Is RHB-MBSB merger on?

Industry players say there are issues including compliance with banking laws
PETALING JAYA: With the merger plans of RHB Capital Bhd (RHBCap) and OSK Holdings Bhd coming closer to being realised, the question arises again as to whether the former will contemplate a takeover of Malaysia Building Society Bhd (MBSB), a non-bank lender to civil servants.
This
talk arose from speculation last October that the Employees Provident
Fund (EPF) was mulling over a move to merge both businesses following an
announcement by RHBCap last September that it had written to Bank Negara seeking permission to start talks with OSK.
The EPF holds a 44.84% stake in RHBCap and a 65.5% stake in MBSB.
However,
industry sources and analysts said this merger or privatisation would
likely not see the light of day simply because of the complexities
involved in the exercise including compliance with banking laws.
Alliance Research Sdn Bhd vice-president of equity research Cheah King Yoong told StarBiz that there were many issues to iron out even on the surface and the process might be more trouble than it was worth.
“The
acquisition does not make sense, the process will take too long and so
will getting the operations of both companies to work in a seamless
manner post takeover,” he said, adding that banks should only merge or
acquire other banks.
Furthermore, Cheah pointed out that since MBSB did not come under the Banking and Financial Institutions Act 1989 (Bafia), there were concerns that some of the loans would not make the cut post acquisition.
“MBSB
complies with Bafia at its own discretion and while the EPF has done a
lot to transform the company, there may be problems with Bank Negara
tightening loans criteria,” he said.
Industry observers also said
that the acquisition would increase the EPF's stake in RHBCap at a time
when the fund should be looking at decreasing its stake in line with
the government-linked company divestment policy put in place in the last
few years.
They said RHBCap would not proceed with any plans for a takeover as the acquistion would be a risky bet.
“The
Government may open up lending to civil servants to other banks,
bringing increased competition and thinning margins for MBSB,” a banker
said.
Currently, civil servants who take loans from MBSB, RCE Capital Bhd
or any of the 450-odd credit cooperatives and government-owned
financial institutions such as Bank Rakyat, Bank Simpanan Nasional and
Agrobank have their salaries deducted via a monopolistic interface the
National Cooperative Movement of Malaysia have with the
Accountant-General's office.
The banker said instead of paying a
premium for MBSB and facing intergration issues, RHB should just enter
into the business of providing loans to civil servants.
Cheah as
well as industry observers said the EPF would prefer to see the impact
of the positive changes in MBSB before selling its stake in the company.
According to these observers, MBSB chief executive officer Datuk Ahmad Zaini Othman,
who has overseen changes in the company in the last three years, wants a
portfolio balanced between corporate, mortgage and personal finance
loans for sustainability.
The changes that have taken place have
also borne fruit with MBSB's third-quarter ended Sept 30, 2011 net
profit soaring 135% to RM95.1mil year-on-year due to higher income from
Islamic banking operations, higher conventional business net interest
income and higher other operating income.