Asia Times: ANALYSIS: How Malaysia's banks stack up



	February 16, 2000	atimes.com

Southeast Asia

ANALYSIS: How Malaysia's banks stack up

KUALA LUMPUR - Bank Negara Malaysia's approval of core banking groups and their preferred merger partners has ended months of speculation as to who would make up the final list of anchor banks.

The number now stands at 10 anchor banks against the 54 domestic banking institutions currently operating under the Banking and Financial Institutions Act. Each anchor bank now has at least a commercial bank, a finance company and a merchant bank in its group.

The central bank's consent to the new groupings paves the way for a strong, efficient and competitive banking sector which will be able to handle the onslaught of globalization and liberalization.

Malayan Banking Bhd and Bumiputra-Commerce Bank Bhd will obviously emerge the strongest banks, but at the end of the day the question will be how effectively and efficiently the mergers can be implemented. Another factor to ponder is how integration can take place in terms of cross-selling of products between commercial banks, finance companies and merchant banks. What is crucial is how the groups will evolve into globally competitive banks.

It may appear somewhat ironic, but both acquirer and acquiree banks could benefit from the merger exercise. The anchor banks could enjoy a re-rating given their new status. At the same time, the acquiree banks could also benefit if the acquirer is paying a higher-than-expected price for it, though the market price for unlisted banks would be difficult to determine. On the other hand, listed acquiree banks are likely to receive prices higher than their current trade levels to gain their minority shareholders' acceptance.

Anchor banks that will now emerge stronger after the merger, with increased market share and operational efficiency are Malayan Banking and Public Bank.

The consolidation of the industry will not seriously threaten Maybank's position as the leading bank but actually further increase the group's market share. Maybank, which is merging with medium-size PhileoAllied Bank Bhd, Mayban Finance Bhd, Aseambankers Malaysia Bhd, Pacific Bank Bhd, Kewangan Bersatu Bhd and Sime Finance Bhd, is also arguably the most regional of Malaysian banks, as evidenced by the geographical spread of its operations and their contribution to group profits (up to 30 percent of its income is derived from Singapore and overseas operations).

Public Bank Bhd, which is fast shedding its reputation as a docile and passive player in terms of lending, still maintains prudent and conservative credit approval and loss provisioning policies. Its share of the domestic banking system is set to expand further with the proposed acquisition of Hock Hua Bank Bhd, which will also provide it with the much needed exposure to East Malaysia. Hock Hua Bank is a small but well managed commercial bank in Sarawak. Public Bank is also merging with Advance Finance Bhd and Sime Merchant Bankers Bhd and together both these acquisitions are expected to complement Public Bank's existing predominantly Peninsular Malaysia operations as well as fill the current gap in merchant banking. Also in the group is Public Finance Bhd.

Rashid Hussain Bhd executive chairman Abdul Rashid Hussain said he was grateful that Bank Negara has approved RHB Bank as one of the 10 banking groups in Malaysia. ''We are very honored that we have been given the opportunity to continue to play a lead role in support of the government's consolidation of the financial services industry,'' he said. RHB Bank is the anchor bank for RHB Sakura Merchant Bankers Bhd, Delta Finance Bhd and Interfinance Bhd.

Meanwhile, the announcement is viewed by banking analysts as good news and is a ''shot in the arm'' for banking stocks trading on the currently bullish Kuala Lumpur Stock Exchange. Banking stocks will see heavy trading following the positive response toward the bank merger approvals.

Shares of top banks, especially those which will be releasing their results soon, will rise by over 15 to 20 percent, one analyst said. ''It is positive in that it affirms all the talk about transparency and independence which augur well for the industry,'' said Franklin Tan, head of research OCBC Securities (Melaka) Sdn Bhd. He said the announcement will make foreigners happy as they are more inclined toward free market forces.

On the end-December 2000 deadline for the completion of the consolidation, he said it will be a tough deadline to meet. ''It will be easier for the big merger groups anchored by Maybank, Bank Bumiputra Commerce, Public Bank and Perwira Affin but will be a tough deadline to meet for the other smaller ones.''

Another analyst said the news of bank merger partners would once again take center stage on the Kuala Lumpur Stock Exchange.

''Investors have been filling their basket of portfolio stocks 'half-full' and since the banks' intentions to merge with their respective partners looks more promising now, investors will be more confident of accumulating further banking stocks.

''Investors are now certain of the pros and cons as well as prospects these banks will have in the future,'' he said. ''Different banks have different strengths and weaknesses: some are good in consumer banking, some in corporate banking and some with mixed complexions.'' These unique qualities, when combined in the merged groups, will influence investment in banking shares and affect their prices particularly in the first half.

Mix and match

The 10 anchor banks are Malayan Banking Bhd, Bumiputra-Commerce Bank Bhd, RHB Bank Bhd, Public Bank Bhd, Arab-Malaysian Bank Bhd, Hong Leong Bank Bhd, Perwira Affin Bank Bhd, Multi-Purpose Bank Bhd, Southern Bank Bhd and EON Bank Bhd.

Malayan Banking is the anchor bank in the group which comprises Mayban Finance Bhd, Aseambankers Malaysia Bhd, PhileoAllied Bank Bhd, Pacific Bank Bhd, Sime Finance Bhd and Kewangan Bersatu Bhd.

The Bumiputra-Commerce Bank Bhd leads the group of Bumiputra-Commerce Finance Bhd and Commerce International Merchant Bankers Bhd.

RHB Bank Bhd will group RHB Sakura Merchant Bankers Bhd, Delta Finance Bhd and Interfinance Bhd.

Public Bank Bhd, Public Financ Bhd, Hock Hua Bank Bhd, Advance Finance Bhd and Sime Merchant Bankers Bhd will come under Public Bank as the anchor bank.

The Arab Malaysian Bank Bhd will anchor Arab Malaysian Finance Bhd, Arab Malaysian Merchant Bank Bhd, Bank Utama Malaysia Bhd and Utama Merchant Bankers Bhd.

Hong Leong Bank Bhd ties up with Hong Leong Finance Bhd, Wah Tat Bank Bhd and Credit Corporation Malaysia Bhd.

Perwira Affin Bank Bhd leads Affin Finance Bhd, Perwira Affin Merchant Bankers Bhd, BSN Commercial Bank Bhd, BSN Finance Bhd and BSN Merchant Bank Bhd.

Multi-Purpose Bank Bhd will group International Bank Malaysia Bhd, Sabah Bank Berhad, MBf Finance Bhd, Bolton Finance Bhd, Sabah Finance Bhd, Bumiputra Merchant Bankers Bhd and Amanah Merchant Bank Bhd.

Southern Bank Bhd will lead the group of Ban Hin Lee Bank Bhd, Cempaka Finance Bhd, United Merchant Finance Bhd, Perdana Finance Bhd and Perdana Merchant Bankers Bhd.

The final anchor bank that will result from the merger is EON Bank Bhd, which will lead the banking group of EON Finance Bhd, Oriental Bank Bhd, City Finance Bhd, Perkasa Finance Bhd and Malaysian International Merchant Bankers Bhd.

(Asia Pulse/Bernama)

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