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KUALA LUMPUR: Affin Holdings Bhd (AHB) is still in the internal planning stage of setting up a joint venture in China with its major shareholder Bank of East Asia Ltd (BEA).

In a statement yesterday, its chairman Tan Sri Mohd Zahidi Zainuddin said “any kind of business development opportunities in China is purely in planning stage internally and has not been discussed in depth between BEA and AHB”.

“We have yet to seek approval from any regulators both domestic and foreign given that our plans are not conclusive regarding this possibility. We will make the necessary announcement in compliance with disclosure requirements to relevant regulators once our plans are certain,” he said.

Earlier, BEA chairman and chief executive David Li, who is also an AHB director, said the two parties were in talks to set up a JV Islamic banking unit in China within “the next year or two”.

Saying that talks were at the preliminary stage, he said the JV could initially set up a presence in areas with a big Muslim population such as Urumqi, the capital of Xinjiang province.

Li said the BEA branch, which was set up in Urumqi about six months ago, was doing “extremely well” and hence he saw huge potential for an Islamic bank there.

“BEA has been assisting Affin in applying for a licence to start an Islamic banking operation in Urumqi.

“There is no regulation in China being imposed (on Islamic finance), and we are urging the authority to give us the guidelines. Basically, what they said is that they would like to have a Chinese bank to work with an Islamic bank before they accepted it,” Li told reporters after the Malaysian company’s AGM here yesterday.

AHB is most likely to hold a 80% stake in the JV and the remaining by BEA. However, Li said the ratio had not been fixed as the JV’s shareholding structure was not yet formalised.

BEA, Hong Kong’s third-biggest publicly traded bank, owns a 21% stake in AHB. BEA’s entry into AHB brought in nearly RM500 million cash into the group, Mohd Zahidi said.

On another matter, Mohd Zahidi said AHB did not require any additional capital at the group level, but it would inject another RM60 million into the group’s Islamic banking unit Affin Islamic Bank Bhd by year-end.

The fund injection would increase the Islamic banking unit’s core capital ratio to 15% from 11.5%. The group had injected a total of RM40 million, as at end-March, into the unit to cater to growth of its Islamic business.

Kamarul Arifin Mohd Jamil, the chief executive of Affin Islamic, said the Islamic banking unit had been growing rapidly, with earnings growing 41% last year.

Also, Affin Investment Bank Bhd’s risk-weighted capital ratio (RWCR) was at an “adequate” level of 24%, its managing director Maimoonah Hussain said, adding that a fund raising exercise was not needed.

Affin Bank Bhd’s core capital ratio was at 11.3% and RWCR at about 13.8%. Zulkiflee Abbas Abdul Hamid, its managing director and chief executive, said the figures were more than sufficient to help the bank to grow, while capital injection was not necessary in the near future.

He was positive about the bank’s first quarter result. He said its net non-performing loan (NPL) ratio for the quarter was expected to be maintained at last year’s level of 3.2%.

“Looking at the delinquent account, no doubt it shows uptrend, but it is still within our control. We certainly would like to see our NPL going down to 2.3% by year-end, as we set in our KPIs (key performance indicators),” he added.

LTAT has a 35.59% stake in AHB, while Boustead Holdings Bhd owns 20.69%. Boustead, which has business activities in plantation, heavy industries, property, finance and investment, trading as well as manufacturing and services, is a majority-owned conglomerate of LTAT.

On AHB’s proposed acquisition of Felda Holdings Bhd’s 20% stake in BH Insurance (M) Bhd (BHI), AHB deputy chairman Tan Sri Lodin Wok Kamaruddin said the deal could be concluded by year-end. The remaining 80% in BHI is controlled by Boustead.

This article appeared in The Edge Financial Daily, April 21, 2009.
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