This article first appeared in The Edge Malaysia Weekly on April 10, 2017 - April 16, 2017

TWO years since retiring from active bank management, Datuk Zulkiflee Abbas Abdul Hamid, the former group CEO of the Affin banking group, has found himself back in the game.

Now in the driving seat of the country’s largest development financial institution (DFI) Bank Kerjasama Rakyat Malaysia Bhd (Bank Rakyat) — he came in as its managing director and president just last Monday — Zulkiflee is tasked with taking the bank to its next level of growth.

“Of course, I had already retired [from active banking]. But seeing that my services are still needed, I agreed to take on this job … agreed in the sense that I know the bank can prosper and grow bigger than what it is right now. It’s just a matter of giving me a bit of time to explore what we have here, what kind of capabilities we have, and easily, we can probably leverage what we have now to go to the next level,” he tells The Edge in his first interview after taking the helm.

It will not be easy, industry observers say. The fast-changing and increasingly tough banking landscape makes it harder for a DFI such as Bank Rakyat, whose growth over the last few years has been largely fuelled by personal financing (PF), to move forward on the same business model. Changes are needed, they say.

Zulkiflee, just four days into the job at the point of the interview, has little to share of his plans for the group for now. He is still in the midst of learning all he can about the bank, its people and capabilities.

With assets of RM99.3 billion as at Sept 30 last year, Bank Rakyat is the second largest Islamic lender after Maybank Islamic Bhd. Zulkiflee recently resigned as a director at Maybank Islamic, a role he had held for a year, before taking on the top job at Bank Rakyat.

“I came in after the first quarter, meaning to say that the targets, KPIs (key performance indicators) and business plans [for the bank] are already there. But, of course, I am reviewing all those to see whether there are still areas that are realistic. And, I have also indicated that the business plan might have to be presented again to the board, this time with my input, and from there, we can probably present again to the central bank,” he says.

“It’s not to say that the previous plan was not complete, but let’s put it this way — if you come in as a leader, you would like to drive something that you have also given input to. So that is why, in the last couple of days, I have been spending time looking at the plan, the business performance, the financials in the last couple of years to see the trends, which areas we probably need to zero in on and what are some of the peculiarities in Bank Rakyat, for example, its funding structure. These are the normal things that a CEO would be looking at,” he adds.

Zulkiflee has had to hit the ground running, especially since the group had been without a leader for about six months. He replaces Datuk Mustafha Abd Razak, who left the bank last September after being charged with criminal breach of trust of the bank’s allocation for marketing expenditure involving some RM15 million. The former chairman, Tan Sri Abdul Aziz Zainal, was charged with abetting Mustafha. Both men have pleaded not guilty and claimed trial in court.

In the absence of a managing director, a board oversight committee saw to the running of the bank. On Jan 3, Tan Sri Shukry Mohd Salleh, the former principal private secretary to the prime minister, was appointed Bank Rakyat’s new chairman.

Scandal aside, Zulkiflee is buoyed by the fact that the bank is strong on the important fronts. “If you look at its financial performance, the numbers are quite good. Capital-wise, it’s very strong. What I think it needs at this particular time is just leadership,” he remarks.

Zulkiflee is indeed experienced, having been in the banking industry for about 34 years. His experience and exposure to the sector is expected to serve him well at Bank Rakyat.

Zulkiflee is, however, clear on the fact that he does not want to lead the bank for the long term. “I told them specifically I did not want a long-term contract. Mine is a normal CEO contract … a two-plus-one,” he says, referring to a two-year contract with an option to renew for one year.

During his time, Affin Holdings Bhd saw its assets grow from RM36.83 billion in FY2008 to RM66.67 billion in FY2014, with net profit doubling to RM605 million from RM293 million. He left the group in March 2015.

Over at Bank Rakyat, apart from repairing its image, Zulkiflee will have to tackle the bank’s waning profitability amid stiff competition that has eaten into its margins over the years. The margin erosion is also due to the bank’s relatively weak deposit franchise.

After two straight years of growth in FY2013 and FY2014, Bank Rakyat’s net profit fell in FY2015 by 9.2% year on year to RM1.78 billion. The group blames the drop on higher cost of funds.

For the first nine months of FY2016, net profit stood at RM1.28 billion, 13.1% lower than that in the same period a year earlier. The profit was lower mainly because there was less writeback for provisions compared with the earlier period. Its gross impaired finance (GIF) ratio stood at 2.1%, a deterioration from 1.89% as at end-2015. Zulkiflee says the bulk of provisions have already been made and the GIF ratio should improve this year.

Bank Rakyat is expected to release its full FY2016 results at the end of this month.

The group is predominately focused on retail banking, with about 85% to 90% of its assets being retail assets — largely PF — and a small 5% to 10% being corporate assets, says Zulkiflee.

While the group will continue to be a retail-focused bank, it will likely expand its focus from the PF business. “If you look at our PF portfolio, I must say it’s very good … the impaired ratio is very low. We have got to recognise the fact that it works for us. But we need to grow, and we can’t just grow on PF. Maybe there are other opportunities within the retail portfolio that can provide us with the growth, for example mortgages or auto financing. So, this is an area that we are examining whether we need to, not to say re-focus, but expand our focus, so that we can leverage a bigger market size,” Zulkiflee says.

Bank Rakyat is the largest PF player in town. Its PF business accounted for 81% of its RM68.3 billion gross financing book as at September last year.

The group will not be looking to expand its corporate financing portfolio for now. “That’s a very competitive space. You have got to have a deposit base that is also very competitive in order to lend to the corporates. I don’t think we have that kind of capacity just yet. We will pick and choose the kind of corporate business we want to do. And maybe we will look more towards programmes that can assist Bank Rakyat in pursuing its main objective, which is to help the community in business, in SME (small and medium enterprises) business. That’s one area I think can probably give us that momentum … the SMEs,” says Zulkiflee.

He adds that the group will also want to consider digital initiatives. “We recognise that in order for us to go to the next level, we should be looking at more digital initiatives. All banks are facing a changing landscape, and if you look at the amount of money that needs to be spent — on digital initiatives, and compliance especially — it is not small. That’s one of the challenges that we have.”

Bank Rakyat recently denied a news report about a takeover by Permodalan Nasional Bhd. On recent market talk of a potential merger between Bank Rakyat and Bank Simpanan Nasional, Zulkiflee says he has not heard of any moves in that direction.

“If you ask me, my mandate is simple — to make this bank strong, to make this bank grow. That is something that we will probably spend time doing. If there are opportunities, including M&A, maybe we will look at it. But at the end of the day, it’s still the government’s call. You must remember, the bank was set up for a specific purpose, so you cannot run from that,” he says.

All eyes will be on Zulkiflee to see how he moves the bank forward.

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