Islamic banking M&A plausible, says AllianceDBS

In a filing with Bursa Malaysia, the financial services provider said the entitlement basis and issue price of the rights shares would be determined and announced later.

KUALA LUMPUR: A new wave of merger and acquisition (M&A) activities in the Islamic banking space is plausible, although the timing remains the key risk, says AllianceDBS Research.

Potential M&A candidates include the Malaysia Building Society Bhd (MBSB) and Bank Muamalat Malaysia Bhd, it said in a statement on Monday.

AllianceDBS said MBSB was appealing because of its lucrative personal financing business and sizeable Islamic banking assets while the unlisted Bank Muamalat's potential was from a long awaited pare down in ownership by its largest shareholder, DRB-Hicom Bhd.

Albeit, indirect, it added that Bursa was also a proxy to growth in Islamic banking as transactions on its commodity trading platform, Bursa Suq al-Sila (BSAS), were expected to increase in conjunction with Islamic financing growth.

The research house said domestic Islamic financing growth was expected to continue outpacing conventional loan growth, driven by regulatory push for internationalisation of Islamic finance.

"We expect domestic Islamic financing growth to continue outpacing conventional loans growth with a four-year compounded annual growth rate of 12% over financial year 2015 until 2020, as opposed to 2% for conventional loans," said AllianceDBS.

This, it said, was mainly underpinned by a growing push by banks to fulfil Bank Negara's target of 40% proportion of Islamic financing to total system loans.

AllianceDBS said there was hope for further growth underpinned by the increase in financial inclusion for the industry through product innovation.

"Product innovation will be the game-changer.

"Given the knowledge and expertise acquired through actively pioneering initiatives and delivering solutions in the Islamic banking industry, Malaysia is indisputably making inroads to becoming the global hub for Islamic finance," it said.

The research house named the main Islamic banking proxy, the BIMB Holdings Bhd, as the largest Bursa-listed syariah compliant financial institution with strong potential to lead product innovation.

"We like BIMB (the holding company of Bank Islam) for its deep-rooted expertise in the industry, which we believe forms a strong competitive advantage as it positions them as a likely leader in product innovation.

"Maybank Islamic complements the Islamic banking scene for its size and established regional presence which will work to its advantage in competing on the global front," it added. - Bernama