PETALING JAYA: There is still room for Malaysian banks to consolidate and the idea of creating regional champions is still on the cards, says HwangDBS Vickers Research.

The brokerage believes that a merger involving RHB Capital Bhd (RHB Cap) was still conceivable although with limited upside.

“Although RHB Cap's merger and acquisition (M&A) talks appear to have taken a back seat, we do not discount further talks in the near term,” it said.

A file picture shows a RHB Bank branch in Petaling Jaya. HwangDBS Vickers Research believe s that a merger involvi ng RHB Capital Bhd is still conceivable.

It said Alliance Financial Group (AFG) had also been in the limelight recently, stirring interest with rumours that its major shareholders might sell out.

“AFG's new management team is taking shape and if it is able to step up its performance, it would be an attractive M&A target,” HwangDBS said.

Last week, it was reported that Singapore government's investment arm Temasek Holdings Pte Ltd and co-investor Langkah Bahagia Sdn Bhd were keen to divest their combined stake of close to 30% in AFG.

HwangDBS said it favoured AFG for the latter's scalable domestic franchise and non-interest income traction, which would boost sustainable earnings and ultimately, return on equity (ROE).

“Its attractive valuation, coupled with strong earnings visibility, going forward, makes AFG stand out as a gem in the next round of bank consolidation.

“For now, it is likely to remain a nimble bank gradually stepping up scale in certain segments,” it said.

The research house said non-interest income was one of AFG's crucial ROE building blocks, and the group had targeted to grow this source to 30% of total income from 20% in three to five years.

“As competition continues to dampen net interest margin, we believe that AFG is on the right track in growing non-interest income as the building block to enhance ROE,” it said.

Earlier, both Malayan Banking Bhd (Maybank) and CIMB Group had jointly announced that they would each bid for RHB Cap but subsequently aborted their plans for a potential merger.

“If the aim is to create a larger regional bank, Maybank and CIMB could be back in the picture if pricing is reasonable. Between the two, we still believe a CIMB-RHB Cap merger would be a better union,” HwangDBS said.

Meanwhile,ECM Libra said if the Central Bank of Indonesia's plan to introduce a cap on foreign ownership in local banks later this year was employed retroactively, it could pose a downside risk to CIMB and Maybank's earnings prospects.

“We view this development to be potentially negative for CIMB and Maybank, given their majority stakes in the respective Indonesia banks.

“At present, CIMB owns 96.9% of CIMB Niaga while Maybank owns 97.5% of Bank Internasional Indonesia. As such, the implementation of this regulation could force the banks to dispose of their stakes and dampen their earnings prospects,” its said.