Malaysia's banking sector my further consolidate
Malaysia's banking sector my further consolidate
Agence France-Presse, Kuala Lumpur
Malaysia's banking sector may be heading for another round of consolidation after a lull of three years and six banks are potential takeover targets, JP Morgan said in a report.
Current conditions are becoming favorable for domestic mergers and acquisitions among banks and some activity is expected within the next six months, the firm said in research report released this week.
JP Morgan said contributing factors to a possible consolidation included the de-pegging of the ringgit and the central bank's recent rejection of a major shareholder's representative to have executive control over RHB Capital.
"We believe the conditions are becoming increasingly favorable for in-market M and A activity to occur over the next six months and we now ascribe a probability of 80 percent due to the recent developments," it said.
JP Morgan said that RHB Capital, Southern Bank, EON Capital, Hong Leong Bank, Affin Holdings and AmBank group were likely targets.
"Excluding the three largest banking groups which would be the natural acquirers, and Alliance Bank Bhd which (Singapore's) Temasek Holdings Pte Ltd has bought a stake in, that would leave the remaining six banks as potential acquire banks," it said.
"In our view, the likely bid would first come for a banking group that has a strong consumer franchise, good management and a healthy balance sheet. The three smaller banks that meet the profile would be Southern Bank, EON Capital and Hong Leong Bank," it said.
Malaysia's top-three banks are Malayan Banking, Commerce-Asset Holding and Public Bank.
JP Morgan said that maneuvering from Malaysia's state investment arm Khazanah Nasional's to raise its bank stakes and the lifting of capital controls could act as potential triggers for merger talks among domestic banks.
"However, we believe the asking premiums and bidding prices were still too far apart and a catalyst was required for this valuation mismatch to narrow," it said.
A sweeping program three years ago merged Malaysia's 54 banks and finance houses into 10 groups, and the central Bank Negara wants a second wave of consolidation to leave between six and eight banks ahead of full market liberalization in 2007.
The government has said that more mergers are crucial for local banks to survive because foreign institutions in the country are already doing more business despite operational limitations.