Planned Merger of Three Companies Would Create Malaysia's Largest Financial Group

The planned merger of CIMB Group, RHB Banking Group and Malaysia Building Society Berhad (MBSB) could create Malaysia’s largest financial group by assets, with total consolidated assets of MYR614 billion ($188 billion).

This would be larger than Malayan Banking Berhad, which has been the leader in terms of banking assets, loans and deposits.

The plan would also be credit positive for RHB and MBSB, say analysts at Moody's Investors Service.

Moody's analysts, Simon Chen, CFA Assistant Vice President - Analyst, Financial Institutions Group and Shaoyong Beh, Associate Analyst, Financial Institutions Group, say that RHB and MBSB's their credit profiles would likely benefit from CIMB’s support and being part of a larger and financially stronger banking group.

The analysts added that RHB’s standalone credit quality would also benefit from CIMB’s larger distribution network and stronger funding profile.

The deal would also be credit positive for CIMB because it would enhance its scale of operations, although the extent of the benefits would depend on the execution of the merger and the transaction terms.

From a standalone credit perspective, RHB Bank Berhad (A3 stable, D+/ba1 positive), RHB’s main operating bank, is weaker than CIMB.

MBSB also looks weaker than CIMB, with an impaired loan ratio of 7.6% as of the end of March, versus CIMB’s 3.1% and RHB’s 2.5%. Moreover, MBSB’s impaired loan coverage ratio was 67% and RHB’s was 68%, both lower than CIMB’s 84%.

Adding RHB’s and MBSB’s operations, whose combined total assets equal 61% of CIMB’s assets, would enhance the scale of CIMB’s operations in Malaysia and Singapore, and give CIMB access to customer and product segments with which RHB has stronger ties, such as the mass-market consumer segment in Malaysia and middle-market investment banking segment in Southeast Asia.

"If CIMB integrates RHB and MBSB, we will consider the speed with which the banksvformally merge, their plans to reduce combined costs, and the revenue synergies they realize," say the analysts.

Moody's note that CIMB has completed several bank integrations with much success, and this experience would mitigate the challenges that CIMB would face in restructuring and harmonizing the acquired operations.



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