KFH to cut bad loans, improve asset quality

02 April 2010 , By Business Times

THE Malaysian unit of Kuwait Finance House (KFH), the Gulf state's top Islamic lender, will cut its bad loans to the industry average within five years as it finances stronger names, its chief said yesterday.

The Malaysian bank, which is running an audit on some of its previous contracts, had a non-performing financing (NPF) level of 6.73 per cent in September, said newly appointed chief executive officer Jamelah Jamaluddin.

This is more than three times the industry average of 2.1 percent, according to Bank Negara Malaysia data.

"We have a five-year plan ... to bring us in line with the industry," Jamelah told reporters yesterday.
"We're making all efforts to improve our asset quality and bring down the NPF. We are vigorously going to concentrate on recovery. That is one of the main thrusts for 2010."

Net non-performing loans in the Malaysian banking system, based on a three-month classification, stood at 1.9 per cent in February.

Kuwait Finance Malaysia was the first foreign Islamic bank to win a licence under the Southeast Asian country's Islamic Banking Act. It is the Kuwait bank's Asia Pacific hub and aims to promote business between the region and the Middle East.

The subsidiary of KFH has said it is auditing some past transactions, with some staff on leave as part of that exercise. It did not give details of the contracts.

The audit was intended "to reinforce financial discipline and accountability" and provide "an accurate picture of certain transactions and contractual arrangements that have been undertaken over the years", Jamelah has said.

The exercise could be extended beyond its original six-week deadline, she said, adding that the unlisted bank was not obliged to announce the results.

Malaysian rating agency RAM Ratings had put KFH Malaysia's "AA2/P1" financial institution rating on negative rating watch following the audit.

Jamelah said the bank will grow its financing by up to a tenth this year compared with about 8 per cent last year.

Kuwait Finance Malaysia chairman Shaheen AlGhanem said the bank will spend RM6 billion over 15 years to develop the Iskandar project in Johor, a government-led effort to transform Malaysia into a banking, tourism and education hub.