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Thursday, July 30, 2015

MBSB-Muamalat merger, full-fledged Islamic bank on the cards?

PETALING JAYA: Malaysia Building Society Bhd (MBSB), one of the non-conventional banks in the local financial industry, is on track to obtaining a full-fledged Islamic banking licence with plans under way for a merger with Bank Muamalat.
Sources said the plans were being crafted as part of MBSB’s vision to obtain a full-fledged Islamic banking licence.
Currently, the largest shareholder in Bank Muamalat is DRB-Hicom Bhd, which controls 70% of the group, followed by the Government’s investment arm Khazanah Nasional Bhd that has a 30% stake.
When DRB-Hicom took over Bank Muamalat in 2008, Bank Negara had imposed a condition that its stake had to be pared down to 40%. DRB-Hicom had acquired the stake from Bukhary Capital.
In 2011, Khazanah’s managing director Tan Sri Azman Mokhtar said that its stake in Bank Muamalat was a “non-core holding”, which it was seeking to dispose of.
As for MBSB, which is 65%-controlled by the Employees Provident Fund (EPF), a migration to becoming a full-fledged conventional bank is a step it needs to take to increase its competitiveness.
Towards this end, MBSB president and chief executive officer Datuk Ahmad Zaini Othman had said that a corporate exercise was inevitable for the financial institution in an increasingly competitive landscape.
One of MBSB’s setbacks is its inability to tap low-cost funds from the money market that are accessible to conventional banks.
Without being able to tap into low-cost deposits, MBSB finds it difficult to grow its loan base.
Ahmad Zaini had said that for the company to get out of this “no man’s land” and be on a firmer growth towards a financial institution platform, it needed to seriously look into a corporate exercise in the “very near” future.
Sources said if the plan for the merger takes off, EPF’s stake in the merged entity would be down to 40%, while Khazanah and DRB-Hicom’s interest was likely to be trimmed to 20% respectively.
“The rest will be held by the public,” said a source.
A source noted that MBSB’s interest in Bank Muamalat was for the Islamic banking licence.
Bank Muamalat is the country’s second standalone Islamic bank, after Bank Islam Malaysia Bhd, and had total assets of RM22.21bil as of end of last year. MBSB, meanwhile, has total assets of about RM30.97bil.
DRB-Hicom, which has to reduce its interest to 40% from the current 70%, has failed to do so despite having suitors in the past.
It had been reported that among the suitors in the past were Bank Islam’s parent, BIMB Holdings Bhd, and Affin Holdings Bhd.
It is believed that the dilution of its stake in Bank Muamalat has been a prolonged process for DRB-Hicom because it was looking at an exercise that could add value and increase the bank’s penetration into the Islamic financial business.
Pricing was also said to be a key issue, said banking sources.
Bank Muamalat’s pre-tax profit dropped to RM102mil in the nine months of financial year March 2015 as compared to RM130mil in the same period previously.
It has been working quietly to clean up its books over the last few years.
As for MBSB, it has been aggressively providing for its loans for its portfolio to be on par with the standard of conventional banks. This has caused it to set aside higher provisions in the last two quarters.
In its first-quarter profits as of March 31, this year came in 37% lower year-on-year dragged down by provisions for an impairment loss on loans, advances and financing amounting to RM101.32mil.
In the fourth quarter ended Dec 31, 2014, its provisions for loan losses came to RM100.1mil, while the collective impairment for FY14 stood at RM177mil. These impairments were mainly made for its mortgage financing portfolio.
MBSB’s net non-performing loan (NPL) ratio has come down to 4.2% from 5.4% a year ago. It is looking to reduce NPLs to below 3%.
MBSB had been part of a three-way merger with CIMB Group Holdings Bhd and RHB Capital Bhd that was aborted in January.
Since then, Bank Islam and Kuwait Finance House (M) Bhd were said to have been on its radar, but nothing had materialised.
The company had said that it was planning a capital-raising exercise of around RM3bil to ready itself for a merger exercise.
MBSB finished five sen higher to RM1.76 yesterday, while DRB-Hicom ended one sen up to RM1.41.

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