Zeti Akhtar Aziz: New opportunities for growth and development in Islamic
financial markets
Speech by Dr Zeti Akhtar Aziz, Governor of the Central Bank of Malaysia, at the official ceremony for
the completion of the Share Subscription Agreement between BIMB Holdings Berhad, Bank Islam
Malaysia Berhad, Dubai Financial LLC & Lembaga Tabung Haji, Kuala Lumpur, 16 October 2006.
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This occasion marks the successful completion of the share subscription agreement between BIMB
Holdings Berhad, Bank Islam Malaysia Berhad, Dubai Financial Limited Liability Company (LLC) and
Lembaga Tabung Haji. It also sets a new chapter in Bank Islam's drive to chart its future direction in
meeting new challenges and in exploiting the new opportunities for growth and development in the
Islamic financial markets, both in the domestic and global market place. The participation of such key
foreign and local institutions in the new share issuance by Bank Islam Malaysia Berhad signifies an
important turning point in the history of Bank Islam which has been the pioneer Islamic bank in
Malaysia.
The partnership between BIMB Holdings Berhad, Dubai Financial LLC and Lembaga Tabung Haji is
significant in several important ways. Firstly, it reflects the confidence and trust that international and
domestic investors have in the investment and business climate in Malaysia, and in the Malaysian
Islamic financial sector in particular. Indeed, the Islamic financial services industry in Malaysia has
experienced robust growth in addition to being reinforced by enhanced market discipline and
transparency, and the vibrancy of the Islamic financial market developments in Malaysia. The latest
financial indicators show that the Islamic banking industry remains well-capitalised with a risk-weighted
capital ratio of 14.8% as at end-August 2006, while the net non-performing financing ratio has declined
to 4.2%. Clearly, therefore, the industry is strong, resilient and well-positioned to meet emerging
challenges and to capitalise on new opportunities for the mutual return of its stakeholders.
Secondly, this partnership comes at a significant juncture when Malaysia is enhancing the
international dimension of its Islamic banking and financial market, with the introduction of increased
foreign participation. In line with the aspiration to position Malaysia as an international Islamic financial
centre (MIFC), new licences and business divisions to conduct international currency Islamic banking
business, tax and other incentives have been introduced to attract global Islamic financial institutions
to make Malaysia the hub for their regional business operations. These measures and incentives are
also expected to attract international investors, including from the Middle East, to leverage on
Malaysia as an investment gateway to tap the rapidly growing investment opportunities in the East
Asian region.
Thirdly, this partnership also serves to enhance Malaysia as a centre of product innovation in Islamic
finance. Indeed, conscious efforts have been made to ensure a conducive environment for innovation
in Malaysia, including the development of the necessary pool of expertise and talent to drive such
innovation. Within Bank Islam itself, there is a track record and brand name for innovation, with the
development of new business models and product offerings. This partnership would thus contribute
towards accelerating this process and towards serving as a bridge to strengthen the relationship of the
Islamic financial markets as well as the investment and trade ties between the West Asian and North
African regions, with East Asia.
Strengthening the capital of a financial institution, however, is not the only factor that will determine its
capacity and potential to perform. Equally important is the quality of its talent, the systems that it has in
place, in particular, its risk management and ICT systems and its governance structure, its leadership
and its corporate culture. Thus, while this capitalisation exercise will put Bank Islam in a stronger
position to tap new opportunities, all the other elements also need to be in place to enable the
institution to realise its true potential.
Sound corporate governance and effective management of banking institutions are vital to ensure their
effective and sound functioning. In particular, significant shareholders are expected to play an active
role to ensure that capable individuals are appointed on the Board and senior management of banking
institutions.
Bank Negara Malaysia had as early as 2001 required the Board and management of Bank Islam to
undertake remedial actions on several operational and control weaknesses. When the weaknesses
were not adequately addressed, the process of reconstituting the Board and management of Bank
Islam was initiated in 2003. In such an exercise, key shareholders are expected to be proactive in
making prudent and responsible action to remove any member or employee that is found to be
unsuitable or not having the required calibre so as to avoid a prolonged process in the reconstruction
of the Board and management of the bank. It needs to be recognized that the responsibility for the
safety and soundness at the institutional level rests primarily with the Board and the management of
each banking institution and the key stakeholders such as the significant shareholders. Institutional
investors should also have an active role and make swift and bold decisions in ensuring that only
capable individuals are appointed and remain on the Board and senior management of banking
institutions.
Currently, virtually all the directors and key executives of Bank Islam are new, with diverse banking
experience. In accelerating the provisions and in instituting the measures to address the bank's
system, processes and business culture, it has now paved the way for drawing in new shareholders. It
can now offer a valued proposition. And indeed, the participation of a new strategic investor will in fact
further strengthen the bank. This has allowed the existing and new shareholders to focus taking the
bank to the next level and to capitalize on the new opportunities the environment offers.
Indeed, the bank can gainfully advance to venture abroad to explore new business opportunities in the
regional markets. The growth prospects will also be further strengthened by the overall performance of
the industry and the sound and mutually reinforcing inter-linkages of the various market components in
the Islamic financial system.
In closing, I would like to take this opportunity to congratulate BIMB Holdings Berhad, Bank Islam
Malaysia Berhad, Dubai Financial LLC and Lembaga Tabung Haji for their contributions in the
successful completion of the share subscription agreement for Bank Islam. I wish Bank Islam and its
shareholders every success in taking the Bank to greater heights in its future endeavours.
Thank you.