Malaysian bank mega-merger would be credit positive for RHB, MBSB: Moody's

They can benefit from CIMB's support.

RHB Banking Group and Malaysia Building Society Berhad would be credit positive should the merger with CIMB Group push through.

According to a release from Moody's Investors Service, the merger would be credit positive for RHB and MBSB because their credit profiles would likely benefit from CIMB’s support and being part of a larger and financially stronger banking group.

RHB’s standalone credit quality would also benefit from CIMB’s larger distribution network and stronger funding profile.

The deal would also be credit positive for CIMB because it would enhance its scale of operations, although the extent of the benefits would depend on the execution of the merger and the transaction terms.

Last Thursday, CIMB Group, RHB Banking Group, and MBSB announced that they had entered into a 90-day exclusivity agreement to discuss a merger of their businesses, after receiving regulatory approval to do so.

Here’s more from Moody’s Investors Service:

The combination of the three financial institutions would create Malaysia’s largest financial group by assets, with total consolidated assets of MYR614 billion ($188 billion).

This would be larger than Malayan Banking Berhad, which has been the leader in terms of banking assets, loans and deposits.

From a standalone credit perspective, RHB Bank Berhad, RHB’s main operating bank, is weaker than CIMB, whose largest banking subsidiaries are CIMB Bank Berhad, which constituted 81% of the group’s assets at the end of March 2014, and PT Bank CIMB Niaga Tbk, which constituted 17%.

MBSB also looks weaker than CIMB, with an impaired loan ratio of 7.6% at the end of March 2014, versus CIMB’s 3.1% and RHB’s 2.5%.

Moreover, MBSB’s impaired loan coverage ratio was 67% and RHB’s was 68%, both lower than CIMB’s 84%.

And the percentage of cheaper current and savings account deposits in the deposit mix was 0.4% for MBSB and 24% for RHB, compared with 36% for CIMB.

If CIMB integrates RHB and MBSB into CIMB, we will consider the speed with which the banks formally merge, their plans to reduce combined costs, the revenue synergies they realize.

We note that CIMB had completed several bank integrations with much success, and this experience would mitigate the challenges that CIMB would face in the restructuring and harmonization of the acquired operations.