Kuwait Finance House could exit Malaysia

The lender is also in talks with Bahrain’s Ahli United Bank for a potential merger

Kuwait Finance House may exit investments worth as much as US$400 million (RM1.64 billion) this year in Malaysia, Al-Rai reported, citing CEO Mazin Saad Al-Nahedh.

Competition in Malaysia is difficult “and we can’t compete traditionally because we are purely an Islamic bank”, Al-Nahedh told the Kuwait-based paper.

“This is why the weak market share is considered our biggest challenge,” according to Bloomberg’s report.

The lender could exit Malaysia if performance remains the same, but the picture remains unclear, he said. Al-Nahedh said Kuwait Finance House’s profit this year will be “better” than 2018, “and with good growth”.

Kuwait Finance House is currently in talks with Bahrain’s Ahli United Bank BSC for a potential merger that may create a lender with about US$92 billion in assets. HSBC Holdings plc and Credit Suisse Group AG are assisting the lenders with the process, according to the international business wire.

News about the Kuwait Finance House possible exit from Malaysia came after Malaysian Industrial Development Finance Bhd (MIDF) announced last week it would begin talks on a proposed merger with Al Rajhi Banking & Investment Corp (M) Bhd (Al Rajhi Malaysia).

The move by MIDF, solely owned by Permodalan Nasional Bhd, could allow the development bank to expand into other banking activities like deposit-taking and participate in the consumer and retail lending activities, a lucrative segment but very competitive.

Al Rajhi Malaysia is owned by the Saudi Arabia’s Al Rajhi Bank. Talks have been ongoing between MIDF and Al Rajhi Malaysia Saudi’s owners over the possible takeover.

Al Rajhi has been struggling in Malaysia, posting assets of RM7.78 billion and a net profit of just RM5.8 million for the third quarter ended September 2018, according to its website.

Foreign Islamic banks have struggled to capitalise on Malaysia’s lucrative banking sector due to its competitive nature. Shariah-compliant banking assets only stood at around 30% of total industry in 2017, making conventional banking the more prominent force in the Muslim majority in Malaysia.

Bank Negara Malaysia has given MIDF and Al Rajhi Malaysia three months to iron out the details of the deal.

Abu Dhabi sovereign fund Mubadala Investment Co PJSC, the second-largest shareholder of RHB Bank Bhd with a 14.75% stake presently, held by its unit Aabar Investments PJS, had also voiced its intention to sell its stakes.

Its stakeholding was about 17.8% last year and it has been selling small blocks of the shares. Its present shareholding in Malaysia’s fourth-largest lender based on assets is
valued almost US$600 million (RM2.46 billion), according to Bloomberg’s data. — TMR