Proposed merger between RHB and AMMB to benefit AmBank more, says Moody's Credit Outlook

In a research note today, the rating agency said the proposed merger was credit positive for AmBank (M) Bhd (Baa1/Baa1 stable, baa3), AmBank Group''s main operating bank, because its distribution, funding resources and systemic importance would benefit from being part of a larger Malaysian banking group.

"On a standalone credit basis, AmBank's funding profile is weaker than that of RHB.

"AmBank has a materially smaller market share of domestic deposits and lower percentage of low-cost current and savings account deposits in its deposit mix than RHB.

"We expect the merged entity''s funding profile to be closer to that of RHB, and to gain from the larger scale of their combined and enhanced branch and customer network," it said.

Moody's said potential benefits to RHB are discounted by its likely operating challenges to rationalise the organisation structure and infrastructure of the newly-merged entity.

"RHB's integration of OSK Investment Bank Group (unrated) and other mergers involving Malaysian banks suggest significant challenges, with the realisation of revenue and cost synergies occurring many years after integration.

"In this case, revenue benefits will likely materialise only after the merged entity incurs substantial restructuring expenses," it added.

Even as Malaysia''s fourth-largest financial group by assets, with a total consolidated assets of RM368 billion, based on March 2017 financials, Moody''s said it did not expect the merged entity to be in a significantly stronger strategic position relative to the top three Malaysian banking groups namely Maybank, CIMB Bank and Public Bank.

However, it said the merger would still enhance the scale of RHB''s operations in Malaysia and give it access to customer and product segments with which AmBank Group has stronger ties, such as the

higher-yielding auto-finance segment, investment banking and general insurance.

"The combined total assets of both AmBank Group and RHB would increase RHB''s assets by 1.6 times and AmBank Group''s assets by 2.7 times, based on March 31, 2017 figures.

"The merged entity would solidify its position as having among the largest branch networks in Malaysia, close to that of Maybank, which remains the country''s largest banking group in terms of banking assets, loans and deposits," it added.