Transforming the business
With the distinction of being our initial foray into Southeast Asia in 2006, and our benchmark for foreign market penetration, Al Rajhi Bank – Malaysia (ARBM) focused on transforming the business under a new, locally assimilated leadership team during the year under review. ARBM announced a number of strategic leadership appointments in early 2021 consisting of the Chairman, Chief Executive Officer, Chief Transformation and Change Management Officer, and Director Corporate Affairs, with the appointments of a new Chief Operating Officer and new Director Retail Banking completing the structural changes at the Executive level.
These changes were followed by strategic measures to increase ARBM’s brand equity and enhance the overseas branch’s position as a thought leader in Islamic finance, digital banking and sustainability in the region. During the year under review, ARBM engaged intensively in local industry and regulatory initiatives, participating in discussions and initiating dialogues on the industry’s digital transformation. ARBM was duly represented at high-impact national-level forums, media engagements and conferences by its newly appointed leadership, including the Bank Negara Malaysia’s engagement session with banking institutions for the Financial Sector Blueprint 2022-2026.
Building brand equity supported ARBM’s five-year strategic transformation plan which was launched to evolve all aspects of the international branch’s operation in 2021; with plans to both ‘Run the Bank’ by optimising current operations, and ‘Change the Bank’ through digitisation. ARBM was also appointed a Member of the Value-Based Intermediation (VBI) Community of Practitioners (CoP) of Malaysia with a deeper commitment to advance the VBI agenda, which will be instrumental in supporting a more sustainable economic recovery for the country. The VBI CoP serves as an industry platform for members to share knowledge and pursue collective efforts to develop and execute VBI strategies.
Internally, ARBM set up a Transformation and Change Management Team in 2021 to drive a culture of collaboration, implementing a more systematic and engaging approach for employees to swiftly adapt to its evolving goals, processes and technologies in its transformation into a more agile and productive digital organisation.
Navigating through a challenging 2021
ARBM continued a steady recovery from a net loss of RM 66 Mn. in 2020, heavily constrained by the slowdown of the domestic economy and regulatory requirements imposed by Bank Negara Malaysia, the Central Bank of Malaysia. The international branch’s asset quality experienced a slight deterioration due to its exposure to the bottom 40% (B40) segment, resulting in higher-than-expected provision levels. Although higher impairments are expected in the coming year, credit losses will be amply cushioned by healthy earnings accretion, comfortable provisioning buffers and solid capital position.
ARBM continued to expand its business capacities by introducing Cross Border Fund Transfer (CBFT), enabling pipeline transactions with Financial Institutions from the Middle East. While the Musafir Card initiative in collaboration with Indonesia’s largest national payment gateway Artajasa was also temporarily suspended following the closure of national borders and travel restrictions imposed due to COVID-19, ARBM believes it will be able to rollout the planned expansion through Southeast Asia as restrictions are lifted, reaffirming its commitment to provide Shariah compliant banking solutions, especially for pilgrims.
Introducing new products and services
A number of new products and services were launched and restructured by ARBM during the year under review. New launches included the Home One Account (H1A) for property financing, Personal Financing for Civil Service Employees through collaboration with Co-Share, and the Commodity Murabahah Foreign Currency Current Account for deposits. Three new Unit Trust Funds – the BIMB Arabesque Global Shariah Sustainable Equity Fund, the Aberdeen Standard Islamic World Equity Fund and the Principal Islamic Asia Pacific Dynamic Equity Fund expanded ARBM’s personal wealth management offering, supported by Bancatakaful arrangements with Sinar Kasih and Syarikat Takaful Malaysia Berhad. ARBM also introduced professional will writing in partnership with MyAngkasa Amanah Berhad.
Other upgraded services included enabling online Term Deposit (TD) placements, QR code payments via Malaysia Standard QR, multicurrency own account transfers, collaboration with local government linked entities on guaranteed funds for the SME segment, revision of the Guarantee Wakalah, and the restructuring of ARBM’s Personal Financing-i suite and Home Financing-i.
Operational efficiencies through digital transformation
During the year under review, ARBM reimagined its operating model to make drastic changes and increase operational efficiencies in a highly cost-effective manner. The international branch’s digital transformation led by the commencement of Project Wick – its digital banking initiative – greatly contributed to reducing operational costs during the year under review; this included seamlessly digitising the Know-Your-Customer (KYC) verification process to introduce the eKYC option for new banking customers, transitioning to e-statements and e-notices from traditional hardcopy statements, introducing the digital aqad (contract), and implementing Straight-Through-Processing (STP) transactions with no manual intervention with the introduction of Enterprise Content Management (ECM) across the branch network. Internal processes were further streamlined for a seamless customer experience through Project Perkins.
Modifying and improving backend operations and administrative processes across the overseas branch introduced further operational efficiencies. Internally, in-house legal and secretarial functions at ARBM were strengthened to eliminate dependencies on third-party services, while existing third-party contracts were evaluated and renegotiated to generate higher long-term value. During the year under review, ARBM also revised the Commodity Murabahah transaction structure with Bursa Malaysia – the country’s stock exchange, and switched to a more value-adding card and ATM host service. The year 2021 also saw ARBM taking a more standardised approach in assessing risk-adjusted return on capital for efficiency and effective monitoring.
Restructuring ARBM’s Personal Financing-i suite and Home Financing-i were followed by highly successful digital launch campaigns during the year under review, given the substantially growing online presence of its retail customers. Both campaigns drove monthly sales to record high volumes, a testament to ARBM’s successful transition of marketing spend from conventional to digital media channels; the Personal Financing-i campaign doubled average monthly sales, and the Home Financing-i campaign recorded an all-time high approval during the campaign versus an average monthly sales figure pre-launch. ARBM’s latest Murabahah deposit campaign followed a targeted digital campaign path. With successful digital media campaigns and growing organic media coverage, ARBM significantly reduced conventional marketing spend and media buying during 2021, a primary contributor towards its reduced operating expense during the year under review.
Stepping into the post-COVID-19 era
As the local economy recovers from the unprecedented impact of the COVID-19 pandemic, ARBM continued to provide various stimulus initiatives for retail as well as corporate customers in 2021, including instalment moratorium based on low-to-high income brackets.
A comprehensive plan was also implemented during the year under review for ARBM employees, with the introduction of the COVID-19 Prevention and Safety Policy, weekly health and safety guides, and a COVID-19 tracker for statistics and insights. The Work-from-Home (WFH) business continuity plan was further strengthened with necessary infrastructure across all branch outlets, and a mobility allowance for employees. Virtual on-boarding sessions were implemented to effectively assimilate new employees to the hybrid work environment. ARBM supported Malaysia’s national COVID-19 vaccination drive by providing employees with vaccination days off, mileage claims, free COVID testing as well as admission guidelines for affected staff members.
Reaffirming its commitment to sustain its local communities, ARBM donated RM 76,500 to Yayasan Sukarelawan Siswa (YSS), an entity under the Ministry of Higher Education of Malaysia to sponsor 50 laptops for 50 first year undergraduates belonging to the B40 category. The donation reflects ARBM’s commitment to the advancement of education and advocacy for digital equality among the communities in which it operates. As a Member of the VBI CoP of Malaysia, ARBM also sponsored the second VBI Financing and Investment Impact Assessment Framework (VBIAF) Sectoral Guide Town Hall organised by the Association of Islamic Banking and Financial Institutions Malaysia (AIBIM).
ARBM remains focused on further advancing its digital capabilities in 2022 with the continued rollout of Project Wick, and plans to launch a Digital Marketplace – the next frontier in digital banking. Through Project Wick, ARBM plans to achieve key medium to long-term targets:
- To be the leading foreign Islamic bank for customer advocacy with a Customer Satisfaction Rating above 70 by the end of 2023
- To be the leading Islamic finance innovation bank in Malaysia, with relevant industry awards for assessment during the year 2023
- To achieve the top two Foreign Islamic banking assets; above industry average Return on Equity and below industry average Cost to Income by the end of 2025
ARBM plans to launch its Merchant Acquiring Service for the local market while enhancing cross border collaborations with financial institutions as well as fintechs across the region in the coming months to extend its service portfolio.
The international branch will also continue to raise its profile and strengthen its reputation as an industry thought leader particularly in the areas of Islamic finance, digital banking and sustainability. This will be achieved through consistent active participation in key speaking engagements as well as media engagement initiatives to increase ARBM’s media presence and solidify its position as a market leader. Communication and engagement with internal and external stakeholders across both traditional and digital media channels will remain a strategic area of focus to build brand loyalty and equity.
The year 2022 will see a greater adoption of Environmental, Social and Governance (ESG) principles across the overseas branch’s decision-making process with the formulation of the ARBM ESG Roadmap and ESG Risk Management Policy. This approach will be complemented with the integration of VBI principles across all core business practices at ARBM in line with its commitment to advance the VBI agenda as a Member of the VBI Community of Practitioners in Malaysia. This will provide the foundation for ARBM to position itself as a leading advocate of sustainability and emerge as a leading sustainable Islamic bank in Malaysia.