MBSB eyeing KFH Malaysia in bid to become full-fledged Islamic bank

PETALING JAYA: Malaysia Building Society Bhd (MBSB), which aims to become a full-fledged Islamic bank, is said to be looking at Kuwait Finance House (M) Bhd (KFH Malaysia) as an option for a merger exercise, sources say.

According to banking sources, MBSB and its major shareholder, the Employees Provident Fund (EPF), are looking at the foreign Islamic bank from “afar” and currently studying its numbers.

“MBSB is looking at KFH Malaysia as one option as the deal came to it for consideration. There are no formal talks between the two financial institutions yet,” the source clarified.

KFH Malaysia is wholly-owned by Kuwait-based Kuwait Finance House (KFH) and is the country’s first and largest foreign Islamic lenders here.

Reuters yesterday reported that KFH might sell some of its investments including KFH Malaysia and has picked Credit Suisse to advise it on the matter. The report, however, said that KFH did not provide any details such as a timeline or a potential sale price of the unit.

StarBiz reported last week that the appointment of KFH Malaysia’s new chief executive officer and managing director, Ahmed S. Al Kharji, could be a precursor to a corporate exercise such as a merger and acquisition (M&A). Al Kharji, a Kuwaiti whose appointment took effect on April 20, is KFH Malaysia’s fourth CEO since it began operations 10 years ago.

The bank had set up shop in Malaysia in 2005 under the liberalisation of the Islamic banking industry, but has seen the going tough due to fierce competition.

KFH Malaysia has total assets of RM10.47bil as at financial year ended Dec 31, 2014. According to its 2014 annual report, corporate and commercial financing are the major contributors to the bank’s assets portfolio at 69%, while consumer is next at 31% as at the end of last year.

Meanwhile, about 80% of MBSB’s assets are Islamic.

Industry players said a merger with an Islamic bank was logically in line with MBSB’s aspiration to become a full-fledged Islamic bank. The non-bank lender also aims to double its corporate loan book, from 15% now, by 2020. The retail sector, derived largely from personal financing, forms the bulk of its loan portfolio at 85% currently.

There was an earlier speculation that Bank Islam Malaysia Bhd, the country’s first standalone Islamic bank, was also on MBSB’s radar.

MBSB was part of a proposed three-way merger involving CIMB Group Holdings Bhd and RHB Capital Bhd that was called off in January.

In the meantime, MBSB posted a 37% drop in net profit to RM124.3mil for the three months to March 31, 2015, from RM196.7mil a year ago due to higher impairment losses on loans and lower operating income.

Revenue for the period rose 3.5% to RM690.6mil compared with RM667.1mil last year, while earnings per share came in at 4.59 sen from 8.37 sen previously.

In a filing with Bursa Malaysia, the non-bank lender said that for the first quarter, allowance for impairment loss on loans, advances and financing spiked to RM101.3mil from RM15.19mil a year ago, in line with the group’s ongoing impairment programme to align its policies with industry best practices and banking standards.

MBSB president and CEO Datuk Ahmad Zaini Othman, in a separate statement accompanying the results, said the revenue performance was lifted by its efforts in penetrating the corporate segment, which resulted in a slight asset growth.

The company said that net impaired financing ratio fell to 3.98% as at March 31 from 4.05% as at Dec 31 last year.

Ahmad Zaini said this was a positive development due to improvements in quality of assets as well as in collection and recovery strategies. As at March 31, its total assets stood at RM30.97bil.

MBSB shares closed 2.43% lower to RM2.01, with 17.55 million shares done.

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