KUALA LUMPUR (June 19): Malaysia Building Society Bhd (MBSB) has submitted an application to Bank Negara Malaysia for approval of its proposed merger with Asian Finance Bank Bhd (AFB), putting non-bank lender MBSB within closer reach of obtaining full Islamic banking status.

In a stock exchange filing this evening, MBSB said it had submitted the application within the stipulated six-month time frame to "seek the approvals of Bank Negara and/or the Ministry of Finance, Malaysia".

It said further announcements would be made upon receipt of Bank Negara's decision.

The Edge Malaysia Weekly, in its June 12–18 issue, had cited sources as saying that the proposed plan involves MBSB buying AFB's assets and liabilities in a deal that values the latter at a price-to-book value (PBV) of between 1.2 times and 1.5 times.

It is understood that just two of AFB's four Middle East shareholders — Qatar Islamic Bank (66.67%) and Financial Assets Bahrain WLL (6.67%) — plan to exit, while the other two, RUSD Investment Bank Inc (16.67%) and Tadhamon International Islamic Bank (10%), want to stay on in the enlarged banking entity, a source said.

As such, it is expected to be a deal that involves both cash and shares, with shares going to the shareholders that want to stay.

Bank Negara had on Dec 21 last year given the green light for MBSB, which is 60%-owned by the Employees Provident Fund, and AFB to hold merger talks. It allowed them six months, up to June 21, to complete negotiations.

A merger of the two would create the country's second largest standalone Islamic bank with total assets of RM47.81 billion, after Bank Islam Malaysia Bhd.

MBSB shares closed one sen or 0.75% lower at RM1.32 today, with 5.13 million shares done, bringing it a market capitalisation of RM7.71 billion.