The Banking Industry

The government’s proposal to raise the current30% foreign
shareholdings cap on local banks is unlikely to spur mergers and
acquisitionsin the sector in the immediate term.

This is because most of the banks already have aggregate
foreignshareholdings of over 30% and some also secured foreign
strategic partners thathave indicated their long term commitments in
the banks.

As such, the higher threshold would only prompt the foreign
strategicpartners to increase their stakes and not result in the entry
of a new strategicshareholder, which would fuel a M&A valuation re
rating.

A number of banks in Malaysia that already aggregate
foreignshareholdings above the current 30% cap are AMMB (52%), CIMB
(38%) and AFG(39%). Meanwhile banks with foreign strategic partners
include Affin Bank withBEA holding 20% stake and AFG where Singapore’s
Temasek has a14.3% stake.

If the relaxation comes to play, the next thing to watch out for is
theoverall ruling on MGO for banks. This raises the question if we
would changethe mandatory rule. Because you can pass the 33% threshold
and trigger a GO inthe process of acquiring or increasing stake.

Another rule to visit is the single ownership of 20% in local
banks,which is subject to BNM’s approval. There is exemptions for the
20%single shareholding threshold were granted to the likes of ANZ and
Asbaar fund.ANZ owns a strategic stake of 23.8% stake in AMMB while
Asbaar has 24.9% stakein RHB Capital.

The proposal to relax foreign ownership reaffirms DBS Bank
Ltd’sentry into AFG. The eventual of DBS into AFG provides a case for
potentiallyraising the foreign shareholding cap based on the principle
of reciprocity. Inreturn, Singapore governmentcould potentially grant
the likes of CIMB a Qualifying Full Bank operatinglicense in
Singaporethat will significantly relax the restrictions on CIMB’s
current numberof permitted branches and service locations from two to
25.

The government’s willingness to consider raising the cap onforeign
ownerships in the local banks is contrary to Indonesia’s proposal to
capthe single ownership limit in its banks at lower level.

It was recently reported that Indonesia would announce plans
tolimit the ownership in the country’s banks to less than 50% for
financialinstitutions in June 2012.

Source: Kenanga Research - 31 May 2012

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