What is the rationale and status of Bank Negara’s proposed merger between RHB Capital with Maybank or CIMB Group to create Southeast Asia’s biggest bank?

As Finance Minister, Datuk Seri Najib Razak should present a ministerial statement in Parliament tomorrow on the rationale and status of Bank Negara’s proposed merger between RHB Capital with Maybank or CIMB Group to create Southeast Asia’s biggest bank.

The top regional banks in Asean include three Singapore banks DBS Group Holdings Ltd, Oversea-Chinese Banking Corp Ltd (OCBC) and United Overseas Bank Ltd (UOB) with market capitalisation of US$27.7bil, US$25.7bil and US$24.5bil respectively.

While in terms of asset size, the Singapore banks remain at the top, a Maybank-RHB Cap merger could overtake DBS Group in terms of combined market capitalisation with US$28.8bil.

The potential merger of CIMB-RHB, on the other hand, would see a combined market capitalisation of US$27.3bil, just marginally below DBS but would overtake both OCBC and UOB. In terms of asset size, DBS, OCBC and UOB stand at US$238bil, US$198.4bil and US$178.8bil respectively.

However, basic principles and questions about Bank Negara’s push for the country’s largest corporate merger need to asked and clarified.
In the present exercise, all parties concerned must be mindful of the most important principle: The people are the real owner of the three banks concerned and the Government must uphold the people’s interest in the merger proposal of RHB Capital

This is why the proposal that one of the two largest banks, Maybank and CIMB, merge with RHB capital has been under close watch of the market players.

Bank Negara Malaysia is behind the proposed bank merger, as part of its effort to consolidate the domestic financial sector. Both Bank Negara and the Finance Ministry have to address the many questions raised.

For instance the comment on TheSun on Friday (11/6) ‘Let’s all be wise and sensible’, which criticised the merger for not having any incremental value to the domestic market as the three parties involved are domestic players that serve a similar clientele.

No regional expansions are involved in the exercise but merely a consolidation of what that has already exist. On the one hand, Abu Dhabi Commercial Bank, which is selling its 25% share in RHB capital, will came out as the biggest winner by making a huge profit, and when a foreign bank like ADCB exits the country, the cash will be an outflow to another country and a loss of foreign exchange.

The competition between the two bidders only help to push the market share of RHB capital higher to a 14 year record high of RM10.40 per share on June 1, as compared to its book value of RM4.79 per share. Who actually benefit from the process? What good would that do to the people of Malaysia?

The parties involved have the obligation to place the people’s interests first as they are held mainly by government-back institutions. EPF is currently holding 44.5% of RHB share, 11.6% of CIMB and 10.9% of MayBank. Besides, Permodalan Nasional Berhad owns 52% of Maybank while Khazanah Nasional Berhad owns 28.6% of CIMB.

We should also question the wisdom of creating big corporation which will lead to a bigger monopoly of the financial sector. Historical lessons should be drawn from the recent financial crisis, in which Big does not equate to Better. Big corporation has found to have more difficulty sustaining in time of crisis, as can be seen in the case of the Lehman Brothers, Citigroup and the American Insurance Group to name a few. Whose money will be used to save these ‘too big to fail’ corporations at the end of the day? We all know that it’ll be none other than of the taxpayers’.

Besides, EPF is set to earn a good profit by releasing a portion of its share in RHB capital which has benefitted from the wide speculation. As the trustee of the hard-earned money of the working class, Malaysians want EPF to be held accountable with the management of the money. Would they invest elsewhere? Or would they translate it into a bigger interest return to the employees?

  1. #1 by monsterball on Sunday, 12 June 2011 - 2:54 pm

    They can merged as many times as they like..but Bank Negara that approve the mergers..should tell depositors that their money are safe and guaranteed by Nank Negara.
    We don’t want to see ordinary wage earners deposits.. lost in the woods…or savings cut into half..through a bail out process that may occur in the future.
    If we are living under a very corrupted government..anything can happen.

  2. #2 by Jeffrey on Sunday, 12 June 2011 - 3:42 pm

    Where got cogent rationale this kind of M&A? “ When does this argument “people are real owner of the three banks” and hence “Government must uphold the people’s interest in the merger proposal” ever hold? Its always the rationale of Politics, Money & Hubris! This thing about RHB being absorbed by either Maybank or CIMB is 2nd stage of banking consolidation. We may as well go back to heydays of 1980s (when Daim was FM, TDM the PM) and ask why they directed BNM to orchestrate govt sponsored mergers reducing 54 banks to 10!

    The People will prefer competition, more banks the better : the giants are sluggish, bureaucratic & impersonal except when you’re big customer! If a giant fails we have a problem the multiple of PKFZ! As a bank employee when you look for job at least there are more choices but with only giant anchor banks left what’s the choice? So don’t talk of peoples’ interest. That’s seldom, almost never the main reason.

  3. #3 by limkamput on Sunday, 12 June 2011 - 3:48 pm

    At one time the authority said there are too many banks in the country and so we forced merge them. In the process of course some smaller banks but relatively efficient in serving the niche market are eliminated all in the name of consolidation, rationalisation and efficiency gain. But not so long after that, BNM started to issue bank licences again, mainly to set up Islamic banks and if I am not mistaken to one foreign bank. What nonsense is this? The so-called consolidation was actually a red herring to give banking to different parties. Do we as consumers see the benefits of bank consolidation in this country? Try calling a bank and see whether you get to speak to a real person. Try going to the bank at the end of the bank and see how many minutes you have to wait. Where is the technology dividend when they continue charging you all kinds of fees including ATM cards? Then you look at the interest rates they pay you and the interest rates and other hidden charges they charge you.

    Why want to create the biggest bank in SE Asia? We may as well create a biggest chip for our latest computer, if you can catch the joke. I know the self proclaimed smartest ahpek blogger here will not.

  4. #4 by Jeffrey on Sunday, 12 June 2011 - 4:11 pm

    The public reason is always economies of scale. Banks need huge capital base to lend, more branches with current accounts with zero cost float of funds the better! That time RHB was a mess (long story). Than Peh Moh’s Cahaya Mata took control of RHB Bank’s holding, also another mess, and EPF came in with RM3.68 billion comes in, people screamed “bail out” and Abu Dhabi Commercial Bank (ADCB) (with 25% stake) in RHB. ADCB sure is not spared exposure & write downs in US subprime crisis & Dubai’s property crash, so if it could make a tidy profit from selling its 25% RHB stake why not? So is “peoples” institution, EPF : if it could sell down and distribute its risks to Maybank or CIMB, why not?

  5. #5 by Jeffrey on Sunday, 12 June 2011 - 4:18 pm

    Except of Hubris – rationale is who’s biggest and can beat Red Dot’s banks (except DBS)- neither Maybank or CIMB have great advantages in this acquisition. Besides costs of streamlining & harmonizing different banking credit cultures in every of such acquisition their Return on Equity and price-to-book valuations might also be negatively impacted by suchj an acquisition of questionable synergies. MBB & CIMB already have many branches nationwide, a lot of what they pay for in terms of RHB’s branch network and human resources tantamount to duplication and redundancies in terms of serving the same hinterland. But big brother BNM says “no”. If both Maybank and CIMB walk out RHB could end up broken up and sold – potentially to foreign investors, something the central bank is anxious to avoid! It’s a funny argument: How can any foreign bank acquire without central bank’s approval under the Banking & Financial Institution Act (BAFIA)??? Want to beat DBS for Hubris/Pride? Merge MBB & CIMB along with RHB! Whatever, the stock holder of RHB share/warrants will benefit. Its 14 year high now!

  6. #6 by boh-liao on Sunday, 12 June 2011 - 4:24 pm

    WHO gains most in dis proposed M&A?
    N saving whose skin?

  7. #7 by Jeffrey on Sunday, 12 June 2011 - 4:49 pm

    China man’s financial institution like Supreme Finance was one of the firsts to be swallowed in late 1989 when Koon Swan group messed it (then it had about RM700 million acquired deficit). Maybank Finance – then Maybank’s subsidiary- swallowed it for song (consideration RM200 + thousands…)in th name of 1st stage banking consolidation. Now in 2nd stage consolidation why don’t they offer to Tan Sri Teh Hong Piow? (Maybe he does not want also!) Of course not because they are eyeing his stake in the well run Public Bank, a crown jewel to be swallowed – if they can afford! Politics/NEP lah. Unlikely they will ever ask Hong leong’s Quek Leng Chan to consider.

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