Moody’s: MBSB-AFB merger to heighten competition for deposits


Malaysia Building Society Bhd (MBSB) and Asian Finance Bhd’s (AFB) merger will intensify competition for deposits among smaller Islamic banks in Malaysia, says Moody’s Investors Service Inc.

The credit rating agency said the follow-through of the deal will likely lead to the larger of the two financial institutions, namely MBSB, emerging as the surviving entity.

“MBSB’s credit profile would be enhanced because the acquisition of AFB and its Islamic banking licence would give MBSB access to cheaper funding and broaden its revenue stream,” Moody’s VP and senior analyst Simon Chen said in a statement yesterday.

Chen expects MBSB’s entry into the current and savings account deposit market would build up the competition for low-cost deposits among institutions that are not part of big integrated banking groups.

However, profitability would remain robust despite increasing rivalry among Islamic banks.

He added that a broader sector consolidation is unlikely for now as the favourable operating environment will allow standalone Islamic institutions to fare well on their own.

Moody’s noted that the MBSB-AFB proposed merger is driven by unique circumstances that are not shared by other Islamic banks in Malaysia.

Chen said the growth potential for Islamic banks in Malaysia is strong, given the availability of well-established infrastructure and growing consumer awareness of Shariah-compliant products.

Meanwhile, the stable macroeconomic environment is also supportive of credit demand for all banks in the country.

On June 19, MBSB announced that it has submitted an application to Bank Negara Malaysia (BNM) for approval of its proposed merger with AFB, bringing MBSB a step closer to transform into an Islamic bank.

A merger of the two would create the country’s second-largest stand-alone Islamic bank with total assets of RM47.81 billion, after Bank Islam Malaysia Bhd.

MBSB shares traded at three sen or 2.34% lower at RM1.25 at 4pm yesterday, with 7.21 million shares changing hands, bringing its market capitalisation at RM7.41 billion.