KUALA LUMPUR, June 23 — Bank Negara Malaysia’s (BNM) plan to set up a mega Islamic bank is causing disquiet in government circles and could set off opposition criticism for use of public funds to underwrite part of the US$1 billion (RM3.19 billiob) capital, sources say.
The Malaysian Insider has learnt that Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz surprised national oil firm Petronas and government pension fund Kumpulan Amanah Wang Pence (KWAP) by making a personal pitch to them to invest US$100 million each in the venture.
It is understood that the KWAP board declined to invest because it was not prepared to make such an investment without a due diligence, a source said. While it is not Petronas’ mandate to fund banks, the national oil company was previously directed to bail out then Bank Bumiputera in 1985 with an injection of RM2.5 billion and also in 1991 with another RM1 billion.
When questioned about the matter yesterday, BNM declined to comment.
“With regards to your email, as a matter of policy the Central Bank does not comment on speculation,” a spokesman replied by email to questions from The Malaysian Insider.
Government officials said when the idea of the Islamic mega bank was mooted in 2010, it was understood that foreigners would fund the US$1 billion entity. BNM was due to issue two mega bank licences to spur Islamic banking but to date, none have been issued.
“It is strange that Malaysian institutions are being asked to bankroll this new bank. It was always meant to get funds from abroad,” another source said.
BNM had previously said it was already assessing applications for the mega bank licence, saying in 2010, “The announcement of the licences will be made on completion of the assessment.”
Bankers say the bid to create a well-capitalised Islamic bank, which dates back to at least 2006, has been fraught with difficulties such as a struggle to raise sufficient capital and disagreement as to where the lender should be located.
One of the project’s main backers is Saudi Arabia’s Sheikh Saleh Kamel, founder and chairman of Bahrain-based Islamic bank Al Baraka, according to Reuters reports. BNM has never disclosed the applicants for the licences but there has been market speculation that the Islamic Development Bank and Al Baraka could be keen.
Earlier this year, Beirut-based Union of Arab Banks’s (UAB) magazine reported that a mega Islamic bank with a capital of US$1 billion and headquartered in Bahrain may be launched this year.
It quoted UAB chairman Adnan Youssef as saying that some US$600 million of the capital will be sourced from Islamic banks in the Middle East while the remaining capital will be subscribed by local sovereign wealth funds and other financial institutions and investors, said Adnan Youssef, chairman of the
Youssef, also CEO of the Manama-based Al Baraka Banking Group, had first said the bank would have a capital of $10 billion and would be a joint venture between regional Islamic banks and other investors.
“This bank will have a paid up capital of $1 billion, of which US$600 million will be subscribed by Islamic banks in the region and the rest by other financial institutions, including SWFs,” he told the UAB’s magazine.
“In order for us to enter the market with this project, we must first get the US$600 subscription, which we expect before the end of 2012.....the remaining shares will also be floated before the end of the year.”
Saudi Arabia’s Al-Rajhi group was the world’s largest Islamic bank at the end of 2010, controlling US$49.2 billion in assets, nearly a fifth of the combined assets of the Arab region’s Islamic banks, according to UAB.
The Kuwait Finance House (KFH) came second by assets, which stood at US$43.7 billion at the end of 2010 compared with US$39 billion at the end of 2009. Dubai Islamic Bank (DIB) was ranked third, with assets of about US$24.5 billion, followed by Abu Dhabi Islamic Bank (ADIB), with around US$20.5 billion.
Al-Baraka Group came fifth, with nearly US$15.8 billion while Qatar Islamic Bank (QIB) controlled the sixth largest assets of US$14.2 billion.
The report showed Al-Rajhi also had the largest capital of around US$8.08 billion at the end of 2010. KFH came second with around US$4.3 billion, followed by DIB with nearly US$2.6 billion, QIB with US$2.5 billion and ADIB with US$2.2 billion.