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Malaysian financial institutions mergers dogged by uncertainties

KUALA LUMPUR: Malaysia's 55 financial institutions have to submit their merger plans by Monday under a nation-wide consolidation programme and the central bank is expected to take at least a month to decide on the proposals.

Some analysts expect the exercise to proceed smoothly but others are less optimistic, saying financial institutions were struggling to finalise merger proposals with the January 31 deadline looming.

"There are still a lot of uncertainties in the plan, and not all the proposals may be approved," said a foreign brokerage analyst.

Analysts said Bank Negara will take four to six weeks to evaluate the merger proposals.

The central bank said that as of Thursday, it had received 10 merger applications and the deadline would not be extended.

Analysts have said up to 10 banks could emerge as anchor banks -- core institutions at the nucleus of the new groups.

But most expect the number to be trimmed, perhaps to eight.

"After looking at the proposals, there's now a lot of speculation as to the future of some of the banks," said the head of research at a local brokerage.

In July, the central bank ordered all 55 commercial banks, finance companies and merchant banks to consolidate into six core groups.

Bank Negara chose the six: Malayan Banking Bhd (Maybank), Multi-Purpose Bank Bhd, Bumiputra-Commerce Bank Bhd, Perwira-Affin Bank Bhd, Southern Bank Bhd and Public Bank Bhd.

But the government backtracked after banks complained about their partners and ethnic Chinese said the plan favoured Malays.

In October, the government gave the banks the freedom to choose their own partners, and extended the deadline for the mergers to be completed to the end of 2000 from the end of March.

Banks must submit the names of their proposed partners and win initial approval from their directors by the end of January.

The market has identified four others -- RHB Bank Bhd, Hong Leong Bank Bhd, EON Bank Bhd and Arab-Malaysian Bank Bhd -- as possible anchor banks.

Bank Negara says core banks must have shareholders' funds of at least two billion ringgit ($526 million).

Maybank, Bumiputra-Commerce, RHB Bank and Public Bank -- the four biggest banks in terms of assets -- meet that condition.

"I think there will be eight anchor banks," said an analyst with a Malaysian brokerage. "RHB and Hong Leong may lose the race to become anchor banks despite their size."

Some analysts have said RHB and Hong Leong might fail to win anchor status because of their owners' past ties to jailed former finance minister Anwar Ibrahim.

Markets consultancy firm IDEA said Multi-Purpose -- one of the smallest of the original six core banks but with political links to Finance Minister Daim Zainuddin -- seems set to retain its core status.

"The freedom-of-choice tag camouflages the political wrangle that may yet prove overpowering again," IDEA said.

The government has reiterated that if commercial banks, merchant banks and finance companies fail to clinch their own deals, it will intervene and select the core banks and their partners.

Many expect RHB to end up with Bumiputra-Commerce as they have big stakeholders in common. Under this scenario, RHB's main shareholder Abdul Rashid Hussain would control the stockbroking arm.-Reuters