This article first appeared in The Edge Malaysia Weekly on July 4, 2022 - July 10, 2022

BANK Islam Malaysia Bhd will be officially launching its digital bank aimed at the younger generation in mid-July, for which it hopes to attract between 350,000 and 400,000 downloads and users within the first 12 months, its CEO Muazzam Mohamed says.

The digital bank, “Be U”, is in the form of a mobile banking app. It is understood to be the country’s first digital bank that is built natively on Cloud.

According to Muazzam, the app has already been available for users to download since mid-June, but Bank Islam plans to undertake a hard launch only a month later upon gathering useful feedback.

“Our baby that has been in the making, Be U, is now already available,” he tells The Edge in an interview.

“It’s been two weeks already and there have been points that we’ve taken [from users] on how we can make tweaks, but it’s been smooth so far. So, by the time we launch in mid-July, I think we’re fully ready to wow our customers in terms of the user interface and user experience.”

Bank Islam’s digital banking proposition is part of its five-year business strategy, LEAP25, under which one of its aspirations is to have leadership in digital banking and social finance.

Be U comes to the market less than two months after Bank Negara Malaysia issued digital banking licences to five consortiums on April 29. It has a head start as these consortiums are only expected to launch their digital banks in one to two years.

Muazzam says Be U’s offerings currently include a savings account that allows for zero balance, fund transfer capabilities and a “Nest” feature which helps users to save for specific goals — all of which are targeted towards the younger generation.

The idea, he says, is for the digital bank to focus on customer segments that Bank Islam does not, hence, there is no competition between the two. However, they can complement each other.

“For example, a lot of the retail propositions in Bank Islam are more for people who are already a bit more established in their working lives. So, if Be U can capture a group that is still in the early stage of their working lives, once they move forward and need more complex financial products and instruments that Bank Islam already offers, then they can shift to become Bank Islam customers, and we are going to make [that shift] easy for them,” he explains.

There are no immediate plans for Be U to target small- and medium-sized enterprises given that SMEs are an area of focus for Bank Islam.

“Be U is really focused on the younger generation. Let’s say, you are a final-year student at university, or someone who has just started your first job, or a gig worker, or someone below 30 who is just starting a family — what would be your needs from a financial requirements perspective?  We’ve built a proposition on Be U for those needs specifically,” he says.

Muazzam states that there will be frequent “releases” or new offerings on the app over the next 12 months from launch. These will include personal financial management, where a personalised financial coach can interact with the user, and a basic financial product.

Asked about when Be U is expected to be profitable, he declines to be specific, saying only that the group is looking at a “reasonable” timeline. The group has invested about RM34 million to set up the digital bank.

Muazzam stresses that, ultimately, the group wants replicate what has been learnt from Be U to Bank Islam, which is also undergoing the process of digitalisation. Like many other banks, Bank Islam already has its own mobile app, GO by Bank Islam, for its customers.

“A lot of the learnings that we get from Be U, we are going to replicate into Bank Islam proper. And that is actually, I would say, the bigger prize for us. At the end of the day, we want to turn Bank Islam into an organisation that is a lot more agile, adopting latest-generation technology and leveraging automation to enable us to reduce our transaction costs. That is also part of our plan to address our cost-to-income ratio, our efficiency, going forward,” he says.

A challenging year

Main Market-listed Bank Islam stands to benefit the most among banks from the rising interest rate environment as its floating rate financing ratio of 91.8% as at March 31 was the highest in the sector, according to analysts.

But on the flip side, local bond yields have also been rising amid higher interest rates, which would have a negative impact on its non-fund-based income. Its first-quarter ended March 31, 2022, net profit of RM106 million was down 33.3% year on year due to a 40.1% plunge in its non-fund-based income and a surge in financing loss provisioning.

“We’re also challenged by the fact that generally, equity markets around the world are underperforming, so that also has some impact on our performance this year [as] some of our investment portfolio is on the equities side — but it’s small. And then there’s the depreciation of the ringgit against other major currencies, so that will also have some impact on us and, I believe, other banks as well,” Muazzam says.

On the expectations for Bank Islam’s full-year earnings, he says: “We want to be able to at least match what we have last year.” For the year ended December 31, 2021, the group’s net profit fell 5.42% to RM534.3 million, while revenue slipped 5.22% to RM3.17 billion.

Since assuming the listing status of BIMB Holdings Bhd on Oct 8 last year, Bank Islam’s shares have shed 8.6%, closing at RM2.67 last Friday. Bloomberg data shows that out of eight analysts who track the stock, four have “buy” calls and another four “hold”, with the average 12-month target price at RM3.08.

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