JJ returns to KFH: Euromoney

Euromoney, March 2010

There were interesting developments in Malaysian Islamic finance last month, where a chief executive move provided a commentary on the rising power of foreign banks in Malaysia while also raising questions about their conduct.

In February, Jamelah Jamaluddin cleared her desk as chief executive of RHB Islamic, one of Malaysia’s leading domestic Islamic banks, and joined Kuwait Finance House (Malaysia) as chief executive.

It is the second time JJ, as she is known in Kuala Lumpur, has followed this particular path. She was chief operating officer at RHB Sakura Merchant Bank until 2005, back in the days before Malaysian banks’ Islamic arms were hived off into separate entities. She then moved to KFH when the Kuwaiti group became one of three Middle Eastern institutions to be given wide-ranging licences to conduct Islamic finance in Malaysia. She rose to be deputy chief executive there before coming back to RHB, this time as chief executive of its Islamic entity, RHB Islamic. Now she’s heading back the other way.

It is striking that one of Malaysia’s most senior Islamic bankers finds it more alluring to work at a branch of a foreign bank than to lead a much bigger domestic one. Granted, KFH is not just any foreign bank: it is the second-largest Islamic institution in the world by assets, and almost certainly the one with the most dynamic international mindset, with long-standing regional ambitions in Asia (the odd recent closure of a Singapore office notwithstanding). But RHB Islamic is hardly a tiddler: it was managing M$10.9 billion ($3.2 billion) of assets by June 30 2009 and has been among the fastest-growing Islamic financial institutions in the country, with regional ambitions of its own.

In Kuala Lumpur, though, few seem particularly surprised. A Malaysian-born head of a foreign entity in Malaysia says: “If I was put in the same situation and given the choice of either leading a much larger local outfit or staying where I am in a foreign house, I would stay, because in terms of personal development the opportunities are much bigger.”

Attitudes like this must give Malaysia’s institutions, particularly Bank Negara Malaysia, food for thought. On one hand, it’s evidence of success in Malaysia’s efforts to turn itself into a truly global hub for Islamic finance, attracting leading global institutions, if not yet any actual money, to Kuala Lumpur to do business. What might not have been part of the plan is foreign institutions coming in and stealing the top talent from domestic institutions rather than bringing in their own people: Malaysia has a skill shortage in Islamic finance as it is.

Responding to a Euromoney request for comment on the appointment, KFH (Malaysia) chairman Shaheen Al Ghanem replied in an email: “It has always been the intention of KFHKuwait to engage a local talent to head its bank in Malaysia, and we have found it in Jamelah…Puan Jamelah holds the distinction for being the first woman to head a KFH bank as CEO, representing a special milestone and significant breakthrough within the KFH Group.”

There are reasons Malaysia’s regulators may be happy to see a proven home-team player stepping into the KFH Malaysia top job.

When KFH launched in Malaysia, K SalmanYounis was seconded from head office in Kuwait City to Kuala Lumpur in 2005. He was well known and accessible, driving deals, outlining plans to build the business from niche areas of expertise such as air finance into broader investment banking, corporate banking, commercial and finally retail. He was instrumental in KFH’s attempts to buy a 33% stake in RHB’s overall parent, Rashid Hussain, which came with a commitment to invest M$12 billion in turning the group into an Islamic banking powerhouse; that deal was thwarted by Malaysia’s own pension fund, the EPF, which won the bid ahead of KFH.

But did Younis push a deal too far? Officially, he was recalled to Kuwait because projects needed his involvement there, in a decision that took formal effect on June 1 2009 when he relinquished his chief executive position. But the move was sudden, with leadership temporarily passing to a deputy, Ab Jabar Ab Rahman. And it has been noticeable that since Younis’s departure, a number of the property deals he was instrumental in have fallen apart. On Christmas Eve, for example, Mah Sing Group confirmed that a deal to sell part of The Icon@Tun Razak, an office development, to Prompt Symphony for M$237.1 million had been aborted because the purchaser had failed to pay the balance, forfeiting a M$42.7 million deposit in the process.

KFH Malaysia denies having an interest in the transaction but Euromoney understands Prompt Symphony is a special purpose vehicle 80% controlled by KFH entities. Six weeks earlier a similar Prompt Symphony deal, for The Icon@Mont Kiara, also lapsed. In another instance in December, YNH Property said it had been told by KFH that it would not go ahead with a 50% purchase of another Kuala Lumpur office tower, Menara YNH.

Is it prudence in the wake of the financial crisis? Perhaps, but that doesn’t explain KFH’s darkest moment in southeast Asia to date in early 2008, when it pledged to spend S$818.4 million ($518.4 million) on GucoLand’s Goodwood Residence in Singapore, then failed to go through with the deal, although it did later buy some units in the residence. This deal, under Younis’s watch, had raised eyebrows from the outset: S$818.4 million was about four times KFH Malaysia’s paid-up capital at the time and it has never been clear if head office in Kuwait had approved the deal – or, for that matter, the grand commitment involved in the RHB bid.

Insiders suggest KFH’s aggression in property investment had become a thorny issue in Malaysia, where prudence has been a watchword ever since the country’s banking sector reformed itself after the Asian financial crisis (notably, no domestic institutions got into any significant trouble in the global version a decade later). There are also suggestions that Jamelah’s departure from KFH the first time, and the departure of Raja Teh Maimunah, a rising name in Islamic finance who left her role as KFH’s chief corporate officer and head of international business without another job to go to in July 2008, reflected unease at the bank’s investment style and extension of credit in Malaysia. Raja Teh is now the head of Islamic capital market development at Bursa Malaysia, the stock exchange.

KFH (Malaysia) chairman Shaheen Al Ghanem directed Euromoney to the firm’s previous public statements on these transactions, offering no new comment beyond a statement that “it is part of KFHMB’s banking process and governance policy to have a constant and vigorous monitoring of all banking transactions to ensure that the bank obtains optimum value from all its transactions, especially in view of the changed economic environment”.

In this context Jamelah is a proven, experienced, safe pair of hands – and local. Her first job will be to give leadership and direction to a business that does, after all, have a lot going for it: chiefly one of the biggest chequebooks anywhere in the Islamic world.