RHB Bank and AMMB Holdings have called off their proposed merger after failing to reach an agreement on mutually acceptable terms and conditions – marking another unsuccessful episode in the consolidation of the Malaysian banking sector.
The two banking groups announced on August 22 that after much discussion and deliberation, both parties have mutually agreed to end their merger talks. With the cessation of the merger discussions, the exclusivity period pursuant to the agreement entered into between both parties on June 1 2017 will automatically lapse, immediately. The exclusivity agreement would have expired on August 30.
“With this decision, we will now continue to execute our initiative under our current strategy to create value for our shareholders,” says RHB group managing director Dato Khairussaleh Ramli in reaction to the collapse of the proposed merger.
“We are confident of moving forward despite the fact that the merger did not materialize,” asserts AmBank group CEO Dato Sulaiman Mohd Tahir. “We remain focused on our fiscal year 2018 business plan in line with the group’s top four strategy as we work towards running the bank better and changing the bank while delivering optimal returns for our shareholders.”
A successful merger would have allowed Australia and New Zealand Banking Group an opportunity to sell its 24% stake in AMMB.
The combined entity would have been a decent merger, according to a Maybank Investment Bank research note, and the impact on the financials would have been marginal. It says much of the post-merger success would have hinged on driving synergies, particularly on cost, but this was a merger that seemed to make sense towards creating a larger domestic bank that would have been Malaysia’s fourth-largest in terms of assets.
This is the second time that a consolidation in the Malaysian banking industry has failed in about three years, and also marks the second unsuccessful merger attempt involving RHB. In 2014, RHB attempted a three-way merger with CIMB Group and Malaysia Building Society Berhad, which would have created the country’s biggest bank in terms of assets, overtaking Maybank.
The discussion fell through after the parties failed to reach an agreement on a transaction which created value for all the stakeholders.
With the scrapping of the latest merger attempt, Malaysia remains to have eight anchor banking groups with RHB ranked the fourth-largest by total assets and AMMB, sixth. A DBS research report believes both banks will now shift their focus back on their strategic plans, which have been outlined for the year.
RHB faces a better 2017, according to DBS, but there are still risks. Up until the first quarter of 2017, it has yet to deliver on loan growth with the figure amounting to 3.2% against the fiscal year 2017 guidance of 5%, while net interest margin (NIM) compression risk arising from competition persists.
The bank continues to focus on cost efficiency with aspirations to keep the cost-to-income ratio at less than 50%. It appears that the non-performing loan (NPL) ratio has stabilized in the first quarter of 2017 with credit cost having peaked in the fourth quarter of 2016. What remains uncertain is the watch list sitting in its oil and gas portfolio.
DBS notes that AMMB has delivered well on its transformation plans for fiscal year 2017, with successful improvement in NIM and cost containment. Its bottom line continued to ride on recoveries, albeit the lowest in the past seven years. Its loans have also finally entered into growth mode, while its capital ratios have also improved.
Based on its previous strategic initiatives, AMMB is targeting stronger loan growth, NIM expansion from higher yielding SME loans, a higher proportion of CASA, and stronger non-interest income growth.
Photo: ambankgroup.com
