Bank Islam: marketing of Islamic banking
products
Ajay Chauhan and Rabia Rasheed
Ajay Chauhan is a
Professor and
Rabia Rasheed is a
Student, both at Universiti
Utara Malaysia, Malaysia.
This case study is published
in partnership with the
Universiti Utara Malaysia
(UUM) Institute for Business
Management and Research
(IMBRe) as part of the
Emerald – UUM Case Writing
Competition.
Disclaimer. This case is written
solely for educational
purposes and is not intended
to represent successful or
unsuccessful managerial
decision making. The author/s
may have disguised names;
financial and other
recognizable information to
protect confidentiality.
DOI 10.1108/EEMCS-10-2014-0236
New appointment
Azhar Mehmud (AM to his friends due to his initials and because he always came into the office
very early in the morning) was waiting outside the cabin of Dato’ Sri Zukri Samat, Managing
Director (MD), on the afternoon of January 28, 2014. Earlier that morning, AM had completed
all the formalities related to joining Bank Islam Malaysia Berhad (BIMB) as Marketing Manager
– Islamic Retail Banking Products, and he was asked to report to General Manager, Consumer
Banking (GMCB) in Kuala Lumpur at the bank’s headquarters at Menara Bank Islam, Jalan
Perak. The HR manager had informed him that his induction was to start with a briefing from the
MD. AM was very nervous because he had also been told that the MD had been awarded the
International Banker Awards 2014, with the bank receiving triple honors, and that the MD
himself was awarded the prestigious Banking CEO of the Year (Asia) award and the bank
received Best Customer Service Provider (Asia) and Best Islamic Bank (Malaysia) awards.
Exactly at 3 p.m., the MD’s secretary gestured for him to go into the cabin. The cabin was
huge. AM was impressed when the MD got up from his chair and invited him to sit on the
exclusive sofa set. The MD welcomed him to the bank and gave him a nice folder.
MD: “I will tell you in a brief because all the achievements of our bank are in this folder. You
must read it carefully. We have lot of expectations from you. The bank wants you to take
over from here”.
AM: “Thank you, sir”.
MD: “Do you know the history of our bank?”
AM: “A little bit, sir. But I would like to know more”.
MD: “When you have finished reading this file, you must read the history of our bank. You
will be reporting to MAR. We are used to lot of abbreviations. You can call him GMCB. He
is waiting for you and he has all the material on our bank”.
AM understood that MD was referring to Mujibburahman Abd Rashid (MAR), who was
General Manager, Consumer Banking (GMCB). The meeting had lasted barely 2 minutes
before the MD got up and shook hands. AM left the cabin feeling very happy that the MD
now knew him personally. Outside the cabin, the secretary guided him toward GMCB’s
cabin. GMCB was not around, so AM went to his own cabin on the 24th floor, which had a
nice view of Kuala Lumpur. He sat down and opened the folder. In it was the interview MD
had given at the International Bankers Awards Ceremony.
MD’s interview at the awards ceremony
AM wanted to read anything about Bank Islam and Islamic banking (IB) as his background
was conventional banking (CB) and this was the first time that he had returned to his own
VOL. 5 NO. 8 2015, pp. 1-26, © Emerald Group Publishing Limited, ISSN 2045-0621 EMERALD EMERGING MARKETS CASE STUDIES PAGE 1
 country. He received his degree in Bank Financial Management from City University,
London in 1998, and had been working with Standard Chartered Bank (SCB) in Indonesia.
He had felt very lucky when SCB selected him while he was at City University for a posting
in Jakarta. Indonesia was not very far from Malaysia, and the locals spoke a dialect very
similar to his own language, Bahasa. However, recently, his family was putting pressure on
him to take an assignment in peninsular Malaysia because his children had started school
and his wife wanted them to be educated in their country. He applied for jobs in various
banks in Malaysia. Most vacancies were in Islamic banks and AM had no knowledge of IB
but luckily he got a job in BIMB due to his good business development experience in
high-end retail customers.

Even though he had seen the same interview on the Bank Islam Web site (see References),
he started reading the copy in the folder again.
He read,“Global Islamic Finance Awards (GIFA) “Islamic Banker of the Year 2013’ Dato” Sri
Zukri Samat sheds light on how he took on the mammoth task of changing the mindset and
culture of Bank Islam Malaysia Berhad (Bank Islam) to transform Malaysia’s maiden Islamic
bank from being at the brink of financial collapse to become one of the country’s top players”.

He further read, “Living up to its pioneering heritage, Bank Islam today offers a comprehensive
list of more than 70 innovative and sophisticated IB products and services. It has expanded its
network with 133 branches and more than 1,200 self-service terminals nationwide and is ready
to make further inroads in the region”.

When I came on board, Bank Islam’s losses amounting to approximately RM1.8 billion (RM500
million and RM1.3 billion in 2005 and 2006, respectively) due to non-performing financing posed
a threat not only to IB system but the banking system in general.

AM was aware of the background of the MD. Dato’ Sri Zukri Samat had become the
Managing Director of BIMB on June 9, 2006. Prior to this appointment, he was the
Executive Director of Investment in Khazanah Nasional Berhad, an investment arm of
the Government of Malaysia. Before that, he was the Managing Director of Pengurusan
Danaharta Nasional Berhad (Danaharta), a national asset management company set up
by the government during the 1997-1998 financial crisis. He knew that the first thing that
the MD did after coming to BIMB was to infuse new capital in the bank with the help of
Khazanah Nasional Berhad. Lembaga Tabung Haji (TH) and Dubai Investment Group
LLC (DIG) invested RM1.01 billion taking 9 and 40 per cent shares, respectively. BIMB
Holdins Berhad owned 51 per cent shares. Later, some more shares were acquired by
TH from DIG, to make their share 18.5 per cent. DIG shareholding decreased to 30.5
per cent (Exhibit 1).

AM was aware that TH-related transactions could be carried out in all the BIMB ATMs. His
impression was that TH not only brought investment, but also benefitted BIMB by its vast
databases of Malaysian Muslim citizens. He was counting on utilizing this network in his
future assignments. He was not sure but guessed that integrating with TH must have
increased the BIMB income from millions of TH deposits.

He had also had read that another thing that MD did after joining was to introduce a
three-year Turnaround Plan (3TP). It was a five-point program:

1. Recapitalization and restructuring of the balance sheet.

2. Revamp IT infrastructure.
3. Cost rationalization.
4. Organization transformation.
5. Human capital development.

PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

While taking over his position, the MD must have known that his first key performance
indicator (KPI) was to improve the balance sheet. Therefore, main focus of the first phase
of 3TP was recovery.
So AM was not surprised when he read on the third page: “As some of you may have
known, prior to Bank Islam I was the Managing Director of Pengurusan Danaharta Nasional
Berhad (Danaharta), the national asset management company established to manage the
non-performing loans (NPL) during the 1997/1998 Asian financial crisis [. . .]. In 2005, we
managed to close the book with 58 per cent recovery rate. World Bank acknowledged our
efforts and documented our achievements in their periodical issue that year”. After reading
this, AM found the statement on fourth page that said, “One of the root causes of the
problems at Bank Islam in 2005/2006 was largely the result of high non-performing
financing”. But there was no mention in the report of how much recovery there had been.
AM switched on his computer and browsed until he found a report from one of the rating
agencies in 2012 which mentioned that initiatives taken by the MD had significantly
improved BIMB gross non-performing financing (NPF) ratio to 7.6 per cent by 2010, from
a peak ratio of approximately 30 per cent in 2006. He read more of the interview which went
on to state that TP lasted till 2009. The main achievement was to revamp the Risk
Management Roadmap of BIMB which was now equipped with capable resources,
infrastructure and support systems. A risk awareness culture was introduced so that
everyone could become aware of the different types of risks and their likely impact.
The MD then embarked upon a new strategic plan called Sustainable Growth Plan (SGP),
which started in 2010 and lasted till 2012 and said, “The target was organic growth in retail
banking business with focus on broad-based retail customers and secured or
collateralized financings”. The SGP ended with healthy results, and during 2012, the growth
exceeded the targets. For example, asset growth was 16.2 per cent compare to target of
15 per cent; financing growth was 37.8 per cent compared to target of 25 per cent; and
profits grew by 21.8 per cent compared to target of 15 per cent.
The latest strategic plan was Hijrah to Excellence plan (H2E), covering the period 2013 to
2015. AM jotted down the features of each plan and made a chart of transformation plans
(Exhibit 2). He was aware that any day discussion could focus on these plans and he
should know them by heart.
AM also read about the MD’s leadership style: “I believe in putting the right people in the
right jobs, nurturing their talents, motivating them to want to perform rather than by force
and eventually leading to ‘leaders creating leaders’”. The MD formed committees at senior
level (Exhibit 3) and believed in having the right person for the right job. Perhaps this was
the reason AM had been given a fairly good salary by Malaysian standards for what was a
new position. The MD also inducted non-Muslims in senior positions in the bank, for
example Malkit Singh Maan as Chief Financial Officer, Jeroen P.M.M. Thijs as Chief Risk
Officer and Ryan Liew Choon Ching as Chief Technology Officer (Exhibit 4). The other
measures included launching of fast-track Young Leaders Program (YLP) in 2012 to attract
high-caliber graduates to the bank.
AM later went to GMCB’s cabin, but he was still not there but his secretary gave him a file
containing much required information on the history of Bank Islam. AM started reading and
making notes.

History of Bank Islam

Malaysia became independent in 1957 but the constitution was not formed until 1963.
Immediately after independence, a fund was created for Haji pilgrims called Lembaga
Tabung Haji in 1963 as a savings mechanism for devout Muslims to cover the cost of
pilgrims. Tabung Haji did not pay any interest but invested the funds collected in
productive sectors and earned the profit which was shared with all the members. The
success of Tabung Haji led to the awareness of the need to establish full-fledged Islamic

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3

 bank on a commercial basis. Following the formation of Nasser Social Bank in 1971 in
Cairo, Egypt, there was a spate of Islamic banks in the Middle East. As a result, there was
pressure put on the government by Bumiputra Congress, which represented the majority of
the Muslim population, in 1980.
Due to this pressure, a National Steering Committee was set up in 1981 to oversee the
formation of an Islamic Bank of Malaysia. The government of Malaysia passed the Islamic
Banking Act (IBA) in 1983, and BIMB was set up under the IBA to service the special needs
of Muslims in Malaysia for IB. It began its operations on July 1, 1983 as Malaysia’s first
commercial Islamic bank with an initial authorized capital of RM500 million and a paid-in
capital of RM79.9 million.
Under IBA, Bank Islam is licensed to operate an IB business, which means that its aims and
operations must not involve any element which is not approved by the religion of Islam.
Among other things, Bank Islam is governed by the following Islamic law (Shariah)
principles: absence of interest-based (riba) transactions, avoidance of speculations
(gharar), avoidance of oppression (zulm), promotion of socio-economic justice through
Islamic tax (zakat) and discouragement of the production of goods and services that are
harmful to humankind and contradict the Islamic principles (haram).
Bank Islam received tremendous support from the Government of Malaysia. It operated for
10 years without competition, which allowed it to expand and secure growth. The
Government Funding Act 1983 was passed to allow the issuance of Government
Investment Issue (GII), government securities issued based on Shariah principles. This
helped provide for the liquidity needs of the first Islamic bank as it is not allowed to buy and
sell conventional interest-bearing instruments. In November 29, 1984, Bank Islam set up
Syarikat Takaful Malaysia Sdn. Bhd., the first Islamic insurance company, to complement its
banking operations. On January 17, 1992, Bank Islam was listed on the Main Board of the
Kuala Lumpur Stock Exchange proving its viability to operate alongside with the
conventional banking system in the country. In 1997, Bank Islam was delisted and its listing
status was taken by its newly formed holding company, BIMB Holdings Berhad.
AM called for the latest balance sheet for the year ending December, 2013. The first thing
he noticed was that as on December 19, 2013 BIMB Holdings acquired all the other shares
so as to make BIMB its wholly owned subsidiary (Exhibit 1).
The three transformation plans, the 3TP, the SGP and the H2E, seemed to have proved
fruitful. The total assets have grown three times from RM14.6 billion in 2006 to RM42.84
billion. The same was true for net financing, which has increased from RM8.6 billion to
RM23.74 billion. The profit before zakat and tax (PBZT) was RM1.24 billion in 2006. The
PBZT was healthy (RM 683 billion) (approximately, US$211 billion) in 2013 (Exhibits 7
and 8).
Bank Islam has a network of 136 branches employing a huge staff of 4,200 and nationwide
has more than 1,200 self-service terminals. Bank Islam offers more than 70 Islamic
products and services in the market (Exhibit 6) and is primarily a retail bank, with 74 per
cent of the bank’s financing driven by consumer banking, with the balance 26 per cent
divided between commercial banking and corporate banking. So AM was happy to be
associated with the consumer banking sector. AM noticed that consumer banking was
undergoing tremendous changes with more emphasis on personal financing, which
comprised substantial 34 per cent out of total consumer financing. Comparatively, house
financing decreased from 43 to 26 per cent (Exhibit 5).
AM finished reading at 8 p.m., and he realized that everybody in the office had already left.
The next day when he arrived in office, he had a surprising encounter with GMCB in the lift.
AM: “Selamat pagi (Good morning), MAR”.
GMCB: “So! You are our new Marketing Manager! We have to deal lot with each other. Let
us start with a breakfast”.

PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

The assignment
GMCB, also known as MAR, took AM to the staff canteen. He spoke slowly but firmly while
he gave AM his assignment. MAR told him about the three transformation plans from 2007
to 2015. Then, he also briefed him about history, about how BIMB had recovered from
massive losses in 2006 to a steady growth path after 3TP and during SGP. The growth so
far was inorganic, and the positive impact of association with TH and the favorable stance
of government were helpful. Now the time was for organic growth based on the core
competencies of BIMB. AM’s appointment was a part of BIMB’s effort to create a long-term
competitive advantage in IB. BIMB had recently received numerous awards, such as “Best
Islamic Bank of the Year” by The Banker magazine and Focus Malaysia and “Most
Innovative Islamic Bank in Malaysia 2013” by International Finance Magazine. Due to these
awards, expectations increased, and BIMB had lot of pressure to meet the expectations.
What GMCB wanted AM to do was create an analytical report on the marketing challenges
faced by IB products, especially in the consumer segment, which was a substantial
business for BIMB. He was given less than six months to complete the report that was to
be submitted by the end of June to GMCB. AM was also told that his position would only
become permanent depending on the quality of this report and that he was supposed to
get a budget approved by GMCB within a week for any resources that AM required to
complete the report. By the time this meeting finished, AM could see people entering in
canteen for lunch.

Hijrah (Journey) to excellence

Azhar further read about the H2E plan of BIMB covering the period 2013-2015. H2E had
identified six areas for making specific efforts of improvement:

1. robust organic growth;

2. service excellence;
3. shariah-led innovation;
4. resource optimization;
5. employer of choice; and
6. regionalization.
The H2E plan brought good news to BIMB. With regard to robust organic growth, BIMB saw
improvement in profitability and returns as well as customer deposits and net financing
(Exhibit 8) in the first year of H2E compared to 2012. The customer deposits increased by
14.4 per cent to RM37.3 billion and the financing-to-deposits ratio (FDR) became 65 per
cent compared to 61.2 per cent. Looking at this improvement, BIMB has set the target FDR
up to 70 per cent in the year 2014 and 75 per cent in 2015.
Under the targeted area of service excellence, Customer Satisfaction Index (CSI)
conducted by Malaysian Productivity Centre (MPC) was 86, extremely positive when
compared to 40 in 2011. The international benchmark is stated to be 80. In addition, the
customer waiting time improved. The queue management system (QMS) rating of BIMB
became 90 per cent compared to 45 per cent in 2012 and 21 per cent in the year before.
BIMB also introduced innovative Shariah-compliant products. The year 2013 also saw the
introduction of a new legal framework for IB and insurance (Takaful) to Islamic Financing
Services Act (IFSA), 2013. The BIMB introduced Murbahah purchase order (MPO) for
vehicle financing and parallel Istisna for project financing.
Under resource optimization, BIMB strived to improve internal processes, shared services
and cost efficiency, whereas the bank tried to improve its image as an employer of choice
by introducing work live balance and community activities (between employees and local
communities). BIMB invested RM8.9 million for staff capacity building.

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5

 The global Islamic finance industry is reported to have grown tremendously with as many
as 600 institutions offering Shariah-complaint products across 75 countries. Therefore,
BIMB planned to make a mark in the era of globalization and envisaged to have a footprint
in the ASEAN region, particularly in Indonesia.

Customer survey and report

AM was an expert in creating a budget and made a tour plan to visit all the major branches
of BIMB in state capitals as well as some of the other prominent branches to meet various
category of customers. He estimated that he would take about three months to complete
the customer survey. He also wanted to visit universities to find if there were any studies on
the marketing of IB products. He had provisioned another two months for meeting university
experts and writing the report. He knew that he had to understand the customers before
making any suggestions for product strategies. AM wrote a list of questions and a budget
which GMCB quickly approved. GMCB also told him that he was fairly busy over the next
few months and may not be able to have any time for AM. However, he assured that
communication had been sent to all the branch heads to corporate with AM.
He was pleasantly surprised to find lot of product literature and a few studies on IB
products. There were studies which showed that while 80 per cent of the banking
customers in Malaysia are aware of IB, they were not aware of IB products. AM had read
the same thing in the MD’s interview statement, where he had recommended that, “First of
all, I think the lack of public understanding of IB must seriously be addressed”.
In spite of the marketing strategies adopted by the Islamic banks, some of the studies
showed apprehensions about the sustainability of growth. It was speculated that the
leading role of BIMB in the initial years has been diminishing. Therefore, it was felt that the
growth of IB has been saturated, and it is becoming increasingly difficult and challenging
to compete with commercial banks.
AM was able to finish meeting a sufficient number of customers by June. There were many
types of opinions from different segments of the customers. The response of one Malay
customer (translated) was: “I do not understand the names, which are all in foreign
language. For example, I have put in some money in a unit trust product but that is because
the manager insisted very much. I do not know what it is called but it is Islamic”.
An Tamil customer mentioned (translated) that:
“I have taken loan from Bank Islam for my car. I don’t know it is Islamic or non-Islamic. I pay
monthly installments and it is very conveninet. But, if I had taken loan from Maybank the
installments are lower. May be next time. This time I had to follow my dealer”.
He had also met a big time Chinese investor who was also able to talk in English. His
opinion was:
“I have to be careful. Therefore, I invest in many type of avenues. The investment in Bank
Islam is only a little. Service is bad. Therefore, I put most of my money in either in Maybank
or CIMB bank. I don’t care what is Islamic or non-Islamic. I just look at my returns at the end
of the year”.
By this time, AM could not conclusively write a report and asked for one more month which
was allowed by GMCB. He had identified some of the challenges of marketing IB products:
 The conventional banking had the lead of a century over IB, which was less than 30
years old in Malaysia.
 Conventional banks were better organized and now they have IB windows. Therefore,
they have become the strong competitors even in Muslim segments.
 The customers wanted comparable returns on their investments.
 Islamic banks had to operate in an economy which is interest based. Therefore, some

PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

 of the sources of income like interest on overnight deposits were not possible. It limited
the capability of Islamic banks to provide as comparable returns to the customers as
conventional banking.
 Islamic banks had to comply with the regulatory supervision from central banks and
also to the regulatory supervision of Shariah supervisory councils.
 The concept of customer relationship marketing (CRM) or customer focus was not very
well known in IB.
 Some of the innovative marketing strategies could not be used because of Shariah
compliance.
His overall recommendation was that there was a lack of customer databases, wherein the
customer preferences are recorded. The Islamic financial institutions need
customer-centric periodic services to assess whether customers are aware of new
products or whether these products are being used on a regular basis. The Islamic banks
need to use principles of segmentation and target-specific customer segments, such as
young generation customers, female customers, educated customers, wealthy customers,
non-Muslim customers or foreign customers. In short, BIMB needs customer-centric
promotional strategies.

The day of judgment

The year of 2014, especially July, was bad for Malaysia as well as AM. The market in
Malaysia was hit by the tragedy of MH17 flight on July 17th. Malaysia had also lost MH-370
without a trace. AM himself spent many nights watching TV and following on the news.
However, the crash was not the reason for his depression but rather it was because he had
to submit his strategic marketing plan for the period 2016-2018 to GMCB. He was worried
that GMCB would not like his plan and it was already overdue. GMCB was supposed to
confirm his appointment as he had completed his six months of probation on July 27, 2014.
July 28 was Monday and AM was suffering from real Monday blues while driving to office,
even though it was a beautiful day after a spell of continuous rain for four days. During the
weekend, he had gone to Ipoh, his hometown. His mind was occupied with his report which
he had prepared over the weekend after spending six months interacting with all classes
of retail customers.
His discussion with GMCB started at 10 a.m. He found that Director Business Development
(DBD) was also present in the room.
GMCB: “Selamat pagi (Good morning), Azhar. I hope you have met DBD. We are both
eager to listen to your findings”.
AM started describing how he had met various customers and how the customers gave
various types of feedback. He found that Muslim customers were quite satisfied, and only
a few customers complained about service issues such as Internet banking not being
accessible late at night. The non-Muslim customers gave some feedback regarding the
problems of marketing IB products that included:
 The conventional banking had the lead of a century over IB, which was less than 30
years old in Malaysia.
 Conventional banks were better organized and gave better service.
 The customers wanted comparable returns on their investments. They felt that returns
were better in conventional banking products.
AM went on with his report that some of the innovative marketing strategies could not be
used because of Shariah compliance. He added that the Islamic banks had to operate in
an economy which is interest based, and therefore, some of the sources of income,
including interest on overnight deposits, were not possible. It limited the capability of

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7

 Islamic banks to provide as comparable returns to the customers as conventional banking.
Additionally, Islamic banks had to comply with the regulatory supervision from central
banks and also to the regulatory supervision of Shariah supervisory councils. He also
added that the concept of customer relationship marketing (CRM) was not very well known.
Therefore, he recommended the following:
 BIMB had only one small cell of strategic relations. There was a need for building a
relationship management culture with trained workforce. He also recommended
purchase of a CRM software.
 Re-look at the each of Shariah products from the product management approach and
relaunch with a new marketing strategy. It had a budget implication because the
marketing and advertising campaigns need to be planned.
 A marketing awareness campaign to familiarize customers with the principles of
Shariah compliance and features of IB products. It could mean printing of booklets and
updating the Web site.
At the end, he gave three copies of a thick neatly bound report.
DBD whispered something to GMCB and left. He did not seem very pleased. Even face of
GMCB had changed. He spoke for very long.
GMCB: “Your analysis is totally wrong. You seem to have been influenced too much by your
previous assignment in multi-national bank. You seem to suggest that we have lot of
competition from conventional banks. I disagree”.
GMCB: continued further.
GMCB: “Let me explain. BIMB launched various transformation plans since 2006. You have
read about them. During this period global growth of IB products has been 16 per cent. It
is higher than the growth of CB. The IB is far better than CB. Whether Muslim or non-Muslim,
the IB products are better. The advantages are:
 Justice and fairness where risk is shared by the bank. Losses are shared-based on
equity participation whereas profit is shared on a pre-agreed ratio.
 There is no fluctuating interest (riba) but the loans include a profit margin which is fixed
from the beginning. The customer has no uncertainty.
 The transactions involving speculation (gharar) is prohibited, so there can never be a
loss to the customer.
 The bank treats customer as a partner/investor/entrepreneur. Isn’t it a better status for
the customer?
How can customers reject IB products? All you need to do is market the products well.
BIMB has about 3.5 million customers. Do you realize that population of this Muslim country
is close to 30 million? Don’t you think there is enough scope? Even if you target only Muslim
population it is more than 18 million and what about 2 million floating Muslim foreign
workers from Myanmar, Thailand, Indonesia, India and other countries?”
GMCB continued speaking. He was speaking in such gusto that AM thought it wise to keep
his mouth shut. He also felt that possibly this was the last day for him in the bank.
GMCB: “You do not realize that consumer banking is the mainstay of this bank. Our division
has to lead. Do you know that the growth of revenue and financing in case of commercial
banking during last year was 17 per cent and 31 per cent whereas the comparative figures
for consumer banking were 15 per cent and 24 per cent. The revenue growth of treasury
was 62 per cent and for corporate investment banking was 36 per cent. I have taken you
to improve our performance and make the consumer division in leading position again and
not to tell me the constraints of marketing”.

PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

 AM wanted to tell GMCB about Porter’s focused differentiation strategy, which he had
studied in the UK but decided to keep quiet. He realized that there was no point in telling
GMCB about the commonly known four P’s of marketing strategy either.
GMCB told him that he was under pressure from the MD to increase the growth of
consumer banking. The FDR had to increase and the targets for 2014 and 2015 were 70
and 75 per cent, respectively. In spite of that BIMB was lagging behind the industry where
FDR was 81 per cent. So both deposit and financing had to increase. At the end, GMCB
gave AM just one month to rethink his strategy or quit.

Additional readings
RAM Rating Services Berhad (2013), “RAM Credit Rating Rationale: Bank Islam”, available at: www.
bankislam.com.my/home/assets/uploads/2013-RAM-Rating-Rationale.pdf (accessed 27 September
2014).

Bank Islam Malaysia Berhad (2013), “Bank Islam products and services”, available at: www.bankislam.
com.my/en/Documents/cinfo/ABAS_AFGHAN_Presentation_edABAS-250213.pdf (accessed 28
September 2014).

Bank Islam Malaysia Berhad (2013), “Managing director’s operational review”, available at: www.
bankislam.com.my/home/corporate-info/about-us/managing-directors-operational-review/ (accessed
28 September 2014).
Keywords: Bank Islam Malaysia Berhad (2013), “GIFR 2013 interview feature – Zukri Samat of Bank Islam
Marketing, Malaysia Berhad”, available at: www.bankislam.com.my/home/corporate-info/about-us/managing-
Islamic banking, directors-operational-review/gifr-2013-interview/ (accessed 28 September 2014).
Strategic management, Maybank, I.B. (2013), “BIMB Holdings – Hijrah (Journey) to Excellence”, available at: www.bankislam.
Islamic finance com.my/en/Documents/cinfo/MIB/BIMB-20130416-MIB.pdf (accessed 28 September 2014).

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9

 Exhibit 1. Investment structure of BIMB

Figure E1

Exhibit 2. BIMB transformation plans

Table EI
Phase 1 Phase 2 Phase 3
Year 2006 to 2009 Year 2010 to 2012 Year 2013 to 2015
Turnaround plan (3TP) Sustainability growth plan (SGP) Hijra 2 excellence plan (H2E)

Recovery and stability
1. Moving out of the crisis and
returning to profitability
2. Building a solid foundation
for a sustainable growth
Recapitalization and balance
sheet restructuring
Information technology
infrastructure revamp
Organizational transformation
program
Cost rationalization exercise
Human capital development
Sustainability and growth
Aiming for operational excellence and market
leadership
Business innovation
Robust risk management
Strengthening of supporting infrastructure
Building capacity and capabilities
Franchise development
Inorganic growth and corporate expansion
Growth, excellence and innovation
Aiming to become the employer of
choice and extend the reach of
bank beyond the boundaries of
Malaysia
Robust organic growth
Excellence in service delivery
Innovation in products and
services
Optimization of resources
Being a preferred employer
Regional expansion

PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

Exhibit 3. Bank Islam senior management risk management committees

Table EII
Committees Functions

Asset and liability Oversees and manages the bank’s liquidity and profit-rate gaps.
Reviews liquidity and capital management, market risk as well as
asset and liability management
Operational risk control Deliberates operational risk issues and recommends
improvements. Also reviews compliance risk operating policies
and the enhancement of control mechanisms
Credit risk control Reviews and deliberates on credit-related risks, including
counterparty credit reviews and potential defaults. Also monitors
and sets credit limits and portfolio credit risks
Recovery management Oversee performance of restructured assets and assesses
effectiveness of recovery strategies
Shariah compliance Oversee Shariah compliance on a day-to-day basis

Exhibit 4. Organization chart

Figure E2

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11

 Exhibit 5. Bank Islam’s financing profile (as at end of June 2013)

Table EIII
Sectors 2013 (%) 2010 (%)

House financing 26 43.6

Personal financing 34 20.5
Purchase of passengers cars 12 7.1
Credit cards 2 –
Other sector 1 0.2
Electricity, gas and water 1 1.2
Wholesale retail restaurants and hotels 3 6.0
Construction 5 5.8
Real estate 3 0.9
Transport and communication 1 3.7
Financing insurance and business services 7 0.8
Education health and others 1 2.2
Manufacturing 3 6.1
Primary agriculture 1 1.8

Exhibit 6. Product structure of bimb

Figure E3

PAGE 12 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

 Exhibit 7. Growth of bank islam during first two transformation plans

Figure E4

Exhibit 8. Growth of Bank Islam during first year of H2E

Table EIV
Item Year 2012 Year 2013 Improvement (%) Islamic industry

Profit before zakat and tax (PBZT) RM600.3 million RM683 million 13.8 –
Return on equity (ROE) (%) 20.4 21.2 0.8 17.3
Return on assets (ROA) (%) 1.7 1.7 – 1.3
Risk weighted capital ratio (RWCR) (%) 13.9 14 0.1 –
Net financing RM19.5 billion RM23.7b 21.7 –
Customer deposits RM32.6 billion RM37.3 billion 14.4 –
Financing to deposit ratio (FDR) (%) 61.2 65 3.8 81.4
Impaired financing RM308.7 million RM285.3 million 7.6 –
Financing loss coverage ratio (%) 142.6 175.8 33.2 121
Non-funded income (NFI) RM267.5 million RM283.8 million 6.1 –
Non-funded income (NFI) (%) 13.5 12.6 ⫺0.9 11

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 13

 Exhibit 9. Balance sheet summary

Table EV
Financial summary
Bank Islam Malaysia Berhad – Group
Unaudited
Statement of financial position 30-June- 31-December- 31-December- 31-December- 30-June-
(RM million) 2009 2010 2011 2012 2013

Cash and short-term funds 8,448.21 2,519.70 3,364.18 1,657.87 3,455.77

Deposits and placements with financial
institutions 0.00 352.80 860.18 38.04 121.09
Securities purchased under resale
agreements 0.00 0.00 0.00 0.00 0.00
Financial investments at fair value
through profit or loss 287.68 2,279.45 1,228.95 1,610.56 1,331.93
Financial investments available-for-sale 8,465.43 12,763.02 11,005.12 12,916.06 12,249.67
Financial investments held-to-maturity 162.76 215.94 327.33 178.29 65.14
Gross financing and advances 10,711.00 12,284.73 14,565.30 19,948.12 21,858.13
Collective impairment provisions (170.84) (347.07) (327.69) (313.33) (359.23)
Individual impairment provisions (878.30) (79.06) (75.77) (126.99) (128.85)
Net financing and advances 9,661.86 11,858.60 14,161.84 19,507.80 21,370.05
Statutory deposits 139.73 10.00 912.00 1,059.90 1,156.50
Investments in subsidiaries/associates/
jointly controlled entities 0.00 0.00 21.18 22.91 21.58
Goodwill and intangibles 0.00 0.00 0.00 0.00 0.00
Property, plant and equipment 127.71 181.49 200.85 222.98 213.76
Other assets 197.75 203.53 125.68 208.49 127.53
Total assets 27,491.13 30,384.53 32,207.32 37,422.89 40,113.01
Customer deposits 25,204.63 26,866.56 28,279.68 32,550.99 34,825.34
Current account deposits 6,347.08 7,098.68 8,415.67 8,963.89 8,208.90
Savings account deposits 2,713.05 3,564.22 3,862.83 4,457.53 4,511.45
Investment deposits 8,950.06 10,304.86 10,275.63 15,096.98 18,498.13
Negotiable instruments of deposits 7,133.79 5,819.88 5,622.29 3,954.03 3,525.22
Other deposits 60.65 78.92 103.26 78.56 81.64
Interbank deposits 8.08 378.13 384.63 860.28 1,320.94
Bills and acceptances payable 283.21 163.19 259.15 385.14 211.47
Securities sold under repurchase
agreements 0.00 0.00 0.00 0.00 0.00
Senior Islamic securities 0.00 0.00 0.00 0.00 0.00
Subordinated Islamic securities 100.00 0.00 0.00 0.00 0.00
Hybrid capital Islamic securities 0.00 0.00 0.00 0.00 0.00
Other sources of funds 0.00 0.00 0.00 0.00 0.00
Other liabilities 364.03 442.42 476.02 523.52 496.42
Total liabilities 25,959.95 27,850.30 29,399.48 34,319.93 36,854.16
Equity share capital 1,725.49 2,265.49 2,265.49 2,265.49 2,265.49
Share premium 500.02 500.02 500.02 0.00 0.00
Treasury shares 0.00 0.00 0.00 0.00 0.00
Statutory reserve 589.12 795.01 974.59 505.65 505.65
Revaluation reserve 0.00 0.00 0.00 0.00 0.00
Available-for-sale reserve (9.54) 83.43 117.46 121.41 106.52
Other reserves 35.45 0.00 (9.46) 1.09 (9.25)
Retained profits/(accumulated losses) (1,309.36) (1,110.20) (1,040.27) 209.32 390.44
Non-controlling interests 0.00 0.48 0.00 0.00 0.00
Total equity 1,531.18 2,534.23 2,807.84 3,102.97 3,258.85
Total liabilities ⫹ total equity 27,491.13 30,384.53 32,207.32 37,422.89 40,113.01
Additional disclosure
Commitments and contingencies 7,693.38 13,544.29 9,423.11 10,928.79 10,850.04
Risk-weighted assets 11,781.36 14,798.76 16,925.67 22,493.68 23,820.22
Tier 1 capital base* 1,443.61 2,325.40 2,631.76 2,911.03 2,927.96
Total capital base* 1,634.46 2,503.29 2,829.45 3,145.89 3,185.01
Source: RAM Rating Services Berhad (2013)

PAGE 14 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015

 Exhibit 10. Income statement summary

Table EVI
Financial summary
Bank Islam Malaysia Berhad – Group
Unaudited
31-December- 30-June-
Statement of comprehensive income 30-June- 2010 18 31-December- 31-December- 2013 6
(RM million) 2009 months 2011 2012 months

Financing income 1,137.35 1,939.74 1,429.81 1,720.47 960.12

Financing expense (434.00) (622.34) (477.11) (593.05) (379.15)
Net financing income 703.36 1,317.40 952.71 1,127.42 580.97
Fee income 86.46 164.68 131.12 155.85 80.05
Investment income 18.30 51.69 67.98 56.27 54.06
Other income 32.59 28.97 37.41 57.89 1.20
Gross income 840.70 1,562.74 1,189.21 1,397.43 716.28
Personnel expenses (228.43) (430.97) (338.14) (390.99) (220.87)
Other operating expenses (248.45) (402.85) (305.45) (333.94) (173.45)
Operating income before impairment
charges 363.82 728.92 545.61 672.50 321.96
Net impairment charges on financing (123.29) (209.73) (21.12) (66.07) (1.59)
Net impairment charges on financial
investments (4.66) (19.73) (15.41) 0.58 0.00
Net impairment charges on
commitments, contingencies and
other assets 0.00 0.00 (15.23) (11.36) 3.48
Operating income after impairment
charges 235.87 499.46 493.85 595.65 323.85
Non-recurring items 0.00 0.00 0.00 0.00 0.00
Share of associates/jointly controlled
entities profits (losses) 0.00 0.00 (1.38) 1.73 (1.33)
Pre-tax profit (loss) 235.87 499.46 492.47 597.38 322.52
Taxation and zakat (73.99) (92.27) (117.14) (170.12) (90.42)
Net profit (loss) 161.88 407.19 375.33 427.26 232.10
Gain/(loss) on available-for-sale
financial investments 0.00 92.97 34.03 3.95 (14.90)
Changes in cash flow and net
investment hedges 0.00 0.00 0.00 0.00 0.00
Foreign currency translation
differences 0.00 41.01 (9.45) 10.54 (10.34)
Share of other comprehensive
income (loss) of associates/jointly
controlled en 0.00 0.00 0.00 0.00 0.00
Income tax relating to other
comprehensive income (loss) 0.00 0.00 0.00 0.00 0.00
Other components of
comprehensive income (loss) 0.00 0.00 0.00 0.00 0.00
Total comprehensive income (loss) 161.88 541.17 399.91 441.76 206.86
Additional disclosure
Net profit (loss) attributable to non-
controlling interests 0.00 (0.05) 0.06 0.00 0.00
Dividends ordinary shares and
preference shares 0.00 19.11 125.40 146.63 50.97
Source: RAM Rating Services Berhad (2013)

VOL. 5 NO. 8 2015 EMERALD EMERGING MARKETS CASE STUDIES PAGE 15

 Exhibit 11. Financial ratios

Table EVII
Financial ratios
Bank Islam Malaysia Berhad – Group
Unaudited
30-June- 31-December- 31-December- 31-December- 30-June-
Key ratios 2009 2010 2011 2012 2013

Profitability (%)
Net financing Margin 2.82 3.08* 3.13 3.37 3.12*
Non-financing income to gross income 16.34 15.70 19.89 19.32 18.89
Cost to income 56.72 53.36 54.12 51.88 55.05
Return on assets 0.92 1.15* 1.57 1.72 1.66*
Return on risk-weighted assets 2.06 2.51* 3.10 3.03 2.79*
Return on equity 16.55 16.38* 18.44 20.21 20.28*
Asset quality (%)
Gross impaired financing ratio 12.70 4.50 2.61 1.55 1.36
Net newly classified impaired financing ratio (0.82) (2.08)* 0.10 0.47 0.37*
Financing credit cost ratio 1.16 1.22* 0.16 0.38 0.02*
Impairment charge ratio 0.76 0.65* 0.13 0.21 0.01*
Gross impaired financing coverage ratio 77.12 77.17 106.23 142.63 163.77
Liquidity and funding (%)
Liquid asset ratio 67.38 65.30 56.90 47.93 47.13
Interbank deposits to total profit bearing funds 0.03 1.38 1.33 2.55 3.63
Customer deposits to total profit bearing funds 98.47 98.02 97.77 96.31 95.79
CASA deposits to total deposits 35.95 39.69 43.42 41.23 36.53
Financing to deposits ratio 38.33 44.14 50.08 59.93 61.36
Capitalisation (%)
Internal rate of capital generation 11.36 12.73 9.36 9.50 NA
Tier 1 capital ratio 12.25 15.71 15.55 12.94 12.29
Total capital ratio 13.87 16.92 16.72 13.99 13.37
Common equity Tier 1 capital ratio NA NA NA NA 12.29
Source: RAM Rating Services Berhad (2013)

Corresponding author
Ajay Chauhan can be contacted at: ajay@uum.edu.my

PAGE 16 EMERALD EMERGING MARKETS CASE STUDIES VOL. 5 NO. 8 2015