New round of local banking consolidation?

PETALING JAYA: A potential liberalisation of the banking sector due to Asean Economic Community (AEC) or the Financial Sector Blueprint, may allow foreign banks to acquire a higher equity stake in Malaysian banks over time.
"This could be the catalyst for further banking sector consolidation. We believe merger and acquisition (M&A) and consolidation will be a key theme – not only for Malaysia banks but in Asean – for the next three to five years," said Macquarie Research in a report yesterday.
It noted that consolidation in the Malaysian banking sector may gain momentum because it makes economic sense and it could be in the interests of the government ahead of AEC.
"A country with a 30 million population and a gross domestic product (GDP) slightly above Singapore's does not need eight domestic commercial banks and would be better off with a few 'regional banking champions' that are innovative and more competitive outside their home market, we believe," it said.
It said that a key catalyst for consolidation could come from gradual liberalisation of the financial service sector in Asean.
"We have strong doubts that a full liberalisation of the Asean banking sector will happen any time soon but we expect to see some progress with Malaysia taking over the chairmanship of Asean in 2015 ahead of the scheduled roll-out of the AEC.
"If this theme plays out, it would make sense to consolidate the domestic banks before any meaningful liberalisation to reduce the 'risk' that foreign banks acquire a meaningful part of the domestic banking sector," it said.
AEC targets 2020 for financial service sector liberalisation.
"We believe that there would be little national interest if, for example, a foreign bank were to buy Alliance Financial Group which is funding Malaysian SMEs and retail customers or a foreign bank were to get access to the second largest branch network in Malaysia by acquiring Hong Leong Bank (in case HLB shareholders agree to sell)," it added.
"Why not consolidate the banking sector before, like in Singapore, to eliminate these 'risks'?," it asked.
Macquarie Research thinks that other Asean countries will consolidate their banking sectors as well.