Moody's: MBSB-AFB merger would intensify competition for deposits

PETALING JAYA: A successful merger between Malaysia Building Society Bhd (MBSB) and Asian Finance Bhd (AFB) would intensify competition for deposits among smaller Islamic banks in Malaysia.

According to Moody's Investors Service, such a deal will likely lead to the larger of the two financial institutions, namely MBSB, emerging as the surviving entity.

"MBSB's credit profile would be enhanced because the acquisition of AFB and its Islamic banking licence would give MBSB access to cheaper funding and broaden its revenue stream," Moody's vice-president and senior analyst Simon Chen said in a statement.

"The entry of MBSB into the current and savings account deposit market would further intensify competition for low-cost deposits among institutions that are not part of big integrated banking groups. Nevertheless, while competition among Islamic banks is growing, their profitability remains robust," Chen said.

Based on Moody's report titled "Islamic Banking – Malaysia: Potential merger is credit positive for MBSB but will raise funding pressure on sector", broader sector consolidation is unlikely for now as the favourable operating environment will allow standalone Islamic institutions to fare well on their own.

It said the MBSB-AFB proposed merger is driven by unique circumstances that are not shared by other Islamic banks in Malaysia.

Moody's noted that the growth potential for Islamic banks in Malaysia is strong, given the availability of well-established infrastructure and growing consumer awareness of Syariah-compliant products.

In addition, the stable macroeconomic environment is also supportive of credit demand for all banks in the country.

MBSB's share price fell 4 sen to close at RM1.24 yesterday, for a market capitalisation of RM7.35 billion.