‘Move towards bank mergers and acquisitions still possible’
by Venu Putankattil, venuputankattil@theborneopost.com. Posted on July 19, 2011, Tuesday
KUCHING: There is still room for Malaysian banks to consolidate and the idea of creating regional champions is still on the cards.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) opined, “Although RHB Capital Bhd (RHB Capital) mergers and acquisition (M&A) talks appear to have taken a back seat, we do not discount further talks in the near term.”
The research house did not discount a possibility of AMMB Holdings Bhd (AMMB) considering RHB Capital as a potential candidate for consolidation in the future.
HwangDBS Research analysts Lim Sue Lin and Hon Seow Mee stated, “The combined AMMB-RHB Capital entity could improve net interest margin (NIM) with a more balanced asset mix and higher current account-savings account (CASA) composition.
“Separately, with equally strong investment banking franchise, the merger could create greater muscle to bid for larger mandates – now dominated by Maybank Banking Bhd and CIMB Bhd.”
According to them, “Alliance Financial Group Bhd (AFG) has been in the limelight recently, stirring interest with rumours that its major shareholders may sell out. AFG’s new management team is taking shape, and if it is able to step up its performance, it would be an attractive M&A target.”
To recap, it was reported recently that investment house Temasek Holdings and Langkah Bahagia Sdn Bhd were keen to divest their combined 29.1 per cent stake in AFG.
The analysts further stated, “As Singapore-Malaysia ties warm up, we would not be surprised if a deal is cut out from this, as Temasek Holdings owns 14.2 per cent of AFG.”
As reported in The Borneo Post July 12, Malaysia and Singapore would set up joint ventures to develop land parcels and invest in the Iskandar zone, as well as to build a Singapore-Johor Bahru rapid transit link by 2018.
The analysts elaborated, “The improving Malaysia-Singapore ties will ensure growth is sustainable over the next five years. There are many areas of cooperation such as banking, manufacturing, logistics, and environmental, which were ignored after the Asian financial crisis.”
“AFG is aiming for equal mix of consumer and business loans driven by SME banking. SME loans should continue to chart steady growth.
“Non-interest income is one of AFG’s crucial return-on-equity (ROE) building blocks, and it targets to grow this source to 30 per cent of total income in the next three to five years.
“As competition continues to dampen NIM, we believe AFG is on the right track growing non-interest income as the building block to enhance ROE.”
The research house had also gathered that Bank Negara Malaysia (BNM) would be releasing Basel III guidelines by the end of 2011, which should provide further clarity on banks’ capital positions.
The Monetary Authority of Singapore (MAS) said last month that Singapore banks would be adopting standards stricter than Basel III. Based on latest data, only PBK might face some capital pressure if BNM adopts MAS’ stand.
HwangDBS Research retained its 16 per cent industry earnings growth forecast on the back of 15 per cent loan growth for 2011.
The upcoming second quarter results should continue to focus on NIM and loan growth. In anticipation of continued competitive pressure on loans and deposits, NIMs were likely to remain flat or edge down.
However, the analysts noted that there could be a marginal uptick for a quarter or two due to re-pricing effects of lending rates, which would adjust faster than deposit rates.
BNM raised the Overnight Policy Rates (OPR) by 25 basis points (bps) on May 5 and the research firm expected another 25bps hike in the second half of 2011.
The analysts noted that there could be upside risk to the research house’s NIM forecasts if competition for loans and deposits were less intense for the year.
They stated, “Currently, we expect a 3bps decline in NIM after accounting for two 25bps OPR hikes for the year. From our checks, the most competitive segment remains mortgage, but banks have remained vigilant in ensuring pricing remains rationale.
“We believe banks will continue to grow their deposit base, particularly low-cost retail deposits (savings and current accounts). Deposits ensure banks remain liquid. Selectively, some banks might gear up competition to shore up deposits to ensure liquidity is not stressed,” they concluded.
