Javed Ahmad, Former Managing Director, Bank Islam Brunei Darussalam (BIBD): Interview

Interview: Javed Ahmad

Do you expect an increased use of Islamic financial services in the short term?

JAVED AHMAD: Five years ago, we projected that the Brunei banking industry would become predominantly Islamic, and at that time many people asked me if we were ambitious. But the reality is that we are nearly there today. The majority of Brunei’s population is Muslim, but this does not mean that Islamic banking is only for Muslims. We have been providing the same quality of services and the same products for both Muslims and non-Muslims. Islamic banking is an inclusive industry, not an exclusive industry.

Indeed, at the corporate level, the majority of businesses in Brunei Darussalam are run by non-Muslims therefore, it is comes as no surprise that a large percentage of our corporate customers are non-Muslims. In terms of product offerings, Islamic banking is fulfilling their financial needs.

How can small and medium-sized enterprises (SMEs) gain access to long-term financing?

AHMAD: When financing SMEs, banks assess whether individuals understand what makes a business successful. Do they understand the business? Do they understand how to make money and sell products? Businesses go through both positive and negative cycles, but when the negative cycle comes, will the individuals in question be able to roll up their sleeves and address the business issue successfully? These are the key questions that we must ask ourselves when looking into financing SMEs.

If the team applying for finance is credible, knowledgeable and experienced, they will receive the required financing. Generally, problems arise with individuals operating their businesses like hobbies. Banks want to finance businesses that are professional, profitable and successful.

We have seen professional business plans prepared by consultants, but consultants are not the ones delivering the results and cannot run the business on the entrepreneur’s behalf. A document prepared by a third party who has no interests whatsoever in the success of the business is not sufficient. Instead, we would much prefer individuals to explain, for instance, how they are going to run the business or how they are going to achieve their sales targets. Banks therefore should be used to address specific needs, but the entrepreneurs must deliver the results.

At the corporate level, what can be done to increase financial accountability and information?

AHMAD: While financial information is a key aspect required for SME financing, it is also something that is lacking in general. Currently, credit bureaus offer limited information, especially on SMEs. Overall, corporate customers do not provide timely financial information. That being said, we still finance those corporate clients. Basically, if they have a contract with the government, we take that as a source of repayment. In many instances our own relationship managers become the finance department of some of these clients. When customers ask for financing we, in turn, enquire what the life cycle of this particular government contract is.

Some customers come to us well prepared, some may not be so well prepared, and in these circumstances we help them to formulate a plan that gives them a better understanding of the project and, based on that, we assess how to finance them.

What steps are being taken to reduce the non-performing loan (NPL) rate in the sector?

AHMAD: Historically, Islamic banking has had a high NPL financing rate, and while bad debts have all been provided for, they were not all written off in the books. So, for example, if a BN$50,000 ($36,300) financing was not performing, we made provision for that particular amount, but it was not written off. Hence, over the past few years we have been aggressively writing off non-performing financing to clean up the books. As a result of this exercise, the non-performing financing rate has declined rapidly. There is still some further work to do, but things should only improve from now on. Additionally, we are actively engaging with our customers to resolve these issues. Indeed, NPLs are not much of a problem anymore.

What can be done to increase the popularity of savings accounts and investment products?

AHMAD: Establishing a saving culture in Brunei Darussalam is an issue that the banking sector needs to address. Currently, interest rates are too low to incentivise customers to open savings accounts. Even increasing those interest rates by a small percentage would not encourage customers. However, ensuring that there are quality investment products (in bonds, equities, or real estate products for instance) would make a difference. We need to offer collective investment schemes so that individuals can save and receive a sensible long-term return. Also, sadly, financial institutions adopt the approach of a sales culture by selling products that generate the highest commission instead of selling products of the greatest benefit to customers. The world over, people are sold the wrong financial products and Brunei is no exception. We need to change that. Banks should sell what customers need, not what makes the most profit.

How can Brunei’s economy benefit from an in-country equity market?

AHMAD: Ultimately, in any economy, capital markets play an important role and, often, local participation is greater when there is a domestic capital market than when the stock exchange is in some faraway place. From that point of view, when the stock market is launched, hopefully there will be a significant number of well known local companies listed so that individuals feel comfortable enough to invest in them. For example BIBD, with 6000 shareholders, is ready for listing, simply because our shareholders need an exchange through which to buy or sell their shares.

What are your expectations regarding the issuance of long-term sukuk (Islamic bonds)?

AHMAD: This is going to be great because there will be extra liquidity for the Autoriti Monetari Brunei Darussalam, the central bank of Brunei, as well as the government. That money can be better used for the country’s investment needs, such as infrastructure projects. At a time of low oil prices, many countries, including Saudi Arabia, are issuing sukuks. This is an effective way of continuing investment for the long-term benefit of the country.

What benefits would come from increasing the ease of doing business in Brunei Darussalam?

AHMAD: If we make Brunei Darussalam an easy and convenient place to do business, it will have the potential to become the second Singapore of the region. The country already enjoys political and economic stability and has a well-educated workforce. All of these are positive indicators for potential growth. In terms of corruption, Brunei Darussalam is one of the most transparent countries in the region. Additionally, the Sultanate has 2bn prospective customers, all within the distance of a three-hour flight.

Increasing the ease of doing business would spur the private sector, resulting in more diversified sources of revenue for the government. For instance, a robust real estate sector could generate income from stamp duties and employment in the services sector such as facilities management, estate agent services, etc. Removing the barriers to starting and running businesses would have the effect of creating more jobs within the private sector, which are usually more well paid, translating into extra economic activity.