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RAM Ratings monitors proposed RHB-AMMB merger
Published on 08 Jun 2017.
The proposed merger between RHB Bank Berhad and AMMB Holdings Berhad will lead to the combined entity having a pro forma asset size of RM368 billion, the fourth-largest among Malaysian banking groups. RAM Ratings estimates that the merged entity will have a pro forma 14% market share of domestic deposits, thereby rendering it a systemically-important entity. Once details are available, we will also consider other factors such as the merged entity’s capital strength and strategies to extract synergies before determining the rating impact.
Chart 1: Estimated market shares of domestic deposits (including investment accounts from customers) as at end-March 2017
Source: Banks’ disclosures, RAM’s calculations
Note: Figures for RHB and AMMB do not add up due to rounding
The merged entity will be the market leader in asset management, stockbroking (by trading value) and general insurance (excluding takaful), and also the second-biggest player in Islamic banking. AMMB’s sizeable general insurance operations will benefit the merged entity’s non-interest income. However, there will still be some overlaps in the businesses of these 2 banking groups, which may render revenue synergy difficult. Resource optimisation will thus be critical to value extraction from this exercise. As with any merger or acquisition, we will be vigilant on potential integration issues.
For the banking industry, the proposed merger will see the formation of a group of 4 dominant banks which are far larger than the rest. By assets, the merged entity will be almost 70% larger than the next biggest player. Nonetheless, we opine that mid-sized and small domestic banks will still have a role to play by focusing on their own strengths or niches (e.g. retail, SMEs, Islamic banking).
On 1 June 2017, RHB and AMMB jointly announced that they had, pursuant to Bank Negara Malaysia’s (BNM) approval, entered into an exclusivity agreement to negotiate and finalise the terms and conditions (e.g. pricing and structure) for a proposed merger. It is envisaged that this exercise will be an all-share merger. The exclusivity agreement is valid until 30 August 2017, and will be automatically extended upon a submission being made to BNM.
RHB Bank Berhad, RHB Islamic Bank Berhad, RHB Investment Bank Berhad, AmBank (M) Berhad, AmBank Islamic Berhad and AmInvestment Bank Berhad all carry AA2/Stable/P1 ratings from RAM. On the other hand, AMMB Holdings Berhad is rated 1 notch lower than its banking subsidiaries at AA3/Stable/P1, due to its structural subordination as a non-operating holding company.
Analytical contact
Lim Yu Cheng, CFA
(603) 7628 1188
yucheng@ram.com.my
Media contact
Padthma Subbiah
(603) 7628 1162
padthma@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
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Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2017 by RAM Rating Services Berhad
