Tuesday, May 18

Potential merger to create second largest Islamic Bank

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KUCHING: The possible merger of Malaysia Building Society Bhd (MBSB) and Bank Muamalat Malaysia Bhd (Bank Muamalat) could create the second largest Islamic bank in Malaysia.

RHB Research Institute Sdn Bhd (RHB Research) in a report said the enlarged entity would be the second largest Islamic bank in the country, behind Maybank Islamic Bank Bhd.

The research firm observed that MBSB has been on the lookout for potential candidates to undertake a corporate exercise.

It noted the key criterion was that the potential candidate has to be an Islamic bank, so that to be consistent with MBSB’s plan of turning into a fully-compliant Islamic financial institution within five years.

RHB Research noted MBSB is double the size of Bank Muamalat in terms of total assets and loan portfolio.

Nonetheless, it observed that the loan mix of both entities is mainly retail-based.

RHB Research added Bank Muamalat’s asset quality for loan is better, although the loan loss coverage ratios are about the same level.

Furthermore, the research firm noted that the retail deposit base of both entities is low for instance about seven to eight per cent of total deposits.

Thus, RHB Research believed the potential merged entity might need to compete aggressively for retail deposits ahead to meet regulatory requirements on liquidity.

The research firm analysed that the current accounts savings accounts (CASA) ratio for the merged entitly is low at nine per cent.

Hence, RHB Research said cost synergy is a possible merger benefit while asset quality and deposit gathering are potential areas the merged entity might need to address.

MBSB in a filing to Bursa Malaysia on October 1 said Bank Negara Malaysia (BNM) has given the green light for the financial institution to start negotiations with the existing shareholders of Bank Muamalat namely DRB Hicom Bhd and Khazanah Nasional Bhd for a proposed merger of MBSB and Bank Muamalat.

BNM required that the negotiations must be completed within three months from the date of BNM’s letter dated September 30.