Bank Management Assignment: Development Financial Institutions (DFIs) In Malaysia

Question

Task:
PURPOSE
The purpose of this bank management assignment is to enhance learners’ understanding on the Development Financial Institutions (DFIs) in Malaysia.

REQUIREMENT
Development Financial Institutions (DFIs) have been established by the government to complement the services offered by commercial banks in Malaysia. The SIX DFIs governed by the Development Financial Institutions Act 2002 include Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat), Bank Pembangunan Malaysia Berhad (BPMB), Bank Pertanian Malaysia Berhad (Agrobank), Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank), Bank Simpanan Nasional (BSN), and Export-Import Bank of Malaysia Berhad (EXIM Bank).

The assignment should highlight the following aspects:

• Discussion on the background of each of the DFIs;
• Explanation of the role of each of the DFIs;
• Explanation of the products and services offered by each of the DFIs;
• Analysis of the assets and liabilities of each of the DFIs;
• Comparison between the DFIs; and
• Write the summary of the assignment.

Answer

Discussion on the Background of each of the DFIs considered in this bank management assignment

Bank Kerjasama Rakyat Malaysia Berhad (Bank Rakyat)
Bank Rakyat is a part of DFIs in Malaysia. The Bank Rakyat is an Islamic cooperative bank whose establishment dates back to 28 September 1954. There were 11 union banks that merged together to form the Bank Rakyat. Currently the bank provides employment to 5,178 staff to serve 7.82 Mn customers. As per the annual report 2018, there are 854,855 shareholdersof the bank with an accumulated fund of RM17.87Bn ("Bank Rakyat Annual Report", 2018).

Bank Pembangunan Malaysia Berhad (BPMB)
The BPMB was founded on 28 November 1973 for the purpose of providing services related to banking and finance.The bank was established with a vision of providing guidance to owners of SMEs and the new entrepreneurial ventures. The major shareholder of the bank is government of Malaysiawith 99.99% shareholding and the total equity and liabilities of the shareholders are RM24.7 Bn as per annual report ("Annual Report", 2019).

Bank Pertanian Malaysia Berhad (Agrobank)
The Agrobank was founded in 1969 with the purpose of catering to the agriculture industry. It is a bank owned by government and is a part of the DFIs in Malaysia. The bank provides service in all the sector of agriculture that include agricultural production supply to the selling and processing of agricultural products to the customers. It became an Islamic bank in July 2015 with 184 branches across the country. As per the annual report 2018, the major shareholders of the bank are MOF Inc., BNM, Ministry of Rural and Regional Development, Plantation Industries and Commodities Ministry and the Agriculture Industry Ministry. As of December 2018, the income derived from shareholder’s investment was RM216 Mn("Statement of Comprehensive Income", 2020).

Small Medium Enterprise Development Bank Malaysia Berhad (SME Bank)
The SME Bank is under the ownership of MoFInc. and as the name suggests the bank is helpful to provide the guidance and finance services to the SMEs of the country. Although the bank is a part of the Development Financial Institutions (DFIs) in Malaysia but in the list, it is a very young bank being established in 2005. The Ministry of Finance (MOF) is the major shareholder of the bank due to its potential in the market("Annual Report - SME BANK", 2017).

Bank SimpananNasional (BSN)
The BSN is a government ruled bank that was established in 1974, with the role of taking over all the services of post office savings bank. The major shareholders are TabungAmanahWarisanNegeri Johor (30%), Nasional Land Finance Cooperative Society Ltd (7%), Syarikat Kerjasama NESA PelbagaiBerhad (3.4%), Tan Sri Dato' Vincent Tan Chee Yioun (2.65%) and Mayban (Nominees) SendirianBerhad (2.33%) ("BSNC CORP", 2019).

In terms of numbers of BSN provides employment to over 5100 staff, there are around 400 branches of the bank all over Malaysia and around 621 teller machines in the country and all these cumulatively serves over 7 Mn customers of the bank with over RM 8 Bn savings(“Statement of Financial Position”, 2017).

Export-Import Bank of Malaysia Berhad (EXIM Bank)
The EXIM Bank was in 1995 incorporated as the DFI. The major role of the bank is to allowbanking services related to creditfor the import and export goods process. There are international as well as national alliances of the bank as internationally it is a part of the Berne union and within the country it is in collaboration with various agencies of Malaysian government such as CIDB, SMECorp, MIDA, MATRADE and MITI. As per the annual report 2018, the shareholder’s fund in the bank was RM 2 Bn (Exim.com.my, 2018).

Explanation of the Role of each of the DFIs
The role of the DFIs is to cater to the needs of the specialized sector in which they are already a part of. These DFIs play a key role in the nurturing and development of identified sectors by providing them with the support and consultation services to grow on the specific sector.

The Agrobank
Agrobank is specialized in the agricultural sector services community which is essential part of Malaysian Financial System since a large part of GDP is associated with Agriculture and the Agrobank helps stabilize and monitor this community. In order to understand their working, the annual report of the industries can be analysed that are associated with the DFIs. As DFI provides help in consultation and financial understanding it also helps the organization to choose the best areas and sector to invest in.

The institute provides various government funded grants to help the economic development, as per the financial statement 2018 of the bank there are 17 different provinces that the government provides in terms of making the agriculture sector more involved in the economic growth of the country. Talking about major contribution in the agriculture area the major grants were Agriculture Mechanism and Automation Scheme with RM 5.7m fund, Micro ESP Flood Relief with RM 2.8m helping the farmers affected by flood and they have launched an Entrepreneur Scheme for Graduates with RM 8.35m fund to increase involvement of the youth in agriculture.

The EXIM Bank
The EXIM Bank is specialized in the export and import credit and financial services. The operational efficiency of these institutions is very efficient which can be seen by the growth of any of the sector in which they are involved. The EXIM bank is involved in all the major activities of the Islamic banking community for the betterment of Malaysian financial system, these activities are cross border financing, trade finance and guarantee like forward foreign exchange. The EXIM bank’s contribution to the economy is unmatchable they are involved in various sectors such as property development, primary agriculture, manufacturing, mining, etc. In these sectors combined, as per the annual report 2018, they have provided loan exposure of RM 6177.21m in conventional market and in Islamic market they have total loan exposure of RM 4933.64m.

The SME Bank
The SME Bank, as the name suggests, cater to the small and medium enterprises in the country. The targeted sector such as agriculture, import and export and SMEs have been helped by the DFIs to increase the rate of the development process. As per the governmental data after the involvement of the DFI in SME sector the growth rate of the industry increased exponentially.

According to banks annual report, with the help of SME bank there was a sustainable growth rate of 4.7% achieved by Malaysian financial sector. In terms of financing abut 38% of the small sized entrepreneurial ventures are financed by the SME bank and about 46.9% of the medium sized ventures are funded by it.

BSN
The BSN has the role of providing major baking service such as savings, financing and loans to the general public of Islamic community. The banks included in the DFIs are chosen from all the sectors of Malaysia so as to provide the country with help in their economic development. The incorporation among the DFIs plays a crucial role for Malaysianfinancial development. As per their annual report they are involved in various sectors such as construction with RM4.3m asset allocation, in consumer products they have an asset allocation of RM1.4m, in financial sectors the asset allocation is RM9.5m, for industrialproducts development they have RM13.3m asset allocation. Other sectors are plantation, properties, trading and technology.

Bank Rakyat
The Bank Rakyat caters to the public to provide them with Islamic banking services. It is one of the oldest banks in the country formed after merging of eleven different banks. The DFIs are very effective in their working as it can be seen by their performance in this sector. They have implemented the new performance measurement framework so that the DFIs can be befitted from it. The implemented framework focuses on the credit market distortion minimization. The result of the framework was well in the favour of DFIs since they were able to enhance the skills of the target sector and also helped in creating opportunities for employment. In terms of economic development of the country their total financial investment in the first quarter of this year is RM619m.

BPMB
The BPMB caters to provide the banking services to the entrepreneurial community of the country. The bank helps new ventures to set foot in the market by allowing them loans with other benefits. The global companies working in the country chose to work with the DFIs since it has a proven growth rate. Previously, in order to neutralize the risk of entering new market the MNCs used to collaborate with the local companies that are already established in the local market andknows their ups and downs. But with the emergence of DFIs these MNCs gets to know the market better and are advised to invest in the companies in the emerging market to have a sustainable growth.

The BPMB is at the forefront of the Malaysian financial system in terms of global trade and business. It has a substantial involvement in the country’s economic development as at the end of year 2018 they had a recorded profit of RM261m apart from tax and Zakat.

Explanation of the products and services offered by each of the DFIs
The major objective behind the strategic establishment of the DFIs by the Malaysian government was to identify and enhance the growth of the strategic importance sectors in terms of socio-economic development. Now, the strategic sector that are of utmost importance for the country are high technology industry, capital intensive and export-based sector, maritime or shipping, infrastructure, SMEs and the agriculture sector.

These sectors are the major part of the Malaysia’s economic development. Thus, in the DFIs,the banks that are a part of it are include from every sector. For example,the BPMB is specialized in the agricultural sector services and the EXIM is specialized in the export and import credit and financial services and on the basis of their working all the banks are included to be a part of DFIs.

Now, the discussion of products and services provided by each of the DFIs will be done.

Bank Kerjasama Rakyat Malaysia Berhad
There are a number of personal banking services provided by the Bank Rakyat, toprovide Islamic banking facility to cater to general people of the country, theseincludeInterbank GIRO, MEPS Regional, Credit card services, electronic banking services and internet banking. In terms of profit making the financing services provided by the bank are most profitable these financing services that the DFI provides are Auto finance, hoe finance, pawn finance, and education finance ("Bank Rakyat Annual Report", 2018).

Bank Pembangunan Malaysia Berhad
The BPMB uses money market instrument to provide its consumer withother required products and services such as short-term money market instrument and Tawarruq Deposit. The objectives are catering the structured deposit and fixed return for depositor catering ("Product and Services - BPMB", 2020). The Tawarruq Deposit is the most profitable service of the bank as the bank is majorly dedicated towards encouraging entrepreneurial ventures in the country.

Bank Pertanian Malaysia Berhad
The major products and services that the Bank Pertanian Malaysia Berhad provides are Agro Nurani, Agro Mabur-I, Agro Madani, Agro Betari-I, Agro Motor Takaful and Letter of will, Interbank GIRO and Interbank fund transfer. The bank caters to the agriculture industry of the country and the most profitable services are the agriculture-based loans. There are a plenty of electronic services that the bank provides to help the agriculture industry with financial services ("Products and Services", 2015).

Small Medium Enterprise Development Bank Malaysia Berhad
The major products and services that the SME Bank Malaysia Berhad provides are namely SME Digitalisation initiative, MySMEBina, Supplementary renewed facility and MySMEBekal.The bank gets its profit from the services such as MySMEBekal and MySMEBina, since these services are the more sought out by the new SMEs and the entrepreneurs. These are the strategically curated services provided for helping the SMEs in the country ("Business Financing for SMEs", 2019).

Export-Import Bank of Malaysia Berhad
The major products provided by EXIM are Bankers Trade Credit Insurance (BTCI), Indirect Exporters’ Financing Scheme, Multi Currency Trade Financing Scheme, Bank Trade Credit Takaful, Bank Letter of Credit Policy and Trade Credit Insurance/Takaful (Import/Domestic /Export). As the name suggests the bank is more inclined towards global services so it provides huge economic growth to the country by adding investors from other countries to enter business in the country. Their Insurance products and services are the most profitable for the bank for example Trade Credit Insurance, Bond Risk Insurance, etc.

The services provided by EXIM Bank are Bond Risk Insurance, Buyer Credit Guarantee, Specific Policy (Contract or Constructional Services), Overseas Investment Insurance/Takaful and Political Risk Insurance (PRI) ("MEXIM RMID", 2020).

Bank Simpanan Nasional
The major products that the Bank Simpanan Nasional DFI provides are MasterCard credit card, Matrix-i Debit Card, Giro Savings Account, Islamic Banking Scheme, Premium Saving Certificate (SSP), mortgage loans and Personal Financing. It is Malaysia’s savings bank with around 7 million users and generates much of its profit by services like insurance and savings.

The services provided by Bank Simpanan Nasional DFI are a bunch of banking services such as auto credit and debit, creative industry loan, bill payment, financing rescheduling, pin purchase, remittance, motor insurance, will writing and the financial process exchange ("myBSN: Banking Services", 2015).

Analysis of the assets and liabilities of each of the DFIs.
The two terms on which whole structure of the banking sector is based on are Assets and Liabilities. These two categories decide whether the bank or the financial institution are doing profitable business or not. Now, DFIs were formulated in order to enhance the socio-economic development of the sectors in the Malaysian industry that are expected to be enhancing the financial state of the country. Now, as the institutes included in the DFI are banks so they are supposed to have both assets and liabilities. Asset is the money owed to the bank or the financial instruments that the bank holds. Liabilities on the other hand is something that bank owes to others. Here, the discussion will be about each of the DFIs liability and assets.

Bank Kerjasama Rakyat Malaysia Berhad
As per the report available at the website of the Bank Rakyat, the total assets are RM 82.7 Bn. The assets sources are cash and balances with banks, deferred tax assets, prepaid lease payment, investment properties, property and equipment, investment in subsidiaries, financial assets available-for-sale, financing and advances, financial assets held-to-maturity and other assets. There are 854,855 stakeholders of the bank with an accumulated fund of RM 17.87 Bn ("Bank Rakyat Annual Report", 2018). They cater to general people of the country and provide them Islamic banking facilities.

Now, the liabilities of the Bank Rakyat are a total of RM 72.5 Bn. the source of liabilities is profit equalisation reserve, provision for taxation, debt securities issued, recourse obligations on financing sold to Cagamas, deposits and placements from other banks, deposits from customers and other liabilities("Statement of Financial Position", 2018).

Bank Pembangunan Malaysia Berhad
As per the annual report 2018 of the BPMBthe total assets of the group are RM 25 Bn. The sources of the assets are also provided in the annual report as cash and short term deposits, deferred tax assets, intangible assets, investment properties, prepaid land leases, property, equipment and plant, joint ventures interest, associates interest, subsidiaries investments, loans, financing and advances, financial investments (held-to-maturity, amortised cost, available-for-sale), financial investments at fair value through (profit or loss and other comprehensive income), deposits and placements with financial institutions and other assets.

The major stakeholder of the bank is government of Malaysia with 99.99% stakes as per annual report and their target customers are entrepreneurial ventures in the country("Annual Report", 2019).The liabilities of the Bank Pembangunan Malaysia Berhadare RM 17 Bn. The liabilities sources are deferred tax liabilities, deferred income, infrastructure support fund, borrowings, redeemable notes/sukuk, bills and acceptance payable, deposits and placements from financial institutions, deposits from customers and other liabilities ("Annual Report", 2019).

Bank Pertanian Malaysia Berhad
As per the financial position statement provided by the Bank Pertanian Malaysia Berhad in terms of liabilities and assets they have total assets of RM 16.2 BN. The assets include deferred tax assets, intangible assets, property, equipment and plant, financing and advances, investment securities, FVOCI, cash and short-term funds and other assets. The major stakeholders of the bank areMinistry of Rural and Regional Development, Plantation Industries and Commodities Ministry and the Agriculture Industry Ministry and their target customers are from the agriculture industry of the country.

The total liability provided in the report is RM 13.3 Bn. The liabilities for the Bank Pertanian Malaysia Berhad are funds, launching, operating, government grants, financing scheme funds, expected credit loss ("ECL") allowance for financial guarantees and financing commitments, paddy credit gratuity scheme, deposit and placement of banks and deposits from customers ("Statement of Comprehensive Income", 2020).

Small Medium Enterprise Development Bank Malaysia Berhad
As per the assets and liabilities statement given by the SME Bank, they possess a total of RM 484.3 Bn as asset that comes from foreign exchange and gold and reserves including SDR, financial institutions deposits, advances and loans, Malaysian government papers, land and building and other assets. The Ministry of Finance (MOF) is the major stakeholder and the target customers are the small and medium enterprise in the country.

Similarly, they have a total liability of RM 484.3 Bn that includes special drawing rights allocation, paid-up capital, reserves, currency, financial institutions deposits, papers of bank negaraand other liabilities("Statement of Assets & Liabilities", 2020).

Export-Import Bank of Malaysia Berhad
The consolidated statement of financial position of the EXIM Bank provided the information related to the assets and liabilities of the DFI. The total asset of EXIM Bank is RM 11.9 Bn that includes equipment and property, intangible assets, investment properties, investment in jointly controlled entity, deferred tax assets, derivative financial instruments, insurance receivables, loans, advances and financing, amount due from ECR debtors, financial investment, placements and deposits with banks and cash and bank balances. Government of Malaysia is the major stakeholder of the bank and is dedicated towards export and import services and hence their target customers are the global organizations.

Also, there is a total of RM 9.9 Bnfor the Export-Import Bank of Malaysia Berhadwhich is accounted by including all the liabilities such as provision for guarantee and claims, deferred income, deferred tax liabilities, derivative financial instruments, provision for commitments and contingencies, advance from ministry of finance Inc., payables and accruals and borrowings (Exim.com.my, 2018).

Bank Simpanan Nasional
As per the financial position statement provided by the Bank Simpanan Nasionalthe total assets that they have is RM 32.4 Bn which is accumulated from various sources such as general and family takaful fund assets, deferred tax assets, tax recoverable, prepaid lease payments, investment properties, property, equipment and plant, associates investment and subsidiaries, loans, advances and financing, investment securities and cash and short-term funds. TabungAmanahWarisanNegeri Johor is the major stakeholder with 30% stakes and the bank serves as a savings bank hence its target customers are the general people of the country.

The total liabilities for the Bank Simpanan Nasional are RM 29.6 Bn. The liabilities are general and family takaful policy holders’ fund and liabilities, provision for zakat, borrowing from institution, retirement benefit obligation, deferred income, deposits and placements of banks and customer deposits (Mybsn.com.my, 2017).

Comparison between the DFIs
In order to describe the similarities of the DFIs it can be said that the overall objective on which the DFIs work is to increase the socio-economic development and to find and support the organizations that are working in the targeted sector and have the potential to provide increased growth rate. Since, the institutions involved in the DFIs work in almost every sector that is from import export to agriculture, so they are bound to have various differences in their working process.

The differences among these DFIs are identified in terms of services and products that they provide and the sectors they cater to for instance Bank Pembangunan Malaysia Berhadis responsible for providing medium to long term financing to oil and gas sectors, high technology, maritime and infrastructure.

The BPMBcater to the small and medium enterprises, they have non-current asset of RM84.4mn at the end of 2017, RM154.4mn current assets till the end of 2018, the non-current liabilities are RM45mn and the current liabilities are RM271Mn with total equity of RM7.5Mn.

The EXIM Bank caters to the promotion of reverse investment; value added manufactured products, shipping, infrastructure projects and capital goods. Total asset of EXIM Bank is RM 11.9 Bn and the liabilities are of RM 9.9 Bn and their total liabilities and equity are RM 13.6bn.

Bank Rakyat provides business banking and personal services and products. The total assets are RM 82.7 Bn and the liabilities of the Bank Rakyat are a total of RM 72.5 Bn. In the first quarter of 2020 the total equity of the bank is RM 46.8 Mn.

Bank Simpanan Nasional caters for the Islamic and personal banking services.Total assets that they have is RM 32.4 Bn and the total liabilities for the Bank Simpanan Nasional are RM 29.6 Bn and the total equity of the bank is RM3.1 Bn.

The Agrobank caters to the agricultural sector by providing the banking and financial services to this sector. They have total assets of RM 16.2 BN and total liability is RM 13.3 Bn and bank has total equity of RM 2.9 Bn.

The difference can be identified by the reach of the banks such as Export-Import Bank of Malaysia Berhad has international tie-ups and do business in the international markets too. On the other hand, Bank Pertanian Malaysia Berhadhas operations on the national level catering to the Agro sector.

Summary
In terms of the economic growth of Malaysia the Development Financial Institutions i.e., DFIs has an essential role. The DFIs are considered to be specialized institutions that financial services and products that suits target sector needs. They are also helpful in providing the services related to advisory and consultation. This assignment analyses all the major factors in relation to the DFIs such as at first background and history of the banks have been discussed, after that roles and responsibilities of each of them is provided. The products and services that the DFIs providedis different from each other and caters to different sector. The asset and liability of the DFIs are analyzed by considering the reports provided by the DFIs. At last, the DFIs are compared on the basis their similarities and differences. In which their similarities based on their objective is evaluated and their differences based on the sector they serve and the services they provide is discussed.

References
Annual Report. (2019). Retrieved 22 June 2020, from https://www.bpmb.com.my/documents/21475/120357/BPMB-2019-annual-report-web%E2%80%A2.pdf/d8a8c692-9814-46c6-9d97-7c5079828c2a

Bank Rakyat Annual Report. (2018). Retrieved 22 June 2020, from https://www.bankrakyat.com.my/d/about/financial_info/69/attach/Annual%20Report%202018%20ENG.pdf

Business Financing for SMEs. (2019). Retrieved 22 June 2020, from https://smebank.com.my/en/

Exim.com.my. 2018. Annual Report. [online] Available at: [Accessed 22 June 2020].

MEXIM RMID. (2020). Retrieved 22 June 2020, from https://rmid-oecd.asean.org/database/comprehensive-risk-instruments/export-credit-insurance/export-import-bank-of-malaysia-berhad-mexim/

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Statement of Comprehensive Income. (2020). Retrieved 22 June 2020, from https://www.agrobank.com.my/wp-content/uploads/2019/06/Audited-Financial-Statements-For-The-Year-Ended-31-December-2018.pdf

Statement of Financial Position. (2018). Retrieved 22 June 2020, from https://www.bankrakyat.com.my/d/about/financial_info/47/attach/Penyata_Kewangan_Sukuan_Mac13.pdf

BSNC CORP. (2019). Retrieved 24 June 2020, from http://www.bsnccorp.com.my/index.php?page=major-shareholders

Annual Report - SME BANK. (2017). Retrieved 24 June 2020, from https://www.smebank.com.my/en/media1/publication/2017annual-report