News Column

Proposed three-way merger in Malaysia banking could create new Islamic banking giant

July 23, 2014

Malaysia'sCIMB Group, RHB Capital and Malaysia Building Society (MBSB) revealed earlier this month that the country's Central Bank, Bank Negara Malaysia had given its approval for them to begin talks that could lead to a three-way merger,

The clock is now running on a 90-day exclusivity agreement for the three groups to negotiate and finalise the pricing, structure, terms and conditions for a merger that would create not only the country's largest financial institution but also its second largest Islamic bank as well. The exclusivity agreement comes with an automatic extension provision upon submission to Bank Negara Malaysia on the proposal.

"We believe that there is inherent value and that there will be many opportunities which will arise from this proposed merger. We hope to explore this further through our discussions," said Kellee Kam, Group Managing Director, RHB Capital.

"There is a prima facie case for a value-creating merger between the three entities and we want to get into detailed discussions to validate it," added Dato' Sri Nazir Razak, Group Chief Executive, CIMB Group.

On the prospects of the creation of a mega Islamic bank, Dato' Ahmad Zaini bin Othman, President and Chief Executive Officer of MBSB said, "The opportunity to be a part of a mega Islamic bank is exciting for us and we want to take this forward."

Moody's Investors Service said, "The combination of the three financial institutions would create Malaysia's largest financial group by assets, with total consolidated assets of MYR614 billion ($188 billion).

"This would be larger than Malayan Banking Berhad, which has been the leader in terms of banking assets, loans and deposits."

Maybank Investment Bank commented that the proposed merger would see a diversification of the group's commercial banking clientele base: CIMB's commercial banking operations primarily target higher income individuals while RHB Bank's client base is mid-market and MBSB targeted the civil service through its Angkasa's direct salary deduction scheme.

With regard to the Shari'ah-compliant unit, MBSB's operations combined with RHB Islamic Bank and CIMB Islamic Bank would create an Islamic bank with total assets of MYR 122 billion, rivalling Maybank Islamic's MYR 127 billion.

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Source: CPI Financial

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