Plenty of room for all in Malaysia’s banking sector

There is prevailing healthy competition among financial services players in Malaysia’s mature market


There is sufficient room for both domestic and foreign lenders within the local banking sector despite recent moves towards consolidation and sale of local assets by foreign players.

An analyst with a local research house said, while there is prevailing competition among the financial services players in Malaysia’s mature market, each bank has its own niche segment from which it derives its income.

“Banks in general are fighting for the same market, but there are niches, and they’re each going after certain niches. There’s certainly competition at the moment, but there’s also certainly enough pie for everyone,” MIDF Amanah Investment Bank Bhd analyst Imran Yassin Yusof told The Malaysian Reserve.

He added that should consolidation take place, it would be a boost for the industry and largely shareholder-driven.

“Looking at banks’ performance last year and now, they’re doing fine, so consolidation is not really an immediate necessity.

“Each bank has its own niche market. I wouldn’t say when consolidation will happen, but if it does, I wouldn’t be surprised,” he said.

Imran said consolidation is not exactly difficult, as there have been mergers in the past, with the most recent being that of Malaysia Building Society Bhd (MBSB) and Asian Finance Bank Bhd (AFB).

The main question for potential mergers and acquisitions (M&As) remains the pricing and valuation, as well as the right timing.

Regulatory issues do not seem to be a concern, as the central bank has given permission to parties interested in planning M&A talks.

Prior to the MBSB-AFB merger, AMMB Holdings Bhd (AmBank) and RHB Bank Bhd had talks in 2017 for a proposed merger that would have formed a stronger fourth-largest bank in the country.

However, the proposed merger was called off in August 2017 after the two parties were unable to mutually agree on the terms and conditions of the exercise.

Sources attributed this largely to valuation problems and AmBank’s contingent liabilities.

All eyes are now on Malaysian Industrial Development Finance Bhd (MIDF) and Al Rajhi Banking and Investment Corp (M) Bhd (Al Rajhi Malaysia) proposed merger.

MIDF in a statement last Thursday said Bank Negara Malaysia (BNM) has given it and its sole shareholder, Permodalan Nasional Bhd (PNB), approval to begin negotiations with Al Rajhi Banking & Investment Corp, Kingdom of Saudi Arabia (Al Rajhi KSA) for a proposed merger with Al Rajhi Malaysia.

This follows earlier reports that MIDF was exploring the opportunity to merge with Al Rajhi Malaysia, in an attempt to become a universal Islamic bank.

Meinwhile, Kuwait-based lender Kuwait Finance House KSC (KFH) is reported to be interested in selling assets of up to 100 million dinars to 120 million dinars (RM1.35 trillion to RM1.62 trillion) in 2019.

According to Reuters, KFH CEO Mazin Saad Al-Nahedh was recently quoted in the Al Rai newspaper as saying the sale would include the headquarters of KFH’s Malaysian subsidiary, as well as KFH’s stake in Kuwait Energy plc.

Kuwait’s second-largest lender was already considering asset sales in 2015, when it said it had hired Credit Suisse Group AG to advise on its options, including the potential sale of its Malaysian unit, in order to focus on KFH’s Turkish operations and create a leaner structure.

Presently, details on KFH’s sale of its Malaysian unit’s headquarters are vague, as it was not revealed as to whether this translates to KFH directly exiting the Malaysian market, or merely selling physical assets.

Nonetheless, Imran said there is still room for foreign banks to operate in Malaysia, citing the presence of players such as US-based Citibank, Singapore’s United Overseas Bank Ltd and British lender HSBC Holdings plc.

“To say that there’s no room for foreign banks is untrue in our opinion. If the foreign banks aren’t doing well, you’d see them downsizing operations here, but you don’t see that,” Imran said.

He also noted that Bahrain-based Al Baraka Banking Group last week said it intends to expand in Asia, and is eyeing Malaysia as a springboard to the Asian region due to its strong Islamic banking sector.