Banking on new growth avenues


WHILE banks may not be tempted to initiate another round of huge bank merger exercises just yet, there seems to be a trend in the industry for banks to look at other avenues or means to position themselves as tomorrow’s winners. 

In fact, some local banking groups are beginning to seek new avenues, either through smaller and more specific mergers and acquisitions (M&As), or exploring overseas and niche markets. 

This, according to some banking analysts, was necessary in order to stay competitive in the wake of slower domestic loans growth, falling margins and, in general, the need to look for additional income. 

The latest move by Hong Leong Bank Bhd to acquire a majority stake in Hong Kong-listed International Bank of Asia Ltd (IBA), as well as several other moves by local banking groups, seems to confirm this trend. 

Last week, Hong Leong Bank, the country's sixth largest commercial bank, said it was in preliminary talks to buy a stake in IBA and had applied for approval from Bank Negara for the proposed acquisition.  

Affin-UOB Securities, in its research report, said an acquisition would be positive for Hong Leong Bank, as IBA had strong fundamentals and as the Hong Kong bank could represent an important foothold into greater China. 

“While prospects in Hong Kong appear to be less than favourable, given the high unemployment situation, depressed property prices and structural difficulties, prospects are brighter for expansion into the mainland China domestic market,’’ Affin-UOB said. 

As part of the World Trade Organisation framework, foreign banks would be allowed to conduct domestic yuan businesses with Chinese firms by end-2003. By end-2006, these banks will be allowed full access to Chinese individuals, and the geographical limits on branch operations abolished. 

Some banking analysts also felt that given the current competition within the local banking industry, more banks were likely to spread their wings into the region. Three geographical regions, namely, China, India and Indonesia, have been named as possible destinations for Malaysian banks venturing overseas, owing to the large mass markets that they possess. 

Some among the country’s top banking groups have already ventured overseas. Last year, Commerce Asset-Holding Bhd (CAHB), the country’s second largest banking group, acquired a 51% stake in Indonesia's PT Bank Niaga for RM435.6mil cash. 

Malayan Banking Bhd (Maybank), the country’s top lender, has already established a comprehensive network of overseas presence in the region, from Singapore to the Philippines and China; while Public Bank Bhd currently has a 55% stake in Hong Kong finance company JCG Holdings Ltd, as well as a 100% stake in Cambodian Public Bank Ltd. 

On the domestic front, new players may emerge in the investment banking scene. Malaysian Industrial Development Finance Bhd (MIDF) has voiced its intention to become an investment banking group.  

MIDF chief executive Mohd Sallehuddin Othman said earlier this week that the group would either acquire a merchant bank or merge with one, if that is a pre-requisite to become an investment bank. 

The KAF group, the country’s largest bond and money market trader, said it would not proceed to buy a 30% stake in Affin Bank Bhd, a wholly-owned subsidiary of Affin Holdings Bhd

However, it was still in talks with Malaysia International Shipping Corp Bhd (MISC) to acquire 36.8% of Affin Merchant Bank, a merchant bank controlled by Affin Holdings. 

In response to KAF’s decision to not purchase Affin Bank, Affin Holding group managing director Datuk Lodin Wok Kamaruddin was reported to have said that “with or without KAF,’’ it would still proceed to dispose of the 30% stake in Affin Bank by the year’s end. 

Following the recent round of bank mergers, there is no real pressure to enter into another round and the focus will be more on improving efficiency. 

However, some analysts think there is a good chance that smaller banking groups could be broken up in the event of a future round of banking consolidation. The emergence of new shareholders in the banking scene is a likely event this year. Bank Negara governor Tan Sri Dr Zeti Akhtar Aziz had told StarBiz that starting this year, Malaysians could expect to see new and exciting happenings in the banking sector as it prepares itself for the second phase of the 10-year Financial Sector Masterplan plan, which starts next year.  

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