Talk that Malaysia Building Society is to be taken private by EPF resurfaces (1171)

Analysts also not ruling out merger with RHB
PETALING JAYA: Talk that Malaysia Building Society Bhd (MBSB) is to be taken private by the Employees Provident Fund (EPF) has surfaced yet again, with industry sources saying the deal could happen as soon as this month.
Speculation on MBSB's privatisation has been on going since last year as well as the likelihood of it being merged with RHB Bank Bhd. Both entities are majority owned by the EPF.
“With RHB having successfully acquired OSK Investment Bank Bhd,
the possibility of MBSB being privatised and eventually merged into the
RHB group is becoming more tangible,” said an industry player.
MBSB closed the day up 10 sen at RM2.53 on volume of 4.65 million shares.
The EPF has a 65.5% stake in MBSB and a 45% stake in RHB Cap. Following the acquisition of OSK, the EPF's stake in RHB Cap is diluted to 22.5%.
When contacted, an EPF spokesman said it was its policy not to comment on speculative stories.
“This
rumour has been ongoing for quite a while. Initially it was supposed to
happen end-June; now there is talk that it will happen by end-July,”
said one banking analyst.
This banking analyst feels that the likelihood of EPF privatising MBSB is high.
“It
has an extremely large stake in MBSB, which makes it difficult for it
to exit in the future. Although MBSB's books have been growing very
fast in the last few years, the quality of the loans is not there. So
far the responsible lending guidelines have yet to hit MBSB. That is
also why MBSB can grow faster than normal banks. Once the guidelines
hitit, its numbers may not be as exciting,” said the banking analyst.
The responsible lending guidelines issued by Bank Negara came into effect on Jan 1, 2012.
One of the main features in these guidelines is the change in the criteria to evaluate loan eligibility.
This
is now based on the net income of loan applicants instead of gross
income as had been the previous case. This would mean that applicants
will now qualify for a lower amount of loan.
“As MBSB does not
come under these regulations, there are concerns that some of the loans
would not make the cut post-guidelines,” said the banking analyst.
Another banking analyst agreed that the privatisation was on the cards, saying that MBSB was having problems raising funds.
“It
will be easier for the EPF to exit MBSB in the future, if MBSB is
merged into the RHB group. Under the current scenario, who would take
out EPF's huge stake?” asked the analyst.
He added that a merger
would make it easier for MBSB to raise funds through placements or
corporate exercises, using the RHB branding.
Presently, MBSB is
a non-bank financial institution that is classified as an “exempt
finance company”and is thus not bounded by any financial regulators in
Malaysia.
During Bank Negara's analyst briefing in March, the
central bank had indicated that non-bank financial institutions would
soon have to comply with the responsible lending guidelines that all
banks were subjected too.
It is estimated that non-bank
financial institutions account for some 60% of outstanding personal
financing to households, Players like MBSB, RCE Capital Bhd
and some 400-odd cooperatives are not under the purview of Bank Negara.
They provide financing mainly to civil servants in the middle- to
lower-income categories of consumer.
To service these loans, the
civil servants have their salaries deducted via a monopolistic
interface that the National Cooperative Movement of Malaysia has with
the Accountant-General's office.
MBSB expects to grow its loan
base by 15%-20% this year. Last year, it recorded net loans and
advances growth of 42% to RM15.2bil compared with 2010.
For the
first quarter to March 31, MBSB's net profit increased 16.31% to
RM79.42mil on a 28.65% increase in revenue to RM378.88mil.
The
higher profits were mainly due to higher net income from Islamic
banking via personal finan-cing. Its key retail market continued to be
government servants. In the period, deposits grew by 12% to RM15.2bil
from RM13.5bil previously.
MBSB's non-performing loans (NPL) ratio improved to 7% from 9% in the previous quarter.
In
an analyst briefing this year, the management of MBSB had provided
guidance that it would strive to reduce its net NPL ratio to between 5%
and 6% in 2012.
Ultimately chief executive officer Datuk Ahmad Zaini Othman wants to lower its NPL ratio to just between 2% and 3%.
In 2011, MBSB doubled its net profit to RM325.4mil from RM145mil in 2010.