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SCMP Reporter

Rumours of a number of secret merger talks are flying around Kuala Lumpur as the consolidation of banks, finance companies and brokerages climbs the political agenda.

 While one analyst quietly whispers he has heard Rashid Hussain's RHB Bank may be taken over by Maybank, another says RHB may merge with Arab-Malaysian.

  The combinations being conjured up are numerous, some more plausible than others, as a blanket of secrecy is thrown over plans.

  Oriental Bank, Bank Simpanan Nasional (BSN), Bank of Commerce, MBf Finance and Sime Bank are among other names featured in the rumours.

 The central Bank Negara has been trying since 1995 to persuade banks and finance companies to combine forces to take on foreign competition, given imminent liberalisation of the international banking and financial services industry under World Trade Organisation rules.

 Its success rate to date has been dismal. Its single success was the merger of DCB Bank and Kwong Yik Bank this summer, through which RHB Bank was formed.

  Given a rising mountain of problems emerging from collapse of the ringgit and the stock market and a faltering real estate sector, the mergers issue has shifted from being important to imperative for the survival of the financial system.

  'The banking and finance system is the economy's last line of defence,' Deputy Prime Minister and Finance Minister Anwar Ibrahim said last week.

  An editorial in the Business Times of Malaysia last week read: 'Malaysia is determined to avoid having to beg for International Monetary Fund help, but in order to save ourselves the humiliation of being rescued, the banking and financial institutions in the country will have to wake up to reality.'  Malaysia has 37 licensed domestic banks, seen as far too many. Britain, with a population close to 60 million - three times that of Malaysia - has just 10 significant banks and building societies.

  Bank Negara's main stumbling block has been bank directors' reluctance to relinquish or dilute control.

 'There has been a lot of self-interest,' a Malaysian banks analyst said.

  While the finance sector remained protected and the stock and property markets soared, its banks prospered, but WTO commitments and the regional currency crisis have spoiled the party.

 Standard & Poor's this week named Malaysia among countries most vulnerable to a severe banking crisis. Rumours over possible bank collapses have made the Kuala Lumpur Composite Index fragile this past week.

 'It is now a buyers' market,' Indosuez WI Carr analyst Simon Maughan said.

 'Owners of smaller banks, especially private ones, are going to need recapitalising. They are going to be looking for a big brother or white knight to bail them out.'   The most likely merger would be between BSN and Oriental Bank. Bank Negara has given approval for them to begin formal talks.

 The move has surprised analysts given that Oriental's owner, Malaysian Industrial Development Finance, snubbed a takeover offer from Sime Bank last year.

  Sime was said to be looking for acquisitions to build its balance sheet, but could find no willing sellers last year. It may now have more success.

  A rumour links Bank of Commerce with MBf Finance. The market talk is that some MBf shareholders may be willing to sell following the death of chairman Loy Hean Heong last month.

 Canada's Bank Nova Scotia is said to be keen to sell its Malaysian subsidiary's licence and to be holding negotiations with a number of parties.

  Despite the doomsday talk, some analysts say it is wrong to suggest Malaysia's banks are in anywhere near as much trouble as those of Thailand, Indonesia or South Korea.

 Malaysian banks had higher minimum capital adequacy ratios of 8 per cent, average exposure to real estate of 26 per cent, and average non-performing loans of 5.6 per cent at last count, which is seen as controllable.

 Many recent rumours of banks that have been burnt came from Singapore. Even two of the country's strongest banks, Maybank and Public Bank, were mentioned, drawing central bank denials and suggestions by Prime Minister Dr Mahathir Mohamad of a Singaporean conspiracy.

 'People don't realise the Malaysian banking sector is different from the rest of the region,' an analyst said.

 'We learnt a lesson in the mid-80s. Things are much better now. Banks have built up better balance sheets and are healthier.'   Kuala Lumpur-based analysts generally quote a different list of banks to watch out for.

 Top-10 banks Bank Bumiputra and Arab-Malaysian, and Phileo Allied are the ones they are most concerned about, having seen them expand aggressively during the boom and to have high exposure to property.

  There have been rumours RHB may have lost heavily when the stock market turned, but there has been no substantiating evidence.

  With so much secrecy, it is difficult to tell which of the many rumours hold water.



Bank merger rumours grow in heat of consolidation push