Thomas Zink (TZ): Dato Sri, throughout your career you have held the helm in a number of organisations, such as Khazanah, Malaysia’s sovereign wealth fund; Danaharta, the national asset management to deal with the bad loans from the Asia Financial Crisis; and Bank Islam, the country’s first Islamic bank. Looking back today, which job was the most challenging role and which has shaped your beliefs and leadership style the most sustainably?
Zukri Samat (ZS): I consider Danaharta and Bank Islam as the two most challenging roles, but they were different in terms of objectives and nature. Danaharta was a government-owned asset management company and formed in the 1997/1998 crisis with the two primary objectives of removing the non-performing loans (NPLs) from the banking system and to maximise recovery and therefore minimise the losses to the tax payer.
The idea of Danaharta was to allow banks to continue their business and stimulate economic growth. Of course, a failure would have had very serious repercussion for the Malaysian economy.
For Bank Islam, the challenges were confined to the bank itself. The problems were due to heavy losses incurred in 2005 and 2006. Nonetheless if not handled carefully, it could have caused stress to the banking system in general.
Both roles were very challenging in their own ways. The difficult journey I went through with these two organisations has shaped my beliefs and leadership style.
TZ: What are the most important characteristics of your leadership style?
ZS: As the leader of an organisation, you need to come up with clear directions or strategies and communicate your strategy to all levels in a clear and concise manner. Once the strategy is in place, it is important to continually monitor its progress to make sure the bank is not going off-track. So leadership and decision making are very important. I believe that making wrong decisions is better than making no decisions.
TZ: How would you describe your decision making style? Do you have your vision and are you making that in a very small circle or are you gathering inputs from a lot of people and then make an informed decision? Can you explain how do you evaluate and make your decisions?
ZS: I like to have a discussion with senior people from the organisation, usually in form of a management committee. When we need to make a decision, it is good to have a discussion around the table and to take into account the things that emerge from it. If it is a unanimous decision, then all the better. If there is no consensus or a split in the committee, the CEO has to make the final call. Once a decision has been made, everyone has to toe the line and carry it out.
TZ: What was it like to take over a big Islamic retail banking organisation after you had primarily experiences with an institutional banking background?
ZS: It was really a challenge to lead an Islamic bank given my background. Having said that, retail banking is not totally alien to me and I have spent several years in one of the biggest retail banks in Malaysia. So I did not start from zero-base. While having experiences in banking is important, to me it’s more about the leadership qualities one brings to the job in the role as CEO. As a CEO, you need to have a clear strategy, articulate the strategy and communicate to all levels in the organisation.
TZ: What values did you find the most useful when you took over the retail bank, in particular the Islamic bank where values is of the utmost importance. Can you describe the values that you lead you in your decisions?
ZS: I was called for the job barely a few months after I joined Khazanah. Bank Islam’s main problem back then was the Non Performing Financing (NPFs) and I was told that they needed someone with the right experience. I was hesitant at first as I planned to take a break after a grueling seven years in Danaharta. However, I felt that it was my duty to impart the knowledge and experience that I have by rebuilding the bank.
Bank Islam was special in the sense that it was Malaysia’s first Islamic bank. Failure to manage it may have caused systemic risk to the banking system in general and Islamic banking in particular. Realising the importance to the nation, I decided to take the plunge and give it my best.
TZ: I can imagine there was considerable pressure from all sides given that Malaysia is quite ambitious to position itself as South East Asia’s Islamic banking hub.
ZS: The former Prime Minister’s statement on plans to turnaround Bank Islam was "Do it fast". It made me nervous. There was a lot of work that needed to be done but with the right support from all parties, the regulators, the government and the new managerial staff that we brought in, we managed to steer the bank back to profitability in just 12 months.
TZ: Can you describe the first days on the job when you have a bank that is on the brink of bankruptcy, its IT is antiquated, and the brand is not very strong. How did you go about this mammoth task? Where did you start and how did you know where to start?
ZS: As you mentioned, Bank Islam was on the brink of bankruptcy. Certainly, there was a lot of work that needed to be done. The first thing was to keep the confidence level of our stakeholders intact by assuring them that the situation was under control and to assure them the bank would be able to overcome the problems.
We met and explained our plan and strategies to our shareholders, the regulators, our large depositors, as well as politicians. Next, we sought to raise new capital, which was successfully completed in October 2006. We managed to bring in Lembaga Tabung Haji (LTH) and Dubai Investment Group (DIG) as two new shareholders. The total amount raised from these two shareholders was about RM 1.04bn.
TZ: I can imagine it was quite challenging to convince those two institutional investors to have the confidence and give so much money to an almost bankrupt bank? Can you describe the process of how you managed to get those two investors on board?
ZS: It was not an easy task and a lot of questions were raised. They wanted to know exactly what our plans were to turn the bank around. We had to demonstrate that we had the right strategies that were also workable in their view.
I was fortunate that my background in Danaharta where the main task was getting rid of Non Performing Loans (NPLs) proved to be helpful. It was really important for the shareholders to see a plan that can stop the ‘bleeding’.
We came up with the strategy and finally convinced them that the plan was workable.
Nonetheless the two shareholders kept a close watch on us and monitored our progress. Of course, it took a bit of time but thank God, within 12 months the bank managed to turnaround and the new management team eventually gained the confidence of the shareholders.
TZ: Can you describe the measures that had the biggest impact on this amazing turn around?
ZS: My immediate task was to come up with the turnaround strategies which we called the Turnaround plan. There were 5 pillars under the plan namely (1) Recapitalization & Balance Sheet Restructuring, (2) IT Infrastructure Revamp, (3) Transformation Program, (4) Cost Rationalization and (5) Human Capital Development. Each strategy had its own challenges to implement but the one I consider the most difficult was changing the mindset and culture of the organisation. Though Bank Islam is a private sector-owned entity, the bank used to run very much like a public sector organisation.
So, when we started to implement new policies such as pay by performance, sales culture and injecting new blood from other organizations there were lots of resistance. And it took a lot of time and effort for them to embrace the new culture. The moral of the story is at the end of the day, you can change the process, procedure and IT system but if the people refuse to change, you won’t go anywhere.
TZ: How did you get the people to follow course?
ZS: I think one of the biggest challenges was to get in new people who can deliver what we want. Initially, it was very difficult to convince people to join given the situation the bank was in. First and foremost, it was important to communicate what we wanted to do and make them believe that it was doable.
Secondly, it was also important for them to believe in the CEO, his reputation and his past experience. They must believe that the CEO can take the bank to where he wants it to be.
We needed the buy-in from the new team and that the CEO is the right person to manage the bank. I told my Muslim colleagues that it was their duty as a Muslim to save this bank and the repercussions to the nation if the bank were to fail. For the non-Muslims, I pointed out the importance of their role and the legacy they would leave once we manage the turnaround. I am proud to say that nobody has left us since I recruited the senior management team in 2006/2007. I think we carried through what we promised.
TZ: Let’s talk a little bit about Islamic banking and its potential in Malaysia and in the region. Traditionally it has been more in the capital markets, whereas retail banking did not really take off for a long time. Given this impressive growth in the last year, what is your forecast for the Islamic retail business in Malaysia and in other markets in the region?
ZS: In the Malaysian context, we expect the Islamic retail business to continue to flourish due to a number of factors namely the incentives given by the government such as stamp duty waiver or discount, increased awareness and acceptance level of Islamic banking products and the innovative and competitive features of Islamic banking products which are comparable if not better than its conventional counterparts.
TZ: Why do you think that Indonesia has stayed behind expectations? Islamic banking is still at an almost non existing level in Indonesia. What do you think are the reasons for that?
ZS: I think if we were to compare Malaysia to Indonesia, Malaysia started Islamic banking much earlier. For example, Bank Islam was incorporated in 1983 whilst the first Islamic bank in Indonesia was established in 1991. Today, the Indonesian government is more serious about Islamic banking and we will see a lot of changes taking place in Indonesia.
I believe that they will more or less adopt the Malaysian model. We started with an Islamic window and then Islamic subsidiaries.
The same is happening in Indonesia. Given the fact that it is the biggest Muslim populated country in the world with more than 240 million people and robust economic growth expected at more than 6% per annum in the next few years, the prospect of Islamic banking in Indonesia is very exciting indeed.
TZ: So the government support is essential for the success of the Islamic banking system?
ZS: It certainly is. Islamic banking cannot exist in isolation. You cannot operate in an environment where you are the only Islamic bank or there is no infrastructure to support it. You need Islamic bank counterparts to place funds, Islamic capital market, Islamic money market and more importantly an Islamic banking act to support Islamic banking activities.
TZ: What is the competition in Islamic retail banking in Malaysia like? Most of the banks are universal banks offering an Islamic window/subsidiaries and Bank Islam is one of the few fully Islamic banks. What does this mean for the competition with the universal banks?
ZS: My view is that our competitors are not only Islamic windows or subsidiaries but also the conventional banks. In Bank Islam’s case, we have our own competitive advantage one of which is that we are the pioneer Islamic bank in Malaysia, and with that it carries a very strong brand name. The public also has this perception that Bank Islam is the purest Islamic bank in the country.
Having said that, innovation is very important and I am proud to say that Bank Islam has been the pioneer for so many products that are available in the market today. The other advantage the bank has is the branch network. Amongst the Islamic banks, Bank Islam has the biggest number of branches which currently stands at 127 and still growing. Bank Islam also has more than 1,000 self service terminals currently.
TZ: Looking ahead to the next five years, what are your next big objectives personally as well as for Bank of Islam?
ZS: I would like to see Bank Islam growing from strength to strength and make a foot print outside Malaysia in particular Indonesia which I believe is one of the biggest markets for Islamic finance. For me personally, I feel privileged and honoured to be given the opportunity to lead the bank. I hope I can hand over the baton soon to someone who can take the bank to the next level.
TZ: Dato Sri, thank you very much for the interview.