The MIDF Group, which is the investment banking and asset-management arm of Permodalan Nasional Bhd (PNB), could be converted into a full-fledged Islamic financial institution and make its way back to the stock exchange after being taken private a decade ago.
PNB group chairman Tan Sri Abdul Wahid Omar says these are possibilities as part of the state-owned, fund-management company’s efforts to support the promotion of Islamic finance services in the country.
“Of course, for that you need a banking licence. So, I think that’s something we are thinking about and we will come back to the market later (on this),” he tells StarBizWeek.
MIDF, he admits, is operating in a segment of the financial sector that is no longer attractive, mostly because of rising costs and competition.
“We have to have a new financial model, a new proposition altogether. So again, this is currently being thought about,” Wahid says.
On whether PNB, which already holds a 48% stake in the country’s largest bank MALAYAN BANKING BHD (Maybank), would be allowed to hold a majority stake in more than one banking group should this plan come through, he says that’s something the group will have to discuss with the regulators when the time comes.
“Basically, our interest is to further promote the Islamic finance business, that’s our intention.”
Besides MIDF and Maybank, PNB also owns a 59% stake in Malaysia’s only national reinsurer, MNRB HOLDINGS BHD.
MNRB, which at last look was trading at RM2.66, some 42% below its net tangible assets of RM4.59 per share, is seeing improving financials after a tough 2016 where it reported a net loss.
Asked if PNB would drive any changes within MNRB moving forward, Wahid says as an institutional shareholder, PNB’s role is to make sure that it has the right board and management in place “to pursue the right businesses”.
“But we don’t get involved in the day-to-day operations. We appoint directors to the board and they, in turn, will appoint the management. “They (the MNRB board) will have to think about how to improve performance and evolve,” he adds.
PNB had last week announced that it was planning to designate 20% of Maybank shares as Islamic shares or i-shares, of which income and dividend flow would be generated from the banking group’s existing syariah-compliant activities.
“About four months ago, I was asked to speak at a forum where they asked me, what can we do within the Islamic fund management industry.
“The fact is that in my view, there is still a shortage of syariah-compliant equity instruments. So, the i- shares was something that was articulated at that point in time,” Wahid, who headed Maybank from 2008 to 2013, says.
The plan to designate 20% of Maybank shares as i-shares is very much driven by the issue of supply and demand, as the market has a growing size of syariah-compliant funds seeking to invest in appropriate syariah-compliant instruments.
“If you look at the broader stock market, I don’t think there is really an issue in the sense that more than 60% of the market capitalisation of Bursa Malaysia-listed companies are already syariah-compliant.
“But where it is very, very apparent in terms of shortage is within the Islamic financial services sector.”
Now, the natural suggestion would be why not list the Islamic subsidiary of the banks?
He says in Maybank’s case, the reason this is not feasible is because Islamic banking has already become an integral part of the Maybank group, embedded within the group’s operations.
Notably, Maybank has adopted the Islamic first strategy, a strategy which focuses on offering customers syariah-compliant products and services as a standard product.
For example, when a customer goes to the bank looking for a housing or car loan, he will automatically be given a syariah-compliant product without him asking for it.
Wahid says by using this strategy, Maybank Islamic has been able to grow very fast, double the rate of conventional banking services, to the extent that today, more than half of the bank’s financing in Malaysia is already syariah-compliant.
“So, can you carve out the Islamic banking services separately and list it? You can’t because it is already embedded.”
In terms of size, based on Maybank’s market capitalistion of about RM100bil and assuming 20% of its shares are to be designated as i-shares, the shares would be valued at some RM20bil, which is around three times more than BIMB HOLDINGS BHD, currently the biggest listed Islamic bank on the stock exchange.
“If this works, it can be applied to other banks,” says Wahid.
About 28% of total financing in Malaysia is now Islamic financing, moving towards the 40% target set by Bank Negara.