MBSB aims to create second largest Islamic bank with AFB

Malaysia Building Society Berhad (MBSB) is in another round of merger talks, this time, with Asian Finance Bank Bhd (AFB).

The AFB merger is the third attempt that MBSB is making in less than three years.

In February 2016, it attempted to merge with Bank Muamalat Malaysia Berhad (BMMB). Before that in 2015, it was part of the CIMB-RHB-MSBS tripartite merger discussions.

On 19 Jun, MBSB has applied to Bank Negara Malaysia (BNM) for approval of its proposed merger with AFB, with the purpose of making the non-bank lender owning a full-fledged Islamic banking license.

This merger would create the country’s second largest standalone Islamic bank after Bank Islam Malaysia Berhad (BIMB).

Total assets of the two entities would come to RM 46.5 billion, compared to Bank Islam’s assets of RM 55.7 billion.

In a stock exchange filing, MBSB submitted the application within the required 6-month window to seek approval from BNM and Ministry of Finance.

BNM has yet to comment publicly on the filing.

On June 1, Astro AWANI's Smart Money with Ibrahim Sani discussed the possible merger where MBSB might be buying off AFB’s balance sheet in a deal that could put a PB value of between 1.2 to 1.5 times.

It also discussed how the merger could create value in the Islamic banking space where margins are restricted due to tighter operational environment.

To put in contrast, the country’s largest Islamic bank, Bank Islam’s profit before tax is only RM 720 million and pales in comparison to dual-banking group profits like Maybank, CIMB, or Public Bank that runs into billions of ringgit.

With this merger taking place, it is assumed that it would be a combination of cash and shares purchase and sources say that this would be the preferred option for both banking groups as shareholders would like this method as opposed to an all cash buy.

Sources also told 0Astro AWANI that the total consideration of the deal is RM 650 million with more than half of that being the cash element.