Case Study: Bank Pembangunan Malaysia Berhad (BPMB) - Rethinking Value Creation
Presentation by Datuk Zaiton Mohd Hassan, Chair, Bank Pembangunan Malaysia Berhad (BPMB) | November 2, 2020
- Established in 1973
- Shareholders – Malaysian Ministry of Finance (99.99%)
- Credit rating: AAA by RAM and MARC
- Shareholders’ Fund: USD 1.9 billion
- Total assets: USD 5.9 billion
- Net loans: USD 3.8 billion
BPMB is a development bank in Malaysia, focusing on medium- to long-term large project financing.
Datuk Zaiton was appointed chairman of the bank in February 2019, following a period of frequent leadership changes.
As new chair of the board, Datuk Zaiton introduced integrated thinking as the foundation to move the bank forward and focus its objectives and activities on creating value.
The bank historically focused lending in four specific sectors (infrastructure, maritime, oil & gas, and technology) but is moving to a sector agnostic model aligning strategies with the government’s initiatives and key global developments with an emphasis on sustainability, digitalization and inclusivity.
Back to Basics
To bring people together after a period of instability due to the frequent leadership changes, the board and management went back to basics, understanding the bank’s core values and ‘raison d'être’ – “why we do what we do”, not only “what we do”.
Under BPMB’s new value creation framework, all projects to be funded by the bank are measured along two dimensions – impact to national development and the sustainable development goals (SDGs) with a particular focus on 5 of the goals. The board aims to prove to the government that, with the right governance, its new business model can create value in a financially sustainable manner. The bank is prudent in terms of risk, but is proactively seeking projects that can be profitable, while at the same time meet national priorities and the SDGs, which is especially important as the country deals with the impact of COVID-19.
Integrated Reporting Journey
BPMB published its first integrated report in 2020 for the 2019 financial year: Impact in Mind: Annual Integrated Report 2019
Embedding integrated thinking and reporting has required embracing a paradigm shift from short-term, siloed thinking to forward looking, holistic thinking.
It has been important to have:
- The right tone at the top and buy-in from the full board and senior management, which has been cascaded down the organization through:
- Consistent messaging and internalization on integrated thinking and value creation culture, townhall briefings, cultural workshop, events, KPI integration, on-boarding development impact assessment
- A change in mindset of the CFO and finance function to become a central part of integrated thinking and reporting
- Outcome based KPIs
Positive outcomes from integrated thinking and reporting in the bank include:
- Increased understanding of how (financial and non-financial) value is created through the business model
- Improved decision making
- More collaboration and enhanced relationships with stakeholders
- Shift to long term value mindset
- Ability to manage key risks and opportunities, e.g. impact on the debt markets and reduced cost of funds
- Demonstrated an integrated thinking and impact driven culture through connected financial and non-financial information and reporting
Creating Value: Professional Liquidity Scheme
To assist small accounting firms affected by COVID-19 and to preserve employment, BPMB worked with the Malaysian Institute of Accountants and other companies to establish a professional liquidity scheme.
The scheme is an end-to-end fully automated system for invoice management, with full payment integration and salary advance facilities. The bank has committed RM5 million to support the salary advance function.
Firms can raise virtual invoices on the system and, if accepted, the scheme pays 70% – 90% of the invoice value as ‘credits’, meanwhile the firm’s client gets 180 days to pay the invoice. Each month ‘credits’ can be used to directly pay staff salaries.
All participants in the scheme also contribute to a ‘risk pool’ which under a mutuality arrangement is owned by all scheme participants and will be used to help those who, at the end of the scheme in August 2021, cannot settle their deficit. Any surplus in the risk pool at the end of the scheme will be redistributed back to participants.
This was a presentation to the IFAC Professional Accountants in Business Advisory Group during their September 2020 meeting. See here for the full meeting report: Accountants Supporting Sustainable Recovery