No banking mergers this year: analysts

KUALA LUMPUR: Banking analysts do not see any potential mergers and acquisitions (M&A) within the banking sector this year due to both valuations and political reasons.

Nomura Research head of equity research Tushar Mohata said that the listed banks, namely Maybank Group, CIMB Group, Public Bank Bhd, AMMB Group Bhd, and RHB Bank Group will all be focusing on their respective return of equity (ROE).

“Valuations play a big part in any potential merger and as of right now it makes more sense for the banks to work on bringing their ROE up, respectively in order to to push up their valuations,” he told NST Business.

“This is especially as Malaysia have seen some less than satisfactory corporate earnings growth for the last several years. We really do expect that it will be business as usual (BAU) for the banks this year.”

Kenanga Investment Bank Bhd analyst Ahmad Ramzani Ramli believes it is too perilous for banks to embark on any attempts to a merger now, as any cost rationalisation undertaken for a potential merger exercise would be made apolitical.

“There are definitely going to be some collateral damage in the form of staff redundancies through things like voluntary separation schemes (VSS) or Mutual Separation Scheme (MSS) following any mergers, and I don’t think that it is prudent in the current political climate,” he said.

“For now, it makes more sense for banks to focus on improving their net interest margins (NIM) and ROE as well as strengthening their fintech offerings.”

Malaysian Industrial Development Finance Bhd (MIDF) and Al Rajhi Banking & Investment Corp (M) Bhd (Al Rajhi Malaysia) have on the final day of 2018, seeked Bank Negara Malaysia’s permission to commence discussions for a potential merger.

According to earlier reports, MIDF was exploring a merger with Saudi Arabia-owned Al Rajhi Malaysia in a bid to become a universal Islamic bank in early December 2018.

In a research note, Maybank IB Research said the operating environment for banking is expected to be stable into 2019, but not without its ongoing challenges such as sustaining loan growth and margins.

It also expects cumulative core net earnings growth to hold up at 6.4 per cent in 2019 for banks in its coverage, and ROEs to average 10.5 per cent.

Source: NST