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Islamic Finance

Indonesia’s oldest Islamic bank shifting focus to retail segment, still waiting on capital injection


JAKARTA – Indonesia’s oldest Islamic bank will shift its focus to the retail segment and away from corporate customers once it secures a capital injection, Achmad K. Permana, Bank Muamalat president director told Salaam Gateway.

Corporate customers currently make up around 65% of Bank Muamalat’s financing portfolio but this segment has not been performing well, with several debtors facing difficulties repaying loans, including mid-sized corporates such as Delta Merlin Dunia Textile and Hastuka Sarana Karya.

The bank’s gross non-performing financing (NPF) breached the 5% ceiling allowed by the banking regulator when it touched 5.6% at the end of September, from 2.9% for the same period in 2018. At the same time, its net profit dropped from 111.7 billion rupiah in September 2018 to 7.3 billion rupiah in September 2019.

“Once we secure new capital injection from investors, which will be soon In sha’ Allah, we will change our business model and focus more on retail banking that has become our strength,” Permana told Salaam Gateway.

Bank Muamalat gained around 250,000 new retail customers in 2018 and 274,000 last year, according to Permana, who took charge in October 2017.

“We have a new business expansion plan and we are preparing products for [retail customers] that have already come on board with us  in the last two years,” he added.

The bank is currently processing a rights issue that will inject new capital into the financial institution. It plans to issue 32.96 billion new shares priced at 100 rupiah a share with the aim of raising more than 3 trillion rupiah in capital.

OJK recently approved Singapore-based Al Falah Investments Pte Ltd as a stand-by buyer but the administration and due diligence process for the rights issue must first be completed. Al Falah Investments is owned by Bank Muamalat commissioner Ilham Habibie, who is the eldest son of the late former president B.J. Habibie who was instrumental in establishing Bank Muamalat in 1991.

If Bank Muamalat’s existing shareholders, including the Islamic Development Bank that currently controls 32.7%, Boubyan Bank that holds 22%, and Atwill Holdings Limited that holds 17.9%, not take away their rights in the issue, then ownership will be diluted.

The rights issue process is expected to be completed before July at the latest.

Muamalat also plans to issue debt or sukuk worth 6 trillion rupiah gradually until the end of 2020.   

“We are finalising the structure with investors and the OJK. Al Falah could also buy during the rights issue along with this sukuk, or maybe other investors also could buy this sukuk. So far there are three other investors excluding Al Falah that have expressed interest in buying our sukuk,” said Permana.

Ilham Habibie called for new capital for Bank Muamalat from 2015 but the OJK only gave the green light recently after all parties met with Vice President Ma’ruf Amin who supported the request for capital injection.

(Reporting by Yosi Winosa; Editing by Emmy Abdul Alim [email protected])

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Islamic Banks
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Yosi Winosa