What a balance-sheet CFO in Islamic banking actually manages

Islamic banks carry the same exposure to rate movements as conventional ones, even though the contracts earn a profit rate rather than interest. At Sejahra most home financing floats against our base rate, but salary-deduction personal financing is written at fixed rates for up to ten years, while the commodity murabahah term deposits that fund it reprice within twelve months. I measure the position two ways: the effect of rate shocks on the next year's net financing income, and the effect on the economic value of equity as a share of Tier 1 capital. In early 2022 the second measure stood at 17.8 per cent under a 200 basis point rise. We entered RM3.0 billion of Islamic profit rate swaps, documented under a master agreement our Shariah Committee had approved, applied hedge accounting so the swaps did not swing reported profit, and cut the sensitivity to 9.6 per cent. I now report both measures to the risk committee every quarter.

Our funding comes in several Shariah forms, and each behaves differently. Current and savings accounts are mostly structured on qard, with any return paid at the bank's discretion as hibah; term deposits are commodity murabahah contracts at a fixed profit rate; and investment accounts are mudarabah arrangements in which the customer shares in returns and bears investment risk. Deposits are protected by Malaysia's deposit insurance scheme up to its limit, while investment accounts are not, and I make sure our disclosures and our liquidity assumptions treat them differently. I manage the liquidity coverage ratio and the net stable funding ratio, but the measure I watch most closely is concentration. In 2021 our twenty largest depositors provided 34 per cent of customer deposits, mostly institutional term money that repriced as soon as the policy rate moved. By 2025 they provided 21 per cent, and current and savings accounts had risen from 24 to 31 per cent.

Expected credit loss is the largest estimate in our accounts, and I treat it as a joint judgement between finance and credit risk rather than an output of either. I led our MFRS 9 adoption in 2018 as deputy CFO and have since presented every material change in staging criteria, macroeconomic scenarios and overlays to the Board Audit Committee. The hardest calls came after the pandemic, when repayment assistance had suppressed the arrears data our models relied on. We built RM214 million of overlays by the end of 2022, and I insisted that each one be tied to a named cohort, a reason and a written condition for release. I also keep the accounting allowance and the regulatory reserve that Bank Negara Malaysia expects banks to hold against non-impaired financing in separate schedules, so that directors can see which buffer the auditors test and which one the supervisor requires.

A wholly owned bank inside a listed holding company faces a recurring tension: the parent's shareholders expect dividends, and the bank needs retained earnings to grow its financing and absorb stress. I own our internal capital adequacy assessment and the capital plan behind it. Our board sets an internal CET1 floor of 12 per cent, well above the regulatory minimum including the conservation buffer, and I test every payout recommendation against a severe scenario that the risk function designs independently of finance. Between 2023 and 2025 that discipline took CET1 from 12.4 to 13.6 per cent without any new additional tier 1 issuance. I also manage our Tier 2 subordinated sukuk: I arranged the first, RM500 million in 2019, and in 2024 recommended calling it and replacing only RM300 million, because our capital no longer needed the rest and the coupon was costing us money.

Shariah rulings belong to our Shariah Committee, and I do not second-guess them. Finance has three duties of its own. The first is to book each step of a contract as it happened, because a commodity murabahah sale recorded before the bank owned the commodity cannot be cured by good intentions afterwards. The second is to quantify and set aside any income the committee rules non-compliant, and to channel it to charitable purposes it approves rather than recognising it as our earnings. The third is to compute zakat on a basis the committee has endorsed and to report it transparently. I also fund the Shariah review and Shariah audit teams as control functions with their own budgets, and I report actual non-compliance events and their income effect to the board alongside our other operational losses.