Malaysian bank mergers unlikely to take place in 2019

Lenders still have to work on improving ROEs first.

Malaysia’s banking sector is unlikely to bear witness any mergers and acquisitions (M&As) within 2019 due to a host of valuation and political reasons impeding banks from striking deals, reports New Straits Times. 

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Before embarking on any concrete plan for consolidation, analysts believe that listed banks like Maybank Group, CIMB Group, Public Bank Bhd, AMMB Group Bhd, and RHB Bank Group still have to focus on pushing up their return of equity (ROE).

"Valuations play a big part in any potential merger and as of right now it makes more sense for the banks to work on bringing their ROE up, respectively in order to to push up their valuations,” Nomura Research head of equity research Tushar Mohata was quoted in NST.

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Similarly, banks attempting mergers could come under negative scrutiny as cutting staff numbers as part cost rationalisation plans taken may not be very wise in the current political climate. In the meantime, banks could focus on improving their margins and enhance their fintech offerings before exploring mergers.

Malaysian banks’ ROE is expected to inch up to 10.5% in 2019 from 10.4% the previous year, data from Maybank Kim Eng show.

Fitch Ratings is a little more optimistic as it expects the banking sector’s ROE to hit a little over 13% in 2019, ahead of most regional peers including India, Thailand, Philippines, Vietnam and Indonesia.