Assignment of Belal Index

BILAL INDEX ANALYSIS ON BIMB AND AL-RAJHI BANK
1.0 INTRODUCTION
According to Investopedia website, the disclosure can be best defined as the act of
exposing all relevant information of the company, which it may influence an investment
decisions. To create a fair situation for all he stakeholders, companies must increase their
discrepancy level by disclosing both good and bad information. Basically, there are two kind
of disclosure practiced by the banks as a whole, that are mandatory disclosure and voluntary
disclosure. Mandatory disclosure is compulsory to be exposed to the public by a banks as it
results from both legislation and regulation. According to Chandler, voluntary disclosure is a
measure scale of self-regulation or a response to the stakeholders and civil societys
expectations for more disclosure (Chandler, 1997).
There are two main reasons for the banks to disclose both of their mandatory and
voluntary disclosure. They are, to strengthen the incentives for banks to maintain sound
banking practices and to assist their stakeholders, including the depositors and other investors
to make a well-informed decisions on where to put their money.
In the banking and financial market industry, there are specific authorities who
responsible in governing the disclosure that must be adhered by the commercial banks in
Malaysia. The common authorities who govern these disclosure, are IASB (IFRS Guideline)
which is globally accepted, Accounting and Auditing Organization for Islamic Financial
Institutions (AAOIFI), Islamic Financial Services Board (IFSB) and Malaysian Financial
Reporting Standards (MFRS) authority. The banks are free to choose or select whom
legislation to follow with. Each organization have their own methods and criteria for
disclosure.
In this study, we are required to analyse two types of banks, which are domestic bank
and foreign bank. For the domestic bank, we choose Bank Islam Malaysia Berhad (BIMB)
and Al-Rajhi Bank for foreign bank. The analysis is made according to Disclosure Index that
consist Corporate Governance (CG) and Corporate Social Responsibility (CSR) elements that
proposed by Belal in year 2014. There are sixty-six (66) variables that need to be analysed in
the annual report of both banks to accomplish this assignment. For analysing, which was
done using Belal Disclosure Index, the annual reports for the year 2011-2013 of both BIMB
and Al-Rajhi Bank were examined.
Corporate Social Responsibility (CSR) is very important for the banks as it acts as a
catalyst for organizational success and sustainable growth, especially in view of the banking
1
institutions operating in an environment with multiple stakeholder interests. The complex

relationship with a variety of stakeholders have made the Corporate Social Responsibility
(CSR) is very important as CSR enabling the banking institutions to attract high quality
employees, negotiate better contracts, expand their customer base, attract investors and gain
public trust and confidence (Achua, 2012). Since CSR involve the using of customers
deposit, the banks are required to disclose it as well. For example, according to Belal
Disclosure Index, we need to analyse whether the banks pay Zakat and how it conduct the
Qard Al-Hassan, which is, the Zakat payment and Qard Al-Hassan management are listed
under CSR elements.
The good and effective Corporate Governance System (CG) is demonstrated through
the fully-information disclosure by the banking institutions. According to Htay, disclosure
illustrates whether the Corporate Governance is good (Htay, 2012). Besides that, the
disclosure as well as transparency, is a key pillar of a Corporate Governance framework as it
offers useful and necessary information to estimate and judge the extent to which
stakeholders interests were respected and protected. Asymmetrical information seem to be a
main threat to the efficient functioning of the financial system and it will lead to the conflict
of interest between different stakeholders. In order to overcome this problem, level g
information disclosure need to be exposed in a maximum way, leading to higher transparency,
being one of the main principles of Corporate Governance (Stefanescu, 2013)
2
2.0 THE RELATED THEORIES THAN CAN BE RELATED TO THE DISCLOSURE

OF RESPECTED BANK.
The disclosure of Corporate Governance (CG) and Corporate Social Responsibility

(CSR) by the financial institution and any other firms is very important in order to
enhance public confidence as it embraces the credibility and trustworthy of the respected
organization. The disclosure also must be made in order to show the ultimate
accountability of the agents towards the principle (Agency Theory) and how well the
management can handle the risks arises on behalf of principle (Stewardship Theory). For
example, the depositors placed their deposits in the banking institution for safeguarding
purpose. It became the banks responsibility to protect the depositors money in a best
way and distribute the funds to the qualified loan applicants. The bank also can use those
funds to invest in any particular investments. It became the banks obligation to disclosure
the allocation of depositors money through the official annual report. There are so many
theories that can be related to the information disclosure by the organization. But, we will
focus on Agency Theory and Stewardship Theory only.
2.1 Agency Theory

Hereby, A number of key terms and concepts that are essential to understanding
agency theory;
An agent is employed by a principal to carry out a task on their behalf.
Agency refers to the relationship between a principal and their agent.
Agency costs are incurred by principals in monitoring agency behaviour
because of a lack of trust in the good faith of agents.
By accepting to undertake a task on their behalf, an agent becomes
accountable to the principal by whom they are employed. The agent is
accountable to that principal.
2.2 Stewardship Theory
3
A steward is defined as someone who protects and takes care of the needs of
others. Under the stewardship theory, company executives protect the interests of
the owners or shareholders and make decisions on their behalf. Their sole
objective is to create and maintain a successful organization so the shareholders
prosper. Firms that embrace stewardship place the CEO and Chairman
responsibilities under one executive, with a board comprised mostly of in-house
members. This allows for intimate knowledge of organizational operation and a
deep commitment to success. Both BIMB and Al-Rajhi Bank implement the
Stewardship Theory as they comply with several International regulation,
especially requirement to maintain their capital adequacy in banking institution in
order to avoid the organisation from collapse. The implementation of Basel I. II
and III by both banks is a prove that they take care of their financial environment.
4
3.0 BELAL CHECKLIST ANALYSIS

3.1 BANK ISLAM MALAYSIA BERHAD (BIMB) FOR YEAR 2011, 2012, 2013
YEAR 2011
Absence
No
Disclosure Index Category (0) / present
.
(1)
1. Function of the Board of Directors CG 1
2. Function of Executive Management CG 0
3. Function of Internal auditors CG 1
4. Function of external auditors CG 1
5. Function of SAC/SC or shariah supervisory committee CG 0
Does the organisation comply with internationally CG
6. 0
recognised corporate governance standards?
Has the Board of Directors set up a Governance CG
7. 1
Committee?
Does the Governance Committee include a member of the CG
8. 1
Audit Committee?
Does the Governance Committee include a Shariah CG
9. 0
Scholar?
Does the Governance Committee include a non-executive CG
10. 1
director
Is there a Sharia Supervisory Board (SAC/SC or CG
11. 1
supervisory committee
Is there a description of the role of the SAC/SC or CG
12. 0
supervisory commitee?
13. Number of SAC/SC or supervisory commitee members CG 1
Number of SAC/SC or supervisory commitee members CG
14. 1
which are not full-time advisors to the bank
How many meetings have the SAC/SC or supervisory CG
15. 0
commitee held?
Are names, positions and pictures of the SAC/SC or CG
16. 0
supervisory commitee members provided
How many SAC/SC or supervisory commitee members CG
17. 1
have a qualification in finance and commerce
Number of SAC/SC or supervisory commitee members with CG
18. 0
doctoral qualifications
Disclosure of SAC/SC or supervisory commitee opinions CG
19. 1
regarding compliance with Islamic Principles
20. Disclosure of any unlawful transactions CG 1
21. Description of unlawful transactions CG 1
Remuneration of SAC/SC or supervisory commitee CG
22. 1
members of SAC
23. SAC/SC or supervisory commitee Report signed by all CG 0
5
members
24. Future directions in serving the needs of Muslim community CSR 1
Commitments to engage only in permissible investment CSR
25. 1
activities
26. Appreciation to shareholders and customers CSR 0
27. Does the bank pay Zakah? CSR 1
28. Balance of Zakah fund CSR 0
Has a statement been provided to show sources and uses CSR
29. 0
of Zakah fund?
30. Does the bank finance Qard Hassan? CSR 0
31. Source of Qard Hassan CSR 0
Does bank finance Qard Hassan from own or depositors CSR
32. 0
resources
Is there a formal scheme for depositors to designated funds CSR
33. 0
for Qard Hassan
34. Balance of Qard Hassan fund CSR 0
35. Is there a policy for providing Qard Hassan? CSR 0
36. Policy for dealing with insolvent clients CSR 1
37. Does the bank have a debt policy? CSR 1
38. Amount of debts written off in reporting period CSR 1
39. Amount charged as late penalties CSR 0
SAC/SC or supervisory commitee opinion regarding CSR
40. 0
permissibility of late penalties
41. Details of how are penalties allocated CSR 0
42. Names of board members CG 1
43. Positions of board members CG 1
44. Pictures of board members CG 1
45. Profile of board members CG 1
46. Shareholdings of board members CG 1
47. Multiple-directorships among board members CG 1
48. Membership of audit committee CG 1
49. Board composition : executive vs. non-executive CG 1
50. Role duality CG 1
51. Number of Board Meeting CG 1
52. Names of management team CG 1
53. Positions of management team CG 0
54. Picture of management team CG 1
55. Profile of management team CG 1
Is the organisation committed to supporting community CSR
56. 1
organisations
57. Number of public complaints against organisation CSR 0
58. Details of any past litigation CSR 0
59. Details of any potential litigation CSR 0
60. Employees appreciation CSR 1
61. Number of employees CSR 1
62. Equal opportunities policy CSR 1
63. Employees welfare CSR 1
64. Training: monetary CSR 1
65. Reward for employees CSR 1
66. Environmental Policy Statement CSR 1
6
TOTAL 41/66
YEAR 2012
Absence
No
.
(1)
5. Function of SAC/SC or shariah supervisory commitee CG 0
6. 0
7. 1
Committee?
8. 0
Audit Committee?
9. 0
Scholar?
10. 1
director
11. 1
supervisory commitee
12. 1
14. 1
15. How many meetings have the SAC/SC or supervisory CG 1
7
commitee held?
16. 0
17. 0
18. 0
19. 1
22. 1
members of SAC
SAC/SC or supervisory commitee Report signed by all CG
23. 0
members
25. 1
activities
29. 0
of Zakah fund?
32. 0
resources
33. 0
for Qard Hassan
40. 0
8

56. 1
organisations
TOTAL 41/66
YEAR 2013
Absence
No
.
(1)
6. Does the organisation comply with internationally CG 0
9

7. 1
Committee?
8. 0
Audit Committee?
9. 0
Scholar?
10. 1
director
11. 1
12. 0
14. 1
15. 0
commitee held?
16. 0
17. 1
18. 0
19. 1
22. 1
members of SAC
23. 0
members
25. 1
activities
29. 0
of Zakah fund?
32. 0
resources
10

33. 0
for Qard Hassan
40. 0
56. 1
organisations
TOTAL 41/66
11
3.2 AL-RAJHI BANK FOR YEAR 2011, 2012, 2013

YEAR 2011
Absence
No
.
(1)
6. 0
7. 0
Committee?
8. 0
Audit Committee?
9. 0
Scholar?
10. 1
director
11. 1
12. 1
14. 0
15. 1
commitee held?
16. 0
17. 1
18. 0
19. Disclosure of SAC/SC or supervisory commitee opinions CG 1
12

22. 0
members of SAC
23. 0
members
25. 1
activities
29. 1
of Zakah fund?
32. 0
resources
33. 0
for Qard Hassan
40. 0
56. 1
organisations
13

TOTAL 36/66
YEAR 2012
Absence
No
.
(1)
6. 0
7. 1
Committee?
8. 1
Audit Committee?
9. 0
Scholar?
10. 1
director
14

11. 1
12. 1
14. 0
15. 1
commitee held?
16. 0
17. 1
18. 0
19. 1
22. 0
members of SAC
23. 0
members
25. 1
activities
29. 0
of Zakah fund?
32. 0
resources
33. 0
for Qard Hassan
40. 0
15

56. 1
organisations
TOTAL 37/66
YEAR 2013
Absence
No
.
(1)
16

6. 0
7. 1
Committee?
8. 0
Audit Committee?
9. 0
Scholar?
10. 0
director
11. 1
12. 1
14. 0
15. 0
commitee held?
16. 0
17. 0
18. 0
19. 1
22. 0
members of SAC
23. 0
members
25. 1
activities
29. Has a statement been provided to show sources and uses CSR 1
17
of Zakah fund?
32. 0
resources
33. 0
for Qard Hassan
40. 0
56. 1
organisations
TOTAL 35/66
18
4.0 ANALYSIS FINANCIAL REPORTING ON BANK ISLAM MALAYSIA BERHAD
Bank Islam Malaysia Berhad

Disclosed Not Disclosed
2013 41 25
2012 41 25
2011 41 25
Graph 1: Bank Islam Malaysia Berhad Disclosure
Based on analysis, graph 1 shows constant disclosure year by year from 2011 until
2013. BIMB was disclosed 41 items from 66 items of belal checklist for year 2011, 2012 and
2013. It means the quantity of information disclosed by BIMB is consistent and sustainable
for every year to the public such as shareholders, stakeholders, media and community. Most
of studies shows, if the quantity of information disclosure is increasing, it will create more
value for shareholders and stakeholders. However, BIMB only disclosed the same level of
disclosure and consider as a good company because maintaining the disclosure, transparency
and accountability.
19
In addition, by maintaining the disclosure of information, the annual report will serves
as a marketing tool for BIMB. Where, it will increase the readership of the report and attract
many more BIMBs investors and customers. However, BIMB must ensure its financial
achievement is healthy and good condition along together with disclosure and accountability.
Therefore, it will attract many more investors and customers to invest in BIMB due to the
public trust on the BIMB regarding its financial and transparency. Indirectly, BIMB can
increase company's profitability, reputation and performance to compete with the rivals.
5.0 ANALYSIS FINANCIAL REPORTING ON AL-RAJHI BANK
Al-Rajhi Bank
Disclosed Not Disclosed
2013 35 31
2012 37 29
2011 36 30
Graph 2: Al-Rajhi Banks disclosure
Based on analyse that we had done, we found that the disclosure items in annual
report from the year 2011 until 2013 had been changed from increase to decrease. It means
that in the year 2011 they have 36 items of disclosure, 37 items of disclosure in year 2012,
and 34 of items of disclosure in year 2013. The changing of disclosure is probably due to
changing in government policies to protect a certain information.
20
6.0 COMPARISON BETWEEN BANK ISLAM MALAYSIA BERHAD WITH AL-

RAJHI BANK
Figure 2
21
AL-RAJHI BANK
Not Disclos ed; 46%

Disclosed; 54%
BIMB
Not Disclosed; 38%
Dis clos ed; 62%
Figure 1
22
DISCLOSURE BOTH BANK
35
AL-RAJHI BANK 37
36
45
BIMB 45
45
0 5 10 15 20 25 30 35 40 45 50
2011 2012 2013
Figure 3
From Figure 1, show that Bank Islam Malaysia Berhad (BIMB) are disclosed the
information about 62%. And the about 38% are not disclosed the information from 2011 until
2013 in their Corporate Book and Annual Report. While, at Figure 2 we can see Al-Rajhi
Bank have 54% item are disclosed less than BIMB. But about 46% item or information from
Al-Rajhi Bank is not disclosed are more than BIMB.
Figure 3 shows the disclosure for both bank which is BIMB and Al-Rajhi Bank. At
year 2011, we can see Al-Rajhi Bank have 35 item are disclosed and the bank adds a few
information at year 2012 but at next year, the bank reduced 1 item. However, BIMB have a
different view from Al-Rajhi Bank because BIMB have constant item are disclosed in Annual
Report and Corporate Book.
7.0 CONCLUSION
This study has examined the Corporate Social Responsibility and Corporate
Governance reporting level given in the annual reports of Malaysian local bank, Bank Islam
Malaysia Berhad (BIMB) and foreign bank, Al-Rajhi Bank. The study basically look into
account the main elements that have an impact on CSR and CG reporting activities by the
both banks. The investors will favour more disclosure and clear statements from respected
organization before they make their investing decision. It is important for the investor to keep
23
track of their investment in the future. The more disclosure made by the organization, the less
ambiguity felt by the investors. The disclosure must be done clearly and it become the
responsibility of the organisation to expose financial and non-financial information as it is
very important thing to enhance the public confidence and establish a well credibility. Based
on the analysis above, we found that the local bank, that is, Bank Islam Malaysia Berhad
(BIMB) had disclose their information in a higher decree compared to Al-Rajhi Bank. From
this situation, we can expect that the investors and public will be confident to place their
deposit in BIMB rather than Al-Rajhi Bank.
References
Achua J. K. (2012). Corporate Social Responsibilty in Nigerian banking system.
Society and Business Review.
Alexandre, C. R. (2011). International economics. Retrieved from Corporate
disclosure: a review of its (direct and indirect) benefits and costs:
https://www.cairn.info/revue-economie-internationale-2011-4-page-5.htm
Dorasamy, N. (2013). Corporate Social Responsibilty and ethical banking for
developing economies. Journal of Economics and Behavioural Studies.
Investopedia. (n.d.). Investopedia. Retrieved from Disclosure:
http://www.investopedia.com/terms/m/multijurisdictional-disclosure-
system-mjds.asp
K., A. J. (2012). Corporate Social Responsibilty in Nigerian banking system.
Society and Business Review.
Kaplan Financial Knowledge Bank. (2013). Kaplan Financial. Retrieved from
Agency Theory: http://kfknowledgebank.kaplan.co.uk/KFKB/Wiki
%20Pages/Agency%20theory.aspx
Rashid, M. S. (2013). Corporate Governance and Corporate Social Responsibility
(CSR) reporting: An empirical evidence from Commercial Banks (CB) of
Pakistan. Springer Science and Business Media Dordrecht.
24
Reserve Bank of New Zealand. (n.d.). Reserve Bank of New Zealand. Retrieved
from Regulation and supervision: http://www.rbnz.govt.nz/regulation-and-
supervision/banks/your-bank-s-disclosure-statement-what-s-in-it-for-you
Seria, I. A. (2015). Corporate Governance Disclosure of Banks in Romania and
Malaysia and the quality of websites. Accounting and Management
Information System.
WebFinance Inc. (2014). Agency Theory. Retrieved from Business Dictionary:
http://www.businessdictionary.com/definition/agency-theory.html
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BILAL INDEX ANALYSIS ON BIMB AND AL-RAJHI BANK

institutions operating in an environment with multiple stakeholder interests. The complex

2.0 THE RELATED THEORIES THAN CAN BE RELATED TO THE DISCLOSURE

The disclosure of Corporate Governance (CG) and Corporate Social Responsibility

2.1 Agency Theory

2.2 Stewardship Theory

3.0 BELAL CHECKLIST ANALYSIS

51. Number of Board Meeting CG 1

recognised corporate governance standards?

Is there a formal scheme for depositors to designated funds CSR

3.2 AL-RAJHI BANK FOR YEAR 2011, 2012, 2013

regarding compliance with Islamic Principles

60. Employees appreciation CSR 1

Is there a Sharia Supervisory Board (SAC/SC or CG

41. Details of how are penalties allocated CSR 1

1. Function of the Board of Directors CG 1

4.0 ANALYSIS FINANCIAL REPORTING ON BANK ISLAM MALAYSIA BERHAD

Bank Islam Malaysia Berhad

Graph 1: Bank Islam Malaysia Berhad Disclosure

5.0 ANALYSIS FINANCIAL REPORTING ON AL-RAJHI BANK

Graph 2: Al-Rajhi Banks disclosure

6.0 COMPARISON BETWEEN BANK ISLAM MALAYSIA BERHAD WITH AL-

Not Disclos ed; 46%

Not Disclosed; 38%

Dis clos ed; 62%

DISCLOSURE BOTH BANK

2011 2012 2013

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