MIDF- MBSB 1171 MALAYSIA BUILDING SOCIETY BERHAD proposed merger stirs interest

MIDF- MBSB 1171 MALAYSIA BUILDING SOCIETY BERHAD proposed merger stirs interest

NEWS of Malaysian Industrial Development Finance Bhd (MIDF) possibly merging with MBSB Bank Bhd has reignited interest in consolidation within the local banking industry.

Nevertheless, industry observers do not think that another round of mergers is around the corner as this latest development is “unique in nature,” as one puts it.

Incidentally, one of the latest key completed consolidations within the industry also involved MBSB where in February 2018, it had completed a RM645mil merger exercise with Asian Finance Bank.

“The proposed MIDF-MBSB merger will not necessarily trigger anything because MIDF is owned by Permodalan Nasional Bhd (PNB) and is a poor cousin of Malayan Banking Bhd,” quips an ex-senior banker.

“Besides, they have been looking around to merge or sell out. So, it’s not really a Bank Negara or Ministry of Finance (MoF) initiative but more of a market driven-merger,” he says.

That said, banking sources say that as recent as last year, there was renewed interest in a possible merger between RHB Banking Group and AMMB Holdings Bhd (AmBank) but plans fell through after there was a change in the management of the larger lender.

“So, consolidation plans are there, you cannot just write them off,” says another observer.

AmBank is one of the smaller banking groups in the country and has often been thought of as prey for the bigger boys.

To be sure, its CEO Datuk Sulaiman Mohd Tahir reportedly said last year that the bank is strong and well-capitalised enough to be on its own.

Notably, in 2017, AmBank was involved in formal talks with RHB for a possible consolidation but the proposed deal fell through after both lenders could not agree to the terms set out.

“While I think it is quite unlikely that this proposed MIDF-MBSB merger will spark off a fresh round of consolidation, we do have a good number of banks now.

“Any further consolidation needs to be synergistic and size is not everything,” says Rakuten Trade head of equity sales Vincent Lau.

Lau also notes that MIDF had been looking for merger partners such as Al Rajhi Bank previously, but those fell through.

“MBSB and MIDF do have a good fit with no overlap in segments or branches,” Lau adds.

MIDF Amanah Investment Bank Bhd research head Imran Yassin Yusof says he does not think that the banking industry will go through a period of consolidation at this current juncture.

“We have seen this (renewed talks and interest) time and again especially after any merger announcement, and note that the industry does not require consolidation per se.

“Consolidation will likely happen either on a strategic level or based on willing shareholders,” he says.

Research fellow at think-tank Centre for Market Education Liew Chee Yoong believes that consolidation within the industry is needed now as “we are encountering uncertain times due to the Covid-19 pandemic and the Russian-Ukraine war.”

“Hence, in my view, this is a good time for consolidation,” he says.

Last November, Moody’s Investors Service noted in a report that the pace of mergers and acquisitions (M&A) among banks across parts of the developing world has quickened in recent years.

We expect consolidation to continue over the coming quarters, particularly among the large numbers of small banks, it said, largely because of the pandemic.

The pandemic, according to the global ratings company, has “heightened the need to achieve economies of scale by accelerating technological change and by adding to strains from growing digital competition and rising compliance costs.”

It also pointed out that South and South-East Asian banks such as those in Malaysia “are not compelled to seek M&A domestically because they can expand organically given that they operate in markets with strong growth prospects.”

It noted however that there could be more consolidation among small banks in Indonesia as the country’s banking regulator is progressively increasing the minimum levels of Tier 1 capital banks must hold.

“Commercial banks must meet this requirement by 2022, rural banks by 2024. In addition, digital platform companies are buying up these small banks to complement their core businesses. For instance, ride-hailing app Gojek invested in Bank Jago in December 2020 while e-commerce company Shopee acquired Bank Kesejahteraan Ekonomi in February 2021.”

Back to Malaysia, apart from the MIDF-MBSB deal, all eyes are also on the proposed merger of the country’s four development financial institutions or DFIs.

Under Budget 2020, the government had proposed to merge four DFIs, namely Bank Pembangunan Malaysia Bhd , Danajamin Nasional Bhd, Export-Import Bank of Malaysia Bhd and Small Medium Enterprise Development Bank Malaysia Bhd.

Ex-CIMB Group Holdings Bhd chief executive officer and chairman Datuk Seri Nazir Razak who was appointed BPMB chairman last April, has apparently been given the mandate to complete this merger exercise.

The first DFIs in the country were set up in the 1960s and 1970s as entities with specific mandates to develop sectors considered strategic such as agriculture and infrastructure as well as small and medium enterprises and export-oriented sectors.

Nazir in a speech last year was quoted as saying that since the Asian financial crisis, “the country has transformed its capital markets, government-linked companies, banking system and governance of the corporate sector but have done little to DFIs.”

“One of Malaysia’s economic problems is that we have too many sub-scale DFIs and overlapping DFI mandates. A transformation of the sector is long overdue,” he was quoted as saying.

Banking M&As never fail to excite the market.

Back in 2014, a RM72.5bil mega plan to merge CIMB Group, MBSB and RHB Capital Bhd - which would have created the country’s largest banking group at that point in time - caused much stir but collapsed after a disagreement on the planned deal’s terms.

Maybank remains the country’s largest bank by market value currently, valued at close to RM105bil as of yesterday’s mid-day trading, with Public Bank Bhd a close second at RM91bil, and CIMB at RM52bil.

https://www.thestar.com.my/business/business-news/2022/04/16/midf-mbsb-proposed-merger-stirs-interest