INTEGRATION SYNERGIES: Photo shows an aerial view of several banks in Kuala Lumpur. The banking sector is set to realise synergistic value accretion this year from several M&As over the past two years.
KUCHING: The banking sector, which has seen a number of mergers and acquisitions (M&As) over the last two years, is set to realise financial gains this year from the coupling synergies of these corporate exercises as meaningful value accretion will normally occur up to two years post-integration.
HwangDBS Vickers Research Sdn Bhd (HwangDBS Research) pointed out that Malaysian banks had been involved in M&As in one way or another over the past two years, which meant 2013 would see the beginning of value creation.
“The Hong Leong Bank Bhd-EON Capital Bhd deal is the largest so far and has reached the tail end of extracting synergies, while that has just started for RHB Capital Bhd-OSK Investment Bank Bhd, CIMB Holdings Bhd-Royal Bank of Scotland-Bank of Commerce and AMMB Holdings Bhd (AMMB)-Kurnia Insurans Bhd-MBF Cards (M) Sdn Bhd.
“The ability to deliver value to shareholders (ROE) after the recent round of M&As will be the key earnings driver,” the research house stated while noting that the typical M&A gestation period for integration is 18 to 24 months.
“We will not rule out a further consolidation of the Malaysian banking industry.
Mergers that are complementary would create value in the industry, while further liberalisation could trigger the further consolidation of banks, stockbrokers and insurers,” it highlighted.
Meanwhile, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) opined that the latest BNM statistics continued to suggest that the ‘rebalancing’ of the Malaysian lending portfolio landscape was occurring at a measured pace, as it had highlighted previously.
“The Responsible Finance policy will continue to slow household lending growth in contrast to corporate lending, which is not facing a similar direct pressure given the continued growth of ETP (Economic Transformation Programme) related projects.
“This trend continued to be in progress judging from the latest data from the November 2012 BNM’s monthly bulletin,” the research team pointed out.
Noting that the full year loan growth for 2012 was estimated at 11 to 13 per cent for 2012, Kenanga Research said the year-to-date (YTD) total loan achieved was at RM1, 098.9 billion, which translated into a loan growth of 11.2 per cent year-on-year (y-o-y), in line with its full year estimate.
“However, we see slower growth in both the pace of business and consumer lending ahead in 2013.
The weaker consumer lending growth for the YTD was attributable to the property and hire purchase segments, where their loan growth dropped to 16 per cent y-o-y and 6.6 per cent y-o-y respectively.
“Given our view that the responsible finance policy will continue to promote a healthier (albeit slower) household lending portfolio growth, the momentum of the system loan growth will hence likely be lower for 2013.” Kenanga Research revealed that its base case estimate for the system loan growth for 2013 was in the range of nine to 10 per cent, one to two per cent lower than 2012.
“Together with the ongoing margin headwind, there are limited opportunities to drive the earnings growth for banks materially beyond our current expectation of a high single-digit to low teens growth.
“In addition, with the already mid-cycle valuation, we believe a valuation multiple expansion is also unlikely.
Hence, we are increasingly looking to thematic plays within the banking sector to search for outperformers in 2013.”