Turnaround Strategies: A Case Study Of Bank Islam
In Malaysia, Bank Islam was established in 1984 and its existence continues to present. Bank Islam is the sample of Islamic bank that has a good management performance in both Asian and international rankings. When the financial crisis occurred from 1997 to 1998 and 2008 to 2009, it gave an impact t...
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| Summary: | In Malaysia, Bank Islam was established in 1984 and its existence continues to present. Bank Islam is the sample of Islamic bank that has a good management performance in both Asian and international rankings. When the financial crisis occurred from 1997 to 1998 and 2008 to 2009, it gave an impact through the changes in economic performance, including banking activities in Malaysia. This study highlights the performance of an Islamic bank, namely Bank Islam, which was able to withstand the financial crisis. The data were collected from published documents from 1984 to 2015 that are related to the performance of Bank Islam and the changes indicator of Malaysian economy. In the first analysis, the study expose changes in the performance of Bank Islam during the financial crisis by using signs of distress model by Yakola (2014). There are four indicators in Yakola’s model used in this study: Working capital/liquidity, financial, profitability and industry outlook, and employees. In the second analysis, the study explored the turnaround strategies of Bank Islam using a model developed by Schoenberg et al. (2013), which are: content-orientated and process-orientated strategies. This study adopted the case study methodology by utilizing content analysis to analyze the data. The findings show that Bank Islam experienced financial distress based on four indicators; i) working capital/ liquidity (such as declining or negative free cash flow, large contingent liabilities, unresolved near-term debt maturities, revolver draw-down, contracting vendor terms, and increase in outstanding account payable), ii)financial (namely, declining stock price, declining bank or bond price, inability to meet financial covenants, diminishing liquidity, repeated bank amendments, and downgrades in debt ratings), iii) profitability and industry outlook (such as shrinking profit before zakat and tax margin, going concern opinion, deteriorating industry fundamental and regulatory inquiries), and iv) employees (namely management organizational restructuring). Both financial crises (Asian Financial Crisis and Global Financial Crisis) showed the declining performance and Bank Islam managed to do the recovery of their performance. The study also highlights Bank Islam’s experiences in the turnaround plan based on the model of Schoenberg et al. (2013) for content-orientated strategies (namely cost efficiencies, asset retrenchment, focus on core activities, and build for the future) and process-orientated strategies (namely reinvigoration of firm leadership and culture change). Based on the Turnaround Plan of Bank Islam, the strategy was successful to handle the recovery performance from 2006 to 2009. As for other strategic plan under Bank Islam, namely the Sustainable Growth Plan (from 2010 to 2012) and Hijrah 2 Excellence (from 2013 to 2015), the study also highlights the development and growth performance of Bank Islam after the implementation of the Turnaround Plan. |
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