Citibank Bhd expects its new Islamic home financing facility, Citibank Home Partner-I – which is based on the diminishing musyarakah concept - to account for 50% of new business under its mortgage segment in 2007.
Its chief executive officer, Piyush Gupta said the new scheme was based on a floating base financing rate (BFR) with the added protection of a rate cap.
He said on March 6 consumers would enjoy savings benefits when the BFR is low, but if the BFR rises, the customer is protected by the capped rate. If the BFR rises beyond the capped rate, the customers’ monthly payments would still be calculated on the capped rate of 8.9% for five years
Speaking at the launch of Citibank Home Partner-I in Kuala Lumpur, he said consumers could also make early or extra payments in any amount at any time to settle their financing with the bank earlier.
He added the Citibank Home Partner-I did not incur interest to late payment charges and it was available only for completed properties. A scheme for properties under construction was in the works for a launch in the second quarter.
In 2006, he said, the mortgage segment contributed 25% of Citibank’s overall revenue.
He said the product was based on the concept of diminishing “musyarakah” or a diminishing balance co-ownership contract.
Under this concept, the bank would own up to 90% of the property which would then be leased to the consumer and each extra payment made would reduce the bank’s share in the property and thus lead to lower monthly payments.
Gupta said this was part of Citibank’s strategy to introduce two to three Islamic products each quarter, in-line with the government’s aspirations to establish Malaysia as an Islamic banking hub.
He said Islamic products contributed up to 5% or RM1.1 billion of Citibank’s total balance sheet of RM22 billion last year.