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MALAYSIA
By Neva Arboleda
Consolidation in Malaysian Banking System Almost Complete
The quarter saw ten acquisitions, with arguably the most significant
being RHB Bank's acquisition of Bank Utama
from the Utama Banking Group. This exercise
is in line with Malaysia's Financial Sector Master Plan
(FSMP). The FSMP was in response to the 1997-1998 crisis that
left Malaysia's financial institutions shaken and destabilized.
One aspect of the plan is a merger program initiated by Malaysia's
Central Bank, Bank Negara Malaysia (BNM). BNM
aimed to consolidate the banking industry into ten banking groups
or “anchor banks,” therefore creating a core group
of strong, well-capitalized banking institutions. To ensure
sufficient capitalization, BNM imposed on Dec. 31, 2001, an
increase in the minimum capitalization requirement of MYR2 billion
($526 million) for the domestic banking groups.
The banks are optimistic that the activity, which will equip
them with improvements in operating efficiencies, increase client
base, and widen the range of financial products and services,
would enable them to tackle the challenges brought about by
the entrance of foreign players through Malaysia's participation
in the General Agreement on Trade and Services and the ASEAN
Framework Agreement on Services.
RHB Bank almost did not complete its merger with RHB Bank Bhd
and Bank Utama (M) Bhd last December 2002 when Tan Sri Abdul
Rashid Hussain, founder and executive chairman of RHB admitted
that there were still unfinished businesses particularly with
the acceptance level for the voluntary partial offer, which
is deemed to fall short of the 75-percent target. The offer
would see RHB Capital BHD shareholders swapping
their stock for RHB shares and irredeemable convertible unsecured
loan stocks. RHB extended the original closing date of the offer
from Dec. 12 to Dec. 18, which was seen by some analysts as
a sign of the low acceptance rate for the offer. An acceptance
level of 66 percent means that the Utama Banking Group would
have to make a general offer for the remaining RHB shares it
does not own. The group has yet to apply to the Securities Commission
for a waiver on a general offer. The completion of the voluntary
partial offer is also needed for RHB to still control RHB Capital
should the holders of RHB bonds due in 2007 exercise their warrants
and convert them into 340.4 million new RHB Capital shares.
On Dec. 24, 2002, RHB announced the completion of the sale
and purchase agreement between RHB, RHB Bank, Cahya
Mata Sarawak Bhd, and Utama Banking Group Bhd for the
acquisition of Bank Utama. The final purchase price of MYR1.8
billion ($474.8 million) was fully paid by RHB on behalf of
RHB Bank, to UBG via a cash payment of MYR937 million ($246.58
million), the issuance of MYR463.65 million ($122.01 million)
nominal value RHB ICULS-A; and issuance of MYR403.47 ($106.2
million) nominal value RHB ICULS-B. The level of acceptance
for RHB Capital Shares stood at 67.34 percent and 52.05 percent
for RHB Capital Warrants.
This merger represents the last part of Malaysia's banking
consolidation process. The focus now is on the strengthening
of the core businesses of these banks as they strive to face
the challenges of a liberalized financial sector. Market forces
are expected to further consolidate these banks into larger
banking institutions with the rest serving niche markets.
The ten remaining anchor banks in Malaysia are:
- Maybank – Malaysia's largest bank,
which took over Pacific Bank, Phileo
Allied Bank, and two finance companies
- Bumiputra-Commerce Bank
- RHB Bank
- Public Bank
- Arab-Malaysian Group
- Hong Leong Bank
- Perwira Affin Bank
- Southern Bank
- Eon Bank and Alliance Bank
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