This article first appeared in The Edge Financial Daily on June 20, 2017
KUALA LUMPUR: There is room for more consolidation among smaller banks, said veteran banker Tan Sri Azman Hashim. “Mergers are driven by market forces. I imagine there is still some room for consolidation,” he said.
This was the first public comment by Azman, the chairman of Malaysia’s sixth-largest bank, AMMB Holdings Bhd (AmBank Group), since the June 1 announcement by AmBank Group and RHB Bank Bhd, the country’s fourth-largest lender, that they had received approval from Bank Negara Malaysia to commence merger talks.
Azman pointed out that the merger, if successful, will solidify the merged entity’s position to be the fourth-largest banking group in Malaysia after Malayan Banking Bhd, CIMB Group Holdings Bhd and Public Bank Bhd.
“AmBank Group has always aspired to be one of the top banks in Malaysia. We were targeting to be No 4 in the rank by 2020, and this merger will expedite that,” the veteran banker told reporters after presenting scholarships to International Islamic University Malaysia students.
A recent report by S&P Global Market Intelligence showed that the merged banking entity will have a pro forma asset size of RM368.29 billion.
The last time Malaysia witnessed the completion of a merger between two banking entities was in 2014, when Affin Holdings acquired Hwang DBS (M) Bhd’s three assets — investment banking, asset management and futures — in a deal worth RM1.36 billion.
Azman agreed that valuation of banks, in general, has come to an exciting level, which could kick-start the consolidation of the Malaysian banking sector.
“When you are a small bank, you tend to say that being small means nimble. But there is also a case for size too. With this merger, AmBank Group will be the fourth-largest bank in the country,” added Azman, who holds 391.07 million shares in AmBank Group, equivalent to a direct stake of 12.97%.
As for the small banks, Azman said: “They have to ask themselves on where they want to be [in the future]. Remain in the same size?”
On whether the merger of the two lenders could result in thousands of job cuts to reduce redundancies, Azman said: “We don’t know yet as we are still negotiating with RHB Bank.”
Still, Azman said the proposed merger is a “win-win deal” and advantageous for both lenders.
“We don’t know how the shape of the merged entity will be, and it is too early to comment on anything at this stage,” Azman added.
The National Union of Bank Employees has estimated that a merger between AmBank Group and RHB Bank could result in either a scaling down or retrenchment of up to 4,000 employees following the possible close-down of 80 to 100 branches.
On whether Kumpulan Wang Persaraan (Diperbadankan), the government’s pensions manager, will emerge as a substantial shareholder in the merged banking entity with a 10% stake, Azman said: “Let’s wait for us to finalise the negotiations.”
As for the closing of the deal, Azman hopes it can take place “as soon as we can”. AmBank Group and RHB Bank have until Aug 31 to finalise the merger negotiations.
“The timeline should be okay for us,” he said, although Azman acknowledged that some have described it as tight.
Shares in AmBank Group have fallen by 6.28% since early this month and closed three sen or 0.59% lower at RM5.07 yesterday, with a market capitalisation of RM15.28 billion.
Based on yesterday’s closing price, Azman’s equity interest in AmBank Group is valued at RM1.98 billion.