Exim Bank

Hey folks,

Now, I want to talk about Export-Import Bank of Malaysia Bhd, or fondly known as Exim Bank. Well, as the name suggests, Exim Bank is not any normal bank -- they don't take deposits from customers, hence they are not a retail bank. They don't offer credit cards or consumer products, but they deal mainly on the export and import aspect of the business.

In other words, they facilitate trade for Malaysian companies wishing to venture overseas. As mentioned in the previous post, I interviewed Exim Bank president and chief executive officer Datuk Adissadikin Ali, just a week before hari raya. The article was published in The Edge Financial Daily on Monday, 4 August 2014. The article refers below:

The article I wrote was further carried by Astro Awani in their television news.

(source: Astro Awani on its Youtube channel. Click here to view in Youtube)

Here is a bit about Exim Bank from my own analysis:

1. Shareholder Structure

Exim Bank is wholly-owned by The Ministry of Finance Inc., however, the bank reports and is being regulated by the Central Bank of Malaysia (Bank Negara Malaysia).

2. Mandate

The creation of the bank was mandated by the government. The mandate is as follows:

To provide credit facilities to finance and support exports and imports of goods, services and overseas projects with emphasis on non-traditional markets as well as the provision of export credit insurance services, export financing insurance, overseas investments insurance and guarantee facilities.

3. Credit Rating

The bank has a good credit rating of A- (by Fitch) and A3 (by Moody's).

4. Main Business

The bank offers both conventional and Islamic solutions. It provides trade financing and trade credit insurance and takaful (Islamic insurance).

In terms of coverage, the bank has business transactions and facilities for customers in 77 countries across 5
continents.

The presentation below outlines the area of business that Exim Bank is involved:

Source: Exim Bank

5. Financial Highlights

You can always refer to the annual reports to understand the financial performance of a particular organisation. However, it can be quite tedious reading annual reports, and below is the summary of the financial performance of the bank, in terms of revenue and net profit.

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Operating Revenue	RM274 mil	RM185 mil	RM 172 mil	RM135 mil	RM212mil	RM223 mil
Interest Income	RM269.99 mil	RM217.17 mil	RM215.00 mil	RM173.47 mil	RM188.84 mil	RM224.26 mil
Net Interest Income	RM178.64 mil	RM149.38 mil	RM172.02 mil	RM137.70 mil	RM149.86 mil	RM175.47 mil
Operating Profit	RM202.85 mil	RM185.40 mil	RM184.49 mil	RM102.62 mil	RM145.38 mil	RM195.55 mil
Profit Before Tax and Zakat	RM190.25 mil	RM169.74 mil	RM146.36 mil	RM (299.57) mil	RM52.50 mil	RM13.00 mil
Tax	RM44.84 mil	RM45.54 mil	RM53.80 mil	-	RM25.56 mil	RM3.13 mil
Zakat	RM695,000	RM429,000	RM318,000	RM476,000	-	-
Net Profit	RM144.72 mil	RM123.77 mil	RM200.47 mil	RM (300.01) mil	RM26.95 mil	RM16.13 mil
Earnings Per Share (sen)	5.34	4.57	7.40	(11.08)	0.99	0.90

Source: Exim Bank annual reports

When analyzing the financial performance of the bank, you need to always be mindful of how the bank makes money. In this case, the bank makes money through the interest they charge to the customers. Hence, the more loans they disburse, the more interest they can charge and the more revenue they will make.

In the above table, look at the third and fourth row -- interest income and net interest income. These are crucial information on the income of the bank. You can learn about the concept of net interest income here.

6. Asset Quality

In banking, an asset is the loan that the bank gives out (lend) to other people. Hence, when give out loans, they must ensure that their asset is of the highest quality -- that is, the loans are paid on time, and provided to "quality" individual or corporations.

According to the Federal Deposit Insurance Corp (FDIC) in the US:

Asset quality is one of the most critical areas in determining the overall condition of a bank. The primary factor affecting overall asset quality is the quality of the loan portfolio and the credit administration program. Loans typically comprise a majority of a bank's assets and carry the greatest amount of risk to their capital. Securities may also comprise a large portion of the assets and also contain significant risks. Other items which can impact asset quality are other real estate, other assets, off-balance sheet items and, to a lesser extent, cash and due from accounts, and premises and fixed assets. (source: click here)

In general, the asset quality of the bank is determined by the non-performing loans and impaired loans, which is usually express as a percentage. The higher the value, the lower (and bad) the quality of the bank's asset.

Let us look at the asset quality of Exim Bank:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)
Gross Impaired Ratio (excluding ECR)	15.2%	22.2%	35.6%	50.0%	42.5%
Net Impaired Ratio (excluding ECR)	8.2%	11.2%	18.1%	13.6%	23.8%

Source: Annual Report

As you can see, Exim Bank's asset quality was at its peak (50%) in FY10. But it had gradually tone down to some 15.2% as at FY13.

To achieve zero asset quality is almost impossible, thus, a banked told me that anything below 5% is actually quite good already.

7. Total Assets

Let us take a look at Exim Bank's total assets:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Total Assets	RM8.14 bil	RM7.26 bil	RM6.24 bil	RM5.60 bil	RM5.72 bil	RM5.54 bil

Source: Annual Report

Exim Bank aims to multiply its total assets to RM30 billion by 2018. This was expressed in its Phase 3 transformation plan:

Source: Exim Bank

8. Islamic Business

Exim Bank began its Islamic banking business in 2009. In 2011, Exim Bank introduced credit takaful facilities, which adhered to the Shariah principles. Let us have a look at the total Islamic assets for both Islamic business and Takaful fund:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)	Ended Dec 31, 2009 (FY09)	Ended Dec 31, 2008 (FY08)
Islamic Business Fund	RM1.78 bil	RM704.57 mil	RM347.83 mil	RM168.85 mil	RM101.56 mil	-
Takaful Fund	RM4.51 mil	RM1.94 mil	-	-	-	-
Total Assets	RM1.78 bil	RM706.51 mil	RM347.83 mil	RM168.85 mil	RM101.56 mil	-

Source: Annual Report

This is what Datuk Adissadikin said in his statement in Annual Report 2010:

In an effort to expand its customer base, Exim Bank is poised to tap the import market, particularly importers who are looking to re-export goods or buyers of strategic imports such as staple food items. This is an untapped market that offers promising prospects for the Bank going forward.

With the rise in demand for Shariah products, the Bank hopes to see more take-up of such offerings in the market. As the Middle East region continues to grow in importance for Malaysian exporters, the preference for Shariah financing, as well as trade credit Takaful is expected to grow too.

As can be seen from the table above, the total assets for its Islamic business recorded strong growth.

The table below shows the income statement of Exim Bank's Islamic business. Notice that both the revenue and profit jumped significantly.

Islamic Business Income Statement

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)
Income from Islamic Banking	RM62.79 mil	RM25.48 mil
Net Income from Islamic Banking	RM56.77 mil	RM20.87 mil
Gross Premium Contribution (Takaful)	RM3.19 mil	RM1.28 mil
Net Income from Takaful	RM (398,000)	RM (442,000)
Total Islamic Banking and Takaful Results	RM56.37 mil	RM20.43 mil
Profit/(Loss) Before Tax and Zakat	RM33.68 mil	RM (6.33) mil
Zakat	RM (695,000)	RM429,000
Profit/(Loss)	RM32.98 mil	RM (6.76) mil

Source: Annual Report

9. Exposure

The bank is constantly exposed to several sectors and region. And one of the indicator used when speaking to Exim Bank folks is the industry or sector that they are exposed, along with the region.

The table below shows the loan and guarantee exposure segregated by the sector:

Loan and Guarantee Exposure by Sector (including impairment)

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)	Ended Dec 31, 2010 (FY10)
Manufacturing Including Agro Based	21.3%	16.3%	13%	22%
Property Development	12.1%	-	-	-
Electricity, Gas & Water Supply	11.4%	8.6%	1%	-
Construction	8.8%	26.7%	28%	46%
Government	8.5%	11.7%	13%	12%
Transport, Storage & Communication	7.0%	2.1%	3%	7%
Primary Agriculture	7.0%	6.7%	9%	-
Wholesale, Retail Trade, Restaurant and Hotel	6.1%	21.4%	33%	-
Export Credit Refinancing	5.8%	-	-	-
Mining and Quarrying	5.6%	5.7%	-	-
Finance, Insurance, Real Estate & Business Activities	3.7%	0.7%	-	-
Education, Health and Others	2.7%	-	-	-
Information Technology	0.1%	-	-	-
Tourism	-	-	-	5%
Others	-	0.1%	-	8%

Source: annual reports

In terms of regional exposure:

Financial Year	Ended Dec 31, 2013 (FY13)	Ended Dec 31, 2012 (FY12)	Ended Dec 31, 2011 (FY11)
Malaysia	34.2%	28.1%	42%
East Asia	31.6%	35.0%	33%
Central Asia	3.4%	4.6%	-
South Asia	2.1%	5.2%	6%
Oceania	6.5%	5.0%	2%
Middle East	6.6%	9.3%	5%
Africa	3.7%	4.1%	5%
Europe	10.4%	7.1%	5%
Americas	1.4%	1.6%	2%

Source: annual reports

With the Asean Economic Community scheduled to be introduced next year, Datuk Adissadikin said that the focus will remain strongly in Asia but will have some diversification elsewhere too.

10. Transformation Plan

When Datuk Adissadikin was appointed to head Exim Bank in September 2010, he came up with his transformation plan to propel the growth of this bank forward. The transformation plan are divided into three phases (as for now):

• Phase 1 - "Putting the House in Order" - 2008 until 2010
• Phase 2 - "Accelerating Growth" - 2011 until 2012
• Phase 3 - "Realising the Vision" - 2013 until 2018

Source: Exim Bank

Phase 1 was interesting. I remember Datuk Adissadikin told me that Phase 1 is about "cleaning up the mess in the bank." This is what I actually admire him -- he is a no-nonsense man, and he does not mind talking about the bank's painful history. This phase of transformation was where the bank took corrective action to stop its loan from bleeding badly (as reflected from its non-performing loans). As aptly stated in the presentation above, this phase is where the bank was building foundation for growth. Notice that Phase 1 of the transformation plan occurred during the global financial crisis.

Enter Phase 2, where the bank reconfigured business model and organisational framework. In this phase, the bank took many steps to improve its risks: operation and market. 

In Phase 3, the bank aims to remain relevant and amplifying significance, which means that I constantly strive to achieve the best and distinguish itself from other commercial bank. 

With these transformation plans in place, I have no doubt in Datuk Adissadikin's leadership to steer the bank in the right direction.

And interestingly, all of its annual reports are given specific name, possibly to reflect what had happened during a particular year, or its outlook.

• 2009 - Taking on the global challenge with you
• 2010 - Internal Strength, Global Outlook
• 2011 - Spreading Our Horizon
• 2012 - Transcending Beyond
• 2013 - Going the Distance

11. Going Forward

In an interview with me a while back, Datuk Adissadikin is very bullish on the potential growth of the banks.

He outlined below the strategic direction that the bank will be embarking.

Source: Exim Bank