Kuwait Finance Malaysia to trim bad loans

02 April 2010 , By Reuters

The Malaysian unit of Kuwait Finance House, the Gulf state's top Islamic lender, will cut its bad loans to the industry average within 5 years as it finances stronger names, its chief said on Thursday.

The Malaysian bank, which is running an audit on some of its previous contracts, had a non-performing financing level of 6.73 percent in September, said newly appointed CEO Jamelah Jamaluddin.

This is more than three times the industry average of 2.1 percent, according to central bank data.

"We have a 5-year plan ... to bring us in line with the industry," Jamelah told reporters.

"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 3-month classification, stood at 1.9 percent 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 Kuwait Finance House 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 6-week deadline, she said on Thursday, adding the unlisted bank was not obliged to announce the results.

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

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

Kuwait Finance Malaysia Chairman Shaheen AlGhanem said the bank would spend 6 billion ringgit ($1.84 billion) over 15 years to develop the Iskandar project in southern Johor state, a government-led effort to transform Malaysia into a banking, tourism and education hub.

The bank's parent posted a 24 percent drop in net profit in 2009 to 118.74 million dinars.

Islamic banks largely dodged the effects of the recent global credit crisis due to the religion's ban on excessive speculation and requirement that transactions must be based on real assets.

But limited Islamic investing options led many sharia banks, especially in the Middle East, to rely heavily on real estate and they were hard hit when the market slumped. ($1=3.259 Malaysian Ringgit)