The poaching of experienced Malaysian Islamic bankers especially by GCC financial institutions over the last year or so has precipitated calls by top Malaysian bankers for the government to extend the same tax benefits offered to Malaysian Islamic bankers returning home from overseas to those working in Malaysia.
In April this year, Bank Negara Malaysia, the central bank, stepped in to stem the tide of the brain drain from the Malaysian Islamic banking sector. According to Bank Negara, any bank that poaches the staff of another bank must pay the equivalent of six months salary to a special central banking staff training fund. This provision previously applied only to the conventional banking sector, but the Malaysian central bank has now extended this to the Islamic banking sector, which employs just under 10,000 bankers.
Islamic bankers stress that for the year before this provision was introduced, it was mayhem in the market, like a “merry-go-round” with CEOs and senior executives moving from one institution to another. The situation has slowed down a bit in the domestic market. Globally, of course the Islamic banking sector is faced with a severe human resource shortage, especially experienced middle and senior management.
Saudi Arabia’s Al-Bilad Bank, according to one Malaysian banking source, alone recruited 10 Malaysian Islamic bankers, while Riyad Bank is also recruiting. “Malaysians are going to the GCC in droves,” stressed Badlisyah Abdul Ghani, CEO of CIMB Islamic Bank. “I have a hard time retaining my staff. Everyday they are getting offers from GCC banks. The only reason I can keep them here is because CIMB Islamic Bank has been very successful, and people like to be associated with a successful institution. Fortunately, the market is awashed with deals at the moment. But once these deals start to run out as competition grows, how does this bank start to compete?”
Kuala Lumpur has provided tax incentives for those Malaysians working in an Islamic bank or window who have gone overseas to come back to Malaysia. “I am calling for the equalization of tax treatment whether you are a Malaysian working for an Islamic bank overseas or committed to develop the industry in Malaysia,” Abdul Ghani said. He wants the government to give the same tax incentives to all Malaysian Islamic bankers whether abroad or at home to “prevent the leakage of Malaysian human resource talent in the Islamic banking industry abroad. I don’t want a situation where in five years many of the experienced Malaysian Islamic bankers are working in Dubai, Bahrain, Qatar, Kuwait and Saudi Arabia, and those left behind in Malaysia are, in general, inexperienced.”
Abdul Ghani regretted two developments that have been introduced into the Malaysian market from overseas. One is the CEO merry-go-round, which he said, is a negative development. The other is foreign CEOs who are employed by Malaysian Islamic banks who start dismantling the infrastructure of the bank, because the individual believes that GCC Shariah compliance is more serene. One such Malaysian Islamic bank has been doing Al-Bai Bithaman Ajil (BBA) (deferred payment) mortgages and financing for years and has invested and built up the full infrastructure for the product. Yet the CEO came in and dismantled the entire structure at a stroke. “The danger is that value is destroyed. The value proposition of the BBA market has suddenly been cut by half,” he said.
Some Malaysian bankers, however, are ambivalent about the call for tax incentives for Islamic bankers. “I come from a market where there is free movement of people and ideas. This is the only way to progress. This tax extension idea is a double-edged thing, “ said Khalid Bhaimia, CEO of Hong Leong Islamic Bank. “If a financial institution thinks that the Malaysian Islamic banker working abroad is so valuable, then let the institution pay and offset the tax situation. Why should the state subsidize the Islamic banks? People going abroad help the country, they come back with ideas that they cannot get domestically. If you work in the City of London for a few years, you wont find that experience here. After all, how did Dubai attract Malaysians? They paid higher cost of living charges through higher salaries. This worldwide shortage of Islamic bankers is not going to disappear over night. We need to train more people through our universities and colleges and through in-house programs,” he added. These developments in many respects are a good thing for the global Islamic banking sector. The signs are that a lot of people that are moving in the sector are net necessarily doing so because of financial incentives. Many are moving because of a desire to progress in terms of their careers and because of an interest in learning more skills.
“This is a big change in this market,” agreed Bhaimia. “Historically, people moved from one bank to another for financial incentives only. Now they are more interested in what they can learn and what challenges lie ahead. This is a very positive development. When I recruit now, the bankers want to know what your business plan is and your future strategy and commitment to the sector is. In this respect, it will be difficult for the banking majors that have Islamic banking subsidiaries or windows, because some of them have proven to be fair-weather friends of Islamic banking,” he stressed.
Hong Leong Islamic Bank tends to do training in-house, because it needs staff who understand its processes. The bank has RM6.5 billion in total assets and employs 60 people. It has 186 branches and 17 business centers — one of the widest distribution in the Malaysian marketplace.
Bankers such as Bahimia are optimistic about the Islamic banking sector. They see more new products especially on wholesale side. More importantly, they see the knowledge of those involved in Islamic banking — either as bankers, investors or customers — will be enhanced significantly.
They also see greater cross-border transactions between the Middle East and Southeast Asia. This has already started as the recent $1.25 billion investment by the likes of Kuwait Finance House, Mudabala Investments and Millennium Development Corporation in the Iskandar Development Region.
“In the past,” said Hong Leong Bank’s Bhaimia, “Malaysia was very insular. Today, a lot more cross-border ME transactions are coming here and vice versa. Singapore is also keeping us awake with its desire to do a segment of wealth management for Islamic banking. Innovation is happening at an astounding pace. Investors and depositors are appreciating this and are prepared to wait for 2 to 3 years for a return.” ( Arab News )