A.
On November 1, 2008, Public Bank's fully owned subsidiary Public Islamic Bank opened for
business. Public Islamic Bank began as a window via Public Bank and has been providing
Islamic banking goods and services to the public since 1993.They specialise on funding small
and medium-sized businesses, consumers and retailers, as well as financing and deposit
taking, which helps the Islamic banking industry as a whole.
Fast-paced growth and rising acceptance among Malaysians of all racial and religious
backgrounds necessitate competitive banking services and products that also adhere to
Shariah. Their lending and deposit offerings are competitive and up to the mark. One of the
major participants in the Islamic banking sector and one of the top 5 Islamic banks in
Malaysia, they have risen from RM30 million in 1993 to RM6.7 billion as of December 31,
2022, based mostly on robust capital development.In addition to its four fully functional
Islamic branches located in Kg Baru, Putrajaya, Wakaf Siku, and Jalan Kota, Public Islamic
Bank also benefits from Public Bank's strong branding and extensive nationwide network of
260 branches to better serve and cater to its clientele.(Public Islamic Bank)
The Public Bank Group has committed to sustainability and keeps track of its advancement
towards these objectives on a regular basis.In 2022, the Public Bank Group not only
achieved its target of raising RM25 billion by 2025 for the financing of energy-efficient
vehicles (or "EEVs")1, but it also exceeded it by raising almost RM30 billion. The Public Bank
Group has raised its funding objective for energy-efficient automobiles to RM33 billion by
2025 as part of its ongoing aggressive efforts to promote these vehicles.
Furthermore, the Group has started the Bangunan Public Bank solar panel project and
approved about RM620 million under the Green Financing Facilities. Environmental more
than RM7 million to finance solar panels.(Public Bank Berhad, 2022)
B.
2020(RM’000) 2021(RM’000) 2022(RM’000)
Total comprehensive 419,414 345,919 615,477
income
Return on Assets 419,414 / 345,919 / 615,477 /
(Total assets/total 71,560,829 76,966,273 89,250,949
income) =0.59% =0.45% =0.69%
Net Profit 419,414/2,612,882 345,919/2,635,724 615,477/3,107,770
Margin(NPM)= Net =16.1% =13.12% =19.8%
Profit/ Total
Revenue
In the past 3 years, Public Islamic Bank Berhad is not having a clearly upward or downward
trend in its revenue performance. The group is having around 419 and 345 millions of total
comprehensive revenue in 2020 and 2021, which is having a slight decrease about 17%.
However, 2022 will be the best year for the group from revenue perspective due to the
greatly increase, they are having 615 millions of total income which is around 77% increase
compare to 2021. It is an impressive performance for the group of increase 77% of their
revenue within 1 year, it shows that every apartment has collaborate very well together to
avoid another decreasing year in revenue, and eventually come out with this huge improve.
The underperformance of 2020 and 2021 may result from some severe events that causes a
tough economic environment, but we can observe that Public Islamic Bank Berhad is a
competent company which they start performing very well immediately when the economic
environment become better after those events, and thus we can project that there will be a
relatively high probability of uptrend performance in the future.
Additionally, Return on Assets(ROA) is considered as the most important ratio to assess a
bank’s profitability because there is a big part of the income of any bank is derived from
their assets. ROA could be seem as a indicator to shows a bank’s ability to generate income
from their existing assets. In this case, the group’s performance on ROA is same as its
revenue, the best and worst result is in 2021 and 2022 respectively, which is 0.45% and
0.69% , and 2020 is having the middle performance of 0.59% among these 3 years. However,
the average ROA of Islamic bank is 1.348%, so the group is not performing well on
generating income from their assets compare to the average performance of their
competitors, and thus this ratio has showed the disadvantages of the group. (Egy, etc, 2018)
Net profit margin(NPM) is also considered as an important ratio to determine a bank’s ability
to manage their expenses and income attributed to depositors. Public Islamic Bank Berhad is
having 16.1%, 13.12% and 19.8% in the past three years, which is having a great
performance among banking industry due to conventional bank is having an average net
profit margin around 10 to 15%, and typically conventional bank is getting a higher NPM.
Therefore, the group is getting a similar NPM compare to conventional bank when they are
operating with a islamic banking system, and thus it shows the group is having a good team
to manage their operating expenses in order to get a higher NPM. This will also made the
group become more stable because they are managing their expenses very well, so they will
have more cash flow within the group to meet any contingency.
2020(RM’000) 2021(RM’000) 2022(RM’000)
Deposit 61,817,897 + 66,307,110 + 76,088,570 +
2,067,854 2,105,771 2,715,451
=63,885,751 =68,412,881 =78,804,021
Financing and 54,176,355 59,315,652 65,637,072
Advances
Non-performing 204,733/54,176,355 261,509/59,315,652 154,890/ 65,637,072
Loan= Bad =0.38% =0.44% =0.24%
Loan(Impairment
Losses)/Total Loan
Retail savings and deposits represent the most stable and typically cheapest form of funding
for a bank. They are the basic building blocks of a bank’s funding and liquidity profile. For
this reason, they sit atop the capital and funding structure, the most senior form of
unsecured funding of a bank. Therefore, deposits are extremely important for banks. If there
are not enough deposits, then a bank cannot make the money they need to thrive.Bank is
making profit when customers or other banks deposit money into accounts, banks use this
money to finance other customer. (Mortgage house, Jul 2022). According to the table above,
Public Islamic Bank Berhad is showing a clear uptrend in deposit amount in the past three
years, which is around 54, 68 and 78 billions of deposit in 2020, 2021 and 2022 respectively.
This performance shows that the group is having a stable deposit from customers due to the
steady increase of at least 9% each year on the amount of deposit. Besides that, the deposit
amount during 2021 is still increasing also shows that most of the customer is confident to
the group’s credit because that is a relatively sensitive period that people may having a lot of
consideration before depositing their money into a bank. Therefore, we could confidently
predict that the number of deposits to the group will keep increasing in the future result
from the healthy performance in the past three years.
In Islamic banking industry, they do not actually provide conventional loan to their
customers, so there is a product called ‘Personal Finance’ , which is a Shari'ah Compliant
contract based product, where the bank sells an asset at a profit, as Islamic Banks are
prohibited from charging interest, and so this product is Riba free (Comparehero, Jan 2020).
Moreover, the amount of deposit and the group’s financing and advances is theoretically
having a positive correlation as long as the bank is having a good credit. Thus, we can see
that the trend of the financing is almost same as the deposit, it is having a consistent
increase which is approximately 54, 59 and 65 billions in 2020, 2021 and 2022 respectively.
This number could also be one of the most important indicator to shows the group’s ability
to attract customers finance from them.
To be honest, Public Islamic Bank Berhad is having an extremely low amount of non-
performing loan(NPL), which is 0.38%, 0.44% and 0.24% in the past 3 years. Having a high
amount of NPL will directly affect a bank’s profitability, and also show that they are not
having a great decision on whom to finance because a big part of people they finance are
not having a good credit. However, the performance of the group in this aspect is great and
thus it will not be a disadvantage of them, or even be their strength when compare to other
bank. Therefore, it will be amazing for the group if they keep this amount as low as these 3
years to avoid any possibility to reduce their profitability, and I truly believe the group will
did it in the future.
C.
After evaluating a few significant aspects of Public Islamic Bank Berhad, several drawbacks
have been identified that may eventually be improved. Since profitability is a company's
primary source of funding, it will always be the most significant factor in the group. Even
though it is a reasonably large-scale Islamic bank, it is clearly not performing very well
among the industry after looking at the most crucial number, which is Return on Assets
(ROA) of the company. This data indicates that there is a substantial inverse link between
bank size and profitability. This substantial inverse connection demonstrates how a bank's
scale may have a detrimental impact on its profitability. In other words, a larger bank does
not always translate into greater profits or even greater risk when it comes to handling
liquidity issues and product diversification. (Nor Izzati Mohd Aziz, 2017)
In this instance, the group's recommendations will either centre on the operational scales or
their capacity to increase revenue. Large organisations, particularly banks, typically find it
more difficult to reduce their size quickly because of the intricacy of their organisational
structure. Because every part of the group is interconnected, making a significant change
would take time and may put the organisation at undue danger. As a result, it is advised that
the company boost profitability by strengthening the sales force to boost sales and raise the
revenue from each product. Since closing sales is the most crucial step in generating income,
the organisation may improve the performance of its sales force. This will have a direct
influence on revenue. The firm is advised to start selling their brand, rather than simply the
goods, since this is the most efficient approach to enhance profitability in the majority of the
market. Nearly everything that most organisations provide is a commodity. Even while some
could contend that they provide somewhat different features, perks, or pricing, they are
nonetheless offering a highly commoditized range of financial goods. (Rick Halll,2023)
Customers are more prepared to pay extra for branding when you highlight the value of
Public Islamic Bank Berhad, one of the most reputable banks in Malaysia and even the globe,
while offering products. Establishing a strong brand image in the market will undoubtedly
take time, but it's the best approach to rise to the top of the sector and ultimately boost
profits.
D.
The financial industry is becoming more digital, and this presents fantastic potential for
institutions at all levels. A few decades ago, the digital potential of the twenty-first century
would have been considered magical.
The main tenets of Islam are also congruent with the developments brought out by the
fintech industry. Transparency, for instance, is one of the most intriguing aspects of
blockchain systems and a major Islamic corporate ethics problem. Thus, following the
subprime crisis, Islamic finance and fintech experienced tremendous growth. Consumers no
longer have faith in traditional financial systems, which combine bonds and other assets into
tranches and sell them as AAAs. Islamic banks must conduct their operations in accordance
with Shariah in order to maintain their reputation. Shariah provides explicit guidelines for
the ethical and transparent conduct of business. Additionally, literature suggests that the
financial sector is becoming more trustworthy as a result of the growing rivalry between
conventional and Islamic banking. Islamic fintech is anticipated to fill this position mainly
because to its development and potential. Over 150 million additional clients are anticipated
in the Islamic fintech space in the next three years, therefore companies and researchers
need to be working hard to safeguard this opportunity.
Fintech and digitalization will be beneficial to the Islamic banking sector as well in order to
maintain the credibility of their internal systems. Blockchain-based solutions might be used
to organise regulatory frameworks, corporate audit systems, and shariah supervisory bodies.
Furthermore, today's auditing systems built on smart contracts may function entirely
automatically, lowering the amount of labour that is needed for any organisation. Shariah
appears to be somewhat adaptable when it comes to decision-making in new goods, but the
methodology is well-established and strong, allowing for the development of an AI-based
system that can make decisions in place of people.
In my opinion, smart contracts have immense promise for the future of business law. They
will not only facilitate Shariah-compliant decision-making but also greatly expand the
possibility of nearly any commercial deal by enabling blockchain smart contract based
systems. Legal experts concur on the potential and future usefulness of smart contracts,
despite the fact that they are now not recognised by the law. Asset ownership transfers
become faster and easier using smart contracting, which also reduces transaction costs by
more than 95%. Scholars concur that smart contracts have the ability to completely replace
the burden of legal and regulatory frameworks by automating them.
The decrease of time, labour, and financial costs is another major advantage of digitalizing
financial organisations. As previously indicated, several Islamic financial institutions must cut
costs in order to survive because of their extremely narrow profit margins. Transacting
business internationally might be particularly difficult since it involves additional expenses
like cross-border payments. For these organisations, blockchain technology and
cryptocurrency assets in particular provide ground-breaking solutions that make it simple to
establish a smooth international financial centre.
Customers are now primarily choosing products based on transaction speed as the
competition heats up. Customers would not want a system that processes transactions for
more than a few seconds, as the typical wait time for a click is only a few seconds. Because
Generation Z in particular has very high expectations for speed, simplicity of use, and a
pleasant interface, it is extremely challenging for institutions to stay competitive by updating
themselves. Any institution would quickly disappear from the markets if digital systems,
blockchain, and numerous other concepts—like artificial intelligence, machine learning, big
data, and the Internet of Things—were not used effectively..(Ibrahim, Ahmet, 2022)
E.
There are several similarities between sustainable or ethical investment and Islamic
finance. The avoidance of damage is a basic concept that unites them. However, as
some have suggested, might these two financial sectors truly converge because of
this shared ground? It is a fascinating idea, not least because, should Islamic Finance
products be easily recognised as ESG compliant, that may provide Middle Eastern
banks with Islamic Finance skills access to a sizable and rapidly expanding worldwide
market.
Numerous tenets of Islamic finance (IF) bear a striking resemblance to the ideas of
responsible investment, which is currently commonly referred to as environmental,
social, and governance (ESG) investing. Theoretically, a market convergence could
place IF products like endowment funds or Sharia-compliant sukuk bonds in the
portfolios of ESG-obsessed investors across the globe, giving Islamic banking
institutions a larger portion of what is predicted to grow to be one of the largest and
possibly the most important investment sectors in the future.
(pwc ,2023)
Part of the greater ‘green economy’
The increase of social consciousness in finance over the past few years has been one
of the significant changes. Another change is the speed at which technology is
disrupting the industry. As businesses get more aware of the shifting landscape of
consumer behaviour, they are attempting to adjust and adapt. And for good
reason—financial institutions are crucial to the growth of a robust economy as well
as our day-to-day existence.
This tendency is consistent with the "greening" of economies, with Islamic finance
and the idea of ESG standing to become major drivers of this shift towards more
environmentally friendly business practises."The greening of economies is not
generally a drag on growth but rather a new engine of growth; that it is a net
generator of good jobs; and that it is also a critical approach for the elimination of
persistent poverty," according to the UNEP's Green Economy Report. The green
economy is an approach to business that promotes both economic expansion and
environmental objectives.Financial institutions need to move towards a more
ecologically friendly and sustainable economy by doing the walk. Instead of
becoming a marketing gimmick for companies, ESG and sustainable finance can serve
as a catalyst for accountability. With the rapid rise of Fintech companies, their lower
overhead, and more accessibility, we should expect interesting new developments.
(Ethis, Feb 2023)
Reference list
Public Islamic Bank, Available at: https://www.publicislamicbank.com.my/About-
Us/Corporate-Information/About-Us .[Re
Public Bank Berhad (2022) Sustainability Statement. Available at:
https://www.publicbankgroup.com/media/efdnlgea/sr-2022.pdf .[
Mortgage House (31 Jul 2022) Why are deposits important for the Bank? Available at:
https://www.mortgagehouse.com.au/news-resources/why-are-deposits-important-for-the-
bank/
Comparehero, Jan 2020 How Does An Islamic Personal Loan Work? Available at:
https://www.comparehero.my/personal-loan/articles/islamic-personal-financing-explained
Nor Izzati Mohd Aziz, 2017 ROLES PLAYED BY INTERNAL AND EXTERNAL BANKING FACTORS.
Available at:
https://oarep.usim.edu.my/jspui/bitstream/123456789/4812/1/Islamic%20Banking%20Profi
tability%20Roles%20Played%20By%20Internal%20And%20External%20Banking%20Factors.p
df
Rick Halll,2023 Enhance Your Bank's Sales and Marketing Initiatives: 5 Tips Available at:
https://www.bkmmarketing.com/blog/5-tips-to-enhance-your-banks-sales-and-marketing-
activities
Ibrahim, Ahmet, Nov 2022. Fintech, Digitalization, and Blockchain in Islamic Finance:
Retrospective Investigation. Available at: https://www.mdpi.com/2674-1032/1/4/29
pwc ,2023 Islamic finance & ESG investing .Available at:
https://www.pwc.com/m1/en/publications/islamic-finance-and-esg-investing.html
Ethis, Feb 2023. The potential of ESG sustainability in Islamic Finance. Available at:
https://ethis.co/blog/the-potential-of-esg-sustainability-in-islamic-finance/
Appendix
Financial statement 2022
Financial statement 2021
Financial statement 2020
