Malaysia Bank Mergers Seen As Crisis Deepens

Malaysias markets driven crisis and pressure from a government determined to avoid seeking external aid to solve its problems is expected to force a large number of mergers in the countrys banking sector.

Analysts and banking sources say that almost all financial institutions, including the biggest ones in the country, are talking to each other for possible collaboration. As mentioned by the minister (deputy prime minister Anwar Ibrahim on December 8), there are going to be mergers. Which banks, Im not sure, Affifuddin Omar, deputy finance minister said recently. There will be a big merger among the banks. I dont know when, he said.

 

Most believe, despite the government remaining tight-lipped, that the hectic behind-the-scenes talking will result in at least a few associations among banks in the first quarter of next year.

Banking sources said the government had mobilised the biggest banking institutions, including Malayan Banking Bhd and Bank Bumiputra Malaysia Bhd, to seek out candidates to merge with them.

Talks are said to be on between Maybank and Rashid Hussain, Bank Bumiputra and Bank of Commerce parent Commerce Asset Holdings, Maybank and Arab-Malaysian group, Bank Bumiputra and Hock Hua Bank, Rashid Hussain and Sime Bank and Arab-Malaysian and Sime Bank. Almost all small, independent finance companies are on the shopping list of the bigger banks and finance companies, the sources said.

No comment could be obtained from the banks named.

Definitely there are talks. We dont know now who is going to marry whom. They are discussing who should match up with whom, said Amin Manap, financial sector analyst with Paribas Asia Equity. (Reuters)

There is more reason for them to merge now and strengthen their capital base. They also have to be prepared before the financial sector is opened up, he said.

He said there was wide disparity in the size of banks. Maybank was the biggest, with assets of around 110 billion ringgit, followed by Bank Bumiputra with 54 billion ringgit and RHB Bank with 48 billion ringgit.

Most other banks were much smaller, which would make it difficult for them to survive in a completely liberalised environment, analysts have said.

Analysts said overlending, particularly to the property sector, a sharp drop in value of shares used as collateral in many loans, economic slowdown and stricter monitoring and regulation by the central Bank Negara were the immediate problems faced by local financial institutions.

Similar problems, but on a larger scale, in Thailand, Indonesia and South Korea, forced them to seek multi-billion dollar loans from the International Monetary Fund (IMF).

Prime minister Mahathir Mohamad has said Malaysia will do everything it can to avoid IMF help.