does ifsa 2013 marginalized mudarabah...

DOES IFSA 2013 MARGINALIZED MUDARABAH-BASED DEPOSIT? A

CASE STUDY OF AMBANK ISLAMIC BERHAD

Mohd Shaifuddin bin Mohd Noor

INTRODUCTION

The Islamic Financial Services Act 2013 (“IFSA”) differentiates investment account

from Islamic deposit. Investment account is demarcated by the usage of Shariah

contracts. It has non-principal guarantee feature for investment nature deposit.

Notwithstanding this, the IFSA offers adequate legal basis to upkeep the further

solidification of investment account process that provides proper protection to

investment account holders (IAH) whilst safeguarding financial stability of the Islamic

banking system. Under the IFSA, the urgency of payment for investment deposit

account upon insolvency of the Islamic financial institution (IFI) is treated separately

from Islamic deposit, in accordance with the rights and obligations accrued to the IAH.

Besides capital contribution, IFI source of financing are largely contributed by its

deposits. Would IFSA have negative impact on IFI’s deposit growth rate and deposit

mix motivates motivate the author to conduct this research. This paper shall use one of

the local IFI, AmBank Islamic Berhad (“AmBank Islamic”) as its reference to analyse

the impact of IFSA towards its deposits taking behaviour and its performance.

This paper shall analyse the behaviour of mudarabah deposit during post IFSA era.

Mudarabah contract is considered as a pure Shariah compliant contract whereby it was

practiced by Prophet Muhammad s.a.w. and Khadijah a.s. Hence, it could be

considered as the superior shariah investment contract. Nevertheless, IFIs encountered

great challenges in implementing it as we could see later in this paper. Shariah laws

manifested in mudarabah should demonstrate the superiority and “alamiyah” of Islamic

laws. Nevertheless, it encounters extreme challenges in implementing it demonstrates

by this study.

RESEARCH PROBLEM

Noor Saliza Zainal et al. (2009) in her empirical studies managed to establish the

relationship between mudarabah investment account and set of independent variables

comprised of gross domestic product (GDP), unemployment rate (UER), income per

capita (IPC) and consumer price index (CPI). Noor Saliza Zainal et al. (2009) found

out that UER, GDP, IPC and CPI have significant relationships with mudarabah

investment account. UER was found out as the most dominant factor that influenced

both investment and mudarabah accounts. The impact of IFSA towards total deposits

of investment and mudarabah accounts have yet to be established since IFSA was

recently enacted in 2013. This issue motivates the author to conduct this study. AmBank

Islamic’s financial data shall be the main reference point to fill up this gap.

Lack of transparency or disclosure guidelines related to the mudarabah or profit sharing

investment accounts (PSIAs) is amongst the problems in investment type deposit.

Information asymmetry and regulatory shortcomings in profit sharing investment

accounts are amongst the flaws in investment product. Rashid Ameer et al. (2012) found

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out that the IFIs were not transparent enough in policies, procedures, product design

and structure; profit allocation basis, methodology of calculating profit attributable to

investment account holders (IAHs). Nevertheless, information on Shari’ah compliance

was satisfactory. It is interesting that IFI do not provide full disclosure connected to

PSIAs because such revelation is not mandatory. Does IFSA overcome information

asymmetry effectively? This research therefore attempt to solve this issue by analysing

IFSA and Investment Account Guidelines (Bank Negara Malaysia 2014). This gap

inspires the author to conduct this research by using AmBank Islamic as the main

references. Does IFSA marginalized mudarabah deposit at AmBank Islamic through its

stringent guidelines and modus-operandi motivates the author to perform this research.

IFSA has redefined investment deposit (Bank Negara Malaysia 2014) from guaranteed

to non-principal guaranteed feature for investment nature deposit. This has led to

realignment of IFI deposit structure. Would such realignment affect IFI particularly

AmBank Islamic’s deposit taking behaviour, its funding structure and its performance?

These issues influences the author to perform this research.

Based on the above, the research problem could be summarized as follows:

i. Is IFSA have negative impact to AmBank Islamic mudarabah deposit?

ii. Does IFSA overcome information asymmetry effectively?

iii. How far AmBank Islamic’s funding structure and performance were

affected post IFSA.

PURPOSE OF STUDY

This study is designed to examine the impact of IFSA towards AmBank Islamic deposit

taking behaviour, its deposit product structure and its financial performance ultimately.

RESEARCH OBJECTIVES

i. To identify the impact of IFSA towards AmBank Islamic total mudarabah

or investment based deposits.

ii. To examine how IFSA could overcome information asymmetry effectively.

iii. To analyse AmBank Islamic liabilities and/or deposit structure and its

profitability post IFSA.

LITERATURE REVIEW

AmBank Islamic Berhad’s (“AmBank Islamic”) Background.

i. AmBank Group

Ammb Holdings Berhad (2015) declared that AmBank Group is one of Malaysia’s

premier banking groups with nearly 40 years of legacy in understanding Malaysians

and provides a wide range of both conventional and Islamic financial solutions and

services, including retail banking, wholesale banking, as well as the underwriting of

general insurance, life assurance and family takaful.

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The Group receives strong support from the Australia and New Zealand Banking Group

(“ANZ”) (one of Australia’s leading banks) particularly in Board and senior

management representations, risk and financial governance, products offering and new

business developments. In the general insurance business, the Group has partnered with

Insurance Australia Group Ltd (“IAG”). Whilst in the life assurance and family takaful

businesses, the Group has a partnership with MetLife International Holdings Inc.

(“MetLife”). The Group continues to benefit in terms of expertise transfer from IAG

and MetLife. AMMB Holdings Berhad is the holding company of AmBank Islamic

Berhad and is a public listed company on the Main Market of Bursa Malaysia.

ii. AmBank Islamic Berhad (“AmBank Islamic”)

AmBank Islamic Berhad (formerly known as AmIslamic Bank Berhad) is the full-

fledged Islamic banking subsidiary of AmBank Group. Established in May 2006, as a

wholly owned subsidiary of AMMB Holdings Berhad, AmBank Islamic has built a

solid reputation in serving the banking needs of corporates and individuals since its

beginnings as AmBank Group’s Islamic Banking Division in 1993.

Being the first-to-market in the region through numerous product innovations, AmBank

Islamic provides a wide range of Shariah-compliant retail banking, business banking

and related financial services, which also include investment advisory as well as

treasury products. Striving to be the premier Islamic bank of choice, AmBank Islamic

continues to grow while providing their customers a complete range of innovative

Shariah-compliant financial solutions.

AmBank Islamic’s shariah advisor comprises of competent scholars currently attach to

local universities. Refer to Annexure A for details.

Islamic banking business:

Source: AMMB Holdings Berhad (2015)

IFSA (Ifsa 2013)

IFSA was mooted from recommendation number 4.1.1 of Bank Negara Malaysia

(2011), the Financial Sector Blueprint 2011-2020. The recommendation is to enact a

comprehensive legislative framework for the conventional and Islamic financial

systems respectively. The proposed legislation will reinforce a sound, transparent, and

accountable system for effective regulation and supervision that is consolidated across

the banking, insurance, takaful, financial intermediary and payment system services

sectors.

Gopal Sundaram (2013) (Who is the leading legal advisor of IFSA and former BNM

Assistant Governor, BNM) have inscribed splendidly the history of IFSA. Islamic

Banking was formally introduced in Malaysia with the enactment of the Islamic

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Banking Act 1983, the Government Investment Act 1983 and the Takaful Act 1984 by

the Malaysian Parliament.

Islamic finance in Malaysia has enjoyed continuous and stable growth and now

constitutes more than 20% of the banking assets of the banking system. After some

thirty years of resilient and undisrupted growth of Islamic finance in this country, it has

become imperative to review and assess the suitability and appropriateness of the

legislative and regulatory framework in which Islamic banking and takaful operates.

Following extensive policy research, discussions and consultations, Bank Negara

Malaysia issued the Financial Sector Blueprint 2011 -2020 in December 2011. As noted

in the Blueprint itself, “the 10-year Blueprint is a strategic plan that charts the future

direction of the financial system as Malaysia transitions towards becoming a high

value-added, high-income economy”. The Blueprint notes that “A key pillar of financial

sector development for this decade is the strengthening of Malaysia’s position as an

international Islamic financial centre. Given the more challenging international

environment, emphasis will increasingly be placed on enhancing the resilience of

Islamic finance, including in liquidity and crisis management, to complement the

ongoing efforts in strengthening the relevant regulatory and legal framework for Islamic

finance and in promoting greater harmonisation in interpretations.”

IFSA therefore was intended to provide the strengthened regulatory and legal regime

to meet the challenges and developments of an increasingly sophisticated and

internationalised Islamic finance industry. Surianom MiskamandMuhammad

Amrullah Nasrul (2013) and Gopal Sundaram (2013) both recognized that IFSA was

intended to pave way for the development of an end-to-end Shariah compliant

regulatory framework for the conduct of Islamic financial operation in Malaysia. The

new Act provides a comprehensive legal framework that is in full compliance with

Shariah in all aspects of regulation and supervision, from licensing to the winding up

of the Islamic financial institutions. The legislation specifically provides for the

enforcement of Shariah non-compliance risk and imposes statutory duty upon the

Islamic financial institutions to ensure that their aims, operations, affairs, businesses

and activities are in compliance with Shariah rules. IFSA has the effect of repealing the

Islamic Banking Act 1983, the Takaful Act 1984, the Payment System Act 2003 and

the Exchange Control Act 1953.

IFSA is an omnibus legislation for the regulation and supervision of key Islamic

financial institutions such as Islamic banks, takaful operators, international Islamic

banks, international takaful operators as well as operators of payment systems which

the transfer of funds between Islamic bank accounts or which enables payments to be

made by means of Islamic payment instruments, issuers of Islamic payment

instruments, takaful brokers and Islamic financial advisor. As an omnibus legislation,

it also provides for regulation and supervision of payment systems and the oversight of

the Islamic money market and Islamic foreign exchange market.

The principal regulatory objectives of IFSA is to promote financial stability and

compliance with Shariah. The new law commands Bank Negara Malaysia to foster the

safety and soundness of Islamic financial institutions, the integrity and orderly

functioning of the Islamic money market and the Islamic foreign exchange market as

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well as safe, efficient and reliable payment systems and Islamic payment instruments

and fair, responsible and professional business conduct of Islamic financial institutions.

The Bank is also required to strive to protect the rights and interests of consumers of

Islamic financial services and products.

Definition of Investment Account & Islamic Deposit {Sect. 2 (1) of (Ifsa 2013)}

Ifsa (2013) Section 2(1) defined “investment account” as an account under which

money is paid and accepted for the purposes of investment, including for the provision

of finance, in accordance with shariah on terms that there is no express or implied

obligation to repay the money in full and (a) either only the profits, or both the profits

or losses, thereon shall be shared between the person paying the money and the person

accepting the money; or (b) with or without any return.

“Islamic deposit” under Ifsa (2013) Section 2(1) means a sum of money accepted or

paid in accordance with Shariah (a) on terms under which it will be repaid in full, with

or without any gains, return or any other consideration in money or money’s worth,

either on demand or at a time or in circumstances agreed by or on behalf of the person

making the payment and person accepting it; or (b) under an arrangement, on terms

whereby the proceeds under the arrangement to be paid to the person paying the sum

of money shall not be less than such sum of money,

Based on the above definition, Islamic deposits will now confined to principal

guaranteed shariah contract i.e. qard, Murabahah and wadiah whilst funds placed for

investment purpose under principal non-guaranteed shariah contracts such as

mudarabah and wakalah shall fall within Investment Account. As a result, IFI product

offerings had to be re-aligned to meet definition of Islamic deposit and investment

account.

iii. Mudarabah

Investment Account guidelines, Bank Negara Malaysia (2014) defined various

investment related terminologies / principals as follows:

“Investment account holder”, refers to a customer with an investment account

maintained at an IFI.

“Mudarabah”, means a contract between capital provider (rabbul mal) and an

entrepreneur (mudarib) under which the rabbul mal provides capital to be managed by

the mudarib based on any profit generated from the capital is shared between the rabbul

mal and the mudarib according to mutually agreed profit sharing ratio (PSR) whilst

financial losses are borne by the rabbul mal provided that such losses are not due to the

mudarib’s misconduct (ta’adi), negligence (taqsir) or breach of specified terms

(mukhafalah al-shurut).

“Musharakah”, means a partnership between two or more parties which

may take effect through contractual relationship (‘aqd) or by operation of Islamic law,

whereby all contracting parties will share the profit and bear loss from partnership.

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“Restricted investment account or RIA”, refers to a type of investment account where

the customers provides a specific investment mandate to the IFI such as purpose, asset

class, economic sector and period for investment.

“Unrestricted investment account or URIA", refers to a type of investment account

where the customers provides the IFI with the mandate to make the ultimate investment

decision without specifying any particular restrictions or conditions.

“Wakalah”, means a contract in which a party (muwakkil) authorises another party as

his agent (wakil) to perform a particular task, in matters that may be delegated, either

voluntarily or with imposition of fee.

“Wakalah bi al-istithmar”, means a wakalah contract entered for the purpose of

investment.

Mudarabah could be used to finance short-and medium-term investment projects too.

Nevertheless, it had limited exposure in Malaysia’s Islamic banking industry due to

high risk and high capital charges or risk weightage as required by the regulator.

Mudarabah financing based contract contributed less than 0.02% of total IFI financing

for the past 12 months ended April 2016. See Annexure B for details Malaysia’s

mudarabah financing exposure. Bank Negara Malaysia (2012) on Capital adequacy

framework for Islamic banks (Risk-weighted assets) has imposed 150% risk weight to

mudarabah project financing. In other words, for each RM1.00 million additional

mudarabah financing would requires IFI to increase its capital due to higher Risk

Weighted Assets by 150% to RM1.5 million and also for IFI to maintain at least 8%

Capital Adequacy Ratio (CAR). This CAR was sanctioned by (Bank Negara Malaysia

2012) under the Implementation of Basel III guideline. Refer to Annexure C and

Annexure D for Risk Weight and computation of Risk Weighted Assets & CAR

respectively.

Tatiana et al. (2015) described mudarabah contracts are analogous to trust-based

financing in the traditional financial system. The income generated from the invested

money is distributed between the financial institution and the entrepreneur in

accordance with the agreement, concluded at the moment of signing the contract.

Simon ArcherandRifaat Abdel Karim (2009) have identified several regulatory

delinquent arising from the use of profit sharing investment accounts (PSIAs). It does

not meet the legal definition of deposits. Neither the customers’ capital nor any return

on it is guaranteed by the bank. Hence, PSIAs are not ‘capital certain’ and are,

essentially, investment products. IFIs therefore, do not meet the criteria to be classified

as depositary institutions as required by banking regulations in the majority of

countries. Nevertheless, in Malaysia this problem has been addressed by IFSA 2013. In Jordan, Malaysia and Qatar, the regulators requires IFI not to pass losses to

unrestricted PSIAs via ‘smoothing’ the periodic returns paid to them. These tactic is

achieved by a combination of low risks investment strategies and establishment of

reserve accounts made out of profits payable to PSIA holders. Reserves in this account

would be used to smooth profit payment (known as profit equalisation reserve (PER))

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and to shelter periodic losses (known as investment risk reserve (IRR)). In Malaysia

PER is no longer being practice by IFI since the introduction of IFSA.

Low return attributable to profit smoothing is common in PSIA. V Sundararajan (2007)

deliberated key subjects in the measurement and mechanism of risks in IFI, particularly

the effects of profit sharing investment accounts (PSIA) for risk measurement, risk

management, capital adequacy and supervision. Cross country data on a sample of

banks reveal a considerable smoothing of returns paid to PSIA, despite wide

divergences in risk. This suggests that the sharing of risks with PSIA is fairly imperfect

in practice, although, in principle, well-designed risk (and return) sharing arrangements

with PSIA can serve as a powerful risk mitigant in Islamic finance. Supervisory

authorities can provide strong incentives for effective and transparent risk sharing and

the associated product innovations, by inking the extent of capital relief on account of

PSIA with appropriate supervisory review of the risks borne by the PSIA (equivalently

the extent of displaced commercial risk assumed by the shareholders), and by requiring

adequate disclosure of these risks.

Given the overwhelming use of non-PLS financing modes, IFI cannot be said to be risk-

sharing in any meaningful sense. Feisal Khan (2010) declared that IFI transactions

mimic conventional, collateralized debt contracts very closely, often right down to

actually using current market interest rates as pricing benchmarks. IFSA which has

defined Investment account which is PLS in nature as non-guaranteed principal

An empirical studies conducted by Saiful Anwar Dadang Romansyah et al. (2010) has

successfully managed to predict the mudarabah time deposit return. The research model

was capable to predict with 95.22% accuracy for Bank Shariah Mandiri 12 months

mudarabah Time Deposit. This model could be used as an adequate tool to help

depositors in predicting future return of mudarabah Time Deposit product at Bank

Shariah Mandiri. This prediction capability will provide depositors tools to determine

the probably highest return investment in the market. This tool may also keep depositor

to stay longer in the IFI before flowing the surplus fund to conventional bank. This is

an important findings particularly for the customers who love certain and fixed

investment return.

Based on the above, PSIA which is largely based on mudarabah concept have various

inherent issues which restrict its growth rate. The introduction of IFSA which clearly

defined it as non-guaranteed principal is expected to further deteriorate its performance.

Mudarabah is deemed as the pure Islamic model compared to debt based mode.

However, it is not a favourite model amongst the industry players. Mudarabah is less

preferable compared to Islamic debt financing instruments such as murabahah and bai’

bithaman ajil. This is caused by the existence of asymmetric information that

continuously presents in mudarabah (profit sharing) contracts and creates problems of

adverse selection and moral hazard. Due to this, mudarabah (profit sharing) has

declined it importance as a financing or deposits vehicle.

RESEARCH METHODOLOGY

The present research is based on a deductive approach - strictly qualitative. For

analysing all the data the author used the following research methods: comparative

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method, document analysis, external observation. Qualitative method of research and

descriptive approach to research were applied in this study as they were appropriate in

looking into the research issue understudied.

Library research was adopted because IFSA was recently launched in June 2013. Data

post IFSA therefore is limited. As this is a case study over AmBank Islamic Berhad,

hence AmBank Islamic’s audited accounts for 9 financial years ended March 2007 to

2015, 3rd quarter interim financial statement as at 31.12.15 and Bank Negara Malaysia

data would be the main source of information for this research. These information are

derived from the public domain and hence confidentiality issue does not arise at all.

RESEARCH FINDINGS

i. IFSA’s impact to Islamic Banking’s deposit

Figure 1 revealed that contribution of Investment deposit (mudarabah) against total

deposit declined significantly from 37.5% in Dec. 2013 to 0.4% in March 2016. In

March 2007, it contributed 58.1% of total deposit. However, it has registered a

declining trend since then. Sharp declined was registered since Dec. 2013, immediately

after the introduction of IFSA.

Source: Bank Negara Malaysia

Under IFSA all Investment deposit which is pre-dominantly governed under

Mudarabah contract the principal and profit are not guaranteed. Principal and profit

payments are purely subject to the performance of the investment. Investment deposit

is therefore subject to capital reduction. Fears of depositors losing its investment which

may led to market instability and a “run” over the bank are the major contributory

factors for IFI to near total shut down of its mudarabah based deposit to other type of

deposits.

Figure 1 above exhibited that total deposit continued to grow for the past 37 quarters

ended March 2016. However, Investment deposit has depleted to 0.4% of total deposit

in March 2016. IFSA does not affect deposit growth rate. However deposit mixed are

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Q1

Q2

Q3

Q4

Q5

Q6

Q7

Q8

Q9

Q10

Q11

Q12

Q13

Q14

Q15

Q16

Q17

Q18

Q19

Q20

Q21

Q22

Q23

Q24

Q25

Q26

Q27

Q28

Q29

Q30

Q31

Q32

Q33

Q34

Q35

Q36

Q37

Figure 1: Industry Investment Deposit Contribution for the

past 37 Quarters ended March 2016.

19.6% in Dec. 2014

37.5% in Dec. 2013

0.5% & 0.4% in Dec. 2015 &March. 2016 respectively

58.1% in March 2007

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moving away from Investment deposit which are pre-dominantly under mudarabah

contract.


Figures 1 & 2 portrayed that Investment Deposit based on mudarabah is less preferable

by the industry players beginning Dec 2013 or at Quarter 28, 6 months after IFSA

effective date, 30 June 2016. As at March 2016, mudarabah based deposit or Investment

deposit has depleted to 0.4% of total IFI deposits. These data showed that IFSA has

indirectly marginalised mudarabah deposit in the Islamic banking industry. The

industry has adopted Murabahah Tawarruq (“MTQ”) as the principal contract for its

deposits products. MTQ contract currently dominating IFIs deposits marginalising

mudarabah based deposit to the wall. Declining trend on Investment deposit is very

obvious at industry level as portrayed out in Annexure E.

i. IFSA impact to AmBank Islamic.

Mudarabah deposit.

On 14 March 2014, Bank Negara Malaysia (“BNM”) had issued a policy document on

Investment Account ("IA") aimed at outlining the regulatory requirements on the

conduct of investment accounts that are consistent with the IFSA and that comply with

standards on Shariah issued by BNM. This policy document comes into effect on 14

March 2014 (Bank Negara Malaysia 2014).

On 14 February 2014, BNM had issued the Transition Policy under IFSA (“transition

policy"), allowing Islamic financial institutions a transition period until 30 June 2015

to comply with IFSA and BNM standards on Shariah and policy document on

Investment Account. Pursuant to the application of the policy document on Investment

Account and the transition policy, as reported in Ambank Islamic Berhad (2015), the

Bank has adopted the followings:

0.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

300,000.0

350,000.0

400,000.0

450,000.0

Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19 Q21 Q23 Q25 Q27 Q29 Q31 Q33 Q35 Q37

Figure 2: Total Deposit vs Investment Deposit

for the past 37 Quarters ended March 2016

(In RM Million)

Total Deposit Total Investment Deposit

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(i) Segregated investment deposit products from deposit accounts and presented

these separately as investment accounts in the financial statements;

(ii) Discontinued with the application of profit equalisation reserve ("PER"). The available amounts in PER had been distributed to the remaining account

holders in the form of hibah.

As a result, Investment Account was introduced by AmBank Islamic as a new product

offering. The accounting policy adopted for Investment account pursuant to IFSA

and Bank Negara Malaysia (2014) are as follows:

Unrestricted Investment Account

AmBank Islamic Unrestricted Investment Account is based on the Shariah concept of

Wakalah bil Istithmar. It refers to an arrangement whereby the Investment Account

Holder ("IAH") (as the principal or muwakkil) appoints AmBank Islamic as an agent

(the "wakil") for the purpose of investment. AmBank Islamic as wakil shall not be liable

to compensate losses except losses due to its own misconduct, negligence or breach of

specified terms. The amount invested by the IAH aims to provide the IAH with steady

flow of income by investing in low risk investments which AmBank Islamic deems

appropriate. For current financial period, AmBank Islamic did not impose Wakalah fees

to the IAH.

Restricted Investment Account (“RIA”)

AmBank Islamic’s RIA is based on mudarabah concept where IAH agree to participate

in the specific financial/investment activities undertaken by AmBank Islamic and share

the profit generated from financing and/or investment activities based on an agreed

profit-sharing ratio. The IAH shall bear the losses arising from the assets funded under

the mudarabah concept except in cases of misconduct, negligence or breach of

contracted terms by AmBank Islamic. Therefore, any allowances for impairment and

capital charge will be transferred to the IAH to reflect the potential losses to the IAH.

Currently, the existing RIA arrangement is between the AmBank Islamic and

AmBank Berhad only. RIA is not offered to the public yet.

Distribution of profit between the unrestricted IAH and AmBank Islamic.

The unrestricted IAH place funds with AmBank Islamic in exchange for an expected

rate of return (“ERR”) for the agreed period of the investment. AmBank Islamic

mobilises the investment account funds in accordance with its investment strategy to

generate returns. In the event that the actual rate of return (“ARR”) is higher than the

ERR, the IAH agree that this difference shall be retained by AmBank Islamic as a

performance incentive. On the contrary, if the ARR is lower than the ERR, AmBank

Islamic is obliged to distribute the ARR to the IAH.

AmBank Islamic adopts the standard methodology in calculating the rate of return and

profit distribution to the IAH consistent with Rate of Return framework issued by

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BNM. AmBank Islamic neither adopt profit smoothing practices nor employ

displaced commercial risk technique in the calculation of the ARR to the IAH.

As a result, AmBank Islamic’s deposit composition has changed drastically as shown

in Figure 3 herein. Total deposit continue to grow and was not affected by IFSA.

However, mudarabah based deposit has extinct from the bank’s book.

Source: AmBank Islamic audited accounts.

AmBank Islamic depositors are divided into two i.e. Non-Financial Institution and

Financial Institution customer. Deposits are divided into two models i.e. mudarabah

and non-mudarabah models. AmBank Islamic’s deposit continued to grow steadily for

the past 10 years’ ended 3rd quarter of FYE 3/2016. Nevertheless, the outstanding

mudarabah based deposit was ground zero as at December 2015 (or 3rd quarter of

FYE 3/2016) since all have been transferred to other type of deposit, particularly

Murabahah Tawarruq (See Annexure F for details). IFSA therefore has marginalized

mudarabah deposit at AmBank Islamic and the industry too.

Deposit mix, profitability & financing deposit ratio.

AmBank Islamic has developed Commodity Murabahah Term Deposit to replace the

mudarabah investment deposit. Commodity Murabahah is a Shariah principle based on

Tawarruq and Murabahah concept (See Annexure G for details of Murabahah Tawarruq

model).

In July 2014, AmBank Islamic had officially communicated to all mudarabah

Depositors that all existing investment deposits shall be converted into Commodity

Murabahah deposit. AmBank Islamic claimed in their communication that this exercise

is to comply with IFSA, It is also to allow customer to enjoy principal guaranteed

deposit and fixed profit rate. The conversion was scheduled to commence in August

2014. The communication to the customers were also serves as a tool to obtain

customers’ consent for the conversion of the existing mudarabah deposit. Customers’

mudarabah existing deposit will be automatically converted into Commodity

Murabahah deposit upon its renewal if AmBank Islamic do not hear anything from the

customers by 15 August 2014. Auto conversion shall take place upon maturity of each

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q

2016

Figure 3: AmBank Islamic deposit for the past 10 years

ended 3rd Quarter FYE 3/2016 (In RM'000)

Non-Mudharabah Mudharabah Total Deposits

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mudarabah deposit commenced on 15 August 2014. Details of the conversion exercise

is summarized at Annexure H.

Appointment of AmBank Islamic as the customers’ agent to sale & purchase the

commodity on behalf of the customers are secured simply by customers’ decision to

continue maintaining their deposit with AmBank Islamic after the conversion. Such

continuation shall also constitute customers’ consent and agreeable to the Specific

Terms and Conditions for Commodity Murabahah-based Term Deposit and it shall

automatically be binding on the customers. These auto conversion and appointment as

customers’ agent are shariah compliant.

IFSA has led to change in AmBank’s funding structure via the creation of Investment

Account in its balance sheet. Ambank Islamic Berhad (2015), declared RM1.3 Billion

outstanding RIA. This RIA is a contract between AmBank Islamic as mudarib and

AmBank Berhad as the rabbul mal. It is used for certain financing activities conducted

by AmBank Islamic. Profit to be distributed to AmBank Berhad’s investment therefore

now will subject to the profit generated from financing and/or investment activities

based on an agreed profit-sharing ratio. AmBank Islamic prepared to accept such

investment by AmBank Berhad since both are having common shareholder /

management team and common investment / credit risk policies. RIA as of today is not

offered by AmIslamic Bank to external customers.

Ambank Islamic Berhad (2015)Deposit mix however remained unchanged whereby

low cost deposit CASA (Curent & Saving Accounts) continued to contribute less than

20% of AmBank Islamic total deposit during pre & post IFSA (See Annexure I). As a

result of high cost of fund due to low contribution of CASA, AmBank Islamic

profitability continue to decline during pre and post IFSA. AmBank Islamic pre-tax

profit, net margin, ROA and ROE were all on declining trend prior to IFSA as depicted

at Annexure J and Annexure K. We therefore may conclude that IFSA has no significant

impact towards AmBank Islamic’s profitability. Both IFSA and AmBank Islamic’s

profitability has no direct relationship at all.

AmBank Islamic’ financing ratios remain stable. Deposit to Asset, Financing Deposit

and Financing to Total Funding ratios during pre & post IFSA remain unchanged at an

average of 81%, 84% and 78% respectively. See Annexure L for details. Hence, we

may conclude that IFSA has no impact on AmBank Islamic funding structure.

Information asymmetry.

Bank Negara Malaysia (2014) has effectively and successfully managed information

asymmetry. Non-transparency inherent to mudarabah based product is now become

history with the introduction of IFSA. Bank Negara Malaysia (2014) is an Investment

Deposit policy. This policy document sets out: (a) specific requirements on the

structuring, risk management and market conduct of investment accounts; (b) oversight

requirement over the management of investment account funds and investment assets;

and (c) transparency and disclosure requirements including minimum information to be

disclosed in product disclosure sheet, key terms and conditions to be included in

primary documents, investment account performance report to the investors and

additional disclosures in the IFI’s financial statements; and (d) prudential requirements

relating to investment accounts.

334

334

Information asymmetry where no comprehensive disclosure inherent to mudarabah

based investment account as identified by Rashid Ameer et al. (2012) has now been

resolved via Investment Account policy declared by Bank Negara Malaysia (2014).

This policy document covers wide area of transparency and disclosure covering various

subjects such as product structuring, management of investment account, oversight

arrangement, risk & management control, business & market conditions, transparency

& disclosure and prudential requirement.

Stringent information regularity requires costly infrastructure to be in place. Yet it

continue to pose high risk to AmBank Islamic and the industry players as a whole as in

the event of capital loss may lead to a ‘run’ over the Bank. This is due to the

misconception and/or lack of product knowledge by the the public on each and every

banking products, particularly the investment account. IFSA therefore has led to

marginalizing of mudarabah products largely due to non-guarantee principal, high set-

up cost and continue to pose high risk to the AmBank Islamic despite availability of

transparency and disclosure elements.

Based on the findings we therefore can accept on the hypothesis that IFSA has severely

affected AmBank Islamic deposit taking behaviour. Mudarabah based deposit has

depleted to ground zero and now being replaced with Murabahah Tawarruq Deposit.

AmBank Islamic no longer offer mudarabah deposit to the public. It is only restricted

to sister company, AmBank Berhad. It was offered as a tool to raise additional funding

from related or friendly party.

CONCLUSION

i. Implication to policy.

Strict definition of mudarabah by IFSA and paved further by Bank Negara Malaysia

(2014) has made the industry jittery on Islamic banking. The industry reacted negatively

by switching all investment account into debt based product. It shown that the Islamic

banking industry is not ready to embrace with pure Islamic concepts. The industry

continued to be dominated by interest based concept which is prohibited by Islam. As

we are aware that debt based financing is a contentious concept because it is deemed as

a back door to interest bearing instrument.

Mudarabah is a Sunnah of Prophet Muhammad s.a.w. when He conducted the trade on

behalf of Khadijah a.s. It appears that this Sunnah has various inherent weaknesses

leading to dry respond from the industry players. As a Muslim scholars, industry

experts, academicians and muamalat graduates must play a major role in promoting and

uphold this Sunnah. Information symmetry is a symbol of honesty and trustworthy.

These element therefore must be indoctrinated in each and every players involve in

mudarabah in order to avoid misconception of this concept.

ii. Proposal

The author recommends further investigation on the subject why there is strong

rejection on mudarabah still exist despite information symmetry. Does risk and return

335

335

elements are the stumbling block for the success implementation of mudarabah based

model? This is the gap to be covered by future research.

iii. Summary

This paper has managed to resolve the research problem statement. IFSA have negative

impact on investment account which are based on mudarabah model. Policy on

investment account issued by Bank Negara Malaysia have managed to mitigate

information asymmetry effectively. Earlier findings on lack of disclosure guidelines

related to profit sharing investment account has been addressed herein via introduction

Investment Account policy by Bank Negara Malaysia. This policy is very

comprehensive to protect the investors particularly. However, the author believed that

the high infrastructure set-up cost become major constraint for IFI and AmBank Islamic

in particular to implement it. IFSA has no effect at all on IFI’s performance and

profitability. Over dependence on high costs funding instrument has affected AmBank

Islamic earnings. Overall, well integrated and strategized plan need to be established in

order to educate, promote and convinced the industry players to subscribe for

mudarabah based investment account.

BIBLIOGRAPHY

Ambank Islamic Berhad. 2015. Audited Financial Statements for Financial Year

Ended March 2007 - 2015

Ambank Islamic Berhad. 2015. Interim Financial Statements for the Period 1

April 2015 to 31 Dec 2015 AmBank Islamic Berhad.

Ammb Holdings Berhad. 2015. Audited Annual Report. Kuala Lumpur AmBank

Goup.

Bank Negara Malaysia 2011. Financial Sector Blueprint 2011-2020. Kuala Lumpur,

Bank Negara Malaysia.

Bank Negara Malaysia 2012. Capital Adequacy Framework for Islamic Banks (Risk-

Weighted Assets). Kuala Lumpur, Bank Negara Malaysia.

Bank Negara Malaysia 2012. Implementation of Basel Iii. Prudential Financial Policy

Department Islamic Banking and Takaful Department. Kuala Lumpur, Bank

Negara Malaysia.

Bank Negara Malaysia 2014. Investment Account Guidelines. Kuala Lumpur, Bank

Negara Malaysia.

Feisal Khan. 2010. How ‘Islamic’ Is Islamic Banking? Journal of Economic

Behavior & Organization 76(3): 805-820.

Gopal Sundaram. 2013. The Islamic Financial Services Bill 2012. Kuala Lumpur:

Abdullah Chan Advocates & Solicitors

Ifsa 2013. Islamic Financial Services Act 2013. Kuala Lumpur: Malaysia.

Noor Saliza Zainal, Zulkafli Mohd Yusof & Kamaruzaman Jusoff. 2009. Influence

of Economic Factors on Performance of Investment and Mudharabah

Accounts in Maybank, Malaysia. International Journal of Economics and

Finance 1(2): 221.

Rashid Ameer, Radiah Abdul Kader & Nurmazilah Mahzan. 2012. Information

Asymmetry and Regulatory Shortcomings in Profit Sharing Investment

Accounts. International Journal of Islamic and Middle Eastern Finance and

Management 5(4): 371-387.

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336

Saiful Anwar Dadang Romansyah, Sigit Pramono & Kenji Watanabe. 2010.

Treating Return of Mudharabah Time Deposit as Investment Instrument: A

Utilization of Artificial Neural Networks (Anns). Humanomics 26(4): 296-

309.

Simon Archer & Rifaat Abdel Karim. 2009. Profit-Sharing Investment Accounts in

Islamic Banks: Regulatory Problems and Possible Solutions. Journal of

Banking Regulation 10(4): 300-306.

Surianom Miskam & Muhammad Amrullah Nasrul. 2013. Shariah Governance in

Islamic Finance: The Effects of the Islamic Financial Services Act 2013.

Proceeding of the World Conference on Integration of Knowledge (WCIK

2013), Langkawi, Malaysia, hlm. 25-26.

Tatiana, N., Igor, K. & Liliya, S. 2015. Principles and Instruments of Islamic

Financial Institutions. Procedia Economics and Finance 24(479-484.

V Sundararajan. 2007. Risk Measurement and Disclosure in Islamic Finance and

the Implications of Profit Sharing Investment Accounts. ISLAMIC

ECONOMICS AND FINANCE 121.

337

337

Annexure A

AmBank Islamic Berhad : Shariah Advisors’ Profile

Professor Dr. Amir Husin Mohd Nor

Prof. Dr. Amir Husin is currently a Professor at the Faculty of Syariah & Law,

University Sains Islam Malaysia (USIM). He obtained his first degree (Hons) in Shariah

from Academy of Islamic Studies, University of Malaya. He then successfully

completed his Master in Law (LL.M) from University of

London and subsequently achieved his Ph.D in Islamic Studies from University of

Edinburgh. His areas of specialisation are Islamic Jurisprudence (usul fiqh) and Law.

Associate Professor Datin Dr. Noor Naemah Abd. Rahman Dr. Noor Naemah Abd. Rahman is currently a lecturer and Associate Professor at the

Fiqh and Usul Department for Academy of Islamic Studies, University of Malaya. She

obtained her first degree in Shariah from University of Malaya, a Master degree in

Shariah from University of Jordan and a Ph.D from University of Malaya. Her areas of

specialisation are Islamic Jurisprudence (usul fiqh) and fatwa.

Assistant Professor Dr. Tajul Aris Ahmad Bustami Assistant Prof. Dr. Tajul Aris Ahmad Bustami is currently a lecturer and Assistant

Professor at Department of Islamic Law, Ahmad Ibrahim Kulliyyah of Laws,

International Islamic University Malaysia (IIUM). He received his first Degree in Law

(LL.B (Hons) & LL.B (Shariah)(Hons)) from IIUM and a Master degree in Law (LL.M)

from University of London. He then successfully obtained a Diploma in Shariah Law

and Practice (DSLP) a professional post-graduate programme from IIUM. Later, he

received his Ph.D in Law from IIUM. His areas of specialisation are Islamic Banking

Law and Takaful, Muslim Law of Succession & Waqf and Administration of Estates.

Dr. Asmak Ab Rahman

Dr. Asmak Ab Rahman is currently a senior lecturer at Department of Syariah and

Economics, Academy of Islamic Studies, University of Malaya where she received her

first Degree and Master in Shariah followed by Ph.D in Islamic Economics. Her areas

of specialisation are Comparative Economic Development, Takaful, Islamic Banking,

Islamic Economics and Economics of Waqf.

Associate Professor Dr. Adnan Yusoff

Dr. Adnan Yusoff is currently a senior lecturer at Institute of Liberal Studies, Universiti

Tenaga Nasional (UNITEN), Kajang, Selangor. He received his first degree in Shariah

(Hons) from University Al-Azhar, Cairo, Egypt. He then obtained a Master of

Comparative Law (MCL) from International Islamic University Malaysia, Kuala

Lumpur and received his Ph.D in Islamic Muamalat at University of Malaya. His areas

of specialisation are Islamic Commercial Law, Islamic Law of Transactions, Islamic

Jurisprudence (usul fiqh), Islamic Family Law and Islamic Criminal Law.

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338

Annexure B

Mudarabah Financing Contribution in the Islamic Banking industry.


Mudarabah financing contributed less than 0.02% of total Islamic Banking industry

financing.

0.0160%

0.0170%

0.0180%

0.0190%

0.0200%

0.0210%

0.0220%

0.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

300,000.0

350,000.0

400,000.0

450,000.0

Mudarabah Financing Contribution for the past 12 months ended

April 2016 (In RM'000)

Mudarabah Total Financing Mudarabah Contribution

339

339

Annexure C

Risk Weight

No Exposure / financing to various type of customer &

types of Islamic contracts.

Risk Weight

1 Malaysia- Federal government and Bank Negara Sukuk in

ringgit.

0%

2 Guaranteed by federal government. 0%

3 Another sovereign of central bank in ringgit. 0% - 20%

4 Guaranteed by sovereign or central bank 0% - 20%

5 Rating of sovereign

5.1 AAA to AA 0%

5.2 A+ to A- 20%

5.3 BBB+ to BBB- 50%

5.4 BB+ to B- 100%

5.5 CCC+ to D 150%

5.6 Unrated 100%

6 Non-federal government public sector. 20%

7 Multilateral development banking (e.g. Asia

Development Bank / Islamic Development Bank)

0%

8 Banking institutions & Corporations

Rating on short term exposures (commercial paper)

8.1 A-1 20%

8.2 A-2 50%

8.3 A-3 100%

8.4 Others 150%

9 Rating on long term exposures to banking institutions.

9.1 AAA to AA 20%

9.2 A+ to A- 50%

9.3 BBB+ to BBB- 50%

9.4 BB+ to B- 100%



Risk Weight

9.5 CCC to D 150%

9.6 Unrated 50%

10 Rating of corporates, takaful companies, securities firms

and fund manager.

10.1 AAA to AA 20%

10.2 A+ to A- 50%

10.3 BBB+ to BB 100%

10.4 B+ to D 150%

10.5 Unrated 100%

11 Exposure to Retail Portfolio (individual or SME) via

credit cards, cashline, personal financing, hire purchase

and term financing based on murabahah / inah / BBA /

ijarah contracts.

75%

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340

11.1 Term financing to retail portfolio over 5 years

tenor.

100%

12 Financing secured by Residential Real Estates (RRE)

Property based on murabahah / ijarah / BBA / Inah

contracts.

12.1 Financing to value ratio (FTV) less 80% 35%

12.2 FTV over 80% to 90% 50%

12.3 FTV more than 90% 100%

12.4 RRE to priority sector – FTV less than 80% 35%

12.5 RRE to priority sector – FTV 80% to 90% 50%

12.6 RRE to priority sector – FTV over 90% 75%

13 Exposures secured by Commercial Real Estate (CRE)

The risk weight is based on No. 1 to 11 above (refer no. 1 to

11)



Risk Weight

14 Higher risk assets :

musharakah / mudarabah contracts, financing abandoned

projects and venture capital.

150%

15 Cash / gold 0%

16 Guaranteed by CGC and financing to local stock

exchange

0%

17 Clearing house 20%

18 Unit trust / property trust / publicly traded equity

investment.

100%

19 Equity investment by federal government / BNM 100%

20 Others not specified in 1 to 19 above. 100%

21 Islamic Contracts – Murabahah / BBA / Ijarah / inah /

Salam

(refer to 1 to 20

above)

22 Musharakah – publicly traded equity 100%

23 Musharakah – non-publicly traded equity 150%

24 Musharakah – project financing 150%

25 Mudarabah – project financing – based on rating (refer to 5 to 10

above)

26 Mudarabah – project financing. 150%

27 Sukuk – rated - based on rating (refer to 5 to 10

above)

28 Sukuk – unrated - based on underlying contracts (refer to 21 to 26

above)

Source: Bank Negara Malaysia (2012)

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341

Annexure D

Computation of Risk Weight Assets and CAR

Additional capital required due to high Risk Weight of 150% on

Mudarabah Financing

RM '000

Capital Adequacy Ratio (CAR)

Assumptions:

Total Capital (TC) 3,909,099.48 TC0

Risk Weighted Assets (RWA) 48,863,743.56 RWA0

CAR = (TC / RWA) 8.00% CAR0

Projected additional Mudarabah financing

(AF) 100,000.00

Risk Weight 150%

New Capital required to maintain 8% CAR0

Additional RWA = 150% x AF 150,000.00 RWA1

TC1 to maintain 8% CAR : TC1 / (RWA0 + RWA1)

8%= TC1 / RWA2

8%= TC1 / 49,013,743.56

TC1 = 8% (49,013,743.56)

TC1 = 3,921,099.48

Additional Capital to finance

additional RWA1 : TC1 - TC0

12,000.00 #

New CAR1=

(TC1 /

RWA2)

3,921,099.48 8.00%

49,013,743.56

Source: Author’s illustration

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342

Annexure E

Source: Bank Negara Malaysia.

0.0

50,000.0

100,000.0

150,000.0

200,000.0

250,000.0

300,000.0

Q1 Q3 Q5 Q7 Q9 Q11 Q13 Q15 Q17 Q19 Q21 Q23 Q25 Q27 Q29 Q31 Q33 Q35 Q37

Islamic Banking industry deposit growth by type for the

past 37 quarters ended March 2016 (In RM '000)

Total Investment Deposit Demand Deposit Saving Deposit

NID Others Deposit

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343

Annexure F

AmBank Islamic Deposit growth & composition for the past 10 years ended 3rd

Quarter of FYE March 20161

1 Based on AmBank Islamic Audited accounts for the past 9 years and 3r quarter interim financial statements as at

31 Dec 2015.

RM'000

Customers Deposit 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016

Non-Mudharabah 1,028,298 1,328,145 1,858,800 2,230,498 2,537,485 4,608,505 7,644,587 7,980,250 15,851,758 29,521,478

Mudharabah 3,642,756 4,118,186 8,296,270 13,398,040 12,712,170 13,663,353 15,566,655 17,482,251 13,903,118 0

4,671,054 5,446,331 10,155,070 15,628,538 15,249,655 18,271,858 23,211,242 25,462,501 29,754,876 29,521,478

Financial Institutions

Deposit 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016

Non-Mudharabah 1,590,343 1,600,442 879,424 914,331 1,099,067 1,121,465 530,586 937,905 280,720 1,442,792

Mudharabah 963,224 908,339 1,445,052 1,485,750 368,489 359,840 1,974,135 2,323,453 2,433,344 0

2,553,567 2,508,781 2,324,476 2,400,081 1,467,556 1,481,305 2,504,721 3,261,358 2,714,064 1,442,792

Total Deposits 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016

Non-Mudharabah 2,618,641 2,928,587 2,738,224 3,144,829 3,636,552 5,729,970 8,175,173 8,918,155 16,132,478 30,964,270

Mudharabah 4,605,980 5,026,525 9,741,322 14,883,790 13,080,659 14,023,193 17,540,790 19,805,704 16,336,462 0

Total Deposits 7,224,621 7,955,112 12,479,546 18,028,619 16,717,211 19,753,163 25,715,963 28,723,859 32,468,940 30,964,270

Total Deposits 2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q 2016

Non-Mudharabah 36.2% 36.8% 21.9% 17.4% 21.8% 29.0% 31.8% 31.0% 49.7% 100.0%

Mudharabah 63.8% 63.2% 78.1% 82.6% 78.2% 71.0% 68.2% 69.0% 50.3% 0.0%

100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 3Q

2016

AmBank Islamic : Mudarabah deposit trend for the past

10 years ended 3rd quarter FYE March 2016 (In RM '000)

Non-Mudharabah Mudharabah Total Deposits

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344

Annexure G

Modus operandi of Murabahah Tawarruq.

Transaction sequence.

Steps Action Activities

1 Customer Place deposit (RM100,000 for 6 months).

Appoint AmBank Islamic as Customer’s Commodity

Purchasing Agent (“CPA”) and as Customer’s Commodity

Sale Agent (“CSA”)

2 AmBank Islamic.

(Purchase commodity

on behalf of

Customer)

Pursuant to CPA executed with the Customer, AmBank

Islamic shall purchase the Commodity on behalf of the

Customer.

AmBank used Customer’s deposits to purchase commodity.

Value of the commodity is equivalent to the value of deposit

made by the Customer (RM100,000-00)

3 AmBank Islamic.

(Customer sell the

commodity to

AmBank Islamic)

Pursuant to CSA, AmBank Islamic shall sell the

commodity to AmBank Islamic itself.

The Selling Price is (assumed) at cost plus profit payable

in 180 days at 3.50% profit rate.

Customer’s Selling Price to AmBank Islamic: Cost : RM100,000-00 Profit {RM100,000 x 3.5% x (180/365)} :RM 1,726-03 Customer’s Selling Price RM101,726.03

The Selling Price is payable to the Customer upon

maturity 180 days later. 4 AmBank Islamic.

(AmBank Islamic

sell the commodity to

3rd party)

AmBank Islamic sell the commodity for RM100,000 on

CASH TERM to a 3rd party.

The proceeds shall be used to pay the Customer together

with RM1,726.03 profit upon maturity, i.e. 180 days after

Customer placed the deposit at AmBank Islamic.

Commodity Murabahah refers to a sale and purchase of an asset where the acquisition

cost and the mark-up are disclosed to the purchaser. Tawarruq consist of two sale and

purchase contract. The first involves the sale of an asset by seller (customer) to a buyer

(bank) on a deferred basis. Subsequently, the buyer (bank) will sell the same asset to a

third party on a cash and spot basis.

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345

Annexure H

Product conversion process

1) 5 new deposit products based on Murabahah Tawarruq have been developed to

replace existing Investment deposit based on Mudarabah contract.

i) Term Deposit-i

ii) Afdhal Term Deposit-i

iii) Am50Plus Term Deposit-i

iv) AmQuantum Term Deposit-i

v) ValuePlus Term Deposit-i

2) The conversion exercise commenced on 15 August 2014 and immediately upon

the renewal of your Existing Deposit.

3) Notification to the Customers on the conversion exercise was issued on

21.7.2014. This notification also serves as a medium to secure customers’

consent for the conversion exercise.

4) Automatic conversion took place if customers continue to keep their deposit

with AmBank Islamic after 15 August 2014. Such continuation shall constitute

customers’ consent and agreeable to the terms & conditions of Commodity

Murabahah-based Term Deposit.

5) This conversion exercise was carried out at no cost to the customers.

6) Any existing legal charges and lien against the deposit shall continue under

customers new term deposits based on Commodity Murabahah.

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346

Annexure I

AmBank Islamic deposit mix.

Source : AmBank Islamic audited accounts and interim results.

CASA : Current Account & Saving Account

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mac-10 Mac-11 Mac-12 Mac-13 Mac-14 Mac-15 Dec-15

CASA Term Deposits

347

347

Annexure J

AmBank Islamic Profitability

Source: AmBank Islamic Berhad Audited Accounts and Interim Results.


439,274

228,115

334,245 348,160 315,958 304,391

209,865


AmBank Islamic's Profit before tax & zakat

(In RM'000)

4.05%

3.17%2.95%

2.34% 2.34%

1.92%

1.37%

1.87%

0.84%1.02%

0.83% 0.70% 0.60%0.39%0.44% 0.39% 0.37% 0.27% 0.21% 0.17%

0.01%


AmBank Islamic's Profitability Ratios.

Net Margin: Net Profit / Total Asset Non Profit Earning Asset / Total Asset

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348

Annexure K

AmBank Islamic Profitability


Annexure L

AmBank Islamic Funding Ratios for the past 7 years ended 3rd quarter FYE

March 2016.


1.87%0.84% 1.02% 0.83% 0.70% 0.58% 0.45%

22.4%

11.3%13.2%

11.9%9.9%

7.9%5.9%


ROA & ROE

ROA ROE


Deposit to Asset 85.7% 82.0% 81.9% 78.5% 81.0% 81.8% 78.1%

Financing Deposit Ratio 79.5% 79.8% 86.0% 86.1% 85.6% 84.7% 88.6%

Financing to Total Funding 77.4% 75.5% 79.3% 81.2% 80.8% 77.5% 77.2%

65.0%

70.0%

75.0%

80.0%

85.0%

90.0%

FUNDING RATIOS

does ifsa 2013 marginalized mudarabah...

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