PETALING JAYA: Consolidation and restructuring in the banking sector will likely gain traction in 2019 after a relatively dull year in 2018, says AllianceDBS Research.
The brokerage noted that 2019 could see BIMB HOLDINGS BHD flattening its group structure, and a potential merger between Malaysian Industrial Development Finance Bhd (MIDF) and Al Rajhi Bank Malaysia materialising.
“Consolidation and restructuring remains a theme in the sector that did not gain much traction in 2018,” it said in a report.
It cited reports about Bank Negara approving the commencement of discussions between MIDF and Al Rajhi Bank for a potential merger; the attractive valuations of MBSB Bank Bhd and AMMB HOLDINGS BHD that made both appealing acquisition targets; and an ongoing restructuring at BIMB as indicators pointing to the possibility of restructuring as well as mergers and acquisitions gaining traction this year.
AllianceDBS noted that a merger between MIDF and Al Rajhi Bank would create an Islamic bank with total Islamic assets of around RM10bil and give MIDF access to all the benefits of possessing a banking licence, that is, access to cheaper retail deposits.
“The MIDF-Al Rajhi Bank merger could pave the way for a listing of MIDF,” it said.
On AMMB, it said, the group could still be a potential acquisition target, given its affordable valuations and major shareholder Australia and New Zealand Banking Group’s interest in exiting certain businesses in Asia.
As for MBSB, it said, the group was on track with its business plan to launch retail banking services, and this could be accelerated by way of further consolidation with other banks. In this instance, it said, RHB Bank would likely be the candidate, given both the banks’ common shareholder.
On BIMB, it said, restructuring the group structure would remove concerns over the double leverage ratio of the group, as it would eliminate the financial holding structure by placing BIMB’s subsidiaries (mainly Syarikat Takaful Malaysia Keluarga Bhd and BIMB Securities Holdings Bhd) under Bank Islam Malaysia Bhd instead.
Overall, AllianceDBS Research said the banking industry would continue to see moderate loan growth and net interest margin (NIM) pressure this year.
For this reason, the brokerage cut its earnings forecast for the banking industry by 1%-6% for 2018-2020.
“NIM pressure from persistent deposit competition plagued the banks in the first nine months of 2018. This is unlikely to change in 2019 as banks remain defensive in maintaining their core deposit bases,” AllianceDBS Research said.
“Loan growth, while resilient at 5% year-to-date, will depend on business loan demand returning at a more stable pace,” it added.