Expert Speaker Roadshow 2016 Page 8
MALAYSIAN ISLAMIC FINANCE INDUSTRY AS AT DEC 2015 … Islamic financing is expected to account for 40 per cent of total financing in 2020 Assets 26.8% of total banking system Total Islamic banking asset : RM537 bil CAGR 2011-2015 of 13% Total Capital Ratio – 15% Liquidity Coverage Ratio – 113% Net Impaired Financing -0.9% Financing Liabilities /Deposits Market share – 31.2% Market share – 30.4% Total financing: RM411 bil Total deposits : RM404 bil CAGR 2011-2015 of 15.2% Total Investment Account: RM47 bil Overall : RM451 bil CAGR 2011-2015 of 14.1% CIMB – Expert Speaker Roadshow 2016 Page 9
ASSETS Islamic banking assets grew by an average 14.4% in 2015 to RM535 bn from 13.2% in the previous year. In 2016 and 2017, we expect it to moderate to around 8% to 9% in tandem with the current economic challenges and a bigger balance sheet size. Islamic banking assets (Jan 07 = 100) Islamic banking assets 500.0 RM billion 436.2 76% 450.0 2,500.0 Islamic Conventional 77% 400.0 78% Conventional Islamic 350.0 2,000.0 79% 80% 300.0 82% 226.4 250.0 1,500.0 83% 88% 85% 200.0 1,000.0 150.0 24% 100.0 23% 22% 21% 20% 500.0 50.0 18% 17% 15% 12% - Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 - 2007 2008 2009 2010 2011 2012 2013 2014 2015 May-16 Sources: CEIC & Bank Islam CIMB – Expert Speaker Roadshow 2016 Page 10
FINANCING Islamic banking financing assets grew by an average 19.5% in 2015 to RM391 bn from 18.2% in the previous year. In 2016 and 2017, we expect it to moderate to around 14% to 15% notwithstanding continuous cannibalisation of existing conventional assets Islamic banking financing assets Islamic banking financing assets (Jan07 = 100) RM billion 1,600 Conventional 73% 600.0 73% Islamic 75% Islamic 1,400 515.3 77% 500.0 Conventional 1,200 79% 80% 400.0 82% 1,000 83% 85% 86% 800 300.0 600 27% 200.0 27% 204.8 25% 400 23% 21% 20% 18% 17% 15% 100.0 200 14% - - 2007 2008 2009 2010 2011 2012 2013 2014 2015 May-16 Dec-06 Apr-09 Aug-11 Dec-13 Apr-16 Sources: CEIC & Bank Islam CIMB – Expert Speaker Roadshow 2016 Page 11
DEPOSITS Islamic banking deposits grew by an average 11.6% in 2015 to RM403 bn from 14.2% in the previous year. In 2016, we expect it to register a flat growth of 0.5% before turning around to 6% in 2017 taking into account stringent compliance with Shariah Contract Based Regulatory Framework Islamic banking deposits Islamic banking deposits (Jan 07 = 100) RM billion 76% 500.0 1,800 76% 76% Islamic Conventional 450.0 1,600 77% 417.1 Conventional Islamic 78% 400.0 1,400 80% 350.0 81% 1,200 82% 300.0 84% 1,000 86% 250.0 800 200.0 173.1 600 24% 24% 24% 150.0 23% 22% 400 20% 100.0 18% 19% 16% 14% 200 50.0 - - 2007 2008 2009 2010 2011 2012 2013 2014 2015 May-16 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Sources: CEIC & Bank Islam CIMB – Expert Speaker Roadshow 2016 Page 12
ASSET QUALITY Gross impairment ratio (%) 5.00% 3.5% Islamic Banking 4.50% 3.0% Banking System Islamic banking 4.00% 2.5% Banking System 3.50% 2.0% 3.00% 1.5% 1.3% 2.50% 1.0% 2.00% 1.1% 1.65% 0.5% 1.50% 1.32% 1.00% 0.0% Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 …expects to sustain existing healthy asset portfolio Sources: BNM & CEIC CIMB – Expert Speaker Roadshow 2016 Page 13
ISLAMIC CAPITAL MARKETS More than two-thirds of PDS outstanding are emanated from Sukuk. However, conventional government securities are predominantly conventional based. But not for long. Govt. Sec. % of total PDS % of total 90.0% Islamic govt sec. 120.0% Islamic PDS 80.0% Conventional govt sec. Conventional PDS 71.4% 100.0% 70.0% 60.0% 80.0% 50.0% 59.4% 60.0% 40.0% 30.0% 40.0% 28.6% 40.6% 20.0% 20.0% 10.0% 0.0% 0.0% Dec-00 Jun-03 Dec-05 Jun-08 Dec-10 Jun-13 Dec-15 Dec-00 Jun-03 Dec-05 Jun-08 Dec-10 Jun-13 Dec-15 Source: CEIC CIMB – Expert Speaker Roadshow 2016 Page 14
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