IT WAS just a few years ago that Malaysian banks went through a series of mergers, leaving behind 10 entities. Soon after, predictions were made that a second round would take place and the number of entities would be cut even further. But instead of taking over each other, banks are buying up insurance companies. So what’s happening? “There’s a lot more growth in the insurance industry,” said Chan Ken Yew, Avenue Securities banking analyst, adding that the sector has a low penetration rate.
Only 38 per cent of the local population had insurance in 2004 compared to more mature markets like Japan and Singapore, where penetration rates are about 80 per cent, analysts said. As Malaysia has a very young population and a growing economy, prospects are there for more growth in the insurance business.
This is what Malayan Banking Bhd (Maybank) and Southern Bank Bhd (SBB) are banking on, it seems. Maybank yesterday got the green light to talk to its owner, fund manager Permodalan Nasional Bhd, about buying MNI Holdings Bhd, the country’s second-biggest general insurer and fifth-largest life insurer. This comes close on the heels of SBB’s audacious bid to take over Singapore’s Asia General Holdings Ltd for RM2.1 billion, which was announced just last week.
The selling of insurance through a bank’s branch is known as bancassurance, and Maybank spotted this opportunity when it tied up with Belgian-Dutch group Fortis four years ago. Insurance made up 4.8 per cent of Maybank’s group net profit in fiscal 2005, up from 4.5 per cent in 2004, its latest results show.
Bank are more keen to grow their non-interest income, which is derived from businesses like insurance, because competition is stiff in the traditional lending business. While members of the public still try to avoid buying an insurance policy from friends or relatives, it is much harder to refuse when you visit the nearest bank branch to apply for a housing loan or products that are bundled up with insurance.
Another factor is pricing. In 2003, AMMB Holdings Bhd, parent of AmBank, twice abandoned merger talks with two different suitors and failure to agree on a price was said to be the reason. SBB’s bid for Asia General values the Singapore insurer at 1.4 times its book value compared with about 1.8 times that a bank would command. This is because an insurance firm’s earnings are more volatile than banks’, analysts said. Does this mean we should not expect a second round of mergers so soon?
AmResearch chief Gan Kim Khoon certainly thinks so. He has maintained this view for quite some time, although some have speculated that it may happen this year. What’s more important, Gan said, is whether acquisitions of insurance companies would actually improve earnings