Malaysia En-Route To Establishing World’s First Islamic Megabank

MALAYSIA: Malaysia’s industry heavyweights CIMB Group, RHB Capital and Malaysia Building Society (MBSB) have thrown their hats into the ring after receiving regulatory approval from the central bank yesterday to commence discussions on merging the businesses of both RHB and CIMB as well as creating an enlarged Islamic banking franchise with MBSB.

Following the consent, all three parties have entered into a 90-day exclusivity agreement to negotiate and finalize pricing, structure, and other relevant terms and conditions for a proposed merger of the three entities and the creation of a mega Islamic bank.

“The opportunity to be a part of a mega Islamic bank is exciting for us and we want to take this forward,” affirmed Ahmad Zaini Othman, the president and CEO of MBSB.

Malaysia has long mulled the prospects of setting up an Islamic megabank notably since June 2012. Speculations included: the government-owned oil firm Petronas and state pension fund Kumpulan Wang Persaraan to fund the establishment of a Malaysian Islamic megabank; and DRB-Hicom (who owns a 70% stake in Bank Muamalat Malaysia) to create a Shariah compliant megabank via a merger between Bank Muamalat and Affin Holdings.

Market players have indicated that the formation of a mega Islamic bank could be a catalyst to propel the industry forward. It would assist in establishing a benchmark for the industry by focusing on best regional and global practices and product development as well as complement a multilateral entity such as the IDB with regards to cross-border transactions.

According to local reports, the corporate exercise would result in a merged entity with assets of approximately RM597 billion (US$188.04 billion) and a market capitalization of more than RM90 billion (US$28.34 billion), assuming the deal is concluded at about 1.70 to 1.75 times book value. “There is a prima facie case for a value-creating merger between the three entities and we want to get into detailed discussions to validate it,” added Nazir Razak, the group CEO of CIMB Group.

Countries such as Indonesia, Qatar and Turkey have similarly explored the possibility of an Islamic megabank. Should the tripartite discussions fall in place, the world’s first Islamic megabank could be established in Malaysia, the leading global Islamic financial hub.