China, Singapore likely to perk up if Malaysia eases foreign banking ownership
'We think more interest will come from regional players rather than the US – especially countries such as China and Singapore which have a strategic stake in Malaysia,' MBSB Research said in a note released today.
It listed smaller banks such as AMMB Holdings Bhd, MBSB and Affin Holdings Bhd as potential targets.
' AMMB remains a long-discussed M&A target, due to its relatively smaller size and fundamental improvements seen over the last couple of years – coupled with talk that its key shareholder (founder Tan Sri Azman Hashim) is willing to part with some shares if valuation is acceptable. In the case of AFFIN, Bank of East Asia is said to have been looking to dispose of its holdings for quite some time,' it said.
In the last few years, Alliance Bank Malaysia Bhd, another one of the smaller banks in Malaysia, has been linked to a potential alliance or acquisition involving Singapore's largest banking group DBS Group Holdings Ltd.
Such a move would pave the way for the region's financial giant to enter the Malaysian market, following the footsteps of Singaporean banks like United Overseas Bank (M) Bhd (UOB) and OCBC Bank (M) Bhd who already operate.
The report noted that financial liberalisation does have multiple benefits, most notably driving FDI interest and industry-wide improvements in efficiency and profitability. Unfortunately, this may come with large-scale rationalisation of the work force.
In recent reports, Minister of Investment, Trade and Industry Tengku Zafrul Abdul Aziz has indicated that the US has asked Malaysia to lift foreign equity restrictions in strategic sectors as part of its tariff negotiations.
The current ruling stipulates that commercial banks must have a 30% cap on foreign ownership, while investment banks and Islamic banks have a 70% cap.
However, this rule has been bypassed multiple times – we think this is to avoid single exposure risk, as there are not sufficient domestic investors, added the MBSB Research report.
It said that Malaysia's commercial banks have some of the strictest restrictions imposed – hence a liberalisation measure could put it more in line with the rest of the region.
It added that Western players like Citibank and Standard Chartered have pulled operations from ASEAN recently, due to over competitiveness.
MBSB Research, formerly known as MIDF Research, is part of MBSB Investment Bank Bhd, formerly known as MIDF Amanah Investment Bank Bhd. — TMR
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