PETALING JAYA: Bank Islam Malaysia Bhd, which is the only listed Islamic bank in the country, is poised for growth and in a good position to face the challenges in the banking sector.

       With an estimated market capitalisation of RM6.3bil, the bank is embarking on a five-year business strategy roadmap (LEAP25) to strengthen its technology, redefine growth and work in new ways to address the unprecedented challenges brought upon by the Covid-19 pandemic.

       Despite some risk factors, it is expected to remain resilient, thanks to its strong asset quality, high provision levels and a comfortable capital position.

       Maybank IB Research said one positive factor about BIMB Holdings Bhd’s (BHB) recently completed restructuring exercise is that Bank Islam could now be evaluated as a standalone entity.

       “This does not diminish the fact that it continues to have a bancassurance agreement with its sister company, Syarikat Takaful Malaysia Keluarga Bhd, that will provide it with a steady source of fee income.

       “Bank Islam provides investors with exposure to the fourth-largest Islamic bank in the country, in terms of asset size and the only one that is directly listed on Bursa Malaysia.

       “It is very much a retail bank, with consumer financing comprising 76% of its total financing portfolio.

       “Lending predominantly to government civil servants and government-linked company (GLC) employees on a salary deduction basis, Bank Islam’s asset quality has been very stable, with its gross impaired loans (GIL) ratio declining further to 0.72% at end-June 2021 from 0.86% at end-September 2019.

       “Its financing loss coverage, meanwhile, has since risen to 235% from 179%, over the same period.

       “Other positives include a current account savings account (CASA) ratio of 38.6% (versus the industry’s 31.7%) and a comfortable common equity Tier-1 (CET1) ratio of 13.8%,” the research house added.

       Bank Islam recently became the first pure play full-fledged Islamic financial institution to be listed on the Main Market of Bursa Malaysia.

       The pioneer syariah-compliant bank took over the listing status of BHB.

       The listing marked the completion of the BHB Group’s restructuring exercise, which entails a private placement exercise, a scheme of arrangement to settle outstanding warrants, and the internal reorganisation of subsidiaries.

       The internal business realignment measures also included a distribution and capital repayment exercise involving distributing BHB’s entire shareholdings in Bank Islam and Syarikat Takaful to the shareholders of BHB, and lastly, the transfer of the listing status of BHB on the Main Market to Bank Islam.

       Maybank IB is recommending a “buy” call on Bank Islam with a target price of RM3.80.

       However, it said there were several risk factors for its earnings estimates, price target and rating for the bank.

       “Any slowdown in the domestic economy will have a negative impact on the bank’s earnings, as will a pick-up in deposit rate competition.

       “Meanwhile, a deterioration in asset quality, particularly in relation to its exposure to the bottom 40% (B40) segment, can result in higher-than-expected provision levels,” it noted.