Malaysian bank mega-merger poised for Malaysia dominance

Allowing effective operation in the domestic market.

Although a merger of CIMB Group Holdings Bhd., RHB Capital Bhd., and Malaysia Building Society Bhd. holds considerable prospects, a few factors bear consideration.

According to a release from Standard & Poor's Ratings Services, CIMB Group has received approval from Malaysia's central bank to begin merger talks with RHB Capital Bhd. and Malaysia Building Society Bhd. to create the country's biggest banking group by assets.

RHB Capital has under its umbrella RHB Bank Bhd., RHB Investment Bank Bhd., and other interests.

The release also noted that from a strategic perspective, the three banks combined would create a group with total assets of slightly more than Malaysian ringgit (MYR) 600 billion (CIMB Group: MYR380 billion; RHB Capital: MYR197 billion; MBS: MYR37 billion), which would surpass Maybank, the largest bank in Malaysia, with MYR578 billion of assets.

"The merged entity's dominance in Malaysia would allow it to operate more effectively in the competitive domestic market," said Standard & Poor's credit analyst Ivan Tan.

"This is also consistent with CIMB's ambition to be a leading bank in Southeast Asia. Its already strong funding profile will further benefit from an enhanced footprint."

Here's more from Standard & Poor's Ratings Services:

There is overlap between CIMB Group and RHB Capital in terms of portfolio mix, revenue streams--particularly in corporate banking--and branch networks.

Integration may also be a challenge and will consume significant management time. At the same time, CIMB Group is searching for a new CEO.

"CIMB Group has a track record in acquiring, integrating, and extracting value from its investments. We believe CIMB Group can draw on its experiences to successfully rationalize and integrate its acquisitions," Mr. Tan said.

CIMB Group purchased Indonesia's PT Bank Niaga Tbk. in 2002, Singapore-based stock brokerage GK Goh Holdings in 2005, and Malaysia's Southern Bank Bhd. in 2006.

The group then merged PT Bank CIMB Niaga Tbk. with PT Bank Lippo Tbk. in 2008 and completed its purchase of Bank Thai Public Co. Ltd. in 2009.

More recently, it bought part of Royal Bank of Scotland's Asia-Pacific investment banking business in 2012.