Thursday 28 Mar 2024
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KUALA LUMPUR (June 8): RAM Rating Services Bhd estimates that the merged entity of RHB Bank Bhd and AMMB Holdings Bhd will have a pro forma 14% market share of domestic deposits, thereby rendering it a systemically-important entity.

“Once details are available, we will also consider other factors such as the merged entity’s capital strength and strategies to extract synergies before determining the rating impact,” the ratings agency said in a statement today.

Malayan Banking Bhd and Public Bank Bhd currently lead domestic deposits in the country, with both banking groups each holding an individual market share of 17%, according to data from RAM.

RAM said that the proposed RHB-AMMB merged entity would have a pro forma asset size of RM368 billion, making it the fourth largest among Malaysian banking groups.

“For the banking industry, the proposed merger will see the formation of a group of four dominant banks which are far larger than the rest.

“By assets, the merged entity will be almost 70% larger than the next biggest player.

“Nonetheless, we opine that mid-sized and small domestic banks will still have a role to play by focusing on their own strengths or niches, [such as] retail,small and medium enterprises and Islamic banking,” said RAM.

It added that merged entity will be the market leader in asset management, stockbroking (by trading value) and general insurance (excluding takaful), and also the second-biggest player in Islamic banking.

“AMMB’s sizeable general insurance operations will benefit the merged entity’s non-interest income,” said RAM.

However, the ratings agency noted that there will some overlaps in the businesses of these two banking groups, which may render revenue synergy difficult.

“Resource optimisation will thus be critical to value extraction from this exercise.

“As with any merger or acquisition, we will be vigilant on potential integration issues,” said RAM.

On June 1, RHB and AMMB jointly announced that they had, pursuant to Bank Negara Malaysia’s (BNM) approval, entered into an exclusivity agreement to negotiate and finalise the terms and conditions for a proposed merger.

It is envisaged that this exercise will be an all-share merger. The exclusivity agreement is valid until Aug 30, 2017, and will be automatically extended upon a submission being made to BNM.

RHB Bank Bhd, RHB Islamic Bank Bhd, RHB Investment Bank Bhd, AmBank (M) Bhd, AmBank Islamic Bhd and AmInvestment Bank Bhd all carry AA2/Stable/P1 ratings from RAM.

AMMB Holdings Berhad is rated one notch lower than its banking subsidiaries at AA3/Stable/P1, due to its structural subordination as a non-operating holding company.

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