Merger Could Trigger Islamic Banking Boom

BMI View: Talks   are underway to form a merger between CIMB, RHB, and Malaysia Building Society, which could potentially allow Malaysia to build on its regional dominance in the Islamic finance industry. The Malaysian government is keen to promote overseas expansion of Sharia-compliant banking, and is looking to almost double its share of assets in the domestic banking system. The proposed merger would be a significant step towards these goals.  

The proposed merger between CIMB Group Holdings Bhd, RHB Capital Bhd, and Malaysia Building Society Bhd has the potential to provide a significant boost to Malaysia's Islamic banking around the region. We have long held the view that Sharia-compliant financial products will grow in importance in Malaysia, supporting banking sector assets at a time when traditional lending growth is set to wane amid high levels of household debt. A successful three-way merger could provide a major shot in the arm in this regard.

In line with the government's long-term goals of creating regionally dominant banks in the Islamic finance space, as well as consolidating the banking industry, the Malaysian authorities granted the banks approval to begin talks on the merger process. While talks are in their preliminary stages, the large stakes held by the Employees Provident Fund (EPF), Malaysia's largest pension fund, in each of the individual banks, could facilitate any deal. The EPF owns 14.5% of CIMB, 41.3% of RHB, and 65.0% of Malaysia Building Society.

On A Relentless Climb
Malaysia - Islamic Banking Assets, MYRbn

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Geography: Malaysia