Muamalat (1619) deal to strengthen Affin's (5185) presence

by **hlk** Tue 04 Sep 2012, 11:13

If combined with Bank Muamalat, it will become the
fourth largest in terms of assets and deposits, and the seventh in
terms of loans.

Affin Holdings Bhd's interest in Bank Muamalat Malaysia Bhd, one of the
country's two standalone Islamic banks, has much to do with its
intention to become a major player in the Islamic banking sector.

Affin's Islamic banking entity, Affin Islamic Bank, is currently the
ninth largest Islamic lenders locally, whether by assets, loans or
deposits.

However, if combined with Bank Muamalat, it will
become the fourth largest in terms of assets and deposits, and the
seventh in terms of loans, it told analysts at a briefing last week.

"Combined, they will become a more significant Islamic banking player
and their gap with Bank Islam (the other standalone Islamic bank) will
close significantly," observed David Chong, a banking analyst at RHB
Research.

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Affin told analysts that Affin's major shareholders,
which include Hong Kong-based Bank of East Asia Ltd (BEA) with a 23.5
per cent stake, are supportive of the potential acquisition.

Bank Negara had in mid-August given Affin permission to start talks
with Bank Muamalat's owners - DRB-HICOM Bhd with a 70 per cent stake
and Khazanah Nasional Bhd with the remaining 30 per cent - on a
possible stake acquisition. The talks must be completed by year-end.

Sources familiar with the matter said talks between the three parties have yet to really begin.

"I presume they will start within this week or next. For now, it's at a conceptual stage," one source said.

Affin's management said there are good prospects for Islamic banking
and that the acquisition of Bank Muamalat will be consistent with its
strategy to grow its operations.

As early as June, Affin had
said it was keen on pursuing an earlier plan to buy a controlling
interest in Indonesia's PT Bank Ina Perdana but was awaiting the
Indonesian authorities' new rules on shareholding limits.

It had planned to convert Bank Ina into an Islamic bank.
Indonesia has since said single ownership in its banks will be restricted to 40 per cent.

"While Affin is still keen to revisit the Bank Ina acquisition now that
there is more clarity on the regulatory front, the Bank Muamalat
acquisition is the main priority at the moment," RHB's Chong said in
note to clients yesterday.

Bank Muamalat may also be attractive target for Affin, given both banks' ambitions to venture into Islamic banking in China.

Bank Muamalat in July formed a strategic collaboration with China's
Bank of Shi Zui Shan in the hopes that it will have a part in the
Chinese lender's plans to set up the country's first Islamic bank in
the Ningxia province, where some 30 million Muslims are concentrated,
in two years.

Affin has in the past tried to partner with BEA to open China's first Islamic bank.

Affin's stock, which has climbed by 12.7 per cent so far this year,
outdoing the key benchmark index FBM KLCI's eight per cent gain, last
closed at RM3.47.

Chong has a market perform call on it, with a fair value of RM3.50.

He expects Affin, which as a group is the second smallest of eight
local banking groups, to be able to achieve its loan growth target of
between 10 per cent and 12 per cent this year.

"This will be a
slowdown from last year's 14.4 per cent growth but consistent with the
management's message last year that 2012's loan growth will be scaled
down as the focus will be on preserving asset quality.

"For now, we are keeping our loan growth assumption (for this year) at a slightly more conservative nine per cent," he said.