investment account- i · exempted from srr calculation – reduce regulatory cost diversified risk...
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Strictly Private & Confidential Page 1
INVESTMENT ACCOUNT-i : A NEW FRONTIER
By Hizamuddin Jamalluddin Group Chief Strategy Officer
TABLE OF CONTENTS
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HIJRAH TO EXCELLENCE PLAN – H2E PLAN
IFSA 2013
INVESTMENT ACCOUNT – A NEW FRONTIER
INVESTMENT ACCOUNT PLATFORM – A NEW MARKETPLACE
MOVING FORWARD
Section 1
Section 2
Section 3
Section 4
Section 5
Strategic Management & Managing Director’s Office
TOWARDS THE END OF H2E PLAN (2013 – 2015)
2013
2014
2015
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RECAP H2E PLAN
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Robust Organic Growth
Service Excellence
Shariah-led Innovation
Resource Optimisation
Employer of Choice
Regional-isation
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ISLAMIC FINANCIAL SERVICES ACT 2013 (IFSA)
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Islamic Banking Act 1983
Takaful Act 1984
Payment Systems Act 2003
Exchange Control Act 1953
Repealed Laws New Law
Islamic Financial Services
Act (IFSA) 2013
Promotes financial stability and compliance with Shariah requirements
Strengthens regulation of
financial institutions Implements
recommendations under Financial Sector Assessment program (FSAP)
Objectives
How does IFSA 2013 affect us?
“For all Islamic banks in Malaysia, including Bank Islam, this involves a reclassification of our existing deposit products”
BNM on 14 March 2014 issued an Investment Account Policy that outlines the new investment account
product requirements as defined by Islamic Financial Services Act 2013 (IFSA).
ISLAMIC FINANCIAL SERVICES ACT 2013 – IN A NUTSHELL
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Forceful Governance / Oversight Framework
(Board/SSC Composition & Responsibilities)
Refined Ownership, Control & Financial Group/ Holding
Company Demands Strong Capital
Adequacy Ratio
Differentiates Deposit & Investment Account
Takaful Framework – Separation of Life &
General Takaful Promotes Responsible Risk
Sharing Business Model
Greater Transparency in Product Offerings &
Customers’ Protection Robust Risk Management
Capability & Capacity More Extensive & Intrusive
Regulation
FUNDING STRUCTURE – IFSA 2013
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Deposits Investment Accounts Shareholders’ Funds
Current Account Savings Account Term Deposit
Unrestricted Investment Account
Restricted Investment Account
Paid Up Capital Retain Earnings Tier II Capital Others
WHAT IS AN INVESTMENT ACCOUNT?
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Money paid and accepted for the purposes of
investment in accordance with Shariah
Shariah contracts: Mudarabah, Musharakah, Wakalah, etc.
The return in an investment account commensurate
with the risk taken
BEGIN WITH THE END IN MIND – “A NEW FRONTIER”
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Effective Capital Management – Cost of
Capital is expensive Enhance Liquidity
Management – LCR Ratio
Return to commensurate with the risk taken or Differing Risk-Return
Profiles
No longer restricted by the
size of Balance Sheet
Exempted from SRR calculation – Reduce
regulatory cost
Diversified Risk Profile – Effective Syndication
Medium & SCEL
Flexibility to Undertake Risk Sharing Contract
(Mudarabah, Musharakah, Istisna’ and etc)
Beyond Ordinary Risk Appetite or Underwriting
Criteria – Off Balance Sheet
New Asset Class & Revenue Generator
TRANSITION PERIOD
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Islamic Deposit Investment Account
Sum of money accepted or paid in accordance with Shariah.
Money is paid and accepted for the purpose of investment in accordance with Shariah.
Will be repaid in full on maturity. No expressed or implied obligation to repay the Money in full (Principal and/or Profit).
With or without any gains or return. With or without any returns (profit or loss).
Repayment either on demand or at a certain time.
Repayment at a certain time which includes unlimited withdrawal.
Shariah contracts: Wadiah, Tawarruq, Bai’ ‘Inah
Shariah contracts: Mudarabah, Musharakah, Wakalah
Capital guaranteed. Capital is not guaranteed.
PIDM protection – YES PIDM protection – NO
BEFORE TRANSITION
DEPOSIT Wadiah Bai’ ‘Inah Mudarabah Wakalah Tawarruq
AFTER TRANSITION
DEPOSIT Wadiah/Qard Tawarruq Bai’ ‘Inah
INVESTMENT Mudarabah Musharakah Wakalah
As per BNM’s Investment Account Policy, the new classification of the existing deposit products shall take effect commencing on 1 July 2015.
For Bank Islam :- Islamic deposit is already in place in April 2014. Investment Account products will be launched on 1 June 2015.
NOTICE OF CONVERSION
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DEPOSIT ACCOUNTS
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Deposit Account Wadiah/Qard Tawarruq Bai Inah
Wadiah/Qard No returns Marketing on services/features
i.e.: debit-card facility, access to TH account, TAP mobile banking, MEPS IBFT, etc
Tawarruq Similar to fixed/term deposit Returns are fixed upfront as part
of Murabaha structure Brokerage fees to be borne by
the Bank
Principal guaranteed Shariah contracts ISLAMIC DEPOSIT
(Priority of payment accorded upon winding
up)
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INVESTMENT ACCOUNT – “A NEW FRONTIER”
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INVESTMENT ACCOUNTS
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Investors
Contract under IA : Wakalah Mudarabah Musharakah
Unrestricted Investment
A/C
Restricted Investment
A/C
Specific Investment Mandate/Asset Class
Fixed tenure Redemption upon
maturity of assets; or redemption only upon realisation of underlying assets to a third party; or redemption only upon finding replacement of funds from other IAH (other than the Bank)
Off-balance Sheet
General mandate or allow the Bank to make ultimate investment decision without restrictions or any conditions
Unlimited withdrawal Mismatch maturity On-balance Sheet
(subject to compliance with principles of FRS10)
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2nd Leg 1st Leg
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Wakalah
Mudarabah
Musharakah
Investors (as Muwakkil) entrust the IB (as Wakeel) to manage the Investors money in investment account
IB receives Wakalah fee regardless of the performance of the investment account
Investors (as Rabbul Mal) entrust the IB (as Mudarib) to manage their money in the investment account at the agreed PSR
IB receives its profit portion when the investment is profitable but loses its effort if the investment suffers a loss
Investors and IB (both as Shareek) put in their money together into investment account
IB receives its profit / loss sharing portion at the agreed PSR
Funding
Equity Financing
Lease based Financing
Sale based Financing
Fee based
Musharakah Mudarabah
◄ . ◄ .
Ijarah ◄ .
Murabaha Tawarruq
Istisna’
◄ . ◄ . ◄ .
Wakalah ◄ .
Investment Account Holder
APPLICATION OF SHARIAH PRINCIPLES
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INVESTMENT ACCOUNTS – KEY FEATURES
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Product name Al Ansar Waheed Specific Investment
Account (SIA)
Al Awfar
Date of Launch 2 April 2015 1 June 2015 3 June 2015
Investor (s) / Customer’s Profile (Investor Account Holder)
Lembaga Tabung Haji
Corporate Entity Institutions Non-Individuals
Individual Retail Institutions
Fund Size RM200 mil Unlimited Unlimited (subject to availability of house financing assets)
Underlying Assets / Investment Portfolio
SME financing Existing Bank’s Assets (to be disclosed before offering)
House Financing Assets
Investment Risk High Medium (subject to underlying assets)
Low (given the underlying collateral and diversified profile)
INVESTMENT ACCOUNTS – KEY FEATURES…cont
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Shariah Contracts Wakalah Wakalah Mudarabah
Mudarabah
Nature of Shariah Contract
Performance Incentive
Agency Fee Profit Sharing
Profit Sharing
Investment Objective / Motivation
To develop Muslim Bumiputera Economy + Expected Return
Commendable Return
To win the prizes i.e. – RM1 mil
Investment Tenure Up to 2020 (or upon fully drawdown of the fund, whichever earlier)
1 day to 1 year (Negotiable)
Unlimited
Withdrawal Upon maturity (as per the agreed term and conditions)
Upon Maturity On demand / unlimited
INVESTMENT ACCOUNTS – KEY FEATURES…cont
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KEY FEATURES RESTRICTED INVESTMENT ACCOUNT
TERM INVESTMENT ACCOUNT
TRANSACTIONAL INVESTMENT ACCOUNT
Capital/Principal Protection (Insured by PIDM)
No guarantee No guarantee (entitled to the asset tagged)
No guarantee (backed by house financing portfolio)
Minimum Placement/ Investment
RM10 mil per drawdown
RM500,000 RM100
Expected Return/ Profit Rate
3% ( or actual return if profit < 3%)
Based on agreed PSR
Based on agreed PSR
Profit Payment Frequency
Monthly distribution Upon maturity Monthly distribution
Fund Performance Reporting
Quarterly Quarterly Quarterly
Documentation Wakalah Agreement & Service Level Agreement
Specific Board Resolution & Transaction Doc.
Self Assessment Form (for Individual & SME) & Transaction Doc.
DIFFERENCES BETWEEN UNRESTRICTED IA (URIA) AND RESTRICTED IA (RIA)
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URIA RIA
General mandate or allow the Bank to make ultimate investment decision without restrictions or any conditions
Specific Investment Mandate/Asset Class
Unlimited withdrawal Fixed tenure
Mismatch maturity Redemption upon maturity of assets; or redemption only upon realisation of underlying assets to a third party; or redemption only upon finding replacement of funds from other IAH (other than the Bank)
On-balance Sheet(subject to compliance with principles of FRS10)
Off-balance Sheet
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INVESTMENT ACCOUNT PLATFORM – “A NEW MARKETPLACE”
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INVESTMENT ACCOUNT PLATFORM
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IAP is a multi-bank platform to facilitate channelling of funds from individual and institutional investors to finance viable ventures intermediated by participating Islamic banks via Restricted Investment Account as governed under IFSA and DFIA
• Multi-bank platform to provide choices to investors and ventures Voluntary participation by banks
• Investors can channel their funds to finance targeted industries and ventures of the investors’ choice All investment requests made by investors will be subject to suitability
assessment conducted by banks IAP will provide robust disclosure regime to facilitate informed decision
making by investors as well as to support monitoring of their investment
• Operate on secured internet-based architecture • Internet-based to allow wide outreach, including cross-border investors
What is IAP?
Major features
Source : Bank Negara Malaysia
A NEW MARKETPLACE
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…an investment Intermediary instead of Trading Exchange
… sound like a regulated crowd funding
… similar to initial public offering - over or under subscription
…also similar concept to retail sukuk
… gateway for financial inclusion
… just imagine a “Covered Sukuk”
Funds from RIA is to finance venture
Provide funding through opening of RIA with
participating banks using IAP
POTENTIAL INVESTORS / IA HOLDERS
VENTURES
ISLAMIC BANK Restricted Investment
Account
1st leg 2nd leg
NATIONAL BUDGET 2015
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Measure 2: Strengthening Islamic Financial Market 41. The Government will introduce a new shariah-compliant investment product in 2015
called the Investment Account Platform (IAP). IAP will provide opportunities to investors in financing entrepreneurial activities and developing viable SMEs. At the same time, IAP will be a platform to attract institutional and individual investors including high net worth individuals to invest in the Islamic financial market. Initially, IAP will be implemented with a startup fund of RM150 million.
42. To promote investment in IAP, the Government proposes individual investors be given
income tax exemption on profits earned from qualifying investment for three consecutive years.
TAX INCENTIVE UNDER INVESTMENT ACCOUNT PLATFORM
Investment Account Platform (IAP) is a new funding medium based on the Shariah principles with the aim of financing projects and venture companies. The objective of IAP is to attract participation from individual and institutional investors to boost development of small and medium enterprises (SMEs) as well as entrepreneurs through a funding system which is efficient, simple and transparent.
Profit earned by individual investors from investments made through IAP be accorded an income tax exemption.
The incentive is subject to the following conditions:- Tax exemption shall only be accorded for 3 consecutive years starting from the
first year profit is earned; The investment is made for a period of 3 years starting from the operation date of
IAP; Tax incentive shall only be accorded for investment activities in Malaysia, in
venture companies owned by Malaysian or locally incorporated companies; Tax exemption shall only be accorded for investments made in SMEs and venture
companies in any sectors; and Definition for SMEs is as per the latest definition issued by SME Corporation
Malaysia
IAP is scheduled to be in operation from September 1, 2015
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KEY DRIVERS – I.M.A.M
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Raeed Holdings Sdn Bhd
25% 25% 25% 25%
Initial Paid Up Capital: RM2.0 mil
Incorporated on 13 May 2015
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A brainchild of Bank Negara Malaysia Spearhead & jointly developed by I.M.A.M
BROAD MECHANIC OF IAP
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Obtain Information
Raise Funding
Administer & Manage
supported by
Banks
Features of IAP facilitate effective matching between sources of funds with diverse financing needs of the economy
Choose Investment
Track Performance
Distribute Profit
Report Progress
Promote & Advertise
Transparent | Easy-access | Secured | Wide-reach | Strong Governance
(Sources of fund) (Users of fund) Ventures Investors
• Strong roles played by banks, in line with their fiduciary duty
– Due-diligence
– Performance monitoring
– Suitability assessment
– Underwriting • Individual and institutional investors
• Islamic banks • Government (to
support target industries)
• Similar to current banking business
• Potential initial target: – Emerging Corporate – SMEs – Etc
Channel funds to ventures of their choice
Provide financing
– Ventures in innovative & new growth areas
Source : Bank Negara Malaysia
POTENTIAL MARKET PLAYERS/INVESTORS/FUNDER
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Business Angel Investors
“Teraju Peer-to-Peer Investors”
Takaful/Insurance Companies
High Net worth Individuals
Pension Funds Institutional Investors
Asset Management Co.
Venture Capitalist
Banking Institutions
Special Funds by the Government
Government-linked Companies
Cross Border Investors
ACT AS INVESTMENT INTERMEDIARY
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Short to Medium Term Investor or Fund Provider in
a Specific Financing Exposure
No Voting Rights & No Board Seat & Do not
involved in day-to-day management (VC)
- No Anti Dilution Rights
Return to commensurate with the risk taken or Differing Risk-Return
Profiles
Greater Transparency &
Disclosure
Optional Rating by Rating Agency Malaysia –
Strengthen Credit Profile
Business As Usual – Financing Documentation
Committed Financing Terms
Flexibility to Undertake Risk Sharing Contract
(Mudarabah, Musharakah, Istisna’ and etc)
Competitive Edge – Bigger Pool of Financier/Investors
Dealing only with the “Sponsor Bank” – Not a
Multiple Investors/ Shareholders
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KEY DIFFERENTIATION
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Comparison against different
asset classes Key similarities Key differences
Banking (deposit-financing) products
• A form of banking intermediation with banks playing significant roles to match between sources and users of fund
• Banks need to monitor progress of underlying ventures to facilitate disbursement of funds
• Investors are able to choose specific ventures to invest/ finance (supported by suitability assessment by banks), rather than financing decision made by banks from pooled deposits
• Principal not guaranteed • Risk and return to investors are directly tied to underlying
ventures/projects • IAP allows funding to viable ventures which do not fit bank’s
normal financing profile (e.g. those with lack of track record or collateral) but with viable projects
Crowd-funding/ Crowd-sourcing/ Peer-to-peer funding
Investors are able to choose specific ventures to invest/ finance from an internet-based platform
IAP involves intermediation by banks which provide pivotal roles in the transactions including sponsoring viable ventures to be floated on IAP and monitoring progress of ventures
Private equity/ Venture capital
Investors are able to choose specific ventures to invest/ finance
• Investment under PE/VC is in shares of a company whereas IA is to provide financing of viable ventures/projects
• Target investors for PE/VC are institutional and HNW investors, whereas IAP is also opened to retail investors
Shares (including listed shares)
• Investors are able to choose specific companies to invest
• Listing of wide range of investment options on an exchange
• Investment under IAP is to provide financing of viable ventures/projects
• Companies listed on a stock exchange are established companies, whereas target ventures in IAP initially are financing to SMEs
Bond/Sukuk • Investors are able to choose specific securities to invest
• Listing of wide range of investment options on an exchange
• Bonds/sukuk are usually issued by established companies, whereas target ventures in IAP initially are financing to SMEs
Unit trust Return to investors are tied to performance of underlying assets
Underlying assets for UT are usually securities and on portfolio basis, whereas IAP investments are SME financing and are done individually
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WAY FORWARD – “BEGINNING OF A NEW JOURNEY”
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INVESTMENT ACCOUNT AS "A NEW FRONTIER"
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Act as Investment Intermediary in addition to
Credit Provider Moving toward
“Responsible Risk Sharing”
Return to commensurate with the risk taken or Differing Risk-Return
Profiles
Promote Greater
Transparency & Disclosure
Facilitate Mobilisation of Capital – Gateway to
Financial Inclusion Innovation Catalyst
Flexibility to Right-size the Balance Sheet
Competitive Edge to Islamic Finance – Capital Management, Liquidity Management, SCEL &
Concentration Risk
New Mindset & Skill Sets
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WAY FORWARD - NEW PROPSPECT
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Awqaf Development
Green Infrastructure
Financing
Technology Based Project
Financing
Renewable Energy Project
Financing
Recycling Technology
Biotechnology
Creative Media & Content
Development Life Sciences
e-commerce, mobile
applications
CONCLUSION
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New Revenue Stream
Diversified Financing Asset Class
Healthy Asset Quality
Robust Underwriting Standards & Disclosure
Strong Capital Adequacy Ratio
- BASEL III
Moving towards equity-based
financing
Enhanced Liquidity Profile
- LCR
Optimize Balance Sheet
Structure & Leverage Ratio
MALAYSIA TAKES LEAD PROTECTING SHARIAH DEPOSITS
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By Elffie Chew Aug. 26 (Bloomberg) -- Malaysia is taking the lead in the Islamic banking world by tightening the classification of deposits and offering government guarantees to protect savers. Shariah-compliant lenders have until June to comply with the Islamic Financial Services Act 2013 giving investors the option to choose how their cash is used. The measure is aimed at increasing transparency for customers who may want to put money either in safer deposits or free it up for investment under laws that prohibit interest payments and encourage risk sharing. “The introduction of the Islamic Financial Services Act is aimed at providing greater regulatory clarity and promoting Islamic financial stability,” Hizamuddin Jamalluddin, head of strategic planning at Kuala Lumpur-based Bank Islam Malaysia Bhd., said in e-mail interview yesterday. “The move is timely as customers are mature enough to differentiate between deposits and risk-based investments.” The act may impact the level of deposits in the short term as it will take time for customers to familiarize themselves with the ruling, according to CIMB Islamic Bank Bhd., which has complied with the new regulation and saw growth ease to 7 percent in 2013 from 15 percent a year earlier. Islamic deposits in the nation’s $110 billion Shariah-compliant banking industry rose 5 percent in the first six months of 2014, slowing from the average 18 percent annually in the past five years.
MALAYSIA TAKES LEAD PROTECTING SHARIAH DEPOSIT…cont
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Taking Initiative Bank Negara Malaysia is the first monetary authority in the world to implement such a rule for Islamic banks as it seeks to enhance its status as a Shariah financing hub. The country tightened its oversight of stocks last year to better reflect Koranic principles, opening the door to more funds from the Middle East. The new ruling is positive as it will encourage innovation, said Hizamuddin at Bank Islam, the nation’s largest lender operating under religious tenets. The bank is looking to boost deposits by improving how it caters to customers’ various needs and risk profiles, he said. Wadiah and Qard type deposits are guaranteed under the legislation. The former is where permission for the usage of the cash has to be given by the depositor, while the latter usually applies to more wealthy individuals and is a form of loan to the bank that must be free of profit. Deposits under the Shariah concept of Musyharakah, or a partnership with profit or loss-sharing implications, will be deemed as investment accounts and won’t be protected. The same applies to the Mudarabah and Wakalah systems. Mudarabah is a joint investing arrangement, while Wakalah is an agreement between two parties for a certain business undertaking. Bloomberg/Aug 26, 2014
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DISCLAIMER
This presentation has been prepared by Bank Islam Malaysia Berhad(“Bank Islam”) for selected recipients for information purposes only. The information contained herein is believed to be correct as of the date of this presentation and is given in summary form and does not purport to be complete. Bank Islam does not make any representation or warranty, whether expressed or implied, as to the adequacy, accuracy or completeness of any such information, opinion or estimate contained and shall not be responsible or liable for any consequences of any reliance thereon by any recipient. Opinions and estimates constitute the judgment of Bank Islam as of the date of this presentation and are subject to change without notice. Bank Islam does not act as any recipient’s financial advisor or agent and the information contained herein is not intended to be relied upon as advice to any recipient and should not be construed as an offer or recommendation to buy or sell securities. This presentation does not purport to contain all the information that a prospective investor may require and the information contained herein does not take into account the investment objectives, financial situation or needs of every recipient hence it may not be appropriate for all persons. Each recipient is responsible to make his or her own independent assessment of the information provided herein and should not treat the information provided as advice relating to investment or related matters. Each recipient should consult his or her own advisers and must make his or her own independent decision regarding any investment. Certain statements contained in this presentation may be statements of future expectations and involve known and unknown risks and uncertainties. Forward-looking statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Bank Islam does not have any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Each recipient should not place undue reliance on forward-looking statements, which is believed to be correct only as of the date of this presentation. This presentation is being furnished to each recipient solely for his or her information and may not be reproduced, redistributed, transmitted or passed on, directly or indirectly, to any other person or published electronically or via print, in whole or in part, for any purpose.
Page 37 Strategic Client Relationship