SHARES of Malaysia Building Society Bhd (MBSB) and DRB-Hicom Bhd, which controls 70% of Bank Muamalat Malaysia Bhd, took off last week after Bank Negara Malaysia struck a deal with its Indonesian counterpart to provide greater access and operational flexibility to banks from the two countries that operate in their respective jurisdictions.

MBSB’s share price came off a 52-week low of 69 sen at end-July to gain 22.5%, closing at 84.5 sen last Friday, while DRB-Hicom climbed 22.6% to settle at RM1.11.

“The thinking is that the Indonesian banks may come in and take a stake in MBSB and Bank Muamalat … hence the gain in their share prices,” a market watcher tells The Edge.

On Aug 1, Bank Negara signed a bilateral agreement with Otoritas Jasa Keuangan to pave the way for Malaysian and Indonesian banks to have a greater role in facilitating cross-border trade and investment between the two countries.

In its announcement last week, Bank Negara said it is looking forward to the establishment of Indonesian qualified Asean banks in Malaysia with the implementation of the bilateral agreement.

While the initiative is at the national government level, it is expected to excite the banking sector.

To recap, MBSB and Bank Muamalat had proposed a merger in September last year to create the country’s largest standalone Islamic bank. However, the talks fell through in February this year after MBSB and the shareholders of Bank Muamalat — DRB-Hicom and Khazanah Nasional Bhd — could not reach an agreement on the terms and conditions of the proposed merger.

MBSB’s attempt to merge with Bank Muamalat came just nine months after its shelved three-way merger with banking giants CIMB Group Holdings Bhd and RHB Bank Bhd in January last year.

“Possibly the fact that the two (MBSB and Bank Muamalat) were in merger and acquisition talks recently indicates that their owners will be more accommodating to overtures from their Indonesian counterparts,” the market watcher says.

While the talk of Indonesian interest is nothing but speculation, it has spread.

It is also worth noting that apart from Bank Muamalat, the other financial institutions are largely state-controlled, which could indicate that a deal would be stitched up with the government pushing it through.

The Employees Provident Fund (EPF) has a 65.4% stake in MBSB and 41.33% in RHB, while CIMB is 29.81% owned by Khazanah and 16.56% by the EPF.

Bank Muamalat, meanwhile, is 70% owned by DRB-Hicom, which is in turn 55.92% controlled by tycoon Tan Sri Syed Mokhtar Albukhary via his private vehicle Etika Strategi Sdn Bhd. The remaining 30% in Bank Muamalat is held by Khazanah.

The EPF has sought to reduce its shareholding in MBSB and RHB in the past, albeit unsuccessfully.

When DRB-Hicom took over Bank Muamalat in October 2008, the central bank had imposed a condition that its stake had to be pared down to 40% from the current 70%. However, this has not happened as the group has so far been unable to agree on the terms with potential buyers.

Apart from MBSB, DRB-Hicom had reportedly said in May 2011 that it would explore the possibility of merging Bank Muamalat with Bank Islam Malaysia Bhd, which is wholly owned by BIMB Holdings Bhd, a 53.63%-owned unit of Lembaga Tabung Haji. However, BIMB had turned down the suggestion.

Then, in August 2012, Bank Muamalat was courted by Affin Holdings Bhd, but DRB-Hicom said it still wanted to be involved in the financial services industry.

Other than Bank Muamalat, DRB-Hicom also controls automotive player Proton Holdings Bhd, among others, which has resulted in the conglomerate suffering losses.

For its financial year ended March 31, 2016 (FY2016), DRB-Hicom saw a net loss of RM991.9 million on revenue of RM12.17 billion. It is not easy to gauge Bank Muamalat’s financial performance as DRB-Hicom has lumped it under its services arm and merely stated that the arm registered a revenue of RM2.51 billion in FY2016.

A check with the Companies Commission of Malaysia reveals that Bank Muamalat did not file its financials with the commission. As at end-March this year, DRB-Hicom’s net asset per share stood at RM3.38.

MBSB, meanwhile, started the year on a good note, raking in a net profit of RM34.83 million on revenue of RM812.63 million for its first quarter ended March 31, 2016. The company’s net asset per share was at RM1.7292.

At its close last Friday at 85 sen, MBSB had a market capitalisation of RM4.9 billion.

While Malaysian banks such as CIMB, 

Malayan Banking Bhd and RHB have a presence in Indonesia, Indonesian banks have yet to venture here. 

The first Indonesian bank likely to make its way to Malaysia is PT Bank Mandiri (Persero) Tbk, which has sought to pay RM100 million to Bank Negara and meet the capital requirement of RM300 million by the end of this year. It plans to commence operations as soon as the permit is issued by the central bank.

Currently, Bank Mandiri operates in Malaysia under a licence of remittance office, and has five remittance offices in the country that cater for the many Indonesians working here. 

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