KUALA LUMPUR: The smallest Middle-Eastern bank in Malaysia, Asian Finance Bank Bhd (AFB), is banking on its relationship with corporate clients to grow its revenue and funded assets by between 10% and 15% from next year onwards, said its chief executive officer (CEO) Datuk Mohamed Azahari Mohamed Kamil.
“Our strategy is very simple: relationship, relationship and relationship. Our ambition is high but our growth target is modest, at double digits, in line with our current capability and capacity.
“The business focus will be providing financing to corporate clients, which will mainly comprise government-linked companies, as well as beefing up our investment banking operations,” Mohamed Azahari told The Edge Financial Daily in an interview.
He said AFB’s corporate financing business in the areas of oil and gas, shipping, aviation, infrastructure and real estate generates a higher profit margin, with an average of 2%.
In 2015, Mohamed Azahari expects AFB to expand its investment banking business as it seeks fee-based income to contribute at least 20% beginning this year. The remaining 80% will continue to be derived from its corporate financing, which includes treasury business and funded assets.
“We currently have the investment banking team but it has not been formalised. We will start doing so beginning January, focusing on capital market, where we may look at arranging sukuk (Islamic bond) and various other securities instruments, as well as corporate advisory. This is especially in the area of mergers and acquisitions in which we may bring investors from the Middle East to participate,” he said.
Mohamed Azahari said the bank’s focus on two areas — corporate financing and investment banking — is expected to increase its efficiency and profitability, as well as reduce its cost-to-income ratio to 50% this year from 55% currently.
“With our focus on these high-margin areas, we expect AFB to post an improved return on equity (ROE) that should be on par with the midsized banks’ market average of between 10% and 15% in the next three to five years,” he said. AFB’s ROE currently stands at 2.51%.
On the outlook, Mohamed Azahari said AFB will maintain its growth momentum with a double-digit target as it has just recently returned to the black in the financial year ended Dec 31, 2013 (FY13), with a net profit of RM7.57 million. AFB was in the red for three years from FY10, with cumulative losses amounting to RM48.18 million.
“We have gradually reduced our exposure to small and medium enterprises, currently at a marginal level of 5% and below. We will also maintain our retail banking as it is. We have no immediate plan to go aggressive,” he said.
Mohamed Azahari said AFB does not expect much growth in the retail banking sector as it sees heightened competition and market cannibalisation. The bank currently has a branch in Kuala Lumpur and Johor, and a representative office in Indonesia.
“AFB began its initial operation with a retail banking service and slowly branched out to other areas. We currently have three automated teller machines (ATM) that are not linked to any inter-bank services and we do not provide card services (credit card or debit card). But that does not mean we are not growing. It just means we are shifting our business to other areas,” he said.
AFB may consider listing its bank in the next five years or more. For now, it is trying to meet the Basel III requirements to strengthen its resilience and improve liquidity.
Basel III is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Bank Negara Malaysia, in a document issued in December 2011, targets to implement Basel III from 2013 until 2019. The central bank expects that by Jan 1, 2019, commercial banks should have a capital conservation buffer of 2.5%, a minimum Tier-1 capital ratio of 6%, a leverage ratio of 3%, and a liquidity coverage ratio of 100%.
“It is no secret that our shareholders plan to bring the bank to the next level via new capital attraction, which will make the bank more liquid. But as of now, there is no listing proposal. Maybe we will look into this in the next five years,” he said. As at Sept 30, AFB has a Tier-1 capital ratio of 20.25%.
On banking consolidation, Mohamed Azahari agreed it is good to create a more effective and competitive banking system, but said there is still room for a midsized boutique bank like AFB in Malaysia.
“I think AFB and other midsized lenders play a big role in a country’s banking landscape. We can create our own niche and edge by offering strategic value propositions to our customers,” he said.
Mohamed Azahari has been the CEO of AFB since August 2008. Two other Middle-East lenders in the country, on the other hand, have been changing CEOs in between one and three years.
CEO Datuk Azrulnizam Abdul Aziz of Saudi Arabia-backed Al Rajhi Banking & Investment Corp Malaysia Bhd resigned in October last year, barely after 2½ years at its helm. Kuwait Finance House Malaysia Bhd (KFH) in late November made a surprise announcement on the departure of its CEO Datuk Seri Abdul Hamidy Hafiz, who has been in office for a mere 1½ years since March 21, 2013.
“Serving a Middle-East bank is definitely a challenge as I have to keep both my shareholders and customers happy. But Alhamdulillah (praise to God), I have managed to wade through the challenges,” Mohamed Azahari said with a chuckle.
Incorporated in 2005, AFB is backed by Qatar Islamic Bank (66.67%), Saudi Arabia’s RUSD Investment Bank (16.67%), Yemen’s Tadhamon International Islamic Bank (10%) and Financial Assets Bahrain WLL (6.67%).
This article first appeared in The Edge Financial Daily, on January 5, 2015.