RHB, AmBank get BNM nod to begin merger talks

by NG MIN SHEN

RHB Bank Bhd and AMMB Holdings Bhd (AmBank) have received approval from Bank Negara Malaysia (BNM) to begin talks for a proposed merger.

The two banking groups have entered into an exclusivity agreement to negotiate and finalise terms and conditions of the proposed merger for submission to the relevant regulatory authorities.

In a joint statement issued yesterday, the banks said the exclusivity agreement will expire on Aug 30, 2017, with the transaction envisaged to effectively be an all shares merger.

“We are confident if the proposed merger takes place, it will create greater synergy for the enlarged banking group, benefitting our shareholders, customers, employees and all other stakeholders.

“A merger of RHB and AmBank will create a stronger fourth-largest banking group, creating scale and market leadership across key business segments,” RHB group MD Datuk Khairussaleh Ramli noted in a filing to the exchange yesterday.

AmBank group CEO Datuk Sulaiman Mohd Tahir concurred, stating the proposed merger will create a stronger business and financial presence.

“This new chapter that is opening in the group’s history comes at an opportune time for us as we have been moving closer to achieving our top four goals.

“Our combined strength in key business segments, particularly in retail and investment banking, will bode well for us as we move forward to achieve our goal of becoming a formidable banking group,” he said.

RHB and AmBank shares will resume trading today. Shares of AmBank were 2.16% higher at RM5.12 at the close of

trading on Tuesday, valuing the company at RM15.7 billion, while RHB’s stock ended the day’s trading one sen higher at RM5.39 — giving it a market capitalisation of RM21.6 billion.

An industry analyst with MIDF Amanah Investment Bank Bhd welcomed the proposed corporate exercise, believing it will place the proposed new entity on a firmer footing to compete with bigger players in the sector.

“It makes good sense for both banks as their performances for the last few financial quarters have been quite tepid compared to other banks, especially the larger ones,” he told The Malaysian Reserve yesterday.

He said large and small banks have been displaying faster loans growth and improved non-interest and interest income, while middle-tier banks have not shown encouraging results.

RHB is currently the fourth-largest lender by assets among the eight banking groups in the country, while AmBank is placed sixth.

A successful deal will see a combined financial group with an estimated total asset value of RM367 billion, slightly lower than Public Bank Bhd’s assets of RM389.7 billion, as per the latest quarterly filings by the parties.

“Since both banks are going through a transformation process they can do it together, then launch with a firmer foundation. As RHB is currently fourth by assets, followed closely by Hong Leong Financial Group Bhd, the deal would strengthen their position in the market,” the analyst said.

Kenanga Investment Bank Bhd analyst Ahmad Ramzani Ramli noted in a research note yesterday, the proposed new coalition would have a slight edge in terms of profitability, with a lower gross impaired loans ratio than Malayan Banking Bhd (Maybank) and CIMB Group Holdings Bhd, low credit costs at 0.17% after Public Bank (the lowest) and capital ratios stronger than Maybank.

“The new entity will bring synergy on the revenue front. AmBank is strong in insurance, while RHB is better regarded in investment banking.

“For loans, AmBank is engaged largely in the hire purchase market and bridging loans for corporations, whereas RHB operates more on consumer loans,” he said.

The Employees Provident Fund (EPF) is the majority shareholder in RHB with a 40.7% stake, followed by Aabar Investment PJS (17.75%) and OSK Holdings Bhd executive chairman Tan Sri Ong Leong Huat (10.13%).

EPF also holds a 9.95% stake in AmBank, whose major shareholder Australia and New Zealand Banking Group Ltd (ANZ) — with a 23.78% stake — has been looking to sell this stake since early 2016.

AmBank founder and chairman Tan Sri Azman Hashim, who holds the second-largest stake at 12.97%, may also be open to letting go as he plans to retire from nearly all positions in the group over the next two years.

Ahmad Ramzani said EPF would still be the largest shareholder in the new merged entity at 29.1%, assuming an all-share deal.

“The positions of ANZ and Aabar in the new entity are estimated to be likely lower at 10.2% and 10.1% respectively. With positions reduced in the new entity, the likelihood of a stake sale in AmBank looks inevitable,” he said.

On whether the proposed union would spark further amalgamation within the financial sector, the MIDF analyst did not rule out the possibility in the future.

“The potential is there but looking at the pricing right now, it is unlikely to happen soon. Banking is presently one of the performing sectors in the Kuala Lumpur Composite Index and many banks are performing well on their own.

“RHB and AmBank are the exception here — they’ve been struggling to emulate their peers, so it makes sense for them to merge at this juncture,” he said.

Consolidation within the financial services sector has often been discussed in recent years without much success.

In 2014, a three-way RM85.77 billion merger between RHB, CIMB and Malaysia Building Society Bhd (MBSB) fell through after the parties failed to agree on the terms.

MBSB then commenced talks with Bank Muamalat Bhd to create the largest standalone Islamic bank in the country without success.

MBSB is currently in discussions with Asian Finance Bank Bhd for a merger.