MBSB, Bank Muamalat can start discussions

  • Banking
  • Friday, 02 Oct 2015

PETALING JAYA: Bank Negara has given MALAYSIA BUILDING SOCIETY BHD (MBSB) and Bank Muamalat Malaysia Bhd the approval to begin merger talks, a move that would pave the way for the creation of the country’s biggest standalone Islamic bank.

The combined asset size of the two lenders is estimated to be about RM60bil, latest available figures showed. This is higher than BIMB HOLDINGS BHD’s asset size of RM54bil as at end-March.

BIMB is the holding company of Bank Islam Malaysia Bhd.

The latest banking merger deal comes about nine months after a proposed three-way merger deal between MBSB, CIMB GROUP HOLDINGS BHD and RHB Capital Bhd was called off in January.

StarBiz had in July reported, citing sources, that a merger deal between MBSB and Bank Muamalat was on the cards.

“Bank Negara requires that the negotiations must be completed within three months,” MBSB said in a filing with Bursa Malaysia yesterday.

The non-bank lender said it had received Bank Negara’s approval on Sept 30.

The approval is the green light for MBSB to commence negotiations with shareholders of Bank Muamalat. DRB-HICOM BHD controls 70% of the bank, while the remaining shares are held by Khazanah Nasional Bhd.

“We will make further announcements as and when there are material developments pertaining to the proposed merger,” DRB-HICOM said in a separate statement.

Bank Muamalat, with total assets of RM22.2bil, is the country’s second standalone Islamic bank after Bank Islam. MBSB, which is 65% owned by the Employees Provident Fund (EPF), had assets amounting to RM41bil as at end-June.

Assuming the proposed merger goes through, the combined entity’s asset size would be ranked somewhere in between AFFIN HOLDINGS BHD (RM64bil) and ALLIANCE FINANCIAL GROUP BHD (RM52bil).

It has been reported that DRB-Hicom has until February 2016 to pare down its 70% stake in Bank Muamalat to at least 40%, after the central bank granted DRB-Hicom several deadline extensions to fulfil that condition.

When DRB-Hicom took over Bank Muamalat in 2008, Bank Negara had imposed a condition that its stake had to be pared down to 40%. DRB-Hicom had acquired the stake from Bukhary Capital in 2008.

It had been previously speculated that if the merger takes off, the EPF’s stake in the merged entity would be pared down to 40%, while DRB-Hicom’s interest is likely to be trimmed to 20%.

Shares in MBSB closed five sen higher at RM1.51, giving it a market capitalisation of RM4.28bil. DRB-Hicom finished unchanged at RM1.33.

MBSB president and chief executive officer Datuk Ahmad Zaini Othman had been previously quoted as saying that a corporate exercise involving the bank was inevitable for the financial institution in an increasingly competitive landscape.

One of MBSB’s setbacks is its inability to tap low-cost funds from the money market that are accessible to conventional banks. It is understood that MBSB would need to migrate to becoming a full-fledged bank in a bid to increase its competitiveness.

Without being able to tap into low-cost deposits, MBSB finds it difficult to grow its loan base.

Ahmad Zaini had said that for the company to get out of this “no man’s land” and be on a firmer growth path towards a financial institution platform, it needed to seriously look into a corporate exercise in the “very near” future.

MBSB has been aggressively providing for its loans portfolio to be on par with the standard of conventional banks. This has caused it to set aside higher provisions in the last three quarters.

In the second quarter ended June 30, MBSB’s profit fell 63% year-on-year, dragged down by provisions for an impairment loss on loans, advances and financing.

As for Bank Muamalat, its pretax profit dropped to RM102mil in the nine months of financial year 2015 compared to RM130mil in the same period previously.

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Business , MBSB , Bank Muamalar , merger


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