RHB-AMMB negotiations fuel talk of more mergers

Alliance Bank Malaysia and Affin Bank are the two smallest Malaysian banks and market talk is that they could feel pressure to merge.
Alliance Bank Malaysia and Affin Bank are the two smallest Malaysian banks and market talk is that they could feel pressure to merge.PHOTOS: THE STAR

Bank Negara okays RHB-AMMB merger talks; Affin and Alliance could feel pressure to tie up

KUALA LUMPUR • Ongoing merger talks between RHB Bank and AMMB Holdings - the 4th and 6th biggest banks in Malaysia respectively - together with the central bank's push for big institutions to control local lenders, have raised speculation over which other banks could be merged.

The market talk is that the two smallest Malaysian banks - Affin Bank and Alliance Bank Malaysia - could feel the pressure to merge.

The parent company of Alliance Bank, Alliance Financial Group (AFG), is partly owned by a unit of Singapore's Temasek Holdings.

The excitement over more mergers surfaced after RHB said recently that it has central bank approval to start exclusive negotiations with AMMB on a merger.

RHB is reviving its attempt to grow after an attempted three-way merger with CIMB Group and Malaysia Building Society failed in January 2015, Bloomberg reported.

Referring to Affin and Alliance Bank, one analyst said: "They will eventually feel the pressure to merge, given the market forces."

Affin is additionally controlled by Malaysia's Armed Forces Fund Board, which wants to cast its net wider in the banking field.


Alliance Bank Malaysia and Affin Bank are the two smallest Malaysian banks and market talk is that they could feel pressure to merge. PHOTOS: THE STAR

The analyst said: "Affin's recent financial results demonstrate that its transformation plan is working out, while Alliance is a well-managed outfit and is doing well in its niche segment of small and medium-sized enterprises. It makes sense for both entities to merge."

Affin's parent, Affin Holdings, acquired Hwang-DBS Investment for RM1.36 billion (S$441 million) three years ago. The acquisition gave Affin a platform for a stronger market presence in investment banking; some reckon the return on the investment is still at the low end.

In Alliance's case, the shareholding structure of its parent AFG changed last year suggesting there could be merger-and-acquisition related developments for the bank.

AFG's single largest shareholder is Vertical Theme with a 29.5 per cent stake. In turn, Vertical Theme was 51 per cent owned by Langkah Bahagia until last year, and 49 per cent by Temasek's Duxton Investments.

Via Vertical Theme, Temasek effectively has a 14.2 per cent indirect stake in the Alliance financial group, and is thought to have management control of AFG.

Last year, financial corporate adviser Seow Lun Hoo, Singapore property tycoon Ong Beng Seng and Mr Ong Tiong Sin, who owns Singapore-based private equity firm RRJ Capital, bought into the entire equity interest in Langkah Bahagia.

Bank Negara last week approved AFG's reorganisation proposal that included Alliance Bank taking over the listing status of AFG.

Meanwhile, industry observers said the three individuals, who are well-known in corporate circles, are parties friendly to Temasek.

Still, owning stakes in banks has become all the more challenging, given that financial institutions are making frequent capital calls to boost their capital needs in order to meet international regulatory standards. Capital-raising exercises are always an issue, especially for individuals. And the view is that because three individuals hold strategic stakes in AFG, it is ripe for a merger.

  • LARGEST MALAYSIAN BANKING GROUPS AND MAIN SHAREHOLDERS

  • 1. Maybank

    Equity fund Permodalan Nasional 48 per cent, Employees Provident Fund (EPF) 15.11 per cent.

    2. CIMB

    Sovereign fund Khazanah Nasional 29.34 per cent, EPF 13.38 per cent, Bank of Tokyo-Mitsubishi UFJ 4.65 per cent, pension fund Kwap 4.55 per cent.

    3. Public Bank

    Banker  Teh Hong Piow 23.54 per cent, EPF 12.77 per cent.

    4. RHB

    EPF 40.71 per cent, Abu Dhabi's Aabar Investments PJS 17.75 per cent, financial group OSK Holdings 10.13 per cent, Kwap 3.94 per cent.

    5. Hong Leong Bank

    Hong Leong Financial Group 63.59 per cent, EPF 13.3 per cent.

    6. AMMB

    Australia and New Zealand Banking Group 23.8 per cent, banker Azman Hashim 12.97 per cent, EPF 9.9 per cent.

    7. Affin

    Armed forces fund LTAT 35.42 per cent, armed forces firm Boustead Holdings 20.69 per cent, Hong Kong's Bank of East Asia 23.52 per cent, EPF 6.72 per cent.

    8. Alliance

    Investment firm Vertical Theme (includes a Temasek unit) 29.5 per cent , EPF 15.2 per cent, Malaysia Focus Investment 4.8 per cent.

    THE STAR/ASIA NEWS NETWORK

Said an investment banker: "Whether this pans out is left to be seen. Because of the RHB-AMMB merger, all possible match-ups are coming up again."

Bank Negara has sought to limit the ownership of individuals in local banks in recent years.

Said a banker: "As banks become bigger, there would be greater demand for capital that may not be met by individual owners... institutionalising the shareholdings of banks is seen as the right way to go, as is the case of mature markets like Singapore and Hong Kong."

THE STAR/ASIA NEWS NETWORK

A version of this article appeared in the print edition of The Sunday Times on June 11, 2017, with the headline 'RHB-AMMB negotiations fuel talk of more mergers'. Print Edition | Subscribe