STANDFIRST: It has been almost two years since Mohamed Rafe Mohamed Haneef helmed CIMB Islamic Bank Bhd as its chief executive officer. Rafe, the former HSBC Amanah Malaysia Bhd CEO who had also worked with major financial markets including London and Dubai, shares his journey so far with NST Business. He outlines the bank’s Islamic Finance proposition as well overall performance and regional expansion, and bullish outlook on Malaysia’s and global sukuk market. Lidiana Rosli writes.
Question: How has your journey as chief executive officer of one of the country’s biggest Islamic banks been so far?
Answer: Islamic Finance (IF) is a financial inclusive proposition, so in order to ensure that initiative is successful, we have to broaden the scope beyond Muslims. How do we ensure that IF is not only attractive to Muslims but also people of other faiths? In order to bring everyone onboard, we need to have product offerings that mirror conventional offerings. Our challenge now is to be able to deliver a seamless proposition within the IF gambit. My last 20 months were about getting all these products in place.
Q: What was that process like?
A: First, we identify the products, then we start developing them. Because of the multiple internal and external approvals, the process may take between three and six months before a product comes to the market. Most of the processes are internal because we have designed the system in a certain manner, and to convert these products to be syariah-compliant requires a lot of system enhancements.
Q: How many products have gone through the conversion now?
A: In the last 20 months, we had some 84 products. Some require d significant enhancements, while others only required tweaking at the front-end level. There are now fewer than 20 products awaiting enhancements as we have been quite busy in terms of getting them done. That is also why we see a shift in the products being offered. In fact, in some financing products, we saw an almost 80 per cent intake of new financing on the Islamic side, versus conventional banking.
Q: The IF market in Malaysia has, in the past, been given multiple tax incentives, but this doesn’t seem to be the case any more. Do you think that the IF segment can stand on its own without all these “goodies”?
A: You’re right, the government had given some tax-related incentives and lower pricing on certain products in the past. Today, there are not as many incentives as before because the government believes that IF can now stand on our own feet, without all these incentives. And yes, we are standing on our own feet, but we still need to create awareness because our commercial clients may not be aware that only the structure is different while everything else, such as delivery and outcome, is pretty much the same.
Q: How significant is the retail banking segment to CIMB Islamic’s overall performance?
A: Our retail banking segment is significant because based on June’s numbers, consumer contribution was almost 60 per cent of our total books. This means that out of RM51 billion in financing extended by CIMB Islamic across Malaysia, Singapore and Indonesia, consumer banking contributed RM30 billion. When I joined the bank, consumer banking’s contribution was between 40 and 45 per cent.
Q: That’s quite a jump in just 20 months. Do you think that this is sustainable?
A: The key thing in making this sustainable is that we need the people (talent) to sell it. We can simplify the products, but if we don’t have the people’s support to push these products out, it won’t work.
So, what we did was come up with an embedded model which enables both our CIMB Islamic and our conventional side from CIMB Group to tap the same talent.
This is especially important as we operate on two separate licences, but we do operate out of the same branches, as we are able to offer both Islamic and conventional banking in the same branches.
Now, most of our relationship managers have the mandate to sell both Islamic and conventional banking options.
Q: Other Islamic banks in the country have voiced their interest in capturing a piece of the Saudi Arabian market, on the back of the Saudi Vision 2030 economic plan. Is CIMB Islamic also keen to tap that market?
A: We still have a lot to achieve in Malaysia and we see Asean as our playground. Indonesia is still very much a low-hanging fruit. Currently, 85 per cent of our financing business is from Malaysia, Singapore is at 10 per cent and Indonesia is five per cent, which means our penetration in Indonesia is low. We want to focus on Asean first before eventually considering building inroads into the Middle East beyond 2018.
Q: What about the sukuk outlook this year? Are you bullish on the global sukuk performance despite the United States Federal Reserves decision to shed its bonds balance sheet, amounting to some US$4.5 trillion (RM18.86 trillion)?
A: Barring unforeseen circumstances between now and the end of the year, we anticipate a record year in the global sukuk market. In fact, as of last month, the local sukuk market saw RM44.1 billion of sukuk issued year-on-year, which reflected a growth of two per cent, mainly supported by issuances from infrastructure companies and corporates.
On the global front, we are seeing a similar trend, with US$36.6 billion issued for the first eight months of the year compared with US$29.1 billion worth of sukuk issued in the corresponding period last year. Answering your question, we have not seen any impact on the sukuk market on the back of the Fed’s plan, judging from the strong showing in the sukuk space thus far.
Q: When we met last year, you mentioned your interest in Sustainable and Responsible Investing (SRI) opportunities. Since then, CIMB Islamic became the sole lead arranger, leader manager and syariah adviser for Khazanah Nasional Bhd’s RM1 billion SRI sukuk. Can we expect more SRI activities, especially given that the Securities Commission (SC) has rolled out its SRI Sukuk Framework?
A: Wholesale banking business are exploring green sukuk, environmental, social and governance financing opportunities, and the potential of facilitating waqaf financing to better optimise existing assets for future growth. We are always exploring opportunities and are currently engaging both our internal and external stakeholders on developing a proper framework on sustainable financing.
Q: SC is also working on a SRI Funds Framework, which is expected to be rolled out at the end of the year. Would CIMB Islamic be interested in managing assets with SRI funds, and if so, have you reached out to SC?
A: CIMB Group’s Islamic Asset Management business, through its dedicated entities CPAM and CPIAM, are looking to develop investment expertise in SRI for the fund management space in the near-to-medium term. CPAM is in close contact with SC to contribute to the development SRI in the asset/fund management industry.
Q: What are your thoughts on Bank Negara’s recently-rolled out initiative, Value Based Intermediation (VBI)?
A: We are delighted to play an integral role as a key industry player and are taking the necessary steps to incorporate VBI in CIMB Islamic’s DNA by crafting objectives that will not only enhance the company’s performance, but also benefit our communities and protect our planet in a meaningful and sustainable manner over the longer term.