PETALING JAYA: Following a slew of mergers and acquisitions (M&As) in the banking sector the past two years, the creation of a mega Islamic bank in Malaysia could be in the offing next, given the vast untapped growth potential in Islamic finance.
Hwang DBS Vickers Research in its latest banking report issued yesterday said that M&A spin-offs in the Islamic banking space were plausible, as the Government wanted to develop Malaysia into an international Islamic finance hub.
It noted that Malaysia was the global leader in sukuk (Islamic bonds) issuance with a 65% market share, followed by the Middle East with 25%.
Islamic finance accounted for 20% of total loans outstanding in the banking system in Malaysia, it said, pointing out the rationale for a mega Islamic bank here.
Hwang DBS' comments came after it was reported in November last year that more than 20 banks had applied to Bank Negara for licences to become mega Islamic banks.
A report in a local daily quoting Deputy Finance Minister Datuk Donald Lim Siong Chai then said that of the number, 10 were local banks, six foreign banks registered in Malaysia and five international banks.
Hwang DBS went on to note that there were 16 licensed Islamic banks in Malaysia.
Among the activities in the local Islamic banking sphere now, BIMB Holdings Bhd which currently owns 51% in Bank Islam Malaysia Bhd is looking to acquire Dubai Financial Group's 30.5% stake.
Bank Negara has given the approval for the parties to commence negotiations, with a March 31 deadline.
Meanwhile, Affin Holdings Bhd was courting Bank Muamalat Malaysia Bhd, Hwang DBS noted, adding that Affin had also obtained approval from the central bank to commence talks with DRB-Hicom Bhd and Khazanah Nasional Bhd on acquiring equity stakes in Bank Muamalat.
Hwang DBS also stated that while local banks which had undertaken M&As in the past two years see value emerging from these this year, there would be more consolidation across the banking industry due to further liberalisation.
“We believe further liberalisation by Bank Negara is a crucial factor to trigger more M&As,” it said.
The research outfit went on to note that the foreign shareholding limit for commercial banks remained at 30% but as part of Bank Negara's liberalisation drive in 2009, it had relaxed the limit for Islamic banks, investment banks and insurance companies to 70%.
In addition, it would consider higher foreign equity limits (beyond 700%) for insurers or players who could facilitate the consolidation and rationalisation of the insurance industry, said Hwang DBS.