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RAM Ratings monitoring MBSB’s proposed acquisition of MIDF

Published on 14 Apr 2022.

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RAM Ratings is closely monitoring developments in Malaysia Building Society Berhad’s (MBSB or the Group, rated A2/Stable/P1) plan to acquire Malaysian Industrial Development Finance Berhad (MIDF, unrated) from Permodalan Nasional Berhad (PNB). MBSB announced on 6 April 2022 that it had received the green light from Bank Negara Malaysia (BNM) to explore the possibility of purchasing PNB’s entire shareholding in MIDF. 

MBSB is the holding company of MBSB Bank Berhad (MBSB Bank, rated A2/Stable/P1), which constitutes a respective 5% and 4% of the domestic Islamic banking system’s financing and deposits. The successful acquisition of MIDF, a diversified financial services group involved in investment banking, development finance and asset management, will complement MBSB’s commercial banking operations. MBSB’s financing base is retail-centric, with personal financing extended to civil servant borrowers making up slightly more than half of its portfolio. 

Through this acquisition, MBSB will be able to leverage on MIDF’s involvement in capital market activities as well as the asset management and stockbroking businesses for revenue diversification. MIDF’s reach to small and medium enterprises, given its role as a development financial institution (DFI), will also benefit the Group’s long-term portfolio rebalancing strategy in favour of non-retail financing, although it remains to be seen whether MBSB will assume the DFI role.

MIDF, in a consortium with BigPay, Ikhlas Capital Master Fund and a foreign fintech conglomerate, is among the contenders for BNM’s digital bank licences. The consortium could be applying for an Islamic digital bank licence given that a large proportion of MIDF’s operations and assets is shariah-compliant. If successful, this will bode well for MBSB’s digital transformation and ongoing efforts to become a full-fledged Islamic bank.

On a pro forma basis, the combined assets of the two entities after the acquisition will amount to RM59.4 bil, 17% bigger than MBSB’s assets as at end-December 2021. The combined gross impaired financing ratio (GIF) could come up to 5.2% (MBSB’s GIF ratio as at end-December 2021: 4.6%), which is still manageable in our view. The Group’s common equity tier-1 capital and total capital ratios were a sturdy 21.5% and 26.0%, respectively, as at end-December 2021.

It was reported that the acquisition could be conducted via a share swap. We will continue monitoring the pertinent developments on this front and reassess any impact when more details are made known.

Note: All estimations are based on MBSB’s end-December 2021 figures and MIDF’s end-September 2021 figures. The latter’s end-December 2021 figures are unavailable at this juncture. 

 

Analytical contacts
Tan Shu Xuan
(603) 3385 2497
shuxuan@ram.com.my

Sophia Lee
(603) 3385 2619
sophia@ram.com.my 

 

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Published by RAM Rating Services Berhad
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