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Malaysia RHB Islamic Bank switches focus to retail

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Points of Essence:

  • In a strategic response to the current global financial crisis, Malaysian based RHB Islamic Bank plans to cut back on its corporate financing and shifts to consumer financing. This is due to a possibility of higher default rates among corporate borrowers in the event of an economic downturn.

KUALA LUMPUR, Oct 30 (Reuters) – RHB Islamic Bank Bhd, the sharia arm of Malaysia’s fourth-largest lender, plans to make more consumer loans next year as a looming global slowdown threatens corporate lending growth, a company executive said on Thursday.

RHB Islamic will cut its lending to companies, which normally carry a higher default risk in an economic downturn, while switching its focus to the retail sector in a bid to maintain its loan growth momentum, said managing director Jamelah Jamaluddin.

The sharia lender is set to achieve a 20 percent loan growth this year and is confident of maintaining that growth in 2009, said Jamelah.

“Next year we are still trying to project at 20 percent loan growth, but I think we need to look at which sectors we want to be exposed to,” she said.

“We are trying to slow down on corporate; we are looking at more on the commercial as well as the consumer side,” she added.

Loan growth will remain robust next year also because the bank plans to increase its branch network to 25 next year from 7 currently, said Jamelah.

The executive spoke to reporters after sealing an Islamic financing deal with local aluminium fabricator Press Metal Bhd.

RHB Islamic, along with Kuwait Finance House (Malaysia) Bhd (KFH Malaysia), Asian Finance Bank, Al Rajhi Banking & Investment Corp (Malaysia) Bhd and Malaysia’s Bank Kerjasama Rakyat, will provide financing of up to 355 million ringgit ($99.22 million) for a smelter project in the East Malaysian state of Sarawak on Borneo island.

KFH Malaysia is part of Gulf-based Kuwait Finance House KFIN.KW while Al Rajhi Banking is controlled by Saudi Arabian lender Al Rajhi Bank.

RHB Islamic Bank is the lead arranger for the loan facility.

The sharia-based financing is being offered to Press Metal under the Islamic principle of Istisna or manufacturing contract and Ijarah or leasing, said a joint statement by the banks.

Under the terms of the facility, Press Metal will complete the construction of the smelter on the order of the financiers, it said.

Subsequently, Press Metal will lease the plant from the financiers for six years at an agreed rental payment and any advance retail payment during the construction period will be served to the financiers, it added.

(For more Reuters coverage of Islamic finance, click on [ID:nISLAMIC])

(Reporting by Soo Ai Peng; Editing by Kim Coghill)

Source: http://www.reuters.com

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Written by Suapi Shaffaii

October 31, 2008 at 12:18 am

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