PwC: More banking mergers on horizon

Business Times Malaysia

THERE will be an increase in regional mergers and acquisitions (M&As) by Malaysian financial institutions, particularly banks, in the next 12 months as the local market gets more saturated, says PricewaterhouseCoopers (PwC).

However, given that there are not as many keen sellers as there are buyers out there, pricing could be a major impediment to deals being concluded, said Soo Hoo Khoon Yean, a financial services partner at PwC Malaysia.

PwC's annual survey of FIs (financial institutions) in the region this March/April showed that 54 per cent of the respondents expected to consider or undertake an M&A transaction in the next 12 months, up from 42 per cent last year.

However, only 21 per cent of those surveyed indicated that they may divest their business units this year compared with 25 per cent in the 2009 survey.

"This means, while there may be a lot of buyers, there may not be that many sellers at the moment. This points to a scarcity of deals in the coming year and increased pressure on price," Soo told reporters at a briefing yesterday.

He said this also seemed to be the case in other Asian markets like Indonesia.

As such, while there may be more deals announced, not all may actually be concluded, he noted.

Hong Leong Bank Bhd's plan to buy smaller rival EON Capital Bhd for RM5.1 billion, initiated early this year, is the biggest M&A deal announced in Malaysia so far this year and has yet to be completed due to a key shareholder's unhappiness over pricing. The shareholder has now taken the matter to the courts.

In Malaysia, he said it would be the larger local banking groups such as Malayan Banking Bhd (Maybank) and CIMB Group Bhd that would lead the way in regional M&As.

Their focus will likely be Southeast Asian markets such as Indochina (Vietnam, Cambodia, Laos) and Indonesia.

In Indonesia, a populous market that banks have recently been scrambling to get into, sellers have the upper hand and expect a large premium for deals to be concluded. "The premium gets bigger and bigger as each deal goes by," he remarked.

He said Malaysian banks have very little interest in doing M&As in China currently given that there are bigger banks to compete with there and few good targets left.

Soo noted that the exit of global banks in Asia which were hit hard by the recent financial crisis provided a good opportunity for local ones to fill the gap in the region.

Singapore's OCBC banking group, for example, snagged the opportunity to buy the private banking businesses of ING in the region last year when the latter retreated Asia.

"This will give way to the rise of super regional players," Soo said, adding that Maybank and CIMB were also super-regional players.

PwC interviewed 122 senior decision makers at FIs for its survey.