Malaysian banking groups RHB Bank Bhd. and AMMB Holdings Bhd. are taking another stab at pursuing a merger after officially starting deal discussions.
RHB and AMMB entered into an exclusivity agreement June 1 to hammer out a possible merger deal. The agreement for the proposed merger, which is expected to be an all-shares deal, runs until Aug. 30.
The two banks are no strangers to sitting at the M&A deal table with one another. In 2015, they had held discussions about merging but those fell through for undisclosed reasons.
Prior to that, RHB also explored a three-way merger with CIMB Group Holdings Bhd. and Malaysia Building Society Bhd. in 2015, which would have created the largest banking group in Malaysia. Those negotiations failed to materialize too, due to various factors, including a failure to secure shareholder support and conflicts over valuation, according to official comments at the time.
This time, however, the conditions for a deal between RHB and AMMB may be more favorable.
"While some investors might be uncertain if the deal will go through, we believe that overall, the chances of an RHB-AMMB merger happening are definitively higher [than on previous occasions]," Nomura analysts Tushar Mohata and Alpa Aggarwal wrote in a research note.
Unlike before, shareholders "are willing to negotiate and if the speculations are true, are looking to exit their investments," a bank analyst with MIDF Research told S&P Global Market Intelligence.
AMMB's two largest shareholders — Australia & New Zealand Banking Group Ltd. and AMMB Chairman Azman Hashim — are both in favor of a merger as it would allow them to off-load their 23.8% and 13% stakes, respectively, according to reports from Reuters and other media, citing sources. ANZ is pursuing a selldown of its legacy Asian partnerships as it focuses on its domestic market.
A merger would narrow the gap between RHB, which is the fourth-largest bank in Malaysia by assets, and its larger rivals, Malayan Banking Bhd., CIMB Group and Public Bank Bhd. AMMB is the sixth-largest bank by assets in Malaysia. Based on the first-quarter disclosures of RHB and AMMB, the merged entity would have aggregate pro forma assets of 368.29 billion Malaysian ringgit, cementing the merged entity's No. 4 ranking in the country.
Rival banks have gained momentum in terms of loan and deposit growth over the past few quarters while the performance of the two deal-making lenders was "sluggish and tepid with only pockets of improvements," the MIDF analyst said, adding: "A merger might revitalize these two banks and allow the merged entity better footing to compete against its rivals."
The two banks should also benefit from greater economies of scale and cost efficiency, Kevin Kwek, a senior analyst for ASEAN banks at Sanford C. Bernstein, told S&P Global Market Intelligence, adding that the potential deal could be positive for Malaysia's banking sector as a whole.
"The consolidation, if it happens, is positive especially considering the need to be more relevant ... as Southeast Asia integrates," he said, noting that larger banks will be better equipped to exploit growing regional investments and trade flows.
Both RHB and AMMB declined to discuss the renewed merger talks when contacted by S&P Global Market Intelligence.
As of June 5, US$1 was equivalent to 4.26 Malaysian ringgit.