BANK ISLAM MALAYSIA BERHAD. Financial Institution Ratings NOVEMBER 2011

Transcription

1 NOVEMBER 2011 BANK ISLAM MALAYSIA BERHAD Financial Institution Ratings The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

2 CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS NOVEMBER 2011 Analysts: Joanne Kek (603) Gladys Chua (603) Principal Activity: Islamic banking Financial Institution Ratings: Long-term: A 1 [Reaffirmed] Short-term: P1 [Reaffirmed] Rating Outlook: Stable Last Rating Action: 28 October 2010 BANK ISLAM MALAYSIA BERHAD Rating Review Summary RAM Ratings has reaffirmed the A 1 /P1 financial institution ratings of Bank Islam Malaysia Berhad ( Bank Islam or the Bank ), Malaysia s first Islamic bank. The long-term rating has a stable outlook. The ratings reflect the backing of Lembaga Tabung Haji ( Tabung Haji, Malaysia s hajj pilgrims funds board), i.e. the Bank s ultimate controlling shareholder, in the form of capital support and the stability of its deposits. The ratings also consider Bank Islam s liquid balance sheet and sizeable proportion of low-cost deposits. While Bank Islam is the third-largest commercial Islamic bank in Malaysia by assets, its franchise is still limited relative to the universal-banking groups. Meanwhile, Bank Islam has demonstrated firmer foundations for business growth. The Bank s gross financing portfolio expanded an annualised 10% in the 18-month period ended 31 December 2010 ( 18M Dec 2010 ), its strongest growth in the last 5 fiscal periods. Write-offs of impaired financing had caused the Bank s credit-cost ratio to remain at a lofty 1.2% in 18M December 2010,while its gross impaired-financing ( GIF ) ratio had eased to 4.5%. In the first 6 months of FYE 31 December 2011 ( 1H FY Dec 2011 ), Bank Islam s credit-cost ratio had moderated to 0.3%. The Bank s GIF ratio was 4.2% as at end-june 2011 (Malaysian banking industry s average: 2.9%). Elsewhere, profits have improved, supported by a sizeable high-yielding personal financing portfolio, a large base of low-cost deposits, and lower credit costs. Bank Islam has a very conservative funding and liquidity profile. Its financing-todeposits ratio of 53% as at end-june 2011 is exceptionally low; this is expected to increase to more optimal levels. Meanwhile, Bank Islam s capitalisation position is deemed sturdy, with respective tier-1 and overall risk-weighted capitaladequacy ratios ( RWCARs ) of 16.5% and 15.3% as at end-june Considering the Bank s growth plans and measures to realign its balance sheet (which include increasing the proportion of secured financing), its capital base is expected to be able to adequately support its organic growth over the medium term. The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.

3 Bank Profile Figure 1: Bank Islam s corporate structure 51% Lembaga Tabung Haji Dubai Financial LLC 30.5% BIMB Holdings Berhad 51% 18.5% Bank Islam Malaysia Berhad 100% 20% 100% 100% 100% 100% Amana Farihan Al-Wakalah BIMB Bank Islam Trust Bank Corporation Nominees Investment Company Limited Sdn Bhd (Tempatan) Management (Labuan) Ltd Sdn Bhd Berhad 100% BIMB Offshore Company Management Services Sdn Bhd BIMB Foreign Currency Clearing Sdn Bhd Source: Bank Islam Leading market shares in the Malaysian Islamic banking sphere Tabung Haji ultimate majority shareholder Bank Islam is Malaysia s first Islamic bank. It commenced operations in 1983, following the enactment of the Islamic Banking Act that same year. As at end- September 2011, the Bank had 119 branches nationwide. By assets, Bank Islam is the third-largest commercial Islamic bank in Malaysia, with an asset base of RM27.8 billion as at end-june In terms of financing and deposits, it ranks a respective 5 th and 2 nd in the Malaysian Islamic banking industry. While Bank Islam commands leading market shares in the Islamic banking sphere, its market position and franchise are still limited relative to the universal-banking groups. The Bank s current shareholding structure is a result of a recapitalisation exercise, following sizeable losses that had wiped out its shareholders funds and capital base in FYE 30 June 2005 ( FY June 2005 ) and FY June Bank Islam had subsequently been recapitalised through a RM1.01 billion infusion that had led to the issuance of new shares to Tabung Haji and Dubai Financial LLC 1. The Bank s ultimate majority shareholder is Tabung Haji, which directly (18.5%) and indirectly (through a 51%-stake in BIMB Holdings Berhad, an Islamic financial-services holding company) holds an effective 44.5%-interest. Dubai Financial LLC owns 30.5% of the Bank. 1 Dubai Financial LLC is the financial-services arm of Dubai Holdings, an investment-holding company held by the Dubai government. Bank Islam Malaysia Berhad 2

4 Acquired 20% of Sri Lanka s first Islamic financial institution In February 2011, Bank Islam completed a share-subscription exercise for a 20%-stake in Amana Bank Ltd ( Amana Bank, an Islamic bank in Sri Lanka). The 20%-stake had been paid for via RM21.3 million cash, along with a share swap where the Bank exchanged a 6.3%-stake in Amana Investment Limited for Amana Bank shares 2. Amana Bank is the first Islamic financial institution in Sri Lanka; this marks Bank Islam s first investment in an overseas commercial bank. Bank Islam provides technical advice on Shariah governance, product development and risk management to Amana Bank. Bank Islam is the single largest shareholder of Amana Bank. Having been admitted to the Securities Commission s ( SC ) list of principal advisors in 2009, Bank Islam is able to advise on and submit corporate proposals, such as initial public offerings and acquisitions to the regulator for approval. The Bank is also licensed to import and export foreign currency through its subsidiary, BIMB Foreign Currency Clearing Agency Sdn Bhd. At the same time, Bank Islam has a 100%-stake in Farihan Corporation Sdn Bhd, its window for Ar-Rahnu (or pawnbroking) operations. This division is still a nominal revenue contributor for the Bank. Management and Strategies Positioning for domestic and regional growth Close ties with Tabung Haji sharpen competitive advantage Bank Islam s 3-year Turnaround Plan (which ended in FY June 2009) had involved the entry of a new management team, a big-scale reorganisation and a fundamental revamp of its processes. Bank Islam is currently on its Sustainable Growth Plan, which aims to position it for domestic and regional growth. As the Bank targets improvements in business innovation, risk management and franchise development, it remains receptive to inorganic growth opportunities. In particular, the Bank recognises growth potential in Indonesia, Sri Lanka and Bangladesh. The Bank s close links with Tabung Haji have facilitated deal referrals and enhanced the placement capabilities of its corporate- and investment-banking ( CIB ) division, which provides a suite of capital-market and advisory solutions to larger corporates by leveraging on its Shariah-structuring capabilities. Within the retail segment, Bank Islam has unique access to Tabung Haji s sizeable network of depositors, thus providing the Bank cross-selling opportunities and, potentially, alternative distribution channels. 2 Bank Islam originally had a 12.6% stake in Amana Investment Limited. The remaining 6.3% stake is retained as an investment, classified under financial assets available-for-sale. Bank Islam Malaysia Berhad 3

5 Immediate strategies include realigning balance sheet Financing profile to remain predominantly retail The Bank s immediate-term strategy is to realign its balance sheet. This includes increasing the proportion of floating-rate financing, shortening personal-financing tenures and optimising its financing-to-deposits ratio. The Bank also intends to focus on higher-income customers while broadening its base of fee income. To expand its fee-based revenue, cash-management solutions and foreignexchange products will be offered to the Bank s customers in the commercial and corporate segments. While Bank Islam s strategies to augment its financing receivables are broadbased, targeting the consumer, corporate and commercial segments, it is expected to remain a predominantly retail bank. Within the retail segment, the Bank is one of the main disbursement channels for Perbadanan Tabung Pendidikan Tinggi Nasional s student financing. Elsewhere, the Bank s Ar-Rahnu division (pawnbroking, undertaken by Farihan Corporation Sdn Bhd) represents part of its push to diversify its Islamic products; this is a relatively new, highmargin and untapped niche for Islamic financial institutions in Malaysia. The Bank has changed its financial year-end from June to December. Its results for the previous financial period reflect an 18-month span, from July 2009 to December The Bank will commence reporting full 12-month results in the current financial period (January to December 2011). Asset Quality Securities investments and financing receivables equal prominence in asset base Stronger financing growth of late Bank Islam s assets were valued at RM27.8 billion as at end-june Both securities investments and financing feature equally prominently in its balance sheet, at 45% and 46% of its total assets, respectively. The largest component of the Bank s securities portfolio is made up of Islamic debt securities and commercial papers, which collectively made up more than half (56%) of its total securities. Low-risk and very liquid Malaysian government and quasi-government securities formed a smaller 32% of its securities investments, followed by negotiable Islamic debt securities (8%). Approximately half of the Bank s Islamic debt securities and commercial papers are guaranteed by the Government or quasi-government entities while the rest are securities rated AA and above. Notably, Bank Islam only has a small investment in shares, at less than 2% of its total securities. The Bank maintains a policy of only investing in debt securities with AAA and AA ratings. The Bank continues to extend funding through debt-based contracts, as opposed to equity-based (partnership or Musharakah) structures. The Bank s gross financing portfolio expanded an annualised 10% in 18M Dec 2010, i.e. its strongest growth in the last 5 financial periods. Between FY June 2006 and FY June 2009, clean-up initiatives under its Turnaround Plan had been prioritised over business expansion. The trend of stronger financing growth continued into 1H FY Dec 2011, when gross financing increased at a stronger annualised rate Bank Islam Malaysia Berhad 4

6 of 15%, thereby bringing its outstanding gross financing portfolio to RM13.2 billion. Figure 2: Bank Islam s financing profile (as at end-june 2011) Finance, insurance & business activities 1% Transport, storage & communications 2% Real estate 2% Construction 5% Wholesale & retail trade, hotels, restaurants 4% Education, health & others 1% Mining & quarrying 0% Primary agriculture 1% Manufacturing 7% Other sectors 1% Household sector 76% House financing 31% Personal financing 27% Credit cards 3% Purchase of passenger cars 14% Others 1% Source: Bank Islam Clear retail focus for financing portfolio......with sizeable unsecured consumer financing The Bank has a retail-focused financing portfolio. As at end-june 2011, financing to the household sector made up 76% of its total financing and advances. Home financing dominated almost a third of the Bank s total financing portfolio, followed by personal financing (27%) and the purchase of cars (14%). The Bank s customer profile is predominantly mid-to-low-end; in a more adverse economic environment, the delinquency trends of this segment may worsen. Including pre legacy financing, the Bank s residential property financing portfolio has, on average, financing with an outstanding amount of less than RM100,000. In the 12-month period ended June 2011, the average financing amount disbursed for the purchase of residential property was about RM160,000, in line with Bank Islam s move to focus on higher-income customers. In aggregate, Bank Islam s unsecured consumer financing portfolio comprises a sizeable 30% of its financing receivables. The Bank s personal financing facilities are mainly granted to employees of government-linked entities and large corporates and repaid via salary deductions or salary transfers (these accounted for almost 90% of its personal financing portfolio as at end-june 2011). In terms of advances granted to the commercial and corporate segments, the Bank is primarily exposed to the manufacturing (7%), wholesale and retail (4%), and construction (5%) sectors. While the Bank s proportion of commercial and corporate financing is small (about 24% of its gross financing), these exhibit higher GIF ratios mainly a result of legacy financing and a small-base effect. Financing extended to the finance, insurance and business sector shows a high GIF ratio of 34%, Bank Islam Malaysia Berhad 5

7 RM million Non-retail financing exhibits weaker credit quality - result of legacy financing and small-base effect attributable to the recent default of a single borrower, i.e. a financial intermediary 3. Meanwhile, advances to customers from the construction industry had a GIF ratio of 18%. The better credit quality of the household sector moderates the overall credit quality of the Bank s financing portfolio financing to the household sector posted a lower GIF ratio of 2.4% as at end-june At the same time, the GIF ratio for advances extended for personal use and residential property financing facilities came up to 1.7% and 4.6%, respectively. Figure 3: Selected asset-quality indicators 16,000 14,000 Non-performing financing on a 6 months past due classification Adoption of FRS 139. Financing classified as impaired the earlier of (i) 3 months past due, or (ii) when it exhibits signs of weakness 30.0% 25.0% 12,000 10,000 8,000 6,000 4, % 15.0% 10.0% 5.0% 2, % 0 FY June 2007 FY June 2008 FY June M Dec H FY Dec 2011 Gross financing (RM million) 9, , , , , Gross NPF / Impaired financing (RM million) 2, , , Financing 3-months past due 2, , , Gross NPF ratio 22.36% 18.64% 12.70% 4.50% 4.20% Financing 3-months past due ratio 27.81% 24.16% 16.81% 3.28% 2.70% Credit cost ratio 0.20% -0.07% 1.16% 1.20% 0.28% -5.0% Source: Bank Islam Credit costs, although easing, expected to remain relatively high As a result of sizeable write-offs on legacy financing, the Bank s credit costs have been high. Its credit-cost ratio for 18M Dec 2010 still stood at a substantial 1.2% (end-fy June 2009: 1.16%). Meanwhile, the Bank s credit costs have eased to more manageable levels of late. Bank Islam s credit-cost ratio only came up to an annualised 0.3% in 1H FY June Given the Bank s sizeable unsecured consumer-financing portfolio, however, its credit-cost ratio is expected to fall within a moderately high range of 0.5%-0.7%. RAM Ratings understands that impairment losses from legacy financing are at their tail-end. 3 This financing facility is expected to be fully settled by end-december Bank Islam Malaysia Berhad 6

8 Table 1: Movements of impaired financing RM million FY June M Dec H FY Dec 2011 At the start of the period 1, , Impact of the adoption of FRS Adjusted impaired financing opening balance 1, , (+) Classified as impaired during the period (-) Reclassified as not impaired during the period (131.58) (362.28) (148.95) (-) Amount recovered (184.08) (311.45) (115.80) (-) Amount written off (540.03) (1,079.12) (71.13) Exchange differences (45.70) (1.03) At the end of the period 1,360, Source: Bank Islam Impaired financing easing to manageable levels Driven primarily by sizeable write-offs on legacy financing and aided by less accretion of impaired financing, the Bank s GIF ratio had eased to 4.2% as at end-june 2011 (Malaysian banking industry average: 2.9%). Restructured and rescheduled accounts constituted approximately 4% of the Bank s aggregate financing portfolio, of which a large portion (about 73%) related to pre-2006 legacy financing. Residential property financing facilities accounted for almost half (48%) of its total restructured and rescheduled facilities. We understand that these were mainly financing with rescheduled instalment payments. Commendable post-2006 asset quality, although reflective of short track record The Bank s GIF coverage ratio stood at 79% as at end-june 2011, a level we consider adequate. We observe a clear distinction in the asset quality of the Bank s pre- and post-2006 financing disbursements; as at end-june 2011, some 74% of its outstanding financing comprised advances disbursed under revised risk-management practices. While reflective of only a 5-year track record, the Bank s GIF ratio of 1.9% for advances disbursed after 2006 is deemed commendable (GIF ratio for pre-june 2006 financing: 11%). Notably, the Bank adopted the FRS 139 approach to provisioning in 18M Dec 2010, under which financing facilities that are less than 3 months in arrears may be classified as impaired if they exhibit signs of impairment. Bank Islam revised its non-performing financing classification to a 3-months past-due basis in December 2009, in preparation for the imminent adoption of FRS 139. Before that, NPF classification had been on a 6-months-past-due basis. Bank Islam individually assesses financing with an outstanding amount of more than RM1 million for impairment. If required, provisions are made based on the net present value of the future cashflow expected to be recovered from the impaired facility. All other facilities are grouped into pools with similar credit-risk characteristics, and are collectively assessed for impairment. Bank Islam Malaysia Berhad 7

9 RM million Profitability Figure 4: Selected profitability indicators % 3.2% 3.1% 3.0% 2.9% 2.8% 2.7% 2.6% - FY June 2007 FY June 2008 FY June M Dec H FY Dec 2011 Pre-financing provision profits Pre-tax profit Net financing margins 2.93% 3.01% 2.76% 3.04% 3.23% 2.5% Source: Bank Islam Revenue mainly from financing activities Pre-provision profits still trending upwards Bank Islam derives a substantial portion of its revenue from financing activities. Its non-financing income was 13% of its gross income in 18M Dec The Bank s net financing margin of more than 3% is healthier than the levels typically charted by Malaysian banks, due to its sizeable high-yielding personal financing portfolio and a large base of low-cost deposits. Save for a one-off recovery from impaired financing in FY June 2008, the Bank s pre-tax performance had been modest during its 3-year Turnaround Plan, having been suppressed by financing losses arising from the clean-up of its legacy financing. The Bank recorded a healthier pre-tax profit of RM501.5 million in 18M Dec 2010, an annualised 42% higher than its achievement in FY June In addition to financing growth, the better showing was supported by a RM46 million transfer out of the profit-equalisation reserve 4, accreted into earnings for the period. The Bank s returns on asset and returns on equity for 18M Dec 2010 came up to 1.2% and 16%, respectively. RAM Ratings expects the Bank s profit performance to improve in FY Dec 2011, supported by financing growth and reduced credit costs. 4 As at end-december 2010, the Bank has a nil balance in its profit equalisation reserve. Bank Islam Malaysia Berhad 8

10 RM million Liquidity & Funding Figure 5: Bank Islam s funding and liquidity profiles 30,000 80% 25,000 20,000 15,000 70% 60% 50% 40% 10,000 5,000 30% 20% 10% 0 FY June 2007 FY June 2008 FY June M Dec H FY Dec 2011 Total deposits (RM million) 17, , , , ,035.9 Liquid Asset Ratio 55.16% 62.26% 67.38% 65.30% 57.09% CASA deposits to total deposits 37.97% 39.89% 35.95% 39.69% 44.35% Financing to Deposits Ratio 47.91% 43.66% 38.33% 44.15% 53.22% 0% Source: Bank Islam Robust funding and liquidity profiles Conservative financing-todeposits ratio, expected to increase to more optimal levels Concerns on depositconcentration risk moderated by very liquid balance sheet Bank Islam has maintained its robust funding and liquidity profiles. The Bank has a very liquid balance sheet. Its liquid-asset ratio came up to 57% as at end-june one of the highest in RAM Ratings portfolio of rated financial institutions. Bank Islam relies on deposits for its funding purposes; these make up 97% of the Bank s profit-bearing funding. CASA deposits continue to feature prominently in its deposit base. The Bank s large proportion of CASA deposits (44% of total deposits, in contrast to the industry average of about 25%) continues to be viewed positively. The Bank s financing-to-deposits ratio had increased to 53% as at end-june 2011 (end-june 2009: 38%). While financing expanded 8% in 1H FY Dec 2011, its deposit base contracted 10.5%, a result of the Bank s liability-management initiatives. Based on our interaction with the management, we understand that the optimum financing-to-deposits ratio for the Bank ranges between 70% and 80%. While it exhibits an uptrend, this is still considered comfortable. Bank Islam relies substantially on deposits from corporates and governmentlinked entities; deposits from retail customers only account for 18% of its total deposits. The Bank s top 5 depositors make up 25% of its total deposits. While this exposes Bank Islam to significant depositor-concentration risk, its longstanding relationships with its depositors and very liquid balance sheet moderate our concerns. On this score, Tabung Haji is one of Bank Islam s largest depositors; this has historically lent some stability to its deposit base. Bank Islam Malaysia Berhad 9

11 RM million Capitalisation Figure 6: Bank Islam s capital base and capitalisation ratios 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 FY June 2007 FY June 2008 FY June M Dec H FY Dec 2011 Risk-weighted assets (RM million) 9, , , , ,529.6 Capital base (RM million) 1, , , , ,557.2 Tier-1 RWCAR 9.7% 11.3% 12.3% 15.2% 15.3% Overall RWCAR 12.1% 13.2% 13.9% 16.4% 16.5% Banking industry overall RWCAR 13.9% 13.0% 14.8% 14.8% 14.6% Banking industry tier-1 RWCAR 10.8% 10.8% 13.0% 13.0% 13.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% Source: Bank Islam. Capital base figures are net of proposed dividends. Sturdy capitalisation position Bank Islam s capitalisation position is viewed to be sturdy; its tier-1 and overall RWCARs are higher than the Malaysian banking industry s corresponding averages. In September 2010, its RM540 million Islamic Convertible Redeemable Non-Cumulative Preference Shares were converted into ordinary shares, raising the Bank s tier-1 RWCAR to 15.3% as at end-june 2011 (end- June 2009: 12.3%). Considering the management s growth plans and measures to realign its balance sheet (which include increasing the proportion of secured financing), the Bank s capital base is expected to be able to adequately support its organic growth over the medium term. While not immediately required, we believe that capital support from the Bank s shareholders will be readily extended if need be. Inaugural dividend payment since recapitalisation and turnaround With its consistent profit performance of late, Bank Islam declared and paid RM80.1 million of dividends in 18M Dec This marked the Bank s first dividend payment since its recapitalisation and turnaround. The Bank maintains moderate internal overall and Tier-1 RWCARs of at least 13% and 10%, respectively. We note that Bank Islam has adopted Bank Negara Malaysia s Framework on Capital Adequacy for Islamic Banks; this is the equivalent of the standardised Basel II approach for conventional banks. Bank Islam Malaysia Berhad 10

12 Date of Incorporation: 1 March 1983 Corporate Information Bank Islam Malaysia Berhad Commencement of Business: Major Shareholders (as at end-september 2010): Directors: Auditor: Listing: Key Management: July 1983 BIMB Holdings Berhad Dubai Financial Group LLC Lembaga Tabung Haji Mohd Zin Idris Dato Sri Zukri Samat Zaiton Mohd Hassan Johan Abdullah Dato Paduka Ismee Ismail Abdullah Abdulrahman Abdullah Sharafi Marwan Hassan Ali Al-Khatib Mohamed Ridza Mohamed Abdulla KPMG Desa Megat & Co Not listed Dato Sri Zukri Samat Dato Wan Ismail Wan Yusoh Dato Norasni Ayob Jaafar Abu Hizamuddin Jamalluddin Khairul Kamarudin Mashitah Hj Osman Norashikin Mohd Kassim Abdul Rashid Abdul Hamid Malkit Singh Maan Ryan Liew Choon Ching Wahid Ali Mohd Khalil Jeroen PMM Thijs Ustaz Mohd Nazri Chik Jamilah Abdul Sallam Maria Mat Said 51.0% 30.5% 18.5% Managing Director General Manager, Strategic Relations Chief Operating Officer, Operations Chief Operating Officer, Business Support Assistant General Manager, Strategic Planning General Manager, Consumer Banking Director, Corporate Investment Banking General Manager, Treasury Acting Head, Commercial Banking Chief Financial Officer Chief Technology Officer Chief Internal Auditor Chief Risk Officer Assistant General Manager, Shariah General Manager, Human Resources General Manager, Legal & Secretariat Major Subsidiaries: BIMB Investment Management Berhad Bank Islam Trust Company (Labuan) Ltd BIMB Foreign Currency Clearing Agency Sdn Bhd Farihan Corporation Sdn Bhd 100% 100% 100% 100% Capital History: Year Remarks Amount (RM million) 2004 Balance brought forward 2005 Issuance of 100,000,000 shares Issuance of 280,000,000 shares Issuance of 845,490,000 shares Conversion of 540,000,000 CRNCPS into ordinary shares Cumulative Total (RM million) , , Bank Islam Malaysia Berhad 11

13 FINANCIAL SUMMARY Bank Islam Malaysia Berhad Group unaudited STATEMENT OF FINANCIAL POSITION (RM million) 30-Jun Jun Jun Dec Jun-11 ASSETS Cash & Money At Call 6, , , , , Deposits & Placements With Financial Institutions Securities Purchased Under Resale Agreements Financial Assets Held for T rading , , Financial Investments Available for Sale 3, , , , , Financial Investments Held to Maturity Gross Financing & Advances 9, , , , , Collective Impairment Allowances ^ (170.46) (169.38) (170.84) (345.04) (358.25) Individual Impairment Allowances ^^ (1,211.26) (1,228.13) (878.30) (79.06) (79.30) Net Financing & Advances 8, , , , , Statutory Deposits Investments in Associates and/or Joint Ventures Other Assets Property, Plant & Equipment TOTAL ASSETS 19, , , , , LIABILITIES Customer Deposits Demand 4, , , , , Savings 2, , , , , Fixed 6, , , , , Negotiable Instruments of Deposits 4, , , , , Others Interbank Deposits Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Other Funding Debt Securities & Hybrid Capital Other Liabilities TOTAL LIABILITIES 18, , , , , Paid-up Capital 1, , , , , Share Premium & Other Reserves Statutory Reserves , Retained Profits/(Accumulated Losses) (1,588.48) (1,390.94) (1,309.36) (1,185.13) (1,176.79) TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS 1, , , , , Minority Interests TOTAL EQUITY 1, , , , , TOTAL LIABILITIES AND EQUITY 19, , , , , COMMITMENTS & CONTINGENCIES 8, , , , , TIER 1 CAPITAL * , , , , CAPITAL BASE * 1, , , , , Note: ^ Prior to FY Dec 2010, known as General Financing Loss Reserves ^^ Prior to FY Dec 2010, known as Specific Financing Loss Reserves * Capital base figures are net of proposed dividends Bank Islam Malaysia Berhad 12

14 FINANCIAL SUMMARY Bank Islam Malaysia Berhad Group unaudited STATEMENT OF COMPREHENSIVE INCOME (RM million) 30-Jun Jun Jun Dec Jun months 6 months Finance Income , , , Income Attributable to Depositors (424.42) (424.39) (434.00) (622.34) (239.40) Net Finance Income , Non-Finance Income Gross Income , Personnel Expenses (185.27) (216.46) (228.43) (430.97) (162.38) Other Operating Expenses (232.31) (216.81) (231.88) (375.96) (140.48) Financing Impairment Charges * (20.18) 7.55 (123.29) (207.70) (18.01) Non-Recurring Items (11.42) Share of Associated Companies'/Joint Ventures' Profits/(Losses) (0.15) Pre-Tax Profit/(Loss) Taxation and Zakat (4.35) (73.99) (92.78) (62.31) Net Profit/(Loss) Other Comprehensive Income/(Loss): Foreign Currency Translation Differences NA NA NA Net Gains/(Losses) on Available For Sale Investments NA NA NA Net Changes in Cash Flow Hedges NA NA NA Other Components of Comprehensive Income/(Loss) NA NA NA Income Tax Relating to Components of Other Comprehensive Income/(Loss) NA NA NA Total Comprehensive Income/(Loss) NA NA NA Note: * Prior to FY Dec 2010, known as Financing Loss Provisions NA = Not available / Not applicable Bank Islam Malaysia Berhad 13

15 FINANCIAL RATIOS Bank Islam Malaysia Berhad Group unaudited KEY FINANCIAL RATIOS (%) 30-Jun Jun Jun Dec Jun-11 PROFITABILITY Net Financing Margin 2.93% 3.01% 2.76% 3.04% * 3.23% * Non-Financing Income Margin 1.00% 0.48% 0.45% 0.46% * 0.64% * Cost To Income 63.16% 58.34% 56.17% 53.22% 53.91% Cost Over Total Average Assets 2.48% 2.03% 1.80% 1.86% * 2.08% * Return On Assets 1.26% 1.49% 0.92% 1.16% * 1.66% * Return On Equity 54.98% 27.11% 16.55% 16.44% * 18.56% * Dividend Payout 0.00% 0.00% 0.00% 4.68% 45.23% ASSET QUALITY Gross Impaired Financing Ratio ^ 22.36% 18.64% 12.70% 4.50% 4.20% Net Impaired Financing Ratio ^ 11.42% 7.82% 4.90% 3.88% 3.62% Net Impaired Financing To Total Assets ^ 5.15% 3.06% 1.75% 1.56% 1.71% Individual Impairment Allowance For The Period 2.70% 2.97% 2.87% 0.72% * 0.59% * Gross Impaired Financing Coverage ^ 63.03% 71.67% 77.12% 76.80% 78.76% Financing Loss Reserve Coverage 14.09% 13.36% 9.79% 3.45% 3.31% Collective Financing Loss Reserve Coverage 1.98% 1.83% 1.74% 2.83% 2.72% LIQUIDITY & FUNDING Liquid Asset Ratio 55.16% 62.26% 67.38% 65.30% 57.09% Interbank Deposits To Total Profit Bearing Funds 0.19% 0.27% 0.03% 1.38% 1.92% Customer Deposits To Total Profit Bearing Funds 98.64% 94.75% 98.47% 98.02% 97.23% Financing T o Deposits Ratio 47.91% 43.66% 38.33% 44.15% 53.22% Financing T o Stable Funds Ratio 44.55% 39.05% 35.57% 39.90% 47.30% CAPITAL ADEQUACY Total Equity To Total Assets 5.35% 5.60% 5.57% 8.35% 9.53% T ier 1 Risk Weighted Capital Adequacy Ratio 9.74% 11.27% 12.25% 15.21% 15.33% Overall Risk Weighted Capital Adequacy Ratio 12.10% 13.15% 13.87% 16.44% 16.47% Internal Rate Of Capital Generation 54.65% 33.32% 11.36% 30.44% * 15.00% * Note : ^ Prior to FY Dec 2010, Impaired Financing were known as Non-Performing Financing * annualised Bank Islam Malaysia Berhad 14

16 FINANCIAL RATIOS Bank Islam Malaysia Berhad Group KEY FINANCIAL RATIOS PROFITABILITY Net Financing Margin Non-Financing Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross Impaired Financing Ratio Net Impaired Financing Ratio Net Impaired Financing To Total Assets Individual Impairment Allowance For T he Period Gross Impaired Financing Coverage Financing Loss Reserve Coverage Collective Financing Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Financing To Deposits Ratio Financing To Stable Funds Ratio Short-T erm Funds Liquid Assets T otal Profit Bearing Funds FORMULAE Net Finance Income / Average Total Assets Non-Finance Income / Average Total Assets (Personnel & Other Operating Expenses) / Gross Income (Personnel & Other Operating Expenses) / Average Total Assets Pre-T ax Profit/(Loss) / Average T otal Assets Pre-T ax Profit/(Loss) / Average T otal Equity Dividends / Net Profit/(Loss) T otal Impaired Financing / Gross Financing (Total Impaired Financing - Individual Impairment Allowances) / (Gross Financing - Individual Impairment Allowances) (Total Impaired Financing - Individual Impairment Allowances) / Total Assets Individual Impairment Allowance For T he Period / Average Gross Financing (Collective Impairment Allowances + Individual Impairment Allowances) / T otal Impaired Financing (Collective Impairment Allowances + Individual Impairment Allowances) / Gross Financing Collective Impairment Allowances / (Gross Financing - Individual Impairment Allowances) Liquid Assets / Customer Deposits & Short-Term Funds Net Financing / Customer Deposits Net Financing / (Shareholders' Funds + Total Profit Bearing Funds + Collective Impairment Allowance - Interbank Funding - Property, Plant & Equipment - Investments in Associates) Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Cash & Short-T erm Funds + Securities Purchased Under Repos + Deposits & Placements With Financial Institutions + Quoted Securities (Excluding Financial Investments Held-T o-maturity) Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowings + Supplementary Capital CAPITAL ADEQUACY Internal Rate Of Capital Generation (Net Profit/(Loss) + Extraordinary Income - Dividend + Collective Impairment Allowances) / Average T otal Equity Bank Islam Malaysia Berhad 15

17 CREDIT RATING DEFINITIONS Financial Institution Ratings A Financial Institution Rating ("FIR") is RAM Ratings' current opinion on the overall capacity of a financial institution to meet its financial obligations. The opinion is notspecific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation. Long-Term Ratings AAA AA A BBB BB B C D A financial institution rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term FIR assigned by RAM Ratings. A financial institution rated AA has a strong capacity to meet its financial obligations. The financial institution is resilient against adverse changes incircumstances, economic conditions and/or operating environments. A financial institution rated A has an adequate capacity to meet its financial obligations. The financial institution is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. A financial institution rated BBB has a moderate capacity to meet its financial obligations. The financial institution is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated BB has a weak capacity to meet its financial obligations. The financial institution is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. A financial institution rated B has a very weak capacity to meet its financial obligations. The financial institution has a limited ability to withstand adverse changes in circumstances, economic conditions and/oroperating environments. A financial institution rated C has a high likelihood of defaulting on its financial obligations. The financial institution is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaultingon its financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. Short-Term Ratings P1 P2 P3 NP D A financial institution rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest shortterm FIR assigned by RAM Ratings. A financial institution rated P2 has an adequate capacity to meet its short-term financial obligations. The financial institution is more susceptible to the effects of deteriorating circumstances than thosein the highest-rated category. A financial institution rated P3 has a moderate capacity to meet its short-term financial obligations. The financial institution is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. A financial institution rated NP has a doubtful capacity to meet its short-term financial obligations. The financial institution faces major uncertainties that could compromise its capacity for payment of financial obligations. A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the financial institution ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the financial institution ranks at the lower end of its generic rating category. Bank Islam Malaysia Berhad 16

18 Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings. Copyright 2011 by RAM Ratings RAM Rating Services Berhad Suite 20.01, Level 20 The Gardens South Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur Tel: (603) / (603) Fax: (603) ramratings@ram.com.my Website: RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. RAM Ratings, its rating committee members and the analysts involved in the rating exercise have not encountered and/or are not aware of any conflict of interest relating to the rating exercise. RAM Ratings will adequately disclose all related information in the report if there are such instances. Bank Islam Malaysia Berhad 17