Bank Muamalat Malaysia courts merger, Bank Rakyat and MIDF among possible candidates on its list

PETALING JAYA: Bank Muamalat Malaysia Bhd is said to be revisiting the idea of a merger, but this time possibly with a development financial institution (DFI), sources said.

Among the possible candidates are Bank Rakyat Malaysia Bhd and Malaysian Industrial Development Finance Bhd (MIDF), the sources added.

Bank Muamalat and Bank Islam Malaysia Bhd – ultimately owned by Lembaga Tabung Haji – are the only two standalone Islamic banks in the country licensed by Bank Negara.

DFIs, meanwhile, are specialised financial institutions established by the Government with the specific mandate to develop and promote key sectors that are considered of strategic importance.

DFIs include Bank Simpanan Nasional, Export-Import Bank of Malaysia Bhd, Small Medium Enterprise Development Bank Malaysia Bhd or SME Bank and Bank Pembangunan Malaysia Bhd as well as Bank Rakyat and MIDF.

To recap, the shareholders of Bank Muamalat had been in negotiations with Affin Holdings Bhd, but talks between the parties were called off at end-March.

It was reported that Affin had sought to acquire a portion of DRB-Hicom Bhd’s 70% stake in Bank Muamalat, but the deal fell through due to pricing issues. Talks between the parties had commenced in August last year. At that time, Affin had said that it expected to conclude the talks by the end of 2012.

DRB-Hicom, whose interests vary from ports to property development, had acquired the 70% block in Bank Muamalat in 2008 on the condition that it eventually reduced this to 40%.

It is learnt that Affin was looking to buy 30% of Bank Muamalat from DRB-Hicom.

Khazanah Nasional Bhd owns the remaining 30% of Bank Muamalat.

Affin’s withdrawal from the talks was seen as putting DRB-Hicom in a tight spot, given that it has to pare down its stake in accordance with Bank Negara regulations.

Industry players have said that the idea of a merger between Bank Muamalat and Bank Rakyat is an attractive proposition, given that both are Islamic concerns, with Bank Rakyat being the country’s largest Islamic cooperative bank.

Bank Rakyat, according to sources, is believed to have ambitions to grow its commercial banking segment and a clear path to this would be via a merger with an Islamic bank.

Industry observers have also noted that it has always been the aspiration of the central bank to create a mega Malaysian Islamic bank, which would cement the country’s status as the world’s largest sukuk market and hub for Islamic finance.

Bank Muamalat has had a tough time courting suitors over the past few years, having failed to strike a merger deal with Bank Islam Malaysia in 2011 and Bahrain-based Islamic lender Al Baraka Banking Group prior to that.

On the positive side, Bank Muamalat has worked to clean up its books and improve its returns over the last few years.

For the financial year (FY) ended March 31, 2013, Bank Muamalat posted a record pre-tax profit of RM236mil, with revenue rising close to 12% to nearly RM1bil. Its asset size stood at RM21.07bil.

The bank began operations in October 1999, with its combined assets and liabilities being brought over from the Islamic banking windows of the-then Bank Bumiputra Malaysia Bhd, Bank of Commerce (M) Bhd and BBMB Kewangan Bhd.

Bank Rakyat, meanwhile, has been enjoying good profitable growth over the years, breaching the RM1bil profitability mark in 2008. For FY2011, it made a profit before tax and zakat of RM2.02bil, with the bulk of its financing income coming from consumer banking.

For the first three months to March 31, 2013, its profit before tax and zakat was RM539.52mil.

(The Star Online / 20 Aug 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Bank Muamalat posts record pre-tax profit

KUALA LUMPUR: Bank Muamalat Malaysia Bhd (BMMB) posted a pre-tax profit of RM236mil for the financial year ended March 31, up 129% from a year ago and a historical high in its more than 13 years of operation.

It said in a statement the stellar performance was underpinned by strong financing growth and low credit cost arising from improved asset quality coupled with its concerted efforts in capturing fee-based income.

Total revenue increased 11.8% to hit almost RM1bil in the period under review. The increase was supported by a 10.4% growth in financing income and hibah, growing to RM904.6mil from RM819.3mil.

Similarly, fee and other income improved to RM94.7mil, a notable year-on-year growth of 27.5%, derived from the bank’s focus on expanding its Ar-Rahnu business and wealth management services, in addition to its increased corporate advisory activities.

CEO Datuk Mohd Redza Shah Abdul Wahid said it was a record year for the bank which had achieved a new milestone in its financial results.

“More importantly, we have closed the year with a healthier balance sheet. To keep this momentum going, we will continue to place great emphasis on strengthening our balance sheet to position the bank towards long-term sustainable growth,” he said in a statement yesterday.

The bank registered a net write-back of RM20.2mil for its financial assets, reversing the net provision of RM63mil made in the previous financial year.

Asset quality as measured by gross impairment ratio has improved to 2.5%, almost half of 4.7% recorded in the previous financial year.

These improvements are reflective of the bank’s continuous effort on prudent recovery, credit risk management initiatives taken and better quality financing base expansion.

Gross financing grew to RM10.6bil fuelled by a 30.2% growth in consumer financing over the preceding year. Consumer financing contributed 66% of the overall financing portfolio. With the growth in financing, the bank closed its financial year with total assets of RM21.1bil.

Total deposits grew to RM18.7bil with a growth of 17.3% in savings deposits from the expanded customer base in the period under review.

The bank has proposed a first and final dividend of 26% to its shareholders for the financial year ended March 31, 2013, subject to its shareholders’ approval.

(The Star Online / 13 June 2013)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia's Islamic banks ripe for consolidation-Bank Muamalat

KUALA LUMPUR (OCT 18, 2012) : Malaysia's Islamic banks are ready for consolidation as they seek ways to cope with rising operational costs, a top official with Bank Muamalat Malaysia Bhd said, signalling a greater acceptance in US$143.64 billion sector for M&As.

Islamic banks in the past have often been reluctant to merge, in part due to resistance from powerful shareholders who fear a loss of control while strains in global financial markets discourage risk-taking.

Islamic finance has grown in leaps and bounds to account for 23.7% of Malaysia's total banking assets although a major aspect is missing -- the development of megabanks that can issue ground-breaking products in the same way as conventional banks.

"I think consolidation is imminent and we will see a lot of Islamic banks getting together," Bank Muamalat CEO Redza Shah Abdul Wahid told Reuters.

"Costs have risen easily by 20% to 30% mainly due to the shortage of human capital and increased regulatory costs. Margins are falling and the only way to counteract this is to become bigger and more efficient," he added.

Bank Muamalat is now the target of a potential acquisition by financial group Affin Holdings Bhd, which may buy a stake from Khazanah Nasional Bhd and DRB-Hicom Bhd to create the country's fourth largest Islamic bank by assets.

DRB-Hicom holds 70% of Bank Muamalat, while the Khazanah holds the remainder. Affin, which received the greenlight from the Malaysia's central bank to begin negotiations, said the matter will conclude by end-2012.

The combined entity of Affin and Bank Muamalat would elevate both banks to a stronger market position. Affin would grow to the fourth largest Islamic bank by assets from ninth currently, the bank said last month.

"(With consolidation) we would be able to take in all these costs and do bigger deals, I think this is the way forward," Redza said.

DRB-Hicom, controlled by reclusive tycoon Syed Mokhtar Al-Bukhary, purchased a controlling stake in Bank Muamalat in 2008 with a mandate to reduce its holding to 40%.

The company last attempted to divest to Bank Islam Malaysia Bhd and Bahrain-based Al Baraka Islamic Bank.

Bank Muamalat is one of the country's remaining domestic standalone Islamic banks next to Bank Islam Malaysia Bhd, which has retained its leading position in the market.

(The Sun Daily / 19 Oct 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Bank Muamalat Q1 profit up 42%

KUALA LUMPUR: Bank Muamalat Malaysia Bhd’s net profit for the first quarter ended June 30 surged 41.6% to RM45.2mil compared with a year ago, underpinned by a 14.5% rise in revenue, which increased to RM255.6mil.

Financing income rose 18.1% to RM148.3 mil due to increased financing growth while fee and other income delivered a 55.8% jump with major increases registered in wealth management, trade and financing related activities, apart from some capital gains from sale of securities registered during the quarter.

In respect of capital adequacy, the bank’s key capital ratios remains higher than the industry level, with core capital ratio and risk weighted capital ratio standing at 13.6% and 18.9% respectively, well above the minimum regulatory requirement.

(The Star Online / 07 Sept 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Malaysia: Affin gets support from HK shareholder for stake acquisition in Bank Muamalat Malaysia

PETALING JAYA: Affin Holdings Bhd has garnered the support of its Hong Kong-based shareholder Bank of East Asia Ltd (BEA) for the possible acquisition of a stake in Bank Muamalat Malaysia Bhd, banking sources said.

The Hong Kong Stock Exchange-listed BEA, in which tycoon Tan Sri Quek Leng Chan owns 15.09% through Guoco Group Ltd, holds a 23.52% block in Affin.

While discussions were still preliminary, the source told StarBizWeekthat Affin was looking to strengthen its niche in Islamic banking via an interest in Bank Muamalat, one of the country's two standalone Islamic banks.

Affin, the country's second-smallest lender, said last month it had received the nod from Bank Negara to begin negotiations with DRB-Hicom Bhd and Khazanah Nasional Bhd, which own 70% and 30% of Bank Muamalat respectively, for a potential stake sale.

The talks are to be completed on or before Dec 31.

Although details on pricing are not known at this juncture, an analyst pointed out that using Hong Leong Bank Bhd's merger with EON Capital Bhd as a benchmark, a sale could go through at 1.5 times price-to-book value.

Hong Leong Bank completed its RM5.06bil takeover of EON Capital in May last year, making it the fourth largest banking group here.

Affin had total assets of RM54.65bil as at end-June and Bank Muamalat RM20.5bil at end-March, according to RAM Ratings.

The Tan Sri Syed Mokhtar Al-Bukhary-controlled DRB-Hicom tried to pare down its holdings in Bank Muamalat last year to Bank Islam Malaysia Bhd and in 2010 to Bahrain-based Al Baraka, but both attempts fell through.

The central bank had allowed DRB-Hicom's acquisition of Bank Muamalat in Oct 2008 on condition that it would reduce its equity in the bank to 40%.

CIMB Research said in a note dated Aug 17 that a merger between Affin and Bank Muamalat would increase Affin Islamic Bank's asset size by 60% to make it the fifth-largest Islamic bank in Malaysia from 10th place currently.

“This, to a certain extent, would give the group the scale to compete with its larger peers like Maybank Islamic, CIMB Islamic, Bank Islam andPublic Islamic Bank,” it said.

(The Star Online / 01 Sept 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com

Affin Holdings eyes stake in Bank Muamalat

ANALYSTS have mixed views on Affin Holdings Bhd's surprise plan to buy a stake in Bank Muamalat Malaysia Bhd, one of the country's two standalone Islamic banks.

While they note that the move could strengthen Affin's foothold in the Islamic banking sector, they also don't see much synergies being derived.

Details remain scant as negotiations with Bank Muamalat's two shareholders - DRB-HICOM Bhd and Khazanah Nasional Bhd - are at an early stage.

Two days ago, Bank Negara Malaysia (BNM) gave all parties involved its permission to start the acquisition talks, which must be completed by year-end.

Talks are expected to gain momentum after the Hari Raya festive period.

Assuming a full acquisition, Affin's total assets will widen by 36 per cent to RM77 billion while its gross loan base will increase by 30 per cent. 

However, this is not expected to change the group's market ranking. Affin is the second smallest of eight banking groups in the country in terms of assets and loans.

"We see the potential acquisition of Bank Muamalat as an expansion in size and an overlap in Islamic consumer financing. Affin's strength is in Islamic consumer financing, particularly in residential property loans and hire purchase. 

"With Bank Muamalat's relatively smaller loan size, we believe that revenue synergies will be limited. Bank Muamalat in the past had high gross impaired loan ratios," banking analyst Kelvin Ong of MIDF Research said in a report yesterday.

The ratio has improved to 4.7 per cent as of March this year from a high of 8.7 per cent in December 2008, but the acquisition may result in a rise in collective assessment charge, he noted.

Ong kept his "buy" call on Affin's stock, which rose by 7 sen, or 2 per cent, yesterday to RM3.55, suggesting a potential 15.5 per cent upside from his target price of RM4.10. 

Some one million shares changed hands, triple the previous day's volume.

Bank Muamalat's strength lies in consumer financing and while it is also involved in commercial, corporate and investment banking, growth in these areas remain unexciting.

Its revenue is domestically driven and the bulk of its loans comes from residential property - they comprise about a quarter of its smallish loan base of RM9.4 billion as at end-March - and hire purchase.

"Judging from the loan book, Bank Muamalat appears to be a complementary fit for Affin, given its focus on household lending. But there does not appear to be much benefit from the funding aspect, given that Bank Muamalat's CASA (current account, savings account) ratio is quite close to Affin's," RHB Research analyst David Chong noted.

Affin's plan to buy a stake in Bank Muamalat came as a surprise to some analysts, given that it had long indicated its intention to expand regionally rather than domestically.

As early as June, it had said it was still keen on pursuing an earlier plan to buy a controlling interest in Indonesia's PT Bank Ina Perdana, but was awaiting Indonesian authorities' long-awaited new rules on shareholding limits.

Indonesia has since said single ownership in its banks will be restricted to 40 per cent, which may have put paid to Affin's Indonesian ambitions.

Still, Bank Muamalat may be attractive for Affin, given both banks' ambitions to venture into Islamic banking in China.

Bank Muamalat had last month formed a strategic collaboration with China's Bank of Shi Zui Shan in the hopes that it will have a part in the Chinese lender's plans to set up the country's first Islamic bank in the Ningxia province - where some 30 million Muslims are concentrated - in two years.

For now, it has taken on the costs for training some of the Chinese lender's staff in Islamic banking.

"We believe that Bank Muamalat's upcoming venture into China is complementary to Affin's strategic business direction, given that Affin has recently announced that it is collaborating with Bank of East Asia Ltd (BEA), to set up Islamic banking operations in China in the latter part of this year," said Alliance Research banking analyst Cheah King Yoong, who kept a "strong buy" call on Affin with a target price of RM4.42.

BEA holds a 23.5 per cent stake in Affin.

Still, pricing will be the key as to whether a sale to Affin will go through.

Tan Sri Syed Mokhtar Al-Bukhary's DRB-HICOM, which owns 70 per cent of Bank Muamalat, had twice before attempted to pare its stake - to Bank Islam Malaysia Bhd last year and to Bahrain-based Islamic lender Al Baraka before that - but was unsuccessful. 

BNM in 2008 allowed DRB-HICOM to buy the 70 per cent stake in Bank Muamalat on condition that it would eventually sell it down to 40 per cent.

Some analysts reckon that if Affin's offer is attractive enough, DRB-HICOM may give up its entire stake as the conglomerate seeks to pare down its debt.

Affin may also end up owning the smaller lender in its entirety as Khazanah, which holds the remaining 30 per cent stake, is on a mission to divest all non-core investments.

MIDF Research is not expecting Bank Muamalat to come cheap.

"Although Bank Muamalat is not listed, we do not expect it to come cheap. We believe that the PBV ratio for the acquisition will be around 1.5 times," Ong said.

Alliance's Cheah noted that one stumbling block to a deal being done could be the low return-on-equity (ROE) of Bank Muamalat, which stood at just six per cent for the financial year ended March 2012, as compared to Affin's ROE of 9.4 per cent in its last financial year.

Meanwhile, Affin late yesterday reported a 27.7 per cent rise in net profit to RM306.9 million for the first half of the year on the back of higher lending and fee-based income.

Its chairman Tan Sri Mohd Zahidi Zainuddin said in a statement that he expects the group to maintain its earnings momentum in the second half.

Bloomberg data shows that of the eight analysts who track Affin, five have "buy" calls on the stock, two are "neutral" and one with "sell". 

Affin's shares have climbed 15.2 per cent so far this year, outdoing the benchmark index's 7.8 per cent gain.

(Business Times / 18 August 2012)

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Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com