Selangor eyes banks?

MENTRI Besar Selangor Inc (MBI Selangor), which administers assets and investments of the state government, is exploring a presence in banking.

Sources say the state investment arm is eyeing to acquire a substantial stake in a Malaysian bank and have the likes of MBSB Bank Bhd on its radar.

It is likely that talks will be held with the Employees Provident Fund (EPF), which holds a 56.5% stake in the bank.

EPF itself has had plans to pare down its stakes in MBSB, similar to what it had done with RHB Bank Bhd over the years.

“MBI Selangor may look to start with an initial stake in the range of 5% to 10% or thereabouts,” a source says.

The state, which is said to have some RM32bil in assets and cash, could also be looking at other banks if no deal is struck with MBSB, the source adds.

Two other banks seen as potential M&A candidates are AMMB Holdings Bhd (AmBank) and Alliance Bank Malaysia Bhd.

It is not known yet if MBI Selangor has secured the approval of Bank Negara to explore talks to buy into a bank.

At the time of writing, MBI Selangor has yet to reply to StarBiz 7 queries.

Under the Banking and Financial Institutions Act 1989, institutional shareholding limit for banks was set at 20%.

However, the succeeding Financial Services Act 2013 does not specify a maximum for institutional shareholders.

For individuals, there is a 10% shareholding limit but some were allowed to retain shareholdings exceeding this under a “grandfathering” provision.

Sources say it is likely that Selangor could be using the precedent of how of Sarawak was allowed to buy a large block of 31.25% in Affin Bank Bhd last year.

MBI Selangor is currently undergoing an organisational restructuring as part of the “Thrive28 Plan” initiative to achieve a revenue target of RM8bil by 2026.

Its fintech ventures are also growing in line with the goal to advance Selangor’s digital economy and promote a cashless society.​

An example is the Selangor e-wallet initiative, a joint venture between a subsidiary of MBI Selangor and Wavpay Fintech Holdings Sdn Bhd.

As for MBSB, it undertook a merger with Malaysian Industrial Development Finance Bhd in 2023, which helped strengthen its position as the country’s second-largest standalone Islamic bank by assets after Bank Islam Malaysia Bhd.

Even so, it remains a relatively small player and trading at a price-to-book value of 0.6 times – below most banking stocks.

For a 5% stake, a potential acquirer would need to fork out RM281.5mil using MBSB’s market cap of RM5.63bil at 69 sen per share.

In a Feb 28 report, AmResearch said that while MBSB’s fourth quarter of 2024 earnings were above expectations, it sees return on equity (ROE) continue being uninspiring at 5.2% in financial year 2025 (FY25) and 6% in FY26.

Challenges remain on its funding cost and gross impaired loans ratio, which are higher than peers.

In August last year, the bank revealed that its shareholders want more mergers and acquisitions and this could happen within the 2024-2026, with a target to achieve 8% ROE by end-2026.

The Selangor state government now has a 57.88% stake in Kumpulan Perangsang Selangor Bhd (KPS) through an MBI subsidiary Darul Ehsan Investment Group Bhd.

KPS’ core investments are in the manufacturing sector, as well as businesses in the trading and infrastructure.

M&A vibes in the air

There seems to be expectations of another round of banking M&As following the Sarawak government’s entry in Affin and the demise of former Finance Minister Tun Daim Zainuddin.

Indeed, some think banking M&As in Malaysia are overdue, since the last consolidation of the sector back in the late 1990s after the 1997 Asian financial crisis.

That was driven by the regulators to keep the banking system afloat as the crisis had exposed weaknesses in the Malaysian banking sector.

Today’s banking M&As are premised on a few themes. One, that certain powerful state agencies are looking to have stakes in banks and two, that the owners are ageing or dead.

The latter needs to be juxtaposed with banking regulations that prohibit individuals from owning large stakes in banks but which exempted or “grandfathered” these individuals

This is why from an M&A perspective, Alliance Bank and AmBank are said to be in play.

In the case of Alliance Bank, Langkah Bahagia Sdn Bhd, which owns an effective 14.8% stake in the bank, was previously linked to Daim. It’s probably no coincidence that talk of an M&A emerged after Daim’s passing in November last year.

Singapore’s biggest lender, DBS Group Holdings Ltd, is also reportedly eyeing a stake in Alliance Bank.

In AmBank’s case, key shareholder and founder Tan Sri Azman Hashim, 86, is ageing and hence recent talk that an an Affin-AmBank merger could be on the cards.

On Thursday, Bernama quoted Sarawak Premier Tan Sri Abang Johari Tun Openg as saying that this (merger talk) was mere speculation.

Azman’s stake in Ambank stands at 11.83%, derived from his direct holdings of 391.07 million shares via AmCorp Group Bhd. While slightly above the 10% limit, it is no longer viewed as a major concern.

His stake would not change the equation unless paired with EPF’s 14.3%.

In the case of Azman’s stake also, only about a small portion is unencumbered, with the remainder pledged to various banks.

“The veteran banker may prefer a cash deal over a share swap in any potential merger, as the latter could leave him with a minority stake in a merged entity.

“He might be better off holding on to his AmBank shares and still retain ‘influence’ as the second- largest shareholder,” says one retired banker.

This is why the next banking M&A saga is possibly a bigger one.

He thinks Sarawak may prefer for Affin to be merged with a different bank, one that can bring about a corporate culture shift and some dynamism. An efficiently run bank like Alliance Bank comes to mind.

This is akin to the 2006 merger of smaller outfit Southern Bank Bhd with Commerce International Merchant Bankers and Bumiputra-Commerce Bank to form today’s CIMB Group Holdings Bhd.

That merger is often cited as a case of how a smaller, more agile bank can inject innovation and a performance-driven culture into a larger, more traditional banking group.

StarBiz 7 had reported earlier that the Sarawak state government had initiated early talks with Alliance Bank before settling for a stake in Affin.

Could this option come back to the table?

After all, Sarawak and Singapore have a good economic relationship via various cooperation in areas of business, investment and tourism.

For now, strategies at AmBank and Alliance Bank indicate a focus on organic growth, with M&A remaining a possibility if value is identified.

“In the end, issues on control, pricing and deal structure remain central considerations in banking M&As,” says the retired banker.