Islamic Finance

Indonesia's Bank Muamalat to increase equity with rights issue

JAKARTA–Indonesian Islamic bank Muamalat will increase equity through a pre-emptive rights issue of 39.81 billion new c-series shares next month, with an indicative price 30 rupiah per share, in the hopes of raising 1.19 trillion rupiah ($83.9 million) from investors. In addition to this, the lender will also issue 2 trillion rupiah ($140.5 million) sub debt (sukuk), Hayun Aji, its corporate secretary, told Salaam Gateway.

The fund will be allocated to strengthen its capital structure. Bank Muamalat is weighed down with bad assets as non performing financing soared to an unhealthy level of around 5 percent in the last three years. Its NPF soared to 4.64% in the third quarter of 2019 from 2.5% in the third quarter of 2018, and it soared to 5.69% in the third quarter of 2020 and 4.94% in the third quarter of 2021. 

“After this right issue, our focus is on changing the business model from the majority corporate segment into the retail segment. In the past, our financing went mostly (65%) to corporates and it turned out that it led to surging NPF. We should focus on Indonesian Muslims, which comprise a huge market,” Aji said. 

Bank Muamalat attempted to issue new shares five times in the last three years, but it always failed to attract investor’s trust due to its bad financial performance. In March, Vice President Maaruf Amin asked Chairman of Sharia Economy Society Erick Thohir, who is also Minister of State Owned Enterprises, to bail out Bank Muamalat. And in September, a master restructuring agreement was signed between Indonesia's Haj Fund Management Agency BPKH, national asset management company and the bank. 

The agreement rules out strengthening Muamalat capital and asset structure. Later in November, Muamalat existing shareholders such as Boubyan Bank, Atwill Holdings Limited, National Bank of Kuwait, IDF Investment Foundation and BMF Holdings Limited donated their shares to BPKH. It is now owned by BPKH as the majority shareholder with 78.45% of total shares and IsDB with 10% of shares with the remainder held by public investors. 

Bank Muamalat Indonesia was established in November 1991, founded by ​​the Indonesian Ulema Council (MUI), the Indonesian Muslim Intellectuals Association (ICMI) and Muslim entrepreneurs. 

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